The Way We Measure Poverty Is Broken

Lost in a recent nerd fight among economists inflamed by Wall Street strategist Michael W. Green’s provocative, but deeply flawed, essay on America’s “affordability crisis” was this truth: The poverty line, and the way it is calculated, is wildly out of date.

The Official Poverty Measure is a federal benchmark we presume to be irrefutable fact. After all, Washington is a wonk-a-thon of economic experts who vacuum in data and churn out freshly minted statistics. With life-saving services such as Medicaid and food stamps at stake, we understandably expect the poverty threshold to be based on the most up-to-date measures, yes? 

Lamentably, no. That’s not the case, and it’s not even close. The formula for setting the poverty line, and the costs factored into that calculation, hasn’t changed since 1963, the year the Agriculture Department assigned government economist Mollie Orshansky to figure out what constituted deprivation in America. Estimating that food accounted for about one-third of a family’s needs, she compiled the cost of a minimum food diet and multiplied it by three. That same calculation is used today, regularly adjusted for inflation but never changed to account for the radically different world of the 21st century.

I learned all this—not from the online pie fight that broke out after Green’s Thanksgiving week essay went viral—but from a well-reasoned argument about the poverty line’s flaws made days earlier by economist Cullum Clark at the Dallas Assembly’s “Unmasking Inequality” event. 

Before year’s end, the errors in the calculation Green used to justify his essay’s $140,000 poverty line for a family of four—as opposed to the government’s $33,000—had been exposed. But the case for finding a more accurate measurement deserves a lot more oxygen.

So this month I sat down with Clark, director of the Bush Institute-SMU Economic Growth Initiative, to better understand why the poverty threshold remains tied to the America of 1963 and what it will take to modernize the formula. The conversation below has been edited for length and clarity.

TLR: Before we get into your arguments about what’s wrong with the poverty line formula, why do you think the Green piece gained so much attention?

Clark: It's pretty obvious there are a great many Americans who feel the economy isn't going well for them. They see some goods and services costs going up more than their incomes have, and so they're feeling pressed. 

The reality is nuanced and complex, but the feeling is that the two markers that make them full-fledged members of the American middle class—owning a home and sending your children to college—are no longer financially achievable. So Michael Green comes along and says, ‘You're right to feel angst. The cost of a middle class lifestyle needs updating.’ What made his not very accurate and mundane comments go viral was throwing in that word “poverty.”

Green basically estimated what it costs to afford a lifestyle most Americans might call “lower middle class” or “working class” or some other imprecise term. Even if some of his calculations were easy to criticize, he still has a good point that the number is higher than many people tend to think it is. But he then went on to say anyone not earning enough for this lifestyle is “poor.”

We’ll never all agree on the impossible philosophical question of what it means to be poor in America today. But very few people would sign on to Green’s very expansive definition of how much you need to not be poor.

While Green conflated middle class and poverty, his reporting in regard to the Official Poverty Measure being subjective and flawed echoes your point of view, correct?  

It is an interesting fact that we still have this very official creature known as the federal poverty line that is based on a method devised by Mollie Orshansky more than 60 years ago. The world seems to have changed in a lot of ways since then, so there's probably a consensus that if you want to understand poverty, you’d want to update those methods.

In 1963, the Department of Agriculture wanted to determine to what degree there was food deprivation in America. So Orshansky developed specifics—not to define poverty for all time but to do a study on a moment of time in the Kennedy administration about deprivation based on not having enough to eat. 

When LBJ came into office shortly after that and declared a “war on poverty,” that gave a whole new life to the Orshansky measure. This was the president of the United States saying, ‘Let's have less of the thing that she just defined. And we’ll measure it that way until such time as they come up with a better way.’

There’s so much irony that, as a great nation with a powerful government, we couldn't get around to updating this thing that wasn't even intended for the purpose it was being used for.

Preparing for this interview, I learned about one partially successful attempt to update the threshold, done by Rebecca Blank, a former university chancellor and undersecretary of commerce for economic affairs from 2009 to 2012. After years of failing to persuade Washington to change the Official Poverty Measure, she proposed establishing a secondary measure alongside it in hopes her measure would gradually replace the original one. Where does her work fit into this debate?

Rebecca Blank did two big things. With the Supplemental Poverty Measure, she incorporated more products into the package of goods and services, which meant raising the cost necessary to achieve the minimum lifestyle. But she did another thing that was a big offset to it; she counted the value of many government benefits. There was a political impetus in Blank’s time in Washington. Champions of the Great Society wanted to be able to say all these programs we initiated didn’t fail. 

But all of this raises a philosophical question. What is the appropriate thing to measure? Is it how well a family is doing getting income relative to the cost of living before the government steps in and helps them with additional benefits? Or should we consider that if the government gives enough benefits to bring people up over some theoretical poverty line that they are no longer poor?

I’m not saying Rebecca Blank was wrong, but if we were trying to design a new poverty line, at the very least, don't just publish some updated version of the Supplemental Poverty Measure. Publish a version that has a contemporary consumption basket, which is what Blank originally set out to do, that is more accurate than the 1963 measure. Then report the percentage of families who are below the poverty line before taxes and subsidies and, separately, report the number who are below that line after taxes and subsidies. In my dream world, they would publish both those figures and both would be a headline. Then let the public judge which one they care to emphasize.

What would an overhaul of the Official Poverty Measure—in particular, creating a contemporary consumption basket—look like?

An agreement that the measure is wildly out of date is much easier to arrive at than is any consensus, even among bona fide experts, on how to change it. I’m going to state my suggestions and the reader can decide whether expanding it this much makes sense.

I would adjust it to include not only the minimum food, shelter, and clothing required to stay alive but to fulfill the most baseline expectations of how American people are going to live OK in the 21st century.

In my four largest adjustments, transportation is No. 1. In 1963, if you had a married household, it was a high probability that only one was actually taking long-distance transportation to work. Today it’s likely both adults work. 

No. 2 is digital connectivity. Does everyone have to have the fanciest, most tricked-up phone? No. But suppose you have a child attending school. It’s probably better not to have the smartphone on all day during class; it’s also not possible to participate effectively in school without digital connectivity of some sort.

Third is healthcare. The vast majority of Americans have health insurance, but the bad news for any family trying to make ends meet are the direct out-of-pocket expenses: the employee’s share of health insurance premiums, deductibles, co-pays, basic over-the-counter meds that aren’t covered by insurance. A lot of new products exist at Walgreens and CVS that did not exist in 1963 and I think we would call many of those necessities, not luxuries. 

Finally, the education expense. In 1963, there was absolutely no expectation that all children would go to college. Only a tiny fraction was attending four-year institutions. Today’s picture is complex, but to boil it down, about 80 percent of kids will enroll in something after high school. Bit by bit, in Dallas and in America, we're figuring out how to make that free for more families. But for a great many, it’s not. Even if there’s no tuition cost, it’s not zero cost to the parents because of housing, food, and other upkeep. 

Here’s my simple math. The official Orshansky poverty line for a family of four is about $33,000. If you do the four adjustments I mentioned you get to probably $50,000.

If the federal poverty line was adjusted as you describe, what would that look like for Dallas?

Today about 11 percent of Americans are below the Official Poverty Measure of $33,000 for a family of four, and the Dallas-Fort Worth area mirrors that. But the city of Dallas is not as wealthy a place as the American average, and the most recent data show it’s at about 17 percent. The best estimate for Dallas using the contemporary basket would be between 20 and 30 percent, roughly 25 percent.

According to the Supplemental Poverty Measure, the national rate of poverty is about 6 percent. So if Dallas is at 17 percent under the official measure, a rough estimate is that we are at 11 or 12 percent according to the supplemental measure.

Living as we do in a big and income-segregated place, it’s easy to lose sight of these core statistics and their significance. Consider that even according to a deeply inadequate 1963 model, 17 percent of the people in our city are living below the poverty line. If you adjusted that upwards in the way I suggest, that’s a quarter of the people.

Even if you take into consideration all the government benefits, as the supplemental measure does—the whole vast welfare state—we'd still be talking about more than 10 percent, not a small number in a city of 1.3 million. That’s 130,000 people living, even after government benefits, below that line. 

Many of us assume that all federal data and formulas, from GDP to unemployment, are regularly revised and updated. Why has this not been the case with the Official Poverty Measure?

Any move toward a new definition is inherently so freighted with political implications, especially because there's such a massive, heavily polarized debate going on all the time.

I'd love to see some of the think tanks—maybe I will try this sometime here—really try to mix it up and say, ‘OK, here's our basket of goods and services. This is our stab at it. You all take a look at it and see what you think. Write your own, you know, do your own analysis, and come up with your own basket.’

Nobody in their right mind would want to use the Orshansky method. I'm sure a woman as brilliant as she was wouldn’t want to use it in 2026. The poverty line is a statistic that’s not only used to inform the public. There are direct dollars and cents tied to this threshold because a great many federal policies are directly tied to that calculation. We have a lot of policies enacted by Congress and the president meant to help people living below the poverty line. If we're going to have them, then maybe they would want to link them to something that reflects current reality a little bit better.

Consider the fierce debate going on about Medicaid and the Affordable Care Act. The poverty line is key in these government benefits. That underlying line should actually have meaning today, right? I’m glad that we have a big system of subsidizing healthcare for people who need it. I'd just like to see sensible data that provides an informed basis for deciding who’s entitled to how much in subsidy. 

If people have a better understanding of the facts, rather than living in some kind of weird media bubble and hearing only misinformation, that might be a start. You and I have a responsibility to tell the full story. It doesn't immediately suggest what the answers are. It doesn’t get you to the policy solution that you’d want to see adopted. But maybe these conversations will be the start of the hard work and difficult politics and everything else required to get to a change.

And if people have a better understanding of the facts, hopefully that makes them better citizens. We all, hopefully, vote. We all have some kind of circle of influence. It’s about what those who have the ability to make any difference in the world choose to do with their charitable dollars. But it’s also just about being aware of the realities of our city and our country. That’s really important. 

Think back to those 130,000 people in Dallas who, even after benefits, are living below the poverty line. That’s a big number living in some degree of real deprivation and struggle.

Sharon Grigsby is the co-founder and senior staff writer of The Lab Report. [email protected].

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