October 15, 2008
Blog Action Day: Poverty

Today is “Blog Action Day;” here’s an apparent mission statement from the official website:

“Today thousands of bloggers will unite to discuss a single issue—poverty. We aim to raise awareness, initiate action and to shake the web!”

I’ve been telling people for weeks that economists are the wet blankets of the world, so keeping this in mind I thought I would offer a few ideas about what we can do to reduce poverty around the world.

1. Free Trade and Open Borders. Let’s open the borders to trade with anyone and everyone without strings attached. Economist Lant Pritchett argues that open immigration is one of the most effective ways we can improve the plight of the world’s poor. One of the principles of economics is that there are gains from exchange, and these gains from exchange do not stop at international borders. Stopping trade at gunpoint enriches special interests, but it oppresses the poor.

2. Competition in Education. Competition encourages innovation and leads to better educational outcomes. Affluent suburban schools and private schools have to compete with one another because the students they serve are mobile, but the geographic immobility of urban students gives large urban schools a lot of monopoly power. For example, a relatively affluent family in the Memphis area could choose where they live based on school quality and thus can choose between schools in Germantown, Bartlett, Southaven, Marion, Cordova, or any of the region’s private schools. A poor family in the Memphis city limits can choose from…Memphis City Schools. And that’s about it.

3. If you’re criticizing a “sweatshop,” make sure you have a good reason for it—i.e., criticize a sweatshop if it is actually enslaving people, committing fraud, or something like that and not because it pays “low wages” or offers lousy working conditions. Most of us in the developed world would recoil in horror at the idea of working in a “sweatshop” for pitifully low wages and in relatively unsafe working conditions. That is because we have better options. Many people around the world, however, are not so fortunate, and their working conditions have roused the indignation and anger of many around the world. These sweatshops are better than poor workers’ next-best options, which is always a job that offers either lower wages or worse working conditions. In the case of some laid-off child workers in Bangladesh, the next best alternative was prostitution or starvation. Economists Benjamin Powell and David Skarbek have studied sweatshop wages and conditions around the world and have found that sweatshops usually offer higher wages and better working conditions than average for the countries in which they operate. The road out of poverty can be long and arduous, and closing off opportunities for the very poor only makes that road more difficult to travel.

4. If you’re criticizing Wal-Mart, criticize them for the right reasons (like their aggressive pursuit of local government subsidies). I’ve studied Wal-Mart at some length, and I think the company gets a bum rap. In their book The Wal-Mart Revolution, Richard Vedder and Wendell Cox report an admittedly back-of-the-envelope calculation that the social saving from Wal-Mart is roughly 5% of US GDP—in percentage terms, that’s roughly the same impact as railroads in the nineteenth century. Even if their estimate is twice as large as the real effect, 2.5% of GDP is roughly a year’s worth of economic growth. Economists Jerry Hausman and Ephraim Leibtag have argued that the benefits of Wal-Mart’s policy of “Every Day Low Prices” have accrued disproportionately to poor households. If you want to alleviate poverty, protesting Wal-Mart isn’t the way to do it.

5. Protest less, produce more. Economics Nobel Laureate Robert Lucas has argued that no society ever got rich by redistributing resources. Production alleviates poverty. Carrying a sign, shouting slogans, and chucking a brick through the window of a Starbucks might feel great, but at the end of the day it either accomplishes little or hurts exactly the people the protestors are trying to help. Informed dissent is critical to the health of a free society; uninformed dissent, however, can be grotesquely destructive. I stress that it is very important and certainly noble to fight for those whose voices are silenced by oppression and coercion, but we have to be very careful about what we fight for and what we fight against. Voluntary exchange is not a human rights violation, and treating it as such has led to horrific consequences.

6. Drug Approval Denationalization. Here’s Dan Klein.

7. Look for private rather than political solutions. While I harbor no rose-tinted illusions about the unfettered marketplace producing utopia, I’m very skeptical of trying to use government to control it. Evil will always be with us, but I agree with George Washington: government is not eloquence, beauty, or poetry. Government is force, and it will tend to be co-opted by the special interests, for the special interests, and of the special interests. Experimenting with voluntary solutions like cruelty-free, fair-trade, and “green” certifications might be far more effective than agitating for more government policy.

Cross-posted at The Mises Blog, The Beacon, Division of Labour, Lifehack.org.

Posted by Art Carden at 05:03 PM in Economics

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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