Monday, June 7, 2010

Measuring Poverty

Robert Samuelson explains why the new poverty measure should not be used as a political tool. (HT: Greg Mankiw).

I think he doesn't go far enough explaining how poorly (and why) income and consumption can be correlated. This story from Mankiw demonstrates how. When you include implicit marginal taxes from lost government benefits the marginal tax rate hovers around and can even exceed 100%, meaning families pay $0.80-$1.05 in taxes for each dollar earned. I don't completely trust this source, but they document implicit taxes in Virginia and you can see how bad it can be.

One other point worth emphasizing is that Democrats should want the poverty rate to pick up progress. We've made of progress improving the standard of living in this country over the years and reducing poverty, but the poverty line currently used (and the one proposed by Obama) ignores that. Some Democrats think that's a good thing as it keeps people's attention focused on poverty. But that's not true. It makes people think helping the poor is a lost cause, so we should give up. It also obscures our priorities, making us think, for instance, that people who choose not to work because they make more money on welfare, are in desperate straits, so we continue to focus on them, while we largely ignore mentally ill, homeless people who actually need help.

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