Last Sept. 26, the U.S. Census Bureau released its annual report on poverty in the United States. The report indicated that the number of people below the official poverty line had risen from 32.9 million in 2001 to 34.6 million in 2002.
Here in Michigan, the Census figures show a similar pattern. The number of Michiganians in poverty was up from 927,000 in 2001 to 1,152,000 in 2002, while Michigan’s poverty rate jumped from 9.4 percent to 11.6 percent.
Although disturbing, such statistics are liable to give a false impression of the condition of the poor. Policy changes based on emotion and faulty visions may make the situation worse.
The first problem is that the Census collects its data on income by asking a sample of Americans to fill out a survey, rather than relying on a more objective measure.
Even if the self-reported incomes are accurate, such statistics still aren’t a true measure of poverty by any commonsense definition. According to a Heritage Foundation report, many of the officially poor in America enjoy expensive, durable consumer goods. For example, a 1995 Department of Commerce survey showed that 41 percent of poor households owned their own homes, 69.7 percent owned a car or truck, 99.3 percent owned a refrigerator, and 66.3 percent had air conditioning.
Another flaw is that the Census statistics measure only pre-tax income, and exclude non-cash government entitlements (such as public housing, Medicaid, and food stamps). To hear that someone only makes $5,000 a year conjures up images of the barest survival, until we realize that the taxpayers are paying for his or her room and board.
Moreover, calculating the number of people in poverty in a given year, and then comparing the figure with previous years, gives the impression that we are referring to the same group of poor people. To quote an article in The Detroit News Dec. 28, “Hard economic times left another 225,000 people in Michigan in poverty last year . . . ”
But imagine we are measuring the number of people in a public swimming pool. Suppose that at noon on June 15, we count 50 people in the pool. If we return at noon on Aug. 15 and count 250 people in the pool, is it accurate to report, “Hot summer times left another 200 people in the swimming pool”?
The official poverty rate merely gives us a snapshot of how many people were earning less than the official income threshold at the time of the survey. The Census report itself notes that in a longitudinal study (which tracked the same people over time), over half of the measured poverty spells lasted four months or less, and 79.6 percent were over within a year.
Poverty is indeed a vexing social problem, and the government can definitely take steps to ameliorate the situation. Governments at all levels could cut taxes, which would allow the poor man’s dollar to go that much farther. They could also reduce the contradictory and pointless regulations that stifle entrepreneurship and thus retard economic development in depressed areas. In Michigan, elimination of the steel tariffs would spur steel-using industries to begin hiring once again.
Another source of poverty is a poor education system. Government school monopolies that typically spend more on failure than most private schools spend on success are, in our inner cities especially, veritable poverty mills. If kids graduate unable to read or write at levels that make them valuable in the marketplace, they will find it exceedingly difficult to avoid a life of poverty. But when a Detroit philanthropist offered $200 million to start 15 innovative charter schools in Detroit last year, the unions and the political administrations in Detroit and Lansing killed the idea. To them, the system was more important than the kids.
Finally, perhaps the biggest reduction in the official poverty rate would occur if only our government would stop spending billions of dollars subsidizing it. Cynical as it sounds, there are many able-bodied people who prefer to remain officially “poor” and live off of the taxpayers indefinitely. Private charities and churches are far better able to distinguish such frauds from the truly needy than are government agencies.
In any event, we should be wary each time the poverty stats come out. At best, they tell us a very small part of the story.
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Robert P. Murphy teaches economics at Hillsdale College and is an adjunct scholar at the Mackinac Center for Public Policy in Midland, Mich. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.