Poverty is the Problem - Not Income Inequality
October 2013 - By Steve Gillman
The idea of poverty is often linked to income inequality,
but this is misleading. By itself, it isn't necessarily a bad
thing for some to be richer than others. If, for example, everyone
in a country has decent shelter and food and their basic medical
needs taken care of, how could it hurt us that there are some
people with millions or even billions of dollars? In fact, as
economists will point out, the ability of some to make millions
can help create an economy where virtually all people can meet
their basic needs. Many western nations provide at least partial
examples of this.
We should keep in mind that poverty is a relative term. In
some countries the rising of income past $2 per day is considered
the end of poverty. The poverty level in the United States, by
contrast, is about $22,000 annually for a family of four, the
way the government figures it. This works out to about $15 per
day per person. It is hard to live on that amount here,
but this poverty is nothing like that of sub-Saharan Africa.
It seems likely that whatever level of wealth a nation reaches,
those with the least income will still be called poor. True poverty
should have a more functional definition, rather than an income
level definition. Not so long ago (around 1998 to 2001) I was
living on about $8,000 per year, but I lived well, so I wasn't
poor. I had a home, food, and medical care when I needed it.
I even traveled quite often. Having all the basics of life, I
certainly didn't care that there some who had millions of dollars.
It didn't hurt me in any way. In fact, since I hoped to have
an above-average income at some point (as my wife and I did for
several years after that), I didn't much like the idea of wealth
redistribution. Income inequality just isn't a problem if people
are well and envy isn't running rampant.
In any case, income equality can be less of a solution to
real poverty than people might think. Consider a country like
Haiti, where if all the income was divided equally everyone would
still be making less than two dollars daily. Clearly the distribution
of income is not the primary problem there. The total amount
of income and wealth in the country is the issue that needs to
be resolved. They need far more income before their poverty can
be reduced much.
On the other hand, if there is a large gap between the rich
and poor and the poor are really poor, this is a problem on several
First, extreme poverty is a life threatening condition. In
my mind, despite my tendency towards free-market ideas and belief
in the value of (conditional) property rights, this kind of poverty
justifies redistribution of wealth from rich to poor. If you
think for a second about what you would do if your daughter was
starving and the rich people next door were partying and enjoying
a banquet -- and you had the opportunity to take a bit of that
food -- well, then you understand the principle, which might
be stated as plainly as this: Life takes precedence over property
rights. And what is true on a small scale is usually true on
a larger scale.
Second, as you imagine stealing your rich neighbors food to
save the life of your daughter, you can see another problem inherent
in income inequality when the poor are really poor: It is bad
for the rich as well. In fact, when my wife and I travel to some
parts of South America, I often ponder the costs of all the glass-and-metal-spike-topped
walls that surround every middle class home, and the iron bars
on almost every window. Somebody's daughter is always hungry
in some countries, and because of that the people have to pay
for walls and other security measures.
But the costs to the middle class and rich of having extreme
poverty a few steps away is more than just financial. It is common
to roll up car windows when traveling in the poorest areas, for
example. It is dangerous to take a walk in many areas, especially
if your clothing shows that you are not poor. Wealth in the midst
of that kind of poverty doesn't buy you the easy-going lifestyle
we can enjoy in many western societies.
Finally, in addition to the suffering of those who are in
extreme poverty and the costs and inconvenience that this creates
for the middle class and wealthy, there is a more general economic
argument for alleviating poverty. It is that we may all be better
off when none are extremely poor. We gain not just safer, more
stable societies when we eliminate poverty, but we gain wealth
How can being taxed to help the poor help the rest of us?
A look at some simple examples will help explain. Consider an
isolated community in the Appalachian Mountains four generations
ago, or one in the Andes Mountains today. The people living there
may be poor in large part because of a lack of basics we take
for granted, like electricity, running water and decent roads
If the government taxes us to provide those things for the
poor there, the local economies may grow dramatically. Farm produce
and other products can now be brought to market. Industries can
be started because of the electricity. Under-employed people
have work and can be far more productive. It is easy to imagine
that in some such cases this one-time investment can yield not
only great benefits for the people helped, but also future tax
revenues (based on the increasing incomes) that more than repay
The bottom line is that there is a great benefit to all of
us when all do well. The poor are a poor market for most goods
and services, but when their incomes rise things can be sold
to them and they can sell things, starting with their labor.
All you have to do to see the logic of this is to imagine a store
in a town where most are unemployed or underemployed, and a dollar-per-day
is the average income. It would be hard to make a profit. Let
that store represent the rest of us in the economy (in the form
of businesses and their employees) and you can see why we would
like those people to be making ten times as much money.
We are all wealthier in the long run when everyone can participate
fully in the economy and meet their basic needs. In some parts
of the world unemployment is higher than 50%. Just think how
much better off the country -- and all its citizens -- would
be if all those potential artists, store-owners, business women,
and laborers were part of the economy.
Governments have a poor record of doing the right things when
it comes to helping people help themselves. Unfortunately, much
of what is done to alleviate poverty can also help perpetuate
it (grain donations in poor countries have been known to destroy
local grain farms, for example, by lowering the price below the
cost of production). But this doesn't mean that nothing good
has ever been done by governments, nor does it mean that we can't
push for those policies that actually help both in the short
and long term.
Income inequality does matter in countries with extreme poverty.
A bit of redistribution can alleviate it not by making the rich
poor, but by raising the incomes at the bottom and improving
the economy as a whole. It just has to be done wisely.
A Few More Notes About Income Inequality and Redistribution
I like to remind my liberal friends that all tax revenue and
law in general is accomplished by force. I do not pay taxes voluntarily,
but pay because men with guns will come if I don't (I would not
support the many wars and other nonsense my money is spent on
if I had the choice). With this in mind we should be very careful
about what programs we advocate and about law making in general.
I like to remind my conservative friends that they too believe
in "sharing the wealth," just in different ways and
degrees. None of them advocate ending public schooling or Social
Security, both of which are redistribution schemes (the latter
because the money paid out is taken from current taxpayers, not
prior investments, which were never made). And they never seem
to complain about the vast welfare programs for the wealthy and
large corporations (you can read more about that here: Redistribution
to the Rich.)
Finally, income inequality, while not necessarily a problem
in itself, is worth looking into when it is growing more pronounced,
as it currently is in the United States. You have to wonder why
the economy is producing more than ever, with productivity per
employee more than doubling in forty years, while those employees
make less now (adjusted for inflation) than they did forty years
ago, and the richest few percent are five times as rich. Much
of that is tax policy, which has directly and indirectly shifted
more and more of the cost of government onto the shoulders of
the poor and middle class and has made it more difficult for
people to increase their income through small businesses.
But that is a topic for another time. For now I will repeat
my proposition that income inequality is not the same as poverty,
and that the latter can be alleviated is wise ways that benefit
all of us, and even reduce that inequality at the same time.