Sunday, October 19, 2003

Poverty Perspective
My post yesterday was on the need for perspective vis a vis the Iraq war, but it also helps a lot when it comes to thinking about economic issues. This post is a discussion of poverty statistics. I saw this at Chicago Boyz, but Sylvain got it from the von Mises Institute. An important point is that official US poverty statistics are based on before-tax cash income. However, the poor do receive non-cash transfers that have a real effect on their income. Secondly, this focus on cash income counts as poor some idle rich, some retired rich, and some feast-or-famine workers (like a screenwriter who makes $5 million one year and $0 the next). The obvious solution? Measure consumption instead of income. But of course that won't happen. Excerpts from Don Mathews at von Mises:

For instance, the official poverty figures—again, 34.6 million people and a poverty rate of 12.1 percent—are derived by defining family income as before-tax cash income. However, when the Census Bureau defines family income as after-tax cash income plus capital gains and the value of all noncash transfers (and adjusts the poverty thresholds using the CPI-U-X1 rather than the notoriously inaccurate CPI-U), it counts 21.5 million people as poor. That’s 13.1 million or almost 40 percent fewer than the official count. It also results in a poverty rate of not 12.1 percent, but 7.5 percent.
Researchers have discovered that almost one million people classified as poor own homes worth more than $150,000, while upwards of 200,000 people classified as poor own homes worth more than $300,000.

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