Myths of $2-a-Day Poverty

By Robert Verbruggen

Monday, June 03, 2019

Over the past half-decade or so it’s become fashionable to claim that millions of Americans, including many families with kids, are mired in “extreme poverty” — they’re not just below the poverty line, and they’re not even in “deep poverty,” defined at half the poverty line; they’re making do on less than $2 per person per day, the kind of threshold we use to measure deprivation in the Third World.

I wrote last year about some research led by the American Enterprise Institute’s Bruce Meyer that devastates these claims — research that he and three coauthors have now expanded and updated. The bottom line is that the numbers we’ve been hearing are vastly overinflated, and shrink dramatically with better methods. Meyer’s biggest contribution is to match what people tell survey-takers with administrative data from tax and welfare agencies, to reveal that the allegedly “extremely poor” are often underreporting their income.

Some highlights:

• About 90 percent of the people who show up as “extremely poor” in surveys based on their cash income actually aren’t, “once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for the ownership of substantial assets.” (Though it’s worth noting that even the book $2 a Day conceded that the number fell by half with the inclusion of food stamps, with food-stamp receipt based on the surveys alone.)

• Most of the misclassified households in fact aren’t below the poverty line at all; some of them are even middle-class.

• Only about 0.1 percent of individuals live in extreme poverty. Overwhelmingly, extremely poor households are single individuals, not families with kids.

There are some limits to Meyer’s approach; most important, these surveys exclude the homeless (and even a survey that didn’t categorically exclude them would probably undercount them). Cutting in the opposite direction, just as there’s some income people don’t report to survey-takers, there’s some they don’t report to tax agencies. But these limits just reinforce the conclusion that you can’t rely on what people tell the government to generate good estimates of how many live on $2 a day.

By the way, I’ll take a little blame for the hype: My 2015 review of $2 a Day included quite a bit of skepticism but, in retrospect, was still overly credulous.