A part of this experiment is to try living on part of what I consider to be a poverty level of resources for food. I'll post more about that in a bit, but what I want to talk about for a minute here is how extreme poverty is defined by the global development community.
The World Bank defines someone as living in extreme poverty if they are subsisting on $1.25/day (in 2005 dollars - probably the equivalent of about $1.45 in 2013 dollars). This is an all-inclusive number, not just the amount they spend on food. According to World Bank estimates, about 52% of the world lived on this amount of resources in 1981, about 41% in 1990, and in 2010 about 21%.
These are amazing numbers. In the course of 30 years, we have seen a dramatic decline in extreme global poverty the likes of which have never been seen in human history.
There is a myth in some circles that once upon a time we were all living in harmony, and then capitalism came along and the rich got richer and the poor got poorer. That is completely untrue. The truth is that once upon a time we were almost all living in abject poverty, and a very tiny percentage of the population lived in what we would look at today as just poverty. With the advent of capitalism and the structures that support capitalism the rich indeed got richer, but the poor get richer, too. (Note when the acceleration in improvement really changed - post 1990 - after the global rejection of communism, the supposed alternative to capitalism.)
Now going from $1.25/day to say $2.00 a day (the next level of poverty that the World Bank estimates) is hardly going from poor to rich, but that's a 60% improvement in living standards. If you are sitting at $1.25, $2.00 looks like something quite worthwile. If we accept the concept that utility increases at a diminishing rate with wealth (the basis of progressive taxation and other redistributive policies), we have to accept that a 60% increase at the extreme bottom is a phenomenal increase in human happiness. Indeed, it probably means the difference between life and death for a large percentage of that population. To understand the concept of diminishing returns, ask yourself what you would be willing to do to earn an additional $0.75/day. Chances are, if you are reading this blog, the answer would be "not much" or more likely "nothing". But if you were living on $1.25/day, your answer might be quite different.
So I've chosen $3.00/day for food resources. It's a somewhat arbitrary number. It doesn't put me anywhere near what would be ranked as extreme poverty in global terms. In 2010 there were 1.2 billion people who lived on $1.25/day for all their resources. That's an ugly number. It's important to think about what we, collectively, can do to keep that number falling.
In the words of Robert Lucas, the Nobel Prize winning economist who has spent much of his career studying economic growth,
I always share that quote with my students when I teach Macroeconomics. It is The Big Question if you are a civic minded person.
What is extreme poverty? Almost no one living in America will ever experience it just by sheer luck of having been born here. But what we can do to help others out of it is worth considering.
For more about global poverty, go to the World Bank web site: http://www.worldbank.org/en/topic/poverty/overview
The World Bank defines someone as living in extreme poverty if they are subsisting on $1.25/day (in 2005 dollars - probably the equivalent of about $1.45 in 2013 dollars). This is an all-inclusive number, not just the amount they spend on food. According to World Bank estimates, about 52% of the world lived on this amount of resources in 1981, about 41% in 1990, and in 2010 about 21%.
These are amazing numbers. In the course of 30 years, we have seen a dramatic decline in extreme global poverty the likes of which have never been seen in human history.
There is a myth in some circles that once upon a time we were all living in harmony, and then capitalism came along and the rich got richer and the poor got poorer. That is completely untrue. The truth is that once upon a time we were almost all living in abject poverty, and a very tiny percentage of the population lived in what we would look at today as just poverty. With the advent of capitalism and the structures that support capitalism the rich indeed got richer, but the poor get richer, too. (Note when the acceleration in improvement really changed - post 1990 - after the global rejection of communism, the supposed alternative to capitalism.)
Now going from $1.25/day to say $2.00 a day (the next level of poverty that the World Bank estimates) is hardly going from poor to rich, but that's a 60% improvement in living standards. If you are sitting at $1.25, $2.00 looks like something quite worthwile. If we accept the concept that utility increases at a diminishing rate with wealth (the basis of progressive taxation and other redistributive policies), we have to accept that a 60% increase at the extreme bottom is a phenomenal increase in human happiness. Indeed, it probably means the difference between life and death for a large percentage of that population. To understand the concept of diminishing returns, ask yourself what you would be willing to do to earn an additional $0.75/day. Chances are, if you are reading this blog, the answer would be "not much" or more likely "nothing". But if you were living on $1.25/day, your answer might be quite different.
So I've chosen $3.00/day for food resources. It's a somewhat arbitrary number. It doesn't put me anywhere near what would be ranked as extreme poverty in global terms. In 2010 there were 1.2 billion people who lived on $1.25/day for all their resources. That's an ugly number. It's important to think about what we, collectively, can do to keep that number falling.
In the words of Robert Lucas, the Nobel Prize winning economist who has spent much of his career studying economic growth,
Within the advanced countries, growth rates tend to be very stable over long periods of time, provided one averages over periods long enough to eliminate business-cycle effects (or corrects for short-term fluctuations in some other way). For poorer countries, however, there are many examples ofsudden, large changes in growth rates, both up and down. Some of these changes are no doubt due to political or military disruption: Angola's total GDP growth fell from 4.8 in the 60s to - 9.2 in the 70s; Iran's fell from 11.3 to 2.5, comparing the same two periods. I do not think we need to look to economic theory for an account of either of these declines. There are also some striking examples of sharp increases in growth rates. The four East Asian 'miracles' of South Korea, Taiwan, Hong Kong and Singapore are the most familiar: for the 1960-80 period, per capita income in these economies grew at rates of 7.0, 6.5, 6.8 and 7.5, respectively, compared to much lower rates in the 1950's and earlier.3,4 Between the 60s and the 70s, Indonesia's GDP growth increased from 3.9 to 7.5; Syria's from 4.6 to 10.0.(more here: http://www.parisschoolofeconomics.eu/docs/darcillon-thibault/lucasmechanicseconomicgrowth.pdf )
I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? Ifs o, what, exactly? If not, what is it about the'nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.
I always share that quote with my students when I teach Macroeconomics. It is The Big Question if you are a civic minded person.
What is extreme poverty? Almost no one living in America will ever experience it just by sheer luck of having been born here. But what we can do to help others out of it is worth considering.
For more about global poverty, go to the World Bank web site: http://www.worldbank.org/en/topic/poverty/overview
I'm not anti-capitalist. But I question what role capitalism itself had in the changes you're talking about in improving the standard of living. How much of these changes are due to entrepreneurs starting businesses that manufacture goods? How much of it is due to improvements in farming methods, to improved strains of plants and fertilizers and pesticides and irrigation and equipment that allows more land to be cultivated? I'm all for making a profit. And the ability to invest and get returns is important. But how much of this growth is based, not on capitalism, but simply on investment in technologies that would happen under any system of investment? Investment is not the same as capitalism. It may be an efficient way of producing profits, but that is not the same thing as an efficient way of producing results. Much of the modern world is driven by innovations created through government investment, not private capital.
ReplyDeleteMost of the innovations you are quoting are a result of capitalism. Farmers use improved seeds, fertilizers, and methods because they get a larger profit.
ReplyDeleteSome investment happens under all economic systems. Even in the USSR there was extensive investment. But it was investment in things that did little good for the citizens, and primarily was for the benefit of the Party.
You are not going to find evidence to support your last statement, that "Much of the modern world is driven by innovations created through government investment, not private capital." Government does make some investments that do result in some gains, but most innovation is the result of private investment.