Thursday, March 19, 2015

Are We Winning the War On (Absolute) Poverty?

If one only listens to progressives, it would be reasonable to conclude that we are not making progress against poverty in the U.S.

In the legacy media, the most progressive major newspaper is arguably The New York Times. Within that, The New York Review of Books, a tabloid-like section that comes with the Times on Sundays, is widely regarded as even more progressive.

So their publication of the article "The War On Poverty: Was It Lost?", a review by Christopher Jencks of Legacies of the War on Poverty is remarkable. The article is accessible to undergraduates throughout.

The 50th anniversary of President Johnson's declaration of a war on poverty was last spring, and here's what surveys tell us people think about that:
"... Given four alternative ways of describing how much the War on Poverty reduced poverty, 20 percent chose “a major difference,” 41 percent chose “a minor difference,” 13 percent chose “no difference,” and 23 percent chose “made things worse.”
Broadly, those views are supported by official data showing that the poverty rate now stands at about the same point (14%) that it did in 1967. Do note that business cycle expansions are capable of making that rate fall by up to 4%, and recessions can run it up by that much too.

A natural questions is, if we don't think it worked, does that mean we should try harder or start over?

But, perhaps a better question would be: how many people making either argument are even conversant in the problems with that measurement?

First off, the income levels in the poverty level are adjusted for changes in inflation with ... the CPI. Recall from class that the CPI, by construction, systematically overstates changes in prices. Therefore, using it to adjust the poverty level means that the real income in the poverty level will grow each year by the overstatement of inflation, and that those overstatements are compounded annually.

It gets worse.

The 1 in in 9 couples that cohabit (both straight and not) are more likely to be counted as 2 poor individuals than would be a married couple with the same income.

The poverty line counts cash income, so it does not count welfare benefits that are not cash. That's almost all our food programs, housing programs, and Medicaid. Further, it's only a subset of the poor, but veterans' benefits don't get counted either.

The poverty line is determined from pre-tax rather than post-tax income. But thanks to the ideas of economists like Milton Friedman we have the earned income tax credit, which amounts to an negative income tax for the poor.

We only have solid measurements on how the poverty rate would change for using a better price index, the value of food and housing benefits, and the EITC. But together, those three alone move about 3/4 of the people who fall below the poverty line out of poverty.

That's huge, and it's essentially impossible to make this point in polite company.
... When I tell my friends or my students that “there is still a lot of poverty, but less than there used to be,” they have trouble remembering both halves of the sentence. Some remember that there is still a lot of poverty. Others remember that there is less than there used to be. Few remember both.

All  of the above is an argument about absolute poverty. But some are still concerned about relative poverty. This is one facet of the income inequality debate that has been big for the last several years.

But there's an ethical question that is rarely asked. Suppose our primary concern is only relative poverty. Then our measurement issue is — relative to what? A concern that relative poverty is the primary issue means that we may end up being more concerned for people in Nogales, Arizona than we are about people in Nogales, Sonora, even though absolute poverty is far worse in the latter. The implication is that the pink lines in atlases that mark borders also determine moral sensitivity. That's seems flippant to me.

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