Thomas Sowell: Wealth, Poverty and Politics

Thomas Sowell has a new book,
Wealth, Poverty and Politics: An International Perspective and here is a discussion about it:

Fighting Poverty - Cash Preferred?

Interesting read at Foreign Affairs, Worth Every Cent: To Help the Poor, Give Them Cash where authors Michael Faye, Paul Niehaus, and Christopher Blattman write:

In a Foreign Affairs article last year, we wrote what we hoped would be a provocative argument: “Cash grants to the poor are as good as or better than many traditional forms of aid when it comes to reducing poverty.” Cash grants are cheaper to administer and effective at giving recipients what they want, rather than what experts think they need.

That argument seems less radical by the day. Experimental impact evaluations continue to show strong results for cash grants large or small. In August, David McKenzie of the World Bank reported results from a study of grants of $50,000 on average to entrepreneurs in Nigeria that showed large positive impacts on business creation, survival, profits, sales, and employment, including an increase of more than 20 percent in the likelihood of a firm having more than ten employees. Also this year, Chris Blattman and Stefan Dercon, the chief economist at the United Kingdom’s Department for International Development, found that $300 grants to young men and women in Ethiopia led them to start small enterprises, raised their incomes by one-third, and lowered by half the likelihood of them taking sweatshop jobs harmful to their health. With more research the scale of these impacts will become clearer. But for now the bottom line is clear: more cash is needed.
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But the deeper challenge involves the way the development sector funds aid to begin with. Cash fits everywhere and nowhere within the current system. For example, USAID receives funds from Congress that are earmarked for use toward specific outcomes, such as health or education. To justify delivering as cash a dollar earmarked for health, for example, USAID has to argue that it would have meaningful health benefits even though the recipients will almost certainly spend a large share of it on other, equally valuable things. The humanitarian system is similarly organized around “clusters” for nutrition, health, shelter, and so on. When donors use cash as a tool within these individual silos, chaos can result—as, for example, in the case of Syrian refugees, who have been targeted with as many as 30 distinct programs offering cash for children’s winter clothes, for legal assistance, for hygiene kits, and so on. To achieve more sensible outcomes, we need budgeting that puts the recipients at the center and holds implementing organizations responsible not for specific needs, but for helping specific people. That will take time.
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At the UN General Assembly last week, Pope Francis called on the assembled nations to do more to help the millions of impoverished people worldwide: “To enable these real men and women to escape from extreme poverty, we must allow them to be dignified agents of their own destiny.” Cash transfers provide an opportunity to do this more effectively than ever. Enough talk, more action.

Yes, there are issues, but there is also a great deal of logic in just letting the poor decide how best to help themselves out of the poverty trap.

Related -Why Can’t They Just Leave Us Alone?:

It’s time to recognize that individuals acting in their own self interest do better for themselves than a government bureaucrat creating a one size fits all solution. Today, they gave the Economic Nobel Prize to Angus Deaton for his research on consumption, poverty and welfare. Guess what? He doesn’t agree with Thomas Piketty who got so much play in the chattering class.

Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. Again and again, what we find in economics is that it depends on the individual. This means that the more power and choice policy gives to the individual, the better off everyone will be.

That means that instead of some broad based education spending, giving vouchers to individuals would work better. It means instead of a bloated Obamacare program, setting up individual health savings accounts would be better.

Here is what he says about global poverty,

Mr Deaton’s most recent book, “The Great Escape” was published in 2013. In it he argues that foreign aid from western government’s has done more harm than good to developing nations, saying that it has helped prop up corrupt governments and rarely reaches the poor.

“The idea that global poverty could be eliminated if only rich people or rich countries were to give more money to poor people or to poor countries, however appealing, is wrong.”

Should the U.S. being getting out of the "poverty bureaucracy" business and giving cash to the poor? I think so. See One more thing on poverty in America and National Security and Poverty: Part 1.

In fact, the "prebate" part of the Fair Tax Plan is one of the many reasons I like it (in addition to taking all that power away from the IRS, which as we have sen recently can be misused for political purposes). See here:

4. The prebate is not a “handout”. It is the refund of taxes paid (albeit, in advance). The FairTax has no exemptions so the prebate funds the tax on spending up to the poverty up front.

5. According to the GAO, the current tax system doles out $800 billion in what are called tax expenditures (tax exemptions, deductions, preferences, loopholes, etc.). In stark contrast to the current system, and in concert with the constitutional concept of uniformity of taxation across all citizens, the FairTax treats all taxpayers equally compared to the way the current system rewards ‘friends’ with its $800 billion.

6. The FairTax prebate is estimated to be about $450 billion which would be distributed to all legal residents in an equal manner; so much per adult and child in each household. Unlike the current system, it has no marriage penalty so a couple gets double of what a single person gets, and they both get the same amount for each child.

In other words, those who now have no homeowner deduction or other tax preferences will get a monthly cash prebate that they can choose to spend as they see fit, not as some welfare monitor dictates.

Eliminating deductions and other tax preferences takes the power out of the hands of Congress to reward friends and punish enemies by adding or eliminating tax benefits from the Tax Code. But it also means the poor among us are on an equal footing with the wealthy as far as government taxation goes. In fact the Fair Tax is progressive as is discussed in the above links, so that the poor are not punished for being poor.

Under the current system it seems as if we believe that the poor a too stupid to know their own best interests.

I refuse to believe that.

Cash is freedom.

National Security and Poverty: Part 1

I have been researching poverty in the U.S. with an eye toward looking at how the U.S. approach to fighting the "War on Poverty" is impacting its ability to modernize its military to deal with "war" that involves the employment of violence to achieve state aims, especially self-defense.

In order to look poverty, it is useful to have a discussion about what poverty looks like in places other than the U.S. In the following Midrats interview, Alexander Martin, working with Nuru International, "a nonprofit organization whose mission is to end extreme poverty in remote rural areas," in Kenya gives a great description of what physical poverty means in that place and in this time. The pertinent discussion begins about 20 minutes in, but I recommend listening to the whole show. Poverty limits choices in life " . . . because you just can't make any choice past that choice of just trying to feed yourself . . ."

Check Out Military Podcasts at Blog Talk Radio with Midrats on BlogTalkRadio

Somewhere in the interview I mentioned an African economist who has suggested that "foreign aid" as it is constituted is not helping Africa climb out of poverty. That man is a Kenyan, James Shikwati. An interview with him in the German magazine Der Spiegel from 2005 can be found here:

SPIEGEL:

Mr. Shikwati, the G8 summit at Gleneagles is about to beef up the development aid for Africa...

Shikwati: ... for God's sake, please just stop.

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor.

SPIEGEL: Do you have an explanation for this paradox?

Shikwati: Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

SPIEGEL: Even in a country like Kenya, people are starving to death each year. Someone has got to help them.

Shikwati: But it has to be the Kenyans themselves who help these people. When there's a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help. This call then reaches the United Nations World Food Program -- which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated. It's only natural that they willingly accept the plea for more help. And it's not uncommon that they demand a little more money than the respective African government originally requested. They then forward that request to their headquarters, and before long, several thousands tons of corn are shipped to Africa ...

SPIEGEL: ... corn that predominantly comes from highly-subsidized European and American farmers ...

Shikwati: ... and at some point, this corn ends up in the harbor of Mombasa. A portion of the corn often goes directly into the hands of unsrupulous politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the UN's World Food Program. And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year. It's a simple but fatal cycle.

This video should roll into parts 2 and 3 automatically.

UPDATE: See also:
Poverty Inc website here.

UPDATE2: Fixed the last video embed.

One more thing on poverty in America

If The US Spends $550 Billion On Poverty How Can There Still Be Poverty In The US? by Tim Worstall from a couple of years back. Mr. Worstall notes that if we simply gave each poor person in the U.S. $11,000 annually we could eliminate poverty by boosting each such person above the poverty threshold. Total cost? About $550 billion.

Here’s what Census says is the number of people in poverty in the most recent, just released, figures.

The nation’s official poverty rate in 2011 was 15.0 percent, with 46.2 million people in poverty. After three consecutive years of increases, neither the poverty rate nor the number of people in poverty were statistically different from the 2010 estimates.

We could certainly argue that that’s way too high a figure for a rich country like the United States. In fact, many people do so argue. But we do have something of a problem with this figure. We could lift all of these people up out of what is defined as poverty at a cost of around $550 billion. That’s in the 3 or 4% of GDP range*.

But wait, there's more:

What I want to point out is that to an acceptable level of accuracy this is already done. $550 billion is indeed spent on the poor so therefore there shouldn’t be any poverty. The reason there still is, by the way we measure it, because we don’t count that $550 billion as reducing poverty. Which is a very strange way of doing things when you come to think about it.

Medicaid is largely health care for the poor. This costs, in 2010 at least it did, some $400 billion. SNAP, the renamed food stamps, cost some $70 billion in the same year. The EITC handed out $55 billion. Add those sums up and we’ve got $525 billion being spent on the alleviation of poverty. Which is close enough, given the level of accuracy being used here, to have entirely abolished poverty in the United States. If we’d simply given the cash to poor people then there would no longer be any poor people.

So, how come there are still these near 50 million poor even after we’ve spent enough money to have no poor people? Simple, we just don’t count the money we’ve spent on the poor as reducing poverty. I know, I know, it’s unbelievable, isn’t it, but here’s Census saying exactly that:

The poverty estimates released today compare the official poverty thresholds to money income before taxes, not including the value of noncash benefits.

Umm. So, poverty in the U.S. is misrepresented? Oh, hell yes.

You know, the Fair Tax has a component that deals with this, the "prebate":

The FairTax provides a progressive program called a prebate. This gives every legal resident household an “advance refund” at the beginning of each month so that purchases made up to the poverty level are tax-free. The prebate prevents an unfair burden on low-income families.

See also here.

Of course, if you make it simple, a large number of bureaucrats will lose their jobs . . .