[Mb-civic] Poverty in America Economist

Tue Aug 31 10:02:45 PDT 2004

The other planet

Aug 30th 2004 
>From The Economist Global Agenda

The number of Americans in poverty is rising, as is the number without
health insurance. The best anti-poverty programme is a tight labour market.
America still doesn¹t have one

CONTRARY to popular belief, President George Bush¹s campaign against
terrorism is not the first time the United States has waged war on an
abstract noun. In 1964, President Lyndon Johnson declared war on poverty.
Then, as now, the administration had some trouble defining the enemy. The
poverty line it eventually adopted, a line first drawn by Mollie Orshansky
of the Social Security Administration, remains in place today, adjusted for
inflation, but otherwise scarcely altered. Two parents, bringing up two
kids, are judged to be poor if they live on less than $18,660 a year (for an
unencumbered individual under the age of 65, the threshold is $9,573). On
Thursday August 26th, the Census Bureau revealed that 35.9m Americans, or
12.5% of the population, fell below this poverty line in 2003, 1.3m more
than the year before.

Whatever crude logic it possessed at the time, the Orshansky poverty line is
by now quite arbitrary. Its originator calculated the cost of meeting a
family¹s nutritional needs and then multiplied this figure by three, because
families in that era spent about a third of their income on food. The Census
Bureau does not repeat this exercise to determine today¹s poverty line; it
does not recalculate the cost of an adequate diet or remeasure the share of
income spent on food. It simply adjusts Ms Orshansky¹s figures for
inflation. Thus today¹s dollar thresholds do not tell us how much a family
or individual needs to get by in today¹s America; they simply restate the
cost of feeding a family in the 1960s in today¹s prices, and multiply it by
three.

As the Census Bureau is the first to concede, the poverty line is not a
³complete description of what people and families need to live². A more
complete description would show that poor families now spend a far bigger
share of their budget on housing (nearly 33%, according to the Bureau of
Labour Statistics) than on food (just 13.2%). Child care, done for free by
the mothers and grandmothers of the 1950s and 1960s, is now a big expense.
Deducting this expense from the measured income of families would add 1.9m
to the official poverty figure, according to estimates by Isabel Sawhill and
Adam Thomas of the Brookings Institution.

But a better measure of poverty would also assess the various weapons the
government deploys against it. The current measure ignores non-monetary
benefits, such as food stamps. Nor does it count the earned income-tax
credit, a benefit paid via the tax code to the working poor, which has
become every policy wonk¹s favourite way to redistribute money. The Census
Bureau has already experimented with such measures, and is probably itching
to finally retire the Orshansky line. But its political masters in the
Office of Management and Budget may be nervous of any innovation that would
raise the official poverty number. To the bureau, the poverty line may be a
mere ³statistical yardstick², but to the administration, it is a political
stick its opponents might use to beat it with.

 But if the level of poverty is fairly arbitrary, changes in the level are
quite telling. Poverty fell throughout the long economic expansion of the
Clinton years, from 15.1% in 1993 to 11.3% in 2000. Particularly striking
was the fall in poverty among single mothers and their families, from 35.6%
(4.4m) in 1993 to 25.4% (3.3m) in 2000.

The bubble years were also a period of ferment in the country¹s welfare
laws. State handouts came with new strings and time limits attached. Single
mothers were encouraged, often required, to work. In a 2000 study, Rebecca
Blank, who once served on President Bill Clinton¹s Council of Economic
Advisers, concluded that welfare reform‹both the state experiments of the
early 1990s and the federal overhaul of 1996‹reduced the poverty rate among
female high-school dropouts by about 5 percentage points.

But the latest census figures show a partial reversal of these gains.
Poverty among the households of single mothers has increased from 25.4% in
2000 to 28% in 2003. Child poverty has also increased. In retrospect it is
clear that Mr Clinton signed his 1996 welfare reform at an auspicious time:
the economy was creating jobs faster than people were being ousted from the
welfare rolls; the states implementing the reforms were flush with cash. But
as Congress now debates how to revamp and extend the law (the 1996 act was
due to expire in 2002), all of these stars have fallen out of alignment.

 Firms are reluctant to hire, and even when they do, they are loth to offer
health insurance. Employer-sponsored health plans covered 1.3m fewer
Americans last year than the year before. State governments are strapped for
cash; as a result, they are cutting back on child-care assistance. Many
welfare recipients are now close to using up all the months of help they are
entitled to. Unfortunately, those who remained dependent on welfare when
times were good are the least likely to get a job now that times are not so
good.

 Benjamin Disraeli, a 19th century British prime minister, likened the rich
and the poor to ³two nations, between whom there is no intercourse and no
sympathy, who are as ignorant of each other¹s habits, thoughts and feelings,
as if they wereŠinhabitants of different planets². As a guide to the less
fortunate of these two planets, the Census Bureau¹s poverty figures are
flawed and anachronistic. But they do show that welfare reform is not by
itself enough. Unless the labour market tightens further this year, there
will be many more Americans discovering the other planet for themselves in
2004.