September 18, 2010

SURE MY STANDARD OF LIVING IS HIGH...:

A Poverty of Statistics (Nicholas Eberstadt, September 17, 2010 , The American)

Consider this: by official numbers, America’s lowest-ever poverty rate was in 1973 (at 11.1 percent). According to official data, in other words, the prevalence of absolute poverty in America has been consistently worse in America than it was back in 1973—for 37 straight years. Yet the notion that the year 1973 was America’s golden age for progress against poverty is patently absurd, especially to anyone who remembers those recession-wracked Watergate days firsthand. [...]

Closer examination of the poverty rate demonstrates that this measure is increasingly at odds with other, arguably more common-sensical, indicators of want and well-being in America. Indeed, statistical analysis can demonstrate that the poverty rate has been strangely out of sync with such fundamental determinants of absolute deprivation as per capita income, unemployment, educational attainment, and antipoverty spending since at least the early 1970s.

So what is wrong with the official poverty rate? A host of well-founded technical criticisms have been leveled at it over the years, most focusing on its definition and measurement of family income. The real problem, however, is much simpler—and more profound. Our official poverty measure is measuring the wrong thing.

At the end of the day, poverty is about living standards, and living standards reflect consumption levels. If we really want to know about plenty and poverty in America, we should be monitoring consumption (spending patterns and the like). Our official poverty rate, by contrast, simply assumes that income and consumption levels will be identical for less well-off Americans.

Yet in reality, income does not predict consumption for poorer Americans with any accuracy these days. The Bureau of Labor Statistics’ 2008 Consumer Expenditure Survey, for example, reported that expenditures for the lowest quintile of American households were over twice as high as reported pretax income.

In any given year, Americans can spend more than they earn—and a great many do so. (An important new study soon to be released by AEI Press methodically demonstrates just how different income- and expenditure-based estimates of living standards for modern America turn out to be.1) The complex and often critical interplay between income and consumption, however, is completely missed by our official poverty measure. In fact, the measure ignores this by its very design.


...but officially I'm impoverished...

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Posted by Orrin Judd at September 18, 2010 6:39 AM
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