Poverty and Inequality

January 27, 2004 | 22 comments
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Rusell’s post below leads me to post a question that I have been meaning to throw out for some time. When we look at the plight of the poor, what is the evil that we see: poverty or inequality?

Now the it may be that the proper answer is both, but it is worth disentangling to two issues, since I think people tend to get them confused. I think of the problem of poverty as being addressed to absolute levels of wealth. What we are concerned about is whether or not people have the resources to live a minimally decent life. Obviously, many people in the world do not have these resources. Inequality is about comparative levels of wealth. What worries us is that some people have so much more than other people. Note, however, that these two problems are distinct from one another. One could imagine a very egalatarian society that is nevertheless impoverished and one could imagine a society with no poverty but vast inequalities of wealth.

For example, Freidrich Von Hayek, the nobel prize economist who is one of the founders of contemporary libertarianism actually favored a government sponsored minium income. He thought that a wealthy society could afford to guarantee the material well being of the people at the bottom. At the same time, he opposed intrusive government regulation of the economy and legal rules aimed at eliminating inequalities of wealth. In contrast, the political philosopher John Rawls thought that inequalities of wealth were presumptively unjust and could only be justified on the basis of benefits accruing the least advantaged in society. In theory this seems (to me) to commit Rawls to a rejection of Pareto superior moves in social wealth. Thus, if A gained wealth while B did not, the resulting inequality is unjust even if A’s gain caused no harm to B, and even if society could not be arranged so that A could capture some of B’s gain.

I think a there is a great deal of confusion about these two issues. Many political conservatives think that any collective concern for the poor is an attempt to eliminate inequality, which they see as an illegitimate goal. Many political liberals seem to think that eliminating inequalities of wealth will necessarily amerliorate the condition of those in poverty. Yet neither position is logically required.

So here are my questions. First, which of these issues should be of greater concern to us? Second, to what extent are the problems linked together? My own set of intuitions is that poverty is a much more pressing problem than inequality, and that the presence of inequality may be a necessary condition for the amelioration of poverty. I am not sure if this is commiting me to some Rawlsian notion of distributive justice or if I think it is simply a social fact.

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22 Responses to Poverty and Inequality

  1. Russell Arben Fox on January 27, 2004 at 12:58 am

    Nate: I just taught my first Rawls lecture of the semester today, and I’m confused by what you’re saying. “The political philosopher John Rawls thought that inequalities of wealth were presumptively unjust and could only be justified on the basis of benefits accruing the least advantaged in society.” Yes, correct. So how is it that believing, as you say you do, “that the presence of inequality may be a necessary condition for the amelioration of poverty” would commit you to “some Rawlsian notion of distributive justice”? I would think that someone who rejected the idea that inequitable social arrangements–economic and social regimes wherein welfare and opportunities were conditioned on factors other than independent rational choice–were themselves the problem would be, if anything, highly suspicious of Rawls’s distributive program. Maybe I’m missing something. (And what, by the way, is a “Parento superior move”?)

    For what it’s worth, I’m not a fan of Rawls, though reading his work is a wonderful intellectual exercise. Like you, I think poverty is the greater problem than inequality of wealth, though obviously the two cannot be entirely disentangled. (The prophets have always condemned both, it seems to me, though not with equal emphasis.) My preferred responses to poverty and social deprivation are not Rawlsian; my interest in redistributionism isn’t liberal (surprise). I have a lot more sympathy for various social democratic, “socialist,” or communitarian approaches.

  2. Adam Greenwood on January 27, 2004 at 1:10 am

    Maybe it depends on how you come to realize there’s a problem. It seems that it might be hard to percieve of poverty as a distinct phenomenon unless one saw some inequality that allowed comparison. I draw your attention to the number of conference talks that say, ‘we we’re poor but we didn’t know we we’re poor because everyone was!’ A lot of the old will say that, actually. In that sense, it seems that the only way to ‘solve’ property is to return to equality, so no one feels themself to be poor.

    If, however, poverty is percieved by some meditation on what people absolutely must have to live a decent life and comparing it with what they actually have, then it seems that inequalities don’t matter as long as conditions can be improved.

    In a way that i can’t fully explain, this has brought me to a variation on an old conservative argument:

    The harm in poverty as inequality is two-fold: first, some of the poor will have low self-esteems or feel themselves to be the victims of injustices. Second, the rich will be denied the opportunity to feel one with their brethren.

    The harm in poverty as deprivation is the physical suffering, limitation on agency and knowledge, etc., that one will suffer as a result of the deprivation.

    So it seems to me that the second problems are the one’s law–and indeed material action–can best solve. As for the first problem, an enforced equality doesn’t really solve the problem of person’s refusing to recognize their inherent equality, and of course a forced equality of wealth still leaves people unequal in other ways.

    Nonetheless, I’d have to agree with your bold, initial statement that ‘both are important.’

    P.S. I wish there was a way to edit these comments afterwards. I know that I’ll read this in the morning and wonder how such an excellent person as myself can produce such sub-literate maunderings?

  3. Bob Caswell on January 27, 2004 at 1:27 am

    Adam, I personally want to post after you to make you feel better. I feel that those involved with commenting on this particular topic seem much more educated than me on the subject. But here goes my two cents anyway:

    I don’t know the answer. I feel that capitalism is to blame for the “inequality” bit. Not that it’s necessarily a bad thing; it’s just the way the system works.

    As for poverty, it’s one of those things where you wish that if you closed your eyes and were sad about it and others all over the world did the same thing at the same time… something would just happen to fix the problem. But alas, it doesn’t work that way.

  4. Gordon Smith on January 27, 2004 at 2:31 am

    This distinction occurred to me (again) in India when one of our hosts said, “Go to the villages and watch the people. They are happy!” I didn’t have much of an opportunity to take him up on the offer, but his point is one commonly made (see Adam’s comment, for example), namely, that “poor” is a relative term. If everyone in a community has roughly the same material endowments, there are “no poor among them.”

    My hunch is that Nate and Russell feel that poverty is a more severe problem than inequality because they imagine poverty in the form of starving babies or diseased children. And if that is the right image, then I would agree that poverty is the bigger concern.

    This is not the world that GA’s are imagining when they say (per Adam’s comment above), “we were poor but we didn’t know we were poor because everyone was.” That world is one where all of the basic needs are met, and the word “poor” refers to a lack of luxury items. I suspect that the introduction of inquality to such a world would cause many problems, and inequality would dwarf “poverty” as a social ill.

    Finally, I can’t resist a small tangent into the politics of poverty. When the U.S. government refers to the “poverty threshold,” it is not referring to a measure of the goods and services required to survive, but rather a judgment about a minimum level of earnings that is socially acceptable. This means that the poverty thresholds shift with the changing political winds and the relative prosperity of the country. Thus, in this context, poverty and inequality are intimately intertwined.

  5. Greg Call on January 27, 2004 at 3:51 am

    Thinking about what the scripture have to say on these issues, I think that poverty as a problem probably receive greater emphasis than inequality. But I’ve always found the following scripture interesting:

    “For behold, the beasts of the field and the fowls of the air, and that which cometh of the earth, is ordained for the use of man for food and for raiment, and that he might have in abundance.
    But it is not given that one man should possess that which is above another, wherefore the world lieth in sin.”
    D&C 49:19-20

    This seems to indicate that a society is sinful if it is unequal in earthly possessions, regardless of whether everyone has sufficient for their needs.

  6. lyle on January 27, 2004 at 5:22 am

    I like the idea of giving everyone a living wage. while this would be mildly redistributive, and would be an anti-incentive to work, as a ‘dole,’ it would create a class of individuals who are able to grow/increase their wealth if they so choose…much like the Lord gave a single talent to the inept/unwilling/(insert adjective used to describe poor or unsuccessful people today here). So…let’s achieve a much closer equality of opportunity by giving everyone the same base start at least. If some have more….than hopefully, there will be a trickledown effect.

  7. Adam Greenwood on January 27, 2004 at 9:40 am

    I think you’re fundamentally right, Gordon. But let’s remember how basic those basic needs are. We’re talking about a world in which one personally knows any number of people who have died from disease, etc. In which people suffer mightily from the elements, from periodic lacks of food, from overwork and shortened life spans.

  8. Nate Oman on January 27, 2004 at 11:01 am

    Russell: Pareto superior. My bad.

    Here is what I mean. I find that I am not deeply concerned about many forms of inequality. In part this is because I don’t think that most forms of inequality hurt the poor, and I actually think that many forms of inequality benefit them. Now it could be that these last two facts are simply accidental to my moral intuition which could be based on something like Nozick’s historical argument. Alternatively, the fact that I think that inequalities benefit the poor could be what justifies the inequalities in my mind, which would be some version of Rawls’s maxmin principle. I occilate around on these issues.

    Like you, I am ultimately not a Rawls disciple, but I think going through his work is a marvelous intellectual experience and I find that he has sharpened (or at least I think he has sharpened) my thinking on a number of issues. _A Theory of Justice_ really is a marvelous and insightful book, even if you don’t buy into what Rawls is saying.

  9. Nate Oman on January 27, 2004 at 11:12 am

    Russell: Looking at my original post I realize that — miracle of miracles! — I did not mispell “Pareto,” so my post above is non-responsive. Pareto superiority is an idea from welfare economics. Roughly speaking, state of affairs A is Pareto superior to state of affairs B if no one in be is worse off than they were in A and if at least one person in B is better off than they would be in A.

    There is an pretty good discussion of the concept in the article on “Philosophy of Economics” in the Stanford Online Encyclopedia of Philosophy:

    http://plato.stanford.edu/entries/economics/

    Check out section 6.2 on Efficiency. The concept is quite important in law and economics and legal theory. It turns out that you have at least three different concepts of economic efficiency — Pareto superiority, Pareto optimality, and Kaldor-Hicks Efficiency. To the extent that you want to use economic efficiency to make normative claims you need to specify which concept you use since they can lead to different rules (e.g. liability vs. property rules) and also since they rest on some what different normative grounds.

    The best philosophical discussion of the issues that I have read is Jules Colemen, “Efficiency, Auction, and Exchange,” in _Markets, Morals, and The Law_. The essay is Coleman’s half of an exchange with Richard Posner about the moral basis of efficiency norms. Coleman flattens Posner, something that Posner later admitted. (See, e.g., Richard Posner, The Problematics of Moral and Legal Theory).

    Bibliographic mini-essay over.

  10. brayden on January 27, 2004 at 11:22 am

    It’s hard to distinguish between poverty and inequality because they define each other. We notice inequality when it starts looking like poverty, but we also define poverty based on relative differences between comparable groups of people.

    Incidentally, while at BYU I read a very interesting paper by an LDS sociologist named Richard Johnson on the subject of poverty and the responsibility of covenant people. I don’t agree with everything Johnson says in the paper, but it does make you think about the issues seriously.

    Johnson says:

    “I do not anticipate much repenting being called for as the result of our political party affiliations or specific policy preferences. However, I can easily imagine a hereafter in which most of the regretting, repenting, and pain experienced by contemporary middle- and upper-class “active” American Mormons is due to the sin of keeping too much for ourselves while so many others have so little. I believe it to be the great unrecognized sin of our LDS subculture (myself included), if not the chief cause of problems in our nation and throughout the world (compare Benson, 1989).”

    The paper can be found online at http://fhss.byu.edu/soc/courses/rjohnson/Wealth%20and%20Poverty.htm

  11. Kaimi on January 27, 2004 at 11:24 am

    Nate,

    There is some theorizing that was done by (Abba Lerner, I believe?) noting that a perfectly redistributive society is most likely to maximize total utility of society members, because of the decreasing marginal utility of money.

    E.g., 2 people with $500 each are likely to have more total utility than one with $900 and one with $100. Money has decreasing marginal utility, so moving from 900/100 to 800/200 will cost the loser less utility than it will give to the winner. And so forth, all the way to perfectly equal distribution.

    Of course, this runs into all the problems that utility maximization suffers from — inability to measure; difficulty of weighing one person’s utility against another; quirky preferences, etc.

  12. Nate Oman on January 27, 2004 at 11:30 am

    Kaimi: If everyone had the same utility function and we all had decreasing marginal utility for wealth, then a perfectly egalitarian distribution of wealth would be utility maximizing. It seems to me that there are three problems with the view.

    1. the ones that you mention about quirky preferences and the like.

    2. the ambiguity of utility maximization as a normative criteria.

    3. the assumtion of the theory that wealth is an exogenously given and stable variable. It may be that inequalities lead to the production of wealth and that a society with an inegalitarian wealth distribution will be wealthier and for that reason can (on the assumptions above) maximize utility vis-a-vis a perfectly egalitarian society.

  13. Nate Oman on January 27, 2004 at 11:32 am

    If poverty truely is defined in terms of relative wealth, rather than in terms of some stable set of human needs, then how do I distinguish the misery of poverty from simple envy?

    It seems that we need to have some concept of poverty based on absolute rather than relative levels of wealth.

  14. Nate Oman on January 27, 2004 at 12:04 pm

    Lyle: I actually think that some living wage law is a bad idea, if we are talking about a prohibition on contracting to labor below a certain wage. I think it is probably better to simply do transfer payments. (I am still in the thrall of those magical supply and demand curves from econ 110).

    Some argue in favor of living wage laws because they think that transfer payments can create perverse incentives not to work, which a wage floor would not, i.e. transfer payments in effect punish you for working when you lose a benefit and reward idleness when you get the payment. However this kind of dynamic is a result of means testing and the diminishing marginal utility of wealth. If we phase out benefits once income reaches a certain level we will always create perverse incentives because the a dollar of new income earned is not as valuable as the dollar of previously available transfer payments that you lose.

    This is why I think that something like a negative income tax is a better idea, especially if it is one that is NOT means tested. Everyone gets the same economic benefit. The poor get it in the form of a transfer payment and the “rich” get it in the form of a tax credit. It seems to me that this eliminates the perverse incentives.

  15. ed on January 27, 2004 at 1:04 pm

    Gordon: I think you’re mistaken about the poverty thresholds. The original threshold was set in 1963 based on the cost of a basic food budget, divided by the percentage that the poor spent on food (about one-third at that time). Since then the threshold has been simply adjusted using the consumer price index measure of inflation. Many people believe that the threshold is now inadequate to describe contemporary ideas about a minimum standard.

    Another comment: I think that income/wealth inequality is a part of a larger phenomenon of social inequality, and that once you get to a basic standard of nutrition, etc., it is social inequality that matters most in terms of people’s happiness. Social inequality is not unique to “capitalism”–it also existed in feudalism and communism, for example.

  16. Gordon Smith on January 27, 2004 at 1:52 pm

    Ed,

    We may be talking past each other. As you say, the “basic food budget” was a measure of what poor at the time spent on food. It was not an attempt to estimate a minimum need. Now, we may believe that the poor “need” more or less than they actually spent on food, but my point is that the poverty thresholds are tied to judgments about appropriate levels of support, not an estimate of minimum need.

    An excellent history of the poverty thresholds can be found at http://www.census.gov/hhes/poverty/povmeas/papers/orshansky.html#C4, from which the following was excerpted:

    “Orshansky did not develop the poverty thresholds as a standard budget–a more precise technical term for what is today commonly called a ‘market basket.’ (A standard budget is ‘a list of goods and services that a family of a particular size and composition would require in a year to live at some specified level.’) If generally accepted standards of minimum need had been available for all or most of the major essential consumption items of living–housing, medical care, clothing, transportation, and so on–Orshansky could have followed a standard budget approach by costing out all the standards and adding up the costs. However, except for the area of food, no definitive and accepted standards of minimum need for major consumption items existed at the time Orshansky developed the thresholds–and it is still true that no such standards in non-food areas exist today….

    “In Orshansky’s words, ‘…there is no generally accepted standard of adequacy for essentials of living except food.’ As her ‘generally accepted’ standards of adequacy for food, she made use of the food plans prepared by the Department of Agriculture. At the time she was developing the thresholds, the Agriculture Department had food plans at the following four cost levels (listed here from the most costly to the cheapest): liberal, moderate, low-cost, and economy…. Orshansky used the low-cost and economy food plans in developing her two sets of poverty thresholds, describing them as follows: ‘The low-cost plan, adapted to the food patterns of families in the lowest third of the income range, has for many years been used by welfare agencies as a basis for food allotments for needy families and others who wished to keep food costs down…. Recently the Department of Agriculture began to issue an ‘economy’ food plan, costing only 75-80 percent as much as the basic low-cost plan, for ‘temporary or emergency use when funds
    are low.’”

  17. Bob Caswell on January 27, 2004 at 5:49 pm

    Ed, about inequality and capitalism… I don’t doubt that inequality is not unique to capitalism. In reference to capitalism (because it’s the system most of us reading this work with), what I was trying to say is that if you try and control inequality you hurt capitalism. Capitalism flourishes on inequality; it really does.

    The more we try and solve the inequality problem under capitalism, the less incentive people will have to fully utilize a capitalistic environment. From an economic standpoint, that is a very bad thing. So, capitalism is, at least indirectly, causing inequality.

  18. Nate Oman on January 27, 2004 at 5:54 pm

    Bob: It seems a bit simplistic to say that all attempts to ameliorate inequality undermine capitalism. Check out the work of someone like Hernando De Soto, who argues (powerfully IMHO) that many of the poor in the third world are poor because they have been shut out of capitalism by dysfunctional legal regimes and that huge global inequalities represent a failure of markets rather than a natural result of their functioning.

  19. Bob Caswell on January 27, 2004 at 6:04 pm

    Nate, when talking about third world countries and global inequalities, it does seem simplistic. But in our country? In the mean time, Hernando De Soto, thanks for the tip.

  20. brayden on January 27, 2004 at 6:11 pm

    I don’t think all attempts to ameliorate inequality undermine capitalism. A Keynesian would tell you that ensuring everyone in the country has a sufficient income increases consumer demand in the economy. This is one way of fighing inequality. This doesn’t mean we make the rich give the poor their fair share. It means we make the rich use their dollars (which might be inefficiently stowed away into savings) to ensure opportunities for employment for the lower class. Translation: New Deal.

  21. Bob Caswell on January 27, 2004 at 6:17 pm

    When you “make” anyone do anything with money… I guess I’m skeptical. There had better be some serious proof that it comes out best for everyone in the end (translation: the economy). Maybe it works, I don’t know, but economists usually don’t like it. And they usually know what they’re talking about.

  22. Adam Greenwood on January 28, 2004 at 4:12 pm

    “inefficiently stowed away in savings”

    I’m not much of an economist, not eves for a lawyer, but isn’t money you save used for something? The bank loans it to somebody and they spend it? Or is something else going on? Now, maybe if the money were under a mattress, or invested in gold or something . . .

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