Skip to content

The Problem with Poverty Lines

April 29, 2016

Poverty lines are frequently used to mislead readers. Poverty percents across countries are compared without any reference to the fact that poverty lines in different countries might be different by a factor of ten or more. Furthermore, readers are often left in the dark as to whether the poverty lines are pre- or post-tax and pre- or post-transfers. The official U.S. poverty rate does not include tax breaks such as the EITC, or in kind transfers, like food stamps or Section 8 housing. Since both welfare and tax rates vary greatly between countries, this is vital information to be able to compare the living standards of the poor between countries.

Text: The biggest declines in Chinese poverty were from 1980s to early 90s, well before it became a major trade player.

Well the problem with that is that the Chinese poverty line is based on $1 per day. Once 95% of your population gets over that pitifully small amount, no further income gains are going to be visible by the metric. Here is a more detailed graph of Chinese income over that period:

If you apply the U.S. poverty line to China of around $12,000 per person, China’s poverty rate looks like:
1970: 99%+
1980: 99%+
1990: 99%
2000: 90%
2006: 50%

Now, all of a sudden, there was no change in poverty in China until very recently. If you don’t show the whole distribution, you can be quite misleading.

If all you know is the poverty rates, the U.S. looks horrible compared to other countries:
Relative poverty rates

However, adjusted to purchasing power parity, it’s middle of the pack:
Earnings at tenth percentile

But if you include the costs of health care, the U.S. would start to look worse again, since many of those countries provide government health care which is far more valuable than similar services provided by the U.S. government. If you really want to dig into relative poverty, it takes work and a simple poverty line doesn’t help much.

Further Reading:
American poverty in 5 charts.
America’s poor compared to the rest of the world.
Global Rich list
The poverty rate and consumption

The Best Peppa Pig Episodes

April 27, 2016

Source: xkcd.

Having watched all Peppa Pig episodes a gazillion times because Chelsea likes it, I can say there is truth to the comic above. However, the plus side of the human brain functioning this way is that at least you start to enjoy it. Honestly, if Chelsea is down for a nap, I feel kinda weird if I don’t hear cartoons in the background. Anyway, this show has some good moments and the voice acting is excellent.

The Wishing Well
Ahh, the joys of marriage. The interplay between Peppa, Grandpa and Granny Pig is absolutely hilarious.

The Pet Competition
Mrs. Hamster is really funny. I love the accent and the absurdity of showing up to a children’s pet competition and awarding yourself top prize. At least Peppa calls her out.

Grampy Rabbit’s Dinosaur park
Grampy Rabbit is played by Brian Blessed, who does a fantastic job. “Gym Class” is also quite good.

Bedtime Story
Peppa tells George a bed time story that is silly and fun and continually interrupts with “are you sleepy yet?

International Day
“Umm….. don’t they?” Enough said.

Night Animals
Some animals eat during the day, and some animals eat at night.


Assorted Links

April 27, 2016

1. 40 things Bryan Caplan learned

2. Basic income and prices

3. Autor on Trade with China

4. Aphantasia

Assorted Links

April 7, 2016

1. The rise of Trump

2. Terrorist safe haven

Tyler Cowen interviews Johnathan Haidt

Assorted Links

March 18, 2016


2. On Timur Kuran

3. Would the military kill the families of terrorists? (Hint: Yes. They would kill anyone the president ordered them to.)

4. Do libertarians want freedom

Bonus: None pizza, left beef.

Should People Worry about Food Security?

March 4, 2016

Short answer: No.

People have always worried about food security. It is built into our DNA from eons of evolution. Organisms that don’t worry about food die out. So keeping that in mind, it is not surprising that people still worry about food even if those worries are outdated in the modern world.

The question of food security is an extremely dangerous one. If societies neglect it, they face famine. If they worry about it too much, genocide, war, coercive birth reduction/forced abortion, and xenophobia rear their ugly heads. The fear of starvation drove the Nazi’s Holocaust and Lebensraum policies. It’s not like the Germans all wanted 100 acre ranches for fun, they thought they would need that land to grow food. It’s also the concern that drove China’s one child policy, which led to the butchering of millions of infants, not to mention the cost of prohibiting people from having the families they wanted. It also contributed to the British inflicting the Bengal Famine on India in 1943. Food security is a deadly serious question.

Organisms expand exponentially, unless constrained. Land is limited, and adding more farmers to a fixed plot of land results in diminishing returns: the first farmer might be able to grow 500 food, the second will increase production to 900, the third 1200, etc. Eventually the land simply won’t produce enough to feed additional farmers working it.

So, we’re left in a dilemma. Either birth rates must limited or people will have children until some of them starve. The option that actually happened – exponential food supply growth – was not considered by Malthus. In his defense, it would have seemed absurd to any level headed scientist of his time period. Today, exponential capacity to produce food has continued, but birth rates are dramatically lower than in the past, and in many countries have fallen below replacement.

worldwide population growth


worldwide per capita food-prod-1960

And even as food production has increased at such a dramatic rate, amazingly, input use is down! That is, people are using less labor and less land to produce these ever increasing amounts of food.


crop yields Source
Poor countries could increase world yields by catching up to the developed world.

Technology has been the savior of humanity, from the plow, to irrigation, to tractors, fertilizers, domestication, selective breeding, GMOs, soil analysis, and a host of other technologies. Heroes like Norman Borlaug have saved millions of lives by developing technologies to improve food production. As the population increases, and societies get richer, more people like him will be able to discover more and more. People worry a lot about phosphorus running out, global warming, or other environmental disasters, but honestly, I think we’ll figure something out. Humans are remarkably good at coming up with creative solutions to problems.

There’s a lot of wiggle room
Vegitarianism – if famine were a real threat, people could scale back meat consumption dramatically. You lose a lot of calories by converting grain to meat.


We waste a ton of corn turning it into inefficient ethanol:
Once electric cars become cost effective, we won’t even need it anymore.

Wasted Food/meat – much of food is wasted. Now, you couldn’t get this down to 0%, but on the margin, if food became much more scarce, people could save more of it. A lot of the time, people cite waste as an inefficiency, but that’s not really true from an economic perspective. If food is very cheap, people have no reason to conserve it. You conserve valuable things, and you can afford to waste cheap things. People have never spent less on food than they do right now.


The Future
There are dozens of plausible new technologies that could massively increase food production.
Vat grown meats have the potential to dramatically lower the amount of grain needed to make meat, not to mention making it more humane. Aquaculture and mariculture could dramatically expand the available “land” available for food production. GMOs could increase yields and lower the amount of pesticides and fertilizer needed. People could eat protein made from insects instead of mammals. The most powerful technology at all isn’t new – it’s simply distributing the technologies developed and in use today in the rich world to the developing world and making the capital investments necessary to use them. There is the potential to increase food production enough to feed billions more people, and with birth rates dropping like they are, that probably won’t even be necessary. Fortunately for everyone, mass famine is a highly unlikely scenario.

The Curious Case of Martin Shkreli

February 29, 2016

Martin Shkrell is most famous for increasing the price of Daraprim, a generic drug, by around 5000% to $750 a dose. He’s currently under investigation for securities fraud as well, but most of the attention he gets is because of his unsavory business model.

How Normal markets Work
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”” – Adam Smith

Consumer demand limits prices. A demand curve is a list of everyone in the economy’s willingness to pay for a good. As the price falls, more and more people are willing and able to buy the good.

A firm’s profit is the price minus costs times the quantity. For example, if they sell 100 goods at $100 each, and their costs are $50 each, profit is $5000 [(100-50) x 100). If they raise prices to $125, but sales fall to 50, total profit will be lower.
price quantity profit

Every firm has a price point where profit is maximized. The more competitive a market is, the more options customers have, and the less willing they will be to pay high prices. Instead of a slow drop in demand as prices go up, firms in competitive industries will face sharply lower sales if they raise prices above their competitors’ prices. Markets don’t have to be perfectly competitive for prices to be fairly close to costs – as long as firms know if they raise prices, they will lose sales to their competition.

How do drug markets work?
Drugs are like software; extremely cheap to produce, but have very high and very risky development costs. It costs around $1.3 billion to bring a drug to market, and even when you do, there is no guarantee of profit.

If society allowed full competition immediately, with no compensation for research and development, no one would create new drugs. Even the most altruistic generous person in the world isn’t going to throw that kind of money at developing a drug, unless maybe they’d save a few million lives doing so. You can’t rely on charity to run the entire drug industry, because there simply isn’t enough money to cure all the diseases out there without some profit. For some perspective, if St. Jude’s Children’s Research Hospital spent their entire annual budget, they could get one drug approved. That’s it. There are thousands of diseases out there that need curing.

Total average per-drug profit needs to be at least 1.3 billion to ensure new drugs get developed in significant numbers. That means either high volume at moderate prices or high prices at low volume. If 10 million people have a disease, you can charge them each $130 and make your drug trial costs back. However, if only 100,000 people have that disease, you need to charge a whopping $13,000 per treatment. Pharmaceutical companies used to look for blockbusters – drugs that lots of people wanted so they could make their money back in bulk. These days, those sorts of drugs are hard to come by, and so instead they have to make more expensive drugs for smaller markets.

This tradeoff wouldn’t be quite so harsh if the drug approval process were cheaper. There is a tradeoff between safety and efficacy. Obviously, we don’t want experimental drugs killing a lot of people, but at the same time delays and drugs never brought to market at all cost lives too. The FDA could also leave efficacy to separate trials and only worry about safety before it clears use for humans, or allow drugs that are approved by the EU or other first world countries to be used in the U.S. without redundant trials. There are many options.

However, in Shkreli’s case, the drug was a generic, and so was off patent. Generally speaking, generic drug prices are falling. Turing Pharmaceuticals never should’ve been able to raise its price without inviting serious competition. Companies need manufacturing licences from the FDA to make drugs, and setting up new operation can be costly. If someone went through the trouble of getting one, Turing could just lower the price and destroy any profit opportunity. But in the end, someone did end up undercutting them.

Laws and Norms
On February 4th, Shkreli testified before Congress on the drug pricing change. He plead the 5th in response to nearly all questions put to him. The hearing was mostly grandstanding nonsense. Of course he isn’t going to give a speech about how evil he is or whatever. I spent a few hours looking up the records of the congresspeople on that committee and couldn’t find anything in their careers that actually addressed the problem of high priced drugs. If you want lower drug prices, you need lower costs and more competition. You get that by changing the law. If you think you can change the way a whole industry acts by dragging one guy in to testify, I got bad news for you.

If Shkreli didn’t exist, there would be 100 other guys just like them looking to exploit the system. Capitalism has virtues which are required for it to function, but if you create a system where it’s extremely profitable to break those norms, those norms are gonna get broken. At least Shkreli brought some much needed attention to drug market reform.


Get every new post delivered to your Inbox.

Join 42 other followers