Another day and another tendentious report from the guys at the Economic Policy Institute. Another report that makes the standard, untrue, claims that such reports always make. America’s been growing, productivity has been growing, but all the money’s gone to the top and the average guy hasn’t benefited. And worse, the poverty rate hasn’t budged in decades. Clearly we therefore need to tax the heck out of the rich and kittens will gambol happily in the sunshine of the dawn of the New America.
The only problem with this analysis is that they’re wrong in one major claim. Poverty has been greatly reduced. And what’s worse is that the guys at the EPI know this very well but just choose to keep ignoring the fact. This report is, as the phrase goes, policy based evidence making rather than a dispassionate search for the facts.
Here’s some commentary and quotes in the New York Times about this new report, Raising America’s Pay.
But over the last generation in the United States, that simply hasn’t happened. Growth has been pretty good, up 147 percent per capita. But rather than decline further, the poverty rate has bounced around in the 12 to 15 percent range — higher than it was even in the early 1970s. The mystery of why — and how to change that — is one of the most fundamental challenges in the nation’s fight against poverty.
The disconnect between growth and poverty reduction is a key finding of a sweeping new study of wages from the Economic Policy Institute. The liberal-leaning group’s policy prescriptions are open to debate, but this piece of data the researchers find is hard to dispute: From 1959 to 1973, a more robust United States economy and fewer people living below the poverty line went hand-in-hand. That relationship broke apart in the mid-1970s. If the old relationship between growth and poverty had held up, the E.P.I. researchers find, the poverty rate in the United States would have fallen to zero by 1986 and stayed there ever since.
This is something that is well known among the Illuminati who have ever bothered to look at the way that the US measures poverty and then tries to alleviate it. And yes, that does include those nice guys at the EPI. They know this, they’re just not telling you this.
A little background is necessary here. Most countries define poverty as being equivalised disposable household income below 60% of the median. Essentially, adjust for the size of the household, don’t include housing costs, include all taxes and benefits, then if you’re getting less than 60% of what the middle household in the population gets then you’re poor. The US doesn’t and hasn’t since the very invention of the US poverty line (although there is a new measure which is similar to everyone elses’, even if not exactly the same, but this isn’t the one that everyone uses as yet). Back in the early 1960s an economist worked out a decent but basic food budget for households of different sizes. That was then tripled and that’s the poverty line. It’s been upgraded for inflation since then but not for anything else. It doesn’t, for example, change as the society gets richer. This makes it, in the jargon, a measure of absolute poverty rather than a measure of relative poverty which everyone else is using (and which the new US measure is). There is also one other very important point about the US poverty line.
It measures market income plus cash transfers from government and it measures those two things only. It does not measure the impact of the taxation system nor does it include any benefits in kind that a poor family or people might get. It does not, therefore, include Medicaid, SNAP, the EITC or Section 8 housing vouchers. Which is a pity as those four are the major poverty alleviation programs in the US.
Note what this means: we cannot compare the US poverty rate with that of other countries: because they are all including all of the things they do to alleviate poverty before working out who is still poor. The American system is much closer to a measurement of here’s the number of people who would be poor if we weren’t helping to alleviate their poverty. They are very much measures of different things.
And there’s a second thing this means as well: we cannot compare the crude US poverty numbers over time either. This is something that the EPI knows and knows very well: which is why I struggle to understand why they keep making this same point.
The reason we cannot compare over time is that back in the 60s and early 70s pretty much the only form of poverty alleviation we had was cash welfare. If you were poor then the government gave you money. It’s a reasonable enough plan if you think about it. Poverty is a lack of money, giving people money will alleviate poverty. However, since the mid-70s there’s been a bipartisan change in the way that poverty alleviation is done. The EITC (under Ford) was the start of this. Instead of simply giving people money because they are poor then we’ll give people a top up to their wages if they are working. It serves a purpose and most economists like this. However, it is administered through the tax system: this means we do not include it in our calculations of the poverty line and who is under it.
The same is true of all of those other programs to alleviate poverty: SNAP, Medicaid, Section 8 and so on. Some of them did exist before the mid 70s but the budgets of all of them have soared since then. Yes, after inflation, they have risen: the US spends much much more on poverty alleviation than it used to. And cash welfare (TANF as it has been called) was pretty much wiped out (it still exists but is very much smaller than it was) under the Clinton reforms.
So what we’ve had is that the country spends much more on poverty alleviation than it used to but we still seem to have the same amount of poverty: how come? Quite simply we do not count as reducing poverty most of the things we do to reduce poverty. Back in the 60s we did count nearly all of the things we did to reduce poverty as reducing poverty: now we don’t. And that’s why the poverty numbers haven’t fallen.
In essence the US has moved from, in the 60s, measuring poverty as being the people who are still poor after they’ve been given whatever help the government is going to give them, to, today, measuring poverty as the number of people who are poor before whatever help the government is going to give them.
When we adjust for this we find that poverty, by that 60s definition, pretty much doesn’t exist in the US today. I explain this here, with charts and everything. And as I say the folks at the EPI know this, they know it very well. They’re not stupid nor ill informed: although that does give us the problem of trying to work out why they don’t acknowledge this simple point. Perhaps they think we’re either or both enough that we’ll not realise the little trick that they’re pulling here.
They’re being all round eyed and questioning with those innocent little faces: why hasn’t the poverty rate fallen? The answer being, as they well know, that the US has effectively moved from measuring poverty as being those poor after government help to those who would be poor before government help.
The EPI’s report is here. It’s the beginning of a major campaign for them. A report and a campaign that I don’t think any of us should take very seriously. Given that their headline claim is so at odds with the facts as both we and they know them to be.