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The Poverty of Poverty Statistics / Artikel mises.org

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The Poverty of Poverty Statistics
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by Don Mathews

[Posted October 14, 2003]

<img alt src="http://www.mises.org/images3/box.gif" align="right" border="0" width="174" height="229">Some
things are not as simple as they seem. Take poverty statistics, for example.

The U.S. Census Bureau recently
released its"Poverty in the U.S.: 2002" report, which contains the
latest official poverty statistics for the nation. The statistics, to no
one’s surprise, suggest a struggling national economy

According to the report, 34.6
million Americans were in poverty in 2002, an increase of 1.7 million from
2001. That increase caused the nation’s poverty rate—the percentage of the
population in poverty—to rise from 11.7 percent in 2001 to 12.1 percent in
2002.

A comparable increase occurred in
the rate of poverty among families. In 2002, 7.2 million families—9.6
percent of all families—were in poverty, up from 6.8 million and 9.2 percent
in 2001.

The most disturbing statistic in the
annual poverty report is always the poverty rate among children. According to
the 2002 report, 16.7 percent of children were poor in 2002. That rate is
unchanged from 2001; however, the number of children in poverty increased to
12.1 million in 2002, up from 11.7 million in 2001.

These statistics seem simple and
straightforward. But they are not.

Poverty is not a simple thing to
measure. Poverty implies poor living conditions, but how are we to measure
living conditions? More to the point, how does the Census Bureau measure
living conditions?

It doesn’t. The Census Bureau
classifies as poor any family whose income falls below a certain threshold.
The income thresholds vary by family size. For example, a family of four with
an income of less than $18,392 in 2002 would be classified as poor.

How are the income thresholds
determined?  They are based on 1955 U.S. Department of Agriculture data
on food budgets designed for families under economic stress. The thresholds
were first computed in 1963-64 and have been updated for inflation (using
the standard Consumer Price Index, CPI-U) each year since.

Thus, the official U.S. poverty
rate, this statistic that receives so much attention from government policy
makers, social scientists and the media, is based not on an assessment of
living conditions but on 48 year-old USDA food budget data.

Measuring family income is no simple
matter, either. In fact, the Census Bureau has come up with five different
definitions of family income. The poverty rate varies significantly with the
definition used.

For instance, the official poverty
figures—again, 34.6 million people and a poverty rate of 12.1 percent—are
derived by defining family income as before-tax cash income. However, when the
Census Bureau defines family income as after-tax cash income plus capital
gains and the value of all noncash transfers (and adjusts the poverty
thresholds using the CPI-U-X1 rather than the notoriously inaccurate CPI-U),
it counts 21.5 million people as poor. That’s 13.1 million or almost 40
percent fewer than the official count. It also results in a poverty rate of
not 12.1 percent, but 7.5 percent.

Finally, the official poverty
statistics take no account of the goods people own or the assets they have
accumulated. Which means that a person who has accumulated a million dollars
worth of goods and assets but whose income, for whatever reason, falls below
the income threshold for the year will be classified as poor.

An extreme case? Not so
extreme. Researchers have discovered that almost one million people classified
as poor own homes worth more than $150,000, while upwards of 200,000 people
classified as poor own homes worth more than $300,000.

So, what is the true extent of
poverty in the U.S.? We'll never know. The official measures are
problematic to the point of being meaningless. But the larger lesson of the
Census Bureau's difficulties in estimating poverty is that any measure
of poverty is bound to be problematic to the point of being meaningless.

Of course, the purpose of poverty
statistics has never been to advance our knowledge of society, but to advance
the cause of government planning. So, despite their flaws, poverty statistics
survive.

______________________________

Don Mathews teaches economics at Coastal Georgia
Community College. Send him  MAIL 
and see his Mises.org  Daily
Articles Archive.