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Posts Tagged ‘Poverty’

Regular readers know that I give Trump mixed grades on economic policy.

He gets good marks on issues such as taxes and regulation, but bad marks in other areas, most notably spending and trade.

Which is why I’ve sometimes asserted that there has been only a small improvement in the economy’s performance under Trump compared to Obama.

But I may have to revisit that viewpoint. The Census Bureau released its annual report yesterday on Income and Poverty in the United States. The numbers for 2019 were spectacularly good, with the White House taking a big victory lap.

Here are the three charts that merit special attention.

First, we have the numbers on inflation-adjusted median household income. You can see big jumps for all demographic groups.

Next, here’s a look at whether Americans are getting richer or poorer over time.

As you can from this chart, an ever-larger share are earning high incomes (a point I made last month, but this new data is even better).

Last but not least, here’s the data on the poverty rate.

Once again, remarkably good numbers, with all demographic groups enjoying big improvements.

We’ll see some bad news, of course, when the 2020 data is released at this point next year. But that’s the result of coronavirus.

So let’s focus on whether Trump deserves credit for 2019, especially since I got several emails yesterday from Trump supporters asking whether I’m willing to reassess my views on his policies.

At the risk of sounding petulant, my answer is no. I don’t care how good the data looks in any particular year. Excessive government spending is never a good idea, and it’s also never a good idea to throw sand in the gears of global trade.

But perhaps we should rethink whether the positive effects of some policies are stronger and more immediate while the negative effects of other policies are weaker and more gradual.

I’ll close with two cautionary notes about “sugar high” economics.

For what it’s worth, we’re not going to resolve this debate because coronavirus has been a huge, exogenous economic shock.

Though if (or when) the United States ever gets to a tipping point of too much debt, there may be some retroactive regret that Trump (along with Obama and Bush) viewed the federal budget as a party fund.

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Back in 2017, I shared this video explaining why capitalism is unquestionably the best way to help poor people.

I’m recycling the video today because it’s a great introduction for a discussion about how best to help poor people.

As part of my Eighth Theorem of Government, I made the point that it’s wrong to fixate on inequality. Instead, the goal should be poverty reduction.

And the best way to help the poor, as I noted when criticizing Pope Francis’ support for statism in a BBC interview, is free markets and limited government.

Now we have additional evidence for this approach thanks to a new study from the Hoover Institution.

Authored by Ed Lazear, former Chairman of the Council of Economic Advisors, it uses hard data from Economic Freedom of the World and the Index of Economic Freedom to see how poor people do in capitalist nations compared to socialist nations.

If you’re pressed for time, here are the key passages from the introduction.

This study analyzes income data from 162 countries over multiple decades, coupled with measures of economic freedom, size of government, and transfers to determine how various parts of society fare under capitalism and socialism. The main conclusion is that the poor, defined as having income in the lowest 10 percent of a country’s income distribution, do significantly better in economies with free markets, competition, and low state ownership. More impressive is that moving from a heavy emphasis on government to a free market enhances the income of the poor substantially. …Changing freedom from the Mexico level to the Singapore level is predicted to raise the income of the poor by about 40 percent. All income groups benefit from the change, but the change typically helps the poor more than other income groups.

For those interested, let’s now dig into the details.

The study specifically looks at the degree to which state ownership (i.e., textbook socialism) has an impact on income.

As one might suspect, more state ownership means lower income.

A number of measures of free-market capitalism and socialism have been suggested. The analysis starts by examining the metric that most closely matches the dictionary definition of socialism, namely, the amount of state ownership of capital… The basic approach in this section is to examine the relation of income of three groups to state ownership. …All coefficients on the state ownership index are positive, strong, and statistically significant. For example, using the coefficient in column 4, a one standard deviation increase in private ownership increases median income by about 19 percent of the mean value of the log of median income. Also interesting is that the lowest income groups benefit as much or more from private ownership as the highest income groups. …The cross-country correlation between private ownership and income ten years in the future is positive and strong. It is also true that median income seems to rise over time within a country as the country moves toward more private ownership and less state ownership.

The study highlights several interesting examples.

For instance, it shows that poor people immensely benefited from China’s partial shift to capitalism, even though inequality increased (something I pointed out a few years ago).

Here’s the data on Chile, which shows both rich and poor benefited from that nation’s shift to capitalism.

By the way, I have several columns (here, here, here, and here) documenting how poor people have been the big winners from Chile’s pro-market reforms.

Next we have the example of South Korea.

That data is especially powerful, by the way, when you compare South Korea and North Korea.

Last (and, in this case, least), we have the data from the unfortunate nation of Venezuela.

Chavez’s family personally gained from socialism, but this chart shows how the rest of the nation has stagnated.

So what’s the bottom line?

Lazear summarizes his results.

…there is no evidence that, as a general matter, high-income groups benefit more from a move toward capitalism than low-income groups. The effect of changing state ownership and economic freedom on income is not larger for the rich than for the poor. Second, income growth is positively correlated across deciles. The situation is closer to a rising tide lifting all boats than to the fat man becoming fat by making the thin man thin. Finally, there is no consistent evidence across the large number of countries and time periods examined of any strong and widespread link between income growth and inequality. There are examples, like China, where income growth was coupled with large increases in inequality, but others like Chile, where strong income growth came about without much change in inequality, and South Korea, where inequality declined slightly as economic freedom and income grew over time.

Amen. This analysis underscores my oft-made argument that inequality is irrelevant and that policy makers instead should have a laser-like focus on economic growth.

Assuming, of course, that they want poor people to climb the economic ladder to prosperity.

P.S. The Lazear study points out that Scandinavian nations are definitely not socialist based on measures of state ownership.

Some might define socialist economies as merely being those that have high levels of redistribution, meaning high taxes and transfers. …It is certainly true that the Scandinavian countries have higher taxes and transfers than non-Scandinavian countries… Scandinavian countries all have low state ownership index values…and high values of the economic freedom index. The values for Scandinavia look much more like those for the United States than they do for pre-1985 China or post-2000 Venezuela. …Perhaps a more accurate description of Scandinavia is that the countries rely primarily on private ownership and markets but have chosen to have a large government transfer program, which implies not only high transfers but also high taxes.

I’ll simply add that the high transfers and high taxes have negative consequences for Scandinavian nations, but those countries at least have very pro-market policies in other areas to compensate for the damage caused by bad fiscal policy.

P.P.S. For my friends on the left who may suspect that Lazear cherry-picked his examples. I’ll simply challenge them to show a contrary example.

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Back in 2017, the Center for Freedom and Prosperity released this video, which shows that free markets and small government are the best recipe for poor nations that want to become rich nations.

The CF&P video was motivated in part by a need to debunk international bureaucracies such as the OECD and IMF, which abandoned the “Washington Consensus” for economic liberalization and instead have been making the odd argument that prosperity can be achieved with higher taxes and a bigger burden of government spending.

Needless to say, neither of these international organizations has bothered to explain how such dirigiste policies produce more growth.

But the politicians who fund and control such bureaucracies doubtlessly appreciate the message.

You probably won’t be surprised that the United Nations also is on the wrong side of this issue.

A recent report from the New York City-based group regurgitates the anti-market viewpoint.

The argument that pro-market policies automatically benefit the poor is likewise at odds with the evidence. Traditional pro-growth polices, such as lower corporate tax rates, labor ‘reforms,’ deregulation, austerity-driven cuts to services, and privatization can have devastating effects on the well-being of poor people and the state’s capacity to reduce poverty. …There are various ways to reduce extreme inequality, but redistribution is an essential element. …Significant redistribution is indispensable. …Fair and equitable taxation can lay the foundations for a society that respects and promotes well-being for all. …Low tax revenue has hobbled the capacity of governments to undertake redistributive policies. …The time has come to take social protection seriously.

For those who don’t follow these issues closely, “social protection” is the buzz phrase to describe an ever-bigger welfare state.

As you might imagine, the report doesn’t provide any evidence to justify the assertion that higher taxes and bigger government will lead to less poverty and deprivation.

Which is an excuse to recycle my “never-answered question” since I’m still waiting for someone to show me a nation that became rich with the types of statist policy that the U.N. has embraced.

The most remarkable part of the report is buried toward the end. The United Nations actually argues that the poor will be better off if there is less economic growth.

A ‘pro-poor’ growth scenario necessitates a far smaller increase in global GDP and eradicates poverty much sooner. If every country reduced its Gini index by 1 percent per year, it would have a larger impact on global poverty than increasing each country’s annual growth one percentage point above current forecasts.

This is bad math, bad logic, and terrible economics.

And it assumes politicians can deftly re-slice a shrinking pie so that poor somehow get more than they have now (while ignoring Thomas Sowell’s sage warning that wealth can only be redistributed one time).

I’d like the United Nations (or any person or group) to show me a single example – at any point in world history – where less growth has improved conditions for poor people.

For what it’s worth, I can show lots of evidence that growth is the best recipe for helping the less fortunate, even though folks on the left may not be happy since rich people also benefit from economic growth.

I can’t resist pointing out one additional passage from the report. And this one was on the first page.

Poverty is a political choice.

In reality, poverty is the normal state of human existence (an observation that Tim Worstall also made in his CapX column criticizing the U.N. report).

What’s unusual – as explained in videos by Don Boudreaux and Deirdre McCloskey – is that parts of the world became rich beginning a couple of hundred years ago thanks to a new approach called capitalism.

(Though I suppose those five words from the U.N. report can be viewed as accurate. After all, governments perpetuate poverty by failing to copy the good policies of places such as Hong Kong and Singapore. But that’s not what the report means. Instead, we’re supposed to believe that politicians are allowing poverty by not choosing big government.)

P.S. If there was a contest for worst analysis from an international bureaucracy, I still think the IMF deserves to win since it has explicitly embraced the crazy notion that it’s okay to hurt the poor so long as the rich are hurt even more.

P.P.S. Indeed, the report I’m writing about today isn’t even the U.N.’s worst publication. That “honor” belongs to the 2018 report that blatantly lied about the prevalence of poverty in the United States.

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Back in 2016, I shared an image that showed how the welfare state punishes both the poor and rich.

Rich people are hurt for the obvious reason. They get hit with the highest statutory tax rates, and also bear the brunt of the double taxation (the extra layers of tax on saving and investment resulting from capital gains taxes, double taxes on dividends, death taxes, etc).

But I also pointed out that the poor are penalized because they get trapped in dependency.

In large part, this is because they face bad incentives when they work and try to become self sufficient. Not only do they get hit by federal and state taxes, but they also can lose access to various redistribution programs. And the combination of those two factors can produce very high implicit marginal tax rates.

I cited an astounding example of this phenomenon in 2012, showing that a single mother in Pennsylvania would be better off earning $29,000 rather than $57,000. In other words, her implicit marginal tax rate on an extra $28,000 would be 100 percent (thus fulfilling FDR’s odious dream, albeit against a different set of victims).

How pervasive is this problem?

A new study published by the National Bureau of Economic Research gives us the answer. Authored by David Altig, Alan J. Auerbach, Laurence J. Kotlikoff, Elias Ilin, and Victor Ye, it estimates implicit marginal tax rates for various segments of the population.

A plethora of federal and state tax and benefit policies jointly determine Americans’ incentives to work. …complex and often arcane provisions that condition tax payments and benefit receipts on labor income, asset income, total income, and the level of assets. …The myriad features of our fiscal system raise this paper’s central questions: What are the typical levels of marginal net tax rates facing Americans of different ages and resource levels, taking the entire federal and state fiscal system into account? …How much does one’s choice of the state in which to live impact one’s incentive to work? …We address these questions by running 2016 Survey-of-Consumer-Finances (SCF) data through The Fiscal Analyzer (TFA).

The five economists discovered that lower-income people are often hit by very high marginal tax rates on work (τL).

Our main findings, which focus on the fiscal consequences of SCF household heads earning $1,000 more in our base year – 2018, are striking. One in four low-wage workers face lifetime marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. …marginal net lifetime tax rates are generally higher for those in the lowest quintile than for those in the middle three quintiles… The potential poverty trap arising under our fiscal system is highlighted by the 75th τL-percentile values for the bottom quintiles. Moving from the youngest to the oldest cohorts, these values are 67.4 percent, 75.9 percent, 69.3 percent, 76.5 percent, 74.4 percent, and 73.9 percent. Hence, one in four of our poorest households, regardless of age, make between two and three times as much for the government than they make for themselves in earning an extra $1,000.

This graph from the study shows how poor people can even face marginal tax rates of more than 100 percent (which I’ve highlighted in red). The vertical axis is the tax rate and the horizontal axis is household prosperity.

Subjecting poor people to very high implicit tax rates is horrible economic policy, just like it’s horrible policy to hit any other group of people with high marginal tax rates.

Simply stated, when people are punished for engaging in productive economic behavior, they respond by reducing their work, their saving, their investment, and their entrepreneurship.

Interestingly, some states are better (or less worse) than others.

One’s choice of state in which to live can dramatically affect marginal net tax rates. Across all cohorts, the typical bottom-quintile household can lower its remaining lifetime marginal net tax rate by 99.7 percentage points by switching states! …The typical household can raise its total remaining lifetime spending by 8.1 percent by moving from a high-tax to a low-tax state, holding its human wealth, housing expenses, and other characteristics fixed. …To illustrate how τL varies from state to state, we calculate the median τL for households in the 30-39 age cohort in the lowest resource quintile in each state. …Figure 11 shows the cross-state variation in median lifetime marginal tax rates. …median rates varies between a low of 38.8 percent in South Carolina and a high of 55.0 percent in Connecticut. Clearly, where people live can matter a lot for their incentives to work.

Here’s a map showing the marginal tax rate on people in the bottom 20 percent. The obvious takeaway is that you don’t want to be a poor person in Connecticut, Minnesota, or Illinois.

For what it’s worth, tax rates are still too high in the best states (South Carolina, Texas, Indiana, and South Dakota).

The bottom line is that the welfare state is bad news for both taxpayers and recipients. All of which may help to explain why the poverty rate stopped falling once the government declared a “War on Poverty.”

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At the risk of understatement, I’m not a fan of the International Monetary Fund (IMF).

The international bureaucracy is the “Johnny Appleseed” of moral hazard, using bailouts to reward profligate governments and imprudent lenders.

The IMF also is infamous for encouraging higher tax burdens, which is especially outrageous since its cossetted employees are exempt from paying tax on their lavish salaries.

In recent years, the IMF has been using inequality as a justification for statist policies. Most recently, the lead bureaucrat at the IMF, Kristalina Georgieva, cited that issue as a reason for governments to impose higher taxes to fund bigger welfare states.

…inequality has become one of the most complex and vexing challenges in the global economy. Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. …The good news is we have tools to address these issues… Progressive taxation is a key component of effective fiscal policy. At the top of the income distribution, our research shows that marginal tax rates can be raised without sacrificing economic growth. …Gender budgeting is another valuable fiscal tool in the fight to reduce inequality…. The ability to scale up social spending is also essential… A cornerstone of our approach to issues of economic inclusion is our social spending strategy.

What’s especially remarkable is that the IMF has claimed that the punitive policies actually will lead to more growth, in stark contrast to honest people on the left who have always acknowledged the equity-efficiency tradeoff.

The economics editor at the left-leaning Guardian, Larry Elliott, is predictably delighted with the IMF’s embrace of Greek-style fiscal policy.

Raising income tax on the wealthy will help close the growing gap between rich and poor and can be done without harming growth, the head of the International Monetary Fund has said. Kristalina Georgieva, the IMF’s managing director, said higher marginal tax rates for the better off were needed as part of a policy rethink to tackle inequality. …The IMF managing director, who succeeded Christine Lagarde last year, said higher taxes on the better off…would help fund government spending to expand opportunities for those “communities and individuals that have been falling behind.” …Georgieva said the IMF recognised that social spending policies are increasingly relevant in tackling inequality. …She added that many less well-off countries needed to scale up social spending.

Ironically, the IMF actually has admitted that this approach is bad for prosperity.

It has produced research on something called “equally distributed equivalent income” to justify lower levels of income so long as economic misery is broadly shared.

I’m not joking. You can click here to see another example of the IMF embracing poverty if it means the rich disproportionately suffer.

In other words, negative-sum economics. Though Margaret Thatcher was more eloquent in her description of this awful ideology.

At first, this column was going to be a run-of-the-mill anti-IMF diatribe.

But as I contemplated how the people fixated on inequality are willing to treat the poor like sacrificial lambs, it occurred to me that this is a perfect opportunity to unveil my Eighth Theorem of Government.

P.S. Here are my other theorems of government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
  • The “Seventh Theorem” explains how bigger governments are less competent.

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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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I’m currently in Chile, enjoying the warm sun and doing research on the nation’s impressive economic performance.

I met yesterday with Jose Pinera, the former minister who created Chile’s incredibly successful system of personal retirement accounts (he’s also one of the people Gary Johnson should have mentioned when he was asked to identify an admirable foreign leader).

Back in 2013, I shared some of Jose’s data showing how the economy took off after Chile enacted pro-market reforms.

I was especially impressed by the stunning reduction in the poverty rate, which had dropped from 50 percent to 11 percent (it’s now down to 7.8 percent).

In other words, capitalism has been great news for poor Chileans. Simply stated, when given more freedom and opportunity, most of them escape poverty.

Interestingly, Reuters reports that even the IMF recognizes Chile’s superior performance.

The International Monetary Fund (IMF) hailed Chile’s strengthening economy in a report published on Friday while encouraging President Sebastian Pinera to push forward with promised structural reforms. In a statement following its annual consultation with Chile, the IMF praised Pinera’s proposed reform drive… Conservative billionaire Pinera took office in March with a strong mandate to make changes to the country’s pension system and labor laws and simplify the tax code. …The bank praised his early efforts, which it said were aimed at “re-invigorating investment and economic growth.”

Hmmm…, makes me wonder if the IMF (given its dismal track record) actually understands why Chile has become so prosperous.

Though the World Bank has praised the country’s pro-market reforms, so international bureaucracies sometimes stumble on the right answer.

But let’s not get distracted. Today, I want to share further evidence about how pro-market reforms produce big benefits for the less fortunate.

Here’s a chart from an article in the latest edition Economia y Sociedad. The article is in Spanish, but a translation of the relevant passage tells us that, “in Chile, the income of the poorest 20% of the population has risen at a rate (8.2% per year) that is 50% higher than that to which the income of the richest 20% has risen ( 5.3% per year).”

In other words, a rising tide lifts all boats (just as in the U.S.), but the bottom quintile is enjoying the biggest increases.

Sounds like great news. And it is great news. But some people put on blinders.

My left-leaning friends loudly assure me that they are motivated by a desire to help poor people. Yet if that’s true, why aren’t they falling over themselves to praise Chile? Why are they instead susceptible to waxing rhapsodic about the hellhole of Venezuela or bending over backwards to defend Cuba’s miserable regime?

And why do some anti-capitalist economists engage in absurd examples of cherry picking in failed efforts to discredit Chile’s accomplishments?

The bottom line is that Chile became the Latin Tiger thanks to economic liberty. That’s great news for the country, but especially good for the less fortunate.

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One of the more elementary observations about economics is that a nation’s prosperity is determined in part by the quantity of quality of labor and capital. These “factors of production” are combined to generate national income.

I frequently grouse that punitive tax policies discourage capital. There’s less incentive to invest, after all, if the government imposes extra layers of tax on income that is saved and invested.

Bad tax laws also discourage labor. High marginal tax rates penalize people for being productive, and this can be especially counterproductive for entrepreneurship and innovation.

Though we shouldn’t overlook how government discourages low-income people from being productively employed. Only the problem is more on the spending side of the fiscal equation.

In today’s Wall Street Journal, John Early and Phil Gramm share some depressing numbers about growing dependency in the United States.

During the 20 years before the War on Poverty was funded, the portion of the nation living in poverty had dropped to 14.7% from 32.1%. Since 1966, the first year with a significant increase in antipoverty spending, the poverty rate reported by the Census Bureau has been virtually unchanged. …Transfers targeted to low-income families increased in real dollars from an average of $3,070 per person in 1965 to $34,093 in 2016. …Transfers now constitute 84.2% of the disposable income of the poorest quintile of American households and 57.8% of the disposable income of lower-middle-income households. These payments also make up 27.5% of America’s total disposable income.

This massive expansion of redistribution has negatively impacted incentives to work.

The stated goal of the War on Poverty is not just to raise living standards, but also to make America’s poor more self-sufficient and to bring them into the mainstream of the economy. In that effort the war has been an abject failure, increasing dependency and largely severing the bottom fifth of earners from the rewards and responsibilities of work. …The expanding availability of antipoverty transfers has devastated the work effort of poor and lower-middle income families. By 1975 the lowest-earning fifth of families had 24.8% more families with a prime-work age head and no one working than did their middle-income peers. By 2015 this differential had risen to 37.1%. …The War on Poverty has increased dependency and failed in its primary effort to bring poor people into the mainstream of America’s economy and communal life. Government programs replaced deprivation with idleness, stifling human flourishing. It happened just as President Franklin Roosevelt said it would: “The lessons of history,” he said in 1935, “show conclusively that continued dependency upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber.”

In another WSJ column on the same topic, Peter Cove reached a similar conclusion.

America doesn’t have a worker shortage; it has a work shortage. The unemployment rate is at a 15-year low, but only 55% of Americans adults 18 to 64 have full-time jobs. Nearly 95 million people have removed themselves entirely from the job market. According to demographer Nicholas Eberstadt, the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. …insisting on work in exchange for social benefits would succeed in reducing dependency. We have the data: Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%. But no reform is permanent. Under President Obama, federal poverty programs ballooned.

Edward Glaeser produced a similar indictment in an article for City Journal.

In 1967, 95 percent of “prime-age” men between the ages of 25 and 54 worked. During the Great Recession, though, the share of jobless prime-age males rose above 20 percent. Even today, long after the recession officially ended, more than 15 percent of such men aren’t working. …The rise of joblessness—especially among men—is the great American domestic crisis of the twenty-first century. It is a crisis of spirit more than of resources. …Proposed solutions that focus solely on providing material benefits are a false path. Well-meaning social policies—from longer unemployment insurance to more generous disability diagnoses to higher minimum wages—have only worsened the problem; the futility of joblessness won’t be solved with a welfare check. …various programs make joblessness more bearable, at least materially; they also reduce the incentives to find work. …The past decade or so has seen a resurgent progressive focus on inequality—and little concern among progressives about the downsides of discouraging work. …The decision to prioritize equality over employment is particularly puzzling, given that social scientists have repeatedly found that unemployment is the greater evil.

Why work, though, when government pays you not to work?

And that unfortunate cost-benefit analysis is being driven by ever-greater levels of dependency.

Writing for Forbes, Professor Jeffrey Dorfman echoed these findings.

…our current welfare system fails to prepare people to take care of themselves, makes poor people more financially fragile, and creates incentives to remain on welfare forever. …The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. …The third flaw in the government welfare system is the way that benefits phase outs as a recipient’s income increases. …a poor family trying to escape poverty pays an effective marginal tax rate that is considerably higher than a middle class family and higher than or roughly equal to the marginal tax rate of a family in the top one percent.

I like that he also addressed problems such as implicit marginal tax rates and the failure of job-training programs.

Professor Lee Ohanian of the Hoover Institution reinforces the point that the welfare state provides lots of money in ways that stifle personal initiative.

Inequality is not an issue that policy should address. …Society, however, should care about creating economic opportunities for the lowest earners. …a family of four at the poverty level has about $22,300 per year of pre-tax income. Consumption for that same family of four on average, however, is about $44,000 per year, which means that their consumption level is about twice as high as their income. …We’re certainly providing many more resources to low-earning families today. But on the other hand, we have policies in place that either limit economic opportunities for low earners or distort the incentives for those earners to achieve prosperity.

I’ve been citing lots of articles, which might be tedious, so let’s take a break with a video about the welfare state from the American Enterprise Institute.

And if you like videos, here’s my favorite video about the adverse effects of the welfare state.

By the way, it isn’t just libertarians and conservatives who recognize the problem.

Coming from a left-of-center perspective, Catherine Rampell explains in the Washington Post how welfare programs discourage work.

…today’s social safety net discourages poor people from working, or at least from earning more money. …you might qualify for some welfare programs, such as food stamps, housing vouchers, child-care subsidies and Medicaid. But if you get a promotion, or longer hours, or a second job, or otherwise start making more, these benefits will start to evaporate — and sometimes quite abruptly. You can think about this loss of benefits as a kind of extra tax on low-income people. …Americans at or just above the poverty line typically face marginal tax rates of 34 percent. That is, for every additional dollar they earn, they keep only 66 cents. …One in 10 families with earnings close to the poverty line faces a marginal tax rate of at least 65 percent, the CBO found. …You don’t need to be a hardcore conservative to see how this system might make working longer hours, or getting a better job, less attractive than it might otherwise be.

To understand what this means, the Illinois Policy Institute calculated how poor people in the state are trapped in dependency.

The potential sum of welfare benefits can reach $47,894 annually for single-parent households and $41,237 for two-parent households. Welfare benefits will be available to some households earning as much as $74,880 annually. …A single mom has the most resources available to her family when she works full time at a wage of $8.25 to $12 an hour. Disturbingly, taking a pay increase to $18 an hour can leave her with about one-third fewer total resources (net income and government benefits). In order to make work “pay” again, she would need an hourly wage of $38 to mitigate the impact of lost benefits and higher taxes.

Agreeing that there’s a problem does not imply agreement about a solution.

Folks on the left think the solution to high implicit tax rates (i.e., the dependency trap) is to make benefits more widely available. In other words, don’t reduce handouts as income increases.

The other alternative is to make benefits less generous, which will simultaneously reduce implicit tax rates and encourage more work.

I’m sympathetic to the latter approach, but my view is that welfare programs should be designed and financed by state and local governments. We’re far more likely to see innovation as policy makers in different areas experiment with the best ways of preventing serious deprivation while also encouraging self-sufficiency.

I think we’ll find out that benefits should be lower, but maybe we’ll learn in certain cases that benefits should be expanded. But we won’t learn anything so long as there is a one-size-fits-all approach from Washington.

Let’s close with a political observation. A columnist for the New York Times is frustrated that many low-income voters are supporting Republicans because they see how their neighbors are being harmed by dependency.

Parts of the country that depend on the safety-net programs supported by Democrats are increasingly voting for Republicans who favor shredding that net. …The people in these communities who are voting Republican in larger proportions are those who are a notch or two up the economic ladder — the sheriff’s deputy, the teacher, the highway worker, the motel clerk, the gas station owner and the coal miner. And their growing allegiance to the Republicans is, in part, a reaction against what they perceive, among those below them on the economic ladder, as a growing dependency on the safety net, the most visible manifestation of downward mobility in their declining towns. …I’ve heard variations on this theme all over the country: people railing against the guy across the street who is collecting disability payments but is well enough to go fishing, the families using their food assistance to indulge in steaks.

It’s not my role to pontificate about politics, so I won’t address that part of the column. But I will say that I’ve also found that hostility to welfare is strongest among those who have first-hand knowledge of how dependency hurts people.

P.S. If you want evidence for why Washington should get out of the business of income redistribution, check out this visual depiction of the welfare state.

P.S. The Canadians can teach us some good lessons about welfare reform.

P.P.S. The Nordic nations also provide valuable lessons, at least from the don’t-do-this perspective.

P.P.P.S. Last but not least, there’s a Laffer-type relationship between welfare spending and poverty.

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Last September, I shared some very encouraging data showing how extreme poverty dramatically has declined in the developing world.

And I noted that this progress happened during a time when the “Washington Consensus” was resulting in “neoliberal” policies (meaning “classical liberal“) in those nations (confirmed by data from Economic Freedom of the World).

In other words, pro-market policies were the recipe for poverty reduction, not foreign aid or big government.

Sadly, the Washington Consensus has been supplanted. Bureaucracies such as the International Monetary Fund, the United Nations, and the Organization for Economic Cooperation and Development are now pushing a statist agenda based on the bizarre theory that higher taxes and more spending somehow produce prosperity.

To add insult to injury, some people now want to rewrite history and argue that free markets don’t deserve credit for the poverty reduction that already has occurred.

Esteban Ortiz-Ospina, writing for Our World in Data, wants readers to conclude that redistribution programs deserve credit.

…the share of people living in extreme poverty around the world has fallen continuously over the last two centuries. …many often say that globalization in the form of ‘free-market capitalism’ is the main force to be thanked for such remarkable historical achievement. …this focus on ‘free-market capitalism’ alone is misguided. …Governments around the world have dramatically increased their potential to collect revenues in order to redistribute resources through social transfers… The reach of governments has grown substantially over the last century: the share of total output that governments control is much larger today than a century ago.

And for evidence, Mr. Ortiz-Ospina included this chart.

I shared a version of this data back in June, asserting that the explosion of social welfare spending made this “the western world’s most depressing chart.”

So does Ortiz-Ospina have a compelling argument? Does poverty go down as welfare spending goes up?

Nope. Johan Norberg points out that there is a gaping flaw in this argument. An enormous, gigantic hole.

Wow. This isn’t just a flaw. It’s malpractice. It’s absurd to argue that welfare spending in developed nations somehow led to poverty reduction in developing countries.

I hope Mr. Ortiz-Ospina is just an inexperienced intern, because if he really understands the data, one might be forced to conclude that he’s dishonest.

But let’s set that issue aside. Johan closes his video by explaining that poverty in rich nations declined before modern welfare states. I want to expand on that point.

Johan cited Martin Ravallion, so I tracked down his work. And here’s the chart he put together, which I’ve modified to show (outlined in red) that extreme poverty basically disappeared between 1820 and 1930.

And guess what?

That was the period when there was no welfare state. Not only is that apparent from Our World in Data, it’s also what we see in Vito Tanzi’s numbers.

Here’s Tanzi’s table, which I first shared five years ago. And I’ve circled in red the 1880-1930 data to underscore that there was virtually no redistribution during the years poverty was declining.

The bottom line is that poverty in the western world fell during the period of small government. Yet some people want to put the cart before the horse. They’re making the absurd argument that post-1950s welfare spending somehow reduced poverty before the 1930s.

That’s as absurd as Paul Krugman blaming a 2008 recession in Estonia on spending cuts that took place in 2009.

P.S. For those who want U.S.-specific data, it’s worth noting that dramatic reductions in American poverty all occurred before Washington launched the so-called “War on Poverty.”

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If you look at the top of your screen on my home page, you’ll notice that I have a collection of special pages such as the Bureaucrat Hall of Fame and examples of what happens when you mix government and sex.

I’m thinking of creating a new page, but I need a pithy way of describing leftists who lie about poverty. And there are plenty of them.

Today, we identify some additional members who are eligible for this disreputable club.

And we’ll start with the European Commission.

Here’s a chart from a recent report that supposedly shows poverty rates in various European nations.

If you compare the “at-risk-of-poverty rate” for various nations, you’ll notice some very odd outcomes.

For instance, the tiny tax haven of Luxembourg is one of the world’s wealthiest nations, yet it supposedly has more poverty than Hungary. And super-rich Switzerland has more poverty than Slovakia. And oil-rich Norway has more poverty than the Czech Republic.

Are all those rich nations in Western Europe really suffering from higher poverty rates than some of the Eastern European countries still recovering from communist rule?

Of course not. The chart is based on a big, fat lie.

And I know it’s a lie because if you look in the glossary at the end of the long report, you’ll see that the bureaucrats openly admit that their so-called poverty chart has nothing to do with poverty and nothing to do with living standards (I’ve underlined the most important parts).

Interestingly, the bureaucrats in Brussels included a chart in the study revealing the level of inaccuracy for each country.

Here’s a look at the dishonest poverty rate (the blue diamond) compared to a measure of “severe material deprivation” that presumably does a better job of showing the real number of poor people (the red diamond).

By the way, I’m not a huge fan of the European Commission’s measure of “severe material deprivation” since it includes variables such as having a car, a color TV, and the money to take a one-week vacation.

But that’s a separate story.

Let’s look at other new members of our club.

An Eduardo Porter column in the New York Times also used the dishonest definition of poverty.

How can it be that the United States spends so much money fighting poverty and still suffers one of the highest child poverty rates among advanced nations? One in five American children is poor by the count of LIS, a data archive tracking well-being and deprivation around the world. …the United States tolerated more child poverty in 2012 than 30 of the 35 countries in the Organization for Economic Cooperation and Development, a grouping of advanced industrialized nations. The percentage of children who are poor is more than three times as high in the United States as it is in Norway or the Netherlands. America has a larger proportion of poor children than Russia.

And here’s a chart from the article that definitely makes the United States look bad.

But, unless you read the column carefully, you would have missed this all-important detail.

…international standards that set the poverty line at one-half the income of families on the middle rung of the income ladder.

In other words, everything in the article, and all the numbers in the chart, have nothing to do with actual poverty. Instead, we’re simply looking at an indirect measure of income distribution.

And the United States is made to look bad because our median income is generally much higher than it is in other nations.

How absurd.

You’ll think I’m joking, but you can dramatically reduce “poverty,” based on this dishonest definition, if you randomly kill rich people.

Let’s conclude by looking at the U.K.-based Guardian‘s article about supposed poverty in Hong Kong.

A record number of Hong Kong residents live in poverty, with one fifth of the population falling below the poverty line despite economic growth, according to new government figures. The number of people living below the poverty line rose to 1.35 million in 2016, about 20% of the city’s population. The number is the highest number of poor since the government began publishing statistics in 2009. Despite opulent wealth, Hong Kong is a deeply unequal society. …The number of poor rose despite the government raising the poverty line last year. For single person households it is set at HK$4,000 (£388). It is HK$9,000 (£873) for a two person home and HK$15,000 (£1,455) for a family of three.

There’s a small problem and big problem with this article. The small problem is that it states that the number of poor people increased “despite” an increase in the poverty line.

Huh?!?

If the government raises the threshold, of course it will seem like more people are poor. The article should replace “despite” with “because.”

Tom Worstall, writing for CapX, explains the big problem in the article.

One of the great injustices of our age is, as The Guardian reported…, that 20 per cent of the people in Hong Kong, one of the richest places on the planet, live in poverty. …The Guardian [is] waxing indignant over things it doesn’t understand. …there’s an important underlying point: inequality – not poverty – is being measured here. The international definition of poverty is less than $1.90 a day. There’s no one in Hong Kong on this at all, therefore there’s no poverty. …we’re told that the poverty line in Hong Kong is HK $4,000 per month (roughly £380) for an individual which certainly doesn’t seem like much. Yet when we plug that into a comparison of global incomes we find that, accounting for price differences across geography, it’s firmly in the top fifth of all global incomes. In other words, the poorest 20 per cent in Hong Kong are still find themselves in the richest 20 per cent of all humans.

Given the praise I’ve heaped on Hong Kong, I also can’t resist sharing this excerpt even though it’s a separate topic.

As Hong Kong so vividly demonstrates, the…economy in which the poverty line is defined as being rather rich by global standards must have something going for it. According to the World Bank’s figures, back in 1960 Hong Kong was at around the average level of income for the planet, with GDP per capita at a little over $400 (in 1960 dollars). Today the figure is slightly over $40,000 per head while the global average has only struggled up to $10,000 or so. An over performance by a factor of four isn’t that bad over half a century, is it?

Amen.

If we actually care about reducing genuine poverty, there’s no substitute for the miracle of compounding growth.

Which is why our friends on the left, if they actually cared about poor people (and I think most of them genuinely do care), should focus on growth rather than being fixated on redistribution.

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When writing about the statist agenda of international bureaucracies, I generally focus my attention on the International Monetary Fund and the Organization for Economic Cooperation and Development.

Today, let’s give some attention to the United Nations.

Based on this story from the Washington Post, the bureaucrats at the UN have concluded that America is a miserable and awful nation.

…a new United Nations report that examines entrenched poverty in the United States…calls the number of children living in poverty “shockingly high.” …the report, written by U.N. special rapporteur on extreme poverty and human rights Philip Alston, says the United States tops the developed world with the highest rates of youth poverty… The results of the report are not out of line with a number of others…in recent years by different organizations in which the United States has turned up at or near the top on issues such as poverty rates.

But I’ve learned from personal experience (see here and here) that the United Nations is guided by statist ideology and I should be extremely skeptical of any of its findings.

For instance, when it intervenes in policy (global warming and gun control, for instance, as well as the Internet, the War on Drugs, monetary policy, and taxpayer-financed birth control), the UN inevitably urges more power and control for government.

So let’s take a jaundiced look at some of the assertions in this new report, starting with that dramatic claim of record child poverty in America.

The United States…has the highest youth poverty rate in the Organization for Economic Cooperation and Development (OECD)… The consequences of neglecting poverty… The United States has one of the highest poverty…levels among the OECD countries… the shockingly high number of children living in poverty in the United States demands urgent attention. …About 20 per cent of children live in relative income poverty, compared to the OECD average of 13 per cent.

So is it true that poverty is very high in the USA and is it also true that America has the highest rate of child poverty of all OECD countries? Even higher than Mexico, Greece, and Turkey? And what is the source of this remarkable assertion?

If you look at footnote #51, you’ll see reference to an OECD publication that contains this supposedly damning chart.

But if you look at the fine print at the bottom, you’ll discover that the chart on child poverty doesn’t actually measure child poverty. Instead, the bureaucrats at the OECD 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.

In other words, the United States looks bad only because median income is very high compared to other nations.

Which is the same dishonest data manipulation that the OECD uses when exaggerating America’s overall poverty rate (other groups that have used this deliberately dishonest methodology include the Equal Welfare Association, Germany’s Institute of Labor Economics, and the Obama Administration).

The bottom line is that the key finding of the UN report is based on a bald-faced lie.

By the way, I’m not surprised to see that the UN report also cites the IMF to justify statist policies.

In a 2017 report, the International Monetary Fund (IMF) captured the situation…, stating that the United States economy “is delivering better living standards for only the few”, and that “household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy” …A much-cited IMF paper concluded that redistribution could be good for growth, stating: “The combined direct and indirect effects of redistribution — including the growth effects of the resulting lower inequality — are on average pro-growth.”

For what it’s worth, the IMF’s research on growth and inequality is embarrassingly bad.

Here’s another big takeaway from the UN report.

The United States…has the highest…infant mortality rates among comparable OECD States. …The infant mortality rate, at 5.8 deaths per 1,000 live births, is almost 50 per cent higher than the OECD average of 3.9.

I’m not an expert on infant mortality. Indeed, I’ve never looked at infant mortality data. But given the UN’s reliance on dodgy and dishonest numbers in other areas, I’m skeptical whether these numbers are true.

And, according to Johan Norberg, the numbers about high levels of infant mortality in the United States are false.

The UN report contains many other ideologically motivated attacks on the United States.

For instance, America is a bad country because taxes supposedly are too low.

The United States has the highest rate of income inequality among Western countries. The $1.5 trillion in tax cuts in December 2017 overwhelmingly benefited the wealthy and worsened inequality. …The tax cuts will fuel a global race to the bottom, thus further reducing the revenues needed by Governments to ensure basic social protection and meet their human rights obligations. …There is a real need for the realization to sink in among the majority of the American population that taxes are not only in their interest, but also perfectly reconcilable with a growth agenda.

While the above passage is remarkable for the level of economic illiteracy, I confess that I chortled with glee when I read the part about how the recent tax reform “will fuel a global race to the bottom.”

As I wrote last year and this year, the fact that other governments will face pressure to reduce tax rates is something to celebrate.

Here’s one final excerpt. The UN report also bashes the United States because we don’t view dependency as a human right.

Successive administrations, including the current one, have determinedly rejected the idea that economic and social rights are full-fledged human rights, despite their clear recognition not only in key treaties that the United States has ratified… But denial does not eliminate responsibility, nor does it negate obligations. International human rights law recognizes a right to education, a right to health care, a right to social protection for those in need and a right to an adequate standard of living.

Needless to say, a problem with this vision of “positive rights” is that it assumes there will always be a supply of chumps willing to work hard so the government can tax away their money to finance all the goodies. But Greece shows us that it’s just a matter of time before that games ends with disaster.

In other words, Thomas Sowell is right and Franklin Roosevelt was wrong.

Let’s close with some good news. As the Washington Post just reported, the UN’s dishonest anti-American screed apparently will prove costly to that bloated bureaucracy.

Alston arrived in Washington last fall on a mission from the U.N. Human Rights Council to document poverty in America. …he was told by a senior State Department official that his findings may influence the United States’ membership in the human rights body. …“I think I was being sent a message.” Two other people at the meeting, speaking on the condition of anonymity, confirmed Alston’s account. …Nikki Haley announced this week that the United States would withdraw from the Human Rights Council.

Good for Ambassador Haley.

Her actions stand in stark contrast to some of her predecessors, who apparently believed in taxpayer-financed self-flagellation.

Alston said he was initially invited by the U.S. government under President Barack Obama to study poverty in America. The invitation was extended again by U.S. officials under then-Secretary of State Rex Tillerson in 2017, he said. “We look forward to welcoming Mr. Alston to the United States for a country visit this December,” Flacelia Celsula, part of the U.S. delegation at the United Nations, said in a meeting of the Human Rights Council on June 8, 2017.

It goes without saying that Mr. Alston should have the freedom write leftist reports. He also should have the freedom to spread lies in those reports. But I don’t want American tax dollars to finance his ideological bilge.

Which brings us to the obvious takeaway. As seems to be the case with all international bureaucracies, the United Nations wastes money at a prodigious pace. With any luck, Alston’s nonsense will convince American policymakers that deep budget cuts for the UN are long overdue.

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America has a major dependency problem. In recent decades, there’s been a significant increase in the number of working-age adults relying on handouts.

This is bad news for poor people and bad news for taxpayers. But it’s also bad news for the nation since it reflects an erosion of societal capital.

For all intents and purposes, people are being paid not to be productive.

Guided by the spirit of Calvin Coolidge, we need to reform the welfare state.

Professor Dorfman of the University of Georgia, in a column for Forbes, pinpoints the core problem.

The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. In a study for ProPublica, Amy Goldstein documents that people who lost their jobs and participated in a federal job training program were less likely to be employed afterward than those who lost their jobs and did not receive any job training. That is, the job training made people worse off instead of better. …Right now, the government cannot teach anyone how to find a fish, let alone catch one.

And Peter Cove opines on the issue for the Wall Street Journal.

…the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits. The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. …Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%.

Interestingly, European nations seem to be more interested in fixing the problem, perhaps because they’ve reached the point where reform is a fiscal necessity.

Let’s look at what happened when the Dutch tightened benefit rules.

A fascinating new study from economists in California and the Netherlands sheds light on how welfare dependency is passed from one generation to the next – and how to save children from lives of idleness.

A snowball effect across generations could arise if welfare dependency is transmitted from parents to their children, with potentially serious consequences for the future economic situation of children. …there is little evidence on whether this relationship is causal. Testing for the existence of a behavioural response, where children become benefit recipients because their parents were, is difficult… Our work overcomes these identification challenges by exploiting a 1993 reform in the Dutch Disability Insurance (DI) programme… The 1993 reform tightened DI eligibility for existing and future claimants, but exempted older cohorts currently on DI (age 45+) from the new rules. This reform generates quasi-experimental variation in DI use… Intuitively, the idea is to compare the children of parents who are just over 45 years of age to children whose parents are just under 45. .

Here’s the methodology of their research.

The first step is to understand the impact of the 1993 reform on parents. Figure 1 shows that parents who were just under the age 45 cut-off, and therefore subject to the harsher DI rules, are 5.5 percentage points more likely to exit DI by the year 1999 compared to parents just over the age 45 cut-off. These treated parents saw a 1,300 euro drop in payments on average. …the reform changed other outcomes as well. There is a strong rebound in labour earnings.

This chart from their research captures the discontinuity.

Here are the main results.

The second step is to see how children’s DI use changed based on whether the reform affected their parents. We measure a child’s cumulative use of DI as of 2014, by which time they are 37 years old on average. Figure 2 reveals a noticeable jump in child DI participation at the parental age cut-off of 45. There is an economically significant 1.1 percentage point drop for children if their parent was exposed to the reform, which translates into an 11% effect relative to the mean child participation rate of 10%. …welfare cultures, defined as a causal intergenerational link, exist.

This second chart illustrates the positive impact.

But here’s the most important part of the research.

Reducing access to redistribution to parents is a good way of boosting income and education for children.

…we examine whether a child’s taxable earnings and participation in other social support programmes change. Cumulative earnings up to 2014 rise by approximately €7,200 euros, or a little less than 2%, for children of parents subject to the less generous DI rules. In contrast, we find no detectable change in cumulative unemployment insurance receipt, general assistance (i.e. traditional cash welfare), or other miscellaneous safety net programs. Looking at a child’s educational attainment, there is intriguing evidence for anticipatory investments. When a parent is subject to the reform which tightened DI benefits, their child invests in 0.12 extra years of education relative to an overall mean of 11.5 years. …these findings provide suggestive evidence that children of treated parents plan for a future with less reliance on DI in part by investing in their labour market skills.

And it’s also worth noting that taxpayers benefit when welfare eligibility is restricted.

These strong intergenerational links between parents and children have sizable fiscal consequences for the government’s long term budget. Cumulative DI payments to children of the targeted parents are 16% lower. This is a substantial additional saving for the government’s budget, especially since there is no evidence that children substitute these reductions in DI income for additional income from other social assistance programmes. Furthermore, there is a fiscal gain resulting from the increased taxes these children pay due to their increased labour market earnings. Overall, we calculate that through the year 2013, children account for 21% of the net fiscal savings of the 1993 Dutch reform in present discounted value terms. This share is projected to increase to 40% over time.

Ryan Streeter of American Enterprise Institute explains that other European nations also are reforming.

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement. Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system. …Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Amen.

For what it’s worth, I think we’ll be most likely to get good results if we get Washington out of the redistribution business.

In effect, block grant all means-tested programs to the states and then phase out the federal funding. That would give states the ability to experiment and they could learn from each other about the best way of helping the truly needy while minimizing incentives for idleness.

P.S. This WIzard-of-Id parody is a very good explanation of why handouts discourage productive work.

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I’m conflicted.

I’ve repeatedly expressed skepticism about the idea of governments providing a “basic income” because I fear the work ethic will (further) erode if people automatically receive a substantial chunk of money.

Moreover, I also fear that a basic income will lead to an ever-expanding burden of government spending, particularly once net beneficiaries figure out they can vote themselves more money.

Given these concerns, I should be happy about this report from the New York Times.

For more than a year, Finland has been testing the proposition that the best way to lift economic fortunes may be the simplest: Hand out money without rules or restrictions on how people use it. The experiment with so-called universal basic income has captured global attention… Now, the experiment is ending. The Finnish government has opted not to continue financing it past this year, a reflection of public discomfort with the idea of dispensing government largess free of requirements that its recipients seek work. …the Finnish government’s decision to halt the experiment at the end of 2018 highlights a challenge to basic income’s very conception. Many people in Finland — and in other lands — chafe at the idea of handing out cash without requiring that people work. …Finland’s goals have been modest and pragmatic. The government hoped that basic income would send more people into the job market to revive a weak economy. …The basic income trial, which started at the beginning of 2017 and will continue until the end of this year, has given monthly stipends of 560 euros ($685) to a random sample of 2,000 unemployed people aged 25 to 58. Recipients have been free to do as they wished… The Finnish government was keen to see what people would do under such circumstances. The data is expected to be released next year, giving academics a chance to analyze what has come of the experiment.

The reason I’m conflicted is that the current welfare state – both in the United States and other developed nations – is bad for both taxpayers and poor people.

So I like the idea of experimentation. There has to be a better way of alleviating genuine suffering without trapping poor people in dependency or punishing taxpayers.

Indeed, one of my arguments for radical decentralization in America is that states will try different approaches and we’ll have a much better chance of learning what works and what doesn’t.

And maybe we’ll learn that there are some benefits of providing a basic income. But, as reported by the U.K.-based Guardian, it’s unclear whether the Finnish experiment lasted long enough or was comprehensive enough to teach us anything.

The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system…it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system… Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

I will be interested to see whether researchers generate any conclusions when they look at the two years of data from the Finnish experiment.

That being said, there already has been some research that underscores my concerns.

The OECD is not my favorite international bureaucracy, but its recent survey on Finland included some sobering estimates on the cost of a nationwide basic income.

In a basic income scenario, a lump-sum benefit replaces a number of existing benefits, financed by increasing income taxation by nearly 30% or around 4% of GDP. …the basic income requires significant increases to income taxation. …Financing a basic income at a meaningful level thus would require considerable additional tax revenue, and heavier taxation of income would at least partially undo any improvement in work incentives.

And in a report on basic income last year, the OECD poured more cold water on the idea.

…large tax-revenue changes are needed to finance a BI at meaningful levels, and tax reforms would therefore need to be an integral part of budget-neutral BI proposals. …abolishing tax-free allowances and making BI taxable means that everybody would pay income tax on the BI, and on all their other income. Tax burdens would go up for most people as a result, further increasing tax-to-GDP ratios that are currently already at a record-high in the OECD area. …There are also major concerns about unintended consequences of a BI. An especially prominent one is that unconditional income support would reduce the necessity for paid work.

Indeed, it’s difficult to see how work incentives aren’t adversely affected. Why go through the hassle of being employed when you can sit at home and play computer games all day?

P.S. Given the option of voting on a basic income in 2016, Swiss voters overwhelmingly rejected the notion.

P.P.S. Former Vice President Joe Biden actually agrees with me about one of the downsides of basic income.

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Back in 2014, I shared a report that looked at the growth of redistribution spending in developed nations.

That bad news in the story was that the welfare state was expanding at a rapid pace in the United States. The good news is that the overall fiscal burden of those programs was still comparatively low. At least compared to other industrialized countries (though depressingly high by historical standards).

I specifically noted that Switzerland deserved a lot of praise because redistribution spending was not only relatively modest, but that it also was growing at a slow rate. Yet another sign it truly is the “sensible country.”

But I also expressed admiration for Canada.

Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

But I didn’t try to explain why Canada had good numbers.

Now it’s time to rectify that oversight. I went to the University of Texas-Arlington last week to give a speech and had the pleasure of meeting Professor Todd Gabel. Originally from Canada, Professor Gabel has written extensively on Canadian welfare policy and he gave me a basic explanation of what happened in his home country.

I asked him to share some of his academic research and he sent me several publications, including two academic studies he co-authored with Nathan Berg from the University of Otago.

Here are some excerpts from their 2015 study published in the Canadian Journal of Economics. Gabel and Berg explain welfare reform in Canada and look at which policies were most successful.

During the 1990s and 2000s, Canada’s social assistance (SA) system transitioned from a relatively centralized program with federal administrative controls to a decentralized mix of programs in which provinces had considerable discretion to undertake new policies. This transition led to substantially different SA programs across provinces and years… Some provincial governments experimented aggressively with new policy tools aimed at reducing SA participation. Others did not. In different years and by different amounts, nearly all provinces reduced SA benefit levels and tightened eligibility requirements.

By the way, the SA program in Canada is basically a more generous version of the Temporary Assistance to Needy Families (TANF) program in America, in part because there are not separate programs for food and housing.

The study includes this remarkable chart showing a significant drop in Canadian welfare dependency, along with specific data for three provinces.

The authors wanted to know why welfare dependency declined in Canada. Was is simply a result of a better macroeconomic environment? Or did specific reforms in welfare policy play a role?

…what role, if any, did new reform strategies undertaken by provinces play in observed declines in SA participation. This paper attempts to address this question by measuring disaggregated effects of new reform strategies on provinces’ SA participation rates, while controlling for changes in benefit levels, eligibility requirements, labour market conditions, GDP growth and demographic composition.

Their conclusion is that welfare reform helped reduce dependency.

…our econometric models let the data decide on a ranking of which mechanisms—reductions in benefit levels, tightened eligibility requirements, improved macro-economic conditions or adoption of new reform strategies—had the largest statistical associations with declines in participation. The data suggest that new reforms were the second most important policy reform after reductions in employment insurance benefits. … In the empirical models that disaggregate the effects of different new reform strategies, it appears that work requirements with strong sanctions for non-compliance had the largest effects. The presence of strong work requirements is associated with a 27% reduction in SA participation.

Here’s their table showing the drop in various provinces between 1994 and 2009.

The same authors unveiled a new scholarly study published in 2017 in Applied Economics, which is based on individual-level data rather than province-level data.

Here are the key portions.

A heterogeneous mix of aggressive welfare reforms took effect in different provinces and years starting in the 1990s. Welfare participation rates subsequently declined. Previous investigations of these declines focused on cuts in benefits and stricter eligibility requirements. This article focuses instead on work requirements, diversion, earning exemptions and time limits – referred to jointly as new welfare reform strategies.

Here’s their breakdown of the types of reforms in the various provinces.

And here are the results of their statistical investigation.

The empirical models suggest that new reform strategies significantly reduced the probability of welfare participation by a minimum of 13% overall…the mean person in the sample faces a reduced risk of welfare participation of 1.1–1.3 percentage points when new reform strategies are present… the participation rates of the disabled, immigrants, aboriginals and single parents, appear to have responded to the presence of new reform strategies significantly more than the average Canadian in our sample. The expected rate of welfare participation for these groups fell by two to four times the mean rate of decline associated with new reform policies.

The bottom line is that welfare reform was very beneficial for Canada. Taxpayers benefited because the fiscal burden decreased. And poor people benefited because of a transition from dependency to work.

Let’s close by looking at data measuring redistribution spending in Canada compared to other developed nations. These OECD numbers include social insurance outlays as well as social welfare outlays, so this is a broad measure of redistribution spending, not just the money being spent on welfare. But it’s nonetheless worth noting the huge improvement in Canada’s numbers starting about 1994.

Canada now has the world’s 5th-freest economy. Welfare reform is just one piece of a very good policy puzzle. There also have been relatively sensible policies involving spending restraint, corporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control.

P.S. If it wasn’t so cold in Canada, that might be my escape option instead of Australia.

P.P.S. Given the mentality of the current Prime Minister, it’s unclear whether Canada will remain an economic success story.

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In prior years, I’ve shared some videos with powerful messages with a common message. Grinding poverty used to be the normal human condition, but then rule of law and limited government enabled a dramatic increase in prosperity.

All these videos are worth watching. They show that misery used to be pervasive but then we became rich starting a couple of hundred years ago.

But there’s one shortcoming in these videos. They basically tell a story of how the western world became rich. In other words, they describe how North American and Western Europe went from agricultural poverty to middle class prosperity.

What about the rest of the world?

Well, there’s a good story to tell there as well, albeit it’s happened more recently. Back in 2014, I shared some data from Economic Freedom of the world showing how there was a substantial increase in global economic liberty starting about 1980.

Yes, there were improvements in western nations during that period (thanks to Reagan, Thatcher, etc), but there were also improvements in economic freedom elsewhere (collapse of the Soviet Empire, reforms in what used to be known as the Third World, etc).

In this video from Prager University, Arthur Brooks of the American Enterprise Institute explains that this shift to free enterprise is what produced greater prosperity all across the world.

By the way, folks on the left (see this Salon article) don’t like the fact that the world shifted in the direction of economic liberty.

They grouse that the developing world was subjected to a “Washington consensus” that imposed a “neoliberal” agenda (with neoliberal meaning “classical liberal“).

But here’s a visual showing how a shift to capitalism was great news for the less fortunate. The number of people in extreme poverty has dropped dramatically since the early 1990s.

I wish the data went back to 1980, but even these partial numbers are a tremendous confirmation of the hypothesis that free markets are the best way of helping the poor.

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I periodically share data showing that living standards are higher in the United States than in Europe.

My goal isn’t to be jingoistic. Instead, I’m warning readers that we won’t be as prosperous if we copy out tax-and-spend friends on the other side of the Atlantic (just like I try to draw certain conclusions when showing how many low-tax jurisdictions have higher levels of economic output than the United States).

I’m sometimes asked, though, how America can be doing better than Europe when we have more poverty.

And when I ask them why they thinks that’s the case, they will point to sources such as this study from the German-based Institute of Labor Economics. Here’s some attention-grabbing data from the report.

The United States has the highest poverty rate both overall and among households with an employed person, but it stands farther away from the other countries on its in-work poverty rate than its overall poverty rate. The contrast between the US and three other English-speaking countries — Australia, Ireland, and the United Kingdom — is particularly striking. Compared to those three nations, the United States has an overall poverty rate only a little higher but an in-work poverty rate that is much higher.

And here’s the main chart from the study, with the United States as the bottom. It appears that there twice as much poverty in the USA as there is in a stagnant economy like France.

There even appears to be more poverty in America than there is in Spain and Italy, both of which are so economically shaky that they required bailouts during the recent fiscal/financial crisis.

Sounds horrible, right?

Yes, it does sound really bad. However, it’s total nonsense. Because what you read in the excerpt and see in the graph has nothing to do with poverty.

Instead, it’s a measure of income distribution.

And, if you read carefully, the study actually admits there’s a bait-and-switch.

The…approach to measuring poverty is a “relative” one, with the poverty line set at 60 or 50 percent of the median income.

Think about what this means. A country where everyone is impoverished will have zero or close-to-zero poverty because everyone is at the median income. But as I’ve explained before, a very wealthy society can have lots of “poverty” if some people are a lot richer than others.

And since the United States is much richer than other nations, this means an American household with $35,000 of income can be poor, even though they wouldn’t count as poor if they earned that much elsewhere.

This is like grading on a rigged curve. And if you read the fine print of the IZA study, you’ll see that the “poverty” threshold for a four-person household magically jumps by $16,260.

For a household of four (two adults, two children) the difference between the official US threshold and the 60-percent-of-median threshold amounts to more than $16,000 ($24,000 versus $40,260). This means that the size of the working poor population in America according to the official poverty measure is significantly lower than the size obtained in studies using a relative threshold.

In other words, you can calculate a much higher poverty rate if you include people who aren’t poor.

By the way, since the IZA report acknowledges this bait-and-switch approach, I guess one would have to say that the study technically is honest.

But it’s still misleading because most people aren’t going to read the fine print. Instead, they’ll see the main chart showing higher “poverty” and assume that there is a much higher percentage of actual poor people in the United States.

Moreover, some people may understand that there’s a bait-and-switch and simply want to help fool additional people.

And I’m guessing that this is exactly what the authors and the IZA staff expected and wanted. And if that’s the case, then the study is deliberately misleading, even if not technically dishonest.

I’ll close by stating that I don’t mind if folks on the left want to argue that market-based societies are somehow unfair because some people are richer than others. And it’s also fine for them to argue that we should be willing sacrifice some of our national prosperity to achieve more after-the-fact equality of income.

But I’d like for them to be upfront about their agenda and not hide behind dodgy data manipulation.

P.S.When you do apples-to-apples comparisons of the United States with the best-performing economies of Europe, you find that the poor tend to be at the same level, but every other group is better off in America.

P.P.S. You probably won’t be surprised to learn that both the Obama Administration and the leftists at the OECD prefer the “relative” definition of poverty.

P.P.P.S. The problem with our statist friends, as Margaret Thatcher explained, is that some of them are so upset about inequality that they’re willing to make everyone poorer if that’s what it takes to reduce income differences.

P.P.P.P.S. Indeed, this “Swiftian” column about reducing inequality is satire, but one wonders whether statists would actually accept such an outcome.

P.P.P.P.P.S. Data from China demonstrates why our attention should be on poverty reduction rather than inequality.

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I’ve written (many, many times) about how the best way to help the poor is to focus on economic growth rather than inequality.

After all, in a genuine market economy (as opposed to socialism, cronyism, or some other form of statism), the poor aren’t poor because some people are rich.

Today, let’s look at a real-world example of why it is a mistake to focus on inequality.

A study by five Chinese scholars looked at income inequality over time in their country. Their research, published in 2010, focused mostly on the methodological challenges of obtaining good long-run data and understanding the impact of urban and rural populations. But one clear conclusion is that inequality has increased in China.

This paper investigates the influences of the income overlap part on the nationwide Gini coefficient. Then we present a new approach to estimating the Chinese Gini ratio from 1978 to 2006, which avoids the shortcomings of current data sources. In line with the results, the authors further probe the trend of Chinese income disparity. …income inequality has been rising in China. …the national Gini ratio of 2006 is 1.52 times more than that of 1978.

Here’s a chart based on their data (combined with post-2006 data from Statista). It looks at historical trends for the Gini coefficient (a value of “1” is absolute inequality, with one person accumulating all the income in a society, whereas a value of “0” is absolute equality, with everyone having the same level of income.

As you can see, there’s been a significant increase in inequality.

My leftist friends are conditioned to think this is a terrible outcome, in large part because they incorrectly think the economy is a fixed pie.

And when you have that distorted view, higher absolute incomes for the rich necessarily imply lower absolute incomes for the poor.

My response (beyond pointing out that the economy is not a fixed pie), is to argue that the goal should be economic growth and poverty reduction. I don’t care if Bill Gates is getting richer at a faster rate than a poor person. I just want a society where everyone has the chance to climb the economic ladder.

And I also point out that it’s hard to design pro-growth policies that won’t produce more income for rich people. Yes, there are some reforms (licensing liberalization, cutting agriculture subsidies, reducing protectionism, shutting the Ex-Im Bank, reforming Social Security, ending bailouts) that will probably be disproportionately beneficial for those with low incomes, but those policies also will produce growth that will help upper-income people.*

But I’m digressing. The main goal of today’s column is to look at the inequality data from above and then add the following data on poverty reduction.

Here’s a chart I shared back in March. As you can see, there’s been a very impressive reduction in the number of people suffering severe deprivation in rural China (where incomes historically have been lowest).

Consider, now, both charts together.

The bottom line is that economic liberalization resulted in much faster growth. And because some people got richer at a faster rate than others got richer, that led to both an increase in inequality and a dramatic reduction in poverty.

Therefore, what happened in China creates a type of Rorschach test for folks on the left.

  • A well-meaning leftist will look at all this data and say, “I wish somehow everyone got richer at the same rate, but market-based reforms in China are wonderful because so many people escaped poverty.”
  • A spiteful leftist will look at all this data and say, “Because upper-income people benefited even more than low-income people, market-based reforms in China were a failure and should be reversed.”

Needless to say, the spiteful leftists are the ones who hate the rich more than they love the poor (here are some wise words from Margaret Thatcher on such people).

*To the extend that some upper-income taxpayers obtain unearned income via government intervention, then they may lose out from economic liberalization. Ethical rich people, however, will earn more income if there are pro-growth reforms.

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For almost all of human history, the norm for 99 percent of the population was poverty and deprivation.

Then, starting a few hundred years ago, something amazing happened. There was a sudden explosion of prosperity. In past years, I’ve shared two videos explaining this remarkable phenomenon, which is linked to the unleashing of free markets, the rule of law, and property rights.

Now let’s look at some similar data, but for a different purpose. Here are some fascinating charts put together by Professor Max Roser of Oxford. As you can see at the top, almost everybody used to be poor. But as you look below, you’ll notice that an increasing share of the world’s population is middle class or above.

There are three takeaways from this data.

The first conclusion, as noted above, is that the world is getting richer. Hundreds of millions of people have been lifted out of extreme poverty. That’s wonderful news.

The second conclusion, as seen by the red section of the chart, is that a modest bit of reform in India and China has paid big dividends (and, given the success of Indian-Americans and Chinese-Americans, I imagine those nations could become much richer with additional market-friendly reform).

But I want to focus today on a third conclusion, which is that pro-growth policies are the best way to help the poor, not redistribution driven by a fixation on inequality.

More specifically, notice how there was a lot of inequality in the chart for 1975, particularly compared to the chart for 1800. My leftist friends, with their flawed belief that the economy is a fixed pie, would instinctively assume that Europe and the Americas somehow became comparatively rich because Asia and Africa stayed comparatively poor.

In reality, the real story is that the economies of the western world expanded because they found the recipe for growth and prosperity.

And the 2015 chart shows that the rest of the world is finally moving in that direction as well (as confirmed by long-run data from Economic Freedom of the world).

What would have happened, however, if our friends on the left had control of global policy in 1975 and imposed high tax rates in order to redistribute lots of income from rich nations to poor nations? In other words, what would have happened if they imposed on the world the policies that they try to impose in various nations?

If that had happened, the world economy would have underperformed. As Thomas Sowell has explained, such policies penalize productive behavior and subsidize unproductive behavior.

It’s possible that such policies would have reduced inequality, to be sure, but global income would have been far lower.

Fortunately, we avoided that outcome and instead enjoyed a reduction in inequality caused by better policy and growth-driven convergence.

Which is exactly the lesson for helping the less fortunate in individual nations.

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As I peruse the news, I periodically see headlines that are misleading in some fashion.

And if the headline is sufficiently off-key or bizarre, I feel compelled to grouse.

Now I have a new example, though I’m not sure whether to call it dishonest or clueless.

The EU Observer has a brief report that poverty has reached record levels in Germany.

Despite a booming economy, 12.9 million people in Germany were living below the poverty line in 2015, the Equal Welfare Association reported on Thursday. Based on figures from the Federal Statistical Office the alliance found a record high poverty rate of 15.7 percent in 2015.

By the way, I can’t resist pointing out that there is no “booming economy” in Germany. Growth in 2016 was only 1.9 percent.

Yes, that’s decent by European standards of stagnation and decline, but it’s far from impressive in any other context.

But I’m digressing. Let’s get back to the main point of today’s column.

As you can see from the story’s headline, the implication is that lots of people are left behind and mired in deprivation even though the economy is moving forward.

But there’s a problem with both the story and the headline.

If you read carefully, it turns out that both the story (and the study that triggered the story) have nothing to do with poverty.

No link at all. None. Zero. Nada. Zilch.

I’m not joking. There’s no estimate of the number of people below some measure of a German poverty line. There’s no calculation of any sort about living standards. Instead, this story (and the underlying report) are about the distribution of income.

…people [are] defined as poor when living on an income less than 60 percent of that of the median German household.

One might be tempted at this point to dismiss this as a bit of journalistic sloppiness. Indeed, one might even conclude that this is a story about nothing.

After all, noting that some people are below 60 percent of the median income level is about as newsworthy as a report saying that half of people are above average and half are below average.

But there actually is a story here. Though it’s not about poverty. Instead, it’s about an ongoing statist campaign to redefine poverty to mean unequal distribution of income.

I’m not joking. For instance, the bureaucrats at the Paris-based Organization for Economic Cooperation and Development actually put out a study claiming that there was more poverty in the United States than in nations such as Greece, Portugal, and Turkey.

How could they make such a preposterous claim? Easy, the OECD bureaucrats didn’t measure poverty. Instead, they concocted a measure of the degree to which various countries are close to the left-wing dream of equal incomes.

And the Obama Administration also tried to manipulate poverty statistics in the United States in hopes of pushing this statist agenda of coerced equality.

Robert Rector of the Heritage Foundation wrote about what Obama tried to do.

…the Obama administration…measure, which has little or nothing to do with actual poverty, will serve as the propaganda tool in Obama’s endless quest to “spread the wealth.” …The current poverty measure counts absolute purchasing power — how much steak and potatoes you can buy. The new measure will count comparative purchasing power — how much steak and potatoes you can buy relative to other people. …In other words, Obama will employ a statistical trick to ensure that “the poor will always be with you,” no matter how much better off they get in absolute terms. …The weird new poverty measure will produce very odd results. For example, if the real income of every single American were to magically triple over night, the new poverty measure would show there had been no drop in “poverty,” because the poverty income threshold would also triple. …Another paradox of the new poverty measure is that countries such as Bangladesh and Albania will have lower poverty rates than the United States, even though the actual living conditions in those countries are extremely bad.

Even moderates such as Robert Samuelson recognized that Obama’s agenda was absurd. Here is some of what he wrote.

…the new definition has strange consequences. Suppose that all Americans doubled their incomes tomorrow, and suppose that their spending on food, clothing, housing and utilities also doubled. That would seem to signify less poverty — but not by the new poverty measure. It wouldn’t decline, because the poverty threshold would go up as spending went up. Many Americans would find this weird: People get richer but “poverty” stays stuck.

To put this all in context, the left isn’t merely motivated by a desire to exaggerate and misstate poverty. That simply the means to an end.

What they want is more redistribution and higher tax rates. The OECD openly admitted that was the goal in another report. Much as all the fixation about inequality in America is simply a tool to advocate bigger government.

P.S. Germany is an example of a rational welfare state. While the public sector is far too large, the country has enjoyed occasional periods of genuine spending restraint and German politicians wisely avoided a Keynesian spending binge during the last recession.

P.P.S. Though Germany also has its share of crazy government activity, including a big green-energy boondoggle. And lots of goofy actions, such as ticketing a one-armed man for have a bicycle with only one handlebar brake, taxing homeowners today for a street that was built beginning in the 1930s, making streetwalkers pay a tax by using parking meters, and spending 30 times as much to enforce a tax as is collected.

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If there was an award for the most dramatic political development of 2016, it would presumably be the election of Donald Trump.

If there was an award for the best policy reform of 2016, my vote would be the constitutional spending cap in Brazil.

If there was an award for the greatest outburst of sensibility in 2016, it would be the landslide vote in Switzerland against a government-guaranteed income.

But what about an award for the most compelling article of 2016? Well, we still have a few days left in the year, so it’s theoretically possible that I’ll change my mind, but as of today the award would go to my friend Deirdre McCloskey for her December 23 column in the New York Times.

She addresses the fundamental issue of whether policy should be designed to reduce poverty or increase equality. Here’s some of what she wrote.

Eliminating poverty is obviously good. And, happily, it is already happening on a global scale. …We need to finish the job. But will we really help the poor by focusing on inequality? …The Princeton philosopher Harry Frankfurt put it this way: “Economic equality is not, as such, of particular moral importance.” Instead we should lift up the poor… Another eminent philosopher, John Rawls of Harvard, articulated what he called the Difference Principle: If the entrepreneurship of a rich person made the poorest better off, then the higher income of the entrepreneur was justified.

But Deirdre doesn’t limit herself to philosophical arguments.

She looks at the practical issues, such as whether governments have the ability (or motives!) to correctly re-slice the economic pie.

A practical objection to focusing on economic equality is that we cannot actually achieve it, not in a big society, not in a just and sensible way. …Cutting down the tall poppies uses violence for the cut. And you need to know exactly which poppies to cut. Trusting a government of self-interested people to know how to redistribute ethically is naïve. Another problem is that the cutting reduces the size of the crop. We need to allow for rewards that tell the economy to increase the activity earning them. …An all-wise central plan could force the right people into the right jobs. But such a solution, like much of the case for a compelled equality, is violent and magical. The magic has been tried, in Stalin’s Russia and Mao’s China. So has the violence.

Deirdre notes that people sometimes are drawn to socialism, in part because of how we interact with family and friends.

But you can’t extrapolate those experiences to broader society.

Many of us share socialism in sentiment, if only because we grew up in loving families with Mom as the central planner. Sharing works just fine in a loving household. But it is not how grown-ups get stuff.

When redistributionist principles are imposed on broader society, bad things happen.

As a matter of arithmetic, expropriating the rich to give to the poor does not uplift the poor very much. …And redistribution works only once. You can’t expect the expropriated rich to show up for a second cutting. In a free society, they can move to Ireland or the Cayman Islands. And the wretched millionaires can hardly re-earn their millions next year if the state has taken most of the money.

In other words, you get a shrinking pie rather than a growing pie. As Tom Sowell also has observed, people don’t produce as much when the government seizes the fruits of their labor.

And in that kind of world, it’s theoretically possible that poor people will have a greater share, but they still wind up a smaller amount (moreover, in practice the government elite wind up with all the wealth).

So what’s the bottom line?

Deirdre cites South Korea as an example of a nation where poor people now enjoy much better lives thanks to growth, and she then asks readers the key question: Will the poor benefit more from the classical liberal principles of rule of law and free markets, or will they benefit more from coercive redistribution?

Her explanation is magnificent.

It is growth from exchange-tested betterment, not compelled or voluntary charity, that solves the problem of poverty. …Which do we want, a small one-time (though envy-and-anger-satisfying) extraction from the rich, or a free society of betterment, one that lifts up the poor by gigantic amounts? We had better focus directly on the equality that we actually want and can achieve, which is equality of social dignity and equality before the law. Liberal equality, as against the socialist equality of enforced redistribution, eliminates the worst of poverty. …To borrow from the heroes of my youth, Marx and Engels: Working people of all countries unite! You have nothing to lose but stagnation! Demand exchange-tested betterment in a liberal society. Some dare call it capitalism.

Glorious!

I’ve also addressed this issue, on multiple occasions, and I think the resolution of this growth-vs-redistribution debate may very well determine the future of our nation. So I don’t think it’s an exaggeration to say Deirdre’s column is the most important article of 2016.

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Because of my disdain for the two statists that were nominated by the Republicans and Democrats, I’m trying to ignore the election. But every so often, something gets said or written that cries out for analysis.

Today is one of those days. Hillary Clinton has an editorial in the New York Times entitled “My Plan for Helping America’s Poor” and it is so filled with errors and mistakes that it requires a full fisking (i.e., a “point-by-point debunking of lies and/or idiocies”).

We’ll start with her very first sentence.

The true measure of any society is how we take care of our children.

I realize she (or the staffers who actually wrote the column) were probably trying to launch the piece with a fuzzy, feel-good line, but let’s think about what’s implied by “how we take care of our children.” It echoes one of the messages in her vapid 1996 book, It Takes a Village, in that it implies that child rearing somehow is a collective responsibility.

Hardly. This is one of those areas where social conservatives and libertarians are fully in sync. Children are raised by parents, as part of families.

To be fair, Hillary’s column then immediately refers to poor children who go to bed hungry, so presumably she is referring to the thorny challenge of how best to respond when parents (or, in these cases, there’s almost always just a mother involved) don’t do a good job of providing for kids.

…no child should ever have to grow up in poverty.

A laudable sentiment, for sure, but it’s important at this point to ask what is meant by “poverty.” If we’re talking about wretched material deprivation, what’s known as “absolute poverty,” then we have good news. Virtually nobody in the United States is in that tragic category (indeed, one of great success stories in recent decades is that fewer and fewer people around the world endure this status).

But if we’re talking about the left’s new definition of poverty (promoted by the statists at the OECD), which is measured relative to a nation’s median level of income, then you can have “poverty” even if nobody is poor.

For the sake of argument, though, let’s assume we’re using the conventional definition of poverty. Let’s look at how Mrs. Clinton intends to address this issue.

She starts by sharing some good news.

…we’re making progress, thanks to the hard work of the American people and President Obama. The global poverty rate has been cut in half in recent decades.

So far, so good. This is a cheerful development, though it has nothing to do with the American people or President Obama. Global poverty has fallen because nations such as China and India have abandoned collectivist autarky and joined the global economy.

And what about poverty in the United States?

In the United States, a new report from the Census Bureau found that there were 3.5 million fewer people living in poverty in 2015 than just a year before. Median incomes rose by 5.2 percent, the fastest growth on record. Households at all income levels saw gains, with the largest going to those struggling the most.

This is accurate, but a grossly selective use of statistics.

If Obama gets credit for the good numbers of 2015, then shouldn’t he be blamed for the bad numbers between 2009-2014? Shouldn’t it matter that there are still more people in poverty in 2015 than there were in 2008? And is it really good news that it’s taken Obama so long to finally get median income above the 2008 level, particularly when you see how fast income grew during the Reagan boom?

We then get a sentence in Hillary’s column that actually debunks her message.

Nearly 40 percent of Americans between the ages of 25 and 60 will experience a year in poverty at some point.

I don’t know if her specific numbers are accurate, but it is true that that there is a lot of mobility in the United States and that poverty doesn’t have to be a way of life.

Hillary then embraces economic growth as the best way of fighting poverty, which is clearly a true statement based on hundreds of years of evidence and experience.

…one of my top priorities will be increasing economic growth.

But then she goes off the rails by asserting that you get growth by spending (oops, I mean “investing”) lots of other people’s money.

I will…make a historic investment in good-paying jobs — jobs in infrastructure and manufacturing, technology and innovation, small businesses and clean energy.

Great, more Solyndras and cronyism.

And fewer jobs for low-skilled workers, if she gets here way, along with less opportunity for women (even according to the New York Times).

And we need to…rais[e] the minimum wage and finally guarantee… equal pay for women.

The comment about equal pay sounds noble, though I strongly suspect it is based on dodgy data and that she really favors the very dangerous idea of “comparable worth” legislation, which would lead to bureaucrats deciding the value of jobs.

Then Hillary embraces a big expansion of the worst government department.

…we also need a national commitment to create more affordable housing.

And she echoes Donald Trump’s idea of more subsidies and intervention in family life.

We need to expand access to high-quality child care and guarantee paid leave.

And, last but not least, she wants to throw good money after bad into the failed Head Start program.

…we will work to double investments in Early Head Start and make preschool available to every 4-year-old.

Wow, what a list. Now perhaps you’ll understand why I felt the need to provide a translation of her big economic speech last month.

The moral of the story, based on loads of evidence, is that making America more like Europe is not a way to help reduce poverty.

P.S. The only other time I’ve felt the need to fisk an entire article occurred in 2012 when I responded to a direct attack to my defense of low-tax jurisdictions.

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Over the years, I’ve shared some clever images, jokes, and cartoons to expose the flawed mindset of those who hope to achieve coerced equality of outcomes with redistribution and high tax rates.

The size of a pizza vs the share of a slice.

The modern version of the Little Red Hen.

Washington’s Byzantine welfare state.

Chuck Asay’s overburdened tractor.

A left-wing nursery rhyme.

The Wizard-of-Id parody.

Two pictures showing how the welfare state begins and ends.

A socialist classroom experiment (including a video version).

The economics of redistribution in one image.

As you can see, this is a common-sense issue. When you give people money on the condition that they don’t earn much money, you create a perverse incentive for them to be unproductive.

Especially since, when people work more and earn more, they get hit by a combination of fewer handouts and more taxes. The net result is very high implicit marginal tax rates, in some cases rising above 100 percent.

Needless to say, it’s very foolish to have a welfare state that puts people in this untenable situation where the welfare state becomes a form of economic quicksand.

And it’s also foolish to punish the people who are pulling the wagon with high tax rates and pervasive double taxation of income that is saved and invested.

Russell Jaffe, one of our Cato interns, helpfully cranked out a clever little image showing how redistribution is bad for both those who receive and those who pay.

No wonder the welfare state and War on Poverty have been bad news for both taxpayers and poor people.

And the problem is getting worse, not better.

Let’s begin to wrap up. I shared a Thomas Sowell quote at the beginning to today’s column.

Now let’s read some of his analysis.

He aptly and succinctly summarized why redistribution is a no-win proposition (h/t: Mark Perry).

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. …It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. …Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly. …We have all heard the old saying that giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future.

So what’s the bottom line?

The simple (and correct) answer is to dismantle the welfare state. State and local governments should be in charge of “means-tested” programs, ideally with much less overall redistribution (a goal even some Scandinavian nations are trying to achieve).

In effect, the goal should be to replicate the success of the Clinton-era welfare reform, but extending the principle to all redistribution programs (Medicaid, food stamps, EITC, etc).

P.S. Some honest leftists admit that the welfare state cripples independence and self reliance.

P.P.S. For those who like comparisons, you can peruse which states provide the biggest handouts and also which nations have the most dependency.

P.P.P.S. To end on a sour note, our tax dollars are being used by the Paris-based OECD to produce junk research that argues more tax-financed redistribution somehow is good for growth.

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The welfare state is bad news. It’s bad for taxpayers and it’s bad for recipients.

It’s also bad for the economy since prosperity is in part a function of the quantity of labor that is productively employed. As such, government programs that lure people into dependency obviously reduce national economic output.

We can get a sense of how the nation is being hurt by reviewing some of the scholarly literature.

Writing for the Cato Journal, Lowell Gallaway and Daniel Garrett explore the relationship between redistribution spending and poverty reduction.

They start by pointing out that more welfare spending used to be associated with reductions in poverty. But when President Johnson launched his so-called War on Poverty and dramatically increased the level of redistribution, the link between welfare spending and poverty reduction substantially weakened.

…the real per capita cost in the United States of federal public aid rose 70 percent in the 11 years between 1953—the first year the federal government reported an official poverty rate—and Johnson’s 1964 remarks. In the 11 years that followed, however, that same real per capita cost increased by an astonishing 434 percent—that is, more than six times faster than in 1953–64. …in 1953–64, every 10 percentage point increase in public aid was associated with a 1 percentage point drop in the official poverty rate. Compare that with the experience of the 11 years following the outbreak of hostilities in the War on Poverty. During that interval, every 1 percentage point fall in the poverty rate was accompanied by a 50 percentage point increase in real public aid. …the relationship between public aid and the poverty rate is subject to the principle of diminishing returns.

Not just a diminishing return. There’s a point at which more redistribution actually leads to an increase in poverty.

Just like there’s a point at which higher tax rates lead to less revenue. And the authors recognize this link.

This is a Laffer Curve type relationship, which is to say that while public aid initially decreases poverty, there eventually comes a point at which additional increases in public aid increase poverty. …the effectiveness of additional real public aid expenditures, as a policy instrument designed to reduce the poverty rate, had been exhausted by the mid-1970s. Indeed, any additional public aid beyond the mid-1970s levels would result in an increase, not a decrease, in the poverty rate.

Gallaway and Garrett crunch the numbers.

…to calculate the impact of public aid expenditures on the incidence of poverty in the United States. The greatest poverty-reducing effect occurs at $1,291 of per capita expenditures on public aid, which produces a 6.07 percentage point reduction in the overall poverty rate. However, as the level of real per capita public aid rises beyond $1,291, the poverty reducing effect is eroded. …at $2,407 of per capita public aid, all of the initial reductions in the poverty rate have disappeared. …By 2010, real per capita aid stood at $2,697—a level that produces a 2.52 percentage point increase in the poverty rate. Thus, the impact of per capita public aid in 2010 being $1,406 greater than the optimal, poverty-reducing level was to increase the poverty rate by 8.59 percentage points, according to our analysis.

Here’s the relevant table from their article.

Unfortunately, they didn’t create a hypothetical curve to show these numbers, so we don’t have the welfare/poverty version of the Laffer Curve.

But they do estimate the negative human impact of excessive redistribution spending.

Since the official poverty rate in 2010 was 15.1 percent, this implies that in the absence of that extra $1,406 of per capita public aid, the official poverty rate in 2010 would have been 6.5 percent. …Taking dynamic factors into consideration would probably lower the figure to less than 6 percent. This implies that the actual poverty rate in 2010 was more than two and-one-half times higher than it could have been were it not for the excessive use of public aid income transfers as an instrument of policy. In other words, it may be argued that public aid overreach was responsible for approximately 30 million extra people living in poverty in 2010.

And children are among the biggest victims.

…one in every eight American children is living below the poverty line because public aid payments exceed the level that would minimize the poverty rate.

Ugh, this is terrible news. Children raised in government-dependent households are significantly more likely to suffer adverse life outcomes, in large part because of very poor social capital.

Last but not least, the authors also speculate that excessive redistribution may be one of the reasons why the distribution of income has shifted.

…up to the mid- 1970s, government cash income transfers (public aid) were increasing the incomes of those in the bottom quintile of the income distribution by more than work-disincentive effects were reducing them. The result was a reduction in the official poverty rate. …However, as the volume of public aid payments continued to increase, the work-disincentive effect more than offset the income enhancements generated by the flow of public aid. As this happened, the poverty rate began to drift upward and the percentage share of all income received by those in the bottom quintile of the income distribution began what would turn out to be a long and steady decline.

By the way, I don’t think that there’s a “correct” or “proper” level of income distribution. That should be a function of what people contribute to economic output. I’m concerned instead with boosting growth so everyone has a chance to rise.

Which is why it is especially tragic that redistribution spending is trapping less-fortunate people in long-term government dependency by undermining their incentives to earn income.

The bottom line is that it’s time to reduce – and ideally eliminate – the Washington welfare state.

Though that involves a major challenge since the real beneficiaries of the current system are the “poverty pimps” in Washington.

P.S. This Wizard-of-Id parody contains a lot of insight about labor supply and government-distorted incentives. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

P.P.S. If you want to see sloppy and biased analysis (paid for with your tax dollars), take a look at efforts to rationalize that redistribution is good for growth from the International Monetary Fund and Organization for Economic Cooperation and Development.

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Whenever I pontificate about the health of the American economy, I feel like Goldilocks. Instead of arguing that the economic porridge is too hot or too cold, or that the economic bed is too hard or too soft, I conclude that we’re stuck in the middle.

We generally outperform Europe’s high-tax welfare states, but we usually lag behind the small-government tiger economies of Asia.

But while Goldilocks always liked the middle option, I obviously think we should be more like Hong Kong and Singapore.

With this bit a background, let’s look at some supposedly really bad news that actually is modestly good news.

The folks at the Pew Research Center just issued a major report on income trends over the past 40-plus years. Based on their headline, you would think it’s filled with horrible news. Sort of like saying the economic porridge is way too cold.

So is it true that the middle class is “losing ground” and “falling behind”?

Michael Fletcher, writing for the Washington Post, seems to accept that spin. He opened his column by portraying the report’s findings as a sign of dystopian inequality.

After more than four decades of economic realignment and creeping inequality, the U.S. middle class is no longer the nation’s majority.

Yet even he was forced to acknowledge that this supposed “tipping point” is primarily the result of more households earning more money.

The nation has arrived at this tipping point in part because more Americans are moving up the income ladder. In 1971, just 14 percent of Americans were in the upper income tier, which Pew defined as more than double the nation’s median income. Now, 21 percent of American households are in that upper earning category — at least $126,000 a year for a three-person household.

Though he does his best to find a dark lining to this silver cloud, using loaded language to imply that those with modest incomes are disadvantaged because income is being “captured” by the rich.

…at the same time, many Americans are falling behind…. In 1971, a quarter of American households fell into the bottom earning tier, which Pew defined as less than two-thirds of the nation’s median income. By 2015, 29 percent of American households fell into that category. …The decline of the middle class has been accompanied by growing inequality, as a growing share of the nation’s income has been captured by those at the top.

But the Pew Report confirmed that the economy is not a fixed pie. Yes, the rich have become richer, but even Mr. Fletcher concedes that their income gains are not at the expense of the less fortunate. This is because the rest of us are becoming richer as well.

…Americans of all income levels have grown more prosperous, Pew found. Middle class families have seen their income grow by 34 percent in inflation-adjusted dollars since 1970, while lower-income Americans have experienced income growth of 28 percent.

He also reports that African-Americans have enjoyed above-average income growth.

…black Americans have made more economic gains than others in recent decades. Between 1971 and 2015, for example, the share of black Americans in the upper income tier more than doubled to 12 percent.

Here’s a chart from the Pew report. Note that these numbers are not based on changes in actual income, but instead measure how each group is faring relative to other slices of the population.

Maybe I’m just a naive Pollyanna, but the numbers in the Pew Report, even as characterized by the Washington Post, don’t seem like a damning indictment of American society.

Indeed, they sort of validate my view that things are getting better over time, albeit not as quickly as they would be improving if we followed the right recipe and had smaller government and less intervention.

In other words, we may not have hot, Hong Kong-style porridge, but it’s at least room temperature.

But Scott Winship of the Manhattan Institute is the real expert on these issues, so I was happy to see that he wrote an article on the Pew study for National Review.

Here are some of his key observations, starting with the essential insight that it’s much better to focus on income trends rather than income distribution.

Pew’s definition of “middle income” isn’t anchored to any fixed standard of living. In fact, it represents a rising standard of living over time. Imagine that the incomes of the poor, middle, and rich all increase by 50 percent over time. The Pew measure would indicate that the share of adults who are “middle income” would be no higher than it was initially. It is not obvious why we should care that the middle class, in this example, is no larger over time.

Amen. This is the same point I make when criticizing dishonest poverty analysis.

We should care about whether living standards for ordinary people are increasing, not whether rich people are getting richer.

Scott then looks at those income trends and finds good news.

…between 1969 and 2007, the household income of the median adult rose by 52 percent. …the 25th percentile (the income of the person poorer than 75 percent of adults) rose by 40 percent from 1969 to 2007. …While middle-income adults, by Pew’s definition, have shrunk by 11 percentage points as a share of the population since 1970, 7 points of that decline is due to more Americans’ being in the upper-income group. …Using the Pew measure of household income, the middle fifth grew richer by 53 percent from 1969 to 2007. My preferred measures showed a rise between 54 percent and 64 percent, depending on whether one adjusts for declining household size. …poor and middle-class Americans are both substantially better off than 45 years ago.

Now let’s shift to what really matters.

The left very much wants to focus on the distribution of income as part of their “inequality” campaign.

If they can convince people that the economy is a fixed pie, and combine that falsehood with rhetoric about higher incomes earned by the rich, that bolsters their case for ostensibly saving the middle class with soak-the-rich tax policies and greater levels of redistribution.

And that probably explains why the folks at Pew (along with certain journalists) decided to imply that the glass is 90 percent empty when it’s actually 60 percent full.

Winship hits the nail on the head in his conclusion.

A policy agenda designed with a crumbling middle class in mind is not only inappropriate, but it could actually hurt the living standards of the middle class in the process.

He’s exactly right.

Nations such as Greece and France have pursued the policies favored by American leftists and the net result – at best – is anemic growth and stagnant living standards.

To conclude, here’s a video that I saw on Ted Frank’s Twitter feed. I couldn’t figure out how to embed it, but was able to download it and put it on YouTube.

You’ll notice a big jump over time in the amount of households earning above $200,000 per year. Call me crazy, but I want there to be more rich people, so this is a good development.

But if you play close attention, the other big takeaway from this data (and the one that merits some celebration) is that more and more people are earning higher and higher levels of income over time. And remember, these are inflation-adjusted dollars.

So let’s be happy that ordinary people in America are climbing the economic ladder. But let’s recommit ourselves to fight harder for pro-growth policies such as tax reform and entitlement reform so their ascent up the ladder will be faster.

P.S. Here are some examples of how statist policies increase inequality.

P.P.S. The comparative data on income trends and inequality in the United States and Scandinavia is worth perusing.

P.P.P.S. And I never get tired of sharing this Margaret Thatcher video because she succinctly explains that many leftists would rather hurt the rich than help the poor.

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