Power & Market

Critiquing the Dollar-a-Day Idea of Poverty

The first year of this decade has given us time to pause and think about how the world stands in terms of global development. One widely used statistic to examine development, which shall be called the “dollar-a-day” idea, measures the idea of poverty in an all too narrow manner. For this article, we will examine the limitations of this metric, as well as implications of a theoretical notion by John Maynard Keynes that predicted poverty would end by 2030.

A Brief History

In an online lecture series based on his book, The Age of Sustainable Development, author Jeffrey Sachs puts forth the idea that poverty could be a thing of the past by 2030. For this, he draws upon a musing from John Maynard Keynes, where the father of modern macroeconomic theory wrote in 1930 about how poverty would end in the span of a hundred years. This view of poverty is associated with material wealth: John Maynard Keynes was, after all, a privileged Englishman in his day.

In this day and age, Jeffrey Sachs links this to the idea of extreme poverty being eradicated by ensuring that every person in the global population lives over the international poverty line, as dictated by the World Bank. This same poverty line was conceived in the 1990’s as a threshold of living off a dollar a day, or equivalent. There are, however, some problems with using this standard as the single benchmark for ending poverty within the next decade.

The Dangers of This Definition

The first problem is that the dollar-a-day measure is based on an idea that is now three decades old. It is pegged to the currency of one economy, and, as some would argue, is still too low to be contextually appropriate in all cases. Should we still take this measure at face value?

There have been attempts to continue adjusting and salvaging the metric to suit the needs of today, such as drawing other thresholds to factor in inflation at $1.25, $1.90, or even rounding up to $2 a day, or by calculating against purchasing power parity for local currencies.

That said, there have also been great strides made in development studies since the 1990s, especially in the qualitative sense, to get a better and more holistic idea of poverty than by simply having a dollar a day, two dollars a day, or whatever other variation of this idea is being used, to dictate definitions of poverty.

Speaking of simplicity, that is the second problem. One appeal of the basic income approach to development is that it allows for easy, though sometimes arbitrary, ways to set simple standards to determine if someone is in poverty or not, just by picking a threshold and looking at what they earn as income. For example, if you happen to be earning and living off $2.00 a day as your basic income, then you are not considered to be poor by the dollar-a-day metric, end of story.

This idea has also formed the basis for national governments to form and create other simple metrics to set their own standards of poverty, and to enact policies that attempt to raise the standard of living for their citizens. However, the actions of citizens, influenced by local culture, personal subjectivity, and other factors, often reveal to us that such policies are inadequate relative to what people actually perceive as in their needs in life, which necessarily include more than just having money.

As a metric, the dollar-a-day measure is, pardon the pun, quite poor: indeed, it is argued that poverty statistics do suffer from a certain poverty, as posited by Don Mathews. The whole experience of poverty, and even the value of human life itself, cannot simply be captured and depicted in numbers and statistics. This is the third danger of defining poverty in such a manner.

The temptation to define poverty solely by income ignores other, deeper, and more complex issues related to it, such as the need for freedom and inclusion in society. Does having a dollar a day also mean that one’s personal rights and liberties are respected? Or that one is happier with life, and not in a fleeting sense, but in a sense of lasting happiness? If not, then one continues to be in poverty and unfree as well, even if the number imposed on them says that they are no longer poor.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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