The difference between poverty and destitution

Dan Mitchell comments and expands on Thomas Sowell’s latest column. Both are well worth reading.

I just had to include this passage from Sowell:

“Poverty” once had some concrete meaning — not enough food to eat or not enough clothing or shelter to protect you from the elements, for example. Today it means whatever the government bureaucrats, who set up the statistical criteria, choose to make it mean. And they have every incentive to define poverty in a way that includes enough people to justify welfare state spending. Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight. But an arbitrary definition of words and numbers gives them access to the taxpayers’ money.

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Two Davids, an Optimist and a Diamond

Something made me think about this post from February 2012 and this post from May 2012.

In the first post, I try to explain to David Brooks that his social engineering predecessors created the problem he now wants to solve and he doesn’t recognize that the easiest way to solve it is to undo what they created.

In the second post, I discuss an EconTalk podcast with guest David Schmidtz who cuts right to the nub of the problem with the you-benefit-from-society-so-I get-to-tell-you-what-to-do mindset. The key phrase from Schmitdtz that jogged my memory of this post:

Tell me at what point other people helping me made me your property.

As I re-read that post, I had a couple additional thoughts.

First, not only is the do-gooder presumptuous enough to think they are entitled to tell others what to do, but they derive that belief from what others have done, not themselves. Indeed, when they say they get to tell you to be healthy because they pay for your health care, ask how much they’ve paid so far. Ask for a receipt.

This entitlement to tell others what to do is usually based on the idea that “society” has provided roads, teachers and police protection (again, usually provided by others, not them) in which we all benefit.

But, where did roads come from? From government? From taxes?

Where did those come from?

From wealth creation. At some point in human history we became productive enough through private trading to free up some spare time for some folks to be able to work on things beyond acquiring today’s calories — like protecting us and representing us from and for each other.  Wealth creates government, not the other way around.

For more depth on that topic, I recommend Matt Ridley‘s The Rational Optimist and Jared Diamond’s, Guns, Germs and Steel.

Worth reading

My latest issue of Forbes has three editorials that I recommend reading:

1. A column that I cannot yet find on Forbes.com entitled, Economic Growth is Easy. Here’s a snippet:

John Stuart Mill long ago observed that we trade “products for products,” so if the desire is for increased consumption, we must stimulate the supply side of the economy. Specifically, we must remove the tax, regulatory, trade and monetary barriers to productivity. For individuals to consume, they must first produce.

Most people don’t understand that, which is one reason we keep electing fools. Consumption does not drive wealth. Investing to take a chance of realizing benefits do.

2. Another from British historian, Paul Johnson, Men Blinded by Their Brains. In it he writes how intellectuals seem to have an affinity for the powerful and evil. In the print version, this appears immediately after the subtitle, Moral Blind Spot:

Of course, intellectuals, whom I define as those who think ideas are more important than people, are notoriously bad at seeing the ordinary world and coming to moral decisions about it.

This article struck me because I’ve known such men. They could reason their way into very bad things and reason their way out of feeling any remorse or accountability for their actions.

3. Steve Forbes’ lead-off editorial, Gold and the Wicked Magicians, is top-notch and important. From his piece:

Linking the value of money to gold removes a huge source of Big Government’s power. No longer can government confiscate wealth by stealth by devaluing your money. Economists hate the gold standard because they think they’re being deprived of one of their magic wands to shape the economy.

Big Government looks after its own interests. Left to its own devices it will relentlessly expand, crushing the private sector. That’s what’s happening in Europe today. Despite all the talk of austerity, the public sector has hardly been touched, while businesses and individuals have been hit with more and more taxes.

Despite thousands of years of experience to the contrary, central bankers and countless policymakers and economists believe that money manipulation can stimulate and wisely guide an economy.

It’s a destructive delusion. The world today would be an immensely richer place were it not for these hubristic notions that a handful of people can keep an economy rolling smoothly with minimal unemployment.

“Yes, but…”

Bryan Caplan wrote that in his first 17 years of life, he never encountered an opponent to policies like the minimum wage, FDA and social security. And he grew up in “bland Northridge, California”, not some “leftist enclave.”

He has me beat by 5 years. I, too, did not grow up in a leftist enclave. Just a “bland” midwestern town where the populist defenses for these policies that Bryan wrote more about in his post were taken as gospel.

Caplan’s post is worth reading. In it, he criticizes intellectuals who “yes, but…” the writings of French Economist Frederic Bastiat’s, who dismantles these populist defenses.

Caplan asserts that said intellectuals don’t display higher regard for Bastiat’s work for fear of damaging the political base they need to sport their solutions on the rest of us.

Good reading

Sheldon Richman explains that the “market does not ration.” (HT: Cafe Hayek)

I liked how Arnold Kling worded this:

My own view is that these are two areas [health care and education] where outcomes depend largely on factors other than the services provided. Meanwhile, we have succumbed to the claims of suppliers that their services ought to be heavily subsidized. The subsidies lead to over-provision of education and health care services, well past the point where the marginal return from additional spending becomes negligible. In health care, this is known as the flat of the curve hypothesis. Perhaps the hypothesis also applies in education.

Eating apples is a good thing. But it’s not good to continue eating more and more apples every day.

George Schulz in this weekend’s Wall Street Journal, gives some good advice to would-be Presidents. When I read this, it made me think about the short-term thinking of Keynesian economics:

The political people would come in and say ‘You’ve got to be careful, Mr. President. There’s gonna be a recession [if the Federal Reserve tightens the money supply]. You’re gonna lose seats in the midterm election.’

“And he basically said, ‘If not us who? If not now when?’ And he held a political umbrella over [Fed Chairman] Paul Volcker, and Paul did what needed to be done. And by late ’82 early ’83, inflation was under control, the tax changes that he made were kicking in, and the economy took off. But it took a politician with an ability to take a short-term hit in order to get the long-run results that we needed.”

Government’s role is not to smooth GDP.  It’s job is to predictably protect our freedom:

“Let’s talk about football. . . . You want to know the rules and have an impartial referee, but you also want to make sure somebody isn’t going to come along and change the rules in the middle of the game. . . . Now it’s as though we have all these people who have money on the sidelines and we say ‘Come on and play the game,’ and they say ‘Well what are the rules?’ and we say ‘We’ll tell you later.’ And what about the referee? Well, we’re still struggling for who that’s gonna be. . . . That’s not an environment designed to get people to play.

We all learned this on the playground as we were growing up, didn’t we? We stopped playing tag and kickball with the kids who changed the rules in their own favor after every play. It wasn’t worth our time. Stop changing the rules.

Schulz also makes a good point about being cautious to use debt for true emergencies (and not GDP smoothing or buying votes, rewarding cronies and special interests):

Now remember something. Alexander Hamilton, our first secretary of the Treasury, and a very good one, redeemed all of the Revolutionary War debt at par value, and he said the ‘full faith and credit’ of the United States must be inviolate, among other reasons because it will be necessary in a crisis to be able to borrow. And we saw ourselves through the Civil War because we were able to borrow. We saw ourselves able to defeat the Nazis and the Japanese because we were able to borrow. We’ve got ourselves now to the point where if we suddenly had to finance another very big event of some kind, it would be hard to do it. We are exhausting our borrowing capacity.”

Finally, he reminds us what results with price controls:

“I fear that the approach to controlling costs in the health-care business is moving more and more to a wage-and-price-control approach. And one thing you know from experience is when you control the price of something, you end up getting less of it. So if you control the price of health-care providers, you will have fewer of them and that’s gonna wind up as a crisis. The most vivid expression of that . . . was Jimmy Carter’s gas lines.”

Less College for All

As I frequently write on this blog, college education isn’t what it use to be because of the heavy government subsidies. Just a few days ago I wrote:

College degrees no longer signal intelligent self-starters with moxie. Now degrees are signals risk averse, color-by-numbers people. Bureaucratic employers value these people for their conformity and aversion to risk.

Robert Samuelson agrees in the Washington Post. He wrote:

The college-for-all crusade has outlived its usefulness. Time to ditch it.

The real concern is the quality of graduates at all levels. The fixation on college-going, justified in the early postwar decades, stigmatizes those who don’t go to college and minimizes their needs for more vocational skills. It cheapens the value of a college degree and spawns the delusion that only the degree — not the skills and knowledge behind it — matters. We need to rethink.

Thanks to Mark Perry of Carpe Diem for the link.

Two parties

In the comments of my Thank You post, Ben asked what I thought about our two-party political system.

He reminded me of my post from last November, Why I Might Throw My Vote Away. I think that should give Ben a good idea of my views about it.

I also highly recommend reading Peter Robinson’s book, It’s My Party. In it, Robinson gives a great account of the evolution of political parties in our country, including potential explanations for how the two have persisted.

I’ll have more to add-on the subject soon.

Wall Street Journal Potpourri

1. From  A Stingy Spirit Lifts Airline’s Profit, on the success of low-budget flyer Spirit Airlines. Most Chief Executives want to own the market. You don’t often hear a Chief Executive who knows the value prop that his business delivers:

Airline evolution (Photo credit: Wikipedia)

“If a corporation is buying your ticket, you’re not going to fly with us. We’re OK with that,” said Spirit Chief Executive Ben Baldanza.

Later he says:

“If you’re going to bring a lot of bags, fly Southwest.”

And, you know you work for a boss with a focus on the bottom line when he says:

 “We buy pens when we have to,” Mr. Baldanza said. “But if you go to a conference and they give you a pen and a pad, absolutely bring that pen and pad back.”

Funny thing. The pens I use are freebies from conferences and such. Many of my co-workers order the finest pens and laugh at mine.

2. Holman Jenkins writing in Jamie Dimon Stubs Dodd-Frank’s Toe:

Banks that refrain from risk aren’t banks. And expecting regulators to distinguish good hedges from “risky bets,” as Volcker [rule] requires, is to expect regulators to be better bankers (for a lot less pay) than one of the best bankers, Mr. Dimon, has shown himself to be.

3. Good news from the home borrowing front in Lenders Want to Know Everything:

Borrowers who have recently applied for a mortgage know how thorough lenders are now in documenting a person’s finances and ability to repay.

A big reason lenders are being careful is that they fear they’ll have to buy back loans from Fannie Mae or Freddie Mac if proper underwriting standards aren’t adhered to and the loans go bad after being securitized by one of the government-sponsored enterprises…

As Russ Roberts says, “Capitalism is a profit and loss system. Profits encourage risk-taking. Losses encourage prudence.”Amazingly, when you put the incentive of losses back in the system, prudence increases.

Arthur Brooks: Earned Success vs. Learned Helplessness

I recommend reading this piece from Arthur Brooks in the Wall Street Journal.  A snippet:

Earned success means defining your future as you see fit and achieving that success on the basis of merit and hard work. It allows you to measure your life’s “profit” however you want, be it in money, making beautiful music, or helping people learn English. Earned success is at the root of American exceptionalism.

The opposite of earned success is “learned helplessness,” a term coined by Martin Seligman, the eminent psychologist at the University of Pennsylvania. It refers to what happens if rewards and punishments are not tied to merit: People simply give up and stop trying to succeed.

The most boring and interesting book

I finally got around to reading Hernando de Soto’s book, The Mystery of Capital, based on a recommendation from W.E. Heasley. I recommend it.

I realize the book has been out for a while and I’m very late to this party, but better late than never.

Before I read this book, I had a firm belief that law was an emergent order of an evolutionary process of humans interacting with each other, where different dynamics of interaction were constantly tested in the crucible and the most effective interactions emerged.

In other words, we stop at red lights because that practice keeps us alive, not because it’s a written law. If we were to erase the written law from the books tomorrow, we’d still stop at red lights.

But de Soto gives a good history of emerging law in the United States compared with other countries that are not as successful as the U.S.

U.S. “lawmakers” didn’t seek to overwrite the ‘law of the land’, or the law that had emerged through local and private arrangements from various landowner and gold claim organizations, for example. Lawmakers primarily sought to serve as a backstop for those local arrangements.

In not-so-successful countries, elites ignore the ‘laws of the land’ and try to overwrite them with their own idea of what’s best. But, it turns out that their untested ideas don’t work and people do their best to ignore them.

I’ve witnessed this same phenomena in business management. Company leaders often ignore bottoms-up successes and push their own ideas. Usually those ideas are based on their own untested preferences and they usually end up getting fired because they don’t work.

This bottoms up process was illustrated well with de Soto’s story from Indonesia. While there to launch his book, some Indonesian cabinet members invited him to discuss how they could find out “who owns what among the 90 percent of Indonesians who live in the extralegal [ignoring formal law of property ownership] sector.”

He told the story of his trip to Bali:

As I strolled through the rice fields, I had no idea where the property boundaries were. But the dogs knew. Every time I crossed from one farm to another, a different dog barked. Those Indonesian dogs may have been ignorant of Indonesian law, but they were positive about which assets their masters controlled.

I told the ministers that Indonesian dogs had the basic information they needed to set up a formal property system. By traveling their city streets and countryside and listening to the barking dogs, they could gradually work upward, through the vine of extralegal representations dispersed throughout their country, until they made contact with the ruling social contract. “Ah,” responded one of the ministers, “Jukum Adat (the people’s law)!”

Discovering “the people’s law” is how Western nations built their formal property systems.

I’d like to take a survey of U.S. population to see what percentage of people know that U.S. property law derives from local and private arrangements made by individuals. I bet it’s low. Most people believe law comes from judges and lawmakers, which is about like believing that language comes from English professors.

As W.E Heasley mentioned in the comments of this post, we shouldn’t confuse legislation with law. The best legislation usually derives from the people’s law. Ineffective legislation overwrites the people’s law.