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Ben_Todd comments on How accurately does anyone know the global distribution of income? - Effective Altruism Forum

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Comment author: Ben_Todd 12 April 2017 04:19:02AM *  4 points [-]

Hey, a few comments:

But is this bottom line really approximately true?

Rob is saying “in every estimate of the global income distribution I’ve seen so far”, there has been a 100:1 ratio, which is true because this is what's shown by all the official data.

You could, of course, doubt the existing estimates. My general policy is to go with the expert view when it comes to issues that have been thoroughly researched, unless I've looked into it a lot myself. At 80,000 Hours, we don't see ourselves as experts on measuring global income, so instead go with the World Bank, Milanovic and others. Moreover, to our knowledge, the objections raised here are all well understood by the experts on the topic, and have already been factored into the analyses.

That said, here a few comments to show why the Milanovic etc. estimates are not obviously wrong. First, I'll state the problem, then consider the arguments.

I'm claiming that US upper middle class = $100k+ for the reason above. The World Bank estimated 800m people live under $1.9 per day in their 2015 figures, or $600 per year. In reality, many of them will live well below that level. So there's probably hundreds of millions living under $300 per year. This means there's over a factor of 300 difference between "upper middle class" and "large numbers of the global poor"

So, for the claim to be strictly wrong, the consumption of the poor have to be relatively underestimated by a factor of 3. Given the difficulties in making these estimates, this doesn't seem out of the question, but is not obvious.

Moreover, for it to be wrong in a way that becomes decision-relevant, you'd need the understatement to be more like a factor of 10. Even then, it would still be true that upper middle class earn 30x what the global poor earn, so they'd still be able to benefit others at little cost of themselves, and have a disproportionate influence on the world. But, it would be less pressing than a 300x difference.

Here are a couple of reasons why it's not obvious the world bank etc is off by a factor of 10.

It seems the main argument is that you'd die with under $2/day in the west and no hand-outs, so quality of life is worse than $2 in the developing world.

Will gives one response to that in another comment. You wouldn't actually die.

Another point is that it would indeed be harder to live in the west on $2/day, because the low-quality goods that the global poor use are not available to buy. I think the relevant comparison is more like "if there were lots of people living on $2/day in the west, what quality of living would you get?". It's artificial to imagine one person living in extreme poverty without a market and community around them. The PPP adjustments are meant as a hypothetical "what you could buy on $2 per day if the same goods were sold in stores, or if there were lots of other poor people in the country". (Though of course this is one reason why the comparisons are difficult conceptually.)

You've argued that the incomes of the poor are understated, but I think the incomes of the rich are also understated. As an inhabitant of a rich country, you get to consume lots of extra public goods that aren't fully included in the post-tax income figures in these data-sets e.g. safety, clean air, beautiful buildings, being surrounded by lots of educated people. You wouldn't get as many of these in a poor community in a poor country, so this is a way in which the global poor are relatively even worse off than the income comparisons suggest.

Finally, you mention cost of living in another comment as being relevant. Our audience lives in cities where cost of living is higher, making them relatively poorer. However, I think this might be a red herring. Generally, people move to a city to get higher income. If the market is roughly efficient, then the income boost from being in a city should at least offset the increase in cost of living. So it factors out of the equation.

Comment author: the_jaded_one 26 April 2017 05:27:42PM *  0 points [-]

it would indeed be harder to live in the west on $2/day, because the low-quality goods that the global poor use are not available to buy. I think the relevant comparison is more like "if there were lots of people living on $2/day in the west, what quality of living would you get?". It's artificial to imagine one person living in extreme poverty without a market and community around them.

OK, so maybe appeals to donate money based on factors of 100 wealth difference should be limited to people who actually have a third-world price/quality market for (food, accommodation, shelter) available to them. Hmmmm OK that would be no-one at all.

Then we come to this:

You could, of course, doubt the existing estimates. My general policy is to go with the expert view when it comes to issues that have been thoroughly researched,

...

The PPP adjustments are meant as a hypothetical "what you could buy on $2 per day if the same goods were sold in stores, or if there were lots of other poor people in the country".

So they've thoroughly researched a question which is completely different than the one I care about, which is what I can actually buy and do.

As an inhabitant of a rich country, you get to consume lots of extra public goods that aren't fully included in the post-tax income figures in these data-sets e.g. safety, clean air, beautiful buildings, being surrounded by lots of educated people.

But these things are mostly not worth the massive amount of tax money I have to pay. And that's partly because that tax money is not being spent on me, (I have looked at government spending and the part of the pie that is spent on "things that childless healthy 30 year-olds want" is extremely small.), partly because taxation is progressive so punishes people who earn well, and partly because others in the west have different preferences about how much to spend reducing various risks (such as the risk of a $50,000 car being damaged in a collision with my $1000 old banger).

I would contend that I am not (on $60k) 100 times richer than the average Indian, at least not in the same way that someone on $6M is 100 times richer than me; the way that they really can buy my entire life 90 times over and still be way better off than me.

Anyway, thanks for responding to me, best regards, Jaded.

Comment author: Ben_Todd 27 April 2017 05:37:21AM 1 point [-]

OK, so maybe appeals to donate money based on factors of 100 wealth difference should be limited to people who actually have a third-world price/quality market for (food, accommodation, shelter) available to them. Hmmmm OK that would be no-one at all.

I agree that makes sense given one interpretation of the claim. But that definition also has some odd implications. Why does the actual option need to be available to you, even if you're never going to take it?

If a shanty town opens down the road from me, giving me the option to live like the global poor, I become richer relative to my neighbors, but I don't become richer in absolute terms. The reason the super cheap goods the global poor buy don't exist in the West is because no-one wants them. Even if a shanty town opened, I'd buy the same stuff as before, so my quality of life would be exactly the same. Your definition, however, would say I've become ~10x richer, which seems odd.

I think both senses of the term are relevant and interesting. Personally, I find the sense used by the World Bank better at capturing what I intuitively think about when comparing living standards and income. But it's useful to consider both.

You also haven't shown that the differences would amount to a factor of 10. Even though the exact goods the global poor would use are not available in the West, there are still very cheap goods available (as in Will's comment).

But these things are mostly not worth the massive amount of tax money I have to pay.

That's a good point - you're likely a net contributor of taxes right now. But many of things I mentioned aren't a result of taxes. There are lots of public goods produced by being around lots of other educated, wealthy people that you benefit from but aren't captured in the income figures, such as lower crime, more beautiful buildings, more opportunities to talk to people like that, lack of sewage on the street and so on.

Moreover, you're going to get some of those taxes back in the future (and you've benefited from taxes when younger). I think the lifecycle comparison is more relevant.

Over your life, you're probably not net-losing more than 10-20% of your income, so it's not a big factor in the comparison. We're looking for a 10x difference, not a 10% difference.

You can also reclaim tax on donations, so if the message if to donate more, arguably we should use pre-tax income instead.

Comment author: the_jaded_one 28 April 2017 08:17:35AM *  0 points [-]

If a shanty town opens down the road from me, giving me the option to live like the global poor, I become richer relative to my neighbors, but I don't become richer in absolute terms. Even if a shanty town opened, I'd buy the same stuff as before, so my quality of life would be exactly the same.

I think this is incorrect. Right now I am looking for accommodation. The cheapest option I can find (which doesn't have a working washing machine and is a single small room with shared facilities) costs €5400 per year. It would be very useful for me to have the option to live in a room of quality and price at the level of the 75th or 80th percentile in India. Eyeballing the graph above, the 80th percentile in India is on $1500 or so. They can't be paying more than $700 for their accommodation.

I have to go live in this room - the alternatives are even more expensive, or being homeless and losing my job.

I agree that the shanty town wouldn't help me - I would stink of feces and quickly lose my job on personal hygiene grounds - but the 50th and 75th and 80th percentiles in India do not live in 'shanty towns'. Or am I completely misinformed here?

The reason the super cheap goods the global poor buy don't exist in the West is because no-one wants them.

that's false - they don't exist because the government bans or taxes them, or because of cost disease. In almost every relevant category (cars, accommodation, food, household goods), the government bans you from buying the cheap options.

E.g.

  • Bike helmet made in China for $3 but sells for €40. (Compulsory safety testing to ludicrously high standards, tax, overheads)
  • Want to buy a second hand toaster? Nope, banned in many countries because it might be hazardous. Pay for a new one, including all the tax and overheads and then when you've finished, throw the old one away.
  • Learn to drive in the UK as a new young, male driver)? That'll be £1500 for lessons, plus £3800 for insurance Why? Do people in India or Brazil need to pay that much? You tell me!
  • Want to buy a cheap new car like the Tata Nano? Nope, your government has banned it because it's 99.999% safe rather than 99.9999% safe.
  • Surely a speeding fine will be inconsequential to someone in the top 1% of the global income distribution, because the harm from speeding on a road is a fixed quantity? No, the government wisely decided to make it it scale with your income!
  • want to buy/rent a very small house/flat/room? Nope! It has to have a bunch of amenities and features that you don't need, by law.
  • Want to buy a simple product like milk at market price? Nope! The government, media and farming lobby are getting together to make sure that consumers subsidize unprofitable dairy farms.

I think the key here is that once you have some money, the government finds many ways to take that money away from you, and those ways tend to scale as a percentage of your income for people in the range that we are talking about ($1000-$100,000). Being able to afford a place to live has a minimum threshold which depends on the average income in your country.

If you (in the west) fall behind in this race to make enough money so that once the government has thieved from you at both ends you can still afford a room to live, you end up falling into the homelessness trap which is very hard to escape from and is actually worse than the life of a median person in India.