Relative poverty vs inequality

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.

Comments

[John]

The example (take 30 from B and slide it to C) is probably realistic. I recently saw a note indicating a national Gini Index between 25 and 40 as being economically healthy. The US is currently at 45.

The gal who serves me coffee some mornings and takes time to lean out of the drive-through window to see the sun rise over the highway and smile and chat a little bit makes maybe 1/6 what I do, hourly. Am I six times smarter, or my job six times more valuable to society than Shelby's?. I doubt it.

[ian]

I don't think the example is impractical or theoretical - it seems a pretty good illustration of UK tax policy for the last 30 years at least.

I can't find it now, but I recall seeing some evidence that suggested inequality was damaging to the health of those at the bottom.

[Matthew]

You could make the example stronger. Take 49 off A, and 99 off B, and give 148 to C.

A = 1
B = 1
C = 348.

I think scenario 1 was better than this one. I'm not sure it tells us much though.

[dearieme]

"whether we should care more about relative poverty or inequality": I don't think that I care about either, if they are to be discussed in the abstract, without context. I'll care about poverty for people who arrive there from ill-health, be it physical or mental, or ill-luck. Someone who seems to me to have brought it on himself as a predictable consequence of reckless action, I care much less about. Don't you?

[AntiCitizenOne]

Neither.

Jealousy whould not be raised into legal standing.

[AntiCitizenOne]

"I'll care about poverty for people who arrive there from ill-health, be it physical or mental, or ill-luck."

i.e. people who fail to insure themselves properly.

[TStockmann]

Another way to answer your question is to consider whether deviation from median income should be considered as a definition of relative poverty or simply one imperfect but useful indicator of relative poverty, defined as comparative access to a set of fixed and zero sum goods, to include status related items. And free market kidneys, i suppose. That is, to define by consequences rather than figures. To provide another example: in a society of 400 people, 201 have an income of 200 and 199 have an income of 10. If 2 of the Elohim are dropped into the Morlock class and the distribution becomes (roughly) 199 at 200 and 201 around 11, then would we say Morlocks no longer live in relative poverty? Now let's say that 100 more of the Elohim drop into a new class (call it "Muddle") with an income of 25, with the remaining Elohim picking up the spoils, so their income roughly doubles. I'd argue that the Elohim gains would be largely irrelevant to the Morlocks, but the new, more visible Muddles with 2 1/2 of the Morlock per capita income would increase their immediate experience of relative poverty.

[mat]

I agree with dearieme. I only care about people who are poor due to some unfortunate incapacitation.

But there's something else wrong with the phrase: "whether we should care more about relative poverty or inequality." "We" should care about neither. If any particular person wants to help the poor, he is free to do so. I would certainly help them. But it is repugnant to expect other people to work (and pay taxes) so that you can fulfill your own social objective.

[ekmi]

"i.e. people who fail to insure themselves properly."

AntiCitizenOne: Not all bad luck can be insured against. For instance, it's not possible to insure yourself against being born to poor / stupid parents.

[mat]

Indeed, insurance (increasingly) isn't a solution:

http://www.economist.com/debate/freeexchange/2006/11/uninsurable.cfm

The only feasible and morally acceptable solution is private charity.

[Austin]

Perhaps we shouldn't care about either? I don't mean that we should simply ignore the poor, but relative poverty v equality might not be the most helpful way of thinking about this. Those advocating more equality see inequality as a bad in itself - those coming from the relative poverty angle see only relative poverty as an economic injustice. Neither position necessarily helps the poor.

Derek Parfit's 'Equality and Priority' brilliantly addresses these issues. He contrasts Telic Egalitarians (those who see equality as a good in itself), Deontic Egalitarians (those aiming for equality from another reason), and Prioritarians (the belief that it is those that are worse off that should necessarily benefit). There's obviously an overlap between all three positions and how they work out in practice - e.g the Prioritarian view can also reduce inequality. Yet the 'chief difference is [...] this. Egalitarians are concerned with relativities: with how each person's level compares with the level of other people. On the Priority View, we are concerned only with people's absolute levels. This is a fundamental structural difference.'

There's an excellent discussion of Parfit's paper over here:

http://pixnaps.blogspot.com/2005/04/utility-equality-and-priority.html

[james higham]

That's all right for all of you. I'm going to have to copy this post now, sit down and read it through. My goodness you cause trouble, Chris Dillow.

[luis_enrique]

Perhaps we don't really care about relative poverty or inequality in themselves, but rather we care about misery* - so we only care about either relative poverty or inequality in so far as they contribute to misery (of the poor). To answer your question, Chris, I'd have to have some idea of whether relative poverty or inequality causes more misery. I don't.

The answer I'm looking for is not whether people look at their relative wealth, or the inequity of income distributions, and are made miserable in direct response to that (envy/sense of grievance type reasoning - I think those arguments are of little use) but rather what it is about relative poverty or inequality that has some causal relationship with the more proximal contributors to misery (poor environment, lack of opportunity, poor family quality, fill in your own blanks here).

Does an increase in relative poverty cause in increase in the number of people living in hopeless sink estates with hellish schools, or instance, or does a rise in inequality do that (more).

I don't think this is ducking the question as such, but I don't think it can be answered without some idea of the more fundamental causal relationship between the two concepts, and what makes life at the bottom of the pile so crappy. For what it's worth, I'm not sure that either relative poverty of inequality would have much more than a partial role in explaining the misery of the poor in rich countries.

* at least those of 'us' that think the many of the poor are victims of (uninsurable) circumstance

[brero]

There seems to be an unfortunate infestation of conservative/libertarian "poor people make bad choices" types in these comments.

[Overly Literal]

If your only interest is in relative poverty (as Toynbee writes is Cameron's view, but I'd prefer a direct source), then indeed your answer is yes. But that's a result of having an overly retricted set of criteria, rather than a useful comment on the RP/Inequality debate, since there are situations which reduce inequality yet aren't desireable on a more sensible criteria set, for example C takes 50 from A, 100 from B and shoots them both in the head.

[TomMac]

All you've done is posit a false dichotomy.

No one, not even the "sod-the-poor" posters above, would ever suggest "solving" relative poverty by redistributing income upward. Therefore any attempt to solve it will involve making the poor better off, thus reducing inequality.
Anyone who is interested in reducing relative poverty must be interested in reducing inequality.
The fact Cameron's words can be constructed into such false opposition is merely a function of the imprecision of political dialogue.

[dsquared]

I disagree that it is "ducking the question" to reject constructed examples like this. The answer, as Luis says, is in Ted Honderich and similar; what we care about is the tendency of an economy to produce lives of a sort which are bad for the people living them, and there is a semi-live debate over whether relative poverty or inequality is a better measure of this tendency.

But the real problem appears to me to be that all the work in Chris' example is not actually done by the question "do we care more about relative poverty" but by the assumption that the conventional definition of "60% of the median" is valid. This is the conventional definition in economies where the median is a representative measure of central tendency, but in a three-person economy like the one described, it isn't. It could convincingly be argued that the second case has two people in relative poverty and is thus worse by that criterion.

[ChrisA]

Caring about relative poverty is one thing, agreeing what and who should do something about it is another. Even if we can accept that relative poverty is a bad thing (because envy makes people sad), is it so bad such that we have to go to the step of forcing people to give up their private property to others? Surely, if we going to take this drastic step (of forcible charity) there are more deserving causes - such as absolute poverty in Africa for instance, than making a well fed and housed person who is in the top 5 percent of income range in the world feel less envious of someone in the top 1%.

[Citizen Andreas]

Your point illustrates that median income should not be used as a sole measure of relative poverty, nothing more.

Those of us who advocate concern over relative poverty do so because we believe in a society where people have the opportunity to achieve their potential.

Living in relative poverty means that certain opportunities are closed off, meaning that those at the bottom end have little chance of moving upwards.

[dearieme]

brero: "poor people make bad choices"; are you really arguing that none of them have? That few of them have? Evidence?

[james higham]

And does relative poverty lead to envy and therefore misery?

[Cheryl Schreter]

whether we should care more about relative poverty or inequality": I don't think that I care about either, if they are to be discussed in the abstract, without context. I'll care about poverty for people who arrive there from ill-health, be it physical or mental, or ill-luck. Someone who seems to me to have brought it on himself as a predictable consequence of reckless action, I care much less about. Don't you?
I copied and pasted the above comment because I could not have said any better. If one is wrecklee in decisions or has just made bad decisions, well that is what it is. Those who are truly in poverty are the ones who need help. Not having the basic necessities to survive in health, food and shelter are the ones I feel need assistance. It angers me to know that parents will not buy books for children but instead take money for personal addictions or $100 shoes for the child. I could go on and on but I think I made my poing.

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