December 1, 2015

Britain’s welfare system

Filed under: Britain, Government, Politics — Tags: , , — Nicholas @ 03:00

Brendan O’Neill says it’s time to smash the welfare system because it’s too badly broken to fix:

… however much the the apologists for the Byzantine system of welfarism might kick and shout, we need to get the facts out there, and we need to talk about them frankly.

The fact that more than half of Britain’s households, 13.7m, receive more in welfare benefits than they pay in taxes. The fact that this represents a rise from 45.9 per cent of households in 1997 to 51.5 per cent today. The fact that 20.3m families now receive some kind of state benefit. The fact that for 9.6m of these families, benefits account for more than half of their income. The fact that nearly five million people have their rent paid by the state. The fact that vast numbers of people, first through Incapacity Benefit and then through Employment Support Allowance, have been redefined by the state as ‘incapable’ — of work, of independence, of dignity, in effect — and have been put out to pasture. There are parts of Britain where a state-sanctioned culture of incapacity has deadened community spirit, destroyed its soul.

The growth of welfarism in recent decades, the replacement of economic vision and the creation of new wealth with a colossal system of state charity and therapy, has terrible consequences. It dents individual ambition, and corrodes social solidarity. When people are invited to rely for their every financial and psychic need on the distant, faceless state, then they’re less likely to rely on their own volition and on the support and kindness of neighbours and friends.

Welfarism is a classic good intention turned hellish: in the name of helping people it actually weakens both individual pluck and community zest. Of course, the loudest cheerleaders of welfarism — the comfortable, cushioned liberals who shout down anyone who criticises the welfare state — have no experience of this. They don’t even want to see it on their TV, as their lust to censor Benefits Streets demonstrated. Yet a few miles from the leafy suburbs in which they churn out their defences of welfarism there will be communities branded incapable and made divided by that welfarism.

Some people say, ‘But welfare benefits is not a huge part of government spending!’ This is true. It accounts for somewhere over 20 per cent. Or they say, ‘And old people get most of it!’ This is also true, and I think it is quite proper: the generational jihadists who moan about pension spending don’t seem to realise that old people who have worked or child-reared all their lives deserve society’s help in their twilight years, and that this is massively different to giving state largesse to fit, young 25-year-olds.

But my concern with welfarism is not how much it costs the government but the costs it has for community life, public spirit, the self-willed individual. Welfarism should be radically rethought not in order to save a few billion quid but in order to reverse the state’s spread into communities and to repair the self-belief and independence of working-class and poorer sections of society.

November 27, 2015

Wealth, inequality, and billionaires

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 04:00

Several months ago, the Washington Post reported on a new study of wealth and inequality that tracked how many billionaires got rich through competition in the market and how many got rich through political “connections”:

The researchers found that wealth inequality was growing over time: Wealth inequality increased in 17 of the 23 countries they measured between 1987 and 2002, and fell in only six, Bagchi says. They also found that their measure of wealth inequality corresponded with a negative effect on economic growth. In other words, the higher the proportion of billionaire wealth in a country, the slower that country’s growth. In contrast, they found that income inequality and poverty had little effect on growth.

The most fascinating finding came from the next step in their research, when they looked at the connection between wealth, growth and political connections.

The researchers argue that past studies have looked at the level of inequality in a country, but not why inequality occurs — whether it’s a product of structural inequality, like political power or racism, or simply a product of some people or companies faring better than others in the market. For example, Indonesia and the United Kingdom actually score similarly on a common measure of inequality called the Gini coefficient, say the authors. Yet clearly the political and business environments in those countries are very different.

So Bagchi and Svejnar carefully went through the lists of all the Forbes billionaires, and divided them into those who had acquired their wealth due to political connections, and those who had not. This is kind of a slippery slope — almost all billionaires have probably benefited from government connections at one time or another. But the researchers used a very conservative standard for classifying people as politically connected, only assigning billionaires to this group when it was clear that their wealth was a product of government connections. Just benefiting from a government that was pro-business, like those in Singapore and Hong Kong, wasn’t enough. Rather, the researchers were looking for a situation like Indonesia under Suharto, where political connections were usually needed to secure import licenses, or Russia in the mid-1990s, when some state employees made fortunes overnight as the state privatized assets.

The researchers found that some countries had a much higher proportion of billionaire wealth that was due to political connections than others did. As the graph below, which ranks only countries that appeared in all four of the Forbes billionaire lists they analyzed, shows, Colombia, India, Australia and Indonesia ranked high on the list, while the U.S. and U.K. ranked very low.

Wealth and political connections

Looking at all the data, the researchers found that Russia, Argentina, Colombia, Malaysia, India, Australia, Indonesia, Thailand, South Korea and Italy had relatively more politically connected wealth. Hong Kong, the Netherlands, Singapore, Sweden, Switzerland and the U.K. all had zero politically connected billionaires. The U.S. also had very low levels of politically connected wealth inequality, falling just outside the top 10 at number 11.

When the researchers compared these figures to economic growth, the findings were clear: These politically connected billionaires weighed on economic growth. In fact, wealth inequality that came from political connections was responsible for nearly all the negative effect on economic growth that the researchers had observed from wealth inequality overall. Wealth inequality that wasn’t due to political connections, income inequality and poverty all had little effect on growth.

November 24, 2015

QotD: The real lack of diversity issue

Filed under: Cancon, Economics, Media, Quotations — Tags: , , — Nicholas @ 01:00

As an editor, I have the privilege of working with all sorts of interesting and influential Canadians. On paper, many of these people are “diverse” — men, women, black, white, straight, gay, trans, cis, Jew, Christian, Hindu, Muslim. Yet scratch the surface, and you find a remarkable sameness to our intellectual, cultural, and political elites, no matter what words they use to self identify. In most cases, they grow up middle-class or wealthier, attend the same good schools, and join the same high-value social networks. They have nice teeth because mom and dad pay for braces, and hit a nice forehand (or three iron) because mom and dad pay for lessons. They know the best patisseries in Paris, because of that epic backpacking trip between undergrad and law school. And as ambitious young adults, they feel okay about ditching the law-firm grind for a prominent life in politics, art, journalism or activism — because a wealthy parent or spouse is paying the mortgage.

We rightly worry about how many women, or blacks, or First Nations individuals are represented in public life. Yet that concern is rarely extended to people whose marginalization cannot be reduced to tidy demographic categories.

In two decades of journalism, I have written and edited countless articles about Canada’s criminal justice system. But never once have I, or any of my close journalistic colleagues, ever spent a night in prison. I have written and edited countless articles about the Canadian military. But never once have I, or any of my close journalistic colleagues, witnessed the hell of war. Nor, to my knowledge, have I ever had a close colleague who lived in public housing; who experienced real hunger; who suffered from a serious health condition that went untreated for economic reasons; whose career or education was compromised by the need to support impoverished relatives; or who had been forced to remain in an abusive relationship for purely financial reasons. We often describe people like this as living “on the margins.” But collectively, this is a vast bulk of Canadians whose hardship and anxiety are rarely witnessed by politicians and media except through survey data and think-tank reports.

Jonathan Kay, “Diversity’s Final Frontier: The real schism in our society isn’t sex or race. It’s social class”, The Walrus, 2015-11-03.

October 21, 2015

The two types of statists

Filed under: Economics, Politics, USA — Tags: , , — Nicholas @ 03:00

Another post I stashed away, intending to blog and then somehow forgot … Dan Mitchell on the two main varieties of statist supporters:

At the risk of oversimplifying, there are two types of statists.

The first type is generally insincere and simply views bigger government and increased dependency as a strategy to obtain and preserve political power. Most inside-the-beltway leftists in Washington are in this category.

The second type genuinely cares about the less fortunate but makes the mistake of thinking that good intentions somehow lead to good results. You could call these people the Pope Francis leftists.

As you might imagine, there’s very little hope of persuading the first category of statists. You could show them all the data and evidence in the world, for instance, that a flat tax would boost prosperity, and they’ll simply shrug and tell you to jump in a lake because genuine tax reform would reduce the power and influence of Washington’s political elite.

But the second group of statists should be persuadable. That’s why I share so many comparisons of nations with smaller government and freer markets versus countries with bigger government and more intervention. I want open-minded folks on the other side to see how good policy leads to better economic performance, particularly since the poor will be big beneficiaries. That should be compelling, especially when combined with the data on how the welfare state simply traps poor people in government dependency.

October 17, 2015

Moynihan’s scissors

Filed under: Government, Politics, USA — Tags: , , , , , — Nicholas @ 02:00

David Warren looks at the work of the late Daniel Patrick Moynihan:

We are celebrating this year, if that is the word, the fiftieth anniversary of perhaps the most inconsequential sociological study ever published. That was, The Negro Family: The Case For National Action, by the brilliant American politician and thinker, Daniel Patrick Moynihan (1927–2003).

Working then in the U.S. Department of Labour, Moynihan focused his attention on a counter-intuitive statistical fact. Unemployment among black males was falling, in 1965. But rates of welfare enrollment for black families was rising. This did not make sense. The two lines on this chart had always fallen or risen together. But they had crossed over in 1962. He had put his finger in what came to be called, “Moynihan’s scissors.”

[…] while the “Moynihan Report” is famous, and at one time, everyone claimed to have read it, it contains something so obnoxious to enlightened post-modern thought as to remain invisible to all participants in the discussion.

This was Moynihan’s sociological and anthropological observation that the American black culture was becoming “matriarchal.” Whether without, or more likely with the help of welfare programmes, women were becoming the heads of households, and men were being removed from that station.

(The background: All of the higher civilizations have been unambiguously patriarchal; matriarchy is associated in the prehistoric and anthropological record with savage, gratuitously violent, self-destructive tribes.)

Already, in 1965, one in four black kids in the USA were born out of wedlock. Today it is more than three in four, and levels of bastardy among the other races have risen in course. By the end of the last century (1990s), white children were as likely to be raised in fatherless homes as black children had been in the 1960s. “Progress” has been progressing rapidly.

The Nanny State has replaced fathers as the principal source of income for such families (bankrupting itself in the process), and the feminist movement has supplied the arguments — or more precisely, misandronist slogans and vindictive clichés — for the overthrow of “patriarchy” and its systematic replacement with a shrewish matriarchy in all facets of social life. The movement has been, moreover, so successful in achieving its objects — the emasculation of men, and degradation or actual inversion of traditional morality — that it has now moved on. For with the defeat of masculinity, new horizons of “gender-bending” or “transgendering” have come into view.

Now, part of the reason people can’t get their little heads around what has actually happened — first to the black family, then to the brown, then to the white — is the surviving, basically modern (i.e. pre-post-modern) belief that eunuchs behave much like fairies; that they become docile and effeminate, harmless and nurturing, sensitive and sweet; that their previously reprehensible “masculine” traits will quietly disappear. Some men do indeed respond to emasculation by becoming the pathetic, contemptible wimps that all women, including feminists, instinctively abhor. But some do not.

As a well-read student of social sciences and history, Moynihan knew better than this. The masculine capacity for violence (at all levels, spiritual as much as physical) does not go away. From Spartan Laconia, backwards and forwards through history on all continents, we see that eunuchs and other “homosexual” (the word is inadequate) guards and soldiers have been employed by the great warrior despots. This is because they make the fiercest fighters. Having no families, no heritage to protect, no women and children to feed and shelter in safety, they become a purely destructive force. They become men who do not care even for their own lives, let alone for the lives of others.

October 16, 2015

Fair Trade: Does It Help Poor Workers? (Everyday Economics 7/7)

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 8 Jul 2015

Elizabeth, an Everyday Economics viewer, asks: “How does the purchase of fair-trade goods affect wages in developing countries?”

Great question! The “fair trade” movement has become popular as a proposed way to increase living standards in developing countries. In this video, we look at whether fair trade does just that.

For a good to be considered “fair trade” it must meet various requirements developed by a handful of fair trade organizations. In the developing world, who is better positioned to meet these fair trade requirements — large producers in wealthier countries or small producers in poorer countries? To answer this question, we take a look at the the example of fair trade coffee produced in both Costa Rica and Ethiopia. How does fair trade affect wages and overall quality of life in those countries?

And, if fair trade isn’t the best way to improve living standards in developing countries, how else can we maximize employment options and well-being for poor workers? This question is at the core of an entire branch of economics — Development Economics. To learn more, check out MRU’s Development Economics course.

September 27, 2015

If the Pope actually cares about the world’s poorest, he should embrace capitalism

Filed under: Economics, Religion — Tags: , , — Nicholas @ 03:00

His Holiness the Pope would do far better for the remaining billion truly poor people on the planet if he ignored the blandishments of the anti-capitalists and looked at the actual track record of free enterprise in the developing world:

He has been called the “slum pope” and “a pope for the poor.” And indeed, it’s true that Pope Francis, leader to 1.3 billion Roman Catholics, speaks often of those in need. He’s described the amount of poverty and inequality in the world as “a scandal” and implored the Church to fight what he sees as a “culture of exclusion.”

Yet even as he calls for greater concern for the marginalized, he broadly and cavalierly condemns the market-driven economic development that has lifted a billion people out of extreme poverty within the lifetime of the typical millennial. A lack of understanding of even basic economic concepts has led one of the most influential and beloved human beings on the planet to decry free enterprise, opine that private property rights must not be treated as “inviolable,” hold up as the ideal “cooperatives of small producers” over “economies of scale,” accuse the Western world of “scandalous level[s] of consumption,” and assert that we need “to think of containing growth by setting some reasonable limits.”

Given his vast influence, which extends far beyond practicing Catholics, this type of rhetoric is deeply troubling. It’s impossible to know how much of an impact his words are having on concrete policy decisions — but it’s implausible to deny that when he calls for regulating and constraining the free markets and economic growth that alleviate truly crushing poverty, the world is listening. As a libertarian who is also a devout Roman Catholic, I’m afraid as well that statements like these from Pope Francis reinforce the mistaken notion that libertarianism and religion are fundamentally incompatible.

There’s no question that the pope at times seems downright hostile to much of what market-loving Catholics believe. In this summer’s lauded-by-the-press environmental encyclical Laudato Si (from which the quotes in the second paragraph were drawn), Pope Francis wrote that people who trust the invisible hand suffer from the same mindset that leads to slavery and “the sexual exploitation of children.” In Evangelii Gaudium, his 2013 apostolic exhortation, he chastised those who “continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world.”

Even more frustratingly, he asserted that such a belief in free markets “has never been confirmed by the facts.” Worse still, this year he stated in an interview: “I recognize that globalization has helped many people to lift themselves out of poverty, but it has condemned many other people to starve. It is true that in absolute terms the world’s wealth has grown, but inequality and poverty have arisen.” Globalization has caused poverty to “arise” and “condemned…many people to starve”?

A man Politico described as insisting “reality comes before theory” could not be more mistaken about the empirical truth of capitalism’s role in our world. While income inequality within developed countries may be growing, the income gap between the First World and the rest of the world is decreasing fast. As the World Bank’s Branko Milanovic has documented, we are in the midst of “the first decline in global inequality between world citizens since the Industrial Revolution.” In 1960, notes the Cato Institute’s Marian Tupy, the average America earned 11 times more than the average resident of Asia. Today, Americans make 4.8 times as much. “The narrowing of the income gap,” Tupy found, “is a result of growing incomes in the rest of the world,” not a decline in incomes in developed nations.

September 24, 2015

A case study – Nik-Mart in Subsistia

Filed under: Economics, USA — Tags: , , , , — Nicholas @ 03:00

Don Boudreaux looks at the different effects of international aid and capitalist exploitation in a desperately poor, far-away country:

The far-away land of Subsistia is inhabited by people who are desperately poor, not only relative to the typical person elsewhere on the globe but also in absolute terms. For decades well-meaning, well-educated, and well-funded people from the United States and other wealthy countries have visited Subsistia to help raise Subsistians out of poverty.

Alas, while these efforts by governments, NGOs, and churches have been many and munificent, all ordinary Subsistians continue to live in deep poverty – that is, until recently. A few short years ago a large U.S. corporation, Nik-Mart, set up factories in Subsistia. The wages that Nik-Mart pays to its Subsistian workers, while much higher than the average wage in Subsistia, are only a tiny fraction of the wages that Nik-Mart pays to its production-line employees in America.

Nik-Mart sells the goods produced in its Subsistian factories all around the world. One result of Nik-Mart’s operations in Subsistia is that the real prices that poor Americans and Europeans pay for shoes, clothing, and home furnishings have fallen significantly.

Nik-Mart is consistently one of the world’s most profitable corporations. It is also one of the world’s most hated.

When word recently leaked out of Nik-Mart’s record sales revenues and of the healthy rate of return on Nik-Mart’s assets, protests erupted in all major capitals of the developed world. Washington, Ottawa, Santiago, London, Amsterdam, Stockholm, Paris, Berlin, Madrid, Rome, Prague, Moscow, Tokyo, Pretoria, Canberra – these and other cities were swarmed by protestors demanding “social justice” and criticizing Nik-Mart for exploiting workers. “Nik-Mart’s profits are in the billions,” screamed U.S. Sen. Elsbeth Walter, who gave a rousing speech to protestors on the Washington Mall, “and yet it exploits poor workers in Subsistia while it off-shores jobs from America, hurting poor Americans! Have you no shame, Nik-Mart? Have! You! No! Shame?!!” Sen. Walter rhetorically asked, her index finger pointing accusingly at an imaginary Nik-Mart executive presumably hovering, phantasmically yet bloatedly, before her.

The Sunday talking-head shows were filled with heads talking of little else. “It’s really unconscionable,” said Harmon Nicholson, a famous progressive columnist, “that Nik-Mart takes advantage of the freedom that this country gives it to produce the things it sells in America outside of America. It’s no wonder our jobs picture is so weak and that American wages have stagnated.”

Sen. Lawrence Greenham, a Republican from the south, chimed in: “I don’t normally agree with Harmon, but he’s right on this. American plutocrats are gettin’ richer an’ richer off the backs of America’s poor. It’s gotta stop.”

September 23, 2015

Comparative Advantage and the Tragedy of Tasmania (Everyday Economics 4/7)

Filed under: Economics, History — Tags: , , , , — Nicholas @ 03:00

Published on 24 Jun 2014

What can a small, isolated island economy teach the rest of the world about the nature and causes of the wealth of nations? When Tasmania was cut off from mainland Australia, it experienced the miracle of growth in reverse, as the reduction in trade and human cooperation forced its inhabitants back to the most basic ways of living. In an economy with a greater number of participants trading goods and services, however, there are more ways to find a comparative advantage and earn more by creating the most value for others. Let’s join Bob and Ann as they teach us the “Story of Comparative Advantage” like you’ve never seen it before.

September 3, 2015

The beer ineQuality index

Filed under: Cancon, USA — Tags: , , — Nicholas @ 04:00

I took a couple of weeks off over the summer and subsequently forgot some of the interesting articles I’d intended to link to from the blog (but no sensible person comes here for breaking news, do they?). Here’s one from the wonderfully named Worthwhile Canadian Initiative blog:

The conventional Canadian view is that American beer is bad; watery and weak. Yet American breweries produce some of the world’s best beers — superb brews coming out of microbreweries across the country.

Why is american beer

What is striking about the United States is the country’s level of inequality — or, to be more precise, the beer quality inequality. Countries like Germany, Belgium — the Scandinavian countries in general — have much less variation in the quality of their beer.

The question is: why? Does beer quality inequality result from other forms of inequality, like disparities in income and wealth? Or do the forces that produce income inequality also produce beer quality inequality? Is it a spurious correlation, or is the armchair empiricist’s observation that the US has more beer ine-quality simply wrong?

The income-causes-beer quality inequality story is easily told. Some people are poor. They demand cheap beer, and cheap beer is necessarily poor quality. Some people are rich. They demand high quality beer, and are willing to pay for it. Hence, in theory, we would expect income inequality to produce beer quality inequality. As an empirical observation, the US has substantially more income and beer quality inequality than other rich countries, including Canada, while Scandinavian countries have some of the lowest levels of income and beer inequality in the world (here). So income inequality causes beer quality inequality: Q.E.D.

This story is plausible, and there may be some truth to it. The problem with it is that not everybody drinks beer. Take a country like England, for example. There beer was traditionally a working man’s drink — the upper classes sipped Pimm’s on the lawn, or perhaps a gin and tonic. If the rich aren’t drinking beer, an increased concentration of income in the hands of the richest 1 percent will have no impact on the variation in beer quality.

June 22, 2015

An insurance scam that targets the most vulnerable

Filed under: Bureaucracy, Law, USA — Tags: , , , — Nicholas @ 02:00

At The Intercept, Juan Thompson talks about a burgeoning insurance scam that not only rips off the victims for their insurance premiums but then makes it worse through police action:

Martin was taken in by a widening scam in which crooks, posing as auto insurance agents, prey on working people struggling to find affordable policies. Under the scam, the perpetrator offers auto insurance for a low price — low because the scammer, posing as a broker, will buy an authentic policy using fraudulent means of payment, keeping the policy just long enough to collect a proof of insurance card.

The racket is a growing problem in New York City and South Florida, according to an insurance industry group, but seems most prevalent in Michigan, where premiums are inflated by a state mandate that drivers purchase insurance plans that have unlimited lifetime medical benefits, among other features. Victims in Michigan are thrown even deeper into crisis when police, as is common there, accuse victims of being in on the scam and seize their vehicles and other assets under civil forfeiture laws.

The scam and seizures show how crooks and cops can end up working in concert to further imperil those already on the economic brink. Indeed, in this case, low-income residents are pinched at every turn. They start off with especially high insurance premiums, consumer advocates argue, because insurance companies sometimes charge people in low-income communities more for auto insurance in a practice some have labeled modern redlining.

Bogus agents exploit the need for cheaper policies by selling insurance that’s too good to be true, leaving victims financially exposed, for example, in the case of an accident. As if all that weren’t enough, the police then turn on the victims of the fraud, who are far easier to track down than the original perpetrators.

“You have a blend of crooked agents selling innocent, squeezed drivers bogus policies and insurance cards, and high insurance premiums,” said James Quiggle of the Coalition Against Insurance Fraud, a group that receives funding from insurance companies.

May 16, 2015

Charles Murray and Jonah Goldberg on civil disobedience in America

Filed under: Books, Bureaucracy, Government, Liberty, Media, USA — Tags: , , — Nicholas @ 04:00

Published on 11 May 2015

The American ideal of limited government on life support. Is it time for civil disobedience? Charles Murray says yes. Murray has been writing on government overreach for more than 30 years. His new book, By The People, is a blueprint for taking back American liberty. Jonah Goldberg sits down with Murray to discuss civil unrest in Baltimore, the scope of the government, and why bureaucrats should wear body cameras.

According to AEI scholar, acclaimed social scientist, and bestselling author Charles Murray, American liberty is under assault. The federal government has unilaterally decided that it can and should tell us how to live our lives. If we object, it threatens, “Fight this, and we’ll ruin you.” How can we overcome regulatory tyranny and live free once again? In his new book, By the People: Rebuilding Liberty Without Permission (Crown Forum, May 2015), Murray offers provocative solutions.

May 11, 2015

Nepal’s tragic unpreparedness for disaster

Filed under: Asia, Government — Tags: , , , , — Nicholas @ 04:00

In The Walrus, Manjushree Thapa explains why Nepal was so badly prepared for the earthquake:

Following the April 25 earthquake, Nepalis have had to learn the value of preparedness in the most painful way possible. In the aftermath, Pushpa Acharya, a Nepali friend at the University of Toronto, observed, “Knowledge was not our problem.” Indeed. We all knew that our country sits on an active fault line, where the subcontinent collided with the Eurasian plate with such force it created the Himalayas. The last big quake took place in 1934. Others have since struck, but none with the force of 1934’s 8.0 or April 25’s 7.9. We knew that a big earthquake was due.

It was our duty to prepare, and though some of us did so individually, as a society we ignored the warnings. In the past ten days, during search and rescue, and then the beginnings of relief, we’ve had to do some hard thinking about how our country could become more responsible going forward. The root problem may seem obvious: Nepal is one of the poorest countries in the world. Its poverty is, however, a symptom of our history of ill governance, and the reason for our national failure to prepare, which has kept us from becoming a functioning democracy.

When the earthquake struck, the country was in a deep and deeply depressing stupor. The governing parties — a coalition of the Nepali Congress Party and the Unified Marxist Leninists — had reached an impasse with Nepal’s thirty-three opposition parties about what kind of constitution to draft. There was no plan for the country as a whole, let alone in the case of an emergency. The drafting of a constitution has preoccupied, confounded, and eluded Nepal’s polity since 2006, when the Maoists ended a ten-year insurgency to join forces with other parties to remove Gyanendra Bir Bikram Shah. Nepal’s king had used the war as an excuse to end a fragile fifteen-year spell of democracy and install his own military-backed rule. A mass movement restored democracy, and the subsequent peace process promised to restructure the country along just and equitable lines through the drafting of a new constitution

April 24, 2015

Relative and absolute poverty

Filed under: Economics, History — Tags: , , — Nicholas @ 03:00

We in the west are so rich, in historical terms, that we are losing our grasp on what poverty really has been for the majority of humankind for the majority of our recorded history:

People generally just don’t get what poverty actually means. This is a charge often enough aimed at me and people like me, well off white guys who pontificate upon economics. But those making that charge often enough don’t actually understand what real poverty means. So, here’s a nice example of it. There’s a campaign in New York to insist that SNAP (ie, food stamps) should not be cut. Views on that can vary either way: I’m generally in favour of a larger welfare state than the one the US has at present so I’m probably against such a cut. But that’s a political point and not the one I’m interested in here. Rather, I want to point out just quite how rich someone getting food stamps is on any global or historical basis.

Yes, you did read that right: how rich someone getting food stamps is. As one example, the food stamp allocation in New York State appears to be $29 per person per week in a family receiving the full possible allocation. That, on its own, is a yearly income of $1,508 and that’s an amount that puts you, on its own, in the top 50% of all income recipients in the world. No, really, you can look that up with this little calculator. More than half of humanity is poorer than someone who only gets the New York food stamp allocation.

All of which gives us an interesting little look into the difference between absolute poverty and relative poverty. For, obviously, the people who are receiving food stamps in New York are those we consider to be poor in our own society. And in our own society, they are indeed poor, as Adam Smith pointed out with his linen shirt example. It’s not necessary for a working man to have a linen shirt, he’s not poor because he cannot afford one. But if you live in a society where you are considered to be poor if you cannot afford a linen shirt, and you cannot afford one, then in that society you are of course poor. This is relative poverty, more usefully known not as a measure of poverty but of inequality.

April 22, 2015

“Victorian style poverty” in the UK

Filed under: Britain, Economics — Tags: , , — Nicholas @ 03:00

In a recent Forbes column, Tim Worstall pours scorn on the recent claim that some British children are living in “Victorian conditions”:

There’s a very large difference between arguing that we have Victorian style (for those unacquainted with British practise, this means late 19th century style) poverty in the UK and that we have Victorian style inequality in the UK. That second is at least arguably possible, although untrue, while the first is simply a flat out untruth. There is nothing even remotely akin to 19th century poverty in the UK today. Nor is there, of course, in any of the industrialised nations. The problem stems from people simply not understanding how poor the past was.

The claim is made this morning in The Guardian:

    Many children are living in Victorian conditions – it’s an inequality timebomb

That second assertion could be true but is a matter for another day. That first is just wrong.

    I was reminded of this by the teaching union NASUWT’s warning this week that there are children in this country living in “Victorian conditions”, turning to charity for regular meals and going without a winter coat.

“Going without a winter coat” might be something we’d like to remedy (and yes, I think we would like to do so) but it’s not a reminder of Victorian levels of poverty, it’s nothing like it at all. It’s necessary to actually understand what Victorian poverty was. Late 19th century Britain had some 25% of the population living at or below the subsistence level. This subsistence level is not a measure of inequality, nor of the lack of winter clothes. It is a measure of gaining enough calories each day in order to prolong life. This is the sort of subsistence level that Malthus and Ricardo were talking about. The sort of level of poverty that the World Bank currently uses as a measure of “absolute poverty”.

This absolute poverty is set at $1.25 per person per day. No, this is not the number that can be spent upon food per person per day. This is the amount that can be spent upon everything per person per day. This covers shelter, clothing, heating, cooking, food, education, pensions, health care, absolutely everything. This number is also inflation adjusted, so we are not talking about $1.25 a day when bread was one cent a gallon loaf. This number is also Purchasing Power Parity adjusted: so we are not talking about lentils costing two cents a tonne in India and £3 a kg in Tesco. We are adjusting for those price differences across geography and time.

Just to note, by these PPP and inflation adjusted numbers, being on the minimum wage in the UK puts you in the top 10% of all income earners in the current world. Being on nothing at all but benefits would put you into the top 20%.

Up to 25% of the population of Britain were that badly off in the late Victorian era: “Actual real starvation to death as a result of poverty was not unknown, even that late, as late as 1890.”

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