Lies, Damn Lies and Poverty Statistics
How an archaic measurement keeps
millions of poor Americans from being counted
by Christopher Moraff
In These Tims magazine, March
Standing before the House rostrum on the
night of January 31, President George W. Bush beamed as he recounted
the state of the country's economic health.
"Our economy is healthy," the
president declared during his State of the Union address. "Americans
should not fear our economic future, because we intend to shape
What shape Bush has in mind is clear.
While the administrators of the president's economic policies
champion 11 consecutive quarters of GDP growth, Bush-mandated
tax cuts ensure that the government will continue to make less
while the rich and large corporations eagerly fill their coffers.
In 2005, federal revenues were just 17.5 percent of GDP, 1 percent
less than the previous 50-year average. By contrast, the Feb.
12, 2005 Economist reported that in 2004, after-tax corporate
profits reached their highest level as a proportion of GDP in
In the meantime, everyday Americans are
spending more than they make. For the second straight year, personal
savings have been in the red, a phenomenon that has only happened
once before, at the height of the Great Depression. Research conducted
by the Economic Policy Institute shows that the indebtedness of
U.S. households has risen nearly 36 percent over the last four
years. As a result, the gulf between the "haves" and
"have nots" is reaching crisis proportions.
Compounding the crisis is an archaic method
for determining America's poverty rate, which is then used to
formulate the funding of programs that alleviate poverty. When
President Bush sat down with his advisors to draft his FY 2007
budget, it's debatable whether he took the time to examine the
national poverty statistics provided each year by the Census Bureaus.
What's not debatable is that the Census Bureau's methodology is
The current method for measuring poverty
in the United States was developed in 1963 by a young statistician
for the Social Security Administration named Mollie Orshansky.
Using data from a 1955 Department of Agriculture survey, Orshansky
developed a set of thresholds that set a poverty line at three
times the annual cost of feeding a family of three or more under
Agriculture's "low-cost budget." She developed the thresholds
purely for her own research and said at the time that her data's
limitations would yield a "conservative underestimate"
At that, Orshansky's work might well have
passed into history. But on January 8, 1964, President Lyndon
Johnson uttered the famous words: "This Administration today,
here and now, declares unconditional war on poverty in America."
It was a war Johnson intended to win, but missing was an official
yardstick for gauging the problem and its ultimate resolve.
Not just any measure would do. Rather,
the administration required a threshold that was sufficiently
conservative to render eradication of poverty attainable-winning
the war by moving up the finish line. Orshansky's model fit the
bill. But first, the Office of Economic Opportunity substituted
the Agriculture Department's "economy food plan," which
was still another 25 percent lower than the "low cost budget"
originally chosen by Orshansky. Almost immediately, the new thresholds
had an effect, and by 1968, the nation's official poverty rate
had dropped by more than 10 million.
Forty years later, with the War on Poverty
no closer to being won, the Census still relies on the Orshansky
Thresholds to calculate each year how many Americans live in poverty.
That number then determines the nature and distribution of an
array of federal policies and programs aimed at addressing the
As critics have pointed out for decades,
limitations of the Orshansky formula are manifold. For one, food
doesn't account for one-third of a family's budget today, making
it an unrealistic cost-of-living measure. The model also fails
to take into account housing, transportation or health care-which
together can amount to more than triple the average cost of food.
Add in regional variations, childcare costs and the growth of
single-parent families, and it's fair to say that the Census Bureau
is systematically undercounting the number of poor Americans.
Census data released this past August
suggests that the number of Americans in poverty grew slightly
in 2004 (the most recent year for which data is available) to
12.7 percent from the 12.5 percent recorded the previous year,
representing about 37 million Americans. Since 2000, the number
of people living in official poverty has increased by 5.4 million.
But according to experts, that number vastly underestimates the
real total. Duke University sociology professor David Brady puts
it this way: "Each August we Americans tell ourselves a lie.
The entire episode is profoundly dishonest."
Brady says that based on his calculations
the real number is closer to 18 percent-or 48 million Americans
currently unable to afford the most basic necessities. Less conservative
estimates have put the numbers of poor at 25 percent, or more
than 70 million Americans.
Robert T. Michael, a renowned public policy
scholar at the University of Chicago, explains the shortcomings:
Orshansky "set a target level of income for a family of four
at $3100 in 1963 based on evidence that she put together that
basically was using 1955 data. That exact same number-augmented
only by cost of living-is the official measurement of poverty
today. If they'd done that at the time of Abraham Lincoln, you
know, set a rate something like 100 years before, then we'd have
a really low level of poverty today."
What this means in real numbers is that
the average poverty threshold for a family of four in 2004 was
an annual income of $19,307. It was $15,067 for a family of three;
$12,334 for a family of two; and $9,645 for individuals. "It's
really egregiously in error," Michael says.
In 1992, at the prompting of the Joint
Economic Committee of Congress, the National Academy of Sciences
formed a panel to examine the poverty thresholds. Michael was
asked to chair the panel.
After three years of work, in 1995 the
panel released its report, "Measuring Poverty: A New Approach,"
which proposed a number of reforms, notably a change to a measure
adjusted regionally that takes into account variations in the
cost of housing. But nobody in the federal government seemed ready
"We've gotten some movement and a
lot of attention," Michael explains, "but it hasn't
changed anything because politicians are politicians." He
blames the interests of the states-which have become financially
dependent on the status quo-and an unwillingness of any administration
to accept such a drastic rise of poverty on their watch.
"If they wanted to change it, it
would be pretty easy to do," agrees Brady. "The real
reason it hasn't been changed is because of politics."
Christopher Moraff is a Philadelphia-based
writer and reporter. He most recently covered flaws in the federal
procurement system for Entrepreneur Magazine and Dollars &