July 19, 2008
The Undercover Economist: At last, a sensible way to measure poverty
Seebohm Rowntree was the son of the wealthy Quaker businessman Joseph Rowntree, but acutely aware of the poverty that surrounded him in late-Victorian York. In 1899 he set himself the task of defining a “poverty line” by working out how much it would cost to supply basic food, housing and clothes. Anyone who couldn’t afford to buy those basics – including a helping of pease pudding with bacon on Sunday – was below the poverty line.
The idea of a poverty line has stayed with us, but the candidates have multiplied. The World Bank has two poverty lines: a dollar a day and two dollars a day (strictly, those are 1985 dollars adjusted for inflation). In the US, the poverty line is $29.58 a day for a single adult under the age of 65. All these are absolute income standards, just as Rowntree’s was.
Eurostat, the European Union’s statistics agency, takes a different approach: it defines the poverty line as 60 per cent of each nation’s median income. (The median income is the income of the person in the middle of the income distribution.)
This has an unfortunate consequence: poverty is permanent. If everyone in Europe woke up tomorrow to find themselves twice as rich, European poverty rates would not budge. That is indefensible. Such “poverty” lines measure inequality, not poverty, and they do so clumsily.
The remainder of this column can be read here. Please post comments below.
Of course the 60 per cent of median line is a measure of inequality, not poverty. And the Rowntree measure is, as you suggest, better because of its subjectivity, it’s why our inflation basket is regularly updated.
But back to that clumsy European measure, there is one possible defense of the indefensible, arising because some factors are so hard to economise. If we take the initial human right (subjective, but bear with me) of what an individual could do without support from the nation, then at the least he should be entitled to a share of the natural resource that would exist without society. Essentially a spot of land to try to be self-sufficient. Of course, with the benefit of co-operation and trade, we aspire to much more, but that starting parcel needs to be equivalent. If inequality rises, then as space and quiet and “natural history” are finite, some will have grab more. And if these strictly supply-limited things can still be traded, then the utility of the relative poor decreases regardless of “absolute” wealth.
OK, that’s partly paraphrased from 18th century agrarian justice, but the principles there, as with wealth of nations, are still broadly true.
Posted by: R N B | July 19th, 2008 at 11:36 am | Report this commentWe live in society. We can scarcely define society, but it is a very recognisable reality. The new Smith/Rowntree poverty line accurately delineates what we, and society, mean by poverty. Therefore it is the criterion that we have been looking for.
The Smith/Rowntree poverty line will not necessarily rise in the presence of economic growth, but may rise or fall independently of average living standards if people’s view of what constitutes the expenditure necessary to appear in society change. It will automatically adjust for the prices of the goods and services it includes, but that adjustment will not be identical with a measure of general price change. Indeed, since technologically new goods, which typically have falling relative prices, will be under represented in the poverty line as compared to general consumption, price inflation will probably have a tendency to raise the Smith/Rowntree poverty line.
It does make sense. It is what we have been looking for. Now we will have to adapt government and social standards to it.
Posted by: David Heigham | July 19th, 2008 at 2:11 pm | Report this commentThe problem with this is that it is then used to justify fleecing people who work and then transfering that money to people who don’t.
Now, whilst I don’t object to helping the ill and/or truly disabled, there are loads of lazy freeloaders in this country, who the rest of us have to support. My view is that they deserve to live in poverty, because they can’t be bothered to get a job and work their way out of it. There is no way that people who are finding it hard to make ends meet, or can’t afford to have children, etc., should be paying for these people to ‘get drunk twice a month’ or go on holiday.
Until we learn the lesson that the welfare state distorts incentives to a foolish extent - and then creates a dependency culture, families where fathers don’t take responsibility, resulting crime and anti-social behaviour - this country will continue its trip down the toilet.
So - when the Rowntree Foundation and similar socialist organisations can deal with the significant downsides of their measures to address poverty, they can produce as many reports as they like on ‘poverty’, but I and many others who are fed up with Labour’s spendthrift policies - which have done absolutely nothing to tackle the problems of dependency and the sheer cost of the welfare state - will coninue to treat them with the contempt they deserve.
Posted by: Bishop Brennan | July 19th, 2008 at 6:13 pm | Report this commentWow, Bishop Brennan, you sound like a modern-day Spencer: whose Darwinian view was that “nature” should be allowed to ‘weed-out’ the sick and the elderly, and force the idle into work or into death! No assistance for them.
On a different note, whilst we might admit to recognising ‘poverty’ by the new Rowntree measures, surely “the poor” will, thus again, always be with us? Because the subjective level of “needs” will constantly shift upwards.
In both Rowntree’s and Booth’s Victorian era work, “want or distress” equated with absolute poverty. And they provided measures for those. Surely we need a more modern definition of “want or distress”? If we then seek to eliminate poverty, at least we have a target.
Posted by: Derek Ttunnicliffe | July 19th, 2008 at 7:04 pm | Report this commentThe new Rowntree work makes a lot of sense. It will be interesting to see how well this allows trending over time, and how well it is able to be applied across countries and time periods.
The facilitation of comparisons across time and across countries is one advantage of a system that defines the poverty line in terms of how much it costs to provide a certain number of calories a day (India) or multiplies this to assume one should only spend a certain proportion of income on food (essentially the logic of the U.S. method).
Posted by: ZBicyclist | July 20th, 2008 at 5:19 am | Report this commentThe idea of using the purchase cost to provide a minimum level of calories in the daily diet is fine as a starting point. The difficulty is how far you go beyond then.
A basic problem, for me, is to what extent the agenda is being set by the professional groups who would gain from a never-ending source of “poverty” (ie a clientele in need of the professionals services - support, advice, etc). Such groups have an interest in acquiring sufficient control of the market (for their services) that they ensure continuing scarcity in supply and/or higher levels of demand. Thus, they gain a continuing (increasing?) rent.
Posted by: Derek Tunnicliffe | July 20th, 2008 at 11:44 am | Report this commentThe best article out there discussing the issue of absolute vs relative poverty is not from an academic journal. It is a blog post by the author John Scalzi entitled “Being Poor” and the ensuing comment thread.
http://scalzi.com/whatever/003704.html
Posted by: Douglas Reay | July 21st, 2008 at 10:31 am | Report this commentThis title does me remember about Tim Harford’s book, and I would like thanks you for writing this interesting book that does us think about many things that is happining in this world nowadays.
Posted by: Eduardo Manuel | July 21st, 2008 at 5:32 pm | Report this commentIf you were willing and able to work at the lowest rate of pay that society allows you–minimum wage, let us say–but were forbidden to work or have any income other than a modest government pension, at what rate of pension would you start cheating by working illegally? How many hours would you work? What would be the resulting income?
Let us define this threshold as as your personal, subjective poverty threshhold and the income you’d have given this threshold income and the amount that you’d be willing to earn to obtain more of the necessities and luxeries of life despite all the risk and trouble involved, as the social poverty threshhold, since you are likely to be working to meet somebody else’s idea of a decent minimum of well-being rather than your own basic needs.
In a society of non-consumers, this subjective threshhold is barely more than is necessary to keep an individual and his or her dependants healthy and comfortable. If you make more than the threshhold you are likely to be required to share the wealth and thus be worse off than if you did nothing. In an industrious and greedy society, that social poverty line is higher than your basic needs, but you may be unhappy if you fail to meet it. You will also be disdained.
To define a general poverty threshhold, at what level of guaranteed income supplement (GIS) would it be impossible for employers to find an adequate supply of minimum wage workers from those willing and able to work? If the GIS is set higher than this level, there are people who would be willing to work for minimum wage but who are forbidden or discouraged from doing so, which is absurd. The government could be paying people less to not work. Employers could also be offering a lower minimum wage than they do, if the social poverty threshold is lower, which is aanother absurdity.
In the real world there is quite a gap between the minimum wage and what employers are forced to pay decent unskilled workers. The minimum wage is too low. There is also quite a gap between what the cheapest workers get. The minimum wage is too high.
In a world with a GIS, the minimum wage could presumably be set so that it is not simultaneously too low and too high, which is to say, at a level which would equalize supply and demand of unskilled labour at the lowest possible rate.
Skilled labour would continue to be rare and would continue to command a higher wage or salary.
Does this make any sense or should I revert to my preferred liberal definition of poverty, namely Adam Smith’s “the want of those necessities…which no decent person, even of the meanest rank…can honourably do without…”.
Posted by: Brant Boucher | July 21st, 2008 at 8:24 pm | Report this commentI remember studying the Rowntree report at university. It’s a strange and largely fanciful document. First he goes about defining the the poverty line as the lower limit at which people can buy enough food to live; then shows that a proportion of the population of York is below that line; yet nowhere does he conclude that any of his respondents were dead.
Posted by: Seamus McCauley | July 23rd, 2008 at 12:15 pm | Report this comment