John Locke Update / Research Newsletter

Effectively fighting poverty through freedom

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Last week, complications from ulcer surgery claimed the life of Nobel Prize-winning economist Gary Becker. It is a great loss.

Becker had expanded the scope of economic understanding as few had, doing what leading lights tend to do: illuminating things that come to seem embarrassingly obvious, years later. This trait is obvious from a reading of his biography in the Concise Encyclopedia of Economics and from elegies by his friends and admirers.

"At a time when there are so many occasions to lament that Milton Friedman is no longer with us, when his knowledge and wisdom are needed more than ever," mourned Thomas Sowell, "now we must also lament that the same is true of Gary Becker."

Becker was internationally renowned within the economics profession, but not nearly as well known among the general public as he deserved to be. More important, his path-breaking ideas, including his analysis of the economics of racial discrimination, deserved to be much more a part of the many discussions of that subject.

More than half a century after Professor Becker’s landmark work on the economics of discrimination, most controversies on that subject, both in the media and in politics, go on in utter ignorance of his penetrating insights. So do laws and policies that make discrimination worse.

First Trust economists Brian S. Wesbury, Robert Stein, and Strider Elass also lamented the loss of Becker, who they said had been the economic world’s most influential and important living thinker after the death of Milton Friedman in 2006:

Becker, who won the Nobel Prize in 1992, led an invasion of classical economic thought into previously sloppy and hidebound areas of study such as sociology, demography, and crime. He studied human capital. Think of it this way: Without Becker, bestselling books like Freakonomics wouldn’t even be possible.

Prior to Becker, the academic study of these topics was dominated by social determinists in general and Marxists in particular. So, for example, conventional wisdom held that people commit crime because of discrimination, overly strict fathers, capitalist oppression, or the exploitation of the working class.

Becker shoved all these simplistic (and unscientific) answers aside, applying the free-market principle that people have an incentive to pursue their self-interest not only as producers and earners but also outside the workplace.

Winning and losing the war on poverty

Readers of the John Locke Foundation’s "Locker Room" blog will remember another similarity between Becker and Friedman: a belief that free-market capitalism is the best tool to defeat poverty. As recounted by economist John C. Goodman (emphasis added),

At a conference at the Vatican I attended some years ago, Nobel laureate Gary Becker gave the opening speech. I found what he said quite remarkable:

The greatest beneficiaries of capitalism are those at the bottom of the income ladder. That’s why I favor capitalism. Were that not the case, I would not be in favor of capitalism. Milton Friedman feels the same way.

I was so struck by this comment that I wrote it down and have kept it all these years. In general, people who are right of center do not tend to talk all that much about their concern for the poor. Or is it that they just get drowned out by all the bleeding heart noise on the left? In any event, the evidence for Becker’s core observation is overwhelming.

This week Goodman showed more proof of Becker’s remarkable insight. Prior to the federal government deciding to fight a "War on Poverty" (at great cost and with a monumental effort to transfer rather than grow wealth), a freer economy was already winning that fight and heading to a victory more lopsided than a Texas football mercy ruling:

From the end of World War II until 1964 the poverty rate in this country was cut in half. Further, 94% of the change in the poverty rate over this period can be explained by changes in per capita income alone. Economic growth is clearly the most effective antipoverty weapon ever devised by men.

The dotted line shows what would have happened had this trend continued. Economic growth would have reduced the poverty rate to a mere 1.4% of the population today — a number so low that private charity could probably have taken care of any unmet needs.

But we didn’t continue the trend. In 1965 we launched a War on Poverty. And as the graph shows, in the years that followed the portion of Americans living in poverty barely budged. In 1965, 18% of the population lived in poverty. Today we are at 15%, or 50 million Americans. That’s after spending $15 trillion on antipoverty programs and continuing to spend $1 trillion a year. (Emphasis added.)

One doesn’t have to be an economist, however, to appreciate the poverty-fighting importance of free enterprise. Henry Grady Weaver (1889-1949) was a mechanic, salesman, and draftsman and later director of customer research for General Motors. In his book The Mainspring of Human Progress, he opened with the observation that throughout known human history, "most human beings have gone hungry, and many have always starved," until very, very recently. What brought about this incredible change?

Weaver argued, the mainspring of human progress was freedom itself. The United States, by allowing the most individual freedom to produce goods and services and sell them to consumers for profit, had unleashed the greatest degree of invention and ingenuity, resulting in social benefits for all. (Emphasis added.)

Also consider the remarks by U2 frontman Bono to Georgetown University’s McDonough School of Business during Global Entrepreneurship Week in 2012 (emphasis added):

  • "Aid is just a stop-gap. Commerce, entrepreneurial capitalism takes more people out of poverty than aid. We need Africa to become an economic powerhouse."
  • "In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid.Free enterprise is a cure."
  • "Entrepreneurship is the most sure way of development."

In spite of trillions from government, the actual, effective fight against poverty is being waged by job creators, entrepreneurs, innovators, and private charities on the ground in communities. Government usurping capital to armchair-general that war prolongs the slog into eternity (and worse, creates perverse incentives to keep people in poverty, because look at all the government money available to "help").

It also creates a backwards system that pets and honors those who tout superficially "compassionate" but empirically disproven government tools to fight poverty, such as raising minimum wages, offering prolonged unemployment benefits, and hiking taxes (even sales taxes, which disproportionately affect the poor) for transfer programs.

As economist Deirdre McCloskey has explained, the greatest explosion in wealth in history for everyday, ordinary people occurred through not only a rise of economic liberty, but also the bestowal of social honor on inventors, merchants, and manufacturers; i.e., entrepreneurs and job creators.

If McCloskey is right, it only makes our late turn toward social animosity for entrepreneurs and job creators and toward abridging economic liberty — reportedly, federal costs of regulation in the United States outstrip the economies of all but nine countries in the entire world — all the more deplorable.

Fortunately for North Carolina, state leaders have succeeded (despite ridiculous and sometimes quite personal attacks) in bringing empirically proven ways to expand economic liberty and create more room for entrepreneurs and job creators. Perhaps in time we could recover our respect for our private-sector poverty fighters.

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Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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