No Matter How We Measure Poverty, the Poverty Rate Would Be Much Lower If Economic Growth Were More Broadly Shared

In an op-ed for the New York Times, Jared Bernstein discusses the relationship between GDP and poverty. He explains that growing inequality, not slowing GDP, led to a higher  poverty rate than we would have had if economic growth were broadly shared. We create the same graphic in The State of Working America. Not surprising as Jared is a co-author on previous versions. I’m replicating the same idea below using the historical relationship between GDP and poverty from 1959 to 1979 to predict poverty to 2012. As you can see, poverty hits zero by the early 1990s. We choose a different end date in creating the prediction, which changes the estimated date poverty falls to zero, but the same basic fact remains: Poverty falls fast and would be erased from the United States had economic growth been as broadly shared as it had been in the years leading up to the late 1970s.

Many commentators, researchers, and others have argued that the official poverty measure fails to fully take into account the government tax and transfer system, which has accomplished much to reduce absolute deprivation. Some transfer programs are accounted for in the official poverty measure,including Social Security and unemployment insurance. Others, such as food stamps, housing assistance, and the earned income tax credit are not included in the official poverty measure. The Supplemental Poverty Measure (SPM), created by the Census Bureau, effectively takes many of these into account while simultaneously altering the threshold at which poverty is measured against.

A great new paper by a prominent series of authors, including former EPI analyst Liana Fox, provides a useful historical series of the SPM back to 1967. Using their series, anchored to 2012, which appears to be the popular usage of their research, I once again predict the SPM using the relationship between GDP and the SPM from 1967 to 1979. As you can see, the SPM hits zero in the early 2000s. Poverty is erased later than in the initial analysis using the official poverty rate in part due to the fact that the supplemental poverty threshold is higher, thus has farther to fall, and partially because the slope on the official poverty regression is steeper because it includes an early period of more broadly shared prosperity. Taking all this into account, the fact remains that the predicted poverty rate falls sharply as the economy grows.

Even including government transfers in this new measure of poverty, it is clear that the poverty rate is nowhere near where it could be if economic growth was more broadly shared. In other words, if it had not been for growing economic inequality, the poverty rate would be at or near zero today.