National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Expert Budgets: The U.S. Experience

« Previous: Absolute and Relative Thresholds
Suggested Citation:"Expert Budgets: The U.S. Experience." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 32
Suggested Citation:"Expert Budgets: The U.S. Experience." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 33

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INTRODUCTION AND OVERVIEW 32 standard of economic deprivation. It is also argued that relative poverty thresholds do not provide a stable target against which to measure the effects of government programs because they change each year in response to increases or decreases in real consumption levels instead of remaining fixed in real terms. However, it is important to stress that relative poverty thresholds are not so distinct as one might imagine from thresholds developed according to expert standards of need: the latter also embody a great deal of relativity and subjectivity (see below). Moreover, it is rare for expert (or other) standards to be maintained in absolute terms over long periods of time. The more common experience is that an old standard is replaced after some period of time by a new standard that is higher in real terms (in this regard, see Fisher, 1993, for the history of unofficial poverty budgets in the United States prior to Orshansky). In other words, updating for real growth in consumption occurs, but at occasional intervals rather than on a regular basis. Expert Budgets: The U.S. Experience Expert budgets typically involve the development of standards for a large number of goods and services (e.g., food, clothing, shelter, utilities, transportation, personal care) with perhaps a small ''other" or "miscellaneous" category. Although not an expert budget in this sense, the original U.S. poverty thresholds were based on expert standards for a key commodity, food. The experts were USDA home economists, and the poverty budget developed by Orshansky at SSA was based on the USDA estimates of the cost of the Economy Food Plan with a multiplier to account for other consumption items. Relativity and subjectivity entered into the determination of both the food component and the multiplier for the original poverty thresholds. The Economy Food Plan was developed by considering the food-buying patterns of lower income families, as well as nutritional requirements. The USDA experts could have developed the Economy Food Plan at an even lower cost level and still provided for nutritional balance if they had been willing to ignore the eating patterns of Americans, who, even at lower income levels, showed a preference for meat as well as rice and beans. They could also have developed the Economy Food Plan at a higher cost level to allow for somewhat greater variety of diet and an occasional restaurant meal. That is, they had to make judgements that cannot be supported by nutritional science alone; they were guided in these judgements by data on Americans' actual food choices. Orshansky then explicitly introduced another element of relativity into the thresholds by choosing to use a multiplier that was based on the spending patterns of the average American family rather than on expert standards for other needed budget items. Subjective judgement and relativity cannot be avoided by developing a detailed budget that eschews the use of a multiplier. The Family Budgets

INTRODUCTION AND OVERVIEW 33 Program of the BLS is a case in point. For the mid-1940s, 1959, and 1966, BLS developed detailed budgets for particular family types at an "intermediate" standard of living (earlier termed a "modest but adequate" or "moderate'' standard). For 1967, BLS developed "higher" and "lower" budgets by scaling the intermediate budget up and down. In time intervals between budget revisions, the budgets were updated by repricing the budget, or, after 1966, by adjusting its cost by the change in the CPI.8 To develop the budgets, BLS used expert standards when they existed, including the USDA food plans (for the at home component of food) and housing standards developed by the predecessors to the U.S. Department of Housing and Urban Development (HUD). For other budget items (e.g., clothing, transportation), BLS analysts used econometric methods to determine the spending levels that demarcated "necessary" from "excess" spending. These methods proved quite problematic in concept and application: they often produced unclear results, which, just as for the expert standards, necessitated choices that could only be guided by considering actual spending preferences (see Expert Committee on Family Budget Revisions, 1980). Overall, on each occasion when BLS revised its family budgets, the baseline intermediate-level budget typically approximated median spending levels of American families at the time. In other words, the budget reflected changes in the standard of living, but on a periodic basis rather than every year as would occur with a conventional relative measure. Poverty standards developed by experts have historically been conditioned by their time and place. Thus, the modern Economy Food Plan and its successor, the Thrifty Food Plan, are much more generous in terms of allowed quantities than the food components of minimum budgets that were developed in major American cities between 1906 and 1929; similarly, the implicit allowance for nonfood items in the original SSA poverty thresholds is considerably more generous than the allowance in the pre-1929 budgets, when incomes were lower and the percentage spent on food was, consequently, higher (Appelbaum, 1977). Although budget-based poverty thresholds are essentially relative in their development, and hence not as different as one might suppose from thresholds that are explicitly relative, they do have some distinctive features. By incorporating one or more explicitly named commodities, budget-based thresholds convey some type of paternalistic or normative concept of "needs," which may be more appealing to policy makers and the general public than a purely relative concept, such as one-half median family income. Of course, people will argue about which commodities should be part of the budget and which should be left out: obtaining consensus may be easier to the extent that broad 8 The BLS Family Budgets Program was discontinued in the early 1980s for lack of adequate funds to improve it.

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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