5000 is a magic number

$5000 per person per year, that is.

I was playing with Gapminder and noticed that a lot of the interesting relationships between levels of income and other development variables have noticeable kinks at about $5000 per capita. Fertility, for example, bottoms out at about $5000. The number of girls in school attains parity with the number of boys in school at about that income level and life expectancy might kink at five grand, too.

That analysis is across countries in the year 2000. 5000 is a magic number even when you look within a country over time. Check out Korea from 1975 to today (hit the play button to see a cool animation).

Apparently, then, 5000 is a magic number in development. Once countries hit that income level, good stuff seems to start happening. Reading Friedman’s Moral Consequences of Economic Growth, I see that 5000 is a magic number for the environment, too:

Empirical investigation … has mostly supported the conclusion that the consequences of economic development for … pollution are … negative up to levels of per capita income of between $2000 and $8000, but then become positive … In cross-country comparisons, sulfur dioxide, nitrous oxide, carbon monoxide, smoke, and lead from automotive emissions all show increasing atmospheric concentration up to some income level, but a decreasing concentration thereafter … [Similarly for] fecal contamination in rivers, … lead, arsenic, cadmium, mercury, and nickel … Deforestation at first increases with economic development …, but there is even some evidence that it too reverses as living standards rise further.

(page 382, emphasis added)

Why would $5000 be the magic number?

Well, what do you get for 5000 bucks. I’ll assume into existence a wife for myself (I can do that, I’m an economist). My wife and I make $10,000 a year. With that money, we can buy a $500 a month apartment in Atlanta Georgia. We could also budget about $50 a week for food and have $1500 leftover for other living expenses.

This isn’t a great living. There would be absolutely NO luxuries. That said, its not abject poverty. Both my wife and I have a roof over our heads and food to eat. Because we don’t have to continuously worry (too much) about the bare necessities, we’re free to concern ourselves with things that don’t involve the here and now. Besides consumption luxuries (honey, maybe we can have an ice cream next month if we start saving today) we might worry about aesthetic things like the look of our house or the garbage on the streets. We have time to worry about equal rights for girls and we might start to notice all the smoke billowing from the factory next door.