Acton Institute Powerblog

Why Poverty Figures Can Be Misleading

Share this article:
Join the Discussion:

consumptionWhat if told you that between 90-100 percent of Americans are living in “healthcare poverty.” You would probably object and say that while the country certainly has a healthcare crisis, my numbers are surely inflated. After all, most people in the U.S. have access to healthcare.

In reply, I explain that while it’s true most people are able to consume healthcare services, they are still in poverty since those services are paid for at least partially by the government or private insurance. You would probably respond that I seem very confused on this issue. And you’d be right.

Yet when we hear reports that between 14 and 16 percent of  Americans are living in poverty, few people bother to ask, “Are they talking about consumption or income?”

The reason it matters is the same reason that most Americans are not in “healthcare poverty”: they are able to consume more goods and services than they are able to pay for with their income. As James X. Sullivan, an economics professor at Notre Dame, has explained:

“A different measure of poverty that’s based on consumption, rather than income, would not only measure poverty more accurately, but would lead to a better understanding of the effects of policy and would help lawmakers craft policies to better serve the nation’s poorest,” according to Sullivan, whose research examines the consumption, saving and borrowing behavior of poor households in the U.S., and how welfare and tax policy affects the well-being of the poor. The Census poverty measure ignores the effects of some of the most critical anti-poverty weapons, most notably the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies.

“Income received from food stamps, for example, grew by more than $14 billion in 2009. By excluding these benefits in measuring poverty, the Census figures fail to recognize that the food stamps program lifts many people out of actual poverty,” Sullivan says. “If these programs are cut back in the future, actual poverty will rise even more.”

Using income-based numbers only also overlooks the struggles of many Americans who are tightening their belts – those who are worried about losing their jobs or facing foreclosure, or those who devote a large chunk of their paychecks to paying off medical bills. The standard of living for these people is lower than their income would suggest.

Another paper by Sullivan and co-author Bruce D. Meyer of the University of Chicago, argues that consumption offers a more robust measurement of poverty than income. When measured correctly, poverty has declined over time. From the abstract:

This paper examines changes in the extent of material deprivation in the United States from the early 1960s to 2009. We investigate how both income and consumption based poverty have changed over time and explore how these trends differ across family types. Estimates of changes in poverty over the past five decades are very sensitive to how resources are measured. A poverty measure that incorporates taxes falls noticeably more than a pre-tax income measure. Sharp differences are also evident between the patterns for income and consumption based poverty. Income poverty falls more sharply than consumption poverty during the 1960s. The reverse is true for the 2000s, although in 2009 consumption poverty rises more than income poverty . . . Income based poverty gaps have been rising over the last two decades while consumption based gaps have fallen. We show that how poverty is measured affects the composition of the poor, and that the consumption poor appear to be worse off than the income poor.

To see the stark difference it makes, look at this graph from the recent joint report by the new joint report from the (conservative) American Enterprise Institute and the (liberal) Brookings Institution:

AEIBrookPov

As Robert VerBruggen notes, “This [consumption-based] approach doesn’t always create low estimates; in the early 1970s, it sits right between the two other measures. But it shows dramatic improvement and a low poverty rate today. Even when the other rates are spiking, consumption poverty remains basically steady.”

Indeed, it doesn’t make sense to propose solutions for poverty and then exclude those very solutions from being considered when measuring the poverty rate, especially when the poverty-fighting initiatives have been effective.

If we’re going to have an honest and serious debate in this country about how to help the poor, we must consider the level of consumption by the poor—not just the numbers on their paycheck.

See also: What Christians Should Know About Consumption

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

Comments

  • Steve Vinzinski

    One great article by Mr.Carter well researched.The point consumption in relation to income is objective.Many parts of this nation have extreme high figures on poverty.Ironically in the post WW 11 era until the 1990’s these areas where middle class neighborhoods for the great majority of the people living their.Poverty in this country will never end in fact for at least the next fifty years the per cent will continue to rise.The job picture in these areas only recedes every day.Your not under employed any more their is no work left.In some area’s that still have some employment incurring are now under siege from a new enemy the robots.I never left my hometown of poverty except to join the USMC and the Corps with the VA and working myself for income was able to finish college and law school.I had a great law practice until multiple disabilities placed me on the disabled list with the courts.In the time i practiced I produced files numbering one hundred thousand.Eighty per cent of my clients were dirt poor and could not pay but I would never turn them away.Most of those eighty per cent where for minor criminal matters a lot of alcohol problems many wanted uncontested divorces,some where looking for child support.In the long run they found it easier to go on welfare.Most could not say my name that way they did not have to fill out the indigent 5-A form they just asked for Stevie.In reality most did not make progress beyond the sixth grade.Today my city where i live has a high murder rate I mean high for a small town.They have one thing going for them the meek and the poor shall inherit the earth.