Help Me--and the U.S.--Define Poverty

We know our Official Poverty Measure (OPM) is wrong, but we still use it to redistribute $2.9T.

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Poverty is about well-being: does a person have enough resources to reach a basic standard of living? Add up what they have—earnings, assets, and benefits—subtract the costs of life, then somewhere along that continuum we draw a line in the sand, "Anyone below this line is poor", we decry. As you can imagine, there're thousands of ways to do this, making it stranger that we don't officially adopt a way of identifying the most destitute among us.

Mollie Oshanky never meant to define poverty. An economist for the Social Security Administration, Oshansky built a food-based threshold to identify who couldn’t afford a basic diet. That’s why our Official Poverty Measure (OPM) is tied to the cost of a USDA “economy” food plan from 1963, updated only by the CPI. Johnson started his War on Poverty the US needed a way to target people. "Poverty" don't account for housing, child care, energy, education, basically most of real life. Honest to goodness, we don't even account for the $2.9T in anti-poverty programs we redistribute to our poor. If we did include these benefits, the poverty rate falls from 11% to around 2%. But I don't find this the intellectually honest rate either. This is using a poverty threshold an outdated government diet. Let's be real.

A better guesstimate is our Supplemental Poverty Measure (SPM). This time we include post-tax dollars and benefits then subtract most of life’s expenses; work expenses, child care, taxes and medical out of pocket spending. This net resources measure shows what’s left after life takes its cut. Here, the threshold is given as being below 89% the median net resources level. Sounds a lot better! Wait, two things. Poverty is as much about who as it is about how many. “Who” is what the SPM gets wrong.

 

According to the SPM, wealthy old woman are poor. Turns out older women spend a lot to maintain appearances. So much so, that when deducted from their income, they look poor. But older people live more off passive income like investments or Social Security than they do on income. This is one example of how being income poor doesn't mean you're consumption poor.

Consumption is a better indicator of poverty. How much we consume is already the core of utility functions in economics that determine well-being. We also use savings, credit and benefits to maintain our lifestyle when paychecks are cutting it. Thankfully, the BLS conducts quarterly surveys at the household, or consumer unit (CU) level. The Consumer Expenditure Survey is generally regarded as the best data on the income, consumption and federal aid in US homes.

Below, I looked at households at the same level of consumption, opened the door, and peeked inside on our many American lives. As we move down the consumption scale, Americans are more likely to be people of color, single parents, renters, and non-college graduates, and much more likely to receive benefits.

Rather than debating “what is poverty?” in the abstract, shift the consumption threshold and see how your definition changes who is "poor". Click the menu in the upper left corner, set the poverty threshold relative to median consumption and watch how the picture of poverty—who, not just how many—evolves.