Jumping To Conclusions

Virginia Postrel notes that, contrary to semi-popular belief, the poor aren't getting poorer.

"When I started looking at the numbers, I saw a lot of mistakes," says Xavier Sala-i-Martin, an economist at Columbia. Some were departures from standard economic procedures, like not correcting for price levels from country to country.

"Some agencies didn't adjust for the fact that Ethiopia is cheaper than the U.S.," he said. "Some of them were hiding numbers that we know exist." For instance, the report included data from only 19 of the 29 industrialized countries then in the Organization for Economic Cooperation and Development.

But the biggest problem was not so technical. It was hidden in plain sight. The United Nations report and others looked at gaps in income of the richest and poorest countries — not rich and poor individuals.

That means the formerly poor citizens of giant countries could become a lot richer and still barely show up in the data.

"Treating countries like China and Grenada as two data points with equal weight does not seem reasonable because there are about 12,000 Chinese citizens for each person living in Grenada," writes Professor Sala-i-Martin in "The World Distribution of Income (Estimated from Individual Country Distributions)." That is one of two related working papers for the National Bureau of Economic Research. (The papers are available on Professor Sala-i-Martin's Web site at http://www.columbia.edu/~xs23/home.html.)

The news isn't uniformly good; Africa is in bad shape. Many of the countries in Africa are not only basket cases, but actually getting worse. But it's rather difficult to blame globalization for the problems of Africa, given that Africa has been largely left out of the world's economy. But for the most part, we should be celebrating economic news.

The rich did get richer faster than the poor did. But for the most part the poor did not get poorer. They got richer, too. In exchange for significantly rising living standards, a little more internal inequality is not such a bad thing.

"One would like to think that it is unambiguously good that more than a third of the poorest citizens see their incomes grow and converge to the levels enjoyed by the richest people in the world," writes Professor Sala-i-Martin. "And if our indexes say that inequality rises, then rising inequality must be good, and we should not worry about it!"

Amen. The real problem with cliches is that they allow people to avoid thinking. Thus we encounter people who talk about "the gap between rich and poor" without stopping to think about what their complaint actually is. Whenever I hear the phrase, my first thought is "So, you'd be happy if a bunch of the rich people went bankrupt?" Generally -- readers of the Nation excepted -- this isn't true, of course. But they've picked a statistic which doesn't measure what they really care about, which is the standard of living of the poor. And so we hear silly comments about inequality, instead of talking about how the poor are doing.