Millennium Development Goals, poverty, inequality, and the World Bank

The wealth of persons - About this publication

The documents on this site are part of a larger project. The project is to explain, in easy language, fundamental issues in economics.

In the process, several fundamental issues arise for the theory of welfare economics, and for the theoretical requirements for practical studies. The intention is to publish the material as a book. An overriding aim is to explain the issues to a wide range of interested people - scientists, social scientists, and all recipients of information from economists as to how well or badly people have done.

Jargon words (“poverty reduction”) are generally excluded. Simple but accurate description of the data, or the issue in question, is included.

A second effort has been made to explain the principles rather than to interrupt the flow by constant references to other material. In a sense, it does not matter what views have been put forward by academics in the past - the point is that some of the issues can be well understood by anyone. In all social sciences there are certain types of decisions which have to be made as to what is a sensible approach. These decisions - about the quality of data required, about what may have been missed out, about what the statistics mean - are the subject of debate within each discipline, especially among some more senior members. This is true of economics.

Here is an example of an issue which anyone can have a go at thinking about.

Average income going up is consistent with people being worse off, for several reasons. One of them is this:

Average income falls if people with lower incomes live longer.

There is no theory in welfare economics to deal with this type of case. Nor is there any guidance in the theory of economics as to how to assess economic gains and losses in countries where the economist does not know how long people lived at different levels of income.

The change in average income is an abstract statistic. It does not in itself tell you anything about how much real people’s incomes went up or down on average. That is because mathematically it also depends on demographic change: births and deaths (and migration).

To know the average rise to real people, you have to know how much demographic change influenced the average at the end of the period.
Demographic change includes changes in life length among rich people (who raise the statistic by living longer) and poor people (who lower it).
Economists do not know the effect of demographic change, but simply say that they have found the average gain.

They infer that demographic change had no effect. This is a surprise, because some economists are aware of the demographic impact of, for instance, falls in birth rates on economic growth statistics.

These documents explain in ordinary language the assumptions of economists claiming to know aggregate welfare gains or losses. Some assumptions are scientific, and some are moral - value judgements. The scientific assumptions are describable, in principle at least, in mathematical terms. They are in principle testable: they concern such things as the quantities actually consumed by people, which is a statistic about physical movement of goods and physical services performed by others.

To test the scientific assumptions would be highly complex. Several are merely assumptions with very little theory or data to support them. To test those assumptions in relation to the hundreds of millions of hungry people in the world - who are ostensibly the subjects of international development policy - would not be feasible at any reasonable cost. A more cost-effective and reliable approach is to measure survival rates. To test the moral assumptions is not possible.

My general proposal is that social scientists should act as scientists. To do this it is necessary to separate out value judgements as to relative “goodness” of an outcome from the scientific process. It is also necessary to examine the assumptions behind a scientific method.

Here are ten fundamental problems in welfare economics, and fifteen technical reasons for the United Nations to use survival rates rather than economic data in assessing the progress of the world's poor people: 1015

These documents are not about right or wrong, but about the science. What is poverty? Extreme poverty cannot be simply low income - since even economic poverty also depends on, for one thing, necessary expenditure, which is currently unknown for most of the world’s poor people.

Academic and popular conceptions of what it means to escape from extreme poverty include as an essential element the ability to survive longer. Poverty is relative - you are worse off in a society if others have more power than you - and it is absolute - you are worse off if you cannot meet basic needs. In the case of moderate to extreme poverty, those needs are physical, with the effect that moderate to extreme poverty usually results in a medical condition. Extreme economic poverty is hunger. Measuring hunger by measuring consumption is surprisingly complex and difficult in practice. Still more complex is attempting to infer the level of hunger from income statistics. The economists most familiar with the detail of using economic data to infer poverty levels know that current methods are inadequate in several respects. Perhaps it is time for a rethink. The most basic need for any animal, including the human, is that mentioned first in the United Nations Declaration on Human Rights - the need to survive. Measuring the satisfaction of this most basic need - survival - is relatively cheap and easy.

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