In a widely-read statement in his annual foundation letter, Bill Gates took an unabashedly optimistic approach to the world this week. Not only did he tout the massive material progress evident everywhere in the world over the past decades, but he also predicted that as more countries accelerate their transformation from rural poverty to urban middle class societies, poverty as we know it will disappear within the next two decades. “By 2035, there will be almost no poor countries left in the world,” Gates wrote. “Almost all countries will be what we now call lower-middle income or richer.”
With an economy of words, Gates makes clear that he understands the issues. Yes, worldwide there is still immense poverty as defined by critically low incomes or GDP per capita, including less than $500 a year in Ethiopia, less than that in the vast and dysfunctional Democratic Republic of Congo, even less in Burundi and who knows what in North Korea. All of those countries, Gates predicts, will be substantially wealthier in twenty years.
This message is in rather stark contrast to the sense in the United States and Europe that we are mired in economic stagnation, and that as inequality grows, more people are unable to meet their basic needs. That message is likely to be a cornerstone of President Obama’s State of the Union address, and it suggests that life is not getting better for many Americans, but rather worse.
So which view more accurately describes the world we live in? While it does depend on what you consider progress, it should be hard to disagree with Gates and the evidence he presents. Yet today, many people do. They believe that their quality of life is deteriorating, and they look around and see the world through that lens.
In purely dollar terms, it is true that the vast middle class in America (and Western Europe) have seen their incomes stagnate. As is frequently noted, middle-class incomes in the United States have barely budged since the 1980s. Income data, however, has some substantial limitations. While it is used to determine official poverty rates, it says nothing about the relative cost of living. As many goods and essentials have become dramatically less expensive, stagnant incomes allow for higher living standards.