What are advantages and disadvantages to using a "poverty line" in discussions of economics?

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kipling2448 | (Level 3) Educator Emeritus

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The concept of a “poverty line” as an indicator of macroeconomic health has its origins in the early 1960s with the Social Security Administration’s efforts at developing a better system for understanding the effects of low incomes on different categories of individual, particularly children.  The use of a “poverty line” to define the level below which a family is not capable of ensuring the universally-recognized basics needed for survival – adequate supplies and qualities of food, clothing, shelter, and other basic necessities – for itself, especially its children, grew out of that initial effort and has since represented a major indicator of social welfare and income inequality.  While the concept was developed in the United States, it is commonly applied to all countries, normalized for each individual country’s macroeconomic status.

The administration of President George H.W. Bush and his economic team’s desire for a more accurate system of compiling, analyzing and using economic data spurred efforts at refining the system for measuring the level of poverty in the United States.  Subsequently, a 1992 study conducted under the auspices of the National Academy of Sciences to refine the “poverty line” compelled a serious examination of whether the earlier methodologies were presenting accurate pictures of the country’s socioeconomic levels and disparities.

Today, the U.S. Department of Health and Human Services (HHS) and the U.S. Census Bureau are the primary government agencies responsible for accumulating, processing and analyzing data on poverty rates in the United States (the Central Intelligence Agency performs a similar function with respect to foreign countries in an effort at predicting social and political instability resulting from poverty). 

How useful the poverty line has been in determining accurate pictures of the economic situation in the United States and whether social welfare programs are being adequately used has been debated since that period in the 1960s when the concept was first developed.  Clearly, to many, the “poverty line” has major advantages in presenting a picture of the economic strata of the United States and of the sectors of the public to which social welfare programs need to be better oriented.  By focusing on definitions of the basic essentials necessary to existence above a subsistence level, the “line” helps economists and government officials better understand the needs of the less affluent.  That understanding in turn helps Congress to manipulate or reform the tax code to better provide for programs intended to aid those who fall below that line.

The disadvantages to using a “poverty line” lines include the age-old problem of accounting for inaccurate data derived through census surveys and applications for welfare, unemployment compensation and other programs intended to help those below that line.  Critics of social welfare programs often point to research indicating that the poverty line does not provide an accurate picture of the economic status of those who fall below it, and that expensive programs routinely aid those who do not, in fact, need such taxpayer-funded assistance.  Conversely, many critics argue that the “line” omits large sectors of the public who technically earn enough income to be above the line but only because of extenuating factors involved, such as two working adults with one or both holding down multiple jobs. 

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