To compare standards of living, PPPs are indeed appropriate. But general-consumption PPPs, based as they are on the prices of all commodities weighted by their share in international consumption, substantially overstate the purchasing power of the poor relative to the basic necessities on which they are compelled to concentrate their expenditures. This is so because poor countries tend to afford the greatest price advantages for commodities (services and other "non-tradables") which their poor citizens cannot afford to consume. By using PPPs that average out price differentials across all commodities, economists inflate the nominal incomes of the poor as if their consumption mirrored that of the world at large. For a detailed critique, see S. Reddy & T.W. Pogge, 'How Not to Count the Poor', 2002. Unpublished working paper, available online at <www.socialanalysis.org>, accessed on January 8, 2007.Even if one takes PPPs at face value, the increase in global inequality is alarming: Over a recent five-year period, "world inequality has increased [...] from a Gini of 62.8 in 1988 to 66.0 in 1993. This represents an increase of 0.6 Gini points per year. This is a very fast increase, faster than the increase experienced by the US and UK in the decade of the 1980's. [...] The bottom 5 percent of the world grew poorer, as their real incomes decreased between 1988 and 1993 by ¼, while the richest quintile grew richer. It gained 12 percent in real terms, that is it grew more than twice as much as mean world income (5.7 percent)": B. Milanovic, "True World Income Distribution, 1988 and 1993: First Calculation Based on Household Surveys Alone ", The Economic Journal, Vol. 112, 2002, p. 88.
