By Kathryn Hazelett
Editor’s note: This is one in a series of blog posts to critically examine how poverty is defined, measured, and talked about, and how those conversations influence public policy.
Mollie Orshansky figured out “how” we measure poverty. Her method is still with us today. However, contrary to the old saying, “if it ain’t broke, don’t fix it,” the way we measure poverty might be broken. The good news is there’s a way to fix it.
Since 1963 when Ms. Orshansky created the federal government’s poverty measure, there has only been one change. We now update the poverty line by the Consumer Price Index (CPI) every year. Essentially, this change accounts for inflation.
Interestingly, the CPI measures “the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”(emphasis added) The basket of goods that the Bureau of Labor Statistics looks at to come up with the CPI includes housing, food and beverages, medical care, recreation, education, transportation, apparel, and other goods and services.
This “basket” is supposed to measure how prices for all consumer goods are changing. The CPI adjusts the income levels for poverty up or down based on the changes in the prices of that basket of goods. (This is another example of what we measure and how we determine needs making a big difference.)
Once the CPI change is established, it is applied to the official poverty measure, which still measures just the one thing.
To be clear, the poverty measure still relies on just the cost of food and that the cost of food makes up 1/3 of family budgets, which we know isn’t even close to accurate.
We know the problem in measuring the cost of food as 1/3 of family budgets; there are similar problems with measuring the cost of just one item. The poverty measure is then overly-sensitive to the relative price fluctuations in food and completely insensitive to other costs (i.e., housing and transportation).
And, “there is no other economic statistic in use today that relies on 1955 data and methods developed in the early 1960s. All of our major statistics, from GDP to unemployment to the current account balance, are regularly updated and revised, and based on the most recent and best data available.” (emphasis added)
The other main quibble with our poverty measure is that it is based on cash income rather than a more complete measure of disposable income. In the 60’s non-cash assistance was almost non-existent. Today, families benefit from the Earned Income Tax Credit, the child tax credit, housing assistance, childcare subsidies, and other programs. We also do not take into account things like the costs of healthcare and prescription medications that are unavoidable costs. Taking a realistic look at disposable income would give us a better way to measure poverty.
Is there a better measure?
There is. This is where the Supplemental Poverty Measure comes in. More on this next week.