Understanding Poverty

There is a set of people in every country who are called the ‘poor’ and the ‘non-poor’ have quite contradictory assumptions about them. For example, despite ample evidence it is considered politically incorrect to say that the ‘poor’ trade their votes because the entire legitimacy of representative government rests on responsible voting behavior. Yet, the same people often say that the ‘poor’ do not know how to spend their money; they waste their income on inessentials ignoring higher priority needs of food, health and education. Hence, policymakers recommend the ‘poor’ be given ration supplements or food vouchers instead of equivalent cash transfers.

The question is inescapable: Are the ‘poor’ rational or irrational? How can the same set of people be rational in one domain and irrational in another?

To address this question, we have to first define the ‘poor’ that are subject of discussion. One way to think of this intuitively is to rank households along a scale that measures how well off they are in a particular country. In a very simple classification, we can classify one group as ‘Well-Off’ (WO) and another as ‘Not-So-Well-Off’ (NSWO). Then we can add two more groups at the margins – the ‘Very-Well-Off’ (VWO) at the top and the ‘Not-At-All-Well-Off’ (NAAWO) at the bottom. Thus, the population of a country is disaggregated into four broad groups in terms of living standards; there will be ambiguity at the margins but by and large we should be able to assign a household to one of the groups with reasonable accuracy.

In most developing countries, the NAAWO group is numerically so large that errors at the margin would not matter to the argument. For the moment, we can consider the NAAWO group to be the focus of our enquiry.

It should be immediately obvious that in comparing across countries, the NAAWO classification is a relative one. The average income of a NAAWO family in Europe would be much higher than that of a family in the same classification in South Asia. A graph in this excellent short article (The Haves and the Have-Nots) will show that in terms of average purchasing power the NAAWO in the US are better off than the VWO in India. In fact, ‘the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.’

So, unless we are interested in inequality, we need not automatically associate the NAAWO group with ‘poverty’ as an issue of public policy. Only when it is determined that the survival of households in the NAAWO group is threatened and imposes a cost on society does it become a public policy concern. Early death due to starvation is a stark example of the failure to survive; illness, lower productivity and unemployment are examples of costs associated with it. A useful analogy is that of a business concern; if it continues to make a loss every year and use up its reserves, it will go bankrupt after a while. Similarly, if a human body is unable to replenish its reserves, it would degrade its quality and lose its vitality.

The most commonly used indicator to calibrate human survival has been related to the balance between the expenditure of energy in work and its intake through the consumption of food. For example, in the case of India it is considered that for people engaged in manual labor a daily intake lower than 2,100 calories in urban areas and 2,400 calories in rural areas is below the minimum required for sustainable reproduction of the body. (For the record, at this time more than three-quarters of the population of India lives in households consuming less than this minimum requirement). For the purpose of our argument, let us classify the group living below this absolute physiologically sustainable level as the ‘poor.’ While there will always be people who will be NAAWO in relative terms, it should be the goal of public policy that no one should be ‘poor’ – no one’s survival should be beyond their control.

This has always been a non-controversial position if one leaves aside those who claim that ‘poverty’ is the fault of the ‘poor.’ The position is being revisited because there is now a fresh perspective on how public policy to eliminate absolute ‘poverty’ should be designed and implemented. New evidence is claimed to show that when the ‘poor’ are given more income, they do not necessarily spend it on the essential calories in which they are deficient (see More than 1 Billion People are Hungry in the World: But What if the Experts are Wrong?). Therefore, policies focused on making up food deficiencies are misplaced. What conclusions should be drawn from this evidence?

First, it re-opens the debate about whether the ‘poor’ are rational or irrational. The earlier perspective had assumed the latter (without much discussion) which is why policy design favored income transfers in the form of ration supplements and food vouchers and not in the form of cash. The argument now being put forward is that the ‘poor’ are rational and perhaps they do not need as many calories as the experts have calculated; in any case they are the better judges of how best to use their income.

Second, this is not really new evidence. Those living in developing countries are quite familiar with this choice behavior but have taken a moral stance that views it negatively as a failing – almost every gathering of the ‘non-poor’ includes discussions about the irrationality of the ‘poor’ wasting their money on trying to be like the ‘non-poor.’ In fact, this is not really new evidence in developed countries either as the excellent and objective observations of George Orwell testify in the article quoted above. It is just that people forget history and rediscover the wheel afresh; the evidence is old, only the interpretations are new.

The interpretation about the experts being wrong regarding the minimum calorie requirements for sustainable physiological reproduction and the ‘poor’ knowing better how much they need to consume as food would be acceptable if there were not simultaneous evidence of gross global malnutrition with its manifest consequences of physical and mental stunting. The question now reappears in another form: How are the rationality of the ‘poor’ and the overwhelming evidence of malnutrition to be reconciled?

The answer has long since been provided by Orwell: Man does not live by bread alone. Human beings are not animals who expend energy at work and make up for it with food. There are other aspects of life that are of relevance to them – human life has to be varied to be bearable (as the ‘non-poor’ would be the first to aver). And, in this framework the ‘poor’ are just as rational as the ‘non-poor’ – they trade off a little bit of food for a little bit of variety. The short-term pleasure of going from no variety to a little variety is much greater than the perception of the long-term pain incurred from a slight decline in food consumption. If the choice is to live 60 years as a work horse or 45 years as human being, who is to say that one choice is more rational than the other?

In this perspective, the alleged contradictions between the political and financial behavior of the ‘poor’ are also resolved. The choice of trading off essential calories for the other ingredients of a life worth living (which only the individual can determine) is conceptually equivalent to trading off the chance to vote their true political preferences for similar reasons.

Yes, the ‘poor’ individual is rational – he/she is expressing a preference for shorter life that is varied than a longer life that is dull. But this is precisely the dilemma of ‘poverty.’ ‘Poverty’ is not about irrationality; it is being placed in a situation in which one can exist as a human being only by endangering one’s chances of survival. The elimination of ‘poverty’ requires the elimination of such a situation.

The tradeoff between the long and the short term is difficult for everyone, ‘poor’ and ‘non-poor’ alike. It is difficult to be fully rational simply because long-term outcomes are so much more uncertain and people are not able to deal easily with ambiguity. The ‘non-poor’ who smoke or drive rashly are deriving short-term pleasure at the potential cost of long-term pain and endangered survival. But they are exercising a free choice in a way the ‘poor’ are not.

In one of his early papers on inequality, Amartya Sen had pointed out that revealed behavior does not tell us everything about the reasons for the behavior. When we see a person not eating, it may be because he/she is fasting for religious reasons, dieting for health reasons, or starving for financial reasons. We have to dig deeper to find out what might be going on. And only the last is the case where what looks like a choice is not really a choice at all, a situation that presents the need for a public policy response.

A sensible public policy for the elimination of ‘poverty’ calls for moving away from the distraction of rationality. It needs to be based on the affirmation that indeed man does not live by bread alone. Human life is multi-dimensional and there is a ‘minimum’ need along every dimension just as there is the well-recognized one on energy. The elimination of ‘poverty’ requires ensuring a standard of living that is above the minimum on all dimensions. Beyond this minimum we should let individuals be rational or irrational as they prefer.

This conclusion itself is not new as any reasonable interpretation of Maslow’s theory of the hierarchy of needs should suggest. Why should it be expected that a group of people ought to exist at the physiological level all their lives? Why should they not be entitled to aspire to the higher needs that are considered essential to a full life? And why should one be morally judgmental if, deprived of reasonable options, they achieve a higher need at the cost of a lower one? We keep forgetting what we have known earlier and keep getting excited at what seem to be new discoveries.

Ghalib’s perspective on this issue can be found here. Notice especially the use of the word ‘naachaar’ which translates as ‘constrained’ or ‘without choice.’


  • Vikram
    Posted at 17:23h, 02 May Reply

    I am reminded of reading about Dr. Ambedkar’s sacrifices, he would go without food to save up money to buy books to read.

    I think the article you posted basically says the same thing that Somini Sengupta’s article in the NYT tried to, in a much starker way. Most of the malnourished in India are not in the category of ‘most poor’. Knowledge about nutrition and access to nutrition are issues that need to be given equal, if not more importance in public policy.

    Some useful articles:

    About the way the poor spend their incomes: http://econ-www.mit.edu/files/530

    About the poverty trap: http://www.atypon-link.com/EMP/doi/pdf/10.5555/mra.455.2.2.160

  • hemen parekh
    Posted at 05:39h, 03 May Reply

    Poverty Declines !

    We must believe Montek Singh Ahluwalia ( Deputy Chairman – Planning Commission of India ), when he says poverty declined during 2007 – 2012.

    Poverty in India, according to him, came down from 37 % ( in 2004 ) to 32 % ( in 2009 ).

    Now, that is 70 million people !

    It is another story that the Supreme Court of India, criticized the Planning Commission for employing the daily expenditure criteria for deciding the “ Below Poverty Line – BPL “ people as those whose daily expenditure ( on food / shelter / clothing ) is less than,

     Rs.12 ( $ 0.26 ) in rural areas

     Rs.17 ( $ 0.38 ) in urban areas

    In the next Plan Period ( 2012 – 2017 ), how about pulling-up 200 million people above the poverty line by changing the daily expenditure criteria to

     Rs.7 ( $ 0.15 ) in rural areas

     Rs.12 ( 0.26 ) in urban areas

    Montek may want to “ export “ this innovation to other poor countries.

  • SouthAsian
    Posted at 08:30h, 22 May Reply

    Hemen: Here are the cut-off numbers used by the Planning Commission for determining the people falling below the poverty line:


    “The urban poor have been defined as earning less than Rs 20 per day, the rural poor as earning Rs 15 per day.”

    There is a chart in the article that shows what can be bought for Rs. 20 per day.

    “More than a hundred children die every hour across the country due to malnutrition.”

  • SouthAsian
    Posted at 02:11h, 30 September Reply

    A more recent op-ed by Professor Utsa Patnaik arguing that the poverty line cutoffs are wrong and explaining the reasons for the error.

    “Even a child knows that working health cannot be maintained, nor necessities obtained, by spending so little. Amazingly, however, 450 million Indians subsist below these levels. One cannot say that they ‘live’ in any true sense: their energy and protein intake is far below normal, they are underweight, stunted, subject to a high sickness load but without the means to obtain adequate food or medical treatment. The majority belong to the Scheduled Castes and the Scheduled Tribes. The official poverty lines do not measure poverty any more; they measure destitution.”


  • Hemen Parekh
    Posted at 05:22h, 13 November Reply

    Whose Bapu ?

    There was a time
    When you were our Bapu,
    A Mahatma ;

    For a life-time long
    A tortured Atma ;

    To wash away the sins of your children
    You died a martyr’s death ;

    Now those very children
    Have opened-up a shop
    To sell ” Gandhi-ism ” ;

    They are even maintaining
    Two separate books of accounts,
    One for income from ” Unknown Sources “,
    Strictly as required by the law !

    Even out of curiosity
    Do not venture
    Anywhere near ;

    No one will recognize you
    Without your NSG / Z+ bodyguards !

    And children from city slums
    Will chase you , shouting ,
    ” Ben Kingsley , Ben Kingsley “,

    And when they ask you for your autograph ,
    Do not sign,
    ” Mo Ka Gandhi ” !

    Just pretend that you are Ben Kingsley,
    TV cameras , Reporters , Anchors
    Will follow in your footsteps ;

    Just forget that
    You were our Bapu !

    Free translation from my Gujarati poem , dated 30, Jan 1984

    * hemen parekh ( 13 Nov 2013 )

    • Anjum Altaf
      Posted at 08:44h, 17 November

      Hemen: Thanks for posting this here. The reality is expressed very poignantly and powerfully. I am sure it would have an even greater effect in Gujarati.

  • Hemen Parekh
    Posted at 11:17h, 10 December Reply

    World is Watching !

    It is not only India

    Entire world is watching what has happened – and continues to happen – in Delhi

    Oppressed people of Tunisia , Libya , Iraq , Egypt , Yemen , and now Syria , took up arms and fought bloody battles to liberate themselves from the tyranny of dictators

    Of course , in no small measure , due to covert help from the Western world

    But India is the land of Gandhi ( – the ancient one , not the Dynasty ! )

    And peace-loving people of Delhi needed no outside help to throw out Congress and give a mandate to BJP and AAP

    But a fractured mandate that gives no party a clear majority !

    Apparently , people of Delhi failed to appreciate that a coalition government is a government that gets blackmailed by its coalition partners , whose sole aim is to make a ton of money !

    Exactly what has been happening at the Centre for the past 5 years , rendering UPA -2 , a Spineless Spectacle !

    Arvind Kejriwal realized this a long time back and over the past 6 months , repeatedly said ,

    ” We will neither support any party , nor seek support from anyone ”

    He is absolutely right when he refuses to form a minority-led government , under constant threats from corrupt partners

    What next ?

    Although President’s Rule is an immediate possibility , it is a pointless postponement of what is inevitable , viz :


    Let us get over it fast

    Let us face the harsh reality of parliamentary democratic process

    If people of Delhi want a stable / accountable / corruption-free government , then let them go to the polling booths ONCE AGAIN , and give AAP , at least 40 SEATS

    Let their message ring loud and clear , across the length and breadth of India , proclaiming :

    ” Brothers and Sisters,

    If you want to get rid of corruption , give AAP , an ABSOLUTE
    MAJORITY in 2014 National Elections


    If you hesitate , and split your vote , you will have only yourself to
    blame for your continued suffering ”

    * hemen parekh ( 10 Dec 2013 )

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