We can´t always rely on Bill

In this on-going philanthropic stage in his life, Bill Gates’ endeavor (along his beloved wife, Melinda) seeks to claim victory in the most difficult fights against the enemies of humanity.

Think what you like about economic theory and defend whichever standpoint you’ve chosen to defend but, regardless of left or right, libertarian or statist, the world cannot afford to build the sustainability o its economic systems and economic development based on the altruism and donations of the likes of Bill Gates.  In the essay titled:  “Here’s my plan to change the world”, Bill addresses some of the aching problems of our world that are killing millions of human lives and hopes… and the way he plans to solve them, something that only a person in his position can devote time to plan realistically with a shot to success. But, he also makes a case for philanthropy and tries to teach the whole world a lesson:

I have been sharing my idea of catalytic philanthropy for a while now. It works a lot like the private markets: You invest for big returns. But there’s a big difference. In philanthropy, the investor doesn’t need to get any of the benefit. We take a double-pronged approach: (1) Narrow the gap so that advances for the rich world reach the poor world faster, and (2) turn more of the world’s IQ toward devising solutions to problems that only people in the poor world face. Of course, this comes with its own challenges. You’re working in a global economy worth tens of trillions of dollars, so any philanthropic effort is relatively small. If you want to have a big impact, you need a leverage point—a way to put in a dollar of funding or an hour of effort and benefit society by a hundred or a thousand times as much.

We have to think beyond the immortal paradigm of economic inequality deriving from the idea of causality of the “immoral wealth of the rich” being accumulated at the expense of the "impoverish of the poor". Surely, not all (not even “most”, maybe just a “handful”) of the wealthiest people in the world are as committed as Bill in changing the world and helping the ones who suffer most, but let’s say we made the rich pay more and more taxes, diminishing their capital to amounts which become unattractive to engage in charity, who or what is going to fill up that void? Which government, institution or company is willing to do what the “Bill and Melinda Gates Foundation” is doing? If by any chance willing, which of them are capable of doing it? Ethically, power requires accountability and responsibility, which is not in any way synonym of “taxability” and definitively is no warranty for investment in charity. The other path is to enforce transparency and pressure our governments to be more efficient in their spending and commit to invest in their people, why not delegating such tasks to private institutions with public accountability.

We love you, Bill and Melinda Gates. The whole world is grateful for having you, the many lives you’ve saved and enhanced, the abundant knowledge you have shared and divulged; each and every one of the people that have strived and triumphed thanks to your charity and are now active in changing the world for the better. But even your philanthropy has a cost and that just might be people, companies and governments bailing out of charity and investment in education and social responsibility because that is “for the rich to give back to the communities of the world” and “Bill is already on his way”. 

Informal Economy vs. Poverty (Vietnam)

Wikimedia Commons This paper examines impacts of income from informal employment and informal sector employment on poverty in Vietnam to define whether the informal economy is an accelerator or a decelerator of poverty. Using data from Vietnam Household Living Standard Surveys, we find that although income from informal sources does not account for a large proportion to total income of the poor households in comparison with the non-poorhouseholds, it significantly contributes to poverty reduction. Without earnings from informal sources, 33.4 per cent of the surveyed households in 2010 live under the poverty line and this rate is only 10.34 per cent if informal income is added up. Both probit and quantile analysis affirms that informal earnings significantly mitigate poverty. Interesting findings from quantile regression are that informal earnings have divergent effects across distribution of household income. Particularly, it is a factor reducing poverty in poor households but it negatively affects the economic capacity of the rich households. The policy implication derived from empirical results is that poverty program should be associated with supporting policy for informal employees with low income so that they can improve their living standards. The paper, by Nguyen et al., is here (July 2013).

Is the US winning the war on poverty?

This paper considers the long-run patterns of poverty in the United States from the early 1960s to 2010. Our results contradict previous studies that have argued that poverty has shown little improvement over time or that anti-poverty efforts have been ineffective. We find that moving from traditional income-based measures of poverty to a consumption-based measure (which we argue is superior on both theoretical and practical grounds) and, crucially, adjusting for bias in price indices leads to the conclusion that the poverty rate declined by 26.4 percentage points between 1960 and 2010, with 8.5 percentage points of that decline occurring since 1980. Consumption poverty suggests considerably greater improvement than income poverty for single parent families and the aged, but relatively less improvement for married parent families. Our analyses of the proximate causes of these patterns indicate that changes in tax policy explain a substantial part of the decline in poverty and that social security has been important, but that the roles of other transfer programs have been small. Changes in education have contributed to the decline, while other demographic trends have played a small role. Measurement error in income is likely to explain some of the most noticeable differences between changes in income and consumption poverty, but saving and dissaving do not appear to play a large role for most demographic groups.

That is from a new paper by Meyer and Sullivan (January 2013). The title is: "Winning the War: Poverty from the Great Society to the Great Recession."

Se here for a different perspective. 

Asset Inheritance in Sub-Saharan Africa

The new number of the journal Development Policy Review (September 2012) has several articles on inheritance and poverty. In some countries, especially in Sub-Saharan Africa, when the husband dies, assets are not inherited by the widow and children but by other relatives. More research is need. But one of the papers concludes: 

• Across the 15 DHS [a survey?] countries, less than half of widows report inheriting any assets (47 percent, ranging from 22 percent in Sierra Leone to 66 percent in Rwanda). 
• Report of inheriting the majority of assets is lower (32 percent ranging from 13 percent in Sierra Leone to 60 percent in Rwanda). In all countries except Rwanda and Senegal, the spouses’ family is reported to inherit the majority of assets. 
• Bivariate analysis across the 15 countries generally supports the hypotheses that older, wealthier, more educated women have a better chance of protecting assets from dispossession. 
• Value of asset inheritances is significant in determining changes in household consumption and asset stocks across models in data from the Kagera region. 
• The relationship for inheritances and welfare are particularly strong for land inheritance and within a sub-sample of households in which widows reside.

A graph from the paper: "Who inherits the majority of assets?"

Millennium Development Goals. What Next?

The graphs are from a new working paper by Martin Raballion (September 2012). The reduction of poverty in percentage terms is obvious. The first graph shows that the poverty rate (percentage of people with income of less than US$ 1.25 a day) went down from 50% in 1980 to 20% in 2010. The 20% is what Collier calls, "the bottom billion." The second graph shows a clear decrease in poverty in South Asia, but even a larger reduction in East Asia, which has to do largely with high economic growth in China. In Africa poverty rates went up, reaching a peak in the late 1980s and early 1990s, and there has been a reduction since.

Currently there is some discussion on what should come next after the first iteration of the Millennium Development Goals. Raballion from the World Bank argues in the paper that we should take a more aggressive approach to reduce poverty even more. Rodrik on the other hand highlights the environment, immigration, and other topics. He argues:  

A short list of such policies would include: carbon taxes and other measures to ameliorate climate change; more work visas to allow larger temporary migration flows from poor countries; strict controls on arms sales to developing nations; reduced support for repressive regimes; and improved sharing of financial information to reduce money laundering and tax avoidance.

Notice that most of these measures are actually aimed at reducing damage – for example, climate change, military conflict, and financial crime – that otherwise results from rich countries’ conduct. “Do no harm” is as good a principle here as it is in medicine. 

This kind of reorientation will not be easy. Advanced countries are certain to resist any new commitments. But most of these measures do not cost money, and, as the MDGs have shown, setting targets can be used to mobilize action from rich-country governments. If the international community is going to invest in a bold new public-relations initiative, it might as well focus on areas where the potential payoffs are the greatest.

The Millennium Development Goals are global objectives. But probably there should be some room for specific regional goals. Take for example some countries in Central America and Mexico. The most important problem in the region is security, and it has been since the late 1990s. In fact the lack of security affects poverty and economic development directly and indirectly. Directly because many lives are lost, but indirectly because more violence reduces investment and employment. To be sure, security and violence might not be the main problem in several countries in Africa, where probably maternal mortality and sanitation matter most. 

The group One published a document that presents the results of surveys conducted in different regions of the word. The pressing issue varies from country to country, although some regional patterns exist. For example, health is considered more important in Brazil, agriculture in Mali, and governance in China. 

The MDGs have been very good for the world, and they provided a focal point for governments, the international community, and civil organizations. The achievements are amazing. However, for a second round it might help to include some flexibility, keeping clear focal points but at the same time including region-specific problems. 

Where are the world’s poor? 1990 vs 2007-8

That is from a new published paper by Ravi Kanbur and Andy Sumner in the Journal of International Development (July 2012), "Poor Countries or Poor People? Development Assistance and the New Geography of Global Poverty."

The abstract from the website of the JID:

Two decades ago, most of the world's poor lived in countries officially classified as low income. Now, most of the world's poor live in middle-income countries. The shift has been brought about by fast growth in a number of countries with large populations. This ‘new geography of global poverty’—with the mass of the poor not living in the world's poorest countries—raises questions for the current model of development assistance, where national per capita income is a key determinant of the volume and composition of aid flows. This paper reprises the changes in global poverty and discusses the case for continued development assistance to middle-income countries.

An early draft is here (February 2011).

The inverse relationship between poverty and city size

Is there an inverse relationship? A priori I could not tell. 

This paper provides evidence from eight developing countries of an inverse relationship between poverty and city size. Poverty is both more widespread and deeper in very small and small towns than in large or very large cities. This basic pattern is generally robust to the choice of poverty line. The paper shows, further, that for all eight countries, a majority of the urban poor live in medium, small or very small towns. Moreover, it is shown that the greater incidence and severity of consumption poverty in smaller towns is generally compounded by similarly greater deprivation in terms of access to basic infrastructure services, such as electricity, heating gas, sewerage and solid waste disposal. We illustrate for one country – Morocco – that inequality within large cities is not driven by a severe dichotomy between slum dwellers and others. Robustness checks are performed to assess whether the findings in the paper hinge on a specific definition of “urban area”; are driven by differences in the cost of living across city-size categories; by reliance on an income-based concept of well-being; or by the application of small-area estimation techniques for estimating poverty rates at the town and city level.

That is from a new published paper, "Is There a Metropolitan Bias? The Inverse Relationship between Poverty and City Size in Selected Developing Countries," (2012). (A draft - 2010 - is here) by Ferre, Ferreira, and Lanjouw.

What drives poverty?

I read Bryan Caplan's blog everyday. If you have not read his book on the selfish reasons to have more kids, you should. In a recent post he writes:  

Why are the poor more likely to abuse drugs and alcohol? As a matter of dollars and cents, substance abuse should rise, not fall, with income. These habits are expensive, both directly and indirectly. Directly: Drugs and alcohol cost money. Indirectly: Drug and alcohol abuse make you less employable, less healthy, more reckless, and more likely to get in trouble with the law.  

First-hand accounts of poverty generally recognize that heavy users of drugs and alcohol pay a high material cost. Yet they rarely reach my verdict: that other factors - like low IQ, low conscientiousness, low patience, or plain irrationality - must be driving both poverty and substance abuse. Instead, observers usually say that the poor consume drugs and alcohol to "dull the pain." Some even argue that the poor are being entirely rational: If your life is a living hell, narcoticizing yourself is the simplest solution. 

There's just one problem with this explanation: By almost all accounts, substance abuse eventually makes your life worse. The long-term addict's life is utterly wretched - even if you average in his periodic drug-induced euphorias. Someone who has yet to start using drugs and alcohol doesn't face a choice between "full pain" and "dulled pain." Instead, he chooses between two paths of pain: 

Path #1: Full pain in the short-run, followed by gradual life progress. 

Path #2: Dulled pain in the short-run, followed by a gradual downward spiral into abject misery. 

Suppose you're poor. Your life is unusually painful, so the immediate effect of drugs and alcohol is especially attractive. The long-run prognosis for a poor substance abuser, however, is especially repellent. You hit "rock bottom" sooner because you don't have far to fall. And your version of "rock bottom" is extra bleak because you lack the financial resources and social connections to cushion the blow and get back on your feet. 

The lesson: On net, poverty isn't a believable root cause of substance abuse, because being poor doesn't make substance abuse a better overall deal. Why then would poor people be more inclined to narcoticize themselves? Once again, we should look for root causes of poverty and pathology. Low patience is the most obvious suspect. If you loathe to defer gratification, you'll tend to have low income, and eagerly use drugs and alcohol today despite their awful cost down the line.  

Closing questions: If you were poor, would you turn to drugs and alcohol? If you were a social worker, would you advise the poor to turn to drugs and alcohol? I doubt it. The reason, of course, is that on some level you already know what I'm telling you: Poverty is no excuse for substance abuse because substance abuse is an absurd response to poverty.

There are many ideas in this post, with a lot of repercussions. One of them is: for individuals who were poor and became rich their IQ, patience, conscientiousness, or/and level of rationality, among others, changed. One of the challenges is therefore to understand what drives changes in IQ, etc. 

Research tribune

The effect of education on crime (in the UK). 

The effect of crime on economic growth. 

. . . [W]hy caste remains a persistent feature of the Indian marriage market.

Impact of rising world rice prices on poverty and inequality.

Universal health care in Thailand. 

Determinants of China's Outward Direct Investment. 

HT: Maximo Rossi and Mark Lee. 

The Impact of Immigration on Native Poverty

Giovanni Peri analyzes data for 2000-2009, when poverty rates increased significantly in the United States, and 1990-2000 as a comparison decade, to determine whether the presence of immigrants in the U.S. labor market has significantly affected the percentage of "poor" families among U.S.-born individuals. He finds that immigration has no effect on native poverty at the national level. At the local level -- that is, cities and states -- he does find some effects of immigration on poverty. However, even these local effects of immigration bear very little correlation with the observed changes in poverty rates. These effects also explain only a small fraction of the observed changes in poverty rates.

That is from the NBER. The paper is here.

On Poverty and Entrepreneurship in Indian Reservations

“Privatizing land is fine but it falls far short of the answer,” says Yellowtail. “Our people don’t understand business. After 10 or 15 generations of not being involved in business, they’ve lost their feel for it. Capitalism is considered threatening to our identity, our traditions. Successful entrepreneurs are considered sell-outs, they’re ostracized. We have to promote the dignity of self-sufficiency among Indians. Instead we have a culture of malaise: ‘The tribe will take care of us.’ We accept the myth of communalism. And we don’t value education. We resist it.”

But Yellowtail believes that the situation is improving. He says there are more entrepreneurs than 20 years ago as networks of Native American business people have sprung up in Montana and elsewhere. “We have to start with micro loans, encouraging small businesses. Then we have to make it okay to leave the reservation because the most successful are going to want to branch out. Entrepreneurs are going to have to stick their neck out, be a role model. We Indians are going to have to do it.”

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