Tag Archives: poverty

Equal Societies Good for All

The more unequal a society’s income distribution, the more health and social problems ail both the rich and the poor.

With this theory brought to his attention through the “quite fascinating book” The Spirit Level, Nicolas Baumard displays the evidence to support the theory that economic inequality is bad for all inhabitants of a country before considering some possible explanations, and looking at what this means in terms of poverty and climate change.

It is common knowledge that in rich societies the poor have shorter lives and suffer more from almost every social problem. In [The Spirit Level], [the authors] demonstrate that more unequal societies are bad for almost everyone – the well-off as well as the poor […]. The remarkable data the book lays out and the measures it uses are like a ‘spirit level’ which we can hold up to compare the conditions of different societies. The differences revealed, even between rich market democracies, are striking. Almost every modern social and environmental problem – ill-health, lack of community life, violence, drugs, obesity, mental illness, long working hours, big prison populations – is more likely to occur in a less equal society.

Baseball fan? Baumard also points out that “the more equal the salaries in a base-ball team are, the better its performance”.

India and the Definition of Middle Class

A newly proposed international definition of the middle class for developing countries, produced by the Center for Global Development for the World Bank, has some surprising conclusions for India.

The report, produced by the president of the Center for Global Development, Nancy Birdsall, suggests that “middle class” is defined as everyone with an income above $10 a day, excluding those in the top 5% of earners in the country… meaning India has no middle class.

This is a combination both of the depth of India’s poverty and its inequality. China had no middle class in 1990, but by 2005, had a small urban middle class (3% of the population). South Africa (7%), Russia (30%) and Brazil (19%) all had sizable middle classes in 2005. […]

In socio-political terms, the middle class is traditionally that segment of society with a degree of economic security that allows it to uphold the rule of law, invest and desire stability. They do not, unlike those defined as rich, depend on inheritances or other non-productive sources of income. […]

OECD countries define their poverty lines as 50% of median income which works out […] to about $30 day. In the US the poverty line for a single individual in 2008 was $29 per day and for each individual in a four-person household was about $14 per day.

However, people in developing countries living on even $10 a day still have extremely low social indicators. Economist Lant Pritchett has shown that infant mortality of households in the richest quintile in Bolivia was 32 and Ghana 58 per 1,000. Fewer than 25% of people in the richest quintile in India complete 9 grades of school, Pritchett showed. “An upper limit of the 95th percentile, while on the high side, is just about sufficient to exclude the countrys richest,” Birdsall adds.

via The Browser

Absolute and Relative Poverty

I’ve already mentioned the World Bank’s startling definition of extreme poverty: $1.25, adjusted for PPP. This is what is known as absolute poverty and it is seldom used by politicians—who prefer to look at poverty in relative terms.

Relative poverty is slightly more involved, and the BBC weighs in with the internationally accepted definition of relative poverty: 60% of the median income for a given country.

This is not to comment on the experience of poverty or the rights and wrongs of who gets what, just to show how the system works. […]

It’s the calculation the government uses to measure its success in reducing poverty, including child poverty, for which it sets targets. It’s also used for country comparisons. […]

[The median is used] because calculating the mean would include everyone, including the Chelsea football team’s stellar earners. Would it make sense to say that one person’s poverty depends on what John Terry earns [£150,000 /week]? Using the mean would make it a measure of inequality.

But then some have argued that relative poverty is so similar to income inequality that the latter term should be used instead.

Weather Forecasts and Economic Development

The economic impact of meteorological forecasts is wide-ranging and, sometimes, unexpected.

A few of these influences are described briefly before this (tongue-in-cheek, yet still somewhat logical) piece of advice is offered to developing countries:

A study from the mid-1990s […] concluded that every dollar invested in weather forecasting services would save $10 in economic losses.

The World Bank broadly agrees, and is supporting Russian efforts to reinvigorate forecasting systems that have been deteriorating since the collapse of the Soviet Union.

The World Bank’s researchers reckon that the benefits of such efforts outweigh the costs by five to one. If those numbers stack up, that suggests an unlikely development tactic for poor countries: hire more weather forecasters.

Prosperity, Freedom, Fertility

When it comes to reproduction, are individuals who strive only for personal gain—as Adam Smith stated in The Wealth of Nations—”led by an invisible hand […] to promote the public interest”?

In The Tragedy of the Commons, ecologist Garrett Hardin suggested not and called for further government intervention to help control rising populations.

Recent studies, however, are suggesting that the current laissez-faire approach to reproduction in developed and economically ‘free’ countries does lead to an optimal population. (As always, there are caveats.)

In 2002, Seth Norton, a business economics professor at Wheaton College in Illinois, published a remarkably interesting study on the inverse relationship between prosperity and fertility. Norton compared fertility rates of over 100 countries with their index rankings for economic freedom and another index for the rule of law. “Fertility rate is highest for those countries that have little economic freedom and little respect for the rule of law,” wrote Norton. “The relationship is a powerful one. Fertility rates are more than twice as high in countries with low levels of economic freedom and the rule of law compared to countries with high levels of those measures.”

Norton found that the fertility rate in countries that ranked low on economic freedom averaged 4.27 children per woman while countries with high economic freedom rankings had an average fertility rate of 1.82 children per woman. His results for the rule of law were similar; fertility rates in countries with low respect for the rule of law averaged 4.16 whereas countries with high respect for the rule of law had fertility rates averaging 1.55.