Measuring Poverty: How and Why

My son Cameron’s girlfriend, Luisa, is doing an undergraduate thesis at Carleton on Peru’s asset-based measure of poverty – and why it doesn’t work. She’s applying to graduate programs to look at what Mexico is pioneering – a more multi-faceted measure developed by the UN. Talking to her has gotten me thinking about how we measure poverty and thus, who gets aid.

Peru measure poverty with an asset-based index, i.e. by how many physical goods a family owns. If a family has a television or an armchair, they are not as poor as a family that doesn’t — even if the TV is used to babysit the children while the parents take sporadic shifts at the tourist hotel or the armchair was inherited from a grandfather.

Other countries use annual income. But the fisherman Luisa interviewed in Peru this past summer didn’t know their annual income. Their catch varied wildly from day to day and they had never totaled their earnings over a year. Even if we were able to measure income, neither assets nor income take into account safety, health, access to education, or a consistent income.

Angus Deaton of Princeton won the Economics Nobel last month for his work to improve data that shape public policy, including measures of wealth and poverty. In his presidential address to the American Economic Association in 2010, Professor Deaton criticized some popular poverty measures, such as the count of people living on less than $1 a day. He encouraged increased reliance on surveys of individual household circumstances.

Ironically, Luisa’s anthropology professors recommended she conclude that poverty is so multi-faceted, it can’t be measured. Thankfully, Luisa – and Nobel Prize winners like Deaton – are trying.

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