Is there a better way to measure poverty? Yes.

Not surprisingly in the midst of a long recession, poverty appears to be on the rise. In 2007, 37.3 million Americans, or one in eight, lived below the poverty line and nearly 18 percent of American children were poor. Since then, conditions have only deteriorated. Demand for food stamps has jumped 17 percent in the last year, food banks report a 30 percent rise in requests for emergency food assistance, and most states have seen their Medicaid rolls swell. (The Kaiser Family Foundation estimates that each 1 percent gain in the unemployment rate adds approximately 1 million people to the Medicaid and State Children's Health Insurance Program rolls.)

And yet most people would have difficulty citing the official definition of poverty or how it is calculated. Just how do we define poverty in the United States? Archaically—and largely around food. The current federal poverty measure was developed in the 1960s by Mollie Orshansky, an economist at the Social Security Administration. Orshansky examined data from a 1955 Department of Agriculture study that outlined an "Economy Food Plan"—an assumed diet for economically lean times—and estimated that poor Americans spent approximately one-third of their after-tax money on food. Orshansky then devised a simple metric: families with income at least three times the annual cost of basic groceries cleared the poverty hurdle. The rest—families that fell below this threshold—were classified as poor.

Remarkably, with only minor adjustments for inflation, Mollie's Measure (as this formula is called in policy circles) has persisted as the federal definition of poverty for more than 40 years, despite massive economic, social, and demographic shifts and a decade-long call for reform. Today this means that for a family of four the federal poverty line is $20,650—a figure meant to approximate three times the annual cost of groceries.

For decades, scholars and policymakers across the political spectrum—from Patrick Moynihan to researchers at the American Enterprise Institute—have argued that this measure is broken. For starters, food expenses no longer command one-third of most American families' income; the Bureau of Labor Statistics puts that average expenditure at about one-eighth of income. Instead, families now typically spend much more on housing, child care, health care, and transportation—costs that the federal poverty measure ignores.

On the resources side, the current federal estimate looks at pretax cash income, including earnings and payments from government programs such as Social Security and welfare support. Yet it fails to account for the value of in-kind (and cash equivalent) assistance of programs like food stamps, housing subsidies, child care vouchers, health care (Medicaid or SCHIP), energy assistance, tax credits, or the overall effect of paying taxes. Furthermore, the federal poverty threshold is uniform, encompassing no regional variations in the cost of living. Many of the expenses that can drive poverty—e.g., housing, food and fuel, transportation—look very different in different parts of the country.

In short, the federal poverty threshold no longer represents a useful standard for describing or defining the needs of poor families; indeed, it is doing damage. Many federal assistance programs were explicitly designed to help lift families out of poverty, but current data are incapable of showing whether the programs are working or not. Finally, billions of dollars are allocated each year to these means-tested programs—who is eligible depends on who is officially poor.