The Common Good
April 2009

Counting the Cost

by Rebecca M. Blank | April 2009

We can't tell if we're making progress without a new poverty measure.

Candidate Obama voiced his support of efforts to cut poverty in half over the next 10 years. For President Obama to move forward on this commitment, we need a measure of poverty that will show us when we’re making progress. And in the current deepening recession, it’s all the more important to know how much poverty is increasing, and among which families.

Unfortunately, the official U.S. poverty measure is outdated and inaccurate. In fact, New York City found the federal numbers so useless that they’ve recently produced their own poverty measure, and other cities are considering similar efforts.

Our current way of measuring poverty sets the poverty line equal to three times a subsistence food budget. In 1955 (the best data available when the measure was set in 1964) the average family spent one-third of its income on food; “three times food” became the official formula—and remains unchanged to this day, except for annual updating for inflation. If your family’s pre-tax cash income is below the threshold, you’re counted as poor.

There are many problems with this. Compared to a half-century ago, the price of food today is much less important than housing and utility prices. Medical expenses have grown; child-care expenses have increased as single parents work more.

Here’s the most important problem, however. In the last four decades, the U.S. has greatly expanded help for lower-income families, including food stamps, housing programs, medical care assistance, and changes in tax laws to benefit the poor. But our current poverty statistics are based only on families’ cash income, and none of these programs affect cash income—so none of them affect the official poverty rate.

The result: It’s depressingly easy to claim that our public spending on the poor has little effect. Indeed, most of our public policies couldn’t have changed our official poverty numbers, because we literally don’t count their benefits. Our poverty statistics have failed policymakers, and all of us.

MORE THAN A decade ago, the National Academy of Sciences recommended a far more effective way to calculate a poverty threshold based on the cost of a bundle of necessities, including shelter, food, clothing, and utilities. This threshold would vary across areas, based on differences in housing costs—for example, reflecting the difference between New York City and rural Wyoming.

The academy also recommended defining family resources by a family’s after-tax income, plus the value of government benefits that help pay for necessities such as food stamps or housing assistance. Work expenses, including child care, and out-of-pocket medical expenses would be subtracted from income.

Why weren’t these changes made years ago? That’s a story of politics getting in the way of good statistics. Back in the 1960s, the poverty measure was put under the control of the Executive Office of the President. This is in contrast to all of our other federal statistics, which are defined and updated by statistical agencies with a long history of nonpolitical decision-making.

Unfortunately, no president, Democratic or Republican, has wanted to touch the political hot potato of redefining poverty. (When New York City adopted a reality-based poverty measure, the percentage of city residents it counted as poor went up from 19 to 23 percent, although the number in extreme poverty went down.)

That’s why the nonpartisan statisticians of the Census Bureau should be assigned the job of calculating a new, modern poverty measure—one that is as accurate as the data will allow.

If we want to measure the impact of this recession on poverty or evaluate the effect of new policies to help the poor, we need a poverty measure that shows us who the poor are and how changes in policy impact them. It’s long past time to update our poverty statistics.

Rebecca M. Blank is the Robert V. Kerr Senior Fellow in Economics at the Brookings Institution in Washington, D.C. She’s the author of It Takes a Nation: A New Agenda for Fighting Poverty and co-author of Is the Market Moral?

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