NCPA - National Center for Policy Analysis

Warning on "Poverty" Statistics: Don't Trust Them

February 18, 2002

The federal government first came out with its "poverty rate" statistics in 1965. Nearly four decades later, economists and statisticians say those data are a broken tool that misleads the public and politicians alike. They argue the figures should be disregarded.

How flawed it is becomes apparent in the sometimes absurd conclusions it reaches.

  • For example, figures for the years 1973 and 2000 show that per capita income jumped by almost 60 percent, that unemployment had dropped and income-tested social spending nearly tripled between 1973 and 1998.
  • But despite all that, the official poverty rate actually maintains that a higher proportion of Americans lived in poverty in 2000 than in 1973 -- 11.3 percent versus 11.1 percent.
  • Experts complain that the poverty rate measures the wrong thing -- income, rather than material want -- and income tends to be an especially unreliable predictor of true living standards.
  • For example, the latest Bureau of Labor Statistics' Consumer Expenditure Survey finds that for every dollar of reported pre-tax income, the poorest fifth of American households reported spending $2.31.

There may be several explanations for such a wild variation. For one, America is a land of tremendous income variability -- and economic mobility. An individual who is laid off and has a bad financial period one year can draw down on savings -- expecting the next year to be better.

Source: Nicholas Eberstadt (American Enterprise Institute), "A Misleading Measure of Poverty," Washington Post, February 17, 2002.

 

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