What does poverty mean fifty years after the Federal government began systematically measuring it? This piece in The Atlantic points out some of the statistical problems with the way we measure poverty over time, but it misses what I think is the most important missing element. Here’s the problem pointed out in the article:
The Census Bureau’s method for deciding whether a family falls above or below the poverty line is also a problem, because it only considers pre-tax cash income—meaning wages and government benefits like Social Security payments. What’s wrong with that? Well, it ignores massive anti-poverty programs like food stamps, which families spend just like cash, or the Earned Income Tax Credit, which gives their finances a boost after tax season.
Our current approach to calculating poverty is so full of holes that, for the past few years, the Census Bureau has produced an alternative number known as the “supplemental poverty measure” or “SPM”—which is bone-dry government speak for “the statistic you should really be paying attention to.” Think of it as the official poverty rate’s smarter, more realistic cousin. On the one hand, it accounts for additional expenses, like medical care and regional variations in housing. On the other, it better incorporates government benefits, like food stamps and housing subsidies. In the end, it usually comes out to be a little less than a percentage point higher than the official poverty rate.
What’s also missing though is a more realistic measure of the steep decrease in the overall cost of living, as measured by our ability to obtain (cheaply) things that no one in 1965 was even dreaming of. This comparison from a previous article comes to mind:
In 1985, a top of the line Ford Mustang GT carried a sticker price of $14,000 which, adjusted for inflation, equals roughly $30,000 today. That car featured an AM/FM radio with an optional cassette deck. The finest Mustang you could buy in 1985 had no air bags, no anti-lock brakes, no remote electronic door locks, no CD player, USB port, or heated seats.
It had no cup holders.
Visit a Ford showroom today and you can drive away with their finest Mustang GT tricked out with advanced safety features, every imaginable gadget, excellent engineering and reliability, a spectacular warranty, and even cup holders for about $30,000.
The examples could go on and on. In 1985, not even Steve Jobs could afford to store and use all of his music and movies on a device the size of a credit card. Now you can get one on eBay cheaper than the relative cost of a Sony Walkman in the ‘80’s. Overseas travel, electricity, movies, stock trading, even fresh vegetables in the wintertime are cheaper, better and more broadly available than they were just a generation ago. The only things that are getting more expensive are services that still depend on direct, personalized interaction with a human expert, like health care and education.
An accurate measure of relative poverty over time is highly elusive. Measuring rising inequality may be a more practical way to determine how lifestyles and well-being have changed over time.