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Economy 4.0

What’s behind the new measure of poverty?

David Brancaccio Oct 31, 2011
Economy 4.0

What’s behind the new measure of poverty?

David Brancaccio Oct 31, 2011

Kai Ryssdal: There’s a certain necessary arbitrariness in a lot of economic measurements. Somebody’s got to decide how much inflation is good and how much is too much. How much unemployment is fine and how much isn’t.

Right now, the Census Bureau draws its line in the sand on poverty. It’s actually called the poverty line. And if the income for a family of four is below roughly $22,000 per year, the family is officially poor.

Our series — Economy 4.0 — is all about how to make the global economy work better for more people, including those who fall below that line. Which is why Marketplace’s David Brancaccio is here to explain why the Census Bureau is about to come out with a new way to measure who’s officially poor in this country. Hello, David.

David Brancaccio: Hey there Kai.

Ryssdal: No pressure here, but what’s wrong with the old poverty line?

Brancaccio: Well, it was mainly based on food prices. They haven’t changed it since the 1960s. And it used to be what a family needs for food, multiplied — for some reason — by three. But, a modern household’s budget, food is much smaller percentage and other things like health care costs are higher. So they’re trying a new adjustment. The Census Bureau has been working on this for quite some time. And what will be called the “supplemental poverty measure” will be out next week.

Ryssdal: Lovely for statisticians doesn’t roll trippingly off the tongue though — supplementary poverty measure.

Brancaccio: Yeah, the Census Bureau is not known for its wackiness, but it’s important stuff because this is what they’re going to do: If a family at the at the lower end of the income scale — for instance — is paying for child care, that should be factored in, the government is saying. If they are paying for medical expenses, that is factored in and makes them look poor. However, government benefits — like if you’re getting food stamps or some help with health care co-pays — those are factored in and make you look richer. And where you live is crucial, because a poverty line in Fort Smith, Ark. — where the cost of living is lower — will be different from L.A. or New York.

Ryssdal: Let me back you up for a minute. You’re saying that if you’re making these payments it will make you look poorer. It occurs to me that this is not about the actual people in question themselves. It’s about the analysis, the statistics and statisticians, right?

Brancaccio: That’s a great point, Kai. It’s not like yesterday you were poor and tomorrow you’re not under this new supplemental thing. This is about targeting government programs — billions of dollars are at stake. Here is Tim Smeeding director of the Institute for Research on Poverty:

Tim Smeeding: Right now, if you look at the official poverty measures, Congress doesn’t know what — the $75 billion of SNAP food stamps and the $75 billion of refundable federal tax credits — what they did to fight poverty. They will know once the SPM is released.

Ryssdal: This is going to be a more complex calculation, right? A more complex indicator?

Brancaccio: More nuanced — is what they would say.

Ryssdal: OK, but nuance or complexity — do we benefit by going more granular?

Brancaccio: We may. Here’s the example. If you go out of the United States to a poor country — a developing country — the typical standard of poverty, you know what it is, it’s an individual who makes $1.25 a day. They can do better than that. So the United Nations recently adopted a pretty complex new indicator called — ready for it? — the “multidimensional poverty index.” But how they do it is really interesting. They’ll take a look at a family and ask: “Do you have a dirt floor?” they’ll ask. “Do you have a fridge?” Or quite tragically “Have you lost a child?” They’ll factor this stuff in — 10 indicators.

Sabina Alkire from the Oxford Poverty and Human Development Initiative argues this will cancel out some of the contradictions of the old way of looking at poverty.

Sabina Alkire: So if you are only malnourished, you could be a fashion model. You might not actually be malnourished because you are poor. If you cook with wood, it could be a lovely fireplace in a separate cooking area — it’s not a deprivation. So, to count as multi-dimensionally poor for us, you have to be deprived in 30 percent of our dimensions. And that means that we are looking at people who are really poor. We’re not looking at illiterate millionaires.

Brancaccio: So you’re totally right. Unless governments, the U.N. actually help use numbers like this to lift people out of poverty, they’re just statistics.

Ryssdal: David Brancaccio from our series Economy 4.0. David thanks a lot.

Brancaccio: You bet.

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