A non-technical introduction to problems in measuring poverty

This week marks is the 50th anniversary of the war on poverty. Before we can even begin to evaluate what worked and what didn’t work in our fight against poverty we need to understand what we mean by poverty and how we measure it. This will not be a post full of technical details or mathematical formulas, it will just cover some of the basics about how we think about poverty.

Poverty measures can be absolute or relative. An absolute measure of poverty looks sets a fixed level of real income (the ‘real’ part of real income just means that it is adjusted for inflation each year). A relative measure of poverty sets the poverty level based on the income level of the rest of society. In most of Europe poverty is defined as making less than one-half of the median income. Critics of relative measures of poverty tend to argue that it is actually measuring inequality, not poverty. However, the idea that relative poverty matters goes back to well before anyone even had a poverty line to argue over. In Wealth of Nations (1776), Adam Smith argues that a linen shirt and leather shoes were necessities of life, even for day-laborers for social reasons. Merely having biological needs met, and defining poverty solely in terms of food and shelter doesn’t capture what we really want to know. Is this person/family deprived of what they need to be a healthy and functioning part of society?

Poverty measures can also be based on consumption or income. They have historically been based on income, in part because it’s easier to measure. However, this causes us to miscount non-income benefits like medical care (through Medicaid or Medicare), or certain forms of housing. You can adjust incomes to try to capture this effect, but many economists have argued that we should instead measure poverty based on the amount people consume. This has the further benefit of not counting someone with high savings and low income as poor. (However, someone could have high income and choose not to consume very much of it by saving or giving it away, in which case a consumption measure might incorrectly categorize them as poor).

Finally, my favorite approach to measuring poverty is not widely practiced but it known as the capabilities approach. It owes its existence to Amartya Sen and Martha Nussbaum. They attempt to get at “the relation between incomes and achievements, between commodities and capabilities, between our economic wealth and our ability to live as we would like.” (Sen, Development as Freedom)

The approach begins with the Aristotelian concept of ‘functionings’, i.e. “the various things a person may value doing or being.” From that, Sen is then able to define capabilities,

A person’s “capability” refers to the alternative combinations of functionings that are feasible for her to achieve. Capability is thus a kind of freedom: the subjective freedom to achieve alternative functioning combinations (or, less formally put, the freedom to achieve various lifestyles)

This approach moves us away from income which is good only inasmuch as it allows people to obtain other things (i.e. health, education, leisure, meaning, etc.) and towards directly evaluating those things which actually make up the good life. The problem, of course, is that this much harder to measure. However, in real life things like the U.N human development index which includes literacy and life expectancy in addition to income are examples of the capabilities approach being applied. The point is not that income does not correlate with other good things, it frequently does…but by assuming it always does can lead to poor policy decisions. (One of the most neglected issues is perhaps the trade-off between labor and leisure. If we were to work fewer hours our GDP would go down, but it’s not clear to me that we would be worse off. Similarly, if we got rid of social security, our GDP would go up as a greater portion of the elderly would be forced to work, but I’m almost certain that would be a bad trade-off for society. Life expectancy would go down, as would overall health and well-being). The point here is simply that it is better to publicly debate the good life than to assume away these difficulties by relying on two or three economic indicators. (I’ve written a more thorough critique of GDP specifically that can be found here).

So, where does this leave us for poverty? From the capabilities approach poverty is the inability to achieve some minimum level of functionings (possible lifestyles/choices). This could be from low income, or it could be the result of political oppression. It can also be the case that some people will need higher levels of income in order to achieve the same capabilities (as a simple example, a wheelchair and ramps might be needed for mobility by those who cannot walk…from a purely income-based point of view making buildings handicap accessible makes no dent in poverty or well-being…but from a capabilities approach it clearly does). On this view, any quantitative measurement of poverty should be an index that looks not only at income, but also at life expectancy, literacy, medical access, employment, and general well-being.  Such an index is perhaps a dream (and on a personal note one I might work on in graduate school), but it would provide us with a much better picture of poverty.

 

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