Have we won the war on poverty?

[caption id="attachment_3309" align="alignleft" width="150"] Mike Walden[/caption]

by Mike Walden, Professor of Economics, NC State College of Agriculture and Life Sciences, September 2, 2016.

It’s amazing how time can change perceptions. Frequently we see this with past presidents.   Helped by a popular Broadway play and multi-volume biography, President Lyndon Johnson’s reputation has undergone a dramatic revaluation. Formerly scorned by many for his role in the Vietnam War, Johnson is now being praised for his legislative accomplishments – most notably civil rights.

One of President Johnson’s other domestic initiatives was the “war on poverty”. The goal was to significantly reduce the prevalence of poverty in our country through a combination of financial assistance and skill development ultimately allowing individuals to become self-sufficient. Included were programs like Medicaid, Food Stamps (today, Supplemental Nutrition Assistance Program), job training and housing assistance. It is estimated that over $20 trillion (in constant purchasing power dollars) has been spent to date on the various anti-poverty programs.

There’s a long-running debate over whether the effort has been successful. Critics point to a modest reduction in the official poverty rate since the 1960s. Others, however, say the official poverty measurements don’t tell the entire story. Let me try to present the facts and then let you decide.

The official poverty measure is based on an estimate of the annual money required by households of various sizes to achieve a defined standard of living. The estimate begins by calibrating the money needed to feed a household an acceptable diet meeting nutritional standards. This monetary amount is then multiplied by a factor to derive the total dollar amount required for an acceptable standard of living.

This poverty threshold has long been criticized as being too simplistic, and numerous commissions and groups have called for its revision. The Census Bureau has experimented with more comprehensive measures of the income needed for an acceptable standard of living, with most results showing poverty rates would be higher with revised measures.

Using the official measure, the poverty rate in the country declined from 20 percent in the mid-1960s to 15 percent in 2014 (latest year available). Certainly any reduction is good, but critics say the improvement is modest in light of the funds spent to reduce poverty.

But here’s another wrinkle to the debate over reducing poverty. When the financial resources of a household are compared to the estimated money needed to stay out of poverty, only the cash money received by households from the government or from working is included. Non-cash assistance – such as from the government helping pay medical bills or rent – is excluded.

Obviously, non-cash resources are important, so there have been several efforts to re-calculate poverty rates by including both cash and non-cash assistance to households. The U.S. Census Bureau’s calculations show the national poverty rate would be just under nine percent if government programs providing non-cash assistance to households are included.

A totally different approach to measuring poverty is to look at what households spend rather than the resources (cash and non-cash) they have available. This is called the “consumption approach” to measuring poverty. Supporters of this approach say it provides two advantages. First, the statistical data for household spending is often more complete than the information on income.   Second, spending more directly determines the standard of living achieved by households.

When the consumption approach is used to measure how many households are spending enough to stay out of poverty, some estimates show the current poverty rate at close to five percent.

So, has the war on poverty been a success? The answer depends on how success is defined. A qualified “yes” could be given if all government resources – cash as well as non-cash assistance – are used in calculating the poverty rate. Then the conclusion would be the poverty rate has been cut by slightly more than half from 1965 to today. Success is even higher if the consumption method of measuring poverty is used.

Yet if success is defined as households escaping poverty because their own resources (not including government-provided resources) are adequate, then a case can be made the poverty rate has changed little and may have risen. This is especially the case for those in “deep poverty” – defined as households more than 50 percent below the poverty threshold.

So the good news on poverty is that government programs – many begun by the “war on poverty” - are keeping more households above the poverty line than in the past. The bad news is that more households today depend on government resources to escape poverty.

So it appears there’s a difference between reducing measured poverty and reducing the causes of poverty. Are the solutions to each goal different? You decide!