The Corner

They Can’t Do the Sums

Whatever you think of the economic-policy merits of the porkulus bill — though, of course, you shouldn’t think much of them — the recession will in all likelihood deepen in the coming months. Capitalism’s critics will seize the opportunity to present an array of scary-looking graphs and charts attempting to prove that the current downtown is only the exclamation point on the end of a three-decades trend of impoverishment and income stagnation.

Details matter. Getting the statistics right is a prerequisite for drawing useful conclusions and fashioning effective policies. On poverty and income trends, there are two think tankers everyone should be pay close attention to: the American Enterprise Institute’s Nicholas Eberstadt and the Cato Institute’s Alan Reynolds.

Eberstadt’s recent book blows apart the official poverty line as a meaningful tool for measuring the living standards of low-income Americans over time. In a new column, he drives the point home:

Only a misprogrammed computer would designate 1973–that Vietnam War and “stagflation era” year—as America’s golden age of progress against poverty. Yet this is what the official rate asserts. This isn’t the only fault in the statistics: They also miss the improvement in living standards among the officially poor. Consider: In 1973 over half the families in America’s poorest fifth didn’t own a car. By 2003 over 73% of them owned some sort of motor vehicle—and 14% had two cars or more. By the same token, about 27% of American children below the poverty line failed to see a doctor annually in 1985; 20 years later, the figure was 11%. Thus poor children nowadays are more likely to have an annual doctor visit than nonpoor kids a few years ago.

What is wrong with the official poverty rate? It measures the wrong thing—and always has. That thing is income. But poverty is a matter of consumption, and a huge gap has come to separate income and consumption at the lower strata of our income distribution.

As for Reynolds, his recent book contends that studies of disparities in wealth and income that don’t take into account the measurement flaws inherent in using tax-return data aren’t worth much. From a 2007 paper on the same subject:

[S]tudies based on tax return data provide highly misleading comparisons of changes to the U.S. income distribution because of dramatic changes in tax rules and tax reporting in recent decades. Aside from stock option windfalls during the late-1990s stock-market boom, there is little evidence of a significant or sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth over the past 20 years.

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