Academic journal article Review of Social Economy

The Extent of Material Hardship and Poverty in the United States

Academic journal article Review of Social Economy

The Extent of Material Hardship and Poverty in the United States

Article excerpt

INTRODUCTION

Lyndon Johnson's War on Poverty and the federal government's current system of poverty measurement were born together. Johnson announced his now famous War on Poverty during his State of the Union address in January 1964. To accompany the President's announcement, the 1964 Report of the Council of Economic advisors contained a chapter on the problem of American poverty, setting tentative poverty income guidelines. In May 1965 the White House Office of Economic Opportunity (OEO) adopted similar but more elaborate poverty thresholds as a working definition of poverty, based on the work of Mollie Orshansky at the Social Security Administration (Fisher, 1992).

Orshansky's methods still provide the framework through which the government annually estimates the extent of poverty. In devising this framework, Orshansky began with the basic cost of food for different size families as specified by the Department of Agriculture's "economy food plan." Using food expenditures as a foundation, she then established non-food allowances as a multiple of food expenditures based on the share of budget allocated to non-food items in the general population in the 1950's (Orshansky 1965). In general, this produced a budget plan in which food spending was expected to be one third of total household expenditure.(1) This analysis resulted in an overall set of poverty income thresholds adjusted for family size: for a four person home the poverty threshold was $3,130; for three persons it was $2,400, two persons at $2,050, etc.

Using family cash incomes reported in Census Bureau's Current Population Survey (CPS), Orshansky determined that 34.6 million persons were living in "poverty" in 1963 (Orshansky 1965). In subsequent years, the original income thresholds have been adjusted for inflation according to the Consumer Price Index (CPI-U), but little else has been changed in the framework. Official poverty estimates have been made for each year from 1959 to the present, comparing the poverty income thresholds to household income data reported in the CPS.

The chief merit of this income-based poverty measure is simplicity; it allows the numbers of the poor to be crisply reported, and permits the concept of poverty status to be readily incorporated into a wide range of surveys and studies. However, there are three critical problems with this method of poverty assessment:

1 The fact that a household's cash income falls below the specified threshold provides no clear indication that the household actually experiences a significant material deprivation and provides no information about the exact nature of the hardships when they do occur.

2 The government's determination of poverty is based only on annual income; all assets accumulated by a household in prior years are ignored. As a result the count of the "poor" includes a significant number of relatively well off households who would not be considered impoverished by any common sense definition.

3 A comparison of the CPS income data to Commerce Department data used to measure the Gross Domestic Product shows that the CPS dramatically and consistently under reports the economic resources of households. Even a modest undercount of the economic resources of low-income households will cause a major distortion in the measured poverty rate. Thus, even if the Orshansky/current government method of determining poverty is accepted in principle, the income reporting in the Current Population Survey may well be too inaccurate to provide a suitable database for assessing poverty.

However, an alternative approach to measuring poverty can be devised based on a survey of actual material living conditions. While this approach lacks the formal simplicity of the government's income-based methods, it does circumvent the problem of income under-reporting. It also provides a manifold and concrete picture of poverty when compared to the one dimensional and abstract income-based method. …

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