The Greatest Anti-Poverty Program the World Has Ever Known
Economic growth is a miracle cure.
For the last 50 years real income per person in the United States has been growing at a rate of about 2.3% per year. Although that may not sound like such a big deal, that small increase adds up year after year. So much so that real incomes will actually double every 31 years. If we think of the average year for child birth as being close to age 31, then income will double for every generation.
Let’s assume you are in an average income family earning about $50,000 a year. If your children also earn an average income, by the time they grow up and reach your age they will be earning $100,000 a year — and that’s in current dollars. If your grandchildren follow the same trajectory, by the time they reach your age they will be earning $200,000. That’s what Barrack Obama calls rich. Your great grandchildren will earn $400,000 — which is enough to put them in the top 1% of the income distribution, were they alive today!
Provided our descendants don’t do dumb things and stop this miracle from continuing to produce its bounty, the future just gets better and better. As Stephen Landsberg has noted:
…[I]f that 2.3 percent growth rate continues, then in fewer than four hundred years, your descendants will earn about $1 million per day — a little less than Bill Gates’s current income, but at least in the ballpark. I want to make clear that these are not some future inflation-ravaged dollars we’re talking about; they’re the equivalent of a million of today’s dollars.
What about poverty? If we roughly define the poverty level as a family with 50% of the average income, then the poverty level for the great grandchildren of today’s poor will be $200,000. In other words, if tomorrow’s poor have a poverty level income they will be rich. And, of course, 400 years from now they will be fabulously wealthy.
Now here is something that may surprise you: The economic growth that you and I take for granted is in fact very rare. For almost all of the history of human existence, there was no growth at all.
Landsberg puts the beginning of the modern human race at about 100,000 years ago. If so, then for 99,800 of those years all of mankind was living at the subsistence level. People in the Middle Ages were living no better than people at the time of Ancient Rome. And people in Roman times were living no better than people were living 10,000 years earlier — before the agriculture revolution.
Civilizations rose and fell; there were wars, technological innovations and even international trade.
Yet through it all the average person lived on a little better than the equivalent of $1 a day for almost all of human history. If they were lucky, they might have had $2 a day. And if they were really lucky they might have had as much as $3 a day. But that’s about it — unless you were a king or a queen, and even they didn’t have much by modern standards.
Landsberg writes:
Then, in the late eighteenth century-just a couple of hundred years ago, maybe ten generations — something happened. People started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three-quarters of a percent per year. A couple of decades later, the same thing was happening around the world. After thousands of years of stagnation, life started improving from one year to the next, and before long people started taking improvements for granted. Today we expect our cars, our computers, our medicines, and our entertainment systems to keep dazzling us with something new. But that’s not how it was before the Industrial Revolution. That three-quarters of a percent annual growth rate, once it got under way, must have seemed miraculous.
But then it got better. By the twentieth century, per capita real incomes — that is, incomes adjusted for inflation — were growing by 1.5 percent per year, on average, and since 1960 — for almost fifty years now — they’ve been growing by about 2.3 percent.
Unfortunately, economic growth has not reached everyone. There are about one billion people in the world today who are still living on $1 a day. Another one billion live on $2 a day. Roughly one-third of all the people on the planet right now are living no better than their ancestors lived for millennia.
Now here is another surprise. Given what we know, you would think that economists, politicians and almost everybody in the public policy community would be spending every waking minute thinking about:
What causes growth?
What makes growth rates higher rather than lower?
What can we do to encourage growth and make sure it continues?
In fact, politicians rarely mention the subject, nor does the public policy community. As for economists, interest in economic growth has been anemic. True, Adam Smith wrote an entire book on An Inquiry Into the Nature and Cause of the Wealth of Nations. But while he had much to say about the value of free markets and the cost of unwise regulation, he never gave a satisfactory explanation of the puzzle of why some nations grow and others do not. Nor really has anyone else.
For my money, I think that culture has a lot to do with it. But that of course is considered an abdominal idea on most colleges.
What little economists do know about growth has been summarized by John Hood, president of the John Locke Foundation, who has reviewed 528 economic studies, published from 1992 to 2013. Of these, 112 of the academic studies focused on state and local taxes:
- Only two of these studies found a link between higher tax burdens and stronger growth.
- Seventy-two of them, on the other hand, showed that taxes negatively impacted economic growth.
The evidence also indicated that states do not invest effectively and that regulations harm the economy:
- While education outcomes appeared to be correlated with economic growth, education expenditures did not. Of 79 studies on the subject, only 30 found a positive relationship between spending and growth in education, while 34 had mixed or insignificant results and 15 had negative results (due to the offset in growth from the additional taxes).
- A study that looked at the growth of major state government programs — from public safety to education to housing subsidies and health care — found that raising taxes to fund that additional spending almost always hurts economic growth. But slowing that spending and reducing tax rates, the study found, leads to higher investment and employment.
- Of 123 articles on regulatory policy, there was a positive economic effect from less regulation, not more, 67 percent of the time.
And here is the final surprise, given President Obama’s rhetoric about concern for those at the bottom of the income ladder: Almost every policy initiative of the Obama administration has been anti-investment, anti-work, anti-production and therefore, anti-growth.
Great post. One of your best.
“Almost every policy initiative of the Obama administration has been anti-investment, anti-work, anti-production and therefore, anti-growth.”
They don’t want to grow, they want to re-distribute.
John — Haven’t you heard? The ever increasing consumption of resources by human beings is destroying the planet. Economic growth is the engine of increased consumption, which will destroy all life as we know it when the runaway greenhouse effect results in catastrophic global warming. Today is the 25th anniversary of the Exxon Valdez oil spill, which created a huge “dead zone” in pristine Prince William Sound. What should we learn from this catastrophe? Economic growth means more consumption, which requires more energy, meaning more oil. Since drilling and shipping oil raises the chances of catastrophic, disastrous, cataclysmic oil spills, we have to stop drilling and shipping oil. (Of course, the environment is quite robust, and oil, after all, is part of the environment, so “damage” from oil is relatively short lived and “heals” rather quickly — especially when you spend a few billion helping nature clean it.)
This would be funny if it weren’t exactly how greens think. There are numerous studies from far left green think tanks pointing out the evils of growth. In their eyes, economic growth cannot continue without destroying the Earth — really, I’m not making this up.
So there should be no mystery why a Democrat led administration, which is fully invested in this green nonsense, doesn’t talk about or embrace policies that advance economic growth.
Wonder what kind of mileage Airforce One gets?
The exploitation of hydrocarbons played a huge role in the elimination of poverty and economic growth as well. This is a subset of the free enterprise and low-regulation argument. Here’s a great book on the topic: http://store.cato.org/books/poverty-progress-realities-myths-about-global-poverty-hardback
As to hydrocarbons – remember the TV adds during the Carter Administration saying that there were no more dinosaurs dying so obviously we were running out of oil.
In the modern world, it seems to me a nation’s economic strength is directly related to its ability to produce (or purchase energy)to meet the growing needs of manufacturing, farming, or other wealth producing activities.
And again, what has Obama done to increase our ability to produce energy?…solar panels, wind mills, and inflate your tires!
John, I’ll leave the research and studies up to you.
“Almost every policy initiative of the Obama administration has been anti-investment, anti-work, anti-production and therefore, anti-growth.”
I find your deductions incorrect, considering the U.S. investment recovery (DOW), lowered unemployment rate, high corporate profits and National Output increases, GDP and personal income recoveries … all under the current administration. http://bea.gov/index.htm
The article depicts a lot of anxiety over the expiration of a simple 4.6% temporary tax break.
Growth is essential, without it we would never improve our life standards. We have to understand the importance of growth in our economic future, without it no one will have a better future. We have to dismiss the belief that when someone progresses, they are taking away from someone else’s progress. Progress is not a zero sum game, and until we don’t reject this ideology, there is no way for the world to have sustainable future. Those who oppose the progress of few are opposing their own progress.
This is exactly how the current administration hinders their own progress. Take from the rich, give to the poor, and let the government spend spend spend.
But according to the Keynesian economics, government spending will increase GDP. Basically we can think of the government taking away from the rich money that they don’t want to spend, and spend it on their behalf. Is it the right thing to do? I am not sure, but if there has been growth, I don’t oppose.
The problem why we haven’t focused on growth is because we give it partisan connotations. If we just focus in achieving growth, regardless of the party that leads us to it, we will have a better standard of life. Our nation benefits from economic growth and from the poorest to the richest, benefits from the increase. Let’s focus on growth, regardless of means; we are seeking the same goal.
“Almost every policy initiative of the Obama administration has been anti-investment, anti-work, anti-production and therefore, anti-growth.”
But also pro-redistribution of wealth. They see growth as trying to level out the playing field, but truth growth is through economic growth. The government could learn a thing or two from this blog.
“Seventy-two of them, on the other hand, showed that taxes negatively impacted economic growth.”
Lower taxes = positive economic growth? Imagine that.
“Provided our descendants don’t do dumb things and stop this miracle from continuing to produce its bounty, the future just gets better and better.” That is a big assumption. If you look at the new generations, you lose hope. The “millennials” are a generation of entitled, they believe that they deserve things; they don’t work hard to achieve them. Previous generations are characterized for working hard, and for that reason we have seen economic growth, let’s hope that the next generations focus on growth and understand that the only way to achieve it is through hard work. Regardless of policy, without hard work there wouldn’t be economic growth.
The younger generation are always labeled as being entitled and don’t work hard. But who are benefitting most from ObamaCare and Social Security? The parents of the millennials. Who refuses to keep up with the advancement of technology? The parents of the millennials. Who is going to end up paying for all of their parents generation spending? The millennials. If any generation is suppressing economic growth, it is the baby boomers, who were given everything on a silver platter.
Seems to me that an individual, family, city, state or country’s standard of living is directly related to its ability to produce goods and services that others will purchase. Government can only take from those producers and give to the unproductive, it can not produce anything itself. By giving to those who don’t produce it further inhibits their interest in being producers. Of course, every ideology wants to help those aged, blind and disabled and those who truly can’t add to wealth creation.
In our national case, Uncle Sam needs a second job if we are to maintain or improve our standard of living for all. Maybe energy?, food production?, may be entrepreneurial creativity?
Dr. Goodman is right. But “Economic Growth” has a huge problem as an anti-poverty program–it doesn’t provide jobs for government bureaucrats and union members who vote Democrat, and it rewards hard work and entrepreneurship, not politically-favored Democrat constituencies. This is why progressive government works against economic growth. I will link to this from my Old Jarhead blog. (www.tartanmarine.blogspot.com)
Robert A. Hall
USMC 1964-68
USMCR, 1977-83
Massachusetts Senate, 1973-83
Author: The Coming Collapse of the American Republic
All royalties go to help wounded veterans
For a free PDF of my 80-page book, write tartanmarine(at)gmail.com
Isn’t it science and engineering that makes it possible? Government can help or hinder, but without tech you are just shuffling the deck.
Dear John and everyone:
What now creates value well beyond the investment of resources? It’s knowledge.
What distinguishes our phase of civilization from those that came before is an abundance of ways to distribute knowledge, not only from one generation to the next, but from one person to the next in real time. Knowledge flows produce wealth flow, well beyond that likely of an investment of labor, or of money or of land.
One thing that government aims to do is freeze knowledge where it is now in the form of regulations that are impervious to timely amendments. I’m encouraged when I see children and young people so comfortable with the computer, with self-guided research, and with management of masses of information that they find themselves . Already this is leading to a reduction in the parochialism of the past to acceptance of the nature of global civilizations, from those that are still basically subsistence or tribal advanced to more advanced societies. What liberals do not get is that these levels of civilization cannot be brought up to a modern level through taking down the more advanced societies. Would there ever be a regulation forbidding people from acquiring PhDs, assuming that gave them an unfair advantage over people who don’t get them?
Fore more on these principles, turn to a discipline named “Spiral Dynamics” which reflects the research of a psychologist named Clare Graves, and now taught by a modern psychologist named Don Beck. DEB@spiraldynamics.com
Remember, knowledge is an asset, and one can increase it without anyone’s permission, at least in Western societies. Personal media will be the key that turns the locks now holding back women in repressive societies. That has to occur so that they have a potential for a life without having a child a year.
Liberals, if you really want to help low income people, give their children iPods.
Wanda J. Jones
San Francisco