I spent a month in a farming village in China about 15 years ago. Farmhands there made about $8 a day during the growing season, and little during the winter. They would be supporting a family of 4 or more, so that would be under $2 a day on average. Yet prices for rent and food were so low that, if you considered only the essentials, they were making better wages than many people in America. They were poor if they wanted to buy manufactured goods, and poor in that certain standards (clean air, quiet neighbors, reliable electricity) were unavailable even for the rich. Most of them had indoor toilets (with nasty open sewers) and television (the true necessity). I don't know about the price of fuel or electricity.
My point is that using the exchange rate to compute how many dollars a day someone makes in a country in which the exchange rate is only used to price things that the locals don't buy is very misleading.
My point is that using the exchange rate to compute how many dollars a day someone makes in a country in which the exchange rate is only used to price things that the locals don't buy is very misleading.
I believe the World Bank defines poverty in terms of PPP-adjusted incomes for that reason.
Cross-posted from my blog here.
One of the greatest successes of mankind over the last few centuries has been the enormous amount of wealth that has been created. Once upon a time virtually everyone lived in grinding poverty; now, thanks to the forces of science, capitalism and total factor productivity, we produce enough to support a much larger population at a much higher standard of living.
EAs being a highly intellectual lot, our preferred form of ritual celebration is charts. The ordained chart for celebrating this triumph of our people is the Declining Share of People Living in Extreme Poverty Chart.
(Source)
However, as a heretic, I think this chart is a mistake. What is so great about reducing the share? We could achieve that by killing all the poor people, but that would not be a good thing! Life is good, and poverty is not death; it is simply better for it to be rich.
As such, I think this is a much better chart. Here we show the world population. Those in extreme poverty are in purple – not red, for their existence is not bad. Those who the wheels of progress have lifted into wealth unbeknownst to our ancestors, on the other hand, are depicted in blue, rising triumphantly.
Long may their rise continue.