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How Poor Are the Poor?

Losing Ground: American Social Policy, 1950–1980

by Charles Murray
Basic, 323 pp., $23.95

From 1946 until 1964 the conservative politicians who dominated Congress thought that the federal government might be capable of transforming American society, but they saw this as a danger to be avoided at almost any cost. For the following twelve years the liberals who dominated Congress thought that the federal government should try to cure almost every ill Americans were heir to. After 1976 the political climate in Congress changed again. The idea that government action could solve—or even ameliorate—social problems became unfashionable, and federal spending was increasingly seen as waste. As a result, federal social-welfare spending, which had grown from 5 percent of the nation’s gross national product in 1964 to 11 percent in 1976, has remained stuck at 11 percent since 1976.

Conservative politicians and writers are now trying to shift the prevailing view again, by arguing that federal programs are not just ineffective but positively harmful. The “problem,” in this emerging view, is not only that federal programs cost a great deal of money that the citizenry would rather spend on video recorders and Caribbean vacations, but that such programs hurt the very people they are intended to help.

Losing Ground, by Charles Murray, is the most persuasive statement so far of this new variation on Social Darwinism. Murray is a former journalist who has also done contract research for the government and is now associated with the Manhattan Institute, which raises corporate money to support conservative authors such as George Gilder and Thomas Sowell. His name has been invoked repeatedly in Washington’s current debates over the budget—not because he has provided new evidence on the effects of particular government programs, but because he is widely presumed to have proven that federal social policy as a whole made the poor worse off over the past twenty years. Murray’s popularity is easy to understand. He writes clearly and eloquently. He cites many statistics, and he makes his statistics seem easy to understand. Most important of all, his argument provides moral legitimacy for budget cuts that many politicians want to make in order to reduce the federal deficit.

Murray summarizes this argument as follows:

The complex story we shall unravel comes down to this:

Basic indicators of well-being took a turn for the worse in the 1960s, most consistently and most drastically for the poor. In some cases, earlier progress slowed; in other cases mild deterioration accelerated; in a few instances advance turned into retreat. The trendlines on many of the indicators are—literally—unbelievable to people who do not make a profession of following them.

The question is why….

The easy hypotheses—the economy, changes in demographics, the effects of Vietnam or Watergate or racism—fail as explanations. As often as not, taking them into account only increases the mystery.

Nor does the explanation lie in idiosyncratic failures of craft. It is not just that we sometimes administered good programs improperly, or that sound concepts sometimes were converted to operations incorrectly. It is not that a specific program, or a specific court ruling or act of Congress, was especially destructive. The error was strategic….

The most compelling explanation for the marked shift in the fortunes of the poor is that they continued to respond, as they always had, to the world as they found it, but that we—meaning the not-poor and undisadvantaged—had changed the rules of their world. Not of our world, just of theirs. The first effect of the new rules was to make it profitable for the poor to behave in the short term in ways that were destructive in the long term. Their second effect was to mask these long-term losses—to subsidize irretrievable mistakes. We tried to provide more for the poor and produced more poor instead. We tried to remove the barriers to escape from poverty, and inadvertently built a trap.

In appraising this argument, we must, I believe, draw a sharp distinction between the material condition of the poor and their social, cultural, and moral condition. If we look at material conditions we find that, Murray notwithstanding, the position of poor people showed marked improvement after 1965, which is the year Murray selects as his “turning point.” If we look at social, cultural, and moral indicators, the picture is far less encouraging. But since most federal programs are aimed at improving the material conditions of life, it is best to start with them.

1.

In making his case that “basic social indicators took a turn for the worse in the 1960s,” Murray begins with the official poverty rate. The income level, or “thresh-old,” that officially qualifies a family as poor varies according to the number and age of its members and rises every year with the Consumer Price Index, so in theory it represents the same level of material comfort year after year.1 If a family’s total money income is below its poverty threshold, all its members are counted as poor. The official definition of the poverty level is to a large extent arbitrary. When the Gallup survey asks how much money a couple with two children needs to “get along in this community,” for example, the typical respondent said $15,000 in 1983. The “poverty” threshold for such a family was only $10,000 in 1983. But few would say that people with incomes below the poverty threshold were not poor.

Table 1 (see next page) shows that the official poverty rate fell from 30 to 22 percent of the population during the 1950s and from 22 to 13 percent during the 1960s.

Table 1

This hardly seems to fit Murray’s argument that social indicators took a turn for the worse in the 1960s. The official rate was still 13 percent in 1980, but even this was not exactly a “turn for the worse.” Furthermore, the official poverty statistics underestimate actual progress since 1965. To begin with, the Consumer Price Index (CPI), which the Census Bureau uses to correct the poverty thresholds for inflation, exaggerated the amount of inflation between 1965 and 1980 by about 13 percent, because of a flaw in the way it measured housing costs. The official poverty line therefore represented a higher standard of living in 1980 than in 1965. If we use the Personal Consumption Expenditure (PCE) deflator from the National Income Accounts to adjust the poverty line for inflation, Table 1 shows that poverty fell from 19 percent in 1965 to 13 percent in 1980.

A more fundamental problem with the official poverty statistics is that they do not take account of changes in families’ need for money. They make no adjustment for the fact that Medicare and Medicaid now provide many families with low-cost medical care, for example, or for the fact that food stamps have reduced families’ need for cash, or for the fact that more families now live in government-subsidized housing.

Experts on poverty have devised a number of different methods for estimating the value of noncash benefits. Most conservatives prefer the “market value” approach, which values noncash benefits at what it would cost to buy them on the open market and adds this amount to recipients’ incomes. To see what this implies, consider Mrs. Smith, an elderly widow living alone in Indiana, who is covered by both Medicare and Medicaid. Private insurance comparable to Medicare–Medicaid would have cost Mrs. Smith $4000 in 1979.2 To get Mrs. Smith’s “true” income, advocates of the “market value” approach simply add $4000 to her money income. Since, by the official standard, Mrs. Smith’s poverty threshold was only $3472 in 1979, the “market value” approach put her above the poverty line even if she had no cash income whatever. This is plainly absurd. Mrs. Smith cannot eat her Medicaid card, or trade it for a place to live, or even use it for transportation to her doctor’s office.

If we want a more realistic picture of how Medicare and Medicaid have affected Mrs. Smith’s life, we must answer two distinct questions: how it affected her ability to obtain medical care and whether it cut her medical bills.

When the Census Bureau values noncash benefits according to what they save the recipient, it finds that they lowered the 1980 poverty rate from 13 to 10 percent.3 The Census has not made comparable estimates for the 1950s or 1960s, but we can make informed guesses about 1950 and 1965. In 1965, Medicare and Medicaid did not exist, food stamps reached fewer than 2 percent of the poor, and there were 600,000 public housing units for 33 million poor people. In 1950 food stamps did not exist at all and there were 200,000 public housing units for 45 million poor people. Taken together, these programs could hardly have cut the poverty rate by more than one point in either year. On this assumption Table 1 estimates the “net” poverty rate at 10 percent in 1980, 18 percent in 1965, and 29 percent in 1950.4

It should go without saying that since the original poverty threshold was arbitrary, these statistics do not prove that only 10 percent of the population was “really” poor in 1980. The figure could be either higher or lower, depending on how you define poverty. The figures do, however, tell us that the proportion of the population living below our arbitrary threshold was almost twice as high in 1965 as in 1980, and almost three times as high in 1950 as in 1980. At least in economic terms, therefore, Murray is wrong: the poor made a lot of progress after 1965.

Furthermore, even these “net” poverty statistics underestimate the improvement in poor people’s material circumstances. Mrs. Smith’s $4000 Medicaid card may not lift her out of poverty, but it has dramatically improved her access to doctors and hospitals. In 1964, before Medicare and Medicaid, the middle classes typically saw doctors five times a year, whereas the poor saw doctors four times a year. By 1981, the middle classes were seeing doctors only four times a year, while the poor were seeing them almost six times a year. Since the poor still spent twice as many days in bed as the middle classes, and were three times as likely to describe their health as “fair” or “poor,” this redistribution of medical care still fell short of what one would expect if access depended solely on “need.”5 But it was a big step in the right direction.

Increased access to medical care seems to have improved poor people’s health. The most widely cited health measure is infant mortality. The United States does not collect statistics on infant mortality by parental income, but it does collect these statistics by race, and it seems reasonable to assume that differences between whites and blacks parallel those between rich and poor. Table 1 shows that the gap between blacks and whites, which had widened during the 1950s and narrowed only trivially during the early 1960s, narrowed very rapidly after 1965. Table 1 tells a similar story about overall life expectancy. Life expectancy rose more from 1965 to 1980 than it had from 1950 to 1965, and the disparity between whites and nonwhites narrowed faster after 1965 than before. Nobody knows how much Medicare and Medicaid contributed to these changes, but notwithstanding all the defects in the American medical care system, it is hard to believe they were not important.6

  1. 1

    Until 1980 the thresholds were also lower for farm families and for families headed by women. A widow living alone, for example, was supposed to need about 7 percent less than a widower living alone.

  2. 2

    US Bureau of the Census, “Estimates of Poverty Including the Value of Noncash Benefits: 1979–1982,” Technical Paper 51 (Government Printing Office, 1984).

  3. 3

    US Bureau of the Census, “Estimates of Poverty Including Noncash Benefits: 1979–1982,” Technical Paper 51 (Government Printing Office, 1984).

  4. 4

    Murray presents a different set of estimates for “net” poverty, taken from the work of Timothy Smeeding. Unlike the Census Bureau’s estimates, Smeeding’s estimates are corrected for underreporting of income. Smeeding’s estimates for years prior to 1979 are also corrected for under-reporting of noncash benefits. But Smeeding’s 1979 estimate, on which Murray places great emphasis, is not corrected for such underreporting. As a result, Smeeding’s series underestimates the decline in net poverty during the 1970s.

  5. 5

    Data taken from US Public Health Service, Health, United States (Government Printing Office, 1983), pp. 126, 127, 137.

  6. 6

    Hope Corman and Michael Grossman examine the effect of Medicaid on infant mortality in “Determinants of Neonatal Mortality Rates in the United States: A Reduced-Form Model,” Working Paper 1387 (National Bureau of Economic Research, 1985).

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