“The Undercover Economist” on the definition of poverty, and why we should care about inequality

Financial writer Tim Harford spoke with NPR’s David Greene today on Morning Edition about what poverty means now. Harford is the author of the new book The Undercover Economist Strikes Back.

Harford points out the definition of the poverty line is based on the cost of food needs over 50 years ago. While the calculation today reflects an increase in the price of food, it doesn’t include other common expenses today, like a cell phone and other bills.

“This goes back to Adam Smith writing in the late 18th century. Smith said that a man would be ashamed to appear in public without a linen shirt. And then he pointed out that the Greeks and the Romans — even the emperors — didn’t have linen shirts. His point is that poverty is partly about not having enough money to buy what society expects you to have. If you don’t have enough money to meet those social expectations, people will think of you as poor and you will think of yourself as poor. That’s not to say that poverty is totally relative, but it is saying it’s subjective — it’s a social condition. And he’s got to be right in some fundamental way about that.

“It’s about more than survival. It’s also about: Can you participate in social conversations. Are you ashamed to be seen in public or not? There is some controversy about whether that sort of thing should count for the poverty line or not.”

Harford said considering income inequality is “very contested, because there are just so many ways to think about it.”

“Are you comparing the very richest to the very poorest? Are you looking at the assets that people have? Are you just looking at their income? What we can be reasonably confident of saying is that inequality has been rising.”

So why should we care?

“Whether inequality really damages a country as a whole is less clear. I think the main argument that it’s a problem is that it starts to corrode your political system. You get fewer and fewer people with more and more money who are able to have a disproportionate influence on political priorities through their campaigning, their lobbying, their political donations. And if that happens then you’re moving further and further away from the ideals of a democracy.”

You can hear the full interview with Tim Harford here.