Thursday, September 14, 2006

Economic well-being and how to avoid poverty

Another excellent article by David Henderson, this one on economic well-being and the implications of the 2005 income data from the US Census Bureau.

In many countries the official definition of poverty is set as the bottom 20% of society -- the lowest of the five defined quintiles within the census data. The "value" at which poverty exists is, in turn, established by the level at which the lowest quintile is defined. In this manner, "poverty" always encompasses the lowest 20% of the population and while the income level at the top of that quintile may rise, official poverty is set by definition at 20%.

By definition, the lowest income will always be zero and as such it is a myth to suggest that the poor are "getting poorer": zero remains zero. However, the level of the uppermost quintile has no limit. Thus, in a prosperous society it is to be expected, and desirable, that the level at which the top quintile is defined should increase. But since the base remains at zero, any growth in an economy can be expected to increase the "gap" between rich and poor.

Because of these probabilities, Henderson points out that what is of greater interest is what the census data themselves reveal about the various quintiles and the composition of the households they represent. What the census numbers show is that the highest quintile has the highest percentage of married, dual-income households in direct contrast to the unemployed, unmarried households prevalent in the lowest quintile.

The numbers are clear:

'that staying out of, or getting out of, the lowest quintile is not rocket science...if you want to have an extremely high probability of avoiding the lowest quintile, get a job, ideally a full-time job, and live with someone who has a job'.

This is not an area where we need to keep defining the problem. As Henderson states, we do need to read the data fully and properly. And we do need to focus on defining solutions to further facilitate the passage out of poverty for those who seek to leave. Employment opportunities, stable family environments and a sense of community. Politically, the divisions arise in the approach to these solutions. Sadly, too many within politics care too little about the people for whom policies are designed and rather too much about their own stature as the designers, controllers, planners and/or managers of those policies.

Goethe: what is the best government? That which teaches us to govern ourselves.