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Evaluating the Success of President Johnson's War on Poverty

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Evaluating the Success of President Johnson's War on Poverty Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Evaluating the Success of President Johnson's War on Poverty: Revisiting the Historical Record Using a Full-Income Poverty Measure Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore 2020-011 Please cite this paper as: Burkhauser, Richard V., Kevin Corinth, James Elwell, and Jeff Larrimore (2020). \Eval- uating the Success of President Johnson's War on Poverty: Revisiting the Histori- cal Record Using a Full-Income Poverty Measure," Finance and Economics Discussion Series 2020-011. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2020.011. NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Evaluating the Success of President Johnson’s War on Poverty: Revisiting the Historical Record Using a Full-Income Poverty Measure Richard V. Burkhauser Cornell University Kevin Corinth Council of Economic Advisers James Elwell Joint Committee on Taxation Jeff Larrimore Federal Reserve Board November 2019 The views in this paper reflect those of the authors and should not be attributed to the Board of Governors of the Federal Reserve System, the Council of Economic Advisers, the Joint Committee on Taxation, or their staff. Elwell’s work on this research was funded by The Lynde and Harry Bradley Foundation while he was a graduate student at Cornell University. Abstract We evaluate progress in President's Johnson's War on Poverty. We do so relative to the scientifically arbitrary but policy relevant 20 percent baseline poverty rate he established for 1963. No existing poverty measure fully captures poverty reductions based on the standard that President Johnson set. To fill this gap, we develop a Full-income Poverty Measure with thresholds set to match the 1963 Official Poverty Rate. We include cash income, taxes, and major in-kind transfers and update poverty thresholds for inflation annually. While the Official Poverty Rate fell from 19.5 percent in 1963 to 12.3 percent in 2017, our Full-income Poverty Rate based on President Johnson’s standards fell from 19.5 percent to 2.3 percent over that period. Today, almost all Americans have income above the inflation-adjusted thresholds established in the 1960s. Although expectations for minimum living standards evolve, this suggests substantial progress combatting absolute poverty since the War on Poverty began. 1 1. Introduction In his State of the Union address on January 8, 1964, President Lyndon B. Johnson said: “This administration today, here and now, declares unconditional war on poverty in America” (Johnson 1965, p. 114). In a speech two months later, he outlined his terms of engagement: “… I have called for a national war on poverty. Our objective: total victory. There are millions of Americans—one fifth of our people—who have not shared in the abundance which has been granted to most of us, and on whom the gates of opportunity have been closed” (Johnson 1965, p. 376). Fifty-five years have passed since President Johnson declared the War on Poverty. Even so, policymakers and academics still debate its outcome. For example, President Reagan said in his 1988 State of the Union address that “the Federal Government declared war on poverty, and poverty won” (Reagan 1990, p. 87). Similarly, in 2014, Congressman Paul Ryan wrote that “the poverty rate is the highest in a generation” (Ryan 2014). Others have pointed to substantial progress, while making clear that President Johnson’s War on Poverty is not over. For example, the Council of Economic Advisers (2014) and Wimer et al. (2016) used an alternative poverty measure and found that poverty had declined by about 40 percent since 1967. The Council of Economic Advisers in 2018 suggest even greater progress and stated, “Based on historical standards of material wellbeing and the terms of engagement, our War on Poverty is largely over and a success” (CEA 2018, p. 29). No existing poverty measure is capable of accurately evaluating the success of President Johnson’s War on Poverty as he defined it. Specifically, current measures either do not evaluate progress relative to President Johnson’s baseline poverty rate of about 20 percent in 1963 or ignore important anti-poverty programs. The U.S. Census Bureau’s Official Poverty Measure (OPM) shows a reduction in poverty from 19.5 percent in 1963 to 12.3 percent in 2017. However, the entire decline occurred between 1963 and 1973. Over that period, the Official 2 Poverty Rate fell from 19.5 to 11.1 percent. Since then, it has never fallen below the 1973 rate. In 2017 it was 12.3 percent, indicating little progress since the early 1970s. This Official Poverty Rate was the evidence Reagan (1990) and Ryan (2014) cited for the lack of progress in the War on Poverty. Academic researchers, however, view the Official Poverty Rate as flawed. They often cite its failure to capture the increase in in-kind benefits and tax-based transfers. A 1995 report from a National Academy of Sciences Panel outlined the limitations of the Official Poverty Measure (Citro and Michael 1995). Based on this report, the Census Bureau now publishes a Supplemental Poverty Measure (SPM) that addresses some of these failures. Academics have also developed alternative poverty measures, including an Absolute Supplemental Poverty Measure (Absolute-SPM) (Wimer et al. 2016) and a Consumption Poverty Measure (CPM) (Meyer and Sullivan 2003, 2012a, 2012b, 2018).1 These alternate measures address some of the shortcomings of the Official Poverty Measure and show substantial reductions in poverty during the past 50 years. Nevertheless, we argue that these measures do not evaluate President Johnson’s War on Poverty as he defined it. In order to evaluate the War on Poverty, a poverty measure must meet three basic conditions. First, it must set its poverty thresholds so that its poverty rate in 1963 is equal to that set by President Johnson. This rate provides a uniform starting point for the share of people in poverty in 1963. Second, the 1963 poverty thresholds (also known as the “poverty line”) must remain 1 Although Wimer et al. (2016) call their measure an “Anchored-SPM,” we refer to it in this paper as the Absolute- SPM since it is an absolute measure that holds constant the real value of its poverty thresholds over time. As we will discuss later, we use this terminology to avoid confusion in this paper and to distinguish it from poverty measures anchored to the Official Poverty Measure. Wimer et al. (2016) instead anchor to the Supplemental Poverty Rate in a given year. 3 constant in inflation-adjusted terms. Third, it must incorporate the full array of anti-poverty programs, including in-kind transfers and transfers administered through the tax code. To fill this gap we create a poverty measure, which we refer to as the Full-income Poverty Measure (FPM). This measure maintains the same 1963 poverty rate as the Official Poverty Measure, matching Johnson’s baseline poverty rate (Johnson 1965). We hold poverty thresholds constant in inflation-adjusted terms using the Personal Consumption Expenditure (PCE) price index. Additionally, unlike the Official Poverty Measure, we include all sources of income, including the market value of food stamps (now the Supplemental Nutrition Assistance Program, or SNAP), the school lunch program, housing assistance, and health insurance. Finally, we consider the household, rather than the family, as the unit within which individuals share resources. Based on Johnson’s standard, our Full-income Poverty Rate in 2017 is 2.3 percent, well below the Official Poverty Rate of 12.3 percent. Consequently, while recognizing that today’s expectations for minimum living standards have evolved from those in the 1960s, a relatively small share of Americans now live in poverty based on President Johnson’s initial standards. When conducting a crosswalk from the Official Poverty Measure to our Full-income Poverty Measure, we find that our wider income definition, the use of a more accurate inflation measure, and the use of a household rather than a family sharing unit are important drivers of this difference in trends. The contribution of our paper is the first evaluation of President Johnson’s War on Poverty that reflects his terms of engagement. In doing so, our measure is also the first to incorporate the array of anti-poverty programs introduced since the 1960s while maintaining Johnson’s baseline poverty rate in 1963. Previous research improved upon the Official Poverty 4 Measure, such as work by Citro and Michael (1995), Fox et al. (2015), Wimer et al. (2016), and Meyer and Sullivan (2013a). Even so, none of these measures matches the official rate in 1963, and several incorporate additional changes such as switching away from an absolute poverty measure. These additional adjustments limit their ability to evaluate Johnson’s War on Poverty. Consequently, no other poverty measure maintains President Johnson’s baseline standard that 20 percent of people were in poverty in 1963, updates poverty thresholds based only on inflation, and includes a full measure of the resources to which Americans have access. The remaining sections of the paper proceed as follows. Section 2 discusses our criteria for evaluating President Johnson’s War on Poverty. Section 3 develops our Full-income Poverty Measure and shows how it improves on the Official Poverty Measure.
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