As the Presidential race heats up this fall, one of the battleground topics will be – as it always is – the economy. Republicans will try to tell us that the stimulus failed while the Democrats will either try to tell us that it wasn’t big enough or that it was all that kept us out of a full-out depression.
And behind all of these claims are statistics.
The most important statistic, to be sure, is the unemployment rate. And that one seems fairly straight forward, even if it does fail in capturing underemployed people. A more difficult measure to take is that of the percentage of Americans living in poverty. One might argue that this number is even more important, as it is a referendum not only on the state of the economy, but also on whether or not social welfare programs are working or not.
Believe it or not, the way that the government calculates the poverty level has not changed since the 1960s. The method basically counts the number of family members within a household, estimates the amount of money it would take to feed said family members at a minimally healthy level, and multiplies it by three. That’s because at the time the method was concocted, it was estimated that a typical family spends one-third of their available income on food. Then, the algorithm compares that amount of needed money to the pre-tax earnings of the family unit.
Obviously, there are some inherent flaws in the system. The method does not take into account programs like food stamps or free school meals for children, which is sort of important since the whole method is based on the amount the family spends on food. It also fails to take into account other welfare programs, such as the Earned Income Tax credit.
For all of these reasons and more, the Federal government recently began releasing a new calculation of poverty, even though it is not the “official” number, nor is it ever meant to supplant the old method. The Supplemental Poverty Measure (SPM) does a better job estimating actual income available for purchasing power, as it includes tax credits and other benefits. It counts all people cohabitating as part of the “family unit” whether they are related or not. It also subtracts liabilities, such as child support, child care, medical expenses and so on.
So one would think that this new method is much better. Yet, according to a new paper published by University of Chicago’s School of Public Policy’s Bruce Meyer, it’s actually worse. Instead, Meyer advocates for a poverty level that is calculated on actual consumption numbers.
For example, if some rich man’s son has no income, it doesn’t mean that he doesn’t have purchasing power. Likewise, a smart person with a decent life’s savings but who is now out of work is much better off drawing on savings than someone without a fallback plan. A consumption-based method also would look at access to durable goods, such as houses, cars, credit and other items that makes one’s life a little less shitty.
When a side-by-side comparison was done, Meyers found that a consumption-based method did a much better job of identifying those who are truly poor. Though all three methods kept the same number of people as defined as poor, the makeup of that population changed depending on the method. While the new SPM adds those who have a higher consumption level and are more likely to be college graduates, own a home and car, living in a larger housing unit, and have other more favorable characteristics, the consumption-based method adds those who are more disadvantaged than those who are dropped from the “poor” list.
Part of the reason for this is reporting. All of these statistics are based on surveys, and according to the paper, people are much better at reporting their levels of expenditures than their levels of income. For example, certain regions of the poverty depth chart somehow report their expenditures at a rate 40 percent higher than their income, while others report seven times more spending than income.
So will the government ever adopt a different method of determining poverty? Who knows. But they certainly don’t seem to like to change.