<html><body><P>American Enterprise Institute</P> <P>November 19, 2008</P> <P>[Edited transcript from audio tapes]</P> <P><BR> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>8:45 a.m. </DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>9:00 </DIV></TD> <TD> <DIV class=BodyText><EM>Presenter:</EM> </DIV></TD> <TD> <DIV class=BodyText><A class=eResources href="http://www.aei.org/scholars/scholarID.62/scholar.asp">Nicholas Eberstadt</A>, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM></EM> </DIV></TD> <TD> <DIV class=BodyText><EM></EM> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText><EM></EM> </DIV></TD> <TD> <DIV class=BodyText><EM>Discussants:</EM> </DIV></TD> <TD> <DIV class=BodyText><A class=eResources href="http://www.aei.org/scholars/scholarID.128/scholar.asp">Michael Barone</A>, AEI </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>William Galston, Brookings Institution</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><EM>Moderator:</EM> </DIV></TD> <TD> <DIV class=BodyText><A class=eResources href="http://www.aei.org/scholars/scholarID.5/scholar.asp">Douglas J. Besharov</A>, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:30   </DIV></TD> <TD> <DIV class=BodyText>Adjournment</DIV></TD></TR></TBODY></TABLE></P> <P> </P> <P>Proceedings:</P> <P>Douglas J. Besharov:  Well, what an intrepid group of people here.  Nick said, however, that we have the key people here, so there you go.  Thank you very much for coming here on such an actually, it s a gorgeous day.  It s wonderful about this room.  Our topic is the measurement of poverty and we meet on the occasion of the publication of Nick Eberstadt s new book, The Poverty of the Poverty Rate.   I have seen it in numerous galleys, so actually I don't know this version.  I am assuming that the story is the same.  </P> <P>The challenge for a session like this is to keep in mind that there is a long-term, that there is a longer-term view to take about the measurement of poverty and other social conditions and then the immediate conditions we re in.  And I think Nick and the other panelists are going to weave the two together as we talk.  I am going to introduce people as they are about to speak, so Nick Eberstadt is the Henry Went Chair in Political Economy here at AEI and he is also a Senior Advisor to the National Bureau of Asian Research in Seattle.  In the middle of his long biography here, there is all sorts of stuff about Asia, foreign policy, Russia.  If you are interested in why Russians are dying faster than many other people, talk to Nick.  But for these purposes, Nick is a demographer, he has been a member, is a member of the President s Council on Bio-ethics.  He has written widely on the subject of poverty and social problems and almost 15 years ago, he wrote a wonderful book called The Tyranny of Numbers.   Nick, congratulations on this book, the floor is yours.</P> <P> Nicholas Eberstadt:  Let me start off with some thank yous.  Thank you all for coming here, I ve got a wonderful audience.  Bill and Mike, thank you both very much for kindly agreeing to be discussants.  There are not two other discussants that I would rather have for this book in the USA.  Doug and Michael Novak brought me to AEI back in the mid-1980s and back in the bad old days of AEI, which very few of us remember, Michael and Doug watched my back and that is something that I will never forget.  </P> <P>And not least, thanks to our President, Chris Demuth, who brought us out of the bad old days and into what I think are pretty great days here at AEI.  His tenure over the last 21 years, this book is dedicated to Chris who will be stepping down and I hope enjoying some well earned time as a researcher here at AEI starting on January 1st.  The single most important statistic in discussing the poverty story in modern America is the poverty rate.  It is central to the discussions that informed citizens have on the poverty question in the United States.  It is central to the deliberations in the Executive Branch and the Legislative Branch about how to deal with anti-poverty policy.  It is a rate that is calculated down to the school district, down to the census block, way below the zip code level for the United States as a whole.  It is primos interparis [phonetic] in our national conversation about what to do with our continuing struggle against need and deprivation in the United States.  </P> <P>What I am going to argue in the next twenty minutes or so is that it is a very misleading indicator.  It has become an increasingly misleading indicator in recent decades, it is not capable of doing what it proposes to do.  And my modest solution to this dilemma is to scrap it and to look for other indicators that may better inform our nation as we deal with our ongoing poverty struggle in the future.  </P> <P>Let s start out with what the official poverty rate actually is, what is this?  And we have the unofficial historian, the biographer of The Poverty Rate here, Gordon Fischer.  So Gordon may want to opine more on this later.  The poverty rate was invented - it was created, more or less, almost at the beginning of the War on Poverty.  It was introduced to the public in an article in 1965 written by Molly Orshansky, who was a researcher at the Social Security Administration based on some of her, drawing upon some of her earlier work.  </P> <P>And what Orshansky attempted to do, and I think did really quite ingeniously considering the limits of data available at the time, was to come up with what was eventually called the Federal Poverty Measure, which is sort of a threshold or a poverty line demarcating a level that would be necessary for a very modest, absolute level of subsistence for families of different compositions and size.  This is the so-called question of consumer equivalents.  Her index was based upon, it was based upon the USDA s very modest economy food plan; people have to eat, the budget that would be necessary for a modest, but really stringent diet, for families of different sizes; and then on a multiplier to get an overall family budget and a multiplier which generally turned out to be about a factor of three.  </P> <P>This was based on the insight from an earlier USDA study that, in the United States in the 50s, people generally spent about a third of their total incomes on food.  Now these poverty lines, these poverty thresholds were more or less fixed in stone at the end of the 1960s by the Office of Management and Budget, which is to say the OMB said these should be adjusted over time, but only for changes in price levels, only for changes in consumer prices.  So they were indexed to the cost of inflation, as measured in various sorts of ways at different periods in time.  </P> <P>The important take home from this was that the poverty rate, which is the proportion or the incidence of people living below this poverty line, is meant to be an absolute indicator of poverty, an indicator of absolute poverty.  There are perfectly good reasons for having relative poverty measures, but this one is supposed to be a measure of absolute poverty in the United States.  Now what does it show?  If we look at the reported figures for the official poverty rate over time, we can see that there was substantial reported declines in the incidence of poverty in the United States over this period of almost 50 years for which the indicator has been calculated.  This is for the population as a whole.  </P> <P>But things seem to get stuck in about the 1970s.  And in fact, the lowest reported reading for the US poverty rate for the US total population ever was reported in the year 1973, which is where the population as a whole reported a rate of 11.1.  That number in itself isn t particularly meaningful to anybody except that the poverty rate for the entire population for last year was reported to be 12.5.  In other words, the incidence of absolute poverty in the United States by this measure is supposed to be higher in 2007 than it was in 1973.  And if one looks at the reported poverty rate for children, it s supposed to be substantially higher today than it was almost 35 years ago.  The only group for which the reported poverty rate has generally and steadily declined is for the elderly.  </P> <P>Now on the face of it, if one heard that the incidence of absolute poverty in a modern industrial society had stagnated or retrogressed over the course of three and a half decades, you might think that you had something of a social catastrophe on your hands.  I mean, back in the days when I was a neo-Marxist, there was a whole literature on emiserating [phonetic] growth and unequal exchange.  A neo-Marxist would understand what is happening in the United States very well if they saw these sorts of numbers.  The problem is that the poverty rate is very seriously out of synch with other commonsensical indicators that bear upon progress and poverty in modern America.  And it has become progressively more out of synch with these other commonsensical measures, and let me show you a little bit about this.  </P> <P>I ve picked quite selectively two years to compare here.  I ve picked the year 2001, which is not so long ago and the year 1973, which you will recall was the nadir of the measured incidence of poverty as reported for our country as a whole.  Compare and contrast 73, which you will know from your history books was a Nixon era stagflation recession year and 2001.  The unemployment rate in 2001 was lower than in 2003.  The per capita income for the US was much higher in 2001 than it was in 73.  The proportion of the adult population with a high school diploma was much higher in 2001 than in 73 and some of us think that education has a bearing upon productivity and upon prospects for alleviation of poverty.  And the country s anti-poverty spending level was much higher in 2001 than it had been in 73.  </P> <P>Now there are different ways of aggregating anti-poverty spending, I ve left out healthcare, means-tested healthcare spending, because that is controversial to include, you could see even so substantially higher.  And despite this sort of consistent set of indicators suggesting, indicators bearing upon poverty suggesting that maybe things were going in the right direction with respect to the incidence of absolute poverty, the poverty rate registers an increase.  Houston, we may have a problem here.  </P> <P>Now it is widely argued or has been widely argued in the economics literature that the poverty, the incidence of absolute poverty in the United States should be affected directly and materially by macroeconomic conditions.  David Elwood and Larry Summers did a very persuasive paper to this effect back in the 1980s where they argued, using data from 59 to 83, that the median household, the level of median household income was a very powerful explanator for the non-elderly poverty rate, the elderly poverty rate having to do much with Social Security programs.  </P> <P>And for the period that they wrote about, for 59 to 83, their data were very persuasive, but let me show you the correspondence between the median family income level and the non-elderly poverty rate for the period since 73.  See a relationship?  I don't either.  There is a tiny and statistically not significant negative correspondence between these two trends.  The income level, the median income level, can explain about 2 percent of the change in the poverty rate over this period of time.  This is to say that the median family income level and the poverty rate are essentially disassociated in modern America.  If you have information about changes in the median family income level, you will be clueless, you will be clueless about what is happening to the poverty rate.  </P> <P>I will not inflict this upon you because you are a friendly audience, but here are a bunch of regression equations which indicate more generally that there is an increasingly perverse and non-commonsensical relationship between these other basic indicators in modern America bearing upon deprivation and well-being and the poverty rate.  They don't track the way you would expect them to do in a commonsensical environment.  So either all of the rest of these indicators are wrong and the poverty rate is right, or something very, very strange is going on with the poverty rate.  </P> <P>Our keepers of the data for the poverty rate indicator I think are very mindful of the criticisms that they have gotten from various quarters over the past generation and have tried to work with experimental and alternative and other sorts of approaches to judge the sensitivity of the indicator that we use in our national discussion on poverty.  They are obliged by law, they are obliged by law to calculate the poverty rate as it has been defined by the OMB.  </P> <P>I think it is to their credit that they have tried to look at alternative measures of income, alternative price deflators, other sorts of, what would happen if one calculated an input for non-cash benefits, many other different sorts of ways of adjusting the calculations for this poverty indicator.  But there is one basic problem, and I think it is an absolutely central problem, that they have not been able to deal with and this is a problem that is built into the heart of the poverty measure.  </P> <P>Orshansky s original measure posited that the consumption, it implicitly posited that the consumption of poor houses would be identical to their income level.  That income would be the constraint on consumption for poor households, for households in the poverty population.  And this simply is not so and it certainly has been ever less so over the past several decades.  You may not be able to see these numbers very clearly, so let me tell you what they are intended to show.  </P> <P>These are data from the consumer expenditure survey, which is compiled by David Johnson s former office, the Bureau of Labor Statistics, indicating the proportion of households, the consumer expenditure units in this survey, their families in the Census Bureau, there are some differences there that I need not torture you with at the moment.  But the proportion of households in America in the 1990s and in 2001 who reported spending more than their annual income in some given year, in a given year, and you will see that it is quite typical in  America as a whole, in modern America, for people to report that they are spending more than their annual income in some given calendar year.  And for the United States as a whole, almost 40 percent of households report spending more than their incomes in some given year, so the central problem with this conception of the poverty rate.  And of course, the people towards the bottom of the income scale or more inclined to report over-spending than people at the higher ends, although people at the higher ends report doing so as well.  </P> <P>If this were just a static situation, we would have a bias problem, but to make matters worse, the divergence between reported spending and reported income for people at the bottom of the income scale in the United States has widened very substantially over time.  And by 2005, at the bottom quintile of the income scale of the United States, households were reporting expenditures of almost twice as much as their annual income.  So you can see this is a fundamental problem for the way that we are measuring absolute poverty.  </P> <P>Why has there been this widening divergence between reported spending and reported spending power for the poorest elements of American society?  Well, one hypothesis might be that people are, so to speak, maxing out their credit cards in a sort of an unsustainable way.  That people in poverty are accumulating unsustainable levels of debt and that this is all going to lead to some sort of really awful dislocation.  When we have the data for the year 2007 and 2008, I may have to revise my story line here, but I can tell you that from 89 to 2004 on the basis of data compiled by the Fed, that hypothesis doesn t really seem to gain much traction.  </P> <P>We see that the debt, the liabilities of people in the bottom fifth of the household income scale did increase over this period of time, but their assets and net worth, on average, increased much more.  So we don't see here in this period any great substantiation of the hypothesis of over-spending leading to this gradual divergence.  And by the way, I should mention here that the increase in net worth for the poorest fifth in the US is due about equally to housing and non-housing assets, to the extent that there is a housing bubble included in here.  This only pertains to about half of the assets that we are looking at for the poorest fifth of the US population.  </P> <P>Other possible explanations of the growing discrepancy between spending and spending power for the poorest part of the population as reported in national statistics might include measurement error, definitional changes.  And I think there is some evidence that some of those are there.  But I think the definitional changes, survey changes and error can only account for a portion of what is now a really yawning discrepancy between income and spending for the lower segments of the United States.  And it would be very hard pressed to account for this consistently growing gap over time.  </P> <P>I have a hypothesis for why this gap has emerged, and I will try to share that with you.  Skip over this stuff.  This graphic here shows what we might call income variability, year to year bounces around in the proportion of variability from year to year in annual incomes for households at the median level.  And what you see is that in absolute terms, the variability, the volatility of incomes for families in the United States appears to have increased quite sharply in the period since 1973, quite sharply.  </P> <P>These are data that were based upon a research method by Robert Moffett and Peter Gotshaw [phonetic] who I think did some very nice work on trying to disentangle what they called transitory income and transitory income variance, overall income inequality.  If you parse the data a little bit further, you see that the level of income volatility has increased for all income groups, but it has increased most for people towards the lower end of the income scale over the past 30 plus years.  Now why is this significant for the measurement of the poverty rate?  Because all other things being equal, I suspect, the more variability or volatility there is from one year to the next, the greater the discrepancy at any given point in time will be between measured income and spending for people towards the bottom of the income scale.  </P> <P>In other words, people with more income volatility, people who think of themselves as $40,000 families, families that spend as if they are $40,000 families will, in some given year, be measured as $20,000 families.  And a family of four with a $20,000 income will be measured as being below the poverty line in modern America.  So I suspect that this increase in income volatility or if you want to call it income insecurity may have something considerable to do with this widening difference between measured income and measured spending power for the lower income quintile in the United States and this may explain this story here.  </P> <P>A further indication of the problem with the poverty rate as it is currently measured comes from some of the work that I think was pioneered by Robert Rector here in looking at living standards of the poverty population over time.  In principle, as I mentioned earlier, the poverty rate is supposed to be an absolute measure, it s supposed to be an absolute measure over time.  All other things being equal, one would think that that would mean that people below the poverty level should have something approaching a constant level, a constant standard of living over time.  But all of the non-income data for the United States incontrovertibly shows that there has been a steady and progressive improvement in material living standards for the poverty population.  </P> <P>Now what this graphic is intended to show is the composition of spending for households, consumer expenditure units, at the lowest end of the income spectrum in the United States.  And you will see that over time, about 80 percent of the expenditures of the lowest income Americans have consistently gone into four categories into food, housing and furnishing for those houses, transport and out of pocket health and medical care.  The fractions in this total have shifted over time, but it s been around 80 or a little less, a little more than 80 percent over time.  </P> <P>So let s take a look at what has happened to lower income Americans and poverty level Americans if we can with respect to nutrition, housing, transport and health, okay?  I could throw a lot of data at you about nutrition and food in the United States.  We ll suffice in our brief time today to say that there was measurable nutritional deprivation in the United States in the 1960s and that the primary nutritional problem for the poverty population today is obesity.  There is a nutritional problem, but it is not defined by lack of food.  </P> <P>Look at housing.  You can select some of the different boxes that you may wish to look at here with respect to indicators of housing conditions or this is a, I don't know if your eyesight is good enough for this nasty little chart, for either housing conditions or how houses are furnished.  But the general story line is that if one looks simply at these sorts of indicators and their availability, the poverty population in the United States can be pretty well compared to the non-poverty population in 1980 or 1970 in many respects.   And, of course obviously, the non-poverty population in 1980 and 1970 didn t have some things that are available for considerable fractions of the poverty population today given new inventions and new technology.  </P> <P>With respect to automobile access, automobile ownership, there has been a steady increase in availability and access to wheels for the poverty population and the lowest income part of the United States population over the last 35 years.  Since 73, the measured poverty rate, remember, has risen, the poverty rate is higher in 2003 than in 73 and yet paradoxically, an increasing fraction of the poor either have automobiles or other sorts of motor transportation or two plus, more than two vehicles at their disposal.  And then there is the whole question of health.  In the interest of time, I will skip over a few of these charts.  </P> <P>Let me just point out one thing with respect to health and health access.  This is the proportion of children in the year 2005 who are below the poverty level and did not have a reported visit to the doctor over the previous year.  You will see that the proportion is lower than the proportion of kids at twice, well above the poverty level, 200 percent or higher than the poverty level just a few years earlier.  But things are changing over time, they are changing in the right direction.  They are changing in the direction we would want them to be going.  Living standards for the poor are lower than living standards for the non-poor in the United States, but they are heading in the same direction.  That is good, it is not shown by the poverty rate, it cannot be shown by the poverty rate.  </P> <P>So in conclusion, my modest proposal is that the poverty rate should be de-institutionalized as the primary measure for judging our national, progress in our national struggle against poverty.  The fundamental difficulty here is that annually reported income cannot measure spending power, cannot measure consumption power for the lowest strata of the United States with any sort of confidence.  And the predictive power of annually reported income for tracking spending has been declining over time I think for some systemic structural reasons that I have mentioned.  </P> <P>I do not have a particular alternative approach that I wish to commend to you.  I think there are different ways that one can look at this problem and try to approach it.  I am obviously sympathetic to consumption based measures, but there are other approaches.  I am agnostic about whether a single measure or a multiplicity of measures might better serve our society, but I would think that at this point in particular, we are well advised to look at new poverty measures.  As we all know, we are on the precipice of a recession.  It is not yet clear how deep or how long this recession is going to be.  </P> <P>If one believes that macroeconomic fundamentals have a bearing upon absolute deprivation in the United States, and I happen to believe that, one would expect that our impending recession is going to have some impact upon the incidence of absolute poverty in the United States in the years immediately ahead.  And I think that this brings a special urgency to the task and the project of coming up with more accurate measures of poverty in our country.  I will stop here and thank you all very much.  </P> <P> Douglas J. Besharov:  Nick, thank you very much.  Nick asked Michael Barone and Bill Galston to be discussants.  Michael is going to go first, he is a Resident Fellow here at AEI where he studies politics, American government, campaigns and elections.  Many of us, I think, saw him helping call the election just a few weeks ago.  He is the principle co-author of a wonderful almanac of American politics and he has written many books, most recently Our First Revolution, the Remarkable British Upheaval that Inspired America s Founding Fathers.   Now there is a story for you.  Michael?</P> <P> Michael Barone:  Well, thank you very much, Doug.  It s an honor to be on a panel here with Nick and Bill and Doug, all of whom I admire greatly and have learned from, perhaps not learned sufficiently from, but have learned from over the years and to comment on Nick s book, The Poverty of the Poverty Rate.    At least in my reading of the book, I think it pretty definitively establishes, for me a least, that the so-called poverty rate, the poverty statistics, that number that we are given every year is not a meaningful statistic and it should be dispensed with.  It is not measuring accurately what is going on in our economy and in our society.  And I ve reflected over the years, there is a genuine problem with historical sets of statistics.  </P> <P>On the one hand, we want to keep compiling the same statistic every year so that we can show how things have changed over time.  On the other hand, the things that we are measuring change so much that you can hardly say that the statistic is commensurate.  In my recent book, Our First Revolution, the Remarkable British Upheaval that Inspired America s Founding Fathers which is about the events usually referred to as The Glorious Revolution of 1688/1689.   </P> <P>You will encounter money figures and people say Queen Ann donated to the Duke and Duchess of Marlboro 250,000 pounds to build Blenem Palace.  That was how much money was that?  Well, the civilian side of the government expenditure then was about 1,250,000 pounds, so the answer is a lot, but how much was that 100 million dollars, 6 billion dollars in today s money?  We don't know.  We could calculate the cost of building Blenem Palace today, but we would have to add in the fact that the Duchess of Marlboro, after her husband s death, entered into lawsuits with every contractor and architect involved in the project.  Of course, this happens sometimes today as well.  </P> <P>But in any case, as Nick points out in the book, the construction of the poverty rate by a government statistician in the 1960s was a good faith effort to get at something real.  And over time, what the poverty rate gets at has been less real than it used to be.  I found it his treatment and description of the apparently growing discrepancy between income and consumption a fascinating one.  It helps me to explain some political factors that we ve had.  </P> <P>I mean, we often hear it said, particularly from those who would like to see a more progressive re-distribution of income by government programs that 1973 was the golden year.  Income, certain categories of income peaked in that year, the poverty rate declined in that year.  As I remember, 1973 was a pretty dismal year in a whole bunch of ways the Watergate scandal and so forth.  But it s pointed back to as some kind of Nirvana.  </P> <P>I have long thought that one reason the numbers come out that is because the government started counting, over-counting inflation in the high inflation years for the next eight years thereafter, thereby discounting future income gains and economic gains and exaggerating the extent to which 1973 was a golden year.  But the existence of that number and the fact that in political rhetoric we hear it constantly said, not just from the left, but from writers on the right like David Frome and Rod Stoffett that hey, working families aren t making any more money than they did in 1973, they are going to righteously rebel against this economy that is distributing everything to the rich.  </P> <P>That those income figures exaggerate or overstate the degree to which people have not, ordinary people, people in the lower quintiles of the income distribution have not benefitted from what is undeniably a growing and more productive economy, problems of this year, next year and last notwithstanding.  And we ve seen commentary in books, like Jacob Hacker s, The Great Risk Shift, which Nick refers to.  And Hacker argues that voters in these lower quintiles want or should want to have risk reduced because they are in a situation he points to the growing variability of income, which Nick also mentions here and which seems to be more variable at the lower quintile levels.  And basically saying people want and need or should get protection from this by, among other things, government programs, redistributive tax or other public policies.  </P> <P>The fact that it appears that these people continue spending at a fairly high level, at the $40,000 level even when the income goes down to $20,000, over-simplifying the numbers perhaps, suggests to me that perhaps people have a greater tolerance of risk.  On the other hand, this year s statistics and the prospects for severe recession, the prospect of deflation indeed suggests to me that even if that was so, we may be seeing the beginning years of a change in that.  It is certainly something to watch.  But it s kind of a fascinating thing.  </P> <P>I think what we have been trying to measure by these numbers is an economy that has changed.  We have moved from, you know Molly Orshansky s statistics were mostly circa 1959 or something, that is what she was working with.  We have moved from the pay packet economy to the credit card economy.  And I can remember going to my father s medical office, he was a surgeon in the 1950s in Detroit and people would pay for their office calls, a woman would open her purse, pull out four dollar bills and then get the change purse out to get the fifth dollar for the five dollar office visit.  This is a little different from what you encounter when you go to a doctor s office today and whip out the credit card for $305 and then send your insurance forms in and so forth.  So yes, not everybody has credit cards.  Yes, people do overextend themselves.  Yes, we are indeed in a credit crisis type of situation in the economy now.  </P> <P>But as I reflect on this, this change has been enormously beneficial to most ordinary people.  The ability to ride out a temporary loss or a reduction in cash income, if managed reasonably, intelligently, can make your life a whole lot better than the 1950s Detroit factory worker wife who, if the pay packet ran out at the end of the week, there just wasn t anything else that she could have she didn t have any more money, and so forth.  You know, the wives used to go to the factory gates to get the husbands before they hit the bars outside the auto factories, because otherwise the pay would be gone for the whole week.  So you have a certain risk.  So to me, this is a very illuminating book.  </P> <P>I would just close with an observation that goes really beyond the subject of Nick s book and addresses Hacker s argument that government public policy ought to reduce risk.  And my comment is it s risky to try to reduce risk too much.  I grew up in Detroit in the 1950s.  If I could go back to the 1950s in Detroit and tell them that yesterday the Chief Executives of General Motors, Ford and Chrysler were before the United States Congress, before the Senate Banking Committee and asking Chris Dodd and Richard Shelby for $50 billion because they could raise no more money from anybody else and were going to run out of cash.  I would have been confined to a mental institution, which there were more places those days then there are today.  People would have thought you were crazy.  </P> <P>The whole system constructed by the big three and the UAW was designed to reduce risk.  It has turned out to be very risky.  And, of course, one could say as much about credit default swaps and these other financial derivatives, which were designed to reduce risk and have turned out to be very risky.  People who make public policy, these great financial instruments, whether they are in government or the private sector, somehow there are limits, it would appear, to the degree to which nature or God wants us to reduce risk.  You can t eliminate it entirely, except at the cost of a huge systemic risk that really imposes great difficulties on people beyond what we have seen certainly in the last 25 years when we ve had low inflation, economic growth 95 percent of the time.  Thanks.</P> <P> Douglas J. Besharov:  Michael, thank you very much.  Bill Galston is the Ezra Zilka Chair in Government Studies and a Senior Fellow at the Brookings Institution.  For many years, he was a colleague of mine at the University of Maryland where he was the Saul Stern Professor and for a wonderful year, dean of the school.  He has written eight books </P> <P> William Galston:  Maybe wonderful for you.</P> <P> Douglas J. Besharov:  Well, we are still trying to fill the shoes.  He has written eight books and his most recent is Public Matters, Politics, Policy and Religion in the 21st Century.   Bill, welcome to AEI and we look forward to your remarks.</P> <P> William Galston:  Well, thanks so much, Doug.  Let me tell you how I came to serve on this panel.  This will compress a series of interchanges.  Nick reached out to me and I said Nick, I don't know anything about this topic, why don't you get somebody who does.  And he said, in effect Bill, if you don't know anything about this topic, you are my guy.  And so here I am.  I will reflect on this as someone with some experience in political and moral philosophy, some experience in American politics and public policy and almost no technical experience dealing with the question of poverty.  You don't have to get many pages into this book to see that this issue, as it has been posed in the past four decades, raises a number of complex technical questions.  </P> <P>I would argue, however, that it is a mistake to begin with the technical questions.  I mean, we ought to begin at a much higher order of generality and work our way to the technical questions, or so I would argue.  And so my point of departure is the very simple, commonsensical observation that poverty is a morally laden concept.  And it is morally laden in multiple respects.  Let me just mention three right now and I ll come back to some more in just a couple of minutes.  It is morally laden because at least as we use the term, it is considered to be a bad condition, a condition that no one would willingly be in.  </P> <P>Now obviously there are religious traditions that disagree on that point, but those religious traditions are not driving the American debate here and now.  Blessed are the poor maybe so, but would you want to live there?  And it s morally laden in a second way, and that is that at least in the religious tradition that I know best, namely Judaism, it implies a kind of moral imperative.  That is to say that someone ought to do something about it, details to come.  Whether that s a family member or a fellow member of the neighborhood or the community or some organized public entity I mean, that is a f matter of debate.  But if it s possible to do something about it, then it is morally wrong not to.  </P> <P>And third, and both Nick and Michael have touched on this point, it can serve as the basis of the moral evaluation of a society.  And roughly speaking, if a society becomes wealthier and wealthier and the number and percentage of people in poverty does not decline, then in a very rough and ready moral sense, there is the basis for at least raising some questions about the moral acceptability of the policies within that society that allow that to happen.  So so much for the point of departure.</P> <P>Now amidst all of the disagreement on the subject and Nick s invitation launched me into a modest amount of late night reading about this topic thanks a lot, Buddy, didn t have enough to do.  And what I discovered was that in the midst of all of this disagreement, there is nearly universal agreement on one critical point.  And that is that the measure that we use that is cited in the press is increasingly outdated and increasingly misleading.  That is where the agreement ends, however, because when you ask then okay, well then what should we do about that, people go off in all sorts of different directions.  </P> <P>I call to the bar Mayor Bloomberg of New York.  And this summer, I encountered the following story.  Calling the federal poverty measure broken and outdated, Mayor Michael Bloomberg on Sunday unveiled a new method that he and his aides said gives a more accurate picture of the poor and that he hopes eventually will become the new national standard.  And he said, and I quote, If we re serious about fighting poverty, we also have to start getting serious about accurately measuring poverty.   The article went on to describe the elaborate process of social investigation that the mayor s staff went through, some of the components of the new measure.  </P> <P>And then I encountered the following fact.  The current federal measures show New York City with a poverty rate of 18.9 percent, but the new, parenthesis, Bloomberg measure shows that the rate is 23 percent.  So this change takes the statistic in, I would say, the opposite direction from the direction that Nick is recommending.  So clearly Houston, we have a problem.  And how are we supposed to begin to approach this problem?  Well, let me now call to the bar the only author who is cited by all parties to the debate and this is an author that will make the fellows and denizens at AEI smile, namely Adam Smith.  </P> <P>Okay, now what does Adam Smith have to say about this question?  This is a quotation that shows up in Nick s book, it also shows up in the writings of people who are left liberals on this question and I think it is a very provocative point of departure.  Here is what Adam Smith has to say.  Consumable commodities are either necessaries or luxuries.  By necessaries, I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.  A linen shirt, for example, is strictly speaking, not a necessary of life.  The Greeks and Romans lived, I suppose, very comfortably, though they had no linen.   </P> <P> But in the present times, through the greater part of Europe, a creditable day laborer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which it is presumed no one can well fall into without extreme bad conduct.  Custom, in the same manner, has rendered leather shoes a necessary of life in England.  The poorest creditable person of either sex would be ashamed to appear in public without them.  Under necessaries, therefore, I comprehend not only those things which nature, but also those things which the established rules of decency have rendered necessary to the lowest rank of people.   Thus, Adam Smith.  </P> <P>I would say that the prose quality among economists has declined very much in the past two centuries.  Now let me try to parse this in somewhat less elegant terms.  Smith, I think, is saying that his conception of poverty includes three different components physical necessities, social decency and what I will call functional participation in the society. </P> <P>Now we can argue about how variable physical necessities are, but it is clear that the requisites of social decency and functional participation change and change over time with the changes in society.  They change relative to social norms.  For example, when was the last time you saw a clerk with lots of teeth missing?  If you don't have access to dental care, there are lots of jobs involving relationships with other people that you are </P> <P> Male Speaker:  Go to England.</P> <P> William Galston:  Okay, but not here.  It s also relative to social organization.  For example, if there is an increasing special separation of the residents and the workplace, then certain forms of transportation become requisites in a way that they wouldn t have been if those two things are closer together.  And it s also relative to social development.  I would suppose that a hundred years ago, indoor plumbing was a luxury and the absence of it would not denote anything about the poverty status of an individual.  By the 1930s, that had already changed and today if you are living without indoor plumbing, that is a sign of poverty, unless you are doing it for ideological reasons, but could well afford a toilet.  </P> <P>Now what that tells me, in sum and Nick explicitly agrees with this in his book that poverty has both an absolute component and a relative component and somehow in our measure of poverty has to take this basic conceptual duality into account.  Now how to do that is no a simple matter.  So let me just spend a couple of minutes trying to come down to a slightly lower level of generality and just pose some questions that we may want to discuss.  </P> <P>Does the source of income matter?  That is to say, if you are living high off the hog in some inner city area, but you are doing it as the result of drug dealing and your estimated lifespan can be measured in years, not decades.  If there is extreme variability, let us say, depending on your apprehension status, then what difference does that make?  Or another question, what difference does dependency make?  </P> <P>I mean, suppose for example, consider a father who has saved and invested all of his life.  Unfortunately, he invested all of his 401K in a company I shall call Enron and the value of that goes to zero, his retirement plan collapses and the only way he can live is to throw himself on the mercy of his son who refurbishes the garage and the father moves in.  He has a roof over his head, he has food, he has the company of his son.  Is that father poor or not?  I m not sure I know the answer to that question, but I think we ought to think about it.  </P> <P>I think we also care about whether poverty is a fleeting snapshot of a life or whether it persists over time.  I think we ought to care about the fact that 40 years ago, not only did we make a momentous decision in the area of civil rights, we made an equally momentous decision in the area of the immigration policy.  Would we be having the same discussion if we had the same under 5 percent percentage of the population not native born rather than the 13 percent that we have now?  And how does the soaring price of healthcare costs figure into this over this overall calculation?  </P> <P>So what are we looking for?  It seems to me that a), we have to wade our way through these various conceptual questions.  We need accurate data collected over time.  Some experts I have consulted tell me that consumption data are even more questionable, technically speaking, than income data.  I don't know whether that is true or not, but if it is, it s a problem.  We need measures that treat likes alike.  We need measures that do not arbitrarily exclude sources of income that are more or less fungible.  We need an approach that is data driven rather than resolving key questions by definition or stipulation.  </P> <P>To cite an absurd extreme, we could define poverty as the denizens of the bottom decile of the population.  And so we would know by definition what the poverty rate is, what else would we know?  Not a heck of a lot.  And I would just conclude by saying, and I don't mean this to be argumentative, but simply a conceptual point.  It is perfectly possible empirically, logically and also empirically, that median income could increase and poverty could also increase if the rate of inequality increases faster than the increase in the median income.  And as you know, there is a robust debate about the increase in the rate of inequality during the period since 1973.  So at any rate, those are some random thoughts about where we are.</P> <P> Douglas J. Besharov:  Thank you very much.  Nick, I propose the following.  I propose you get a minute or two or three to respond to the discussants and then I get to ask a whopper of a question and then we open the floor for questions from the audience.</P> <P> Nicholas Eberstadt:  Sounds good to me.</P> <P> Douglas J. Besharov:  You are on.</P> <P> Nicholas Eberstadt:  I take very much to heart Mike Barone s observation and hypothesis that we are moving or have moved from the pay packet to the credit card economy.  And this chart here I think emphasizes some of what this may mean in an increasingly variable, volatile economy that coincides with this.  I tried to avoid using dirty terms from economic theory in my initial presentation, but I think the basic problem we face with our current conception of the poverty rate is this.  That people spend according to their permanent income, but with an increase in variance in transitory income, you get this wedge that drives a differential and maybe an increasing differential between measured annual income and measured annual spending for some considerable portion of people at the bottom.  </P> <P>And would people at the bottom prefer to have the more riskless society from the 1950s, the Detroit of the 1950s?  Maybe so.  Maybe people would even take a cut in their permanent incomes in return for less risk.  But as you said, I m not exactly sure how we stuff that genie back into the bottle.  I think, you see Bill exactly why I wanted to have you on this panel after your presentation.  </P> <P>And the whole question of the necessaries, I think, is not trivial.  I mean, I think it gets to the moral heart of what people look at in a decent society.  I am not sure that, as our president-elect said, that this is at my pay grade, exactly, but let me offer some observations towards it.  </P> <P>In the final analysis, I think that the determination of eligibility for means tested benefits is a political and not a scientific matter.  I mean, people at the National Academy of Sciences and elsewhere can opine upon it, but the actual determination of what eligibility levels are consistent with necessaries is something that societies have to decide for themselves.  It has to be decided politically.  I mean, Doug has done very interesting work that touches upon this.  </P> <P>A few years ago, he and Peter Ginanis [phonetic] put out a paper reconsidering the federal poverty measure and he showed the different scalers that are used for determining eligibility for different means tested programs now.  And it s all over the map.  In other words, you can be at 185 percent of the measured poverty rate to qualify for a national school lunch program, the 200 percent for a state children s health insurance program, 250 percent for Medicaid and so forth.  </P> <P>The point is that American society is already in the process of redefining what the level of the necessaries are.  This is happening already; it just isn t happening in any sort of concerted deliberate way, it s happening kind of spontaneously.  I would note that, I guess I would caution, not that anybody has mentioned Europe, that the European model may not necessarily be suitable for the United States precisely for these political reasons that have to do with different sensibilities in different parts of the world.  European populations seem to be much more sensitive to relative income differences than American voters seem to do.  European populations seems to believe that differences have much less to do with individual initiative and outcomes than American populations seem to feel.  </P> <P>In the final analysis, I guess I think this is a political question that has to be dealt with politically by an open discussion on the part of the public.  And better information will help to inform people, I think, make better decisions.  If we are dealing with a narrative that says that the incidence of absolute deprivation in the United States has increased over that past 35 years when it has not, our public discussion will be, in some sense, impoverished.</P> <P> Douglas J. Besharov:  Well Nick, I was essentially agreeing with you until the end when you said that this was essentially  a political decision.  Because I heard Bill and in some respects, Michael saying that it was a moral judgment.  So an extended question.  The poverty measure does a couple of things.  One, it takes our temperature and the other, you mentioned it also, sets eligibility for programs.  </P> <P>When Bloomberg tried to revise the poverty measure, Bill, I think that part of that it was a reprise of what Pat Moynihan did, Senator Pat Moynihan did 15 years ago.  He wanted a new poverty measure, not because he thought it didn t count right, it didn t do enough for New York.  Pat very clearly wanted more poor people in New York, the record is clear.  He thought the NAS would come up with a measure that did geographic variations and therefore New York would come ahead.  </P> <P>It s a tricky process because you ve got to get the poverty rate up a little, but you can t get it up so much that you look like a failure.  That s why it got the 23 percent, I m absolutely sure.  And if that happened, it s a half a billion or a billion more into the city without any social change.  So these lines have immense practical consequences.  And yet, as everybody at the table has said, there s a moral dimension to defining poverty, Adam Smith and so forth.  </P> <P>So let me see.  I want to vest this moral judgment in some anonymous committee, either at the Census Bureau or on Capitol Hill or in OMB and I want them to decide, as they do in Europe, on some other measures, not the ones they use whether what is necessary and appropriate is two weeks of vacation or three.  And I want that in a report that no one will read, but the number is the one that I will see.  </P> <P>So my question, first to Nick, but then I m going to take the liberty and go right down the table, what the hell is the government doing in this?  Give me my same old number, give me all of the tools and let everybody argue about the level of poverty in this country.  Let the best argument win and change over time.  </P> <P> William Galston:  Doug, you are such a cynic.  I m a slow learner, I know.  Well, I guess I would like to hope that sometime there is, in the ven diagram, there is an overlap between the political process and moral reasoning.  One would like to think that there is a certain space in which both of those quantities come to bear.  And yeah, to have the American public discuss what are two the American public will decide either in a more deliberate sort of process or in a more inadvertent sort of process what the necessaries are.  </P> <P>As you show, we have decided this already, it s just we haven t talked about it quite so much.  I am not sure that Nick Eberstadt would have come up with the Bloomberg approach towards measuring poverty in New York City, but I think it is a very good thing to have one, two, many different approaches, many even at a local level in the United States.  If it comes to that, a sort of a competitive federalism where different approaches are encouraged to take a look at what we mean by poverty and deprivation.  </P> <P>My own personal opinion, for what it s worth, and it s just a personal opinion, is that much of what concerns us in the United States today with circumstances for people towards the lower end of our income spectrum might more properly be described as misery and degradation than deprivation.  I myself am pretty convincible that the level of misery in the United States, especially for people at lower income levels, may have increased rather substantially over the last 45 years, but that is not necessarily the same thing as limitation of economic resources, which gets back to the moral question, perhaps, that you are mentioning.  </P> <P> Michael Barone:  Well, I think that we are sort of getting at the point where social science stops being a science and starts being an art.  Whether it s Pat Moynihan, whom you mentioned, was quite an artist at this and was doing this for New York.  It seems to me Mayor Bloomberg s numbers should include a Manhattan component below 96th Street and an outer borough component and so forth and then you could argue where the boundary between Queens and Brooklyn should go, between Bushwick and Woodside and so forth.  </P> <P> Douglas J. Besharov:   And this from a man from Detroit.  </P> <P> Michael Barone:  Yeah, the numbers you know, I am fascinated by the question of necessaries.  You know, I grew up as a doctor s son, we never had air conditioning.  I mean, it was Michigan and it wasn t the hottest climate, but it gets hot in the summer and no air conditioning in the house, no air conditioning in the car.  I have the sense that Americans, at least in about 80 percent of Americans in states that have fairly hot weather for some protracted period, regard air conditioning as a necessary.  You are not living in dignity without it.  You are there sweating in your car in traffic.  This was not true 50 years ago.  So we re measuring something that is different.  </P> <P>As Doug points out, this poverty rate number is embedded in all sorts of statutes and those 185 percent of poverty numbers, I think some of those come out of conference committees in the middle of the night at the beginning of August and continuing resolutions.  And somebody says 200 and he says no, I ll give you 170 and it comes out 185.  That s the way of legislative representative democracy.  But I think the existence of this one number that is supposed to tell us about poverty, about deprivation, I think is, it s an example that we want overly simple pictures of where we are.  And what we know, social science tells us that it s actually rather complicated, that you can have misery, if not deprivation.  </P> <P>Increasingly, people in a situation which intuitively we would call poverty are there more as a result of bad decisions in their personal lives rather than the fact, than the structure of the economy being such as to exclude them from opportunity.  And I don't think we are going to get rid of this poverty number because it s in too many statutes.  And getting a substitute for it, a composite would be fraught with difficulties and reason to disagreement.  </P> <P>But I think, the one aspect of it is that I think is, does have a moral dimension, this number and the fact that it looks about the same as 1973 or worse is used by some as sort of a moral indictment of our society.  We have not done what we should have done to reduce poverty.  Which I think is, on balance, not deserved.  I think you can argue that we should, public policy should be different in some way, shape or form.  It provides too much of a negative verdict against America as it is and has been in recent years.  And so in that sense, I think even if this is embedded in statute, I think it s important to understand what I believe this book conclusively proves, which is that this number gives a misleading impression of deprivation in our society.  </P> <P> William Galston:  Doug, I think the assembled company has been more than expectedly patient and I m not going to provide a long answer to your question, although it certainly deserves one.  I would simply observe that it is unlikely that we are going to repeal the new deal.  Ronald Reagan didn t try, he wanted to repeal some aspects of the great society, but not the new deal.  And since the new deal, certain sorts of responsibilities have been moved out of the voluntary sector and away from states and localities as the exclusive province towards the national level.  I don't expect that to change any time soon.  </P> <P>And when you have national programs, you have national standards.  And so the let the hundred flowers bloom approach has some merit for what we philosophers call the discourse of democracy.  But if you have national programs, there must be a uniform standard and there is no alternative there but to try to think through what that standard ought to be granting arguendo Michael s point that the political embeddedness of the current number is going to make change very difficult.</P> <P> Douglas J. Besharov:  Bill does remind us that we have an audience that has questions, so I will do his thing later.  Robert Rector and I will ask people if they are willing to introduce themselves when they ask their question.  We are a small enough group that I don't think that we need a microphone.  Robert?</P> <P> Robert Rector:  Robert Rector.  [Break in audio]  What I would like to know is seeing that there is going to be here some policy discussion about which measure to adopt as the current bill takes the National Academy of Sciences and the (indiscernible), where do you say, having read this, the policymakers should go?  </P> <P> Nicholas Eberstadt:  We have a true insider and expert on both consumer expenditure statistics and income statistics sitting at this table.  I realize that there is a sort of Damocles hanging over my head here.  I guess I would say that when we look at income consumption and material physical biometric trends, data, for the lower income strata of the United States, we can pull the kind of, we can do the kind of Sanford-Binet test, which one of these things does not belong, which one of these things looks most out of place.  The material biometric trends for the lowest, for the poverty population and the consumption trends, the expenditure trends kind of track.  There is a consistency in this story over time.  </P> <P>The one that does not track with the other two over time is the reported income for the lowest strata of the United States.  I think the story that is told by the consumption trends tends to be corroborated really strongly by the material living standards trends.  And I ve got, I obviously have confidence in the biometric stuff because I use that in tracking material trends for poor populations in a lot of other countries during my other work.  In the deliberations that are going to occur in Congress, as Congress looks at this with the McDermott Committee and so forth on this question, as I indicated, I like consumption and consumption and expenditure measures.  </P> <P>I think if one went to the economics profession at the moment, you would see that very often people use consumption as a proxy for income in all sorts of international studies for kind of permanent income.  We could probably ramp up our knowledge, our national knowledge about actual consumption levels and spending patterns for what would pass for pocket change in the US these days.  I am talking about tens of millions of dollars.  </P> <P>David can tell me what we would be talking about to ramp up the consumer expenditure survey or to link it better with income data.  Would it be good to have a more dynamic, long-term, longitudinal survey, a more accurate longitudinal survey of income and spending for the United States so we could follow some of these dynamics.  But we re also going to get into the whole question of misery in modern America.  We are going to want to know more about the structure of families and divorce.  We dropped the data set that would allow us to estimate a national divorce probability, family values presidency notwithstanding.  We haven t been able to do that for more than ten years.  So there are all sorts of data that we would want to be getting if we wanted to see how we are doing in our national struggle against deprivation and misery.  </P> <P> Douglas J. Besharov:  David Jensen from the Census Bureau your name was used in vain.  So we re going to put a census expansion package within the stimulus package go for it.  </P> <P> David Jensen:  [Break in audio]  You measure consumption, the trends are going to be pretty much the same.  You re not going to get a difference in trends.  If you look at people who have done this, the trend over time is similar when you look at the measurement.  Now you might get difference in levels because of under-reporting.  But what it all comes back to is how you talk about this line that it doesn t sound like anybody wants to choose.  And that would be back to my question, it depends on what the purpose of this measure is.  It looks like Nick s is really focusing on measuring the long run trends over time.  </P> <P>If you look at the official measure, it measures short runs pretty well.  It goes with the business cycle, as you would expect it to.  It looks at composition, I think, fairly well.  It doesn t account for increases in the EITC because they are not in there an increase in food stamps and that would be an issue.  But this long run trend, it s all going to come down to what you do to that line and how you define that line and how that line changes over time.  So I would like to get a sense of this conceptual vision of poverty going back even to pre what Bill was saying in terms of Adam Smith what is poverty and what does this thing look like?  If we can t agree on that, I think that, then it s going to be hard to measure it.  </P> <P> Douglas J. Besharov:  I will just mention that we talk about the European quote poverty line.  If you read the materials, they are very careful to say that s the line under which people are at risk of poverty   which is to say it s not a poverty line, and I think Nick points this out.  And I would argue it s their way of getting around these moral questions of income unit, is the father living in the garage, poor or not.  Is a divorced person and so forth poor or not.  There is embedded in this all sorts of value judgments that I think a wise politician stays away from.  There is a question here.  </P> <P> Male Speaker:  [Break in audio].  There is a chart, if I read it correctly, says that the bottom quintile spends 198 percent of its income, reported consumption, it s the 198 percent.  And then the other, as Bill Galston s question about does the source of income matter.  And it triggered two thoughts for me.  One is, as it relates to the actual business of creating programs that quote help the poor, does the content of the purchase matter?  </P> <P>And the parallel that I m thinking about is yesterday up on Capitol Hill with the automotive executives and the conversations we ve been having about the bailout where an awful lot of what Congress is concerned with is not just are we going to give them $25 billion or $50 billion, but how are they going to spend it.  No executive bonuses and we don't want the AIG people going to fancy resorts anymore.  So the first parallel that I thought about was this notion of definitions of poverty and how that relates to the extent to which we can or should sort of do the Puritan ethic piece here about where do people spend the money that they are given.  </P> <P>The other parallel that I guess I had in my head, and I m curious to know whether there is another reason that we should, we ve talked about the political reasons and the moral reasons.  And I wonder if at some point there isn t a national security reason to be concerned about poverty which is whether that is a sort of early warning sign of the failed state.  I ll leave it there and if there is a question there, great.  </P> <P> Douglas J. Besharov:  Before answering it, I think there is, we ll take one more question.  </P> <P> Male Speaker:  I was very interested by the volatility data, which I think is getting at an interesting change in the relationship between poverty and consumption over time or may be.  I thought, similarly I wondered it taking on the official cash measure of poverty though at this point is a bit of a paper tiger in there is so much consensus that if we measure non-cash benefits and take a number of other steps, as the National Academy of Sciences and everyone else is all taking about, how many of the problems that you identify would fall by the wayside?  And then I was interested in the shortfalls of some of the alternatives to using cash income.  </P> <P>I think in addition to what Robert mentioned about the problems in the quality of the consumption data, there is this notion of, recently if we ve learned anything in the last couple of years, it may be that while we used to think that consumption was the stable long-term measure and income was ephemeral, maybe we ve realized that people were consuming in a bubble.  And that there was a problem because their incomes weren t keeping up with their consumption.  </P> <P>And that if you look at the other alternative to income poverty, which is more material measures, I think Steve Heider found that if you measure children s actual malnourishment in their blood levels, the crude income poverty measure, even before you make any kind of NAS corrections, does a better job of predicting that than some of the material measures do.  </P> <P> Douglas J. Besharov:  We ll start with you, Nick, and then we will wrap up.</P> <P> Nicholas Eberstadt:  With regard to income as a criterion, I try to be quite careful in this book in making the distinction between program eligibility and policy analysis.  Income is going to be a criterion for program eligibility.  You can t ask somebody what their consumption was last year to establish their eligibility in need in any given moment.  So I think that those two things are going to remain quite separate quantities.  </P> <P>And with respect to the national security issue, it s funny how things come around.  The War on Poverty kind of began with a, as you probably know, with a report that was done by the Defense Department, by A Third of the Nation.   The DoD found that there was a remarkably high proportion of tested recruits who couldn t qualify for military service in the early, it was the end of the Eisenhower, beginning of the Kennedy era.  Do you remember what year it was, it was early 61 or 62, A Third of the Nation.    In any case, it was it does sound like a McNamaraism, doesn t it?  In any case, it preceded the War on Poverty and the War on Poverty was partly prompted by looking at the national security implications of this low level of human capital in America s youth.  So things come around.  </P> <P> Michael Barone:  I think the thing that surprised me most that I learned from this book was these numbers on volatility and specifically the graph, the table that Nick showed earlier showing, I think, a notable increase among the volatility of income of lowest quintile starting around 1988, 1989.  And that surprised me.  I just didn t expect that.  I have got to think more about the implications.  </P> <P>I think the last question suggested to me that we ve got this concept of permanent income that is related to volatility.  It strikes me that people s estimates of their permanent income could be subject to change in light of their analysis of the macro economy.  For somebody like my parents raised in the 1930s, the concept of permanent income was 20 percent lower than what you were making now.  Everything could stop tomorrow and don't spend my mother used to circle around downtown Birmingham, Michigan, a high income suburb, looking for parking meters with time on them to save a nickel or a dime.  Right now we may be in a testing phase of this.  In a bubble, as you say, people s estimate of their permanent income turns out to be gee, higher than it turns out to have been justified and we may be seeing sharp revisions of this with implications for both poverty and misery that I haven t thought fully through.</P> <P> William Galston:  Just a couple of quick observations.  First of all, again on the national security point, if you cast your gaze back a little farther, the Brits discovered both at the beginning of World War I and the beginning of World War II that the failure to attend to the basics had created some serious military problems.  And that the comparison, even at the beginning of World War II between the physical condition of their recruits and the physical condition of the median member of the German army was, in fact, quite significant and very serious.  </P> <P>But now let me try to respond in a much less theoretical way and very briefly to the question of okay, what do we do given where we are.  And I think there is going to be some change.  I don't think there is going to be a major structural or conceptual change.  And so I think realistically speaking, the question is what are the feasible changes that would actually improve the fit between the numbers and the world.  And I am not an expert on what is in the measure and what isn t in the measure, but it seems to me crazy to, if it is the case that things like the earned income tax credit are not part of it, well they certainly ought to be.  </P> <P>If we are entering into a brave new world of refundable tax credits, then whatever they turn out to be ought to be in an income measure because the last time I checked their income and certainly all of the recipients are going to treat it as income.  And similarly, to the extent that we have transfers that are not exactly cash like food stamps, but are certainly cash-like and have a material effect on living standards, then excluding them from our measure of what people who are participating in these programs actually receive, what they actually consume, how they actually live on an ongoing basis, it seems to me makes no sense at all.  </P> <P>So I guess my practical recommendation would be to make an inventory of the significant policy changes that have occurred since the Orshansky formula and integrate those into the measures of income that we use and probably call it a day.  </P> <P> Douglas J. Besharov:  Well, I think we should call it a morning.  Nick, congratulations on a wonderful book and I sincerely hope that it gets the attention it deserves.  One of the nice things about a book like this is it will last through the years.  It is not today s book, it is a long-term book that forces us to ask about the underlying questions about poverty, as you can see from this discussion.  And Michael and Bill, thank you so much for adding your really wonderful perspective to this and we will see you soon.  Thank you again.</P> <P>[End of audio]</P> <P>[End of transcript]<BR></P></body></html>