Saturday, June 17, 2017

Did poverty rise or fall under Reagan? It depends on how you look at the data

See How much did poverty rise under Reagan? by Scott Sumner.
"This is from a Jeff Madrick article on poverty in America, in the New York Review of Books:
The poverty rate has been as low as 11.1 percent, in the 1970s; it rose under Ronald Reagan to approximately 15 percent and then fell to about 13 percent before rising again, then fell again under Bill Clinton to 11.3 percent before rising in the 2000s.
I see this all the time, and I find it really annoying. In a very technical sense this is true, but I'm going to present more complete data, and you tell me whether it's misleading. 
 
The poverty rate was 11.6% when Carter took office in 1977. The poverty rate rose to 14% in 1981, when Reagan took office. The poverty rate fell to 12.8% in 1989, when Reagan left office.

So how can the NYR of Books say "it rose under Reagan to approximately 15 percent"? That's because in Reagan's second year there was a very serious recession, and the poverty rate reached 15%. But the NYR of Books creates the impression that it rose during the 8 years that Reagan was in office, which is simply not true. Poverty fell under Reagan. it was Jimmy Carter who presided over a surge in poverty.

Of course there are lots of ways to massage the data, such as adjusting for changes in the business cycle, as well as inflation. As a general rule, poverty increases during presidencies when the economy deteriorates (Carter, Bush I, Bush II) and declines during presidencies where the economy improves (Reagan, Clinton, Obama). Unfortunately, Jeff Madrick seems to have an agenda, which requires his readers to believe that poverty increased under Reagan.

One other point. Yesterday, David Henderson quoted from a book by Peter Schuck. Here is one bit that caught my attention:
If we include noncash government benefits such as food and housing, if we take account of the Earned Income Tax Credit, and if we use a more realistic measure of inflation than the Consumer Price Index, then we would conclude that the 2013 poverty rate was not the reported 14.5%, but, rather, 4.8%.
Over the course of 61 years, I've run into a surprisingly large number of people who earn income on the fringes of the economy, doing various odd jobs. They are often paid in cash. Many of these people probably had very low "official incomes" being reported to the government. Thus I suspect that if you included money earned in the underground economy, the poverty rate would be far lower than even 4.8%. 
 
The point of this exercise is not to suggest that there is not a lot of poverty in America, in a relative sense. I am not trying to minimize the problem. I'm quite happy with people claiming that 15% of Americans are poor if they mean, "incomes that the average upper middle class person views as low". Thus people in New York or LA who make 20% or 30% above the official poverty line are probably viewed as "poor" by the average well paid professional. That's a valid opinion.

Rather my claim is that absolute poverty, not having enough income for food, clothing, and some form of shelter, has decreased sharply in America, even as relative poverty may reasonably be said to have stayed around 10% to 15%, or perhaps even edged up a bit.

Here is the official poverty rate data:"

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