Poverty and income gaps
A couple of readers have written to me suggesting it would be a good time to post about poverty and income inequality. First, I’ve been alerted to this story by Miranda Devine saying that the tragic house fire in Sydney a couple of days happened because the family couldn’t afford blankets. It’s often been asserted that poverty is an out-of-date concept, but there is still plenty of absolute deprivation in modern societies. There’s some evidence onhunger in the US here. Although I don’t have the data handy, the proportion of the population living below the US poverty line (based on a PPP conversion) is actually slightly higher in Australia than in the US – much higher in both countries than in most developed countries. Of course the biggest problems are those of indigenous Australians (from Devine’s report, this includes the family in the Sydney tragedy) but there’s nothing to be complacent about more generally. And there’s no justification for looking only within Australia. We can ignore poverty in the world as a whole if we choose, but that doesn’t mean the world will choose to ignore us.
Devine’s article focuses on the need for more charitable effort on the part of those of us who are doing well, and this is an important point. Most of us could give more than we do without suffering too much as a result. We should all think about it and try to make more of an effort. But it’s equally important to look at the economic structures and government policies that have led to growing (or, depending on how you measure it) unimproved poverty rates over a long period of reasonably good economic growth.
This brings me on to a point raised by Tim Blair, which is worth taking seriously. Blair says
I’ve never understood all this concern about the gap [between rich and poor]. What benefits does a small gap bring? If you are poor, how are your circumstances improved by everybody else also being poor?
There are two main responses to this. First, if there’s a big gap that means that there’s a potential to redistribute income so as to reduce poverty. The same aggregate income is consistent with widely different levels of social wellbeing. A big gap suggests that measures of average income overstate the welfare of the average person and particularly of those at the bottom of the income distribution. That is, for given income, a big gap between rich and poor means that the poor are worse off in absolute terms.
Second, although I don’t like purely relative measures of poverty it is true that, in important respects, you are worse off being poor when most other people are well off. For example, if most people have cars, all sorts of social arrangements will be made on the assumption that people will drive to them. So doing without a car becomes more of a burden. At a more day-to-day level, I’ve noticed that participation in school and sporting club events has got more expensive over time, as average incomes have risen. For example whereas sports uniforms were once cheap and often pooled, there’s now an expectation that they should be brand new and that they should be bought specially for particular events. Accommodation has largely gone from billeting to motels. The cost of participating is that much higher, and kids from poor families are, at best, shown up as poor and at worst excluded altogether.
The first of these points is more relevant in relation to the very rich. The point here is not so much that the rest of us are worse off because, say, Kerry Packer is very rich, but that economic growth isn’t of much benefit if it mostly enhances the fortune of the very rich. In this context we should look a lot more at median than at mean incomes. The second point relates mainly to the distance between the median and the bottom tail of the income distribution.
 In this context, I’m equally dissatisfied with those rightwingers who want to leave everything to private charity and with those leftwingers who excuse themselves from charitable giving on the ground that this is a job for government.