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Tuesday, March 28, 2006

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.

    Posted by on Tuesday, March 28, 2006 at 02:46 AM in Economics, History of Thought, Income Distribution | Permalink  TrackBack (1)  Comments (40)


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