Would a relatively poor widow be better off if she were richer but still relatively poor?

A columnist in the New Zealand Herald on Monday last week argued, in response to this Policy Matters Blog, that health researchers are right to focus on inequality and relative poverty because the columnist’s widowed relative could not afford to send her 11-year old son to school camp.

However, the suggestion that it is inequality that precludes the widow’s son going to school camp is oxymoronic.  She can’t afford to send him because she doesn’t have the money, which is a matter of absolute, not relative, income.

The focus on inequality and relative poverty implies that the widow would be no better off if everyone’s incomes were quadrupled.

Talking about Poverty

Poverty and income inequality and their links with other social problems have been the subject of many media reports in recent weeks.

Wealth gap linked to rise in infections was the headline of an article in yesterday’s Herald on the alarming rise in hospital admissions for infectious diseases.

Researchers at the University of Otago said that whereas the expected pattern for a developed country was a steady decline in the incidence of such diseases and related hospitalisations, in New Zealand they had risen by more than 50 percent in 20 years.

The increase was associated, they said, with a widening wealth gap and its social effects. On the same topic the Dominion Post quoted immunisation expert Nikki Turner as saying;

It appears to be particularly linked to the rise in socio-economic inequalities in our societies.… The burden of disease is falling disproportionately on some groups… with Maori and Pacific people carrying a heavy burden.   

It is almost as if those who have moved up the income scale have passed their share of the disease burden down the line.

The recent six-part Herald series Divided Auckland told a similar story: painting a distressing picture of the lives of Aucklanders living at the bottom of the income scale. But the articles focused mainly on the fact that some people are doing well, and the fairness or otherwise of that, rather than on why those who are struggling aren’t doing better, and what might be done about it.

The articles made a point of portraying the problem in Auckland as being one of absolute poverty – not having enough money for food – using growth in the distribution of food parcels as a measure of it.

Poverty is a highly emotive term. Internationally it is often understood to describe those who are living on less than US$2 a day, estimated by the World Bank in 2001 to be 2.7 billion people. While undoubtedly there are people, especially children, going hungry in Auckland, it is not because ‘income’ is less than US$2 a day.

One illustration of the complexity of defining poverty in the developed world is the evidence in OECD countries that obesity is more of a problem towards the bottom end of the income distribution scale.

It seems Auckland is no exception.  According to this article, a 2008 report by the Ministry of Health found that Counties Manukau led the nation in obesity, diabetes, high cholesterol and depressive disorders:

One third of the district’s adult population is obese – well over the national total of 26.5 percent – and kids don’t fare much better with 12.7 percent obese compared to the national total of 8.3 percent.

The survey says Pacific children and adults are at least two-and-a-half times more likely to be obese than the total population.

“In a sense we’d expect to be around the worst,” says Dr Jackson.

“We’ve got the largest number of children, the largest number of poor children and obesity tends to be related to deprivation and poverty – but we’d hope to do better than that.

To use the language of deprivation and poverty when referring to the issue of obesity or income distribution in South Auckland might strike many as being more than a little insensitive to the plight of the billions in the world who face real poverty without obesity.

How has the language of poverty, in the World Bank’s sense of the word, come to be associated with the issue of being at the bottom of the income distribution in a wealthy country?

One insight into the answer to this question is provided in The Welfare State We’re In, a book by James Bartholomew, in an afterword titled Why Do People Talk More About Poverty, Now That There is Less of It?

Bartholomew traces definitions and talk of poverty through the ages, looking specifically at Britain. Starting in the Middle Ages when the country suffered terrible poverty and at least 95 famines, he notes that in The Parson’s Tale, Chaucer defined the misery of poverty in England as ‘wasted hunger’ and ‘naked of body’.

Moving up to the Tudor period, though there were still famines, poverty was less common, and by the 19th century the lot of England’s poor had greatly improved. Then in today’s Britain:

The cost of food has fallen through the twentieth and early twenty-first centuries while incomes have multiplied. The percentage of income spent on food has fallen dramatically. Clothes, too, have become cheaper. More than 99 percent of households have a television. The major nutritional problem for the less well off in British society is obesity.

Yet as poverty has receded, talk of it has soared, according to Bartholomew, who notes that in the House of Commons in 2002, the word ‘poverty’ was used in 1307 speeches.

To work out why, he looks to two conferences.  At the UK Labour Party conference of 1959, just after the Conservative Party had won its third consecutive term, conference chairman Barbara Castle said glumly (in an aside):

“… the poverty and unemployment we came into existence to fight have been largely conquered.”  Her remark was a kind of explanation of why Labour had been in so much trouble for so long….Without poverty, what need was there for a Labour Party? It was a problem in need of a solution.

Three years later, at the conference of the British Sociological Association, a group of academics solved it, presenting a redefinition of poverty. They argued:

The amount given in what was then called supplementary benefit should be considered as the ‘poverty line’. Anybody with less income than that should be categorised as ‘in poverty’. Anyone with less than that amount, plus 40 per cent, should be termed ‘on the margins of poverty’.

And so, in what was described by one of the participants at the conference as “a mood of conspiratorial excitement”, poverty was redefined.   A British historian of this change, Keith Banting, described it as “explicitly political”:

There was a desire to shock – to use a word that, to most people, meant starvation, homelessness and lack of clothing.

Bartholomew concludes:

The word still carries the emotive force of the old meaning but now only means people who are less wealthy than others.

As the government proceeds with its Ministerial Inquiry into Poverty, it should focus on what needs to be done to improve the educational, health, work and other opportunities for people at the bottom of the income scale.

To blame their plight on those who are working hard and productively, or to present the position of New Zealand’s poorest as being in the same category as those facing desperate poverty elsewhere in the world is to fail to focus on how best to help them.

Income Inequality: Have the US Poor Made the Biggest Gains?

Russ Roberts at Café Hayek has long argued that the proper way to examine income growth through time, when assessing inequality trends, is to trace the income growth of the same people through time.  In his latest article here he links to some evidence on this point and concludes that “people are getting richer across the income distribution (though the picture for blacks is mixed) and the biggest gains go to the poor (true of both whites and blacks)”.

In the same article he suggests that the much higher divorce rates in the US experienced by those in the lowest income quartiles may help explain why those focusing on the growth in the median incomes of the lowest income quartiles may come to more pessimistic conclusions.

A 2004 Business Roundtable publication here by UK sociologist, Patricia Morgan Family Matters:  Family Breakdown and its Consequences stressed the significance of the contribution of family policy changes – such as welfare policy, taxation and family law – to reduced family stability in New Zealand, although of course it is not the only factor.

Reducing Poverty or Inequality: Which Matters More?

Today the Herald published the third in a six-part series by Simon Collins titled Divided Auckland, asserting that poverty in Auckland is rising again and the income gap between rich and poor has widened dramatically.

There would be much to commend in a focus on poverty: why people at the bottom of the income scale are not doing well at school, not making a successful transition from school to work, are getting stuck in welfare poverty traps, or are struggling to raise kids, sometimes without intact families.

Since government is the dominant player in education, housing, health, welfare and the regulation of access to jobs, such a focus on poverty should consider carefully which existing policies are likely aggravating poverty and which ones are likely alleviating it.

But this is not, unfortunately, the focus of the articles to date.  Having identified the poverty concern, the series quickly switches the focus to income inequality.

The Business Roundtable has made many contributions to public debate on the issue of poverty versus inequality in recent decades.  In an article here on the topic, Roger Kerr wrote:

Other things being equal, I prefer less inequality in incomes and wealth rather than more. But I worry much more about poverty and hardship – in New Zealand and in poor countries.

It’s easy to explain why. Imagine if all incomes in New Zealand could somehow be quadrupled tomorrow. Most people would see this as a huge advance, especially for the least well off. But inequality would remain unchanged.

Or consider what would happen if Microsoft and all its millionaire employees were to relocate to New Zealand. Income inequality would ‘worsen’. But how many New Zealanders would regard that as a bad thing?

See also Roger’s article here, my blog The OECD Report on Inequality – A Quest for Equal Poverty for All? here, the Business Roundtable’s release on Richard Epstein’s case for a flat tax here, and Buchanan and Hartley’s book Equity as a Social Goal.

The last article in the Herald‘s series is to be published on Saturday and is about ‘what to do’.  Let’s hope the focus is on what to do about poverty.

Bryce Wilkinson
Acting Executive Director