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Open Letter to the Editor of the Ottawa Citizen - Re: Poverty Lines

December 23, 1998

Re: "It's not Scrooge-like to insist on a true poverty line," by William Watson, December 20, 1998

Dear editor:

When economists stray beyond their field they can be even more wrong than when they write about economics. William Watson's piece on redefining poverty is a good case in point. As a frequent collaborator with the Fraser Institute, his lengthy retracement and support of their libertarian approach to public policy issues is not unexpected, nor is his "left-bashing." After all, this is standard libertarian political rhetoric. However, I was expecting a more informed discussion from this credible and literate economist when he turned finally to what he believes is a more scientific and objective approach to defining poverty – which, alas, is a thoroughly subjective issue.

The main problem with Watson's argument is that, after admitting that poverty lines are relative, even quoting Adam Smith, he then confuses different approaches to defining relative poverty with different concepts. The Statistics Canada low income cut-off (LICO), the market basket measure currently being constructed by a federal-provincial committee, and the Fraser Institute poverty line are all relative. They are all based on subjective approaches – they are just different subjective approaches, not different concepts.

A different concept would be an absolute poverty line based on bare survival – the kind that is accepted in extremely under-developed countries. But it is hard to imagine why such an approach would be of any use in Canada, one of the most highly developed nations in the world. Do we need or want to know how many Canadians are as poor as those in the Third World? If so, an absolute measure of poverty would probably be in the neighbourhood of $5,000 per year for a family of four, and our poverty rate would stand at about one percent. Not even the Fraser Institute supports this.

Watson errs when he assumes the new market-basket measure "isn't subject to the problems of the relative measures that currently dominate the debate." The market basket measure is very much a relative measure – why else would it be many thousands of dollars more than the Fraser Institute's line, if they had already nailed it correctly? Oh dear, back into the relativity swamp once again.

Watson believes the way out is simple and unbiased. According to him, you just "figure out how much a basket of necessities costs." He may be right, but the hole in his argument is that determining life's necessities is a very subjective exercise. Everybody has their own definition of what should go in the basket.

Once you abandon a bare survival concept of poverty and measure it in relative terms, you can pretend to be objective, but eventually you have to make a judgement about what constitutes a necessity. Which leads to a bigger question – necessary for what? Is the objective to determine the appropriate level that will stave off starvation, or that which provides the conditions for healthy child development, or something else altogether? Only when we know the objective can we define what is necessary.

Instead of relying on economists at the Fraser Institute or committees of public servants to define what is necessary, why not ask average Canadians? Since 1976 Gallup has been doing just that – asking Canadians what they think is the least amount of money a family of four needs to get along in their community. Over the last 20 years, their answers have been almost bang on the LICO measure. In 1997 Canadians responded that a family would need $26,000 to live above the poverty line. The LICO that year for a family of four living in a large city was $27,500.

I can only conclude that the market basket measure appeals to Watson not because it does away with relativity – which it emphatically does not – but because it justifies a lower level of support for Canada's struggling families.

David P. Ross
Executive Director
Canadian Council on Social Development


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