Discussion: (0 comments)
There are no comments available.
| AEI Press
Definition and Perspective
View related content: Economics
Rereleased AEI Classics
The War on Poverty proclaimed by the president of the United States has focused public attention on the problem of the poor.
What has happened over an extended period to the conception of poverty and the material condition of the poor? Do we have now or have we ever had objective criteria on the basis of which we can define the poor? What is the basis of the poverty line of $3,000 of money income per family used by the President’s Council of Economic Advisers in its 1964 Report? How valid is the portrait of poverty drawn by the Council using this line? These are the major questions which Mrs. Friedman considers in this study.
The author emphasizes that economic progress has benefited especially the low income groups in the community, citing as examples the relative effect on different classes of such major technological improvements as electricity, inside plumbing, telephone, automobile, TV and radio. The available statistical evidence, which covers only the past three decades, records a major reduction in both the number and fraction of families with low income in this country over that period. The income that in 1929, a year of high prosperity, put a family in the top 25 percent of all consumer units is today attained by fully two-thirds of all consumer unitsand this is, of course, after adjusting for the change in the purchasing power of the dollar. At the other end of the income scale, the highest income of the lowest third in 1929 is today exceeded by all but one-eighth of all consumer units.
Five possible criteria for distinguishing the poor from the not-poor are discussed in this study: the presence of hunger, a nutritionally inadequate diet, expenditure on food less than the amount that families getting a nutritionally adequate diet actually spend, an income less than the income at which families actually get nutritive adequacy, and an income, or level of consumption expenditure, which puts the family in the bottom so many percent of the population.
The Council of Economic Advisers, in its 1964 Report, implicitly uses the criterion of nutritive adequacy as the basis for the figure of $3,000 of money income which it uses as the dividing line between the poor and the not-poor, but it uses it incorrectly, the author believes. In addition, the Council used the same income as the dividing line for all families regardless of the size, although this was modified in the 1965 report. Mrs. Friedman says that correct application of the criterion, using precisely the same data and the same concept of nutritive adequacy yields a figure around $2,200 as the relevant income for a nonfarm family of four and incomes ranging from $1,295 for a 2-person household to $3,155 for a household of 7 or more persons.
The Council’s analysis not only exaggerates greatly the extent of poverty on its own criterion, it also gives a misleading description of who are the poor. Correct application of the criterion leads Mrs. Friedman to a rough estimate that 10 percent and not 20 percent of all families, as the Council states, should be classified as poor by that criterion. It also shows that the Council overstates the fraction of the poor who are young, old, on farms, and in the South. It understates the fraction of the poor who are in large families, in the cities, and in the North.
Rose D. Friedman, who received her training in economics at the University of Chicago, has been on the staff of the National Resources Committee, the Federal Deposit Insurance Corporation, and the Bureau of Home Economics. She has specialized in the economics of consumption and is currently engaged in research in that field.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research