Brian Gongol Show on WHO Radio - February 2, 2014

Brian Gongol

Podcast: Updated weekly in the wee hours of Sunday night/Monday morning. Subscribe on Stitcher, Spreaker, Apple Podcasts, Google Podcasts, or iHeartRadio

The economy as a highway

Inequality is a distraction from really fixing poverty

Oxfam released a report, headlining with the claim that the world's 85 wealthiest have the same total wealth as the lower half of the world. Whatever was buried in the rest of the report, it is the factoid about inequality that will stick with people most.

But the inequity is not really a failure of the rich having too's a failure to capitalize on the ideas and motivation of the poor

Bill Gates in his new annual letter asks the world to stop buying into the myths of poverty. Specifically, he calls out the myths that the poor stay poor, that aid never works, and that helping save lives only causes overpopulation and worsens the problem of poverty. It's a compelling read, because those truly are unfounded myths.

Hernando de Soto: Get the rule of law and property rights into the hands of the poor, and they can stop spending time and effort trying to get around the law and get to the business of actually capitalizing on what's theirs

one of the worst things that can happen is for us to accept the notion that the poor are poor because they are lazy or because they aren't being given enough -- more often, it's because the system isn't functioning in a way that rewards the effort that they're putting in If you fix the system, you fix poverty. But it's not the market economy that's the problem -- the problem is in what keeps that market economy from working its magic. Capitalism -- or a market-based economy -- is bound to produce inequality of income and inequality of wealth. When those inequalities become large, those outcomes can start to look pretty can other outcomes of market economics. But we still like capitalism -- not because it makes the rich richer, but because it's really the only tool that we have to make the poor richer. Inequality is inevitable, and to some degree, it's rather self-correcting. The phrase "shirtsleeves to shirtsleeves in three generations" is supported too often by the evidence for us to dismiss it. Aside from a small handful of true multi-generational dynasties, most of the people who inherit a lot of wealth get it from their parents or grandparents. It rarely lasts into a fourth generation, and when it does, that's largely the consequence of a hearty effort by the family to educate each successive generation. The Hiltons no longer own the hotel chain that bears their name, and the Pritzker family business empire was dismantled precisely because the heirs of the founding generation couldn't get along.

We dislike cronyism of any sort -- but it's a shortcoming that's hardly exclusive to capitalism. There's a risk of cronyism in every system where political power can influence the economy. At the far extreme, you have examples like North Korea, where there's no capitalism, but where the political elite definitely eats better than the rest of the population. There's a reason why the Federal government enforces the Foreign Corrupt Practices Act. Long story short, Americans aren't allowed to bribe foreign officials in order to get business. If there hadn't been a problem -- especially in countries less politically and economically free than our own -- then there wouldn't be need for a law. So we can universally agree that cronyism -- whether it's crony capitalism, crony socialism, or even crony feudalism or mercantilism -- is a bad thing. But it's important not to throw out the baby with the bathwater and link cronyism exclusively to market-based capitalism.

Ultimately, we want people max-performing. We want people in the rich world doing the best they can with what they have, and we want the same in the middle-class countries, and in the poor countries. That's the fastest way to ensure that there are no longer poor countries -- something Bill Gates thinks is possible by 2035. That's going to be achieved, he says (and I agree), by innovation and by targeted efforts to help people at the bottom of the income scale take better advantage of their own resources (through better seed technology, for instance) to help themselves out of poverty.

The only system that really encourages people to max-perform is a market-based one. Resources need to be used and maintained by people who care about their quality and ongoing value.

In the end, what we want to know is whether more has been created than destroyed, and whether well-being has risen for as many as possible. The sad fact is that there's a lot of cynicism about market economics. The emphasis placed by the Oxfam report on the issue of wealth concentration is a political distraction from the real question, which is whether the poor are becoming more well-off. The gap between rich and poor is not as important as the well-being of the people at the bottom of the gap in absolute terms. I prefer to use the measure of relative development over time -- that is, how close different countries are to the same condition in the United States today, or 10 years ago, or 20, or 30, or more. On a global scale, I do not care how much richer we get -- but I care very much whether billions of other people have caught up to our standards today, and if not, by how much they are behind. There will always be gaps between rich and poor, just as there will always be gaps between individuals who are tall and short, or heavy or light, or high-IQ and low-IQ. Nature doesn't give us these things in equal measure, nor do our environments treat them in the same way. But we should very much be interested in seeing as much progress as possible made in absolute terms for the largest number of people possible.