Is Relative Poverty the Same Thing as Inequality?

I started doing some research into poverty this semester when I ran into the concept of “relative poverty.” I wrote down my immediate thoughts, stating:

I find an absolute poverty line approach (for identification) to make more sense than a relative approach (the latter being some fraction of the income standard). Although I am not well read on this topic, it seems to me the latter [confuses] poverty with inequality (I guess you could call it an inequality line instead).

I decided to do some more research and found a post on the same topic at the blog “Stumbling and Mumbling.”

The blogger first quotes Charles Moore in an article at The Spectator. Moore writes:

If poverty comes to be defined relatively for all purposes of public policy — households with less than 60 per cent of the median income, says the government — then poverty and inequality become the same thing.

If we measure poverty as something relative to someone else’s income, by definition it is already inequality. And this is Moore’s point. If we say “person A is poor because he has less than person B’s income,” we are not talking about poverty, but inequality (between person A and person B). And if we add in a proportion, now saying “person A is poor because he has less than 60% of person B’s income,” nothing has changed: we are still talking about inequality. Person A has less income than person B, and at least a certain quantity less. But that doesn’t mean he’s poor; it only means his income is unequal with B’s. Let’s say B makes $100 million a year. If A makes 59 million a year, then by this definition of “relative poverty,” A is poor, but ridiculously so. One might respond that we could simply make the proportion less than 60%, perhaps something like .1% in this situation. Unfortunately, this is a weak response: the changing of the numerical proportion in our measurement of “relative poverty” here is due to the fact that we really believe in some absolute standard which forces us to change it.

The Stumbling and Mumbling blogger (let’s called him S.M. from now) thinks otherwise and thinks it is obvious why Moore is wrong to anyone who goes beyond the surface of the issue. But rather than defining poverty and inequality, S.M. jumps straight into a numerical example. His logic is as follows: he uses the Gini coefficient as a measure of inequality and compares it with a measure of “relative poverty” as less than 60% of the median income. He shows that, even when there is an increase in the former, there can be a decrease in the latter. Therefore, the latter is not a measure of inequality.

His math is correct and I have no issue there. The problem I have is with his interpretation. His point is that, in his example, when inequality in the society increases, relative poverty in that society goes down. However, what Moore (probably, at least) and what I really think is not that relative poverty is a measure of inequality in the entire society. It is a measure of inequality comparing individuals who have less than the median income with those who have the median income. In other words, it is “a measurement of inequality in the lower half of the income distribution,” as Lane Kenworthy states here.

Let me restate this in a different way for clarity. While those in “relative poverty” decrease from society A to society B in S.M.’s example, the “relative poverty” line created still has to do with inequality. Because it is comparative to someone else’s income, by definition, it has to do with inequality, not poverty. The reason “relative poverty” goes down even when inequality in the entire society goes up is precisely because the median income has not increased. Increase that median income, keep the rest the same, and wallah! “Relative poverty” has increased and so has, quite clearly, inequality in the bottom half of the distribution.

Photo Credit: kenteegardin via Compfight cc

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Posted on March 15, 2014, in Economics and tagged , , . Bookmark the permalink. 2 Comments.

  1. I think you make a good point but I wonder why it matters. It seems to me, that no matter how you intend to define something as poverty you are constantly left with what amounts to dreadfully spongy terms. So do with it what you will but inequality bear’s no meaning whatever. We can think in terms of poverty because it is an actual comparison of something but what does inequality tell us? Is there a state of perfect equality to compare it to? Or an optimal level of inequality to aspire to and where the hell does that come from? In my opinion income inequality has the same intellectual significance as “it is what it is”, yeah, no kidding, thanks for the tip.

    • Hi Pour Sole, thanks for your input. I think one could argue that there is some amount of inequality that is too much in society, e.g. the level where envy actually disrupts society and order goes out the window. Just like poverty though, this level is notoriously hard to figure out and exactly how people should change it is controversial.

      As for the difference between poverty and inequality, I think it does matter if people use the words in an Orwellian fashion. By redefining what used to be known as inequality as “relative poverty,” those against a certain amount of inequality (not necessarily the level I discussed in the previous paragraph) can emotionalize the issue and deviously persuade people to change their views. “Wow, you’re not against poverty?”

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