Friday, September 01, 2006

Perversion of Poverty

Nick Eberstadt has a lengthy piece out today that provides more evidence that the government's official measurement of poverty is misguided:

The curious behavior of the official poverty rate in relation to these four other important measures bearing on material deprivation is underscored by simple econometrics, through regression equations in which these other measures are utilized in an attempt to “predict” the poverty rate for a 30-year period (1972–2002). Under ordinary circumstances, we would expect unemployment and poverty to be positively associated (the higher the unemployment level, the higher the poverty level), while per capita income, educational attainment, and anti-poverty spending should all correlate negatively with any absolute measure of poverty. Between 1972 and 2002, however, the official poverty rate happens to correlate positively with increases in per capita income — and the statistical association is a strong one. Indeed, controlling for changes in unemployment levels, a rise in real U.S. per capita income of $1,000 (in 2002 dollars) would be predicted to push up the official poverty rate for the entire population by over half a percentage point.

If we exclude per capita income from the tableau, the other three measures — unemployment, education, and anti-poverty spending — can in tandem do a very good job of predicting changes in the poverty rate, together explaining over 90 percent of the variation in the poverty rate during the period in question. But the relationships between the poverty rates and these other variables are perverse: The poverty rate falls when unemployment rises; and when education or anti-poverty spending rise, the poverty rate rises too. And if we use all four measures to try to predict the poverty rate, the common-sense (i.e. negative) correlation between per capita income and poverty at last emerges, and that relationship is statistically strong — yet strong relations between the poverty rate and the other three measures also emerge, and all of those are perverse. Those relationships, in fact, imply that an eight-point jump in the unemployment rate would reduce the official poverty rate by a point, while a ten point drop in the percentage of adults without high school degrees would raise it by a point! No less striking: A nationwide increase in means-tested public spending of $1,000 per capita (in 2002 dollars) would be predicted to make the official poverty rate rise — by over three percentage points.

Clearly, something is badly amiss here.

No kidding, and it should be obvious to anyone with their eyes open, but usually isn't.

As should be Eberstadt's conclusion:

The official poverty rate is incapable of representing what it was devised to portray: namely, a constant level of absolute need in American society. The biases and flaws in the poverty rate are so severe that it has depicted a great period of general improvements in living standards — three decades from 1973 onward — as a time of increasing prevalence of absolute poverty. We would discard a statistical measure that claimed life expectancy was falling during a time of ever-increasing longevity, or one that asserted our national finances were balanced in a period of rising budget deficits.

Central as the “poverty rate” has become to antipoverty policy — or, more precisely, especially because of its central role in such policies — the official poverty rate should likewise be discarded in favor of a more accurate index, or set of indices, for describing material deprivation in modern America.

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