Friday, January 22, 2010

In The Long Run

Sometimes you need to stop reading the headlines and start reading the trends. And one of the most significant trends affecting the human race is the steady reduction in levels of poverty, even as the human population increases. This chart is from a fascinating paper (by Maxim Pinkovskiy and Xavier Sala-i-Martin) over at VoxEU exploring long run trends in poverty and inequality.

As the authors note:
Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.
Something to celebrate surely? What's more, the authors point out that global income inequality is also declining, as it is in most EU countries, including Ireland. The main driver of this welcome trend is not income re-distribution but capitalism-induced economic growth. Just as it has been in Ireland - the Celtic Tiger made Ireland a more equal society, despite protestations to the contrary by the headline writers. The latest CSO SILC statistics confirm this:

In the long run we're all better off with capitalism. Though I'm not expecting to read that in the headlines any time soon ...


  1. I, too, am a true believer in capitalism. The trouble is, in an authentically capitalist society the banks would have been allowed to go bust. That didn't happen because profits were privatised and losses were socialised. As long as we are complacent about this we have no right to call ourselves capitalists.

  2. Hugh - agreed.

    The challenge - now that we've socialised the losses - is to stop them getting worse and burdening future generations with the consequences.

    And making sure it never happens again of course ...

  3. I don't want to be a nit-picker Gerard, but I'm afraid I see a contradiction between "stopping (the losses)getting worse", and "making sure it never happens again". This sounds very like Marc Coleman's belief that we should be bailing out mortgage-holders with taxpayers' money as well, with the effect of propping up the price bubble in property.

    Unfortunately, if we believe in the primacy and efficacy of the free market, we should be letting the 'invisible hand' do its work, not introducing even more distortions. The Japanese tried this and all it got them was their 'lost decade'.

    Some of us didn't go on a borrowing and spending splurge over the last 10 years. We're the reason the banks still have at least some reserves left in their vaults, but precious little thanks it gets us.

    Public policy in Ireland has a default setting towards lending and debt that is still the dominant paradigm. Even NAMA is ostensibly to "get the banks lending again." Has it occurred to anyone that falling house prices might be a good thing? Not because it will destroy the banks but, on the contrary, because it will encourage capital back into the market as soon as the prices make economic sense, unleashing a wave of investment based on sound fundamentals for the first time in 15 years.

    All the action in the market at the moment is driven by public funds - this is inherently unsustainable. Let the prices fall where they will and let the foolish take their losses, it is the only way sane businessmen will return to what they do best. As Ludwig might have said, 'an unencumbered free market is the best way.'

  4. Good to see that "the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006". Reading the piece, however, it's not so clear that it is talking about $1 a day in real inflation-adjusted terms. If it isn't, then the statistic isn't as impressive as it sounds.



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