Blog note, Linda Gorman, Politics

How trade and economic freedom have radically reduced poverty

Globalization, free trade, and the spread of American-style economic freedom have eliminated 80 percent of the world’s worst poverty in less than 40 years. The American Enterprise Institute’s Arthur Brooks calls it the greatest achievement in human history.

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The graph comes from Maxim Pinkovskiy and Xavier Sala-i-Martin’s  2009 estimates of the distribution of world incomes in Working Paper No. 15433 from the National Bureau of Economic Research. The dollar a day refers to 1985 prices. It would be an annual income of $312 in 2006.

The authors find little evidence that free markets and deregulation have made poor people poorer in the United States. On the contrary, the data suggest that the U.S. income distribution has shifted to the right for five decades. The distance between the lower and upper ends of the income distribution has increased, but the increase did not come at the expense of those at the lower end of the distribution. Their money incomes are higher than they were in 1970. As is almost always the case, the income estimates include only money income. They ignore the huge benefits from in-kind assistance programs like SNAP (food stamps), Medicaid, and public housing.

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Linda Gorman is a PhD economist at the Independence Institute, a free market think tank in Denver.

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