DAVID GREENE, HOST:
We've marking the anniversary of the war on poverty, declared 50 years ago by President Lyndon Johnson. Today, more than 46 million Americans are still poor.
The government has a complex formula for defining poverty. Financial writer Tim Harford says roughly, it means a single American making less than $30.52 per day is considered poor. Harford has a new book out this week. It's called "The Undercover Economist Strikes Back." He describes how difficult it is to define poverty.
TIM HARFORD: In the United States, the definition is an idea of absolute poverty. And what that means is we're looking at how much money you need to support a particular standard of living, to buy a certain number of calories, a certain amount of vitamins, to buy a certain standard of housing.
HARFORD: And how much does that cost? And somewhat controversially, that is based on a basket of goods that was worked out by a researcher called Mollie Orshansky over 50 years ago, and while the prices have been tweaked, what's in that basket of goods hasn't been tweaked at all.
GREENE: It's things like potatoes, right? I mean, how many potatoes you can afford to buy.
HARFORD: Yeah, potatoes, onions. So it's actually based on food, and then there's a rule of thumb that says if this is how much the food costs then you need another allowance for accommodation and for clothes and so on. It's all about the basic standards of living, but it doesn't incorporate any changes in the economy that have happened since the early 1960s.
GREENE: OK. So it's adjusted for the change in prices in objects, like potatoes. The problem is it doesn't include things like cell phones, televisions. Which leads to something that you write about in the book, and that is that poverty can really be a social condition. Explain briefly what you mean by that.
HARFORD: Well, this goes back to Adam Smith writing in the late 18th century. And Smith said that a man would be ashamed to appear in public without a linen shirt. And then he pointed out that, you know, the Greeks and the Romans - even the emperors - didn't have linen shirts. His point is that poverty is partly about not having enough money to buy what society expects you to have. And if you don't have enough money to meet those social expectations, people will think of you as poor and you will think of yourself as poor. That's not to say that poverty is totally relative, but it is saying it's subjective - it's a social condition. And he's got to be right in some fundamental way about that.
You're really tapping into something fundamental about what we mean when we say that somebody is poor.
GREENE: It's important though, I mean you certainly don't need a television or a cell phone to survive. But you're saying today, you know, just being able to afford potatoes might not put you in the social place you want to be.
HARFORD: Yeah. Absolutely. It's about more than survival. It's also about: Can you participate in social conversations? Are you ashamed to be seen in public or not? And, of course, there's some controversy as to whether that sort of thing should count for the poverty line or not.
GREENE: What role does inequality play as we're looking at things like poverty and the state of a country's economy?
HARFORD: Well, poverty and inequality are connected. Income inequality is just some kind of measure of the gap between the rich and the poor. And it's very contested because there were just so many different ways to think about it. Are you comparing the very richest to the very poorest? Are you looking at the assets that people have? Or are you just looking at their income? What we can be reasonably confident of saying is that inequality has been rising.
GREENE: And what is the damage - if any - that can be done to a country and its economy when there is a lot of inequality?
HARFORD: Yeah. Why should we care, I guess is the question. So one reason that you might want to care is just to say well, someone who is on the bread line, they could use the dollar much more than someone who is a millionaire.
HARFORD: And I think that's pretty intuitive. Whether inequality really damages a country as a whole is less clear. I think the main argument that it's a problem is that it starts to corrode your political system. As you get fewer and fewer people with more and more money who were able to have a disproportionate influence on political priorities through their campaigning, their lobbying, they're political donations. And if that happens, then you're moving further and further away from the ideals of a democracy.
GREENE: One thing that you wrote about that really struck me. You said that people who are looking for a job when an economy is not doing well, there can be a lasting impact on that person for many years in their career and in their life. What do you mean by that?
HARFORD: What we've discovered is that if you graduate during a recession, that could be a problem for you for five years, for 10 years, even after the economy has recovered because what's happened is you've had to make compromises, you've had to take a career that really didn't suit you, and now you're starting to build up skills and contacts that this was never what you plan to do. And that's absolutely down to bad luck, bad timing.
And the second issue is that if you are unemployed for a long time, you start to be very, very difficult to employ. So, there was a fantastic study done quite recently, where a student called Rand Ghayad, mailed out resumes. And he tweaked these resumes. So some had loads of relevant experience and some didn't have relevant experience. Some had recent employment and some were long-term unemployed. And what he found was the employers cared more about whether you had recently had a job than they cared about whether you had any relevant experience or not.
GREENE: Even if you didn't necessarily have skills; if you had a job recently they might hire you over someone with the right skills but who has been out of work.
HARFORD: Absolutely. These are people who could work, who want to work, who have the skills to work, and yet employers don't want to give them a second glance. Big problem.
GREENE: Tim Harford is the author of "The Undercover Economist Strikes Back: How to Run or Ruin an Economy."
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