Why It’s Tough to Place the Poverty Line

Using calorie consumption as its yardstick, Rwanda reported that its poverty rate had declined. During the past three years, they said that 600,000 people had exited poverty. As a result, the national rate dropped from 44.9 percent to 39.1 percent.

But maybe it didn’t.

The problem says one critic is they changed the statistical food basket on which they based their conclusions. After lowering the quantities of sweet potatoes, Irish potatoes and bananas by 70 percent, they compared the bottom line to past totals. With a lower threshold, naturally, fewer households fell beneath the line.

Where are we going? To the ways we can measure poverty.

The U.S. Poverty Line

Although the definition is a bit more complicated, let’s assume that any family that earns less than three times the annual cost of a nutritionally adequate diet is below the U.S. poverty line. Then, pointing to a paltry 4.4 percent decrease in the official poverty rate from the early 1960s to 2010 we could say we have lost the War on Poverty.

But, as you can see below, it is also possible that we are winning the War. It just depends on your yardstick.

From: “Winning the War: Poverty From the Great Society to the Great Recession”

Once we step away from the official poverty rate, the number of alternative measures is endless. For starters, we can choose between income and consumption. You can see from the green consumption curve below that the poverty rate has plunged:

From: “Winning the War: Poverty From the Great Society to the Great Recession”

Our Bottom Line: Measuring Poverty

As Nobel Laureate Angus Deaton tells us, to identify poverty we can select a money metric or a utility yardstick. But then, as we look at aggregate income, consumption or non-monetary variables, a slew of dilemmas surface. We not only have to decide what to include as income or consumption or non-monetary measures but also to resolve whether a poverty line should depend on relative or absolute numbers.

And, as Rwanda and the U.S. demonstrate, our metric will shape our conclusions.