Attitudes Towards Poverty

At a seminar in Germany last week, a statistical difference illustrated a crucial E.U.-U.S. difference in politico-economic attitudes. In the U.S., we define the poverty line as absolute: three times the income needed for a minimally nutritious food budget. In Europe, the poverty line is based on relative income, typically 50 percent of the median income.

This transatlantic difference says something about political/cultural differences. With our definition, in a growing economy, so long as inequality doesn’t increase too much and food prices don’t increase more than average prices, poverty will eventually disappear. We will not always have the poor with us in America. What an optimistic view — and what lack of concern about inequality! In Europe, even with income growth, unless inequality decreases, the fraction of households in poverty won’t change. How pessimistic, yet how concerned about equality! (HT: MB)

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  1. Ralph says:

    Both are interesting but neither seems sufficient to me.

    In fact the negative effects of income differences are there and it makes sense to control it. At the same time, it is pessimistic to focus exclusively on it and more than anything, does not provide a manageable fixed target (which is what a real standard should provide)

    The US definition seems weak, since I would expect the minimum income level to also include decent housing, access to reasonable healthcare and schooling (as these factors seem essential to reducing powerty).

    I’d take the US as a lowest limit and policy driver and the EU defintion as a vision or indicator of overall development.

    Ralph, Montreal, QC, CA

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  2. Dan Inesanto says:

    Ha! And as a (vaguely) typical American, I tend to agree with the American definition of poverty.

    Taken to extremes, the European model could have people driving BMWs, wearing nice clothes, living in nice homes, and eating great food, STILL be considered to be in poverty.

    However, I do realize that is merely the extreme. Especially considering the effects perceptions of relative wealth have on people and society as a whole, I can see a valid rationale for the European definition.

    I still prefer the American approach to defining poverty.

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  3. Eric H. says:

    I’ve never understood the idea of measuring poverty in terms of relative income. Suppose you had a choice: 1) live in a society where 10% of the population makes $100 and 90% makes $30, or 2) live in a society where everyone makes $10. If you favor equality, you should choose 2.

    Or to put it another way, Ethiopia and Pakistan have less income inequality (based on the Gini index) than Canada, Japan, the EU or the US. But which direction do you think the migration is flowing?

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  4. Simon says:

    @Eric H. Surely to be a fair comparison it should be
    1) live in a society where 10% of the population makes $100 and 90% makes $30, or 2) live in a society where everyone makes $37. The total income in both societies is now the same, and (2) might look more tempting.
    (I appreciate that the policies required to bring about society model 2 might result in the total income being restricted, and maybe that’s what you were hinting at.)

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  5. Kate G says:

    I see the problem with the European definition. But really, people don’t need clothing and shelter? The U.S. definition seems grossly inadequate, since most Americans only spend about 10% of their income on food. It’s ridiculous that a family of 4 making $21,000 isn’t considered to be living in poverty.

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  6. wlajfa says:

    A common argument proponents of the American definition make is that while they acknowledge there’s more economic inequality here, there’s also more potential for economic advancement here as well. It would be a great argument–if it were true. People in western European nations have more economic mobility than we do, and the most accurate predictor in the USA of how much money you’ll make is how much money your father makes (or made).

    The words “optimistic” and “pessimistic” in said article should be replaced with “delusional” and “realistic”. It would be more accurate.

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  7. GQ says:

    regardless of definition, the number is too high in the US…and worst of all, it would go up with the euro definition.

    interested to know what euro’s poverty rate would look like with our definition though

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  8. Dan Inesanto says:

    Kate G, the poverty threshold for a family of four is ~$22K. A family of 4 making $21K per year WOULD be below the poverty threshold. You seem to have some bad facts – always a bad basis for forming opinions.

    Depending on what area you are from, $21000 per year may sound insanely low, but in vast swathes of this country, it’s not really all that hard to get by on that amount. You can’t do it in NYC, L.A., or other high-income/cost-of-living areas, but it’s certainly doable in plenty of other places.

    My family (of six) managed pretty well on $26K per year (just barely above poverty line back then). We were in small town OH, though, not Prince William County, Virginia. We had two cars, rented a 3 bd house, had plenty to eat, and nice clothing.

    Your conception of what is needed to provide clothing and shelter is seriously warped.

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