Of course poverty traps exist: but they’re possible to escape

Over at The Economist some musing on whether there really is a poverty trap that developing economies can get stuck in. and the answer is yes, of course there is: but also that it’s potentially possible to escape such traps.

DO POVERTY traps exist? Academics seem to think so. According to Google Scholar, so far this year academics have used the phrase “poverty trap” 1,210 times. (Paul Samuelson, possibly the greatest economist of the 20th century, was mentioned a mere 766 times). Some of the most innovative work in development economics focuses on how individuals’ lowly economic position may be perpetuated (geographical and psychological factors may be important).

But, says a new paper by two World Bank economists, the idea of poverty traps may be overblown. They focus on national economies and present some striking statistics. In the graph below, a country that manages to get to the left side of the line has seen real per-capita income improvement from 1960 to 2010.

So that’s the empirical evidence. But there’s also a basic logical point that we can make.

Three hundred years ago all countries were poor. Now some countries are not poor and some countries still are. It’s thus logically certain that it is possible to escape whatever poverty traps there are. For some places have done it. It’s also equally true that there must be things that prevent that economic growth from happening for some places haven’t had that economic growth. Thus we can assert, without possibility of contradiction, that sure, there are poverty traps but there’s nothing inevitable about them at all. It is possible to escape for some have done so.

The new population estimates are already being misunderstood

New estimates of future population size have only been out a day and already they’re being misunderstood. Firstly they’re being misunderstood by the people who actually made them:

Rising population could exacerbate world problems such as climate change, infectious disease and poverty, he said. Studies show that the two things that decrease fertility rates are more access to contraceptives and education of girls and women, Raftery said. Africa, he said, could benefit greatly by acting now to lower its fertility rate.

Piffle, stuff and nonsense. It’s a well known finding that access to contraception drives, at most, 10% of changes in fertility. It’s the desire to limit fertility which, unsurprisingly, drives changes in fertility. And the education of girls and women, while highly desirable, is a correlate, not a cause, of declining fertility. Economies that are getting richer can afford to educate women: economies that are getting richer also have declining fertility. It’s the getting richer that drives both.

But that’s not enough misunderstanding. We’ve also got The Guardian displaying a remarkable ignorance on the subject:

Many widely-accepted analyses of global problems, such as the Intergovernmental Panel on Climate Change’s assessment of global warming, assume a population peak by 2050.

That’s not just piffle that’s howlingly wrong. The IPCC assessments do not assume any such damn thing. For example, the A2 family, which is the family that the entirety of the Stern Review is based upon (and yes, it’s one of the four families used by the IPCC) assumes a 15 billion global population in 2100. That is, it assumes a significantly larger population at that date than even these new estimates do. But you can see how this is going to play out, can’t you? Population’s going to be larger therefore we must do more about climate  change: when in fact these new estimates show that population is going to be smaller than the work on climate change already assumes.

As we might have said here before a time or two we don’t mind people being misguided in their opinions and thus disagreeing with us. We pity them for their mistakes of course, but that’s as nothing to the fury engendered by people actually being ignorant of the subjects they decide to opine upon.

How did we end up being ruled by the ignorant?

It always comes as something of a shock to us to see public policy being decided upon the basis of information that simply isn’t true. We expect a bit of political argy bargy, of course we do, for different people weight different outcomes, err, differently. Equity and efficiency, inequality and economic freedom, we might agree or disagree on those weights that different people place upon them but can still regard such opinions (for opinions they are and no more than that) as being valid. But that’s very different from our being told pure porkies, having supposed facts deployed, facts which just are not a reflection of reality. As the Original Tax Dodger in Chief himself pointed out, comment is free but facts are sacred.

And so it is that we come back to a favourite subject of ours, the relationship between the prevalence of obesity and the costs of it to the NHS.

Mr Stevens, who took up post last April, said: ‘Obesity is the new smoking, and it represents a slow-motion car crash in terms of avoidable illness and rising health care costs.

‘If as a nation we keep piling on the pounds around the waistline, we’ll be piling on the pounds in terms of future taxes needed just to keep the NHS afloat.’

The problem with this is that it simply is not true. Obesity does not cost the NHS money: on balance it saves it. This is something we’ve been pointing out for a number of years now. The source is here and the finding is:

Obesity is a major cause of morbidity and mortality and is associated with high medical expenditures. It has been suggested that obesity prevention could result in cost savings. The objective of this study was to estimate the annual and lifetime medical costs attributable to obesity, to compare those to similar costs attributable to smoking, and to discuss the implications for prevention.
….
Although effective obesity prevention leads to a decrease in costs of obesity-related diseases, this decrease is offset by cost increases due to diseases unrelated to obesity in life-years gained. Obesity prevention may be an important and cost-effective way of improving public health, but it is not a cure for increasing health expenditures.

When someone’s arteries explode at the age of 60 from that 15 cheeseburger a day habit then the NHS doesn’t have to pay for another 25 years’ worth of hip replacements. This saves the system money as a result of the shorter lifespan.

This is well known: and yet we have the CEO of the NHS telling us the opposite. And further, he’s demanding public action that he should know will make his financial problems worse, not better.

All of which leaves us with that essential question: how did we end up being ruled by the ignorant?

Why does everyone want to subsidise the stuff that no one wants any more?

Here’s another one of those terribly silly ideas that people keep having. People aren’t using the High Street as much as they used to. Therefore everyone must be taxed more in order to subsidise that High Street that no fewer people want to use any more:

The Labour Party is considering a new secret tax on the high street to try to boost ailing town centres across the UK if it wins next year’s General Election.

An advisory group created by Labour to consider the future of the high street has recommended that it looks at introducing a new levy on residents to fund a major expansion of Business Improvement Districts, which manage local areas.

In its report, which has been seen by The Telegraph, the High Street Advisory Group recommends “diversifying the application of BIDs, including the ability to assess property owners and residents” and says that “new tools will need to be explored which diversify income streams”.

Sigh.

OK, so hands up everyone, why are people using the High Street less?

Yes, correct, because some 11 to 12% of retail sales now take place on the internet. We thus require some 11 to 12% less retail space on a High Street. Or, if you wish to be picky, we require 11 to 12% fewer High Streets. So the idea of taxing the people who don’t want to use High Streets as much as they used to in order to preserve those High Streets they no longer want to use is, well, it’s ridiculous, isn’t it? Akin to taxing Ford and GM to keep buggy whip makers in business.

But sadly it’s not just ridiculous. For what do we also have a shortage of? Yes, you’re right again, batting 1.0 so far. We have a shortage of housing in the centre of towns, where people like to live (OK, some people like to live, but enough people do that the point still stands). And what else have we got? That 11 to 12% of former retail space that has gone bust and is standing empty. Walls, roof, utility connections: bish bosh with a bit of plasterboard and some Dulux and we can convert one to the other. You know, this structural change stuff, where we move an extant asset from a lower valued use to a higher and thereby make the nation and society richer as a result?

And what is the response to this? Quite seriously there are people campaigning to deny change of planning use from retail (most especially the pubs that no one is allowed to smoke in any more, and are thus going bust) to homes and houses. That’s not ridiculous that’s just crazed lunacy.

Sigh.

Tempus mutandis and the extant infrastructure of the nation occasionally needs to be repurposed. The idea that we should tax everyone to set it in aspic is so, so, well, it could really only have come from politicians, couldn’t it?

Why sign up generics manufacturers for a drug you’ve only just got patent and approval for?

More importantly, why would you sign up generics manufacturers to make a drug that you can charge $84,000 a course of treatment for? Which is exactly what Gilead, the makers of Sovaldi, the $84,000 a course treatment for Hepatitis C have just done:

Multinational American drug maker Gilead Sciences was set to join hands with at least five Indian generic pharmaceutical companies and allow them to manufacture and sell cheaper versions of its new hepatitis C medicines – sofosbuvir and ledipasvir – in 90 countries, four people in the know told Business Standard.

Clearly, someone is being either terribly clever here or terribly stupid. So which is it?

It is, of course, being clever. NICE has approved Sovaldi for use in the UK, the FDA has in the US. Gilead has some short number of years (usually, about ten) to squeeze that drug for the billion dollars or so it cost to develop. So, obviously, they’re going to charge what the market will bear. $84,000 looks like a lot, is a lot, but it’s about the same price as other current treatments and is markedly more effective. So, that’s the price they set.

But to then go and licence to generics manufacturers to sell in 90 odd countries looks most odd: won’t this undercut sales? No, no, it won’t: for the generics manufacturers only get the rights to sell in countries where there’s no way at all that anyone would pay $84,000 for a course of treatment. For yes, there are poor countries out there and poor countries, rightly, don’t try to spend that sort of money on treating one patient. They can save tens, hundreds, thousands of lives by spending the same amount on, say, a vaccination campaign.

Thus, at full market price there would be no sales: at generics prices there will be some and thus some revenue to Gilead.

But that then leads to, well, isn’t it unfair on us? We’ve got to stump up $84,000 a treatment and poor people pay a groat a pill. True, but why is this unfair? Aren’t we rich people supposed to be tendering to the ill and sick of the world?

Further, this isn’t particularly to do with the way that the patent system works. Imagine that all health care research was done by the state instead. It would still be us rich world people paying for all of that research from our taxes, wouldn’t it? On the simple grounds that poor people don’t have incomes to pay tax upon to fund medical research. So whatever the structure is the end result will be the same. We rich people will pay to get the drugs designed and through the approval process. The poor will then get them. Whether we pay in advance in taxation or later through the price of the patented drug doesn’t make much difference, does it?

And yes, for all that the NHS is The Wonder of the World and all the rest, we in the UK are indeed rich world people and that’s why we’re being charged this arm and a leg for this drug. And, given that we pay for the NHS through taxation it really makes absolutely no damn difference at all, what the patent or research structure is?