Tuesday, August 08, 2006

The official poverty rate is mighty strange. Historical regressions suggest that the "poverty rate falls when unemployment rises; and when education or anti-poverty spending rise, the poverty rate rises too." What's going on?

A lot can be explained by the fact that Americans with relatively low incomes spend a lot more than they used too.

In 1960–61, the lowest income quartile of U.S. households reportedly spent about 12 percent more than their annual pretax income. By 1972–73, however, the poorest fifth of households were spending nearly 40 percent more than their annual income — and by 2002 were spending well over double their reported annual income.
This may have something to do with increased income variability, i.e., temporarily poor folk living beyond their (current) means.

Several researchers have attempted to estimate longer-term trends for transitory variance in U.S. household income based on these data. Their findings all point to a single general pattern: one of secular, and quite significant, increases in such variability between the early 1970s and the beginning of the twenty-first century.

...

Clearly more research is warranted here. For now, however, we may note that the curious divergence between reported income and expenditure patterns that has been recorded in consumer expenditure surveys for the period since the early 1970s appears to be matched by a simultaneous reported rise in transitory income variance for U.S. families in the psid survey — and with a particularly marked increase in proportionate year-to-year variations for families on the borderline of the bottom income quintile.

Whatever's going on, many indications of material improvement clearly contradict the stagnation of the poverty rate over the last thirty years.

To summarize the evidence from physical and biometric indicators: Low-income and poverty-level households today are better-fed and less threatened by undernourishment than they were a generation ago. Their homes are larger, better equipped with plumbing and kitchen facilities, and more capaciously furnished with modern conveniences. They are much more likely to own a car (or a light truck, or another type of motor vehicle) now than 30 years earlier. By most every indicator apart from obesity, their health care status is considerably more favorable today than at the start of the War on Poverty. Their utilization of health and medical services has steadily increased over recent decades.

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