Simple Truths about the Poverty Rate


October 02, 1991|By BEN WATTENBERG

WASHINGTON. — Washington--It is useful to understand very simple ideas, even if the manner of their utterance yields giggles, as when President Calvin Coolidge observed: ''When a great many people are unable to find work, unemployment results.''

We are more sophisticated these days. We can now put forth, and even measure, another startling formula: ''Recessions push income down and poverty up.'' And so, with appropriate fanfare, the new Census Bureau income reports have been issued. Front-page coverage has sent out the word: The so-called ''official'' 1990 poverty rate is 13.5 percent, up from 12.8 percent. Real income declined by 1.7 percent.

But while we effectively measure and publicize one truism, we are doing a dreadful job regarding two others, which are at least as important. Consider these astonishing notions: 1) If it isn't counted, it doesn't count and, 2) Families with missing breadwinners earn less bread.

These simple ideas now mold every aspect of the income situation. Everyone involved knows it. But because of government gridlock and political pressure, they end up nearly ignored. This deeply distorts the public dialogue.

What we do hear is that the poverty rate is ''sticky,'' that is, it has remained between 11 percent and 15 percent since 1967. This ''stickiness'' is said to be one proof of a sickness in the American economy. And we hear that the American economy is increasingly ''unfair,'' or that ''inequality'' is growing. We hear that real income for the non-rich hasn't been growing, or growing only sluggishly.

Let's look at it. Is poverty, inequality or sluggish income growth really due to a sick economy?

The ''official'' poverty rate counts only income received in cash. But, over the last couple of decades, Americans began receiving ever-larger parts of their income in ''non-cash.'' Poor people get food stamps, rent supplements and Medicaid. The elderly get Medicare. Most Americans now get private health-care insurance. There was a sharp increase in employer-funded pension plans.

Now, the Census Bureau does publish a ''research'' data series that includes much ''non-cash'' income. When poverty is computed that way it registers not at 13.5 percent, but at 11.0 percent. (Even in the research series, pensions are not counted as income until decades after the money has been earned, vastly understating its impact.)

The change in breadwinner status also affects poverty and income in a powerful way. From 1970 to 1990 the proportion of families with children headed by a single parent more than doubled. That was not the fault of the American economy, or even of Ronald Reagan. These are typically voluntary and personal decisions.

We know that such change in family composition increases poverty. Yet the poverty report makes no official calculations regarding the impact of single-parentage.

Again, it is not because data aren't available. Three Census Bureau economists (Gordon Green, Paul Ryscavage and Edward Welniak) have issued research papers relating poverty to family make-up. If single-parentage hadn't gone up starkly, the poverty rate would be down another 2.1 percentage points. Alas, that too is only ''research,'' not ''official.''

Furthermore, a technical change in the method of measuring inflation, accepted officially in all current government calculations, is only charted as ''experimental'' in poverty reports that make comparisons over time. Doing it the right way cuts poverty another 1.4 points.

Put it all together, factor in something for pensions, and the official poverty rate would be cut roughly in half. ''Unfairness'' would be diminished. There would be no doubt that real income has been rising.

For 15 very long years an argument has been going on about whether to change the official, well-publicized, poverty rate, particularly regarding non-cash income, the revolutionary idea being to count what's countable. There are technical and political problems. You couldn't find a serious villain if you tried.

But there is a victim: us. We're neither going to understand our economy, nor act wisely upon it, until the diddling stops and we accept simple truths.

Ben Wattenberg is a fellow at the American Enterprise Institute.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.