September 15, 2012


We're Winning the War on Poverty : New research shows that poverty is falling if you measure it correctly--government programs deserve most of the credit. (Matthew Yglesias, Sept. 14, 2012, Slate)

The official poverty line was created in 1963 by food and nutrition economist Mollie Orshansky and hasn't been updated since.

Her method, though arguably appropriate at the time, is incredibly crude by modern standards. Her idea was to calculate the cost of a nutritionally adequate diet for a given-size family. Then she used the early-'60s rule of thumb that food was about one-third the typical family's budget. So calculate the income needed to prevent malnutrition, triple it, and there's your poverty line. 
Needless to say, this has only a hazy relationship with modern living standards. Worse, because at the time there were few government programs designed to help the poor, it refers to income before taxes and cash transfer payments. The formula also neglects to include the value of in-kind public services such as food stamps and Medicaid, and smaller programs like housing vouchers.

The problems with the poverty-line methodology are well known, but they are often thought to impact merely the level of poverty, rather than the change over time. Meyer and Sullivan challenge this assumption. They argue for starters that the standard inflation measure suffers from "outlet bias." It fails, in other words, to adequately account for the rise of cheaper big box stores--exactly the kind of development most likely to benefit the poor. Merely making this inflation adjustment paints a brighter picture of living standards at the low end.

Of course, the same deflation in the cost of essentials--in particular--is why talk of the failing middle class is so asinine.  

Posted by at September 15, 2012 8:35 AM

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