The year 2009 was awful for the U.S. economy and American families. No one needs a statistical indicator to realize this. But the purpose of our officially calculated poverty statistics is to move beyond sheer intuition: to provide a reliable, accurate quantitative representation of the trends and contours of material deprivation, so that we may better understand and address the problem of want in our nation.

Unfortunately, official U.S. poverty statistics do not satisfy this assigned function. Our official poverty measure and the “poverty rate” figures that it generates are deeply flawed and misleading.

As devised, the official U.S. “poverty rate” estimates the percentage of the population whose income falls below a fixed and unchanging “poverty line” (stringent household budgets for families according to their size and composition, set back in the 1960s). Since the annual poverty line is only adjusted for changes in inflation, the poverty rate is supposed to be a measure of “absolute” poverty. In other words, it is supposed to track the fraction of our country still stuck at a level of deprivation that qualified as “poverty” in America close to half a century ago. (The U.S. Census Bureau is charged with responsibility for compiling, calculating, and releasing these official poverty numbers.)

The poverty rate has been strangely out of sync with such fundamental determinants of absolute deprivation as per capita income, unemployment, educational attainment, and antipoverty spending since at least the early 1970s.

This year, our official poverty numbers at least managed to get the direction of change right, reporting that the proportion of American living in poverty jumped from 13.2 percent in 2008 to 14.3 percent in 2009. It has not even been able to do that on a regular basis in the past.

Consider this: by official numbers, America’s lowest-ever poverty rate was in 1973 (at 11.1 percent). According to official data, in other words, the prevalence of absolute poverty in America has been consistently worse in America than it was back in 1973—for 37 straight years. Yet the notion that the year 1973 was America’s golden age for progress against poverty is patently absurd, especially to anyone who remembers those recession-wracked Watergate days firsthand.

Closer examination of the poverty rate demonstrates that this measure is increasingly at odds with other, arguably more common-sensical, indicators of want and well-being in America. Indeed, statistical analysis can demonstrate that the poverty rate has been strangely out of sync with such fundamental determinants of absolute deprivation as per capita income, unemployment, educational attainment, and antipoverty spending since at least the early 1970s.

So what is wrong with the official poverty rate? A host of well-founded technical criticisms have been leveled at it over the years, most focusing on its definition and measurement of family income. The real problem, however, is much simpler—and more profound. Our official poverty measure is measuring the wrong thing.

At the end of the day, poverty is about living standards, and living standards reflect consumption levels. If we really want to know about plenty and poverty in America, we should be monitoring consumption (spending patterns and the like). Our official poverty rate, by contrast, simply assumes that income and consumption levels will be identical for less well-off Americans.

The complex and often critical interplay between income and consumption is completely missed by our official poverty measure.

Yet in reality, income does not predict consumption for poorer Americans with any accuracy these days. The Bureau of Labor Statistics’ 2008 Consumer Expenditure Survey, for example, reported that expenditures for the lowest quintile of American households were over twice as high as reported pretax income.

In any given year, Americans can spend more than they earn—and a great many do so. (An important new study soon to be released by AEI Press methodically demonstrates just how different income- and expenditure-based estimates of living standards for modern America turn out to be.¹) The complex and often critical interplay between income and consumption, however, is completely missed by our official poverty measure. In fact, the measure ignores this by its very design.

The Obama administration plans to officially introduce a second, “Supplemental Poverty Measure” (known as SPM) next year—not to replace the official poverty rate, but to augment it. Any official effort to improve upon the current, broken indicator is to be commended. A number of promised innovations in this SPM could provide a more comprehensive picture of family income than that offered at present. To the extent that these innovations will result in a closer approximation of family consumption patterns, they are good. But the proposed SPM has built-in problems of its own (although that is another story). Most importantly, the SPM will be another income-based predictor of poverty, when what we really need are better data on living standards themselves (i.e., consumption).

The poor quality of our official poverty statistics should be a matter of national concern. America deserves better—and in this time of economic crisis, urgently needs better.

Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute. His books include The Poverty of the Poverty Rate: Measure and Mismeasure of Want in Modern America.

FURTHER READING: Eberstadt elsewhere says it's “Time for a Demographic 'Stress Test' for the Western Economies,” says “But Optimism on Africa's Future Remains Risky,” and explains methods of “Resisting Statist Urges.” Amy Roden explained how America's current tax laws offer “No Way to Help the Poor,” Joel Kotkin details “Urban Plight: Vanishing Upward Mobility,” and “The Luxury City vs. the Middle Class.”

Note

1. Orazio P. Attanasio, Erich Battistin and Mario Padula, Inequality in Living Standards since 1980: Income Tells Only a Small Part of the Story, (Washington, D.C.: AEI Press, forthcoming).

Image by Darren Wamboldt/Bergman Group.