WHAT IS REDUCING POVERTY WORLDWIDE?

I have written many times that if a person reads Scripture he/she cannot avoid the observation that God has great compassion for the poor.  Therefore, we Christians should do the same and we should be very excited about recent news.

The June 1^st-7^th issue of The Economist (2013) has both an editorial and an article about improvements in worldwide poverty.  The UN has released numbers that show world poverty has dropped from 43% of the world’s population to 21%, during the period 1990 to 2010.  This is astounding.  Nearly one billion people in twenty years have risen above the extreme poverty line of $1.25 income per day.

The Economist, surely not a conservative periodical, goes on to say that the biggest factor in producing this decline is economic growth.  In fact that is bigger than all other factors combined.  Nearly all the poverty reduction comes from Asian countries turning to capitalism and free markets.  Since China has taken to capitalism, 680 million Chinese have risen from the horrific daily life on less than $1.25 per day.

If we were serious about helping the poor, we would work day and night toward the goal of instituting capitalism in poverty stricken countries.  In Africa poverty is raging because, since the decline of colonialism, African governments have listened to liberal economists who tout big governments and massive regulation.  We have been told that poor countries need more aid but The Economist points out that aid to poor countries is nearly inconsequential.  “…it is hard to argue that aid had much to do with halving poverty.”

Many Christians have been led astray by anti-capitalists.  Let’s point out the facts to them.

HOPE FOR AFRICA

HOPE FOR AFRICA

I have written before that God obviously has great compassion for the poor.  This is all through Scripture.  I just finished a book that I believe gives more optimism for the poor of Africa.

Dead Aid is by Dambisa Moyo, a Zambian born woman who has a Ph.D in economics from Oxford.  The first half of the book decries foreign aid.  This is not too unusual, many people do.  But she goes further.  She says foreign aid hurts Africans.  Okay.  You ask what do I see as optimistic in that.  The good news is in the second half of the book where she offers a menu of marvelous suggestions that would help the poor.  Peter Collier, an expert in this field, says that Moyo’s ideas have to be taken seriously.  If the generous people of the world would abandon foreign aid and switch to her suggestions, great and good changes could come to Africa.

WHAT IS WRONG WITH FOREIGN AID?

                -During the past 50 years over one trillion dollars have passed from rich countries to Africa with very little to show for it.

                -Between 1970 and 1998, while aid was at a peak, poverty in Africa rose 11% to 66 percent.

                -Sub-Saharan Africa has 50% of the world’s poor.

                -One in seven children in Africa die before the age of five.

                -Africa is the only continent where life expectancy is less than sixty years.

                -Aid fosters corruption and corruption disrupts rule of law, which is one of the foundations of a prosperous economy

                -foreign aid foments conflict

                -aid reduces savings and investment

WHAT ARE SOME SOLUTIONS?

                -Create capital markets within African countries.

                -Put less emphasis on infrastructure (this has been done unsuccessfully for decades) and more emphasis on breaking down man-made disincentives: corruption, bureaucracy, and excessive regulation. 

                -Improve the business environment.  In Cameroon it takes 426 days to get a business license as compared to the United States’ 40 days.  Starting a business in Angola takes 119 days, whereas starting one in South Korea takes 17 days.

                -Use rich natural resources to advantage.

                -Increase trade by reducing tariffs.  The average tariff is 34% on agricultural products from other African countries.  China has used free trade to lift hundreds of millions of people out of poverty.

                -Use microfinance to create millions of small businesses through small loans.  These loans go directly to poor.  They do not pass through the government.  They are repaid over 95% of the time.

                Many of the prescriptions in Dead Aid for economic health are unabashedly market based.  We have tried the welfare approaches and they have been a miserable failure.  They have reduced incentive, increased dependency and propped up national leaders who are bad for their countries.

                Dead Aid is not technically a “Christian” book but Christians will love it.  In it we find hope for the poor of Africa.

Taxing the Rich

                 It has been a couple weeks since President Obama made his job proposal so perhaps the numbers have changed but the analysis is the same. 

                The plan was to cost $460 billion and $400 billion was to come from taxes on the rich.  When considering this tax the wisest question to ask is: “What would the rich have done with that money if it had not been taxed?”

                The answer is the rich would have spent it, invested it, or saved it.  Spending it and investing it puts it directly into the economy.  Saving routes the money through savings institutions like banks before it is loaned to the economy so saving puts it indirectly into the economy.  Thus President Obama’s plan is to remove money from the economy so he can put it back into the economy.  As some have noted it is like taking water from one end of a swimming pool and pouring it in the other end and expecting the pool to get fuller.

                But it’s not exactly like that.  The rich put it pretty directly into the economy.  President Obama’s plan would route the money through a highly inefficient government.  So the swimming pool illustration should go like this.  You take water out of one end of a pool using a leaky bucket and then walk to the other end of the pool with water leaking out the entire time and then you pour the remaining water in the pool.  Then you expect the pool to get fuller.

                I believe the above analysis is not perfect but it is largely true.  The question about what would the rich have done is one of the two questions that needs to be asked more often regarding public policy.  The other question is, “What are the long term consequences?”

Should we raise taxes to increase the debt limit?

Should the Republicans compromise with President Obama and agree to cut taxes because he is willing to cut some spending?

Many people are saying the Republicans should compromise with President Obama and raise taxes.  Some of the defenders of the Republicans say, “You just don’t raise taxes in a recession.”  Where does that maxim come from?

Imagine Joe has a great idea for a business but has no money.  The business will employ 20 people.  He goes to Bob and says, “Bob, invest $1 million in my business and I will give you 25% ownership.  Bob knows that the worst that can happen is that he lose his $1 million but he asks Joe what the upside is.  Joe says the business could make a million dollars in the first year so Bob would get $250,000 or 25% on his money.  Now imagine the top tax rate is 90% (it was 94% in 1944.)  Now Bob’s upside is 10% of $250,000 or $25,000 and his downside is losing a million dollars.  Obviously Bob will not invest and 20 jobs will not be created.

Currently the top tax rate is between 40% and 50% when you combine state and federal income tax.  If you raise it just a little, say 5% or 10%, you would certainly be nowhere near 90%.  BUT each increase is a discouragement and out of every 100 business start-ups a few would have reached the tipping point with the new taxes and those few start-ups would not happen.  The jobs that would be created by those few are LOST because of the tax increases.  

As Christians we care about people being hurt by the economy and we care about people who need jobs.  We should oppose tax increases, not because we want to help the rich.  Our opposition is because we care about ordinary Americans and people who need jobs.

Today President Obama announced that he cannot guarantee that August social security checks will go out because Republicans are not compromising.  Unfortunately the president is playing politics with retirees.  In August the federal government will have income of about $200 billion.  Even if the debt ceiling is not raised that is plenty of money to pay the military and pay social security.  If we cannot borrow more money only about half of the government would have to be shut down.  I cannot imagine that President Obama would choose to not pay retirees with the available $200 billion.