Defining Poverty

"Never trust a statistic you didn't fake yourself," Winston Churchill apparently said. And he was right, even if the statistic is "true." One batch of statistics that gets me annoyed is that on poverty. One of the most central difficulties in using statistics is in turning real-world things into numbers. We do that by defining them. The problem: change the definition and you change the numbers. Change the numbers, and your "statistical analysis" can say completely different things. This is why experts often seem to disagree on basic issues.

One of these basic issues is measuring poverty. There is great debate on how to define poverty. The most fundamental question is: is it absolute or relative? Are you poor if you cannot afford any place to live and don't have enough food to keep your Body Mass Index (BMI) up in the healthy range? Certainly. How about if you have 3 children but they have to sleep in one bedroom because a larger apartment would be more expensive? Does a household need a computer (or at least the capacity to buy one) to not be impoverished? This is all certainly tricky and emotive.

To get around this, European countries define poverty in relative terms. This seems reasonable. After all, our perception of poverty is relative: having less than my neighbors often makes me feel I am poor. Germany, for example (I believe), defines someone as impoverished if their income is less than two thirds of the median income for the country.

The problem, though, is that this definition of poverty encroaches on the territory of another term: inequality. I argue they are not the same thing and that poverty is absolute. Why? I'll give you an example. Let's say the median household income in a country is $40,000 per year. The poverty line would be $26,667. Let's say the Smith family earns $30,000. By either definition, they are not poor. Now let's say economic growth over five years lifts the median income to $50,000 per year. With inflation at 2%, that's a rise of nearly $6,000 per year. Let's say the Smiths' income only keeps up with inflation (something nice these days!). Their income would be $33,147. The new relative poverty line, though, will be at $33,333. The Smiths are now (just) poor. Yet in purchasing power, they have not lost anything! Society has become less equal, as others' purchasing power has risen and theirs has not, but they are no worse off than before.

What all this means is that statistics showing "rising poverty" might actually just be showing that rich people are getting richer faster than poor people. In fact, this definition of poverty could even show rises in poverty even if everyone in society were getting richer, adjusted for inflation, if the richest got rich faster and more people joined the rich at the top end. Everyone, including the poorest, is better off, yet poverty has increased? That doesn't seem right.

Poverty is definitely bad. Inequality is more ambiguous (getting into this would require a separate post). I suspect this is why some people like to use the word "poverty" instead--it makes for a stronger argument. This is a twisting of data and terms and is, I would argue, a misrepresentation of facts. People make decisions based on the facts presented (and represented) to them, so misrepresenting data is likely to cause bad decisions. Let's avoid that.