Thursday, March 19, 2015

The War on Poverty Succeeded?

President Lyndon Johnson declared “unconditional” war on poverty in the United States in 1964.  What has come to be known as the War on Poverty was a protracted conflict that, similar to the Vietnam War, extended over many years and ended up being considered by most as being of dubious value.  Christopher Jencks produced an article for the New York Review of Books that provides a fresh view of what might have been accomplished by Johnson’s initiative: The War on Poverty: Was It Lost?.

Jenks includes Ronald Reagan’s famous 1988 quote on the subject:

“Some years ago, the federal government declared war on poverty, and poverty won.”

He also describes polling that indicates Reagan’s assessment has been accepted by the majority of the population.

“Asked about their impression of the War on Poverty, Americans are now twice as likely to say ‘unfavorable’ as ‘favorable’.”

Jencks article was occasioned by the publication of a collection of papers evaluating the long-term consequences of the programs initiated or augmented as part of this attack on poverty.  This document suggests that the “War” was more successful than most people believe.

Legacies of the War on Poverty is a set of nine studies, edited by Martha Bailey and Sheldon Danziger, that assess the successes and failures of the diverse strategies that Johnson and his successors adopted to reduce poverty. The chapters are packed with evidence, make judicious judgments, and suggest a higher ratio of success to failure than opinion polls do.”

To put the collection of legislative efforts in perspective it must be recognized that Johnson did not put into action a complete slate of acts aimed at addressing poverty.  What emerged over time were efforts that extended to the 1980s when Reagan took over the White House and the Democrats lost control of Congress.

“As a result, some of today’s most important antipoverty programs, such as food stamps, Supplemental Security Income (a guaranteed minimum income for the elderly and disabled), and Section 8 rent subsidies for poor tenants in private housing, were either launched or dramatically expanded between 1969 and 1980. Had Johnson not put poverty reduction at the heart of the Democrats’ political agenda in 1964, it is hard to imagine that congressional Democrats would have made antipoverty programs a political priority even after Republicans regained control of the White House.”

Jencks promises a follow-up article is coming that describes the assessments of the various antipoverty programs.  Here he is mainly concerned with the most commonly applied metric: has the rate of poverty actually decreased after all this effort.  This is a quite complicated question.  Poverty can be defined in many ways.  Some people believe poverty exists only in the biblical sense where assistance is needed to avoid starvation.  Others conclude that anyone in possession of a smart phone cannot be considered poor; therefore the number of poor is quite small.  The federal government publishes a number estimating the percentage of people living below “the poverty line” using surveys conducted by the Census Bureau. 

This poverty line is an income level in dollars that depends on whether an individual is an independent unit or a member of a family.  Family incomes are compared to a number based on the size of the family and the age of its members.  This was the way poverty was assessed in the 1960s, and the government uses the same metric today basing the change in poverty level on the change in the Consumer Price Index for All Urban Consumers (CPI-U).

The government figures indicate a poverty rate of about 19% in 1964 that dropped to around 11% in the early 1970s.  Since that time the rate has fluctuated with changing economic conditions and stood at 14.5% in 2013.  This apparent stagnation makes it easy to conclude that the various government efforts at addressing poverty have been failures.

The government’s approach has the benefit of being consistent year-to-year, but consistency and accuracy are two quite different things. 

“Given that the War on Poverty was a commitment to eliminating it, the most obvious measure of the war’s success or failure is how the poverty rate has changed since 1964. Bailey and Danziger argue that just looking at changes in the poverty rate is a ‘simplistic’ approach to assessing the War on Poverty, and in one sense they are right. If you want to know how well programs like Head Start or food stamps worked, or how many full-time jobs they created, the reduction in poverty over the past half-century is not a sensible measure.”

“But Bailey and Danziger’s argument is more fundamental. They object to using trends in poverty as a measure of the war’s success because the prevalence of poverty depends not just on the success or failure of policies aimed at reducing it but also on other independent economic and demographic forces, like the decline in unskilled men’s real wages and the rising number of single-parent families.”

Jencks illustrates just how inaccurate the government’s approach can be by indicating some obvious changes that have taken place over the years that are not considered in the official poverty rate.

He first addresses the increase in unmarried but cohabiting couples who are considered “unrelated individuals” by the census bureau.  The poverty line for an unrelated individual was $12,119 in 2013.  An unmarried couple could have had a joint income of $24,238 and still be both counted as living in poverty.  For a married couple the poverty line is a mere $15,600.  This leads Jencks to conclude that the poverty rate is being over estimated by a change in social customs that the government’s methodology refuses to recognize.

There are other failings that are more easily quantified.  Jencks uses the term noncash benefits to represent goods and services that are provided to people that allow their cash needs to have decreased over the years.

“Noncash benefits now provide many low-income families with some or all of their food, housing, and medical care. Such programs were either tiny or nonexistent in 1964, and their growth has significantly reduced low-income families’ need for cash. However, the Office of Management and Budget (OMB) does not allow the Census Bureau to incorporate the value of these benefits into the recipients’ poverty thresholds. The President’s Council of Economic Advisers estimates that even if we ignore Medicare and Medicaid, food and housing benefits lowered the poverty rate by 3.0 percentage points in 2012.”

An even more egregious error is obtained by ignoring refundable tax credits as a component of income.

“As part of its effort to reform welfare by ‘making work pay,’ the Clinton administration persuaded Congress to expand the Earned Income Tax Credit (EITC) between 1993 and 1996. By 2013 the EITC provided a refundable tax credit of $3,250 a year for workers with two or more children and earnings between $10,000 and $23,000. Because the official poverty count is based on pre-tax rather than post-tax income, these tax “refunds” are not counted as income…. According to the Council of Economic Advisers, treating refundable tax credits like other income would have reduced the poverty rate by another 3.0 percentage points in 2012.”

Estimating changes in the purchasing power of the dollar has always been difficult.  Besides the CPI-U, there is something called “the chain-price index for Personal Consumption Expenditure” which Jencks refers to as the PCE index.  This PCE index is thought to be more accurate in assessing changes in purchasing power.

“The Commerce Department’s Bureau of Economic Analysis constructs this measure to calculate changes in the total value of all the consumer goods and services produced in the United States each year. The PCE index is therefore the largest single influence on government estimates of economic growth. If the poverty thresholds had risen in tandem with the PCE index rather than the CPI-U since 1964, the 2013 poverty line would have been 20 percent lower than it was, and the 2013 poverty rate would have been about 3.7 percentage points lower than it was.”

Jencks does not try to estimate the cohabitation effect, but considering the three corrections with estimates included he draws the conclusion illustrated below.

Reasonable improvements in projecting a poverty level consistent with that determined in 1964 leads to a prediction of a poverty rate in 2013 that is not the official figure of 14.5% but a mere 4.8%.  Jencks admits that there are uncertainties in his numbers as well, but this still allows him to argue that the suite of antipoverty efforts implemented since 1964 have actually worked much better than has been generally assumed.

Given this analysis, it is safe to conclude that many people classified as living in poverty today are probably living a better life than they would have if they were in the same situation in 1964.  However, that conclusion depends on a specific definition of poverty that was defined in a different era.  It is in no way clear that the same definition is relevant today—or that it was appropriate even in 1964.

Poverty is, in some ways of reckoning, a mental as well as a physical state.  There is the notion that poverty is always relative.  A family that has subsistence levels of food, clothing, and shelter may be locked into a declining economic lower class with no apparent means of escape for any of its members.  Is that a state of poverty?  Many would think it is. 

Jencks does not claim that his number represents the number of people who should be considered to be living in poverty.  He merely wishes to claim that Johnson’s war and the actions of the government in fighting poverty were effective.

“…even if the true poverty rate was 6 or 7 percent in 2013, it would have fallen by about two thirds since 1964, putting it considerably closer to what Lyndon Johnson had promised in 1964 than to what Ronald Reagan had claimed in 1988.”

This is an important point because it illustrates that the government is not necessarily “the problem” as claimed by Reagan.  It can be—and often has been—the solution.

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