Max Roser and Esteban Ortiz-Ospina over at Our World in Data:
The most important conclusion from the evidence presented in this entry is that extreme poverty, as measured by consumption, has been going down around the world in the last two centuries. But why should we care? Is it not the case that poor people might have less consumption but enjoy their lives just as much—or even more—than people with much higher consumption levels?
One way to find out is to simply ask. Subjective views are an important way of measuring welfare.
This is what the Gallup Organization did. The Gallup World Poll asked people around the world what they thought about their standard of living—not only about their income. The following chart compares the answers of people in different countries with the average income in those countries. It shows that, broadly speaking, people living in poorer countries tend to be less satisfied with their living standards.
This suggests that economic prosperity is not a vain, unimportant goal but rather a means for a better life. The correlation between rising incomes and higher self-reported life satisfaction is shown in our entry on happiness.
This is more than a technical point about how to measure welfare. It is an assertion that matters for how we understand and interpret development.
First, the smooth relationship between income and subjective well-being highlights the difficulties that arise from using a fixed threshold above which people are abruptly considered to be non-poor. In reality, subjective well-being does not suddenly improve above any given poverty line. This makes using a fixed poverty line to define destitution as a binary ‘yes/no’ problematic. Therefore, while the International Poverty Line is useful for understanding the changes in living conditions of the very poorest of the world, we must also take into account higher poverty lines reflecting the fact that living conditions at higher thresholds can still be destitute.
And second, the fact that people with very low incomes tend to be dissatisfied with their living standards shows that it would be incorrect to take a romantic view on what ‘life in poverty’ is like. As the data shows, there is just no empirical evidence that would suggest that living with very low consumption levels is romantic.