Why the bottom 50% should look within

Economist Tyler Cowen wrote a column in the New York Times, entitled Why Emerging Markets Should Look Within. Here’s a couple of key sentences:

While they [emerging market nations] have all been affected by global economic tides, these nations are facing crises because of problems in their national governance. And if we look elsewhere around the world, we find that governance has been re-emerging as a major factor behind success or failure in many emerging nations.

With all the discussion about income inequality, it made me think that the same could be said about the bottom 50% on the income scale.

It’s assumed that the bottom 50% are victims of larger economic forces that are beyond their control. It’s assumed those forces are holding them back and more government intervention is needed to level the playing field (while the magnitude and failures of past interventions are swept under the rug).

But, there’s very little discussion on what the bottom 50% can do about the things over which they have control.

Sure, there may be larger forces that hold some people back. One of the shocking lessons of adulthood is how much bureaucracy there is, even in market-driven enterprises, and how little merit counts. Also, attempts to shunt the bureaucracy often have the opposite effect.

But, I’ve also been shocked at how little we expect from people who we feel may be victims of such forces. Personal choices matter. Education, savings, responsibility, politeness and learning from your mistakes matter. Being able to overcome obstacles, being resourceful and having good character matter.

The most potent way to help the bottom 50% improve their lot may be to encourage them to focus more on what they can control, instead of waiting for solutions from the government. But, it seems to be in bad form to ask the bottom 50% to look within.

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6 thoughts on “Why the bottom 50% should look within

  1. A few questions I’ve been thinking about a lot lately: 1) What causes poverty? and 2) What does “demand” mean? I think they are related.

    First, poverty — it means not having anything. When we are born, we have the least property we will ever have in our lives. When we die, we leave anything left that we didn’t consume behind for the rest of society. These two simple observations imply two conclusions: births raise average poverty (lower average wealth), and deaths lower average poverty (raise average wealth). Further, they imply that poverty, from an individual’s perspective, is un-caused, but rather a natural state of being. Any property or wealth accrued from the moment of birth (reduction in poverty) comes from family sharing or individual earning (production). Sharing re-distributes a fixed set of property, making everyone poorer on average but keeping the pie size the same. Production increases the total property, raising the average wealth and growing the pie. And finally, consumption destroys accrued property, shrinking the pie. Asking about the cause of poverty then becomes similar to asking about the cause of “no pie”. It’s meaningless rhetoric.

    This leads easily into a (superficial?) understanding of demand. If I have an unfulfilled need, my sense of demand rises. The more unfulfilled needs I have, the higher is my demand. My demand can spur me to get from others (buy, borrow, steal, or accept gifts), or produce for myself. From this viewpoint, demand seems to be born of poverty and indicates a lack of access to necessities.

    This perspective strongly opposes that held by most lefties. Poverty is a natural state and wealth requires a cause, and demand is an expression of poverty so increasing aggregate demand is about making society poorer.

    I realize I’m jumping a few steps, so please let me know if you see major flaws in my reasoning. Thanks. Adam

    • Not sure I follow all the way, Adam. Not sure I’m getting ‘wealth requires a cause’ and ‘demand is an expression of poverty.’

      I do think wealth is something few people understand. Where did it come from? Why do we have it, but our hunter-gatherer ancestors didn’t?

      • Thanks for the two great posts; I love reading Williams and Sowell — clear analytical thinkers both.

        Unfortunately, I’m not quite so analytical (much as I try to be) and I was worried I might have made some unwarranted leaps in my above comment.

        It seems to me that poverty is man’s natural state. If he takes no action, and no other person takes action on his behalf, a person will remain bereft of material goods including food, shoes, computers, rifles, books, jewelry, etc. That’s how I was defining poverty – lack of possessions.

        I’ll quickly contrast this with my observation of the perversion of the word poverty (and poor) in this country. Politically, poverty has been defined as a relative state: anyone below this arbitrary line is considered poor. They may have cars, shoes, TV’s, daily food, i-pods, etc. The line is drawn (and redrawn) to include many people so that by promising benefits to them, the politician can buy their votes and enrich himself with power, prestige, influence, and wealth. When I came back to the US as a teenager, I was culture-shocked to discover that this country called people “poor” who had cars, TV’s, shoes, refrigerators, watches, new clothes, regular meals, etc.

        Now, a person in real poverty (no possessions at all) CAN survive at a subsistence break-even level and remain without possessions. But, this rarely happens in the US — even the homeless accumulate possessions. This accumulation over time indicates occasional surpluses (more than required for immediate needs) that build at some rate.

        The point I tried to make about wealth is that the accumulation of a large quantity of valuables (wealth), requires purposeful action. Either the valuables are gifted to a person (welfare, inheritance, etc.), or they acquire them for themselves through personal expenditure of effort, by building large surpluses over time.

        It’s probably an obvious and trivial conclusion then to say that there is no “cause” of poverty, it is wealth that requires a cause. Political hand-wringing about “the cause of poverty” is a distraction intended to make victims of those with less so that politicians who claim the mantle of “rescuer” can buy influence and power with empty promises and destructive gestures.

        It may not be sexy to say that poverty cannot be defeated in a “war” any more than the laws of physics can – pulling oneself out of poverty requires a plan, sacrifice, long-term effort, courage, commitment, unflagging will, determination, etc. None of that is exciting, and saying it will never buy votes.

        I’ll think about my “demand” idea some more. I find the prescription of “increased aggregate demand” recommended by the Keynesians to pull a nation out of economic slump to be intuitively faulty, but haven’t really analyzed why I think that.

  2. Man’s natural state (via Hobbes) – the life of man (is) solitary, poor, nasty, brutish, and short.

    Adam, I prefer the term “wants” to “needs”. Much (if not all) of what people call needs are more correctly termed wants. This terminology is more consistent with the notion of limited resources and trade-offs. I disagree that demand is an expression of poverty as you have defined it. Wolfers and Stevenson have demonstrated that well being correlates with income, but that there is no satiation point, i.e. there is no point where people (in general) say, “OK, I’ve got enough. I desire no more.”

    As far as the so called war on poverty goes, the left’s war on poverty has created more poverty. Indeed, one would be hard pressed to create a more effective system for keeping the poor poor than the system of perverted incentives devised by the left for the supposed elimination of poverty.

    • Thanks Mike, good points and thanks for the link. I frequently find that an idea I’m rolling around in my head has already been explored by someone else more rigorously.

      Perhaps I need a different term — economic “ground state”? I just can’t adjust my perspective enough to label someone as poor or in poverty when they ate three meals plus snacks today, didn’t labor 12-16 hours today just to survive through the week, aren’t balancing real survival needs on a daily basis.

      Agreed on the “war on poverty”. It’s really a war on independence — a drive to make more people dependent on political redistribution. A real war on poverty would foster self-sufficiency and independence — this travesty does the opposite.

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