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.