WS MoreOrLess: Did global poverty halve overnight?

Summary

Podcast Summary: More or Less – "Did Global Poverty Halve Overnight?"

BBC Radio 4 | Host: Tim Harford | Episode Date: May 19, 2014

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Episode Overview

In this episode of More or Less, Tim Harford explores the surprising claim that "global absolute poverty fell by almost half overnight." The episode unpacks new numbers from the International Comparison Program (ICP) regarding purchasing power parity (PPP), explains how they affect our measures of global poverty, and discusses the implications for development policy and the perception of global economic progress.

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Key Discussion Points & Insights

1. The Sudden Drop in Global Poverty – What Happened?

• The International Comparison Program at the World Bank released updated PPP estimates, revising how purchasing power across countries is calculated.
• This recalculation caused analysts to claim, "Global Absolute Poverty fell by almost half on Tuesday." (Tim Harford, 01:08)
• The claim isn't that people's real conditions improved overnight, but rather that a change in how global income is compared has altered the statistics.

Quote:
"It's not that anybody was hungry the night before and woke up with food in their belly, or people are any less poor in any real sense, just categorized differently on paper."
— Justin Sandefur, Centre for Global Development (01:14)

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2. Why PPP Matters in Measuring Poverty

• The World Bank's extreme poverty line is set at $1.25/day, but this is not simply converted using current exchange rates.
• Instead, incomes are converted to an artificial "PPP dollar" that reflects what money can actually buy in different countries.

Illustrative Moment:
James and Jane tell a story of Sarah and Jane earning the same amount in China but being able to buy more in China than in the US, showing how exchange rates alone can misrepresent real purchasing power (02:15–03:13).

• The change in PPP estimates affects existing poverty statistics: previous estimates placed over a billion people below the $1.25/day line; now, rough estimates suggest this has nearly halved (03:22).

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3. Caveats & Criticisms: Does the New PPP Tell Us About the Poor?

• Kaushik Basu, World Bank Chief Economist, cautions that PPP indices use average prices, not those specific to the consumption of the very poor (04:13).
• The poor typically spend a higher share on food; if food is becoming more expensive relative to the average basket, the poverty statistics could mislead.

Quote:
"The price index constructed by taking the average ... may not be relevant for the poor since in poor people's consumption basket, a disproportionate amount is spent on food. ... We cannot use the PPP numbers that we've just got ... and say, look, poor people are much better off now."
— Kaushik Basu (04:13–04:51)

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4. Shifting Geography of Poverty

• The revised PPPs suggest not only are there fewer extremely poor people globally, but also that the map of poverty has shifted significantly.
• The proportion of the global poor in South Asia drops from about half to a third, while sub-Saharan Africa's share rises to nearly 40% (05:06).

Quote:
"The global allocation of poverty looks very different ... the share of the global poor living in South Asia fell from about half to about a third, whereas ... sub-Saharan Africa grew from like 28% up to around nearly 40%."
— Justin Sandefur (05:06)

• Basu remains cautious, emphasizing the need for more data that specifically reflects prices and consumption of the poor (05:26).

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5. Policy Implications & Next Steps

• The World Bank is not rushing to officially adopt the new estimates and is undertaking further study (05:26).
• Even if the number of people under the $1.25 threshold drops, Basu points out that this benchmark is extremely low and likely will be revised upward as poverty diminishes (05:56).

Quote:
"$1.25 a day is a shockingly low line. About 1/7th of the world happens to be that poor. If the number ... begins to go down, ... let's draw another line."
— Kaushik Basu (05:56–06:24)

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6. Side Note: PPP and Measuring Whole Economies

• There are media reports claiming the new PPP figures mean China's economy will surpass the US on November 2nd, 2014.
• This is misleading—PPP is designed to compare living standards, not total economic or market power. By regular GDP figures, the US remains notably ahead (06:24–07:10).

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7. Fun Listener Question: Round-Number Birthdays on Weekends

• Listener Sheila wonders if everyone gets to celebrate a round-number birthday on a weekend during their lifetime.
• The hosts conclude that, due to calendar shifts, everyone likely gets at least one major birthday on a weekend by 60 (07:21–09:18).

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Notable Quotes & Timestamps

• "Global Absolute Poverty fell by almost half on Tuesday."
  — Tim Harford (01:08)

• "It's not that anybody was hungry ... just categorized differently on paper."
  — Justin Sandefur (01:14)

• "We cannot use the PPP numbers that we've just got ... and say, look, poor people are much better off now."
  — Kaushik Basu (04:51)

• "The global allocation of poverty looks very different ..."
  — Justin Sandefur (05:06)

• "$1.25 a day is a shockingly low line... let's draw another line."
  — Kaushik Basu (05:56–06:24)

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Conclusion

This episode of More or Less demystifies the statistical “halving” of global poverty, showing it is a technical shift in measurement due to updated purchasing power figures—not a real-world overnight improvement. The episode also spotlights the complexity and significance of how we measure poverty, the importance of methodology, and cautions against over-interpreting statistical leaps as policy triumphs. It closes with a lighthearted inquiry into the coincidence of milestone birthdays and weekends, reflecting the show's trademark blend of serious statistics discussion and everyday curiosity.

Transcript

[Tim Harford]

This is the short edition of More

[Jane]

or Less, first broadcast on the BBC World Service.

[BBC Announcer]

Thank you for downloading from the BBC. For details of our complete range of podcasts and our terms of use, go to bbcworldservice.com podcasts.

[James Fletcher]

Hello, and welcome to More or Less on the BBC World Service, your weekly look at the numbers in the news and in life. I'm Tim Harford. On a Wednesday morning in late April, the worthy people over at the International Comparison Program, which is housed at the World bank, published a new set of estimates for purchasing power parity. James Fletcher's here to help me explain why this is actually a fascinating story.

[Narrator/Presenter]

Yes, Tim, it is fascinating, even if it does sound a bit like a tedious piece of geekery. But it's a piece of tedious geekery that's changing the way we understand the world. For example, when these ICP numbers came out, some researchers in a Washington D.C. think tank did what they paid for and started thinking and calculating, and pretty soon they produced this headline.

[Tim Harford]

Global Absolute Poverty fell by almost half on Tuesday.

[Narrator/Presenter]

So what happened there?

[Justin Sandefur]

It's not that anybody was hungry the night before and woke up with food in their belly, or people are any less poor in any real sense, just categorized differently on paper.

[Narrator/Presenter]

That's Justin Sandifour. He works for the Centre for Global Development, and he and his colleagues have come up with some rough and ready calculations suggesting that the number of extremely poor people is much lower than previously thought.

[James Fletcher]

So how did they do that? First, they took the World Bank's definition of extreme poverty. This is the famous dollar a day poverty line, although these days the line is set at $1.25 a day.

[Narrator/Presenter]

To find out how many people across different countries earn less than $1.25, data on Inc. Have to be converted to dollars, but not to ordinary dollars. Instead, they're converted to an artificial type of dollar which reflects the purchasing power of money in any given country.

[James Fletcher]

Now, this purchasing power parity business, ppp, it's complicated. Let's try and explain.

[Narrator/Presenter]

Imagine there are two friends from the United States, Sarah.

[Jane]

Hello.

[Narrator/Presenter]

And Jane.

[Jane]

Hi. We both go to China to teach English for a week and we are paid 1200 renminbi each. At the end of the week, I fly back to the United States with that money. While Jane stays in China, Sarah goes

[Narrator/Presenter]

to Bureau de Change in the United States and gets US Dollars.

[Jane]

With that money, I go to my local shopping mall and I'm able to buy a new leather jacket.

[Narrator/Presenter]

And Sarah is relatively happy with her new purchase. That is until she hears about Jane.

[Jane]

I'm still in China and I was able to buy two of the same leather jackets with the money I earned teaching.

[Narrator/Presenter]

This shows you that if you just convert a country's currency using conventional exchange rates, it hides the fact that the same amount of money has different purchasing power. To be able to compare the incomes and prices between countries, you have to create a new currency. This is what the International Comparison Program does. It creates an artificial dollar.

[Jane]

So in the made up world Jane and I inhabit, you could say that the income we earned in China went twice as far in China compared with that in the States.

[James Fletcher]

Using the old set of PPP figures, the World bank had estimated that there were more than a billion people in the world living in extreme poverty on less than $1.25 a day. The rough estimates from the think tank suggest that using the new PPP figures, the number of people under that extreme poverty line has almost halved.

[Narrator/Presenter]

And this has got development policy wonks hopping around because reducing the number of extremely poor people is, is one of the Millennium Development Goals agreed by the United Nations. This suggests we've made a lot more progress on that goal than we previously thought.

[James Fletcher]

But hang on a second. Are we sure that this quick estimate from a think tank is correct? One issue is that the ICP wasn't specifically looking at the price of goods bought by very poor people. Here's the chief economist of the World Bank, Kaushik Basu.

[Kaushik Basu]

When you're looking at the poorest people in a country, they may have a consumption pattern which is very, very different from the average person's consum consumption in that country. And so the price index constructed by taking the average of what is consumed in the country may not be relevant for the poor since in poor people's consumption basket, a disproportionate amount is spent on food. If food prices go up, that might mean a lot for the poor. So we cannot use the PPP numbers that we've just got, apply that to the poor and say, look, poor people are much better off now, and poverty has gone down.

[James Fletcher]

But Justin Sandifer of the center for Global Development makes another point. The real story may not be that there are fewer extremely poor people than we thought. It may be that the world's poorest people don't live where we thought they lived. And that's big news.

[Justin Sandefur]

The global allocation of poverty looks very different with these new PPP exchange rates. The share of the global poor living in South Asia fell from about half to about a third, whereas the share of the global poor living in sub Saharan Africa grew from like 28% up to around nearly 40%.

[Narrator/Presenter]

Kaushik Basu of the World bank is cautious about that one, too. Again, he says, we still don't know how prices are changing for the poorest people. But the World bank isn't hurrying to produce new poverty estimates. It says it has an ongoing project to consider the new figures and won't rush a new estimate of extreme poverty.

[James Fletcher]

In any case, says Kaushik Basu, even if the number of people under the $25 benchmark does fall sharply, the World bank will be seeking new targets.

[Kaushik Basu]

The World bank has set itself a target of ending chronic and extreme poverty by the year 2030. However, that's not the end of our challenge. $1.25 a day is a shockingly low line. About 1/7th of the world happens to be that poor. If the number of people that poor begins to go down, I think it'll make perfect sense to say that, well, let's draw another line. That's something we could reasonably be looking at in the future.

[Narrator/Presenter]

Kaushik Basu, Chief Economist of the World Bank Tim, as we were researching this item, we kept encountering reports that because of these price revisions, China's economy was about to surpass the economy of the United states.

[James Fletcher]

Yes, on November 2nd, if you want to get ridiculously precise but afraid those claims just don't make much sense to me. The point of these PPP conversions is to produce a sense of people's standard of living. If you want to look at the impact of a country on international markets or growth rates of the world economy, or the price of oil or indeed the number of aircraft carriers it can afford, you need the regular unadjusted figure

[Narrator/Presenter]

for gross domestic product, and that's one I've checked. At the moment, the United States is still well ahead of China. On that basis, its economy is almost twice as big.

[James Fletcher]

Well, thank you, James. We're always keen to hear from you via more or lessbc.co.uk and a few weeks ago, loyal listener Sheila got in touch with this question.

[Tim Harford]

I'm 60 on Saturday and have a weekend of fun planned. I've been wondering, does everyone get to have a big birthday at the weekend at least once in their lives? If we say 20, it's probably the first time one would be aware of such things. How old do you have to get before you can be certain of a big birthday weekend?

[James Fletcher]

Well, I hope you had a great birthday, Sheila. And I must confess to using the back of a trusty BBC envelope for this one. Sheila's had to wait a long time for this. Her 10th birthday was on Sunday, May 10, back in 1964, but her 20th, 30th, 40th and 50th birthdays were all stranded on weekends. Now, we think this is unusual because your birthday moves a day forward in the week each year or two days. When there's a leap year over a decade, your birthday moves forward 12 or 13 days. Looked at another way, it skips backwards a day or two across the week. We think that everyone will celebrate a weekend round number birthday as an adult by the age of 60, and usually earlier than that. If there are any loyal listeners out there who've had to wait until they're 70, do please get in touch via more or lessbc.co.uk and no 2-29-babies, please. You have enough to worry about already. That's all we have time for today. Please keep your questions and your comments coming. We're at more or lessbc.co.uk and as always, there's further information and a downloadable edition of the show and [e-mail] more or less. We'll be back next week. Until then, goodbye.

[BBC Announcer]

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