Tuesday, September 13, 2016

Flattening an elephant

The original elephant curve, used to bolster the argument
that the middle and working classes of the developed
world are being "left behind" by globalisation. 
I saw the 'Elephant Chart' first presented with a claim: that while maybe the world is getting richer, by talking about that we're ignoring stagnation for the working and middle classes of North America and the developed world. The claim that came with this chart is that we can only celebrate global growth by ignoring the stagnation and the pain that comes with it of people here, at home.

If this were true, then perhaps policies that promote globalisation are good for the world, but by passing them politicians have failed to worry about protecting their own citizens first. This would give some weight to the claim that by supporting globalisation, politicians are sacrificing the middle class at the altar of free trade to help foreign people for whom they don't have responsibility.

But it's not true.
Analysis by The Resolution Foundation rebuilds the chart from the original data and finds that aggregation in the original graph is severely distorted the effects of unequal population growth. If income hadn't changed at all, different rates of population growth would have resulted in a fall of the incomes of people who experienced no growth but became part of a higher percentile simply because more people were born into poorer countries. Once we control for uneven population growth, there hasn't been stagnation, but 25% income growth for the the working and middle classes of mature economies.

The elephant curve controlling for different rates of population growth
Comparison of the original curve with one that controls for
population growth and outlier countries.
This more or less flattens the curve. 

There may be problems with lower innovation and growth rates in mature economies, but the source of those complaints isn't the speed with which the developing world is lifting itself from poverty. Don't let politicians passing and proposing bad policy at home off the hook by letting them pass the buck.

I think the Financial Times piece gets the emphasis wrong by focusing so much on the outliers in the data, but gets the overall message right. You can see the whole report mentioned in the Financial Times story here (PDF).

NB: The Resolution Foundation report does not address concerns about uneven income growth between mature economies and the developing world and the probable resulting changes to relative global economic and political power. If these are your concerns, I suggest reading this short piece by Jason Kuznicki.

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