The poverty industry

September 12th, 2005 at 10:04 am by David Farrar

The poverty industry have invented a measure of poverty which means that they can claim poverty is always a problem, unless one has a communist economy where all incomes are equalised.

That is because poverty is measured as relative to median income, not against purchasing power (which would be more useful).

Marginal Revolution’s Tyler Cowen notes that the official poverty rate in the US (12.7%) is higher than in 1974 (11.2%).

However in those 30 years, the following has happened:

* Real per capita income is over 60% higher today than in 1974.
* unemployment rate is lower
* percentage of adults with paying jobs is distinctly higher.
* Proportion of adults without a high school diploma has halved from 39% to 16%
* In 1972-73 only 42% of the bottom fifth of American households owned a car, now it is 75%
* In 1970 26% of “poverty households” lived in “crowded” homes, now 6%
* infant mortality fell by almost three-fifths over those same years, to 6.7 per 1,000 births from 16.7 per 1,000.

So what does this mean? It doesn’t mean all is wonderful in the US, but it does indicate that life is a lot better off today for most “poor” households than it was 30 years ago, despite there being an increase in the official number of people in poverty.

The conclusion is that poverty rates, as currently measured, are almost useless as an indicator of well-being.


18 Responses to “The poverty industry”

  1. spam () says:

    Yeah – there were a lot of lefties getting all upset about how National not keeping the additional $10/week welfare-for-families was going to result in much higher child poverty than under Labour. There was an article in the herald on it which suggested that under Labour, NZ would move higher on the OECD ranking than under National. However, exactly as your article suggests, this ignored the fact that median wage increases more under national (unfortunately the analysis wasn’t deep-enough to compare the actual net monetary differences).

    What is also interesting is that a couple of commentators suggest that eliminating child poverty is impossible / meaningless because of this effect – which might explain why the greens are the only party that has actually committed to eliminating it by a certain date (neither the nats NOR labour have made a commitment like that!)

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  2. Daniel () says:

    Here is the methodology behind the official poverty rate:

    It measures whether the purchasing power of individuals (before tax income vs CPI). It takes into account different living arrangements and provides a different threshold for each one. This all means that the standard means it is possible to ‘eliminate’ poverty. And it is not some conjured calculation the renders such a task impossible.

    It is quite an objective measure (or the best, unless you care to suggest better? How would you do it?). And if more people were able to buy the basics, there wouldn’t be poverty.

    The quoted blog and yourself quoted:

    Average real income: Not a measure of poverty

    Employment rates: Like NZ’s rate, this does not say whether people are getting enough to live on. If real incomes are low for those in the lower quartiles/deciles then you have poverty.

    High School diplomas: Not a measure of poverty, just the increased requirement of the middle class to have such qualifications. NZ has a high rate of degrees, does that mean anything other than the competition at the top.

    Car ownership in bottom fifth: Finally something slightly relevant. Still does not mean that life is any easier, it may just be a requirement for employment. It may be just another cost.

    Crowded homes: Poverty definition takes into consideration living arrangements, conclusion being that there are just are more smaller, stretched households than the 1970s.

    Infant mortality: Not a measure of poverty. Some cold-hearted but accurate people may say that a decreased infant mortality rate would INFLATE the rate of poverty because there would be more children in families. On a tangent: Infant mortality is 2-3 times in southern states what it is in the northern states.

    So the question has to be how you can say: “it does indicate that life is a lot better off today for most “poor” households than it was 30 years ago”

    None of the figures you present actually say ANYTHING about poverty.

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  3. Bruce Haycock () says:

    Owen McShane has a good illustration of the silliness of the official poverty measure; if Bill Gates was to shift to NZ along with his personal zillions, thousands of New Zealand children would be instanatly transferred into poverty status

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  4. James () says:

    Yes this poverty handwring is a total crock.Whats the definition of child poverty this week? Only having a Playstation 1 and a colour tube tv insted of a plasma screen?….please!Take a drive through Otara,Mangere or Mt Roskill and count the houses that DON’T have a SKY digital ariel on the roof….poverty is a relative term and the Left are wringing it for all its worth.

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  5. darren () says:

    James is spot on.
    Went up North last weekend to see the inlaws, who live in some isolated valley west of Kaikohe.
    Mum and dad, who had 5 kids (at last count), did not work. Yet, they had Sky and all the modern conveniences they could want. Some other inlaws, who live in South Auckland, have a 50-inch telly, which is obviously more important than having a nice home.
    My partner and I both work. We have neither Sky or a 50-inch telly.
    Poverty today means no Sky, no Playstation, etc. If kids aren’t eating properly, it is because their parents are too thick or idle to cook decent dinners.

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  6. Daniel () says:

    Get over your right-wing zeal. Why not actually look at the figures? Embrace them. Debunk them.

    What do you have to lose? Hey, it will even sound more impressive. The amount of partisan intellectual vacuity is just a little overwhelming.

    The topic was only American figures. The poverty threshold is NOT anchored against average income (which would be inflated if another Bill Gates plopped into America). Get it?

    Or is this just a secret neo-con backslapping club and I am just missing something?

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  7. spam () says:


    Take a look at this article from the herald:

    The following are the salient paragraphs:

    Under National’s policy – all other things being equal – that means that 77,500 children will stay in families earning under HALF THE MEDIAN, AN INTERNATIONAL MEASURE OF POVERTY.

    Under Labour, that number is projected to drop to 41,400.

    Economist Susan St John of the Child Poverty Action Group said the poorest families on benefits would fall even further behind the median under National because its tax cuts would raise the after-tax median income.

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  8. Kimble () says:

    Poverty. It should be easy to figure out what it means, shouldn’t it? I mean, think about a person living in poverty. What do you envisage?

    Foe me it is someone who has doesn’t have access to a diet which provides enough calories to maintain a healthy body weight. Also, someone who cannot afford to control their environment to maintain health. The basics of life.

    And I think that, today, only a very small number of functional people are unable to meet this criteria.

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  9. Kimble () says:

    BTW, Daniel, neo-con??? BAHAHAHAHAHAHAHAHAA! What a fruitcake!

    Anyway, a median is an average but it is not the mean. Significant outliers cannot affect the median. If Bill Gates did move to NZ the mean income would increase by several thousand dollars but the median income would only increase by a cent or two, if that.

    The reason is the addition of Bill to the population would add one more person ABOVE the previous median. So instead of the median income being John Doe’s annual salary of $28,000 it is now Jane Doe’s annual salary of $28,000.

    This debate comes down to ONE disagreement. Either you consider poverty as absolute or relative.

    If you consider it absolute, then there are obvious and achieveable targets.

    If you consider it relative, then your real goal is income equality. Which is unachievable without massive coercion.

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  10. Shawn () says:


    “Get over your right-wing zeal.”

    Why? I LIKE my Right wing zeal.

    “Why not actually look at the figures?”

    I have, and by any rational measure three things are clear. One, what is considered poverty today is not the same thing that it was 100 years ago. Poverty has been consistently defined upwards to the point where it has, in the Western world at least, become increasingly meaningless. And two: there is far less objective poverty now throughout the West than there was 200 years ago. And three: issues of poverty have become so politicised by the Left that rational debate has become increasingly difficult (as it has on race, immigration and many other issues).

    “Or is this just a secret neo-con backslapping club”

    I seriously doubt there are any “neo-cons” here. I’m certainly not one. Moreover, very few New Zealanders would know a real neo-con if they met one and even less would know what neo-cons actually think and believe. Neoconservatism is one of the least understood and most mis-represented ideologies there is. Kiwis are remarkably ignorant of many facets of the US political scene, though that doesent stop them from having very silly opinions. Your own statement here is illustrative. Neoconservatives are strongly supportive of the welfare state, unlike traditionalist conservatives.

    Heres a good article which loopks at what David is saying from an Australian perspective:

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  11. Daniel () says:

    Thank you spam for the information relevant to the NZ situation. Note: I have never referred to the NZ situation nor did the original Farrar post.

    But now that you bring up NZ, why not discuss NZ.

    Statistics NZ does not define an official poverty line, with the view that the figures should speak for themselves and groups can analyse it as they wish. Susan St John has her definition (she was a lecturer of mine when I was in stage one). And her definition is a purely relative one, indicative of income distribution and not hardship. Interesting I believe OECD uses the same basis for its definition… (can’t find the exact proof of this right now though).

    But her lax definition does not indicate that poverty does not exist. And the fact is that you need an objective measure rather than delightful anecdotes about Mt Roskill citizens.

    Right-wingers however denounce any drawn “poverty lines” even if they are useful as a quantitative measure. When it was suggested that an additional $10 would lift many above the poverty line, there were howls of ridicule on talkback whether suddenly a family would be propelled into prosperity.

    The BDL is an interesting measure of poverty. But on the whole I have yet to see any convincing data on the existence or non-existence of poverty in NZ. If anyone has any good substantive links, I would appreciate them.

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  12. tim barclay () says:

    The DPB provides a financial incentive to raise children in poverty beinteresting to see what proportion of the “figures” include welfare homes lifestyling on welfare.

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  13. Spam () says:


    I completely agree that an objective measure of poverty is required – but I have yet to see one in the New Zealand context.

    What I have seen is the below-half-the-median-income being used as a purely emotive tool to try an sway the general population, as was the case in the article I linked to. I actually think its completely irresponsible to do this, as it trivialises the issue – especially if you’ve seen real poverty.

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  14. icehawk () says:


    “One, what is considered poverty today is not the same thing that it was 100 years ago. ”


    “Poverty has been consistently defined upwards to the point where it has, in the Western world at least, become increasingly meaningless.”

    That’s your real point. I disagree with it.

    There’s a standard debating trick you see in philosophy a lot. One argues that something is relative. Then they argue that it’s meaningless, or nonexistent, coz it’s relative and changes according to context, right? People like to do it with ethics (oh, right and wrong depend on your society, so there’s really no such thing …). It’s bollocks.

    Because you can both think that there are underlying objective moral standards, AND think that these are interpreted in ways that are context dependent.

    Likewise you can think there are objective standards that define poverty AND that these depend on the social context.

    In Edwardian England kids who got only 6 years schooling were doing fine. In New Zealand 2005 a kid who only gets 6 years schooling is being left behind. Not able to afford tertiary study? That was normal 60 years ago – is it poverty now? If not now, will it be poverty in 50 years time?

    In 1930s NZ someone who couldn’t afford penicillin was normal. Today if someone couldn’t afford basic antibiotics that’d be scandalous.

    The point I’m trying to make is you seem to be making a very dodgy shift from “the meaning of poverty differs in different societies/times” to “it’s meaningless”, and that shift is pretty dodgy.

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  15. James () says:

    This poverty debate reminds me of that Indian guy who wanted to move to America.He said he wanted to live in a country where poor poeple were fat…

    And thats the point.It IS relative! We Kiwis are in the top 8% of the worlds population for wealth.Our poorest are stinking rich compared to really poor people elsewhere.It must be remembered that poverty is mankinds default state of being before he starts working and creating wealth (capitalism).If the west keeps growing and prospering we could one day see people on $60’000 to $100,00 incomes being described as poor as they will be below the average wage of the day! I live for the day I earn enough to be that “poor”!;-0

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  16. Daniel () says:

    James, I assume you don’t care that despite all the relativity you talk about that there may be people who struggle to make their basic ends meet?

    Well if the Indian says that about Americans then surely they are fine.

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  17. James () says:

    You assume wrong Daniel but Leftys do that as a matter of course.The single biggest factor in the situation of poor peoples is the adoption of poor values,ie: no self responsibility,bad health risks,a disregard for education as a way up to prosperity.etc…The Welfare state and Socialist politicians rely on keeping people dependent on them by addicting them to benefits and a “The State will provide ” mentality.The Politicans of the Right are in the position of promoting a “cold Turkey” solution which is never popular with long term addicts who have had their dignity and self respect chipped away by welfare abuse.The Left just gets them to “shoot up” on another hit of OPiuM (other peoples money)and buy their votes to keep on doing it all over again….sickening!

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  18. Daniel () says:

    James: So now you are conceding that poverty (poor people) exists, as long as it is a function of their values and behaviour. Well, least we agree with the fundamental point that I have been trying to establish.

    As I too am a believer in the incentives in a capitalist system, I do agree that the lack of incentives in a socialist model cause some unemployment due to a lack of a financial motivation to work (longer/harder).

    But I also know that elimination of welfare would expose many families to even more impoverished situations. If Don Brash’s ideology were implemented, there would be no minimum wage, which would mean that most of those you might contend should get of the DPB etc. would not be able to support a family. He may have smoothed over such beliefs for the election, I am not sure.

    Here’s a challenge:

    If you can find some case examples where your Cold Turkey is more than hot air, I would be genuinely interested (seriously, being as confident as you are, you should have such examples to prove your case). Where has this Cold Turkey been effective in raising the lot of the impoverished? (anyone can answer this, I may be swayed in my vote)

    As for being a lefty, I am not. I am political pragmatist. I have voted for both ACT and Labour in the past, neither of whom will get my vote this time.

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