Adam Smith on Relative Poverty

Many fans of Adam Smith make the following argument concerning poverty statistics:

Treasury Secretary John Snow ... says ... How the average family is doing in absolute terms is more important than how it is doing relative to others...

Here's a Wall Street Journal commentary by Douglas Besharova from a few days ago that is cited by Donald Luskin in his claim that "The official poverty statistics just can't be right -- showing that the same percentage of Americans lives in poverty as did in 1968":

Each year the Census Bureau calculates the nation's poverty rate, based on the number of people with incomes below the official poverty line... But many analysts ... have pointed out that ... poor people's physical and material well-being is considerably better now than in the late '60s. How else to explain why so many poor now have color TV (93%) ... Millions of low-income Americans are living better lives than they did before. Period.

Adam Smith had something to say on this topic. This is from an article about Mollie Orshansky's development of poverty statistics (long, but worth it) appearing in The New Yorker:

Relatively Deprived, by John Cassidy, The New Yorker: ...The concept of relative deprivation was first described by Adam Smith in “The Wealth of Nations,” in a passage on the “necessaries” of daily life:

By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but what ever the customs of the country renders it indecent for creditable people, even the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-laborer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into, without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.

Let's use the TV example. A TV, is, "strictly speaking, not a necessary of life." Suppose a family cannot afford a color TV (a 20" flat screen is less than $100). Would the presumption be that the family is living in a "degree of poverty which ... nobody can well fall into, without extreme bad conduct"? Would a parent "be ashamed" to have their children's friends find out they cannot afford a color TV when they come over to visit? If the answer is yes, then Smith would say they are impoverished.

Comments

[ilsm]

Let THEM eat cake.

[bakho]

Black and White TVs are no cheaper than color TVs. One can argue the relative benefits of a color TV or even adding cable compared to taking the family to the movies once per week (The TV is less expensive (4 X $10 X52 =$2080). But that is beside the point.

The dirty little secret conservatives don't want to mention is that the LBJ war on poverty really did reduce the poverty rate in America. You can look at the historical statistics here:

http://www.census.gov/hhes/www/poverty/poverty.html

The war on poverty was most effective at reducing poverty among the elderly. The average and the median elderly American is much better off today than 60 years ago. Since that time, less progress has been made and under some administrations, the poverty rate has actually increased as it has under the last 3 years.

Part of the decrease in poverty under Clinton is the greater workforce participation and especially getting the unemployment rate for blacks under 10% for the first time in decades. In the American economy, most social services are tied to having a job. Those who don't have a job pay for services out of pocket. Under Bush we have gone backward. Unemployment increased and that is a large part of the increase in poverty under Bush. Clinton policies also greatly expanded the EITC, raised the minimum wage had generous credits for child care, health benefits for those transitioning from welfare to work and a host of programs that made work pay.

In over 5 years of Bushonomics, there has been ZERO mention of increasing the minimum wage. The lowest paid workers have received no pay raise while the wealthy get huge tax cuts and billions in corporate welfare. Bush is pursuing a trickle down philosophy that is about as effective as dumping water into the Colorado River in Colorado and expecting it to end up in LA. There is no trickle down because the money all disappears before it reaches the poor.

People who are poor generally lack the resources or education of their wealthier fellow citizens. Clinton policies of putting more money in the hands of the poor works for everyone because the wealthy have enough education, resources and savvy to extract their cut of the pie from the broader economy. The poor don't and this is why Bush policies of giving to the wealthy don't work. Not that Bush and his wealthy buddies care about poor people other than it might cost them votes.

[yartrebo]

The price of TVs might have fallen, but the bulk of poor people's expenses are shelter, health, autos, and food. Combined they take up something like 75%+ of a poor person's income. Of there, only food has fallen behind inflation, with the health care and shelter becoming progressively more expensive with time.

Even sticking to TVs, the total cost of a TV has gone up if one includes the effect of advertising (effective on all demographics, but doubly so on the poor) and the price of cable TV (which about 80% of all households have, so a good chunk of poor must have it). The price of the reciever could become free and it would only offset perhaps a year of price increases in the other categories.

[save_the_rustbelt]

Food banks are doing record business in Ohio and Michigan. I suppose those damned poor people spent their money on a big screen.

A color tv with built in VCR is $69 at Wal-Mart.

Natural gas bills are climbing like a space shuttle at launch.

says...

"Let's use the TV example. A TV, is, "strictly speaking, not a necessary of life." Suppose a family cannot afford a color TV (a 20" flat screen is less than $100). Would the presumption be that the family is living in a "degree of poverty which ... nobody can well fall into, without extreme bad conduct"? Would a parent "be ashamed" to have their children's friends find out they cannot afford a color TV when they come over to visit? If the answer is yes, then Smith would say they are impoverished."

If the answer is yes: Should the state then provide 20'' color TV's to all americans so that they don't feel ashamed?

[ken melvin]

The right believes in relative wealth. The less those poorer have the wealthier it makes those with wealth. And, you can hire the poor devils for next to nothing.

[calmo]

If the answer is yes: Should the state then provide 20'' color TV's to all americans so that they don't feel ashamed?
Only if they can somehow write it off as a business expense. Universal incorporation for all so we can collectively feel the shame.
Thank you bakho for tieing to that other hot topic, (illegal aliens), with your remark about min wages:

In over 5 years of Bushonomics, there has been ZERO mention of increasing the minimum wage.

Mark is asking us to think about relative/absolute poverty and maybe their are other important distinctions. NPR interviewed some demonstrators (imagine! bypassing their political representatives!) who reported that some people just lack motivation, just do not have what it takes to get ahead. They let a little thing like skin color, a border, or a criminal record get in their way. Look at Tom Delay forchrisake. Unstoppable meatgrinder. Everybody's hero.
Of course you need to have a little inspiration, some motivation, to see this and the free TV might be a good idea.

[anon]

what if you live in a religious community where it is wrong to have a color television? what if you have to hide your color television and act like you do not have one? are you impoverished?

[bakho]

I appreciate Mark's look back at old Adam, but I think Snow is off base with the remark about absolute wealth. Color TVs are just the wrong metric in 2006. People can't give the old TVs away. Just check out the thrift shop and flea markets.

How about an ABSOLUTE TERMS METRIC like HEALTH CARE. How many working poor can afford insurance? How many just manage to squeak by until they get hit with an unexpected bill. Even those of us with insurance can quickly rack up a couple grand in health care costs for a minor accident hospitalization. $10,000 per day and 80% coverage means YOU OWE $2000. WTF can afford that on a minimum wage salary of $10300 per year?

What about schools? People get good school by paying high housing and transportation costs to live in a good district or pay private tuition. What about college tuition costs? What about transportation costs? The problem with the remarks of Mr Snow is that Absolute Wages have gone nowhere and Absolute Necessities like health care and transportation costs have skyrocketed. Have things gotten much better since the war on poverty provided all Americans with indoor plumbing?

Why can't the official poverty statistics be right? if costs of the basics have gone up and wages have stagnated?

[donna]

Republicans better hope the poor have their TVs, so they can keep "catapulting the propoganda" at them.

says...

"How about an ABSOLUTE TERMS METRIC like HEALTH CARE"

One quick comment. Life expectancy has been increasing so it is very hard to argue that Americans are getting less healthy and hence impoverished.

[Emmanuel]

I've done some research on Adam Smith as well. This quotation on necessities echoes the passage the Noo Yawker quotes, and is from his earlier work, "The Theory of Moral Sentiments," Part VI, Section I:

Though it is in order to supply the necessities and conveniencies of the body, that the advantages of external fortune are originally recommended to us, yet we cannot live long in the world without perceiving that the respect of our equals, our credit and rank in the society we live in, depend very much upon the degree in which we possess, or are supposed to possess, those advantages. The desire of becoming the proper objects of this respect, of deserving and obtaining this credit and rank among our equals, is, perhaps, the strongest of all our desires, and our anxiety to obtain the advantages of fortune is accordingly much more excited and irritated by this desire, than by that of supplying all the necessities and conveniencies of the body, which are always very easily supplied.

[yartrebo]

"One quick comment. Life expectancy has been increasing so it is very hard to argue that Americans are getting less healthy and hence impoverished."
- anonymous coward

This trend is likely to reverse within the next few decades. Life expectancy is already pretty much stagnant. Considering that medical technology continues to improve and our GDP to grow, this is evidence of a massive failure of our healtcare system and policies.

[bakho]

Health care costs are skyrocketing and low income Americans have a reduced life expectancy compared to wealthy Americans. Access to health care means a lot and lack of adequate pre-natal care is a big reason why infant mortality among the US poor is much higher than among the wealthy and ridiculously high for any developed country.

says...

"One quick comment. Life expectancy has been increasing so it is very hard to argue that Americans are getting less healthy and hence impoverished."
- anonymous coward

This trend is likely to reverse within the next few decades. Life expectancy is already pretty much stagnant. Considering that medical technology continues to improve and our GDP to grow, this is evidence of a massive failure of our healtcare system and policies.

- Democratic Guilt. Also known as: I can't keep with the Jones' so I whant uncle Sam to slow them down.

Since when do we have to give our names, address and SSN to post on a blog? Next time try to use your brain before you start calling people names.

[yartrebo]

You can at least post a nickname (which can be one-time-use) so that people can refer to your posts. I took 'anonymous coward' from the term Slashdot puts in place of your nick when someone posts anonymously. I like to give attribution to what I quote.

[john i]

"In over 5 years of Bushonomics, there has been ZERO mention of increasing the minimum wage"

Check the news, Michigan just increased their min wage today! Since different states have different needs, min wage should be altered at a state level. No one size fits all.

says...

Oh yeah, and doesn't Oregon have the 2nd highest minimum wage to Washington. And isn't the unemployment rate in Oregon like, in the top 3?

[ken melvin]

Some idiots have no pride.

says...

Not sure what Oregon has to do with it, but the u-rate there: 5.3% in Jan, 5.6% in Feb. Look at the breakdown and judge how much minimum wage is responsible for - doesn't seem to be much.

Not so bad, especially if workers there are guaranteed a higher wage than elsewhere.

says...

Ken, first I am writing from chicago illinois, not oregon.

2nd that's very unliberal of you to resort to name calling. well... at least theoretically.

[calmo]

See yar, it could have been anonymous sensitivity. Or anonymous indecisiveness. Or anonymous too-busy-ness. Or anonymous paranoia. You never know who could be taking these earth-shattering posts down.
First:
One quick comment. Life expectancy has been increasing so it is very hard to argue that Americans are getting less healthy and hence impoverished.
Then:
from yar:This trend is likely to reverse within the next few decades. Life expectancy is already pretty much stagnant. Considering that medical technology continues to improve and our GDP to grow, this is evidence of a massive failure of our healtcare system and policies.
back to anony:

- Democratic Guilt. Also known as: I can't keep with the Jones' so I whant uncle Sam to slow them down.

So bakho's post highlighting the difference between rich and poor did not resonate. I suggest you (everybody) read it again as I cannot improve upon it. [Did you mean to say 'Democrat'? -there are some Repubs here who wish only to be recognized as 'Bush-critical'.]
Last thing. This too is a no-brainer: using a tag allows us to distinguish you from other anonys who sometimes post here. We give them the same (get a tag) treatment just so we know who we're talking to.

[cl]

"Check the news, Michigan just increased their min wage today! Since different states have different needs, min wage should be altered at a state level. No one size fits all."

So John, what happens at the borders? It must suck if you compete with a McDonald's in the state next door and no one wants your job because you pay a dollar an hour less.

[cl]

anon said, "One quick comment. Life expectancy has been increasing so it is very hard to argue that Americans are getting less healthy and hence impoverished."

There are also other metrics to measure our health -- what about infant mortality rates? We aren't amongst the 30 lowest in the world, heck, even Cuba beats us. So does that somehow recommend our system of health care?

[cl]

anon said: "Democratic Guilt. Also known as: I can't keep with the Jones' so I whant uncle Sam to slow them down."

Confucius said: "In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of."

[cl]

John said, "No one size fits all."

So can we apply this to gay marriage laws as well? Can't Mass. have a different law than Va.?

[cm]

So a contemporary not-too-entry-level color TV cost less than, or about as much as, a single doctor visit that includes "how are you feeling", having your pulse and blood pressure taken, and stethoscopic inspection of your breath sound. For a slightly better TV, throw in a blood panel.

I'm glad nobody brought up cell phones.

[Ben]

cm - When was the last time you bought a used doctor's visit at a garage sale?

[cm]

Ben: You mean the current garage sale in Best Buy?

Philips 20" Flat-Tube TV
Reg. Price: $165.99 Sale: $149.39
http://www.bestbuy.com/site/olspage.jsp?skuId=6376575&type=product&id=1077624868589

OK, it's a tube, not a plasma, and it's only 20''. My first TV was something of that size. I could give you a larger model, but I chose "brand name" to make the point.

And I don't mean the copay or the insurance contract rate that the doctor is ordered to charge, but the list price. Have you ever looked at an actual bill? Sometimes they show both "list price" and "insurance adjustment".

Perhaps you can get a standard checkup for less than that, but I'm sure not in all areas.

[cm]

BTW, that's the one and only website I checked. I clicked on TVs, and went straight to the "under $200" section. No fancy stuff. And I'm being told Best Buy is not one of the cheaper stores.

[cm]

And in case any expert here points out the model I show is mediocre for the price, I'm hearing from all kinds of people that they are not much enthused about the quality of healthcare they receive either, and don't think too well of their respective medical providers.

says...

CL, MCD can absorb a dollar an hour increase in their wages they pay out, they have billions more. What about the small business owner who only has 100,000$ profit, or less. THen min. wage goes up, he will take a substantial hit. And its now harder to expand his business.

As for gay marriage, no, it should be federal law in favor of.

[John I]

I would rather get medical treatment in the US as a poor man than just about any other country as a rich man.

[Fluffy Economist]

I think Smith's point is most aptly clarified by Amartya Sen who described the late-20th century 'linen shirt' as the telephone (whether it should be mobile is another debate). The point is that Smith is defining poverty in relation to being able to participate in society. The relative poverty rate is therefore a measure of marginalisation from society. Why should we care about marginalisation? Just ask anyone in Paris's 17th arondissement in November last year.

[Fluffy Economist]

PS Thanks for the Smith quote, did you know you're the top link on google for 'Adam Smith' and 'relative poverty'?

[Fluffy Economist]

PPS John I - without any knowledge of your life history, I would make a fair bet that you have
1) adequate health insurance
2) never been treated in a hospital outside of your country

Have I guessed right?

[anne]

"I would rather get medical treatment in the US as a poor man than just about any other country as a rich man."

Oh dear, I suggest anyone will radically change this idea after finding a need for a doctor abroad in all sorts of lands :)

[panasianbiz]

I stumbled across your blog while I was doing some online research. This was an interesting discussion and quite thought provoking. I think most Americans would not describe themselves as "poor," yet most are struggling to make ends meet and worry constantly about paying bills. Is this denial?

[J-O]

what adam smith said is relevent today.