Poverty Gets a New Measuring Cup

But what are we putting in it?

I don't know how I missed it, but Slate's Tim Harford wrote a very interesting post on Saturday about how the poverty line is measured. Harford goes through a couple of different, often used methods of assessing poverty, and then compares them to the recent research of an anti-poverty group, the Joseph Rowntree Foundation, in Britain that has recently put forward a new method (or, more accurately, a mix of old methods).

I'm not going to rehash most of either JRF's research or Harford's analysis because I think both stand on their own and are very well done. The methods we use to determine who is in poverty and who isn't, though admitedly often overlooked, is absolutely essential to the work that we do, and reflects something of the way we view "the poor" in our society. Both JRF and Harford appear to have come up with a very thorough way to determine a threshold, but I do take exception to one point, and I think it is an important one.

One of the methods talked about and dismissed is putting the poverty threshold at 60% of the median income of the population of a region. In response to this sort of approach, Harford states:

This has an unfortunate consequence: Poverty is permanent. If everyone in Europe woke up tomorrow to find themselves twice as rich, European poverty rates would not budge. That is indefensible. Such "poverty" lines measure inequality, not poverty, and they do so clumsily.

The Joseph Rowntree Foundation makes a similar claim, stating that "this arbitrary measure is not a standard rooted in a considered view of what people need to live on." They instead suggest that a better method would be to use an "acceptible minimum" that is based off of a "minimum income standard." The MIS takes into account "the sum of hundreds of costed items and allowances for activities and services," and is available through their website.

This is a great method, but let's not throw out the 60% of median income so quickly. Let's consider the sort of things in your region that are based on the median income in the area: apartment rents, pay scales at your job, what stores come into or leave your neighborhood, school tuition costs, and childcare (to name a few huge ones). Basing the assessment of poverty on regional data (as a percentage of median income does when it is calculated correctly) indirectly takes into account what access to resources your community will actually have.

Though it's a simplistic example, let's take the neighborhood around 14th and P NW. There's no Metro directly next to this neighborhood, which means that, more than likely, your grocery shopping will be done at the nearest grocery store. That store happens to be Whole Foods, which is significantly more expensive than other grocery retailers. Rent will also be higher than in other parts of the Metro Area. The reason we see higher rent and retail is because the income in that immediate area is very high. A low-income person who is, say, in the Logan Circle Apartments (4 Logan Cirle NW, 20005), has to spend more to remain stable in their neighborhood than a person with equal income but less expenses.

Mayor Bloomberg recently adopted a poverty scale somewhat based on median income, and it seems to work rather well. I would add, to get back to Harford's criticism, that adoption of this method does not lead to poverty being permanent, it merely indicates a truism of economics. If all of Europe were suddenly to double their incomes, prices would double to match, leaving people in the exact same stratification as they had before. The benefit of the sliding "60% of median income" method is that it indicates when the economics of the region have changed.

On a large scale, a method like this would be an absolute failure because it wouldn't give you any information you didn't have before (say, if you were to take the median income of all of Britain), but it is next to magical in smaller regions (like specific city wards) where income level can vary dramatically.