Relative Poverty

I have always wondered what the poverty industry would do if somehow poverty was cured. It would seem to create a new class of poor people being those who relied on poverty amongst others for their jobs. I recall years ago working in the remote north and having an associate tell me in the village we were to visit, there were 2,000 people. 1,950 depended on welfare and the other 50 relied on people who worked at the welfare office.

A huge overstatement, but you get the point. Some people need other people to be poor for their own living.

Conventional polarization

We often see chatter about the 1%. It is invariably related to assets or income. Those metrics have one advantage and one disadvantage.

  • They are measurable and therefore useful
  • They do not clearly relate to poverty.

Strangely if you double everyone’s income and wealth the number of impoversihed people remains the same.

You see, the poverty beneficiaries have a more flexible definition of poverty. You are poor if in the bottom quintile of the population by income.

There will always be “poor” people. They are statistics alone.

Does wealth define poverty.

To a point yes. But beyond that point not so much. Where is that point?

To decide we must define poverty in terms of lifestyle instead of money. Money buys lifestyle, but it is not a linear relationship. If a person with $10 million buys a superior steak for $50, does Bill Gates, worth $90 billion, buy one for $450,000. Proportionally the same, but ridiculous. Maybe Bill likes Kobe beef and would pay $200. For all I know he prefers hamburger.

The best clothing costs more, but not thousands of times more. A decent suit might cost $1,000. Armani maybe 10 times that.

Wealth and lifestyle are non-linear.

What should we mean by poverty?

I think people without adequate water, shelter, food, healthcare, education, transportation, communication, recreation, safety, and the predictability of those, are poor. The problem is how you define adequate. If we decide adequate transportation means a Gulfstream 550 instead of a nearby bus stop, we have a problem. I used to think a car was the ideal, but have found in larger cities, they are as much a liability as anything.

Should we consider quantity as well as quality. Does anyone need 150 pairs of shoes? Take a little time and learn about marginal utility. The 150th pair is not worth as much to you in terms of satisfaction as the first pair was. How good must champagne or single malt whiskey be before any further improvement is not differentiable.

I think we should pay attention to people who are not meeting the standard for living well enough and less to the politically advantageous poverty definitions. Many in the third world cannot meet the standard, but there are far fewer of them than there were even 40 years ago. Do we expect the trend to continue in their favour. Most certainly.

Wealth changes

A society that provides a stable lifestyle supporting infrastructure is durable. That structure requires people to have choices.

Choice is the antithesis of political wisdom today. Politicians love polarity. Class envy is a powerful vote getter. If you listen to them you would think the 1% all had jets and yachts. I don’t know what the number is here, but $350,000 of annual income would place you solidly in the top 1% in Tennessee.

A question. Who was Daniel K. Ludwig?

From Forbes in 2002

“Does the name Daniel K. Ludwig ring a bell? He was a shipping magnate who, at 85 years old in 1982, was number one on that year’s list of high wealth, at $2 billion. He died–much lower, thanks partly to his charitable donations–in 1992. Indeed, no one among the top 20 on the 1982 list is similarly situated this year.”

Did you notice that? None.

It is interesting to see how great wealth goes away while the average lifestyle improves. Maybe we should focus on that instead of envy.

Lifestyle

Think through lifestyle. I suspect that a middle class income today would put you, in terms of lifestyle, ahead of John D. Rockefeller in 1900. I am reasonably certain my cell phone is better than his. Similarly my car, my microwave oven, my gas appliances, and my television. His internet service was very slow. Information used to be relatively more valuable than it is now.

Wealth is only a useful description in terms of what it will do for you. Today, a capable lifestyle does not require great wealth.

Be sure people with a limited lifestyle have the opportunity to improve it. Objectively improve it. Not relative to others. Relative lifestyle is fuel for polticians and provides no good to any of us.


I help business owners, and professionals understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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