By now, everyone and their siblings have seen the bye-bye poverty chart. You know, this one:
Now it is undoubtably true that there has been major poverty reduction in the world, especially since the opening of China. However, this graph paints an overly rosy picture.
The first point is that $1.25 / day is not exactly un-poor, and it is an artificial “bright line”. I am not saying the following is true, but if we lifted every person at $1.24 to $1.26 according to this metric we would have eradicated extreme poverty. And that is obviously silly.
The second point is that the incidence of global poverty reduction is very uneven. A great bulk of it comes from China and to a lesser extent, India. The picture in much of the rest of the world is much less good.
Thirdly, while the share in poverty is falling, the number of people in the world is rising so the absolute number of poor people can be rising.
There is an excellent article by Chen and Ravallion (QJE 2010) that addresses in detail poverty in the developing world from 1981 to 2005. I am quoting from an ungated working paper version available here.
Note that they are only looking at developing nations, and don’t include the rich world in their numbers.
“Our estimates suggest less progress (in absolute and proportionate terms) in getting above the $2 per day line than the $1.25 line. The poverty rate by this higher standard has fallen from 70% in 1981 to 47% in 2005 (Table 4). The trend is about 0.8% per year (a regression coefficient on time of -0.84; standard error=0.08); excluding China, the trend is only 0.3% per year (a regression coefficient of -0.26; standard error=0.05%). This has not been sufficient to bring down the number of people living below $2 per day, which was about 2.5 billion in both 1981 and 2005 (Table 5). Thus the number of people living between $1.25 and $2 a day has risen sharply over these 25 years, from about 600 million to 1.2 billion.”
So, move the line from $1.25 to $2.00 and the absolute number of people below the line (2.5 billion) is unchanged from 1981 to 2005. Thus, much of the decline in the number of poor people at $1.25 / day is marginal, with people “bunching up” just above the $1.25 / day line (600 million more people between $1.25 and $2.00 in 2005 than in 1981).
What about a more ambitious comparison? How many people in the developing world are at or above the US poverty line?
From the same paper, “In 2005, 95.7% of the population of the developing world lived below the US poverty line; 25 years earlier it was 96.7%.”
The US poverty rate in 2005 was at $13/day.
Again, I am not saying the world hasn’t made a lot of progress. I am not saying things were better in the past. I am saying that global poverty is still a very serious issue, more serious that the “you won’t believe this one amazing chart” type of journalism makes it seem.