试听180秒080：The Difference Between Poverty and Inequality

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Hello, Himalaya’s subscribers. My name is Timothy Taylor. 

And today  we're going to discuss the difference between poverty and inequality. It's common to hear people talk about poverty and inequality in the same sentence with the very same breath, they'll say, “we need to worry about reducing poverty and inequality.” And that sounds like reducing poverty and inequality are pretty much the same thing. But this is actually not at all true. If poverty and inequality were very similar, they were pretty much the same thing. Then if you have more poverty, you should also have more inequality. And if you have less poverty, you should also have less inequality.

But that pattern doesn't hold true in the real world. And the experience of China offers one of the most clear examples. In the forty years or so, since China's economic reforms began in the late nineteen seventies, China has seen a dramatic fall in poverty, as we discussed in the previous lecture. But China has also seen, at the same time, a rise in inequality. So clearly saying that less poverty and less inequality are somehow the same thing, is a mixed up way of thinking. Now, before we dig deeper into how China and other countries address poverty and how to measure and deal with inequality, it's useful to spend a little time understanding the difference between the two of them. And that's the task of this lecture, as we've often done, we’ll divide the discussion into three parts. 

First, we'll talk about some examples of when poverty and inequality change in the same direction, and when they change in opposite directions. Second, we'll talk about the Kuznets curve and how it affects inequality and poverty. And third we’ll talk about economic mobility and the tunnel metaphor. Let's start off by the talking about our first point：when poverty and inequality changed together and when they change in opposite directions. Now remember, poverty refers to the number of people below the poverty line. However, that set as discussed in the previous lecture. Inequality first how spread out the distribution of income is, for example, how close is the bottom ten percent to the people in the middle? How close is the middle to the people in the top ten percent or one percent? 

So let's imagine a few situations here, for example, imagine a situation where everyone in the economy has their income level rise by the same amount, and maybe, say, ten percent. Well, that change would reduce poverty, because that increase in income would lift some of those who are just below the poverty line to a little higher than the poverty line. But if everyone rose together, it would have no effect on inequality, because the gaps across the distribution of income would be just the same as they were before. Or consider this, say that incomes of the poor rise ten percent, and incomes of the rich rise by more than ten percent, maybe fifteen or twenty percent. 

Well, if that happens, you still have a decline in poverty for the same reason as before. Some of those who were just below the poverty line are going to be higher than the poverty line, but because those with high incomes had faster growth in their incomes, you would have a fall in poverty combined with a rise in inequality. Or think about this example, say the income of rich people changes a lot, maybe because it's a change in uh, the value of financial assets, like the stock market, or rises or falls in property values. 

Now, if that happens, then the incomes of the rich are going up or down, and that will affect inequality. But the incomes of the poor just aren't changing, because the poor don't have financial assets. They don't own property. So the poverty isn't changing even though inequality is rising and falling. And you can, of course, work through a variety of different examples here. Um, one common thing you'll hear is that sometimes you hear a reference to inequality before taxes and transfers, or poverty after taxes and transfers. And that just refers to whether you're calculating poverty or inequality, looking at the economic levels before taxes are collected and government payments are made, or after taxes are collected and government payments are made. 

So, for example, a government program that had high income taxes for those with high incomes and use that money to provide income to the poor, that that program doesn't affect poverty or inequality at all,if you calculate those things before taxes and transfers. But that program would reduce both poverty and inequality if you calculate them after taxes and transfers. Our second main theme is to talk about the Kuznets curve, inequality and poverty. 

Now, we've discussed the work of Simon Kuznets a few times before in these lectures. He lived from 1901-1985, won the Nobel Prize in economics, way back in 1971. He first came up when we were talking about the idea of gross domestic product. And he is one of the main economists to really thought through all the issues of what should be included in gross domestic product and what categories to use in measuring gross domestic product. His name also came up a few lectures ago when we were talking about economics and the environment. We talked about the environmental Kuznets curve, this theory that there is a pattern where as economies grow from lower income to middle income, pollution rises. But as economies continue that growth from middle income to upper income, there's some point where pollution starts to fall. 

China certainly experienced that rise in pollution. And as we talked about earlier, there are reasons to believe China might have started to enter that area of economic development where additional economic growth can happen with less pollution than before. But while that environmental Kuznets curve was named after Kuznets, sort of in honor of his work, that theory about the environmental Kuznets curve was developed in the 1990s after Kuznets had died.So what we want to talk about now is the original Kuznets curve, which is based on a lecture given by Simon Kuznets that was published way back in 1955. 

Kuznets argued that as an economy moved from low income to middle income, there would be a surge of economic inequality. And while Kuznets wasn't focusing on poverty in his talk, there wasn't even an international poverty line to talk about back in 1955. It's clear that substantial growth would have reduced poverty. So this is an example of poverty falling while inequality rises. Why did Kuznets think that this kind of economic growth would lead to a rise in inequality? Well, the main reason he emphasized is that as an economy develops, there's usually a major shift from a primary agricultural and rural economy to an economy that's based on services and manufacturing in urban areas. And he argues this shift will tend to increase the inequality of incomes. 

One reason is that pay will often be better in these expanding manufacturing and service areas, uh, and in urban areas. So that movement of economic activity of those areas will reduce economic inequality for that reason. But also a pay within agriculture is often fairly equal while pay in modern companies that do manufacturing and services often has a wide range and so that also tends to increase the amount of economic inequality. But Kuznets argued that as the economy continues to grow, that shift from rural agriculture to urban manufacturing and services slows down. 

And instead of stretching out the distribution of income, you have more and more people in the same parts of the economy in those manufacturing and service sectors. And at that point the distribution of income becomes more equal. More and more people are catching up to that higher level of income. So overall Kuznets curve is a prediction that over time as an economy develops, you first will see poverty fall and inequality rise. And this is what happened in the Untied States and in countries of western Europe in the late 1800s and into the early 1900s. It's also what happened to China over the last forty years or so. 

But at some point, Kuznets predicted, you'll begin to see a decline in inequality as the country continues to develop. And this happened in the United States and much of western Europe in the sense that there were lower levels of inequality up to the early 1950s, when Kuznets was giving his speech. In later lectures I'll talk about how there's some evidence that China's economy may also have reached a turning point and started moving to less inequality than there was five or ten years ago. But I need to add a thought here when Kuznets wrote about growth and inequality back in 1955, there was not very much good data on these subjects. After all, the idea of gross domestic product could really only been just invented maybe twenty years earlier. 

And Kuznets was actually kind of funny about this. He said in 1955 “I am acutely conscious of the me goodness of reliable information presented.” The paper is perhaps five percent empirical information and ninety five percent speculation, some of it possibly tainted by wishful thinking. So he was very honest that he was just putting forward some speculation，not a proof. And starting in the late 1970s and 1980s, inequality did start rising in high income countries all around the world, including the United States and nations of western Europe and others. 

A part of the reason was there was a rising gap between workers who had more education and those who had less education. And there are big arguments are across the United States, western Europe, other countries about why this happened. Is it due to forces of technology or globalization or changes about rules that affect workers' like the minimum wage or other issues? We’ll come back to those topics in later lectures on inequality. For now what I want to just point out is this idea that as an economy grows, eventually you get less inequality, that's not a guarantee, it's not a law of physics or a law of chemistry, it's a pattern that was observed under certain conditions. And those conditions can change. 

Let's move to our last point, economic mobility and the tunnel metaphor. A final difference between poverty and inequality is that people often react them in rather different ways. The problem of absolute poverty is obvious. There are people who are hungry, they don't have a place to live, they lack basic health care. But how people react to higher inequality is not obvious. In fact, there can be cases where people are happy, at least for a while, to see additional inequality. Why would that be? Well, a US economist named Albert Hirschman,who died a few years back in 2000 and twelve away back in 1973, he wrote an article about what he called The Tunnel Effect. 

And the tunnel effect works like this. Imagine you're riding in a car, and there are two lanes going in your direction. You drive into a tunnel side by side with these two lanes and all the traffic stops. Now your car is sitting in the left hand lane and you sit there on your car really isn't moving at all. But you see the cars in the right hand lane start moving forward. How do you feel? Well, Hirschman said, “even though your car hasn't moved at all, you feel happy to see those cars in the other lane moving. And the reason is when you see those other cars start moving, you expect you will have a chance to start moving, too. But what if time passes and those cars beside you in the right hand lane, just keep moving and moving and moving, and you don't move. Well, at some point you become unhappy or angry. 

You feel left out, you expected to start moving. But you didn't. Even if there's some rule that you're not allowed to shift lanes of traffic in a tunnel, maybe you start trying to shove your car into the other lane, so you can move forward as well.” A similar pattern arises when a society has rising inequality, for a time when inequality goes up, even those who haven't seen much change don't mind a rise in inequality, they think others are moving forward, and they'll get a chance to move forward, too.But eventually they need to see this is happening for themselves or for other people they know. Or people feel like they're stuck in the left lane. They are not moving, and everyone else is moving forward. So in this way, a rise in inequality has different effects. It depends on the expectations it creates. It depends on whether people think they will share in the forward motion eventually, and how those expectations are either fulfilled or not fulfilled.” 

So let's end here with a few overall review questions. What are some examples of situations where it changes in the pattern of income, where poverty falls and inequality might either rise or fall? Well, how about some examples of where poverty rises and inequality might rise or fall? What is the thinking behind the original Kuznets curve and what is the tunnel effect? And what does it teach us about how societies react in inequality? Because poverty and inequality are not the same, the policy solutions for poverty and inequality might look different, too. The next lecture, we'll talk about policies for reducing poverty. And then we'll go into more detail on inequality in the lectures after that.

I'm Timothy Taylor. Thank you for listening to Himalaya.