Could you live on the international poverty line?

I’ve heard that to live in poverty, you have to make im­pos­si­ble de­ci­sions. For ex­am­ple, will you feed your son, al­low him to starve so that your daugh­ter can at­tend school, or take your mother to the doc­tor at the ex­pense of both? The In­ter­na­tional poverty line should help us to re­late to this kind of challenge. How­ever, US$1.25 seems like an im­pos­si­bly small amount of money to live on. So what can you truly buy on the in­ter­na­tional poverty line, and how is this line de­ter­mined?

The in­ter­na­tional poverty line is de­ter­mined by the World Bank, and is Pur­chas­ing Power Par­ity (PPP) adjusted

In 80% of cases, the World Bank calcu­lates a lo­cal poverty line us­ing the cost of ba­sic needs method (1). That is, they find the price of a food bun­dle con­tain­ing the daily en­ergy re­quire­ment and add ba­sic non-food ex­penses like ac­cess to shelter and fresh drink­ing wa­ter. In In­dia, where one third of the world’s poor live (2), this gives a poverty line of 18 Ru­pees (3).

18 Ru­pees are only worth 41 cents. How­ever, as you will know if you are a trav­el­ler, this amount of money will buy more gro­ceries in In­dia than back home. This is why the Bank performs a PPP ad­just­ment. Across a wide range of goods, they com­pare the prices of iden­ti­cal items in each coun­try, in this case the US and In­dia. Since these items cost three times as much in the US, the in­ter­na­tional poverty line is scaled up from 41c to $1.25. The gro­ceries that you can buy for $1.25 have same value as 18 ru­pees of In­dian gro­ceries. So this low figure of US$1.25 is not just a trick of differ­ent pur­chas­ing pow­ers.

Liv­ing on $1.25 in the US would be hard

$1.25 of US gro­ceries will have the same value as 18 ru­pees of In­dian gro­ceries. How­ever, they still may not con­tain enough en­ergy. To illus­trate this prin­ci­ple, sup­pose you bring $1.25 to the cheap­est su­per­mar­ket you can find. Even there, the rice on offer is valuable for its fibre con­tent. The beans are valuable be­cause they are or­ganic. Th­ese in­flate the cost of the gro­ceries, but they don’t help you. Your $1.25 of gro­ceries – lux­u­ri­ous though they may be – may not meet your daily en­ergy re­quire­ments.

There is no straight­for­ward way for the World Bank to cor­rect for the vari­a­tion be­tween these economies. The PPPs com­pare items from the en­tire cross-sec­tion of each na­tion’s spend­ing; they do not fo­cus on the pur­chas­ing of the poor­est in­di­vi­d­u­als. A mea­sure based on the con­sump­tion of the poor, called a Poverty Pur­chas­ing Power Par­ity, is very use­ful for com­par­ing de­vel­op­ing na­tions. How­ever, it can­not be re­li­ably ex­tended to the US be­cause no one there is poor on the global scale. “There are no poverty line weights for the United States be­cause no one lives at that level” (4), say World Bank au­thors Deaton and Du­priez. To im­prove on the $1.25 figure, and truly un­der­stand poverty in terms of our own cur­rency, we would need to start over with the cost of our ba­sic needs.

On av­er­age, food ex­penses make up 56% of the in­ter­na­tional poverty line (5). Will this hold true for those liv­ing in the US? Well, we know from Live Below the Line that $1.50 of food is barely enough to sur­vive. This could eas­ily blow our bud­get. For­tu­nately, as Will McAskill points out, there is a ro­bust, though un­fash­ion­able al­ter­na­tive (6). If we gather food dis­carded by re­tailers, a prac­tice known as dump­ster-div­ing, we will re­duce our food ex­pen­di­ture to prac­ti­cally zero. So the availa­bil­ity of dis­carded food will re­deem our rich so­ciety for its ab­sence of cheap food!

Ob­tain­ing shelter is at least equally difficult. It will be tempt­ing to be­come home­less and live un­der the side of a build­ing or land­scap­ing (7), or to be­come a squat­ter. Pri­vate home­less shelters may aid us. It may be op­ti­mal to live in a van, al­though if this costs two thou­sand dol­lars (8), we will have spent five years’ money at once. Maybe we could live in old cars, or share one. Maybe we ought to re­sell it in or­der to make some of our money back. For­tu­nately, some ed­u­ca­tion and health­care are available for free.

Liv­ing on $1.25 per day in the US may be fea­si­ble. How­ever, as no one lives so cheaply in the US (9), it is un­clear whether this is eas­ier or harder than liv­ing on the poverty line over­seas.

The rel­a­tive poverty line is not a bet­ter estimate

Rel­a­tive poverty is mea­sured by tak­ing the av­er­age or me­dian in­come in a so­ciety and then halv­ing it, or by ask­ing peo­ple “How much they would need to get by”. The ar­gu­ment for re­liev­ing rel­a­tive poverty is that rel­a­tive de­pri­va­tion mat­ters to a per­son’s welfare. How­ever, though rel­a­tive poverty is harm­ful, it is the kind of harm that is likely re­quire larger amounts of re­sources to re­lieve. If I was asked the amount re­quired to get by be­fore I re­searched the is­sue my­self, I would not be able to imag­ine how re­source­ful one can be if ab­solutely re­quired. This will be a sys­tem­atic flaw of pol­ling peo­ple re­gard­ing poverty.

Con­sider that on a rel­a­tive view, if your Body Mass In­dex (BMI) is less than your coun­try’s av­er­age, then you are rel­a­tively mal­nour­ished. If you buy cheaper clothes than oth­ers in your so­ciety, you are rel­a­tively naked. Th­ese mea­sure­ments re­gard in­fer that you are poor when ac­tu­ally your so­ciety spends ex­trav­a­gantly and vainly. Here is the hard line: the Amer­i­can ab­solute poverty line is sim­ply the in­ter­na­tional ab­solute poverty line, US$1.25. Although this pic­ture is im­perfect, it comes far closer to the truth than just sub­sti­tut­ing half a na­tion’s me­dian in­come.

And what do gro­ceries cost in Ban­ga­lore?

Ad­just­ing for in­fla­tion in In­dia since the 2005 ICP, the old figure of 18 ru­pees can be ad­justed up to 36 ru­pees (10). I have gath­ered some prices from an on­line shop­ping ser­vice based on Ban­ga­lore, to sug­gest what you can and can’t af­ford on this bud­get (click to open):

In order to register and view the prices at this website, ecityindia.com, you need only provide a valid postcode in Bangalore
On­line shops tar­get richer than av­er­age In­dian con­sumers, and there are likely to be bet­ter deals el­se­where. On the other hand, re­mem­ber to save some of your 36 ru­pees for ex­penses other than gro­ceries!

Conclusion

So $1.25 per day of your funds may not be enough to live in Amer­ica. How­ever, 41 cents is enough to live el­se­where. Now might be a good time to reeval­u­ate your sense of priv­ilege!

At lit­tle cost, you can help oth­ers a lot. If this is some­thing you are in­ter­ested in do­ing, join this Face­book group, and ask ‘how?’

Also, Giv­ing What We Can and 80,000 Hours have good sug­ges­tions for how you could con­tribute your fund­ing or your time re­spec­tively.


1. World Bank—Dol­lar A Day Re­vis­ited pa­per 2. The State of the Poor: Where are the Poor and where are they Poor­est?, The State of the Poor: Where are the Poor and where are they Poor­est? 3. 18.33 ru­pees. This is $1.25, ad­justed ac­cord­ing to PPP from the 2005 In­ter­na­tional Com­par­i­son Pro­gram (ICP). $1.25 x 13.67. This is not yet in­dexed to in­fla­tion. The PPP figure will be re­placed by the 2011 ICP, which will pub­li­cise re­sults in late 2013. World Bank 2005 ICP 4. p28, Pur­chas­ing Power Par­ity Ex­change Rates for the Global Poor, ICP 2011 5. World Bank—Dol­lar A Day Re­vis­ited pa­per 6. While writ­ing my piece, I no­ticed that Will McAskill had pre­sented his take on the is­sue - $1.25/​day What does that Mean? - barely a week ago. 7. http://​​blog.priceo­nomics.com/​​post/​​43085729257/​​the-street-kids-of-san-fran­cisco 8. http://​​blog.priceo­nomics.com/​​post/​​32944888191/​​liv­ing-in-a-van 9. Coun­tries with a Hu­man Devel­op­ment In­dex greater than 0.8 do not have >1% of the pop­u­la­tion liv­ing be­low the in­ter­na­tional ab­solute poverty line. See this graph: Google Public Data. The USA’s HDI is 0.937. Hu­man Devel­op­ment Re­port, UN Pro­gram 2013 10. 18.33 ru­pees ad­justed for the in­fla­tion from 2005 to 2012 in­clu­sive. In­fla­tion has been in In­dia than in the US. In­fla­tion.eu data

Coss­posted from Ryan Carey’s blog
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