Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
The politics of measurement
Alan Freeman
Passions, politics and poverty
Poor people are passionate about being poor
Rich people are passionate about being rich
Pol...
Hot contests
“The big lie of global inequality”
Martin Wolf (2004)

“Labour’s New Internationalism”
Jay Mazur (2000)
Some issues among many
‘Appears to be’
Does ‘appearance’ justify the title ‘Big Lie?

‘The World Bank Argues’ (Wolf); ’The...
A causal story is at stake: does globalisation work?

Firebaugh and Gosling 2004
“Following nearly two centuries of growth...
Digging deeper
Are we concerned with poverty or inequality?
Absolute or relative poverty?
Is there such a thing as absolut...
GDP per capita as share of GDP per capita in Advanced
Countries, PPP

Inequality, using Purchasing Power Parity (PPP)
20%
...
GDP per capita as share of GDP per capita in Advanced
Countries, current market exchange rates

Inequality, using MEPP
10%...
Two stories, one world
20%
18%

Including China, using PPP

16%
14%
12%
10%
8%
6%
4%
2%

Excluding China, using MEPP (curr...
What do the charts tell us?
On both measures, there is a downward trend
from 1980 followed by an upward trend. The
issue i...
What’s on the tin: origins of the PPP approach
Prewar: UK board of trade, real wages of workers compared with Belgium,
Fra...
Problems, problems, problems
Data shortages
Eg: India, China did not take part till 2005
IMF then revised estimates of Chi...
A critical approach
Accept the argument behind PPPs for now
The difference between PPP and MEPP
measure of income is then ...
Ratio of GDP in PPP dollars to GDP in current dollars

The ICP price index (PPP/MEPP)
4

3.5

Advanced
Third World excludi...
What’s in the basket?
‘Prices’ have fallen in the third world
Do PPPs register poverty – or just price changes?
A country ...
The iPod Index
The ‘iPod index’ and the Big Mac Index
http://www.comsec.com.au/public/news.aspx?id=809

US dollar cost of ...
Machinery and consumption good prices compared
Table x: Price of Machinery and Capital Investment, relative to domestic co...
Divergence, Big Time
The two measures are diverging
The statistics are telling us something else
Labour is cheaper
Therefo...
Are prices and poverty linked?
100.0

10.0

1.0

0.1
First World
Third World

0.0
0.00

0.50

1.00

1.50

2.00

(double-cl...
Check it out!
Prebisch and Singer
Dependency School
Modernity of backwardness
www.hetecon.academia.edu/AlanFreeman
Not covered here
Milanovic/PovCal on ‘household
incomes’ vs territorial measures
Measures of inequality (Gini, etc)
Quick References
ideas.repec.org
hetecon.academia.edu/AlanFreeman
… ‘Poverty of Statistics’ forthcoming, in
Third World Qu...
References
Penn World Tables 6 Technical Documentation, October 2002.
http://pwt.econ.upenn.edu/Documentation/Doc-tech.pdf...
Wolf 2004 ‘The Big Lie’
“the 1980s and 1990s appear to be the first decades in the past
two centuries in which global ineq...
Mazur 2000 ‘Labour’s New Internationalism
“The most recent U.N. Development Report
documents how globalization has dramati...
Upcoming SlideShare
Loading in …5
×

The poverty of statistics

566 views

Published on

Slides to accompany the paper 'The Poverty of Statistics' and lectures on this topic, at https://www.academia.edu/188148/The_Poverty_of_Statistics

Published in: Education, Business, Technology
  • Be the first to comment

The poverty of statistics

  1. 1. The politics of measurement Alan Freeman
  2. 2. Passions, politics and poverty Poor people are passionate about being poor Rich people are passionate about being rich Policy is influenced by both feelings and evidence Evidence is a political football We have to think critically about evidence Don’t take anything as ‘true’ because it sounds convincing. Maybe you wanted to be convinced. Don’t take anything as ‘true’ because you trust the person who says it. People trusted Bernie Madoff. Critical thinking = examine presuppositions What must we assume, if we accept this evidence? What other viewpoints are there? Do they lead to different answers, or the same? If different, what assumptions lie behind the difference?
  3. 3. Hot contests “The big lie of global inequality” Martin Wolf (2004) “Labour’s New Internationalism” Jay Mazur (2000)
  4. 4. Some issues among many ‘Appears to be’ Does ‘appearance’ justify the title ‘Big Lie? ‘The World Bank Argues’ (Wolf); ’The UNDP documents’(Mazur) These sources differ. Does evidence reduce to authority? Are the comparisons comparable? What is being compared with what? Wolff: ’60th to 80th percentile’. Mazur ‘200 richest people’ Countries or people? Per capita or total? Growth or absolute level? Assets or income? Wages or income? $64m: What do the protagonists mean by income?
  5. 5. A causal story is at stake: does globalisation work? Firebaugh and Gosling 2004 “Following nearly two centuries of growth, global income inequality declined in the last decades of the 20th century … the major equalizing force is faster-than-world average income growth in China and South Asia, industrializing regions where 40% of the world’s people live. Apparently what matters most about economic globalization thus far is its role in the spread of industrialization throughout populous poor regions of the world. If so, then globalization most likely has reduced global income inequality.” Similar arguments from Sala-i-Martin Wade, Milanovic, Reddy responses (see bibliography) on accuracy of measurement However, a bigger issue is lurking
  6. 6. Digging deeper Are we concerned with poverty or inequality? Absolute or relative poverty? Is there such a thing as absolute poverty? Is a person without a car a poor person? Was that true in 1920? Is it true in Bangladesh? The ‘rights’ approach: United Nations charter, Millenium Goals Amartya Sen (capabilities), Elson/Radhakrishnan All suppose a ‘world’ standard of rights If we suppose a uniform standard then poor=unequal and unequal=poor Cause, or effect? If we reduce inequality will that reduce poverty? If we reduce poverty will that reduce inequality? Is there some third cause that will reduce both? What was the ‘effect’ of globalisation?
  7. 7. GDP per capita as share of GDP per capita in Advanced Countries, PPP Inequality, using Purchasing Power Parity (PPP) 20% 18% Third World excluding China Third World including China 16% 14% 12% 10% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 Source: International Comparison Project (ICP) Note: data not available for 2004-2008
  8. 8. GDP per capita as share of GDP per capita in Advanced Countries, current market exchange rates Inequality, using MEPP 10% 8% 6% 4% Third World excluding China Third World including China 2% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Source: International Monetary Fund (World Economic Outlook), World Bank (world Development Indicators) MEPP = ‘Monetarily Effective Purchasing Power’ = current prices and market exchange rates
  9. 9. Two stories, one world 20% 18% Including China, using PPP 16% 14% 12% 10% 8% 6% 4% 2% Excluding China, using MEPP (current) 0% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 • Two factors determine what the story is •Is China included? •Do we use PPPs or MEPPs?
  10. 10. What do the charts tell us? On both measures, there is a downward trend from 1980 followed by an upward trend. The issue is the relative size of these effects: If we miss out China, the trend is unequivocally down – using both measures If we use MEPP, the trend is unequivocally down – with or without China ‘Good times’ story requires we use PPP measures, and ascribe China’s success to globalisation. But: Is the ‘globalisation effect’ in fact a ‘China effect’? Do PPP measures convey how the world economy is actually evolving?
  11. 11. What’s on the tin: origins of the PPP approach Prewar: UK board of trade, real wages of workers compared with Belgium, France, Germany, UK and US. Then ILO-Ford UK-US What wage to give UK workers for comparable living standard? Colin Clark 1940 Conditions of Economic Progress Compared of real expenditure for 29 countries. Expenditure in ‘international units’: quantity of goods that can be purchased in each country for one US dollar from 1925-34. Only for consumer goods and services. How can we compare living standards between 2 countries, when prices are ‘lower’ in one than in another. Heston and Summers, Penn World Tables (http://www.pwt.econ.upenn.edu/) “the number of currency units required to buy goods equivalent to what can be bought with one unit of the currency of a base country” Rapidly adopted 1992 IMF, World Bank, OECD ICP now an international project, over 130 subscriber countries SOURCE is ICP and World Bank, also OECD and ICOP Note 1: became very popular at the same time that the IMF and World Bank needed to demonstrate their policies were working Note 2: statistical bodies attached to IMF/World Bank are not independent
  12. 12. Problems, problems, problems Data shortages Eg: India, China did not take part till 2005 IMF then revised estimates of Chinese GDP down by 15% Representativity what is ‘cheese’? (Roquefort ≠ Monterey Jack) Transitivity US/India X India/Mexico ≠ US/Mexico We can make them transitive by averaging The ‘average’ price is not a price that you actually find anywhere Aggregation GDP of Europe ≠ (UK+France+Germany+Italy+…) Question: what is really being measured? Claim: we are measuring ‘true consumption’ Analogy: the ‘Big Mac’ index
  13. 13. A critical approach Accept the argument behind PPPs for now The difference between PPP and MEPP measure of income is then a ‘price index’ If the MEPP measure of a country is 3 times smaller than the PPP measure, this is interpreted as ‘prices are 3 times lower in that country’ So what has actually happened to prices, in the third and first world?
  14. 14. Ratio of GDP in PPP dollars to GDP in current dollars The ICP price index (PPP/MEPP) 4 3.5 Advanced Third World excluding China Third World including China 3 2.5 2 1.5 1 0.5 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 (Larger= lower prices): prices have halved, and more, during ‘globalisation’
  15. 15. What’s in the basket? ‘Prices’ have fallen in the third world Do PPPs register poverty – or just price changes? A country needs not just to eat but to feed itself Needs capital goods Needs manufacturing inputs and technology Reproduce not just humans but the means by which they reproduce themselves ‘Give a man a fish and he will eat: give him a fishing rod and he will feed’. Blah. Consumption goods are cheaper in the poor countries – because wages are low But technology is relatively expensive Poor countries specialise in labour-, resource-intensive products, relying on rich countries for high-technology, capital-intensive products - typically capital goods Do capital goods figure in PPP measures?
  16. 16. The iPod Index The ‘iPod index’ and the Big Mac Index http://www.comsec.com.au/public/news.aspx?id=809 US dollar cost of an iPod Nano, January 2007 Brazil India Denmark France UK Spain $327.71 $222.27 $208.25 $205.80 $195.04 $192.86 Germany China Mexico US Japan Canada $192.46 $179.84 $154.46 $149.00 $147.63 $144.20
  17. 17. Machinery and consumption good prices compared Table x: Price of Machinery and Capital Investment, relative to domestic consumption First world Country Capital Investment Machinery Portugal 144% 205% Korea 135% 170% New Zealand 136% 169% Hong Kong 155% 164% Greece 126% 158% Spain 129% 158% Canada 97% 120% Country Sri Lanka Pakistan Bangladesh Egypt Morocco India Mauritius Third world Capital Investment Machinery 94% 389% 264% 353% 304% 352% 332% 323% 237% 321% 211% 300% 369% 290%
  18. 18. Divergence, Big Time The two measures are diverging The statistics are telling us something else Labour is cheaper Therefore, locally produced goods are cheaper Typically low in the value chain, low-technology ‘Resource-exporting’ model of growth Goods required for industrialisation are expensive Does this make industrialisation – required to escape and permanently reduce poverty – easier or more difficult? BRIC: Industrialisation has occurred in some countries, but is the cause globalisation or its opposite? A further issue: vulnerability to price shocks What will happen when the price of food goes up?
  19. 19. Are prices and poverty linked? 100.0 10.0 1.0 0.1 First World Third World 0.0 0.00 0.50 1.00 1.50 2.00 (double-click to activate spreadsheet and scroll through the charts)
  20. 20. Check it out! Prebisch and Singer Dependency School Modernity of backwardness www.hetecon.academia.edu/AlanFreeman
  21. 21. Not covered here Milanovic/PovCal on ‘household incomes’ vs territorial measures Measures of inequality (Gini, etc)
  22. 22. Quick References ideas.repec.org hetecon.academia.edu/AlanFreeman … ‘Poverty of Statistics’ forthcoming, in Third World Quarterly. ‘Crisis of Globalisation’ (Freeman and Kagarlitsky 2004). Bailouts and Bankruptcies’ , Fernwood Press – out soon!
  23. 23. References Penn World Tables 6 Technical Documentation, October 2002. http://pwt.econ.upenn.edu/Documentation/Doc-tech.pdf. Bart van Ark. International Comparisons of Output and Productivity: Manufacturing Productivity Performance of Ten Countries from 1950 to 1990, http://www.ggdc.net/dseries/totecon.html, chapter 2 Ipod Index http://www.comsec.com.au/public/news.aspx?id=809 Colin Clark 1940 Conditions of Economic Progress Heston and Summers, Penn World Tables (http://www.pwt.econ.upenn.edu/) Firebaugh, G. and B. Goesling (2004). "Accounting for the Recent Decline in Global Income Inequality." American Journal of Sociology, Volume 110 (Number 2 (September 2004)): 283–312. Robert Hunter Wade. Debate about Income Inequality. UC Atlas of Global Inequality. http://ucatlas.ucsc.edu/income/debate.html. Wade, R. (2004). "Is Globalization Reducing Poverty and Inequality?" World Development 32(4): 567589. Sala-i-Martin, X. (2001). “The Disturbing "Rise" of Global Income Inequality” http://www.columbia.edu/~xs23/papers/GlobalIncomeInequality.htm. Mazur, J. ‘Labour’s New Internationalism’, Foreign Affairs Vol 79, No. 1, Jan-Feb 2004 Milanovic, B. “The Ricardian vice: why Sala-I-Matin’s calculations are wrong”, typescript, Development Economics Research Group, World Bank, 2002, available www.ssrn.com. Wolf, M. ‘The Big Lie of Global Inequality’, Financial Times 8 February 2004
  24. 24. Wolf 2004 ‘The Big Lie’ “the 1980s and 1990s appear to be the first decades in the past two centuries in which global inequality declined rather than rose.” “There appears to have been an improvement in the relative incomes of a large number of people in the bottom 60 per cent of the global distribution, principally those living in Asia, relative to those between the 60th and 80th percentiles” “The World Bank argues, for example, that the number of people living on less than $1 a day in east Asia fell from 418m in 1987 to 265m in 1996, before rising to 278m in 1998, in the wake of the financial crisis.” “As John Maynard Keynes is alleged to have said: ‘When the facts change, I change my mind. What do you do, sir?’ I have changed my mind” [‘It is time for comprehensive rescues of financial systems’ – Financial Times October 7 2008]
  25. 25. Mazur 2000 ‘Labour’s New Internationalism “The most recent U.N. Development Report documents how globalization has dramatically increased inequality between and within nations” “A world in which the assets of the 200 richest people are greater than the combined income of the more than 2 billion people at the other end of the economic ladder should give everyone pause.” “Only 33 countries managed to sustain 3 percent annual GDP growth on a per capita basis between 1980 and 1996; in 59 countries, per capita GDP declined. Eighty countries have lower per capita incomes today than they did a decade or more ago.”

×