Archive for poverty

Sweatshops: A Way Out of Poverty

6696Benjamin Powell writes in today’s Mises Daily: 

Sweatshops in the third world today benefit the workers who toil in them and aid in the process of capital accumulation that leads to higher living standards in much the same way that factories in Great Britain and the United States did during the Industrial Revolution.

I found 83 cases of supposedly exploitative sweatshop wages reported in popular press sources and compared those earnings to the living standards in the countries where they were found. In every country where the sweatshops were located, more than 10 percent of the population lived on less than $2 per day. In more than half of the countries, more than 40 percent did. Yet, in 77 of the 83 cases, the sweatshop wages exceeded the $2 a day threshold.

President Obama on Inequality: Rhetoric vs. Reality

0d6092f08b456ce7b551d2dc0739960fPresident Obama has recently promoted inequality as a fundamental threat to our way of life, saying, “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.”  You can read the rhetoric here.  Let’s look at the reality.

The president suggested policy initiatives to address these issues, so presumably, the president’s policies can make a difference.  What has he done so far?

He has presided over corporate bailouts, not only declaring the Wall Street banks too big to fail, while a multitude of small businesses did fail, his policies continue to support the banking industry through low interest rates and the payment of interest on reserves held at the Fed. Banks holding bad mortgages were bailed out while individual homeowners were evicted from their homes.

While the president does not directly determine Fed policy, Bernanke was all-in on the president’s agenda, and now the president has appointed Janet Yellen as Fed chair because she supports a continuation of those policies.

The low interest rate policy has hurt small savers, who tend to keep their savings in fixed-interest assets, but has propped up the stock market where the wealthier tend to invest.

The president’s support for extended unemployment benefits has taken away some of the incentive for people to find work, which is the best way to escape poverty.

After campaigning against them, the president worked hard to preserve the “Bush tax cuts,” with ultimately just a small increase in rates for the highest-income individuals.

Then there is Obamacare, which provides financial incentives for employers to convert full-time jobs to part-time jobs to avoid the health insurance penalties, further eroding opportunities for those at the bottom of the income scale.

What has been the effect of the president’s economic policies?  The unemployment rate remains high, at 6.7%, and long-term unemployment has spiked to its highest level in history, largely because of the extended unemployment benefits. The labor force participation rate has fallen from 66% in 2008 to below 63% today, so fewer people are even looking for the jobs that could help them escape poverty.

In 2008 13.2% of Americans fell below the official poverty line.  By 2012 the poverty rate was 15%.  The president’s policies have increased poverty.

How about the rich?  The Dow Jones Industrial Average, which hovered around 8,000 when the president took office in 2009 has more than doubled to top 16,000 today.

Despite the rhetoric, the reality is that the president’s policies have created more inequality.  They have hurt the poor, but Wall Street has done well.

How the Early Capitalists Saved Europe From Starvation

Wojciech_Gerson_-_Gdańsk_in_the_XVII_century[A selection from Economic Policy: Thoughts for Today and Tomorrow]

by Ludwig von Mises

Two hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life; he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich-a lord or a duke-he kept his dukedom and the property that went with it for the rest of his life.

As for manufacturing, the primitive processing industries of those days existed almost exclusively for the benefit of the wealthy. Most of the people (ninety percent or more of the European population) worked the land and did not come in contact with the city-oriented processing industries. This rigid system of feudal society prevailed in the most developed areas of Europe for many hundreds of years.

However, as the rural population expanded, there developed a surplus of people on the land. For this surplus of population without inherited land or estates, there was not enough to do, nor was it possible for them to work in the processing industries; the kings of the cities denied them access. The numbers of these “outcasts” continued to grow, and still no one knew what to do with them. They were, in the full sense of the word, “proletarians,” outcasts whom the government could only put into the workhouse or the poorhouse. In some sections of Europe, especially in the Netherlands and in England, they became so numerous that, by the eighteenth century, they were a real menace to the preservation of the prevailing social system.

Today, in discussing similar conditions in places like India or other developing countries, we must not forget that, in eighteenth-century England, conditions were much worse. At that time, England had a population of six or seven million people, but of those six or seven million people, more than one million, probably two million, were simply poor outcasts for whom the existing social system made no provision. What to do with these outcasts was one of the great problems of eighteenth-century England.

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50th Anniversary of Federal Government’s Failed War on Poverty

Credit: expertinfantry

Mitt Romney said during the 2012 presidential campaign: “I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it.”

Can there really be any doubt that it needs fixing?

Don’t expect the government to provide any reliable numbers. The biggest federal poverty program, the Earned Income Tax Credit (EITC) pays 27 million taxpayers $60 billion in cash. But like Section 8 housing vouchers and Medicaid, EITC payments are excluded when the government totes up who is poor and who is not.

It is obvious that the ranks of the poor swelled during and after the Crash of 2008. Average income fell during the Crash and has since fallen more. Paul Krugman is right to call it a “rich man’s recovery.”

Both the poor and the middle class are still in recession. Indeed if unemployment figures were calculated using the same methodology used in the 1930’s, public officials could no longer deny that we are in an ongoing depression.

But for believable numbers about who is poor and who is not, don’t look to the government.

The government is also confusing, it would seem intentionally confusing, about how much it spends in total on the poor. A Senate subcommittee struggled to estimate total spending on the poor and came up with a number of $61,194 per impoverished household per year.

This number is misleading because it includes people who are not necessarily poor, such as students using federal Pell grants for their education, but is still almost three times the federally defined poverty threshold for a family of four. If we take medical spending out, it is still twice the poverty threshold.

Since all this money is clearly not going to the poor, where is it going? A lot of it is presumably supporting well paid federal workers, or indirectly state and local workers, all of whom are in turn protected by powerful public unions, in yet another example of a crony capitalist government at work.

If we take all federal transfer payments, not just those specifically earmarked for poverty programs, only 36% of the money is reaching the bottom 20% of households by income and even less is reaching the truly poor. And even these figures do not count all the federal subsidies for corporations or the rich.

Almost all the numbers we get from the federal government are either poorly designed, or are well designed to confuse and hide the truth about what is going on. Even as the president rails against economic inequality, he is using figures that are inherently bogus.

It’s not that we don’t have economic inequality as well as poverty. We do. And common sense tells us that it is getting worse, in large part because of the president’s policies and those of the Federal Reserve. But it would help to have believable, not intentionally misleading numbers.

Looking behind all the smokescreens, one thing is obvious about all federal poverty programs. They not only create disincentives to work. They actually tax work at horrific rates.

As economist Thomas Sowell has explained: “ Someone who is trying to climb out of poverty by working their way up can easily reach a point where a $10,000 increase [ in pay] can cost them $15,000 in lost benefits they no longer qualify for. That amounts to a marginal tax rate of 150 percent—far more than millionaires pay.”


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Block, the Austrians, and the Catholics

Concilio_Trento_Museo_BuonconsiglioNormally, I wouldn’t bother examining an article like this, but the author of the piece tries to score some points using Walter Block and the Austrian School as examples, so I’ve commented. My remarks in brackets:

ANALYSIS: Are free-market Catholics ignoring Pope Francis?

(RNS) On one level, the recent clash over Catholic University of America’s decision to accept $1 million from billionaire industrialist Charles Koch underscored the stark divide many see between Catholic social teaching and the libertarian-tinged economics championed by Koch and other conservatives. [Basically, this article is founded on the proposition that capitalism is the philosophy of modern Robber Barons as the repeated references to Koch make clear.]

But the controversy also pointed to another, counterintuitive reality: vocal free-market advocates are gaining traction in the Catholic Church, [that's debatable] even as Pope Francis repeatedly condemns a capitalist system [unfortunately, Pope Francis is greatly confused about what capitalism even is, as explained here, and here.] that he says is hurting the poor and increasing the gap between the haves and have-nots.

In the political world, House Budget Committee Chairman Paul Ryan, R-Wis., is both a practicing Catholic and a devotee of the libertarian icon Ayn Rand [First of all, Paul Ryan, advocate of multiple tax increases, bailouts, and other huge-government programs is hardly a "devotee" of Ayn Rand. Ryan may say so to score points with gullible libertarians, but that hardly proves Ryan's bona fides. Secondly, given the nature of Rand's philosophy, it's impossible to be both a practicing Catholic and a Randian, and one wonders if the author of this piece even understands that. Thirdly, Rand condemned libertarians and libertarianism.] — as well as the face of GOP proposals for cutting welfare programs and taxes that have drawn fire from U.S. bishops and other church leaders.

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In Trusting Politics and Politicians, It Is the Pope Who Is Naïve

6618Gary Galles writes in today’s Mises Daily:

When the rich get richer by rigging the political process, that is objectionable, but it is not amarket failure. It is a government failure, imposed by undermining the benefits competitive markets provide for all participants. And the solution is to get the government out of the theft business (as capitalism would require), not to first enable favorites to garner ill-gotten gains from restricting competition, then use government’s abuses as an excuse to more heavily tax (and thus discourage) those who actually benefit others.

It is true that the crony capitalism we see all around us, which is far closer to fascism than capitalism, is unjust. Pope Francis is right to criticize such injustice. But private property, the basis of capitalism, prevents rather than enables the “dog eat dog” “survival of the fittest” competition that capitalism’s attackers accuse it of.

In contrast, private property prevents the physical invasion of a person’s life, their liberty, or their property without their consent. By preventing such invasions, private property is an irreplaceable defense against aggression by the strong against the weak. No one is allowed to be a predator by violating others’ rights. Property rights negate the rule of “might makes right,” which prevails in the absence of such rights. In Herbert Spencer’s words, “far from being, as some have alleged, an advocacy of the claims of the strong against the weak, [it] is much more an insistence that the weak shall be guarded against the strong.”

Pope Francis, Income Inequality, Poverty, and Capitalism

Guest Post:  Pope Francis, Income Equality, Poverty, and Capitalism  

By Nicolás Cachanosky

The criticisms of free markets in Pope Francis’s Apostolic Exhortation Evangelii Gaudium (“The Joy of the Gospel”) have generated strong reactions around the world. One example is a recent post by Gregory Mankiw on his blog with brief but interesting reflections. Special attention was paid to the passage where the document criticizes the “trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.” (p. 46).

First we must recognize that there may be possible semantic nuances that can lead to inaccurate interpretations because Evangelii Gaudiium is not an economic document and, certainly, the “prevailing economic system” is not exactly a blueprint for free market economies. However, the criticism of free markets is clear and presents a difficult challenge to suggest that the document does not refer, indeed, to free markets after arguing for “semantic nuances.” Secondly, I agree with Mankiw that “trickle-down” is not a technical term, much less a theory, and is a derogatory word used by the left and other groups critical of free markets. By using this phrase, the Pope inserts a negative bias against the free market; a neutral term would been a better choice of words. The terminological slip on economic issues in the document (an example of many) suggests the need for caution regarding the strong claims that the document puts forward on economic issues. Categorical statements in a document of this importance should be better supported and articulated. Imagine an economic document critical of the Church with a clear superficial use of the language of the discipline being criticized accompanied by adjectives such as “crude and naive.” Using imprecise definitions can make us see non-existent problems. Third, the effect produced by the Evangelii Gaudium on public opinion invites us to review some general indicators of social and economic welfare in countries that are more and less inclined to free markets. Is it true that the free market leaves the homeless and marginalized the less wealthy? How much truth and how much myth is in the so-widespread criticism of “evil capitalism”? What Pope Francis expresses is ultimately a reflection of a widespread belief across a number of sectors in most countries around the world.

It is easy to get an overview of the economic and social situation of more and less free market countries if we group them into four categories according to their economic freedom. This allows a gradient of results and to observe differences between more and less free countries. It is important to note that the data of all countries must be observed, and not chosen, for example, from only a few (more details here). This would allow both an advocate and a critic of free market to choose a couple of countries at their convenience. Is the entire sample, not ad hoc selection, what should be used as reference. Let us consider, then, some economic and social data from countries around the world according to their economic freedom.

The following graphs show the GDP per capita (PPP) [i.e. adjusted for cost of living] and the average 10-year growth rate for four groups of countries according to their economic freedom. As the graphs show, on average, the freest countries are not only richer, but also grow faster in the long run.



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