Relative poverty
“Poor people I have met, both in my own country and abroad”, so begins an ASI blog entry, by Dr Madsen Pirie, supposedly one of our country’s foremost right-wing intellectuals. Pirie attacks the concept of ‘relative poverty’, which argues that your living standards depend not just on the absolute amount of money you have but also how much you have compared with the average member of your society.Pirie comes out with this breathtakingly untrue line, ‘It is also true that as society grows richer, inequalities tend to increase’. Now sadly for the last 25 years or so (oddly enough since him and his gang have been having an input in economic policy) that has been true but hitherto for decades (probably even hundreds of years) it was the case that as western societies got richer, inequalities got smaller.
Now what he sets out to prove isn’t true, it’s perhaps not surprising that his example proving it is so confused. Here it is:
If in a society of two, I earn 80 dollars and the other guy gets 20 dollars, there is inequality. Indeed, since he gets less than half the average, he is poor on the relative definition. Now if we both get twice as rich, I am on 160 dollars, while he is on 40 dollars. The gap has grown from 60 dollars to 120 dollars. So even though everyone is twice as rich as before, 'poverty' has increased. It is a poor definition which allows this.
It might be a poor definition which would allow that, but the relative poverty definition he is attacking certainly doesn’t allow it. In both cases the poorer person has less than half average income so is termed in poverty under that measure. Nothing changes. Yet for some reason Pirie says that using the relative measure would mean one arguing that ‘poverty’ has increased.
It’s quite obvious what he’s done. One of our foremost right-wing intellectuals has misunderstood what ‘half the average’ means. ‘Half’ is simply the average divided by two. If all incomes double, or treble or whatever, the average doubles, or trebles or whatever, and half of the average, doubles, trebles or whatever. Hence relative poverty measured in such a way does not change. It’s the proportional difference between incomes, not the gap between them.
More generally he is also being misleading in the way he characterises relative poverty measures. No-one I’ve read has ever argued that absolute income does not matter, nor that a measure of how much they get to eat, which services they can use and, as Pirie puts it, they have a few ‘simple enjoyments’.
Yet it’s blatantly obvious that relative income matters too. Otherwise Pirie would be arguing that someone earning £10,000 a year today is better off than someone earning £350 a year in 1930. Yet £350 a year in 1930 bought you a solidly middle class income in a middle class that was much smaller than it is today. Or he would be arguing that someone on £30,000 a year today is nearly twice as well off as an MP was in 1950. Seems unlikely.
It ‘s not just a question of status, as important as that is. Access to many goods and services is related to your relative, not absolute income. A good example is supermarkets. As car ownership increased supermarkets began to be located outside of town centres where there was more space. Town centres shops closed. Those who could not afford cars became worse off, even if in monetary terms they were better off than they were before.
Interestingly Websters dictionary defines poverty as,
“the state of one who lacks a usual or socially acceptable amount of money or material possessions.” That seems about right.
posted by Matthew @ 11/13/2003 01:05:00 PM
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