Measuring Poverty

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May 31, 2010
Measuring Poverty

I'm surprised to see Greg Mankiw endorsing Robert Samuelson's column about measuring poverty (or at least pointing to it without comment as though he endorses it). Apparently Samuelson is worried that the new measurements might cause us to give more help to the poor. I guess in his view, the poor are getting all the help they need, but that's not how I see it.

Dean Baker responds to Samuelson:

Robert Samuelson's Cellphone Standard of Living, by Dean Baker: Robert Samuelson invokes the cellphone standard of living in his column today which complains about the Obama administration's adoption of a new measure of poverty as an alternative to the official standard. The administration will use both.

Samuelson argues that we have failed to pick up all the gains for the poor over the last four decades noting, among other things, that 48 percent of poor households own cellphones. Needless to say, the reduction in price of many products in recent decades has made them accessible in ways that would not have been possible in the recent past, but it is not clear how much this tells us about living standards.

In China, there are more than 600 million cell phones in use. This means that roughly the same percentage of people in China have cell phones as do poor people in the United States. China's per capita income on a purchasing power parity basis is less than one-sixth as high as per capita income in the United States. By Samuelson's cell phone standard of living the average person in China has the same standard of living as do poor people in the United States.

There are a couple of other points worth noting about Samuleson's diatribe. The Obama administration did not just invent the measure that Samuelson denounces as a "propaganda device." This is a measure developed by the National Academies of Science based on research by many of the country's leading poverty experts. It is fine to criticize the measure, but Samuelson should have at least noted its origins.

Finally, Samuelson reports on research from the American Enterprise Institute (AEI) that shows that spending on the poor from all sources may be as much as double their reported income. It is worth noting that much of this spending involves Medicaid expenditures...

I think it's pretty slimy to act like the new measure is an invention of the Obama administration that will be used to implement a political agenda. Complaints about the existing measure are long-standing, and there was considerable pressure on George Bush to change the measure. But since it might have shown an increase in poverty -- something his administration wanted to avoid -- he refused. If you want an example of political manipulation, that was it. The Bush administration refused to use more accurate statistics because it might reflect poorly (pun intended) on the administration. And he wasn't the only president to make this choice. The problems with the measure have been evident for the last four decades, and this is the first president willing to consider making a new measure official:

Where's the Poverty Line?: ...So why hasn't such an important statistic been updated...? The answer is politics. ... the poverty indicator, unlike many other economic statistics, is not under the jurisdiction of an authoritative statistical agency like the Bureau of Economic Analysis or the Bureau of Labor Statistics. Instead, it resides in perhaps the most political place of all: the office of the president. And during the last four decades, no president of either party has wanted to draw attention to [the] statistic ..., especially if updating it might cause the number of people regarded as living in poverty to increase. ...

Samuelson doesn't tell us that other presidents have refused to update the measure (and why), instead he makes it seem like this is an invention of the current administration. He says:

The new indicator is a "propaganda device" to promote income redistribution by showing that poverty is stubborn or increasing, says the Heritage Foundation's Robert Rector. He has a point.

The propaganda device is Samuelson's column, not the adoption of the new poverty measure. The current administration's willingness to consider updating the measure should bring Samuelson's respect if he had something other than a political agenda as the goal of the column

Here's another reaction:

You can’t be poor if you own a cellphone, by Jamelle Bouie: Robert Samuelson invokes a familiar canard in his column complaining about the Obama administration’s choice to use a new definition of poverty developed by the National Academies of Science:

The official poverty measure obscures this by counting only pre-tax cash income and ignoring other sources of support. ... Although many poor live hand-to-mouth, they’ve participated in rising living standards. In 2005, 91 percent had microwaves, 79 percent air conditioning and 48 percent cellphones. [Emphasis mine]

With microwaves, air conditioning and cell phones, it’s clear that poor people aren’t nearly as poor as we think they are! I mean, it’s not as if poverty is concentrated in the nation’s two warmest regions — the South and the West — where air conditioning is a necessity, and it’s not as if cell phones are a cheaper alternative to landlines, and critical to navigating the world of low-wage service jobs. I guess you could call microwaves luxuries, but even that’s ignoring the fact that the are for more likely to consume frozen and prepared foods that need microwaving.

So in Samuelson’s column, what you have is another attempt to minimize the actual poverty of poor people by pointing to items that are actually necessary to surviving in low-wage service economy. Indeed, by the end of the piece, Samuelson is a step away from lamenting that the new poverty measures will force the government to do more to combat poverty, as if what we do now is adequate. Of course, given Samuelson’s routine Hooverism — “deficits are more important than everything else!” — and his disdain for Social Security and Medicare, I guess I shouldn’t be surprised.

Let's move on to more accurate assessments of the new measure. Here's a report from Nancy Folbre, someone who doesn't come to the problem with Samuelson's biases, on the new measure:

A Rich New Poverty Measure, by Nancy Folbre: The Census Bureau recently announced plans to develop a new Supplemental Poverty Measure (S.P.M.), also referred to as a Supplemental Income Poverty Measure (SIPM). ...

Most of us dislike the official poverty lines used to determine who, exactly, qualifies as poor. Most of us can recite at least five reasons why these measures (based on a mid-1960s assessment of the costs of a minimal food budget) are narrow, out of date and downright misleading.

Most of us can also expound on how current methods of measuring poverty make it difficult, if not impossible, to accurately assess the impact of anti-poverty policies.

Food assistance administered through the Supplemental Nutritional Assistance Program (SNAP) has been a mainstay of our safety net during the current recession. But since food stamps are not income, they don’t show up in our income-based poverty measures.

The Earned Income Tax Credit (E.I.T.C.) is our largest cash-assistance program other than unemployment insurance in this recession. Our poverty measures are based on pre-tax, rather than after-tax, income. So, by definition, the E.I.T.C. does not reduce poverty.

It’s hard to find anyone more passionate about these inconsistencies than Professor Timothy Smeeding, current director of the Institute for Research on Poverty at the University of Wisconsin. ... He is thrilled that the new measure will take near-cash benefits and taxes into account to supplement conventional poverty measures.

He emphasizes its other innovations: poverty thresholds will be linked to accurate measures of expenditures on food, shelter, clothing and utilities, rather than just food. It will subtract some work-related costs, such as the child-care expenditures of employed parents, to better capture disposable income.

Professor Smeeding concedes that the measure has some kinks in it that will need to be worked out, including better estimates of out-of-pocket health care expenses and differences in regional costs of living.

I’m worried about other factors that affect family living standards, like the costs and benefits of unpaid care of dependents.

Curious about other criticisms, I reached out to Shawn Fremstad of the Center for Economic and Policy Research, also on his way to the discussion at the Brookings Institution.

In his view, the SIPM sets its thresholds too low, excluding many struggling families from the category of poverty. Mr. Fremstad also warns that adopting the new measure by itself could sideline efforts to develop more complete measures of basic economic security that would include consideration of family wealth as well as income.

I’m not yet sure where I stand. As Professor Smeeding reminded me, the perfect can be the enemy of the good. This new measure, whatever its limitations, represents a rich addition to our statistical infrastructure. ...

Samuelson objects to the use of relative poverty measures. He wants an absolute standard. So long as people aren't starving in the streets and have clothes to wear, no matter how ragged, they are not poor.

It's true people don't literally starve on the streets anymore, but is that our goal as a society? I think a relative standard that says that people who, because of their incomes, cannot participate fully in society are poor. A child getting enough to eat, and with clothes to wear, who cannot afford the toys needed to be part of the group of kids in the neighborhood is socially isolated and socially disadvantaged (we don't want to play at your house because you don't have a TV, you can't come with us because you don't have a bike, you didn't get my text message about baseball practice being moved?, etc., etc., etc.). Giving people, children in particular, what they need to participate in the society around them is an important element of how successful they will be in the future. It helps to determine their ability to give back to society as fully participating adults.

Why do people like Samuelson object to helping the poor (in a relative poverty sense)? I think it's partly because they fail to recognize the social roots of poverty. They assume it is the poor's own fault that they ended up that way. They made bad choices, and that fact that they are barely getting by, the fact that their kids that will remain socially isolated, is the price that must be paid for those bad choices. If we bail them out like a big bank, how will they ever learn life's lessons?

The answer is that they know life's lessons all too well, certainly better than the Samuelsons of the world. Most of the poor are working poor, many working more than one job just to get by. To refuse to help the hardest working among us, those who toil at or near poverty to give the rest of us the products and services we desire at very low prices, is unconscionable.

Posted by Mark Thoma on Monday, May 31, 2010 at 11:07 AM in Economics, Social Insurance | Digg del.icio.us Facebook Like Tweet | Reblog Permalink Comments (10)