Friday, July 06, 2012

Fun with numbers

Writing at the Center on Budget and Policy Priorities' "Off the Charts" blog, CBPP staffer Indivar Dutta-Gupta makes some observations regarding the war on poverty:
In his 1964 State of the Union, President Lyndon Johnson announced an “unconditional war on poverty in America.” That same year, Sargent Shriver, a key Johnson advisor on poverty issues, argued that we could set 1976 as “the target date for ending poverty in this land.” 
We made enormous progress during those years. The poverty rate under the official measure of poverty, which counts only cash income, fell by half between 1959 and 1973, from 22 percent to 11 percent.
Anything seem strange about this? It should. Dutta-Gupta notes that the war on poverty was not even announced until 1964, but then uses 1959 as a starting point for evaluating progress made by this effort. Why would he do that? Here's a clue:

If the measurement starts from 1965 and runs through 1973, the poverty rate reduction is less impressive. As wikipedia states, poverty dropped "from 17.3% in the year the Economic Opportunity Act was implemented to 11.1% in 1973." Thus, while poverty declined by 6.2% from 1965-1973, this comes after a decline of 4.7% from 1959-1965 before the War on Poverty had even begun to be implemented.

Arguably, however, it's even worse than that. The Economic Opportunity Act, signed into law on August 20, 1964, was comprised of items such as the training of volunteers to perform various duties related to fighting poverty, loans to families and small businesses, grants to colleges and universities and jobs corps initiatives. Many of these items, such as education and loans, do not offer short-term dividends but rather longer-term payoffs. If we assume that the program required months to simply set-up (hiring the appropriate personnel, obtaining office space, etc.) and also account for lags until the policies began to have an effect, it is quite plausible that the actual impact of the program was not felt in earnest until at least 1966.

Furthermore, we must keep in mind that the other main component of the War on Poverty, the Social Security Act of 1965, was not signed into law until July 30th of that year. Thus, if we then shift the starting point of the War on Poverty to 1966, when both pieces of legislation were operational and beginning to have an impact, the poverty rate reduction is even less impressive. 

Indeed, eye-balling the chart reveals the poverty rate that year to be about 15%. In other words, the 7 percentage point reduction in the povery rate in the seven years of 1959-1966, when the War on Poverty was either non-existent or had just started to come into effect, was greater than the subsequent 4 percentage point decline in the seven year period of 1966-1973. Further complicating matters, the larger decline in the former period came despite a higher average unemployment rate than in the latter period (5.29% vs. 4.51% -- source for numbers here). 

Later in the post, Dutta-Gupta makes the following assertion:
Research by economist Sheldon Danziger of the University of Michigan’s National Poverty Center indicates that if the relationship between economic growth and median earnings growth from 1959 to 1973 had continued in the years after 1973, official income poverty would have fallen to very low levels. It’s clear that the surge in income inequality was an important factor in impeding progress.
It's clear, eh? If one reviews the link provided, the only relevant bit about income inequality is this:
Economic growth has had a limited impact on poverty because rising earnings inequality has left many workers with lower real earnings.
No numbers provided or explanation for exactly how one person getting rich impoverishes another, just an unsupported statement. The quest to figure out why income inequality should be considered a problem deserving of a public policy response continues.

Lastly, I attempted to post a comment on the blog, asking the author why he chose the 1959 starting point and asking him to expand on how income inequality contributes to poverty. Thus far, my comment still awaits moderation and no answer has been forthcoming. My comment has now been posted.

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