What is “Poor?”
Similarly, who is “poor?” A person living in a remote Ethiopian village where everyone makes $2 a day (using purchasing power parity exchange rates), or someone living in a Chicago housing development with an annual income of $5,000?
“Well…” says Mr. A, the inexperienced economics student, “both their incomes are above their respective poverty thresholds, so they should have enough for life-sustaining goods. But the person making $2 a day is closer to that threshold, so he must be poorer.”
Dr. Goldberg, the economist counters, “Actually, the Ethiopian is surrounded by people making the same income and the person living in Chicago has an income far below the average national per capita income, so the latter, from a relative perspective, is poorer.”
The capriciousness of absolute and relative poverty in the developing world has captured much attention within the last century. Through empirical work and countless trial and error, economists have developed strong summary measurements of poverty, such as those below:
Poverty gap index: Economists use this model to measure how much income is needed to bring the population under the poverty line above it.
Gini coefficient: A widely used ratio statistic that measures the relative degree of income equality between countries or areas.
Foster-Greer-Thorbecke index: A popular model used to measure the degree of income inequality among the poor. It was considered such a strong measurement of poverty that it is included in the Mexican constitution.
In contrast to these dry quantitative theories put forward by economists, Nobel Laureate Amartya Sen has developed a far more qualitative, human-based approach to measuring poverty. In his book “Development as Freedom,” Sen outlines his idea of how economics could be broadened to better measure people’s well-being. As Sen explains, “focusing on human freedoms contrasts with narrower views of development, such as identifying development with the growth of gross national product.” In particular, Sen examines the ways in which expanding people’s freedoms can be both a viable means to economic growth and a desirable end. His unique approach suggests that poverty is far more complicated than a simple lack of income and should in fact be measured by the “capabilities” people have to live the type of life they desire. This broadens the term “poverty” to take into account the education, political freedoms, and health services available to people.
Sen’s principles were a major influence in the formulation of the Human Development Index, a powerful method of comparing social well-being across countries. The Index takes into account life expectancy at birth, level of education and standard of living to give an overall measure of a country’s well-being.
So, if asked which person was poorer (the Ethiopian or the person living in a housing development in Chicago), Sen would consider any answer incomplete that doesn’t account for social, political, and institutional circumstances.
The mutatis mutandis assumption strikes back!
