New San Diego Bishop’s Wrong Approach to Poverty

First Chicago, now San Diego. Pope Francis just appointed a left-leaning bishop to lead the Diocese of San Diego, Bishop Robert McElroy. He reportedly is prone to “placing abortion and euthanasia on the same moral level as immigration and poverty.” That probably means he plays down the former in favor of issues such as poverty.

The irony is that it’s left-wing policies, which the Bishop no doubt espouses, that breed poverty. High minimum wages, for example, price unskilled people out of the job market, resulting in a large underclass of unemployed. Welfare often discourages work, which even Bill Clinton recognized. High taxes and regulations on businesses discourage business creation and hiring, resulting in fewer jobs and putting downward pressure on wages. Huge government expenditures and stronger government control of the economy slow economic growth – and slow growth is the biggest producer of poverty. It’s no surprise that inner cities, where leftist policies dominate, are breeding grounds of poverty. Same with leftist-controlled countries around the world.

So it’s quite ironic that the good Bishop, who claims to be most concerned about poverty, unwittingly supports the very policies that encourage it. (Preceding paragraphs taken from my comment to the above-linked article.)

Absolute poverty throughout the world has declined considerably over the past several decades. That has coincided with a much greater embrace of free markets, especially in places like China, India and other Asian countries. If Bishop McElroy were really serious about eradicating poverty, he would be a champion of free markets. But alas, my guess is that he does the opposite.

A Real-Time Account of Free Markets Eradicating Poverty

factoriesA few months ago we had a post, along with a video animation, on how free markets wipe out poverty and boost the overall standard of living. Lest one is inclined to think that it’s “just a theory”, read this recent account (“China: A Billion Strong but Short on Workers”, WSJ, 5/1/13) that puts that notion to rest. It’s yet more proof that free markets aren’t an ideology, but rather the natural order of things when government gets out of the way.

Following are excerpts from the above-mentioned account:

“Ms. Cui is contributing to China’s tightest labor market in years, putting upward pressure on wages that already are rising in the double digits annually.”

“The average monthly income for migrant workers rose 12.1% from a year earlier.”

“Creating jobs in hair salons and insurance companies, instead of in steel mills and soccer-ball factories, helps fuel growth in the world’s second-largest economy.”

“When the bra maker set up a factory in southeastern China’s Jiangxi province more than a decade ago, hundreds of people lined up outside looking for work. Today, the manufacturer for Wonderbra and Elle Macpherson Intimates struggles to find enough workers to operate its production lines at full capacity.”

“For years Top Form competed for labor with factories moving inland to take advantage of lower costs.”

 

How Free Markets Help the Poor

(To watch a video animation of the following, click here.)

Do you know what’s by far the most powerful force in lifting the poor out of poverty and raising the incomes of everyone else? Free markets. The government getting out of the way and letting businesses flourish results in jobs and rising wages.

No, it’s not labor unions that make wages rise. They only help a relatively small segment of workers at the expense of everyone else. If anything, they impede business creation. And that’s a tragedy, because the more businesses there are, the more competition there is for labor.

In order to attract the best workers and prevent them from working somewhere else, business owners are forced to raise wages and benefits. The result is an overall rise in the general wage rate and standard of living.

Let me illustrate. Start with a poor country. There are lots of people either unemployed or working in the agricultural or low-wage informal sector. But then the government opens the area to foreign or domestic investment. A shoe factory moves in, and people get jobs. Because it’s low-skilled labor, the jobs aren’t high-paying but they pay a lot better than what the people were earning before.

More factories move in and more people get jobs. And then, another factory moves in and finds that it’s having a hard time hiring good labor. So how does it attract workers? You guessed it: it’s forced to raise wages.

But it doesn’t stop there. In order to prevent their workers from going to the other factory and to hire new workers, all of the other businesses have to raise their wages as well. The average income and standard of living of the population go up.

In addition to enjoying higher wages, the people are learning new skills. There are more semi-skilled and even high-skilled people around. That attracts the attention of industries that require higher-skilled labor, like assembly plants and parts manufacturers. They pay even higher wages in order to attract top talent. Pretty soon more of them move in, and the low-skilled manufactures can’t compete so they move out, to other areas of the country where low-skilled and low-wage labor is still abundant. Then the virtuous cycle begins there, too.

This is happening in places like China and India. Just a few of decades ago southern China was poverty-stricken. Now it’s becoming a bustling and prosperous high-tech metropolis, thanks to this process of businesses competing for labor, and ultimately thanks to the government’s decision to let the free market flourish.

A similar thing happened in America as well. To once again get low unemployment and rising wages for the poor, the government has got to get out of the way.

*** Update – May 6, 2013 ***

The above is by no means just a theory. It’s what’s happening in practice. All of the above is reflected in this news article.

Following are excerpts:

“Ms. Cui is contributing to China’s tightest labor market in years, putting upward pressure on wages that already are rising in the double digits annually.”

“The average monthly income for migrant workers rose 12.1% from a year earlier.”

“Creating jobs in hair salons and insurance companies, instead of in steel mills and soccer-ball factories, helps fuel growth in the world’s second-largest economy.”

“When the bra maker set up a factory in southeastern China’s Jiangxi province more than a decade ago, hundreds of people lined up outside looking for work. Today, the manufacturer for Wonderbra and Elle Macpherson Intimates struggles to find enough workers to operate its production lines at full capacity.”

“For years Top Form competed for labor with factories moving inland to take advantage of lower costs.”

 

Obama Nation: Lower Living Standards, Rising Poverty

The Dow ended down almost 400 points today. But that’s not the real measure of prosperity or how the U.S. economy is doing. The real measure is per-capita income – i.e. income per person or the quantity and quality of goods and services per person. That’s what separates us from third-world countries. Our per-capita income of course is a lot higher, and over the decades it has increased faster. It’s also what separates us from Europe. Western Europe’s average per-capita income is equivalent to that of our lowest-income state (Mississippi). Europe’s per-capita income used to be equal or higher than ours, 40 years ago. But their welfare state has taken its toll – slower economic growth over the decades since, which really adds up.

But the welfare state is really taking hold here in the U.S., especially under Obama who has raised government’s share of the GDP from about 20 percent to 25 percent, and who has added more to our national debt in two-and-a-half years than George Bush did in eight years (which was bad enough as it was).

And it shows: our per-capita income here in 2011 has fallen to 1996 levels. That’s scary – usually per-capita income rises over time. It may fall during recessions, but then during the rapid economic growth that usually follows recessions, per-capita income spikes up.

In this Obama economy, however, post-recession growth is anemic. It was less than 1 percent at last count, which is slower than population growth, meaning there are fewer and fewer goods and services per person. Normally after deep recessions, growth is in the neighborhood of 5 to 8 percent. But when it comes to the economy, Obama doesn’t know what he’s doing (assuming he genuinely wants to help the economy, in contrast to many hard leftists who want to see growth come to a halt).

What more evidence do we need to show that big government solutions don’t work? They only make our standard of living decline. The main driver of rising per-capita income isn’t government, but the people outside of government who are producing the goods and services. It’s government’s job to make sure there are good ground rules. But too often, they go overboard on the rules, and coerce too much out of the private sector.

Another frightening bit of news: the percentage of Americans living below the poverty level is the highest since 1993.

What more evidence to we need to show that poverty is alleviated by private-sector-driven economic growth, and not clumsy government programs? It’s the latter that exacerbate poverty.

If government programs were the main alleviators of poverty, then practically all third world countries would now be first world, given that most of them have socialist governments. But they’re third world precisely because of their bloated governments. It takes months or years to just get permission to open a business in many of those countries.

So poverty in America reaches an all-time high, even though Barack Obama was expected by the economically naive to bring it to an all-time low.

Hopefully the Obama experience will squeeze that naïveté out of some of them.

Yes, the main cause of poverty is a shortage of goods and services in society. That’s what separates us from a third world country like Haiti. Yet now, goods and services per person are decreasing. Of course we’ll never become like Haiti (except perhaps in certain pockets like Democrat-controlled inner cities), but our standard of living will be a lot lower than what it could have been, had we had fewer economically illiterate people running our country.