Interest Rates are Low and Global Poverty has Risen : The Indicator from Planet Money On the show, we look back at the number of people globally who fell into poverty last year due to the Covid-19 pandemic, and look forward to where U.S. interest rates are projected to stay until 2023.
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Indicators of the Week! Interest Rates and Global Poverty

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Indicators of the Week! Interest Rates and Global Poverty

Indicators of the Week! Interest Rates and Global Poverty

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  • Transcript

UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC'S "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. Stacey and Cardiff here. This is THE INDICATOR FROM PLANET MONEY. And as we always do on Friday, Stacey.

STACEY VANEK SMITH, HOST:

Yes, indicators of the week. Did I say that too fast? Indicators of the week.

GARCIA: You said it just right, with just the right amount of enthusiasm. But it's when Stacey and I pick an indicator that we came across this week that we find to be really striking, surprising, insightful, informative or that just blew our minds. And we share them with you and tell you why we think they're so good. So, yeah, that is coming up right after a quick break.

(SOUNDBITE OF MUSIC)

SMITH: All right. It is time for indicators of the week. And, of course, Cardiff, to determine who goes first - because we do not know each other's indicator of the week - we play the game of kings, rock, paper, scissors.

GARCIA: Rock, paper, scissors. Yeah. All right. You're 2-0 so far.

SMITH: I am well aware.

GARCIA: You're really good at it. Here we go.

SMITH: OK.

GARCIA: One, two, three.

SMITH: Rock crushes scissors. Yes.

GARCIA: Three in a row. Three in a row.

SMITH: I don't know, Cardiff, maybe just think about some tutorials.

GARCIA: I'm going to practice. I'm going to start practice. I'm going to start doing drills every morning at 6 a.m. for some reason, all right, to get better at it. But yeah. OK, Stacey, then you get to go first.

SMITH: My indicator for this week is pretty much zero.

GARCIA: Zero. OK.

SMITH: Pretty much zero.

GARCIA: What's going on?

SMITH: This is where the Federal Reserve said on Wednesday that it's going to keep interest rates until the year 2023.

GARCIA: Yeah.

SMITH: So low interest rates for a long time. And, of course, keeping interest rates low is supposed to help the economy, right? Like, it's supposed to get people spending, get people borrowing, convince businesses and individuals to borrow money, kind of keep money flowing through the economy. However, there is always this like other tension with keeping interest rates low, which is...

SMITH: Inflation.

SMITH: Which is the dreaded inflation, yes.

GARCIA: Sorry, I just thought you wanted me to finish your sentence there.

SMITH: I absolutely wanted you to finish my sentence. You need a win after that devastating rock, paper, scissors match.

GARCIA: Oh, the knife gets twisted. The shiv between the ribs. OK.

SMITH: And so we're back to this question of inflation. And, of course, Cardiff, inflation is basically just rising prices. And the effect of that is that the money that we have buys less, right? So there's a great fear about inflation happening because the money that you've saved, the money that you're earning just doesn't go as far as it used to go. That's the great fear about inflation.

And this has been coming up and coming up, honestly, since 2009 - right? - when there was so much federal spending to try to help the economy during the housing crisis. And after the housing crisis, there was so much worry that pushing so much money into the economy was going to raise prices. And that never really happened after 2008, 2009. There was a huge worry, and it never happened. And a lot of people were very puzzled about this. Like, where did all the money go? Why didn't it cause prices to go up?

And now we're sort of back to this question again. And it's especially interesting at this time because so much stimulus money has gone out to businesses and individuals. And a lot of people are expected to spend more money than they did last year. There's supposed to be a spending boom. Also, people who've been able to keep their jobs are spending sort of at an unprecedented rate. And there's a lot of worry that that could actually push prices up and cause inflation.

GARCIA: There is this kind of interesting tension where it seems like the Fed is siding with the economy having this burst of growth even if that's accompanied by higher inflation than in the past it might have not been OK with, right? This time, it's saying we're OK with that if it means people getting back to work, their wages going up and real conditions in the economy improving. And then, later, if it's a problem, then we'll deal with inflation. Whereas in the past, I think, you know, the initial focus would have been, no, we've got to stop inflation at all costs, right?

SMITH: Right.

GARCIA: And now it's like, well, let's balance it with economic growth and people getting jobs again. So, yeah, it's a great indicator. And I think it's a big deal.

SMITH: Yes. And, of course, I should say that raising interest rates is one of the primary ways that the Federal Reserve fights inflation, because if interest rates are higher, people stop borrowing money or they borrow less money, same with businesses. And so it kind of sort of cools things down. And so this is seen as one of the Fed's primary weapons against inflation. So the fact that they are not raising interest rates, they're keeping it at zero, really does point to what you're saying.

GARCIA: All right. Great indicator.

SMITH: Thank you.

GARCIA: Ready for mine?

SMITH: OK, scissors. Wait. I think you had scissors last time. You stuck with scissors.

GARCIA: I did. I did. I felt like it was a good strategy, you know, so I thought I'd double down on it. I figured you'd be the one to change, and I was incorrect.

SMITH: We both think the same.

GARCIA: So my indicator is 131 million. That is how many more people have fallen into the category of the global poor in 2020 because of the coronavirus recession that exists in so many parts of the world. And so this data comes from estimates by the Pew Research Center, which is basing it on data that it got from the World Bank. And it's a huge increase, roughly a 20% increase. And it reverses a decade of progress, not fully reverses, but it sends things going in the wrong direction. And, of course, the story here is quite simple. You know, these people are mostly concentrated in parts of South Asia and sub-Saharan Africa, where there's just a lot of people who live close to the edge of subsistence. So to qualify for this category of poor, you need to be living on $2 or less per day, right?

SMITH: Oh, wow. Yeah.

GARCIA: Just, like, I mean, a really, really barebones existence. And because there's so many people in these parts of the world, an economic downturn sends a lot of them beneath that threshold. And I think there's a couple of lessons we can take from this. One is to see the stark contrast between what happened in these countries and what happened in the United States, which was able to put in place this huge stimulus and which actually prevented there from being a rise in the number of people in poverty.

You know, the difference in the recession itself in the United States and in sub-Saharan Africa, for instance, was not that different in percentage terms. But because these countries are starting from a base of having way lower incomes than in the U.S., you have people who fall beneath this threshold of the global poor. And so it's just a big, big, dramatic difference between these richer countries which have the material resources to fight these recessions and some of these other countries which simply don't. The second point here is just that economic growth really matters, you know. A lot of people, I think, when they think about economic growth, there's this sort of narrative where there's all these trade-offs, for example, you know, that it's associated with materialism.

SMITH: Climate change.

GARCIA: Climate change, environmental consequences. And I don't want to diminish these concerns. The world is a big, complicated place. There should be space for all of these debates. But what I'm saying here is that the stakes are much, much higher for people in some of these countries because the policy response is also so different. You know, the options available to the governments of the advanced economies - the U.S., countries in Europe, Japan, places like that - are just bigger. They can actually fight a downturn with a lot more. And so, yeah, it just - it shows, I think, the importance of economic growth. It shows the importance of getting an economy to the point where you don't have so many people living on the edge of subsistence, I think.

(SOUNDBITE OF MUSIC)

SMITH: That's a great indicator. Yeah.

GARCIA: OK. That's it for this Friday. If you, our listeners. Have an indicator of the week that you'd like to share with us. we are going to try to share some of these also on the show next week. So send them to indicator@npr.org, and we'll read them there. And maybe we'll flag one of yours. This episode of THE INDICATOR was produced by Brittany Cronin and fact-checked check by Sam Tsai (ph). It was edited by Jolie Myers. And THE INDICATOR is a production of NPR.

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