Politicians and activists of the left have long held that poverty is rising, or, at the very least, not declining in line with the overall gain in wealth experienced in modern capitalist economies and used that “fact” as a pretext for proposing policies to redistribute wealth. Official figures seem to back their claim: in the US, since 1980, despite the massive advances in productivity and new technologies available to humankind, the official poverty rate has declined by only 1.2 percentage points. It would indeed appear that the vast majority of economic advancement accrues to those who are not already mired in poverty.
But is it true that the poor have been left behind? A new study of poverty in America, Annual Report on U.S. Consumption Poverty: 2018 answers in the negative and suggests that, in fact, poverty is very much on the decline. Authored by Bruce D. Meyer of The University of Chicago and James X. Sullivan The University of Notre Dame, the study looks at poverty from the perspective of consumption, rather than income – and the picture it paints is dramatically different from that of official poverty figures: using the standard of living of the poor in 1980, it shows that what the authors refer to as the consumption poverty rate fell by more than 10 percentage points, from 13.0 percent in 1980 to 2.8 percent in 2018.
Consumption poverty measures what families can purchase in terms of food, housing, transportation and other goods and services, and captures people’s material living circumstances rather than merely their numerical income.
Meyer and Sullivan identify several factors explain that why consumption poverty shows a long-term decline that is eluding the official poverty measure: first, the official federal poverty line is adjusted over time using a price index, the CPI-U, which is known to overstate inflation and hence underestimate real income increases. The official poverty line for a family of four in 1980 was $8,351. Today it is $25,465, but if that is corrected for the flaws in how the poverty line is adjusted for inflation, based on the 1980 standard, the threshold today would be about $18,000. Second, the official poverty measure is based on cash income only, which fails to capture all the resources available to a family including tax credits and in-kind transfers, and it is biased due to under-reporting of certain types of income that are commonly received by those with low reported income.
The study does not seek to explain why the consumption poverty rate has fallen so dramatically, but even though tax cuts, expansion of tax credits and other government programmes to address poverty have contributed, it is clear that the general economic growth is a major contributing factor. In other words, the study provides proof that the economic growth of the last four decades has indeed benefited not just the very rich but has enabled a massive reduction in actual poverty among the poorest Americans. It is evidence that economic progress, not redistribution, is what will set the world on a path to eradicating poverty.