Reassessing the War

by John Hood, John Locke Foundation and NC SPIN panelist, January 31, 2014.

If University of Chicago economist Bruce Meyer and Notre Dame economist James Sullivan are correct, much of the recent political chatter about the 50 anniversary of the War on Poverty was little more than uninformed nonsense.

Meyer and Sullivan have been doing groundbreaking work in the area of economic statistics. Although many other economists and statisticians have questioned the accuracy of common statistics such as average incomes and poverty rates, Meyer and Sullivan have finally put some hard numbers on what had previously been largely theoretical discussions.

The official poverty rate, for example, is an odd statistic that has never really measured what most people think it measured. Based on pre-tax cash income, it doesn’t reflect the effect of most anti-poverty spending, such as food subsidies, free health care, public housing, or the Earned Income Tax Credit. Moreover, those who receive public assistance have strong financial incentives not to report all the income they receive, including paid labor, which is one reason why the average consumption of low-income households is often substantially higher — not just temporarily but over time — than their reported incomes.

According to the official poverty rate, then, the trillions of federal, state, and local tax dollars spent to subsidize low-income families since the mid-1960s haven’t had a major effect on their living standards. If you think about this finding for even a nanosecond, it should strike you as rather silly.

In a 2012 paper published by the left-of-center Brookings Institution, Meyer and Sullivan sought to develop and apply a more reasonable measurement of poverty status in the United States. They started with consumption rather than income, factored in the value of government benefits, and used a more appropriate adjustment for inflation than the Consumer Price Index, which does not adequately account for changes in the quality of consumer goods (among other defects).

Here’s what they found: About 31 percent of American households were in poverty by their measure in 1962. By 2010, that rate had dropped to 5 percent. The most rapid improvement came early, as the rate dropped about 14 percentage points from 1962 to 1972. But gains continued through the 1970s, 1980s, 1990s, and 2000s.

Obviously, government programs that redistributed cash or provided in-kind services to low-income families played a role in ameliorating deprivation. But so did economic growth. In fact, the data show that true poverty was also declining at a rapid pace during the 1940s, 1950s, and 1960s — before the Great Society programs were invented.

Perhaps the Meyer-Sullivan measure of poverty has its own bias. Certainly some left-wing activists think that vastly more Americans should be considered poor than the current poverty rate captures. In a sense, that’s a semantic matter. Regardless of where we want to set the poverty line, the point is that there has been a vast improvement in the material conditions of low-income Americans over the past several generations — reflected not just by the Meyer-Sullivan trend but also by many other measures such as nutrition, housing, asset ownership, transportation access, age-adjusted mortality rates, and health status.

In the case of food and nutrition, for example, economist Nicholas Eberstadt writes that “anthropometric data demonstrate that our poor are incontestably better off today than in 1965.” As for housing, “the poor today live in decidedly less crowded, more spacious, and better-furnished dwellings than they did four decades ago … by a number of benchmarks, indeed, the officially poor today enjoy better housing conditions than the average nonpoor in 1970, or the American population as a whole as recently as 1980.”

This optimistic take on poverty statistics challenges sides of the debate. Conservatives sometimes argue, implausibly, that spending trillions of tax dollars on government welfare programs makes no difference in the lives of the poor. And liberals argue, equally implausibly, that we don’t spend nearly enough on government welfare programs.

The real failure of the War on Poverty is not that poverty stayed the same. It was that programs originally sold as temporary interventions to foster self-sufficiency in the long run have instead fostered long-term dependency for too many families.