Liana Fox, Irv Garfinkel, Neeraj Kaushal, Jane Waldfogel, and Chrisopher Wimer, “Waging War on Poverty: Historical Trends in Poverty Using the Supplemental Poverty Measure.” Paper presented at the Association for Public Policy and Management Conference, Washington, DC, Nov. 8, 2013.
Fifty years ago next week, President Lyndon Johnson declared the “war on poverty.” Obviously, poverty remains undefeated even in a country as wealthy as the United States, let alone around the world. Have we made any progress at all, and if so, have the government programs intended to combat poverty contributed very much to that progress?
Recently, the Census Bureau developed a more refined measure of poverty, following a number of recommendations from the National Academy of Sciences. This Supplemental Poverty Measure (SPM) takes better account of the different kinds of households, the variety of spending needs, and the range of government benefits households may be receiving. For example, it includes child care expenses in the assessment of needs, and includes food stamps as a form of income. The authors of this paper use the SPM not only to estimate the current rate of poverty, but also to estimate what the rate would have been if the same measure had been used ever since poverty rates were first published in 1967.
Revising the poverty measure does not change the recent overall poverty rate very much. In 2012 it was 15.1% with the old measure and 16.0% with the SPM. Changing the measure does make poverty rates more similar across age groups, lowering the rate for children from 22.3% to 18.0%, but raising the rate for seniors from 9.1% to 14.8%.
How much progress?
Applying the new measure as consistently as they can, the authors estimate the general poverty rate in 1967 as 19.2%. That means that the rate has declined by about three percentage points since then. The historical decline in poverty has been greatest for seniors, much smaller for children, and nonexistent for the working-age population.
There may be an additional historical change that is not detected by the official poverty measures, old or new. The official poverty thresholds take into account current spending patterns in the population. Consumer units are considered poor if their spending falls below the 30th percentile within the distribution of consumer spending on food, clothing, shelter and utilities. As living standards rise, so do the percentiles, so people need more money to rise above the poverty threshold. The authors estimate that today’s poverty rate would be an additional five points lower if the poverty thresholds had been adjusted only for inflation and not for rising living standards. By constant 1967 standards, poverty has been cut by eight points, from 19% to 11%.
Effects of government programs
Many of today’s households rely on some form of government “transfer” for at least a portion of their income. “These transfers include: food and nutrition programs (SNAP/Food Stamps, School Lunch, WIC); other means tested transfers (SSI, cash welfare…, Housing Subsidies, EITC, LIHEAP); and social insurance programs (Social Security, Unemployment Insurance, Worker’s Compensation, Veteran’s Payments, and government pensions).” Since these programs have expanded greatly since the 1960s, they have no doubt had some effect in lifting households out of poverty.
To estimate how large an effect, the authors recalculate the annual poverty rates with all government transfers excluded from income. They conclude that without these transfers, the official rate (using the SPM) would have gone from 24.8% in 1967 to 30.7% in 2011. Instead of dropping by three points, poverty would have increased by six points. At about 16%, today’s rate of poverty is only about half of what it might be without government transfers.
We do have to say “might be,” however, because we are discussing a counterfactual. We don’t really know what a world with a smaller government would be like. Defenders of government transfers can argue that they accomplished what the labor market couldn’t–lifting people out of poverty during an era when jobs with good wages became scarcer. Critics of government transfers can argue that the labor market could have lifted more people out of poverty, except that the government transfers had a different, more subtle and sinister effect–a disincentive for people to work. Theoretically, the apparent connection between rising transfers and falling poverty could hide a very different dynamic: A growing economy has been reducing poverty, and would have reduced it even more if government transfers hadn’t discouraged people from taking full advantage of job opportunities. According to this view, whatever success the antipoverty programs appear to have had is largely an illusion.
The authors acknowledge that this issue lies beyond the scope of the paper. “Because we do not model potential behavioral responses to the programs, these estimates cannot tell us what actual poverty rates would be in the absence of the programs.”
My own view is that the evidence is stronger for the anti-poverty effect of government transfers than for the work disincentive effect. For one thing, the government has strengthened work incentives by phasing out the old welfare program that provided cash assistance to non-employed single mothers, and replacing it with a system of temporary assistance, work requirements, and tax credits based on earned income. In addition, we know of many macroeconomic reasons for low incomes–increasing wage disparities between rich and poor, failure of the minimum wage to keep pace with inflation, proliferation of part-time jobs, and loss of good jobs due to new technologies and global competition. The spike in unemployment associated with the Great Recession has more to do with financial speculation and unsustainable debt than with any sudden desire to live on unemployment compensation and food stamps. Of course, some people are less ambitious and industrious than others, but it hardly follows that government assistance creates more poverty than it alleviates.
During economic recessions, government transfers provide a safety net, keeping poverty from rising as much as unemployment does. The authors of this paper observe that “government transfers seem to mute the effects of the business cycle, especially for deep poverty.” Both supporters and critics of government assistance programs might hope that a stronger economy would reduce the need for them. That leads to a different political-economic debate, over the role of government in maintaining full employment, as discussed recently by Dean Baker and Jared Bernstein.
What can we say after fifty years of the war on poverty?
- Poverty in the United States remains widespread, with about one-sixth of the population below the official poverty threshold.
- Poverty has declined since the 1960s through a combination of rising living standards and government transfer programs.
- On the face of it, government transfers appear to lift many people out of poverty who would be there because of macroeconomic conditions beyond their control. This anti-poverty effect could be somewhat offset by a work disincentive effect that leads some people to choose government income over employment opportunities.