Measuring Poverty: A New Approach.

• Author: Barton, Benjamin Hoorn

Each year since the 1960s the United States Census Bureau has announced an "official" poverty line, determined the number of people whose incomes are below the line, and calculated the poverty rate -- the percentage of the entire population that falls below the line.(1) The poverty line was set in 1963 as an estimate of the minimum income necessary for subsistence, and since 1969 it has been adjusted annually for inflation. Except for adjustments for inflation, the poverty line has remained unchanged for more than twenty-five years, but criticism has been growing. Some argue that the original method of calculating the line is faulty, while others criticize the method of adjusting the line for inflation.(2)

These criticisms have drawn increased academic and political attention to the problem of whether to adjust the poverty line, and if so, how.(3) In 1992 the Joint Economic Committee of Congress funded a nonpartisan, scientific study of the poverty line. The National Research Council convened the Panel on Poverty and Family Assistance which studied the current poverty line and in 1995 made recommendations for improvements (pp. xv-xvi). These recommendations are fully described and defended in Measuring Poverty.(4)

To understand Measuring Poverty it is necessary to understand the political and academic climate from which it arose. For years academics had been criticizing the official poverty line and suggesting ways to improve or replace it. Prior to 1992, the issue received very little political attention, and the academics were left to create their own poverty measures, or to make their case in journal articles and books. The election of President Clinton, however, offered a new hope for revision of the poverty line. Not only was President Clinton a Democrat, he was also a policy wonk who enjoyed arcane debates over statistical issues. When Congress appropriated the funds for the Panel it looked as if there might be real change, or at least hearings on the Panel's proposals. This spirit of hope explains why Measuring Poverty is so far-reaching and almost radical in its suggested reforms. A Panel of highly touted academics(5) finally had their shot, and they left no stone unturned.

The project's results are mixed. Some of the Panel's suggestions would vastly improve the accuracy of the present poverty measure and are almost statistically indisputable. Others would result in a fundamental rethinking of what it means to be "poor." Unfortunately for the Panel the second, more daring category of changes seemingly has doomed the first category of truly helpful changes. The Panel's suggestions might have stood a chance in 1992, but the Congressional elections of 1994 doomed both the Panel's radical and reasonable proposals alike.

This is not to say that Measuring Poverty is not a worthwhile project. The Panel was surely correct that there are serious flaws in the current poverty line, and Measuring Poverty is easily the most comprehensive and authoritative work to tackle these issues. This Book Notice argues that the Panel was correct to recommend changes in the current poverty line, but that the Panel's suggestions overreach in several crucial areas. Part I describes the current poverty line and argues that the Panel is correct in concluding that it should be changed. Part II details the Panel's proposals and argues that because the Panel's line is not predicated on material need and because the Panel failed to set a level for their proposed line, the Panel's worthy attempt to remedy the present poverty line's problems fails.

1. THE PRESENT POVERTY LINE

   The first decision the Panel faced was whether the present poverty line needed alteration. This section describes the origins of the present line and various criticisms of it. Section I.A discusses the origins of the official poverty line and the methods for adjusting the line over time. Section I.B assesses the strengths of the current line, and section I.C outlines the weaknesses of the current line.

   1. Origins of the Official Poverty Line

      In 1963 Mollie Orshansky, an analyst at the Social Security Administration, created what eventually became the government's official poverty line. She began her calculation with the dollar amount needed to purchase the "economy food plan," a nutritional plan that the U.S. Department of Agriculture had designed in 1962 for temporary or emergency use when funds are low.(6) This economy food plan was meant to provide the least expensive diet that was still minimally nutritional. In order to include budgetary items beyond food, Ms. Orshansky multiplied by three the dollar amount needed to purchase the economy plan (p. 163). This multiplier was based on a 1955 USDA survey which found that families of three or more persons spent, on average, about one-third of their after-tax income on food.(7) In 1963 the threshold for two adults and two children was $3,100. In 1965 Orshansky expanded and adjusted her poverty measure to encompass virtually all family sizes,(8) and the poverty line was adopted by the Office of Economic Opportunity for statistical and program-planning purposes. The base poverty line for a family of four (two adults and two children) was adjusted for larger and smaller families and for the elderly.(9)

      In 1969 the thresholds were adopted by all federal agencies as the official poverty line.(10) The Bureau also changed how the line was adjusted each year for inflation. Prior to 1969 the line had been adjusted yearly according to the USDA's new cost estimates for the economy food plan. After 1969 the line was adjusted according to the Consumer Price Index (CPI).(11) The CPI tracks inflation for all goods not only food. Thus, connecting the poverty threshold to the CPI froze the poverty line in real dollars from 1969 to the present,(12) and the official poverty line has remained essentially unchanged since it was first adopted in 1995.

   2. Strengths of the Current Poverty Line

      This section argues that the current poverty line has considerable strengths, and that given its longevity any alteration must be supported by strong arguments. Virtually all of the commentary on the current poverty line seems to begin with the premise that the line must be adjusted.(13) Despite its weaknesses, the present line indeed may be adequate. It frequently is used as a research tool,(14) and has been used as a benchmark to measure the effect(15) and potential effect(16) of government programs.

      As Henry J. Aaron, Senior Fellow at the Brookings Institute, has stated, any flaws in creating or updating the line are "irrelevant." What matters is that the government chose a subsistence level and has adjusted it consistently over time.(17) The current poverty line represents a longstanding assessment of economic need. This longevity offers two advantages. First, the fact that the line has remained unchanged fosters public and governmental understanding of the line and confidence in its validity. Changing the line's level or measurement might undermine confidence in it because it would seem malleable and nonobjective. Because one of the uses of the poverty line is to assess the failure or success of government antipoverty programs, it is crucial that the public have confidence in the line. Furthermore, because there has been insufficient impetus thus far to change the line it is unclear why or how a new line would work better. Second, a longstanding line is statistically preferable because it allows for consistent comparisons over time by the number and the percentage of the population below the poverty line.(18)

      Another strength of the current line is that it is based on an expert finding of need. Orshansky's use of the economy food plan represents an attempt to set the line of need according to expert analysis, which presumably fosters public confidence.

      Last, the fact that the official poverty line exists at all is a significant achievement. Prior to the adoption of an official poverty line, there was no accepted definition of poverty, and little possibility for research or temporal comparisons.(19) Despite the numerous criticisms of the line, its effect as a policymaking tool and as a baseline for discussions of poverty cannot be underestimated.(20)

   3. Criticisms of the Current Line

      This section catalogues the criticisms of the current poverty line and argues that they are largely valid. The criticisms of the present poverty line divide into three categories: criticisms of the line's original formulation, criticisms of the way the line is adjusted for inflation, and criticisms of the way income is defined. Section I.C.1 discusses criticisms of the original calculation of the poverty line, section I.C.2 describes the criticisms of the line's yearly adjustments, and section I.C.3 deals with the measure of income.

      1. Criticisms of Orshanky's Methods

         The criticisms of Orshansky's original method are based on the use of the economy food plan as a basis, the multiplication rate used, and the uncounted effect of regional price variations on the poverty line.

         The economy food plan originally was proposed as a temporary diet for families who were short of funds. The plan never was meant or tested for long-term consumption, and therefore its use as a baseline for food consumption for families below the poverty line for an indeterminate period is questionable.(21) Furthermore, by the time the poverty line was accepted officially in 1969, the food plan was outdated because of changes in nutritional expertise, taste, and food-purchase options.(22)

         The possible errors arising from the use of the food plan may have been compounded by Orshansky's selection of three as her multiplier. Orshansky multiplied the food plan allowance by three because a 1955 study had shown that the typical family spent one-third of their income on food. Some have argued that this multiplier overstates poverty because a poor family, as opposed to the typical family, will...