Estimated cost of ending world poverty

Middle class can be defined as 1.25 times median income. For upper middle class, and wealthy lets use 1.5 times median income. Median income is basicly the Purchasing Power Parity (PPP). If you adjust GDP with PPP, what you get is about 12000 USD per person in 2012 (https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html)

So upper middle class is those who ear 12000X1.5=18000 USD per year

Another measure for income distribution is the Gini index. The figure basicly says what % of the population is earn above average income. For the world this is in 2007 was 39%, meaning that 49, percent of the pople had income less the 18000 USD. So the upper middle class is 50%-39%=11%. Lets round that down, and use 10%. 10% of 7.1 billion is 710 million, so lower income people are 7.1b-0.71b= 6.39 billion. Lets round that up, and we about 6.5 billion lower income people.

Now, how many people live in poverty. Somewhere I read on the internet, that over 80% of the world population is living on less than 10 USD per day. Many of those are probably closer to 10 USD, so let's just use a median number: 5 USD. Note that that 5 USD is on top of current earnings of people. Estimates of world populations is a little over 7 billion people, so, let's justround it up to 7.1 billion people. If 80% percent live on less then 10 USD, then that is 5.68 billion people. Lets round that up to 5.7 billion people. For the year lets calculate with the leap year , which is 366 days. 5.7 billion people times 5 USD times 366 days = 10 431 billion USD. Let's round that up to 10.5 trillion.

So you need 10.5 trillion USD every year to end poverty.

Between 1914 and 2012 the average annual inflation rate was 3.36% (including the over 10% inflation in the early 1920s, 1940s, 1970s, and 1980s)

So you have to increase that 10.5 trillion by about 3% each year, or whatever the inflation rate is in that year. Regarding the annual increase, you need to add to that the annual depreciation of the currency of the particular country.

This amount should be, primarily additional salary, not just aid to account for the phycological effect of feeling important by doing something in exchange for the additional sum, not just receiving it as aid.

Also note that this figure is highly theoretical. There are two primary issues that are needed to be taken into account:

the differences in product (primarily food and drink) prices in each country.

The definition of "poverty" is that the inability to provide for all basic need. What are basic needs? Obviously not just being properly fed.

Health Care

In the above section you saw an estimate of the additional income that is needed to stop extreme poverty. However there is another factor that influences the amount of money that can be spent on "basic needs" is whether a person has an illness, or multiple illnesses. The top ten countries that spend the most on healthcare per person spend over 2000 USD per year per person. The lowest ten spend less then 10 USD per person The weighted average is 503.8 USD for 133 countries (in 1998 dollars). (http://www.nationmaster.com/graph/hea_spe_per_per-health-spending-per-person) I would put a the minimum, well funded healthcare system to spend at least 1000 USD. This 1000 USD would account for some people who have serious illnesses that cost a lot to cure. Since the weighted average is 503.8 to reach 1000 per year per person, an additional 500 USD per person, per year is needed. World population is about 7.1 billion, but that also includes higher middle class people, who can afford to spend on health from their own pockets. As we saw in the beginning of this article, thare are about 6.5 billion lower income people in 2012. Multiplying that by 500 USD additional medical spending, you get 6.5X500= 3.250 billion. Round that up to 3.3 trillion USD additional health spending.

Infrastructure

Basicly infrastructure investments insure the future growth of the economy of a country. I use infrastructure investment regarding production infrastructure, like factories, machinery, and basicly anything that produces new income. This also includes mining. We know that to maintain any standard of living you need to increase income (salary) by weighted inflation. Weighted inflation is the inflation of goods and services that a particular person uses: Obviously an old person uses different products then a baby. However in case of the general average population lets just use a particular country's inflation. For people to have their salaries increase, the company has to increase its net profits (after taxes, and all expenses) by the same amount (or higher) as the average salary raise for its employees.

Most infrastructural investments are financed by bank loans. The Prime Bank Lending rate is, say, twice the central bank rate. This means that the return on the investment has to be at least Prime Lending Rate plus inflation, for the investment to break even (0% ROI). Commercial banks have four primary source of fund that they lend out:

Assets (past profits, income from issuing its own shares)

Loan from its national central bank

Loan from other commercial banks

Bonds issued

On a global scale, the financial wold is decentralized, meaning there is no central bank of the world (World Bank, IMF, and other international financial bodies have other, specialized tasks). So probably the best figure to use is a global interbank lending rate. The most widely used in the world are LIBOR and EURIBOR. Their 1 year rates are in 2012 are roughly 1%.

Inflation in 2011 in developing counties were about 6.3%. Add to that the roughly 1% interbank rate, you get about 7.5%. So global investments need to have a return of 7.5% per year, to enable companies to raise salaries by the inflation rate. In other words, global infrastructure investments have to increase by 7.5% in 2012 to maintain the present value of salaries. I have said, above, that to decrease poverty the focus should be on new jobs not aids, although aids themselves have their specific purpose.

Now, the next question is what is the total amount of investments needed for the world GDP (PPP) per capita to stay at its current, present value of about 12000 USD per year. One thing that we shouldn't forget is the rate of population growth. In 2012 world population grew by roughly 71 million people, which is about 1% growth rate. The other important factor is global inflation, which has been included in the above investment growth rate of about 7.5%. Adding to it the 1% population growth, we get 8.5% minimum investment growth requirement. Note, that this is only to maintain current salary (standard of living) not to eliminate poverty. In other words, the world needs to increase investments by a total of 8.5%+ provide aid or new jobs. So, we need to increase infrastructure investments by 8.5% of total world GDP. In 2012 World GDP was about 80 trillion dollars: increasing that by 8.5%, we get 6.8 trillion of total new investments

If you look at CIA World factbook, the gross fixed investmets were about about 23% of world GDP. When we take 23% of world GDP, we get 18,4 trilion dollars. Take 8.5% of that, we get 1.564 trillion dollars. Substract that from investments of 18,4 trillion, we get 16, 836 trillion dollars.

Summary

I would estimate that the cost of ending poverty is about 15 trillion dollars each year, which is close to a sixth of the world economy. I think the easiest way to solve the problem is if the Personal income tax, and Corporate tax in every country would increase by 20% and all of that money would go to charities, or maybe to a non-profit, global bank, lets call it, say, Humanity Bank (HB). The account at these banks would be set up so that charity organisations dealing with poverty and health issues could withdraw, and distribute those fund to the poor on the field. Personal identification to access account could be based on fingerprints and photographs. These fingerprints and photographs could be taken by the charities on the field. Identification should be based on fingerprints and not on signature because there are about 1 billion illiterate adults in the world.

More by this Author

Tom Mukasa 2 years ago from Lives in USA

Poverty! The way we quantify or give it narration, should factor in its historicity. We need to deconstruct its origins. This will show us the various scenarios under which poverty thrives. Like a jigger/chigger prised out of the under skin, it will be dealt with one scenario after another. @Csanad, thanks.

Csanad 3 years ago from Budapest, Hungary Author

I am not sure about little success, I think there is some progress, although most of it comes from economic growth, not aid. China and India alone, through their rapid economic growth, lifted hundreds of millions of people out of extreme poverty. Also, the population of the world increases by about 70 million people per year, majority of that coming from developing countries, yet starvation in the world decreased from over 1 billion to little over 900 million in a decade or so (which is still too many).

A global Humanity bank could be owned by all people of the world (7 billion shareholders, and increasing), and if majority, or even all would needed to make decisions. I am sure the details of a humanity bank could be worked out.

Also, please note the the UN was created as a political entity, not a charity. Basically it was created after World War II to oversee the affairs of the world.

PDXBuys 3 years ago from Oregon

This is an interesting concept but I am not sure it would work. The United Nations was established with the ideal goal of ending various world problems. It has had very limited success. We also already have The World Bank, which has the goal of reducing poverty. It, too, has had limited success and has been plagued by scandals. A Humanity Bank would face the same challenges. How do you prevent corruption and favoritism when a relatively small group of people has control of a very large amount of money? We are all flawed human beings and can be seduced by sex, money, and power. There are no easy long-term solutions to this problem, I am afraid. And as the world population increases and resources diminish it will only become more of a challenge.