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Global Poverty and the Lure of Resentment

At a recent workshop, a scholar mentioned as a matter of course that global poverty continues to “increase.” I followed up, mentioning different sources suggest a massive decline, with over one billion fewer people, in “extreme poverty” in recent decades. The scholar pointed to Oxfam data. I said I was pretty sure Oxfam drew on the same data I did, and I would have heard if the stunning trend had reversed. We both got out our computers and connected to the web.

I pointed to an Oxfam press release from September 2015:

Between 1990 and 2011, almost a billion people escaped extreme poverty, a number equivalent to the combined population of North and South America. Extreme poverty was halved in the 15 years from 1996 . . . This is in many ways a staggering success, the fastest reduction in poverty in human history . . . .

To be sure, I noted, while Oxfam recognizes the reduction in poverty, that recognition does not entail the problem had been eliminated. The first line in the next paragraph states, “Yet more than 1 billion people still live in extreme poverty and progress could have been even better.”

The scholar smiled at me and responded, “That’s data from 2015. Here’s data from 2019,” pointing to an Oxfam press release in January of this year.

Billionaire fortunes increased by 12 percent last year – or $2.5 billion a day – while the 3.8 billion people who make up the poorest half of humanity saw their wealth decline by 11 percent, reveals a new report from Oxfam today. 

From this passage my interlocutor concluded that the poorest half of humanity had lost wealth in absolute terms. If you had $500 last year, you would have $445 this year.

I replied while these data are consistent with the possibility that global poverty still decreased. After all, they report a change in the proportion of wealth and not a change in the absolute level of poverty. After all, “if we have a bigger pie, then it’s possible we get more pie in absolute terms even if the proportion of the pie we get declines.”

The scholar gave me a tired smile, and moved on to another conversation.

Inequality versus Poverty

I remained curious, however. After all, perhaps the trend had reversed. While reporting the proportion was consistent with a continuing decline in poverty, the proportion was also consistent with the possibility that the trend in the reduction of extreme poverty worldwide had reversed itself in the last four years, and had started increasing again.

I returned to the Oxfam press release from January 2019 to find the original report that the press release announced.

The briefing paper, “Public Good or Private Wealth?” focuses on global economic inequality and argues for the need to increase taxes on wealthy individuals and corporations. The report acknowledges, however, the decline in absolute levels of poverty during the same time period.

One of the great achievements in recent decades has been the huge reduction in the numbers of people living in extreme poverty, defined by the World Bank as $1.90 per person per day. Yet new evidence from the World Bank shows that the rate of poverty reduction has halved since 2013.

The next line in “Public Good or Private Wealth?” notes from the World Bank report that extreme poverty in sub-Saharan Africa has actually increased. I’ll return to that below.

But first, the Oxfam briefing paper and the World Bank’s report on which the Oxfam commentary drew. (The World Bank’s report can be found here).

Indeed, extreme poverty has continued to decline globally in recent years. That is, as an absolute measure, poverty continues to decline even as inequality has increased. The economic pie has gotten bigger—the world’s poor eat more—even as the relative size of the poor man’s slice of the pie has decreased.

This fact—the world’s poor across the globe are eating more—can be glossed over by the reader in the Oxfam briefing paper because it uses the second derivative to frame the result; it reports the change in the trend’s change: “The rate of poverty reduction has halved since 2013.”

When read too quickly this line might seem to suggest that poverty has actually increased. But what has “halved” is not the reduction of poverty itself, but rather the rate at which poverty is declining.

Telling Derivatives

In calculus, the first derivative of a function reports the change in that function at different points. The second derivative of a function then reports the change in the change of that function at particular points. For example, the velocity of a car reports the speed of the vehicle at a particular point in time. The acceleration of the car, however, reports the change in the velocity of the car.

We all know intuitively that the acceleration of a car can decline while velocity is still increasing. Declining acceleration simply reports a decrease in rate at which the vehicle’s velocity is increasing.

According to the World Bank report, global poverty continues to decline, but the rate at which this decline continues after 2013 is lower than prior to 2013. According to the World Bank report, the world saw a one percent reduction in global poverty between 2013 and 2015. This “reflects steady but slowing progress” in poverty reduction.

Acknowledging the stunning progress in reducing global extreme poverty while not suggesting it has been solved presents a tricky problem for Oxfam, and even for institutions like the World Bank. To the extent that the public perceives global poverty to be decreasing, organizations fear both the public and policy makers may feel less pressure to respond to the poverty that remains. Even more pointed is the possibility that global poverty is declining because of increasing economic inequality rather than in spite of increasing inequality. This challenges a central liberal nostrum that economic inequality causes poverty.

World Bank President Jim Yong Kim, for example, observed,

Over the last 25 years, more than a billion people have lifted themselves out of extreme poverty, and the global poverty rate is now lower than it has ever been in recorded history. This is one of the greatest human achievements of our time.

In the Foreword to the full report Kim noted “that in 1990, more than a third of people on earth lived in extreme poverty,” yet by 2015 this declined so that “approximately one-tenth of the world’s population lived in extreme poverty.”

Poverty is on the rise in several countries in Sub-Saharan Africa, as well as in fragile and conflict-affected situations. In many countries, the bottom 40 percent of the population is getting left behind; in some countries, the living standard of the poorest 40 percent is actually declining.

On this point the World Bank’s recent report is refreshingly explicit. It notes it its own shift in how it defines poverty.

There is a difference in extreme poverty—defined by the World Bank as living on less than $1.90 per day—and less-than-extreme poverty that is still poverty nonetheless. The World Bank report notes decline in extreme poverty, while significant in its own, is not really an appropriate measure for progress in poverty reduction in middle-class countries. There is in fact an appropriately “relative” aspect to poverty once we move beyond basic physical survival.

The Lure of Resentment

Here the World Bank’s report engages in careful analysis while Oxfam’s report deploys the predictable blunderbuss on inequality. For example, the World Bank discusses the role political upheaval’s play in poverty as well as the need for investment in human capital. Oxfam is all about channeling resentment against rich people to increase their taxes.

But here is a conundrum for the populist approach to solving global poverty: The world has seen the most significant decrease in poverty ever recorded in human history, yet economic inequality has increased during the same period. What if the two are causally related? That is, what if global poverty declined because economic inequality increased?

This is the challenge of the two global trends occurring simultaneously, that is, both a massive reduction in extreme poverty worldwide and increasing inequality: The productive energy that lifted over one billion souls out of extreme poverty worldwide is the same energy that the lifted the extremely rich into even greater wealth. The poor became richer because the rich did as well. It presses the possibility that we cannot have the one without the other. And so it presses the question of what’s most important to us, that the poor eat more or that we deprive the superrich some of their baubles and trinkets?

If so, Adam Smith seems to make the appropriate response in his Theory of Moral Sentiments when he suggests we let the rich keep their “baubles and trinkets” so the poor can also prosper:

The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on May 23, 2019 at 10:30:30 am

Or as my peasant grandfather once remarked (in rather broken english), "Mr Gabe, never resent a mans' good fortune."

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gabe
on May 23, 2019 at 11:12:16 am

As a poor student working the night shift (double shifts on weekends) to put myself through university I was faulted for lacking a social conscience by not fasting for OXFAM.

And then I became a teacher, thus alienating most everyone.

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Image of Lawrence Hall
Lawrence Hall
on May 23, 2019 at 13:03:35 pm

Brilliant essay! Thanks for the clarification of a confused issue.

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Image of Max Hocutt
Max Hocutt
on May 23, 2019 at 14:40:47 pm

Goodness gracious, man! You must have gored that Oxfam.

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Image of gabe
gabe
on May 23, 2019 at 16:04:23 pm

A. Rogers makes important points, though I quibble with his wording. Let us stipulate:

1. The world’s economy has grown
2. Poverty has declined in (nearly?) every strata.
3. Inequality has grown.

Now, if Rogers truly believed that the growth of inequality CAUSES the rise of incomes among the poor, then presumably he’d support taxing the poor to subsidize the rich. Does he? If not, then he has rejected his own thesis.

We also find varying degrees of inequality around the world--famously, inequality seems more prevalent in African nations than Asian ones--and this variation does not correlate with rates of poverty reduction.

I concluded that Proposition 2 does not cause Proposition 3, nor vice versa. Rather, both Propositions 2 and 3 are caused by Proposition 1. Thus, we might be able to adopt policies affecting Propositions 2 without eliminating Proposition 3, and vice versa.

B. Oxfam seeks to raise funds to reduce poverty. How should Oxfam go about this? More to the point, if Oxfam concludes that emphasizing inequality represents the best way to raise funds, who here has greater expertise on this topic than Oxfam? I have high regard for Rogers’s policy analyses—but that does not give me cause to conclude that he knows best how to run a marketing campaign.

Indeed, if we wanted to speculate about inequality and causation, we might conclude that 1) ever more money is in the hands of people who have a declining marginal demand for their next dollar, and thus 2) ever more fundraising campaigns will be designed to speak to the perspectives of those people.

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nobody.really
on May 23, 2019 at 16:42:42 pm

"... thus 2) ever more fundraising campaigns will be designed to speak to the perspectives of those people."

And when may we expect to see you on the [Oxfam) hustings?

Agree with your conclusions re: interplay of your Prop 2 & 3. Heck, didn't some wizened graybeard back in biblical times admit as much? WHO will always be with us!

Of course, the definition of "poor" has been updated over the course of the last three centuries with the average peasant enjoying more material goods and conveniences than the monarchs of old.

Heck, when I think of some really (I mean REALLY) good Cabernets out there and the fact that I don;t have them, I feel impoverished. Whudda thunk it? back in the 16th century?

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gabe
on May 24, 2019 at 16:22:59 pm

The same people justifying the inequality are the same ones that are criticizing Thomas picotees work capital and 21st century and defending the egregious wealth disparity occurring under the neoliberal capitalist market system globally. I have been reading and following writing about the same issue for near on 35 years now.

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Chris dorf
on May 27, 2019 at 17:37:33 pm

What’s odd is that so many people--including supposedly knowledgeable journalists who know better--will parrot these obvious and intentionally misleading statistical sleights-of-hand.
International development agencies did a lot to lay the groundwork for the poverty reduction we’ve seen in the past 20 years. They promoted the improvements in education, health and infrastructure that made private investment (jobs) viable. But many development professionals are unhappy that their enlightened professional wisdom must now yield to unruly market forces. Hence the pessimism.

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Image of Frank Morgan
Frank Morgan
on May 29, 2019 at 00:30:06 am

[…] Global Poverty and the Lure of Resentment James R. Rogers, Law and Liberty […]

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Image of PowerLinks 05.29.19 – Acton Institute PowerBlog
PowerLinks 05.29.19 – Acton Institute PowerBlog
on May 29, 2019 at 09:53:46 am

"International development agencies did a lot to lay the groundwork..."

No they didn't. Read the World Bank report. It came from slightly freer markets.

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Image of Roger McKinney
Roger McKinney
on May 29, 2019 at 09:55:07 am

"International development agencies did a lot to lay the groundwork..."

No they didn't. Read the World Bank report. It came from slightly freer markets.

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Roger McKinney
on May 29, 2019 at 10:26:12 am

Most of the problem with world wide inequality issues from inflationary policies of the Fed, the European Bank and BOJ through Cantillon effects. Rich countries get the new money before prices rise while poor countries get it after prices have risen so the money buys less.

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Roger McKinney
on February 04, 2020 at 05:57:20 am

[…] stagnated in the U.S. over the last generation. But it’s even more untrue of the world where over one billion people have escaped “extreme poverty” in the last thirty years. In 1960, half of the world’s population lived in “extreme […]

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McCloskey’s Brief Against Antiliberalism

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