Understanding Poverty

Robert Rector /

Today, the U.S. Census Bureau released its annual poverty report. Every year for nearly three decades, in good economic times and bad, Census has reported more than 30 million Americans living in poverty.

What does it mean to be “poor” in America? In reality, the average person, as identified as “poor” by the government, has a living standard far higher than the public imagines. According to the government’s own surveys, the typical “poor” American has cable or satellite TV, two color TV’s, a DVD player or VCR. He has air conditioning, a car, a microwave, a refrig¬erator, a stove, and a clothes washer and dryer. He is able to obtain medical care when needed. His home is in good repair and is not overcrowded. By his own report, his family is not hungry, and he had sufficient funds in the past year to meet his family’s essential needs.

Conventional accounts of poverty not only give a false picture of material hardship, they also underestimate government spending on the poor. In 2008, federal and state governments spent $714 billion (or 5.0% of the total economy) on means-tested welfare aid providing cash, food, housing, medical care and targeted social services to poor and low income Americans. (This sum does not include Social Security or Medicare.) If converted into cash, this aid would be nearly four times the amount needed to eliminate poverty in the U.S. by raising the incomes of all poor households above the federal poverty levels.

How can the government spend so much and still have such high levels of apparent poverty? The answer is that in measuring poverty and inequality, Census ignores almost the entire welfare state. Census deems a household poor if its income falls below specified federal poverty income levels. But in its regular measurements, Census counts only around four percent of total welfare spending as “income”. Because of this, government spending on the poor can expand almost infinitely without having any detectable impact on official poverty or inequality.