The other planet

归零UID: 130624

The other planet

Aug 30th 2004
From The Economist Global Agenda


The number of Americans in poverty is rising, as is the number without health insurance. The best anti-poverty programme is a tight labour market. America still doesn’t have one


CONTRARY to popular belief, President George Bush’s campaign against terrorism is not the first time the United States has waged war on an abstract noun. In 1964, President Lyndon Johnson declared war on poverty. Then, as now, the administration had some trouble defining the enemy. The poverty line it eventually adopted, a line first drawn by Mollie Orshansky of the Social Security Administration, remains in place today, adjusted for inflation, but otherwise scarcely altered. Two parents, bringing up two kids, are judged to be poor if they live on less than $18,660 a year (for an unencumbered individual, the threshold is $9,573). On Thursday August 26th, the Census Bureau revealed that 35.9m Americans, or 12.5% of the population, fell below this poverty line in 2003, 1.3m more than the year before.

Whatever crude logic it possessed at the time, the Orshansky poverty line is by now quite arbitrary. Its originator calculated the cost of meeting a family’s nutritional needs and then multiplied this figure by three, because families in that era spent about a third of their income on food. The Census Bureau does not repeat this exercise to determine today’s poverty line; it does not recalculate the cost of an adequate diet or remeasure the share of income spent on food. It simply adjusts Ms Orshansky’s figures for inflation. Thus today’s dollar thresholds do not tell us how much a family or individual needs to get by in today’s America; they simply restate the cost of feeding a family in the 1960s in today’s prices, and multiply it by three.

As the Census Bureau is the first to concede, the poverty line is not a “complete description of what people and families need to live”. A more complete description would show that poor families now spend a far bigger share of their budget on housing (over 35%, according to the Bureau of Labour Statistics) than on food (just 16%). Child care, done for free by the mothers and grandmothers of the 1950s and 1960s, is now a big expense. Deducting this expense from the measured income of families would add 1.9m to the official poverty figure, according to estimates by Isabel Sawhill and Adam Thomas of the Brookings Institution.

But a better measure of poverty would also assess the various weapons the government deploys against it. The current measure ignores non-monetary benefits, such as food stamps. Nor does it count the earned income-tax credit, a benefit paid via the tax code to the working poor, which has become every policy wonk’s favourite way to redistribute money. The Census Bureau has already experimented with such measures, and is probably itching to finally retire the Orshansky line. But its political masters in the Office of Management and Budget are nervous of any innovation that would raise the official poverty number. To the bureau, the poverty line may be a mere “statistical yardstick”, but to the administration, it is a political stick its opponents might use to beat it with.

But if the level of poverty is fairly arbitrary, changes in the level are quite telling. Poverty fell throughout the long economic expansion of the Clinton years, from 15.1% in 1993 to 11.3% in 2000. Particularly striking was the fall in poverty among single mothers and their families, from 35.6% (4.4m) in 1993 to 24.7% (3.1m) in 2000.

The bubble years were also a period of ferment in the country’s welfare laws. State handouts came with new strings and time limits attached. Single mothers were encouraged, often required, to work. In a 2000 study, Rebecca Blank, who once served on President Bill Clinton’s Council of Economic Advisers, concluded that welfare reform—both the state experiments of the early 1990s and the federal overhaul of 1996—reduced the poverty rate among female high-school dropouts by about 5 percentage points.

But the latest census figures show a partial reversal of these gains. Poverty among the households of single mothers has increased from 24.7% in 2000 to 28% in 2003. Child poverty has also increased. In retrospect it is clear that Mr Clinton signed his 1996 welfare reform at an auspicious time: the economy was creating jobs faster than people were being ousted from the welfare rolls; the states implementing the reforms were flush with cash. But as Congress now debates how to revamp and extend the law (the 1996 act was due to expire in 2002), all of these stars have fallen out of alignment.

Firms are reluctant to hire, and even when they do, they are loth to offer health insurance. Employer-sponsored health plans covered 1.3m fewer Americans last year than the year before. State governments are strapped for cash; as a result, they are cutting back on child-care assistance. Many welfare recipients are now close to using up all the months of help they are entitled to. Unfortunately, those who remained dependent on welfare when times were good are the least likely to get a job now that times are not so good.

Benjamin Disraeli, a 19th century British prime minister, likened the rich and the poor to “two nations, between whom there is no intercourse and no sympathy, who are as ignorant of each other’s habits, thoughts and feelings, as if they were…inhabitants of different planets”. As a guide to the less fortunate of these two planets, the Census Bureau’s poverty figures are flawed and anachronistic. But they do show that welfare reform is not by itself enough. Unless the labour market tightens further this year, there will be many more Americans discovering the other planet for themselves in 2004.

gdhdannyUID: 125843

Very impressive analysis of America economy!