Cooking the Poverty Books

SCENERIO

Cooking the Poverty Books

Everyone thinks there is a problem with the U.S. poverty figures.

? The conservatives think so: The Heritage Foundation calls the figures, A "Soviet-style disinformation campaign" and the Census Bureau which puts them out, a "Potempkin Village."
? Liberals think so too. The bureau is using data that are "completely outdated, with a technique that makes no sense," says Rebecca Blank, a poverty specialist at Northwestern University.
? Even the Census Bureau thinks so. "The current measure is flawed," says Daniel Weinberg, of the Census Bureau. " I've made that point for many years."

The measure, first used in 1963, is based on an Agriculture Department estimate of how much money is needed for food annually, a number that is multiplied by three to account for all other expenses and is then adjusted for family size.

? But the poverty figure measures pretax income only, with no mention of in-kind benefits such as food stamps and credits like the Earned Income Tax Credit.

? It makes no allowance for child-care and transportation expenses, thus understating the number of working poor.

? It does not consider regional cost-of-living differences, even though a rural Alabaman would pay far less for housing than a San Franciscan, a quirk that understates urban poor and overstates rural poor.

? The measure mixes pretax income with after-tax spending requirements.

? Although many retirees earn low incomes, their houses, cars, and furnishings are paid for, and they have savings. In 1993, 302,000 families with incomes of less than $20,000 lived in houses worth more than $300,000.

? Over the years, the poor have gained access to more goods. The percentage of poor households with washing machines rose to 72 percent in 1996 from 58 percent in 1984. Ownership of dryers went to 50 percent from 36 percent. Two-thirds of poor families have microwave ovens, 97 percent have color televisions, 75 percent have VCRs, and 74 percent own at least one car.

In 1994, the number of people below the poverty line as 39.3 million, or 15.1 percent of population. By including in-kind payments and using a more realistic measure of inflation, the number of poor would drop to 25.4 million. Liberal critics point out that food is more like a quarter of overall expenses rather than a third -- which doubles people living in poverty to about 80 million.

According to the Heritage Foundation, the government's own consumer-expenditure reports show that the bottom 20 percent spends $1.70 for every dollar of income they tell the Bureau they have -- evidence that the poor tend to understate their income. The Foundation thinks the widening gap between rich and poor would evaporate with a change in calculations.

During the boom years 1993-2000, while the percentage of income going to the top fifth of households rose from 48.9 percent to 49.6 percent, percentage of people in families below the poverty line dropped from 13.8 percent to 9.8 percent. Whether this trend will continue in a down economy is unlikely.

Sources: Dana Milbank, "Old Flaws Undermine New Poverty-Level Data," The Wall Street Journal," October 5, 1995, p. B1; W. Michael Fox and Richard Alm, "Defining Poverty Up," The Wall Street Journal, November 11, 1999, p. A26; Sheldon H. Danziger (ed), Economic Conditions and Welfare Reform (Chicago: W.E. Upjohn Institute) 2000; and Michael J. Mandel, "The Rich Get Richer, and That's O.K." Business Week, August 26, 2002, p. 88.

Questions:
1. This article centers on the definition of poverty. Who do you think is right, the liberals or the conservatives?
2. What are the fairness issues involved?
3. Are the side effects of these redistributive programs discussed?
4. There is one redistributive program discussed in the article that is not discussed in the text. What is it?
5. Will this controversy ever be settled to the satisfaction of all groups?