Inequality and Relative Poverty

by George Hatjoullis

The Joseph Rowntree Foundation has published a report alleging that “Four million more people living on inadequate incomes in modern Britain”. An article in the FT reports on this study with the sub-heading “Growing numbers do not have enough money for food, clothes and housing”. The implication of the media presentation is that absolute poverty is growing and is a problem. It may well be but one cannot conclude this from the study.

The reference from this study is the Minimum Income Standard (MIS). It is calculated by the Centre for Research in Social Policy by engaging with groups of members of the public to identify which items they think are essential for an acceptable minimum standard of living. The reference for the study is thus a social norm or expectation. The study is measuring how income is varying relative to this expectation. Any conclusions from this study are thus very dependent upon the nature of this expectation.

It is very difficult to conduct such studies over long periods of time because the nature and quality of the reference social norm varies. What was deemed acceptable when I was a child would be deemed inadequate today. This is as it should be if income standards, and thus expectations, are continuously improving. It does however rather limit the scope of these studies. They tell us about recent trends in the dispersion of income around social expectations. They tell us about trends in income inequality. They tell us little or nothing about absolute poverty.

The media presentation tends to imply absolute poverty because it is more newsworthy. It has an emotional appeal and catches the eye. If the headline was about relative poverty changes over the last few years I expect much less readership. To imply significance for absolute poverty is borderline false news and demonstrates how this process works. There is a duty on you, the reader, to not take news reports at face value. However, this duty is all too often shirked.

The report also speaks to my blog Inequality: Deception and Consequences. In this I reframe the inequality debate in terms of consumption and highlight the implicit assumption that consumption is good and more consumption is even better. This is clearly embedded in the reference social norm used in this study. Perhaps the trick is to change expectations.

The growing use of charity shops for clothing and food banks for essential nutrition is I suspect impacting absolute poverty levels positively. The social stigma of using such outlets however may be one reason the report finds declining minimum standards of income. But why should society stigmatize these outlets? Recycling and eliminating waste is a good thing. Indeed consuming less is a good thing. Where social norms seem to enter is on whether you are consuming less as a choice or because of a budget constraint. In a world in which consuming less is a good thing this distinction starts to fade.

There is a problem with absolute poverty and it is entirely located in the housing sector. It is much more serious than this study seems to imply. The real haves and have-nots today are defined by property ownership. The owners are extracting more and more from the non-owners because everyone needs to live somewhere. It is being exacerbated by council house sales, housing association sales, and cuts in housing benefit. One does not need to do very much research to conclude this is the case.