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January 14, 2005

Polly Toynbee on Child Poverty (Again).

Polly Toynbee has a near brush with economics:

Will it? Can it? Can child poverty be abolished in the next 15 years, as Blair promised? None of the economists at the meeting thought it remotely possible on anything like the present trajectory - and the chancellor has warned that the big spend is over.

Well that rather depends on how you define it. If you mean can absolute poverty be abolished the answer is obviously yes. We’re pretty close right now, if not already achieved it. If you mean relative poverty, measuring incomes as a percentage of median or mean, then that is much more difficult. For one has to ensure that the grander inequalities of income in the country are ironed out. Which is pretty much Polly’s stance, that we must indeed iron out those income inequalities.

Then she meets someone who points out the awful truth about this position:


Put baldly by one speaker, Britain can't have Swedish services and Swedish social justice on British tax rates. Hills says tough choices have to be made between bringing up the incomes and services for the least well off, and letting rip the standards of living for all: how else do you close a gap?

It’s a point I don’t think she’s quite understood, for if she did I think she would (might?) change her views. We do have to make a trade off at some point along the line. We can indeed reduce inequality and thus relative poverty. At the extreme we could simply have a 100% tax rate on incomes over, say, twice median (around 50k a year). Leave aside the economic fact that 100% tax rates produce no revenue, we would most certainly have reduced income inequality. But at something of a cost, the complete abolition of economic incentives, with all that means for the future growth in the income of the society as a whole.

That’s the trade off and it’s one that has to be made, one that cannot be glossed over or ignored. How much inequality do we put up with now in order to maintain incentives so as to get more wealth for future generations to enjoy? Different people can legitimately have different opinions on this but that is, at least I think it is, the point that the LSE economist was making (at least I hope it was, wouldn’t want to think that someone at my alma mater would miss that point).

The question is, did Polly understand it that way, and if she did, what’s her answer? What is the balance between the two objectives that she finds acceptable, now that she is near grasping the point that a balance must be found?


Update:

Polly answers:

Patronising, aren't you?
The measure of poverty is international _OECD et al - hardly lefty
organisation, eh? It is  relative poverty : 60% OF MEDIAN INCOME.

Guilty as charged M’am.
A slight wrinkle of course. The definition of poverty is not international in one sense and is in another. The 60% of median income is for people within that country, not compared across different countries, while it is internationally accepted as a measure of relative poverty within a country.
We can therefore, end up with the slightly disturbing situation whereby a country with less relative poverty can have greater absolute poverty. Which is partially my point, only I was using it over time within a country rather than across countries.
It’s also median equivalised household (ie, correcting for household size on the basis that while two cannot live as cheaply as one it doesn’t cost twice as much money either).
At least we now actually have a measure of what Polly would think is a socially just society, a number we can look at and when we reach it we can wrap up and all go home.

January 14, 2005 in Economics | Permalink

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Comments

Her problem is what happens when people stop using qualifiers with their terms.

You're talking about *absolute* poverty and *relative* poverty and all she hears is poverty, poverty.

Posted by: Agammamon | Jan 14, 2005 1:08:54 PM

So they aren't talking about poverty but about income redistribution. Why not be honest about it?

Posted by: Mark T | Jan 14, 2005 4:42:30 PM

Wait a minute. The poverty level is defined as 0.6 x median income? Then, by definition, any variance in income at all will result in there being poverty. What she's suggesting --- assuming she's not just an innumerate git --- is that all income differentials be eliminated.

I realize that's a bit of an assumption.

Tim adds: Yes, it is an assumption and it’s a fair one. The poverty that Pollt keeps tlaking about, the one that must be wiped out so as to ensure social justice, is indeed measured that way.
You also have to be a little careful with the figures. They are usually, but not always adjusted to equivalised household income, as above. And they should be measured post tax and post benefit. Many of the figures from the Deaprtment of Work and Pensions are post both, but some are not.
Whenever someone is talkingabout poverty we therefore need to make sure of two things. Are they talking about the above relative poverty? And are they using figures for after the Govts actions to try and alleviate it?

Posted by: Charlie (Colorado) | Jan 15, 2005 12:14:08 AM

So ...
If aid budgets were colossal, and distributed such that everyone in Africa had their income multiplied by a factor of twenty - there would be absolutely NO decrease in "poverty" according to this measure.

Whereas if all aid were cut and (just for good measure) all of the debtor states were leaned on to increase their payments, which they did by doubling their income tax rates above a level of (say) 60% of median net income and consequently driving many people below that line, causing it to be recalculated at a far lower rate - "poverty" would be slashed.

Hmm. Intriguing metric, this "poverty".

Posted by: Andy Cooke | Jan 15, 2005 10:53:34 PM

YOu can't measure poverty with figures and comparisons. It's individual & you know it when you have it.

Posted by: Andrew Currie | Feb 2, 2005 9:34:14 PM