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Quotation of the Day…

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… is from page 6 of the late, great Wesleyan University economic historian Stanley Lebergott’s insightful 1975 book, Wealth and Want [2] (footnote deleted):

The first way to increase poverty in the United States follows fairly obviously from that definition [of poverty as material deprivation relative to the norm in society] – namely, to increase the standard of living. Raise the consumption level of the typical American and you create more poverty. When Ford invented the auto he created poverty. When Zworykin invented TV he created more poverty. Raise the standard decade after decade and you create more (relative) poverty even while you are wiping out the old-fashioned (starvation) kind of poverty. “Solely as a result of growing affluence, a society will elevate its notions of what constitutes poverty.” (So reports the President’s Commission on Income Maintenance.)

DBx: Defining poverty relative to the ‘normal’ standard of living in a society is natural. Even Rev. Malthus defined poverty in this relative way. And there is nothing inherently objectionable in doing so. Yet doing so creates a danger – one that Lebergott exposes brilliantly: defining poverty relative to a society’s ‘normal’ standard of living risks leading us to underestimate a growing economy’s actual performance. (The flip-side: defining poverty in this relative manner causes the performance of a long-term failing economy to be overestimated.)

Lebergott above sought to warn against this underestimation. His point, of course, is that if the standard of living by which poverty is judged rises this year because, say, the masses gain access to electronic devices that on January 1st wowed everyone as miraculous and luxurious but which by December 1st underwhelm everyone as mundane and necessary, the rate of poverty can rise if some lower-income people remain this year unable to afford these devices. No one need get absolutely poorer – and many, including even many of the poor, can get absolutely richer – and yet the reported poverty rate can nevertheless rise.

Sensitive-souled pundits will then complain in the pages of the New York Times, of the Washington Post, and of Vox of capitalism’s “failure.” Accusation-and-slogan-slinging politicians will spring into action with promises to “fix” the “problem.” And the proposed “fix” will invariably involve seizing large chunks of the earnings of the individuals whose entrepreneurship and business acumen created the electronic devices and who, through competitive markets, made these devices so useful and inexpensive that most people not only own one, but cannot imagine living without one.

And so it goes.

But in fact even Lebergott underestimated the productivity of what Deirdre McCloskey calls “innovism”: Despite using a relative definition of poverty, the rate of poverty in the U.S. has nevertheless fallen as living standards rose, at least compared to when I was born. Today, the U.S. poverty rate is about half of what it was in the late 1950s. [3]