Tuesday, May 31, 2016

More on Noah Smith’s Low, Low, Standards

To review, Noah Smith asserted that poor countries “incredible progress” in the last 30 years. Challenged, he erroneously tried to make examples of Mexico and Brazil– both of which have suffered pretty substantial growth failures in the period. (He presented data which was not adjusted for inflation which made gains look much, much larger than an honest defense would permit.) He then pointed to the faster growth of 2000s. Indeed, the 2000s were in the last 30 years. But if he meant ten years then why say 30? This makes no sense, especially as growth again slowed over the last five years.

As a consequence of this spat, Smith has tried to peg me as a poverty-decline-denier, writing
[O]n Twitter, David Rosnick strongly challenged the very existence of a rapid recent drop in poverty. At first he declared that the poor-country boom was purely a China phenomenon.
Yes, I first argued that the “poor-country” boom of the last 30 years was largely China. All evidence points to just this. I am hardly the only person to point out that China can bias your thinking about worldwide trends. Branko Milanović wrote of the “ambivalent role of China in global income distribution” several months back.

But I never argued that, say, \$1/day poverty rates have not actually fallen rapidly. Smith knows this very well and is simply trolling (successfully, to judge by my reaction.) The only difference between us is that I am far less convinced that the rapid fall is as “incredible” as Smith insists.

How could I possibly think that Smith is hyperbolic when he writes things like
This is incredible— nothing short of a miracle. Nothing like this has ever happened before in recorded history.
In truth, this is a ridiculous statement. Of course it has never happened before. So long as poor countries grow and that poor people in those countries share in that growth, then it would be inevitable that fewer and fewer people would live below any threshold of absolute poverty. Believe me, I am thrilled that the percentage of people living in such poverty has come down rapidly. But would I call it a miracle? Please.

Are we supposed to be impressed that someone with income of \$0.99 per day one year now has an income of \$1.01 per day? Starvation is not determined by a bright line. Be happy that such poor people are starving a little less than before, but let us not pretend that their situations have so very much improved.

But poverty rates are falling more rapidly these days, right? Yes, the numbers do bear this out. But it is a mistake simply to infer that they are falling more rapidly because of incredible progress among poor countries. If we found incredible shared growth in poor countries (such as China) then the economy will rapidly pull large numbers of people out of poverty. But there is another important factor: if an incredible number of people live just below the poverty line, then little growth will also pull large numbers of people out of poverty. Such progress in poverty reduction would be best described as “credible.”

That is, even if China had not grown so rapidly, the fact that so large a proportion of people there lived near the poverty line meant that large reductions in poverty rates were all but a matter of time. The fact that China grew so fast for so long meant that large numbers quickly approached and then passed the threshold. So which is it? Faster growth or more people happening to live just short of the poverty line? Consider two countries with exactly the same (high) poverty rate, but one country (dark blue) happens to have more of its population near the poverty line as in Figure 1.

Figure 1: Distribution Matters for Poverty Reduction

Holding constant each country’s level of inequality (measured by the Gini), if both countries grow at the same rate, then the more equal country will pull about 75 percent more people across the poverty line. Put another way, if the more equal country grows at 2 percent, the less-equal country must grow at 3.5 percent in order to keep its poverty rate from rising above that of its neighbor. The important point here is that it takes a lot of growth to make up for not having a population already near the poverty line.

Given any reasonable distribution of world income, an unprecedented share of people would approach the poverty line. And in fact this is exactly what happened in the late 1980s.

(source: Our World In Data)

Of course, fast-growing China pulled its poor across the line much faster than other countries. No matter what Smith thinks about India’s rate of growth, there is a vast chasm between China’s reduction in its poverty rate and what India managed in the same period.

(source: Our World In Data)

So the “miracle” of accelerated poverty reduction is the result of a combination of fast-growing China and the non-China world’s modal income happening to lie close to the poverty line. If Noah Smith wants to sell it as a miracle, I guess that is fine so long as he understands it took China to turn the coincidence into a miracle. Coincidence might be the kind of stuff he considers heady, but not me.

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