Jessica Hammer: The World Poverty Situation is Better Than You Think

My students continue to write excellent blog posts on an internal blog for my “Monetary and Financial Theory” class, and have been good enough to give me permission to publish them here. This Saturday, I want to share the two I liked best this past week. Jessica Hammer’s post gives an excellent synthesis about the world poverty situation. 

It is very common for us to hear, and say, that the world’s most pressing issues are war, disease, poverty, etc. Indeed, these are problems humanity faces today, and has been facing for all of history. Complex, far-reaching complications like these deserve our attention always. But the focus of this post is on poverty, in which we have made colossal improvements, despite popular belief.

The kind of poverty with which we are concerned is absolute poverty, not relative (which measures well-being compared to others in the same area). The World Bank defines poverty as “pronounced deprivation in well-being. The conventional view links well-being primarily to command over commodities, so the poor are those who do not have enough income or consumption to put them above some adequate minimum threshold.” That threshold has been defined as $1.25 per day (although $1.50 or $2.00 per day are at times used instead).

First, people tend to focus on the negative statistics of poverty. Of course the fact that in 2010, 21% of households in developing countries lived below the extreme poverty line ($1.25 per person daily), deserves our attention and is not to be understated. But the usually-overlooked side of the statistic reveals that just 30 years earlier (in 1980) the figure was at 52%. That is quite an astonishing improvement in such a short period of time. An article from the New York Times has a very optimistic take on this issue. It quotes that “In April, the Development Committee of the World Bank set the goal of ending extreme poverty by the year 2030. More recently, the United Nations General Assembly working group on global goals concluded that “eradicating poverty in a generation is an ambitious but feasible goal.””

Many popular myths about poverty often undermine the potential to eradicate it. An article from the WSJ explains the three main ones: that poor countries are doomed to stay poor, foreign aid is a waste, and saving lives leads to overpopulation. To say that poor countries are doomed to stay poor is to have a very ignorant take on history. Many of the world’s richest, and fastest-growing countries today were once very poor (such as South Korea, China, Thailand, Brazil, Peru, Mexico, and India). This is not to say that poverty traps are not real, they very much are. But it is quite possible to overcome them. The article predicts that “by 2035, there will be almost no poor countries left in the world.” This is a very ambitious prediction, of which I too am skeptical, but experts seem to agree with the general positive trend of eradicating poverty in the 21st century.

Also, as the article outlines, foreign aid is a significant factor in getting countries out of poverty traps. The issue of corruption is evident, but it is not significant enough to stop helping these countries altogether. The article states “we’ve heard plenty of people calling to shut down aid programs if one dollar of corruption is found. But four of the past seven governors of Illinois went to prison for corruption, and no one is demanding that Illinois’s schools be shut down or its highways closed.” It is also not the case that countries become dependent on aid–Brazil, Mexico, Chile, Costa Rica, Peru, Thailand, Mauritius, Botswana, Morocco, Singapore and Malaysia have grown so much that they barely receive aid today. This being said, there is much debate about whether aid is actually helpful. Kenneth Rogoff summarizes the argument against foreign aid, stating that it is often misdirected, misused, it puts a strain on local resources, and that most of today’s biggest economies grew without the help of aid. (Thanks to Max Huppertz for the link to this). Unfortunately, it is difficult to know the effects of aid with certainty. However, it is true that under-developed countries today are trying to emerge into existing global markets, whereas growing countries in the past basically created the global markets.

Lastly, the idea that saving people will lead to overpopulation is, in my opinion, the most ridiculous one. Not only is it inhumane, but it is entirely wrong. As countries develop, their death rates fall and birth rates fall soon after. The general trend indicates that development leads to a sharp decrease in population growth. Many of the world’s richest countries today are in fact headed in a negative population-growth direction (like Germany). It is simply not true that feeding poor people will just produce more poor people. Education, medicine, and contraception are the key to reducing birth rates, for which aid is often necessary.

In sum, the eradication of poverty is much more feasible than we tend to think. The myths we often use to disprove the idea of eradication, are found to be completely wrong. Looking at the vast improvement in poverty over the past 50 years is not reason to sit back and feel accomplished, it is reason to work harder to eradicate it because the end is in sight. Of course, there will always be “poor” people compared to others (i.e. inequality)–which is a separate issue. But the poor we are concerned with (for now) are ones who cannot eat enough to work, and live. Putting an end to this kind of poverty will propel countries into development, and make everyone in the world better off.