Archive for the ‘Income Distribution’ Category

The Data Call for Optimism

Extreme poverty is set to fall below 10% of the world’s population.

“This is the best story in the world today,” said World Bank president Jim Yong Kim. “These projections show us that we are the first generation in human history that can end extreme poverty.”

Extreme poverty has long been defined as living on or below $1.25 a day, but the World Bank’s adjustment now sets the poverty line at $1.90 a day.

It would be interesting to see just how much of the drop in extreme poverty is attributable to economic reforms in China.

Categories: China, Income Distribution

Spot the Unintended Consequences

Government enacts a price floor. What could possibly go wrong?

I hope my students can analyze this story using several of the concepts we’ve covered so far in class: segmented and non-segmented markets, incentives, binding and non-binding price floors, tax incidence, etc.

Class Videos on GDP and Standard of Living

March 10, 2016 1 comment

First, on real GDP and standard of living:

Second, growth miracles and disasters:

  • Is GDP is good measure for standard of living? Why?
  • What does GDP not measure well?
  • What usually happens to the incomes of poor people when a country’s GDP grows?
  • What does the “hockey stick” mean?
  • Which countries have similar GDP per capita but very different distributions of income?
  • What’s the difference between GDP and GDP per capita? How is GDP per capita calculated?
  • What are some example of countries that have “caught up” quickly with the countries with the highest standards of living? What are some example of countries that have not caught up?
Categories: Income Distribution

When Travel Writers Write About Economics

October 6, 2015 Leave a comment

Paul Theroux is an excellent travel writer. Economics? Not so much.

The Chinese success, helped by American investment, is perhaps not astonishing after all; it has coincided with a large number of Americans’ being put out of work and plunged into poverty.

Mr. Theroux is too careful with words to say American companies’ investment in China has caused American unemployment and poverty, but that’s the clear gist of the article. No simple coincidence here!

In fact, U.S.-China trade is not a zero-sum game. China has not become richer at the U.S.’s expense. Sure, certain industries have been hit hard by Chinese competition. Others have greatly benefited from access to more efficiently produced clothing, toys, industrial machinery, auto parts, etc. (OK, cheaper, if you insist–has it occurred to Mr. Theroux that the one who can produce the good more cheaply should be free to gain a cost advantage in the market?)

Big companies have always sought cheaper labor, moving from North to South in the United States, looking for the hungriest, the most desperate, the least organized, the most exploitable.

Yup, that’s what all big (bad) companies do. Haven’t you noticed that almost all the employees of Google, BMW, and Sony are in now in Bangladesh and Burundi? And that GE can’t wait to move it’s headquarters to Malawi? The only thing that counts to big companies is hungry, exploitable workers. That’s why only little companies employ people in places like New York City, Paris, and Hamburg. Right? Rank silliness.

It seems obvious that executives of American companies should invest in the Deep South as they did in China. If this modest proposal seems an outrageous suggestion, to make products for Nike, Apple, Microsoft and others in the South, it is only because the American workers would have to be paid fairly. (emphasis mine)

This, for a writer, is awfully sloppy use of language.

What Mr. Theroux must know is that for these workers to make Nike, Apple and Microsoft products, they would have to be paid more than Chinese or Vietnamese workers. Its not even legal for Nike to offer the same wage to an American worker as it offers to one in Vietnam. The U.S. government requires it to pay Americans more.

So, what, pray tell, is fair about getting paid more to make the same shoe just because someone is an American?

What in the name of fairness demands special economic treatment for Americans? If Americans want to be paid more than Chinese, there is a fair way: they must produce goods and services of greater value.

Maybe Southerners aren’t so backwards that they can’t move up the economic value chain. Or should they just make shoes and cell phones for the next 100 years?

One last point: if Mr. Theroux really wants Southerners to be paid a “fair wage,” he can insist his books only be published in the U.S. South. Oddly enough, not one of his publisher’s offices are in the Deep South. Why not? Could economics have something to do with it? Or is Houghton Mifflin avoiding giving fair-paying jobs to Southerners, like those other bad companies Nike, Apple and Microsoft? Is Mr. Theroux benefiting from that? Isn’t that hypocrisy?

An Amazing Chart

November 8, 2014 Leave a comment


How Journalists Who Probably Majored in Journalism, Not Business, Report “News”

October 6, 2014 Leave a comment


Barclay’s sponsors a survey of over 2,000 wealthy individuals. Reporters seize on one finding: 47% of the Chinese respondents say they want to move abroad in the next five years.

Here are the headlines:

Almost Half of Wealthy Chinese Want to Leave, Study Shows

Almost Half of China’s Rich Want to Emigrate

Half of China’s wealthy want to emigrate within 5 years

Sloppy, sloppy, sloppy.

Adam Minter gets it right:

First, how does Barclays know? ….[T]hey interviewed 2000 high net word [sic] individuals “all of whom had more than $1.5 million in net worth,” and 200 with more than $15 million in net worth. They come from 17 countries, and 750 self-identify as entrepreneurs. Beyond that we know nothing, but I think it’s safe to assume – based on this information – that the sample taken was not representative of Chinese millionaires as a whole (the sample size would be too small). Rather, it’s representative of Chinese millionaires who don’t mind responding to surveys from investment bankers.

And that’s not all. The report itself doesn’t say “half of wealthy Chinese want to leave.” The conclusions from the survey are more about increasing mobility of wealthy people everywhere. It rarely singles out China, When it does, China is simply in a group of countries where the immigration of the wealthy is more likely:

Over the next five years, those in China, Qatar and Latin America are most likely to be planning a move, while high net worth individuals in Switzerland, India, Saudi Arabia and the U.S. are most likely to remain where they are.

I would add that owning a 3-bedroom apartment in Beijing or Shanghai by itself would put many Chinese people in the category of “more than $1.5 million in net worth.” These respondents are not necessarily China’s “wealthy;” they could be, simply, a hundred or so Chinese who own a decent-sized apartment.

None of the reporters say how big the sample of Chinese respondents was. No one knows why they want to move, or for how long, though some of the reporters trot out the usual guesses (education, social benefits) despite the fact that the report itself says 35% of respondents want to immigrate for a “better climate!”

The WJS blog is particularly sloppy:

But for all those money drain, China is also on the receiving end: It’s a top destination for Singapore’s high net-worth individuals, with 30% saying they want to move to the Middle Kingdom.

Huh? Were we talking about “all those money drain”? A lot of Chinese wealth is held in property and capital stock, and is unlikely to move abroad with its owner.

And why the “but” as if we should be surprised that people both want to move from and to China? Would anyone write a sentence like this: “But for all the U.S. foreign direct investment, there are also foreigners who want to invest in the U.S.”? What’s next, a dog-bites-man story?

Marriage and Poverty


If you care about poverty and income inequality, you should also care about marriage:

In 2010, among people who were 15 years and over and who were in poverty, about 16.4 million lived in poverty areas (see Table 2b). Of these, more than half were people who were never married. Among the various marital groups who were in poverty, people who were separated and those who had never married had the largest proportions living in poverty areas.

Of course, we’re just seeing a strong correlation between not being married and being in poverty. Surely, there is causality in both directions: those very poor or with limited earning skills are also less attractive candidates for marriage.

But decade after decade of data point to the inescapable conclusion that stable families held together by marriage do a lot over the long term to lift people out of poverty and keep people out of poverty. The idea that you can care about the poor, but exclude marriage as an important part of the solution, ignores reality.