# 89

1.4 billion people live on less than \$1.25 per day. What does that mean?

What it doesn’t mean is that these people are living on what \$1.25 could buy in, say, Kenya. If you thought that, then you might think that \$1.25 isn’t so bad, because money goes much further in developing countries.

Unfortunately, the fact that the money goes further in such countries has already been taken into account. What “\$1.25 per day” means is: people living on this amount consume the goods equivalent of what \$1.25 could buy in the US in 2005. That is to say, the figure is purchasing power parity (PPP) adjusted. That means we can work out how much, in actual money, people in Kenya live on below this line. In 2005, the purchasing power parity conversion factor was US\$1 to 29.5 Kenyan Shillings. So \$1.25 is about 37 Kenyan Shillings. At market exchange rate (today’s rate, so again this is only a rough estimate), that’s 44¢.

Because that’s still talking about 2005 money, we want to adjust for inflation, so, assuming 3% inflation per year (again, keeping it rough), that’s 56¢.  So, in my view more accurately, we should say that the global poor, in Kenya at least - though other countries at an equivalent level of economic development have similar PPP conversion factors - live on 56¢ per day. Jeez.

However, the story doesn’t end there, because “\$1.25/day” doesn’t refer to income. It is based on measurements of consumption. So when a person gather sticks from the forest for their own use — that counts as ‘consumption’. Similarly, as far as I understand it, any free services provided by the government count in this as well.

So I think a more intuitive way to think about extreme poverty is: if you gave a Kenyan living below that poverty line 56¢, you’d have doubled what they can consume in a day.

A lot of people who know this about the \$1.25 a day line subsequently refuse to believe it.  I really struggle to believe it. Surely, if someone lived in the US on \$1.25 a day, they would die! (I heard this argued in a conference on poverty by an academic who’d written several articles on poverty.)

If we’re referring to income, I think that’s simply not true. With an income of \$1.25 a day you could have a much better quality of life than the extremely poor. You can dumpster dive and live off the excess of the affluent country; they have free access to roads and lighting, a good legal system and police protection, and medical assistance if they get sick. I know someone who lived on \$1000 per year for a couple of years — several times more than the extreme poor, but he had a really pretty reasonable quality of life.

However, if you’re thinking about consumption rather than income (as you should), there is a difference which does make the comparison to “\$1.25 living in the US” misleading: in the US you just can’t buy the sort of low-quality goods that you can in developing countries. Markets just don’t exist for those goods. Even the most basic lentils and rice sold at Walmart in the US would be regarded as a luxury item for people living on \$1.25 a day.

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So when a person gather sticks from the forest for their own use — that counts as ‘consumption’

How could one measure consumption that includes things like this? And how would you pick a dollar value for how much the stick gathering was worth?

This is so shocking that I think most of us (me certainly) tend to gloss over it, kind of vaguely assuming that they're probably doing fine, because it hurts too much to actually think about what it would be like.

Using the latest numbers (2022), there are 719 million people living under the latest world poverty line, which is now \$2.15.

GiveDirectly finds that giving a poor family about \$500[1] makes a dramatic difference for them. If we assume that 719 million is about 200 million households, it would only take half of the fortune of one of our tech billionaires (Bezos, Zuckerberg, Musk) to provide \$500 to every family living below the poverty line.

It's just utterly insane that we don't do this. I'm not saying this is necessarily the most effective way to help them (I know other initiatives are more impactful, at least among certain target audiences), but surely something this basic, which is so obviously impactful and costs so little (less than 5% of what we spend on weapons every year - and yes, I know it's a simplistic comparison and we can't let Putin rule the world either ... ).

I don't even have a suggestion. I'm just imagining an alien being coming to our planet and seeing such poverty and how little is being done to help, and our "leaders" trying to explain why they would rather buy the latest multibillion dollar weapons than help people in dire poverty with just a tiny fraction of that money.

1. ^

Just picking a round number that has frequently been tested and seems to consistently prove impactful. Definitely if someone from GiveDirectly tells you differently, they are right and I am wrong ...

However, if you’re thinking about consumption rather than income (as you should), there is a difference which does make the comparison to “\$1.25 living in the US” misleading: in the US you just can’t buy the sort of low-quality goods that you can in developing countries.

Can you give some examples for what these low quality goods are?

(I notice this is an old post, but I read it for the first time today.)

It's things like a house in a slum made from corrugated iron or mud, with no electricity and a shared latrine pit instead of plumbing, which gets periodically flooded. The rent for something like this in the US would be very cheap, but this option doesn't exist since there's so few people who are poor enough to pay for it (and it's illegal too).

Likewise cheaper foods like cassava dough that you couldn't find in stores in the US, dentistry from a random person without training, water that isn't clean etc.

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