Kruse Kronicle

Calmly Considered: Scarcity or Abundance-- Which Is Our World?

Last month, Dr. Allan Bevere and I got together to discuss the nuances of "scarcity and abundance" from theological perspectives. Too often people from the two fields talk past each other with unfair characterizations on this topic. Our conversation hopefully shines some light.

The World Is Becoming A Better Place To Live For Most People

The great majority of people throughout most of human history have precariously been able to subsist. (See Level 1 below.) A great divergence began just over two centuries ago. Global life expectancy at birth has more than doubled, and abject poverty as a percentage of the population has declined. 

The average life expectancy at birth used to be about 30 years. That doesn't mean no one lived to old age. One in four children born alive died before their first birthday, so the average life expectancy at birth was skewed downward. But life expectancy at every age has improved, especially over the past century.

The researchers at Gapminder have constructed this informative chart showing anticipated improving economic status over the next twenty years. (These numbers attempt to account for changes in the value of "a dollar" over time and across national borders.) Each block equates to 100,000 people. As you can see, the population is larger in twenty years, but a higher percentage of people have moved rightward on the continuum to greater prosperity. Many people find these numbers too abstract. What does this mean in practical terms? Gapminder has constructed this helpful chart to describe what life is like at the four levels. 

You can learn more about these four levels here. 

Three truths. The world has become profoundly better in recent generations and is improving. There is much suffering and injustice as vast room for improving our world. We can make the world a better place.

How to Increase Intergenerational Mobility

Intergenerational mobility is low in the US. Economist Timothy Taylor discusses findings from a recent study investigating how we might make improvements: Intergenerational Mobility and Neighborhood Effects. The unique study incorporates 20.5 million Americans and enables them to analyze down to the city block level.

 

The study determined that neighborhood (.5 mile radius around family) is twice as significant in determining upward mobility compared to family status. Two policy options to consider:

 

First, empowering families to move to locations with greater opportunities. For a variety of reasons, low-income families have significant barriers to relocating for better opportunities. The article shows that when low-income people are provided with brokerage services (much like wealthy professionals get when being relocated), they relocate at dramatically higher rates.

 

Second, rebuilding impoverished neighborhoods with the institutions and resources necessary to achieve upward mobility for people who live there. This one is more problematic to measure and, therefore, more difficult to address confidently. But it does seem to suggest neighborhood development, including economic development, is more critical than isolated aid to families. It seems aid to families without a corresponding improvement in societal support systems is ineffective. 

Extreme Poverty is Vanishing. What Does That Mean in Practical Terms?

Throughout human history, 90% of people have lived at a subsistence level - at or under what economists today call the extreme poverty line. Between 1820 and 1980, that percentage shrank by half to 44%. Between 1980 and 2005, it halved again to about 22%. During the next ten years, it has more than halved to less than 10%. Remember that while these percentages were shrinking, the global population grew from one billion to more than seven billion.

That is all good, but most people don't relate well to statistics. Is there some way to visually capture what this means in concrete terms?

Gapminder has an excellent graph that gives a sense of what it means to move from extreme poverty. The left column indicates how the extremely poor live relative to the features listed on the left. The second column is indicative of the life to which they emerged. 

The graph is also instructive in dividing living standards into four levels. Many of us who went to school in the 1960s to 1990s have tended to see a binary world - developed and undeveloped, first world and third world, rich and poor, the West and the rest. That has ceased to be the case. It has been on a trajectory away from a binary world all during our lifetimes. At the bottom of the graph, you will see seven yellow human figures. Each stand for one billion people. Most of the world is now concentrated in the middle and moving upward or to the right in this chart. The percentage of people in level one is now well below one billion and shrinking rapidly.

Gapminder Dollar Street has visited 264 families worldwide and taken photos of their homes and belongings. The links to photos of the households are arranged in columns like the chart, allowing you to walk through the houses and get a sense of what it means to live at various living standards. It is an excellent resource.

World Social Indicators: Global Per Capita Income

We have seen that life expectancy has been improving all across the planet. It is one of the most important measures of well-being. Yet most people think of income when they think of prosperity. Rightly so. Income is correlated with other factors that allow us to move beyond surviving to thriving.

Today's common refrain is "The rich are getting richer and the poor are getting poorer." It is widely repeated. It is a sentiment that often finds its way into the unison prayers of confession in congregations of my tradition. N. T. Wright, a theologian whose work I've found very helpful, writes:

And now we have the new global evils: rampant, uncaring, and irresponsible materialism and capitalism on the one hand; raging unthinking religious fundamentalism on the other. As one famous book puts it, we have ‘Jihad versus McWorld.” (Whether there is such a thing as caring capitalism, or for that matter thoughtful fundamentalism, isn’t the point at the moment.) …. It doesn’t take a Ph.D in macroeconomics to know that if the rich are getting richer by the minute, and the poor poorer, there is something badly wrong. (Simply Christian, 8)

It also doesn't take a Ph.D. in macroeconomics to verify such claims either. ;-) The truth is much more complicated than this declaration and certainly is not true if we take the long view of multiple generations. What can we say about per capita income on a historical basis?

Comparing income across eras is difficult. Inflation and other variables make direct comparison impossible. Furthermore, comparing contemporary currency-based economies to barter economies will not do. Economic historians have developed a concept called "purchasing power parity" (PPP) to aid this process. The value of a dollar at a fixed point in time is chosen, and the value of income at all other points is pegged to the purchasing power of the fixed dollar. We will use a PPP measure of "2011 International Dollars" (I$) for our purposes. Annual per capita Gross Domestic Product (the total market value of all final goods and services produced within a given country in a given period, usually a year) will be used as a proxy for income.

Not all economists agree on how to achieve parity between the present and more distant eras. Angus Maddison, one of the foremost authorities on this topic, suggested that about I$1,000 per capita (using 2011 dollars) is a subsistence income level and was typical of subsistence living before the industrial revolution. However, economist Brad Delong, who has done his own analysis, claims:

“A large proportion of our high standard of living today derives not just from our ability to more cheaply and productively manufacture the commodities of 1800, but from our ability to manufacture whole new types of commodities, some of which do a better job of meeting needs that we knew we had back in 1800, and some of which meet needs that were unimagined back in 1800.” (Brad DeLong)

Therefore, DeLong puts historic subsistence living at a lower level, but both scholars end up with similar income estimates in recent eras. Here is the change over the last 2,000 years using Maddison's estimates.

 

The following chart shows their estimates between 1700 and 2015:

You can see that the growth accelerates beginning in the early nineteenth century. Many have suggested that the industrial revolution began not long after 1750, and many inventions indeed came into being not long after that time. However, there was a lag time of a few decades between the advent of various technologies and their placement into productive use. Maddison argues for a beginning point of 1820 (as do other economic historians.) Regardless, keep in mind that the world population grew more than sixfold from less than 1 billion to more than 6.6 billion from 1750 to 2000 during this explosion in per capita income.

So in the aggregate, we can see that growth in worldwide per capita income is astounding. But how broadly spread is the economic expansion?

[Series Index]

Don't Forget the Good Stuff

It is easy to become obsessed with the challenges and threats we see before us today. It is easy to lose sight of the bigger picture and not see the tremendous good happening in the world. Here are six social indicators pointing to improving the quality of life for billions around the globe. Setbacks and brief reversals are inevitable, but increasingly, the challenges we face are of our own making, like tribalism and authoritarianism. Let us be vigilant in addressing our challenges without losing sight of the bigger picture.

The Future of the American Dream

For most Americans today, there has been a presumption that our children's lives will be more prosperous than ours. The American Dream, whatever particularities might include, has always included this assumption. It is virtually a social contract. Is the idea that most of our children will have a more prosperous life than we did really valid?

Robert Gordon, economic historian at Northwestern University, released a book earlier this year, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War. Gordon's mammoth tome documents changes in American living standards over the past 150 years. His research leads him to conclude that not all innovations significantly improve living standards. From 1870-1970, a wave of technological and social innovation emerged that radically improved worker productivity, improving our living standards. There has been innovation since 1970, but most of it, apart from communication and entertainment, has been an extension and a deepening of the innovations before 1970. The period from 1870 to about 1920 was a period of development and implementation of innovations that began to have a full impact after 1920. Gordon estimates the average annual growth rate in output per hour like this:

1890-1920 = 1.50%

1920-1970 = 2.82%

1970-2014 = 1.62%

For those familiar with American history, you will remember that income inequality was relatively high going into the 1920s. Inequality shrank steadily and substantially over the next fifty years until the mid-1970s. This corresponds with Gordon's estimates of rapidly improving worker productivity. Since the 1970s, there has been slower growth, which is more related to capital investment than improving worker productivity. We have seen income inequality grow since the 1970s.

Gordon is doubtful that we will ever again have a convergence of innovation as we had from 1870-1970. This and certain demographic headwinds will make sustainable high growth improbable for present generations. I hope to write more about this in the coming days, but this graphic posted by William Easterly on Twitter caught my eye. It comes from an article by David Leonhardt, The American Dream, Quantified at Last. I take it as more evidence consistent with Gordon's thesis.

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Rosling Univeristy (How to be smarter than a chimp)

Are you smarter than a chimp? There is a good chance you are not when it comes to knowledge about global socioeconomic trends. For years, Swedish global health expert, Hans Rosling, has been giving Ted talks and making presentations about global trends. One of his favorite teaching tools is to ask people a question like this:

Globally, over the past 20 years, the rate of extreme poverty has:

1. Doubled.
2. Stayed the same.
3. Decreased by more than half.

Now chimps will randomly select, giving each answer a 33% chance. Yet when Rosling asks audiences, at least half will say A, a sizable percentage will say B, while a few will say C. Yet C is the correct answer! This is the case with one variable after another. Audiences routinely score worse than chimps, choosing the most negative option.

An old adage states, "It isn't what we don't know that gets us in trouble. It's what we know that ain't so." That we routinely pick the wrong answer more often than chimps shows that we have bias.

In the Ted talk, How not to be ignorant about the world, Hans' son Rosling notes that part of the problem is our education system. Teachers go to college at a particular point in time and learn the state of the world at that time. But they tend not to learn about ongoing developments. The data has often been hard to come by and hard to interpret. So teachers are biased by what they learned years ago. (Reporters have the same problem.) But there are other factors.

During our evolutionary history, our brains became wired to notice threats. Hunters walking through the brush who were attentive to the possibility of tigers lying in wait likely survived those who went about carelessly enjoying a beautiful day. So when we reflect on broad human trends, we fixate on perceived threats. What was useful for us in the wild is counterproductive as we try to interpret socioeconomic trends. If you want to outscore a chimp on an exam about global well-being, Ola Rosling suggests that you must drop your predispositions and adopt these four rules of thumb:

1. Assume most things are improving.
2. Assume most people are in the middle of a distribution, not a binary of rich and poor.
3. Assume social development precedes becoming wealthy. (Don't assume that a population must be rich before meeting basic social needs.)
4. Assume you are exaggerating the threat if the topic is something you personally fear.

Additionally, Hans, Ola, and others have been working to build the Gapminder website to provide you with data that can be presented in meaningful ways. But one of the most important contributions the Roslings have made is their collection of entertaining and informative videos. In this post, I include every video I can find with a brief annotation. (I'll add more as I find any.) Many videos overlap or cover similar data but are all well worth viewing. So here is your resource for becoming smarter than a chimp. Don't say I never gave you anything.

(This link also has links to most of these videos, including some shorts not listed here: Gapminder Video)

Hans Rosling's 200 Countries, 200 Years, 4 Minutes (2010)

If you are just getting acquainted with Rosling, I'd begin here. This four-minute presentation gives you a quick sense of what he is talking about.

 

Hans and Ola Rosling: How not to be ignorant about the world. TED June 2014

This is the second video to watch. The front half is Hans making his case that the world is improving, and the back half is Ola explaining, as I recounted above, why we are so disinclined to see positive change.

 

Hans Rosling: The magic washing machine. TED December 2010

This is the third one to watch. This is one of my favorites. While fully embracing the concern about the environmental impacts of economic growth, Rosling shows the importance of economic growth through the story of the washing machine.

 

THE REST ARE IN CHRONOLOGICAL ORDER

Hans Rosling: The best stats you've ever seen. TED February 2006

The TED presentation that kicked it all off. He focuses on the positive changes underway in the world. He points to his efforts to liberate, integrate, and animate data and to find ways to present data the public finds understandable.

 

Hans Rosling: New Insights on Poverty. TED March 2007

Rosling shows that social development tends to precede economic development. He addresses the issue that, unfortunately, economic development has always been based on fossil fuels. Higher yields, technology, and markets are key to ending poverty, but more dimensions like human rights, environment, governance, economic growth, education, health, and culture need our attention. The ending has a great surprise!

 

Human Rights and Democracy Statistics- Gapminder c. 2008

Rosling describes why human rights are so hard to describe and evaluate.

Source

Yes they can! - Gapminder c. 2008

Rosling explains that poor nations will one day become prosperous, and we should welcome that.

Source

Poor Beats Rich in MDG Race - Gapminder c. 2008

Rosling shows that countries that have developed from poverty to well-being have done so faster than Western nations. Poor countries today can make the transition much quicker because of what previous countries have learned.

Source

What stops population growth? - Gapminder c. 2008

Small families are the key to ending population growth, and the key to small families is childhood survival.

Source

Hans Rosling: Insights on HIV, in stunning data visuals. TED February 2009

Uses Gapminder data to show nuances in how AIDS has spread and what it takes to defeat it.

 

Hans Rosling: Let my dataset change your mindset. TED June 2009

This is the third video you should watch. Rosling deconstructs the dichotomy of wealthy and developing nations and challenges the idea of thinking in sweeping terms like "Africa."

 

The Joy of Stats with Professor Hans Rosling - Gapminder c. 2010

Rosling shows how making data available and animating empowers people to make better decisions, sometimes without realizing they are using statistics.

Source

Hans Rosling: Asia's rise -- how and when. TED Nov 2009

Rosling forecasts when China and India will catch up with the USA and UK.

 

 Hans Rosling: Global population growth, box by box. TED June 2010

 Rosling says that child survival is the new green. This video explains why.

 

Hans Rosling: The good news of the decade? We're winning the war against child mortality. TED September 2010

Rosling breaks down the remarkable trends in child mortality. Education of women accounts for at least 50% of the drop.

 

 

Hans Rosling: Religions and babies. TED April 2012

Religion is not a factor in family size. There is no significant difference between Islamic and Christian countries regarding births per woman. The defining difference is economic well-being.

 

 DON'T PANIC — Hans Rosling showing the facts about population. BBC November 2013

 A one-hour investigation into the dynamics of population growth using stories about real live families interspersed with Rosling's entertaining presentation of data.

 

Don't Panic - How to End Poverty in 15 Years. BBC September 2015

No embed is available.

You can view the video here.

Here is a link to a series of short videos on how to use development data visually.

An introduction to visualising development data

 

Half of Global Wealth Owned by 62 People: How Oxfam Lies While Telling the Truth

Once again, Oxfam is circulating that 62 people have as much wealth as the bottom half of the world's population. Think about that for a moment. When you read that, what do you think that means? Particularly, what is wealth?

Many people will interpret "wealth" as financial assets. Many others realize wealth includes the value of our non-financial possessions. Therefore, Oxfam says that if you add up the value of all our possessions, 62 people own half. Right? Wrong! Though that is the message they want you to hear.

Terminology lesson. The sum of your financial and non-financial possessions is your total assets. Wealth is your total assets minus your debt. Wealth is your net worth. Oxfam misconstrues wealth as total assets. (As this has been thoroughly documented in the press for years, we can only assume the misrepresentation is intentional.)

Thanks to Reuters reporter Felix Salmon, who dug into Oxfam's sources, we know Oxfam uses Credit Suisse Global Wealth Databook to calculate their numbers. Here is how it works (using the 2015 Databook):

• Step 1: Find the global wealth total. Page 90 says it is $263 trillion.
• Step 2: Find the percentage of wealth owned by the bottom 50%. Here are the percentages of global wealth for the bottom five deciles of wealth ownership from lowest to highest (p. 148): -0.3 + 0.1 + 0.1 + 0.3 + 0.5 = 0.7%.
• Step 3: Calculate the amount of wealth for the bottom half. Multiply $263 trillion by .07%. That gives $1.84 trillion.
• Step 4: Get a list of the wealthiest people in the world and then add them up until you get to $1.84 trillion.

That may seem right at first glance but look at this graph from Credit Suisse's Global Wealth Report 2015. (p. 15) It shows what percentage of each decile lives in which region of the world. I've added two notations.

Note that the United States has 10% of the world's least wealthy people (circle 1). China has none of them (circle 2)! How is that possible? Because the bottom number for wealth on the left side of the chart is not zero. It is a negative number. The middle-class American with a mortgage, student loans, and consumer debt totaling more than the value of her home, bank account, and other possessions, is less "wealthy" than a Chinese peasant farmer who owns virtually nothing but also has no debt. The entrepreneur who borrowed a million dollars for his business is even "poorer" than these two. This is who Oxfam is grouping in its bottom 50% of wealth. It is a meaningless comparison. But the deception does not stop there.

Oxfam builds a narrative that the increasing concentration of wealth at the top has the corresponding negative effect of making people poorer at the bottom. Their misrepresentation of wealth as total assets gives us no insight into this claim. I will suggest that income is a more critical issue for the poorest people in the world than wealth or total assets. One must have an income that at least meets basic needs before she can begin to save, invest, and buy capital goods.

Extreme poverty, measured by income, is rapidly disappearing. The percentage of people living on less than $1.90 per day has shrunk from almost 40% in 1990 to less than 10% today (and we have added an extra 2 billion people.)

(Source: Washington Post)

Furthermore, the global income distribution has been progressively moving toward a bell curve distribution and away from a bi-modal distribution, with wealthy people clustered at the top and very low-income people clustered at the bottom.

(Source: Business Insider)

And this chart shows how the mean and median global per capita income numbers keep rising, also noting that the global GINI coefficient declined from 68.7 to 64.9 between 2003 and 2013. (Lower GINI number means more equality.)

(Source: Conversable Economist)

As I have continued to learn about these issues, I keep coming to this graph as a discussion starter on economic inequality.

(Source: Pew Research)

To me, this chart suggests that recent trends in technology and globalization have benefited billions of people who once lived in bare subsistence poverty. There is a small minority of people at the left of the chart who are not being touched by these changes, most of them living in counties with turmoil and failed nation-states. At the extreme right are the owners of capital who have benefited from productivity and expanded trade. Middle-class people in developed nations have experienced downward pressure on their wages due to technology and a burgeoning labor supply in a global economy. However, living standards are not just a function of wages but also the cost of living. A case can be made that the developed world middle class had improvements in living standards because globalization kept the cost of living lower than it otherwise would have been. That does not show up in this chart. It is more complex, but a chart like this is a better place to begin a discussion.

In short, Oxfam wants to promote a narrative that casts global capitalism primarily as an exploitative enterprise, a zero-sum game where the growth of wealth at the top necessarily means the reduction of wealth at the bottom. The narrative intuitively makes sense. Some version of this thinking is common, but it is virtual gospel on the left where the moral compass is directed predominately by equalization rather than a robust conceptualization of justice. But it is wrong. It is as ideologically myopic as the "free markets and democracy fixes everything" mantra on the right.

Finally, let me be clear about what I did not say. I did not say I thought that the growing concentration of wealth at the top was good, that there are not masses of people who need substantial improvement in their economic well-being, that global capitalism is an unqualified good, or that there are not profound economic injustices in the world. I did not speak to any of Oxfam's proposed policy solutions. Discernment of economic issues is complex and requires our best efforts at sound analysis to bring lasting and just change. Oxfam's misuse of the data to support ideologically predetermined policies does not help. They are telling the truth about the numbers they use, knowing the numbers they use will lead most of us. That is what I'm addressing.

 

Minimum Wage, Nativism, and the Illiberal Roots of Progressivism

Virginia Postrel has an interesting article at Bloomberg, "Progressive and Racist. Woodrow Wilson Wasn't Alone," a book review of Thomas Lenoard's Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era. Here are a few key quotes:

The progressives believed, first and foremost, in the importance of science and scientific experts in guiding the economy, government, and society. Against the selfishness, disorder, corruption, ignorance, conflict and wastefulness of free markets or mass democracy, they advanced the ideal of disinterested, public-spirited social control by well-educated elites. The progressives were technocrats who, Leonard observes, "agreed that expert public administrators do not merely serve the common good, they also identify the common good." Schools of public administration, including the one that since 1948 has borne Woodrow Wilson's name, still enshrine that conviction.

Later, she writes:

Advocates similarly didn't deny that imposing a minimum wage might throw some people out of work. That wasn't a bug; it was a feature -- a way to deter undesirable workers and keep them out of the marketplace and ideally out of the country. Progressives feared that, faced with competition from blacks, Jews, Chinese, or other immigrants, native-stock workingmen would try to keep up living standards by having fewer kids and sending their wives to work. Voilà: “race suicide.” Better to let a minimum wage identify inferior workers, who might be shunted into institutions and sterilized, thereby improving the breed in future generations. ...

... Clark's theory is now a foundation of mainstream labor economics. In his day, however, it was highly unpopular. "A key element of resistance," writes Leonard, "was that many progressives were reluctant to treat wages as a price," rather than a right of citizenship and social standing. Informed by their beliefs in scientific racism, most progressives preferred wages to favor some groups over others: men over women, whites over blacks, and most prominently, native stock over immigrants.

Although they generally assumed black inferiority, progressives outside the South didn't worry much about the "Negro question." They were instead obsessed with the racial, economic, and social threats posed by immigrants. MIT president Francis Amasa Walker called for "protecting the American rate of wages, the American standard of living, and the quality of American citizenship from degradation through the tumultuous access of vast throngs of ignorant and brutalized peasantry from the countries of eastern and southern Europe," whom he described in Darwinian language as "representing the worst failures in the struggle for existence."

So restricting immigration was as central to the progressive agenda as regulating railroads. Indeed, in his five-volume History of the American People, Wilson lumped together in one long paragraph the 1882 Chinese Exclusion Act and the 1887 Interstate Commerce Act as "the first fruits of radical economic changes and the rapid developments of trade, industry, and transportation" -- equal harbingers of the modern administrative state. With a literacy test and ban on most other Asian immigrants enacted in 1917 and national quotas established in 1924, the progressives bequeathed to America the concept of illegal immigration.

The first paragraph is the preface for what follows. It relates to why I eschew the label "progressive" despite sympathizing with some aspects of what today's progressives espouse. In my estimation, "progressivism," then and now, contains substantial hubris - believing that we are justified in moving heaven and earth to bring about a brave new world through dispassionate logic, science, and a superior moral locus. Institutions and practices that have emerged through time as practical ways of making the world work be damned! I believe most change should be modest reform, not revolution. It is in this sense that I would claim the term conservative. We want to conserve the good as we seek improvement. We aren't that smart, and we aren't that noble when it comes to redesigning the world.

The minimum wage piece is particularly interesting. While the impact of minimum wage increases is notoriously complex and difficult to summarize with precision, most economists agree that substantial increases in the minimum wage dampen job growth over time. Some studies show, just as the early progressives logically surmised, that increased minimum wages negatively impact the employment of minorities, particularly young black men.

I am going to read this book!

The world has improved since 2000 – but not because we planned it (Think Bonsai)

The Globe and Mail: The world has improved since 2000 – but not because we planned it

Millennium Development Goals: ...

... The headline goal, of cutting the proportion of people living in poverty in half, was achieved five years early, in 2010, by which time a billion people had left absolute poverty. And now the rate of poverty has fallen to less than a third of its 1990 level (that is, from 47 per cent of the world's people to 14 per cent).

The other MDGs saw impressive outcomes. The percentage of malnourished people has been cut in half. So has the number of children dying before the age of five, and the percentage of people without access to clean drinking water. The maternal mortality rate has almost dropped by half. The number of primary-age children out of school fell from 100 million to 57 million; the primary enrollment rate in sub-Saharan Africa rose to 80 per cent from 52 per cent. New HIV infections annually fell from 3.5 million in 2000 to 2.1 million in 2013. ...

... There's a problem with all the self-congratulation, though: Nobody has been able to find any connection between those impressive outcomes and anything done by the UN since 2000.

Charles Kenny and Andy Sumner of Washington's Center for Global Development have spent the decade tracking the progress of the UN's goals. In a series of studies, they've found that in most areas the goals had little or nothing to do with the outcomes. ...

... What did cause the world to improve so dramatically between 2000 and 2015? In large part, two things: After 1990, the old closed, nationalist economies of the postcolonial era and the Cold War broke down (with ugly results at first) and gave rise to the set of phenomena we call "globalization." And after 2000, countries in Asia, South America, Eastern Europe and much of Africa started developing better institutions of government, education and health. Stronger liberal economies and stronger states worked wonders.

The UN's new post-2015 goals at least recognize that economic growth is crucial (they call for an astonishing 7-per-cent growth a year in the poorest countries). It may, in fact, be the only key factor – and it's the one the UN can't control.

In fact, what is needed is a healthy economic ecosystem grounded in efficient and just soci0-economic structures, with markets providing a real-time feedback loop through which a society can be adaptive to ever changing priorities. That ecosystem needs to be justly connected to the larger ecosystem of global productivity and exchange.

There is a common tendency to believe that development can be achieved through top-down analysis, planning, and implementation. This is generally the U.N. Millennium Development Goals model. Such projects are rarely effective. It presumes that experts can correctly identify the most critical needs, that the priority of those needs will stay constant, and that they can identify which levers to flip to get the optimal outcome.

Mohammad Yunus uses the image of the Bonsai tree to illustrate the problem. The tiny Bonsai tree grows from the same seed as the tall tree in the forest. The difference is that the Bonsai tree has only the nutrients of the tiny pot in which to grow. The poor are Bonsai people. They can grow as strong and tall as anyone else if planted in the right soil. The right soil is healthy socioeconomic structures and inclusion in networks of productivity and exchange.

The U.N. approach has elements of paternalism. The poor can reasonably address their own needs if the "right soil" is present. Because of geopolitical concerns or pure ineptness, the West has too often played a role in "degrading the soil." This article again reminds us how impotent so many of our "big idea" solutions are. The critical factors lie in the less-than-glamorous work of building healthy institutions.

How countries spend their money

Interesting graph from the Economist.

'Great Decoupling' of Wages and Productivity Driven by New Technology

Huffington Post: 'Great Decoupling' of Wages and Productivity Driven by New Technology

Interesting chart.

250 Million Migrant Workers Transforming World Finance

Conversable Economist: The Rise of Remittances

"Here's a pattern showing the rise in remittances over time compared to some other international financial flows.  Back in 1990, international remittances were lower than official development assistance (ODA). Flows of foreign direct investment (FDI) to developing countries were also smaller than ODA, as were flows of private debt and portfolio equity to developing countries. (The FDI flows to developing countries show here exclude China.) Remittances have been larger than development assistance for some years now, and the gap is growing. Perhaps more surprising, remittances also outstripped debt and portfolio equity flows to developing countries in recent years. The flows of remittances also look quite stable compared to other private-sector capital flows."

Top 1% Income Share Is The Same As 1999

From a post by Greg Mankiw (The One Percent, Updated):

Over the last sixteen years, the share of pre-tax income earned by the top 1% has ranged between 17% and 23%. I calculate an average of 20% over that time frame, precisely where it is today. Read Mankiw's post for more details.

A peculiar note: I suspect if you were to show this data from 1975 forward without the title and the y-axis label, many people would think this was a graph about global warming.

Globalization and Inequality: Two Complex Decades in One Simple Graph

Pew Research Center: Chart of the Week: How two decades of globalization have changed the world

(Source: Milanovic, B., Lead Economist, World Bank Research Department, Global income inequality by the numbers. Annotations by James Plunkett.)

I have seen the unannotated version of this graph several times, but the annotations really make things clear. The graph shows that much more is going on here than simplistic narratives of "The rich are getting richer, and the poor are getting poorer" (the graph discredits the second half of that statement) and the 1% versus everyone else.

Why Rich People Don't Care About You

Real Clear Science - Newton Blog: Why Rich People Don't Care About You

Examine the income ladder of the United States, and you'll soon stumble upon a surprising fact: Rich people donate a smaller portion of their income to charity than poor people. In 2011, people in the bottom 20% donated 3.2 percent of their earnings. People in the top 20% donated just 1.3 percent.

These numbers don't seem to be anomalous, but there is some nuance. Data from the National Center for Charitable Statistics shows that taxpayers making less than $60,000 donate around 3.75% per year, while those making between $200,000 and $10 million donate less than 3%. However, those making more than $10 million are the most generous of all, donating nearly 6% of their income.*

Psychologists have examined this dynamic even further.

"What we've been finding across dozens of studies and thousands of participants across this country is that as a person's levels of wealth increase, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increases," Paul Piff, an Assistant Professor of Psychology and Social Behavior at the University of California, Irvine, announced in a 2013 TEDx talk. ...

... Of course, the wealthy aren't doomed to be Scrooges. For instance, the studies did not examine if there were behavioral differences between those who earned their wealth versus those who simply lucked into it. Also, Keltner insists that the human brain is hardwired to care. The wealthy just have to consciously work to be more cognizant of their fellow humans.

I've read other studies that indicate that the wealthy are just as responsive to needs as less wealthy people, but wealthy people are more isolated from the needs of people farther down the economic ladder. Social distance and ignorance may be factors as big or bigger than selfishness or indifference.

A Richer World... but for whom?

BBC: A Richer World... but for whom?

We are getting richer. Not every human being on the planet and not every country. But the average person has an economic standard of living that's far better than it used to be.

One way of measuring it is to look at the amount of goods and services produced per person - gross domestic product or GDP per capita.

For the global population that rose almost fourfold in the 60 years up to 2010.

There were some marked divergences between countries. In China the increase was a stunning eighteen-fold. South Korea and Taiwan managed even more. On average, they are 25 times richer than in 1950.

A few countries, mainly in Africa, lost ground. In the Democratic Republic of Congo average living standards fell by more than half in the same period. ...

... One benefit from that is that we are living longer. In the middle of the last century a new-born baby could expect to live 50 years. Now the figure is 70. Once again there are large variations between countries but the favourable trend in that period is present in almost every nation - Botswana is the only one where life expectancy declined (by a few months). ...

... There is of course a debate, a rather vigorous one, to be had about just how bad a thing rising inequality really is. That is even more true of the question of what, if any, government policies should be employed to tackle it.

Rising inequality is a reminder that, richer though the world is, some people don't feel it.

This article does a good job of highlighting positive trends while also recognizing that improvements are uneven. The article touches on concerns about inequality, but the environmental impact and resource depletion issues must be raised. The key to wisdom is understanding that these positive and negative trends are all interconnected.

Is the greater concentration of wealth at the top (to the degree it is really happening) a by-product of the same forces lifting hundreds of millions of people out of poverty? If so, blindly attacking wealth inequality may thwart the progress of millions climbing out of poverty.

Is global economic growth improving the living standards of so many people also causing damage to the climate and environment to the point that one day soon, we will all see our living standards diminish? If so, blindly pursuing economic growth may diminish our quality of life.

The key is to think holistically. Populist movements usually take us in the opposite direction.

Why I Won't Shut Up About Positive Changes in The World

Most people are exceptionally illiterate about the trajectory of demographic and economic changes in the world, believing the world is decaying. That leads many to disengage in hopelessness. Globalization combined with investment in human capital and infrastructure has put extreme poverty in rapid retreat. The global poor are not getting poorer. The world is getting better!

I have continuously pointed to evidence of these developments through social media for more than a decade. Not infrequently, posts about positive trends are met with incredulity and even anger. How can I speak of an improving world when so many are suffering? It is as if nothing positive may be acknowledged until total success is achieved. Yet the relentless focus on the negative, attempting to shame and guilt people into action (often with distorted and exaggerated data) drives people away from action into donor fatigue and hopelessness. There must be hope that things can get better.

A recent guest preacher recounted a scene from the end of Schindler’s List. Schindler, who saved 1,200 Jews from the Nazis, reproofs himself as he realizes that he might have saved at least one more person if he had sold his car or other possessions. He finds himself in a difficult place. How can he celebrate the lives saved when so many still died? But how can he not celebrate 1,200 lives that were indeed saved?

Endless fixation on the negative leads to despair and diminishes the value of lives that have improved. Such fixation is unwarranted and counterproductive, so I will continue with stories of hope and improvement. We need balance. We need hope. And based on the Barna data below, there is much work to do.

GDP Growing Fastest in Poor Countries

The world's poorest regions have been growing the fastest for at least twenty years. The Economist forecasts world GDP to be 2.9%, Asia and Australasia (less Australia) at 5.7%, and Sub-Saharan Africa at 4.5%. These rates indicate a considerable slowing of growth from recent years. The US forecast is 3.2%. This is more evidence that global inequality is shrinking, even though inequality within many nations is increasing. As the bottom of the economic ladder rises, so does the distance between the bottom and the top. A recent article forecasted that there would be no poor nations by 2050. I think that is likely. See: Gauging growth in 2015

Chronic Hunger Falling, But One in Nine People Still Affected

World Watch: Chronic Hunger Falling, But One in Nine People Still Affected

Although the proportion of people experiencing chronic hunger is decreasing globally, one in nine individuals still does not get enough to eat. The United Nations Food and Agriculture Organization estimates that 805 million people were living with undernourishment (chronic hunger) in 2012–14, down 209 million since 1990–92 (Figure 1).

Keep in mind that the global population grew by one-third during the same period. About 18.7% of the world lived with chronic hunger in 1991, while 11.2% do so today. Had the percentages stayed the same as in 1991, there would be 1,340,000,000 people in hunger instead of 805,000,000. Things are getting better, but we have a long way to go.

Reasons to Be Cheerful

Matt Ridley: Reasons to Be Cheerful

We are prone to fixate on problems and threats. The news concentrates on Ebola, the Middle East and Ukraine violence, and the discord in Ferguson, Missouri. But it is important to keep present challenges (and they are more decidedly real) in context. Matt Ridley offers twelve reasons to be cheerful when we look at broader trends.

So let’s tot up instead what is going, and could go, right. Actually it is a pretty long list, just not a very newsworthy one. Compared with any time in the past half century, the world as a whole is today wealthier, healthier, happier, cleverer, cleaner, kinder, freer, safer, more peaceful and more equal.

1. The average person on the planet earns roughly three times as much as he or she did 50 years ago, corrected for inflation. If anything, this understates the improvement in living standards ...

2. The average person lives about a third longer than 50 years ago and buries two thirds fewer of his or her children (and child mortality is the greatest measure of misery I can think of).

3. The amount of food available per head has gone up steadily on every continent, despite a doubling of the population. Famine is now very rare.

4. The death rate from malaria is down by nearly 30 per cent since the start of the century. HIV-related deaths are falling. Polio, measles, yellow fever, diphtheria, cholera, typhoid, typhus — they killed our ancestors in droves, but they are now rare diseases.

5. We tell ourselves we are miserable, but it is not true. ...

6. education is in a mess and everybody’s cross about it, but consider: far more people go to school and stay there longer than they did 50 years ago.

7. The air is much cleaner than when I was young, with smog largely banished from our cities. Rivers are cleaner and teem with otters and kingfishers. ... Forest cover is increasing in many countries and the pressure on land to grow food has begun to ease.

8. We give more of our earnings to charity than our grandparents did.

9. Violent crimes of almost all kinds are on the decline — murder, rape, theft, domestic violence.

10. Despite all the illiberal things our governments still try to do to us, freedom is on the march.

11. The weather is not getting worse. Despite what you may have read, there is no global increase in floods, cyclones, tornadoes, blizzards and wild fires — and there has been a decline in the severity of droughts. ... there has been a steep decline in deaths due to extreme weather.

12. As for inequality, the world as a whole is getting rapidly more equal in income, because people in poor countries are getting richer at a more rapid pace than people in rich countries. ...

By all means, let us address the problems at hand, but let us also tap down the tendency to see only the negative and give in to gloom and despair.

Universal Basic Income: A Thought Experiment

Conversable Economist: Universal Basic Income: A Thought Experiment

"... What about the politics of a universal basic income? It's no surprise that many who lean liberal like the idea of guaranteeing a basic income. However, the idea has a reasonable number of conservative and libertarian supporters, who like the idea of a program that addresses the basic concern over helping those with low incomes, but in a clean, clear way that involves much less interference of eligibility rules and phase-ins and phase-outs in people's lives. Dolan claims that there are lively debates over a universal basic income happening behind the scenes between those with very different political persuasions.

The idea of a universal basic income is appealing to me in theory, but I have a hard time believing that once enacted, the U.S. political process would be willing or able to leave it alone. One one side, those who favor higher tax rates for those with high incomes would immediate start trying to figure out ways to claw back payments to those with high incomes. On another side, there would be continual pressures to reinstate programs like Food Stamps, or targeted welfare payments for certain types of families, or favored tax provisions for home-buying or charitable contributions or retirement. There would be continual political pressure to alter the amount of a universal basic income, as well. The U.S. political system does not excel at replacing complexity with simplicity, and then leaving well enough alone."

This is pretty much my perspective.

 

The Hockey Stick of Human Prosperity

From MRUniversity, Everday Economics:

"We are pleased to announce a brand new course at MRUniversity, Everyday Economics. The new course will cover some of the big ideas in economics but applied to everyday questions. The first section, premiering now and rolling out over the next several weeks, features Don Boudreaux on trade. Tyler will appear in a future section on food. You can expect more from me as well. Indeed, you may spot both Tyler and I in some cameos (ala Stan Lee) in some of Don’s videos!

Here’s the first video on trade and the hockey stick of human prosperity."

Measuring Inequality: On Using Snapshots When Only Video Will Do

When it comes to understanding inequality, the debate is frequently burdened with many misunderstandings about data. When talking about wealth inequality, we see statements like "85 people own more wealth than the bottom half of humanity." Wealth is routinely misunderstood to mean money and things someone owns. It isn't. Wealth is someone's total assets minus their liabilities. It is common to have negative wealth. The peasant farmer in rural China who has managed to save $200 and is debt free is "wealthier" than the high-income young M. D. who has a negative net worth due to substantial student loans (i.e., she owes more than she presently owns.) I recently wrote about this in The World's Bottom 10%: 7.5% Live in North America and None Live in China … And Other True But Worthless Facts.

Then there is the constant citation of growing inequality in pre-tax and pre-transfer income in the U. S. (usually just stated as "income") and the need to rectify it through redistribution. But if you only look at pre-tax and pre-transfer income, no amount of redistribution will have one penny of impact. We could transfer $100,000 to every household in the bottom half of the income distribution, and it wouldn't matter because it would be income after taxes and transfers. When we look at after-tax and after-transfer income, we see that there has been little change in inequality between those at the 95^th percentile and those at the 20^th percentile for the last twenty years. See my post, Is Income Inequality Really the Problem? It Depends on What You Call Income.

Today, Arnold Kling reviews Chasing the American Dream by sociologists Mark Robert Rank, Thomas A. Hirschl, and Kirk A. Foster. (See Kling's post: The Longitude of Well-Being) He cites a stat that shows that homeownership rates have remained fairly constant at about 67%. Kling then asks what percentage of Americans aged 55 have owned a home. A) 50%, B) 70%, and C) 90%. Kling says he would have guessed 70% when in fact, it is 90%. The 67% number is a cross-sectional piece of data, taking a "snapshot" of homeownership at a given time. The 90% number is a longitudinal piece of data, taking a "video" of homeownership over time.

… the question that I asked concerns what demographers refer to as longitudinal information. If you follow given individuals over a long period, what sort of cumulative outcomes will you observe? In particular, over a lifetime, how many people will at some point own a home? To answer a longitudinal question, you need to use longitudinal data. To instead use time-series cross-section data risks making serious errors.

Most of the conventional wisdom about relative economic well-being, including the famous studies by Thomas Piketty and Emmanuel Saez, commits the time-series cross-section fallacy. Rank, Hirschl, and Foster did not set out to debunk this fallacy or to attack the many economists guilty of it. Instead, they took what seemed to them a natural approach for studying the evolution of wealth and poverty: longitudinal data. The result, in my reading, is that, like the boy in the fable, they have in an innocent, unintended fashion exposed statistical nakedness among many economists who are regarded as experts on the topic of inequality.

Once you think about it, the truth about homeownership rates makes sense. At some point in our lives, nearly all of us have been renters. In addition, most of us are likely to "downsize" as we grow older, and in the process many of us may choose to rent.

Kling moves on to the authors' discussion of how many years a household spends in poverty or affluence between ages 25 and 60. Kling offers an interesting alternative.

I would be interested in what the data show if, rather than looking at the extremes, one does the opposite. That is, throw out each household's lowest and highest three years of income. For the remaining years of income, take the average relative to the poverty line. If this average is below 150 percent of the poverty line, call it low. If it is above 500 percent of the poverty line (which works out to about 200 percent of the median), call it high. Then calculate the proportion of households that have high, medium, and low incomes by this longitudinal measure.

This would produce a very different breakdown. For instance, suppose that, rather than quitting my job to start an Internet business, I had kept working and that my salary had continued to increase gradually until I reached age 50. In that case, under the authors' measure, our household would be in the bottom of the income distribution, because of the "poverty" of my graduate school years and my failure to achieve the income level that they require for "affluence." However, using my approach, my household would have been somewhere in the vicinity of the boundary between high-income and middle-income. That seems much more reasonable to me.

Overall, as with homeownership data, the longitudinal view of income paints a picture in which life-cycle variation and idiosyncratic factors play a role. This role is overlooked in discussions of inequality that commit the time-series cross-section fallacy.

As I read Kling's piece, I wondered how many people have had pimples. My guess is that the answer approaches 100%. Yet we don't see headlines about acne experienced by more than 90% of people at least one year in their lives. We understand that for most people, this is a temporary life-stage issue. The universe of people for whom acne is an ongoing problem is much smaller. The same is true with poverty. I'm intrigued by Kling's idea of discarding outliers and looking at 90% of the data between the outliers.

The reality is that no set of data or particular lens can tell us the whole picture about issues like poverty and inequality. We must examine the issues from multiple angles to get to the truth. But it is incumbent on us to be aware of what lens we are using at any given time and what that lens is actually showing; in this case, knowing the difference between a snapshot and a video.

Economic Development Links

1. Economist: March of the Middle Class

2. Chrsitianity Today: Poverty Is a Moral Problem - Interview with William Easterly

... The sad thing is that the field and practice of development have too often been on the wrong side of this debate. They've implicitly painted themselves into a corner where they're on the authoritarian side. Then they're backing the autocrats, backing the oppressors against the oppressed. ...

... Any advice for a 20-year-old reading this article who wants to "change the world"?

I love young people who want to change the world!

I think we need rebalancing. A large share of the effort has been going to direct technical solutions to poverty. But this has neglected the other option of advocacy and education for rights as an important moral goal. Rights also work to promote development. ...

3. BBC: Ending poverty needs more than growth, World Bank says

... "This is simply not enough, and we need a laser-like focus on making growth more inclusive and targeting more programmes to assist the poor directly if we're going to end extreme poverty." ...

4. Mashable: 64% of World's Extreme Poor Live in Just 5 Countries

... Using the most recent data from 2010, the report shows that nearly two-thirds of the extremely poor — that is, those who live on less than $1.25 a day — live in just five countries: India, China, Nigeria, Bangladesh and the Democratic Republic of Congo. ...

5. Wired: The Hyper-Efficient, Highly Scientific Scheme to Help the World’s Poor

... How did ICS know the campaign would work? It made sense in theory—free textbooks should mean more kids read them, so more kids learn from them—but they had no evidence to back that up. On the spot, Kremer suggested a rigorous way to evaluate the program: Identify twice the number of qualifying schools as it had the money to support. Then randomly pick half of those schools to receive the textbooks, while the rest got none. By comparing outcomes between the two cohorts, they could gauge whether the textbooks were making a difference.

What Kremer was suggesting is a scientific technique that has long been considered the gold standard in medical research: the randomized controlled trial. At the time, though, such trials were used almost exclusively in medicine—and were conducted by large, well-funded institutions with the necessary infrastructure and staff to manage such an operation. A randomized controlled trial was certainly not the domain of a recent PhD, partnering with a tiny NGO, out in the chaos of the developing world. ...

6. Christianity Today: How Female Farmers Could Solve the Hunger Crisis

... This gender inequality carries desperate consequences. Lack of basic tools and training means women grow and harvest significantly lower yields than men – not because they can't farm as well, but because they don't have necessary resources. In fact, female farmers do more to increase food security in rural communities than men. Women cultivate vegetable gardens and edible crops close to home, which allows them to watch their children and cook meals. In contrast, men tend to travel further from the house to grow cash crops like tobacco, coffee, and corn – crops that do little to supplement diet. ...

7. Businessweek: Have Higher Food Prices Actually Helped the World's Poor?

... Data, however, pointed in the other direction: The number of people in developing countries who reported that there had been times in the past 12 months when they didn’t have enough money to buy the food their family needed fell by hundreds of millions (PDF) from 2005 to 2009. In 2013 improved FAO estimates backed up the earlier polling reports: The numbers suggested that 842 million people in the 2011-13 period were unable to meet their dietary energy requirements, down nearly 6 percent (PDF) from 893 million people in the 2005-07 period. ...

... Heady suggests the fundamental assumption of previous poverty prediction models—that because poor people eat more food than they grow, they’re hurt by higher prices—did not account for the impact of food prices on wages. In a lot of places, as the prices of food rose, poor people earned more money. Even though they were paying more for food, their increased incomes more than made up for that and they got a little richer. In Bangladesh, for example, rural wages adjusted for the price of food increased by about a third from the middle of 2006 to the end of 2010. (Urban wages remained essentially unchanged.) ...

8. MR University: Water and common pool problem

The general logic here applies to a large number of problems in economic development, not just water. This is one of the key ideas of the theory of property rights.

9. Atlantic: How Sanitary Pads Can Help Women Improve Their Health and Education

... That's the little formula that's fueling Arunachalam Muruganantham's thriving sanitary-pad machine business, an undertaking that's not only making Muruganantham money, but one that will improve women’s hygiene in India and throughout the developing world.

Many women living in poverty use rags, newspaper, or even mud to manage their menstrual periods. None of these work very well and can introduce infections or injuries; they also circumscribe women’s movement. Often, women fear being in public without protection from blood staining. ...

10. Business Insider: Here's Why Mexico Is Increasingly Becoming A Crucial Global Manufacturing Hub...

However, another big beneficiary of rising Chinese labor costs and U.S. economic growth has been Mexico. This has come despite concerns about crime and safety.

Mexico benefits from the North America Free Trade Agreement (NAFTA). At 44, it also has more free-trade agreements than any other country. Mexico also benefits from having its natural gas prices tied to those in the U.S. where prices are substantially lower relative to the rest of the world.

Average electricity costs are about 4% lower in Mexico than in China, and the average price of industrial natural gas is 63% lower, according to a study by the Boston Consulting Group.

The same study found that by 2015, average manufacturing-labor costs in Mexico are projected to be 19% lower than in China. In 2000, Mexican labor was 58% more expensive than in China. ...

11. US AID: Full Speed Ahead on Malaria

Today, the greatest success story in global health is anchored by a continent once known mostly for famine and war. Many countries in sub-Saharan Africa are making unprecedented gains in child survival and reducing the devastating burden of malaria—a disease carried by mosquitoes and a major killer of children.

According to the World Health Organization an estimated 3.3 million lives were saved as a result of the scale-up of malaria control interventions over the last decade. Over the same period, malaria mortality rates in African children were reduced by an estimated 54 percent. ...

12. Huffington Post: Africa Is Richer Than You Think

Africa suffers from another kind of poverty: lack of accurate statistical data. And it is a tragic, messy situation. Nigeria nearly doubled the size of its economy overnight -- a whopping 89 percent -- surpassing South Africa to become Africa's largest economy and the world's 26th largest. What was thought to be a $270 billion economy one day became a $510 billion economy the next day, adding some $240 billion to its economy. To put the change into perspective, it is almost like adding Israel's economy, or more than Portugal's, to Nigeria's economy. It sounds like magic but it is not. Inaccurate economic data is commonplace across much of Africa. ...

13. Atlantic: How to Make Solar Panels Affordable—for Billions

Like the installment plans of the Great Depression, Simpa Networks' "Progressive Purchase" agreements are enabling customers in rural India to get solar power for their homes. ...

14. PBS: Capitalism in Cuba? It’s closer than the U.S. may think

... As an economist who had the opportunity to observe, first-hand, the difficult transitions of China and Russia from state to largely market-based economies, I was astounded by the counter-productive actions of my government. On its own, Cuba was well into a carefully planned transition to a market-based economy. The only impact of additional U.S. meddling would be to set back this process. ...

15. Mashable: 750 Million People Still Don't Have Access to Clean Drinking Water

... Since 1990, 2.3 billion people have gained access to drinking water from improved sources. But despite this progress, 748 million people — 90% of whom live in sub-Saharan Africa and Asia — still use unimproved drinking water sources, according to an updated report the World Health Organization and UNICEF released on Thursday. ...

16. New York Times: What’s So Scary About Smart Girls?

... Why are fanatics so terrified of girls’ education? Because there’s no force more powerful to transform a society. The greatest threat to extremism isn’t drones firing missiles, but girls reading books.

In that sense, Boko Haram was behaving perfectly rationally — albeit barbarically — when it kidnapped some of the brightest, most ambitious girls in the region and announced plans to sell them as slaves. If you want to mire a nation in backwardness, manacle your daughters. ...

 17. Businessweek: The Relentless Rise Of Global Happiness

... The rest of the world, however, is different: The average surveyed person planet-wide reports greater happiness than 10 years ago—which was happier than many reported 30 years ago. That said, it turns out that the factors that lead people to self-report as happy aren’t as obvious as you might think. And this suggests the limits of using happiness as a guide for making public policy. ...

... The World Values Survey presents an additional conundrum: While the share of the world population reporting itself happy has climbed since the 1980s, the average score on a question asking people if they are satisfied with life seems to have declined marginally. ...

 18. Atlantic: Having Kids Probably Won't Destroy the Planet

An overpopulated planet is not necessarily doomed. What matters most is how those billions of people choose to live. ...

"Buying ‘Fair trade’ coffee is not really helping the very poor"

Economist: Not so fair trade

BUYING ‘Fairtrade’ coffee is not really helping the very poor, new research suggests. By comparing living standards in Fairtrade-certified producing areas in Ethiopia and Uganda with similar non-Fairtrade regions, four development economists from the School of Oriental and African Studies (SOAS) in London found that Fair Trade agricultural workers often earned lower incomes.

After four years of fieldwork in the coffee, tea and flower sectors in Ethiopia and Uganda, where they gathered 1,700 survey responses and conducted more than 100 interviews, the SOAS researchers found people living in ordinary rural communities enjoyed a higher standard of living than seasonal and casual agricultural workers who received an apparently subsidised wage for producing Fairtrade exports. Women’s wages were especially low among producers selling into Fairtrade markets, according to the researchers. ...

... PS: The Fairtrade Foundation has published a lengthy reply: "We note the innovative methodology and large sample size that SOAS’s research project has used to answer its three research questions, only one of which focuses on Fairtrade. We also note however that the study has not sought to evaluate the impact of Fairtrade’s model and interventions as it has not followed an impact evaluation methodology."

The Poor Will NOT ALWAYS Be With Us

Excellent!

The Poor Will Not Always Be With Us - Dr. Scott Todd from Compassion International on Vimeo.

Is Income Inequality Really the Problem? It Depends on What You Call Income

Are the rich getting richer and the poor getting poorer? Stories about inequality typically talk about how the rich, especially the top 1%, are seeing their incomes grow rapidly while people at the bottom are seeing their incomes stagnate and drop. A gap is widening between the top and the bottom. Is that true?

The Federal Reserve Bank of Minneapolis has just published an interesting report that studies the relative income performance of households from 1967-2012. It compares households at the income distribution's 95th, 50th, and 20th percentiles. The report's distinction between two types of income is revealing: Market income and disposable income.

Market income (pre-tax and pre-transfer income) is what we typically see reported. But when we adjust for taxes (which substantially decreases the income of the wealthy) and add in transfer income like social security, unemployment, and welfare payments (which substantially increases the income of people in poverty), we get disposable income. Disposable income paints a much different picture than market income. Let's look at two important graphs:

The top line in the chart is the ratio of market income (pre-taxes and transfers) of households at the 95th percentile as a ratio to households at the 50th percentile. For example, it appears the households at the 95th percentile made 2.7 times as much as those of the households at the 50th percentile in 1967. By 2012, they were making about 3.6 times as much. The bottom line tells a different story.

Disposable income (after taxes and transfers) follows a similar pattern until about 2000, when the ratio leveled out at just below 3.0, and has remained between 2.9-3.0 ever since. That means that despite market income having risen faster for the 95th percentile compared to the 50th percentile, inequality in terms of what people have to spend at the end of the day hasn't really changed for almost fifteen years.

Then there is this chart:

This chart shows the ratio of the 50th percentile to the 20th percentile. Note the ratio of market income continues to widen with each business cycle. The recessions, shaded gray, result in spikes of unemployment. That expands the ratio, and then the ratio contracts a little as employment improves. The sharp jump at the end correlates with very high unemployment and underemployment.

But the striking thing is the disposable income line. It is flat from 1983 onward (until a slight increase since the 2008 financial meltdown.) There has been virtually no change in inequality between the 50th percentile and the 20th percentile for thirty years!

Some observations:

1. The debate around inequality typically points to the widening gap in market income between the top and bottom. More transfer of wealth is proposed to balance out the income people receive. Market income and disposable income are conflated. If a household with a market income of $15,000 gets transfers of an additional $15,000, for a total of $30,000 in disposable income, they still have a market income of $15,000! Pointing to market income statistics as an indicator that the distribution of income is insufficient is erroneous. By this reasoning, a $15,000 household could get $1,000,000 in transfers, but they would still be "living in poverty" because transferred income is not considered in the income calculation.

2. This analysis focuses only on households in the top 5%, not the top 1%, where so much debate has been. For reasons reported in the article, the data did not lend itself to a study of the very top 1% or 0.1%. The ratio of disposable income of the very top to lower percentiles may be increasing. But the ratio of disposable income is certainly much lower than market income.

3. This study suggests that public policy has been doing a very good job of preserving disposable income ratios for many years. We may want to debate if these ratios are just, but they are not widening.

4. The fact the market income ratio continues to widen, meaning it takes more transfers to keep disposable income constant, suggests that low wages and unemployment, not insufficient transfers, are becoming the problem. Left-leaning figures like Robert Reich argue that the decline of union bargaining and failure to raise the minimum wage are the culprits. Companies aren't paying employees relative to their economic contribution. That leaves taxpayers to subsidize the work that these companies get from low-wage workers. Other economists suggest the labor market is more efficient than that and that most employees are being compensated relative to their economic contribution. While very modest minimum wage increases are likely without much impact on the total labor market, substantial jumps in the minimum wage are likely to lead to automation and off-shoring, thus more unemployment and even more need for transfers than the alleged subsidization of low-wage workers today. Who knows exactly where the truth lies.

We do know that technology and the economy are rapidly changing. That means we need a workforce with the human and social capital to take advantage of such changes. Strong families and educational systems are central to developing that capital, and we know these institutions have weakened for some time. That doesn't help the market income challenge.

The bottom line is that disposable income inequality is not getting worse for the bottom 95%, and it seems likely that whatever inequality is growing between the top 1% and the rest is substantially less than the widely reported market income. Maybe present distributions of disposable income are unjust. That is worthy of debate. But that is different from saying inequality is growing. Market income inequality continues to rise, and what is unclear is if there is a policy fix for this or if this market income inequality is inherent in a post-industrial and digital economy.

World Bank: ‘The world has become more equal’

AEI - James Pethokoukis: World Bank: 'The world has become more equal'

Lots of attention being given to a new World Bank study suggesting China may overtake the United States this year as the world's largest economy, adjusted for living costs. But this other World Bank finding, noted by the Financial Times, is also interesting:

When looking at the actual consumption per head, the report found the new methodology as well as faster growth in poor countries have “greatly reduced” the gap between rich and poor, “suggesting that the world has become more equal”.

As the above chart shows, high-income countries in 2005 had 16.4% of global population and 60.4% of global GDP vs. 16.8% of population and 50.3% of GDP  in 2011. Although income inequality within nations may be on the rise, global economic inequality between nations is collapsing.

But here's what is really amazing: Back in 2005, low-income countries represented 7.1% of global GDP vs. 1.5% today. Now it's not as if these nations became poorer. Rather they moved up the income ladder. In 2005, 35.4% of global population lived in "low-income countries." Now that number is just 11.1% as more than 1 billion humans "moved" into middle-income nations which now represent 72.1% of global population vs. 48.2% in 2005. ...

I've seen the graph below, but it points to an interesting dynamic. It seems to suggest as economic growth happens in developing nations, the distance between the top and bottom of the income ladder widens considerably, leading to increased inequality in the nation. But economic growth also seems to move the very bottom of the distribution away from zero. It brings the income distribution more in line with developed nations, thus reducing the inequality between nations.

Economics Links

1. Huffington Post: Financially Speaking -- Are We an Illiterate Nation?

... Champlain College's Center for Financial Literacy released its '2013 National Report Card,' which quantifies what states are doing to promote financial literacy in the classroom. Only seven of 50 states surveyed came away from the study with an "A" rating. That's right, a paltry seven states! Of these seven states, only four have a standalone course -- Utah, Tennessee, Missouri and Louisiana.

Thirteen states received a "B" rating, and the remaining 30 states received a "C," "D," or "F" rating. In fact, eight states received an "F" rating. Ask yourself, as a parent, would you be content to have your children bring home similar grades? ...

2. Huffington Post: 40 Financial Things You Should Know by 40

3. Carpe Diem: World market cap reached record high in March, and is $2.4T above pre-recession, pre-crisis level

4. Businessweek: Why Factory Jobs Are Shrinking Everywhere

... But the U.S. jobs slide began well before China’s rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology, and there’s reason to think developing countries are going to follow a different path to wealth than the U.S. did—one that involves a lot more jobs in the services sector.

Pretty much every economy around the world has a low or declining share of manufacturing jobs. According to OECD data, the U.K. and Australia have seen their share of manufacturing drop by around two-thirds since 1971. Germany’s share halved, and manufacturing’s contribution to gross domestic product there fell from 30 percent in 1980 to 22 percent today. In South Korea, a late industrializer and exemplar of miracle growth, the manufacturing share of employment rose from 13 percent in 1970 to 28 percent in 1991; it’s fallen to 17 percent today. ...

5. Forbes: High Tech And Robots Can Create More Low Skilled Jobs, Not Just Destroy Them

As we all wait anxiously for the robots to come and steal all our jobs an interesting finding in a study on the effect of ever higher technology on the demand for low skilled labour. Contrary to what everyone seems to be assuming it is possible for that higher tech to actually increase the demand for that low skilled labour. For the higher tech enables that lower skilled labour to perform tasks that could only previously be done by highly skilled labour. And as the costs associated with whatever the task is fall then we quite naturally demand more of that task to be done. Thus, in certain cases at least, higher tech increases the number of jobs, not reduces them. ...

6. Business Insider: Why Food Prices Are Surging

... In a new report, Morgan Stanley commodities analysts led by Adam Longson attribute the surge in prices to a number of factors, "from weather (in the case of sugar, soybeans and coffee) to disease (in the case of hogs) to geopolitics (wheat and corn)."

The Morgan Stanley analysts don't believe this will continue. ...

7. Atlantic: How You, I, and Everyone Got the Top 1 Percent All Wrong

8. House of Debt: Measuring Wealth Inequality

9. Conversable Economist: An Inequality Chartbook: Long-Run Patterns in 25 Countries

This is an interesting chart from chartbook of income inequality.

10. Brookings: Income Growth and Income Inequality: The Facts May Surprise You

... The broadest and most accurate measures of household income are published by the CBO. CBO’s newest estimates confirm the long-term trend toward greater inequality, driven mainly by turbo-charged gains in market income at the very top of the distribution. The market incomes of the top 1% are extraordinarily cyclical, however. They soar in economic expansions and plunge in recessions. Income changes since 2007 fit this pattern. What many observers miss, however, is the success of the nation’s tax and transfer systems in protecting low- and middle-income Americans against the full effects of a depressed economy. As a result of these programs, the spendable incomes of poor and middle class families have been better insulated against recession-driven losses than the incomes of Americans in the top 1%. As the CBO statistics demonstrate, incomes in the middle and at the bottom of the distribution have fared better since 2000 than incomes at the very top.

11. Wall Street Journal: Ignoring an Inequality Culprit: Single-Parent Families

Intellectuals fretting about income disparity are oddly silent regarding the decline of the two-parent family. ...

12. Mother Jones: What If Everything You Knew About Poverty Was Wrong?

... A sociologist at Johns Hopkins University, Edin is one of the nation's preeminent poverty researchers. She has spent much of the past several decades studying some of the country's most dangerous, impoverished neighborhoods. But unlike academics who draw conclusions about poverty from the ivory tower, Edin has gotten up close and personal with the people she studies—and in the process has shattered many myths about the poor, rocking sociology and public-policy circles. ...

13. Forbes: Thank Goodness We Have Walmart If American Shoppers Are This Poor

... The economic background is that sure, WalMart makes good profits out of what it does. Yes, this includes minimising costs such as the wages they pay out, what they’ll let suppliers charge them. It even includes desiring to put other less efficient retailers out of business, those Mon and Pop stores, and to make those that remain more efficient through that competition with them. But there’s another effect of course: consumers save money through those lower prices.

We call this saving the consumer surplus. It’s not something that ever appears in the normal economic statistics, one good reason being that it’s rather hard to calculate. ...

... A 25% reduction in food expenditures just from the existence of WalMart is an amazingly large sum. It’s also considerably larger than the profits that WalMart makes out of its actions. And that’s from a decade ago recall (the paper is from 2005, the data up to 2003) and it is only recording the consumer surplus from WalMart’s move into food retailing, leaving the impact of the other parts of the company aside. ...

14. Atlantic: How the Rich and Poor Spend Money Today—and 30 Years Ago

15. AEI - James Pethokoukis: No, Walmart isn’t ripping off taxpayers

... I think I’m supposed to be outraged that Walmart isn’t paying some employees enough that they don’t need government anti-poverty benefits. But businesses generally aren’t going to pay workers more than they are worth. If a worker can only generate $8 in value to a company, then the firm isn’t going to pay them $10. Nor should they for some humanitarian reason. If American society thinks some of their fellow Americans deserve higher living standards than their skill set currently warrants, then society should pitch in and subsidize their wages through the Earned Income Tax Credit or even a new, broader direct wage subsidy. ...

16. PBS: How nonprofit workers get squeezed when minimum wages increase

Not everyone who supports raising the minimum wage is in a position to pay their employees more. Nowhere is that more true than in the nonprofit sector. ...

17. NPR: Subminimum Wages For The Disabled: Godsend Or Exploitation?

... Executive Director Gus van den Brink says the Sertoma Centre and other agencies do work to find jobs for disabled people in the community, but the focus should not be on shutting down all sheltered workshops. He says it would be nearly impossible for some people with severe intellectual disabilities to get a job at all. It's sheltered workshops, he says, that give them a chance to work and earn a paycheck.

"Some of the individuals may not even completely understand what the value of that paycheck is," van den Brink says. "But they know they are receiving a paycheck, so they are getting a lot of self-esteem. They are very proud of it."

Even so, Assistant Attorney General Samuels says the Justice Department will work with other states to make sure some workers with disabilities have the opportunity to do their work, as she puts it, at "real jobs for real wages."

18. PBS: What’s the welfare initiative uniting liberals and conservatives?

Some conservatives and liberals are uniting around the idea of a basic income because the current welfare system, they say, is an ineffective bureaucracy that doesn’t respect poor people’s ability to make their own decisions. ...

19. Atlantic: Women's Wages Are Rising: Why Are So Many Families Getting Poorer?

Start by looking at what's happening with men's wages. ...

20. Huffington Post: Gender Inequality in the Labor Market: Don't Call It a Wage Gap

When President Obama announced the Paycheck Fairness Act on Equal Pay Day this week, we applauded his efforts to address the so-called "gender wage gap" but, from a data point of view, mourn the fact that he, like many others before him, is building his case around a flawed number. The oft-quoted statistic that women only earn 77 cents for each dollar earned by a man, is not actually very accurate and distracts legislators and the public at large from coming up with solutions to the real problem -- the gender jobs gap. ...

21. Fortune: Corporate America's foreign cash machine: Signs it may be slowing

As governments coordinate to fix international tax laws on overseas earnings, companies may have to pay more taxes. ...

22. Forbes: How The Wealthiest Families Make And Lose Their Money -- Part 5

... Well-accepted research shows that about one-third of companies in the United States make it to the second generation.  Only around 10% reach the third generation.  If wealth were preserved during this movement away from the privately held business into the publicly traded markets, we would expect to see a greater portion of overall wealth being inherited.  But, the numbers tell us that only about 5% of wealth in the U.S. is inherited.  On the other hand, the wealthiest families of Europe hold two-thirds of their wealth in private companies and only one-third in publicly traded securities.  When we then look at inherited wealth, approximately 85% of European wealth is in its third or older generation.  One-third of European wealth is in its fifth or older generation.  This is an astounding result. ...

The World’s Bottom 10%: 7.5% Live in North America and None Live in China … And Other True But Worthless Facts

Back in January, Oxfam published a statistic saying that eighty-five people have more wealth than the bottom half of the world population. It has become a widely circulated stat in the debate about inequality. (Forbes recently countered that the number is actually sixty-seven people.) But what do these numbers mean? I know full well that when most people hear “wealth,” they envision how much money and stuff people own. That is incorrect. These are assets. Wealth is your assets minus your liabilities (i.e., debt). What difference does that make?

Felix Salmon, a writer at Reuters, did some digging into the Oxfam report to find the data upon which they based their claims. (See: Stop adding up the wealth of the poor) It comes from Credit Suisse’s 2013 Global Wealth Databook and here is a graph Salmon clipped showing another take on the data:

Notice the top left corner of the chart. It shows that 7.5% of North Americans are in the bottom 10%. If you look further down, you will see that virtually no one from China is. How is that possible?

Take two hypothetical people:

 1. American Physician – A new physician with a salary of $150,000 a year. She has $125,000 dollars in student loans and a car with a $25,000 loan. That totals $150,000 of debt. She is renting an apartment. Her total assets including cash, car, and other items equal $50,000. That means her wealth is -$100,000.

2. Chinese Peasant Farmer – A Chinese farmer who earns the equivalent of $3 a day, or $1,400 a year. He has managed to save $50 in cash, and he has property worth about $250. He has no debt. His wealth is $300.

The physician would likely be found in the lowest decile while the farmer would be in the third or fourth decile. By Oxfam’s reasoning, the farmer is much wealthier than the physician! That is technically true, but does this have any correspondence with what most people think of when they think of "wealth?"

Just as advanced economies have upper-income levels that far outstrip the upper levels of emerging nations, so do they also have people with huge sums of net debt that far outstrip what people would have in emerging nations. Consequently, people from more advanced economies are going to dominate at either end of the wealth distribution. (You see evidence of this in the chart by the higher percentages at the extremes for North America, Europe, and Asia-Pacific excluding China and India.) People who are unable to earn or borrow much are going to be more toward the middle of the distribution. But as with the physician, high debt doesn’t necessarily mean deprivation.

Wealth is a useful measure for some purposes, but if we want to get an accurate picture of economic well-being, we must also include measures like income. Particularly important is consumption per capita because “income” doesn’t include transfers and non-cash assistance. Statistics often show people routinely consuming as much as double their cash income because of this discrepancy. Consumption tells us much more about how people actually live. In short, Oxfam’s stat is great for sensational headlines but does little to educate us about the challenges people face.

(Related: Your New Born Is Wealthier than 60 Million Americans)

How You, I, and Everyone Got the Top 1 Percent All Wrong

Atlantic: How You, I, and Everyone Got the Top 1 Percent All Wrong

In fact, the gain in wealth share is all about the top 0.1 percent of the country. While nine-tenths of the top percentile hasn't seen much change at all since 1960, the 0.01 percent has essentially quadrupled its share of the country's wealth in half a century....

... It turns out that wealth inequality isn't about the 1 percent v. the 99 percent at all. It's about the 0.1 percent v. the 99.9 percent (or, really, the 0.01 percent vs. the 99.99 percent, if you like). Long-story-short is that this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it's this investment income, rather than ordinary earned income, that's creating this extraordinary wealth gap. 

The 0.1 percent isn't the same group of people every year. There's considerable churn at the tippy-top. For example, consider the "Fortunate 400," the IRS's annual list of the 400 richest tax returns in the country. Between 1992 and 2008, 3,672 different taxpayers appeared on the Fortunate 400 list. Just one percent of the Fortunate 400—four households—appeared on the list all 17 years.

Now there's your real 1 percent.

Economics Links

1. AEI - James Pethokoukis: What MinuteClinics and Google Fiber teach about crony capitalism

... Andy Kessler explains how established Internet service providers are trying to block Google from deploying Google Fiber, its superfast, gigabit broadband service. His solution: “The FCC can change this overnight. Instead of allowing municipalities to dictate onerous terms and laws that lock in (slow) incumbents, the FCC can mandate right-of-way rules similar to those granted Google Fiber to all credible competitors. If only the federal regulator would promote progress and focus on what’s best for the U.S. economy rather than for those it regulates.” Regulation should promote innovation and competitive churn, not protect revenue streams of existing players.

There is a big difference between being pro-business and pro-market. One does the bidding of incumbents, with the result being a static economy. The other promotes competition. Safety nets are for people, not businesses. The result is innovation and dynamism. Right now, America has too much of the former, not enough of the latter.

2. Economist: The politics of poverty. Another two cents.

... Within this miscellany [of the Ryan budget] there are some clues as to the future direction of Republican anti-poverty policies. Mr Ryan recently gave a speech in which he praised Britain’s Universal Credit, a plan to roll lots of government anti-poverty programmes into one. In some ways Britain is a strange place to seek inspiration: the British scheme is hopelessly behind schedule, a victim of the kind of IT snafu that has hobbled the Affordable Care Act. But the thinking behind it is sensible.

The other initiative that looks to have Mr Ryan’s blessing is the expansion of the Earned-Income Tax Credit (EITC) to people who do not have children (at the moment the childless are eligible for this credit but there is a low cap on the maximum payment they may receive). Marco Rubio has already spoken in favour of this. The report from the House budget committee cites plenty of evidence on the power of EITCs to boost the number of people in work. The president’s budget, published on March 4th, includes an expansion of this programme too. ...

3. Bloomberg: Free-Market Bashers Aren't Helping the Poor

... There's a more basic flaw in the thesis that markets have done nothing to help the poor while government programs have done a lot: Where does the government get the money to fund these programs? Economic growth is what enables Social Security checks to get fatter over time. Unless you're prepared to argue that the government is responsible for 100 percent of economic growth and markets for none, markets have to get some of the credit for whatever good government does. ...

... Both markets and government are necessary to improve the lot of the poor, and we ought to reform government programs so that they do a better job of helping the poor participate in markets. That's just common sense, and no study or statistic has given us a good reason to reject it.

4. AEI - James Pethokoukis: Has America finally reached peak food-stamp enrollment?

5. Carpe Diem: US household net worth increased to a new record high of $80.6T in Q4, fueled by stock market and housing gains

6. Bloomberg: Decoupling Happened: U.S. Stocks Soared, China's Shrugged

The idea that emerging markets could keep growing smartly despite the collapse of the U.S. was something romanced quite a bit in recent years. Decoupling, as it’s called, was at least numerically possible. After all, China, Brazil, India, and Russia—the planet’s four biggest emerging economies, which chipped in two-fifths of global economic growth in the year leading up to Wall Street’s 2008 collapse—stood out as the least dependent on exports to America. Upwards of 95 percent of China’s double-digit growth was attributable to domestic demand.

Turns out a decoupling did transpire in the five years since peak meltdown—only it’s the U.S. market that seems to be doing fine while China founders. It’s a divergence of fortunes few would have predicted. ...

7. Slate: The “Made in China” Fallacy

... But are iPhones really “made in China”? More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touch screen; Broadcom, in the U.S., makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.

Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to which country, but no one disputes that the largest slice should go not to China but to the U.S., where the design and marketing of such devices take place at Apple’s headquarters in Cupertino, Calif. The largest source of an iPhone’s value—and this goes for thousands of other high-tech products—lies not in its physical hardware but in its invention and the work of the individuals who conceived, designed, patented, packaged, and branded the device.

Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. The Asian Development Bank estimates that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy.

Now magnify this across hundreds, even thousands of finished goods. Those Nike shoes that count as imports from China, all those flat-screen televisions, Android phones, clothing, furniture, Disney toys and figures. Almost all are the result of ideas generated in the U.S. (or Japan, or Germany, or Korea, and so on), with parts sourced globally and then assembled in China to be sold elsewhere. ...

8. Project Syndicate: The Poverty of Renewables

... Forcing everyone to buy more expensive, less reliable energy pushes up costs throughout the economy, leaving less for other public goods. The average of macroeconomic models indicates that the total cost of the EU’s climate policy will be €209 billion ($280 billion) per year from 2020 until the end of the century.

CommentsView/Create comment on this paragraphThe burden of these policies falls overwhelmingly on the world’s poor, because the rich can easily pay more for their energy. I am often taken aback by well-meaning and economically comfortable environmentalists who cavalierly suggest that gasoline prices should be doubled or electricity exclusively sourced from high-cost green sources. That may go over well in affluent Hunterdon County, New Jersey, where residents reportedly spend just 2% of their income on gasoline. But the poorest 30% of the US population spend almost 17% of their after-tax income on gasoline. ...

9. New York Times - Economix: Q. and A.: A Development Expert on Narrowing Inequality

Branko Milanovic has been studying income inequality around the world for a long time. ...

... Inequality calculated among all individuals in the world, as if they were part of one single nation, has been edging slightly downward over the past 10 to 15 years, mostly thanks to very high growth rates in China and India. These relatively poor giants (particularly India) have pulled quite a lot of people out of poverty and into something that can be called “the global middle class.”

That is the key factor behind the decline of global inequality: The distance between their incomes and the rather stagnant incomes of the middle class in rich countries has diminished. Yet global inequality is still extremely high by the standards of any single country. It is, for example, significantly higher than inequality in South Africa, which is the most unequal country in the world. ...

10. Prospect: “I started off as a libertarian economist, but I’ve come full circle”—Gregory Clark on social mobility

... If you look at England, for example, what we measure is whether you were at Oxford or Cambridge; how long you live, which is another good indicator of social status; occupational status; are you a member of parliament? Now one of the interesting findings here is that it doesn’t really matter which measure you use. For the families we’re looking at, all these things are actually highly correlated. The wealthy at any time are also the educated, members of parliament, those who live long. What the book shows is that there’s an underlying physics of social mobility which all of our political efforts seem to have no effect upon. And the startling conclusion is that we may never be able to change social mobility rates. ...

11. Business Insider: Every 25-Year-Old In America Should See This Chart

12. Business Insider: 13 Money Lies You Should Stop Telling Yourself By Age 40

... By the time you hit 40, rationalizing away your bad money management habits starts to have a serious impact on your financial future (not to mention age you).

Here are some of the top money lies that you should stop telling yourself by age 40: ...

13. Huffington Post: 5 Tools to Tackle Finances in Your Twenties

Your twenties are hard enough already: matriculating from college, finding your first "real" job, moving out on your own, learning how to pay bills for the first time and learning how to navigate adult relationships without the structure of college or free flow of alcohol. It is a scary and awkward time, no one disputes that -- but mastering your finances in your twenties will reduce your stress and increase your net worth in the long run. Below are 5 tools you need to tackle finances in your twenties. ...

Revisiting Wealth - Bob Lupton

This is from Bob Lupton, FCS Urban Ministries, in the Urban Perspectives newsletter. He is always thought-provoking. This issue was especially good! (Note: Urban Perspectives allows copying these articles if attribution is given.)

Revisiting Wealth

Wealth. A sign of God’s favor. At least that’s how it was viewed in Old Testament times. Wealth was equated with prominence, influence, leadership, and yes, even righteousness. Consider Job and Abraham. Oh yes, there were evil and corrupt rich men to be sure. The prophets took them on. But generally riches were seen as evidence of God’s blessing. That’s why the disciples were so puzzled by Jesus’ pronouncement that it was harder for a rich man to enter the Kingdom than for a camel to go through the eye of a needle. “Well who can get in, if not the wealthy?!” they questioned. It was clear that they viewed wealth like most other devout Jews – as a sign of God’s favor. Their Teacher was casting an entirely new (and dubious) light on the nature of riches.

Money, power, prestige – these would no longer be the measures of prominence in this Kingdom Jesus was introducing. Meekness, humility, compassion – these would become the defining attributes of greatness. Rich people could certainly join, He said, but this new order of things would be difficult for them – difficult to divest their personal assets rather than contine to accumulate more, difficult to subordinate their privileged status to those of lesser social standing, difficult to place their security in God rather than in their wealth. It would not be impossible, He said, just difficult. Matthew the tax collector was case in point, and of course the very wealthy Zacchaeus. Luke the physician was another. But by and large the wealthy were relegated to lower standing in the pecking order of the Kingdom. It was all upside down – the first being last and the last first. Big change from Old Testament to New.

And so the value of being wealthy was turned on its ear. The well-off became suspect. It was a rich man who treated poor Lazarus poorly and was condemned to eternal damnation. A rich young ruler too tied to his wealth to become a follower. A proud rich man in the Temple whose offering was unacceptable. A successful farmer who took early retirement who was declared “a fool.”  Deceitful Ananias and Sapphira, tragic examples of rich folk who held out on God. Wealth became associated with self-indulgence, with mercilessness, with arrogance, with fraudulence. As a matter of fact, one is hard pressed to find a single reference in the New Testament affirming wealth as God’s blessing. Warnings, yes, but no recognition of its essential role in Shalom.

But just behind the scenes, unmentioned but clearly present, were wealthy supporters of this Kingdom. Zacchaeus was still one of the richest men in Jericho even after he made restitution and gave half his money to the poor. And what about Matthew’s tax business and Luke’s medical practice? And the women of means who supported the Messiah campaign? And members of the early church that sold property to underwrite the church budget? Oh yes, wealth was there alright. It’s just that generosity and self-sacrifice and living by faith were the themes that got the sermon coverage.

But then, how could it be any different? Everybody in the early church was readying for the eminent return of the Messiah. Everyone was on a short-term schedule. Don’t even get married, the apostle Paul urged. Put all your energy into preparedness for the second coming. But Christ didn’t return as expected. (Not yet.)  And so in time everybody began settling into a new normal of church and community life, some thriving, others surviving. The themes of generosity, self-sacrifice and living by faith imbedded themselves in the culture of the church. Wealth remained suspect. The apostle James made quite sure that the rich were not shown deference.

And so the issue churns. Those who create wealth continue to receive the warnings while those modest souls who live off the benefits of the economy that wealth-producers create receive the affirmation. John Coors, a very wealthy and very devout Christian, calls it an “industry of making the rich feel guilty.”  Billionaire Robert Kern, who loves the church but endures the judgment, has allocated a large portion of his estate to educating ministers in the fundamentals of how the economy works.

“Give it all away,” Jesus said. Even your second coat. Don’t concern yourself about tomorrow. Budgeting?   Trust a miracle. Hmm. Does the One who holds the economies of the world in his hand not realize that thoughtful planning and responsible investing are essential for stable societies? Was it not He who gave the promise of prosperity to Israel if they would keep His commands? Was He not the One who warned Joseph in a dream about seven years of famine that would befall Egypt, and positioned him to plan ahead during seven years of plenty? How then are we to understand this radical “take-no-thought-for-tomorrow” departure from divinely guided resource management?

He came to fulfill the law, not do away with it, He said. Don’t abandon the God-given teachings and principles of the past – take them to a deeper level. The blessing of wealth is meant for the Shalom of the entire community, not to be hoarded for personal sumptuousness. Managed well, it provides a stable lifestyle for a workforce and their families, stimulates ancillary enterprises, contributes to the prosperity of the whole village or region. No, He did not come to destroy Shalom but to inspire it. Admittedly, He did use some highly provocative words and actions to shake up a religious culture that was misusing wealth to amass personal power, privilege and possessions. Scattering stacks of money-changers’ cash all over the Temple portico floor was a bit extreme perhaps. But sometimes dramatic intervention is required when greed and self-indulgence become acceptable norms within the Temple community. And He certainly did that!

But perhaps the time has come to bring theological balance back to our understanding of wealth. 2000 years of cautions for those who have the gift of wealth creation may be an adequate length of time to make the point that mammon is seductive, that one’s heart must be carefully guarded against its enticements. At a time when the entire world is awakening to the reality that healthy economic systems are fundamental to the elimination of extreme poverty, perhaps this is a moment for resourced members of the Western church – who have unparalleled capacity to create profitable businesses – to step forward. Perhaps this is the time when the church begins to see itself as more than a purveyor of compassionate service, but as a catalyst of just and fruitful economies.   Might this be a turning point when the wealthiest church in history awakens to the reality that their job creators are the very ones gifted by God to bring economic wholeness to struggling souls too long resigned to unending poverty?

Economics Links

1. Quartz: Globalization really means countries just trade with their neighbors

2. Business Insider: Europe's Share Of Global Profits Is At A 28-Year Low

3. USA Today: Europe widespread corruption 'breathtaking'

... Meanwhile, the report, which was the first published by the EU to detail people's perceptions of corruption in the union, also said that 76% of Europeans think corruption is widespread, with another 56% saying they thought the level of corruption in their country had increased over the past three years.

"I think the perception is almost as important as the reality of how much corruption there is because if people feel that the national or EU institution is corrupt, it clearly is an indication of a lack of confidence, a lack of trust and a lack of respect for those governing institutions," said Ben Tonra, a professor of European foreign, security and defence policy at University College Dublin. ...

4. National Review: Welfare, Here and Abroad

How bad have things become? The British newspaper the Telegraph recently looked at the growth in welfare spending in industrialized nations and found that such spending (including health-care and pension programs) had grown faster in the United States since 2000 than in any country in Europe except Ireland, Spain, and Portugal.

Of course, European welfare states were larger to begin with, but the Telegraph’s report is reflective of an important trend. While the Obama administration presses forward with efforts to combat “income inequality” by expanding the American welfare state, the European nations and other industrialized welfare states are moving in the other direction.

A few examples: ...

5. Economist: The parable of Argentina

There are lessons for many governments from one country’s 100 years of decline ...

... Why dwell on a single national tragedy? When people consider the worst that could happen to their country, they think of totalitarianism. Given communism’s failure, that fate no longer seems likely. If Indonesia were to boil over, its citizens would hardly turn to North Korea as a model; the governments in Madrid or Athens are not citing Lenin as the answer to their euro travails. The real danger is inadvertently becoming the Argentina of the 21st century. Slipping casually into steady decline would not be hard. Extremism is not a necessary ingredient, at least not much of it: weak institutions, nativist politicians, lazy dependence on a few assets and a persistent refusal to confront reality will do the trick. ...

 6. Matt Ridley: Few people know that global inequality is falling and so is poverty

...  None of this is meant to imply that people are wrong to resent inequality in income or wealth, or be bothered about the winner-take-all features of executive pay in recent decades. Indeed, my point is rather the reverse: to try to understand why it is that people mind so much today, when in many ways inequality is so much less acute, and absolute poverty so much less prevalent, than it was in, say, 1900 or 1950. Now that starvation and squalor are mostly avoidable, so what if somebody else has a yacht?

The short answer is that surely we always have and always will care more about relative than absolute differences. This is no surprise to evolutionary biologists. The reproductive rewards went not to the peacock with a good enough tail, but to the one with the best tail. A few thousand years ago, the bloke with one more cow than the other bloke got the girl, and it would have cut little ice to try to reassure the loser by pointing out that he had more cows than his grandfather, that they were better cows, or that he had more than enough cows to feed himself anyway. What mattered was that he had fewer cows.

7. Huffington Post: A Post-GDP World? How to Measure Real Progress in America

... GDP actually tends to rise with societal problems such as crime, pollution, household debt, commuting time, and family breakdown. As a short-term measure of economic output, it increases with the depreciation of machinery and the extraction of finite resources, while failing to reflect the long-term contributions of education and entrepreneurship.

In light of these shortcomings, we seek to answer an overarching question in a report to be released in spring 2014: How should the US government institute supplemental national accounts that better reflect the well-being of the nation? The question, like the broader push for GDP reform, stems from a central premise that new comprehensive indicators would lead to better-informed policymaking, and, in turn, genuine advances in the nation's prosperity. We do not presume to replace GDP, which still serves an important although limited purpose, but to supplement it with modern measures of progress. ...

8. Business Insider: Half Of US GDP Comes From The Orange Spots On This Map

9. Legatus Magazine: Business and the option for the poor

... What does living out the option for the poor mean in practice? We must engage in works of charity — those activities that often address specific dimensions of poverty in ways that no state program ever could. And this means giving of our time, energy, and human and monetary capital in ways that bring Christ’s light into some of the darkest places on earth.

Yet this does not mean that Catholics are required to give something to everything, or even that Catholics must give away everything they own. As Fr. James Schall, SJ, writes, “If we take all the existing world wealth and simply distribute it, what would happen? It would quickly disappear; all would be poor.” Put another way, living out the option for the poor may well involve those people with a talent for creating wealth doing precisely that.

The option for the poor, however, does not rule out any form of government assistance to those in need. Yet lifting people out of poverty — and not just material poverty but also moral and spiritual poverty — does not necessarily mean that the most effective action is to implement yet another welfare program. There is no reason to assume that the preferential option for the poor is somehow a preferential option for big government. Often, being an entrepreneur and starting a business which brings jobs, wages, and opportunities to places where they did not hitherto exist is a greater exercise of love for the poor (and usually far more economically effective) than another government welfare initiative. ...

10. New York Times: Can Marriage Cure Poverty?

... “It isn’t that having a lasting and successful marriage is a cure for living in poverty,” says Kristi Williams of Ohio State University. “Living in poverty is a barrier to having a lasting and successful marriage.” ...

... In an economy that offers so little promise to those at the bottom, family planning in the name of upward mobility doesn’t make much sense. “Engaging in family formation by accident rather than by design, you get a story of low-opportunity costs,” says Kathryn Edin, the poverty researcher at Johns Hopkins. “We’ve created the situation where pregnancy is not the worst thing that can happen to you. It can be seen as a path to redemption in an otherwise violent, unpredictable, hopeless world.”

Similar forces might also spur some young couples not to get married, even if they want to. Many poor women opt not to marry the poor men in their lives, for instance, to avoid bringing more economic chaos into their homes. And the poor women who do marry tend to have unstable marriages — often to ill effect. One study, for instance, found that single mothers who married and later divorced were worse off economically than those who did not marry at all. “These women revere marriage, they want to get married,” Williams says. “They aren’t making an irrational choice not to marry.” ...

11. Atlantic Cities: How Anti-Poverty Programs Marginalize Fathers

... U.S. government programs designed to help such families, however, haven't evolved with the population. Based on decades-old stereotypes that single mothers are raising children alone and single dads are "deadbeats," the majority of United States anti-poverty programs almost exclusively serve women and children, says Jacquelyn Boggess, co-director of the Center for Family Policy and Practice,* a Wisconsin-based think tank that focuses on supporting low-income parents. The welfare system, as a result, can become a muddled mess of rearranging rather than relieving poverty. Single, non-custodial fathers bear the brunt. But dads don’t suffer alone. Because the poor pull together to support one another, everyone absorbs the pinch. ...

12. Investors: Low-Wage Hours At New Low As ObamaCare Fines Loom

... It's impossible to know how much of the drop relates to ObamaCare, but there's good reason to suspect a strong connection. The workweek has been getting shorter in many of the same industries where anecdotes have piled up about employers cutting hours to evade the law's penalties. ...

13. Business Insider: Very Few American Workers Actually Make The Minimum Wage

... "We do not know the share of individuals (or wages) who are just above the minimum wage and whose wages might also rise with an increase, but we do know that it is likely still a small proportion," they write.

"The current minimum wage is well below the economy-wide average. Even for low-paying sectors like retail trade and leisure and hospitality — where the average hourly wage in 2013 was $13.50 and $16.60, respectively — the current minimum is a fair bit lower. These data also suggest a relatively small share of total wage income that would be directly impacted by any increase in the federal (or various state) minimums."

So while the minimum wage debate may be a hot-button political issue, it is somewhat irrelevant from an economic perspective.

14. The Atlantic: Liberals Need to Think Beyond the Minimum Wage

A new report from the Congressional Budget Office says a hike would help the working class, but less than many might hope.  ...

15. New York Times: Evaporating Unemployment

Before the recession, in December 2007, about 63 percent of American adults had jobs. Six years later, in December 2013, less than 59 percent of adults had jobs.

And a new analysis says that the recession has very little to do with it.

The study, by two economists at the Federal Reserve Bank of New York, asserts that workforce participation is in long-term decline. If the recession had never happened, or the economy had since returned to complete health, the authors estimate 59.3 percent of adults would have jobs, instead of 58.6 percent. ...

 

16. Business Insider: Why 12.7 Million Americans Dropped Out Of The Workforce

17. Conversable Economist: Halfway to Full Economic Recovery

... In short, although the prediction is that the U.S. economy is roughly halfway from the end of the recession to a full economic recovery, this is a case where the glass is actually half-full, rather than half-empty, because the heartier period of economic growth is coming. Here are a few of the details. ...

 18. Carpe Diem: When it comes to spending on food as share of total consumer expenditures, Americans have the most affordable food on the planet, and it’s gotten better over time.

19. Forbes: Charitable Giving Grew 4.9% In 2013 As Online Donations Picked Up

... Charitable giving revenue grew 4.9% in 2013, the largest gain since the 2008 recession. U.S. based organizations with annual fundraising over $10 million saw 5% growth. Those that receive $1 million to $10 million in gifts gained 3.8% and the smallest nonprofits – less than $1 million raised annually – grew 3.6%. ...

... The tables, however, turn with online giving revenue which, at 13.5% growth overall, had its second consecutive year of double-digit gains. ...

 20. NPR: Economist Says Best Climate Fix A Tough Sell, But Worth It

... "When we did our first calculations, they actually spun out these 'shadow prices,' " he says. "And I remember looking at them and trying to think ... what in the world does that mean?"

The shadow prices, he realized, actually represented the cost of putting carbon dioxide into the atmosphere. And with that, climate change suddenly became a problem that could be attacked with the tools of economics.

"Actually from an economic point of view, it's a pretty simple problem," he says.

If people would simply pay the cost of using the atmosphere as a dump for carbon dioxide, that would create a powerful incentive to dump less and invest in cleaner ways to generate energy. But how do you do that?

"We need to put a price on carbon, so that when anyone, anywhere, anytime does something that puts carbon dioxide in the atmosphere, there's a price tag on that," he says.

His colleagues say that inspiration — now taken for granted — makes Nordhaus a prime candidate for a Nobel Prize. A lot of his work has been figuring out how big a price we should pay, and what form it should take. ...

21. New York Times: Your Ancestors, Your Fate

Inequality of income and wealth has risen in America since the 1970s, yet a large-scale research study recently found that social mobility hadn’t changed much during that time. How can that be?

The study, by researchers at Harvard and Berkeley, tells only part of the story. It may be true that mobility hasn’t slowed — but, more to the point, mobility has always been slow.

When you look across centuries, and at social status broadly measured — not just income and wealth, but also occupation, education and longevity — social mobility is much slower than many of us believe, or want to believe. This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.

To a striking extent, your overall life chances can be predicted not just from your parents’ status but also from your great-great-great-grandparents’. The recent study suggests that 10 percent of variation in income can be predicted based on your parents’ earnings. In contrast, my colleagues and I estimate that 50 to 60 percent of variation in overall status is determined by your lineage. The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average — what social scientists call “regression to the mean” — but the process can take 10 to 15 generations (300 to 450 years), much longer than most social scientists have estimated in the past. ...

Employment is the Issue, Not the Minimum Wage

There is a lot of talk about raising the minimum wage to $10.10. I sense many advocates believe this will lift countless millions out of poverty. Is that true, and is the minimum wage a central factor in reducing poverty?

I'm not advocating for or against the minimum wage. The Congressional Budget Office did a review of the economic literature and concluded that, on balance, a raise to $10.10 would have a net positive impact. So, let's go with that for now (more below). My question is about the minimum wage as a poverty-fighting tool.

There were 46.2 million people below the poverty income threshold for income before taxes, transfers, and noncash benefits. By definition, the minimum wage will only impact people earning a wage (and their dependents). So let's break down the overall poverty number. Keep in mind that being in the "labor force" means being employed or actively looking for work.

Here is data from two government reports, A Profile of the Working Poor, 2011, from the Bureau of Labor Statistics and Income, Poverty, and Health Insurance Coverage in the United States: 2011, from the Census Bureau. (I'm using 2011 data because it is the most recent year for which all the below data exists.):

Observations:

• Nearly twenty million of the poor were not of working age. (Teens and seniors in the workforce for at least 27 weeks totaled a little more than 100,000 people.) That leaves 26.5 million working-age adults..
• There were 13.7 million of the 26.5 million who were of working age but were not in the workforce at all. About a third of these folks (4.3 mil.) were disabled. The remaining 9.4 million people likely included the incarcerated (probably about a million), stay-at-home parents, or the otherwise unemployed and not looking. That leaves 12.8 million in the labor force for at least part of the year.
• Of those 12.8 million in the labor force, 2.4 million were in for less than 27 weeks, leaving 10.4 million in the labor force for at least 27 weeks.
• Of the 10.4 million in the labor force, 1.6 million were not employed at all, and another 3.9 were employed only as part-time workers, leaving 4.9 million usual full-time workers in the labor force.

Only in this remaining group of 4.9 million workers do we have the possibility of low-wage workers employed the whole year but not making enough to get above poverty. But this group would also include people who may have had a wage sufficient to put them above the poverty level but were only employed for thirty weeks. The number of people working the full 52 weeks is likely small.

Now let's add another layer. The Bureau of Labor Statistics also published Characteristics of Minimum Wage Workers: 2011.

• There were 3.9 million people who earned the minimum wage or lower. (There were 1.7 million workers that earned exactly the minimum wage. Another 2.2 million earned below the minimum wage due to exemptions like tipped work, full-time student status, and disabled workshops.)
• The median age for minimum wage workers was 24 years old.

Less than one-quarter of minimum wage workers live in households below the poverty threshold, just under 1 million people. Note that above, we said there were 4.9 million workers in the labor force for at least 27 weeks. Assuming all the 1 million worked the whole year (grossly unrealistic), only one-fifth of the 4.9 million would meet the image of the worker earning a minimum wage for 52 weeks. Most of the 4.9 people worked more than 27 weeks but less than 52.

Also, remember that two-thirds of minimum wage workers earn more a year later, the median increase being 24%, according to one study. That means one-third are making at least $9.00 a year later.

So here is the bottom line in dealing with poverty and employment. There were 9.4 million working adults who weren't in the labor force at all and another 2.4 million who were not in the labor force for half of the year. That is 11.8 million people. We add to this 1.6 million who were in the labor force but never found work for a total of 13.4 million people. Add 24 million dependent or disabled people in poverty to 13.4 million who weren't in the labor force or who never found work, and you have 37.4 million people of the 46.2 million (81%) for whom the minimum wage has virtually no direct impact (though a small number of dependents would benefit from having a breadwinner with an increased wage.) The challenge for the remaining 8.8 million working-age people in poverty appears to be insufficient hours, not the hourly wage.

Who benefits from the minimum wage is a complex calculation. Clearly, it would positively impact people making between $7.25 and $10.10, although to a diminishing degree as you go to the top end of that range. There would be some residual benefit to people making more than $10.10. But here are some key observations from the CBO. There would be a $31 billion increase in wages, but 19% (about $6 billion) of this would go to poverty households, while 30% (about $9 billion) would go to families who make three times the poverty level. Furthermore, CBO estimates 900,000 jobs that otherwise would have been created will not exist.

Employment is by far the key issue relating to poverty. Full-time work for 52 weeks, even with low starting wages, is the key to staying out of poverty for all but a tiny fraction of the population. The meme of the full-time minimum-wage worker working 52 hours a week while living in poverty is way overblown. The main challenge is not enough work, not too little wages. And to be sure, living just above poverty is not living in luxury. But programs like Earned Income Tax Credits could be expanded to help these low-income workers. CBO says that an increase to $10.10 is a good thing on balance. Fine. Let's go with that. But let us stop pretending that this is some monumental triumph for social justice and the elimination of poverty. Let's get some economic growth and start creating jobs. Let's invest ourselves in helping impoverished people acquire the human capital they need to flourish in a rapidly changing economy.

50 Reasons We're Living Through the Greatest Period in World History

Huff Post Business (The Motley Fool): 50 Reasons We're Living Through the Greatest Period in World History

I recently talked to a doctor who retired after a 30-year career. I asked him how much medicine had changed during the three decades he practiced. "Oh, tremendously," he said. He listed off a dozen examples. Deaths from heart disease and stroke are way down. Cancer survival rates are way up. We're better at diagnosing, treating, preventing and curing disease than ever before.

Consider this: In 1900, one percent of American women giving birth died in labor. Today, the five-year mortality rate for localized breast cancer is 1.2 percent. Being pregnant 100 years ago was almost as dangerous as having breast cancer is today.

The problem, the doctor said, is that these advances happen slowly over time, so you probably don't hear about them. If cancer survival rates improve, say, one percent per year, any given year's progress looks low, but over three decades, extraordinary progress is made.

Compare health-care improvements with the stuff that gets talked about in the news -- NBC anchor Andrea Mitchell interrupted a Congresswoman last week to announce Justin Bieber's arrest -- and you can understand why Americans aren't optimistic about the country's direction. We ignore the really important news because it happens slowly, but we obsess over trivial news because it happens all day long.

Expanding on my belief that everything is amazing and nobody is happy, here are 50 facts that show we're actually living through the greatest period in world history.

1. U.S. life expectancy at birth was 39 years in 1800, 49 years in 1900, 68 years in 1950 and 79 years today. The average newborn today can expect to live an entire generation longer than his great-grandparents could.

2. A flu pandemic in 1918 infected 500 million people and killed as many as 100 million. In his book The Great Influenza, John Barry describes the illness as if "someone were hammering a wedge into your skull just behind the eyes, and body aches so intense they felt like bones breaking." Today, you can go to Safeway and get a flu shot. It costs 15 bucks. You might feel a little poke.

3. In 1950, 23 people per 100,000 Americans died each year in traffic accidents, according to the Census Bureau. That fell to 11 per 100,000 by 2009. If the traffic mortality rate had not declined, 37,800 more Americans would have died last year than actually did. In the time it will take you to read this article, one American is alive who would have died in a car accident 60 years ago. ...

How sexual equality increases income inequality

Economist: How sexual equality increases income inequality

The economist has an excellent presentation (less than two minutes) on how assortative mating has influenced income inequality. This closing chart sums it up.

Fifty years ago, there weren't many well-educated women with high earning potential. In fact, the percentage of adults with college degrees in 1960 (overwhelmingly men) was about 7%. That means 93% had a high school education or less. Fifty years later, the percentage of adults with college degrees is 25%, split nearly equally between the sexes. People of like education tend to marry each other, thus creating an explosion in the number of households with two high-income earners. That stretches the household earning distribution greatly and moves the mean income to the right on a chart. Thus, even if low-education households have stayed the same in inflation-adjusted income, their relationship to the mean will be considerably lower.

We have long known that income inequality shrank from the early decades of the last century until the late 1960s. It has risen more or less steadily ever since. See this graph of the GINI coefficient.

I've seen many people try to link rising inequality to political policies like the 1980s tax cuts. Such actions may have had a marginal impact, but the event I see that correlates much better is the rise of the women's movement in the late 1960s and improving women's earning potential in the following decades.

(On a side note, these discussions are usually about household "income." This is income before taxes, transfers, and non-cash benefits. Transfers and non-cash benefits have expanded dramatically over the last fifty years. When factored in, some of the disparity shrinks. Even the lowest quintile of households has seen improvement, just not as great as quintiles further up the scale.)

Hans Rosling: Don't Panic — The Facts About Population

This is just fantastic! Hans Rosling pulls together many of his various presentations over recent years and melds them into a one-hour-long presentation about the astonishing way our world is improving while pointing to the challenges ahead. I know this is long, but if you watch this closely and learn, you will be well-positioned to accurately reflect on the alarmist claims of environmentalists, neo-cons, and other ideologies. If I were teaching a demography or economic development class, this video would be the first hour of the first class of the semester.

Economics Links

1.  Brookings: Prospects for Ending Extreme Poverty by 2030

2. Carpe Diem: World trade and output both reached new all-time record highs in November and are nearly 10% above previous peaks

3. PBS Newshour: More than 200 million people were unemployed in the world in 2013

Worldwide, the number of unemployed people rose by 5 million in 2013 to 202 million, according to the International Labor Organization’s Global Employment Trends report. The global unemployment ratio of youth to adults has reached a new high. The jobless rate for 15- to 24-year-olds hit 13.1 percent in 2013 (or 74.5 million), nearly three times the adult rate.

The organization predicts unemployment will worsen, with 215 million jobless by 2018. Roughly 40 million net jobs will be added each year, the ILO estimates, but that won’t be enough to absorb the 42.6 million people expected to enter the labor force each year. ...

4. Conversable Economist: Limited U.S. Power in a Globalizing Economy

Just to be clear, the U.S. economy is not becoming a economic minnow like Belize or Burundi. But 65 years ago, as the high-income countries climbed out of the wreckage left by World War II and today's emerging economies had not yet engaged in the global economy, the U.S. economy had an extraordinary time of dominance. For a time in the 1960s, it was common to hear that the planned economy of the USSR would outstrip the U.S. economy. In the 1970s and into the 1980, Japan was going to rule the world economy. Around 2000 and the launch of the euro, there was talk about the economic rise of the European Union. But now, we are seeing the rise of a multipolar and distributed world economy, with faster growth happening in the emerging economies, but with stronger linkages of trade and global supply chains reaching across the world economy. The U.S. can certainly be an active and leading participant in shaping the world's economic future. But neither the U.S., nor some combination of high-income countries around the world, has the power to dictate what configurations will emerge.

5. Business Insider: Here's A Chart Of Interest Rates Going Back To 3000 BC

6. PBS: Is the famous ‘paradox of choice’ a myth? Barry Schwartz

"Paradox of choice" is tha notion that too many choices become overwhelming and make life decisions less satisying.

... Often people choose on the basis of essentially irrelevant features of plans, just because the relevant features are too complex to evaluate. Has anyone ever suggested that the sensible alternative to too many options is a single option? Absolutely and unequivocally not. Psychology has known about “single option aversion” for a half century. With too few options, there is the risk that none will be satisfactory, whereas with too many, there is the risk of paralysis, confusion and dissatisfaction.

The trick is to find the middle ground — the “sweet spot” — that enables people to benefit from variety and not be paralyzed by it. Choice is good, but there can be too much of a good thing. Adam Grant and I recently published a paper suggesting that this “too much of a good thing” phenomenon is pervasive in psychology. ...

7. TED: Paul Piff - Does money make you mean?

"It's amazing what a rigged game of Monopoly can reveal. In this entertaining but sobering talk, social psychologist Paul Piff shares his research into how people behave when they feel wealthy. (Hint: badly.) But while the problem of inequality is a complex and daunting challenge, there's good news too. (Filmed at TEDxMarin.)"

8. Forbes: Downton Abbey Makes A Powerful Case For Economic Freedom

... One of the great things about Downton Abbey is that it allows fans to escape their worries and fantasize about life on a luxurious estate in early 20^th century England. But the truth is, few of us could tolerate what we’d be forced to live with, and live without, in that world. ...

9. Carpe Diem: The middle class is shrinking ... because they are moving into the upper class! Census data on income distribution reveal evidence of rising income levels for a rising share of American households

10. AEI: This chart shows how tough it is for the poor to recover from a bad start in life

11. Business Insider: Millennials Are The Most Financially Conservative Generation Since The Great Depression

... According to a new report from investment banking company UBS, Millennials are the most financially conservative generation to come around since the Great Depression. The report, which focused on investors between the ages of 21 and 36, found that Millennials are risk averse when it comes to investing — dedicating 52% of their investment portfolios to cash, compared to 23% cash for other investors. They are also more likely to believe that working hard (69%) and living frugally (45%) puts you on the path to success rather than long-term investing (28%). ...

12. NPR: The Middle Class Took Off 100 Years Ago ... Thanks To Henry Ford?

January 1914 was a frigid month in Detroit — much like January 2014 has been, but nonetheless thousands lined up in the bitter cold outside to take Henry Ford up : $5 a day, for eight hours of work in a bustling factory.

That was more than double the average factory wage at that time, and for U.S. workers it was one of the defining moments of the 20th century. Five dollars in 1914 translates to roughly $120 in today's money. While many economists say today's employers could take some pointers from Ford, they also say 2014 is a totally different world for U.S. businesses and workers. ...

... "It was mainly to stabilize the workforce. And it sure did," Kreipke says. "And raised the bar all over the world."

He says to understand why Ford thought this was a smart move in January 1914, you have to go back to another huge shift that happened a few months earlier: By 1913, Model T production totaled 200,000 — a feat made possible by the creation of the first moving assembly line. Conveyor belts transported small parts to workers, each of whom performed a specific task.

This tremendously sped up production, but Ford still had a problem: While he had standardized production, he hadn't standardized his workforce. Now, he didn't need particularly skilled workers; he just needed ones who would do the same repetitive, specialized tasks hour after hour, day after day.

Kreipke says there was chronic absenteeism and lots of worker turnover. So Ford gambled that higher wages would attract better, more reliable workers. ...

... "Today, overwhelmingly employers view the lowest wage as the most competitive wage," Shaiken says.

These days, global supply chains feed a hypercompetitive auto industry where no one wants to give up even an inch of ground, and keeping up with technology takes precedent over stabilizing the workforce. This just isn't Henry Ford's economy anymore, Shaiken says.

"There are very real economic pressures out there that push down on wages," he says. "So it's not a simple story, but that doesn't mean that there isn't a core truth into what Ford found." ...

13. Business Insider: An Economist Explains Why Wage Growth Is Poised To Take Off

14. Conversable Economist: U.S. Household Finances Rebound

15. Greg Mankiw: Does income inequality increase mortality?

Angus [Deaton] writes the following (emphasis added):

Darren Lubotsky and I ⁷ have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner⁹ using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner.

In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality.¹⁰

16. Pew Research: There's More to the Story of the Shrinking (Gender) Pay Gap

17. The Daily Beast: No, Women Don’t Make Less Money Than Men

... In its fact-checking column on the State of the Union, the Washington Post included the president’s mention of the wage gap in its list of dubious claims. “There is clearly a wage gap, but differences in the life choices of men and women… make it difficult to make simple comparisons.” ...

...  Much of the wage gap can be explained away by simply taking account of college majors. Early childhood educators and social workers can expect to earn around $36,000 and $39,000, respectively. By contrast, petroleum engineering and metallurgy degrees promise median earnings of $120,000 and $80,000. Not many aspiring early childhood educators would change course once they learn they can earn more in metallurgy or mining. The sexes, taken as a group, are somewhat different. Women, far more than men, appear to be drawn to jobs in the caring professions; and men are more likely to turn up in people-free zones. In the pursuit of happiness, men and women appear to take different paths.

But here is the mystery. These and other differences in employment preferences and work-family choices have been widely studied in recent years and are now documented in a mountain of solid empirical research. By now the President and his staff must be aware that the wage gap statistic has been demolished. This is not the first time the Washington Post has alerted the White House to the error. Why continue to use it? ...

18. Atlantic: How When Harry Met Sally Explains Inequality

A new study says that educated people marrying each other has increased inequality by 25 percent.

19. Reuters: The real future of U.S. manufacturing

... The assertion that the United States, or any nation, requires continued investment in the technologies that will drive future production is indisputable. On that score, at least, the Obama White House is fighting the proverbial good fight.

The contention, however, that these technologies and the factories that harness them for production will be sources of well-paid, solidly middle-class jobs, is flawed. In our political debates, we maintain the comforting fiction that a manufacturing revival can and will go hand-in-hand with a jobs revival. Yet, as Obama’s initiative shows, the two can be — and increasingly are — uncoupled.

The issue is not the hollowing-out of manufacturing as defined by less production. Yes, many less expensive, simpler products are now made more cheaply elsewhere and are unlikely to be made in the United States anytime soon — even with the “on-shoring” of manufacturing. Though China ceases  to be the place of low-cost production, Vietnam, the Philippines and who knows where else (even Mexico) will be more attractive for apparel, furniture, electronics and anything plastic for a long time to come.

The high-end production that these new U.S. innovation hubs seek to promote is indeed in demand around the world. It is something where, as yet, China and other low-cost manufacturing centers have not excelled. This is why China actually imports considerable billions of higher-end equipment – particularly from Japan and Germany. So it is true that the United States could have a competitive advantage, especially given the plethora of research universities and the wealth of highly-educated talent that can be used for just this type of production.

But all this is not the same as a job creator for a workforce of at least 120 million and counting in nation of more than 320 million people. These high-tech factories might employ hundreds of people in conjunction with industrial robots, using sophisticated software systems for design and production. These factory workers bear little resemblance to the 1950s line workers doing rote tasks. They are more like Silicon Valley engineers or lab technicians. These are high-skill jobs — and not nearly as plentiful as the factory jobs of the past. ...

Related: Bloomberg - Factory Jobs Are Gone. Get Over It

... In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).

Service industries—hotels, hospitals, media, and accounting—have taken up the slack. Even much of the value generated by U.S. manufacturing involves service work—about a third of the total. More than half of all people still employed in the U.S. manufacturing sector work in such services as management, technical support, and sales. ...

 20. PBS: Paul Soloman on Man vs the Machine: Will Human Workers Become Obsolete?

 21. Huff Post: The End of Capitalism

Interesting thoughts. I don't know if he has it just right, but I do think he is correct that we may be on the verge of something as transformative to capitalism as industrialization was to agricultural societies:

... The location of creation has switched. Under industrial capitalism, machines operating centrally created riches. James Watt perfected his steam engine, but then the machines took on a life of their own - the machines themselves, and machine-like corporations built around them, churned out money. People danced around the edges, enlarging and improving the machines, putting them together in large mills or mines to turbo-charge productivity, adapting their pace of work to that of the machines. The machines and the capitalists were in charge.

Now it is not machines or their owners, but creative individuals who are center-stage. People not only invent new technology - they are the new technology. As sociologist Manuel Castells says, "For the first time in history, the human mind is a direct productive force ... Computers, communication systems, and genetic decoding and programming are all amplifiers and extensions of the human mind."
In the West, knowledge has become personalized. Open innovation requires it. The effect of open innovation is to transfer initiative and wealth from established corporations to new ones, and from shareholders to individuals. From thought to action, individuals are at the heart of creation, including wealth creation. Every element of the unique human personality takes part in creation - intellect, imagination, emotion, calculation, empathy, and the ability to evoke enthusiasm from other seriously talented people. Each person does it their way. Steve Jobs may not have been the nicest person in Silicon Valley, but he got amazingly talented people to distort reality and create previously unimaginable products. The individual is everything.

In all kinds of ways, therefore, we are moving away from capitalism, from an economy centered on capital and large, established, hierarchical corporations. But we are not moving from private hierarchy to public hierarchy, from capitalism to socialism or communism. Free enterprise is alive and well - arguably too alive and well. The new system is even more market-oriented than capitalism, and much more decentralized. It is as decentralized as any system can possibly be, because it is decentralized to individuals, and above all to a tiny minority of new superstar individuals. Welcome to the personalized economy. ...

22. Carpe Diem: Cash for kidneys will solve the organ shortage, save money spent on dialysis, and then we’ll wonder why it took so long

(Not necessarily agreeing here. Just reporting.)

Economists Gary Becker and Julio Elias make the case in today’s WSJ that a market for organs and donor compensation of about $15,000 would eliminate the growing kidney shortage.  As the chart above shows, the kidney waiting list has nearly doubled from 50,000 in 2001 to almost 99,000 today, while the number of annual kidney transplant operations has increased only slightly from 14,279 in 2001 to fewer than 17,000 in 2013. Over the last eight years, kidney transplants have remained stuck at slightly below 17,000 per year, while the kidney waiting list has swelled by almost 30,000.  Therefore, there an additional 30,000 patients today (99,000) than in 2006 (69,600) competing for the same number of transplants. And that’s why, as Becker and Elias point out, the average waiting time for a kidney has increased to 4.5 years from 2.9 years a decade ago. The authors argue that “Paying donors for their organs would finally eliminate the supply-demand gap.”

Isn’t donor compensation immoral? No, according to Becker and Elias (emphasis added: ...

Will There Be Any Poor Countries Left in the World in 20 Years?

Atlantic: Will There Be Any Poor Countries Left in the World in 20 Years?

Bill and Melinda Gates Foundation:

We hear these myths raised at international conferences and at social gatherings. We get asked about them by politicians, reporters, students, and CEOs. All three reflect a dim view of the future, one that says the world isn’t improving but staying poor and sick, and getting overcrowded.

We’re going to make the opposite case, that the world is getting better, and that in two decades it will be better still. ...

... By 2035, there will be almost no poor countries left in the world. Almost all countries will be what we now call lower-middle income or richer. Countries will learn from their most productive neighbors and benefit from innovations like new vaccines, better seeds, and the digital revolution. Their labor forces, buoyed by expanded education, will attract new investments.

Developing Countries Are More Than Economic Rivals and Terror Threats

The Atlantic: Developing Countries Are More Than Economic Rivals and Terror Threats

I still hear many people today talk about the "Third World." It refers to those nations that were poor and not aligned with either Western capitalism (First World) or the communist world (Second World.) The Third World has vanished, and it is time to bury the term. The world's nations and populations exist on a continuum, and there are now multiple poles, not two, shaping the world. Furthermore, the story is not one of descent into global dystopia but rising prosperity. It is hard to address contemporary problems with antiquated frameworks meaningfully.

It's time to develop a new framework for assessing the post-Cold War, post-9/11 world. ...

... The three worlds used to be capitalist, communist, and the rest. Now they are the West, the failed states, and the emerging challengers. But that's still too simple a view. A small and declining number of developing countries are charity cases. And none are competitors with us in a zero-sum game. Rather than dividing most of the planet into two threatening classes, we need to see states of the developing world as vital partners—both in strengthening the global economy and in preserving the global environment. ...

... Given that much of the world only makes headlines when it is in the midst of a humanitarian crisis and U.S. assistance is on the way, it isn't surprising that the average American thinks things are going to hell in a handbasket: a recent survey of Americans found that two thirds believe extreme poverty worldwide has doubled over the past 20 years. The truth is that it has more than halved. This might also explain why Americans think that 28 percent of the federal budget goes to foreign aid—more than 28 times the actual share.

According to the World Bank, the developing world as a whole has seen average incomes rise from $1,000 in 1980 to $2,300 in 2011. Life expectancy at birth has increased from 60 to 69 years over that same time, and college enrollment has climbed from 6 to 23 percent of the college-age population. Progress is happening everywhere, including Africa: Six of the world's 10 fastest-growing economies over the past decade are in Africa. There were no inter-state conflicts in the world in 2013 and, despite tragic violence in countries including Syria and Afghanistan, the number of ongoing civil wars has dropped considerably over the last three decades. Emerging markets themselves are also playing an ever-expanding role in ensuring global security. The developing world is the major source for blue-helmeted UN peacekeepers, who are ending wars and preserving stability in 16 different operations worldwide. The 20 biggest contributors of police and military personnel to the UN's 96,887 peacekeepers are developing countries. ...

Very interesting piece. For more data, see yesterday's post, The (Mostly) Improving State of the World.

Economics Links

1. The Atlantic: If You Really Care About Ending Poverty, Stop Talking About Inequality

Don’t mind the rich-poor gap. Statistical analysis shows three factors—overall income growth, marriages, and local government spending—matter most for poorer children chasing the American Dream. ...

... But for all the new attention devoted to the 1 percent, a new dataset from the Equality of Opportunity Project at Harvard and Berkeley suggests that, if we care about upward mobility overall, we’re vastly exaggerating the dangers of the rich-poor gap. Inequality itself is not a particularly potent predictor of economic mobility, as sociologist Scott Winship noted in a recent article with his colleague Donald Schneider based on their analysis of this data.

So what factors, at the community level, do predict if poor children will move up the economic ladder as adults? What explains, for instance, why the Salt Lake City metro area is one of the 100 largest metropolitan areas most likely to lift the fortunes of the poor and the Atlanta metro area is one of the least likely?

Harvard economist Raj Chetty, a principal investigator at the Equality of Opportunity Project, has pointed to economic and racial segregation, community density, the size of a community’s middle class, the quality of schools, community religiosity, and family structure, which he calls the “single strongest correlate of upward mobility.” ...

2. AEI Ideas: 70% of Americans born at the bottom never reach the middle

... But while intergenerational mobility has not worsened, it has failed to improve. Perhaps it would have worsened if not for the war on poverty, or perhaps we have not reduced poverty enough. More likely, income is less important for child mobility — and income inequality less consequential — than Great Society liberalism asserted.

We need a war on immobility — a bipartisan crusade to identify and address the barriers that leave 70 percent of poor children below the middle class as adults. ...

3. PBS: Poverty rates surge in American suburbs

... According to Kneebone, since 2000, the number of poor people living in suburbs has grown by 65 percent. 

For example, poverty is up by almost 16 percent in the suburbs of Pittsburgh.  Up more than 27 percent in the suburbs of providence.  Nearly 79 percent outside Seattle.  And in the suburbs of Austin, Texas, the number of poor has swelled almost 143 percent.  More poor people now live in America’s suburbs than in cities or in rural areas.

The main explanation for this shift is simply demographics.  Many more Americans have moved to suburbs in recent years, and that growth included low-income residents and new immigrants.  Other factors - suburbs are still recovering from the foreclosure and financial crises.  Kneebone says federal programs for the poor were mostly designed back in the 60’s with rural or urban communities in mind, and when hard times came to the suburbs, many weren’t prepared. ...

4. Family Studies: Why Working-Class Men Are Falling Behind

... All of these things mentioned above—early reliance on stimulating entertainment, lower educational attainment, disconnection from families and role models, and the attractions of different, “edgy” subcultures—contribute to a widening gulf between those more connected to family, work, and society, and those without these commitments. While men are losing connections, women continue to participate in the labor force, attend religious services more often, and belong to other community and civic organizations. This is partly because many have dependent children and need to support them, whereas men can to a large extent avoid this responsibility.

Men who are not committed to families enjoy all the options that a consumer culture gives them, have more independence and freedom, and thus are found in a wider array of subcultural activities that take men away from consistent work and commitment to families. At the same time that non–college-educated men have fewer economic opportunities, they have more opportunities to indulge in various activities. That’s a recipe for ever-widening gaps between these men and the rest of society.

 5. Business Insider: The Most Damning Chart That Shows How Far The Economy Still Has To Recover

6. New York Times: More U.S. Economists See Half-Full Glass

Record exports and the smallest trade deficit in four years. Healthier consumer spending, including the strongest annual increase in automobile sales since 2007, spurred by a booming stock market and an improving housing sector. And a slow but steady pickup in job creation that has pushed unemployment to its lowest level since 2008.

The confluence of all these forces in recent weeks has prompted economists to sharply revise their expectations for growth in late 2013 and early 2014, and prompted hopes that a more sustained economic expansion has finally arrived.

Plenty of caution is in order. It is a refrain that has been heard several times since the end of the Great Recession, and frustrated job seekers and income-stretched workers have plenty of reasons to be dubious about the upbeat forecasts.

Still, a series of arrows from disparate parts of the economy in both the United States and elsewhere around the world are finally pointing in the right direction, experts and policy makers say. ...

7. AP: Gloomy Americans foresee a downhill slide to 2050

WASHINGTON (AP) -- Ask people to imagine American life in 2050, and you'll get some dreary visions.

Whether they foresee runaway technology or runaway government, rampant poverty or vanishing morality, a majority of Americans predict a future worse than today.

Whites are particularly gloomy: Only 1 in 6 expects better times over the next four decades. Also notably pessimistic are middle-age and older people, those who earn midlevel incomes and Protestants, a new national poll finds. ...

8. Bloomberg: American Consumers in 2013 Most Upbeat Since Before Recession

American consumers in 2013 were more upbeat than at any time in the previous six years as views on the economy, finances and the buying climate improved.

The Bloomberg Consumer Comfort Index (COMFCOMF) averaged minus 31.4 for 2013, the highest since 2007, when it was minus 10.5. The weekly index fell for the first time since mid-November, dropping to minus 28.7 for the period ended Dec. 29, from minus 27.4.

An improved job market, higher stock prices and rising home values lifted sentiment at the end of the year and helped drive holiday retail shopping. Stronger wage and employment growth would help propel bigger gains in confidence and encourage Americans to boost spending, which accounts for almost 70 percent of the economy. ...

9. Conversable Economist: The Slowdown in Rising U.S. Healthcare Costs

...The red line makes two obvious points. First, the slowdown in rising health care costs started back around 2002 or 2003. Indeed, health care economists have been writing about it for a couple of years now, and OECD evidence point out that a similar slowdown seems to be occurring across high-income countries. Thus, eager claims by Obama administration officials about how the Affordable Care Act--although still far from fully implemented--is bringing down the rise in health care costs are a prime example of finding a parade, running to the front, and then claiming to lead the parade. As the writers of the Health Affairs article note: "The Affordable Care Act (ACA), which was enacted in March 2010, had a minimal impact on overall national health spending growth through 2012." ...

10. Conversable Economist: The median woman's wage to the median man's wage has been closing over time

11. Why Not Give Money Instead of a Gift?

"... Ariely, a good friend of Making Sense, whom we featured prominently in our segment about teaching kids how to save, most recently appeared in our segment on the economic waste of Christmas gift-giving, explaining why non-monetary gifts are more socially acceptable. Money's an awkward gift, and, as Ariely explains in the web-exclusive video above, a poor motivator. ..."

12. The Atlantic: Should Your Minimum Wage Depend on Your Age?

Speaking on Fox News recently, conservative columnist Charles Krauthammer proposed what, to many, might have sounded like a rather novel compromise on the minimum wage. His idea? We should have two of them, a higher minimum for "breadwinners," and a lower minimum for everybody else.

Here was Krauthammer's thinking, paraphrased. It might be hard to feed a whole household on $7.25 an hour. But raising the minimum is most likely to hurt teenagers and minorities who rely on low-paid, entry-level jobs to get a foothold in the working world. So how do you lend a hand to hard-pressed families without penalizing the young? Force employers to pay the "breadwinners" more, and everybody else less. 

He called his two-tiered solution "a reasonable answer that Republicans and conservatives could offer." ...

... Klein is right that that whole "breadwinner" concept would probably be more trouble than it would be worth. But what if we tweaked the idea just a little bit, and based the minimum wage on something more straightforward, like a worker's age? 

We wouldn't be the first country to try it.  Take Australia. ...

13. Forbes: Raising Minimum Wage? How About Raising Employee Ownership?

With an eye towards the 2014 midterms, the administration is keen to talk about something other than health care and is banging the drum for raising the federal minimum wage.  Republicans — voicing concerns about job loss and impact on small businesses — will oppose an increase and the issue will go nowhere at the federal level.

For fair-minded policy makers interested in helping working families today – and not just pushing a campaign issue – there is a different answer. It is one that has bipartisan support and could actually get passed: encourage companies to provide greater ownership opportunities or revenue sharing to all their workers. ...

14. PBS: Who Counts as Poor in America?

Fifty years ago, President Lyndon Johnson announced a legislative agenda to wage "unconditional war on poverty in America." But how do we know what poverty is in America?

15. Here's How The U. S. Bureau Keeps Track Of Poverty In America

Economics Links

1. Carpe Diem: 5 Reasons Why 2013 Was The Best Year In Human History

1. Fewer people are dying young, and more are living longer. ...
2. Global economic growth in the past five decades has dramatically reduced poverty and made people around the world happier. ...
3. War is becoming rarer and less deadly. ...
4. Rates of murder and other violent crimes are in free-fall. ...
5. There’s less racism, sexism, and other forms of discrimination in the world. ...

2. Everyone is putting out their most important economic charts list for 2013:  Atlantic: The Most Important Economic Stories of 2013—in 44 Graphs.  Economist: 2013 in charts.  Huffington Post: The 13 Most Important Charts Of 2013.

3. Economist: The world has become better fed over the past 50 years

MANY people will groan after stuffing themselves on a Christmas feast. A traditional three-course turkey dinner can be as much as 3,500 calories. Such indulgences are a luxury in many parts of the world—but thankfully less so. Over the past half-century, the amount of food that people consume has increased (measured in calories), according to the UN’s Food and Agriculture Organisation. Our interactive map and chart tracks countries across five decades, letting users select places, years on the timeline or any chart-line. (It performs poorly on smartphones; our apologies.) ...

In a related story at NPR: More People Have More To Eat, But It's Not All Good News

... The good news is: The percentage of the world's population getting what the researchers say is a sufficient diet has grown from 30 percent to 61 percent.

In 1965, a majority of the world survived on less than 2,000 calories a day per person. This was especially true in parts of the Middle East, Africa, Latin America, China and Southeast Asia. Now, 61 percent of the world has access to 2,500 or more calories a day.

But one thing the scientists discovered is that the countries that have a history of food insufficiency didn't just up and start growing lots more food. Instead, for the most part they're increasing supply by importing food from abroad. ...

I'm unclear why the author thinks importing food is a problem but other challenges he mentions in the article are an issue.

4. Carpe Diem: When it comes to home appliances, the ‘good old days’ are now: they’re cheaper, better, more energy efficient than ever

... In 1981, the 24-inch built-in dishwasher pictured above from a 1981 Wards Christmas catalog sold for $359.88. The average hourly manufacturing wage then was $7.42, meaning that it would have taken 48.5 hours of work at the average hourly wage for a typical factory worker to earn enough income 32 years ago to purchase the dishwasher above. ...

... The new Kenmore 24-inch built-in dishwasher pictured above is currently listed on the Sears website for sale at $539.99. At the current average hourly wage of $20.26 for production workers, the average factory worker today would only have to work 26.7 hours to earn enough pre-tax income to buy today’s energy-efficient dishwasher, which is only a little more than one-half of the 48.5 hour time-cost for the 1981 model.

Bottom Line: Today’s modern household appliances are not only cheaper than ever before, they are the most energy-efficient appliances in history, resulting in additional savings for consumers through lower operating costs. The average dishwasher today is not only more than twice as energy-efficient as a comparable 1981 model, but its real cost today is only about 50% of the price of the 1981 dishwasher, measured in hours worked at the average hourly wage. Put those two factors together, and the average American’s dishwasher today is about six times superior to the dishwasher of thirty years ago. ...

5. Carpe Diem: How much did real US median income increase from 1979 to 2007? A lot depends on the measure of income used

"The median income data [often cited] are on tax units rather than households, they do not include many government transfer payments, they are pre-tax rather than post-tax, they do not adjust for changes in household size, and they do not include nontaxable compensation such as employer-provided health insurance.

Does this matter?  Yes!"

6. American Interest: Economic Mobility is a Male Problem

The biggest victim of family breakdown might be lower-class men. In City Journal Kay Hymowitz has a fascinating yet alarming piece on how family breakdown hurts men’s prospects more than women’s. One of the most interesting facts she highlights is that if you separate out men from women, women in America are roughly as upwardly mobile as women anywhere else in the world. It’s only when you add men back in and compare the US whole population to populations abroad that things look bleak:

Numerous studies have confirmed that the U.S. has less upward mobility than just about any developed nation, including England, the homeland of the peerage. Yet, if you look at boys separately from girls, as the Finnish economist Markus Jäntti and his colleagues at the Bonn-based Institute for the Study of Labor did, the story changes markedly. In every country studied, girls are more likely than boys to climb up the income ladder, but in the United States, the disadvantage for sons is substantially greater than in other countries. Almost 75 percent of American daughters escape the lowest quintile—not unlike girls in the comparison countries of the United Kingdom, Denmark, Finland, Norway, and Sweden. Fewer than 60 percent of American sons experience similar success. ...

7. AEI Ideas: 3 charts that show what’s really going on with economic mobility in the US

8. Washington Post: Full employment, not inequality, should be the top economic priority - Ezra Klein

... While there are ways to reduce inequality without doing much about employment (say, by taxing the rich and using the proceeds on defense spending), it's hard to imagine full employment not doing much to reduce inequality. ...

... All that said, income inequality and social mobility really are startling trends that people should be very worried about and that the political system should be working aggressively to solve, or at least ameliorate. I don't have many policy disagreements with the folks focusing on inequality. But politics is about prioritization, and what politicians end up doing is in part driven by what problems their political coalitions are most worried about. ...

9. Conversable Economist: Falling Unemployment and Falling Labor Force Participation

10. Business Insider: This Map Shows Which Parts Of The Country Have A Huge Gender Gap In The Workforce

11. PBS: The rise of the 'new rich': 1 in 5 Americans will reach affluence in their lives

It's not just the wealthiest 1 percent.

Fully 20 percent of U.S. adults become rich for parts of their lives, wielding outsize influence on America's economy and politics. This little-known group may pose the biggest barrier to reducing the nation's income inequality.

The growing numbers of the U.S. poor have been well documented, but survey data provided to The Associated Press detail the flip side of the record income gap -- the rise of the "new rich." ...

12. Atlantic Cities: America's Wealth Is Staggeringly Concentrated in the Northeast Corridor

 

13. New York Times: Demand Soaring, Poor Are Feeling Squeezed

... Today, millions of poor Americans are caught in a similar trap, with the collapse of the housing boom helping stoke a severe shortage of affordable apartments. Demand for rental units has surged, with credit standards tight and many families unable to scrape together enough for a down payment for buying a home. At the same time, supply has declined, with homebuilders and landlords often targeting the upper end of the market. ...

14. Bloomberg: North America to Drown in Oil as Mexico Ends Monopoly

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields.

Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day....

15. Oil Price: Cheap Fossil Fuels: Good or Bad for the World’s Poor?

... Let’s try reconciling all of the themes raised in Lomborg’s article and in my comments by reframing them in this way:

•    Yes, fossil fuels are going to be with us for a while. For that reason, a smart energy policy needs to focus on shifting the mix of fossil fuels, so far as is possible, to relatively clean natural gas and away from relatively dirty coal, while also keeping the pressure on for energy conservation across the board.
•    Price signals are one way to keep the pressure on. A carbon tax is a somewhat crude way to penalize relatively dirty fuels, in that climate change is not the only issue. We should be concerned, too, about sulfur and mercury from burning coal, urban air pollution from gasoline and diesel fuels, and local environmental risks of fracking for natural gas. Still, a carbon tax serves at least roughly to penalize the dirtiest fuels the most.
•    And yes, no environmental policy is going to be successful politically if it is seen as a matter of saving the earth versus helping the poor. Fuel subsidies have to go, since, realistically, they are a burden, not a boon, to the poor, but at the same time, some of the budgetary economies from the elimination of subsidies and some of the revenues from carbon taxes should  go toward smarter policies to help the world’s least advantaged.

Those ideas might help point us toward policies that are good for both the poor and the planet.

16.  askblog: The Market is a Process, not a Decision Mechanism

... I think that many commentators contrast the market and government as mechanisms for making decisions. In this contrast, the market sometimes has an efficiency advantage, but government is presumed to have a moral-authority advantage.

Instead, think of the market as a process for testing hypotheses. The process is brutally empirical, winnowing out losing strategies and poor execution. In contrast, elections are a much weaker testing mechanism. Elections are unable to winnow out sugar subsidies, improvident loan guarantees, schools that produce bad outcomes, etc. ...

17. Quartz:  Why the left-leaning Nelson Mandela was such a champion of free markets

One often overlooked aspect of Nelson Mandela’s legacy is South Africa’s economy. Parallel to everything amazing the man is connected to—freeing the country from the shackles of apartheid, subordinating retribution in favor of peace and reconciliation, and unifying a volatile nation at risk of civil war—he laid the groundwork for South Africa as the continent’s economic powerhouse. ...

18. Atlantic: Why Economics Is Really Called 'the Dismal Science'

... But this origin myth is, well, mythical. Carlyle did coin the phrase "the dismal science." And Malthus was, without question, dismal.

But Carlyle labeled the science "dismal" when writing about slavery in the West Indies. White plantation owners, he said, ought to force black plantation workers to be their servants. Economics, somewhat inconveniently for Carlyle, didn't offer a hearty defense of slavery. Instead, the rules of supply and demand argued for "letting men alone" rather than thrashing them with whips for not being servile. Carlyle bashed political economy as "a dreary, desolate, and indeed quite abject and distressing [science]; what we might call ... the dismal science.” ...

Worldwide Income Inequality Moves From Two Humps to One

Economist Timothy Taylor always has interesting posts. Yesterday he posted Worldwide Income Inequality: From Two Humps to One. The world distribution of income 25 years ago had a large hump at the low end and a smaller hump at the high end. (If you go back another 20 years, these humps are even more pronounced.) The distribution is now moving more toward a bell curve. Remember that the following graph is logarithmic, so the right tail extends to the right when scaled otherwise. Still, the shift from the blue to the green line is moving in a very positive direction. The big question is how do we make this happen better and quicker?

Economics Links

1. Poor and Middle Class Incomes Have Increased Significantly

"... Using this more sophisticated cost-of-living adjustment, which is preferred by the Congressional Budget Office and Federal Reserve Board, the increase in median household income was not 5 percent but 16 percent from 1979 to 2012. In 2007, like 1979 a peak in the business cycle, median income as defined by the Census Bureau was 25 percent higher than in 1979. 

Similarly, the official Census Bureau figures indicate that the household at the 20th percentile of income—poorer than 80 percent of households and richer than only 20 percent of them—was no better off in 2012 than in 1979. Switching to the better cost-of-living adjustment, however, shows a 10 percent improvement—and a 19 percent improvement comparing the 1979 peak to the 2007 peak.

The Census Bureau narrowly defines income to exclude the non-cash benefits that constitute an important part of the safety net, as well as employer-provided fringe benefits. That means it assumes that food stamps, Medicaid, Medicare, and employer-provided health insurance have no value to families trying to pay their bills and live more comfortably. For that matter, it considers income before taxes are deducted, missing any increase in disposable income that declining taxes may have yielded. 

From 1979 to 2007, median pre-tax income defined to include non-cash benefits rose by about 30 percent. I find about the same increase for median post-tax income, but my estimates do not account for tax credits. The Congressional Budget Office reports a 33 percent increase in pre-tax income and a 42 percent increase in post-tax income. At the 20th percentile, pre-tax income rose by 26 to 38 percent, depending on how Medicare and Medicaid are valued. The truth is almost surely somewhere in the middle. The post-tax increase was similar.

Finally, the Census Bureau figures do not account for the fact that households have become smaller over time. When households have fewer mouths to feed, a given amount of income goes a longer way, so even if incomes had not grown, Americans would have been better off. 

After adjusting for household size, median pre-tax income was about 40 percent higher in 2007 than in 1979, and according to CBO, post-tax income was 49 percent higher. At the 20th percentile, size-adjusted household income rose by 28 to 46 percent (with the health insurance valuation much more consequential than the inclusion of taxes).

These are sizable gains over time—just not as large as those experienced in the “Golden Age” of the 1950s and 1960s or as substantial as those seen at the top of the income distribution. ...

I want to study this report a little more.

2. 21 Charts On US Inequality That Everyone Should See

3. American Inequality in Six Charts

4. Here's Who Earns The Minimum Wage, In 3 Graphs

5. The Mythology of the Minimum Wage

... A more effective way to help those in need is for policymakers to work on improving programs that have a track record of success, such as the earned income tax credit (EITC). The EITC has proven to be very effective at moving Americans from out of work to having a job. The EITC is also more effective at targeting those in poor households because it is based on income and not just wages. In the end, the EITC benefits 56.1 percent of workers in poverty.

A strong social safety net is one of the most important things a nation can provide its people, but an increase in the minimum wage should not be part of the strategy. Redistributing income from those who need it the most--the job seekers--to those who need it the least-- job holders in high income households expands the income divide and is a counterproductive anti-poverty policy.

6. Should Walmart Pay Its Workers More?

... It’s important to highlight the plight of the working poor. At a time when food stamps are being cut and some on the right attempt to argue against the basic idea of a safety net it is useful to show what actual need looks like in this country, and that many who work hard still encounter real economic hardship. So by all means, let’s talk about increasing the EITC, making a better and more robust safety net, and ways to improve the welfare of low-income people in this country. But let’s not pretend that a huge percentage of the context in which this story is being discussed isn’t that it is Walmart’s duty to raise the wages above the current market level. I’m happy to talk about economic hardship and things to do about it, but let’s not ignore the conversation most people are actually having and the bad ideas actually being proposed.

7. Krugman: The Amorality Of The Market Economy Can Not Be Legislated Away

... The final argument is his attempt to get at what the liberal case for higher minimum wages is at it’s core: it’s about opposing the idea that wages are determined by prices.

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

I think Krugman’s points on the minimum wage are still very applicable despite being published way back in 1998.

8. The Minimum Wage and the Laws of Economics

I can’t open the paper these days without stumbling onto something about the minimum wage, which I take to be a good thing as it’s a simple, popular way to help address the problem of very low-wage work in America.  It’s not a complete solution; it’s not the only solution — it is, in fact, a relatively small-bore policy that sets an important labor standard: the government will compensate for the severe lack of bargaining clout among our lowest-wage workers by setting a floor below which we won’t allow their wages to fall.

It’s also that case that we need to look carefully these days at any policies that will help offset income inequality and wage stagnation, especially ones with low budgetary costs, or in this case, virtually none.  That’s one reason that I expect President Obama to amplify these points in an economics speech on Wednesday in Washington. ...

... Thus we can conclude that at least part of the problem with the low-wage labor market is the quality of the jobs, at least from the perspective of compensation, not the quality of the workers.  Sure, soft skills — showing up on time, dealing maturely with peers — are as important as ever, but people with shortcomings in those areas show up in all sectors.  Typical low-wage workers don’t lack the skills to do their jobs.  They lack the bargaining power to be paid decently for the work.  Relative to most others in the job market, they’re least able to press for a share of the profits they’re helping to generate.

When you think of it this way, a lot of the cramped economic debate opens up.  Since workers are not really paid their precise marginal product, you wouldn’t expect them to be laid off because of a moderate, mandated wage increase.  In periods of high profitability, you’d expect some of the wage increase to be paid for out of profits.  In a real-world context, you’d want a policy taking direct aim at deteriorated job quality and thus helping to offset the acute lack of bargaining clout among low-wage workers.

Does that mean completely ignoring the “laws” of supply and demand and setting the minimum at any level we want?  Of course not.  Workers may not be paid their “marginal product,” but there is some rough correlation between their pay and the value of their work (the great labor economist Richard Freeman gets at this by using the flat edge of the chalk to draw demand curves).  History teaches that moderate wage increases — say, those including not much more than 10 percent of the work force in their sweep — have nothing like the job-loss effects that opponents claim (which isn’t to say “zero,” but the beneficiaries far outnumber those hurt by the policy). ...

9. Retail Wages Are Market Wages, Not a Welfare Program

... Employers pay employees based on the worth of the employee, how much profit that person adds to the company’s bottom line. That amount has no connection at all to the cost of living or to any neutral observer’s idea of what a “fair” wage might be. A business has no reason to care or to know how much money you need (or think you need) to live the life you have chosen to live. Businesses care about what each employee does for them.

An employer may choose to pay a higher-than-market wage for a variety of reasons, but those reasons do not include charity. Some companies (including some retailers such as Costco) follow the efficiency wage hypothesis, positing that paying a higher than normal wage will induce the employee to work extra hard and be very loyal to that employer. This is perfectly rational economics if the hypothesis proves true. Companies are still only paying for what they receive; they have simply found a way to get more profit per employee by paying them higher wages. Other firms may pay more, or provide better benefits, to reduce employee turnover, which can be very costly to the company. Many tech firms are examples of both these behaviors.

The two most recent welfare reforms in this country, in 1975 and in 1996, have both tried to engineer a system of complementary social safety net features and incentives to work. In both cases, the welfare system was judged to have become too skewed toward the safety net and to actively be discouraging people from working. For example, in the 1990s a single mother of two would have needed a job paying well over $20,000 before it would have made economic sense to leave welfare and start working. Simply losing her Medicaid eligibility would have cost her around $10,000 per year even back then. People were being penalized for working. Most people will not work if it makes them poorer.

The point of the current system is to encourage people to work by not making them ineligible for benefits simply by virtue of being employed. Thus, having workers at retail stores or fast food restaurants who also qualify for public assistance is not a reason to condemn those employers, but instead one to praise the politicians and public policy experts who redesigned the welfare system. ...

10. When it comes to home appliances, the ‘good old days’ are now

11. About Half of Kids With Single Moms Live in Poverty

... Among all children living only with their mother, nearly half — or 45% — live below the poverty line, the Census Bureau said. For those living with just the father, about 21% lived in poverty. By comparison, only about 13% of children with both parents present in the household live below the poverty line. ...

12. The End Of The Era Of Multinationals

... But since I clearly can’t help myself, I will make a prediction. When tax reform does come, and whatever it means whenit gets here, U.S. multinationals will pay a price. Now, I’m no communist; in fact, I’m a practicing capitalist, but the multinationals sort of deserve what’s coming, because they’re sort of pigs. They have been working the U.S. tax system for years – just like they have been working tax systems around the world. They have managed to build up quite an arsenal of weapons to help themselves – things like transfer pricing, check-the-box, tax havens, deferral, just to name a few. All these weapons are legal. The system seems rigged their way. ...

13. The Largest U.S. Charities For 2013

Its incoming donations didn’t go up much. But by a wide margin, United Way remains No.1 on the annual Forbes list of the largest U.S. charities.

The Alexandria, Va.-based network of more than 1,000 separate units largely dependent on paycheck deductions received $3.9 billion in gifts for the year ending December 31, 2012, $24 million more than the previous year. In a difficult economic environment, that represented a 0.6% increase.

No. 2 again is the  Salvation Army , a church better known for its social services efforts whose U.S. headquarters also is in Alexandria.  Its donations rose 11% to $1.9 billion, more than making up for a 6% fall from the previous year.

A list newcomer comes in at No. 3, Task Force for Global Health, which is based in Decatur, Ga. To implement its health activities in 50 countries, including the U.S., the charity brought in $1.7 billion, most of it donated medicines.

Rounding out the billion-dollar-donation club:  Feeding America at $1.5 billion and Catholic Charities USA at $1.4 billion. Feeding America, a Chicago-based supplier of of food banks, saw its incoming gifts, mainly donated food, rise a whopping 33%, in contrast to a 10% donation drop at Catholic Charities, which directs its efforts toward fighting poverty. ...

Global Inequality is Decline

James Pethokoukis includes the following graph and commentary in his post Actually, global income inequality seems to be on the decline.

As a follow-up to my blog post on the Pope Francis and his recent statement on economic inequality, here is what’s been happening on inequality globally. While inequality has increased within countries since 1970s — it’s not just America, gang — it’s dropped between countries. See the above chart from this study (h/t to Overcoming Bias.) When you combine the two, it looks like inequality has been declining.

Very poor countries tend to have high percentages of the population living at subsistence levels, with a small fraction of people with high income at the top. That means a distribution with the masses bunched at the bottom with a small tail extending toward high income.

But the high-income people in these poor countries would not compare to the wealthy in the West. The gap between the poorest and richest persons is much smaller in poor countries. As economic growth occurs, the distribution begins to look more like a bell curve where no one is living at subsistence levels, but the high-income part of the distribution has extended much further out. That is to say that absolute poverty is eliminated, but the distance between the bottom and the top widens considerably. Nations are finally becoming more economically developed. Thus there is a widening within countries but a narrowing between countries and on the global level.

You can see this graphically in a presentation at Gapminder: Human Development Trends, 2005. Here are four slides:

Here is Hans Roslings 200 Countries, 200 Years.

Hans Rosling: How much do you know about the world? [Video]

BBC: Hans Rosling: How much do you know about the world?

Be sure to click through to the article and see the 2.5 minute video.

Many people don't know about the enormous progress most countries have made in recent decades - or maybe the media hasn't told them. But with the following five facts everyone can upgrade their world view.

1. Fast population growth is coming to an end

It's a largely untold story - gradually, steadily the demographic forces that drove the global population growth in the 20th Century have shifted. Fifty years ago the world average fertility rate - the number of babies born per woman - was five. Since then, this most important number in demography has dropped to 2.5 - something unprecedented in human history - and fertility is still trending downwards. ...

2. The "developed" and "developing" worlds have gone

... So much has changed, especially in the last decade, that the countries of the world today defy all attempts to classify them into only two groups. So many of the formerly "developing" group of countries have been catching up that the countries now form a continuum. ...

3. People are much healthier

Fifty years ago, the average life expectancy in the world was 60 years. Today it's 70 years. What's more, that average of 60 years in the 1960s masked a huge gap between long lifespans in "developed" and short lifespans in "developing" countries.

But today's average of 70 years applies to the majority of people of the world. ...

4. Girls are getting better education

... The better education of girls is just a first step on the long road to gender equity. But sadly it is also changing the character of gender inequity. Violence against young women and restrictions on their rights to choose how to live their lives are now replacing lack of schooling as the main gender injustice.

5. The end of extreme poverty is in sight

... Economists define it as an income of less than $1.25 per day. In reality, it means that a family cannot be sure from one day to the next that they will have enough to eat. ...

... But the number of people in extreme poverty, according to the World Bank, has fallen from two billion in 1980 to just over one billion today. Though many people in the world still live on a very low income, six out of seven billion are now out of extreme poverty and this is a critical change. ... [Note: There were 4.5 Billion people in 1980. That means the extreme poverty rate has dropped from 45% to 15%.]

Economics Links

1. Timothy Taylor (The Conservable Economist) has several interesting graphs on The Global Wealth Distribution

2. Britain Just Privatized Its Mail Service at a $1 Billion Discount

The largest initial public offering in Europe in more than two years could have been even larger. The privatization of the Royal Mail, in which around two-thirds of the company’s shares began trading Friday morning, raised £1.7 billion ($2.7 billion) for the government.

Frenzied trading pushed the Royal Mail’s shares up by nearly 40% within minutes of the opening bell. This followed enormous demand for the initial allocation of shares, with the retail portion of the offering oversubscribed by seven times and institutional investors bidding for 20 times as many shares as they were allowed. ...

3. The CPI for clothing has fallen by 3.3% over the last 20 years, while overall prices increased by 63.5%

4. Staying Put: Why Income Inequality Is Up And Geographic Mobility Is Down

MARTIN: In the early 1950s, you say in your piece, about 3.5 percent of all American households moved from one state to another in any given year. You said that this held up through the '70s and then started to fall around 1980. You're saying that the latest available data shows that interstate migration is stuck at about 1.7 percent. This is about the lowest level in...

NOAH: Yeah.

MARTIN: ...about, what, three decades?

NOAH: Yeah. Less than half. ...

... MARTIN: So what does? NOAH: Well, I think it's two things, and one is the familiar story of income inequality. And the other is - has to do with housing prices. Incomes have been stagnant for, really, going back to the late 1970s. They've been stagnant relative to the income growth that we saw before 1979, and they have been literally stagnant for about a dozen years. Median income is now a little below what it was in the late 1990s. And you combine that with rising housing prices, then it becomes difficult for people to move to jobs because they can't afford to live where the new jobs are. ...

... NOAH: Yes, that sounds to me like a very common experience. And yes, obviously people are moving, you know, but in the aggregate, people are moving a lot less than they used to. And, you know, when you look back through American history, I mean, you sort of think - American history really is the story of a succession of movements. There was the westward movement. There was the movement, in the early part of the 20th century, from farms to the cities. There was the great black migration of the early and middle 20th centuries. There was the move to the Sunbelt in the 1970s. That was really the last time people were, in large numbers, moving to jobs. People are still moving to the Sunbelt today, but now it's not moving to jobs. They're moving there for the warm weather or for the cheaper housing. ...

I'm not endorsing his solutions, but the analysis is interesting.

5. Why Did Jews Become Moneylenders? Because They Could

6. One reason C.E.O. pay keeps rising: Open Season

... the drive for transparency has actually helped fuel the spiralling salaries. For one thing, it gives executives a good idea of how much they can get away with asking for. A more crucial reason, though, has to do with the way boards of directors set salaries. ...

... This isn’t just an American problem. Elson notes that, when Canada toughened its disclosure requirements, executive salaries there rose sharply, and German studies have found something similar. ...

... Transparent pricing has perverse effects in other fields. In a host of recent cases, public disclosure of the prices that hospitals charge for various procedures has ended up driving prices up rather than down. And the psychological causes in both situations seem similar. We tend to be uneasy about bargaining in situations where the stakes are very high: do you want the guy doing your neurosurgery, or running your company, to be offering discounts? Better, in the event that something goes wrong, to be able to tell yourself that you spent all you could. And overspending is always easier when you’re spending someone else’s money. Corporate board members are disbursing shareholder funds; most patients have insurance to foot the bill. ...

7. Americans Significantly Overestimate The Percent Of People On Food Stamps

... Around 14.3% of the nation is on SNAP — roughly 1 in 7 Americans — but still people thought participation was much higher, with the average being 22.5%. ...

8. Europe Can’t Find Balance Between Green Goals and Growth

... Europe hoped to act as a global leader by setting its ambitious 2020 climate goals, but its position as a first mover in green policy has only managed to put European industry at a competitive disadvantage relative to the rest of the world. Green energy is more expensive than brown energy and must be propped up by government subsidies to gain significant market share. The costs of these subsidies get passed on to consumers, meaning households and businesses must pay out the nose for electricity. If you’re a decent-sized widget manufacturer in Germany, options in the developing world and shale-rich America start to look more appealing. ...

9. Yes, Economics Is a Science by Raj Chetty

... But the headline-grabbing differences between the findings of these Nobel laureates are less significant than the profound agreement in their scientific approach to economic questions, which is characterized by formulating and testing precise hypotheses. I’m troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

That view is unfair and uninformed. It makes demands on economics that are not made of other empirical disciplines, like medicine, and it ignores an emerging body of work, building on the scientific approach of last week’s winners, that is transforming economics into a field firmly grounded in fact.

It is true that the answers to many “big picture” macroeconomic questions — like the causes of recessions or the determinants of growth — remain elusive. But in this respect, the challenges faced by economists are no different from those encountered in medicine and public health. Health researchers have worked for more than a century to understand the “big picture” questions of how diet and lifestyle affect health and aging, yet they still do not have a full scientific understanding of these connections. Some studies tell us to consume more coffee, wine and chocolate; others recommend the opposite. But few people would argue that medicine should not be approached as a science or that doctors should not make decisions based on the best available evidence. ...