How Poor Is 'Poor'?

The Heritage Foundation's Robert Rector distributed a paper last month with a catchy title: "The Myth of Widespread American Poverty." It implies poverty isn't much of a problem, contrary to the popular view.

The paper was timed to appear as the United States Census Bureau had its annual look at income and poverty. The news was basically good. The proportion of Americans living in poverty in 1997 was 13.3 percent, down from 13.7 percent a year earlier.

It was especially pleasing because the decline was due to less poverty among blacks and Hispanics. The poverty rate for African-Americans, for instance, fell to 26.5 percent from 28.4 percent in 1996. For Hispanics it dropped to 27.1 percent from 29.4 percent.

To most, however, such numbers indicate too many families are still poor.

Mr. Rector's relative cheer arises from his definition of poverty.

"If poverty is defined generally as lacking adequate nutritious food for the family, clothing, and a reasonably warm and dry apartment to live in, or lacking a car to get to work when one is needed, then there are few poor persons...," he writes "Real material hardship does occur, but it is limited in extent and severity."

Then Rector lists some possessions of those officially defined as poor. Forty-one percent own homes, with nearly 200,000 of these worth more than $300,000. Two-thirds of the poor's homes are air-conditioned.

Seventy percent own a car, 27 percent two or more cars. Ninety-seven percent own a color TV, 75 percent a VCR, 64 percent a microwave oven.

Moreover, 84 percent say they have enough food. Indeed, a larger proportion of the "poor" are overweight than the general population.

To liberal poverty experts, the Rector analysis is faulty.

"I'm not sure why one has to be destitute to be considered poor," says Lawrence Mishel, an economist at the Economic Policy Institute, a liberal think tank in Washington.

In other words, poverty is relative. The poor in America may not be as hard up as the poor in Bangladesh. But they don't make much money compared with better-off Americans.

Poor families may pay $25 for a used VCR or $100 for a new one. But they don't feel prosperous when they look at middle-class or wealthy scenes displayed on their TVs.

In fact, the Census Bureau also found that inequality of incomes has not improved. The bottom 20 percent of households gets 3.6 percent of total household income, an all-time low. The richest 20 percent have 49.4 percent of total income. And the top 5 percent of households have 29.75 percent. These are all-time highs.

The US still has a more uneven distribution of income than any other industrial nation.

According to Timothy Smeeding, an economist at Syracuse (N.Y.) University's Maxwell School, some 13.7 percent of Americans are poor. Next worst are Canada and Australia with 7 percent poor. Then comes Japan (6.9 percent) and Britain (6.7 percent). Most continental European nations are in the 4 or 5 percent range, with the Scandinavians figures even lower.

The Russians, if it is any solace to American pride, have worse poverty.

One reason America's poor have so many houses is that some were middle class when they acquired the house, but poor in the year the Census Bureau quizzed them. Its survey gets income numbers. Wealth, which may include a house, is not always matched by annual income.

"If a woman gets divorced, she may find herself poor the next year," notes Mr. Mishel. The same may happen to someone laid off or ill or injured.

That's why the nation's economic safety net is so important not only to the poor, but also to the middle class. Those with reasonable incomes do sometimes suddenly find themselves needing unemployment insurance, food stamps, Medicaid, disability payments, or other help.

The poverty threshold was first officially defined in the US in 1963. Since then it has been increased in line with inflation. But it does take account of a 40 percent increase in productivity since 1963. So the poor are relatively far poorer than in the 1960s.

Noting that consumer spending is much higher than consumer income, Rector charges that the Census Bureau misses $2 trillion in income, or roughly $20,000 in income for each US household. So, again, he argues that not so many Americans are really poor.

But that doesn't fly with Daniel Weinberg, chief of the Census division that compiles these numbers. Yes, he says, the bureau does miss "a lot of income" when it takes its surveys, particularly at the low and the high end. But the numbers remain "pretty good."

And, he explains, expenditures exceed income for several reasons. A key one is that people, especially retired people, will use up their savings and investments, and that doesn't count as income. Nor does money provided by parents to college students for hamburgers, computers, or T-shirts.

What bothers Mishel and other experts about the latest numbers is that median family income - the level where as many households have incomes below as above that level - only got slightly above the 1989 median last year. And that is seven years into an economic recovery.

They hope Federal Reserve policymakers keep cutting interest rates, as they did last week. That may ensure a tight labor market, which in turn will help the less fortunate bargain for continued greater prosperity.

* David R. Francis is the Monitor's senior economics correspondent.