Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

AI Summary. Consumption-based poverty in the US fell from 13% to 2.8% over roughly four decades, while the official poverty rate declined just 1.2 percentage points. The authors attribute the gap to flaws in the official measure, which relies on a price index with documented problems and counts only cash income, excluding tax credits and in-kind transfers.

Bruce Meyer American Enterprise Institute
Date Posted:
Is Database:
Database

Consumption poverty fell from 13% in 1980 to 2.8% in 2018, versus the official poverty decline of 1.2%.

Does measuring consumption instead of cash income show far less poverty?

Core argument: The US consumption poverty rate fell from 13% in 1980 to 2.8% in 2018, while the official poverty rate declined by just 1.2 percentage points over the same period.

The consumption poverty rate in the US has significantly decreased from 13% in 1980 to 2.8% in 2018, contrasting with a mere 1.2 percentage point decline in the official poverty rate over the same period. This discrepancy arises from flaws in the official poverty measure, which uses a price index with well-documented issues and considers only cash income, excluding tax credits and in-kind transfers. Adjusting for these factors, the poverty threshold today would be about $18,000 instead of $25,465 for a family of four. Additionally, under-reporting of certain income types skews the official measure. Using the 2015 standard, both income and consumption-based poverty fell by about 1 percentage point between 2017 and 2018, highlighting the importance of comprehensive resource measurement in assessing poverty accurately.

Takeaways by Macro Roundup® AI

  1. The US consumption poverty rate fell from 13% in 1980 to 2.8% in 2018, while the official poverty rate declined by just 1.2 percentage points over the same period.
  2. The official US poverty measure relies on a price index with documented problems and counts only cash income, excluding tax credits and in-kind transfers, and under-reporting of certain income types skews it further.
  3. Adjusting for those price index and resource measurement flaws would put the poverty threshold for a family of four at about $18,000 rather than $25,465.

“…..Simple adjustments to account for well-known flaws with the official poverty measure make clear that poverty in America has fallen sharply over the past 50 years….. Using the standard of living of the poor in 1980, the consumption poverty rate fell by more than 10 percentage points, from 13.0 percent in 1980 to 2.8 percent in 2018, while the official poverty rate fell by only 1.2 percentage points over that period…..If, on the other hand, one uses the standard of living of the poor in 2015, the consumption poverty rate fell from 32.9 percent in 1980 to 10.8 percent in 2018…..Three factors explain why consumption poverty shows a long-term decline but the official poverty measure does not. First, the official federal poverty line is adjusted over time using a price index with well-documented flaws. The official poverty line for a family of four in 1980 was $8,351. Today it is $25,465. If one corrects 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. Finally, the official measure of family resources is biased due to under-reporting of certain types of income that are commonly received by those with low reported income……Using the higher 2015 standard, both income and consumption based poverty fell by about 1 percentage point between 2017 and 2018….”

Bruce Meyer and James X. Sullivan, “Annual report on US consumption poverty: 2018,” American Enterprise Institute, October 18, 2019, https://www.aei.org/research-products/report/annual-report-on-us-consumption-poverty-2018/

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