The Solution to Poverty:  Capitalism or Social Justice?

poverty (1)Nearly 1 billion people have been taken out of extreme poverty in 20 years. The world should aim to do the same again. Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow — and it was growth, principally, that has eased destitution

… so said The Economist magazine in June 2013 in a claim that no one really disputes.

Socialism, redistribution of wealth, high taxes, or “compassion” did not relieve world poverty in the last 20 years. It was deregulated economic growth, unfettered capitalism, and free trade that did the job. If reaching out a hand to the poor and lifting people from poverty can indeed be called “compassion”, then capitalism is the greatest source of compassion we have ever seen.

Seemingly oblivious of this fact, Pope Francis chided “compulsive consumerism” and urged greater “compassion” as a means of relieving world poverty. Individuals can exercise “compassion” and should as they are able.  When a government exercises “compassion” with other people’s money … we have “confiscation”.  Did the Pope forget that redistribution policies of the Peronist era reduced his own Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today?  The Pope’s present agenda if accepted would bequeath to the world the legacy of Argentina.

The capitalism that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.  It is on account of capitalism that life expectancy in poorer countries increased from between 25 to 30 years in 1900 to 62 years today. Rather than urging the United States to accept and care for the downtrodden of Mexico, he would do better to encourage the replacement of despots throughout the world with free market capitalism.

Most politicians and a huge percentage of Americans including the college educated don’t know how a free market economy works. Until they understand the operating system of the economy, conservative policies on taxes, regulations, health care and all the rest just won’t make sense to them. Prosperity is not created by governments.  It is created by entrepreneurs who expand and start new businesses. They need freedom to do this. A “free market economy” gives that freedom.

The role of government in such an economy should be to create conditions in which business owners, managers, and entrepreneurs thrive. When they thrive, entrepreneurs create jobs for all the rest of us. An economy is like the operating system of a computer. It is designed to work only one way. There is no “Republican” or “Democratic” way to make an economy work.  You follow the operating system or nothing happens.

Herbert Meyer had a great analogy:  “If you want more milk, create an environment in which cows will thrive.  And just as it makes no sense to say you want more milk but oppose cows because they’re smelly, dirty, and leave their droppings all over the place … it makes no sense to say you want more jobs but oppose entrepreneurs because when they succeed they often wind up with more money than the rest of us.  You cannot have it both ways”.

Although capitalism has eased poverty throughout the world, over 20 million people in America who should be working are unemployed. One reason is that politicians seek to impose personal concepts of “social justice” and “compassion” on the free market. Those who create prosperity for others they argue are “greedy” even though the top 1% pay about 40% of the Federal Tax burden.  They like to define income inequality as a social evil. Like their own appetite for power, their demands for “social justice” are never satisfied.

The demand for ever more “social justice” creates greater uncertainty for the entrepreneur and undermines his ability to expand and create employment opportunities for others. He is uncertain what taxes and health care taxes he is going to pay in the years ahead. He is discouraged upon seeing other businesses given exclusions and benefits via “crony socialism”. He needs confidence that regulations in place when he launches that new product or service won’t change six months later and destroy his investment overnight.  He wonders if the economy will be sufficiently strong to provide customers to buy that new product, and make some profit besides. Today, entrepreneurs lack such confidence.

In the name of “social justice”, President Johnson declared a “war on poverty”. One goal was very well intentioned: to increase self-sufficiency so that families to support themselves above poverty without the need of government handouts. After 45 years and $24 trillion in anti-poverty spending, the “war on poverty” has encouraged welfare dependency and created an underclass whose will to work is shattered.

The key to self-sufficiency is increased work and strong families, not “social justice”.  Able-bodied recipients of welfare aid should be required to work or prepare for work as a condition of receiving assistance. Welfare programs should encourage, not penalize, marriage.

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