Jack: Simply Put, Free Markets Solve Poverty

Greg:

I like my responses to have some planning and structure to them; but I want to get something to you that you can chew on.  So'll I'll just offer a numbered list of comments on your last memo.

1.  You objected to my characterization of our poverty level as "stunningly low" and suggested it was actually "stunningly high."  The context of my original remark involved the great success story of free markets and the fact that poverty in America is a small exception to the rule rather than the overwhelming rule, as it has been almost everywhere else for all of recorded history.  Your 643,000 homeless people (BTW, I don't think there's been anything close to a consistent way of discovering their numbers) sound like a lot; but as a percentage of our population it's "stunningly low."

Lest I get tagged as heartless, let me hasten to one of my most basic points.  When you point out a social problem such as hunger or homelessness, you're talking about the fate of all of us absent some kind of productivity that has delivered most of us from it.  Your complaint arises from the fact that our great productivity has only rescued most of us and not all of us.  But systems other than free markets have failed, over and over, to rescue more than just a few within a population.  

And...an important "and"...people living in a free market are not without compassion.  Conservatives, as I've pointed out, are famously big-hearted in a free country.  Their compassion is expressed through private agencies that are much more efficient, with the resources given them, than are government agencies pursuing the same need.  But the taxation extracted by the government, to fund the public agencies, reduces the money remaining for taxpayers to contribute to these more-effective private agencies.  This is why I have argued that it's not good enough to say that the government programs have at least tried to do something.  In their attempts, they have squandered good resources on very sub-optimal achievements.  Good intentions don't guarantee good results; and it's the results that the poor need to eat!

2.  You spoke of free markets as a "rigged game," favoring those born with resources and talents and opportunities.  OK; but that's not injustice unless you want to blame God.  The important thing is this:  if it's a game, "rigged" or not, it's a win-win game.  In a free exchange, both parties gain--unlike those exchanges dictated by government.

3.  You show intense and genuine concern about people in the inner city who would apply for jobs if any capital owners would build workplaces there.  You recognize that owners don't do it because the labor resources there are not very capable of the high productivity any new enterprise would need; and you express frustration because it leaves unemployed, people you know personally and care about.

But consider the viewpoint of someone who owns financial capital.  She wants to invest that capital in places where it will initiate a large volume of profitable exchanges so more wealth can be created for all involved, including both herself and the new employees hired.  If she tries to go to the inner city, where businesses have failed or fled, she'll probably turn out to have wasted her resources--producing goods whose value falls short of the value of the resources consumed.  She'll face loss and possible bankruptcy, instead of the profit that would demonstrate that she has created wealth in the world.  Inner cities have already killed most of their businesses; how can she hope to survive in that kind of bleak environment?  Would you place a garden on ground where all the plants have died?

Now, does that mean that the people still living there have no hope?  NO.  But they have to go where the jobs are.  Example:  In the early 1900s Henry Ford needed reliable workers to make cars.  He needed to stay in Michigan because that's where the iron processing could be transported in on cargo ships from Minnesota.  So he advertised jobs for unusually high wages, to people all over the country, as did other nearby manufacturers who supplied his plants.  In the Deep South, where conditions were as bad as inner cities, thousands of men (of any color) hitched north to apply and to prosper.  These poor people entered the middle class thanks to the partnerships that made Ford so rich.  But they did have to move.  That's what happens in a dynamic free market.

Now, would it be good to help inner-city dwellers to train and relocate?  Yes, that's a fine appeal to people who'd like to give to a productive cause.  But in Ford's case it also appealed to an entrepreneur who wanted to build a prosperous business.  Is that unfair, offering only an opportunity that requires them to leave their home environment?  No, because building the auto plant in Jackson MS would just have meant that it couldn't compete profitably and therefore wouldn't happen at all.  In this description, "escaping poverty" involves a real movement, geographically and not just economically.

Building a plant in the inner city means a business that can't support itself and would require continuing infusion from the more prosperous parts of the company.  That means that the employees continue in a dependency only slightly different from handing out food packages to them each week.  But if as individuals they go to where their work actually creates product worth more than their wages, then they are in a self-sustaining enterprise.  Poverty is not just relieved; it's replace by prosperity.

3.  You saw "irony" in my reference to hospitals and the fact that so many were established by Christian organizations, apparently because they were not started to generate profit for their owners.  I don't see that.  Free markets are what makes it possible for people to to have the needed prosperity, to generate enough wealth for them to donate it to causes like that, and like other causes you pursue. Imagine trying to raise donations of that size in a country without free markets, where the people would be much poorer.  Not every successful organization needs to be set up for profit; and those set up to keep their surpluses (so-called "non-profits) are more efficient with their resources than are those finances with forcibly-extracted tax money.

Regarding profit-making hospital organizations, I disagree with the idea that they are immoral.  To conclude thus, we'd also have to say that foodstores and housing contractors are immoral; since what they produce is also necessary for life.  We require medical care; but we also require food and shelter.  Why shouldn't those who provide all of these exchange them to us and make a profit?

4.  You raised a point about where resources would go if the government did not tax them away for public purposes.  You argue that the saved resources would "simply not be in the hands of the poor," but "in the hands of those who control the means of production."  Yes, of course they would; we want them to be there!  First, these people have the resources because they created them out of their own entrepreneurial efforts, so it's just that they should have first claim over them.  But more important, they are the ones who know how to make these resources productive.  That's what creates jobs to make poor people into prosperous people.  You can kill that golden goose to give a meal to a poor family; but you'll get no more golden eggs.

5.  You pointed out an apparent contradiction in my statistics about what happens to poor families over the years.  I probably should have offered more detail.  In a University of Michigan study of hundreds of thousands of families, surveying their income levels from 1975-1991, we find that the bottom quintile mostly escaped poverty--all but 3 to 5% of that 20% of all households.  Those people--the 3%--represent the persistent poor with the multi-generational behavior patterns that I referred to.  This 3-5% of a quintile--less than 1% of all families--are a small but real group, with a problem they need help with.  But pause to note that the rest of their quintile--the 15-18%--are indeed escaping.  This is the miracle, so different from countries and eras of permanent stagnation.  On the other hand, the ones remaining permanently in poverty produce so many of our prison occupants and illegitimate babies.

6.  I ask you now to concede that there are not two, but three fates for the poor: you've spoken of two:  they have no help and either starve or find some bootstraps on their own; or a government program somehow gives them help that doesn't create incentive-killing dependency.  But I advocate for a third way:  private individuals exercising compassion, who interact with the poor one-on-one in private help programs, funded voluntarily by donors convinced of the programs' efficacy.  These donors can cut off funding the moment they suspect that the program is growing wasteful or ineffective, and choose alternate programs to help people.  (Try that with government programs!)

7.  You brought up the very interesting topic of what "freedom" means.  I suppose some philosopher may have at some time written a sentence or two about that, right?  But you've a right to ask me to express if I can, what I mean.  I think I'd say that Freedom is a condition of being unconstrained, of having a genuine capacity to select among options without restriction by another.  And in answer to the fine point you raise, I think that Jesus might have tolerated my poor attempt at definition, so long as it recognizes that it's not just other people or organizations that put bonds on us, but Sin, which comes from within us.  He sets us free from that.  And it's for us to set each other free from the bonds we keep placing on each other.  Government limits our freedom, as it must, in cases where we use it to interfere with the freedom of others.  "...and governments are instituted among men to secure these rights, deriving their JUST powers from the consent of the governed."

How are we doing?

Greg: Another Try

Jack,

I'm going to give this another try.  I think you're right that I didn't address the points you were making as directly as I could have.  In my defense, it was very late and my brain was throwing fits that I was trying to make it write to you that evening.  Nevertheless, I do think much of what I had to say is relevant, if perhaps tangential.  For example, the statistics that I shared with you about how only 7% of those on welfare have stayed there chronically speaks to how "efficient" and "effective" welfare actually is -- presumably it is doing what it is supposed to do (i.e. provide people with a temporary safety net until they can get back on their feet).  It also presents evidence against your claim, "When poor people come to depend on government support, they sometimes set up multi-generational behavior patterns and forget what it might be to be a productive, self-supporting person."  If my professor's data is correct, that is a far smaller problem than you make it out to be.  But, you say, that is not the heart of your argument.  Fair enough.  Let's address your argument.

The core of what you are saying seems to be:  welfare is inefficient.  It would be more efficient for the poor to be cared for by the private sector.  To quote you again, you say, "I think history shows that the private means would address poverty more efficiently and effectively. (and permanently!)"  Now that's a fascinating statement to me.  If that statement were true, then why do we in America have such an obscene level of poverty in our nation?  This is the most unregulated and least taxed free market in the developed world. I've included a cart below that illustrates how low our taxes really are in the U.S. when compared to the GDP.

Corporate tax rates are also comparatively low in the U.S. (especially once you consider all the loopholes that are available.  See examples here:  <http://money.usnews.com/money/retirement/slideshows/top-10-corporate-tax-breaks>).  And yet in this nation that so values the unregulated market, what do we find?  Massive unemployment, severe poverty, homelessness, sick children left without insurance, and the like.  One would also expect, according to libertarian theory (and I believe what you are arguing for), that an unregulated economy like ours would witness wealthy philanthropists, profitable corporations, and the private sector freely utilizing their funds to eliminate poverty, but that is very far from the reality on the ground.  (I do not mean to dismiss the incredible generosity of some wealthy philanthropists.  My point is that what is given does not meet the level of need.)

And this is a nice segue into another of your points.  You mention how the work of my former church in the inner city illustrates the effectiveness of voluntary poverty alleviation efforts, even without lots of funding.  Well, you're certainly right about that -- we had almost no funding!  Know why?  Because the wealthier Christian businesswomen and men that I pleaded with to help save our little preschool -- the one that we had to close -- simply couldn't allocate the resources for it.  Their cash was tied up in capital used to grow their businesses.  Because, as you know, to compete in today's marketplace you gotta keep spending money to make money.  (I've never been quite sure about this: when does a business have enough?  When do corporations get to a place where they are content with their current level of profit?)

Were we effective in what we did with little to no money?  Yes, we were.  We were extraordinarily efficient with the money that we had -- and I know that you love efficiency.  However, we simply lacked the resources to make a large-scale difference.  We couldn't provide housing, clothes, jobs, food, health care, legal advice, psychological services, low-interest loans, utility assistance, transportation, education… we were, after all, a church of 70 people.  The only way to provide those vital services would be to tap into a massive source of income.  

Let me illustrate with one story from my time as pastor.  And this is just one story among hundreds.  One Monday morning in food pantry, a middle aged woman came to me to ask if we provided financial assistance with paying for medication.  I told her sadly that we could not afford to do that.  I told her that our little church channelled its limited funds into the food pantry that had brought her there that morning.  She was understanding and did not make me feel guilty in the least, but she did start to cry.  I asked her what was going on and she told me a bit of her story.  She had been a working woman up until the recession that hit in the fall of 2008 (thanks to the greed of unregulated banks -- but that's for another email, isn't it?).  When she lost her job, she also lost her health insurance (because, you see, in this country we have this funny system where your health insurance is tied to your job.  Weird, isn't it?).  And yet she had recently been diagnosed with a terminal illness.  My memory is foggy here and I cannot recall exactly what she had, but I think it was cancer.  The illness was treatable, but she could not afford the treatments and medication.  She did not quality for medicaid because her income had been too high on the year (since she had until recently had a decent job).  And so she was stuck.  Here was a medicine that she could take that would literally save her life, but she didn't have the money to buy it.  She had spent weeks on end going from one charitable organization to another -- even to some based in hospitals -- begging for the funds to purchase the treatment she needed, but to no avail.  When I asked her, out of curiosity, how much money we were talking about, she gave me a figure that was larger than our annual church budget -- and that amount was what she needed monthly!  What could I do?  I prayed for her and told her I would continue to pray that she would find the help she needed.  But after she left I became angry.  Here I live in the richest nation that has ever existed in the history of the world and yet we had in our midst a woman in her late forties who was dying from a treatable illness for lack of funds.  No one was there for her, but my little church.  And our little church simply could not meet that need.  It was far too big, and we were far too small.  If that woman is to live, there has to be funding from somewhere.  And that somewhere wasn't coming from the private sector (or from the public sector, for that matter, but that's because we don't have universal healthcare here).  I share that story simply to illustrate the constant struggle that workers in the inner city face:  vast human need and a paucity of resources to meet that need.  

Just imagine what we could do if we did have resources!  Imagine what a First Church could do if, instead of having an annual budget of $65,000, it had the annual budget of, say, a Greenville Free Methodist Church (I often dreamed of this).  The sad thing is, there isn't that much interest out there in finding out what would happen (and, believe me, it isn't for lack of trying to drum up interest).  So if even Christians -- Christians! -- are unwilling to make radical financial sacrifices to alleviate the poverty that exists right in their own backyard (and within their own little denomination), then how can we expect that the general populace will voluntarily pony up the cash to eliminate poverty in the world as we know it?  No, my doctrine of original sin teaches me that we as humans are not prone to generosity, but to selfishness.  And while some wait around for people to open their wallets voluntarily and out of free will, others starve.  The free market has simply not met the demand.

And so I judge a progressive tax which coerces money from the hands of those who benefit greatly from this system to be worth it if it feeds those starving people and pays for their life-saving medication.  Call it the lesser of two evils.  Prying taxes away from people is less evil than watching people starve.  Of course, I wish we didn't live in a world where that was necessary.  I wish we lived in a world where the rich really did live by the principle "live simply so that others may simply live," but we don't.  Heck, I wish even Free Methodists lived by Wesley's dictum to "gain all you can, save all you can, and give all you can," but we don't.  Today Christians (to say nothing of non-believers) build for themselves huge mansions with swimming pools and three-car garages while others on earth sleep on the streets.  It shouldn't be this way, but it is.

I'm being too verbose.  So let me sum up for the sake of clarity lest you conclude that I've not addressed your points.

Your claim:  The private sector is more efficient than the public at eliminating poverty.  Or, in your words, "People operating voluntarily, alone or in company with others, Christians as well as others, have demonstrated both great generosity and efficiency in helping the poor."

My claim:  Yes, but those of us in the private sector who commit our lives to doing just that do not have the resources necessary to carry out the task.  If we wait for "voluntary" giving, it doesn't come -- at least not in the amount needed to meet the demand.  Therefore, even if the government is less efficient, at least the job gets done, or partly done.  It's better as a poor person to have some inefficient help than to have no help.

Your claim:  The free market, by creating incentives to work and by rewarding innovation, will lift people out of poverty.

My claim:  But that isn't happening in America's inner cities.  Sure there are the occasional rags-to-riches stories but, it simply isn't happening on a grand scale.  In this nation -- the freest market in the developed world -- we still see masses of the poor who try to climb out of poverty and cannot.  There needs to be a modified free market, a "free market plus" so to speak, since the free market alone isn't doing the job.

I realize I have not addressed everything, but I hope I have at least addressed some of what you write.  I appreciate your patience and willingness to carry on this dialog because, as you can see, I care about these things a lot.

Blessings,

Greg