CEA: We've Won LBJ's War on Poverty

Presidential advisers call for new, work-focused welfare reforms

Getty Images
March 29, 2019

The first war on poverty is over, a recent report from the Council of Economic Advisers (CEA) argues, highlighting the need for anti-poverty efforts to get people to work.

This conclusion comes as part of the CEA's annual Economic Report of the President, which provides information to Congress about economic trends, and lays out the administration's plan to encourage employment.

In the latter department, things are going swimmingly, with unemployment near record lows. However, the CEA notes, many able-bodied, working-age Americans—especially men—remain out of work and dependent on welfare. The priorities of anti-poverty policy, they argue, should be bringing these Americans back into the workforce.

This approach would depart from at least some historical welfare-policy practice in the United States, especially the first big federal welfare push: President's Lyndon Johnson's War on Poverty, declared in 1964 when one in five Americans lived in poverty.

The CEA, in its report, argues that using appropriate measures, just 2.3 percent of Americans are at 1963-levels of poverty today. However, this success has primarily been achieved by government transfers, rather than policies that help people help themselves.

In order to understand how the CEA reaches this conclusion, we first need to know a little bit about measuring poverty. The U.S. Census Bureau offers two estimates. One, the "official poverty measure," was created in the 1960s by Social Security Administration economist Mollie Orshansky. The OPM was designed to accurately estimate how many Americans were in poverty at the start of Johnson's war. It sets the poverty threshold as three times the cost of a "minimum food diet" in 1963, adjusted for inflation. Families whose incomes are below that line are considered in poverty; above it, not in poverty.

The OPM has some limitations: 1963 poverty is not today's poverty, and the OPM only counts some sources of income, omitting the many in-kind benefits (food stamps, e.g.) the federal government gives to poor families. This means it does a poor job of capturing who is actually poor.

To compensate, in 2011 the Census Bureau created a "Supplemental Poverty Measure" which addresses these concerns by a) changing the poverty threshold to the 33rd percentile of spending on certain goods and b) including the cash value of in-kind benefits, as well as taxes and some out-of-pocket expenses.

While the SPM is an improvement over the OPM, it fails to fit the CEA's project in one vital way: it is a "relative" measure of poverty, defining poverty in relation to a shifting standard of spending, as opposed to an "absolute" measure of poverty, which, like the OPM, is pegged to a level of income at a fixed point in time.

Because CEA's goal is not to assess how many Americans are poor by 1963's standards, they define the FPM as an absolute measure pegged to that year. They also make a few other methodological choices, including adding in in-kind transfers like the SPM, as well as the market value of health insurance; using a slightly different inflation index, which they argue better accounts for substitution of goods; and using the household, rather than the family, as the "sharing unit" among which resources are allocated. The results, compared to the OPM, are quite startling:

Provided by CEA
Provided by CEA

Importantly, much of this drop makes sense when we understand the choice to use an absolute standard. In 1963, median household full income was about $16,000, while today it is about $38,000. A household making $16,000 would be solidly middle class in 1963, but flat broke today. It's this shift, driven especially by the cash-value of health insurance, that explains the drop.

The CEA's measurement choices—especially the way that they include health insurance in their calculations—have come under fire from some economists on the left, disgruntled by their low estimate. However, these criticisms arguably miss the point, according to Scott Winship, an economist and executive director of the Senate Joint Economic Committee.

"Absolute poverty lines, at the end of the day, are very arbitrary," Winship told the Free Beacon. "You can draw a poverty line anywhere, and update it for inflation over time, and see how many people are living under that line. That line was set really low by contemporary standards in 1963, so low that only two percent of people are under that line."

"If somebody wanted to anchor the CEA poverty measure at, say, what the SPM today is showing for poverty, that's completely reasonable, and that would just essentially be setting the threshold higher, to today's standards that people have agreed on for the SPM. But if you tracked that fixed threshold all the way back to 1963, you would find poverty rates that were just off the charts in the early '60s," he added.

What should we take away from all this math? As the CEA sees it, Johnson's War on Poverty was a success. This is a startling about-face from less than a decade ago, when conservatives such as then-Rep. Paul Ryan declared the War on Poverty an abject failure. To the contrary, says the CEA: when you take into account government transfers, basically no one is poor by 1963 standards.

But, they continue, this success is a function of those transfers, rather than making previously poor people self-sufficient through employment. They find, for example, that as of December 2013 the majority of adults covered receiving Medicaid and SNAP benefits were able-bodied and of working age, i.e. could be employed and off the dole.

Provided by CEA
Provided by CEA

Based on survey data, they conclude that more than half of adult recipients of major government welfare programs, such as Medicaid, TANF, SNAP, and housing assistance, are non-disabled and of working age. What this means, the report concludes, is that a new war on poverty needs to focus on getting people to work.

"Our past policies have failed to afford all nondisabled, working-age Americans the opportunity to share in the dignity of work and of earning their own success," the report reads. "Going forward, continuing to focus on reducing poverty—based on modern standards of material hardship—is an important goal, but for nondisabled, working-age adults it is important to do so through work and increased earnings."

To do so, the CEA recommends following the lessons of the 1990s' attachment of work requirements to welfare benefits, by tightening pre-existing requirements for the major programs. Such requirements, as for Medicaid, are already underway in many states with the support of the Trump administration. These requirements could be linked to additional financial incentives and rewards for those who sought to become gainfully employed.

"A new war on poverty should focus on reducing material hardship (based on modern standards that are explicitly determined by policymakers) through work for nondisabled, working-age people whenever possible," the report reads.

"The Trump administration has taken important actions along these lines," it concludes. "Additional progress could be achieved by further expanding work requirements in noncash welfare programs, such as food stamps / SNAP and Medicaid, including for nondisabled, working-age adults with children."