Yes, it’s been a long five years, but recall the 2019 American economy. Pretty solid! It had a low 3.6 percent unemployment rate, a peppy 2.5 percent GDP growth rate, and a robust 2.2 percent productivity growth rate. As I recently wrote, “What if there was no pandemic in 2020?” would make an interesting bit of alternate economic history analysis.

You could say the same about the global economy back in 2019. “On the eve of the pandemic in 2019, the world was rapidly becoming richer and more equal,” write the authors (Maxim Pinkovskiy, Xavier Sala-i-Martin, Kasey Chatterji-Len, and  Will Nober) of the new analysis, “Inequality within countries is falling.”  

This group of scholars approached these issues by devising a new method to more accurately measure income inequality within countries. In particular, they addressed the thorny issue of rich people underreporting income in surveys by comparing survey data to official regional economic data:

It is intuitive that if the rich are reporting a lower fraction of their income in surveys than do the poor, but the regional GDPs accurately reflect the income earned in a given region, then inequality in the regional survey means should be lower than in the regional GDPs.

By adjusting for this underreporting, they tracked global trends in income inequality over 40 years. The study also considered post-tax and post-benefit income to allow comparison with other official poverty measures. All of which leads to this main (and happy) conclusion:

Our message is an optimistic one. Not only has inequality fallen dramatically across countries, as has been recognised now for decades, but it has also stopped rising and started declining on average within countries as well. Both within- and between-country inequality are helping global inequality decline. World poverty is also declining rapidly for a large set of reasonable poverty lines and faster than estimated by the World Bank [Poverty and Inequality Platform].

The set of findings that really pops for me: We’re making better progress against poverty than previously thought, with significant progress at higher poverty levels, not just extreme poverty. Using the World Bank’s $3.65 and $6.85 daily poverty lines, the researchers found poverty rates have dropped to about 30 percent and 50 percent of 1990 levels.

Then came the pandemic, the impact of which is not part of this analysis. Here is the grim World Bank take from last October:

The economic setbacks of the COVID-19 pandemic resulted in the largest increase in global extreme poverty in decades. Global poverty has now receded to levels closer to those prior to the pandemic, but this means that we have lost three years in the fight against poverty. The recovery is also uneven: while extreme poverty in middle-income countries has decreased, poverty in the poorest countries and countries affected by fragility, conflict or violence is still worse than before the pandemic.

All the more reason for the rich world to prepare now, as best as possible, the vaccines and therapeutics needed to fight the next global outbreak.

The post More Good News on the Greatest Economic Story Ever Told—at Least Pre-pandemic appeared first on American Enterprise Institute – AEI.