Wealth and Poverty

What Is Poverty?

Economists measure wealth and poverty in several ways. The three most common measures are income, assets (meaning accumulated wealth in the form of money, securities, and real estate), and socioeconomic metrics. Measures in the last category go beyond financial data to account for health, nutrition, infant mortality, sanitation, and other aspects of human well being.

In this section, I will usually examine wealth and poverty in terms of income. Data on income is readily available, reliable, and relevant, especially in discussing poverty in the United States, where inherited wealth is a minor factor and most people live on wages and salaries.

It's useful to think of wealth and poverty in relation to one another. That's because income inequality is really the underlying issue in poverty, especially in developed nations.


Income inequality refers to the differences in income between and among various groups of individuals and households in an economy.

Human social systems being what they are, it is often the differences in wealth that make people feel rich or poor. In a Third World nation, a family with indoor plumbing, running water, decent food and clothing, and access to health care and education is quite well off. In the United States, however, millions of people who have those things are considered poor, because they have little else and those things constitute the bare essentials in America. In this most developed of economies, dwellings without plumbing are not legally fit for habitation; public assistance programs, such as Food Stamps, Medicare, and Medicaid, assure at least adequate levels of nutrition and health care; and public education is compulsory for children.

Perhaps Webster's Dictionary provides the most accurate definition of poverty, at least in America: the state of one who lacks a usual or socially acceptable amount of money or material possessions (italics mine). This is not to minimize the plight of the poor in America. It's easily arguable that poverty of any kind is unacceptable in a society with the riches and opportunities of the United States. Also, many poor Americans do live without adequate nutrition, shelter, and health care. This is especially true of the rural poor, for instance in Appalachia, and for the physically, emotionally, and mentally disabled poor. I am only pointing out that poverty can be a relative condition.

For instance, the World Bank identifies areas of the world where significant portions of the population live on less than $1 a day. These are the poorest people in the world's poorest regions, where food, shelter, health care, and other necessities are in dangerously short supply. Table 11.1 reveals the sad statistics.

Table 11.1  People Living on less than $1 a Day in 2000
RegionTotal Population (millions)People Living on Less than $1 a Day (millions)Percent of Region's Population
Latin American and Caribbean4324912
West Asia and North Africa204 5 3
Sub-Saharan Africa38816944
South Asia1,26651541
East and Southeast Asia1,72632019

Source: World Bank

Poverty is most widespread in Sub-Saharan Africa and South Asia, where over 40 percent of the population lives on less than $365 a year. All told, over 1 billion people in the world are in this situation, which is considered absolute, rather than relative, poverty.

We will look at the economic issues of the developing world. But one of the worst of its problems is the human suffering caused by persistent poverty.

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Excerpted from The Complete Idiot's Guide to Economics © 2003 by Tom Gorman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book direct from the publisher, visit the Penguin USA website or call 1-800-253-6476. You can also purchase this book at Amazon.com and Barnes & Noble.

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