Earlier this month, the President's Council of Economic Advisers (CEA) declared that the War on Poverty launched by President Lyndon Johnson in 1964 is"largely over and a success."Although it is premature to declare an outright and absolute victory, it's great that policymakers at the highest level of government recognize that our social safety net programs are working.
But if we are to continue to reduce hardship and promote mobility from poverty throughaccess to good jobs, work and other means, we have to understand the nature of poverty today. It's important that we draw the right lessons from the past so we don't underestimate our current challenges and cede our hard-won progress in the War on Poverty.
Let's start with the good news in the CEA report: material well-being in the United States has improved considerably. The poverty rate has also declined over the last few decades, although you wouldn't know it if you looked just at the official poverty rate, which has not fluctuated greatly since the 1960s, ranging from 10 to 15 percent.
The official poverty rate draws a threshold based on food consumption patterns from the 1950s and considers only pretax cash income as available resources. Consequently, the official poverty rate understates both the needs of today's families and the resources available to them. In fact, two of our largest sources of support to low-income families—the earned income tax credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP)—don't count in our official poverty measure.
When researchers extended the SPM back in time, they found that thepoverty rate dropped from 26 percent in 1967 to 16 percent in 2012and to about 14 percent in 2016, more accurately capturing poverty's downward trend than does the official poverty measure. In addition, without SNAP and refundable tax credits, the poverty rate would have been 3.7 percentage points higher than it was in 2016. Expansions of the EITC and SNAP have alleviated poverty in ways the SPM reflects and the official poverty measure misses.
Limitations of a consumption-based poverty rate
The "too good to be true" news from the CEA is that the poverty rate declined from 30 percent in 1960 to just 3 percent in 2016 when applying a "consumption-based" poverty measure, which measures what a family consumes instead of how much income it earns. A consumption-based poverty measure has some merit. After all, a family with no income but substantial assets would be considered "income poor" but could be consuming at comfortable levels.
Because there is no official measure of consumption-based poverty, the CEA relies on thework of economists Bruce Meyer and James Sullivan. To develop a consumption-based poverty rate, Meyer and Sullivan need accurate data on consumption and a meaningful standard for how much a family needs to consume to have a minimally adequate standard of living. Some scholars haveexpressed concernsabout the data Meyer and Sullivan use to construct their consumption-based poverty rate.
Those concerns aside, the consumption-based poverty rate from Meyer and Sullivan that the CEA cites is indexed to 1980, an arbitrary threshold that might understate the hardship and need families experience today. Using this measure allows the CEA to suggest that poverty isn't much a problem in the US today.
Drawing a meaningful threshold for consumption-based poverty is a challenge—for example, when the authors equate the consumption and official poverty rates in 2015 and then apply their techniques backward, they find thatnearly 40 percent of Americans were poor in 1980, and nearly 60 percent were poor in 1960.Those levels are too high to be a meaningful indication of overall hardship in those years. Similarly, the 3 percent figure touted by the CEA for 2016 is too low.
Further, crossing a given consumption threshold does not mean you have the power and control over your resources and life to not be "poor." Exposing yourself or your children to a potentially abusive situationjust to have a roof over your headortrading sex for foodor income might keep you out of consumption poverty, but you are still poor.
The role of antipoverty programs
Although it's too soon to declare the War on Poverty over, it is important to recognize the progress we have made and the important role our antipoverty programs such as SNAP and EITC have played in that success. Use of a consumption-based poverty measure should neither lead to a misguided belief that the War on Poverty has been won nor justify making major changes—however well intentioned—to safety net programs that risk cutting people off from the very programs that have kept them out of poverty.
Well-designed reforms that help recipients overcome their barriers to work, supplement and support their efforts to work, and recognize that some recipients will be limited in the amount and type of work they can do can help us make even more progress against poverty.