Yesterday I wrote about how the government calculates poverty rates in the US. Today I want to talk about some of the criticisms of these computations. Tomorrow I will talk about the release of the 2008 poverty figures by the government.
Many scholars believe that the rates calculated by the government underestimate the true poverty problem in the US. A first problem concerns the food requirements that form the basis of the Orshansky poverty lines. Originally, Mollie Orshansky came up with two different food budgets—one that would provide sufficient nutrition to a household if consumed for the entire year and another that provided minimum food requirements for short-term emergency situations only. This latter food budget would not be able to meet the nutritional needs of a family for an entire year, but would be sufficient for a few months. The government adopted the latter food standard rather than the one that would provide sufficient nutrition for an entire year. This was not Mollie Orshansky’s decision, but rather came from President Johnson, who was concerned about the political consequences if the US announced extremely high poverty rates.
Since the emergency food budgets used in the official US poverty lines are around 80 percent of what was necessary to provide a nutritional diet for the entire year, the Orshansky poverty lines are 80 percent too low.
A good way to see this is through the actual poverty thresholds for 2008, which appear below.
Poverty Thresholds for 2008 by Size of Family and Number of Related Children Under 18 Years
One person
Under 65 years- 11,201
65 years and over- 10,326
Two people
Under 65; no child- 14,417
Under 65; 1 child- 14,840
65 years+; no child- 13,014
65 years+; 1 child- 14,784
3 people; no child- 16,841
3 people; 1 child- 17,330
3 people; 2 children- 17,346
Source: US Census Bureau
Few people think that a single person can survive on $11,000 for an entire year. This is especially true in urban areas, with high housing and utility costs. To get a feel for what is involved here, the Orshanksy poverty lines assumed that one-third of income would be spent on food. Food expenditures for a single person would then be a little more than $300 per month. This works out to a little more than $10 per day, or around $3.50 per meal. It would be hard for most people to survive spending so little on food.
Others have argued that if we were to strictly follow the Orshansky methodology we must take account of the fact that food consumption has fallen from one-third to one-fifth of family spending. This means that current poverty lines should be 5 times the cost of an emergency food budget for each family rather than 3 times that amount. This would raise poverty lines by two-thirds and also make poverty lines consistent with public opinion surveys of the amount of income people believe that a family must have to escape poverty.
The Orshansky methodology has also been criticized for overestimating the actual poverty problem in the US and yielding poverty rates that are too high. Rose Friedman, the wife of Nobel Prize winning economist Milton Friedman, contends that families below the poverty line still enjoy most of the amenities that Americans take for granted. For example, the poor have access to free education; they own televisions and automobiles; and they live in homes with indoor plumbing, central heating and electricity. Friedman also has argued that low-income families probably consume too many calories.
Others criticize the Orshansky methodology because it looks at only money income. They have pointed out that poor families receive a great deal in-kind benefits from the government, such as Food Stamps (which provide free or subsidized food), Medicaid (which provides free medical care), and housing vouchers (which subsidize rental expenditures). Consequently, the standard of living for low-income households is underestimated and the poverty rate of these households is overestimated.
One of the most frequent criticisms of the Orshansky methodology is more philosophical than technical. Orshansky developed an absolute measure of poverty. Poverty is supposed to measure the minimum income necessary for a family to survive during the course of a year, so there is something right about using an absolute definition of poverty. When people can’t afford a decent place to live or go to bed hungry, they are clearly poor. But poverty also has a social or relative aspect to it. Quoting Adam Smith, generally recognized as the father of economics, being poor means being able "to appear in public without shame". This means having clothing and other visible means of consumption close to the same quality as other people in one’s community. Even Mollie Orshansky herself recognized that to some extent "poverty, like beauty, lies in the eyes of the beholder" and was a value judgment that would vary over time and place.
Following this line, a relative notion of poverty has been endorsed by the OECD, which calculates poverty rates based on having a fraction (usually half) of the median income in one country at one point in time. Using this standard, a great deal of empirical work has found that poverty in the US is substantially higher than poverty in other developed nations. Moreover, the main reason for this is that the US does very little to help low-income households compared to other developed nations.
Finally, a last criticism of the official poverty lines stems from work that I have done with my colleague Robert Scott. We have noted that when Mollie Orshansky developed the US poverty lines, most low-income households (and also most middle-income households) had little access to consumer credit and very little debt. However, starting in the 1980s consumer debt has become a big problem. Households rely on credit in times of emergency, or because they fall below the poverty line and need to survive. Relying on credit means that interest must be paid on this credit in the future. This interest expense leaves less money for basic necessities such as food, clothing and shelter. Essentially, households are poor because of their debt (even if their income is above the poverty line). Robert Scott and I have estimated that more than 4 million Americans are poor because they have to pay interest on their past debt. We have called these people "debt poor"—they are not counted as poor by the government, but are poor because of their past debt. We have also estimated sharp increases in the debt poor over the past several decades.