Poverty is absolutely relative

It struck me the other day that the concept of absolute poverty doesn’t make any sense. Poverty is necessarily relative.

Let me explain. Relative poverty, as commonly discussed, refers to being worse off than other people. Absolute poverty, as commonly discussed, refers to having a small amount of actual money. So if everybody suddenly had twice as much money, then relative poverty would remain unchanged but absolute poverty would be hugely reduced.

But this assumes that income increases wouldn’t be inflationary, which they doubtless would. Because if your income goes up by, say, 10%, but the cost of everything goes up 10% as well, you’re no better off.

Now, say Bob has an annual income of £4000. By any reasonable standard, we would class him as being in absolute poverty. But if we’re talking about the year 1907, then suddenly it’s obvious that he’s very rich, because everything was so very much cheaper then.

So poverty can’t possibly be defined as mere amounts of money. It has to take into account what that money can buy. But then you face the question: how do you decide what level of purchasing power is important?

All sorts of reports on changes in poverty rates – by government bodies, think-tanks and research organisations – make the standard distinction between relative poverty (below 60%, say, of median income in each year) and ‘absolute’ poverty. For the latter, they have to move the poverty line for each year to keep up not with earnings growth but with price rises. They typically use 1997 as a baseline to assess changes under this government, or 1979 as a baseline when considering the last government.

But what does it mean to talk about incomes today in comparison with the 1997 median? What do such comparisons tell us? Nothing. If we want to know about the 2007 income distribution, we need the 2007 median. (Alternatively, if we want to know how the poorest have fared over ten years, we need to look at the real income increases for that group and perhaps compare with other, richer groups.)

However we want to make our comparison, we have to set a baseline. And from that point, the relativity creeps in. Perhaps it’s not today’s poor relative to today’s well-off, but today’s poor relative to the poor of a decade ago.

Another source of relativity affects definitions of poverty that are supposedly nothing to do with income comparisons. The US official poverty line is an ‘absolute’ measure, defined in terms of being able to afford the food, shelter and clothing needed to maintain “healthy living”. Bar a few technical adjustments, this definition is unchanged since 1964. The assumptions that underlie it, though, are not: views of what counts as “healthy living” change all the time.

Advances in medicine, particularly diagnostics, influence public standards of healthiness. Shifts in government policy can strengthen or weaken the link between income and access to healthcare, affecting expectations of treatment. And lifestyle trends will have impacts on health standards – typically varying between different income groups.

(Futhermore, well-known research on British civil servants – all well clear of destitution – shows a clear connection between health and socioeconomic status, which of course is essentially relative.)

Even if you ignore comparisons with the median income and focus on the affordability of some basket of goods and services, society still has to take a view on what counts as a minimally tolerable standard of living. And as society changes, so will that view.