James d. Gwartney

Read:
Social Cooperation and the Marketplace by Dwight Lee
It is worth making some closing observations on the difficult political decisions
regarding poverty. When reading discussions in the press or listening to candidates for office, it
is important to understand precisely what they are talking about.
1. Even the definition of “poverty” is often confusing. When some people talk about
poverty, they are thinking “absolute poverty,” which means that an individual or family
does not have sufficient resources to purchase a pre-determined “minimum basket of
goods and services.”
2. Others refer to “relative poverty,” where an individual or family is defined as poor if
their income falls below a pre-decided position in the income distribution (say is lower
than half of the society’s median income).
3. Relative poverty relates to, but is not the same as, inequality. Suppose you had two
societies with four families in each. Incomes in the first society are $1,000,000,
$50,000, $50,000, and $4,000 while incomes in the second were $51,000, $50,000,
$50,000, and $24,999. Both societies would have the same relative poverty rate (25%)
but very different levels of inequality.
4. Poverty measures are sometimes presented without taking account of taxes (which
reduce income) and transfers (which increase income). Which is being used? The first

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definition often finds twice as many people in poverty as the latter.
5. Standards of what constitutes a minimum consumption level vary widely across
countries and over time. In middle and upper income countries today, societal
expectations for reasonable standards of living include goods and services
unimaginable for previous generations. (Think cellphones or television sets.)
6. Finally, it is important to distinguish between poverty at a given time compared to over
a lifetime. Having a low income as a student is very different from being poor year
after year.

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