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Discussion: (75 comments)

  1. Jon Murphy

    And here I thought globalization was a race to the bottom!

    1. Rober Exton

      The fact that Capitalism works is shown by Vietnam. They were a poor starving country under Socialism, Then in the mid 1990’s they moved to free markets and liberty, in other words the Government got out of the way. As a result, about 5 years later the country was able to export rice in 2000 for the first time in 30 years.
      Today there is more economic activity in Saigon, then in San Francisco.

  2. It was globalization, free trade, the boom in international entrepreneurship. In short, it was the free enterprise system, American style, which is our gift to the world“…

    Oh yeah?

    It seems that Obama’s choice for World Bank president might have problem with that idea

  3. is it inflation adjusted or not?

    1. John Dewey

      efim: “is it inflation adjusted or not?”

      Yes, it is. The official World Bank definition of “poverty” is $1/day income in 1987 prices. That definition is what the authors, Maxim Pinkovskiy and Xavier Sala-i-Martin, in the data Mark showed above. From the study to which provided the link:

      “However, although the $1 a day poverty line in 1987 US dollars remains the official definition of poverty according to the World Bank, 16 any specific poverty line above the lowest income compatible with survival (below which, by definition, no individuals could subsist, rendering the poverty rate zero) is arbitrary. Therefore, we present estimates for poverty lines corresponding to $1, $2, $3, $5, $7.50 and $10 a day in the dollars of the WB poverty line”

      1. To be more technically correct, it is $1/day in terms of equivalent purchasing power parity to a 1987 US dollar. That is, it is also meant to take into account local cost of living variation, too.

      2. thank you

    2. “…(in 1987 dollars)…”

      I laugh everytime. A whole science, without a standard unit of measure, pretending their measurements are accurate.

      1. Well, there IS a standard unit of measure, it just has no actual meaning.

        1. John Dewey

          I do not understand what point the two of you are making. Is there a problem with the extreme poverty goal being based on $1.00 a day? Do you know why they chose 1987 as the baseline? As I understand it, there is a rationale for using that year. Or is that you do not believe it is possible to estimate the number of people who are living below this extreme poverty level?

          1. John,

            I don’t think geoih’s reference is to poverty at all, but to the dollar which has has no intrinsic value above 0. It must always be normalized for differences in time and place, and compared to something it represents to have any meaning as a unit of measure.

            If that’s not what he meant, then I have no idea, and I would hope he would correct me.

          2. Ron H,

            What do you mean by “intrinsic value”?

          3. Ron H. is basically correct. I would only add that besides having no intrinsic value, even the arbitrary value of a dollar has no standard (hence the stipulation “1987 dollars”, whatever that means).

          4. John Dewey

            Geoih: “the arbitrary value of a dollar has no standard (hence the stipulation “1987 dollars”, whatever that means).”

            I think the goal does have a rationale, though the $1 level is a rounded off approximation. As I understand it, the $1.00 extreme poverty threshold came from research done by three World Bank economists, Martin Ravallion, Gaurav Datt, and Dominique van der Walle (RDV, for short), published in 1991. RDV analyzed income surveys from the 22 largest developing nations, surveys which were conducted in the late 1980s. For comparison purposes, the income data in those surveys were converted to 1987 U.S. dollars, using PPP techniques available at that time.

            If I remember this correctly, RDV found that 1/3 of the households in the 22 nations had daily incomes at or below a level of approximately one 1987 U.S. dollar. The World Bank, and subsequently the United Nations, adopted that $1 per day target in establishing a 25 year goal: to cut in half the world population (households) living at or below $1/day (1987 U.S. dollars) by 2015.

            Whether you agree with all the methods used by the United Nations for achieving that goal – and I think the goal was chiefly met through application of free market principles – I hope you will agree that it is an admirable goal.

            I’m not sure I understand why it bothers anyone that an economic development goal might be expressed in the dominant world currency, or that the measurement of progress uses a benchmark value of 1987 U.S. dollars.

          5. VV

            What do you mean by “intrinsic value”?”

            I meant that fiat money has no value in itself, outside of its use as a medium of exchange, or its use as a measuring stick to compare other things that people DO value for themselves.

          6. Thanks.

            “Intrisinc value” is a strange kind of misnomer that people use. Particularly when “other use” is shorter, simpler, and has the advantage of being literally true.

          7. John

            Whether you agree with all the methods used by the United Nations for achieving that goal – and I think the goal was chiefly met through application of free market principles – I hope you will agree that it is an admirable goal.

            Oh, it is absolutely an admirable goal, and like you, I believe it has happened through the free market. I believe it has happened regardless of any involvement by the UN – an organization I hold in low regard.

            I’m not sure I understand why it bothers anyone that an economic development goal might be expressed in the dominant world currency, or that the measurement of progress uses a benchmark value of 1987 U.S. dollars.

            I can’t speak for others, but I’m not bothered at all by the use of the USD, considering that it IS the most widely understood measure of value, but its not very precise, and must always include references to time and place as in “1987 dollars” and “purchasing power parity”.

            For those of us who prefer precise terms like “meter” or “gram”, using a term that has no standard meaning is vaguely disquieting.

            “Ounce of gold” was a more precise term, as everyone could understand what it meant to them,

          8. VV

            “Intrisinc value” is a strange kind of misnomer that people use. Particularly when “other use” is shorter, simpler, and has the advantage of being literally true.

            You are right, of course. Intrinsic value implies an objective value, and for economic purposes all value is subjective.

            In the future, if I use the term “intrinsic value”, please read it as “other use”.

      2. Athelred Davis

        Nearly all standards are arbitrary points of reference. And in science most understand the definition of “accurate” to mean close enough; it is nearly always an approximation. If I evaluate all years of categorical income adjusted to them same year of inflation and I see that poverty is decreasing, then how is the adjustment for inflation confounding the observation?

  4. Benjamin Cole

    Free markets (aside from the issue of pollution) work, as the price signal works.
    Check out what free markets did for Afghanistan opium production, which the Taliban had crushed: 2013 was up more than 40 percent to another all-time record, and the Afghans run 90 percent of global opium sales.
    I assume this is due to Afghani entrepreneurship and that there is no CIA or US military involvement at all.

    1. Without US imperialism, no one would be able to ride the horse!

  5. Going further back in time, prior to 1500, the per capita GDP for the world was below $1.00/day and had been that way for millennia.

    http://www.realclearmarkets.com/articles/2013/12/24/at_christmas_celebrating_an_unsung_driver_of_plenty_100810.html

  6. Giacomo Consalez

    Is this normalized for the value of the dollar that has been plummeting over the past 45 years?

    1. Yes.

  7. How much is this $1/day in terms of the historical economists’ “respectability basket”?

  8. Because it’s Given that Free Enterprise = SuperCapitalism. And clearly, if things have improved, we can easily forgive the sainted pilots flying the plane into the side of a mountain every few years.

  9. So, it looks like worldwide communism was finally starting to work before plutocratic capitalist greed tore it all down. Once the momentum of the past totalitarian enterprises dies off, we can expect to see poverty grow again to pre-communist levels.

    I got a new Krugmanian thinking cap for Christmas, and I’m just now trying it out. Seems to work as advertised.

    1. LOL

      That’s what naughty boys get these days instead of a lump of coal.

      1. Here’s a hint. Krugman is in favor of globalization.

        Thanks for the link, Jon. That’s one of the best treatments of the subject I’ve ever read. I KNEW Krugman used to be an economist.

        Many opponents of global free trade don’t seem concerned with the plight of third-world workers, but instead cite harm to American workers in their objections to using third-world labor, while ignoring the greater overall benefits.

      2. “Here’s a hint. Krugman is in favor of globalization.”

        Yes, but what does that have to do with Krugman’s propensity for bizarre post hoc explanations? Explain please.

        “Unregulated capitalism causes poverty…”

        Well, it sure doesn’t take much to convince you of something…something that you already believe anyway. Ever wonder what you’d be thinking if you used the same standard of evidence for the counterpoint?

      3. Jon,

        “Here’s a hint. Krugman is in favor of globalization.”

        Yes, but what does that have to do with Krugman’s propensity for bizarre post hoc explanations? Explain please.

        “Unregulated capitalism causes poverty…”

        Well, it sure doesn’t take much to convince you of something…something that you already believe anyway. Ever wonder what you’d be thinking if you used the same standard of evidence for the counterpoint?

    2. LMAO!

  10. matthew watkins

    This article lacks credibility or unbiased references and proof. If your going to make a claim of fact please state your references of how you obtained your conclusion that unregulated free market and trade in globalization is a positive on poverty. You have not proven that in scientific fact nor detail how globalization has been responsible for a decrease in poverty nor if the graph of decreased poverty is correct based on other scientific studies agreeing with their statement.

    1. The source is in the articel. If you read the original paper you find all the references and so on in the 75 page long paper…
      Look and you shall find…
      “(Source: The 2009 NBER working paper “Parametric Estimations of the World Distribution of Income,” by economists Maxim Pinkovskiy (MIT) and Xavier Sala-i-Martin (Columbia University).”

    2. Did you read the article? He referred to the “Parametric Estimations of the World Distribution of Income,” by economists Maxim Pinkovskiy (MIT) and Xavier Sala-i-Martin (Columbia University)

      If you have issues with the study, what are your exact arguments against the conclusion?

    3. Uh-oh.

      Mathew, it looks like you let your fingers loose on the keyboard before you did your homework.

      1. I would say it’s the repliers who haven’t done their homework. If you had actually read all 36 pages of the paper (or even just the abstract) you would know that the it makes no assertion as to the cause of this decrease. Mr. Brooks and Mr. Perry credit the free enterprise system, but provide no substance behind their assertion.

  11. Well, in the part of the world I live (Nigeria), we still have many families (note: not individuals) that live on approximately 28 dollars (5000 naira) a month.

    1. John Dewey

      temitope,

      Not sure whether you were able to see any of the supporting documentation in the Pinkovskiy and Sala-i-Martin paper. Income distributions are shown for the most populous nations. It is clear from the nation level charts that the poor people in Nigeria have not realized the large income increases that their counterparts in India, Brazil, Indonesia, and China have enjoyed.

  12. Rupert Baines

    Of course, the largest portion of that is under the governance of the Chinese Communist party. So not *entirely* “free enterprise system, American style”

    1. Yes, by one measure China raised 660MM people past the $1/day marker since the early 80’s. That would be about 10% of world population.

      http://andrewmagrath.wordpress.com/2008/09/05/poverty-around-the-world/

    2. Rupert

      Of course, the largest portion of that is under the governance of the Chinese Communist party. So not *entirely* “free enterprise system, American style”

      You are correct. there’s no actual “free enterprise” anywhere in the world. Some places are just freer than others.

    3. The reduction in poverty in China tracks exactly with the reduction of the command economy and the liberalization of the markets.

      1. thoreaupoe

        eh, not exactly.

        China was a big mover in this, but Deng Xiaoping’s economic reforms didn’t start until 1978.

  13. I notice there is an inflection point right around 1987, where poverty started to decrease less. Is this an artifact of using 1987 dollars as valuation? If it’s not an artifact, it’s worth noting that most major free trade agreements happened after that.

    Also, how does one disentangle the effects of science, technologies, and NGO work that could also improve poverty?

    1. John Dewey

      Adam,

      After reading your comment, I looked at the nation-level data in the NBER report. The worldwide steep decline of extreme poverty in the 1980s is almost entirely due to the elimination of such poverty in China. Many millions of Chinese rural families lived in abject poverty under Mao Zedong until his death at the end of 1976. A few years after Deng Xiaoping assumed power, he radically changed the incentives for China’s farmers. Where Mao had insisted that appeals to patriotism were sufficient motivation, Deng recognized that only market forces could increase Chinese food production. China allowed the free market to take over Chinese agriculture, and the extreme poverty of China’s rural regions was steadily reduced. By the late 1980s, only a very tiny portion of Chinese households lived below the World Bank’s official extreme poverty level of $1.00/day (in 1987 U.S. dollars).

  14. Year and when the poverty in China started to shrink? When they went capitalist.

  15. This is absurd. Concluding that free enterprise alone is the reason for this decrease in poverty is being willfully oblivious of civil rights, women’s suffrage, and tens of others of changes in the social climate between then and now which have increased opportunities for people all over the world.

    Globalism isn’t the worst thing in the world, but to pretend that it’s as “good for everybody” as this article is, is absolutely ludicrous. Make no mistake, globalism helps the rich get richer and stay that way, but it’s a hell of an improvement on British monarchy.

    1. John Dewey

      Please read my reply to Adam above. The free market in Chinese agriculture, introduced in the early 1980s, was mostly responsible for the elimination of extreme poverty in the world’s most populous nation. At the same time, decisions about light manufacturing, formerly tightly controlled at the national level, were decentralized to the municipalities.

      Please note that chart above is only about the elimination of extreme poverty. The factors you cite may have been important in raising incomes in more developed nations and a few others (such as South Africa). But the chart above is really about the changes in China, India, Nigeria, Brazil, Bangladesh, and Indonesia.

    2. Butt

      Concluding that free enterprise alone is the reason for this decrease in poverty is being willfully oblivious of civil rights, women’s suffrage, and tens of others of changes in the social climate between then and now which have increased opportunities for people all over the world.

      Please explain how civil rights, women’s suffrage, and those tens of other changes you wave your hand at have increased opportunities or reduced poverty in Bangladesh.

      If you read the article again, carefully, and watch the video, you will find no claim that global free trade is “good for everybody”, but that it has reduced extreme poverty worldwide by 80% in only 40 years. That’s truly a remarkable change affecting hundreds of millions of people.

  16. This just goes to show how little “economists” are in touch with actual history, the real world for that matter, or even simply how the economy actually works. This kind of progress was won from below through brutal, bloody labour struggles, not gifted from above by enterpreneurs, who btw are constantly striving to turn back the clock on the overwhelming majority of the population. Open up any book on the social history of any modern society and it should just leap screaming off the page. But no, this is just the depth of the delusions which are the staple of the ideology of our “educated middle class”. Yeah, let’s not talk about how this dire global poverty emerged in the first place. Let’s not talk about how the emerging business class robbed the world blind in the colonial era and how this still goes on under the new model of neo-colonialism. People seem full of this racist idea that the world was just full of primitives dying of their own stupidity until the developed Europeans came to teach them about “free society”. Never mind that India was actually the center of the industrial world until the British showed up to raze the entire subcontinent down to the level of an oversized plantation. Never mind that they then used this plantation to grow the junk they would then push on China, just so they could get their hands on it’s silver reserves. Or what about how working class colonists in North America would prefer to stay in Indian societies when they wound up there and almost never the other way around, because their benevolent enterpreneurial overlords treated them about as badly as they treated their black slaves? I guess you will simply choose not to believe me when I tell you that declassified official US government documents clearly show the reason why the US invaded Vietnam was to destroy the emerging economy of the south. Yes, the south, not the north, which might explain 1.5 million civilian casualties in the Mekong Delta, which was 100s of miles south of the US/SV headquarters in Saigon. Something for which Kissinger was awarded the Nobel Peace Prize, of course. Or about all the blatantly fascist regimes the US set up all over Asia and Latin America, or how all those NAZI bigshots which all “fled” to South America did so because these US backed regimes actually openly employed them to “do police work”. Yeah, ok, this is the kind of world “American style capitalism” created… It’d actually be quite an achievement to go even deeper from that point on, without actually bringing the system itself in jeopardy, wouldn’t it now? It’s kinda hard to go down deeper once you hit absolute rock bottom, which is the real achievement of enterpreneurial capitalism. So yeah, I guess in this sense you could say we have “American style capitalism” to thank for this decrease in poverty. Kinda like an assault victim might thank their assailant for the fact that they are recovering in intensive care, or maybe how someone who was brutally beaten by their parents might thank them for building up their character or something like that. In that sense maybe the empoverished masses of the world can “thank” the business class that brutally enforces this global regime for the opportunity to invest all the life energy they have to spare into pressuring their employers and their political cronies, so they’d occasionally get a raise. Which is exactly what the populations of Europe and North America had to go through throughout the 19th century, coincidently, and the only reason why we’ve got it as good as we have it today.

    1. givemefreedom

      Wow Peter, try a paragraph or two. Or try putting this disjointed, unconnected, irrelevant and incorrect jumble of bs into some type of logical argument.

      Otherwise we will ignore your comments since they are meaningless and incorrect.

    2. Walt Whitman,

      There’s a long key on the right side of your keyboard called either “Enter” or “Return”. Try it.

    3. This kind of progress was won from below through brutal, bloody labour struggles, not gifted from above by enterpreneurs, who btw are constantly striving to turn back the clock on the overwhelming majority of the population“…

      I haven’t seen that sort of insipid red rhetoric since the seventies…

      Make sure you never leave the house without a copy of Mao’s Little Red Book

      Life could’ve always been worse, consider the case of Kim Jong-Un’s uncle

    4. Peter

      Wow! What a mess! If you were to take your head out of Noam Chomsky’s ass for a moment and look around you at the real world, you would find that your stream-of-consciousness flow of words is mostly nonsense.

      Also, you might try actual citations to support your bizarre claims. You know, just to differentiate them from meaningless appeals to emotion.

      1. Whenever I see a huge block of text such as the one Peter posted, I go right on by! I have yet to see a post like that make any sense whatsoever.

  17. Now that we know how the bottom section of humanity did, as a balance, it would be nice to see how the top section fared. How many more billionares are there? Billionares that got their billions off of the backs of people working for peanuts in East Asia, Asia, etc. Does this world really need billionares? Why is 10, or 100 million not enough?

    1. givemefreedom

      You missed the whole point of the post, didn’t you?

      Would it be better that there are no “Billionares that got their billions off of the backs of people working for peanuts in East Asia, Asia, etc.” and those 80% of people who escaped poverty had stayed in poverty. Heaven forbid that someone profited from the jobs that those people got that allowed them to pull themselves out of poverty. Better that they stayed in poverty so we can have fewer billionaires in this world.

      Billions of people are better off now than they were 40 years ago, that is something to be celebrated. End of story.

    2. givemefreedom

      Further, if you want to pull more people out of poverty then we need more billionaires. More billionaires who are bidding for the labor of those poor people. More choice for the poor of this world so they can pull themselves up the income ladder.

      Want to reign in billionaires? Then we need more billionaires to compete with them.

    3. Wow! This topic sure brings out comments from people who have no understanding of economics or human nature.

      What is it about people pulling themselves out of dire poverty because of opportunities provided to them that causes such emotional and illogical spewing?

      Notice the paragraph breaks, Lou, they make comments much easier to read.

  18. dukenukem

    Wow… Peter… how’s the Pravda treating you?? Are you UAW? IBEW? something like that I’m sure… Right on brother man!!! Power to the people.. the stupid government educated people….

  19. Has the poverty reduction been a result of the American free enterprise system or the Chinese variant of it? http://www.economist.com/blogs/economist-explains/2013/06/economist-explains-0

    1. marty

      Has the poverty reduction been a result of the American free enterprise system or the Chinese variant of it?

      It’s not exactly a case of either/or. Free enterprise is free enterprise, and can only be *limited* by government policies, not enhanced by them.

      One might say that removal of some barriers to free enterprise and moves toward a market economy, as has occurred in china, has allow a billion people to lift themselves out of extreme poverty.

      Of course our freedom choose to import the products of that Chinese enterprise helps to provide the necessary market.

  20. And not only that – thanks to the US, we have done away, to a great extent, with sexism, racism, imperialism, nazism, communism, and slavery. Not only that, infant mortality rates are falling and life expectancy is rising – and again, because the US helped to create the global free-trade system.

  21. Athelred Davis

    I would be wary in saying free trade is the underlying cause of this great achievement: certainly when accounting for the number of jobs which have been displaced from higher earning proletariat economies to lesser earning. And when we see the Chinese government making global business decisions which have skewed the price of goods, that’s not free enterprise. I would like to see additional data with this to see where the income actually came from…was it produced or simply displaced from another economy?

  22. The problem is they define poverty in terms of cash flow. How much NET WORTH do the “poor” people have. Some people have to work to pay others to live on the planet.

    Then Western economists ignore all of the depreciation of Durable Consumer Goods.

  23. “In short, it was the free enterprise system, American style, which is our gift to the world.”

    I hate lines like that because it’s just “RA RA USA” drivel that oversimplifies a much more complex explanation that took more than just the US to achieve.

    Don’t get me wrong, I’m a firm believer that poverty is a problem that can be better solved through economic means than through means like simple humanitarian aid, but if I had to guess China’s controlled, the exact opposite of American “Free Enterprise” way of doing business, had just as much to do with it.

    It’s along the same lines as saying “America is a free market.” No it’s not, when you have the state doing things like issuing patents and copyrights, which are essentially a state-sponsored monopoly for a given amount of time, it’s not a free market. More free than some? Yes. Free? No.

  24. so you deleted africa from world map.decided that 1 dollar is enough for a person for one day to live.

  25. david Cox

    People can live on $1 a day because they have access to food & resources that are free. Civilisation, Capitalism changes that. Income is meaningless if you do not also specify how much you need to live.

    1. Perhaps that’s good Socialism 101 old mate, but $1 a day is not living, it’s existing – a short and usually backbreaking existence.

  26. Bravo! This is exactly true. We have had an unprecedented era of peace and prosperity, and it’s up to all of us to keep it going.

  27. Correct me if i am wrong , but hasn’t value of money decreased too? what could be bought in a dollar in those days, now costs more?

    1. Shorewalker

      See in the title of the graph: “in 1987 dollars”

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