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13.4.09

LA saves significantly only by changing poverty policy

Admirably, the Baton Rouge Advocate is running a series on poverty policy in Louisiana with an eye towards providing information and perspective on how to better address this issue. However, additionally needed is proper understanding of the issue itself if improved performance, even if marginal, by government can manifest

The single largest error made in this kind of analysis – often by ignorance but for some deliberately a misrepresentation of reality to further a political agenda – is thinking that poverty comes from error within a free market economic system that can be corrected (with the agent of such usually conceptualized as government). This stems from a misunderstanding about basic economics that does not recognize that, in a free market, resources accrue to individuals in proportion to which they contribute to the overall wealth of society. In other words, people who earn more wealth do so because their activities bring greater benefits to society as a whole. Bill Gates may be worth tens of billions of dollars, but that’s because his genius and inspiration created such incredibly useful products which brought far more wealth to the world as whole than he’ll ever collect personally.

Therefore, poverty is a natural condition of free markets, although “poverty” itself is contextually and politically defined. Wherever that defining line is set that separates the poor from non-poor, the fact is that whoever are the poor are there because they do not contribute enough to society to rise above that line. Three reasons can cause this failure to contribute sufficiently.

First, there are some who simply do not have the natural talents and abilities to do so. It could be because of some kind of disability that causes underperformance, or simply just the absence of these qualities to the degree necessary. If we are in the business of defining poverty and then alleviating it in some measure, these are the natural clients of these efforts which we may term the “deserving poor.”

Second, people that do have the talents and abilities may be given perverse incentives through policy that interferes with the marketplace’s equation of contribution equaling reward. All government interference in the market does this, so the policy question is whether the costs of interference in terms of reduced contributions fed into society discouraged by policy are equal to whatever presumed benefit may exist by the intrusion (which has both an economic cost and one in terms of freedoms infringed).

Third, there are people who lack the drive or who demonstrate sub-optimal attitudes in regards to the fundamental exchange of contribution for wealth. They are poor simply because they willingly structure their lives in ways and make voluntary choices that prevent them from exerting enough effort to climb out of poverty. Some do so out of lack of information and desire to critically appraise their situation, while others do so out of calculation because they enjoy shorter-term and less productive behaviors more than those whose rewards are far greater but also longer in term. The second point above feeds into these situations by not shaking the former group out of its torpor and subsidizing the chosen behaviors of the latter.

The problem is poverty policy tends to treat all groups – deserving poor, unreflective poor, and voluntary poor – as the same, when in fact the causes of their poverty are different. The first group argues for government intervention to provide a certain minimal standard of living, while the second are served by policy that does not encourage them to use anti-poverty programs as a crutch to hold back their productivity, while the third must be prevented from using anti-poverty programs as a means of subsidizing preferred lifestyles.

So if Louisiana’s elected officials discuss wiser policy dealing with poverty, in reality they can only tinker with it at the margins because the basic one-size-fits-all philosophy that deemphasizes personal responsibility that fits the needs of the first group (which already practices personal responsibility) but subverts the second and third (which by accident or design do not) is a matter of federal policy. You probably can make the system work a little bit better in a technocratic sense, but in terms of eventual cost savings relative to overall such spending they will be minimal.

There’s not much state officials can do to change this, with federal requirements governing so much of program operation. The best that can be done is requesting waivers where possible to experiment with models emphasizing more personal responsibility. (One promising avenue is something along the lines of Charles Murray’s “The Plan.”) Short of achieving something more substantial than this, behaviors stemming from the way anti-poverty programs currently work will continue to eat up resources while forgoing the creation of additional wealth, and little in the way of additional funds for other uses will appear. Rather, this kind of spending will continue to become a larger and larger burden, eventually becoming a self-perpetuating threat to the entire economic system and political order.

2 comments:

Janes S said...

Every person in Louisiana has the opportunity to escape poverty. The law mandates that every child be afforded an education should he/she choose to avail himself of this opportunity. Almost every person has the physical and mental ability to find a job and through hard work to progress to a more meaningful position and a more financially rewarding salary. Don't father children or have them outside of marraige.

A thousand committees can meet for centuries, dance around these core issues, and accomplish nothing. Parents need to actaully raise their children, see that they are educated, then the kid has to develop a work ethic. Anything else is governmental and/or social work BS.

Anonymous said...

An excellent essay Professor Sadow.
In my view, government can play a role in making sure that all citizens, regardless of their socioeconomic background, have access to the education and training they need to compete in a market based economy. This promotes increased social mobility which, I believe, is essential to the preservation of democratic capitalism.