Is the Poverty Rate Today Reaching Reagan or Eisenhower Levels? Do We Need a "New War on Poverty"?

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Written by Shawn Fremstad   
Thursday, 15 September 2011 09:00

In a news story in the Financial Times, historian Alice O'Connor—whose Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth-Century History is must-read for any serious student of anti-povery policy—says "we are entering territory which looks like the period before we even starting fighting a 'War on Poverty' in the 1960s."

At 15.1 percent in 2010, the poverty rate appears quite a bit lower than the rates that prevailed in the 20th century before 1964. The official rate was 19 percent in 1964 when the Economic Opportunity Act was enacted, and 22.4 percent in 1959. What we have entered is Reagan-Bush I territory, when the poverty rate last crossed the 15-percentage-point level (15% in 1982, 15.2% in 1983, and 15.1% in 1993).

One important distinction between now and the Reagan era is that Congress and President Obama did more to help working-class people in 2009 and 2010—and less to harm them—than Reagan in the early 1980s. Unfortunately, things may get worse since Tea-Party inspired members of the current Congress seem hell-bent on blocking any new action to create jobs and bolster social insurance. 

Another important distinction between now and the period just before the War on Poverty is that income poverty had already been trending downward for more than a decade and a half back then—it was just over 40 percent in 1949 and had been cut in half by 1964. By contrast, over the last decade, poverty has been on the rise—going from 11.3 percent in 1999, it's lowest level since 1973 to 14.3 percent in 2009. In other words, things were steadily improving then, while today we've lost an entire decade of economic progress.

(The idea that poverty declined as much during the Truman-Eisenhower administrations as during the Kennedy-Johnson ones may be hard to swallow for some, but remember these were good years for both unions and public infrastructure investment. Unionization levels peaked in the 1950s at around a third of all workers, more than twice today's rate, and public investment in infrastructure was about twice as high as a share of GDP compared with what it is today.) 

That said, judging income-poverty trends depends a lot on the standard you use to measure poverty. Our current official measure is woefully out of date—it has only been adjusted for inflation since it was developed in the 1960s, and has fallen far behind typical, mainstream living standards. When initially adopted, the poverty threshold was equal to about 50 percent of median income; today it's below 30 percent. As a result, to be counted as officially poor today you have to be a lot poorer compared with the typical U.S. family than you were in 1960. If we judge poverty in this way, we really are in pre-War on Poverty territory, largely as a result of the extraordinary rise in inequality since the 1970s. As Census notes in yesterday's report, some 22.1 percent of Americans had incomes that fell below 50 percent of median incomes in 2010. This is roughly the same as incomes that fell below that standard (and the official income-poverty rate) in 1959. 

Looking forward, the key question is what Congress and the President do now to reduce unemployment, boost incomes for low- and middle-income people, and avoid another lost decade. While some may argue that the new numbers suggest the need for a new "War on Poverty"—a title, I must say, I'm not a fan of, for reasons I explain here—I'd argue that what's needed is something much larger in scale and scope.

A guiding assumption between the War on Poverty was that the “benefits [of American economic well-being and prosperity] are widely shared throughout the Nation” but “poverty continues to be the lot of a substantial number of our people.” (This is language from the findings section of the Economic Opportunity Act of 1964.) Of course, we're in a much different place today. Inequality has been on the rise since the early 1970s and real incomes have declined for working-class and middle-class families. We need policies that are designed to make the American economy work better for everybody. Legislation of the klnd proposed by the House Progressive Caucus in its "Rebuild the American Dream Framework" would get us moving in the right direction, but it is just a first step.

Finally, another limitation of the War on Poverty as paradigm for today's anti-poverty activists is that it was a much more limited effort than is commonly understood, and did almost nothing on the jobs front. As Judith Russell has detailed in Economics, Bureaucarcy and Race How Keynsians Misguided the War on Poverty, the Johnson administration ultimately decided against including direct job creation in the War on Poverty, going against the recommendation of their Labor Secretary Williard Wirtz. The bulk of the relatively modest funding in the Economic Opportunity Act of 1964 went instead to job training and community action programs.

Some of the later Great Society provisions—particularly the creation of Medicare and Medicaid in 1965—undoubtedly contributed to reductions in poverty. Still, the "war" was a limited one, in part because so much funding was diverted by that other war, the one the administration was waging in Vietnam. In my view, 1971 officially marks the end of the War on Poverty era. That year, President Nixon vetoed the Comprehensive Child Development Plan of 1971, championed by then-Senator Walter Mondale, which would have guaranteed child care assistance on a sliding scale to parents with incomes under 75 percent of median income. Four decades later, child care remains an underfunded and decidedly uncomprehensive program.

In short, we don't need a new "War on Poverty" today. This time, we need to think big.