Dion’s mis­use of poverty stats

National Post (Latest Edition) - - Fp Comment - ALEX MACMIL­LAN Fi­nan­cial Post

In the poverty de­bate, those on the right be­lieve the fo­cus should be first on al­le­vi­at­ing the plight of peo­ple at or be­low the sub­sis­tence level. In­stead, those on the left in­sist that gov­ern­ment should work at as­sist­ing peo­ple in so-called rel­a­tive poverty, de­fined, in var­i­ous ways, as peo­ple who have in­comes or spend­ing at cer­tain lev­els be­low that of av­er­age Cana­di­ans. This broader poverty fo­cus of the left is mo­ti­vated by the so­cial­ist philo­soph­i­cal de­sire to flat­ten the in­come dis­tri­bu­tion, or, in other words, to make in­comes more equal.

So, I sup­pose it is not sur­pris­ing that the fed­eral Lib­er­als have an­nounced that, if elected, they would fight a rel­a­tive poverty war. In a Nov. 9, 2007 speech to the Learn­ing En­rich­ment Foun­da­tion, Stéphane Dion pledged to re­duce, over five years, the num­ber of Cana­dian per­sons liv­ing in house­holds with in­comes be­low the so-called af­ter-tax LICO (or low in­come cut-off ) by 30% (from 10.8% of the pop­u­la­tion to 7.6%), and re­duce the num­ber of chil­dren liv­ing in house­holds with in­comes be­low the LICO by 50%. Mr. Dion choose this LICO mea­sure of poverty be­cause, in Mr. Dion’s words, “Most ex­perts use Sta­tis­tics Canada’s low-in­come cut-offs to mea­sure poverty.” How­ever, I’m very sure the “ex­perts” Mr. Dion was re­fer­ring to did not in­clude those peo­ple ac­tu­ally liv­ing in real poverty. Nor do th­ese “ex­perts” in­clude those who in­vented the LICO con­cept in the first place, and mea­sure it year in and year out.

“At the heart of the de­bate [about poverty] is the use of the low-in­come cut­offs as poverty mea­sures, even though Sta­tis­tics Canada has clearly stated, since their pub­li­ca­tion be­gan over 25 years ago, that they are not,” Sta­tis­tics Canada says.

In fact, of course, the “ex­perts” Mr. Dion refers to are those on the left whose in­ter­est it is to de­fine poverty as broadly as pos­si­ble.

In his speech, Mr. Dion said that he was “em­bar­rassed” by the poverty sit­u­a­tion in Canada. No doubt this em­bar­rass­ment is due to the fact that the LICO mea­sure shows only a small de­crease in the per­cent­age in­ci­dence of poverty, or, when fac­tor­ing in pop­u­la­tion growth, a 34% in­crease in the num­ber of peo­ple in poverty since Pierre Trudeau’s 1968 “Just So­ci­ety” speech. This in­crease in LICO poverty has oc­curred in spite of the fact the Lib­er­als were in power for all but nine of the years be­tween 1968 and 2005 (the latest year for which LICO fig­ures are avail­able).

But con­sider the LICO def­i­ni­tion for one mo­ment, and the re­sult­ing LICO poverty mea­sure that the Lib­eral “ex­perts” are em­ploy­ing. The LICO mea­sures the in­come level at which peo­ple spend 20 per­cent­age points more of their in­come than the av­er­age per­son does on food, cloth­ing and shel­ter. For in­stance, if the av­er­age per­son spends 43% of their in­come on th­ese three items, and if peo­ple with af­ter-tax in­comes of $25,000 spend 63% (43%+20%) of their in­comes on th­ese three items, the af­ter-tax low-in­come cut-off would be $25,000. Us­ing the LICO to mea­sure poverty, one would then ar­gue that all peo­ple with af­ter-tax in­comes be­low $25,000 are liv­ing in poverty. Though the def­i­ni­tion is rel­a­tively straight­for­ward, LICO mea­sure­ment is any­thing but — re­quir­ing sur­veys of peo­ple’s ex­pen­di­ture, in­come es­ti­mates, econo­met­ric curve draw­ing and ex­trap­o­la­tion. Sta­tis­tics Canada also es­ti­mates LICOs for var­i­ous-sized house­holds and for var­i­ous-sized pop­u­la­tion cen­ters.

But here’s the kicker with LICO. Over the decades since the late 1960s, in spite of Cana­di­ans eat­ing more, hav­ing big­ger wardrobes and liv­ing in bet­ter ac­com­mo­da­tion, the im­prove­ment in Cana­dian in­comes has meant that the frac­tion of af­ter­tax in­come that the av­er­age Cana­dian spends on food, cloth­ing and shel­ter has fallen. Now, be­fore you read the next sen­tence, what would you think this fact would mean for the level of poverty in Canada? If you an­swered “noth­ing” or “lower it,” you would be quite wrong — at least ac­cord­ing to the LICO mea­sure. In ac­tu­al­ity, the way in which LICO poverty is de­fined, as the av­er­age Cana­dian spends smaller and smaller frac­tions of his or her in­come on food, cloth­ing and shel­ter, the LICO mea­sured rate of poverty in­creases. As the re­sult of chang­ing av­er­age Cana­dian spend­ing pat­terns be­tween 1969 and 1992, the ex­tent of LICO-mea­sured poverty in­creased by about six per­cent­age points. Since Sta­tis­tics Canada cur­rently still uses the 1992 ex­pen­di­ture pat­terns to mea­sure LICO, this means that if spend­ing habits had not changed over the years, LICO poverty would have been mea­sured in 2005 at about 4.8%, rather than the an­nounced 10.8%. That’s al­most a 60% re­duc­tion, or twice the Lib­eral’s promised tar­get. And, un­for­tu­nately for Mr. Dion, should Sta­tis­tics Canada choose to up­date LICO poverty mea­sures for more re­cent ex­pen­di­ture data, this would likely in­crease the mea­sured in­ci­dence of LICO poverty once more and screw up the Lib­eral tar­gets. So I guess the ad­vice to Mr. Dion would be to pray Sta­tis­tics Canada doesn’t do that.

Con­cern­ing his party’s “30-50 plan,” Mr. Dion states, “This is a bold goal” and “Spe­cific tar­gets al­low the elec­torate to know when some­thing has been a suc­cess. They also give a very clear idea of when their politi­cians have failed them.”

Well, I’m not sure we need any clearer pic­ture about the fail­ures of politi­cians. In­stead, what we do need are poli­cies that are at least hon­est in their goals. Es­pe­cially when deal­ing with poverty, we need poli­cies that uti­lize scarce re­sources (taxes) to tar­get those most in need. This is the most com­pas­sion­ate approach, not poli­cies that have good sound bites. Cast­ing a rel­a­tive poverty net (one full of holes, at that) over as wide as pos­si­ble a pop­u­la­tion for so­cial­ist in­come re­dis­tri­bu­tion pur­poses is cyn­i­cal at best and, at worst, heart­less to­ward the most needy among us.

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