Income and Poverty In Perspective

If you believed what you read in newspapers and hear on television, you would think that the Bush administration has been one long period of economic decline. In particular, every time the Census Bureau releases a report, a spate of negative news stories follows. This happened today, when the Census Bureau delivered “Income, Poverty and Health Insurance in the United States: 2004,” available here. The New York Times headlined the story: “U.S. Poverty Rate Was Up Last Year”. The lead was pessimistic:

Even as the economy grew, incomes stagnated last year and the poverty rate rose, the Census Bureau reported Tuesday. It was the first time on record that household incomes failed to increase for five straight years.

There was little or no optimism to leaven the Times’ commentary:

In addition, the poverty rate rose last year for working-age people, those ages 18 to 64. The portion of people age 65 and older in poverty fell, while child poverty was essentially flat.

Did the Census Bureau’s report really merit such an unalloyed thumbs-down? The first question should be, how reliable are the data in the report? The Census Bureau gathers data for the Current Population Survey, the report at issue here, by asking thousands of people across the country to fill out forms stating how much income they received from various sources. Some important sources of income, like fringe benefits paid for by employers and in-kind welfare benefits, are excluded. Beyond that, the accuracy of the data is entirely dependent on the reliability of the people who fill out the forms. And studies have shown that many people, especially those classified as poor, spend considerably larger amounts of money than they say they received as income. In some surveys, the discrepancies have been more than 30%. So measuring changes in income by the one-tenth of one percent would seem to be an example of fictitious precision–the math is correct, but the raw data are dubious.
I think it’s fair to assume that the Bureau’s data are approximate at best. Within that context, what do they actually show? The Times headlined the fact that, according to the Bureau’s numbers, the poverty rate increased in 2004. Let’s give that some context. This chart is from the Bureau’s report; click to enlarge:

Somehow, things don’t look so grim. By historic standards, the current poverty rate is low. In fact, as this Census Bureau chart shows, since 1980 there have been only five years in which the poverty rate has been lower than 2004. The most accurate way to report these data would be to say that the low rate of poverty that has prevailed in the last few years continued in 2004.
The Times also wrung its hands over the Bureau’s median income data. Again, let’s have some perspective. This chart is also from the Bureau’s report:

Again, it’s hard to see any basis for pessimism. An appropriate headline for this chart would be: “Incomes continue at high level.” In fact, in real terms, median household income is higher today than it has ever been, but for a couple of years in the late 1990s when we experienced a “boom” that we now know was fueled largely by a stock bubble and widespread corporate fraud. The truth is that our economy, aided by sound administration policies, has weathered the storms of the last several years extraordinarily well. But you would never understand this if you relied on the New York Times for information.
And then there’s this–the Times’ summary of recent economic history as it relates to poverty:

Poverty levels have changed only modestly in the last three decades, rising in the 1980’s [Ed: Reagan!] and falling in the 1990’s [Ed.: Clinton!], after having dropped sharply in the 1960’s.

As the above chart shows, this is an absurd characterization of recent history. The poverty rate rose sharply between 1978 and 1982. This was the famous “stagflation” that those of us who are over 40 remember so well. The poverty rate then fell dramatically, in the wake of the Reagan tax cuts, until 1990. As a result of the brief recession in 1990, the rate rose again until 1993, when it started to decline again. In both the 1980s and the 1990s, the pattern was an increase in the poverty rate during and after a recession, followed by a reduction in the poverty rate as the economy resumed growing. What we are seeing now is very consistent with what we saw around 1980 and 1990, only, as the graph shows, milder.
The New York Times is trying to appeal to a more sophisticated audience, as evidenced by the fact that it is advertising on this site. But it will have to do a better job of objectively reporting the news if it wants to be respected by knowledgeable news consumers.


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