Defining Poverty

In Humanities today, Alessio raised a deceptively complicated question - how do you determine if someone is poor? In economics, this is called the poverty line - a specific income level which is considered the minimum necessary to achieve the basic needs for a healthy life. In the US, we have long followed the same basic formula to determine this, which factors in family size, rent, an economical food budget, and other core expenses. Based on this, there were 39.1 million poor people in the US as of the most recent report in 2008.

However, many people suggest that this approach is old-fashioned, over-simplified, and understates the level of poverty in America. The New York Times tackled the issue in 2001 and most of its commentary is still relevant today. If you're interested in these issues, the article is worth reading. Here is one key excerpt: "Defining poverty is not easy. Even if the Census Bureau's new measure calculates necessary expenditures more accurately than the current formula, the new approach, like the current one, still uses income as the single criterion for judging who is poor. That leaves out neighborhoods, for instance. Is a ghetto family impoverished because of its crime-ridden surroundings and poor schools, although the family has enough income to rise above the official poverty threshold? And there is the issue of responsibility. Should the family of a hardworking full-time employee earning the minimum wage be blamed for poverty because the minimum no longer lifts the worker's income above the poverty level, as it did in the 1960's and early 70's?"

The issue is as much a political one as an economic one. Many government-run social programs are available only to those below the poverty line. If the government changed how it defines poverty and the poverty line specifically, we might suddenly see millions of new Americans qualifying for those benefits, a huge additional financial cost for the government. Beyond that, the political opposition could turn this into bad press for the president, accusing him of allowing poverty to increase dramatically during his time in power (even if nothing had really changed beyond the definition of poverty).

It is not only a sensitive issue in the US. When I led a student project in Chile, we spoke with an economist about the country's current economic state. Many have wanted to point out that, following the removal of the terrible dictator Agustin Pinochet in 1990, the country experienced a financial boom. The truth is complicated. What follows is copied from our report from Chile:

"The first statistic he presented, tracking poverty rates in Chile, indicated that poverty dropped between 1987 and 2003 from 45% to 18.8%; recent studies show that the decline continued in 2006, to 13.7%. However, he quickly explained, that is highly misleading. If one accepts this information, along with information compiled in similar studies in Europe, then one must also accept that there were more people living in poverty in Europe in 2006 (15%) than in Chile. The problem stems from how poverty is defined. Chile has used a relative poverty metric which considers those living in poverty to be those making less than 50% of the average pre-tax income. But, the markets are so distinctive, this sort of measurement is problematic, as it sets up a European making 1050 euros/month and a Chilean making $100/month (US) as equals. While the cost of living is certainly much lower in Chile, it hardly bridges the gap.

"If one makes a modest adjustment to the poverty definition, raising the poverty line from 43,712 pesos/month to 66,388 pesos, the percentage of those impoverished in Chile jumps from 18.7% to 36.4%."