On poverty, WiFi and The Wealth of Nations

“Family of four ‘need £36K for decent standard of living’. Joseph Rowntree Foundation report finds a couple with two children need £36,800 – a third more than before the recession.”

The Guardian, July 9

You could buy a lot of beans on toast for that.

I see – you’re an “absolute poverty line” kind of guy?

What do you mean?

There’s a long, honourable tradition in the field of poverty analysis of drawing a poverty line by trying to figure out what it might cost to feed, clothe and shelter somebody. If you earn more than that, you have food, clothes and a place to stay, and can hardly count yourself poor. Your “beans on toast” comment suggests you share this vision.

Is there anything wrong with that?

There’s nothing logically wrong with the idea of an absolute poverty line. Seebohm Rowntree, of the wealthy Rowntree family, calculated one based on the price of such essentials. Pease pudding and bacon for Sunday lunch was included, if I recall correctly.

When was this?

It was 1899. I think we can cut him some slack as a Victorian philanthropist, but today the idea of “absolute poverty lines” – meaning some well-fed expert trying to figure out what we should be eating – seems a little discomfiting.

Has the idea fallen out of fashion, then?

The US still has a poverty line – it’s $30.52 a day in 2012 for a single-person household. That number is thanks to Mollie Orshansky, a government researcher who put a price tag on the cost of following official nutritional advice back in 1963, then used the rule of thumb that food consumed one-third of all household spending. Goodness knows what people were advised to eat back in 1963, but the advice is fossilised in the poverty line; it’s been updated to reflect inflation, and that’s about it.

What’s the US poverty line for a family of four?

Just over $23,000.

A lot less than £36,800, then. Why are the two numbers so different?

Because they are trying to measure different things. The Rowntree foundation number is based on focus group discussions – supplemented by expert advice on, say, nutrition – about what sort of spending is necessary to participate fully in society.

Meaning what?

Well, a television was regarded as necessary to participate fully in society.

That’s nonsense. You don’t have one – are you excluded from society?

I am an economist. I am supposed to be socially excluded. There’s a difference between choosing not to have a television because you’re drowning in books, papers and theatre trips; and not having a one because you can’t afford it.

It still feels very subjective.

Of course it is. The point of the Rowntree methodology is to find out what people think is a socially acceptable minimum. Adam Smith understood this. In The Wealth of Nations, he observed that Greeks and Romans may have survived without linen but, in 1776, “a creditable day labourer would be ashamed to appear in public without a linen shirt”.

It’s all relative, then.

Not so. There are relative poverty measures – Eurostat, the EU’S data-gathering arm, defines the poverty line as 60 per cent of each nation’s median income, for instance. But they are just proxies for inequality, and not very good ones. Smith’s point is not that poverty is relative in some mechanical way, but that it is a function of society’s expectations.

For example?

In the Rowntree panels, parents reckoned others like them needed a computer and internet connection so the children could do homework. But pensioners reckoned they could go to the library to go online. Smith didn’t have a flush toilet; the Queen grew up without WiFi. Now they’re part of anyone’s reasonable expectations.

But why should the rest of us pay to meet these expectations for layabouts and scroungers?

We don’t. The Rowntree foundation says that, while pensioners receive benefits that more than cover the minimum income standard, others receive much less – between 40 and 60 per cent of the Rowntree benchmark. I think you’re confusing two questions. One is: how much money does a household need to enjoy access to what UK society takes for granted? The second question is what, if anything, the state might care to do about that.

And why has this minimum income standard risen so much in the past few years?

Simple. Rents are rising rapidly, partly as a matter of government policy. Childcare costs have also risen sharply.

Also published at ft.com.