Correction to This Article
An Aug. 29 graphic comparing different measures of national poverty was labeled incorrectly. According to the official measure, the poverty rate in 2003 was 12.5 percent. According to an alternative measure that considers factors such as variable cost of living and more accurate price inflation, the poverty rate in 2003 was 14.2 percent.

Measuring the Economy May Not Be as Simple as 1, 2, 3

By Jonathan Weisman
Washington Post Staff Writer
Monday, August 29, 2005

The Census Bureau tomorrow will release the latest statistics on poverty in the United States, the income level of an average household and the number of Americans still lacking health insurance.

Don't believe the numbers.

A growing chorus of experts and politicians is raising questions about the data that frame Americans' understanding of their nation's well-being. From poverty levels to health insurance, inflation to personal savings, widely accepted statistics are overstating some problems and understating others, miscounting people, and sending policymakers down blind alleys.

"We're getting at best an impressionistic sense of what's going on in the economy," said Rep. Rahm Emanuel (D-Ill.), who recently introduced legislation to establish an independent commission aimed at overhauling government economic statistics. "Major policy decisions are being made based on data that is inadequate to the task."

This seemingly technical problem has real-world consequences, allocating federal assistance to some who don't need it while cutting off others who do, raising the costs of programs like Social Security, or pushing policies for problems that may not exist.

For example, since poverty levels are not adjusted for regional costs of living, the working poor in expensive urban centers like Washington are routinely excluded from federal programs because their income lifts them above the official poverty line. The rural poor in low-cost states like Arkansas often can afford considerably higher standards of living than their urban compatriots. Yet they may be eligible for food stamps, housing aid, free school lunches and other programs that exclude the urbanites.

In March, Michelle Billups, 42, began working full time in the dining hall of the Washington charitable group So Others Might Eat. She earns $8 an hour to support herself and her 17-year-old daughter Shannon. This month, Billups was told she is no longer eligible for $225 in food stamps, a program available for District residents with incomes up to 130 percent of the federal poverty line. Billups' $16,640 annual income is $153 higher than that threshold for a family of two.

In a study to be released Thursday, the liberal Economic Policy Institute estimates that a family like Billups's, with one parent and one child, requires an annual income of $47,460 to meet its basic needs in Washington. That family in Fayetteville, Ark., would need $24,096.

Perhaps no statistic has more critics than the poverty rate, which in 2003 stood at 12.5 percent, the latest Census data available. University of Chicago economist Robert T. Michael, who chaired a National Academy of Sciences panel tasked to update poverty statistics a decade ago, called the current poverty data "truly awful."

"The poverty statistics are absolutely wrong," agreed Rebecca M. Blank, dean of the University of Michigan's school of public policy, who served on the panel.

Officially, the poverty rate has drifted upward since 2000, from 11.3 percent to 12.5 percent in 2003. But a more sophisticated measurement that the Census also publishes, which accounts for variable costs of living, rising medical expenditures and more accurate price inflation, shows the official rate has consistently understated poverty. By that alternative measure, the percentage of Americans below the poverty line has risen from 12.8 percent in 2000 to 14.2 percent in 2003. Using such measurements, last year the Democratic staff of the Joint Economic Committee found poverty rates nearing 16 percent in the late 1980s.

At the same time, household incomes may be understated because they do not include non-cash income like food stamps. The earned income tax credit was created during the Reagan administration specifically to raise the working poor out of poverty. But by government counting, the program has not lifted a single person above the poverty threshold, Michael said. Since poverty rates are based on pre-tax income, refunds like the earned income credit do not count.

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