Poverty should not be entrusted to economists

Robert McNamara was Defense Secretary of the US when President Lyndon B. Johnson started the "War on Poverty". Inspired by this experience, as president of the World Bank, McNamara began in 1973, a global fight against absolute poverty, which he promised to eradicate "by the end of this century."

Years later, Republican President Ronald Reagan mocked his Democratic predecessor saying that "LBJ declared war on poverty ... and lost ". The same can be said of McNamara. Forty years after this global war started, the World Bank now marks 2030 as the date for completion.

To avoid the embarrassment of another defeat, on top of decades of delay, the Bank seems to be lowering the bar that measures progress. McNamara drew the line of absolute poverty at 30 cents, or its equivalent in purchasing power of each national currency.

Adjusted for inflation, those 30 cents would amount to $ 1.60 in today's dollars, but the new line is set at $ 1.25. This money is no longer enough for "the elimination of malnutrition and illiteracy, the reduction of infant mortality, and the raising of life-expectancy standards to those of the developed nations" as McNamara wanted, but just to keep a person from starving, which is the new definition of "extreme poverty".

According to the World Bank's own projections, if current growth rates are maintained and inequality does not get worse, there would be a 90 percent chance of achieving this goal by 2015. The message to the governments of the world is that nothing needs to change to win this war.
Why are the bells not ringing? Where are the fireworks celebrating that humanity is (or will soon be) finally free from want?

People are not rejoicing around the world because the poverty measured by the Bank under a fixed line, that does not move as people rise above it, is not the poverty that the public perceives.
"By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without...” wrote Adam Smith, the founder of modern economics, in the eighteenth century. Smith included a pair of leather shoes and a linen shirt among those goods that "the rules of decency" had made essential, even when in ancient times the rich paraded happily in toga and sandals.

Smith argues that poverty is relative, but neoclassical economists who proclaim themselves as his followers are now supporters of an "absolute" poverty line. According to Martin Ravallion, who crunched for more than a quarter century the poverty estimates of the World Bank, "those who argue that globalization is good for the poor tend to be overtly 'absolutist'."
But ordinary people are 'relativistic'. Since 1949, the Gallup Poll has been asking Americans. "What is the smallest amount of money a family of four (husband, wife, and two children) needs each week to get along in this community?" The average amount goes up systematically, year after year, in proportion to national income.

That means that if the $1/day line was correct in 1990, this line should now be located far above the two dollars, as the world per capita income has more than doubled between 1990 and 2010. Those who live on less than two dollars a day are currently more than half of the world's population. To eradicate this poverty is still possible, because the average global income now equals about $ 30 per day per person. But wealth is very unequally distributed and to fight against relative poverty does require major changes in societies.

Gordon Fisher, a leading statistical experts from the US Department of Health, has analyzed the evolution of the poverty lines in a dozen countries and his conclusion is that they all moved historically in proportion to income. In 1938, Carroll Daugherty explained that "a standard budget worked out in the [1890's], for example, would have no place for electric appliances, automobiles, spinach, radios, and many other things which found a place on the 1938 comfort model. The budget of 1950 will undoubtedly make the present one look as antiquated as the hobble skirt."
Paradoxically, the advocates of globalization celebrate the speed of technological change it brings, on the one hand, and on the other insist to count as "not poor any more" those who exceed a fixed line of minimum consumption, which is less and less in relation to total consumption.

Fisher observes that  “before about 1965, the people who developed (and studied) poverty lines were largely advocates of the disadvantaged rather than theoretical social scientists; they included social workers, employees of state bureaus of labor statistics, labor union representatives, home economists, and employees of federal social agencies, with economists being only one of a number of elements in the mix. However, that situation changed with the beginning of the War on Poverty in 1964. Poverty studies became a distinct field as such, and economists began to get involved in poverty line studies in large numbers. People who had been involved in poverty line studies during the earlier period gradually retired and/or died. As the earlier groups were gradually replaced by economists, it appears that the history and traditions of the earlier groups tended not to be transmitted to the newcomers. As a result, much of the knowledge about the income elasticity of the poverty line was lost to those who are now studying poverty lines.”

La guerre! C’est une chose trop grave pour la confier à des militaires. (War is too serious a matter to entrust to military men) famously said French Prime Minister Georges Clemenceau during World War I. Maybe poverty is, similarly, to serious a matter for economists.

By Roberto Bissio.