Winning the War: Poverty from the Great Society to the Great Recession*

Few measures of U.S. economic performance receive greater attention and scrutiny than the poverty rate. The official poverty rate in 2010 was more than 2 percentage points higher than the rate in 1970 despite a doubling of real GDP per capita and trillions of dollars spent on antipoverty programs. This paper considers the long run patterns of improved measures of poverty, examining the extent of material deprivation in the United States from the early 1960s to 2010. Our results contradict previous studies that have argued that poverty has shown little improvement over time, or that anti-poverty efforts have been ineffective. We show that trends for consumption based measures of poverty and broader income based measures differ considerably from the official measure. We emphasize consumption based measures because they are theoretically a better measure of well-being and because evidence suggests consumption is better reported than income by families with few resources. A consumption based poverty measure that adjusts for bias in price indices declines by 12.5 percentage points between 1972 and 2010. In addition, the composition of the consumption poor is very different from that of the income poor with the consumption poor being noticeably worse off. Over the past few decades, married parent families with children have fared less well while the aged have done better than income data indicate. Our analyses of potential explanations for these patterns indicate that some policy changes have been effective at reducing poverty, but changes in demographics are less important. Changes in tax policy explain a substantial part of the decline in income poverty particularly for families with children. Other than social security, cash and noncash government transfer programs have only a small impact on changes in poverty. Measurement error in income is likely to explain some of the most noticeable differences between changes in income and consumption poverty, but saving and dissaving do not appear to play a large role for most demographic groups. *We would like to thank the Annie E. Casey Foundation, the Earhart Foundation, and the National Poverty Center for support and Cristobal Gacitua, Matt Gunden, Tom Murray, Vladimir Sokolov, Laura Wherry, and April Wu for excellent research assistance. We have also benefited from the comments of Steven Haider, Christopher Jencks, Steve Landefeld, Kathleen McGarry, Doug McKee, Tim Smeeding, and seminar participants at Colby College, Harvard University, the Higher School of Economics, the Institute for Research on Poverty at the University of Wisconsin, the National Bureau of Economic Research, the University of California, Davis, the University of California, Los Angeles, the University of California, Santa Cruz, the University of Chicago, the University of Florida, the University of Notre Dame, and the W.E. Upjohn Institute for Employment Research. This paper supercedes earlier papers titled “Dimensions of Progress: Poverty from the Great Society to the Great Recession,” “Five Decades of Consumption and Income Poverty” and “Three Decades of Consumption and Income Poverty”. Meyer: Harris School of Public Policy Studies, University of Chicago, 1155 E. 60 Street, Chicago, IL 60637 [email protected]. Sullivan: University of Notre Dame, Department of Economics, 447 Flanner Hall, Notre Dame, IN 46556 [email protected]