Here’s a question about poverty and inequality.
Imagine three people with the following incomes:
A = 50
B = 100
C = 200.
If we follow the convention and define relative poverty as an income less than 60% of the median, A is poor.
Now imagine 30 units are taken from B and given to C, so the new distribution is:
A = 50
B = 70
C = 230.
Relative poverty has been eradicated – no-one’s income is below 60% of the median.
But is this society really better than our original one?
If your only interest is in relative poverty – as Cameron claims – the answer is yes.
But if you care about inequality, the answer’s no.
So, which is it, and why?
Don’t duck the question by claiming that the example is impractical. I’m interested in the theoretical point, of whether we should care more about relative poverty or inequality.