Tuesday, April 18, 2006

 

The End of Poverty

I was thinking this on my drive in this morning...

If wealth can only be created by private individuals, why do we believe that poverty can be solved by governmental institutions?

If the accumulation of wealth is an entirely private enterprise, why is the public sector involved in this game at all?

What do we stand to gain by using governmental coercion to "create" wealth?

Comments:
Also... sweatshops are good!!
 
Or, can even voluntary charitable organizations bring an end to poverty?
I am beginning to think that they can't.
Because poverty is really a state of mind the evidences itself in a pattern of behaviors. Usually poverty assumes a zero sum game. It also has a fatalistic view of its social and economic position. Typically it cannot afford to fix things that it cannot afford not to fix.
What is really necessary is a new mentality that assumes personal responsibility and believes that opportunities to create wealth exist and can be found.
What government can do is get out of the way.
Nathan
 
I'm glad to see it, but I think you're both thinking in the very long run. In the short run, governments can redistribute wealth via taxes and transfer payments. Although that does not create wealth per se, it can bring some people out of immediate poverty.
 
Temporary assistance does not end poverty. It can only ease the pain for a short period of time, but is no solution to the chronic problem of poverty.

Whether you look at Africa or modern day America, aid seems only to perpuate the problem of poverty.

As we have increased the quantity of aid and assistance programs, we have also seen an increase in the number "poor". I don't think there is an end in sight using this simple "throwing more money at it" approach.

A similar problem exists in public education -- more money doesn't provide any true solution.
 
WARNING: OVERSIMPLIFICATIONS AHEAD

Well, I think the problem of the poor in Africa and the poor the United States are remarkably different.

Many African countries have corrupt and unstable government institutions. If you will remember from Easterly's first book on growth, that was one of his arguments for why aid was so ineffective. The aid never got to the people it was intended for.

In these situations, bad government is the problem (corruption, instability, disrespect for property rights) and good government (property protection, criminal justice systems, etc.) is the solution.

In America the problem is different. We have fairly good institutions, a mostly open government, and an extensive and integrated mixed-market economy.

Here, income is largley distributed by marginal productivty. The reason we have some very poor people is because they have poor productivity.

Here the government can help by seeking to raise a persons marginal product. That could mean funding education/re-training or even helping them pay their medical bills (a productive work force is a healthy workforce).
 
To summarize:

1) Government can help end poverty first (and most importantly), but getting the "rules of the game" right. Ensuring property rights are enforced, providing national defense, etc. This will foster trade, specializiation, and innovation and all the accompanying benefits.

2) After this is done, governments can help end the poverty that is left by providing services (or targeted funding) that increase the marginal product of the poor.

3) Another potential area for government intervention is funding research and development. Due to positive externalities and other problems, less than the efficient ammount of r&d will be conducted. Government funding will hopefully lead to more economic growth that will benefit the poor as well as the rich.
 
It makes sense and yes there are differences between the two.

However, if it were really so simple wouldn't we have solved it by now?

I mean, we extensively subsidize education at all levels and pay more per capita on health expenditures than anywhere in the world. Additionally, we have an ever expandition workforce assistance and training portfolio.

None of this really gets at the root of the problem and they can never be the vaccination to the disease of impoverishment.

It might be an issue of adverse incentives created from an over-generous welfare state.

I dunno... it's just sad
 
Personally, I blame it on the way the aid was distributed in the United States. Particuarly in the last half of the 20th century. New Deal democrats and their decendants had the government actually providing these services (Medicaid, Social Security, etc.), funding them in poor ways (AFDC, foodstamps), or just didn't know what they were doing (AAA).

All of these are used as examples of bad policy in Public Finance.

There are much better ways of helping the poor.
 
Poverty is people that stick with job's that refuse to pay any more than the minimal living expense. Over the years the wage stays at the same rate as minimum wage or less. To top it off most jobs are "adjustable hours" meaning some times of the year you can actually pay to work. after transportation and insurance. Now thats true poverty, yet companies have no sympathy and call it "just business"

Theres a lot of people that work very hard yet get nowhere, where there's others that understand it's not how hard you work, you must change jobs constantly until you find a company that "cares" about their employees more than their stockholders. If the government or organizations want to help with poverty, then keep the housing prices affordable, transporation, and health care prices down(thank goodness we can still eat for now). They can also offer training in high demand jobs for free, with job placement assistance once your done. Not training that will pacify the public but actually make change.

The prices of the big 3 rise at a greater rate than the wages of those that earn less. foodstamps, medicare, ect is worthless. By the time you qualify for those your way beyond the point of needing them. Also the goverment loves to make cuts first on the poor, you can't really count on it anyway.

In conclusion there will always be poverty as long at the dollar is alway king. It's nothing personal just business.
 
You presume a lot, perhaps a bit too much.
 
Wow. What horrible ideas.

Prices convey information about fundamental realities that cannot be waved away by government fiat. The price of labor doesn't tell us how generous the employeer is, but how productive the worker is.
 
Temporary assistance does nothing to change mindsets.
Bad government is the problem and good government is the solution. We are so afraid to say it, but ALL government is bad. What we call “good government” is really rule of law. Government and law are opposites.

Student:
Government can help by:
1) Protecting liberty and staying as small as possible. National defense is, in my opinion debatable, local militias would be safer.
2) Government can provide marginal services to the poor. Replace government with charities and I will agree somewhat, mostly because the exchanges will be voluntary and will entail different incentive structures.
3) I don’t know much about the r&d stuff, but I doubt government structured incentives could do better than profits to create new things that other people will want.

The real problem with New Deal, etc. was that it got Americans looking toward the government for assistance rather than each other. Watch some Frank Capra movies from before WWII to get an idea how Americans felt about the government. The original Mr. Deeds is especially good. They didn’t trust government. They didn’t want to get involved in an international war. They didn’t want their currency debased. And they knew what they were talking about.

For a new question: Do charities do any good? What’s the evidence?
 
I think the subsidies to research and development may be problematic. How do we truely define the optimal quantity of some sort of lifesaving discoveries?

Additionally, as you (Student) pointed out before, the assistance to just the poor might be the best approach. I sometimes wonder why we continue to expand these programs "for the poor" to include the whole population. Is it just vote buying?
 
Yah, R&D subsidies are very problematic. And sometimes I wonder whether some of them don't amount to corporate welfare.

But then again, we also face the same problem for most government corrections for market failures. Like national defense. How much is too much? How much is not enough?

And when we introduce political philosophy the problem gets worse. Does the government ahve the right to use tax money for R&D and subsidies or national defense?

After thinking these things over, I understand why many politicans drink to excess.
 
What is poverty? How do you know if you're impoverished? Is there a concrete definition of poverty, and if so, is it relative to others' living standards or absolute?

http://austrianeconomists.typepad.com/weblog/2006/04/poverty_in_amer.html
 
I am not aware of any concrete definition of poverty. I think it is mostly just country specific or just compared to the rich capitalist pigs of America
 
Poverty: Destitution of spirit. Devoid of hope. Fatalistic in vision. Without aspiration. See: "The Least of These"

Nathan
 
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