Experts have trouble measuring world poverty

March 3, 2005

Free Market Foundation

Measuring poverty is difficult for one country, let alone the entire world, says economist Alan Krueger writing in the New York Times. Such an analysis suffers from two major drawbacks:

Arbitrariness: While not having enough money means not having enough food for many families, there is no particular threshold level of income above which people automatically become fully functioning, nourished members of society.

Political bias: Initially set to minimum standards of food consumption, poverty lines have been adjusted to keep pace with overall inflation not the price of food or the share of food in the average family’s budget.

Kruger notes that despite straying from its original conception, the poverty line has survived due to its political and administrative usefulness.

The United Nations has set the line for extreme poverty as living on less than $1 a day. But due to difficulties in converting to foreign currencies, this threshold is best viewed as an approximation:

Currency exchange rates are inappropriate because most of the items the poor consume are not traded on world markets.

Indices that reflect the cost of buying a standard bundle of goods in each country are not always available and are often skewed toward representing purchases of the wealthiest families, not the poorest.

Source: Alan B. Krueger, U.N. Aims to Cut Poverty in Half as Experts Wonder How to Measure It, New York Times, February 3, 2005.

For NYT text (subscription required): http://www.nytimes.com/2005/02/03/business/worldbusiness/03scenes.html

For more on Wealth and Poverty: http://www.ncpa.org/iss/eco/

FMF Policy Bulletin/ 22 February 2005