Diane Finley and Rebecca Blank meet Adam Smith: moving poverty lines are in
President Obama appointed Rebecca Blank—a capable, no-nonsense, PhD in economics, and a former Dean at the University of Michigan—to his new administration, and told her to answer a simple question: how should the United States measure poverty?
Diane Finley, the Conservative government’s Minister responsible for social policy, is not exactly Canada’s Becky Blank. She might certainly be capable, and she might certainly be no-nonsense, but to be honest she doesn’t seem to have a lot in common with the American academic turned policy-maker: except, of course, that in Canada Ms. Finley is ultimately the person responsible for poverty measurement.
Both women have pulled off quiet revolutions by recognizing that the poverty line should evolve over time: as the things needed to participate normally in society change, so should the poverty line.
This was evident to the first great economist, Adam Smith, who wrote some 250 years ago:
By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.
The official US poverty line was established in 1964, and was based upon what was considered a minimal but acceptable standard of living in the late 1950s. At that time this amounted to about one-half of the typical family’s income. With the exception of accounting for inflation it has remained unchanged, and as a result is now only about one-quarter of a typical income.
Changing this threshold has proved near impossible because the authority to do so lay in the White House: with Republicans in power, reasonable, evidence-based proposals for reform fell on deaf ears; and no Democrat wanted to take the heat of implementing statistical changes that might imply higher measured levels of poverty.
In Canada the situation has been only somewhat better. The most commonly used line to divide the poor from the not-poor reflects the consumption patterns of Canadians in the early 1990s, a time before most of us had sent our first e-mail. The “Low Income Cut-Off” continues to be the headline measure released by Statistics Canada.
A new indicator of the cost of a minimal standard of living—consisting of a nutritious diet, basic transportation needs, and adequate housing—was implemented by the federal and provincial governments in the late 1990s, but with no real plan on how it would be updated.
The ‘Market Basket Measure’ had surprisingly little influence on how we see ourselves, in large measure because for some period of time the federal government wouldn’t let us see it. The authority to release this statistic rested with the federal minister, and at one point it was necessary to resort to Access to Information requests to extract the numbers from the ministry.
Becky Blank did an end run around the quagmire of poverty measurement by having the US Census Bureau develop an entirely new indicator based upon solid academic thinking of the last two decades, and most importantly having the poverty line evolve gradually with time.
This new poverty line is defined as the level of spending on food, shelter, clothing, and utilities that two-thirds of American families are able to exceed. It is automatically updated by reflecting average spending patterns during the five most recent years. The recent Census Bureau publication of the “supplemental measure of poverty” paints a different picture of the poor than the official measure.
Diane Finley quietly did a similar thing more than a year ago.
The Market Basket Measure has been updated to reflect the realities of participating in the Canada of 2010. Some of this was forced upon the federal and provincial public servants deriving the numbers. A used Chevy Cavalier was considered the basis for calculating transportation costs in areas that don’t have public transport, but General Motors doesn’t even produce it anymore. Now the Ford Focus is used.
But more importantly what it means to live a normal life has also changed, and the government has introduced a rule for including new goods and services into the costs of a modest and basic standard of living. When as many as 70% of Canadian families in at least seven of the provinces with two-thirds of the population buy something, then that good or service is considered a necessary part of our lives. Certainly more complicated than the American rule, but typically Canadian and reflecting long-standing precedents in other areas of public policy.
On this basis the new necessities of life include: computer and internet services, cell phones, and garden supplies. But alas the experts proposed to break their own rule at the very outset. Gardening may be good for you, most Canadians may do it, but ultimately the government feels you can do without it if you have to. The same goes for cell phones.
By recognizing that the poverty line must change as society changes Ms. Finley has introduced a much-needed reform to an important area of public policy, and on this score her bureaucrats have made her look as smart and capable as the best of them.
But the challenge for her and her American counterpart is to now make these new concepts the headline measures their statistical agencies focus upon, letting the Low Income Cut-Off and the Official US measure drift into the past. Adam Smith would be proud!