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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COMMENTS: 43


  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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  9. Mike B says:

    The difference stems from Europe’s past history of rigid class systems and class warfare resulting in a subjective view of poverty. In Europe the poor are the people who have the least and occupy the lowest social rungs. Because you can never have a ladder without a bottom rung there will always be lower classes deemed worthy of special attention. The reason for this is because no matter how much the lowest rungs has objectively, they still had to avert their eyes when subjectively wealthy people showed up.

    In America where we don’t have rigid social classes we use an objective measure of poverty. You are poor if you have less than a certain basket of stuff. The only downsides to being on the lower rungs in America is that you lack some of the stuff that the wealthy have.

    Seeing as how happiness tends to level off once a person’s basic needs have been met I would support the American style objective measure. Money does not buy happiness past a certain threshold. Therefore the most equalizing act is to get people to the basic threshold.

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    • brazzy says:

      I think you got things backwards. Historically, rigid class systems did NOT correspond directly to wealth. Social status was linked to class, which is what you were born into. And while the upper class generally had better opportunities to acquire wealth, they could (and often did) lose their wealth while retaining their social status, whereas many lower-class people managed to become very wealthy while still being limited in social status. Hence the cliché of the “impoverished nobleman” looking down on the “nouveau riche” merchant.

      That’s actually how the abolishment of rigid class systems generally starts: lower-class people acquire wealth and thereby power, and use it to erode conventions that deny them the social status they seek.

      And if social classes in America are based on wealth rather than birth, then doesn’t that mean that the downside of being on the lower rungs is that you not only lack stuff, but automatically also social status? That’s certainly what my observations indicate: Americans tend to assume much more than Europeans that people are poor because they are lazy or morally deficient. This is often ascribed to the protestant mindset that considers wordly success an idication of divine favor, though I suspect that it’s often more a convenient method to justify the status quo.

      As for happiness levelling off once basic needs have been met: look up “Maslow hierarchy of needs”.

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  10. Kevin says:

    Canada, or at least the most vocal anti-poverty groups, also measure poverty in relative terms, which strikes me as somewhat ridiculous.

    If poverty is a relative term based on average income, then by definition it becomes impossible to eliminate.
    What’s worse is the measures these groups commonly advocate — raising the minimum wage — will by definition have an inflationary effect.

    They use the median income percentage to get a dollar figure, then demand a wage hike to reach that dollar figure, then recalculate to find SURPRISE the number of sub-poverty people hasn’t changed.

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    • brazzy says:

      “If poverty is a relative term based on average income, then by definition it becomes impossible to eliminate.”

      WRONG. In a population where half the people earn $30k/year and half earn $70k/year, nobody earns less that 60% of the average (or median), and by most relative definitions of poverty, nobody is poor.

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  11. John B says:

    The discussion of a definition of poverty begs the question as to why there is a need for such a definition–other than political needs.

    Congress fights over definitions because the formula ensures more money for various constituencies. Some cities with horrible schools get rewarded more money to keep the schools horrible by emphasizing their “poverty” levels.

    Many people under the “poverty” line own cars, 2 or 3 TV’s, computers, cell phones with cameras and apps, etc.

    The formulas are geared to increase the number of those classified as in poverty–because that is where the money is.

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  12. James says:

    Re #8: “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.”

    There’s also the question of lifestyle choices. I make far more than $21K/year, yet I lack (or rather, think my quality of life is much improved by not having) many of the material goods that I see many poor-by-definition people own.

    Then of course there’s the person making a larger income than mine, yet sharing a Manhattan studio with a couple of roommates. Which of us is the wealthier?

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  13. Joel Upchurch says:

    I suspect a person from a few hundred years ago would find it bizarre that one of the common problems of the poor is being overweight.

    I just finished reading “A farewell to alms : a brief economic history of the world” by Gregory Clark. One think he said that stuck with me, “What is different is that now paupers live like princes, and princes live like emperors.”

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  14. Steve says:

    Let me get this straight. If food were free, there would be no poverty?

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  15. PovertyProximateSubContinent says:

    I agree with the American definition. It is a different matter what could be considered as a bare minimum – which should change from time to time.

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  16. Patty says:

    Everybody I know who is under the poverty line has poor housing. Plenty of them have their gadgets, but they are driving 15 year old cars. I’m in a low cost rural area, also.

    I think the people most of you are commenting about, who are under the poverty line, are going in and out of poverty, and those folks are MUCH better off than the people I know who are in poverty, most of whom are all permanently disabled. They have never had good jobs, so anything nice that they have were hand me downs from their families. an Ipod or TV isn’t that expensive, compared to a decent home or car, which are the things they do without.

    Also, nobody is mentioning lack of health care as an issue. The poor people that I know do get health care, due to being permanently disabled, but the working poor do not have health insurance, and have to rely on emergency rooms for problems that spiraled out of control. They can afford a one time expense of $400 for a Tv, but can’t afford health insurance.

    I think maybe the people who comment here do not live in a low income area. My county is the poorest in the state of MN, and many, many people are below the poverty line.

    I will add that many poor people I know do not handle their money very well, but you have to remember, people are usually poor for a reason. It’s going to be disability, drug or alcohol addiction, low IQ, string of bad luck, etc. Some of those things are going to make people handle their money poorly. I really think financial counseling would help some people, but even so, sometimes you do just have to throw some money at problems, also.

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  17. Wes says:

    @ those who have wondered about the US being “only concerned with food” and not housing, healthcare, etc.: that’s why the poverty line is THREE TIMES the cost of a reasonable diet – so there’s money left over for the other necessities.

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  18. Joshua Northey says:

    “I’ve never understood the idea of measuring poverty in terms of relative income.”

    You measure it that way because that is how people psychologically measure it. The human mind/emotion is hugely adaptable to its circumstances and within reason happiness does not correlate to ones absolute material well being, but rather one’s relative material well being.

    Absolutely speaking (whatever that means) anyone living in any western country lives like kings right now. But people don’t think of it that way.

    This is the same reason no one in America thinks they are rich. In my state you have people making $125,000/year screaming because they say raising taxes on them isn’t raising taxes on the rich, and the rich are really those who make $250,000/yr. They of course also think they are not rich, because then they would have to explain to themselves why they are in such poor financial condition (over-consumption). Moreover many of their friends and acquaintances have similar incomes, so that seems normal to them. When self-reporting something like 70% of the population reports it is in the middle quintile of income. Finally, you have advertising always showing them that they could have more, never showing them how much they have.

    I have had people laugh at me when I describe myself as “upper-middle-class”. They think I am putting on airs. Actually it is just that I understand the demographics and they don’t (80,000+/yr is absolutely an upper-middle-class income).

    Anyway the impact that human psychology and its assessment of options has is interesting because it leads to odd scenarios. In certain parts of Africa increased wealth has brought decreased satisfaction because people now have just enough access to the global media world, and suddenly realize where they truly stand in the grand scheme of things.

    If you are the guy with the biggest hut in the village in 1800 you are living the high life. If you are the guy with the biggest hut in 2000, you just feel like a rural hick who cannot even afford a car.

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  19. Eric M. Jones says:

    In 2001 the richest 1% owned 32.7%
    In 2007 the richest 1% owned 33.8%
    Then we had a big dip in the economy and gave free taxpayer trillions to the richest people…Plus we give them a reduced tax rate.
    In 2010 the richest 1% own…? I’m taking bets on 42%.

    The bottom 50% has gotten poorer and poorer. So has the middle class. Can this inequality be reversed? I doubt it….short of an armed revolt. Don’t think what happened in the Mideast can’t happen here.

    I drew some revealing graphs which Dubner pocketed. It’s bloody awful.

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  20. James says:

    Re #16: “Plenty of them have their gadgets, but they are driving 15 year old cars.”

    There’s a problem with this? Again, I’m far from poor by any measure, but my two vehicles are 11 and 23 years old. I won’t be replacing them any time soon (barring accidents &c) because they’re still better than anything on today’s market.

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  21. J says:

    Poverty could be eliminated under the European model; it is mathematically possible for all households to make more than 50% of median income.

    “I would expect the minimum income level to also include decent housing, access to reasonable healthcare and schooling”

    It isn’t quite as simple as the 3X rule anymore, though that’s still basically true. Here’s a longer explanation of the standard, with (if you’re really bored) links to even longer ones: http://aspe.hhs.gov/poverty/papers/hptgssiv.htm

    “Also, nobody is mentioning lack of health care as an issue”

    Because it isn’t an issue; poor people in the US and (AFAIK) most if not all European countries get medical care paid for by the government (http://www.caring.com/articles/how-does-medicaid-work). If you’re referring to poor people not taking advantage of taxpayer provided healthcare, state it that way. Health insurance, at least in the US, is a problem for the lower middle class, not the poor.

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  22. Eric M. Jones says:

    For anybody who thinks there is not a problem, how’s this?:

    The 2007 US mean net worth was $556,300 and the median was $120,300.

    Ref: “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances”. And apparently everyone is shy about publishing more recent data….

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  23. Shane says:

    Daniel, a quick question: do you mean that these are OFFICIAL terms for the poverty line, defined by the United States government and by the European Union?

    (Or do you just mean that casually, most of the Europeans at that seminar used the relative poverty definition, most of the Americans used the absolute poverty definition?)

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  24. Patty says:

    re #20, perhaps I should have said, 15 year old rustbuckets that are unreliable and the paint is peeling off. These are junker cars I am talking about. I don’t know ANY middle class families that drive cars like these. I don’t think the spirit of what I said was understood. Many don’t have any car at all because thay cannot afford it, and this is a rural area with extremely limited transportation.

    Poor single adults are not always eligible for medicaid. Some states choose to offer more generous benefits.

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  25. KenC says:

    @Ralph in Montreal,
    You wrote, “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).”

    Uhm, 1/3rd of the US poverty income level is for the cost of a minimally nutritious diet. The other 2/3rd is for the things you mention, “decent housing, access to reasonable healthcare and schooling”.

    The World Bank and many other international institutions measure poverty using absolute dollar thresholds like the US.

    Once we solve the problem of hunger, then we can worry about social inequality, which is really another topic. Let’s get our priorities straight. Poverty is about material deprivation, hunger and hardship.

    BTW, I think Canada’s Fraser Institute uses an absolute dollar threshold for its poverty definition as well, not a relative one like the EU.

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  26. Jeff Witt says:

    My understanding is that the U.S. federal minimum wage was 1/2 the median factory workers’ wage when it started in the 1940s. Today that would make it around $9.50. Not coincidentally, that is the amount that advocates for the poor say is the tipping point for providing real motivation to work. Add to this the amount that we effectively subsidize businesses that pay wages lower than this, and the well-established elasticity of demand for labor at these low rates, and I think you have a compelling argument for adopting the half-median-wage guideline.

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  27. Okasuma in Japan says:

    Daniel:
    Excellent blog.
    Please look into this following aspects.
    I had lived in US for 5 years in 90′s. There is another major difference is many, many low income Americans are not only Unwilling to admit they are poor, but also playing
    Keep Up with Jonese regularly.
    I firmly believe Pretending to be rich also contributed massive foreclsoure crisis in US.

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  28. Spooner says:

    The European definition is based on envy. It brings to mind the story of two young men, an American and a European standing on a street corner when a man drives by in a Rolls Royce. The American says “Some day I’ll have a car like that.” The European says “Why should he have a car like that?”

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  29. Paul V. says:

    One-quarter of Americans can now no longer get credit because they have a bad credit history. Our economy till now has been based on credit-driven consumerism. Put those two facts together and you have the answer to where our economy is going: massive poverty.
    One quarter of our economy was based on people buying things that they could not afford. That includes Joe Blow in the trailer park to Wall Street “financiers.” Remove that fake credit-based buying power from the equation and you will remove one-quarter of all businesses and jobs. We will have 25% unemployment until we adjust to the new reality.

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  30. Jake says:

    Mike B wrote “The only downsides to being on the lower rungs in America is that you lack some of the stuff that the wealthy have.”

    The data say that this is just not true. In “The Spirit Level” by Wilkinson and Pickett, you will find many of the data that say that ill health (mental and physical) increases as income disparity increases. This is true whether you compare nations with different levels of income disparity or states within the US, which vary widely in income disparity.

    While it is dangerous to infer causation from correlation, W&P present so many such correlations that it’s hard to write them off as mere statistical flukes.

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  31. Chris says:

    We are taught from a very young age that if you work hard, you will be successful and you can achieve nearly whatever you apply yourself to in America. What happens when this no longer holds true or it is never true?
    Speaking from personal experience, I always had a “not me” attitude toward poverty. I thought that somehow my accomplishments would make me a standout job candidate and a shoo-in. Hundreds of unanswered job applications later, with only one interview for a position that offered a salary $22,000 (which I didn’t get, I might add), I learned that this wasn’t the case.
    I must admit, my faith, like that of thousands of other college graduates, has been wavering. I resent the American Dreams that were planted in my head at a young age by our society that only resulted in massive debt (student loan).
    I just worry about the social implications of having a generation of idle, educated young people. In my day-to-day dealings with former classmates, many tell me how depressed they are that they can’t find work – students that were hell-bent on maintaining college grade-point averages upwards of 3.0 from good private and public universities. Some of us have settled for unpaid internships, or paid internships that don’t offer any kind of insurance. Many of these internships used to be full-time positions, held by men and women with families and bills to pay.
    I worry that this is the begging of what’s to be decades of settling – settling of idle, somewhat-educated young people. What incentive do we have to seek jobs when there are none? What incentive do we have to seek education when it produces nothing but debt? It seems a new poverty generation has been born in America.

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  32. Lehman Skilling says:

    Most our so-called prosperity was actually fake because it was was based on massive consumer borrowing on bubble-priced assets where people used their homes as automatic teller machines to borrow big and invest with other people’s money. That’s not the real deal.
    Let’s get this in some context. Unemployment is rising, trillions of dollars of value have been destroyed in US, this one could be worse than the Great Depression because the securitization of loans and the various financial instruments ensures we don’t know who owns what, American households are out several trillion dollars, the US Government deficit is now running at more than 16% of GDP.
    Our so-called prosperity was just an illusion created by the Wall Street financial bubble.

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  33. spero says:

    I am married with three children. We made around $18 K last year. We are quite happy and live just fine. we have no gadgets, no television, and my cell phone is a junker given to me. I have a bottom grade laptop that was given to me and internet so I can work from home. We are frugal. I know people who make what we do, and have stuff I only dream about, flat screens tvs, i phones, etc. They also seem miserable to me, always trying to find the next government handout. They are also fairly young, and simply don’t want to work. When they do get a job, they will come up with any excuse to quit. So, from my perspective, it’s their own fault. Of course, there are the crazy or disabled who can’t work, like my grandmother. My extended family is fully capable of supporting her (dad, uncles, etc), yet she gets disability SS from the state. I think what most people measure poverty as is poverty of the spirit. Money doesn’t change that.

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  34. Tzipporah says:

    My family makes about $50,000 (gross) and spends roughly 1/3 of its NET income on food, NOT the 10% another commenter mentioned.

    We are not profligate, but food is more expensive than childcare. So it’s not altogether a bad measure.

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  35. Uncle Slim says:

    In 2010, 19% of debtors who filed bankruptcy were so-called “Grandpa Debtors,” up from 14.5% in 2008. One of the “alarming” trends we see is a rising number of Americans entering retirement with debt, or already retired citizens assuming new debt just to help ends meet.

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  36. Enter your name says:

    I think the Canadians are doing the most interesting work, with their basic income standard. Rather than the American measure, which depends solely on the price of food, they actually identify what is needed, from food to housing to clothing to renter’s insurance, and add up the costs.

    One problem with the American model is the diversity within the country. For the price of my last car, I could have bought a small, single-family home in my mother’s hometown. For what a modest, three-bedroom single-family home costs in my neighborhood right now (lowest point in the market for years), I could have bought a whole block in my mother’s hometown.

    If you have no health needs, a family of two adults and two school-age children probably can (barely) live on $21,000 a year in my mother’s hometown. In my current neighborhood, that’s not even enough money to go broke on.

    [WORDPRESS HASHCASH] The poster sent us ’0 which is not a hashcash value.

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  37. M. S. says:

    The most accurate concept of poverty is probably the european one.

    Poverty is a relative concept. Each person is poorer or richer than an other. Even Oprah Winfrey is poor in comparison with Warren Buffet.

    Misery is not a relative concept. If a person doesn’t have any income or income wich is not sufficient to eat three times a day, to rent an apartment, even the cheapest one, to send his kids to school or fails to assume health care costs for financial reasons lives misery.

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  38. pudge says:

    I confess to not caring one whit, from a public policy perspective, about “equality” of wealth or income. There’s no reason why I should, so, therefore, I don’t …

    Not that this is the full American perspective: Social Security is in trouble in part because it isn’t indexed to prices but to wages, which makes no sense: the whole point of S.S. is for people to be able to make certain expenditures in order to survive, so therefore we should index to that level, which means, obviously, to base it on prices.

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  39. Michelle says:

    It is a great difference between three times what a “minimally nutritious food budget” is and what it is to live comfortably. It is saddening to know that some people even live with that, and because they are not considered to be living in “poverty” we should not have to worry about them. I think having a cut off line like that is unfair to those right above it.

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  40. You need to take a lesson from my Canadian-born father and start rooting for the country of your citizenship: America. Few things are more annoying than someone who becomes a citizen on paper, but not with their heart.

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  41. Keenan Wellar says:

    @Joel – obesity among people living in poverty is the product of an abundance of affordable refined carbohydrates and that is where you see the giant corn syrup tummies of impoverished Americans. It is not a result of excess funds going to piles of fresh fruits, vegetables, and meat.

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