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A New Understanding of Poverty

Institute of Economic Affairs

This ground-breaking study on the measurement of poverty shows how policy in this field has taken a wrong turn with disastrous results. In recent years, poverty has generally been understood in 'relative' terms. That is, people are regarded as poor if they earn less than some benchmark relative to average earnings. One perverse result of such relative poverty measures amongst many is that poverty often declines in a serious recession when the better paid lose their jobs. The policy response of income transfers, which are used to address the perceived problem of relative poverty, has often led to serious problems that actually reduce long-term opportunities for poorer people.

The author proposes an entirely new way of measuring poverty. If this measure were applied, public policy would orientate itself towards creating the conditions that allowed the poor to become better off. Such a strategy would focus not only on ensuring economic growth and more labour market participation, but also on supply-side reforms that would reduce the cost of living for the poor.

This monograph is essential reading for all involved in the poverty debate. Its approach to the measurement of poverty and its policy conclusion are original and soundly based on evidence.



Die kapitalgedeckte Altersvorsorge am Beispiel Chile

Beschreibung:

Am 4. November 1980 beschloss die damalige chilenische Regierung ein Gesetz, mit dem zum ersten Mal in der Geschichte ein staatlich organisiertes Umlageverfahren der Altersvorsorge durch ein kapitalgedecktes, privatwirtschaftlich organisiertes Verfahren abgelöst werden sollte.

Heute, ein Vierteljahrhundert später, ist Chile das aus mehreren Gründen geeignetste Fallbeispiel, um die Funktionsweise der kapitalgedeckten Altersvorsorge und ihre vielfältigen Auswirkungen in der Praxis zu beobachten: Erstens wurde das bestehende Umlagesystem nicht nur durch eine zusätzliche Säule ergänzt, sondern das erwähnte Gesetz sah den vollständigen Ausstieg aus der Umlage vor. Ein praktischer Grund, der für Chile als Anschauungsbeispiel spricht, ist der, dass die Reform seit nunmehr 26 Jahren ohne substantielle Änderungen in Kraft ist und sich somit eine vergleichsweise umfangreiche empirische Basis bietet. Hinzu kommt, dass sich in Chile der Übergang von einem etablierten Umlageverfahren zur Kapitaldeckung nachverfolgen lässt. An der chilenischen Erfahrung ist weiterhin bemerkenswert, dass eine Reform, die eigentlich hoch entwickelte Kapitalmärkte zur Voraussetzung hat, um ihr vollständiges Potential zu entfalten, in einem Umfeld implementiert wurde, in dem gerade diese Märkte anfangs nur rudimentär vorhanden waren. Die notwendigen Begleitreformen wurden erst parallel zur Rentenreform durchgeführt, aber auch mit Wechselwirkungen zu dieser.

Trotz all dieser Vorzüge ergibt sich bei der Betrachtung des chilenischen Modells eine große Schwierigkeit. Bei aller Ähnlichkeit mit einem kontrollierten Experiment fehlt doch die wichtigste Eigenschaft eines solchen vollkommen: die Konstanz aller weiteren Einflussfaktoren. Chiles Rentenreform wurde durchgeführt in einer Epoche, die wirtschaftspolitisch einen völligen Bruch mit der bisherigen dirigistisch-interventionistischen Tradition bedeutete. Die Reichweite des Reformprozesses erschwert es, den Beitrag einer individuellen Reform zu isolieren, zumal von umfangreichen Wechselwirkungen zwischen diesen ausgegangen werden kann.



Measuring Poverty: Context-Specific but not Relative

Journal of Public Policy

Volume 30, Issue 3, pp. 241-262

ABSTRACT:
Poverty in developed countries is commonly defined in relative terms. It is argued that a relative definition formalises the insight that poverty is a context-specific phenomenon, and that the understanding of what constitutes poverty changes with overall economic development. Yet this article argues that tagging a poverty line to mean or median incomes does not automatically anchor it in its social context. Relative measures rely on the implicit assumptions that social norms are formed at the national level, and that median income earners set social standards. A comparison with studies on ‘Subjective Well-Being’ (SWB) shows that these assumptions are rather arbitrary. At the same time, relative indicators do not take account of changes in the product market structure that disproportionately affect the poor. If low-cost substitutes for expensive items become available, the poor will be relatively more affected than median income earners. Conventional ‘absolute poverty’ indicators will be equally dismissed for not solving these problems either. A combined ‘Consensual Material Deprivation’ and ‘Budget Standard Approach’ indicator will be proposed as a more robust alternative.

Full article is available here


20 YEARS AFTER: THE FALL AND RISE OF SOCIALISM IN EAST GERMANY


published in Economic Affairs, Vol. 29 (2009), Issue 2, pp. 71-73; Institute of Economic Affairs (IEA)

ABSTRACT:
Twenty years after the fall of the Berlin Wall, public opinion in East Germany is dominated by a deep hostility towards free markets and an uncritical attitude towards state intervention. This article argues that the mistakes that have been made in the economic transformation of East Germany continue to have an effect to this day. Supporters of the free economy failed to explain why the grievances people faced were not caused by allegedly 'unbridled' markets, but by false policies. Hopefully, a future reunified Korea will avoid repeating these mistakes.

Full article is available here


FROM BISMARCK TO FRIEDMAN


published in Economic Affairs, Vol. 27 (2007), Issue 2, pp. 83-87; Institute of Economic Affairs (IEA)

ABSTRACT:
Chile provides the most frequently quoted example of a change from an established state PAYGO pension system to a privately funded scheme based on personal savings. Most of the key results have been impressive and a lot of the often-heard criticisms of funded schemes have been disproved. A number of shortcomings remain. These shortcomings are seldom caused by features inherent to funded schemes, but rather by elements specific to the Chilean arrangement which could be altered given the political will.

Full article is available here


THE NATIONALISATION OF RETIREMENT SAVINGS ACCOUNTS IN ARGENTINA


published in Economic Affairs, Vol. 29 (2009), Issue 1, pp. 49-53; Institute of Economic Affairs (IEA)

ABSTRACT:
In October 2008, the government of Argentina announced that the citizens' privately owned retirement savings accounts (RSAs) would be nationalised. This article shows that contrary to the Kirchner government's assertions, the private savings system had great potential. Its performance may not have fully lived up to its initial expectations, but that was largely due to the adverse effects of underdeveloped securities markets, large informal sectors impeding widespread participation, intrusive investment regulation and poor implementation. Within its tight constraints, the private system worked better than the public PAYGO system.

Full article is available here


POVERTY IN BRITAIN, PAST AND PRESENT


published in Economic Affairs, Vol. 29 (2009), Issue 4, pp. 48-54; Institute of Economic Affairs (IEA)

ABSTRACT:
How we view the evolution of poverty in Britain in recent decades depends largely on how we define 'poverty' in the first place. The widespread perception of a dramatic and lasting rise in poverty in the 1980s is largely a product of a change in the way poverty is commonly defined. The poverty figures currently used to inform public policy are largely based on annual income, with the headline figure being one of relative poverty. Indicators based on expenditure or on absolute income tell a different story and also have important implications for government anti-poverty strategies.

full article is available here


WELFARE WITHOUT THE STATE


Chapter in Wellings, R. et al (2009): A BEGINNER'S GUIDE TO LIBERTY, pp. 76-86,
London: Adam Smith Institute

ABSTRACT:
This short book is an accessible introduction to liberty – one of the key concepts of political and economic thought. It explains why liberty is so important and sets out in clear language the benefits of freeing individuals from big government. The guide consists of ten concise chapters, each focusing on a particular aspect of liberty and written by an expert in the field. The authors show why liberty is essential if people are to lead prosperous and fulfilling lives, and also point to the terrible consequences when politicians and officials get too much power. At a time when our freedom is threatened by a rising tide of government controls, A Beginner’s Guide to Liberty is essential reading

full book is available here
www.kristian-niemietz.net