In Part I of “Employing the Poor” I made the argument that economic growth is the single greatest factor in helping the poor climb out of poverty. I also pointed out that this should be the primary concern of just policy-makers.
In part II, I would like to look at macroeconomics and compare countries that did and did not pursue economic growth. In addition, I will look at individual states in the United States and see how they have faired in recent years.
As we do this, we will encounter some common threads, namely that the countries that grow the quickest (thereby helping the poor the most) are also the ones that pursue more free-market economic policies. The same thing applies to individual states in the United States.
There is one country in Latin America that has pursued free-market economic policies for most of the last 30 years: Chile. It is also this country that has the highest growth rate in the last three decades.
This chart says it all. Please click on the preceding sentence before continuing. Chile had a pretty typical Latin American economy until the 1970s, when it embarked on a socialist experiment. Notice that in the early 1970s Chile’s GDP per capita plummeted. A military government took over in 1973 (it is worth pointing out that this military government, led by Augusto Pinochet, caused the deaths of thousands and ruled through oppression — there is no reason to celebrate the military coup). After several years, this government instituted a series of free-market reforms that began to take effect in the 1980s. Notice what happens to GDP per capita in the 1980s as it takes off. By the 1990s, when democracy was restored to Chile, GDP per capita was soaring compared to the rest of Latin America. Democratic governments since then have continually pursued free-market policies, and the economy has continued to improve, especially when compared to the rest of Latin America.
What has happened in the meantime to the poverty rate in Chile? The poverty level has dropped from about 40 percent in the 1980s to about 15 percent now, a massive decrease and one of the biggest drops in the world.
I have been traveling to Chile since 1990. Chile is still a third world country. Anybody traveling there expecting to see the complete eradication of poverty will be disappointed. There are still large slums, especially on the western side of town as you travel from the international airport to central Santiago. But there simply is no comparison between Santiago and other large Latin American cities like Mexico City, Lima, Sao Paulo and Buenos Aires (these are all cities I visit on a regular basis). Santiago is a noticeably wealthier city than any of these large metropolises, and there is a massive middle class in Santiago, unlike most of the rest of Latin America. By nearly every measure, Chile has faired better than the rest of Latin America in the last few decades.
It is worth mentioning that a similar process took place in India and China and many other countries in the 1980s and 1990s as they adoped free-market reforms. Literally hundreds of millions of people left the ranks of the poor as India and China concentrated on economic growth as their primary goal.
But how about the United States? Can policy changes affect economic growth in individual states, and what policies work and what policies don’t?
Well, the good news is there is an extremely detailed report that looks at this subject called “Rich States, Poor States.” You can download this 140-page report for free and read it on your computer.
Let me summarize a few findings I found especially interesting.
–The fastest growing states from 1998 to 2008 in terms of economic growth (gross state product) were Wyoming, Nevada, Alaska, Texas and Louisiana.
–The slowest growing states were Michigan, Ohio, Indiana, Kentucky and Connecticut.
–The fastest growing states all had something in common: they were relatively low-tax states. The slowest growing states were all relatively high-tax states.
–A comparison between Texas, which grew 95 percent in gross state product between 1998 and 2008, and California, which grew 70 percent, is instructive. They are both relatively large states in terms of population and physical size. Until recently, California’s per capita wealth far outpaced Texas’. Yet, California has become one of the country’s highest-tax states. The state income tax is one of the highest as is the sales tax. In comparison, Texas does not have a state income tax and has a lower sales tax. By 2009, Texas had an unemployment rate of 7 percent, while California’s had soared to over 12 percent. The poverty rate in California skyrocketed while Texas’ remained relatively stable. Texas gained population while California began to lose more than a million residents to other states.
–Four states have fared especially poorly in the last 15 years or so: New York, New Jersey, Michigan and California. What do they have in common? High taxes on the rich and businesses. They spend more per capita than other states on government programs. Yet, they all have higher than average unemployment rates. They are all losing population to other states (in-migration). They all have large budget deficits. And they all are losing businesses and high-income people to other low-tax states.
High economic growth rates help the poor. They offer greater opportunities, especially for the most vulnerable, to move out of poverty and change their lives. The data shows that concentrating on things other than economic growth — such as “taxing the rich” and “making businesses pay” and “increasing equality” — do not work. These policies do not succeed in helping the very people they are intended to protect and in fact increase poverty, unemployment and misery. We can hope more people will learn this lesson.
A few thoughts.
First of all, I think one of the amazing things about the world is just how simultaneously simple and complex it is.
I think we know a lot about the underlying principles that reality follows. I also think those simple principles add up to things so complex that we don’t really have a clue how to predict them or understand them. I think the economy is just such an example and therefore I, on principle, am doubtful of any post facto analysis where we say clearly X cause Y. We simply do not know what of all the billions and billions of factors caused certain periods of time to boom and others to bust. In fact, often the cause are one and the same (such as a boom that is really a bubble.)
The base of Geoff’s argument is that “the pursuit of economic growth, not equality, that is likely to help the poor the most”
I think, simply put, Geoff is right about this. This is a very straight forward principle and it’s true. Granted, you have to assume a few other things, such as we haven’t hit a growth wall, that we have appropriate laws in place, that we have the right sort of culture, etc. But I think it’s safe to (at least for the US of A) assume this and we don’t really have to go into all the gory details.
What I am less convinced of is that pursuing economic growth — even if it does help the poor the most — is necessarily the most moral thing we can possibly do. If I believed that, then I’d have to have no belief whatsoever in the Law of Consecration which clearly isn’t as productive growth-wise as free market capitalism yet does seem to me to be far morally superior to free market capitalism.
Given this is my point of view, it should surprise no one that although I believe Geoff is right that pursuing growth helps the poor statistically more than pursuing equality, that I consider pursuing equality to be a more moral thing to do.
However, the problem with me saying that is that there is more than one kind of equality and we use a single word to mean all of them.
For example, we can talk about equality of opportunity and we can talk about equality under the law and equality of outcome. I do not believe those three have the same moral significance. (Namely the last has less questionable moral value.)
So where does this put me on this issue? I am not really entirely sure. I do not believe Geoff’s assumptions as to what caused or didn’t cause economic booms is knowable, but I do consider them good hypothesis, so I’m not prepared to write them off either. And I think pursuing economic growth to help the poor is probably a worthy cause that will naturally also have some immoral consequences as well but with less obvious cause and effect narratives.
I also believe in not complaining about a poor system that is better than all the others.
Just a quick comment on this one :-). Largely, I agree, you want a tax code that is as non-intrusive and as low as possible. California is in a budgetary mess because they have this problem in spades – with all of these spending mandates and an over-burdened tax code. They would be in worse shape but they benefited from some really good governing for many years and took advantage of some really nice natural resources. David Brooks describes this quite well here:
http://www.nytimes.com/2010/09/28/opinion/28brooks.html?_r=1&ref=davidbrooks
So, I think what needs to happen is good (and limited) government with an efficient and sufficient tax codes to invest in productive uses that lead to further growth.
Nevada (which you site as an example of a high growth state) and Arizona are really good counter-examples to your argument here. Both took advantage of a real estate bubble, cheap housing and a race to the bottom mentality to attract a lot of paper wealth that was simply not sustainable.
Nevada is now suffering 14% unemployment and a really uneducated population. I’m not sure they’re going to recover at least not any time soon. Arizona is in better shape, but has a similar uncertain future.
So, I agree, you need low taxes (but not too low), but you need efficient taxes that are broadly applied. More than that, you need good government that make smart investments in the kind of infrastructure that lead to even more growth in the future.
Bruce, do you know for sure that the law of consecration that we will live during the Millennium is completely incompatible with free-market principles? I sure don’t and I don’t think anybody knows except for a few beings that are currently not on the Earth.
We know there will be no poor. We know that there will be no greed. We know there will be no coveting. We know we will have some kind of theocracy.
What principles have been most effective in bringing technological innovation? What principles have been most effective in moving goods around the world? What principles have brought the greatest number of economic choices and opportunities to the greatest number of people?
Is it possible to imagine a Zion-like system where free-market principles promote technological innovation, trade and opportunity? I can imagine it. For example, the system could be pretty similar to what we have in the U.S. today except that at the end of the year you are told by your bishop that you have to give 40 percent of your increase to the Church this year. You would then happily do so.
Any socialist reading this right now is about to tear out his hair. But despite his follicle problem, he doesn’t know better than either of us what Zion’s economic system will look like, except that there will be no poor, no greed and that Jesus will be in control.
So, your claim that there is necessarily an incompatibility between the law of consecration and current rules of economics is not proven. We simply don’t know what Zion will look like yet, except that it will be a lot better than what we have now. We just don’t know in what ways it will be different — and in what ways it will be the same.
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So the moral of the Chilean story is that we need a dictator to put into place major free market reforms, allow them to clearly start to work, and then go back to democracy. The political opponents of the dictator will have all sorts of other problems that need fixing before they get around to major tinkering with the free market economy. By that time nobody will want to kill the goose that lays the golden eggs. (The US had Reaganomics start in 1981 and no major changes until last year)
Actually, Chile is a country with diversified natural resources that when used properly can be made very prosperous. Having lived on $6,000/yr not too long ago, I know that it is doable while still enjoying life. That said, a lower class neighborhood in Santiago is not likely a great place to live. The noise, pollution, and insecurity are all worries.
The thesis that Geoff presents is augmented by the Chilean model. It has equivalent natural resources to other L.A. countries and has moved ahead slowly but surely. Argentina used to be in the top 20-30 GDP/capita in the world but has not advanced as much recently. New York and California are good negative models here at home.
Scott,
I would not use Nevada as an example of anything. It has a small population and a very narrow economic base. Mining and tourism are the big industries. Tourism is very volatile which is why Nevada is getting hurt. Even worse, their largest area of tourist influx is California which is one of the other worst hit states. Economically speaking, Nevada is part of California in many ways.
Utah and other western states also have seen some of the real estate bubble that you mention. A smaller bubble, combined with a slightly more diversified economy are probably helping. Of course, economic diversity and free markets go hand in hand in most cases.
As you said, I’m unsure what you mean by equality. In addition to that, I’d ask WHY you think it’s more moral. Without more than a minute’s thought, I can’t think of any time God has implemented equality as some kind of barometer.
People are created stupid and smart. People are created beautiful and ugly. People are created healthy and sick. People are born into families poor, rich, educated and not, abusive and loving. People are often born into dire situations they have no hope of leaving and others have every opportunity. In the church we aren’t equal. We are segregated by behavior and age and gender — and previously by race.
Personally, I assume that this is brought about not by magic or force but by love and hard work. In other words, we won’t have greed but we also won’t have laziness and freeloading. So all will do their best and all will help others when their best isn’t enough to provide what needs to be provided. Kind of like the atonement.
The US had Reaganomics start in 1981 and no major changes until last year
You realize, I hope, that the federal government as we know it was mostly established during the Depression years? Reagan accomplished some great things, but fundamentally changing our economic system or social policies was not among them.
The difference between Reagan and somebody like Bush is Reagan tried to slow the growth of domestic spending and Bush was more inclined to speed it up. There were some serious regulatory failures here and there, but ultimately the economy is in the dumps because we cannot sustain the course the government was put on about eighty years ago without some serious retrenchment.
No amount of tweaking is going to fix the problem. Tweaking might postpone it for a while, but one way or another some major changes are in store. The best thing a liberal can say about the GOP is that for pragmatic, political reasons they are more likely to be able to sustain the New Deal than the other guys – folks much more likely to push it over the edge.
El oso, there are aspects of the Chilean character that have contributed to the country’s success relative to its neighbors like Argentina (and I love Argentina and go there all the time). Chileans generally have more respect for the rule of law. They are more likely to go through the judicial process for redress. There is generally less corruption.
Chile and Argentina have very similar natural resources, and Argentina has additional advantages, such as a larger population and vast Texas-like ranges that can be used for beef and agriculture. Yet Argentina, for whatever cultural reason, embraced Peronismo, a nationalistic, government-dominated system in the 1940s and 1950s. The result has been a complete stagnation of the economy that continues today. Chile was headed into even worse territory with Allende in the early 1970s.
The solution definitely was not the Pinochet coup. Allende was democratically elected and should have been voted out (although, if you study Chilean history it is nevertheless true that Allende’s more radical followers had no intention of allowing themselves to be voted out). In any case, to celebrate Chile’s economic success is not to celebrate the military government.
Nor is it to celebrate the U.S. involvement in the overthrow of Allende!
Don, extraneous to the discussion.
If you don’t mind Geoff, I’d like a clarification. Is this an either/or argument or is there some shade of grey here? In other words, are you one of those who wish to gut taxes throughout the country and remove all regulation over corporations? Or are you asking for reasonable regulation and a fair tax on all?
Basically, where exactly are you on this spectrum? You’ve made your point with a broad brush, but I have not heard specifics. Will more details appear in part III?
James, the point I am trying to make has very little to do with my place on the spectrum. Part I said: “economic growth should be our goal if we want to help the poor.” Part II said: “Here are real-life examples of countries that have concentrated on economic growth and states that have concentrated on economic growth. Notice that their policies (lower taxes and regulations) have worked. Adopt these policies and help employ the poor.”
Is there an either/or argument? Yes, in my opinion. All politicians should concentrate first and foremost on adopting policies that have worked to spur economic growth. Concentrating on this will help the poor more than policies that concentrate on economic equality or “making the rich pay their fair share.” Those policies do not work and in fact bring more unemployment and more misery to the poor.
It just so happens that the countries that have had the greatest GDP growth over the last two centuries also have greater equality. (There is greater equality in Western Europe and the United States, for example, than in Latin America and Africa). But concentrating on equality of result will never work — you must concentrate on the equality of opportunity that is created by economic growth.
If you are attempting to convince us that your ideas should be made into actual Federal and/or State policy, then I will emphatically say that your place on the spectrum quite definitely has everything to do with the subject. The reason for this? While your idea is rather simplistic, but good in general; the methods used to achieve more economic growth can be (but does not need to be) disastrous.
And so my quest for a clarification above was not to ask you for your position on the spectrum of policy, that is quite obvious. It was instead a question about which methods you’d employee to get where you want us to be. If you’d use extreme methods (Amendments 60, 61 & 101 in CO for example), then I’d have to denounce your ideas as far too dangerous and reckless. But if you are instead asking for reasonable policies of lower taxes that take into consideration the negative effects that would occur as a result, and plan for them, then I am much more likely to agree with you. It all depends upon where you are on that spectrum.
An additional clarification, please. You said above,
Was that a mistake? I had thought you were against regulations.
James, lower taxes and fewer regulations.
I believe in as little government as possible and am a firm supporter of 60, 61 and 101. Denounce away!
James, but more seriously, please try to keep on-subject as much as possible. The subject of this post is: how do we stimulate economic growth? Chile and many states like Texas did it with lower taxes and (fewer) regulations so they could attract businesses, who would employ people. I would really urge you to read the attached report on “Rich states, poor states,” especially the chapter on what NOT to do (basically what was done in Michigan, NY, NJ and Cal). It would make for a more intelligent discussion. Thanks.
Mark D.
The big change of Reaganomics was that the US again became the clear safe haven for investment no matter the economic or security situation in the world. Almost all other stable democratic countries either were much more regulated or rested on a much narrower economic base. Money, talent, and ideas all have come here consistently since that time. Of course much of that has been internally generated, but in a global economy it does not matter where they start, only where they stay.
The New Deal policies are easy to make sustainable. A slow increase in the retirement age according to the increase in life expectancy or decrease in number of working age adults is an easy solution. It is the ’60s and later policies that may be harder to sustain.
Geoff,
You speak of aspects of Chilean character that allow the growth vis a vis Argentina. I think that we are seeing the results of Peronism(o) and other previous policies, or population habits, in the current country character. It is much easier to get a full year’s supply of calories for your family by letting your herd graze on the plentiful range grass (Argentina), than by tending vineyards, other fruit trees, and maybe corn or wheat, etc. (Chile). Refrigerated beef containers went around the world 100 years ago and made Argentina prosperous in the first half of the 20th century. It wasn’t until the later half of the 20th century that fruit exports on jet airplanes really moved the Chilean economy.
Overall, you are almost certainly correct. Push free markets, and other growth policies and, over many years, the poor will make themselves disappear with no other government effort. My econ professors might even call this disappearance the results of the invisible hand.
Geoff,
I know for sure as I can know that the law of consecration we will live is compatible with free market principles. However, you really need to define the concept of the free market to not include individuals maximizing their own self interest without being Christlike. Free market economic theory says nothing about being Christlike. Moreover, the ultimate aim of most free marketers is not the abolishment of greed, but the promotion of it as greed as seen as contributing to the overall welfare of humanity in this theory. I attribute this unfettered pursuit of greed to leading to many of the totalitarian/communist atrocities. It doesn’t make those greedy capitalists cuplable for attrocities committed by others. But it is just a consequence as surely as night follows day. Obviously there are/were other inputs.
On the other hand, socialism or social-like policies also do not seek to abolish greed but rather to redistribute and ensure some kind of equal or even bare-minimum distribution of goods for each person, as if that is something that would do away with greed. It won’t. I’ve met with dozens of people in government subsidized housing. They are all on waiting lists to get bigger government subsidized housing. That’s just a minor point. But the broader point is, what good is rearranging the wealth on the planet? Will that bring us closer to God? Will we all be better off spiritually if we have an equal share of eggs/rice/milk per capita?
No, you don’t achieve Zion by putting materials first. Capitalism is focused on materialism. Socialism is focused on materialism. Zion is focused on God first and our brothers second. Putting the Lord first is the key. Once we’ve done that we can realize our relationship to him, to God, and to out brothers and help one another.
“I consider pursuing equality to be a more moral thing to do. ” was said by Bruce. Naturally. But putting your desires for financial equality above the agency of another is not more moral. And my personal take is that attempts at material equality or even material redistribution via government action is displacing God and the concept of charity from the focal point.
I must admit, I’ve really enjoyed Texas.
Chris, excellent comment in #17. Here is a thought experiment: let’s say we end all wars and all crime and virtually all lawsuits (this is my vision of a Zion society). Now, let’s say that every single person on the planet gives 10 percent of his gross income (measured however you want to measure it) to a volunteer local bishop who distributes it as necessary. Would that be enough to make sure there is “no poor among us?” So, completely speaking theoretically, couldn’t it be possible to imagine a Zion where there is still a market-based system with people owning property and working and producing? It is at least as likely as any other system.
I think people get really stuck imagining Zion as a 19th century United Order. This is my interpretation of how Hugh Nibley imagined the world during the Millennium. Are people really going to want to give up phones and electricity and washing machines? My guess is definitely no. So, you need people to work in telephony and at electrical plants and in washing machine factories. You probably are going to have some kind of air transportation and some kind of ground transportation. This means more people working in plants making that stuff also. It seems to me the more you think about it the more likely that Zion will not be a bunch of people living like the Amish.
“In addition to that, I’d ask WHY you think it’s more moral. Without more than a minute’s thought, I can’t think of any time God has implemented equality as some kind of barometer.”
What I actually had in mind was that if I had a choice between being a slave and well taken care of or being poor, I’m probably in favor of being poor and in control of myself. (On the other hand, my choice was between starving to death and being a slave, I might feel differently.)
So I’m talking about equality under the law, not equality of outcome. Therefore, I’m talking about treating people justly and like we’d like to be treated which, as I’m sure you know, is a form of equality God has said a lot about.
Geoff,
I know for certain that a full free-market only economy is not compatible with the United Order as was practiced by the early saints. I can see that a “partial free market system” might be compatible with a “Law of Concecration” that does not take the form of the United Order.
Geoff,
One more point that will explain what I really meant.
I do not know how human nature will be different during the millenium. But if we are talking about any sort of humans as they are now, even an economy like you are imagining, where it’s a partial free market with a 40% voluntary dontation at the end will not be as productive or grow as fast as a full free market economy. So growth doesn’t seem to be God’s main goal.
Bruce, I totally agree. Don’t get me wrong. God’s goal is the most productive system for allowing human progression (at least, that’s the way I see it). My only point was that your comment seemed to say that you know for sure that there will be no market forces during the Millennium, and we don’t know that for sure.
I’ve said it before and I’ll say it again, if Zion means socialism, then, Halelujah, I’ll be the best socialist out there. I just don’t think we know that for sure. It is probably a system that is beyond our imagining right now.
Interesting reaction…
Except for possibly one or two snide comments, no one has disagreed with the “subject of this post.” Or in other words, you are trying very hard to convince us of something we already agree with. There is no real argument from anyone, including myself, as far as I can see.
At least there is no argument if what you are delivering is a simple thought experiment or academic hypothesis, with no basis in reality. But if you are instead attempting to influence us in how policy should be changed in the real world, with real world repercussions – well, that is another situation entirely. The reason it is ‘another situation’ is that no matter what is done, there will be consequences. There are always consequences to every new law or government policy, that’s just the way the world works. And if those consequences are not taken into consideration when proposing a sweeping change, then (in my view) it has a high chance of being a reckless and dangerous proposition that will cause unforeseen problems.
I’m sure you will still disagree with me but because of the possible consequences of what you propose, I feel I have been on-subject this entire time. As I said before, I agree with your basic premise: lower taxes and fewer regulations will do some good for the poor. As a hypothesis, that is an excellent idea. In the real world it can be a good idea, but only if implemented correctly! In other words, we need to be careful. Yes, we do need to create economic growth and your idea is a good one, but we need to make sure we are not creating an even bigger problem somewhere else.
What I have been attempting to do with my posts is to take your premise and move on to the next logical step: how will it be enacted in the real world? Apparently Geoff, your answer to that is this:
For the uninitiated, 60, 61 & 101 are measures that will be voted on today here in Colorado. If they pass, Colorado will be gutted like a fish. From the Denver Post (July 7, 2010): “Amendments 60 and 61 and Proposition 101 may appear to be simple tax-cutting measures that will appeal to voters tired of big-government spending, but don’t be fooled. The operating language within each one is a virus that would cripple the ability of our local and state governments to provide the most basic of services – from building schools for our children to supplying clean water to our homes … Don’t be fooled, Colorado. Amendments 60 and 61 and Prop 101 are not smart budget-cutting measures. They’re out to cripple Colorado, and should be rejected at the polls.”
Some examples:
The two largest universities in Colorado, CSU & CU have already cut their operating expenses to the bone because of previous huge cuts to their state financing over the last ten years. In fact Colorado is currently an appalling 49th out of 50 states for the amount of money spent on higher education. Any further significant cuts will mean the loss of entire departments, which means the loss of hundreds of jobs in Boulder and Fort Collins. CSU is Fort Collins largest employer, and as such the impact of hundreds of lost jobs on that city will be devastating. Not to mention the loss of education opportunities for students, and a loss of the significant return on investment that higher education brings to a state, among many other lost benefits.
And that’s just education. When we talk about the jobs lost in new construction and repair of CO’s infrastructure, the slow decline of that infrastructure, the significant loss of quality of basic functions in the state like food and water safety, and the lower quality of life we will all suffer as a result, I can see the dominos continue to tumble away into the distance.
No matter what you do there are always consequences, Geoff. Your basic hypothesis is great as an academic exercise. And I do believe their are methods to enact the economic growth you wish for without gutting and crippling the state’s government. But 60, 61 & 101 are severe and extreme measures that will cause much more harm to Colorado than it will benefit. And if you are a “firm supporter” of these measures, then I have no choice but to label you an extremist as well.
PS: I would suggest that anyone reading this not take the Post’s, or even my views on these measures at face value. Do some basic non-partisan research into them for yourself to see what the consequences really will be for Colorado if they pass. After you have done that ask yourself, “does this really solve Colorado’s problems, or does it create new and worse problems somewhere else?” If after your research, you still have a reasonable and logical argument against my views, I’d be happy to hear them.
“The most productive system for allowing human progression”
And the irony is when it comes to measuring production, I think the only thing that matters is our spiritual growth production. And no one will ever convince me that iphones, TVs, cars, internet, etc. is a prerequisite for that. In fact, of all the Zion societies we know of (brief instance in Acts 2/4, city of Enoch, and 4th Nephi) production as it relates to goods and services had little to do with it. Having sufficient for your temporal needs while you work out your salvation seems to be what has worked in the past.
As far as Zion/Socialism, I’m not wanting to engage in politics, but it’s clear those are two distinctive things even though there may be similarities. Elder/Pres. Benson wasn’t the only one who was clear on that point. The Brethren who trained him taught very much the same things. Look up some of Elder Romney’s speeches on the speeches.byu.edu website. And it didn’t start with Elder Romney either.