Friday, October 09, 2009

The Poverty of debate over poverty.

There is a lot of poor thinking going on when it comes to poverty. I hear more absurd or irrational statements made about poverty than almost anything else except, perhaps, the environment.

Here are a couple of common errors about poverty and why they are wrong.

The cause of poverty myth: This one is found in statements that usually begin with “Poverty is caused by....” Now it really does not matter how you fill in the blank. Poverty is not caused. It is the default nature of man. It is like asking: “What causes nudity?” Nothing! We are born naked.

As the saying goes we come into this world with nothing and we leave with nothing. Poverty is the natural state of existence while wealth is artificial. Wealth is created. Wealth, like clothes, has a cause where poverty does not. The proper question to ask is what causes wealth not what causes poverty?

If you understand the wealth creation process then you can see ways to end poverty. And when you realize that wealth creation is a process you can investigate what blocks it. Almost without exception the process is blocked by force. That force can be from marauding gangs who pillage
production or governments who tax it.

The block can be naturally caused or man-made. But roadblocks exist that have to be torn down. People want to make exchanges because through exchange they maximize wealth even when no new wealth is created. If I trade an orange for an apple I am ‘wealthier” by my own standards and so is the person who got the orange. That is because I only make the exchange because I value the apple more than the orange and my trading partner only does so when he values the orange more than the apple. We each walk away from the exchange with an increase in our own well being according to our own values.

But if someone comes along and prevents or inhibits the exchange then both traders are worse off. If they ban the trade, because my partner lives within one set of imaginary lines drawn on a map, and I live within another set, it matters not. We are still worse off. If they forbid the exchange because they don’t like my race or nationality there is still a reduction in well being.

Or if they come in and tax the exchange we are still worse off than we would be. All uses of force to interfere with voluntary exchange, by definition, substitutes the values of the one who uses the force for those of the traders. That inhibits wealth creation. And when this is inhibited the natural state of poverty either continues or the state of things revert. Wealth is man-made, poverty is natural. And that means wealth, once made, must be preserved as later interference with the process can cause poverty to reassert itself. When the process is stopped things revert to their default state.

The "equality matters" myth: If Bill Gates get richer I am supposedly worse off. But I have never heard anyone explain how this is the case. This is called relative poverty. I may be well off but if you are better off then I am relatively impoverished compared to you.

That’s like calling someone who is 6’ tall “relatively short” because someone else may be 6’4”. A person who weighs 150 lbs is “relatively” fat compared to a person who is anorexic.

This concept of “relative poverty” is absolutely irrational. It tells us nothing. You can make almost any case you wish by using a “relative” comparison. I could argue that the average American is “relatively poor” if I use the wealth of the top 10% of the population as my point of comparison. Or I can argue they are “relatively rich” if I compare them to the average income of people in the developing world.

And the Left, who are notorious at stripping words of any rational content, does this all the time. If they want to attack capitalism and make Americans feel “exploited” and envious they will compare the average working income to that of the average CEO. From this they conclude that Americans are made worse off by capitalism because “relative poverty” or wealth inequality is growing.

But when they want to make the average worker feel as if he is an exploiter, and appeal to his guilt, they compare the same income to that of poor people. One day you can be “too poor” and the next day you can be “too rich” simply by shifting the goal posts.

Such concepts add nothing to a discussion. But they are not meant to. They are used precisely because they allow one to make any argument anytime.

The poor as a static group myth: This has two variations. One is that there are X number of poor people in nation in one year, and then X number later down the road, indicating that no progress has been made. The assumption is that the people, who were poor, say in 1990, are the same people who are poor in 2005.

In fact people who are “poor” in any one year are mostly a changing group. A university student can be poor in his 20s because he is a part-time employee while studying. But with a valuable degree he may become one of the rich 20 years down the road. The category “poor” is not necessarily static but may be a changing one.

Another variation of the static concept is to define “poor” as some arbitrary percentage of the population. A popular definition of poverty is one where the “poor” are defined as anyone in the bottom 10 or 20 percent when it comes to income. The problem is that this definition means it is impossible to eradicate poverty. Even in a community of millionaires someone will be in the bottom percentage.

While this is a static definition it really is a fallacy that is similar to the first one discussed—that of “relative poverty”. This is so because the bottom percentage is always determined in relation to the income of others. This is a popular theory with some special interest groups because you cannot eradicate poverty since you cannot abolish the bottom percentage no matter what you do. It is always there. And that justifies the existence of the antipoverty group or its programs for eternity. That appeals to them.

Just clearing up the poor thinking around poverty can do a lot to clarify what needs to be done, or needn’t be done, when it comes to wealth creation. And poverty will only be ended when wealth creation is allowed to flourish.

For some information on the actual state of American poverty go here.