Here's a startling fact: The amount of money it would take to eliminate extreme poverty is now lower than the amount of money spent on foreign aid every year.
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The Brookings Institution's Laurence Chandy, Lorenz Noe and Christine Zhang, the team behind this analysis, are specifically looking at the size of what's called the "poverty gap," or the distance between every poor person's income and the poverty line. In a country where no one was below the global poverty line of $1.90 a day, the poverty gap would be $0. In a country of 100 million people, all of whom are below the poverty line, the gap would be $190 million a day, or about $69 billion a year.
The actual global poverty gap in 2015 was about $80 billion, far below its $300 billion level in 1980. Decades of economic growth in middle- and low-income countries, particularly China and India but also some parts of sub-Saharan Africa and southeast Asia, have not only dramatically reduced the number of people in extreme poverty — from about 2 billion in 1980 to 700 million in 2015 — but have brought people still living under the poverty line closer to it, which cuts the poverty gap as well. The result is a poverty gap that, while still intimidating, is less than half as large as foreign aid transfers.
This raises an obvious question: If we're spending this much on foreign aid, couldn't we just eliminate poverty by giving the money directly to poor people?
The solution isn't quite that simple, unfortunately. Finding every poor person and giving them exactly the amount needed to get them to the poverty line would be a logistical nightmare — and bad policy, as reducing cash aid by $1 for every $1 more a poor person earns would effectively impose a crushing tax on their labor.
And foreign aid going to non-cash projects, particularly public health, can sometimes yield massive returns, as seen in cases like the anti-HIV/AIDS program PEPFAR, Haiti's largely foreign-financed polio eradication effort, and the Gates Foundation's meningitis immunization campaign in sub-Saharan Africa.
But cash is a hugely powerful development tool. The charity GiveDirectly, which gives cash unconditionally to poor Kenyans and Ugandans, found that giving grants averaging $707 not only didn't discourage recipients from working but actually led to them earning $200 more, an astonishing 28 percent rate of return. Another study in Uganda found rates of return of 30 to 49 percent.
That suggests that big cash grants perhaps should be a huge component of foreign aid spending, and that someday soon, foreign aid spending could be capable of funding transfer programs that end extreme poverty altogether.
As Chandy, Noe, and Zhang at Brookings ask, "How low does the poverty gap have to fall before we explicitly design programs to bring the remaining poor above the poverty line?" That's a question not just for foreign aid policymakers in rich countries, but for politicians in developing countries designing welfare state programs, and for billionaires interested in contributing to the end of extreme poverty.
