Opinion Editorial | |
| Monday, September 28, 1998 | |
Consumption Better Measures Poverty Than Income |
Last week the Census Bureau released its annual report on poverty and
income distribution in the U.S. The data show a small decline in poverty
and a further increase in income inequality. Many will seize upon these
figures to argue for more aggressive government efforts to redistribute
income from the rich to the poor. The latest research, however, casts serious
doubt on the ability of the Census data to really tell us very much about
poverty or well-being, because they are based on income rather than consumption. As is well known, the poverty level is based on a calculation first made
some 35 years ago. At that time, the Agriculture Department had data showing
that low-income families spent about one-third of their income on food.
So a researcher named Mollie Orshansky took some figures on food consumption
by low-income families and tripled them to get a crude poverty-level income. Miss Orshansky certainly never intended for her figures to become set
in concrete. She saw them as just the first step in devising a more comprehensive
and accurate measure of poverty. But for political reasons, the data were
never revised, updated or reexamined. Instead, every year the Office of
Management and Budget simply increases the previous year's poverty threshold
by the rate of inflation, leaving intact the underlying concept of poverty
Miss Orshansky first developed. Today, research on poverty is focusing more on consumption than income
in calculating poverty. The reason is that consumption data are more indicative
of true standards of living than are consumption data. Confirmation of
this observation can be found in data on ownership of various goods by those
the Census defines as poor. In a fascinating new paper, Robert Rector of
the Heritage Foundation points out that 41 percent of the poor own their
own homes, 70 percent own a car and 27 percent own two or more, 97 percent
have color TVs and three-fourths own VCRs. In an August 28 speech, Federal
Reserve Chairman Alan Greenspan argued that based on ownership of microwave
ovens, dishwashers and other consumer durables inequality has been falling,
rather than rising as the Census data show. Moreover, yearly variations in consumption are much less than those for
income. So looking at consumption patterns tends to eliminate from poverty
those people whose incomes are just temporarily low. Using consumption
rather than income to calculate poverty, therefore, has the effect of reducing
the number of people in poverty by about a fourth, according to research
by University of Texas economist Daniel Slesnick
(see figure). Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
September 28, 1998. For more on Wealth and Poverty http://www.ncpa.org/pd/economy/econ12.html Home | Support Us | All Issues | Social Security Debate Central | Contact Us |
