War on Poverty: The Results – Part Deux

Yesterday, I posted “War on Poverty: The Results” with a rather depressing graph from economist Lawrence McQuillan. However, the post may have struck readers as odd, given that I tend to actually be optimistic about the rise of living standards all over the world (including the U.S.). I’ve also mentioned before that there is a difference between statistical categories and flesh-and-blood people (i.e. “the poor” in 1970 are likely not “the poor” of 2014). But frankly, the U.S. Census data (which McQuillan’s graph was based on) is, as Washington Post columnist Robert Samuelson writes, “a lousy indicator of people’s material well-being. It misses all that the poor get — their total consumption. It counts cash transfers from government but not non-cash transfers (food stamps, school lunches) and tax refunds under the EITC. Some income is underreported; also, the official poverty line overstates price increases and, therefore, understates purchasing power.” In fact, one could argue that “the poor will always be with you” if we take the U.S. Census Bureau’s approach to measuring poverty:

The current poverty thresholds do not adjust for rising levels and standards of living that have occurred since 1965. The official thresholds were approximately equal to half of median income in 1963-64. By 1992, one half median income had increased to more than 120 percent of the official threshold (pg. 1).

Due to rising standards of living, poverty must become relative to the surrounding standards:

Adjustments to thresholds should be made over time to reflect real change in expenditures on this basic bundle of goods at the 33rd percentile of the expenditure distribution (pg. 2).

While the U.S. Census data can be useful (hence my original post), it is woefully inadequate. As a mentioned above, a major thing it misses is the material well-being of the poor. As science writer Matt Ridley explains,

Yet looking back now, another fifty years later, the middle class of 1955, luxuriating in their cars, comforts and gadgets, would today be describe as ‘below the poverty line’…Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these. Even in 1970 only 36 per cent of all Americans had air conditioning: in 2005 79 per cent of poor households did. Even in urban China 90 per cent of people now have electric light, refrigerators and running water. Many of them also have mobile phones, inter net access and satellite television, not to mention all sorts of improved and cheaper versions of everything from cars and toys to vaccines and restaurants.

Amenities in Poor Households

(From the Heritage Foundation)

While poverty by certain standards may not have budged, the literal material well-being of the underprivileged in America has increased dramatically. The safety net has played (and should arguably continue playing) a role in protecting the poor from some of the most brutal blows poverty has to offer. But when you consider the many life-easing materials mentioned above, I think you’ll find that LBJ had little to do with the market forces that brought them about.

War on Poverty: The Results

War on Poverty

In a brief blog post, economist Lawrence McQuillan comments on the chart above:

The poverty rate in the United States fell by half from 1950 to the start of the “War on Poverty.” And it was on track to continue falling. But after the “War on Poverty” programs kicked in, the poverty rate has been stuck in a narrow corridor.

The lesson: Despite good intentions, statist redistribution programs to “help the poor” lead to multigenerational dependency and shrinking opportunities and incentives for low-skill individuals to enter the workforce, increase their skills, and move up the income ladder.

In the comments, McQuillan says, “Note in the chart above that the poverty rate fell dramatically after the Clinton overhaul [in 1996].” This drop in poverty was also corroborated in a 2000 study referenced by McQuillan.

But does this faithfully capture the condition of the poor in the U.S.? I’ll explore this in Part 2.

The Pre-Protestant Ethic and the Spirit of Capitalism

Samuel Gregg of the Acton Institute has an excellent article at Public Discourse entitled “Why Max Weber Was Wrong,” packing in a wealth of information and resources regarding the development of capitalism. Far from having Protestant roots, capitalism grew up in the very Catholic West. “Even Catholic critics of modern capitalism,” writes Gregg, “have had to concede that “the commercial spirit” preceded the Reformation by at least two hundred years. From the eleventh century onward, the words Deus enim et proficuum (“For God and Profit”) began to appear in the ledgers of Italian and Flemish merchants. This…symbolized just how naturally intertwined were the realms of faith and commerce throughout the world of medieval Europe.” Drawing on the work of various researchers and historians, Gregg points to the increased sophistication and innovation of banking, business models, and wealth creation in the Middle Ages. He concludes, “The point…is that the widespread association of one form of Protestantism with capitalism is theologically dubious, empirically disprovable, and largely incidental. To make these observations is not to propose that modern capitalism was somehow constructed upon a “Catholic ethic.” That would be equally false. It is simply to note that much of Weber’s particular analysis is very questionable and that this should be acknowledged by economists, historians, and above all, by Catholics.”

Check it out.

Eugenics and Economics in the Progressive Era

I was recently revisiting some of the research by economist Thomas C. Leonard of Princeton University on eugenics and economics during the Progressive Era. Leonard is currently working on a book entitled Excluding Inferior Workers: Eugenic Influences on Economic Reform in the Progressive Era. I had nearly forgotten about the excellent slide-show he produced for his book’s research. For those who have an interest in economic history–especially the Progressive Era’s influence on America’s economic thinking–these slides are definitely worth reading.

Good News, Pope Francis

The media has exploded over Pope Francis’ recent apostolic exhortation. In it, he denounced social and economic inequality, which he declared are “the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation” and “trickle-down theories.” The media hailed it as an anti-capitalist proclamation, while virtually ignoring other important factors like his attack on abortion. While some are seeing Francis’ remarks as radical, it is virtually the same message found in, say, the exhortations of John XXIII (1961) or Leo XIII (1891). This just reinforces Nathaniel’s point in his post “Meet the New Catholicism, Same as the Old Catholicism.”

But I have some good news for Pope Francis and the media: things have been getting better for some time. The world isn’t quite on its way to hell in a handbasket. Furthermore, it was the “autonomy of the marketplace” that achieved one of the major Millennium Development Goals of halving global poverty five years early. And as I’ve noted before, global inequality is actually decreasing. A brand new study supports past research by demonstrating that–though inequality is still high and increasing within countries (not just in America)–global inequality has seen an unprecedented decline.

(Above graph provided by GMU’s Robin Hanson)

This is not to say that all is well. There is much, much more to be done. But these are positive trends; trends that caused one journalist to declare 2012 (at the dawn of 2013) the best year ever. We have seen incredible progress over the past couple centuries. If we want to address social ills like those Pope Francis spoke of, we should look to those policies (and yes, ideologies) that have made these positive trends possible.

The Tea Party Fights The Man

2013-10-08 Rand Paul

The Tea Party does not have a lot of friends in Washington. Conventional wisdom–the sort of thing you hear on NPR, for example–is that the GOP has redistricted itself to death. By creating solid red districts, they’ve turned over power to the loonies on the fringe. Complementary theories include the notion that the Tea Party consists of a bunch of delusional fools who are shoveling their hard earned life-savings to snake oil selling PACs who have no interest in making real changes, but just want to make a buck off of gullible fools.

Both of these narratives tap into deep political stereotypes, but neither actually make much sense. The problem with the gerrymandering explanation is that it’s the opposite of how gerrymandering actually works. Not that I’m defending redistricting games, but the essence of gerrymandering is called “packing and cracking“, and it means you pack your opposition into dense, homogeneous districts but you crack (spread out) your own supporters as much as possible. Think about it for a minute, if you’ve got 5 districts and the overall population is basically 50/50 Democrat and Republican, do you (as a Republican) want to put all of your voters in one dark red district and leave the Democrats to have 4 very slightly blue districts? No: that’s how you lose an election, not how you win it. The idea that the GOP created a bunch of ultra-conservative districts doesn’t make any sense.

Meanwhile, the idea of the huckster political operative taking grandma and grandpa’s money to go off on a doomed crusade to end Obamacare taps nicely into images of televangelist faith healers (i.e. negative stereotypes of the religious right) and the influential What’s the Matter With Kansas?, but all it really does is expose liberal arrogance. The idea is that conservatives are just too darn stupid to know what’s good for them (i.e. liberal policies) when the reality is that conservatives have different values than liberals. For example, conservatives believe that passing on staggering amounts of debt to their children is morally reprehensible and are willing to sacrifice their own interests to stop it.

But is this just spin? Nope, it turns out there are some pretty hard numbers behind this. I got tipped off to that fact when a Facebook friend posted this Washington Times opinion piece: Tea Party Loosens K Street’s Stranglehold on the GOP. The thesis of the article is pretty simple: before the Tea Party, Republican candidates depended on cash from big business and lobbyists to run their campaigns. But a proliferation of ideological PACs provided an alternative source of funds separate from the interests of big business. Carney, who wrote the piece, concludes that Tea Party candidates are therefore getting their money from small business owners and retirees: individuals.

I don’t think the article backs this up solidly, but the same friend who posted it followed it up with this: 

Read moreThe Tea Party Fights The Man

Perverse Incentives: Government Shutdown Edition

2013-10-04 ParksShutdownAP

A friend on Facebook posted this quote from Thomas Sowell:

Back in my teaching days, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do?

The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.

He didn’t specify, but he didn’t have to: he’s talking about the political efforts to make the government shut down as painful as possible in order to score points for Democrats. Look: I can’t get all outraged about politicians playing politics. It’s what they do, and we’d be kidding ourselves to think otherwise. But I do think it’s important to try and keep a level head and track what’s really going on.

And here’s the story: in prior government shut downs the parks and memorial services have not been forcibly barred against visitors. Now? They are. The Obama administration is spending more money than would be spent on regular operations to add additional law enforcement and barricades to do things like preventing World War II vets from visiting their own memorial in the hopes that everyone will blame the Republicans. Well: the Republicans sure helped the shutdown along. But during Clinton-era shutdowns the Democratic President didn’t feel the need to spend supposedly non-existent federal dollars to prevent World War II vets from, for example, continuing to give tours at Pearl Harbor. (Daily Caller

Read morePerverse Incentives: Government Shutdown Edition

The Importance of Economic Freedom in 6 Graphs

The Fraser Institute recently released its Economic Freedom of the World: 2013 Annual Report, which reveals the continual decline of the U.S. (#2 in 2000, now #17). Some may object to the term “economic freedom,” seeing it only as a pretty-sounding Trojan Horse for the evil bourgeois system of capitalism.

Guess what: it is.

But rhetoric is important (as economist Deirdre McCloskey has explained) and “economic freedom” is, in my view, a more accurate description. And far from living up to its caricature (i.e. a system of power and greed that exploits the poor), economic freedom–as shown by the graphs below–does more to raise the living standards of all involved, rich and poor alike, than any other economic system yet discovered. Descriptions are at the bottom of the graphs.

Read moreThe Importance of Economic Freedom in 6 Graphs

I…Coffee?

Another interesting addition to my past “I, [Insert Item Here]” posts:

For instance, even the relatively simple GVC [global value chain] of Starbuck’s (United States), based on one service (the sale of coffee), requires the management of a value chain that spans all continents; directly employs 150,000 people; sources coffee from thousands of traders, agents and contract farmers across the developing world; manufactures coffee in over 30 plants, mostly in alliance with partner firms, usually close to final market; distributes the coffee to retail outlets through over 50 major central and regional warehouses and distribution centres; and operates some 17,000 retail stores in over 50 countries across the globe. This GVC has to be efficient and profitable, while following strict product/service standards for quality. It is supported by a large array of services, including those connected to supply chain management and human resources management/development, both within the firm itself and in relation to suppliers and other partners. The trade flows involved are immense, including the movement of agricultural goods, manufactured produce, and technical and managerial services.