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Archive for the ‘Poverty’ Category

Back in 2013, I talked to the BBC about Pope Francis and his bizarre hostility to free enterprise.

Sadly, it doesn’t appear that the Pope took my advice (though I think it’s amusing that at least someone in the Vatican is paying attention).

There’s a wealth of evidence that markets are the best way of helping the poor. But the Pope wants more government.

Moreover, there’s also plenty of data showing that higher tax rates and more spending hurt the poor. Yet the Pope wants more government.

And there’s lots of research on capitalism and upward mobility for the less fortunate. Nonetheless, the Pope wants more government.

For instance, he’s once again advertising his ignorance about economics, development, and fiscal policy.

Pope Francis blasted the practice of tax cuts for the rich as part of a “structure of sin” and lamented the fact that “billions of dollars” end up in “tax haven accounts” instead of funding “healthcare and education.” Speaking at the seminar set up by the Pontifical Academy for Social Sciences  the Pope criticized “the richest people” for receiving “repeated tax cuts” in the name of “investment and development.” These “tax haven accounts” impede “the possibility of the dignified and sustained development of all social agents,” claims the Pope.  He added that “the poor increase around us” as poverty is rising around the world. This poverty can be ended if the wealthiest gave more.

Wow. Sounds more like Bernie Sanders or Alexandria Ocasio-Cortez rather than a religious leader.

Libertarian Jesus must be very disappointed.

In an attempt to add some rigorous analysis to the discussion, Professors Antony Davies and James Harrigan wrote a column for the Foundation for Economic Education on capitalism and its role in global poverty reduction.

Galileo ran afoul of the Inquisition in 1633 when he was found “vehemently suspect of heresy.” …One might think that being this profoundly wrong about something well outside the realm of theology would cause the magisterium, and the pope specifically, to tread very carefully even 386 years later. But one would be wrong. Because here comes Pope Francis yet again, offering economic opinions from the bulliest of pulpits about something he understands no better than a garden-variety college freshman. …According to the pontiff, “the logic of the market” keeps people hungry. But “the market” has no logic. The market isn’t a thing, let alone a sentient thing. “The market” is the sum total of individual interactions among billions of people. …Whenever a trade occurs, both sides are better off for having made it. We know this because if they weren’t, the trade wouldn’t occur. …Not surprisingly to anyone but perhaps Pope Francis, some of the first financial speculation in which humans ever engaged involved food. Financial speculation and its more evolved cousins, options and futures contracts, evolved precisely as a means to fight hunger. …speculators took some of the risk of price fluctuations off the backs of farmers, and this made it possible for farmers to plant more food.

Davies and Harrigan inject some hard data into the debate.

If these arguments are too esoteric for Francis, there is also overwhelming evidence. Economic freedom measures the degree to which a country’s government permits and supports the very sorts of markets against which Francis rails. …If we list societies according to their economic freedom, the same pattern emerges again and again and again. Whether comparing countries, states, or cities, societies that are more economically free exhibit better social and economic outcomes than those that are less economically free. …even Francis should be able to see it quite clearly from his Vatican perch. …Extreme poverty rates for the half of countries that are less economically free are around seven times the extreme poverty rates for the half of countries that are more economically free.

Here’s one of the charts from their column.

As you can see, the state-controlled economies on the left have much higher levels of poverty than the market-driven economies on the right.

They also share some economic history.

…if the world around Francis doesn’t provide enough compelling evidence, the world prior to Francis certainly does. At the turn of the 18th century, around 95 percent of humans lived in extreme poverty. That was at the advent of the Industrial Revolution and of capitalism. …the extreme poverty rate fell from 95 percent to below ten percent. With the flourishing of capitalism, the extreme poverty rate fell tenfold at the same time that the number of humans grew tenfold.

Amen. Videos by Deirdre McCloskey and by Don Boudreaux confirm how the world went from near-universal poverty to mass prosperity (at least in the nations that embraced free markets and the rule of law).

By contrast, there’s not a single example of a nation that became rich and reduced poverty with big government.

P.S. Mauritius is a good test case of why Pope Francis is wrong. Very wrong.

P.P.S. To learn more about why Pope Francis is off base, I also recommend the wise words of Thomas Sowell and Walter Williams.

P.P.P.S. To be fair, there was plenty of bad economics in the Vatican before Francis became Pope. And also some sound thinking.

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I periodically see tweets that deserve attention because they reveal something very important, usually in a clever and succinct fashion.

Today, let’s add to this collection.

I’ve argued, over and over again, that the best way to help the poor is to focus on policies designed to boost growth rather than policies designed to reduce inequality.

Simply stated, the former approach is a recipe for making everyone more prosperous, while the latter approach means everyone fights for bigger slices of a shrinking pie.

When making this argument, I sometimes ask people whether they would rather be a poor person in Hong Kong or France? There’s no welfare state in the former, but lots of opportunity, whereas France has plenty of handouts but not much hope for upward mobility.

But no matter how often I’ve tried to analyze and explain why we shouldn’t fixate on inequality, I’ve never come close to cramming this much insight into such a concise observation.

Kudos to @Jon_StewartMill. In just ten words, he captures the key insight that I’ve tried to get across in several dozen columns.

I’ll close with some speculation about why some people fixate on inequality. What makes them focus on trying to drag down the rich instead of finding ways to build up the poor?

I’m not sure, though there is polling data to suggest that some people really are motivated by envy and resentment of success.

But I suspect that politicians who play the class-warfare card simply think it’s a way of maximizing votes.

Even worse than the politicians are the “poverty hucksters” who deliberately lie about poverty in hopes of advancing a redistributionist agenda.

P.S. The most powerful numbers on why growth matters more than inequality come from China.

P.P.S. The most reprehensible effort to reduce inequality (by making everyone poorer) came from the IMF.

P.P.P.S. The most accurate political analysis of inequality came from Margaret Thatcher.

P.P.P.P.S. The best satire on the issue of inequality can be found in this “modest proposal.”

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By every possible measure, Chile is the most successful country in Latin America.

Income has soared and poverty has plummeted thanks to market-based reforms.

It’s not perfect, of course. The nation’s economic freedom score – 7.89 on a 0-10 scale – is good enough for a #13 ranking, but there’s still room for improvement.

But there’s also plenty of room for economic decline, and that might be the unfortunate outcome if politicians respond in a misguided way to recent protests.

Especially if they take advice from the wrong sources. For instance, the New York Times opined yesterday about the supposed shortcomings of the Chilean model.

Chile is often praised as a capitalist oasis, a prospering and stable nation on a continent where both prosperity and stability have been in short supply. But that prosperity has accumulated mostly in the hands of a lucky few. As a result, Chile has one of the highest levels of economic inequality in the developed world. …Chileans live in a society of extraordinary economic disparities. …What makes Chile an outlier among those 36 nations is that the government does less than nearly any other developed nation to reduce economic inequality through taxes and transfers. As a result, Chile has the highest level of post-tax income inequality among O.E.C.D. members. …Even after increases in recent years, the Chilean government still spends a smaller share of total economic output than every other nation in the O.E.C.D. The obvious path for Chile is for the government to spend more money.

As is sometimes the case with the New York Times, parts of the editorial are downright false. Income in Chile has jumped significantly for all quintiles, not just a “lucky few.”

And even the parts that are technically accurate are very misleading.

Notice, for instance, what the NYT is doing with inequality numbers. It is comparing Chile with rich nations, mostly from Europe.

But what happens if Chile is compared to other countries from Latin America.

That tells an entirely different story, as you can see from this poverty map (dark red is bad, light yellow is good) produced by the Center for Distributive, Labor, and Social Studies in Argentina.

All of a sudden, Chile looks very good.

Even if you use U.N. numbers that rely on the left’s misleading definition of poverty (i.e., based on relative income), Chile is a success story compared to other nations in the region.

It’s especially important to understand that Chile is getting good results for the right reason.

Poverty is falling because of the private economy rather than coercive redistribution. Here are some excerpts from a recent U.N. release.

In an analysis of the countries with the greatest reductions in poverty in the 2012-2017 period, in Chile, El Salvador and the Dominican Republic, the increase in income from wages in lower-income households was the source that contributed the most to that reduction, while in Costa Rica, Panama and Uruguay, the main factor was pensions and transfers received by lower-income households.

Sadly, some people in Chile don’t have the fortitude to build on the market reforms that have boosted national prosperity.

Indeed, it appears there will be backsliding according to the aforementioned New York Times editorial

Sebastián Piñera, the billionaire elected president in 2017, …proposed a slate of reforms, including an increase in the top income tax rate, an increase in retirement benefits, and a guaranteed minimum monthly income. …Andrónico Luksic Craig, chairman of Quiñenco, a financial and industrial conglomerate, wrote on Saturday on Twitter that he was ready to pay higher taxes.

I’m disappointed but never surprised when politicians unravel progress.

But it’s always discouraging when guilt-ridden rich people embrace statist policies (sounds familiar, huh?).

For the sake of the Chilean people, let’s hope this is empty rhetoric.

P.S. Since we’re on the topic of Chile, here are some excerpts from the abstract of a study in the Journal of Development Economics that estimated the heavy economic cost of the nation’s detour to socialism in the 1970s.

…we look at share prices in the Santiago exchange during the tumultuous political events that characterized Chile in the early 1970s. …deploying previously unused daily data and exploiting two largely unexpected shocks which involved substantial variation in policies and institutions, providing a rare natural experiment. Allende’s election and subsequent socialist experiment decreased share values, while the military coup and dictatorship that replaced him boosted them, in both cases by magnitudes unprecedented in the literature. The most parsimonious interpretation of these share price changes is that they reflected, respectively, the perceived threat to private ownership of the means of production under a socialist government, and its subsequent reversal.

By the way, this in no way should be interpreted as support for the Pinochet dictatorship.

But what it does say is that dictatorships that allow economic freedom produce much better results than dictatorships impose totalitarian economic policies in addition to totalitarian political policies.

Which is basically the point Milton Friedman made when asked about his connection to Chile.

For what it’s worth, Pinochet eventually allowed a transition to democracy, which somewhat atones for his sins.

P.S. To be fair, the NYT editorial was merely misguided, which is better than the wild inaccuracy that has characterized some analyses.

P.P.S. If you want to learn about Chile’s reforms, here are columns about the private social security system and the national school choice system. And this World Bank comparison of Chile and Venezuela is very instructive as well.

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I’ve created a new page to showcase various “Poverty Hucksters.”

These are people and institutions that use data about income distribution to mislead and lie about the prevalence of poverty in the United States.

This rogue’s gallery includes:

What is their dodgy tactic? Here’s how I described the methodology in 2018.

…the bureaucrats…have put together a measure of income distribution and decided that “relative poverty” exists for anyone who has less than 50 percent of the median level of disposable income.

More recently, I explained why this approach is senseless, at least if one wants to measure actual poverty

…an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty. Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same. Or a country could execute all the rich people and the alleged rate of poverty would decline.

Now we have a new member of this ill-begotten group of hucksters.

Here’s an excerpt from an article in the latest issue of the Economist.

…international comparisons…make…America a true outlier. When assessed on poverty relative to other countries (the share of families making less than 50% of the national median income after taxes and transfers), America is among the worst-performing in the OECD club of mostly rich countries (see chart). Despite its higher level of income, that is not because it starts with a very large share of poor people before supports kick in—it is just that the safety net does not do as much work as elsewhere. On this relative-poverty scale, more than a fifth of American children remain poor after government benefits, compared with 3.6% of Finnish children.

And here’s the accompanying chart.

Needless to say, any chart that purports to show less poverty in Mexico than the United States is laughably inaccurate.

But that’s the kind of perverse outcome that is generated when using a ridiculously dishonest approach.

I suppose the Economist deserves a bit of credit. In both the article and in the chart, they acknowledge (at least for careful readers) that they’re measuring the share of the population with less than 50 percent of a society’s median income, not the share of people living in poverty.

So why, then, do they refer to the “poverty rate”?

I have no idea if the reporter is dishonest or incompetent, but I can say with certainty that the Economist has done a disservice to readers.

P.S. The Economist relied on dodgy data from the Organization for Economic Cooperation and Development. And if you read the columns about the other Poverty Hucksters, you’ll find that most of them also relied on numbers from that left-leaning, Paris-based bureaucracy. Yet another example of why the OECD is the worst international bureaucracy, at least on a per-dollar-spent basis.

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I first opined about Pope Francis in 2013, when I told a BBC audience why the Pope was wrong on economic policy.

The following year, I expanded on that point, explaining that statist policies are bad for the poor. And I revisited the issue again last year.

I’m not the only one making these arguments. In a column for Reason, Stephanie Slade explained why Pope Francis is deeply misguided.

I’ve had some harsh words to describe Pope Francis. …the pontiff’s ignorance of basic economics has led him to a bad conclusion about which public policies are best able to reduce the crushing yoke of poverty in the world. …as a matter of empirical fact, markets are the single greatest engine for growth and enrichment that humanity has yet stumbled upon. …He seems to be arguing that an outlook that places the individual above “the common good” is morally suspect. …his statements betray a shallowness in his understanding of the philosophy he’s impugning. If he took the time to really engage with our ideas, he might be surprised by what he learned. …what Pope Francis calls an “antisocial” paradigm…is better known by another name: the liberty movement, a cooperative and sometimes even rather social endeavor among people who cherish peaceful, voluntary human interactions.

Sadly, there’s zero evidence that Pope Francis has learned any economics since taking up residence in the Vatican.

For instance, he just visited Mauritius, a small island nation to the east of Madagascar.

His economic advice, as reported by Yahoo, was extremely primitive.

Pope Francis on Monday urged Mauritius, a prosperous magnet for tourists and a global tax haven, to shun an “idolatrous economic model” that excludes the youth and the poor… While the island is a beacon of stability and relative prosperity, Pope Francis honed in on the struggles of the youth… “It is a hard thing to say, but, despite the economic growth your country has known in recent decades, it is the young who are suffering the most. They suffer from unemployment, which not only creates uncertainty about the future, but also prevents them from believing that they play a significant part in your shared history,” said the pope. …Since independence in 1968, Mauritius has developed from a poor, agriculture-based economy, to one of Africa’s wealthiest nations and financial services hub. …General unemployment is low compared to the rest of the continent at 6.9 percent in 2018 according to the World Bank…

I’m glad the article acknowledges that Mauritius has been economically successful.

Though I’m frustrated by the failure to explain why.

So I’ll redress that error of omission by showing that Mauritius dramatically expanded economic liberty in the 1980s and 1990s. The nation’s absolute score jumped from 5.11 in 1980 to 8.07 in the most-recent estimates from Economic Freedom of the World.

It’s done such a good job that Mauritius is now ranked as the world’s 9th-freest economy.

So what has greater economic liberty produced?

More national prosperity.

A lot more. Based on the Maddison data, you can see that living standards (as measured by per-capita GDP) have tripled over the past three-plus decades.

I confess that I’ve never been to Mauritius.

So maybe it’s possible that the country is filled with “idolotrous” folks who think of nothing but money.

But I’m guessing that people in Mauritius are just like the rest of us. But with one key difference in that they’ve been following the recipe for growth and prosperity.

Too bad Pope Francis instead believes in the Peronist model that has wreaked so much havoc in Argentina.

P.S. The Pope should read Stephanie Slade’s column. Walter Williams and Thomas Sowell also should be on his list.

P.P.S. Methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

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I religiously read just about everything from Thomas Sowell, John Stossel, Walter Williams, Tim Carney, and other libertarian-minded experts

But I also make a point to regularly read non-libertarians such as Desmond Lachman, Will Wilkinson, Dalibor Rohac, and Noah Smith even though I sometimes – or even often – disagree with their policy prescriptions.

What matters is that they generally have intelligent and thoughtful observations on issues that I care about.

But they’re not necessarily accurate. For instance, Noah Smith recently wrote an interesting column for Bloomberg about whether people are poor because of their own behavior or because of external factors.

Here are the passages that caught my attention.

…there is at least one rich country where people…work hard, avoid risky, self-destructive behavior and make wise life choices. That country is Japan. And it still has plenty of poverty. …Given all of this good behavior, conservatives might expect that Japan’s poverty rate would be very low. But the opposite is true; Japan has a relatively high number of poor people for an advanced country. Defined by the percentage of the population earning less than half of the median national income, Japan’s poverty rate is more than 15% — a little lower than the U.S., but considerably higher than countries such as Germany, Canada or Australia… This suggests that there is something very wrong with the conservative theory of poverty.

Fortunately, I don’t need to explain what’s wrong with Smith’s analysis.

Writing for National Review, Kevin Williamson has already pointed out his errors.

Smith here relies on a useless measure of “relative” poverty, the share of the population earning less than half of the median income. You can see the limitations of that approach: A uniformly poor society in which 99 percent of the people live on 50 cents a day and 1 percent live on 49 cents a day would have a poverty rate of 0.00; a rich society with incomes that are rising across-the-board but are rising much more quickly for the top two-thirds would have a rising poverty rate… It would be far better to consider poverty in absolute terms, but our progressive friends are strangely resistant to that.

It is indeed strange that so many folks on the left have decided to use an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty.

Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same.

Or a country could execute all the rich people and the alleged rate of poverty would decline.

No wonder the practitioners of this approach often produce absurd data, such as the OECD’s assertion that there’s more poverty in the United States than in basket case economies such as Greece and Italy.

Shame on Noah Smith. He should know better.

I’ll continue to read his work, so he’s not being kicked out of my club of non-libertarian writers.

But I will add him to list of people and groups who are guilty of peddling fake poverty data. These “poverty hucksters” include the OECD, of course, and also the United Nations, the New York Times, the Equal Welfare Association, Germany’s Institute of Labor Economics, the Obama Administration, and the European Commission.

P.S. A “poverty pimp,” by contrast, is someone who personally profits from administering the welfare state.

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I’m doing my third field trip to the United Nations.

In 2012, I spoke at a conference that was grandiosely entitled, “The High Level Thematic Debate on the State of the World Economy.” I was a relatively lonely voice trying to explain that a bigger burden of government would hinder rather than promote economic development.

In 2017, I was a credentialed observer to the 14th Session of the Committee of Experts on International Cooperation in Tax Matters, as well as the Special Meeting of ECOSOC on International Cooperation in Tax Matters. I somehow survived having to spend several days listening to government officials wax poetic about various schemes to extract more money from the productive sector of the economy.

This year, I”m at the U.N. participating in the 17th International Forum of the Convention of Independent Financial Advisors. My panel focused on taxation and the U.N.’s Sustainable Development Goals.

Here are the goals, which presumably are widely desirable.

The controversial part is how to achieve these goals.

Many of the folks at the U.N. assert that governments need more money. A lot more money.

A new Fund to support UN activities that will help countries achieve the Sustainable Development Goals was launched today by UN Deputy-Secretary-General Amina Mohammed at a ministerial meeting to review financing for sustainable development. …Ms. Mohammed said the new Fund will “provide some muscle” to help UN country teams support countries’ efforts and priorities to achieve the 2030 Agenda – the global agenda that sets out 17 goals to promote prosperity and improve people’s well-being while protecting the environment. “It will help us hit the ground running and to pick up the pace,” for financing the Goals, she said, cautioning that it was still only part of the estimated $300 trillion that will be needed.

Needless to say, $300 trillion is a lot of money. Even when spread out between now and 2030.

To put that number in perspective, the annual GDP (economic output) of the United States is about $20 trillion.

My concern, whether the number is $300 or $300 trillion, is that folks at the United Nations have a very government-centric view of development.

Which is why I tried to explain that the only successful recipe for progress is free markets and small government.

Take a look at this list of the top-25 jurisdictions as ranked by the United Nations.

And what do these places have in common?

They generally became rich when government was a very minor burden.

This means the 1800s and early 1900s for nations in North America and Western Europe.

And it means the post-World War II era for some of the Pacific Rim jurisdictions.

I concluded with my challenge, asking participants to identify a single nation – anywhere in the world at any point in history – that became rich with big government and high taxes.

The answer is none. Zero. Zilch. Nada.

The bottom line is that many people at the U.N. have a sincere desire to help the world’s less-fortunate people. But they need to put facts and empirical data above statist ideology.

P.S. Maybe the U.N. doesn’t do the right thing about fighting poverty because it has some people who are very dishonest about the topic?

P.P.S. I don’t know whether to classify this as absurd or dishonest, but Jeffrey Sachs actually claimed that Cuba ranks about the United States in meeting the Sustainable Development Goals.

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