Census has released their new Supplemental Poverty Measure and I’m afraid that people are still getting the points about US poverty wrong. The SPM does indeed cure some of the problems with the old measures which I discussed here. But it introduces a new and quite glaring error at the same time.
Just to recap the argument about the old method (which is still the official method by the way, as it’s embedded in so many laws that to change it would be a terrible rewrite of many of those extant laws).
The standard method used in the US measured, by and large, those people who were in poverty before we helped people in poverty. We didn’t include those things which we do to alleviate poverty, things like the EITC, food stamps, housing vouchers. OK, this new method does include all of these things and is now a measure of who is poor after we’ve helped them rather than a measure of who would be poor if we didn’t help them.
However, there’s a new measurement that is being made. The crux of it is this:
Old system: Three times the cost of minimum food diet in 1963
New system: The 33rd percentile of expenditures on food, clothing, shelter,
and utilities (FCSU) of consumer units with exactly two children
multiplied by 1.2
That’s a change in our very basic unit of measurement. In fact, that’s a change in what we’re measuring. Under the old system we were measuring poverty. Now we’re measuring inequality.
The two are often today called absolute poverty and relative poverty but in reality they are indeed poverty and inequality.
The difference is that the old standard measured how many people were below a particular standard of living. A particular absolute standard of living that is. The new standard measures how many people have less than everyone else by a certain amount.
To show how this plays out: under the old system imagine that everyone’s incomes doubled (real incomes double, not nominal). The country just got a whole lot richer. Yes, the incomes of the poor double as well. In this situation using the old definition we would expect poverty to pretty much vanish. People who previously earned less than the poverty line would go over it and no longer be poor.
However, under the new system, because we are measuring poverty relative to everyone else (that 33 rd percentile thing) then everyone in the country doubles their incomes, doubles their standard of living and yet poverty as we are measuring it hasn’t changed at all. We’ve still the same amount of inequality in the system, even as everyone has doubled their incomes and lifestyles, so, since we are now measuring inequality we have the same amount of relative poverty.
It gets worse too: the same problem works the other way. Say that, in a recession, as now, incomes in general fall. Say also that inequality falls (as it does, top incomes are more variable according to economic good and bad times than low incomes are). Because inequality is falling we find that, because we are measuring inequality, poverty falls. But people at the bottom are actually getting less money! Their lifestyles are getting worse, yet we now say that poverty is falling!
If the Census had simply corrected the old numbers and method of calculation for the aid that does go to those who are defined as poor, that would have been a very good idea indeed. However, what they’ve done at the same time is change over to a system of measuring relative poverty: inequality that is. So, this new measure can show us that as people are getting absolutely poorer, poverty is falling and also, as everyone gets richer but inequality increases poverty is rising.
This just isn’t a very good measure of poverty.
If we call it what it is, a measure of inequality, it’s just fine. But we do all need to realise that that’s what it is: we’re no longer measuring poverty, we’re measuring inequality.