Poverty consumption has fallen dramatically since 1960

See Winning the War: Poverty from the Great Society to the Great Recession by Bruce D. Meyer & James X. Sullivan. Meyer is at the University of Chicago and Sullivan is at The University of Notre Dame. Excerpts:

"ABSTRACT 

We consider the long-run patterns of poverty in the United States from the early 1960s to 2010. Our results contradict previous studies that have argued that poverty has shown little improvement over time or that antipoverty efforts have been ineffective. We find that moving from traditional income-based measures of poverty to a consumption-based measure and, crucially, adjusting for bias in price indexes lead to the conclusion that the poverty rate declined by 26.4 percentage points between 1960 and 2010, 8.5 percentage points of which has occurred since 1980. Our consumption- based measure suggests considerably greater improvement than the income- based measures for single-parent families and the elderly, but relatively less for married-parent families. Changes in tax policy explain a substantial part of the decline in poverty; Social Security has also been important, but other transfer programs have played a small role. Changes in education have also contributed, but other demographic trends have had little impact. Measurement error in income likely explains some of the most noticeable differences between changes in income poverty and in consumption poverty, but saving and dissaving appear to play a modest role for most demographic groups."

"Conclusions

Citing official poverty statistics, many have concluded that the United States has made little progress in reducing poverty over the last several decades. Indeed, trends in official poverty have led some to argue that we have lost the war on poverty—that the panoply of income support pro- grams from food stamps to unemployment insurance have been ineffective antipoverty tools. Although much previous research has examined the deficiencies in the official poverty measure, most poverty scholars still rely on it as the definitive measure of trends in poverty and draw important conclusions based on it. 

The results in this paper contradict the claim that poverty has shown little improvement over time and that antipoverty efforts have been ineffective. We show that moving from traditional income-based measures of poverty to a consumption-based measure, which is arguably superior on both theoretical and practical grounds—and, crucially, accounting for bias in the cost-of- living adjustment—leads to the conclusion that the poverty rate declined by 26.4 percentage points between 1960 and 2010, with 8.5 percentage points of that decline occurring since 1980.

These improvements have several explanations. Poverty has been sharply reduced through tax rate cuts and tax credits. Increases in Social Security benefits have also played a large role, but other transfers have played only a small role. Rising educational attainment also accounts for some of the decline. Saving and dissaving by households is not the main reason that income and consumption differ near the poverty line. A great deal of evidence suggests that underreporting of income is a likely source of these differences, but this explanation merits further examination. 

Our results for consumption-based and improved income-based measures of poverty have different implications than past findings based on official and alternative income poverty measures, both for policy and for the agenda for further poverty research. Who has benefited from economic growth and from redistributive policies and who would benefit from additional targeted policies depend critically on whether one exam- ines consumption or income. Our consumption poverty results for the period since 1980 suggest much greater improvement than for income poverty for single-parent families and the aged. However, the same results find little additional improvement in poverty for married-parent families, suggesting that additional antipoverty efforts for this group merit further investigation. 

Despite repeated claims of a failed war on poverty, our results show that the combination of targeted economic policies and policies that support growth has had a significant impact on poverty. Better standard head count measures of poverty show a sharp improvement in recent decades. Beyond the traditional head count poverty measures, measures of deep poverty and the poverty gap show even greater improvement, implying considerable progress at reducing severe deprivation. Noticeable improvements have been made in the last decade; although not as big as the improvements in some earlier decades, they are comparable to or better than the progress made in the 1980s. We may not yet have won the war on poverty, but we are certainly winning."