causes of poverty, economics, poverty

A Primer on Poverty and Economic Growth

Both China and India have seen their economies grow at breakneck speeds over the last decades. At the same time, the number of poor people residing in these two countries has been reduced substantially, although somewhat less spectacularly in India compared to China:

global-poverty-decline

(source)

Other indicators of wellbeing point in the same direction. Life expectancy in India is now 65 years as opposed to 42 in 1960; in China the numbers are 73 and 42 respectively. The number of Indian children dying before they reach the age of 5 is now about 60 for every 1000, compared to almost 200 in 1970. In China: about 20 for every 1000 now versus more than 100 in 1970.

It’s not outlandish therefore to assume that there’s a link between good economic growth and large reductions in poverty rates. Given the fact that some other potential causes of poverty reduction – such as foreign aid and good governance – have not been prominent in those two countries (to put it mildly), the growth hypothesis is even more persuasive.

Take a look at these correlations for a larger set of countries:

(source)

economic growth reduces poverty

(source unknown)

Here’s the example of Africa, where growth and poverty are almost absolute mirror images:

one dollar a day poverty and gdp growth in subsaharan african

(source)

However, does this mean that economic growth is a sufficient condition of poverty reduction? I don’t think so. A growing level of GDP per capita in an economy means that the average person is better off, financially as well as on some other dimensions given the strong correlations between GDP and other indicators of wellbeing. But improvements for the average person can go hand in hand with stagnating or even worsening poverty rates. A lot depends how the proceeds of high growth are distributed among the citizens of a country; distributed either

  • intentionally by government policy: through taxation and welfare policies that can be more generous in a richer economy
  • or automatically by some form of trickle down effect: more aggregate national income or production means more jobs, better paid jobs etc., at least in theory.

Trickle down economics has been somewhat discredited of late, so perhaps the causal effect of growth on poverty reduction must pass through government redistribution, at least in part. The anti-poverty efforts of India’s successive governments are well-known. Less well-known is the fact that in China as well governments have implemented a strong although probably insufficient social security system. (Insufficient because inequality has risen dramatically in China, and somewhat in India. Greater inequality dampens the poverty reducing effect of growth).

The crucial role of government led redistribution has been confirmed by this paper in which Lane Kenworthy compared growth and income data for 17 developed countries. Specifically, he looked at the ways in which the incomes of people in low to middle income groups benefit from economic growth. The nature of government transfer systems is the reason why the effect of growth on the incomes of the poor is not the same in all countries.

[W]hen households on low incomes got better off, it was due most often to a rise in net government transfers. Where net transfers increased, incomes tended to increase in concert with economic growth. Norway, the UK, Sweden, Finland, and Denmark illustrate this pattern. Where net transfers were stagnant, income trends were decoupled from growth of the economy. We observe this in the United States, Canada, and Switzerland. This is an important finding. It means that, as a general rule, growth has not trickled down to low income households through wages or employment. And it means that, when government transfers haven’t grown, wages and employment haven’t stepped in to take their place. (source)

So we can conclude that economic growth, although important, is probably not a sufficient condition for poverty reduction, at least not in all cases.

A final remark: it’s interesting to note that poverty reduction is one of the drivers of growth. So the causation goes both ways, as is often the case in correlations.

Policies that are effective in increasing the incomes of the poor–such as investments in primary education, rural infrastructure, health, and nutrition–are also policies that enhance the productive capacity of the economy in aggregate. (source)

Some other interesting studies on the topic are cited here.

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The Causes of Poverty (79): Poverty Traps

BrickWallLounge_Blog

(source)

Many among us will experience short spans of poverty at some stages in our lives. I lose my job or my unemployment benefits, I have a catastrophic but transitory health problem, an extreme weather event destroys my crop, or an economic crisis forces me to declare bankruptcy. As a result, I have to live off my savings or my parents and friends will have to lend me money. Still, in time I find another job; my health improves as I benefit from cheap healthcare (perhaps provided or subsidized by the government); the weather returns to normal and I can resume my profitable farming activity; or I can start a new business under the protection of bankruptcy laws that don’t burden me with debt.

However, I may also be what’s called a “structurally” poor person, meaning that I’m poor for most if not the whole of my life. Perhaps I was even born into poverty. The reason may be that I find myself in a “poverty trap”, a self-reinforcing mechanism which causes poverty to persist. In other words, I’m poor because I’m poor. And because I’m poor I’ll always be poor. I’ll die without ever having had an “adequate” standard of living, all the while passing on my poverty to my descendants.

Here are some examples of poverty traps:

  • I have a job, but the wage is low. As with many low wage jobs, I have almost no control over my work schedule. That means I can’t take on a second job and I can’t send my kids to child care. I have to spend time, money, effort and other people’s good will to take care of my kids. My job is physically hard and so I tend to have some health problems. My life is relatively expensive and it’s hard to find a better job. My salary doesn’t really cover my spending needs, hence I’m poor.
  • I can’t afford to pay the security deposit for a rental apartment, so I’m stuck in an expensive motel or I have to live with my parents who can barely afford their own survival. I also don’t have a refrigerator or a microwave, so I have to buy more expensive food. I have to wash my clothes by hand because… you guessed it. This takes a lot of time, time that I can’t spend on wage labor.
  • I don’t have tap water or heating because those aren’t things that people have where I’m from. I use wood for fuel like everyone else. The result is deforestation, soil degradation, lower crop yields and yet more poverty. My children have to help me – which is why I have a lot of them – to the detriment of their education. My kids will probably inherit my poverty because of this.
  • A lot of the things I’m forced to do because I’m poor are illegal. The lights of my car broke down, and I got a fine. I should have made the financial sacrifice and get them replaced, but I gambled on not being caught. I couldn’t pay the fine and my car was repossessed. Now I have to take public transport but can’t pay for that either. So I often get a fine for that as well. I know some homeless people who get a fine just for being homeless.
  • My calorie intake is too low to give me the strength to work. The quality of work I’m able to offer is inadequate for obtaining the food I require, and the food I do get isn’t enough to allow me to deliver quality work. My productivity is low, my earnings are low, and ultimately I can’t even keep a job or work the farm. My low calorie intake levels lead to health problems. My inadequate housing makes those problems even worse. My ill health, caused by my poverty, makes my poverty worse. I’m more likely to catch a disease, and also less likely to recover from it.
  • Like many poor people I have a low credit rating, making it difficult to get credit. The credit I do get is very expensive, which sort of defeats the point. Now, I do need the credit because I don’t have any savings. People say that I exhibit a high discount rate, that I’m too present-oriented and that I’m unable to delay gratification. Instead of borrowing money at high interest rates as a means to satisfy my unrealistic consumption desires, I should moderate myself and save for the future. But I’m present-oriented because I live in an environment in which I can’t trust people. Better to consume what I have than to save it and lose it later.
  • People also say that my issues with gratification extend to my sex life. I was indeed a teenage mother, and my education suffered as a result. This in turn affected my job prospects and my income. But this wasn’t just stupidity on my part. Being a mother gave meaning to my life. Other meaningful options just didn’t seem realistic.

So, there you have it. I think a lot of these stories are very real, and the problems that poor people face are often self-reinforcing. Of course, I don’t want to deny human agency. There are people who, even in the face of the worst possible circumstances, can fight their way out of poverty traps. So “trap” may be too strong a word. Individual responsibility still plays a role. Yet, let’s not forget that a poverty trap is sometimes intergenerational, as I’ve said before. Some children are born into a trap, and you can’t insist on responsibility and agency when we’re talking about children. A child growing up in a poor family may suffer in its early development. Undernourishment for instance can have a lasting impact on learning ability and earnings as an adult. Children of the poor are perhaps even more affected than the parents because the latter need a minimum calorie intake to work. They have to eat first. If they choose not to eat first, they will only make the poverty of the household worse.

Just to be clear: I’m not talking about an entire economy or country being stuck in a poverty trap. If you were expecting a post about that, I’m sorry I’ve wasted your time. I’m not wading into the treacherous debate about the necessity of large foreign aid injections to break the cycle of poor nations that can’t save enough to finance investment necessary to growth.

This post seems to be going on forever, so I’ll limit myself to a description of the problem. The solution – how to get out of poverty traps – is a topic for another day.

More on poverty traps here and here. More posts in this series are here.

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The Causes of Poverty (78): High Discount Rates and Lack of Delayed Gratification

grasshopper & ants

(source)

You talk to conservatives about the reasons why poor people are poor, and chances are that the discussion turns to lack of self-control, high discount rates and inability to delay gratification. “High discount rates” means that things in the present or near future are viewed as having a higher payoff than things in the distant future. If you have a high discount rate, you focus on immediate gratification. This in turn shows up in low savings rates, high debt, obesity, teen pregnancy, drug use, high drop out rates, low school attendance and other vices supposedly common among the poor.

Some even argue that differences between people in the apparent levels of self-control, discount rates or time preferences – which is all the same thing – appear at a very early age and are therefore probably innate. The famous marshmallow test will then get a favorable citation: you give kids a marshmallow and tell them they can either eat it now or, if they wait a few minutes, have two marshmallows. Kids who wait do better later in life.

However, recent studies have suggested that the marshmallow test does not, in fact, reveal innate (in)ability. The environment in which tests such as these take place determines to a large extent the levels of self-control revealed through them. Whether or not people are capable of delayed gratification depends not on their abilities but on their assessment of the reliability of the world around them. When the world is not worthy of trust, the best course of action is often to live for today.

This attitude towards the world and the future is probably internalized from a young age onward, which makes it hard to change. What it takes is to offer young children a reliable environment allowing them to develop levels of trust which will in turn yield low discount rates and the ability to delay gratification later in life. But in order to do that we’ll need to reduce parental poverty. Claims about lack of self-control as a cause of poverty then have things completely backward. Rather than a cause we’re dealing with an effect of poverty.

More posts in this series are here.

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The Causes of Poverty (77): The Lottery of Birth and the Country You Live In

mcdonalds-vegetarian-india-2

McDonalds in India

(source)

Charles Kenny explains to what extent the country you live in affects your livelihood:

[P]overty in Africa and Asia isn’t the result of something about individual Kenyans and Pakistanis, it is instead something about Kenya and Pakistan. Individuals the world over have the same drives and capacities, but the societies and places in which they live present radically different opportunities to turn that drive into wealth, health, and well-being.

That’s clear from evidence compiled by Princeton economist Orley Ashenfelter for the National Bureau of Economic Research. He looks at the wages earned by staff working at McDonald’s franchises around the world and compares what they earn to the cost of a Big Mac in that same franchise. The Big Mac is a standard product, and the way it is made worldwide is highly standardized. The skill level involved in making it (such as it is) is the same everywhere. And yet McDonald’s employees worldwide earn dramatically different amounts in terms of Big Macs per hour.

In the United States, a McDonald’s employee earns an average of $7.22 an hour, and a Big Mac costs an average of $3.04. So the employee earns 2.4 Big Macs per hour. In India, an employee earns $.46 an hour. The average Indian Big Mac (made of chicken, which is cheaper than beef) costs only $1.29. Still, the employee earns only one-third of a Big Mac for each hour worked. Same job, same skills—and yet Indian workers at McDonald’s earn one-seventh the real hourly wage of a US employee. There’s a huge “place premium” to working in the United States rather than India.

The place premium affects more than just low-end service jobs. Economist Michael Clemens, a colleague of mine at the Center for Global Development, studied a group of Indians working in an India-based international software firm who applied for a temporary work visa to the United States to do the same work in the same firm, just on the other side of the Pacific Ocean. Some of them then won the lottery by which visas were issued, while others lost. The winning workers, who were still in the same firm and still doing the same type of job on the same projects, suddenly saw dramatic differences in their pay.

The ones who moved to the United States started earning double what their colleagues back in India were earning (adjusted for purchasing power). They were earning more not because they were different from the colleagues they left behind—selection was not based on education, talent, or drive but was entirely random. And once they returned to India, they went back to earning pretty much the same as their colleagues who had never left. They briefly earned more in the United States simply because they were in the United States rather than India. (source)

Some more numbers:

place premium

(source; how much more workers in the U.S. make compared to identical workers in developing countries, e.g. Nigerians and Yemenis stand to gain upwards of 10 times as much from moving to the U.S.)

The place premium is a strong argument in favor of reducing migration restrictions: it doesn’t seem just that people’s income is determined by the good or bad luck of having been born somewhere, and the use of force to keep people in their country of birth only aggravates the injustice. However, by the same logic we can also argue for a more generous welfare state: it’s not just your country of birth that affects your income. Your parents, social class, genetic endowment, health prospects, looks etc. are also a lottery that affects your income and good fortune.

More posts in this series are here.

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The Causes of Poverty (76): Farmer vs. Hunter Thinking

caveman-hunting-illo-md

(source, illustration by Grant Coghill)

Tim Harford mentions an interesting study about the origins of different ideas about justice. Farmer cultures seem to stress desert, whereas hunter cultures believe that solidarity is the more important focus of justice. Hunters tend to share because their “incomes” are volatile: some days they catch too much, other days not enough. Luck also determines farmer incomes, but to a lesser extent. Bad weather means bad luck, but it’s also bad luck for neighboring farms. A sharing culture won’t solve that kind of bad luck in the same way as it will in the case of bad luck while hunting. Another reason why a sharing culture will be less important in farmer cultures is the fact that farm crops can be stored more easily than meat in primitive societies.

A farmer mentality will therefore stress self-sufficiency over sharing, and perhaps this will fuel desert-based theories of justice even centuries after farming or hunting has ceased to be an important social role. That may have an impact on the way a society deals with poverty. If you adopt a desert-based theory of justice then you’re normally less inclined to enact policies that reduce poverty since you believe that poverty is deserved. If people deserve their poverty then they can’t claim assistance, and if assistance were to be given anyway that would be an injustice to those whose stock of means is used as a source of assistance, because they too deserve what they have.

It’s tempting to use this farmer-hunter difference to describe the different approaches to poverty in Europe and the US. There’s more opposition to the welfare state in the US, and desert-based theories of justice are more popular there. Hard work and self-sufficiency are common topics of political talk in the US, whereas words such as solidarity and equality are more often used in Europe. Here are some data from the World Values Survey which tend to confirm these national stereotypes:

equality and incentives hard work success

And of course the US was founded as an agrarian society (Thomas Jefferson for instance was a staunch agrarian), with the South of the country remaining agrarian deep into the 19th century.

However, careful with national stereotypes. It’s not as if the whole of the US is hardhearted. It’s a matter of degree:

Beo_px5CIAA60EM

Steven Pinker has come up with a similar story, although he contrasts farmer and herder cultures.

More posts in this series are here.

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The Causes of Poverty (75): Different Types of Colonization

colonists

Some time ago, Acemoglu, Johnson and Robinson argued that areas of the globe where early colonists did not face a high mortality risk – such as North America and Australia – are now much richer countries. Many ex-colonies in Africa and the Caribbean, on the other hand, where colonists did face high mortality rates because of tropical diseases such as malaria, are now poorer.

Why is that? AJR claim that the reason is institutional. In those poor countries, the only institutions that were created in early colonial times were extractive. If only a small elite of colonists could survive the local diseases, colonizing nations had little incentive to create durable and non-extractive institutions or provide public services like health and education to the masses of the local populations. More livable colonies could be occupied en masse by the natives of the colonizing nations. These natives required institutions and had the knowhow to create them. The societies that developed there were therefore better organized and far more equal (if you leave out the indigenous populations who were often exterminated). The early institutional built-up, the argument goes, has survived until today, and it’s commonly accepted that good institutions play a key role in development.

Make of it what you will. Perhaps it obscures more than it reveals. In the wrong hands, this argument can be used to exonerate present-day autocratic rulers. After all, it takes time to build institutions, especially in countries burdened by a long tradition of (the wrong kind of) colonialism. Path dependence can be a lousy excuse.

More posts in this series are here.

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The Causes of Poverty (74): Family Structure, Ctd.

single mother

The more traditionally minded among us often blame family structure for high poverty rates. Family structure is of course a euphemism hiding several very specific moral judgments about people’s behavior, about single motherhood, divorce, paternal negligence and incarceration. Those are the things that supposedly make people poor. “Family structure” just sounds nicer and more neutral.

At first sight, this does make some sense. It is a lot harder, financially and otherwise, to raise kids on your own, and if you find yourself in this situation it’s often your own fault or the other parent’s fault. Having a kid or not is a choice given the availability of contraception and abortion. Divorce is a choice. Finding yourself in prison as a parent is a choice. And even if you’re not a parent, marriage or cohabitation is just plainly cheaper than living on your own because you can share costs. You’ll have to buy just as much food as a single person, but the cost of rent, heating, internet access, the use of a car etc. can be split. A lot of consumption goods are non-rival, and marriage and cohabitation are wonderful places for non-rival goods (the park as well, but you can be lonely there).

Given the high rate of children living with single parents it’s not a priori crazy to assume that there’s a link with poverty rates. It does seem to be the case that poverty rates among single parents are higher than average:

brady-lis-single-mother-poverty1

(source)

However, we have to be careful when assuming causation. While it can be the case that your income is lower than it would have been had you (remained) married or chosen not to be a single parent, it might just as well be true that your preexisting poverty causes you to be single.

Suppose you are a single person making $9,000 a year and therefore live in poverty. Now suppose you meet someone else making $9,000 and you are considering marrying them. If you marry, the family income goes to $18,000 and is therefore above the poverty line. On a very superficial take, this seems like it would be a real improvement. But that is only if you assume your potential spouse will necessarily remain employed. If they lose their job, you will go from supporting one person with $9,000/yr to supporting two people with $9,000/yr. On the low-end of the labor market, precarity is very common and so this is a very real risk. (source)

There’s also some literature about how teenage pregnancy results from poverty: poor teenagers often see parenthood as one of the few meaningful options that are available (work, education etc. may not be realistic options).

Another point: traditionalists who make the argument that we should promote marriage in order to reduce poverty can perhaps be somewhat dishonest about their motivations. It may be that what they really want is more marriage for its own sake and just dress it up as an anti-poverty measure because arguing outright for more marriage for its own sake is just not that convincing anymore. It’s telling that cohabitation doesn’t figure as an equivalent alternative in their arguments, even though in theory marriage and cohabitation have the same effect on poverty.

And there may be another hidden motivation. Traditionalist proponents of marriage are often situated at the right of the political spectrum, and being right-wing often also implies being opposed to the welfare state. Arguing that poverty should be solved by way of increased marriage rates is perhaps just a roundabout way of downsizing the welfare state: why should we have a welfare state if marriage can solve poverty? Some make this argument explicitly, saying that welfare destroys marriage because it allows people to survive without getting married (I can’t find a citation just now).

What I dislike about the focus on family structure is not really these possible motivations, but rather the inherent simplifications and victim blaming. There are a lot of causes of poverty, and behavior is probably not the most important one. Many single parents are doing a fine job, both financially and otherwise. Low marriage rates are common in many countries, including those where poverty rates are low (see the graph above). And those single parents who struggle probably do so for other reasons than family structure. It’s also true that many working married parents are poor, whereas most celebrity divorcees don’t have a trouble in the world.

A final remark: even if higher marriage rates would be an effective anti-poverty measure, how on earth do we get more people to marry? Tax cuts? A government sponsored dating service? Flower shop vouchers? It all seems so impractical, especially given the ease of other anti-poverty measures (for example…). And not just impractical but also paternalistic and lacking in respect for people’s choices.

More here, here and here.

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The Causes of Poverty (73): Low IQ?

The brain, "the most complex human organ", and yet we think that 1 number based on a 100 or so short questions is a good measure of its ability

The brain, “the most complex human organ”, and yet we think that 1 number based on a 100 or so short questions is a good measure of its ability

This kind of reasoning is all too common: the poor are stupid and they are poor because they make stupid decisions. Unsurprisingly, it’s mostly the rich who indulge in this kind of pop-psychology, because if true it would also mean that they are wealthy because they are smart. They imagine a correlation somewhat like this:

income iq correlation

Had they cared to look up the actual data, they would have found that the rich don’t necessarily have higher IQ. There’s no correlation at all between wealth and IQ, not even a weak one:

iq and wealth correlation

(source)

And that’s not really surprising: a lot of high paying activities do not require high IQ (I’m looking at you, Sarah Palin). Conversely, it’s not uncommon for smart people to be poor.

So, if the wealthy aren’t making a living that is proportionate to their intelligence, then their wages are determined by other factors: specific skills if we want to be kind; networking, nepotism, degrees paid for by their parents if we want to be nasty. And the wages of the poor aren’t caused by their IQ either.

However, let’s just assume for a minute that the poor do indeed have lower IQ than average. Maybe all this would tell us is that the pressure and stress of poverty reduces our cognitive abilities. So, if there’s is an effect, the causation goes the other way: the poor aren’t poor because they are stupid; they are stupid – if they are indeed stupid – because they are poor.

dstupid2A more fundamental objection to the “poverty is caused by low IQ” narrative: IQ itself is a highly dubious notion. Children’s IQ scores are all over the places, changing almost overnight (up and down). Over longer periods of time, average IQ among populations rises (which is known as the Flynn effect). There is also no agreement on the heritability of IQ – the fluid nature of IQ results seems to argue against heritability. So intelligence is neither fixed nor obviously innate. Environmental factors – including education – change people’s IQ. Much has been made of the fact that African Americans score lower than European Americans on IQ test. However, when black or mixed-race children are raised in white rather than black homes, their test scores rise dramatically. And then I don’t even mention the cultural, gender or race biases inherent in a lot of the IQ test questions (for example, it’s clear that IQ tests are designed for very specific roles in a post-industrial advanced society).

Even more fundamentally: there is no one single and fixed quality or ability called “intelligence” that IQ tests could measure. What these tests do measure is one very particular type of intelligence. They don’t measure planning abilities, long term memory, creativity, emotional intelligence or any practical intelligence such as street smarts, and yet most of us would consider those abilities as essential parts of intelligence.

But again, let’s assume that the “poor = low IQ” claim is true, that the causation goes from low IQ to poverty and not vice versa, that IQ is a good measure of intelligence, that we have a good and objective definition of intelligence, and that the scientifically ascertained lack of innate intelligence among the poor is impervious to any social intervention such as education and redistribution. What would that imply? Inherited disadvantage is unfair and unjust. People should not suffer from inherited disadvantage. Even if the wealth of the rich and the poverty of the poor are the result of innate IQ, that would not lead to a conclusion favorable to the “poor = low IQ” crowd, because the conclusion would be that the poor need to be compensated.

More on poverty and IQ here. More posts in this series are here.

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The Causes of Poverty (72): How Unemployment and the Incentive Theory Aggravate Poverty

unemployment

Not all poor people are unemployed. Even in developed countries some of the poor are “working poor“, i.e. people who have an income that is below the poverty line. Hence, if some who work for a living can’t make ends meet, it’s obvious that the unemployed are even more at risk of being poor. At best, the latter only have a temporary replacement income in the form of unemployment benefits. This income is often lower than even the lowest wage income, and in most countries it’s also limited in time. Hence, poverty is the likely result of unemployment, even in wealthy countries.

To some extent, this result is intentional: governments want to “incentivize” people and “nudge” them into the labor market. High unemployment benefits that aren’t limited in time – combined with the fact that many jobs don’t pay enough to avoid poverty – may trap some people in unemployment. Low and limited unemployment benefits, on the other hand, invoke the horror of poverty which in turn may force people to look for work.

It’s obvious why many unemployed people are poor – their incomes are just too low, and intentionally so. But why are poor people unemployed? The incentive theory tells us that poor people shouldn’t be unemployed. The horror of poverty should drive them out of unemployment. While some people are probably “incentivized” in this way, this is not something that will work for all the unemployed poor. It will only work for all the unemployed poor if jobs are abundant, and indeed that’s what the incentive theory assumes. Of course, this assumption is wrong. There’s something called the natural rate of unemployment. Even in the best of economic circumstances, there’s always some level of involuntary unemployment, and during recessions, this level is higher than normal. From the graph below you can see that during a recession (starting from 2008 in this case) more poor people than normal indicate that their unemployment is due to their “inability to find a job”.

why the poor don't work

(source, data for the US)

So, there are no conceivable incentives that will push all unemployed poor into the workforce, not even at the best of times.

Notice how the same graph shows that the inability to find a job is just one reason among many, and definitely not the most important reason why poor people don’t work. Choice (“home or family reasons”) is another reason. And that’s one which can sometimes be influenced by incentives. However, the reason that’s cited most frequently, namely “sickness or disability” cannot. The horror of poverty will not force you into employment if you can’t work for health reasons. Hence, even if we assume, unrealistically, that there is an abundance of jobs and no natural rate of unemployment, it’s unrealistic to assume that all poor unemployed people will one day join the workforce.

This has implications for the incentive theory. If you put too much emphasis on incentives, you’re likely to put unemployment benefits at a very low level with a strict time limit. After all, the closer the horizon of poverty, the more likely that people will act and look for a job. However, if there are not enough jobs or if people have other reasons why they won’t work, then they won’t work. And if unemployment benefits are stingy, then these people will become poor. Incentives don’t always work as intended. Sometimes they may even cause poverty.

Now, I do agree that work is important (I’ve written a entire book on the importance of work) and that we should therefore try to get as many people in jobs as we can (and, by the way, improve the quality of those jobs; that’s also in the book). Not only because working people normally – although not always – are less at risk of being poor, but also because work is important in human flourishing. I also agree that incentives can play a role in getting people to find work, and that the specter of poverty can be used as an incentive. However, we should be careful with this particular incentive. It may work sometimes, but often it doesn’t.

More on how unemployment benefits protect people from poverty is here. More posts in this series are here.

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The Causes of Poverty (71): Poverty of Willpower and of Self-Control, Revisited

marshmallow test

(source)

Almost as old as the problem of poverty itself is the story that poverty is caused by insufficient self-control and willpower. Never mind that things may just as well be the other way around: poverty drains the will. And never mind that the most famous study cited by proponents of the willpower story is apparently misleading:

For the past four decades, the “marshmallow test” has served as a classic experimental measure of children’s self-control: will a preschooler eat one of the fluffy white confections now or hold out for two later? … The research … began at Stanford University in the late 1960s. Walter Mischel and other researchers famously showed that individual differences in the ability to delay gratification on this simple task correlated strongly with success in later life. Longer wait times as a child were linked years later to higher SAT scores, less substance abuse, and parental reports of better social skills.

Because of the surprising correlation, the landmark marshmallow studies have been cited as evidence that qualities like self-control or emotional intelligence in general may be more important to navigating life successfully than more traditional measures of intelligence, such as IQ.

The Rochester team wanted to explore more closely why some preschoolers are able to resist the marshmallow while others succumb to licking, nibbling, and eventually swallowing the sugary treat. The researchers assigned 28 three- to five-year-olds to two contrasting environments: unreliable and reliable. The study results were so strong that a larger sample group was not required…

Children who experienced unreliable interactions with an experimenter waited for a mean time of three minutes and two seconds on the subsequent marshmallow task, while youngsters who experienced reliable interactions held out for 12 minutes and two seconds. Only one of the 14 children in the unreliable group waited the full 15 minutes, compared to nine children in the reliable condition.

“I was astounded that the effect was so large,” says Aslin. ” … You don’t see effects like this very often.” …

The findings, says Kidd, are reassuring. She recalls reading about the predictive power of these earlier experiments years ago and finding it “depressing.” At the time she was volunteering at a homeless shelter for families in Santa Ana, California. “There were lots of kids staying there with their families. Everyone shared one big area, so keeping personal possessions safe was difficult,” she says. “When one child got a toy or treat, there was a real risk of a bigger, faster kid taking it away. I read about these studies and I thought, ‘All of these kids would eat the marshmallow right away.’ “

But as she observed the children week after week, she began to question the task as a marker of innate ability alone. “If you are used to getting things taken away from you, not waiting is the rational choice. Then it occurred to me that the marshmallow task might be correlated with something else that the child already knows—like having a stable environment.” (source, source)

More posts in this series are here.

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The Causes of Poverty (70): Rich People Not Giving Enough Money to Poor People, Ctd.

poor kids

a couple of kids, apparently poor, location unknown

(source)

In a previous post I looked at some of the reasons why rich people don’t give more money to poor people, and I assumed that the stories people tell themselves have a lot to do with it. Here’s a bit more about this.

The distant poor are the first to be removed from our stories. Archaic and morally dubious notions such as the “national family”, national solidarity etc. are advanced to justify this move. These notions may be linked to certain pragmatic arguments justifying the focus on the poor within our borders: poverty alleviation requires redistribution, redistribution requires a welfare state – adequate taxation and a strong government able to enforce redistributive programs – and there’s no such state on the global level. The merits of this argument are dubious: there are many ways to combat poverty beyond the national welfare state – international development aid, charity, an open borders policy etc.

Another pragmatic argument in favor of focussing on the poor in our own countries goes like this: it’s better for people to help others who are close by, because closeness comes with knowledge about the needs of those who should be helped and about the best ways of helping them. There are also problems with this argument: our poor compatriots are probably as distant to us as the poor in Africa; those who are close to the distant poor are probably poor as well and therefore unable to help – or at least will find it much harder to help compared to people in the rich parts of the world whose marginal utility of the next dollar of income is only a tiny fraction of the utility that the same dollar would provide to the distant poor.

Whatever the merits of these arguments, they help to explain why the distant poor are often removed from sight. The next step is to remove some of the non-distant poor as well. We don’t want to encourage begging, and that’s what we do when we give money to beggars. We want to make work more attractive than begging, and hence we shouldn’t give to beggars. We should even criminalize begging so as to encourage beggars to go find a job. That’s good for the beggars – at least in the long run – and for the rest of us as well because beggars may be a nuisance. Giving doesn’t just encourage begging and unemployment; it robs people of their agency, their self-reliance and their sense of responsibility. It traps them in dependence, and most of the time it encourages bad habits. How many beggars use their earnings to fuel their alcohol addiction? Never mind that alcohol may be the only thing that gives them some pleasure in life and that allows them to forget their misery, if only temporarily. And never mind that the same kind of paternalism is generally viewed as offensive when targeted at the non-poor.

But what about selection biases? Aren’t we more likely to give to some beggars and not to others? The old Mother Theresa like woman with the baby in her lap? The cripple showing off his amputated limbs? The clever beggar who has monopolized the busy intersection and who threatens competitors with violence? All in all, we’ll probably give to those who already get the most, and hence we don’t help the most needy. However, giving can take different forms, and handouts to beggars are just one option. If you’re worried about people abusing cash handouts, why not give them access to healthcare or food? If you’re worried about selection effects, why not make sure that everyone gets an equal share? And if you’re worried about dependency, why not give conditional aid: people only get cash or services when they prove that they are looking for a job, when their children attend school etc.

More posts in this series are here.

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The Causes of Poverty (69): Self-Destructive Behavior

drunks

drunks I guess

(source)

One important hallmark of right-wing thinking is the emphasis on the value of individual responsibility: people should take their lives into their own hands, try to be independent and self-sufficient and make it on their own. Nothing wrong with that, of course, but I part ways with many on the right when they assume that the moral importance of responsibility and self-reliance implies that those who don’t make it on their own have somehow failed to be responsible.

Well, some of those probably have indeed failed to be responsible, but why would we think this is true in all or even most cases? Many people who really try hard to be responsible and to behave rationally still get their legs cut off from under them (there are many causes of poverty after all). Others are irresponsible and still make it (or get bailed out when things go wrong). The word “bank” comes to mind.

It’s not because responsibility is a generally important value and a “good thing” that a lack of it always leads to bad outcomes such as poverty (one bad outcome that does always follow from lack of responsibility is obviously irresponsibility, but that’s tautological).

However, let’s assume, arguendo, that many on the right are correct in their belief that bad things such as poverty are almost always the product of irresponsible and self-destructive behavior. The idea of desert is important here: if poverty is a form of self-destruction resulting from irresponsible actions, then poor people deserve their poverty and they should, somewhat confusingly, be called “the undeserving poor” (“deserving poor” would perhaps be a better name). The flip side is the idea that people with good lives have not failed to act responsibly. And because they have been responsible they deserve their wealth and wellbeing and should not be forced by way of taxation to help those who have not been responsible.

Some on the right do indeed believe that poor people should not be assisted, for 3 reasons: 

  • poverty is what they chose when they acted irresponsibly, and hence it is what they deserve
  • helping them would send the wrong signal and would undermine the value of individual responsibility
  • helping them would mean taking funds away from those who acted responsibly and whi deserve the proceeds of their responsible actions.

Poor people should therefore try to make it back on their own. Assistance in the form of charity for example is allowed, of course, but it can’t be enforced without undermining responsibility, both among the beneficiaries of enforced assistance and among those who are forced to give (the latter may well conclude that self-reliance is futile if the proceeds are taxed away).

It’s true that this is not the standard right-wing view. Some conservatives or libertarians make room for enforced assistance, on the condition that this assistance promotes responsibility and that poor people genuinely try to be responsible while and after they are assisted. Assistance would then be withdrawn in case of continued irresponsibility, and also when it becomes clear that assistance produces dependence and a lack of self-reliance.

While I share the enthusiasm for values such as responsibility, desert, self-reliance, independence and conditional assistance, I also see some problems.

1.

Why would the arrow of causation only go from responsibility to success and from irresponsibility to failure? Might not the reverse also occur? I believe it’s at least possible that poverty and failure lead to irresponsible and self-destructive behavior, and that a life of riches, especially during childhood, fosters responsibility and other virtues. For example, it has been shown that the stress of poverty in early life as well as later in life can lead to misjudgments and irrational behavior. In addition, a life of poverty can destroy people’s aspirations, which in turn may make them decide that they “don’t give a fuck”. From a distance, this may look like irresponsible and self-destructive behavior, but it can be explained as the consequence of poverty rather than the cause. Similarly, the bee sting theory of poverty argues that people in poverty just give up after a series of calamities or misfortunes.

2.

A Yemeni man chews qat in the main qat market in Sanaa May 9, 2007

A Yemeni man chews qat in the main qat market in Sanaa May 9, 2007 REUTERS/Ahmed Jadallah (YEMEN)

Some apparently self-destructive, irrational and poverty-inducing or poverty-perpetuating behavior may be a price that poor people are willing to pay for other goods. For example, the widespread use of Qat in countries such as Yemen causes all sorts of problems for productive and rational behavior. And yet, people who refuse to take it risk social ostracism. The need for social inclusion and acceptance then outweighs the material cost for many users. Something similar can be said of those poor people who spend a lot of money on celebrations and festivals while their calorie intake is below standard.

What looks like self-destruction may in fact be an elaborate and tragic strategy for social survival. Does this mean that people who are willing to pay the price of poverty should not be assisted, given that they are willing? No. They are only willing because the better alternative – both social inclusion and lack of poverty – is not available to them.

3.

Until now, I’ve granted the right wing starting point that many poor people act irresponsibly – strategically or not – and that their behavior causes their poverty. But what if all this is just a visual illusion? Is it not possible that the poor are just as responsible or irresponsible as the rich, but that they have a much smaller margin of error? Some forms of behavior that have little or no consequences for wealthy people, may lead to worse outcomes for poor people or for people on the edge of poverty. Poor people perhaps only look more irresponsible.

4.

snooping

snooping

That last point is important. The only way of detecting responsible or irresponsible behavior is to look at the consequences of it – we can’t detect people’s motivations. But this means that we can be wrong: consequences that look like they are the product of lack of responsibility may be something else. We see behavior that has self-destructive consequences for the actor, but we may be dealing with a person who is not really irresponsible but simply out of luck, mistaken or misguided, or someone with a small margin of error.

So our assessment of responsibility is necessarily an approximation which can sometimes be totally wrong. Any being wrong in our assessment whether or not to help people may have terrible consequences. Furthermore, this assessment is not only difficult and often mistaken; it’s also invasive. Ideally, in order to detect irresponsible poor people – and treat them like this – we would have to monitor their lifestyles and long term attitudes over long periods of time. Only then can we minimize the risk of error. But the result would be dictatorship. I’m sure right-wing thinkers don’t really want to go there. Hence, they should think twice before making desert and responsibility the cornerstone of their worldview.

Other posts in this series are here.

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The Causes of Poverty (68): Rich People Not Giving Enough Money to Poor People

An illustration of Andrew Carnegie, originally published on July 25, 1903

An illustration of Andrew Carnegie, originally published on July 25, 1903

(source)

You can criticize trade policy, immigration restrictions, bad governance or any other commonly cited cause of poverty, but you shouldn’t forget the obvious: there are a lot of wealthy people in the world who could, without losing much wellbeing (due to the diminishing marginal utility of money), help to lift every single poor person in the world to a much higher level of wellbeing.

The fact is that they could but don’t. We do have progressive taxation systems and other means of redistribution, we have development aid, we have charity etc., but none of these things yields enough money to lift everyone out of poverty. And there’s not enough public support to strengthen these redistribution mechanisms. Development aid is already unpopular at current levels, and don’t even start to talk about tax increases. The tireless efforts of Peter Singer and company to promote giving also have only a small effect.

Peter Singer

Peter Singer

The insufficiency of giving and other means of redistribution is hard to understand, in particular given the fact that rich people are generally not very dumb and able to understand the law of diminishing marginal utility. Of course, I know about loss aversion, the endowment effect, habit formation, the importance of status etc. But again, wealthy people should in general be the ones best able to overcome biases, to distinguish the important things in life from the unimportant, and to see how helping others can be beneficial to ourselves, both psychologically and socially (helping makes you feel good, and living a good life amid misery is socially untenable). But perhaps I’m wrong about rich people.

And then there’s something else stopping us from giving more (or allowing ourselves to be taxed more, which is roughly the same thing), namely the stories we tell ourselves. For example, you often hear that it’s better to allow people to look after themselves first, so that they can create the conditions in which they unintentionally help. Allowing entrepreneurs to get rich – i.e. not taxing them too heavily and not insisting that they should give their money away rather than invest it – will be much more beneficial to the poor. Many of the poor will get a job thanks to them, and their products and services will also make the lives of many a lot better.

However, this is not incompatible with giving. True, what you give you can’t invest, but we can allow people to delay their giving until the day that they don’t need to invest a lot more. The example of Bill Gates comes to mind. So we can accept that there is some truth to the story that free enterprise takes care of a lot of poverty, and at the same time insist that there should be more giving.

Bill Gates

Bill Gates

Another story we tell ourselves goes like this: giving people money isn’t a very good way of helping poor people. Many of them will just waste it, middle men will confiscate it, third world governments will misuse it, people will become to depend on it etc. Well, that doesn’t seem to be completely correct. Experiments with conditional cash transfers are very promising. And even if it’s correct to some extent, that’s just an argument to be smarter when giving money: invest it in businesses, healthcare etc.

And finally, there’s the story about agency: helping people is disrespecting them as self-authors and self-governing moral creatures. You may make them materially better off – at least in the short run because dependence on help may create motivational problems in the long run – but you take away their dignity and make them psychologically and morally worse off. People may not want to be helped, and even if they do it may not be in their best long term interest. The problem with this story is not that it’s false as such; it’s that people may not have a long term if we fail to help, and that starvation or homelessness is also an affront to dignity, and surely one that is a lot worse than receiving help.

More about giving is here. More posts in this series are here.

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The Causes of Poverty (67): Lack of Hope

Despair Nr.2 by Kenneth-Edward Swinscoe

Despair Nr.2 by Kenneth-Edward Swinscoe

(source)

Esther Duflo tells us about a program in West Bengal. People were given a “small productive asset” such as a farm animal for instance, and some money so as to prevent people from eating or selling the animal.

Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the … programme were eating 15% more, earning 20% more each month and skipping fewer meals than people in a comparison group. They were also saving a lot. The effects were so large and persistent that they could not be attributed to the direct effects of the grants: people could not have sold enough milk, eggs or meat to explain the income gains. Nor were they simply selling the assets (although some did). (source)

The most likely reason for this is hope. The handouts broke the cycle of pessimism and lack of hope. People were finally offered some mental space to think about something else than just mere survival. The tiny bit of security that came with a farm animal and a financial buffer opened up the possibility of planning, of looking into alternative livelihoods etc. For example, recipients worked 28% more hours, mostly on activities not directly related to the assets they were given. The rate of depression among participants also plummeted.

Some older and related posts:

More posts in this series are here.

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The Causes of Poverty (66): Immigration Restrictions in Wealthy Countries

Four Immigrants and Their Belongings at Ellis Island, circa 1912

Four immigrants and their belongings at Ellis Island, circa 1912

(source)

It’s intuitively obvious: if you allow more people to migrate to wealthy countries, global poverty rates will come down because people will have more and better labor opportunities. Conversely, immigration restrictions keep poverty levels high. Here‘s a paper that actually tries to measure the effect on poverty of migration restrictions:

[R]ich nation migration barriers impose huge losses on the global economy. This paper … estimates, for the first time to my knowledge, the global poverty implications of those barriers and finds that freeing migration into rich nations would reduce global poverty by at least 40% and as much as 66%. This corroborates the conclusions drawn by others that opening rich nations to freer migration may do more to reduce poverty around the world than any other policy.

Another study finds similar results:

[O]pen borders could yield huge welfare gains: more than $10,000 a year for a randomly selected worker from a less-developed country (including nonmigrants). Another is that these gains are associated with a relatively small reduction in the real wage in developed countries.

More on the impact of immigration on native wages is here and here. A related post on the possible effects of a “brain drain” on poverty rates in migrants’ origin countries is here.

More posts in this series are here.

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The Causes of Poverty (65): Grammar?

the future

This has some appeal as an explanation of national differences in poverty and wealth, but color me skeptical nonetheless:

Keith Chen, an economist from Yale, makes a startling claim in an unpublished working paper: people’s fiscal responsibility and healthy lifestyle choices depend in part on the grammar of their language.

Here’s the idea: Languages differ in the devices they offer to speakers who want to talk about the future. For some, like Spanish and Greek, you have to tack on a verb ending that explicitly marks future time—so, in Spanish, you would say escribo for the present tense (I write or I’m writing) and escribiré for the future tense (I will write). But other languages like Mandarin don’t require their verbs to be escorted by grammatical markers that convey future time—time is usually obvious from something else in the context. In Mandarin, you would say the equivalent of I write tomorrow, using the same verb form for both present and future.

Chen’s finding is that if you divide up a large number of the world’s languages into those that require a grammatical marker for future time and those that don’t, you see an interesting correlation: speakers of languages that force grammatical marking of the future have amassed a smaller retirement nest egg, smoke more, exercise less, and are more likely to be obese. Why would this be? The claim is that a sharp grammatical division between the present and future encourages people to conceive of the future as somehow dramatically different from the present, making it easier to put off behaviors that benefit your future self rather than your present self. (source)

I can see what Chen is doing: if your language makes a sharp distinction between past, present and future tenses, then you’re likely to divide your thinking the same way. Hence, you’ll pay more attention to specific concerns in the future. As a result, you’ll plan, you’ll try to foresee future states and you’ll arm yourself against risk. All this will tend to increase your future prosperity. If whole nations act like this because they speak the same language, then this may be an explanation of part of the differences between national wealth.

However, if viewed together with all the other possible explanations of poverty, this one doesn’t really stand out as one that is potentially important. I’m convinced that institutions, geography, trade etc. play a much bigger role, big enough to swamp micro-cultural causes such as language. Also, if Mandarin isn’t “future-oriented”, then how come China is so successful in the struggle against poverty?

More posts in this series are here.

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The Causes of Poverty (64): Rising Food Prices

A spice vendor waits for customers at a market in Jakarta, photo by Dita Alangkara

A spice vendor waits for customers at a market in Jakarta, photo by Dita Alangkara

(source)

It seems that harvests are bad this year and that food prices have gone up. The effect of high food prices on poverty is not straightforward. Poor people do indeed spend a large proportion of their income on food, which means that increases in prices have a direct effect on their financial situation and can even cause hunger. On the other hand, many poor people make their living in agriculture. Higher prices can mean higher incomes for them. The poor are, however, increasingly urban poor, and for them higher food prices are entirely bad news. So it’s not crazy to blame poverty on rising food prices. According to the World Bank, food prices have pushed 44 million people into poverty in 2010-11.

The question is then: what’s causing these prices to rise? The weather is partly to blame – there has been an unprecedented drought in the United States and extremely dry weather conditions in Europe – but so are governments. Government promotion of biofuels, for instance, means that raw food materials are used for petrol alternatives and hence don’t go into food production. This lowers the supply of food and causes prices to rise. I’ve argued before that many make too much of this argument, but there is something to it. Land grabs can also become a problem when biofuels are subsidized or when rules mandate that x% of every litre of fuel sold should be biofuel. These land grabs for biofuel production result in displacement of local production for local consumption, impacting the income of both local producers and consumers: people have to buy the food that they would otherwise have grown, and they have to buy it from further away.

Some government policies designed to remedy the problem only make it worse. Governments that restrict exports of food in order to pump up supply and hence reduce prices – or in order to shield their national market against increasingly expensive imports – may end up pushing prices even higher. When farmers can’t export, their incentives to farm are affected. Result: supplies go down and prices rise even further.

What can be done? Well, inefficient or counterproductive policies should be halted. Biofuel mandates should be scrapped. And in countries with large proportions of poor people governments should offer insurance against drought or bad harvests as well as better safety nets.

More posts in this series are here.

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The Causes of Poverty (63): Stress, Ctd.

stress

(source)

Poor people are often blamed for their own poverty. And indeed, it’s not difficult to find anecdotal evidence of poor people doing dumb and self-destructive things. However, even if we assume – and that’s a big if – that this evidence can be confirmed by more rigorous statistical analysis, then we’re still not allowed to claim that stupidity is in general – and not just in some cases – an important cause of poverty. First, it may very well be the case that everyone, rich and poor, is likely to make the same stupid mistakes but that the poor just have a smaller margin of error. The same stupid mistake made by a poor person costs him or her more dearly. Rich people on the other hand can afford to be stupid. Second, even if it’s true that the poor are on average somewhat more stupid and self-destructive, they should perhaps not be blamed for this. There’s some evidence from psychology that the pressure and stress of poverty reduces our cognitive abilities:

In a behavioral economics experiment several years ago, researchers asked shoppers at a New Jersey mall to handle the following decision: Have your faulty car repaired for either $150 or $1,500. While the participants were considering how to decide, they were given simple cognitive tasks like solving puzzles.

The researchers, Prof. Eldar Shafir and Jiaying Zhao, both from Princeton University, and Harvard University Prof. Sendhil Mullainathan, expected that the stress from contemplating the $1,500 expense would hurt performance. They were right. But participants with above-average incomes succeeded in their tasks under both scenarios, while those with average or low incomes did worse as repair costs climbed.

Even the prospect of spending any money at all damaged the ability of low-income earners to think rationally. (source)

Other tests measured IQ before and after a harvest, i.e. in uncertain times and in more comfortable times:

The farmers had better IQ results during the season of plenty. Before the harvest they had problems making fateful decisions, because of stress. (source)

The stress of poverty causes distractions, which in turn show up as cognitive deficiencies. It’s not cognitive deficiencies that cause poverty but the other way around. Or perhaps it would be more accurate to say that the causality goes both ways.

More on poverty and behavior, on poverty and stress, on poverty and intelligence and on poverty and brain functions.

More posts in this series.

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The Causes of Poverty (62): According to the Left and to the Right

Based on the long list of posts in this blog series about the causes of poverty, let me now offer a summary of commonly cited causes. I’ll structure them and add a few dimensions such as:

  • Are we talking about a cause that plays out on a local/national level (such as self-destructive individual behavior or a dysfunctional welfare state), or one that has an international effect (such as trade policy)?
  • Are we talking about a real cause or merely about a presumed one (the latter have an asterisk in the table below)?
  • Is a particular cause most widely accepted among right or left wing thinkers?

causes of poverty right-wing and left-wing views

(By the way, if some of the terms used in this table are not clear enough, or if you fail to see the link with poverty, then click here and you’ll find a detailed post about almost every single one of these causes of poverty. I wasn’t able to include links directly in the table as I couldn’t find a way to insert the table in this post in a non-image format. Sorry about that).

Straightaway, you’ll notice a couple of things from this list:

  • There are hardly any points of agreement across the political spectrum, unsurprisingly because that is why we have a political spectrum. Even some of the points that look like points of agreement  between the left and the right – e.g. a dysfunctional welfare state – turn out to be none of the sort if we dig a bit deeper.
  • The left has a more diverse story about the causes of poverty, which may explain the view that the left is relatively more preoccupied with the problem. (I’m not taking a position on this view; a more complex explanation of a phenomenon doesn’t by itself imply anything about levels of preoccupation).
  • Simplifying a bit we can say that the left views the poor as victims while the right does not. The right sees people who victimize themselves – and who therefore can hardly be called victims. At most, people are victims of genetics for the right. Non-natural causes such as structural or institutional ones are dismissed, whereas they are emphasized by the left. This coheres with the popular understanding of the difference between left and right: structures and institutions being important for the left, and individual responsibility for the right. And also with the leftist focus on activism and the conservative focus on and acceptance of determinism. (If people’s genes cause low IQ and bad habits then there’s not much one can do).
  • This is of course a simplification: there is right-wing activism – mostly aimed at habits – and there is left-wing determinism – for example the focus on poverty traps; also, if poverty is caused by social structures, then no amount of policy will help and the only option is a revolution.
  • Whereas the right can be accused of “blaming-the-victim” – or even of failing to see that there are victims – the left often neglects people’s agency and responsibility.

My personal view is that political affiliation, of either kind, tends to block out part of the story and generally doesn’t make us smarter.

More posts in this series here.

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The Causes of Poverty (61): Geography

Rice Plantation

Rice plantation

(source)

It’s commonly accepted nowadays that a multitude of causes determines whether a country is relatively rich or poor. The fact that I’m currently writing post number 61 in this series points in the same direction. However, this means that it’s still possible for a particular cause to be dominant in certain countries, outweighing other existing effects. Some focus on institutions for example, others on geography. Let’s have a look at geography, and more specifically at the argument made by Jared Diamond. He cites some geological, geographical and climatological facts that do seem to have a large effect on national prosperity in certain countries:

  • Tropical climates are notoriously unhealthy. There are more parasitic diseases in the tropics because the temperatures are never cold enough to kill parasites. Carriers of diseases, such as mosquitoes and ticks, are also far more diverse in tropical than in temperate areas. Furthermore, tropical diseases – compared to other diseases – are more difficult to combat with effective vaccines. There’s still no vaccine against malaria for instance. Disease is obviously a drag on economic growth: when large parts of a population are sick for extended periods of time, they are unable to work and trade efficiently. Furthermore, disease leads to high fertility rates – as an insurance against infant mortality – which in turn removes many women from the economy for a substantial part of their productive lives.
  • Agricultural productivity is on average lower in tropical than in temperate areas. Temperate plants store more energy in edible parts such as seeds than do tropical plants. Plant diseases borne by insects and other pests reduce crop yields more in the tropics than in the temperate zones because the pests are more diverse and not subject to cold winters. The soils are also better in temperate climates (rainfall washes away the nutrients in tropical soils, and these soils are older and not renewed by glaciers).
  • Landlocked countries are at an economic disadvantage: if an area is accessible to ships because it lies either on the sea coast or on a navigable river, then trade is easier and less costly: it costs roughly seven times more to ship a ton of cargo by land than by sea. Hence, landlocked countries profit less from the advantages of trade.
  • Similar advantages are shared by countries that have abundant reserves of natural resources such as fresh water, forests, minerals, fuels etc. (Although dependence on natural resources can also be a curse).

This being said, there is no overwhelming correlation between national wealth and geographic conditions that supposedly promote wealth: there are countries that are more prosperous than they should be given their geographic endowments, and vice versa. Other factors must therefore play a part, most notably institutions.

More posts in this series here.

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The Causes of Poverty (60): Early and/or Single Motherhood?

pregnant teenager

(source)

The “culture of poverty” narrative claims that people are poor because they have the wrong values and habits and therefore make the wrong choices: they tend to be unable to resist drugs, violence and crime, they drop out of school, have a problem with punctuality and discipline etc. I’ve already made my own views about this narrative abundantly clear in previous posts. However, I failed to give sufficient attention to one subset of values, namely those related to marriage, family structure and early childbearing. So I’ll briefly have a look at those now.

As is often the case with explanations of poverty based on values and habits, there’s a certain superficial persuasiveness about the claim that early marriage, early childbearing and, most importantly, early out-of-wedlock childbearing result in a lifelong loss of income. Young mothers in general and young single mothers in particular have a relatively hard time finishing their education and finding a well-paying job because the combination of motherhood and work/education is a tough deal.

However, we may be wrong about the direction of causation here. Rather than poverty being the result of bad choices – in this case the choice of becoming a young and/or single mother – it may be the cause of those choices. There’s for example this study which finds that teenage pregnancy rates are indeed higher in U.S. States that have high rates of poverty, but which also postulates that high levels of income inequality cause high teenage pregnancy rates, not vice versa. When young people believe that their society is rigged against people like them, they abandon traditional norms; conversely, people will work hard when they feel that there’s a chance of success. When young women see that their chances of future economic success are slim, then early motherhood may even look appealing: it may give direction and a purpose to their lives, a purpose that would be difficult to find in an economy stacked against them.

“[B]eing on a low economic trajectory in life leads many teenage girls to have children while they are young and unmarried and … poor outcomes seen later in life (relative to teens who do not have children) are simply the continuation of the original low economic trajectory” (source)

In a sense, this is a discouraging finding because it means that the promotion of abstinence or contraceptive use won’t reduce early and/or single motherhood; only poverty reduction and realistic economic opportunities will do that, and that’s a lot more difficult and expensive. And, make no mistake about it, we would want to reduce early and/or single motherhood, because the causation goes in both directions and it’s very implausible to deny that early and/or single motherhood has any effect on income. What you do want to deny is that the “culture of poverty” narrative has an important explanatory value in all of this.

One final remark: while I focus here on mothers, many of the same remarks would be valid for young and/or single fathers as well.

More on poverty and family structure here. More posts in this series here.

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causes of poverty, economics, health, poverty

The Causes of Poverty (59): Stress

stress

(source)

Stress is often a consequence of poverty, but it can also make poverty worse. Esther Duflo and Abhijit Banerjee have noted in Poor Economics that

[t]here is a strong association between poverty and the level of cortisol produced by the body, an indicator of stress. Conversely, cortisol levels go down when households receive help. The children of the beneficiaries of PROGRESA, the Mexican cash transfer program [later renamed Oportunidades], have, for example, been found to have significantly lower levels of cortisol than comparable children whose mothers did not benefit from the program. (source)

Cortisol is a hormone, and high levels of it can cause brain dysfunctions which in turn make it difficult for affected individuals to escape their economic predicament.

The prefrontal cortex, for example, which is vital for suppressing impulsive responses, is rendered less effective by high cortisol levels, making us more likely to take hasty, ill-considered decisions. “When experimental subjects are artificially put under stressful conditions,” Duflo and Banerjee note, “they are less likely to make the economically rational decision when faced with choosing among different alternatives.” (source)

This poverty cycle or poverty trap can only be broken when external interventions reduce stress levels. For example, poor people can be given easier access to credit or insurance, which will reduce their fear of the future. They can be given a basic income. Etc. Perhaps cortisol-reducing medication is also an option.

More here on the way in which brain dysfunctions can cause poverty. And more here on the link between poverty, self-control and willpower. More posts in this blog series are here.

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causes of poverty, education, poverty

The Causes of Poverty (58): Low Average Intelligence in Poor Countries?

school in africa

girl in a school in Africa

(source)

The claim that poverty is caused by the stupidity of the poor has an international equivalent: some people look at the fact that most wealthy countries in the world are mainly populated by white people, combine this fact with the claim that non-Western countries have lower average IQ, and conclude that they have found the reason why poor countries are poor.

This is of course a nasty piece of victim blaming on a global scale. It’s also borderline racist. Moreover, if successful, this view will make poverty reduction impossible, given the genetic determinism that is often paired with IQ analysis. If kids get their IQ from their parents, if IQ determines wealth, and if nothing else causes poverty, then why bother doing anything at all?

For example, a book by Richard Lynn and Tatu Vanhanen titled “IQ and the Wealth of Nations” suggests that the average IQ in Africa is around 70, much lower than in East Asia or the West. They also claim that lower average IQ scores are the cause of low levels of development, income, literacy, life expectancy etc.

There are many problems with this theory. First, most of their data are made up. IQ score aren’t available for many countries. At best, the scores are extrapolated on the basis of tiny samples. Second, the theory confuses cause and effect. It’s poverty that drives down IQ rates. The Flynn effect suggests that factors such as improved nutrition, health care and schooling improve IQ test performance. IQ determinism is simply wrong.

Even if the data could tell us that poor countries have indeed relatively low average IQ rates, that’s no reason to assume that low IQ causes poverty. Causation may go the other way, and it’s also possible that there’s something else, a third element that causes both poverty and low IQ, for example the experience of colonialism. The colonizers were no more interested in creating education institutions than in fostering sustainable, non-extractive economies. Don’t forget about the omitted variable bias. However, now we’re assuming that the data can tell us about IQ, and they currently can’t.

Other posts in this series are here.

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The Causes of Poverty (57): No, It’s Not Overpopulation

There is enough food, water and energy in the world to support a decent life for the whole of humanity, even if the numbers of humans continue to grow at their current rate. Poverty, hunger, drought and lack of energy are caused by an inefficient and unjust distribution. It’s not the size of humanity and the supposed pressure it puts on the earth’s resources that results in poverty and suffering for so many of us. Let’s have a closer look at water, food and energy.

water crisis

by Dario Castillejos

(source)

Water

The earth’s fresh water reserves are relatively small, and a lot is wasted on inefficient irrigation, inefficient home use and the production of animal food (the animals in turn are used for the production of meat consumed by people who already eat too much meat). More efficiency could help a lot, but there is also the vast reserve of salt water:

Desalination currently costs about $2 per thousand gallons, which in real units, is about $0.5 per thousand liters. It’s hard to get good recent data on water consumption, but it seems to have been 4000 cubic kilometers per year in 2003. Let’s guess it’s around 4500 cubic kilometers nowadays (about 70% of this is agricultural). It would cost about 2 trillion dollars to produce this water from desalination. (source)

Compare this to total military spending: $1.6 trillion in 2010. Eminently doable given the right priorities.

food

(source)

Food

[I]t should be possible to produce yield increases that are large enough to meet some of the predictions of world food needs, even without having to devote more land to arable agriculture. (source)

There’s a huge margin for growth in food production:

Food production in Africa is vastly less than the region’s known potential, and that is why so many millions are going hungry there. African farmers still use almost no fertilizer; only 4 percent of cropland has been improved with irrigation; and most of the continent’s cropped area is not planted with seeds improved through scientific plant breeding, so cereal yields are only a fraction of what they could be. (source, source)

In fact, the arable land is underused even on a global level:

Most countries are only using a bare fraction of their available agricultural land. The United States, for example – one of the world’s top producers – is using only 5.5 percent of its available agricultural land. According to the Food and Agriculture Organization of the United Nations, only 5.6 percent of the world’s arable and permanent cropland and permanent pasture is under irrigation. (source)

World agricultural production has grown 2.5 to 3 times over the last 50 years but the cultivated area grew only by 12%. So it’s not like we’re running out of land on our “tiny” planet. Africa has around 600 million hectares of uncultivated arable land, about 60% of global total.

And then there’s waste: up to 40% of the world’s food ends up in the garbage bin, because of deficiencies in the food-chain infrastructure, in transportation and in storage. Farmers produce more than they can sell because they receive financial penalties from wholesalers when they can’t deliver fixed quantities throughout the year irrespective of climate conditions. Add to this excessive quality selection (shops throw away perfectly edible food because it’s not visually appealing, and apply overly zealous use-by dates) and consumer waste, and you have mountain ranges of wasted food that could be used to feed many more billions of people.

The enormously expensive and resource intensive production of meat could soon be a thing of the past. In vitro production of meat is becoming a real possibility. That will in turn reduce water usage, deforestation and other environmental catastrophes. Not to mention the consequences for the wellbeing of animals.

Energy

Briefly:

[W]e could replace our energy sources with solar panels, at current prices, while spending only a tiny bit more [on energy] than we currently do. (source)

More on overpopulation here. More posts in this series here.

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The Causes of Poverty (56): A Lack of Social Mobility

class society

by Marlene Pohle

(source)

Is a lack of, or a low level of social mobility a human rights violations? No, of course not. There is no right to be socially mobile or to end up in a different – preferably higher – social class than your parents. However, indirectly there is a link between social mobility and human rights. For instance, there is a human right not to suffer poverty. Poverty can have many causes and so there can be many things that violate our right not to be poor. One of those things is hereditary poverty: many of us are poor because our parents are poor. If our parents are poor, they won’t be able to offer us a good education, a social network and other resources necessary to make it in this world. The wealthy marry the wealthy, invest a lot of time and money in the education and socialization of their children, while the poor often have to marry in their own class and send their children to low-quality public schools. In addition, poor children tend to live in crime infested neighborhoods where drugs and violence are a constant temptations and good role models are rare. There’s also a high probability that their fathers, having grown up in the same neighborhoods and having faced the same temptations, are in prison. Some may occasionally escape their poverty, but a lot of poverty is hereditary.

class societyHereditary poverty is just another word for lack of social mobility. If there is no or little social mobility in your society, if rules, institutions and mentalities make it hard for people to escape the social class of their parents, then this not only reduces fairness, just reward and opportunity, but it also determines the kind of poverty in society: poverty becomes something like a hereditary disease, the poor become a permanent underclass, and society no longer helps people to break the vicious cycle of hereditary poverty and to enjoy fair and equal opportunities.

But it’s not just the type of poverty that is very specific in a society with low levels of mobility. Also the beliefs about poverty take a particular form. The typical view is that the poor are poor because of a “culture of poverty“, because they are undeserving, because they are burdened with low inherited IQ etc. Stories such as these are necessary in order to explain and justify hereditary poverty in a society that has decided not to offer better opportunities to the poor. The fact that some poor people are indeed undeserving and stupid is then brandished as a pars pro toto argument that blackens the reputation of a whole class of people and excuses the lack of fairness of the rest of society.

More posts in this series are here.

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The Causes of Poverty (55): Poverty of Aspiration

Lost hope by romzzz

"Lost hope", by Romzzz

(source)

I think it was Aneurin Bevan who coined the phrase “poverty of aspiration”. It’s a variation on a common theme (other variations are the “culture of poverty” and the “undeserving poor“). According to some, what keeps people poor is their lack of aspiration. When faced with catastrophic or creeping adversity and bad luck, they give up and lose hope. As a result, they fail to invest effort, to try to make something of their lives and to persevere. Maybe in the end they simply lack the desire for anything better. And without such a desire, the idea of investing effort does not even arise.

If we go along for the ride and assume that lack of aspiration is indeed an important cause of poverty, then what in turn causes this lack of aspiration? Some mention stupidity, low IQ or the transmission of bad genes. Others cite fatalism as a common feeling among those who had a dose of bad luck or whose families have always been part of the lower classes: “people like us don’t succeed in life” and “we are destined to do low paying jobs or to be unemployed”.

I think that’s a very incomplete description of the causes of poverty. If some of the poor do indeed lack aspiration and if this contributes to their poverty, then we shouldn’t blame stupidity, genes or fatalism, but rather some of the stories we tell. Nowadays, we tend to believe that aristocracy and class society are things of the past and that we have developed in such a way that we now effectively reward effort and skill rather than class membership, at least most of the time. We do admit that luck still plays a role, but apart from luck people basically have a large set of more or less equal opportunities, at least in the West: we offer cheap education and healthcare, unemployment benefits and poverty relief etc. And even bad luck can be overcome with the right aspirations. Hence, the rich of today aren’t rich because they belong to the aristocracy but because they had the right aspirations when given the right opportunities. And the poor are poor, well, because they must have lacked aspirations.

incentiveAn example of this kind of story is the powerful and widely accepted idea of incentives: we need to pay successful people a lot and tax them as little as possible, because then we reward success, and by rewarding success we promote it. The hidden assumption is that success is caused by effort and aspirations. If effort and aspirations are not the main drivers of success, then there is no reason to create incentives in order to promote and reward the effort and aspirations necessary for success. And if success would also, to some extent, be determined by talent or class membership, then incentives would be less effective or even useless: the talented will do well with or without incentives, because talented stuff is what they do; and those fortunate enough to have been born into privilege need no incentives either – they’ll do well without a high wage.

The incentive story is of course just one among many. The “Land of Opportunity”, the “American Dream”, the “Self-Made Man”, the “Rags to Riches” etc. are similar stories which assume and propagate the theory that poverty is the result of lack of effort and aspiration and that the poor in a sense deserve their social rank. The poor also are offered incentives and opportunities – today, few if any lack the opportunity to receive a good education (at least that’s what we like to believe). Hence, if they don’t succeed, it must be because they choose not to invest the necessary effort or because they lack the aspiration to succeed. This lack of aspiration can only be caused by their lack of character, or perhaps their stupidity and their failure to understand the benefits of investing in effort.

However, I don’t believe any of this adequately describes the average poor person. While some may indeed lack aspiration or perseverance, there are many other things that stand in way of success. After all, we’ve just had a major global recession that has hurt many people who aren’t particularly lacking in aspiration or character. And even in the case of those who can reasonably be accused of personal failings, we should admit that there can be a vicious circle at work. If people are continuously told that only intelligence, character and personality matter, and that all other external causes of poverty are discredited because society provides the opportunities to succeed, then people will start to believe that their predicament can’t be changed. It’s hard if not impossible to change one’s intelligence, character and personality. So why would you aspire to change it? If narratives about the poverty of aspirations are repeated often enough, the poor start to believe them. They internalize a sense of their own worthlessness. So, why try? A lack of aspiration, to the extent that it exists, follows directly from repeated stories about a lack of aspiration.

More posts in this series are here.

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causes of poverty, economics, globalization, international relations, poverty, trade

The Causes of Poverty (54): Lack of Trade Liberalization

I mentioned before (here and here) that trade liberalization – the removal of trade barriers such as tariffs, subsidies and other distortions of international trade – is, on aggregate and in the medium term, a powerful mechanism for poverty reduction. I say “in the medium turn”, because some structural adjustment may be necessary, and “on aggregate” because some may lose while others gain.

The usual fears about trade liberalization – that it reduces government revenues necessary for redistribution, that it leads to labor competition, lower wages and higher unemployment rates, or that it raises prices in developing countries – are, in general and on aggregate, unfounded (an overview of the evidence is here). Of course, trade liberalization may cause local economic shocks, and there can be distributional effects: some people will benefit more than others, and some may even be worse of after liberalization, especially in the short term. But it’s the aggregate medium term effect on a country or an economy that counts.

This is similar to the positive effect of economic growth on poverty reduction:

The vast majority of the world’s poor live in the rural areas of these two countries [China and India]. Both countries achieved significant reductions in poverty during 1980–2000 when they grew rapidly. According to World Bank estimates, real GDP grew at an annual average rate of 10 percent in China and 6 percent in India during these two decades. No country in the world had as rapid growth as China, and fewer than ten countries exceeded the Indian growth rate. The effect on reduction in poverty in both countries was dramatic, entirely in keeping with the “Bhagwati hypothesis” of the early 1960’s that growth is a principal driver of poverty reduction. (source)

Not all of the poor will be automatically better of as a result of economic growth, and growth may widen income inequality or relative poverty while reducing absolute poverty. But on average and on aggregate, economic growth – like trade liberalization – reduces poverty. That’s not just a story of “trickle down” or “all boats rising on a rising tide”; economic growth also means that the government has more resources to fund welfare and redistribution. (Obviously, none of this implies that growth is always beneficial or that there isn’t room to make growth even more “pro-poor” than it already is).

Arguments in favor of trade liberalization

The interesting part of the argument is that the positive effect of trade liberalization on poverty reduction passes through enhanced economic growth: liberalization reduces poverty because it enhances growth.

[P]ractically no country that has been close to autarkic has managed to sustain a high growth performance over a sustained period. Furthermore, … if one classifies countries into globalizers and nonglobalizers by reference to their relative performance in raising the trade share in GNP during 1977–1997, the former group has shown higher growth rates… [T]he outward-orientation of the Far Eastern strategy … led to the Asian miracle. (source)

Free trade is one of the determinants of economic growth. Growth requires increased productivity, and that’s what free trade delivers. Free trade means more productivity because it means

  • more specialization
  • more use of comparative advantage
  • better access to technology and knowledge
  • better and cheaper intermediate goods (raw products etc.) and capital goods (machines etc.)
  • benefits of scale
  • and increased competition.

All these consequences of free trade have a positive effect on productivity and hence on growth. And that’s not just theory; there’s empirical proof. Reductions in trade barriers were almost always followed by significant increases in productivity (source).

And it’s not just productivity; trade liberalization has other effects as well. The removal of tariffs can reduces prices for consumers and hence reduce poverty. It’s often the case that goods consumed by poor people have a higher tariff tax than goods consumed by rich people:

In his research, [Edward Gresser, senior fellow and director of trade policy at the Progressive Policy Institute] found that the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent. A silk brassiere has a tariff rate of less than 3 percent, but the rate on a polyester one is slightly less than 17 percent. The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. Similar variations occur when it comes to household goods. Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent. A silk pillowcase has a rate of 4.5 percent; this goes up to nearly 15 percent for one made of polyester.

Overall, clothes and shoes contributed nearly $10 billion in tariff revenue in 2009, while higher-cost items including audiovisual equipment, computers and even cars added less than $2 billion. Gresser contends that the $10 billion is disproportionately borne by people who can’t afford to buy luxury goods. What’s more, when customers pay sales tax on these products, that amount is also higher than it would otherwise be thanks to the tariff that drives up the retail price. (source)

Hence, not only does free trade alleviate poverty, trade restrictions and protectionism actually aggravate poverty. Take also the example of restrictions on rice exports in rice-producing countries:

At first glance, this seems understandable, because a country may not wish to send valuable foodstuffs abroad in a time of need. Nonetheless, the longer-run incentives are counterproductive. (source)

When farmers can’t export, there’s little incentive for them to farm rice. Result: the shortages that were meant to be avoided.

Arguments against trade liberalization

However, we shouldn’t lose sight of the undisputed downsides of trade liberalization. The removal of subsidies can hurt certain producers and it can, especially in the short run, depress employment and wages in certain sectors. It can therefore reduce some people’s incomes and push them into poverty. Trade liberalization can destroy entire markets: it can force a country to abandon tomato production for example, because nonsubsidized local producers are no longer able to compete with increased import competition coming from countries with a comparative advantage. The local producers will lose their jobs and income. However, these same people may benefit in other areas: products which they consume may become cheaper. So, when assessing the impact of trade liberalization on poverty, one has to aggregate all the losses and gains in different areas, and that’s ultimately an empirical question that has to be investigated country by country. Overall, the evidence is that, on aggregate, the effect is probably positive.

There can be individual losers from liberalization, and even individual countries can lose: countries that depend on mineral resources, for example, can take the fast lane towards the resource curse when trade is liberalized. But it’s the global balance of poverty alleviation that determines the desirability and success of trade liberalization.

The claim that liberalization negatively affects government revenues because of decreasing income from tariff taxes, and hence diminishes the generosity of the welfare state, is also not well founded. First of all, liberalization also means reduced subsidies, which should improve governments’ fiscal situation. Secondly, trade volumes increase as tariffs are reduced, and hence the net effect of reducing tariffs doesn’t have to be falling revenues. And finally, even if revenues fall, the poor don’t necessarily have to suffer: it’s ultimately a political decision where to spend which types of government revenues. Priorities can change when revenues change.

Another possible disadvantage of free trade is a cultural one. The claim is that free trade means cultural imperialism: small cultures don’t have the resources to export their cultural products and risk being overwhelmed by, in particular, American culture. Hence, there may be a case for cultural protectionism, but this case doesn’t extrapolate to protectionism writ large.

Conclusion

Liberalization isn’t a magic bullet, neither for economic growth nor for poverty alleviation. Sustained growth and substantial long term poverty reduction require more than free trade. Conflict resolution, good governance, education etc. need to accompany liberalization. It’s no secret that we don’t yet fully understand all the determinants of growth and poverty reduction. The advantage of trade liberalization, compared to other possible pro-growth or pro-poor policies, is that it’s relatively easy to implement: it is – or should be – easier to abolish tariffs and other trade restrictions (especially if there’s an element of reciprocity in global negotiations) than to create a solid education system or a non-corrupt judiciary able to enforce market rules and property rights.

The evidence in favor of the pro-poor effects of trade liberalization is compelling, but we shouldn’t underestimate some measurement difficulties: the measurement of poverty, of trade liberalization and of the effect of the latter on the former is by definition imprecise. The concept of trade liberalization may also be too broad or too vague. And the specific outcomes of liberalization policies depend not only on the precise reforms being undertaken, but also on the context in which they are undertaken. The same measures will have different results in different economic environments. The extent of multilaterality also determines the effects.

Read more on the topic here, here and here. More posts in this series are here.

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causes of poverty, economics, poverty

The Causes of Poverty (53): Poor Economic Growth

economic growth wall street panic newspaper headline

“Wall Street in Panic” from 1929. Photograph: Hulton Archive/Getty

As an update of this previous post, here’s some more information about the nature of the relationship between economic growth and poverty reduction.

In a recent paper, Lane Kenworthy has compared growth and income data for 17 developed countries. Specifically, he looked at the ways in which the incomes of people in low to middle income groups benefit from economic growth. “Growth” here means increases in the amount of per capita GDP – this caveat is necessary in order to filter out economic growth that is the result of population growth and that doesn’t make the average person better off (although it obviously can make some persons better off, immigrants for instance). “Income” includes both wages and welfare benefits or other government transfers. Another preliminary remark: it’s wrong to think that growth automatically and by definition makes everyone – and hence also the poor – better off. It just makes the average person better off. That means that it can also in some circumstances make some people – e.g. the poor – worse off. Growth numbers are silent about the distribution of the effects of growth.

cartoon economic growth gdpThe question which the paper tries to answer is the following. Given that poor people can benefit from economic growth in two ways:

  1. either growth “trickles down“: more aggregate national income or production means more jobs, better paid jobs etc.
  2. or growth can increase the government’s tax base so that the welfare system can be made more generous,

which of these two mechanisms has been most prominent in the 17 countries examined in the paper?

The answer is “number 2″. Why? Well, in some of the selected countries economic growth was accompanied by a significant rise in low-to-middle household incomes, while in the other countries the effect of economic growth on the incomes of people in low-to-middle income groups was much smaller or zero. If economic growth trickles down (1), then one would assume it trickles down in all or most countries. After all, if growth results in more and better paid jobs for the poor, then there’s no a priori reason why this result would occur in one country but not in another.

The nature of government transfer systems is the reason why the effect of growth on the incomes of the poor is not the same in all countries:

when households on low incomes got better off, it was due most often to a rise in net government transfers. Where net transfers increased, incomes tended to increase in concert with economic growth. Norway, the UK, Sweden, Finland, and Denmark illustrate this pattern. Where net transfers were stagnant, income trends were decoupled from growth of the economy. We observe this in the United States, Canada, and Switzerland. This is an important finding. It means that, as a general rule, growth has not trickled down to low income households through wages or employment. And it means that, when government transfers haven’t grown, wages and employment haven’t stepped in to take their place. (source)

Looking at all this from the perspective of the causes of poverty: it’s clear that poor economic growth in wealthy countries cannot, by itself, explain poverty, because these countries can witness both growth and stagnation of the lowest incomes (as a result of their failure to implement the necessary transfer programs). Hence you can have growth without poverty reduction. If lack of growth is the main cause of poverty, then growth would by itself and automatically reduce poverty. We see that this is not the case.

In poor countries, on the other hand, growth can perhaps be sufficient. Those countries start from a lower base and more can trickle down. A lack of growth can, therefore, explain the persistence of poverty in developing countries, but probably not in developed countries. The latter have a basis of wealth that is large enough to fund welfare programs even if growth is poor. Growth helps to make this funding easier, but it’s not really necessary. A more progressive tax system, coupled with some good legislative will, can also do the trick.

More here.

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causes of poverty, economics, education, health, poverty

The Causes of Poverty (52): Brain Dysfunctions Caused by Early Childhood Adversity

brain

(source)

Children in orphanages, in poor quality day care centers, children of teenagers or children with one or two parents incarcerated often experience neglect, lack of stimuli, adversity and even abuse. Studies have shown that this kind of adversity, especially if it takes place during the first two years of life,

can damage the brain as surely as inhaling toxic substances or absorbing a blow to the head can. And after the age of two, much of that damage can be difficult to repair, even for children who go on to receive the nurturing they were denied in their early years. … For a long time, social science has known of correlations between childhood turmoil and all sorts of adult maladies that carry massive social and financial costs—mental illness, addiction, tendencies toward violence. … [Recent] science suggests that many of these problems have roots earlier than is commonly understood—especially during the first two years of life. … [A]dversity during this period affects the brain, down to the level of DNA. (source)

Early childhood adversity such as neglect, abuse or the stress produced by extreme poverty weakens and distorts the development of the brain and sets the body’s hormonal stress function on permanent high alert.

brain activity in institutionalized and non-institutionalized children

brain activity in institutionalized and non-institutionalized children

(source)

Here are some examples of the ways in which early childhood adversity affects the brain in a lasting manner:

[A] baby who endures prolonged abuse or neglect is likely to end up with an enlarged amygdala: a part of the brain that helps generate the fear response. Some of the earliest and most important research establishing this process dates to the 1950s, when investigators observed that rats were better at solving problems if they got more nurturing at very young ages. … Subsequent research showed that persistent childhood stress also leads to significant physical problems, such as far higher rates of cardiovascular disease and diabetes. … Early adversity … can interfere with planning ability, cognitive flexibility, problems with memory, and all of those will correlate with diminished IQ. … One 2010 paper from Psychological Medicine concluded that “childhood adversities”—a category that includes abusive parenting and economic hardship—were associated with about one in five cases of “severely impairing” mental disorders and about one in four anxiety disorders in adulthood. (source)

early childhood violenceSo there is evidence of a causal connection between trouble in very early childhood and problems that occur later in life. Notwithstanding the fact that some affected children end up OK and that others may benefit from later interventions, the cited effects are often tenacious in later life. That means that preventing them requires concentrated action during those crucial first two years. Providing very young children with stable, responsive and nurturing relationships in the family, in school and in the neighborhood can prevent or reverse the effect of early childhood adversity, stress and neglect.

And the interesting part from our point of view is that the effects of early adversity are not limited to mental disorders and crime. These effects cause and perpetuate poverty. Hormonal and brain functions that are distorted by adversity and stress result in learning difficulties:

Children who fail to develop coping mechanisms struggle from the earliest days in school, because even the slightest provocations or setbacks destroy their focus and attention. They can’t sit still and read. They have trouble standing in line. They lash out at classmates or teachers. And these struggles, naturally, lead to other problems that perpetuate the cycle of poverty. All of this is to say that the science of early childhood may play a significant role in the dominant political question of our time: rising inequality. (source)

That means that anti-poverty measures should focus on very young children. Such measures have lifelong benefits for learning, behavior and health. Not only are such early measures more effective in the struggle against poverty than attempts to reverse damage later in life – they are probably also less costly.

More posts in this series are here.

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causes of income inequality, causes of poverty, economics, equality, poverty

The Causes of Wealth Inequality (21): The Feedback Loop Between Absolute and Relative Poverty

rich man poor man

(source unknown)

I’ve come across an interesting and novel argument (novel to me at least) in favor of measuring and doing something about relative poverty, and against an exclusive focus on absolute poverty. Absolute poverty – in other words, the absence of those resources necessary for the fulfillment of basic needs such as nutrition, shelter etc. – remains of course an important and perhaps even primordial concern, but relative poverty has always been an interesting notion to many of us: if you lack most of the things an average person in your society takes for granted, then you’ll feel deprived and excluded, ashamed like Adam Smith’s day-labourer who can’t appear in public without a linen shirt,

the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.

rich man's horse, and poor man's horse

rich man's horse, and poor man's horse

Linen shirts aren’t a basic need and one can be quite comfortable without it, but being without it in a certain society at a certain time in history can signal lack of desert. It can diminish the esteem others feel for you, as well as your self-esteem. As a result, you may be excluded from parts of society, and this exclusion may make it more difficult for you to acquire the resources necessary for your basic resources. Hence, your relative poverty leads you into absolute poverty, and your absolute poverty obviously makes your relative poverty worse. And when considering this vicious circle, we’re evidently not talking solely about linen shirts.

Anthropologists and economists have pointed out that festivals, celebrations and communal feasts are not just entertainment. They have an important social role in maintaining the networks that are crucial to coping with poverty and even escaping it. Household budget surveys have often revealed seemingly high expenditures on celebrations and festivals by very poor people. It is also known that clothing can serve an important social role. (source)

People therefore have very good reasons to claim that their well-being does not only depend on the avoidance of absolute deprivation but also on comparisons with others. Comparisons may even cause absolute deprivation.

More on this issue here and here.

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The Causes of Poverty (50): The Structure of Income Inequality

social classes

It seems that one particular aspect of income inequality – namely the degree of inequality between middle income and lower income people – determines the degree of redistribution in a society, and hence the level of poverty of the poorest:

the key factor determining redistribution is the income gap between middle income voters and lower income voters. Where this gap is low, middle class people feel some degree of solidarity with the poor and exhibit what Lupu and Pontussen describe as “parochial altruism.” That is, they are more likely to support income redistribution because they feel that the poor are in some sense, “like them”. When the gap is high, middle class people will have a much weaker sense of solidarity with the poor, and hence be less supportive of redistribution.

Lupu and Pontussen suggest that the US is an outlier, with weaker solidarity than the structure of US inequality would suggest. They argue that the explanation for this is straightforward – “it is clearly attributable to the high-concentration of racial-ethnic minorities in the bottom of the income distribution.” More bluntly put – middle class Americans feel less solidarity with the very poor because the very poor are more likely to be black. (source, source, source)

Yet another reason to worry about income inequality. More on the impact of relative poverty on absolute poverty here. More posts in this series are here.

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The Causes of Poverty (49): Brain Drain?

brains

People with socially useful skills – such as nurses, doctors and teachers – often desire to leave their poor native countries and migrate to the West. A higher wage and the chance of escaping some of the world’s most dysfunctional societies trumps national and social attachments.

However, some argue that this “brain drain” is detrimental to the prosperity of developing countries: not only do they lose their best and brightest – emigration of skilled citizens makes it more difficult to prepare younger generations for their role in society (teachers leave, and governments faced with the risk of brain drain are less eager to invest in education – and even if they are eager they will have a smaller income from taxes necessary to fund education).

And indeed, the better educated citizens of poor countries are more likely to emigrate. You need some money and know-how to move to the West, and you have to expect some value-added. A poor farmer in Africa doesn’t have the money to leave, and his chances of finding a socially useful role in Europe or America, compared to his fellow-citizens who are doctors or engineers, are small.

However, when assessing the economic impact of the brain drain, one has to take all effects into account. For example, criticism of the brain drain often fails to mention the clear benefits for those who decide to leave their countries. More counter-intuitively, those who stay behind may also gain rather than lose: people who spend time abroad often return home with socially valuable skills and savings, and while they’re abroad they send home remittances. Also, the possibility of leaving a country incites many people to improve their skills and education, even if ultimately they stay home. And when they stay home, their higher education is a net social gain. Governments of developing countries may also benefit: perhaps they’ll lose some money when people leave after finishing their government subsidized education, but they gain money when the families that stayed behind spend their remittances, or when they don’t have to pay unemployment benefits to those who leave – some of those would have been unemployed had they stayed home.

It seems that the brain drain is no more than a catchy phrase, and certainly not an important cause of poverty in developing countries.

More posts in this series are here.

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The Causes of Poverty (48): Overpopulation

(source)

It looks like we’re about to have another large famine, and so – right on cue – we’re hearing the familiar chorus of overpopulation. Equally predictable, I promised myself that this will be the last time that I drag my feet towards yet another rebuke of the Malthusians whose visions of the human flood always seem to cloud their perception of the facts.

The world’s population is estimated to continue its current growth path and to reach 9 billion in 2050, after which stabilization and even decline are likely. Those worrying about overpopulation claim that we can’t possible feed all those new people and that a decline in the numbers, if it will come, will come too late. A Malthusian catastrophe is inevitable without strong measures to reduce the number of human beings. However, that turns out to be a very simplistic assumption. There’s no good reason why humanity can’t feed one or two billion more members:

So long as plant breeding efforts are not hampered and modern agricultural technology continues to be available to farmers, it should be possible to produce yield increases that are large enough to meet some of the predictions of world food needs, even without having to devote more land to arable agriculture. (source)

The latter point also debunks the myth that population growth will inevitably mean increased deforestation and desertification.

Likewise, an excess number of people in a certain area isn’t the cause of current food shortages, and neither was it the cause of historic famines. A combination of climate factors, bad governance and infrastructure, the failure or inability to adopt modern farming technologies and panic hoarding produced those shortages. (Read also the work of Amartya Sen if you haven’t already done so).

the end is at handIf food production can keep up with expected population growth, maybe the problem is water. There’s indeed a water crisis in many parts of the world, but again it’s not population numbers that create the problem, but inefficient irrigation, excessive meat consumption and careless use. Rather than trying to limit the world’s population – which is very difficult anyway because it seems to require dictatorial government and has unexpected harmful consequences – one should tackle inefficiency and waste and focus on the development and improvement of fresh water production. Those objectives are eminently doable.

So, if water and food will be OK – notwithstanding the odd local famine that is likely to occur with any given number of human beings populating the earth – maybe a general increase of the world’s population will lead to pressures on poor countries’ healthcare systems? More children without extended healthcare systems means increased child and maternal mortality. However, current population increases go hand in hand with radical improvements in child and maternal mortality rates, so why would future increases be any different?

And don’t get me started on migration flows. The supposed harm done by migration is one of the biggest lies out there, on a par with overpopulation rhetoric.

(image source)

More on overpopulation here.

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The Causes of Poverty (47): The Undeserving Poor? Stop Moralizing Already

lazy batman

(source)

In certain circles, it’s common to hear the claim that the poor – or many of the poor – only have themselves to blame and that their poverty is the result of their own bad decisions, mentalities and lifestyles. It’s useful to deconstruct this claim because that will allow us to show that its appeal is based on a dangerous simplification.

Inherent in the claim is a very specific, unspoken and unconvincing understanding of the concept of responsibility: the poor are responsible for their own poverty because they have failed to meet certain standards of conduct (e.g. finish school, wait to have kids, be dedicated to your job etc.). However, responsibility should ideally be understood as much more than mere conformity with standards of conduct. In many cases, this conformity is not the result of responsibility but rather a matter of habit, fear of consequences, convenience etc. In other cases, acting responsibly means violating certain standards of conduct.

And even when responsibility equals conformity to standards of conduct, failure to conform may not imply irresponsible behavior. People need the capacities necessary to act responsibly and to choose and follow through with the right form of conduct. If they don’t choose and follow through with the right form of conduct, the reason my not be a choice to act irresponsibly, but simply a lack of capacity to choose and follow through with the right form of conduct.

In order to have the capacities necessary to act responsibly and to choose and follow through with the right form of conduct, people need to grow up and live in an environment that fosters these capacities, or at least doesn’t destroy them or nip them in the bud.

effects of deforestation on jaguars

effects of deforestation on jaguars

(source)

Take the example of people who destroy their forests for the purpose of agriculture or animal farming. They unwittingly or wittingly encourage desertification and the erosion of fertile soil. They act irresponsibly in a superficial understanding of the word, because they fail to conform to certain standards of conduct that would guarantee their prosperity, as well as that of future generations. In this case, we’re talking about the standards of conduct that prescribe sustainable development. However, the people in the example may not have the capacity to act responsible because they may not have an alternative to their self-destructive actions.

Likewise, someone dropping out of school may seem to act irresponsibly, and others may conclude from her actions that her subsequent poverty is her own fault. But maybe she didn’t grow up in an environment that fostered her capacity to remain in school.

education

(source)

Hence, looking closer at what it means to act responsibly often means softening our judgments about people. Obviously, there are people who have the capacity to act responsibly – or whose circumstances and upbringing do/did not substantially diminish or fail to foster this capacity – but who nevertheless act irresponsibly. They are rightly condemned for their own failures (a condemnation which, by itself, does not automatically remove all moral obligations to assist them – the removal of those obligations, as required by many conservatives and “luck egalitarians” – can only be justified by additional arguments which aren’t guaranteed to withstand criticism and which I won’t examine now).

The problem, of course, is our lack of ability to distinguish these people from others who genuinely lack the necessary capacities and who are therefore only apparently irresponsible. It’s easy to detect cases of bad or self-destructive conduct; it’s much harder to ascertain capacities or the presence or absence of an environment that fosters capacities.

I would like to ask those who go on about the undeserving poor, about their stupidity and lack of personal morality, and about how the welfare state only encourages bad behavior, the following questions: given

  • the fact that some of the supposedly irresponsible people are not really irresponsible, and
  • the fact that it’s hard to determine who’s who, and
  • that trying to determine this would probably require a state that is much more intrusive and opposed to liberty than current welfare states

would it not be better to risk helping some genuinely irresponsible people than to risk not helping some people who do not have the capacities to act responsibly? And would it therefore not be better to work on capacities? I think the latter would be more fruitful than the attempt to moralize people out of poverty.

More on the undeserving poor here.

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The Causes of Poverty (46): Poverty of Willpower and of Self-Control

self-control

(source)

Conservatives often argue that the absence of certain mental goods such as self-control and willpower are to blame for the absence of material goods: poverty of the mind and of the will leads to material poverty. Now it seems that things are actually the other way around. Psychological experiments have shown that

an individual’s capacity for exerting willpower [is] finite—that exerting willpower in one area makes us less able to exert it in other areas. … After you exert self-control in any sphere at all, like resisting dessert, you have less self-control at the next task. (source)

That’s a general rule, but also one which affects the poor disproportionately: their material poverty forces them to exercise self-control and willpower much more frequently and intensely. They therefore deplete their mental “stock” much more rapidly, and as a consequence lose the necessary mental powers in situations where they need them most. This in turn, makes their material poverty worse or at least more difficult to overcome.

The basic process have been shown over and over again in simple experiments. Here’s one:

[F]ood-deprived subjects sit at a table with two types of food on it: cookies and chocolates; and radishes. Some of the subjects were instructed to eat radishes and resist the sweets, and afterwards all were put to work on unsolvable geometric puzzles. Resisting the sweets, independent of mood, made participants give up more than twice as quickly on the geometric puzzles. (source)

This makes intuitive sense:

Purchasing decisions that the wealthy can base entirely on preference, like buying dinner, require rigorous tradeoff calculations for the poor. … [P]overty appears to [make] economic decision-making more consuming of cognitive control for poorer people than for richer people. … In one experiment, poor participants in India performed far less well on a self-control task after simply having to first decide whether to purchase body soap. …  [I]f you have enough money, deciding whether to buy the soap only requires considering whether you want it, not what you might have to give up to get it. (source)

work

(source)

This leads to some profound philosophical questions. Poverty seems to reduce free will, making it hard for the poor to use their own mental powers as means to escape their circumstances. However, if that is the case, we’ll be tempted to adopt some form of classism, blaming the poor rather than the economic and social structures they live in, the economic ups and downs that determine their job prospects, the discrimination some of them face, the politics and laws they endure etc. And then we’ll be right back where we started, with the conservative criticism of poverty discourse. The poor become a lesser form of humans, devoid of some of the essential human characteristics such as free will, self-control, intelligence etc.

However, the basic logic of the self-control argument remains persuasive, as long as one doesn’t focus too much on it at the expense of other causal explanations. The logic is also reminiscent of another causal theory, namely the bee sting theory of poverty. Both theories focus on the psychological causes of poverty:

A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The more of a painful or undesirable thing one has (i.e. the poorer one is) the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems.

If, for example, our car has several dents on it, and then we get one more, we’re far less likely to get that one fixed than if the car was pristine before. If we have a sink full of dishes, the prospect of washing a few of them is much more daunting than if there are only a few in the sink to begin with. …

[B]eing poor is defined by having to deal with a multitude of problems: One doesn’t have enough money to pay rent or car insurance or credit card bills or day care or sometimes even food. Even if one works hard enough to pay off half of those costs, some fairly imposing ones still remain, which creates a large disincentive to bestir oneself to work at all. (source)

More posts in this series are here.

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The Causes of Poverty (45): Bad Luck

bad luck

(source)

Some of the poor are victims of bad luck. That’s not something which is sufficiently understood. Agreed, others dig their own grave or get their graves dug by crooked capitalists, unfair international rules, overly optimistic financial institutions causing a global economic crisis, heartless politicians etc. However, there are cases in which the link between someone’s actions or intentions – self-regarding or other-regarding – and someone’s poverty is very weak indeed and in which it’s better to say that it’s a good dose of bad luck that drives people over the brink. And I’m not just thinking about the guy losing his job because of illness or accident.

The data are very clear. In essence, if you have the bad luck of being

then you’ll earn less, sometimes a lot less than average, and you’ll run a higher risk of becoming poor.

Jimi Hendrix experiencedMaybe you would reply that people with some of these characteristics don’t earn less because they had the bad luck of being born like that – e.g. black, female, short etc. – but because employers are racist or prejudiced against women or short people. True, but not always. Poverty rates among blacks in the U.S. are a lot higher than average, but only part of this gap can be explained by racist employers. Other parts of the explanation, such as education levels, statistical discrimination etc., can’t be linked immediately or exclusively to racial bias.

Or maybe you would reply that some people have themselves to blame for some of their harmful characteristics, e.g. being obese or a single mother. That, in other words, these characteristics are chosen and self-inflicted and not a matter of bad luck. That is also only partly true. Obesity can be genetically determined, and single parenthood can be the result of misguided policies such as the war on drugs.

More posts in this series are here.

(image source)
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The Causes of Poverty (44): Bad Institutions

botswana-map

(source)

Botswana is a largely tropical, land-locked country with insignificant agriculture in a geo-politically precarious location. When the British granted independence, they left 12 km of roads and a poor educational system. Making headlines for its devastatingly high HIV rate, Botswana suffers from high inequality and unemployment. Officially a democracy, it has yet to have a functioning opposition party. 40% of Botswana’s output is from the diamond industry, a condition that in other countries casts the resource-curse.

Zimbabwe and Botswana GDP per capita

Zimbabwe and Botswana GDP per capita

Still, Botswana is a growth miracle. Between 1965 and 1998, it had an average annual growth rate of 7.7%, and in 1998 it had an average per capita income four times the African average. Rule of law, property rights, and enforcement of contracts work; the government is efficient, small, and relatively free from corruption. Indigenous institutions, persisting through colonization, encourage broad-based participation, placing constraints on elites. Institutional quality and good policies are responsible for success against the odds. (source)

Of course, high GDP growth rates don’t always imply low poverty rates, but often they do. About a third of the population still lives in poverty, but this rate has been declining sharply, from 59% in 1985 and 47% in 1992 (source).

(image source)

More posts in this series are here.

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The Causes of Poverty (43): The Welfare State

unemployment line

Dorothea Lange's 'Unemployment Line,' 1936

(source unknown)

Yes, that’s right: the welfare state… According to many conservatives, the welfare state is self-defeating and actually makes people poorer. Welfare and social security (and perhaps even private charity) unwittingly work to thwart their own goal – helping the poor – in two different ways. There’s supposed to be a supply side and a demand side to the so-called “perverse effects” of anti-poverty policies.

Take the supply side first. The delivery of welfare by the government and – indirectly – by the taxpayers is economically inefficient. It burdens the primary suppliers of the necessary funds, namely the individual and corporate taxpayers. Because of this burden, companies and individuals lose the incentive to be productive. If they have to pay large amounts in taxes in order to fund the welfare state, they can’t or won’t create the wealth that is the basis for redistribution. In other words, they can’t or won’t create a rising tide that will lift all boats. Ultimately, a tax-based welfare state will eat itself because it burdens the wealth creators whose wealth it wants to redistribute.

I’ve argued against this rejection of the welfare state before, and I won’t repeat myself here. Suffice it to say that the risks to incentives are overstated, as well as the benefits of trickle down economics. (For instance, companies may decide to be more productive in order to compensate for the losses from taxation).

Let’s now turn to the demand side of the anti-welfare argument. Again, the reasoning is based on incentives that ultimately result in a self-defeating anti-poverty system, but this time it’s about the incentives of the recipients of welfare. The argument goes roughly like this. Take unemployment benefits for instance (one part of the welfare state). These benefits supposedly discourage people from working. And when people don’t work, they fail to gain experience and to nurture certain values – such as discipline – necessary in order to escape poverty. Hence, unemployment insurance makes the recipients worse off.

family structureOr take another kind of benefit: financial support for children born out-of-wedlock. This kind of support also triggers the wrong incentives. It encourages teenagers to get pregnant and it discourages adults to marry. Teen-pregnancies and single parenthood both make it more difficult to escape poverty. Something similar happens with scholarships or affirmative action for poor students. These so-called anti-poverty policies actually incentivize students to enroll in education programs that are above their capabilities, forcing them to drop out of school at some point, and hence forcing them into poverty. And, finally, there’s the argument about welfare dependence: when people get money from the government they tend to settle in their role as receivers and fail to take their lives into their own hands. Again the wrong incentives.

This demand side of the anti-welfare argument suffers from two fatal shortcomings. First, the data don’t (always) support it. For example, it’s not true that generous unemployment insurance leads to higher unemployment (see here). And secondly, it’s classist in the sense that it offers an essentialist depreciation of the poor as a class. The poor, according to the argument, suffer from a series of typical deficiencies:

  • shortsightedness (in the case of the person being tempted by child benefits and ignoring the long-term costs of teen pregnancy or single parenthood)
  • a lack of self-judgment (in the case of the student accepting a scholarship and enrolling in a program beyond her capabilities) and
  • a lack of self-control (in the case of the person settling in dependency).

social-securityThis classism is not only generally incorrect and unfair, but it also obscures the many other causes of poverty. The poor aren’t always to blame for their own poverty, and the welfare state doesn’t force them to make themselves poor. Moreover, and even worse, this classism can be self-fulfilling.

Also, hasn’t the recent financial crisis shown that wealthy people, especially bankers, are equally short-sighted, self-deluded and lacking in self-control? And even if it’s true that those vices are more prominent among the poor (as is claimed here for example), wouldn’t that be a good argument for welfare rather than against it? If the poor can’t rationally take care of their own fate because they are self-deluded and unable to plan for the long term, shouldn’t the rest of us try to help them?

More here and here about the “culture of poverty” and the “undeserving poor”. More here about the causes of poverty.

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The Causes of Poverty (42): Slavery

Gustave Boulanger's painting The Slave Market.

Gustave Boulanger's painting The Slave Market

At least in Africa, part of the explanation of poverty is the enduring effect of slavery:

Slavery, according to historical accounts, played an important role in Africa’s underdevelopment. It fostered ethnic fractionalisation and undermined effective states. The largest numbers of slaves were taken from areas that were the most underdeveloped politically at the end of the 19th century and are the most ethnically fragmented today. Recent research suggests that without the slave trades, 72% of Africa’s income gap with the rest of the world would not exist today. … The countries from which the most slaves were taken (taking into account differences in country size) are today the poorest in Africa. …

An alternative explanation for the relationship is that the parts of Africa from which the largest number of slaves were taken were initially the most underdeveloped. Today, because these characteristics persist, these parts of Africa continue to be underdeveloped and poor. My research examines this alternative hypothesis by testing whether it was in fact the initially least developed parts of Africa that engaged most heavily in the slave trades. I find that the data and the historical evidence suggest that, if anything, it was the parts of Africa that were initially the most developed, not least developed, that supplied the largest number of slaves. (source)

It’s not difficult to imagine how large scale “extraction” of able bodied young people can harm an economy, even centuries after the event. The huge importance of the effect of slavery (“if the slave trades had not occurred, then … 99% of the income gap between Africa and the rest of the underdeveloped world would not exist”) should lay to rest frivolous speculation about cultural or racial causes of Africa’s predicament.

More posts in this series are here. I mentioned another enduring effects of slavery here.

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The Causes of Poverty (41): Racism

Poverty in Baltimore

Poverty in Baltimore

There’s a clear discrepancy between poverty rates for blacks and whites in the U.S. (as between races in many other countries):

poverty and race in the us

The question is to what extent racism is to blame. I mentioned here, here and here that some of the irrational and self-destructive behavior of a lot of poor people causes many to believe that the poor are themselves to blame for their poverty and that one shouldn’t look for external reasons such as racism.

If you finish high school and keep a job without having children before marriage, you will almost certainly not be poor. Period. I have repeatedly felt the air go out of the room upon putting this to black audiences. No one of any political stripe can deny it. It is human truth on view. In 2004, the poverty rate among blacks who followed that formula was less than 6 percent, as opposed to the overall rate of 24.7 percent. Even after hearing the earnest musings about employers who are less interested in people with names like Tomika, no one can gainsay the simple truth of that advice. Crucially, neither bigotry nor even structural racism can explain why an individual does not live up to it. (source)

Opinions like this are very common:

discrimination african americans

But are these opinions correct? Is it true that “neither bigotry nor even structural racism” can explain why an individual does not make a few simple choices that will drastically improve her life?

At first sight, it does seem that a few simply rational decisions about life will allow you to escape or avoid poverty. But on closer inspection that’s just begging the question: if things are so simple, why don’t people make those choices? Hell, it’s so simple that it should be obvious even to the stupidest among the poor! But if it’s not stupidity that causes people to fail to take the advice of finishing high school and not having children early, and not bigotry or racism, then what?

[The] insistence that the failure of so many blacks to avoid the perils that come with not finishing high school and getting pregnant before marriage cannot be explained by structure or bigotry is too outrageous to let pass with no reply. In fact they can be easily explained by structure. …

The school systems in black neighborhoods are underfunded and undeniably worse on average than those in white neighborhoods.  The quality of the school, its teachers and leadership has a direct influence on graduation rates.  Sex ed and access to contraceptives are also far worse in black communities.  The public health failures come well before this for many black youth.  The failure to provide adequate health care and nutrition to black adolescents has been linked to the behavioral and learning disabilities so prevalent in black schools.  The diagnosis of a learning disability is one of the biggest predictors of eventually dropping out of school, particularly in poor urban schools. (source)

And having more trouble finding a job because you’re name sounds black obviously has an impact on your prosperity, also for your children. And growing up in a poor family has consequences for your adult prosperity. When we look at incarceration rates by race, and assume – wrongly – that there’s no racism in play, what do you think it does to a child having to grow up without a father?

This means that there’s one less parent to earn an income, one less parent to instill the sort of discipline all children need to graduate school and avoid unplanned pregnancies.  Even if the incarceration only lasts briefly, it still means that once the parent is out of jail he or she will find it much harder find employment. (source)

More posts in this series are here.

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The Causes of Poverty (40): A Culture of Poverty

drunk

It’s not uncommon to hear people claim that the poor shouldn’t blame “the system” for their poverty, but should look instead at their own values and behavior. Poor people, or at least some of them, show behavior that can be called a “culture of poverty“. They are the “undeserving poor“, the “stupid poor” who are poor because of their self-destructive lifestyle choices, their own stupid decisions, their self-chosen family situation, their involvement in crime, their drug use, their welfare dependency, their lack of effort in school, their lack of general discipline and their inability to plan for the long term.

Of course, we can all imagine some people who are “undeserving” in this sense, and some of us may know (of) some of them, but the adherents of the culture of poverty theory claim that such undeserving behavior is quite common among the poor and is the reason why the levels of poverty remain quite constant over time, even in some of the most wealthy and generous welfare states.

There are actually two versions of the culture of poverty theory, one more common than the other.

Innate moral deficiencies

Usually, the culture of poverty is believed to be a symptom of innate moral deficiencies among the poor. Or, euphemistically, the poor have a “unique value system”. It’s the depraved morality of the poor, and the self-destructive attitudes and behaviors that result from it, that keep them poor, period. All other possible explanations of poverty – discrimination, the membership theory of poverty, the bee sting theory, economic structures and processes, the business cycle etc. – go on the dump of politically correct academic claptrap.

This version of the culture of poverty theory is in essence a form of classism, akin to racism. Like a racist who claims that the depravation and inferiority of people of another race is entirely the fault of those people and should not be blamed on racism, adherents of this version of the culture of poverty theory claim that the poor are a separate group of people that make their own lives miserable, quite independently of external causes. The theory is also classist in the sense that it assumes one coherent culture among the poor, a culture that they simply “have” and that doesn’t contain major internal differences.

Acquired moral deficiencies

A more moderate but less common form of the theory maintains the moral opprobrium directed at poor people, but also sees some external reasons for their self-destructive values and behavior. The poor are still a separate group of people with a distinct culture, but this culture doesn’t result from some form of innate or genetically determined moral depravation that’s typical of the poor. The moral depravation that the adherents of this second version of the theory witness among the poor isn’t innate but is produced by generations of poverty. The poor classes and their offspring have responded to the ongoing burden of poverty by developing values and attitudes that perpetuate their poverty, and they socialize the next generations into these values and attitudes.

A homeless man in Paris

A homeless man in Paris

For example, decades of generational or hereditary poverty instill in people feelings of powerlessness, inferiority, victimhood and marginality, and these feelings in turn produce self-destructive values and behavior. They work as a kind of self-fulfilling prophecies. So, according to this second version of the theory, the self-destructive attitudes and behavior patterns that are the essence of the culture of poverty aren’t shaped by innate or genetic moral deficiencies. The observed moral deficiencies and the resulting self-destructive attitudes and behavior patterns are produced by internalization and socialization following decades of generational poverty.

The opposition to welfare inherent in the culture of poverty theory

Whatever the causes of self-destructive behavior – innate or genetic moral depravation on the one hand, or internalized self-destructive values on the other – the adherents of the culture of poverty theory claim that it’s only better behavior and values that can help people escape from poverty. The adherents of the “innate depravity” version of the theory will just have some more difficulties explaining how we can change the behavior and values of the poor.

And because it’s only better behavior that can help them, we shouldn’t give poor people money, unemployment benefits, healthcare insurance, child benefits etc. We don’t need a welfare state. Instead, the poor should be more diligent in their pursuit of a good education and a good job, they should lead healthier lives and have less children, especially out of wedlock etc. Some claim that money doesn’t matter for poverty (really!). The poor will do well even without money, as long as they change their value system. So, money doesn’t matter for poverty, like ice doesn’t matter for ice-skating, or something.

The fatalism inherent in the culture of poverty theory

According to the adherents of the culture of poverty theory, the poor aren’t just like all the rest of us minus the money. No, they are completely different, and just throwing money at them won’t change one iota. On the contrary, welfare benefits will just confirm them in their sense of victimhood and inferiority and will therefore perpetuate their destructive value system. However, closing the welfare tap and forcing them to pull themselves up by their bootstraps isn’t likely to work either, since they don’t have the discipline and the other values needed for that, and neither do they have the values necessary to get the education necessary to acquire a superior value system (were such an education provided to them).

Hence, even those adherents of the culture of poverty theory who don’t believe in innate moral deficiencies tend to conclude that poverty is permanent and that nothing can be done. Only those among the middle classes who have internalized the right values but for some reason or other become destitute (a widow for example, or a wounded soldier) will have the resources to recover. They might therefore also benefit from some form of welfare support. The generational poor, however, will remain poor even with tons of cash. Maybe the shock of near-starvation will help them, but also that is unlikely given their lack of moral resources and the difficulty of helping them to acquire those resources.

This is why the adherents of the culture of poverty theory claim that this theory explains the persistence of poverty much better than racism, discrimination, the inadequacies of the welfare state, the “creative destruction” of the business cycle etc.

A self-interested theory?

The culture of poverty theory, because it places the blame for poverty at the feet of the poor themselves, logically entails the claim that if those who are poor had acted differently they would not now be poor. And this entails yet another claim, namely that those who are not poor are so because of the way they acted. Hence, the wealthy deserve their riches. I can agree that they do to the extent that they work hard to earn their wealth. But wealth creation isn’t a solipsistic effort, it depends on cooperation. And it also depends on endowments such as talents, good and wealthy parents etc. and no one deserves any of those endowments. Many people who come into life with few endowments also work hard, and yet don’t achieve wealth.

I have the impression that the culture of poverty theory is just a tool for the wealthy to justify their own wealth and discredit the efforts to redistribute a part of that wealth in order to help the poor. I don’t mean that there are no individuals who are themselves the primary or even sole cause of their poverty, or that there aren’t any “cultural” explanations for poverty (“acting white” comes to mind). Neither do I underestimate the pernicious effects of a negative self-image or of welfare dependency. And I certainly don’t want to dispossess the wealthy simply because they can’t be said to deserve their wealth in any coherent sense of the word “deserve”. What I want to point out here is the tunnel vision of the culture of poverty theory, blocking out all other causes of poverty (mostly of a more structural nature), as well as the classism inherent in the theory, a classism that I believe is motivated by economic self-interest. And, finally, the fatalism of the theory is likely to be self-fulfilling.

More posts in this series are here.

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The Causes of Poverty (39): The Bee Sting Theory of Poverty

(This is a follow-up from two previous posts, here and here).

Why are people poor? A cursory investigation almost always blames the poor for their own poverty. Poor people seems to make stupid choices all of the time. They are disproportionately likely to have children while in their teens, to be an unmarried mother, to drop out of school, to abuse drugs, to commit crimes etc. Non-poor people also engage in this kind of irrational behavior but the costs to them are much smaller. So rationality would tell poor people to stay away from such behavior. The fact that they don’t leads many to conclude that poor people are especially irrational, perhaps even dumb.

Many conservatives often adopt this causal theory of poverty, although not always in those terms. Perhaps it’s a reaction to liberals who tend to situate the cause of poverty far away from the poor themselves, e.g. racism, capitalism etc. Both camps, however, remove responsibility from the discussion. If you’re too dumb to escape poverty, you’re not likely to magically develop the responsibility to take your life in your hands. And if outside forces as powerful as racism and capitalism make you poor, no matter how strong your sense of responsibility, you’re not likely to win.

A multicausal understanding of poverty seems closer to reality: dumb choices, lack of effort and responsibility and outside forces all contribute to create and maintain poverty, in different measures for different people. It’s likely that poor people aren’t different from anyone else in this respect: everyone makes dumb choices, lacks responsibility in key moments and suffer the brunt of outside forces, the poor just pay a heavier price. They have smaller margins of error, so they suffer disproportionately from the errors they make. And their reserves and defenses are weaker, so the impact of outside forces is stronger. And we shouldn’t forget poverty traps as a cause of poverty (see here, here and here): the more you’re down, the more difficult it is to get up again. Partly because of material reasons (for example, the trap of the ghetto or the vicious circle of poverty and ill health), but also because of psychological reasons:

A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The more of a painful or undesirable thing one has (i.e. the poorer one is) the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems. …

If, for example, our car has several dents on it, and then we get one more, we’re far less likely to get that one fixed than if the car was pristine before. If we have a sink full of dishes, the prospect of washing a few of them is much more daunting than if there are only a few in the sink to begin with. …

[B]eing poor is defined by having to deal with a multitude of problems: One doesn’t have enough money to pay rent or car insurance or credit card bills or day care or sometimes even food. Even if one works hard enough to pay off half of those costs, some fairly imposing ones still remain, which creates a large disincentive to bestir oneself to work at all. (source)

Camden, New Jersey is one of the poorest citie...

Image via Wikipedia

This is a classic example of a poverty trap: being poor makes you poorer. People just get overwhelmed by problems and their ability to cope suffers. It’s not just that they are dumb or irresponsible; they’re simply overwhelmed. All of us would be, even the smartest and most responsible among us.

It also means that, as Charles Karelis has argued, there’s something wrong with the disincentive argument about help to the poor (giving them help reduces their incentives to do something about their situation, like giving unemployment benefits reduces the incentive to find a job). Things may actually be the other way around:

Reducing the number of economic hardships that the poor have to deal with actually make them more, not less, likely to work, just as repairing most of the dents on a car makes the owner more likely to fix the last couple on his own. (source)

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The Causes of Poverty (38): Behavior

poverty cartoon by Patrick Corrigan

poverty cartoon by Patrick Corrigan

(source)

Following an earlier post, some more evidence free musings on the causes of poverty. Theories about the causes of poverty typically fall into two camps:

  1. either the poor are victims of circumstances that are irrational (trade restrictions, misguided government policies, etc.)
  2. or the irrationality is situated within the minds, lifestyles, behaviors and values of the poor whose lack of rational calculation and foresight condemns them to a life of poverty.

Theory 1 describes the poor as people who satisfy the commonly accepted economics paradigm of the rational economic actor, but who also face economic or political structures that make it difficult for them to reap the usual benefits of rational self-interested economic interaction in a mutually beneficial market. Theory 2 blames not the dysfunctions or imperfections of the market and of government, but the dysfunctions of the self-destructive individual.

Poverty alleviation in theory 1 means market corrections or improvements in government (redistribution, market liberalization, breaking poverty traps, institutional improvement, the struggle against corruption etc.). In theory 2, it means better education, family planning and perhaps even psychological and paternalistic guidance. Some will go to extremes such as sterilization or eugenics. In the immortal words of Oliver Wendell Holmes:

OLIVER WENDELL HOLMES

Oliver Wendell Holmes

Carrie Buck is a feeble-minded white woman who was committed to the State Colony… She is the daughter of a feeble-minded mother… and the mother of an illegitimate feeble-minded child… An Act of Virginia, approved March 20, 1924, recites that the health of the patient and the welfare of society may be promoted in certain cases by the sterilization of mental defectives… We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, in order to prevent our being swamped with incompetence. It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. Jacobson. v. Massachusetts, 197 U. S. 11. Three generations of imbeciles are enough. (source, source)

That’s not so popular anymore these days, fortunately, and invasive actions like these or like the aboriginal “Stolen Generations” are widely condemned. And yet, extremely paternalistic interventions still occur (take for example the current Australian aboriginal policy, aptly called “the intervention“).

Theory 1 seems to blame “society” for the fate of the poor, and this violates some of our philosophical intuitions about (limited) self-control and self-responsibility. Theory 2 seems very cold-hearted and even classist, and violates moral intuitions about the requirements and consequences of living together. That’s probably why the most common view is a mix of both theories (call it theory 3). Most of us believe that poverty has multiple causes and that these causes can be situated both in the economic-political structures and in individual psychology and behavior, in varying degrees depending on the specific cases.

However, there’s also a theory 4, described in this paper, and it’s one that avoids the (partially) paternalistic, classist, anti-activist or anti-individualist pitfalls of the previous three theories:

The behavioral patterns of the poor, we argue, may be neither perfectly calculating nor especially deviant. Rather, the poor may exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes. (source)

So the poor only give the impression of being deviant and self-destructive. They are, but not more or less than anyone else; it just shows more. For example, many poor people fail to open a bank account, notwithstanding the large benefits and the low costs of doing so. That failure is self-destructive because it increases the cost of payments and revenues, something the poor can afford least of all. However, this doesn’t prove that the poor are particularly self-destructive people. It only shows the effects of minor and universal human failures, such as embarrassment (when faced with a bank teller), short-termism, time preference etc., failures which happen to have graver consequences for the poor than for the rest of us because of their smaller error margins.

More on the causes of poverty here.

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The Causes of Poverty (37): Lack of Trade Liberalization

I’ve argued before that doing away with trade restrictions (especially in the agricultural sector) – such as subsidies (like the EU’s Common Agricultural Policy), import duties and other protectionist measures – would be a boost to the global struggle against poverty (read more here and here). Free and unsubsidized trade reduces poverty in at least three ways:

  • It brings down prices because of increased specialization, competition and comparative advantage (read more about the reasons here). Although the removal of subsidies (only one element of trade liberalization) would initially raise prices and hence also poverty levels in importing countries, over time this would be compensated by the downward pressure created by specialization, increased competition and comparative advantage. However, these importing countries wouldn’t be the poorest ones: “three-quarters of the world’s poor live in rural areas, with the majority of them depending directly or indirectly on agriculture for their livelihoods” (source). The poorest countries would benefit from initial price rises caused by the removal of subsidies. (That doesn’t mean that everyone in the poorest countries would benefit: non-farm workers may suffer).
  • It opens up foreign markets for poor producers.
  • It eliminates distortions of competition between local producers and foreign, subsidized products, distortions which often force local producers out of business.

All this has a positive effect on the income of the poor. There’s a new paper here arguing that the net effect of trade liberalization is a reduction of the number of poor people worldwide by 3%:

the winners from trade reform would include poorer countries and the poorest individuals within countries. Nevertheless, it is also clear that even among the extreme poor, some would lose.

Of course, and again: beware of the silver-bullet fallacy. Domestic anti-poverty policies continue to be important as well.

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The Causes of Poverty (36): Overpopulation (Because the Extent of Wrongness in Overpopulation Discourse is an Infinite Number)

world population throughout history number of homo sapiens that ever lived jon gosier

(source)

I never cease to be amazed by the persistence of overpopulation discourse in the face of irrefutable counter-evidence. The coming explosion of the population bomb is predicted time and again, with the same accuracy as the Christian Apocalypse. The spectacular failure of Paul Ehrlich‘s predictions in 1968, for example, seems to have had the same dissuasive effect on overpopulation discourse as Obama’s birth certificate on a large part of the Republican Party. Look at some of these statements:

Paul Ehrlich

Paul Ehrlich

The battle to feed all of humanity is over. In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate … India couldn’t possibly feed two hundred million more people by 1980 … One general prediction can be made with confidence: the cost of feeding yourself and your family will continue to increase. There may be minor fluctuations in food prices, but the overall trend will be up … The United States would see its life expectancy drop to 42 years by 1980 because of pesticide usage, and the nation’s population would drop to 22.6 million by 1999. (source)

Most of these statements are regularly repeated in some form or other, even today. Now, confront this with the following basic facts:

When Paul Ehrlich wrote his famous book ["The Population Bomb"], women were having an average around the world of five or six children; now they’re having an average of 2.6. Fertility rates around the world have halved. That’s not just true in Europe and North America; they’re way below replacement levels in most of East Asia now. Not just China but Japan, Korea, Vietnam and Burma have replacement rates of fertility or below. Around the world, fertility rates have been coming down really sharply. So the population bomb as we’ve conceived it before really isn’t there. There’s still population growth going on, but that’s going to stabilize. … birthrates are coming down fast, with Indian women, for instance, having fewer than three children on average today; and even African women have falling fertility. Fred Pearce (source)

What’s causing this population bust?

[T]hanks to advances in sanitation and medicine, women no longer need to have five or six children to make sure that two of them will live to adulthood. … Urbanization is a factor. When you’re in the countryside, your kids are an economic resource very early. They can help in the fields, they can look after the animals; there are piles of stuff they can do from the age of 4 or 5. Kids are an economic resource, which is why rural families tend to be larger. Fred Pearce (source)

More on fertility rates and overpopulation is here. Now, you could argue that even with falling fertility rates overpopulation can still be a problem. Heck, even with falling population rates you could say that there’s still overpopulation. Overpopulation is then a problem of relative population numbers rather than absolute numbers: if there are more people than the number that can be fed, then you have overpopulation. But this is also wrong: planet earth could feed a number of people that’s a lot higher than the current number.

Africa faces a food crisis, but it’s not because the continent’s population is growing faster than its potential to produce food, as vintage Malthusians such as environmental advocate Lester Brown and advocacy organizations such as Population Action International would have it. Food production in Africa is vastly less than the region’s known potential, and that is why so many millions are going hungry there. African farmers still use almost no fertilizer; only 4 percent of cropland has been improved with irrigation; and most of the continent’s cropped area is not planted with seeds improved through scientific plant breeding, so cereal yields are only a fraction of what they could be. Africa is failing to keep up with population growth not because it has exhausted its potential, but instead because too little has been invested in reaching that potential. (source, source)

Famines in general have causes that are completely unrelated to overpopulation. Read more here.

Overpopulation discourse isn’t just the proverbial barking up the wrong tree; it’s keeping company with some seriously rotten fruit. Look who else worried about overpopulation:

What was Hitler’s argument for attacking other countries? You might think he didn’t have one, but he did. His argument is frankly Malthusian: Our population is growing, and we will run out of food unless we get more land. …

The annual increase of population in Germany amounts to almost 900,000 souls. The difficulties of providing for this army of new citizens must grow from year to year and must finally lead to a catastrophe, unless ways and means are found which will forestall the danger of misery and hunger. Hitler in Mein Kampf

Hitler then reviews various policies to deal with the threat of over-population:

1. Artificial birth control. Hitler rejects this because it short-circuits natural selection. Furthermore, there is an international prisoners’ dilemma: The one country that lets its numbers rise will outnumber and militarily dominate the rest…

2. Increasing productivity via “internal colonization.” Hitler rejects this on a priori Malthusian grounds – there is no way for productivity to permanently outpace population growth:

Adolf Hitler

Adolf Hitler

It is certainly true that the productivity of the soil can be increased within certain limits; but only within defined limits and not indefinitely. By increasing the productive powers of the soil it will be possible to balance the effect of a surplus birth-rate in Germany for a certain period of time, without running any danger of hunger. But we have to face the fact that the general standard of living is rising more quickly than even the birth rate. The requirements of food and clothing are becoming greater from year to year and are out of proportion to those of our ancestors of, let us say, a hundred years ago. It would, therefore, be a mistaken view that every increase in the productive powers of the soil will supply the requisite conditions for an increase in the population. Hitler in Mein Kampf

3. Acquire new territory outside of Europe. The problem with this plan, says Hitler, is that other European countries have already taken the good non-European land. So you would have to attack European countries to get the land:

In the nineteenth century it was no longer possible to acquire such colonies by peaceful means. Therefore any attempt at such a colonial expansion would have meant an enormous military struggle. Consequently it would have been more practical to undertake that military struggle for new territory in Europe rather than to wage war for the acquisition of possessions abroad. Hitler in Mein Kampf

4. Acquire new territory inside Europe. At last, a solution to the imbalance between people and land that Hitler likes! And of course, he doesn’t contemplate buying the land:

Of course people will not voluntarily make that accommodation. At this point the right of self-preservation comes into effect. And when attempts to settle the difficulty in an amicable way are rejected the clenched hand must take by force that which was refused to the open hand of friendship. If in the past our ancestors had based their political decisions on similar pacifist nonsense as our present generation does, we should not possess more than one-third of the national territory that we possess to-day and probably there would be no German nation to worry about its future in Europe. Hitler in Mein Kampf (source)

Of course, you can’t judge people by the company they keep, especially not if it’s involuntary company. One wouldn’t want to commit the error of reductio ad hitlerum or fall into the trap of Godwin’s Law. It’s not because a stupid or despicable person happens to believe something that it’s necessarily wrong and that other people should feel the need to reject their beliefs simply because they are shared by someone like Hitler (I am and will continue to be a vegetarian for instance).

However, I think it should at least worry those who talk about overpopulation that they share the same concerns with a genocidal fool who was genocidal precisely because of those concerns. Maybe there is some kind of link between those concerns and genocide. Also, it should worry them that genocidal war for Lebensraum is only the most unlikely perverse effect of concerns about overpopulation. Look for example at the effects of the one-child policy in China on gender balances (something which has been called a kind of genocide, not without reason).

Jonathan Swift

Jonathan Swift

As a throwaway, a satirical quote from Jonathan Swift’s 1729 work “A Modest Proposal“, suggesting feeding the children of poor Roman Catholic families to wealthy Protestant landowners to deal with Ireland’s unsustainable population growth:

I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed is at a year old a most delicious, nourishing, and wholesome food, whether stewed, roasted, baked, or boiled.

More on overpopulation is here.

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The Causes of Poverty (35): The Membership Theory of Poverty

When you read about the causes of poverty you’ve probably convinced yourself that there are causes, and that the poor don’t have only themselves to blame. What you’re most likely to find are the following causes:

  • culture (for example the religious hypothesis of Max Weber)
  • geography, climate, resources (most notably in the work of Jeffrey Sachs)
  • institutional, political and governmental causes (e.g. the resource curse, the role of the rule of law and economic freedom etc.)
  • education
  • sociological causes (e.g. family structure)
  • etc.

(There’s a summary of possible causes here).

It’s less common to find discussions about group affiliation as a cause of poverty. The group membership theory of poverty states that some people are poor because of the dynamics of the group(s) to which they belong. The groups may be residential areas (“ghettos”), schools, ethnic groups, workplaces etc. Poverty in this sense is “contagious”, hereditary, and self-perpetuating. It’s an example of a poverty trap.

This membership theory of poverty has a certain intuitive appeal to it. Group membership influences individual behavior and individual outcomes in various ways, so it wouldn’t be surprising to see that it influences economic status as well.

How do groups exert a negative influence over their members’ economic status? Peer pressure plays a role. The choices of some members of the group become the “natural” thing to do. The desire for social acceptance can force individuals to mimic their peers. Something similar occurs with role models. The behavior of older group members or members with some form of authority becomes standard behavior. Furthermore, when people witness high rates of failure among members, this will negatively affect their aspirations and effort. Finally, social and economic activities are highly complementary. When few group members start businesses for example, few other members will have the opportunity to work for them or trade with them. Conversely, when many members engage in economically destructive activities such as crime, other members may have no other economic opportunity than to collaborate.

You may ask, if groups are so bad, why don’t people just get out? Of course, it’s not always as easy as that. When you live in a crime infested ghetto, you don’t just move uptown. People will need some form of help. In order to break negative group dynamics, you can either work on these dynamics themselves (provide better education, crime protection, economic opportunities, affirmative action schemes etc.), or you can try to influence the prior group affiliation. How do people end up in a harmful group in the first place? There may be some room for government intervention. There’s the example of school desegregation through busing in the U.S. (not highly successful however). Governments can also tweak their social housing policies. Such policies are often called associational redistribution. One should be careful, however, not to cause harm elsewhere. There’s still a right to freedom of association and a right to privacy. Governments shouldn’t mess too much with group membership.

If you want to read more about the membership theory of poverty, I recommend two papers by Steven Durlauf, here and here. Those papers also contain an overview of the empirical evidence.

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The Causes of Poverty (34): Desert

Those who agree that the government should help the poor usually don’t make qualitative distinctions between different kinds of poor people. They only separate the mildly poor from the horribly poor and modify the assistance policies accordingly.

My personal views are similar to these, albeit that I want to promote private charity before and above government assistance. The recent debates about healthcare reform in the U.S. were in essence about one type of assistance to the “poor”, namely those not poor enough to be eligible to existing government programs yet not wealthy enough to be able to buy adequate private insurance. During these debates, Bryan Caplan – a libertarian – proposed to make a distinction between deserving poor and non-deserving poor:

All [the government] needs to do is provide a means-tested subsidy to make private health insurance more affordable for those who need it most. The subsidy should be based on income, wealth, chronic health status … on past and current behavior. People who engage in voluntary risky behaviors – smoking, drinking, over-eating, mountain-climbing, violence, etc. – should receive a smaller subsidy, or no subsidy at all. The same goes for people who failed to buy long-term insurance when they were healthy and employed, then ran into health or financial troubles. (source)

We can broaden this to poverty assistance generally. And we can also expand the argument to a moral one rather than one that is simply about the need, appropriateness or scope of government intervention in poverty reduction, since I believe government intervention in poverty reduction is simply a fallback option in the case of deficient private charity (see here for my argument). The government should step in when individuals and groups fail to honor their private duties towards fellow human beings. The proper question is then: do we, as individuals, have a moral duty to help the poor, directly and through the taxes we pay to the government? I think that’s the case, and if I’m right we should ask if this duty is limited to the deserving poor. In other words, can we ignore the predicament of those who are themselves the cause of this predicament through overly risky behavior, self-destructive behavior, or stupid and irrational behavior?

The affirmative answer to that question has some intuitive appeal. And it’s also coherent with a long tradition in moral philosophy that argues against paternalism as an attitude that protects people against their freedom to damn themselves. However, things aren’t quite as intuitive as this. A duty to assist only the deserving poor requires a clear and unambiguous distinction between desert and lack of desert. I don’t think it’s really possible to decide in all cases, or even most cases, that someone has or hasn’t been deserving. Take the case of a person engaging in systematic over-eating and thereby destroying his or her health and ending up in poverty. At first sight, that person deserves poverty. People are agents with a free will and have a choice to engage in self-destructive behavior. However, we know that education and culture influence eating habits, so the causes of this person’s poverty are far more diverse than simply his or her lifestyle decisions. Even if there is an element of voluntariness in this person’s decisions, at what level of voluntariness do we put the threshold and say that this person does indeed deserve his or her predicament, notwithstanding the effect of outside causes?

There is also a problem of information deficit. People can act in a bona fide way, believing that they don’t act in a self-destructive way, based on the information that they have gathered using the skills that they have been taught. How on earth can you go and judge whether people were sufficiently bona fide? You’d need the KGB to do that, and still…

In addition, there may be a chain of desert: if, through some miracle of understanding and close monitoring, you can determine that a person isn’t to blame for his or her own predicament, maybe you can decide to assist that person but reclaim the money from his or her parents because those parents were undeserving while educating the person. In that case, the least of your problems would be an infinite regress.

Also, given the fact that poverty reduction, because of the regular failure of private charity, isn’t simply an interpersonal matter and that therefore the government will have to step in at some point, do we really want the government to start separating the deserving from the undeserving? Look at the answer of another libertarian, Tyler Cowen:

First, I am worried about a governmental process which first judges the “deservingness” of each poor person before setting the proper subsidy. Do they videotape your life as you go along, or do they convene a Job-like trial when you submit receipts for reimbursement? (source)

So we have a fundamental tension between on the one hand the value of individual responsibility and the need to have people make their own choices and suffer the consequences (if no one has to suffer the consequences of choices it’s hard to call them real choices), and, on the other hand, the need to help the wretched of the earth, even those who may be (partly) responsible for their own wretchedness (I say “may be” because I don’t believe there’s a way to know, not even with a KGB).

The useful thing about this dilemma is that it makes clear that people are indeed in some cases the cause of their own poverty, at least in part. It’s very important to determine the real causes of poverty if you want to do something about it. Helping poor people after they have become poor is just part of the solution. It’s better to prevent poverty altogether, and this dilemma helps doing that because it forces people to see that behavior is a cause. Hence they should be able to adapt their behavior.

More on the causes of poverty. More on desert.

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The Causes of Poverty (33): Agricultural Subsidies

After the United States and before Turkey, the world’s second largest producer of tomato concentrate is the EU. Its tomato farmers are paid a minimum price higher than the world market price, which stimulates production. The processors, in turn, are paid a subsidy to cover the difference between domestic and world prices.

Some of the effects of these subsidies on West African LDCs in the 1990s have been documented. The subsidy is reported to have reached about $300 million in 1997. The processors, then, need to find markets, and about 20 per cent of exports at that time went to West Africa. In the mid-1990s, about 80 per cent of demand in this region was covered by tomato products from the EU, which were cheaper than local supplies.

Stiff competition from EU industries led to the closure of tomato-processing plants in several West African countries. In Senegal, for instance, tomato cultivation was introduced in the 1970s, and progressively acquired an important position for farmers, for whom tomato production was synonymous with a key opportunity to diversify their farming systems and stabilize incomes. In 1990-1991, production of tomato concentrate was 73,000 tons, and Senegal exported concentrate to its neighbours. Over the past seven years, total production has fallen to less than 20,000 tons.

One of the main reasons for this dramatic fall was the liberalization of tomato concentrate imports in 1994. Despite the positive impetus provided by the devaluation of the CFA franc, the tomato-processing industry could not compete with EU exporters. Imports of concentrates jumped from 62 tons in 1994 (value: $0.1 million) to 5,130 tons in 1995 (value: $4.8 million) and 5,348 tons in 1996 (value: $3.8 million). SOCAS, the one Senegalese processing firm that has survived, buys imported triple concentrate and processes it into double concentrate.

Other West African LDCs – Burkina Faso and Mali – have had similar experience of enormous increases in imports of EU tomato concentrate. (source)

More on free trade and protectionism. More on poverty in Africa.

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The Causes of Poverty (32): Overpopulation

overpopulation cartoon

overpopulation cartoon by Sutton Impact

(source)

How can I say, as I so often do on this blog, that overpopulation isn’t a very important problem, and certainly not the main cause of such human rights violations as famine, war, poverty etc.? Especially when we know that there will be 9 billion people on the earth in 2050, that with the almost 7 billion living now we can’t manage to properly feed one billion everyday, that many resources (water, fish, arable land in certain places etc.) are already overexploited, that rising incomes will mean rising consumption of food and water (especially meat, a water-intensive commodity), and that because of all of this green house gases will increase?

How can you be so stupid not to believe that overpopulation is a problem, I’m often asked in comments on this blog. Maybe it’s got something to do with the fact that people have been sounding the alarm about the “population bomb” for over 200 years now, and it still hasn’t gone off. Of course, it’s not because people have been wrong for 200 years that they will continue to be wrong. But there are some indications in this paper that they will continue to be wrong.

The paper explains how we can feed 9 billion people, and argues that we’ll need to change the food system (something I also advocated on this blog before). Agricultural waste is a huge problem. Up to 40% of the world’s food ends up in the garbage bin, because of deficiencies in the food-chain infrastructure, transportation and storage. Farmers produce more than they can sell because they receive financial penalties from wholesalers when they can’t deliver fixed quantities throughout the year irrespective of climate conditions. Add to this excessive quality selection (shops throw away perfectly edible food because it’s not visually appealing, and apply overly zealous use-by dates) and consumer waste, and you have mountain ranges of wasted food that could be used to feed many more billions of people.

We could also promote vegetarianism, or at least a reduction in meat consumption, since meat production is very costly in terms of water use, land use, deforestation, green house gases etc. (see here). A side effect would be that we reduce factory farming and are a bit nicer to animals.

Stricter systems to reduce overfishing are also required. And let’s not forget that on a global level, the arable land is underused.

Most countries are only using a bare fraction of their available agricultural land. The United States, for example – one of the world’s top producers – is using only 5.5 percent of its available agricultural land. According to the Food and Agriculture Organization of the United Nations, only 5.6 percent of the world’s arable and permanent cropland and permanent pasture is under irrigation. That gives humanity a lot of room to grow.

Mother Earth actually has the capacity to feed her people, even the billions that live on her now. As more and more people need to be fed, more and more people can be put to work farming, planting, and engineering new food management solutions. (source)

But not just the quantity of agriculture can be boosted, also its quality. Crop yields can be improved, perhaps by way of genetically modified crops but other techniques are also available: farmer training and financing for example, or more efficient irrigation, which would also solve the problem of water shortages, another “consequence” of overpopulation.

This shows that when you improve the food system, you automatically lessen other types of environmental population impact: not only water shortages but also global warming (because of less waste and less meat production), desertification (because of more efficient land use and again less meat production) etc.

Of course, focusing on food production and consumption is just part of the job. An increasing population also means increasing energy consumption. But here as well, there are many things that can be done short of population control. It’s the way energy is used, not the number of people using it, that is the problem. 85% of the people living on this planet consume below the world’s average energy use. Adding many more people isn’t likely to add substantially to energy use.

More on overpopulation here.

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causes of poverty, economics, poverty

The Causes of Poverty (31): Overpopulation and Food Shortages

I’ve made my views on overpopulation abundantly clear on this blog. In short: I think it’s a silly and simplistic explanation of the world’s problems, hysterical at best and damaging when it inspires public policy. I don’t deny that it can cause problems when we look at local areas: there can be too many people in a certain area compared to the locally available stocks of food and water. But the problems there aren’t caused by “overpopulation” but by inadequate distribution of goods, wasteful use of goods etc. But if you think all this is BS,  do go and read my previous posts for a more thoughtful discussion of the issues.

How is overpopulation a human rights issue? Well, if you believe overpopulation is a problem, you will probably have some of the following reasons for your beliefs:

  • Overpopulation may cause poverty, hunger and water shortages. And poverty, hunger and water are human rights issues – see here, here and here respectively.
  • Overpopulation may cause violence and war. No need to argue the link with human rights I believe.
  • Overpopulation may cause refugee flows. Immigration can cause a wide variety of human rights issues, going from xenophobia and discrimination to poverty and exclusion. More about this here.

Personally, I think that all of those problems are real, but that they have other more important causes. Take food shortages for instance:

[F]ood availability can be significantly increased, at minimal cost, by simply reducing agricultural waste … As an engineer, I regularly travel to sort out post-harvest problems and I am convinced that there is little benefit to be gained from merely increasing farm production without making considerable improvements to post-harvest systems and facilities.

The majority of grain and vegetable stores in east Europe date back to the 1930s, in design if not in construction, and they are truly and hopelessly insufficient, amounting to losses of some 15m-25m tonnes of grain annually. India loses 40m tonnes of fruits and vegetables as well as 21m tonnes of wheat a year because of inadequate storage and distribution. To put that in perspective, India’s wheat wastage each year is almost equal to Australia’s entire production of wheat.

In South-East Asia 37% of rice is lost between field and table; in China the figure is up to 45% and in Vietnam it can be as high as 80%. This loss of 150m tonnes of rice each year represents a waste of resources on a truly massive and unsustainable scale.

In America and Britain the buying habits of the big supermarkets actually encourage waste. They impose draconian penalties on suppliers for failing to deliver agreed quantities of fresh fruits and vegetables during the year, which force farmers to grow a much bigger crop than they need as a form of insurance against poor weather and other factors that may reduce their yield.

Even worse, 30% of what is harvested never reaches the supermarket shelf owing to trimming, quality selection, etc. Of the food that does reach the supermarket, up to half is thrown away by the consumer. David Williams (source)

Overpopulation isn’t the cause of food shortages, and population control measures, such as sterilization, offspring limitation, anti-sex policies etc. aren’t the solutions. And if you don’t believe me, read the work of Amartya Sen on the link (or better the absence of a link) between food supplies, population and famines (see also here):

Amartya Sen convincingly refuted the claim that either food supply or population had anything to do with famine.  Famines regularly occurred at times and places where food was plentiful, and in the most thinly populated places, like Darfur. Nick Cullather (source)

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