Sunday, July 21, 2013

Good Intentions Do Not Guarantee Economic Prosperity

Kevin Lindamood [president and CEO of Health Care for the Homeless] writes in the Baltimore Sun
The market's invisible, oppressive hand perpetuates povertyHERE 
Vann Ellison is right about three things in his recent commentary on poverty and social enterprise ("Beyond government," July 10):
That poverty persists in the richest nation in the history of history is worthy of serious exploration. But instead, Mr. Ellison would have us abandon the hope of renewed national priorities in favor of blind faith in an invisible hand that has done little but hold down our most vulnerable neighbors.
His insistence that the "free market system" holds the magic (and somehow "secret") solution to poverty is akin to suggesting that lactose intolerance is best overcome by a steady diet of milk and ice cream. And his inference that what's left of our social safety net should go the way of "poor houses, orphanages and insane asylums" hardly seems a logical comparison for our parents and grandparents, who were lifted out of poverty by the Social Security and Medicare programs they invested their hard-earned resources in throughout their careers.
It's curious that Mr. Ellison should direct our attention to the other side of the pond to assert that England and other industrialized democracies face challenges "more difficult than our own." In fact, most of these nations have invested far more in affordable housing, health care and wage guarantees, and they enjoy lower rates of poverty and better health outcomes as a result.
The spike in homelessness they're seeing now as public safety nets are scaled back is not at all dissimilar from what we've experienced over the past 35 years when leaders on both sides of the political aisle declared, like Mr. Ellison, that government isn't the solution — and then dis-invested in housing and services as if to prove their misguided point.
There's a better question to be asked than "can government solve the problem of poverty?" It is: "How can a vibrant democracy ensure the health and well-being of its people?" The answer requires the involvement of all sectors — public and private, for-profit and nonprofit.
Mr. Ellison believes — as do we — that people who aren't working can indeed work again and that this noble goal is worth an investment of time and resources. Let's apply this same principle to a democracy that isn't reaching its full potential. And let's employ the bottom-up, "community-driven" advocacy necessary to shape a society in which we all can live.
Read more HERE
If only. Those who exhibit scathing, mocking criticisms of others they regard as their ideological opponents often fail to appreciate how little they influence beyond their own circle of admirers., with exception of if they achieve political office and implement their visions they either exacerbate the problems they sought to address, by a) relying on what they imagine as the “invisible hand of the market”, or b) relying  on what they imagine as the “visible hand of government”.
Both policies are fatally flawed. Markets without stable governments and effective systems of justice, or stable governments without competitive markets and effective systems of taxation, are doomed to failure.  
These inherent tendencies were excaserbated by ambitious (though socially worthy) expenditures of an expanding welfare state and also ambitious (though internationally necessary) military expenditures in competitive arms technologies. 
The inevitable outcome (as always): there was ‘no money left’.
If the crisis had not been triggered by ‘toxic’ mortgage debts it would have been triggered by over borrowing by some banks and some recent UK governments.
I am skeptical about the sentence: “In fact, most of these nations have invested far more in affordable housing, health care and wage guarantees, and they enjoy lower rates of poverty and better health outcomes as a result.” 
Living as I do in Scotland and for part of the year in France, I am struck by the undoubted social benefits of much of government’s social spending, while at the same time as an economist also struck by the basic arithmetic governing state expenditures.  If more is spent than is raised by taxation then access to borrowing is based on perceived credit-worthiness, which is always on a knife-edged dependence on the opinions of those who live elsewhere whose business it is to lend the money.
[I am also struck with such ignorant language as “England and other industrialized democracies” when, of course, there is no such term as “England” when referring to Britain, which consists of four countries, England, Wales, Scotland, and Northern Ireland!]
Governments eliminating poverty is an elusive target if ambitions exceed practicalities, not the least of these are the political system.  Democracy gives everyone a vote.  Progress must go with consent. Getting consent ain't easy.
The rise in per capita incomes historically is unprecedented in market-based economies.  From $1 day to over $100 is achievable in the richest economies; that poverty persists “is worthy of serious exploration”, but let’s keep a sense of perspective.  The very poor in the richest economies are not equivalent to the poorest in the poor countries.  We know this by the direction of migration, which is always one way, legal and illegal (the latter often at great personal risk).
In Africa, described by some commentators as a “basket case” in the recent past, unprecedented growth rates in per capita income are being achieved, spreading wealth down through the income distribution.
But it takes time, not just political will. The main task is to get the balance right between government and market initiatives, not least in the education of the young in poor per capita households, where ambition is often blunted (noted Adam Smith).
I was the first person in my family – and nearest relatives – to go the university in the 1960s.  Then three of my five children graduated in the 1980s.  Similar stories abound among contemporaries I know, including in France.  That is a social change that is replicated across the developed capitalist market economies.  It is reflected in the per capita incomes of their new generations’ families, and so on.
I was brought up in on a new council scheme housing estate built in the late 1930s, where I lived until 1949.  I returned for a visit in the late 1960s.  It was near derelict and about to be demolished by the city council.  I returned again in the late 1970s to find a completely new estate of modern offices, all glass and surrounded by manicured lawns, with brightly dressed office workers relaxing with their lunches and car parks full of modern cars.  What a difference!  From a council housing estate that rapidly became a modern slum, no cars hardly, and kids playing in the streets, dressed drably and older children hanging around with nowt to do, the offices estate was a world away from my childhood, with higher per capita incomes to match.
However, the senseless clash of ideologies in favour of all state versus all market contributions gets in the way of appropriate policies that over time will eliminate hopeless poverty.
For tens of millennia per capita incomes hardly changed, except occasionally and accidentally by nature, when poverty was endemic, even if equally experienced by all, and for millennia from circa 10-11,000 year ago after the most recent ice age, it reached and maintained the equivalent of $1 a day until around the 1800s, and grew unequally towards $100 a day.
For generations the very poorest have had the least and the very rich have had the most. But Marx was wrong.  The proletariat were not impoverished by capitalism; they began to share in the fruits of economic growth. And that growth had nothing to do with an imaginary “invisible hand” of the market nor with the benevolence of a “visible” political hand.  Ideologues focus impatiently on the pace of change (they are usually well-off compared to the poor); political economists focus on the facts of change.  


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