What is poverty?

Brad DeLong:

So were workers in London in 1740 as miserably poor as workers in Milan, Leipzig, and Beijing, spending most if not all on their income on bare caloric maintenance in the form of the grain typical of their time and place? Or were the workers of London relatively rich–and deciding to spend their relative wealth on the superior taste and mouth feel of yeasty wheat bread rather than leaden oatcakes and on the associated symbolic declaration that they were proud and free Englishmen, not benighted barbarous Scots (or horses)?

What is the “consumption” we tend to find in our utility functions?

Did you notice Prof. DeLong didn’t ask, “Were the London workers poor because they felt compelled to eat like rich people (and that costs more)?”

Even if you believe consumption is defined relative to ones culture it does NOT follow that income inequality matters. Perhaps the rich set the cultural norm of eating wheat bread, but its just as likely that norm was formed and maintained in the lower income classes.

This is why I didn’t like Frank’s Falling Behind. In the preface, he explicitly says envy isn’t what’s driving people’s natural tendency to compare their lot with their neighbors. He says its culture and the subjectiveness of consumption that matters. He brings up the example of the preference for high quality cars. What’s considered high quality today (GPS, leather seats, whatever) is very different from the what was considered high quality in the past. Its likely, though, that buyers of high quality cars today are no more happy with their purchase than buyers of high quality cars a few decades ago. Cars have gotten objectively better, but subjectively they’re still the same “high quality”.

These are excellent points and its a great example. There is definitely a cultural element to consumption and certainly overall happiness, however measured, isn’t tracking with the vast improvements in quality we’ve seen over the years. Frank, though, spends all of the book talking about income inequality as if the consumption patterns of the rich automatically translate into these cultural factors. He says envy of the rich doesn’t matter, but that’s what he ends up dwelling on.

In Frank’s eyes, the wheat bread norm hurt the lower classes. This is debatable (who would want to think themselves a Scot!), but even giving him that, measuring income inequality wouldn’t tell you anything about that norm. Why would we think increasing income inequality would be correlated with the development of these sorts of norms?

Acting like the rich may be one factor that drives cultural norms of consumption and its likely that cultural trends flow primarily from from elites. But not all elites are rich and more importantly cultural trends can flow uphill (hip-hop anyone?). My point is that consumption norms matter, but thinking only in terms of high and low incomes will have us miss most of the story.

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