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Poverty politics

Poverty | Playing with the numbers to increase those defined as poor, Washington is set to wage a costly war on inequality in the name of fighting poverty

Issue: "Upside down," April 9, 2011

As you pay your federal income taxes this year, the amount that goes for welfare benefits depends in part on Mollie Orshansky, perhaps the most influential person you've never heard of. But on Sept. 1 her influence will begin to diminish in a way likely to increase welfare costs without increasing compassion toward the poor-if Congress doesn't step up.

In 1963 and 1964 Mollie Orshansky, a staff economist at the Social Security Administration, asked the question: Below what income is a person "poor"? She called the meeting of basic needs a "poverty threshold" and calculated a number based on the U.S. Department of Agriculture's "economy food plan" and typical American spending patterns.

Economists have updated the threshold every year by using the Consumer Price Index to account for inflation, but the simple basis for calculation has remained the same. On Sept. 1, though, the Obama administration will unveil a Supplementary Poverty Measure (SPM) calculated on a different basis. Adoption of the SPM would increase accuracy in some ways but also affect state budgets and probably increase federal deficits.

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It would also make a radical conceptual leap by defining the enemy not as poverty but inequality. American poverty-fighting for three centuries has rested on a principle that no citizen should go without a basic level of food, shelter, and clothing. The question was always, "What are the basics?" It was not, "How much income does a poor person have relative to an affluent person?"

Europeans have already made poverty relative. The European Union defines poverty as an income below 60 percent of the national median, whatever that median is. If rich and poor both double their income, the poverty rate does not change: Everything's relative. With almost no public attention or discussion, the United States is taking a large step toward Europeanization.

Why the change now? You can read online, if you dare, about a dozen academic papers presented at the Allied Social Science Association's annual meeting in Denver in January. Those, in turn, play off of 15 years of discussions sparked by a 1995 recommendation of the National Academy of Science. But the easier way to understand what's happening is to start with Mollie Orshansky's legacy.

Orshansky saw that a half-century ago families of three or more people typically spent about one-third of their after-tax income on food. Logically, she multiplied basic food costs-enough to eat, but not salmon and raspberries-by three to come up with poverty thresholds for various family sizes. She then defined as poor those with insufficient cash income to pay for basic needs. That seems intuitively right.

Over the years some problems with her formula have emerged: For one, people today normally spend closer to one-sixth of their income on food rather than one-third. We spend more money on wants, not needs, and those defined as poor can receive food stamps, housing, childcare, and other government benefits.

Statisticians have not counted those benefits as part of a family's gross income, so the resources available to some poor families are greater than officially measured. Factor in underground and illegal economies-people paid in cash and not reporting income for tax purposes-and it's not surprising that consumer expenditure surveys from the Bureau of Labor Statistics show the lowest fifth of U.S. households spending up to twice as much as their reported pretax income.

Some in America-particularly homeless persons and most immigrants-are still severely poor, but government data show most persons defined as poor having a home and car in good repair. Typical possessions also include air conditioning, two color televisions, cable or satellite service, a VCR or DVD player, and a cell phone, as well as a refrigerator, stove, microwave, and a washer and dryer.

So which hardships should be emphasized? The small numbers of persons who are homeless and hungry, or the large number-44 million in 2009-defined as poor but, by the standards of most of the world, materially rich? To ask this is not to diminish the real problems many Americans face-including fatherlessness, stupefying public schools, bad work habits, and crime-but to observe that the problems are often spiritual and cultural more than material.

News releases about poverty rarely show those non-dollar problems, and the stats are misleading. Poverty thresholds do not take into account where people live (city, suburb, town, farm) or how. Families with two parents working are less likely to be poor, so the typical poor household with two children has one parent. Many more young people are cohabiting, which leads to economies in some situations but many more transitory relationships and accompanying upheavals.

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