Posted on 08/15/2002 11:35:44 AM PDT by Marianne
To critics of economic liberalization and international trade, it is an article of faith that the rich are getting richer and the poor poorer.
"Inequality is soaring through the globalization period - within countries and across countries," Noam Chomsky told a conference last fall, summarizing this common view.
Antiglobalization activists are not just making up this idea. They have taken it from seemingly authoritative sources, notably the 1999 United Nations Human Development Report.
That widely cited report stated: "Gaps in income between the poorest and richest countries have continued to widen. In 1960 the 20 percent of the world's people in the richest countries had 30 times the income of the poorest 20 percent - in 1997, 74 times as much." It added that "gaps are widening both between and within countries."
Fortunately, this scary portrait is highly misleading.
"When I started looking at the numbers, I saw a lot of mistakes," says Xavier Sala-i-Martin, an economist at Columbia. Some were departures from standard economic procedures, like not correcting for price levels from country to country.
"Some agencies didn't adjust for the fact that Ethiopia is cheaper than the U.S.," he said. "Some of them were hiding numbers that we know exist." For instance, the report included data from only 19 of the 29 industrialized countries then in the Organization for Economic Cooperation and Development.
But the biggest problem was not so technical. It was hidden in plain sight. The United Nations report and others looked at gaps in income of the richest and poorest countries - not rich and poor individuals.
That means the formerly poor citizens of giant countries could become a lot richer and still barely show up in the data.
"Treating countries like China and Grenada as two data points with equal weight does not seem reasonable because there are about 12,000 Chinese citizens for each person living in Grenada," writes Professor Sala-i-Martin in "The World Distribution of Income (Estimated from Individual Country Distributions)." That is one of two related working papers for the National Bureau of Economic Research. (The papers are available on Professor Sala-i-Martin's Web site at www.columbia.edu/~xs23/home.html.)
Counting by countries misses the biggest economic advance in history, completely distorting the record of the globalization period.
Over the last three decades, and especially since the 1980's, the world's two largest countries, China and India, have raced ahead economically. So have other Asian countries with relatively large populations.
The result is that 2.5 billion people have seen their standards of living rise toward those of the billion people in the already developed countries - decreasing global poverty and increasing global equality. From the point of view of individuals, economic liberalization has been a huge success.
"You have to look at people," says Professor Sala-i-Martin. "Because if you look at countries, we do have lots and lots of little countries that are doing very poorly, namely Africa - 35 African countries." But all Africa has only about half as many people as China.
In his paper, "The Disturbing `Rise' of Global Income Inequality," he estimates the worldwide distribution of income by individuals rather than countries. The results are striking.
In 1970, global income distribution peaked at about $1,000 in today's dollars, a common measure of poverty ($2 a day in 1985 dollars). In 1998, by contrast, the largest number of people earned about $8,000 - a standard of living equivalent to Portugal's.
"That's what I call a new world middle class," says Professor Sala-i-Martin. It is mostly made up of the top 40 percent of Chinese and Indians, and the effect of their economic rise is big.
What about the argument that income gaps are widening within these rapidly advancing countries? With a few exceptions, it is true, but still misleading.
The rich did get richer faster than the poor did. But for the most part the poor did not get poorer. They got richer, too. In exchange for significantly rising living standards, a little more internal inequality is not such a bad thing.
"One would like to think that it is unambiguously good that more than a third of the poorest citizens see their incomes grow and converge to the levels enjoyed by the richest people in the world," writes Professor Sala-i-Martin. "And if our indexes say that inequality rises, then rising inequality must be good, and we should not worry about it!"
There is, however, one large country where the poor really are getting poorer while the rich grow richer: Nigeria, the most populous country in Africa.
Nigeria's economy has actually shrunk over the last three decades, and the absolute poverty rate - the percentage of the population living on less than $1 a day in 1985 dollars - skyrocketed to 46 percent in 1998 from 9 percent in 1970.
While most Nigerians were falling further into destitution, the political and economic elite grew richer. The problem is not too much liberalization but too little, a politicized economy with widespread corruption.
"The rich guys are doing well, therefore reforms will not come," says a pessimistic Professor Sala-i-Martin. He has begun studying Nigeria, trying to come up with ways around the political problem.
That country is typical of Africa, which is growing ever poorer. Fully 95 percent of the world's "one-dollar poor" live in Africa, and in many countries they make up the vast majority of the population. That poverty, not the rising wealth of Asian countries, is the global economy's real problem.
"The welfare implications of finding how to turn around the growth performance of Africa are so staggering," he writes, "that this has probably become the most important question in economics."
Should we be upset that the gap has grown, or should we be ecstatic that you are making twice as much money?
For example, I'm certain this morning I could have pondered at length the facts discussed in this article. But now, only two things catch my attention -
* How did Virginia Postrel manage to get an editorial written in the New York Times?, and
* Xavier Sala-i-Martin - There's a name you don't see every day.
If Chomsky said it, it MUST be true and NPR will report it.
Although what you have written should be considered good news the media will report simply that the gap between rich and poor has increased by 11%
Obvioulsy you did not pass liberal math. The corrct terms are it is 111% of last years gap.
"Imagine that a genie magically appeared and offered to grant you one wish -- and, being a decent sort, you wished that everyone's income would be doubled. That could bring down on you the wrath of the political left, because it would mean that the gap between the rich and the poor had widened. That is basically their complaint against the American economy. "
Let's imagine that you were some liberal like Ted Kennedy and when the genie came, you wished that the minimum wage was raised by 10x so that everybody would be making at least $50 an hour.
Now that's a living wage, right?
Well not really. Because employers would see the cost of their labor rise 10x and they would have to raise the prices of their goods and services accordingly. So now everything is so much more expensive. For example, it will cost $100 or more just to take your kids to McDonalds for lunch.
As well, many people in more highly skilled jobs will be quitting their jobs to work at McDonald's and other minimum wage jobs so they can make more money. As a result, their employers will be forced to raise their wages far past $50 an hour in order to convince them to stay. So now the cost of labor spirals all across the board, causing massive inflation. By the time everything shakes out, the people making the $50 an hour minimum wage will find themselves as poor as ever.
So the answer is not jacking up the minium wage but to acquire the skills and education necessary to rise above a minimum wage job. Contrary to liberal intentions, there is no way to legislatively circumvent this process.
1) You are smarter than the average liberal reporter, or
2) You are a mean, evil conservative neo-nazi who does not care for the plight of the poor.
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