If Poor People Make Bad Decisions, They Are Still Poor

Adam Smith. Photo: Istockphoto.comI received a fair amount of blow back for suggesting that even rioters with Blackberrys can be poor. The usual suspects at Liberal Conspiracy also waded in. Most of the comments ignored my main point. Owning something that sounds expensive but is in fact relatively cheap does not mean you are not poor.

It is very difficult to talk about poverty without talking about relative poverty. Absolute poverty is defined at around $1-2 a day. That translates at around £1 a day for food, water, shelter, clothing etc., which is pretty meagre. Most beggars on your average British street could raise that from the pity or generosity of a passer-by. Absolute poverty in an international sense does not, in fact almost can not, exist in this country.

Recalibrating an absolute poverty line which makes sense for the UK is a difficult job, the £50 a week you receive as a Job Seekers Allowance might work. You would certainly feel in poverty if that is all you had to live on, but it would place you well above a couple of billion people worldwide, some of whom would probably resent being called poor. Except to an almost impossibly cosmopolitan libertarian, a single global poverty standard doesn’t make sense. It doesn’t pass the sniff test.

So relative poverty seems like a sensible way to push forward with understanding poverty within a country, even if the current definition sounds too generous to some. An income below 40% 60% (update, see comments) of the median wage is deemed poverty in the UK, perhaps 30% of 20% would be more accurate. The Joseph Rowntree Foundation suggest a minimum income standard of 53% of the median, by my calculations. But whatever standard we settle on we need an additional proviso.

Poor people will occasionally make bad decision, but this doesn’t mean they stop being poor.

I don’t want to put too fine a point on this, but perhaps one of the reasons someone is poor is because they have made bad decisions in the past. It is well documented that the poor around the world often throw parties when they should be saving towards old age, spend “too much” on weddings, they enter lotteries with negative expected payouts. Poverty is horrible and making bad long-term decisions for short-term relief is a signal of being in poverty, not of escaping it. Being human shouldn’t debar you from that most human of conditions, poverty.

Laban was the only one to really say something useful. He informed me that because he is not well off he runs an old Nokia on a £5 a month contract, and good on him too, I love my old Nokia. Sardonically Laban then recommends that “[p]erhaps we have to recalibrate our definitions of poverty to ensure that those who can afford a Blackberry qualify.” *Slow Hand Claps*

That is just the point I was making, we don’t need to recalibrate our definitions of poverty, Blackberrys are relatively easy to afford. Where I grew up the difference between a poverty-busting £10.50 Blackberry inclusive contract from Carphone Warehouse and Laban’s staid, parsimonious £5 a month is about 1 1/4 return trips by bus into town. Now maybe I should be taking 5 extra trips every 4 months into town to job hunt if I am poor, but that sets up a very thin paper wall between being poor and not being poor. Once again it doesn’t pass the sniff test.

No discussion of this can conclude without reference to Adam Smith, so I’ll let him conclude:

“A linen shirt … 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-labourer 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.”

A Blackberry is not necessary of life, nor is it necessarily shameful to be seen without one. But some form of telephone is, especially for the temporary, transitory work of many of those seeking to escape poverty. Spending not £5 but £10.50 a month might not be the best option, but it is a small, permissible, slip at worst. I hold pretty much everything I’ve written in this post and the last on poverty to be self-evident once you’ve spent more than 10 minutes thinking about it, what am I missing?

7 thoughts on “If Poor People Make Bad Decisions, They Are Still Poor

  1. There is a paper called The Economic Lives of the Poor, by Banerjee and Duflo, free I think from Journal of Economic Perspectives, and now i think of it, a book too. This shows even people living on $1 per day spend a surprising amount on unnecessary things like big weddings. Surprising, that is, until you think about what it’s like te be poor and how you’d still want a life with some extravagances in it.

  2. I think you may overstate the cost of running a Blackberry.

    If you obtain a device (by fair means or foul) without a contract attached and only use BBM it should be virtually free to use.

    1. Ah…….hahahahahahahahahahaha.

      Sometimes I think I should stop blogging and make FR my spokesman on all matters.

      In fact, with respect to current UK foreign policy that is what I’ve done.

      Thanks for the link.

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