Category: Business and Society

Washington Post columnist Robert J. Samuelson discusses a new book on economic history that looks at the poverty problem from the perspective of “nature vs. nurture.”

Comes now Gregory Clark, an economist who interestingly takes the side of culture. In an important new book, ” A Farewell to Alms: A Brief Economic History of the World,” Clark suggests that much of the world’s remaining poverty is semi-permanent. Modern technology and management are widely available, but many societies can’t take advantage because their values and social organization are antagonistic. Prescribing economically sensible policies (open markets, secure property rights, sound money) can’t overcome this bedrock resistance.

“There is no simple economic medicine that will guarantee growth, and even complicated economic surgery offers no clear prospect of relief for societies afflicted with poverty,” he writes. Various forms of foreign assistance “may disappear into the pockets of Western consultants and the corrupt rulers of these societies.” Because some societies encourage growth and some don’t, the gap between the richest nations and the poorest is actually greater today (50 to 1) than in 1800 (4 to 1), Clark estimates.

Samuelson notes that “Clark’s theory is controversial and, at best, needs to be qualified.” In his column, The Global Poverty Trap, Samuelson summarizes Clark’s view: “Capitalism in its many variants has been shown, he notes, to be a prodigious generator of wealth. But it will not spring forth magically from a few big industrial projects or cookie-cutter policies imposed by outside experts. It’s culture that nourishes productive policies and behavior.”

Blog author: jspalink
Wednesday, October 24, 2007
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Anthony Bradley offers a rave review of the new book published by Bill Cosby and Dr. Alvin Poussaint of Harvard Medical School, Come On People: On The Path From Victims to Victors. “Cosby and Poussaint remind us that black America’s hope for escape from abysmal self-destruction is moral formation — not government programs or blaming white people,” Bradley writes.

Read the full commentary here.

Blog author: eschansberg
Saturday, October 6, 2007
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Well…except Goliath is mostly a good guy too– and he’s the one putting rocks in the air– and David got beat in this case by the government.

From yesterday’s (Louisville) Courier-Journal, Charlie White and Sara Cunningham report on the stand-off between homeowner David McCarty and the local Wal-Mart under construction in Lebanon, KY.

Complying with a court order, a Central Kentucky man yesterday ended his sit-down protest a few feet from a blasting site — part of the construction of a Wal-Mart development adjacent to his property. As dusk approached, David McCarty took refuge in his house just outside Lebanon before workers set off the dynamite near his back fence.

On Wednesday, weary from months of the nearby construction work and angry over what he said was damage to his property, McCarty had been determined to keep Wal-Mart from detonating the dynamite to make way for a water line…

The explosions occurred about 5 p.m., ending an exhausting couple of days for the family, whose members say they dealt with daily noise, dust and debris for about four months before deciding to take action…

The police couldn’t intervene in the stand-off because neither side is breaking the law, said Shelton Young, chief of the Lebanon Police Department.

“There was no legal basis for us to make him go in or stop (construction workers) from detonating,” Young said. “The homeowner was just as cordial and courteous as could be to the officers and to the Wal-Mart construction people. The workers weren’t aggressive either. We stayed for a couple hours to make sure everyone was keeping friendly and then we left.”…

The McCartys, who have lived at 2040 Campbellsville Road just outside the Lebanon city limits for 10 years, are now surrounded on all sides by the development.

“They are literally on an island in a sea of construction,” Spainhour said of his clients. “You can’t stand in his yard without getting covered in dust.”…

McCarty said he is eager to sell his property. “I want out of here,” he said in an interview late Wednesday night…he gave a quote for the land to Wal-Mart officials, but would not specify the amount. He acknowledged that the quote was more than the property is worth.

“It may not be worth it right now, but when the new Wal-Mart is up and running, it will be worth every penny,” he said.

Beyond an interesting story, economists would point to the “externalities” involved here. This is a case where one party causes damage– and benefit– to another party. Wal-Mart is damaging McCarty by lowering the value of his property in the short-term (e.g., he can’t sit in his back yard when they set off the dynamite) and helping him by enhancing the value of his property in the long-term (his land is worth much after a Wal-Mart is next door).

But in addition to Wal-Mart’s impact on McCarty, the latter can mess with the former– whether by sitting in his lawn chair or by demanding an artificially high price for his land (or going inside his house while they blow things up). Once Wal-Mart bought the property next to McCarty, he gained tremendous bargaining power over the company and the control of its land!

At least in theory, all of this could have been handled privately. I suspect that WalMart and McCarty could have reached a contractual agreement that was mutually beneficial. When that didn’t/couldn’t happen, the matter must be settled by some aspect of government. The police (as enforcement officers of the State) had no jurisdiction since no laws were being broken. So, it was left to a judge’s interpretation.

How hard did David and Goliath work to avoid the stand-off? It’s not reported. But in this case, a market solution was available before people started throwing stones.

(cross-posted on SchansBlog.com)

Samuel Gregg, director of research at the Acton Institute, has a piece in today’s Detroit News titled, “Will Quran limit growth of Muslim nations?” The commentary addresses the economic outlook of Muslims, and Islamic nations, considering their religious position against the charging of interest. Gregg notes:

Given the Arab world’s increasing religiosity, however, one potential obstacle could significantly handicap these nations’ financial creativity and economic diversification policies: Islam’s prohibition of interest-charging.

Gregg also briefly examines how Christians settled the moral dilemma regarding interest:

Christianity once had a usury issue. Christianity began resolving this matter in the medieval period. Scholastic theologians established that, under certain conditions (such as free exchange economies), money was not simply a means of exchange, but also “capital”: that is, a productive good whose owners could legitimately charge others for its use. Not all interest-charging, the scholastics concluded, constituted usury.

The problem and pain of poverty garners a prolific amount of attention in the Church today, and rightfully so. In Evangelical Christian Churches, poverty awareness, discussion, and action has risen to new heights. Much of this has to do with the rapid speed of communication, increase in education, and a reaction against social conservatives, who in the past, have emphasized much of their focus on more specific social and moral issues such as abortion.

While I was in seminary, during an annual event which was supposed to raise awareness of issues of poverty, some students pretended to be homeless, they lived in cardboard boxes and any form of materialistic – luxury was denounced. Much of the problem solving initiatives called for increased government regulation and programs to solve issues of justice and fairness in society.

Big corporations in some seminary classes were also denounced from time to time, mostly by the endless examples of Enron, the Arthur Andersen accounting firm, and of course anybody in “big oil.” In addition, some professors would throw in Halliburton because of its ties to the current Executive Branch. Another problem which was highlighted often on campus was Western exploitation of developing nations. Understandably, I did not agree with many of the caricatures of business and the endless stereotypes of institutions and people with capital.

Professor Mark Hendrickson of Grove City College, reminds us of the positive aspects business plays in reducing poverty. In his piece titled The Liberal Temptation, Hendrickson notes how the political left does a disservice to anti-poverty initiatives. A few quotes from the article are provided below:

The liberal approach to poverty is also rendered problematical by their anti-capitalist, anti-business mentality. Liberals regard themselves as the good guys for initiating government programs to help Americans of modest means, while disdaining businessmen as selfish, less-than-moral beings who are engaged in the selfish and morally inferior pursuit of profits. This is an unduly harsh assessment of businessmen; in fact, it is spectacularly ignorant and perversely unfair. A person may not like the daily tussle of business or individual businesspersons who behave abusively, and they are fully justified in being repulsed by illegal conduct. However, there is a vital historical fact that anti-business liberals generally overlook: business’ role in reducing poverty.

Throughout most of human history, the masses of human beings were wretchedly poor. Only in the last few centuries have large numbers of people climbed out of poverty. What has been the agent of such a fundamental change? Profit-seeking business. Since the dawn of the Industrial Revolution, business has lifted more people out of poverty than all the churches, charities, and government programs (national or multilateral—like the World Bank) combined. Look at the history of Great Britain, the United States, Japan, Hong Kong, Singapore, Chile, South Korea, and now China and India. Wherever you look, standards of living rise where business is allowed to flourish.

In contemporary Evangelical Christianity and in the political world there are a lot of poverty traps present. Too many Christians do not move beyond reactionary action for aiding and assisting the poor. One of the great characteristics of America is the number of immigrants who came here, with little or no material or capital wealth, and succeeded with their new life. One of the reasons there was such an abundance of opportunity was because of the lack of excessive regulation and taxation.

It’s important to take a look at Hendrickson’s article, because it’s a reminder just how much human initiative, free markets, and business plays a powerful role in reducing the sad state of human misery in the world. Often times, people who identify with a conservative world-view on economic issues are labeled as being against something, because they might be against a new government program, or a regulatory act. But this is simply not the case, if you are for free markets, deregulation, lower taxes, and other pro business initiatives, you truly are a part of the largest anti-poverty campaign in the history of the world.

Related to last week’s commentary and blog post, check out this WSJ piece, “Gates Crafts Long-Term Iraq Plan, With Limited Role for U.S. Forces,” in which Defense Secretary Robert Gates says, “My view is that whatever works economically ought to be tried.”

In college I wrote a paper for a Latin American Politics class titled, Barnum & Bailey Circus bailouts. The paper took the position that another financial bailout of Mexico would be a huge mistake and would not be money well spent. The paper was probably a little flippant because I interwove within the framework of the paper some characters with top hats, traveling bands of political circuses, and other outlandish theatrical symbolism. I was trying to make light of what I thought was a circus-like proposal, as well as rely on smoke and mirrors to downplay my lack of reading for the course.

There is nothing funny, however, about mortgage bailout proposals. Hillsdale professor Gary Wolfram has an excellent article in Human Events, titled “Econ 101: The Problem with Bailouts.” Wolfram shows how markets correct themselves, and even discusses the upsides to a now more affordable market:

As Sherlock Holmes told Dr. Watson in “Scandal in Bohemia,” one problem is that we see but do not observe. For every homeowner who loses his home and moves into a smaller home or a rental, there is another homeowner who moves into that home and out of a smaller home or rental.

It would be interesting if the media began doing stories on how much more affordable it is for people to move from rented apartments into owner-occupied homes. The house that used to cost $280,000 and was out of the reach of the young family is now $220,000 and becomes affordable.

If the federal government, including the Federal Reserve, bails out the mortgage industry in some fashion, the market will quickly learn that taxpayers will bear some of the risk of the investments of homeowners, lenders, hedge funds and other market participants. This will result in their taking more risk than is economically justified, encouraging the very activity that led to the situation of declining housing prices and foreclosures in the first place.

But if politicians keep rattling off vague proposals of bailout proposals in the belief it will raise their polls, they may have to think again. In an Associated Press article, J.W. Elphinstone, cites a newly popular online petition, Tax Payers Against a Wall Street and Mortgage Bailout. Furthermore, Peter Viles in the Los Angeles Times, references a Fox News Poll that shows 70% of the public against a taxpayer bailout.

Many of those people have been priced out of the market and understandably they don’t want to support people who cannot afford their homes, many of whom made really bad financial choices. The people against this bailout simply want back in the market, and they understand now the market is correcting itself.