Poverty Has No Causes

The United States has spent over US$22 trillion on programs aimed at reducing poverty, with very little to show for it.
The United States has spent over US$22 trillion on programs aimed at reducing poverty, with very little to show for it. (Ryan Thomas/Flickr)

EspañolLet’s face it; we have lost the “War on Poverty.” In 1964, when President Lyndon B. Johnson first introduced legislation creating several government programs as poverty reduction strategies, approximately 34 million US Americans were considered poor. Today, 50 years later, that number has risen to over 45 million. As a percentage of the population, the number of people under the official poverty line has remained fundamentally constant at about 15 percent.

Other metrics will yield slightly more or less favorable assessments, but the inescapable fact is that we have failed to significantly reduce poverty in the United States. And equally important, in terms of President Johnson’s stated goals, our programs have failed to increase the population’s capacity for self-sufficiency.

It is not due to a lack of trying. As a nation we have spent over US$22 trillion on anti-poverty programs (not including Social Security and Medicare) with little to show for our efforts and our treasure. Before continuing with, and perhaps, expanding — as some suggest — our ineffective efforts, it is a worthwhile intellectual exercise to question the conventional wisdom regarding the causes of poverty.

At this 50-year junction in this unsuccessful effort, we should not be having vacuous policy arguments at the margins of the problem. We should rethink our guiding principles.

In the United States, lack of education, broken families, births out of wedlock, and a culture of poverty are among the most often cited causes of poverty. In other countries, extreme weather, droughts, epidemic diseases, overpopulation, and more can be added. But it is difficult to separate the main and proximate causes of poverty from its effects. For instance, an inadequate education could be viewed as a cause, or as a consequence of poverty.

Classical liberalism (i.e., libertarianism) takes the provocative view that poverty is what results if wealth is not produced. Or as economist Peter Bauer phrased it: “Poverty has no causes. Wealth has causes.” In other words, poverty is what we get if we do not generate wealth. Therefore, to alleviate poverty, the solution is to create more wealth.

Before you throw down your newspaper in “progressive” disgust (or worse, your expensive digital reader), please consider the following: for much of human existence, widespread poverty has been the global historical norm. It has only been a few centuries since we learned to create wealth, and that know-how has empowered us to make a dent in worldwide poverty.

A graphical depiction of this phenomenon reveals an uninterrupted horizontal line of human poverty for 1,800 years with absolutely no abatement. It is only in the last three centuries that we see a near vertical increase in wealth. Thus, scientifically, it is the presence of wealth that we must explain, not its absence.

It is only in the last three centuries that the world has seen an increase in wealth. Poverty unabated for 1,800 years.
It is only in the last three centuries that the world has seen an increase in wealth. (GGDC)

If poverty is the naturally occurring state, and wealth must be produced to mitigate poverty, our policy focus should be on the causes of wealth and not the causes of poverty. And the most important factor for the production of wealth is the institutionalization of the political and economic means to wealth acquisition. Institutions can create incentives and disincentives, and these in turn shape behavior.

Wealth production, that is, the reduction of poverty, can be boosted with policies to incentivize productivity and profit. Unfortunately, our entire regulatory and taxation frameworks are designed to do just the opposite, and profits have become the target of political avarice and demagoguery.

Even more unfortunate is the fact that any efforts to change the policy framework to enhance the creation of wealth is viewed by many as crony capitalism designed to enrich some at the expense of others. And in some cases they are right. In many countries, and in some instances in the United States, wealth is not the result of producing desirable goods and services, but of proximity to political power.

That said, genuine free-market capitalism based on the rule of law, equality of rights, and the right to enjoy unboundedly the results of one’s labors, savings, and investments is the best strategy to eliminate poverty. If we are serious about reducing poverty, we need to discard the old policies playbook, and embrace passionately the freedom to create and keep wealth.

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