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Posts tagged ‘Poverty’

Won’t Somebody Please Think of the Children?

By Saad Asad

Child poverty rates in the United States soared to 22 percent in 2010. The problem is worse for minorities: 39 percent and 35 percent of Black and Hispanic children, respectively, live in poverty. Despite this troubling issue, the federal government has made little headway in reducing child poverty rates over the past decade.

Admittedly, the rise was exacerbated by the recession and the related foreclosure crisis that wiped out jobs and homes. But the effects of the 2008 financial crisis explain only part of the US’ high child poverty rate: in pre-crisis 2007 it was 18 percent. Over the past ten years, the rate has only increased.

Child Poverty 2000-2010

As a UNICEF study explains, these individual problems escalate in to a nationwide economic problem:

“Failure to protect children from poverty is one of the most costly mistakes a society can make. The heaviest cost of all is borne by the children themselves. But their nations must also pay a very significant price – in reduced skills and productivity, in lower levels of health and educational achievement, in increased likelihood of unemployment and welfare dependence, in the higher costs of judicial and social protection systems, and in the loss of social cohesion. The economic argument, in anything but the shortest term, is therefore heavily on the side of protecting children from poverty.”

To prevent this crisis from worsening, immediate relief can be found from expanding the Earned Income Tax Credit and maintaining unemployment insurance benefits to the jobless. For the long haul, though, the US should look to the policies implemented by the United Kingdom in reducing its own child poverty rate. Aside from increasing subsidies,the UK increased access to  childcare programs and targets were set to eliminate child poverty by 2020. So far, the UK has reduced absolute child poverty significantly.

From a structural standpoint, communities and governments need to increase focus on pre-K education and child daycare for those families that cannot afford it. The negative effect of early-life poverty and lack of pre-K education on later-life outcomes is well understood, and impoverished children at age 4 are already 18 months behind developmentally.

President Barack Obama should also be lauded for requesting $210 million to set up zones across the country similar to the successful Harlem Children’s Zone. The one in Harlem pays strict attention to students’ behavior, increases their time in school, and enforces rigorous standards for teachers. David Brooks of the New York Times furthers:

“Forgive some academic jargon, but the most common education reform ideas — reducing class size, raising teacher pay, enrolling kids in Head Start — produce gains of about 0.1 or 0.2 or 0.3 standard deviations. If you study policy, those are the sorts of improvements you live with every day. Promise Academy [a charter middle school in the Harlem Children’s Zone] produced gains of 1.3 and 1.4 standard deviations. That’s off the charts. In math, Promise Academy eliminated the achievement gap between its black students and the city average for white students.”

Although these programs cost taxpayer money, they are effective in reducing child poverty and its resulting ill effects. And when considering how these ill effects can affect crime rates, unemployment rates, and overall economic growth in the future, then these measures are surely a worthwhile investment.

The Impact of US Child Poverty

By Taylor Marvin

Last week Felix Salmon made what I think is a very perceptive point about the long-term costs of American distaste for public social spending:

“Two of the biggest and most daunting long-term problems facing the US economy are (1) the fact that Americans aren’t as well educated as their counterparts elsewhere in the world; and (2) the fast-growing obesity epidemic.

Both of these problems are caused, in large part, by America’s very high levels of child poverty.

So if you fix the child-poverty problem, you’ve made a serious dent in both the education problem and the obesity problem.

What’s more, the child-poverty problem really is one of those problems which can be fixed quite easily just by throwing money at it. Give enough money to children in poverty, and they’re not poor any more. Problem solved — at least to a first approximation.”

The United States federal government spends an enormous amount of money, primarily on entitlements for the elderly and defense spending. While a large portion of this spending is arguably justified, it’s also remembering that the long-term positive returns on the military budget and excessive entitlement spending are much less than comparatively trivial programs to reduce child poverty. While US government spending is likely unsustainable at our current revenue level, smarter appropriation of relatively minor amounts of federal funds could have huge long-term benefits.

The World 99 Percent

By Taylor Marvin

Here’s an interesting graphic that’s been making the rounds on We Are the 99 Percent tumblr:

Is this true? Is the income of the bottom 99% of US citizens in the top 1% of world income?

Short answer: maybe. From the World Bank, World Development Indicators dataset, in 2009 per capita US income was $45,989, compared to a world average of $8,599. Plugging this into the Global Rich List income comparison tool tell us that the average American falls into the top 1.43% of humanity, suggesting that the 99 Percent graphic’s claim is just off. However, there are a lot of problems with this comparison. For example, the average US income provided by the World Bank is given in GDP per capita. This is problematic for a few reasons. First, it includes the income of the top 1%, which we’re not interested in and in the US is high enough to significantly skew this figure. Similarly, GDP per capita is an averaged measure — while this is often the best income measure economists can get, it doesn’t account for inequality. Is there a better estimate? It’s hard to tell. This morning Washington Post columnist Suzy Khimm reported that in 2010 US households in the bottom 60% earned $59,154, while those in the bottom 20% $33,870. Remember, these are household earnings — suggesting that the average earnings from the bottom 99% of individuals is significantly below the GDP-derived $45,989 figure. However, since this conjecture lowers our expected 99% average income it suggests that the average 99% American even farther below the world top 1%.

However, there’s another problem. We aren’t just interested at looking at inequality within a country, but across the world population. GDP per capita in dollars is a bad measure for this, because we aren’t really interested in strictly income, but rather how much consumption that income buys. Because prices of goods vary widely across countries, it’s more accurate to use Purchasing Power Parity (PPP) — the value of local goods purchasable with the average national income — as a measure of comparing income. The difference between GDP per capita in nominal dollars and PPP isn’t always predictable — for example, Japanese per capita income is roughly constant for both GDP per capita in current US$ and GDP based on PPP per capita GDP, while both Lebanon and Jamaica’s average income plummets when looking at income based on PPP per capita GDP. In the United States however, income goes up when we consider purchasing power: rising to $55,622 when measured in PPP. This makes the average American better off compared to the rest of the world, indicating that the average income for the bottom 99% in the US may fall into the world’s top 1% in terms of consumption if not nominal income — unfortunately it’s difficult to be more precise.

But that doesn’t change the core issue here: on average Americans are much, much better off than nearly all of the rest of the world, and We Are the 99 Percent is right to stress that point. However, implying that famine and extreme poverty is the norm for 99% of humanity is misleading. I’m not arguing that famine and extreme poverty doesn’t exist — as of 2008, one in four residents of the developing world lives on less than $1.25 a day. However, in the last quarter century humanity has made enormous progress combating poverty, and the extreme poverty We Are the 99 Percent highlights is increasingly far from the global norm.

In 2008 1.4 billion people lived in extreme poverty, compared to 1.8 in 1990. When considering the large human population growth of the last twenty years this achievement becomes much more remarkable. Incidence of famines are down drastically, and the developing world is mostly on track to halve 1990 poverty levels by 2015. Again, this isn’t to say that extreme poverty isn’t a pervasive problem — it is, and the degradation and pain of extreme poverty is a continuing horror. However, there are good reasons to be optimistic about the future.

World regional incomes spent most of the last 500 years rapidly diverging, with Europe and select European post-colonial states rapidly becoming much richer than their peers. However, in the last half century world income across regions have begun to converge, with the rest of the world beginning to ‘catch up’ to the historically richer West:

GDP Based on PPP per capita GDP, 1980-2016.

Data Source: International Monetary Fund, September 2011 World Economic Outlook. Image: Google Public Data Explorer. Note: Advanced Economies includes the US.

There’s still a large difference between incomes in the developed and developing worlds. However, if current trends hold this gap is likely to shrink through this century. This projection becomes even more encouraging when considering the size of the regions highlighted in this graph:

GDP Based on PPP per capita GDP, 1980-2016. Regional Population as Percentage of World Total, 2011.

Data Source: International Monetary Fund, September 2011 World Economic Outlook. Image: Google Public Data Explorer. Population figures are rough estimates. Note: Advanced Economies includes the US.

15% of the world’s population live in advanced economies, a fact that often under appreciated in the public consciousness. Moreover, an increasing percentage of advanced economies only recently achieved high-income status. The newly industrialize Asian economies, some of the richest in the world, only matured within the last three decades, unlike the Western European ex-colonial powers that dominated the global economy for centuries.

What’s especially encouraging is that despite the global collapse of 2008 most regional growth trajectories remain fairly robust. This is especially evident in developing economies — while Euro Area and US growth will likely remain anemic throughout the decade, growth rates in developing economies, rather than the developed world, will increasingly determine the course of the global economy. Developing Asia is an especially important part of this trend. Because the region is home to nearly half of humanity, positive developments there have an enormously important impact on the fortunes of humanity in general. Strong growth rates in China and India are an hugely important gain for humanity. This century Americans will increasingly fall out of the world’s top 1%, and in the global aggregate that’s a good thing.

However, despite the ongoing aggregate global convergence, select regions are being left behind. This is extremely worrying. The We Are the 99 Percent graphic highlights famine in Africa as the human norm — while this is increasingly incorrect in a global context, it remains depressingly common in Sub-Saharan Africa, where growth rates are projected to remain low into the foreseeable future. As the rest of humanity becomes richer and increasingly convergent on a global scale, we should become increasingly worried about the bottom 20% that’s being left behind.

Update: Minor changes for clarity.