Some Thoughts on the Census and Poverty Indicators

Since the release of the Census data on poverty, the media has pointing out the conclusion of the data, which is that nearly one in six Americans are poor (which is 46.2 million!).  Even the British and the French have picked up on this bit of news.  (This chart from CNN shows the state-by-state breakdown of poverty rate according to the Census data)  With the prolonged economic issues, I can see why the release of these findings would spur hullabaloo.  And it should be no surprise that the Left jumped on this data and essentially cried "class warfare."  The Left-leaning Center for American Progress analyzed the Census' news, and predictably concluded that we need to pass Obama's American Jobs Act, as well as increase spending on entitlement programs and further tax the rich.


If we were to take the Census findings at face value, we would think that America is worse off than ever.  I'm not going to say that this recession has not been a burden on the American economy, and thus, the American people.  It has!  However, to measure poverty based on income, even if that is based on inflation-adjusted dollars, is methodologically flawed.


As The Economist states, "The Census Bureau's definition of 'poverty' is about as informative as the Justice Department's latest definition of 'enemy combatant.' It's not to be taken for granted."  The main gripe in the previously cited Economist article is that various forms of government assistance do not count.  This would include such benefits as government-assisted medical care (e.g., Medicare, Medicaid), food stamps (as well as other forms of welfare), and the Earned Income Tax Credit (note pages 52-68 for distribution rates based on income).  The fact that these benefits are not factored into the Census Bureau's definition of poverty already makes their findings of "one in six is poor" suspect.  

The even bigger distortion of the Census Bureau, thereby making their data misleading, is that their findings do not take consumption into consideration.  Income is relative to the amount that one can consume.  Freakonomics outlined this point out quite nicely a couple of days ago, and they even used data a recent study done by Professors Bruce Meyer and James Sullivan concurring with this idea.  Even consumption reports from the U.S. Energy Information Administration show the consumption patterns of the poor from 2009.  Looking at the EIA's data, I found some interesting facts, such as 98% of poor people (i.e., those with a household income less than $20K per annum) have at least one television, 83.5% have air conditioning, 48.1% have at least one computer, and a good majority have stoves, ovens, dishwashers, and refrigerators.  When looking at the consumption-based measurements of the poverty gap, the gap is actually falling, not rising like it is in income-based. 

This should certainly give us some thoughts in terms of how to handle poverty-related issues.  Although we are currently in a "sluggish recovery," is it as bad as the media is making it out to be?  Not at all.  We should not give into the socialist impulse to want to give handouts out of some feeling of guilt.  Rather than further burden the economy with entitlement spending that does nothing to resolve poverty in the long-run, we need to tackle root problems, mainly that of employment, education, and family composition.  Once we recognize core issues, those who can be classified as genuinely poor can begin to see the light at the end of the tunnel.