Relative poverty for the hard of thinking

Not all Tories are as thick as farmyard animals. But if I were in the habit of drawing inferences from anecdotal evidence, I'd probably think they were. Take Dizzy‘s complaint about the Child Poverty Bill, which aims to outlaw child poverty:

Can someone tell me how you can outlaw a moving target of a median? You can't. There will always be 50% above the median, and 50% below it, because that's what median means…. You can't eradicate relative poverty because by definition it's relative.

This is the purest arse-dribble. For the hard of thinking, take society A in my table., which comprises seven members. Median income is 50, so the poverty line - 60% of the median - is 30. Three people are then in relative poverty.
The government then levies a tax on incomes over 80. This raise 10 from the richest man and 8 from the next richest. This money is then used to lift the three people above poverty. In society B, no-one now lives in poverty.
This shows that it is conceptually trivial to eradicate relative poverty through the tax and benefit system alone.
The difficulties aren’t conceptual, but practical. Such a tax might cause the rich to emigrate, so the government would have to tax middler earners. Or maybe such a tax and benefit system would dampen work incentives and so reduce average incomes all round.
These points, though, are empirical ones requiring empirical support. Dizzy’s claim that “You can't eradicate relative poverty because by definition it's relative” is simply 100% false. Indeed, the opposite is true. Relative poverty is easy to eradicate precisely because it’s relative.
Which brings me to my question. A moment’s thought would tell anyone this. So why didn’t Dizzy put in that moment’s thought? Is it because, like some other Tories, he just doesn’t want to think, even minimally, about poverty? Or is it because he has such an inflated sense of his own entitlements that he thinks his opinion is worth reading even if he puts no thought into it? Or is it because, in political debate, grunts of prejudice are as good as thinking anyway?

Comments

[dizzy]

Truth be told Chris I mistook median for mean. I believe the words mea culpa spring to mind, hence the update that says "/me fail" in the post.

Saying that, I do think the concept of "relative poverty" is a silly one.

[zorro]

"The difficulties aren’t conceptual, but practical. Such a tax might cause the rich to emigrate, so the government would have to tax middler earners."

I would have thought practical difficulties were probably more important than conceptual ones!

And yes such a tax _would_ cause some of the richest to leave so although you might reduce relative poverty such a policy may well increase _actual_ poverty, _real_ poverty, which is surely more important?!

"Or maybe such a tax and benefit system would dampen work incentives and so reduce average incomes all round."

Maybe? Are you _at_all_ aware of human nature? Such a system would undoubtedly reduce overall income and average income.

"In society B, no-one now lives in poverty."

In society B one or two of the richest two people would likely leave, leaving all the others paying more tax. (And I notice you don't mention the tax these societies are already paying, just the income. If the top two earners left the govt would lose that extra 18 they had charged PLUS whatever taxes those two were already paying).

Bad Dizzy! :)

[Derek Jeffries]

Mistaking median for mean is daft, to be sure.

But the very concept of 'relative poverty', especially when the concept is deployed without the 'relative' prefix, as it is in almost any mention made of 'child poverty in the UK', is dishonest.

I suppose it comes to which failing you think worse - intellectual or moral?

[ydue]

dizzy's comment here is just even more baffling. What the fuck does it matter whether it's a percentage of median income or a percentage of mean income? A three person society with incomes of 9, 10 and 11 groats has a mean and median income of 10 groats and no-one earning less than 90% of either.

[Neil]

Bookmarked this, ready for the next time the torybloggers moan about education standards and the three Rs...

[chris]

We can strengthen Zorro's point. If redistribution of the sort I evisage reduces effort so that everyone's income falls 20% in society B, then we've abolished relative poverty despite the fact that the worst off are now worse off than they were in society A (by 24.8 compared to 25).
This example suffices to show that it might be silly to fetishize relative poverty.

[Tom Addison]

So are you saying it would make more sense to use a minimum desired level of income as a poverty target, and then try and get as many people above this target level as possible? I'm guessing you'd have to factor inflationary effects and purchasing power into this, as there's no point getting the poorest from £9,000 a year to your £10,000 a year target if fags have gone up from £5 per pack to £6 per pack.

[William]

The poverty target that Chris uses can be passed because it ISN'T a relative one. "60% of median" uses a relative measure - the median - but then treats it as an absolute measure when multiplying it by 0.6. A purely relative measure of poverty (such as the lower quartile) cannot be eradicated, but a mixed measure like this can.

[Alex]

"In society B one or two of the richest two people would likely leave, leaving all the others paying more tax."

Why would they necessarily leave? They're paying an extra 10% and 8% each in taxes - hardly the biggest tax rise in history.

And considering that countries like the US have had 90% top rate of tax at times in their history, and there wasn't a mass exodus of the rich, I would say that mass exoduses due to increased taxes aren't all that common as the right like to make out.

Do people seriously think rich people woke up after the budget thinking "Well I'd better leave the country, I was fine with a 40% tax, but this 50% one coming soon is just CLASS WAR!!!!!!!111111oneoneonethirtyfour"

The right have this ridiculous idea that more tax will mean that they won't have an incentive to work: erm, you'll still be making a profit, that's how the tax system works. Less profit, sure, but still an incentive to work, and certainly higher profits than 70% of the population, who still work.

[Rob Knight]

Alex: I broadly agree, but it's not as simple as the example suggests. Greg Mankiw provides a back-of-an-envelope examination of what differing tax regimes can mean in practice, and it often turns out that tax changes that look small can make a big difference. Even without long-run effects, there are few people likely to be happy with an effective 10% pay cut, though whether it's enough to force emigration is dubious. It is, however, very likely that incentives to earn more money will be negatively impacted by higher tax rates.

To be honest, I disagree both with Dizzy and Chris somewhat: the problems are neither conceptual nor practical. As Chris says, relative poverty could be abolished tomorrow. The problem is that the government simply cannot rally support for the tax rates necessary to do this because nobody trusts the government with more money. If the government made it clear that it would establish a simple formula for redistribution, designed to ensure minimum standards (even relative ones) of wealth, I suspect that most people would accept this. The problem is that the government would rather keep the money and spend it on social engineering rather than simply giving people the money. It's the knowledge that any new taxes raised will, most likely, be spent on new ways for the government to interfere with us all that keeps the public from supporting redistributive taxation.

[Rob Knight]

Typepad swallowed my link to Greg Mankiw's post: http://gregmankiw.blogspot.com/2008/10/blog-post.html

[Mark Wadsworth]

Rob: "If the government made it clear that it would establish a simple formula for redistribution, designed to ensure minimum standards (even relative ones) of wealth, I suspect that most people would accept this."

It's called a Citizen's Basic Income and is the best way of doing things.

[jameshigham]

This is the purest arse-dribble.

Why? What would a concrete list of tickboxes on the meaning of poverty contain?

[Nigel Stanley]

I suspect people like Dizzy are just looking for smart-alec debating points that mean they do not have to engage in any serious debate about poverty and inequality. It is therefore very amusing when the wheels come off.

But the more interesting debate to be had is whether we simply try to reduce poverty because we think being poor is awful enough to make poverty relief an objective of public policy - crudely the government's position. Or whether we think limiting inequality, which includes poverty relief but goes much wider, is the right objective because it is economically more efficient and leads to a happier society.

http://www.touchstoneblog.org.uk/2009/07/more-thoughts-on-equality/

[Russell]

Where does this 60% of the median come from? Why is this THE poverty line? Who decided this and why must we listen to him/her?

Is it simply how the politicians have chosen to define it? Why not just have them pick another function to define the poverty line? Look problem solved and no one gets taxed!

The absolute/relative poverty debate strikes me as more complicated and nuanced than is being explored here. It is just not as simple as described above, and the proposed solution is rife for exploitation by politicians - just define the poverty line wherever you please, commission a white paper to make it look thoughtful, and then get the tax structure right...and like magic, you've solved poverty!

Except that while 59 (90 less 31) is absolutely less than 75 (100 less 25), there is still a relatively huge gap between the top and the bottom. Rank-order has not changed whatsoever. Practically, have you really done anything other than create a deadweight loss?

Maybe relative poverty is not silly, but maybe there is some perverse wisdom in treating it as such?