As we go into the election season, this seems relevant. Of the two major party candidates, one wants to make you wealthier in real terms, the other wants to impoverish you. They are not, however, the ones you might think they are (unless you know a thing or two about economics–something I try to address from time to time on this blog).
This is going to ramble a bit. I ended up going a completely different direction from what I had in mind when I started.
If you give a man a fish you feed him for a day, the old saw goes. And if you teach him how to fish, you feed him for a lifetime.
As someone who has come home empty handed often enough from a day of fishing, I’m not so sure it quite works that way, but it’s close enough to be a reasonable metaphor.
Benjamin Franklin put it this way: “I am for doing good to the poor, but…I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed…that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
The truth is, there are some people–not everyone, perhaps not even most, but some–who, if you provide them enough for even a basic living without their having to earn it, will accept that and make no attempt to improve their lot through their own efforts. Oh, they may complain about how hard they have it, but that complaint doesn’t motivate them to go work their way out of their situation. If anything, it’s intended to influence you to provide more of that “basic living” they’re not having to work for.
This is not to say that there aren’t people who legitimately cannot provide for themselves but how often is that really the case?
The problem is two-fold. Three-fold, actually. The first is the “making them easy in poverty”. Yeah, I can hear the howls now of how hard the poor have it. Want to try again? I grew up with an outhouse–having to go outside in the dead of winter to an unheated, drafty wooden building to do my business through a hole in a board. A wood stove heated the kitchen. Steam radiators heated the rest of the house. Air conditioning? What’s that? I packed sandwiches for my lunch at school because we couldn’t afford the hot lunch. We did have electricity–when it worked. And we weren’t even particularly poor. So, please, tell me again how “hard” most of the “poor” in the US have it today. I can use the laugh.
And, no, I don’t begrudge the poor having a better life than I did. That’s progress. But, dammit, is it too much to ask that they appreciate what they have? Apparently so. Somebody else has more and that’s just too much to bear.
The second and thirds problems are closely related. The second is that sometimes you just have more people than jobs, at least jobs that one could make a living at. And the third is mismatch of skills required for the jobs available and skills people seeking work possess. It doesn’t matter how great a typist you are if the job requires a welder.
So what to do?
First thing, impose the old dictate “if any of you would not work, neither shall he eat.” (And before you start “but what about…” note that word “would”. It’s a matter of will, not ability. If a person truly is incapable of doing anything of value that would qualify as work, then that’s a separate story. But how many of those are there really?)
Personally, I’d like to see government welfare done away with entirely and let helping those who can’t work, or those who’ve temporarily fallen on hard times, devolve to private, mostly local charities. I realize that such changes do not happen in an instant without causing their own problems. Still, there’s a lot that can be done to move in that direction and the most important is a work requirement for anybody drawing any kind of government assistance. Take away the incentive not to work to get off welfare. You can work for your government assistance or you can work for your own money, but you’re going to work.
A related issue is that even for a person who, for whatever reason got on government assistance and now wants to get off it, can find the prospect daunting. You find a job that pays more than that welfare check, well, and good, but now you also lose SNAP, oh, and while before you could stay home with the children, now you need to find daycare. That costs money. You’re actually worse off than you started. Another perverse incentive. Some people will push through that anyway but not everyone will. And if our goal is to get people off welfare and on their own feet then shouldn’t the incentives work that way? Say, reduce their total benefits from all sources one dollar for every two dollars they earn?
But in addition to removing the incentives for people to remain on welfare, we need the other side: to make sure that there are jobs for them to take. And to do that there’s one thing that so many people have trouble wrapping their heads around.
We. Need. A. Political. Climate. Favorable. To. Business.
Whether it’s small businesses and people employing themselves, or big businesses employing thousands or even in some cases millions, businesses provide jobs. Politicians do not provide jobs. Governments do not provide jobs (except the jobs of government). Businesses provide jobs. And basic laws of economics apply. If you make it more expensive for businesses to hire people, they will hire fewer people, or they will go where it isn’t so expensive (like, say, overseas). If you cut off their ability to go where it isn’t so expensive, then foreign firms will take advantage of that opportunity to undercut our own businesses. If you try to use tariffs or other trade restrictions to try to penalize the foreign companies in favor of our own, then they respond in kind and, again, our people suffer.
“But, but…big Megacorporation makes billions in profits!” And has trillions in sales. The profits are a small fraction of the total amount of the business. Most of that money goes to people working for the company, or people working for suppliers to the company. Oh, and much of that profit is paid out to things like pension funds and retirement accounts that invest in things like big Megacorporation, not just to millionaires and billionaires.
“But, but…CEO compensation!” Do the math. A company has one CEO. Big ones, the ones where people complain about CEO compensation, employ hundreds of thousands to millions of people. What the CEO makes is a drop in the bucket compared to the total labor costs.
For any large company, labor costs are their biggest expense. Increase the cost of hiring people and they hire fewer people. That’s not just Economics 101. That falls right out of the first day‘s lecture in Economics 101. Practically the second thing taught (right after “wants are unlimited, resources at any given time are limited, so it’s not possible for everyone to get everything they want”): increase the cost of “buying” something and people buy less of it.
Now labor costs are at least something that produces value to the company. So long as the value of the labor is higher than the cost of the labor it’s possible to come to an agreement. But there’s another factor, the regulatory cost. Almost a quarter of our economy is eaten up in regulatory costs. If those costs were the GDP of a country, it would be larger than Germany’s. That’s four trillion dollars spent making sure every i is dotted and every t is crossed.
Adam Smith, in The Wealth of Nations had the great insight that the wealth of a nation was not in specie, in gold, silver, and precious gems, it was not in paper money, and if he’d had to foresight to predict the modern age he would certainly have said it was not in electronic banking records. It was in the amount of goods and services available to a nation. It is not the money in my wallet and my bank account that is my wealth (such as it is). It’s what that money can buy. Produce and trade for more goods and services and you are wealthier as a nation, and the people within the nation are wealthier.
And everyone, rich and poor alike, benefits. That cheap “prepaid minutes” smartphone you can pick up for $50 at Walmart? A portable phone alone would have been a mark of wealth and prestige just 30 years ago–and one so small, unheard of. And one with more computing power than supercomputers of the day? With instant access to a wealth (note that word. It has meaning) of music, movies and TV shows, to more information than all the libraries in the world held then? How many millions would somebody have paid for that capability back then?
And it’s cheap. A device that the wealthy of a generation past would have mortgaged their first three children for and it’s cheap.
You want to teach people to fish? Economic growth. And we’re wasting 25% of our GDP not on developing and growing the economy but on regulatory burden. Is some regulatory oversight necessary? Probably. But 25% of our economy? That’s resources that could be used to make life better for all of us, frittered away on some government bureaucrats.