Absolute minimums and relative poverty

By Matt Nolan 07/01/2014


Recently we discussed the idea of the equity-efficiency trade-off in very broad terms.  As we noted, in order to discuss such a concept we need to think about a series of issues about groups.  Some of these are easier to conceptualise than others – one of the simplest (albeit not simple) is poverty.

Now anti-poverty policy has had a long, and varying, history.  And as this video from Marginal Revolution discusses, many of the principles that we now argue about society has been debating for a long time.

Furthermore sometimes people talk as if poverty has been conquered – and in an “absolute poverty sense” the data seems to back this.

However, although poverty is an “absolute” concept, it isn’t so much about absolute income – as absolute deprivation in terms of capabilities (which includes the ability to function within society, and self-worth in a community).

As Sen (1983) states (pdf):

The contrast between the absolute and the relative features has often been confused, and I shall argue that a more general question about ascertaining the absolute standard of living lies at the root of the difficulty. In particular, it will be claimed that absolute deprivation in terms of a person’s capabilities relates to relative deprivation in terms of commodities, incomes and resources.

This is an area where people have very very different views.  However, we can at least try to frame the subject – so that we can ‘rationally disagree’.  In that sense, even though a “minimum standard” view of poverty is important, that minimum standard can legitimately be related to certain concepts of relative standing in society –  in that way, relative poverty is certainly important as a concept that people may value.

At this point you may look at me a bit strangely and say “don’t you just mean inequality”.  Well not at all, this isn’t inequality over an entire distribution, merely a question of what minimum standard we believe in as a society.  This says nothing about views of fairness etc over the rest of the income distribution – and confusing the two merely implies that we may accidentally put more weight on transferring resources to the middle classes (which reduces inequality) rather than those in genuine need.

This also tells us that we need to think about “what” is a relative concept.  With the Living Wage, the view given on Kiwiblog was that certain relative comparisons were inappropriate – and this is an area for legitimate disagreement among people.  All this tells us is that we need to think more clearly about what constitutes an individual/households capabilities and their ability to function/have opportunity within a society when we discuss a concept such as poverty.