Tuesday, February 21, 2006

40-Year-Old Formula Calculates Poverty

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An Associated Press story, linked here via the Los Angeles Times explains the battle brewing over how we define and calculate poverty in America. There's big money at stake depending on who wins this battle, particularly in the housing market and the programs that will, or won't, be funded as a result. Here's an excerpt:
Every year, the Census Bureau uses a 40-year-old formula to determine how many poor people there are in America, a method that many experts think was outdated years ago.

The Census Bureau acknowledges the issue by also announcing alternative poverty rates based on different measurements of income and poverty. This approach has fueled an academic and political debate, but has yet to produce policy changes.

In August, the bureau announced that 12.7 percent of Americans lived in poverty in 2004, making it the official poverty rate. Last week, the bureau said the rate might be as high as 19.4 percent, or as low as 8.3 percent, depending on how income and basic living costs were defined.

One outside analyst said he could cut the poverty rate in half using census data and a pocket calculator. But his exercise would change only the definition of poverty. It wouldn't make anyone richer.

"I know virtually no one who thinks the current poverty line is an accurate measure of poverty," said Rebecca Blank, co-director of the National Poverty Center at the University of Michigan.

Blank served on a National Academy of Sciences panel that recommended changes to the poverty measure 10 years ago. But the issue was too politically sensitive to resolve, she and others said.

Some proponents of change want a higher poverty rate to encourage spending on the poor; others want a lower rate to make it easier to cut spending.

"Everybody's got their favorite way of measuring it because the outcome fits their needs," said Martha Farnsworth Riche, who headed the Census Bureau under President Clinton.
That's exactly the point that Mark Twain* was getting at when he spoke of the three types of untruths: "lies, damn lies and statistics."

* CORRECTION: Oxford Dictionary of Quotations attributes the statement to Benjamin Disraeli.

— The Boy in the Big Housing Bubble