Posts Tagged ‘poverty’

Cartoon of the day

Posted: 22 October 2016 in Uncategorized
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Cartoon of the day

Posted: 18 October 2016 in Uncategorized
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Right now, lots of people—especially young people—don’t believe in capitalism. And so Harvard economist Sendhil Mullainathan takes it upon himself to make the counter-argument, that capitalism is actually good: because the “free market” fights poverty.

But it doesn’t. And it can’t.

What Mullainathan describes, when food banks bid on donations (pasta vs. fresh vegetables, for example), is not really a market. As I explained back in 2011, in discussing the work on market design by Alvin Roth and others,

what Roth and others are designing—for schools, kidneys, and so on—are not markets but something else. The nonmarket mechanisms they propose are useful precisely when markets fail or don’t exist, which is often.

In the case of food donations, what’s going on is different food banks (using a virtual currency) register their needs for different kinds of donations.

Food banks sought some items, like diapers, that “sold” at relatively high prices. Some food banks focused on bidding on these items, which had the effect of lowering the prices of staples, like produce. The neediest food banks were able to obtain these staples at bargain prices.

But that’s not a market. It’s just a way of iteratively registering (via a pseudo price mechanism) different availabilities and needs of donated food across the country.

Even if Mullainathan and others want to call it a market, it’s certainly not an argument in favor of capitalism or the market system. As classically defined (by, among others, Karl Polanyi), a market system is a form of social economy in which land, labor, and money have become commodified, and in which the rest of society is subject to the dictates of markets.



It’s precisely such a market system that is responsible for creating mass poverty and hunger, in the United States and around the world. When people are forced to have the freedom to sell their ability to work and receive (if they are successful) low wages (and, when they are not successful, no wages at all), and when in turn they are forced to have the freedom to purchase food as a commodity, many of them (more than 15 percent of the U.S. population in 2014) become food insecure.* Food-insecure households are then forced to rely on federal programs (like the Supplemental Nutrition Assistance Program) and, when such programs come up short, on private food banks.

So, large numbers of people find themselves in the situation where—because of poverty and food insecurity created by the market system—they need to turn to food banks in order to survive. And no story about using a “market” to allocate donations among food banks can overturn that particular economic truth.


*In addition, when people don’t have access to the housing commodity (including the land on which the housing is built), or when they don’t have direct access to the land commodity (especially in countries where small-scale agriculture is still the norm), then they end up living in poverty and finding themselves in a situation of food insecurity. Similarly, the existence of money as a commodity—in the form of mortgage credit, financial derivatives, and the like—has enriched a tiny group at the top and pushed many more people into poverty.


To read National Public Radio’s [ht: ja] article on the latest World Bank report on Poverty and Shared Prosperity: Taking on Inequality, you’d think the problem of global poverty was well on the way to being solved.

Is that just wishful thinking?

In terms of the headline numbers, the author of the article is correct:

In 2013, fewer than 800 million people lived on less than $1.90 a day. That’s less than 11 percent of the global population. As recently as 1990, about 35 percent of all people lived in such extreme poverty.

That means about 1.1 billion people rose out of extreme poverty.

But, before we get too excited, there are 3 key issues to keep in mind.

First, the World Bank itself follows the presentation of the numbers with a note of caution:

Although this represented a noticeable decline, the poverty rate remains unacceptably high given the low standard of living implied by the $1.90-a-day threshold.

That’s right. The threshold is a miserly $1.90 a day, an update taking into account inflation of the previous limit of $1 a day. If they used anything more reasonable—say, an absolute level of $5 a day or, even better, a relative level of 50 percent of mean income—the level of global poverty would be much higher.*


Second, while it’s never mentioned in the article, the actual focus on the World Bank report is inequality. And there the results are, at first glance, bewildering: global inequality has fallen while average within-country inequality is greater now than 25 years ago. But it can be easily explained: Rising incomes in China and India alone, given the size of their populations, have led to a reduction in between-country inequality. However, in many countries, the income share of the top income groups has been expanding—in the United States, of course, but also in Argentina, India, the Republic of Korea, Taiwan, and China. And in South Africa, the top income share roughly doubled over 20 years, to levels comparable to those observed in the United States!

Finally, we need to understand what is actually causing the reported declines in global poverty and inequality. The World Bank singles out five countries—Brazil, Cambodia, Mali, Peru, and Tanzania—as the best performers. And here the NPR article is just plain wrong. The policies the World Bank itself cites are the following “building blocks of success”:

prudent macroeconomic policies, strong growth, functioning labor markets, and coherent domestic policies focusing on safety nets, human capital, and infrastructure.

This is exactly what one would expect from the World Bank: more growth—in other words, business as usual—will solve the problems of poverty and inequality.

The Peruvian example (based on reading the World Bank report and the background research papers) is particularly instructive. The “remarkable” improvement in living conditions among the poor and bottom 40 percent mostly occurred through the labor market (which explains about three-quarters of the reduction in extreme poverty).

What does that mean? Extreme poverty in Peru declined because more people, men and women, joined the labor market. Some left rural areas and migrated to cities; others exited the informal sector and went to work for larger enterprises. In both cases, more Peruvians were forced to have the freedom to sell their ability to work to someone else and, as a result, received more cash income in the form of wages—and then, of course, could use those wages to purchase more commodities.

So, as far as the World Bank is concerned, more Adam Smith development—a faster growing wealth of the nation—was both a condition and consequence of expanding the labor market and reducing poverty. The World Bank’s much-vaunted “shared prosperity” is just another name for more markets and more people working to make profits for a tiny group of employers at the top.

That’s the key point the article missed and the reason the World Bank, in the report, is so keen on celebrating the progress toward achieving the goal of eliminating extreme poverty by 2030.


*In fact, in a World Bank research paper, Shaohua Chen and Martin Ravallion (pdf), compared absolute and relative measures and found “a simultaneous rise in the numbers of relatively poor, alongside the fall in absolute poverty.”



Provoked, first, by liberal celebrations of the recent decline in the poverty rate in the United States—and, then, by conservative attempts to dismiss the issue of inequality, I decided to run some numbers. Just to see.

As it turns out, the corporate profit share (on the right in the chart above) and the poverty rate (on the left) appear to have moved in tandem since the mid-1990s: when the profit share declines, so does the poverty rate, and vice versa.

This is one of those times when I don’t have a theory or an explanation. But I was reminded of that long-forgotten ruthless critic of political economy:

Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.


More than 400 thousand Philadelphians live in poverty. The United States, even after the latest decline, still has more than 43 million men, women, and children below the poverty line. And nearly one half of the world’s population—more than 3 billion people—are poor (more than 1.3 billion of them in extreme poverty).

And yet the policy debate remains the same: how do we get poor people to get themselves out of the “culture of poverty”?

Not how do eliminate poverty? Or, alternatively, how do we create the economic and social institutions that don’t, on a regular and sustained basis, drive millions of people into and keep many of them in poverty?

Instead, what we get from Steve Volk [ht: ja] on Philadelphia, just like from Abhijit Banerjee and Esther Duflo (in their book Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty) for the Third World, is a focus on the pathologies of the poor and the strategies that can be tested and implemented so that poor people can find their way out of poverty.

Now, I’ll admit, Volk writes (of Mattie McQueen and other poor Philadelphians) with more heart than Banerjee and Duflo seem to be able to muster. But it’s the same basic idea—that there’s something enduring about poverty, which pertains to poor people and “their” culture and which needs to be disrupted with the right sort of economic interventions.

In Volk’s case, the problem is “generational poverty”—such that poverty is passed down through two or more generations. And the solution is the “two-gen” strategy, such as the HIPPY (Home Instruction for Parents of Preschool Youngsters) program Bill Clinton celebrated at the Democratic National Convention.

In practical terms, the strategy means providing educational support to kids while offering the full range of housing, social, mental-health and economic services to their parents. “In hindsight, this way of approaching generational poverty looks kind of obvious,” says Susan Landry, director and founder of the Children’s Learning Institute in Houston, Texas. “Everyone wants to help children. What the two-gen strategy recognizes is that children exist in families.”

Educating children without stabilizing the home, says Landry, puts kids in an impossible position — requiring them to lead their parents. Making a child’s home safer and less stressful yields huge benefits in the child’s ability to learn. And two-gen strategies are gaining support among conservatives and progressives alike. Republican governors like Bill Haslam of Tennessee and Gary Herbert of Utah champion the two-gen approach for imparting a sense of responsibility to parents and streamlining government — parking disparate social agencies under one roof. Paul Ryan, Republican Speaker of the House, recently told NPR that helping children requires helping their families — a truism of two-gen thinking.

What is true of all such programs—the ones Volk writes about as well as those that are tested through randomized control trials by Banerjee and Duflo—is they focus on improving individual decisions and household environments, not on the history and dynamics of larger economic and social structures that create and perpetuate mass poverty. In other words, it’s all about individual, not social, responsibility and outcomes. The goal, it seems, is to change individual decisions and promote the mobility of a select few up and out of poverty—and, by the same token, to avoid an analysis of the kinds of changes that need to be made in the economy in order to end existing poverty and prevent its recurrence in the future.*

The problem, as I see it, is not a culture of poverty. It’s a culture of poor economics.


*I am reminded of an early World Development Report (unfortunately, I don’t remember the exact year) in which it was shown that a redistribution of productive assets (such as land reform) was much more likely to end poverty than other reforms (such as universal schooling). However, the authors of the report argued, land reform often faces social and political opposition, especially from landlords, and therefore needs to be set aside since it is an unrealistic strategy.