The lie that is the Official Poverty Rate

In Denmark people from both the left and the right tend to fling the Official Poverty Rate of the US at me as it somehow supposedly proves that the free market system is wrong. I’ve always instinctively through my own observations and bits of pieces of other statistics known that the OPR was flawed. It does look worrying if you follow the lack of development in the OPR since the 1970s - the poverty rate was more or less the same in 1973 as in 2001.

Well to all of you doubters Nicholas Eberstadt has created an indepth review The Mismeasure of Poverty (via Catallarchy) of how the OPR is calculated and how it IS fundamentally flawed. He then analyses a series of other data to find various better measures.

One of the interesting things he discovered was:

By 1972-73, however, the poorest fifth of households were spending nearly 40 percent more than their annual income — and by 2002 were spending well over double their reported annual income.

Some people might explain this saying that the poor are more in debt, but hey while that might be true. It is ridiculous to say that on average the poor are spending more than double their annual income. Obviously there are some problems with these figures.

Nicholas analyzes this further and finds one of the main reasons for the discrepancy is that the US has a very mobile economy. It is not unusual to have people be below the poverty levels for brief periods. In fact it turns out that the majority of the people below the poverty line are not permanently poor but only temporarily.

The Census Bureau’s longitudinal Survey on Income and Program Participation (sipp) documents this central fact. For the calendar year 1999, nearly 20 percent of the noninstitutionalized American population was estimated to have experienced two or more months in which their household income fell below the poverty threshold. And at some point during the four years 1996-1999, fully 34 percent of the surveyed population spent two months or more below the poverty line. On the other hand, just 2 percent of the population spent all 48 months of 1996-99 below the poverty line. The long-term poor (or “permanent poor”), in other words, accounted for barely one-tenth of those who passed through officially designated poverty at some point in 1999, and less than 6 percent of those who were counted as poor at any point between the start of 1996 and the end of 1999.

Now that changes the common picture doesn’t it? When you hear poverty rate you tend to think of people living in desperate situations for all their life.

All objective data such as health, economy and spending show that the “poor” are considerably better off now than they ever have been, which yes does play hand in hand with the libertarian way of thinking.

The sad fact of this is as Nicholas specifies, this will receive lots of criticism from the same people who should want good data. My guess is that this is because these same people have turned poverty into their primary economic activity :

In some quarters, criticism of the various shortcomings of America’s official poverty rate will be taken as evidence of indifference to the plight of America’s disadvantaged and poor. Such an inference is illogical at best. Proponents of more effective antipoverty policies should be in the very front ranks of those advocating more accurate information on America’s poverty problem. Without such information, effective policy action will be impeded; under the influence of misleading information, policies will be needlessly costly — and ineffective.