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Thursday, December 8, 2016

Jan. 9 (Bloomberg) — The War on Poverty is now 50 years old. Has it failed? The answer varies, depending on whether we use the government’s official poverty measure or its much newer, and far more informative, one.

The new measure demonstrates that government programs are doing a lot of good, especially for children. Nonetheless, the overall picture is more than sobering, and offers a fresh perspective on the mounting national debate over poverty and inequality.

The official poverty measure, developed in the 1960s, has drawn withering criticism for a long time. It doesn’t include a number of government transfer programs, including the Supplemental Nutrition Assistance Program — food stamps — or the earned income tax credit. Under the official measure, people might be counted as poor even though they get a significant amount of money from the government.

Another problem is that the official measure doesn’t adequately take into account the varying needs of different types of families and individuals. For example, adults with children need more money than adults without children, and a sensible measure of poverty must make sufficient adjustments for that fact.

In 1995, the National Academy of Sciences issued a report cataloging serious flaws in the official poverty measure and recommending alternatives. But it wasn’t until 2011 that the Census Bureau settled on an alternative, which it called the Supplemental Poverty Measure. Though some people see shortcomings in the new standard, it is generally agreed that it is a lot better than the old one.

Important new research, by Liana Fox of the Swedish Institute for Social Research and her colleagues at Columbia University, demonstrates that with the Supplemental Poverty Measure, some historical trends look a lot better than they do with the official measure. Using data from 1967 to the present, the researchers offer four major findings.

First, government programs have had a big impact in reducing poverty among children. In 1967, they reduced child poverty by merely 3 percentage points (from 25 percent to 22 percent). In 2012, they reduced it by 12 percentage points (from about 31 percent to about 19 percent). The beneficial impact of government programs is especially large for children in “deep poverty” — those whose families are below one-half of the poverty line.

Second, the beneficial effects of government programs are largest when the economy goes sour. Without them, the deep poverty rate for children would be about 20 percent during economic downturns. With such programs, it ranges from 4 percent to 5 percent.

Third, the beneficial effects have grown substantially over time. If we use the Supplemental Poverty Measure, we can see that government programs reduced poverty in 2012 by an impressive 15 percentage points. In 1967, the decrease was a lot smaller.

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