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Are Americans really living on $2 a day?

By Robert Doar

Christopher Jencks is an important commentator on American social policy. For years, the Harvard sociologist has written about poverty in America with penetrating intelligence. He always lets the evidence lead him to his conclusions, which he states with great care. I aspire to be as thoughtful and careful as he is.

Last year Jencks wrote an important piece in the New York Review of Books showing how the official poverty measure was extremely misleading and how government programs, and a more accurate measure of inflation, reduce the official poverty rate in 2013 from more than 14% to less than 5%. Here is the chart he used to illustrate his point.

This argument about the misleading nature of the official poverty rate was not new. It has been pointed out for years (including most convincingly by AEI’s Nick Eberstadt in his 2008 book The Poverty of ‘The Poverty Rate.) But coming from Jencks, and appearing in the New York Review of Books, his article made the definitive case that our $800 billion annual federal investment in anti-poverty programs have significantly relieved the material hardship of the poor (a point that Robert Rector at the conservative Heritage Foundation has made for years.)

As Jencks helps us to see, their arguments may not add up.

Last week, Jencks again took to the pages of the New York Review of Books towrite about a subset of the poor who have been getting a lot of attention recently due to the work of Kathryn Edin and Luke Shaefer, whose book “$2.00 a Day: Living on Almost Nothing in America” has been the hottest recent contribution to the discussion of poverty in America. Using both national survey data and interviews with 18 families, Edin and Shaefer argue that some single parent families are dramatically worse off than they were before the passage of the 1996 welfare reform legislation, which replaced a federal entitlement to cash welfare (AFDC) with a block grant to states to implement work-focused cash assistance programs (TANF).

Jencks’ review has some very nice things to say about Edin and Shaefer’s book. But he also provides two very strong caveats to their data which, to me, substantially undermine Edin and Shaefer’s argument. First, Jencks points out that other government provided resources such as food stamp benefits and the Earned Income Tax Credit make up for 80% of the reduction in resources which the book describes:

Including these resources reduces the estimated prevalence of extreme poverty among households with children from 1.7% to 1.1% in 1996 and from 4.3% to 1.6 percent in 2011. Because the reduction is so much larger in 2011 than it was 1996, the increase in extreme poverty between 1996 and 2011 falls from 2.6 percentage points to 0.5 percentage points. In other words the growth of EITC refunds and noncash benefits offsets about four-fifths of the decline in extremely poor families’ pretax money income between 1996 and 2011.

Edin and Shaefer acknowledge that they focus only on “cash” income and they argue that vouchers which pay for food or housing are not cash, and don’t cover all the needs of a family. But for most readers of their book, and certainly for all of those who just hear the headline about families living on $2 a day, the distinction goes unnoticed: Living on $2 a day means that is all they have to purchase food and housing. That is, after all, what it customarily means when used in the developing world context from which Edin and Shaefer drew the statistic.

Jencks questions another aspect of Edin and Shaefer’s argument. They describe families who report living on $2 a day for at least one month during the past year. To Jenks, that short period seems an overly stringent standard, as people often have a month of no earnings after they lose or seek to change jobs. For such a short period of time, they are often able to rely on savings, or help from family and friends.

The increase in extreme poverty from 1996 to 2011, when properly measured, is one-half of a percentage point.

To Jencks, a better approach would count only those who had three or more months living on resources worth less than $2 a day and here the “prevalence of extreme poverty among households with children fell from 1.7% to 0.5% in 1996 and from 4.3% to 1.0% in 2011.” This means that the increase in extreme poverty from 1996 to 2011, when properly measured, is one-half of a percentage point.

Still an increase, and still something to be concerned about, but is that increase all, or only, about the change in federal welfare policy which took place in 1996? Given everything else that took place during the period, is it really accurate to say an apparent increase in severe poverty in 2011 was caused by the creation of the new federal welfare program in 1996?

In 2011, we were barely out of the worst recession in forty years, while 1996 was five years removed from the bottom of the previous recession. 2011 was also a year in which the labor market could have been influenced by large increases in government assistance flowing from the Obama recovery act (including big increases in SNAP benefits, housing aid and tax credits, all of which might have an impact on incentives to work).

Could it be that the small increase in extreme poverty was caused by the bad economy in the wake of the Great Recession? Did the fact that federal policymakers decided against incorporating strong work requirements in their expansions of assistance programs affect this in any way? Is it possible (if not likely) that the increase is due in part to more underreporting of income on surveys such as the one used by Edin and Shaefer?

Jencks concludes his review of Edin and Shaefer with a note of uncertainty about whether the 1996 changes really are to blame for the apparent increase in severe poverty, calling the assertion “the kind of speculation” that can neither be verified nor refuted.

In the coming weeks, as we approach the 20th anniversary of the signing of the legislation which replaced AFDC with TANF, you can be sure that voices from the progressive left are not going to be as careful about saying that the struggles of the poor today should be blamed on the 1996 change in federal policy. As Jencks helps us to see, their arguments may not add up.


Published at aei.org on June 6, 2016.

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