Capitalism? Nah

Bryan Caplan’s EconLog post, Diseases of Poverty: Neglecting the Obvious is worth a read. He points out that solutions proposed on the Wikipedia entry for diseases of poverty focus on redistribution, rather than best proven solution:

It’s almost like the last two centuries never happened.  Quick recap: During the last two hundred years, living standards exploded even though the distribution of income remained quite unequal.  How is such a thing possible?  Because total production per person drastically increased.  During this era, no country escaped dire poverty via redistribution, but many escaped dire poverty via increased production.  And while the effect of moderate redistributive policies on growth is unclear, there is no doubt that populist and socialist movements determined to “tackle the inequitable distribution of money, power and resources” and “change the way that society is organized” sharply retard growth.

Economic and political rights first

I just finished readingThe Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly.

Russ Roberts interviewed Easterly in this EconTalk podcast.

I recommend reading the book and listening to the podcast.

Easterly’s key and powerful point is that the economic and political rights of humans in third world countries are often not considered by experts looking to prove out their prescribed solutions for alleviating poverty and often do so by working with the very leaders of those countries who suppress those rights.

Easterly made the excellent observation that Martin Luther King Jr. didn’t seek to alleviate poverty among African-Americans first. He understood that ensuring that they had economic and political rights came first.

The last half of the book provides a nice description of how the incentives work in a free market (or when people have economic and political rights) to be the most effective pill against poverty. Easterly, though, steers away from using terms that carry baggage in today’s political clime, like markets and capitalism, and keeps the focus on the individuals. Instead of calling it capitalism, he refers it to a people trying to solve other people’s problems.

Who deserves some help?

I’m looking forward to reading Bryan Caplan’s follow-up to his post, Poverty: The Stages of Blame. In the follow-up, he plans to explore what that implies about government and personal behavior.

This topic baffles me. When kept in the abstract, people seem to default to an attitude that ‘something must be done to help’ because people are poor ‘through no fault of their own.’

But, when you start talking about specific people, Caplan’s logic tends to override that abstract reasoning.

But, few people backtrack and wonder how many people really fall into that abstract “through no fault of their own.”

Update: Here’s Bryan’s follow-up post, Poverty: The Stages of Blame Applied. He makes good points.

Speaking of the bottom 50% looking within…

…Walter Williams does just that in his latest column, Dependency, Not Poverty.

A snippet:

No one can blame a person if he starts out in life poor, because how one starts out is not his fault. If he stays poor, he is to blame because it is his fault. Avoiding long-term poverty is not rocket science. First, graduate from high school. Second, get married before you have children, and stay married. Third, work at any kind of job, even one that starts out paying the minimum wage. And finally, avoid engaging in criminal behavior.

Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the “need” to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, “you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what’s left over, one could buy every airline, trucking company and our commercial maritime fleet. If you’re still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation” (http://tinyurl.com/kmhy6es). Today’s total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.

There’s very little guts in the political arena to address the basic causes of poverty. To do so risks being labeled as racist, sexist, uncaring and insensitive. That means today’s dependency is likely to become permanent.

 

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If you want to help the poor, you should read this

I agree with Mark Perry (an economist who has bought me a beer), of Carpe Diem, that the reduction in the world poverty rate is the most remarkable achievement in human history.

The percentage of the world population living on $1 per day or less has dropped since 1970 from around 26% to just over 5%.

It’s hard to argue with those results. They are inflation-adjusted.

I can think of a couple things that might be easier to argue about regarding those results.

1. I can imagine some folks would say that 5% isn’t good enough.

2. I can imagine that some folks would argue about the cause of those results. I agree with Perry’s explanation as provided by Arthur Brooks: “globalization, free trade and international entrepreneurship.”

I can imagine that some folks would say it was the growth in government and aid. But, for them, I’d ask, what if you’re wrong? As Brooks says:

…if you love the poor, if you are a good Samaritan, you must stand for the free enterprise system, and you must defend it, not just for ourselves but for people around the world. It is the best anti-poverty measure ever invented.

I agree. I could be wrong and I think — for the benefit of the poor — I should keep that in mind and stay open to evidence to the contrary, because whether I’m right or wrong doesn’t amount to a hill of beans.

What is important it what really helps them.

I also think us supporters of free markets often forget this. The opposition paints us as the defenders of the rich, the “1%” and king-like CEOs, while we’re really advocating for the benefit of everyone, including the poor. 

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.

Learned Helplessness

Recent discussion in the comments of this blog about poverty reminded me of a caller I heard on a local radio show I heard within the last year.  The caller was a teacher and he shared the results of an assignment he has always done with students in his 30 years of teaching in an urban school district.

He said that he has always done this assignment to encourage his students to think about their futures and how they will earn their keep.

The first part of the exercise is to think about and write down the things they may want to have someday — homes, cars, jewelry, boats, etc.  In the second part of the assignment, they think about what they’ll do to afford those things — like earn money as a nurse, or firefighter or start a business.

He then commented on how he has seen the responses to that exercise change over the years.

In his early years, his students would want to become nurses, firefighters and teachers to be able to earn money to buy what they want.

But, now he’s more likely to get these types of responses: I’ll just use the check or card that comes from the government to buy it, like Mom does.

I doubt much has changed. My guess is that the students normally say they’ll do whatever it is they see their parents or aunts and uncles doing.  The future nurses of 20 years ago probably had a Mom who was a nurse.

Which reminds me of this post where I linked to and quoted from a Wall Street Journal piece by Arthur Brooks about earned success and learned helplessness.

It also reminds me of the story Dr. Carson told in his speech about how his Mom would not allow Dr. Carson or his brother to accept excuses for their failures or their lot in life.

 

Walter Williams: Good Intentions

Walter Williams makes a good case that the war on poverty was making things worse in 1985. This was a PBS documentary now available to all of us through the wonders of the Internet and Youtube. I recommend watching all 28 minutes.

Part I:

 

Part II:

 

Part III:

 

Here’s Walter Williams home page to see more of his work. I recommend adding his weekly column to your normal reading rotation. You will learn a lot.

Thanks to Wally & Mike for — as usual — a good and productive discussion in the comments.

Shameless Society

Ours’ was once a society that expected able-bodied folks to carry their own weight and not be a burden on others. And, it didn’t take much to be considered able-bodied.

Depending on others was looked down upon, shamed. Putting up a genuine effort to take care of your responsibilities earned you respect and dignity, and those marks of character use to carry some clout.

This seems to have changed over the past few decades. The standard seems to have gone from ‘able-bodied’ to ‘no fault of your own.’ If an intellectual from an elite university, or politicians seeking re-election can make a plausible sounding argument that passes the 5 second sniff test that some poor sap wound up in a bad position ‘through no fault of their own,’ then it’s ‘our’ job to help him out.

I say 5 second sniff test, because if most of us thought about the poor sap who lost his job ‘through no fault of his own’ two years ago, hasn’t found another job and has a family to feed and a house payment to make for more than 5 seconds we might start asking questions. Has he had any job offers? How many resumes has he sent out? Did he save an emergency fund? Has he tried to take a lower paying job to make ends meet? Does he have any other skills? Did he really need to buy a house with a mortgage payment so large that he couldn’t afford to pay it if he lost his job? Did he need to take out the home equity loan to remodel the bathroom? We might start to think of this poor sap who is in a tough spot ‘through no fault of his own’ as an ‘able-bodied’ person who maybe does deserve some of the fault.

Reading this exchange between university professors Bryan Caplan and Bill Dickens (the latter was the former’s Econ 1 teacher) troubles me.

Caplan steadfastly holds that a major cause of poverty is irresponsible behavior, that correcting this behavior is a good way out of poverty and rewarding this behavior is not a good way to stop it. Rather, that’s a good way to get more of it.

That part of the exchange I had no problem with.

It’s Dickens response that troubles me. First, I find its high fallacy and emotion content unbecoming of a university professor. Second, he goes out of his way to make excuses for irresponsible behavior. One example:

I must have spoken with, in the neighborhood of, 100 welfare recipients when I was working on the reform… Overwhelmingly those on public assistance were full of regret and/or a sense of hopelessness that they are fated to their condition. They know they should have worked harder in school, they know they should be working to support their family, they know it would be better if their children’s father was there to help support their kids. There is no shortage of hectoring from society, welfare caseworkers, family members, and the media.

From Caplan’s response:

I don’t think they’re sorry for their behavior.  I think they’re sorry they’re experiencing the predictable consequences of their behavior.  I see them the same way I’d see a serial adulterer enduring a hellish divorce: “Sure you’re sorry.  Sorry you got caught!  Sow the wind, reap the whirlwind.”

I’d add that there’s also no shortage of folks like Dickens who psychologists from circa 1980 would call enablers. While Dickens sees plenty of ‘hectoring from society’, I see plenty of people telling them it’s okay. It’s not their fault. Society has just left them behind. We have a safety net to help. Please, feel no shame.

I don’t have much problem with social safety nets, with the exception that they tend to devolve into dependency reinforcement programs, rather than true anti-poverty programs.

We don’t have real safety nets. Real safety nets would look more like this. Do you want to receive unemployment benefits? Report to your local Parks & Rec guy on Monday and spend 8 hours cleaning parks. We’ll help, but we expect you to do something productive in return.

Do you want welfare? How about a drug test? Did you get a free visit to the emergency room? There’s plenty of work to be done at the hospital. Maybe you can scrub a floor. Want a student loan? Sign up for a degree program that leads to a paying job. But how will we know if it will or not? By looking at whether past students who took loans out for the same program paid their loans back.

In the old days, if you were down on your luck and needed a free meal, you at least offered to wash dishes. Now, it’s okay to get a free meal and simply ask for more.

One of the most destructive things that has happened in our society has been removing shame, which has devalued dignity. Why work to earn respect when you can get by without it? Sure, there are some parts of society where the shame and dignity feedbacks are still vibrant, but they’re dead or dying in many parts controlled by government, which is around 40% of the economy.

Later in Dickens response, he suggests that Caplan spend time with some poor people. I’d recommend the same thing for Dickens. Except, this time, don’t do it while working on the President’s welfare reform task force. Interact with them on a regular, day-to-day basis. Go to the billing departments of hospitals. Become a checkout clerk at a grocery store. See what is bought by folks with government assistance. Go visit some folks receiving Social Security disability. Or, when they are getting a payday or title loan. The stories I hear from folks in these areas would have been considered shameful by most not long ago.

I hate to throw the baby out with the bath water. There are people who still value dignity who are helped by these programs and eventually work to become self-sufficient. It’s much more palatable to me to at least attempt to direct and limit these programs for such folks. That should be what it’s about, right?

That was the whole idea of the ‘able-bodied’ standard. Get off the dole if you can so we have enough to help the ones who really need it.

Daniel Hannan addressed this in his book, The New Road to Serfdom, as well. I wrote about here. I quote myself and Hannan from that post (his is the double indent):

Then Hannan goes on to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

Good example of unintended consequences

On his blog, International Liberty, Dan Mitchell wrote that he hopes Paul Krugman…

…is right in that [Paul] Ryan wants “to make life harder for the poor” if the alternative is to have their lives stripped of meaning by government dependency.  And I agree that it will be “for their own good” if they’re motivated to join the workforce.

…even though Mitchell is aware that Krugman “wants readers to draw the opposite conclusion,” that it’s wrong for Ryan to want this.

I can hear my liberal friends now. Compassionate folks should want to help the poor, right? Ryan and right-wingers aren’t compassionate. They don’t want to help the poor. 

Mitchell also linked to a previous post of his from 2010, which contains this chart:

I remember reading this compelling point about unintended consequences in Thomas Sowell’s books and columns. The poverty rate had been declining prior to government involvement to try to help it. The country was becoming wealthier and more people were being lifted out of poverty.

Then government ‘declares war’ on poverty, since the intention of helping the poor is noble and a good way to attract votes. Who wants to vote against the poor, after all?

But what about the outcome? The declining trend of the poverty rate stopped right after the war declaration and then stabilized thereafter and began exactly what I don’t like about government programs — the positive reinforcing failure feedback loop.

We’ve spent increasing sums of money, through government, to combat poverty. It’s still here. As Daniel Hannan wrote in his book, The New Road to Serfdom:

It is a stock phrase of virtually every European politician, regardless of party, that “a society is judged by how it treats the worst off.”  Plainly, then, there must be something selfish — and possibly racist — about a people who keep voting for a system that treats the most needy so pitilessly.

It rarely occurs to critics that there might be better ways to measure the efficacy of welfare state than by size of its budget.  Indeed, in a truly successful social security system, budgets ought to fall over time as former recipients are lifted into better and more productive lives.