Tuesday, April 26, 2011

Poverty Is Easy to Explain

Great article on the relationship of poverty to the degree of government intervention. Anyone with a bit of intelligence knows our country cannot maintain its collective standard of living when more than half of its people are supported by the government. Of course, a portion of that 50% are people like myself that are receiving Social Security, the government "pension plan" that we, and our employers, paid into for many years. Of course as soon as the money reached the government coffers it was replaced by an IOU and spent by the politicians in what is the biggest PONZI Scheme in the history of the world.

As a great President once said, "Government is not the solution to our problem, government IS the problem"

Academics, politicians, clerics, and others always seem perplexed by the question: Why is there poverty? Answers usually range from exploitation and greed to slavery, colonialism, and other forms of immoral behavior. Poverty is seen as something to be explained with complicated analysis, conspiracy doctrines, and incantations. This vision of poverty is part of the problem in coming to grips with it.

There is very little either complicated or interesting about poverty. Poverty has been man’s condition throughout his history. The causes of poverty are quite simple and straightforward. Generally, individual people or entire nations are poor for one or more of the following reasons: (1) they cannot produce many things highly valued by others; (2) they can produce things valued by others but they are prevented from doing so; or (3) they volunteer to be poor.

We do not know fully what makes some societies richer than others. However, we can make guesses based on correlations. Start out by ranking countries according to their economic systems. Conceptually we could arrange them from more capitalistic (having a larger free-market sector) to more communistic (with extensive State intervention and planning). Then consult Amnesty International’s ranking of countries according to human-rights abuses. Then get World Bank income statistics and rank countries from highest to lowest per capita income.

Compiling the three lists, one would observe a very strong, though imperfect, correlation: Those countries with greater economic liberty tend also to have stronger protections of human rights. And their people are wealthier.

To a significant degree the wealth of nations is embodied in their people. The starkest example of this is the experience of the Germans and Japanese after World War II. During the war, Allied bombing missions destroyed nearly the entire physical stock of each country. What was not destroyed was the human capital of the people: their skills and education. In two or three decades, both countries reemerged as formidable economic forces. The Marshall Plan and other U.S. subsidies to Europe and Japan cannot begin to explain their recovery.

Proper identification of the causes of poverty is critical. If it is seen, as is too often the case, as a result of exploitation, the policy recommendation that naturally emerges is income redistribution—that is, government confiscation of some people’s “ill-gotten” gains and “restoration” to their “rightful” owners. This is the politics of envy: bigger and bigger welfare programs domestically and bigger and bigger foreign-aid programs internationally.

If poverty is correctly seen as a result of the unwise government intervention and lack of productive capacity, more effective policy recommendations emerge.

Read full Walter Williams article here.

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