One can do controlled experiments in chemistry or biology to determine if correlation really is a sign of causation. but not in macroeconomics. The best one can do is make side-by-side comparisons of similar countries or regions that pursue different economic policies, along with a good helping of common sense.
For the first tactic, compare South Korea to North Korea since the Korean War. Compare West Germany to East Germany during the time when they existed. Compare Chile and Argentina over the past 40 years. Compare, even, the northern and southern United States for most of their history. Southern states didn’t allow many of their citizens basic economic freedoms, and as a result, became poorer.
As for common sense, just think about it. Compare the USA circa 1776 to France or Russia or China or almost any other country. In the USA, a farmer owned his land and got to keep his profits. Consequently he had a huge motivation to make the largest possible profit. Consequently he was willing to work hard, to adopt new technology quickly, and to make changes in order to serve his customers or find new customers.
By contrast, a farmer in France or Russia or China didn’t own his land. If he made a profit, it all went to the Noble/Duke/King/Emperor/whatever. Hence farmers had not motivation to work hard, use new technologies, or find new customers.
Obviously this logic does not apply only to farmers, but also to all kinds of businesses.
One way to define poverty would be to come up with a standard of being able to afford basic housing, basic healthcare, food, and having a reasonable chance of getting a job if you really want it. I think we can imagine a world in which some people are rich (a few people fabulously so), but almost nobody is really poor in the sense of sleeping under park benches and being unable to afford food. In any capitalist system you’re going to have people with below-average incomes. Whether or not “low income” automatically means “poor” doesn’t seem to be a given. Not everyone will be able to afford a Ferrari, but the vast majority of people won’t have trouble affording rent on a small apartment and food and healthcare.
Good point. In any society you are going to have a few people who just can’t function in society (habitual criminals, people who want to live the “homeless lifestyle”, etc.) and are likely to remain poor. Those people who really don’t want to be poor and are willing to do something about it (without society throwing a monkey wrench into it and preventing them from doing it) can generally be helped. Maybe someday society will be able to afford “make work” jobs for all of the people who want to work but simply can’t learn enough skills.
And they (meaning employers) want the unemployed to be as miserable as possible because that makes unemployment ore effective as a threat. They can exploit and abuse their employees more the more their workers are terrified of losing their jobs.
And, there is a subset of the Right that looks at being unemployed or poor as sinful, a sign of God’s displeasure; they want to poor to suffer as punishment for their sins. That attitude goes back centuries, resulting in all the abuses of workhouses and the like.
Well, maybe. But primarily, they want to minimize the cost of production and maintain demand and therefore price of product at the highest levels to maximize profits. This works best when the labor pool and the customer base as separate.
The definition of basic is relative, not absolute. So as wealth increases the base level of housing, health care, food, transportation, etc will go up. In the US we have universal public health. Almost everyone has sanitation, clean water, basic medicine, pollution free living space, vaccines, etc. But we don’t have guaranteed personal health care like in Europe. For some nations just having guaranteed public health would be basic. For the US that isn’t enough.
I was in what I was told a professional town in Mexico (where the doctors, dentists, etc lived). The cars were all from the 1980s and mopeds were everywhere. The houses were run down. The poor in the US live better than they did for housing and transportation or so it seemed. But Mexico has affordable universal health care which we do not. The tour guide could’ve been embellishing about the town being upper class.
By 2100 anyone who doesn’t have all their household chores performed by robots will be considered poor.
However for the time being I guess protection from the elements, proper nutrition, basic healthcare, etc ate good metrics.
Unless an economic structure is so horrible that everyone has nothing, surely the answer for why there is intractable relative poverty is that our species has an enormous range of skillsets from the least able to the most able. Over the long haul those most able to accumulate wealth control its distribution, and they are not typically inclined to parse it out to everyone until it’s time to think about a legacy. Wealth accrues to the talented (talented at making or accumulating wealth) and the lucky; by definition that is a small percentage of everyone.
Particularly in non-homogeneous societies, maldistribution is the most likely state, and overcoming it the most unlikely goal to be achieved, particularly since default behaviour is narcissism. Altruism tends to remain only cerebral if we are talking about my personal money that needs redistribution by external fiat.
I think there’s a bigger behavioral component at play here; I’m certain that talent/intelligence/luck follow normal distributions- most people are pretty similar in terms of that kind of thing.
What’s not equal are the behaviors and values that they’re taught as children.
If you take two kids of equlal ability, and you raise one in a household that highly values education, reading, being employed, and being successful, and then you raise the other in a household with the typical poverty behaviors and without much value on education, reading or being employed, it’s very likely that the first kid will be vastly more successful than the first, all else being equal.
The poor and/or unsuccessful people I’ve known haven’t ever been particularly stupid, but have had attitudes and behaviors that hamstrung them terribly and effectively crippled their ability to get ahead and NOT be poor.
Strangely enough, the really stupid people I’ve met were more successful because they basically worked like hell and didn’t get hung up on the fact that they were poor or anything like that.
That’s why I think poverty seems so intractable; throwing money at the poor isn’t going to change how they spend it- they’ll just spend it faster or in bigger chunks. There has to be a sea change of some kind to change the basic values- get rid of the windfall mentality that happens with every paycheck, for example. Or give them hope that they can change things. Without that kind of sea change, it’s a vicious self-reinforcing circle that is passed from generation to generation.
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Many people who are middle class today are just one or two generations from their poor and/and working class roots. If poverty were intractable, you wouldn’t expect this.
I agree that throwing money at people isn’t going to help them. Maybe throwing good paying jobs and (as you say) hope at them does.
The truth is we actually benefit from people’s greed.
The solution is simple. Maximize personal liberty and restrict the govt to national defense and enforcing contractual obligations.
As Bastiat put it, "“Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” http://bastiat.org/en/government.html
An answer for remote locations in Spain* has been “rural tourism”: rent out part of your farmhouse to visitors. I think “dude ranches” are a similar concept. It requires having a “presentable” house to start with, though.
Another idea that’s popular is setting up shop with the kind of jobs where you work remotely.
Those specific ideas may not work for that specific West VA town, what I’m saying is, there is more than a way out of any corner.
Yes, I realize our notion of remote is barely beyond suburbia in terms of American distances. But it’s not so in terms of comparable cultural levels, villages that were about to disappear or had already lost all inhabitants, etc.
I think it’s sort of like vapor pressure in a sense; molecules (families) come and go from the liquid at a set rate, but the total volume of liquid doesn’t generally change.
I think in this model, people do leave poverty, and people do fall into poverty, but in general, it’s the poverty behaviors and values in the community and families that applies the “pressure” so to speak to keep most poor people poor.
Lessen that “pressure” in some way, and you’ll have more people escaping poverty, and increase it in some other way, and you’ll increase it.
You are better off, and McDonalds is better off, but how about the person you hand the money to? Assuming that his value add is greater than his wage (or else he wouldn’t be hired) what benefit is it to his employer to increase his salary based on his actual productivity? The employer clearly wants to pay him the minimum the laws and the labor market will allow. That is capitalism at work. Thus wage increases have not kept up with productivity.
This means that those with scarce skills will do well, but those with common skills will be driven to lower wages - thus increased inequality.
Why? Nowhere even in pure socialism (which is not even on the table anywhere) does it say you limit production. In fact, by limiting wages you limit consumption, some person who would want to buy a chicken sandwich can’t afford to, and you have one fewer chicken sandwich produced. Sure the rich get all the chicken sandwiches they want, but that can’t make up for excluding a large part of the population from the role of consumers.
That’s where we are today. Lots of money is sitting in tbills and not producing chicken sandwiches for lack of chicken sandwich eaters.
McDonalds wants someone to hand me a chicken sandwich, the worker wants a job. They both are made better off by the decision to hire the worker to hand me the chicken sandwich. No one has been made worse off by entering a voluntary transaction. That is capitalism.
In socialism if you are the world’s best chicken sandwich maker you go home at the end of the day with the same amount of chicken sandwiches as the world’s worst chicken sandwhich maker. Since there is no marginal benefit in extra production, production is limited. Everywhere socialism has been tried the results have been poverty because of the incentive problem and the knowledge problem.
Your point about people not being consumers is off the specific topic but germane to the topic of poverty in general. The only way to get rich is not consumption but production. It is not possible to consume what has not been produced. The only limit to consumption is production. So the way to get people to consume more is to increase production.
Systemic poverty is not intractable. “The poor” today are mostly not the same people as “the poor” ten years ago, since people’s incomes tend to rise as they age.
Long-term, intractable poverty is correlated with bad life style decisions like unwed pregnancies, dropping out of high school, drug abuse, and so forth. It also correlates with making excuses for those decisions, both by the poor and by their advocates.
Perhaps you didn’t understand my response. Yes, the worker benefits from having a job, but he would benefit more from having a job that paid well. For a single store in isolation there is benefit from keeping his wages low, but for the economy as a whole this reduces consumption which does not benefit the store. Perhaps the increase in his wages could be made up from greater volume reducing the contribution of foxed costs to each sandwich.
Socialism, as in central planning, of course does not work because the economy is way too complex. But I fail to see how it is relevant to this discussion at all, except in the typical right wing scare tactic of saying that any government intervention is anything is socialism. That’s been a bankrupt argument for decades.
In an environment of under-utilized capacity, increasing production is very simple. But if you build it they will not come if they don’t have the money to buy things. Or if they are scared of getting laid off. Do you think that the recession resulted in too little production? Yes, you do get rich selling things to people, but only things they want and can afford. You go bankrupt otherwise. Why don’t you start a business peddling real Rolex watches to the unemployment line and let us know how it turns out.
It is relevant because someone made the claim that poverty is needed by capitalism and implying that socialism is the solution.
As for the idea that you can’t get rich selling things to poor people you should talk to the heirs of Sam Walton who have about 150 billion reasons to disagree.
Dips in wages occur after recessions occur not before. Demand is infinite because people will always want more stuff. The problem is that they do not have the money to buy the stuff. This is because they are not producing enough to acquire the money. Recessions are not caused by people suddenly getting their wages cut, they occur because investments are not paying out the way people thought they would and people suddenly have less money to spend. Hiking wages would just cause more businesses to go under and more unemployment.
It doesn’t imply that at all. Pure capitalism has no minimum wage, which distorts the labor market. Reducing the minimum wage will increase poverty. The solution to that is a minimum wage, which isn’t even close to socialism. Taking profits made at the expense of workers and redistributing them to the poor may or may not be a good idea, but it isn’t socialism.
Are you saying all WalMart shoppers are poor? But it is a good example. They started by cutting their workers’ wages and depending on wages of other workers to buy their stuff. But lately they have been complaining that their customer base can’t afford to buy even their stuff. Why? Because everyone is getting cut.
Selling non-addictive non-essential stuff to those without money is not a good business plan.
Wage were flat or worse before the previous recession. Demand was built on credit. That is one reason it was so severe.
Supply is infinite in that businesses can dream of gigantic factories - but they can’t justify actually building them. The marketplace of the imagination is really hot, with buyers using imaginary money to get all they want from imaginary factories. Down here in the real world demand means what people can actually afford to buy. I’m sure I can find a better technical description.
Since when are wages directly tied to productivity? Productivity rose much faster than wages during the 1990s.
Why are investments not paying? It could be because they were based on false information, like the mortgage market, or because irrational exuberance caused their prices to be bid up more than is supportable, like during the bubble.
If one company bid up wages, they might be in trouble - unless they get better people who more than make up their extra money in extra productivity, which seems to be the case of Costco versus WalMart. But if all wages at the bottom end are raised by the government, there is no competitive disadvantage. Those wages go into consumption. High salaried people won’t be affected at all, which is good since our extra income goes into savings, not consumption.
In any case recessions get worse when companies, afraid of reduced demand, cut production and thus jobs. These people no longer consume as much, which means more companies cut production, etc. The lucky ones get their wages cut, the unlucky ones get fired.
Government should pick up the slack - but if deficit hawks want to fire government workers at this point because tax revenue is decreasing, the situation gets still worse.