Measures of poverty

Clearly I\’m out of date here:

The government\’s radical programme to slash spending will see the first rise in absolute child poverty for 15 years, with almost 200,000 children pushed into penury, according to an analysis by the Institute of Fiscal Studies.

Tax changes introduced by the coalition government will, the leading independent fiscal thinktank finds, increase absolute poverty by 200,000 children and 200,000 working-age adults in 2012-13.

Cuts to housing benefit alone will force a further 100,000 children into poverty.

In the next three years the IFS says average incomes are forecast to stagnate and this, coupled with deep cuts in welfare, will see a rise in relative poverty for children and working-age adults of 800,000 and a rise in absolute poverty for the same group of 900,000.

The institute directly challenges the government\’s claim that the impact of the budget would have no effect on child poverty.

Sally Copley, head of UK policy at Save the Children, said: \”George Osborne promised in his spending review that child poverty would not get worse over the next two years. These new figures show the government will meet this commitment.

\”But standing still on child poverty is never good enough and the prospect of it actually rising after 2012 is totally unacceptable.\”

Absolute poverty, set at 60% of 2010\’s average income, is used to set legally binding targets in the landmark Child Poverty Act passed this year with cross-party support.

Because that measure of absolute poverty looks like it\’s exactly the same as the measure of relative poverty.

If you\’re in a household (suitably adjusted for the number of people in the household) which has an income, after tax and benefits, of less than 60% of the median household income, then you\’re in relative poverty.

This is a measure therefore of inequality not poverty.

If we\’re now saying that absolute poverty is less than 60% (suitably adjusted etc) then we\’re again not measuring absolute poverty, we\’re measuring relative: inequality again, not poverty.

The bit where I\’m out of date is that, up until this last year, we did have a measure of absolute poverty.  This was less than 50% of median household income in 1997 (might have been 98 or 99, difficult to recall at this distance) upgraded for inflation.

Sure, at the time, this was also a measure of relative poverty: but because it was not upgraded each year to take account of increases (or decreases) in median household income, it became a measure of absolute poverty: or at least a measure of an absolute income standard.

All of which really goes to the very heart of the debate over what poverty is and what, if anything, we might want to do about it.

For as is painfully obvious, incomes over the decades do rise faster than inflation. Thus such a measure of absolute poverty, rooted in the incomes of one particular year, will get better (ie, show fewer poor) as incomes rise in general.

But measures which only look at the distribution of incomes, the inequality part, will not show that life gets gradually better for everyone by purely materialistic standards.

Now, if we were all being open and honest about our prejudices here we would be using both measures. Some do indeed worry more about inequality than they do about absolute levels. I personally am on the other side: I worry more about absolute levels rather than the equality of the distribution. Thus economic growth is the solution to poverty, rather than redistribution of what is already produced. But whichever side of this you are on, we really should be usiong both measures.

For we really do want to know both what is the current distribution and also whether whatever economic growth we are having is feeding through into better lives for the poor? And thus we want both an absolute and a relative measure of poverty.

But, and here finally is the point: we\’ve now reset the clock. Absolute poverty is now defined as being the same as relative poverty, by law. So we\’ve lost our ability to check on absolute standards: the entire debate is now being carried on using only the concept of relative poverty.

Which is a right old problem, for it\’s conceeded the whole debate to one side of the argument. Poverty is now inequality, we\’ve entirely lost the measure of actual living standards.

It was Paul Samuelson who said that he didn\’t care who made the laws as long as he got to write the economics textbooks: in the long run he\’d have vastly more influence over the way the country worked that way.

Worstall\’s Corollary would be that I don\’t care what you measure or how you use the measurement: allow me to define the measurements. For that will have far more influence over the long run than anything else.

If anyone ever agrees to me writing another book this is what it will be about. The WHO rankings of the \”best\” health care system measure, in the majority, equity of financing and equity of access to treatment. Only a very small minority of the measure is the actual quality of treatment or its speed. Poverty is now truly defined as inequality, not material deprivation.  Wealth inequality is, howlingly wrongly, measured before the influence of all the things we do to try and reduce wealth inequality (unlike income, where we measure after tax and benefits).

We even have various greens and Greens claiming that this or that renewable energy source is getting close to grid parity: but they\’re including all the subsidies on offer in their calculations whereas everyone else uses grid parity to refer to costs net of subsidies.

It really is true that if you get to define the measurement you can push the debate any way you want to.

5 thoughts on “Measures of poverty”

  1. But it doesn’t matter if it’s relative or absolute (it is of course both) – if more people have less income than it in two years time than last, then more people are in poverty (unless you disbelieve the numbers)

  2. Actually I might be wrong – if they’re comparing an estimate of 2012 poverty with one in 2010 then it is an absolute measure, not a relative one.

  3. I grew up in the 80s and I had a friend whose family could not afford a phone. Surely todays poor are not poor even compared to those of the 1980s?
    I imagine apart from space in their house they are not poor even compared to middle class people in 1950s or maybe even 1960s?

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