• Tag Archives poverty

  • Universal Basic Income Fails to Get to the Root of Urban Poverty

    Posted on by Azrael Comment

    In an effort to reduce poverty in their cities, eleven mayors have signed on to a push to guarantee a basic income for the more than 5 million people they collectively represent.

    The first U.S. city to move forward on this initiative was Stockton, California, but the effort has gained more steam given the unemployment uptick due to Coronavirus-related government shutdowns of the private sector.

    While the policy is well-intentioned, it’s far from the most effective way to eradicate poverty in America’s cities and, in the long-term, could have unintended consequences on the exact people the mayors hope to help.

    As COVID-19 began to wreak havoc across the country, state and local governments started shutting down businesses within their borders and economists predicted a massive uptick in unemployment and ultimately poverty rates.

    Unemployment did increase, but because of an influx of government aid, we have yet to see a corresponding increase in poverty rates. But that is just a delay, not a fix, those rates will increase as government aid starts to trail off. To combat that, a group of mayors have started the push for a guaranteed income within their cities.

    The effort is led by Stockton’s mayor, Michael Stubbs who implemented the program in 2019.

    Stockton’s program provides roughly 130 residents in the city, who make below the median income, a $500 monthly no-strings-attached stipend. Initial research shows that most of those who received the funding spent it on day-to-day expenses such as transportation, utilities, healthcare, and debt.

    Following Stubbs’ lead, the mayors of Newark, NJ; Columbia, SC; Atlanta, GA; Compton, CA; St. Paul, MN; Los Angeles; Jackson, MS; Shreveport, LA; Oakland, CA; and Tacoma, WA have all formed the Mayors for a Guaranteed Income coalition.

    Chicago, Newark, and Atlanta have formally formed task forces to explore the issue and Milwaukee city council approved a guaranteed income pilot program.

    One glaring problem with allowing this program to exist for any extended period of time is that, unless it is privately funded, it would be too expensive to maintain and would require substantial tax increases across the board.

    The group’s page even admits that, saying, “there’s a number of ways to pay for guaranteed income, from a sovereign wealth fund in which citizens benefit from shard national resources like the Alaska Permanent Fund, to bringing tax rates on the wealthiest Americans to their 20th century historical averages.”

    Tax increases on businesses and wealthy individuals could lead to a reduction in investment in other areas like skills training which can, in turn, lead to a less skilled workforce as noted in a study by the National Bureau of Economic Research.

    Cities issuing fewer building permits limit housing supply, mandating minimum parking requirements on new development reduces the amount of square footage for a home or business, and minimum lot size requirements prohibit large lots from being subdivided for multiple units. All of these drive up the cost of development which is then passed on to a renter or buyer.

    The other problem is that while the initial amount may lower today’s burden on cash-strapped families, as housing costs continue to increase in these cities and metropolitan areas, the cost of living will increase as well. So, unless the guaranteed income tracks with cost of living, in just a few short years it will be of little effect to the families who need the support the most.

    As noted in Urban Reform Institute’s annual Standard of Living Index, 80 percent of cost of living can be attributed to housing costs, and housing costs are driven up by excessive regulation, especially in major metro areas.

    The ever-increasing cost of housing is often blamed on the “market,” but in most metropolitan areas it truly isn’t a free market, instead it is a market artificially inflated by government regulation.

    Cities issuing fewer building permits limit housing supply, mandating minimum parking requirements on new development reduces the amount of square footage for a home or business, and minimum lot size requirements prohibit large lots from being subdivided for multiple units. All of these drive up the cost of development which is then passed on to a renter or buyer.

    In many areas of the country, like San Jose, San Francisco, San Diego, and Los Angeles, regulations have driven up costs so much that few middle-income households can even qualify for a mortgage on a median priced house.

    A $500 per month guaranteed income doesn’t reduce the cost of living, it acts as a substitute that draws attention away from the actual problem.

    Mayors across the country have the tools to address the cost of living and increase the standard of living for constituents in their area and until they act on that, no amount of government funding or subsidies will eradicate poverty within their borders.

    This article was reprinted with permission from Urban Reform.


    Charles Blaine

    Charles Blaine is the founder and executive director of Urban Reform, a Houston-based non-profit focused on free-market solutions to urban issues.

    This article was originally published on FEE.org. Read the original article.


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  • Stop Conflating Inequality With Poverty

    Posted on by Azrael 1 Comment

    The problem of inequality has often been considered to be one of the biggest social problems of our generation.

    Widespread concern about the great disparities of income and wealth have fueled anti-globalization sentiments all around the world, and threaten to undermine the advances in trade, investment, and immigration we have seen.

    One key problem is that contemporary discussions of inequality have often conflated it with poverty. Not only are inequality and poverty conceptually distinct, a failure to distinguish between them can lead to problematic policy conclusions. Additionally, when market advocates criticize redistributive policies and government welfare programs, they are seen as anti-poor. Thus, separating these two concepts can help market advocates regain the moral high ground in this debate.

    Conflating Inequality and Poverty

    It is generally assumed that inequality implies poverty, i.e. the rich people are prospering, so poor people must be suffering. This conflation is very subtle and is best seen through the presentation of inequality in the widely-used high school economics textbook Economics (7th ed) by John Sloman (2009). According to Sloman (2009, p. 276):

    Inequality is one of the most contentious issues in the world of economics and politics. Some people have incomes far in excess of what they need to enjoy a luxurious lifestyle, while others struggle to purchase even the basic necessities. The need for redistribution from rich to poor is broadly accepted across the political spectrum. Thus the government taxes the rich more than the poor and then transfers some of the proceeds to the poor, either as cash benefits or in kind.”

    The chapter seeks to explain the phenomenon of inequality but, almost imperceptibly within this opening paragraph, implicitly suggests that under such unequal situations, there are poor people who “struggle to purchase even the basic necessities.” In fact, this is not necessarily the case.

    Inequality in relation to income simply means the existence of a gap between those who earn the most and those who earn the least. The mere existence of an income gap, even if it’s widening, says nothing about the actual income levels of those who do earn the least. In other words, an income gap does not necessarily mean that those at the lowest income brackets are poor. Just because Bill Gates is loaded with greenbacks and is many times richer than I am does not, by itself, suggest that I am “poor” in an absolute sense.

    It is clear that a society with a very uneven distribution of income can still be one with high levels of absolute prosperity, in such a way that even those who earn the least (relatively) have enough to survive – comfortably.

    Implications of the Conflation

    Not only is it possible that the least well-off in unequal societies have enough to survive, it is actually likely for them to be much better off in unequal societies than in more equal ones.

    Assuming the absence of crony capitalism, income inequality is a corollary of a free, dynamic, and growing economy that increases prosperity for all.

    Attempts to close inequality through standard welfare-state policies such as redistributive taxes, subsidies, minimum wage laws, price controls, and the public provision of “free social goods” like health care can, and often have, slowed down economic growth. Thus impacting the generation of wealth that the least-well-off depend on.

    Put another way, policy attempts to fight inequality retard economic growth, slow down poverty reduction at best, and exacerbate poverty at worst.

    Aside from the economic costs of state-centric welfare programs, there are less quantifiable human costs as well. Generous welfare programs often trap individuals in a state of dependency on the government, which not only disincentivizes them from working but robs them of the dignity and sense of achievement that comes from earning their own income and being independent and self-sufficient.

    Consequently, if poor people were truly at the center of our attention, we should endorse inequality, or at least the market system it is based on. When people are left free to trade, invest and innovate in the market, inequality is inevitable simply because people are different, and some may be more adept at spotting profit opportunities. Yet, if this system is left largely unhampered, it generates vast amounts of wealth that benefits everyone, including the least well off.

    This is precisely why poverty rates have fallen dramatically in the recent age of globalisation, and, to that extent, so has global inequality.

    The above does not mean that there is no role for government in social policymaking. Yet there is a need to ensure that implemented policies facilitate wealth-creation for all rather than redraw the relative shares of the economic pie. The social policies implemented in the country of Singapore provide useful lessons on how best to help the least well off in any society.

    Social Policies that Reward Working

    Singapore’s social-welfare system is based on the fundamental principle of meritocracy, considered a cardinal principle in the Singaporean psyche. It has been said that one of the shared values in Singapore is “work for reward, reward for work.” Even where government assistance is provided to the least-well-off, such schemes are carefully designed to promote and encourage work and thus to promote self-reliance. The belief is that Singaporeans should work and take care of themselves, rather than solely depend on the government.

    These principles are reflected in several key initiatives. A testament to its pro-work orientation, Singapore’s main “welfare” scheme is titled “Workfare”. One of its components is the Workfare Income Supplement, which provides a cash payment to low-income individuals who are working. It is not a “free handout” but essentially an incentive to encourage work.

    A further illustration of Singapore’s pro-work orientation is the other component of this policy: a training support scheme, which incentivizes workers to upgrade their skills in order to increase their productivity and thus their earning potential.

    Singapore has also deliberately rejected a national minimum wage law. In its place, it has instead introduced a targeted “Progressive Wage Model” in several low-wage sectors such as cleaning, security, and landscaping. Employers in these sectors are expected to pay their workers a minimum but are also incentivized to send them for retraining in order to increase their productivity. Where typical minimum wage legislation simply expects employers to pay the mandated wage, Singapore’s take on it goes further in its encouragement of productivity improvements.

    Subsidies are also provided but only in a limited and targeted fashion. In the healthcare sector, for example, individuals are expected to make co-payments for their medical expenses and cannot rely on government subsidies to simply cover 100% of their bill. More aid is in fact given to the neediest individuals who cannot afford even basic essentials, but the principle of self-responsibility looms heavy in the Singapore system. Not surprisingly, health outcomes in Singapore far exceed those of the United States, even though it spends only a fraction of its GDP on health care in comparison to the USA.

    Growth-Oriented Policy

    These Singaporean social policies might remain anathema to purist libertarians, who prefer to eliminate all social assistance entirely, but if we must have social welfare policies in the world of here and now, there is a lot to admire in this system. Particularly when observing its targeted, limited nature and its pro-work, pro-responsibility orientation.

    Singapore’s leaders have managed to identify the difference between inequality and poverty, and have opted to pursue growth-oriented policies, sometimes even at the expense of the income gap. The Prime Minister Lee Hsien Loong said in 2013:

    If I can get another ten billionaires to move to Singapore, my Gini coefficient will get worse, but I think Singaporeans will be better off because they will bring in business, bring in opportunities, open new doors, and create new jobs.”

    In conclusion, there is cause for concern about most societies’ obsessive focus on inequality at the expense of the very poor. Conflating inequality and poverty can ironically lead to misguided policies that ultimately hurt the poor.

    The next time you’re asked about whether you care about the “problem of inequality”, respond in the negative and that you care too much for poor people instead. Market advocates should always frame markets as a powerful, poverty-killing device, and regain the moral high ground in this most essential debate.

    References:

    Sloman, John, & Wride, Alison (2009). Economics (7th ed.). Edinburgh Gate: Pearson Education.


    Bryan Cheang

    Bryan Cheang is a graduate student of Political Economy at King’s College London. He is interested in researching into the moral status of markets, and how market institutions promote human welfare. He is also the President of the Singapore Chapter of Students for Liberty.

    This article was originally published on FEE.org. Read the original article.



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  • 5 Charts That Will Shift Your Perspective on Poverty

    Posted on by Azrael 1 Comment

    5 Charts That Will Shift Your Perspective on Poverty

    Angus Deaton, the Nobel-prize winning economist (who also sits on the advisory board of HumanProgress.org), recently reiterated his belief that on the whole the world is getting better–if not, as he accepted, everywhere or for everyone at once. Perhaps that comes as no surprise, but the idea that the world is getting better in regards to poverty is actually a deeply unpopular view.

    Ask most people about global poverty, and chances are that they’ll say it is unchanged or getting worse. A survey released late last year found that 92 percent of Americans believe the share of the world population in extreme poverty has either increased or stayed the same over the last two decades.

    Americans aren’t alone in that belief. Across all surveyed countries, an only slightly smaller majority–87 percent–believe that extreme poverty has risen or remained an intractable problem.

    There are a number of cultural and psychological explanations for the persistence of such pessimism. Bad news makes for good headlines and tends to dominate media coverage. Psychologically, people tend to idealize the past and recall dramatic and unusual events more easily than steady long-term trends. They may also use pessimism as a means of virtue signaling.

    Indeed, of those rare people who realize that extreme poverty has declined, almost all underestimate the extent of that decline. In fact, global poverty has halved over the past 20 years­–but only one person in 100 gets it right.

    Unsurprisingly, people in areas that have seen the most dramatic reductions in poverty are the most likely to be more aware of what’s really going on. But even in China, where hundreds of millions of people have risen out of destitution over the last four decades, half of the population remains ignorant of the broader collapse in world poverty that has occurred within their lifetimes.

    To help bridge the gap between public perceptions and reality, here are five charts, based on data we’ve collected at HumanProgress.org, that illustrate the extraordinary progress humanity has made.

    Throughout most of human history, extreme poverty has been the norm. This famous hockey-stick chart, arguably the most important graph in the world, illustrates what happened when the Enlightenment and Industrial Revolution caused income to skyrocket­–forever changing the way we live, and perhaps even the way we think.

    Humanity, as this chart shows, produced more economic output over the last two centuries than in all of the previous centuries combined. And this explosion of wealth-creation led to a massive decrease in the rate of poverty. In 1820, more than 90 percent of the world population lived on less than $2 a day and more than 80 percent lived on less than $1 a day (adjusted for inflation and differences in purchasing power). By 2015, less than 10 percent of people lived on less than $1.90 a day, the World Bank’s current official definition of extreme poverty.

    Not only has the percentage of people living in poverty declined, but the number of people in poverty has fallen as well – despite massive population growth. There are also more people alive who are not in penury than there have ever been. From 1820 to 2015, the number of people in extreme poverty fell from over a billion to 700 million, while the number of people better off than that rose from a mere 60 million to 6.6 billion. (Extreme poverty is again defined here as living on $1.90 a day, adjusted for inflation and differences in purchasing power.)

    Globally, poverty is about a quarter of what it was in 1990. And the graph below from Johan Norberg’s excellent book, Progress: 10 Reasons to Look Forward to the Future, illustrates how the decline of extreme poverty has raised living standards and brought about other tangible improvements. As poverty has lessened, so have child mortality, illiteracy, and even pollution in wealthy countries – all are now less than half of what they were in 1990. Hunger has also become much rarer. You can learn more about how increased prosperity has led to progress in other areas by watching this video from a forum inspired by Norberg’s book.

    If progress continues on its current trajectory, the Brookings Institution estimated in 2013 that extreme poverty (this time defined as living on $1.25 a day, again adjusted for inflation and differences in purchasing power) will all but vanish by 2030, affecting only 5 percent of the global population. This is what they considered to be the “baseline” or most likely scenario. In the best-case scenario, they predicted that by 2030 poverty will decrease to a truly negligible level, affecting only 1.4 percent of the planet’s population.

    The facts are unambiguous: despite public perceptions to the contrary, extreme poverty has declined significantly, to the point where its end may actually be in sight. So next time you hear someone bemoaning a supposed rise in world poverty, encourage them to have a look at the evidence for themselves.

    Reprinted from Human Progress.


    Chelsea Follett

    Chelsea Follet works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

    This article was originally published on FEE.org. Read the original article.



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