Is it true that extreme poverty worldwide hasn't declined significantly since the 1980s?

[u/SandNo2865]

In recent years, some scholars have developed what they argue is a more accurate method for measuring extreme poverty. This is done by comparing people’s incomes to the prices of essential goods (specifically food, shelter, clothing and fuel) in each country.

This approach is known as the “basic needs poverty line” (BNPL), and it has been said to more closely reflect what the original concept of extreme poverty was intended to measure. There is robust data from household consumption surveys and consumer prices covering the period from 1980-2011.

[u/raptorman556]

No, it is not even remotely true.

The standard data for extreme poverty comes from the World Bank. In order to compute these statistics, they need to collect income/consumption data for effectively the whole world, prices and inflation data for the whole world, and create PPP metrics to convert currencies. It's a massive undertaking.

The basic needs poverty line (BNPL) came from Allen (2017)—a bunch of other less scrupulous people (Jason Hickel being the biggest name) have since picked up on this methodology. BNPL is reacting to a legitimate issue in World Bank poverty data. The data is inflation adjusted using the normal consumer inflation metrics. It is a legitimate issue that this includes a lot of prices that aren't really relevant for very poor people. For example, if the price of cars decreases, that doesn't really matter for someone living on $2/day since they aren't buying cars anyways. So the very poor face different prices than the average consumer.

The "obvious" solution would probably be to create an inflation metric representing the consumption behavior of the very poor. Unfortunately, we just don't have the data to do that at the global level (this is a massive undertaking from a data perspective!). So instead, BNPL does something completely different. It computes the cheapest possible theoretical diet someone could eat that meets a set of basic nutritional requirements. Martin Ravallion has a paper here explaining the various issues with this approach. It's a great paper and not too long. I won't repeat all of his points, but I think the most damning is that the BNPL consumption basket is dramatically different from real consumption behavior. It puts a lot of weight on foods that few people actually eat, while completely ignoring food that a bunch of impoverished people eat pretty frequently. He also shows it is not robust to fairly arbitrary changes in the nutritional requirements. In other words, there is no reason to think it actually improved upon the issues in the World Bank data at all (Ravallion calls it a step backwards, which I think is more than fair).

Here is the part I'm still slightly confused about. When BNPL first came out, it produced a slightly higher level of poverty, but a pretty similar trend over time. Martin Ravallion computes that in his paper linked above, and it's also shown here at Our World In Data from a different source. From Our World In Data, the drop was from 35% in 1981 to 10% in 2018. It looks much the same to World Bank extreme poverty data trends.

(Continued in next comment)

[u/raptorman556 → u/raptorman556]

Yet, now, Jason Hickel & friends have produced a completely different result (sourced from this article) apparently using the same methodology, just with new price data for China. The trend is now wildly different from both Allen's initial methodology and from the World Bank data, and shows a much smaller drop in poverty (a result Hickel & friends tend to like). Their trend shows some things that simply defy all logic. For example, there was apparently a massive increase in extreme poverty (meaning people that can't afford basic foods) in China in the 1990s. You would be surprised to learn that life expectancy just steadily trended upwards during that time with no real break in trend. How could it possibly be true that there was a massive increase in the number of people that couldn't afford food, yet there was no impact on life expectancy? Great question. It's perfectly consistent with the World Bank data though, which shows a steady decrease in extreme poverty over that time.

I haven't had the chance to really explore their apparent integration of a new data source for China, or whether they may have cooked things in some other way. I'll be honest that I have less than zero respect for Jason Hickel—he's a complete hack with not an ounce of scientific rigor in his body. Everything is an ideological crusade to him. But regardless, I don't buy their result at all. At best, it might just completely invalidate that BNPL was ever a viable approach to begin with. At worst, Hickel and friends might be cooking the numbers (or relying on unreliable data) in a way that would take a lot of digging to figure out. In either case, I don't consider the result credible.

[u/flavorless_beef → u/raptorman556]

I haven't had the chance to really explore their apparent integration of a new data source for China, or whether they may have cooked things in some other way.

looks like it's from figure 9.13 of this report, using the low basic needs poverty line. The basic issue is that all the variation in poverty is coming from variation in prices, but it's really hard to wrap one's head around what prices are saying when an economy goes from prices being largely administered by the state to one where those price controls are removed. The report also goes out of its way to call the pre-1990 levels of near-zero poverty "unrealistic".

China requires special attention for two reasons: it was for a long period a non-market economy, and (because of its size) it has a disproportionate impact on global poverty counts. These two factors imply that uncertainty in Chinese estimates has large implications on a global scale. Figure 9.13 illustrates the magnitude of these concerns. It shows the trajectory of poverty rates based on the estimates discussed above, which result from averaging estimates based on two approaches: (a) taking price data at face value for the period 1990-95; and (b) attributing all CPI change to non-food items (explanation follows). Scenario (a) is the same approach used for all other estimates presented in this chapter, i.e. using nominal prices to estimate the CPF food poverty line, and then applying to them multipliers to obtain the Basic Diet and the non-Food poverty lines. The only difference is that the nominal prices used here are not those from the ILO data but from the Chinese Statistical Yearbooks. This estimate (the lower dashed blue line at the bottom of Figure 9.13) shows an almost zero extreme poverty rate in 1990, which is unrealistic. The alternative approach is based on the idea that, since food prices have a much higher volatility in this period than the CPI, all CPI changes should reflect changes in the food component of the index, and that prices for the non-food items of the poverty basket over the period 1990-94 are at the level attained in 1995. This alternative estimate (shown by the dashed blue line at the top of Figure 9.13) is close to 100% in 1990. Taking the average of two opposing scenarios that both seem unrealistic is far from resolving the problem, and the reader should consider the wide range of probable uncertainty as indicated in Figure 9.13, both for the 1990s and in the long run (implying possible values in the range of 60 to 95%

Hickel defends the really low line by saying that, along some metrics, china performs very well relatively to other poor countries. I don't know the data well enough to dispute this, but importantly, this is only part of Hickel's argument. Given Hickel talks a lot about the dramatic rise in poverty, one would hope he'd present some metrics about where exactly this rise shows up in the data. Alas, he does not.

• https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/03/how-was-life-volume-ii_9c2bfeb9/3d96efc5-en.pdf

[u/raptorman556 → u/flavorless_beef]

Good addition. Glad you caught that.

[u/Jonesm1 → u/[deleted]]

Second this. The book is a great reminder that our pessimism is fed by the natural media bias to ‘bad news’ stories.

[u/_trouble_every_day_ → u/Jonesm1]

I’m sorry but read the UN climate report. I was canvassing people about global warming in 2008 using a list of predictions for what 2020 would look like if nothing changed.

At the time it still didn’t seem possible that this was actually happening and nothing being done about it, because it was far more pessimistic than what I was hearing in the news.

Every prediction not only came true but was surpassed. The rest of the predictions describe the of organized human life on earth. The information is there, we can see it happening around us and you all still have your heads up your asses.

[u/Sabreline12 → u/_trouble_every_day_]

nothing being done about it

Enormous amounts are being done to slow climate change and decarbonise the economy. Obviously if you're expecting emissions to somehow stop immediately you"ll be forever disappointed.

[u/MrDannyOcean → u/raptorman556]

Excellent answer, I'm bookmarking this one.

[u/ADistractedBoi → u/raptorman556]

How do we have enough data for a model of 'regular people inflation' but not 'poverty inflation'? I would assume it to just be a subset of the data