The wrong anti poverty recipes of the left according to Deirdre McCloskey

30 November Nov 2016 1206 30 November 2016

Economist Deirdre McCloskey challenges the theories of liberal pundits such as Stiglitz and Piketty and takes a swipe at foreign aid and universal basic income.

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Deirdre Mc Closkey
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Economist Deirdre McCloskey challenges the theories of liberal pundits such as Stiglitz and Piketty and takes a swipe at foreign aid and universal basic income.

The liberal solutions to fight inequality and poverty reuduction championed by liberal economists are wrong. Deirdre McCloskey explains why to Vita International.

Joseph Stiglitz pronounced the “experiment” of the “market economy” over the past 30 years a failure. Is it true?

No, unless you think a doubling of world real incomes per head, a sharp rise in literacy and life expectancy, a dramatic improvement in access to drinking water, and on and on, all from liberal markets, is a "failure." Joe is a nice fellow, but believes that income comes from consuming more instead of producing more, and that restricting employment will raise the demand for workers, and that "struggle" is what explains rising real wages, and all manner of other fairy tales from the political left. The biggest "experiments" have been in China and India, which moved away from the policies Joe favors---slow, or fast, socialism---towards a market economy.
Even in the old countries, when the governments have not crushed market-tested betterment with regulation ("not": Ireland, Switzerland, the UK, the USA; but "crushing": Italy, France, Greece), real incomes measured to include quality improvements have risen. The longer "experiment"---Joe is a short-run sort of economist---is the new liberalism of Europe and its offshoots and then its imitators after 1800. Moving away from guilds and protectionism and mercantilist tales of aggregate demand arising from money flows raised the incomes of the poorest people in the countries that made the move by 3,000 percent. Not 300 percent, my dear students, but a factor of 30, near three thousand percent over the base in 1800. Thus Italy. Some "failure."

You say economists such as Thomas Piketty and politicians such as Bernie Sanders have been stressing the dangers of economic inequality. What do you argue?

I argue that, for one thing, important inequality has not increased. Equality of basic goods, such as housing and food and medical care and education, is much greater in Italy, say, than it was in 1960. For another, why would one care that Liliane Bettencourt, the richest woman in the world and one of Piketty's black beasts, has an absurdly large number of chateaux and yachts? I am sure that I don't. Only a silly and sinful envy would make one care. Her riches made no one poorer. For still another, Piketty and Sanders do not include the main capital in the modern world, human capital. They imagine we still live in 1848, the year of the Communist Manifesto, when indeed labor was uneducated and the bosses had all the land and factories. Now the significant factories are mainly inside your head and mine. We own them. For another, inheritance is a very small factor even in financial-asset inequality. For another, policies introduced to stop inequality routinely work to increase it. The Duke of Westminster just died, the richest man in England. Why so rich? Because restrictions on planning permission in London have made land rents soar---as his name implies, he owned much of the land on which London is built.

Piketty And Deirdre Mc Closkey

Deirdre McCloskey vs Piketty

However the gap between the rich and the poor keeps widening. Over half of the top 1% of the richest people in the world are from US, UK and Japan, a quarter of the poorest 20% are in India, shows Credit Suisse’s global wealth report. How do you explain it?

No it doesn't keep widening. You need to stop believing everything you read in the newspapers! The gap even inside countries such as Italy or the USA or France was vastly larger in 1800 or 1900 or 1950 than it is now, in terms that matter for people's lives. I explain your figures by pointing out that they are financial capital (bonds and the like), not human capital, which is much more evenly spread. And income earned from physical and human capital, as against wealth, is still more equally spread. And consumption again still more. You and the poor woman down the street can put on only one dress at a time. The significant change is that she now has more than one dress, even though you, shamefully, have thirty. Worldwide even the income gap between rich and poor has radical declined. If you arrange individual incomes in a Gini-coefficient manner, in the past 30 years inequality has declined sharply. Enriching Indians and Chinese explain a good deal of it, but these days even sub-Saharan Africa is growing.

If the problem is poverty, not inequality, how to fight it?

Bourgeois Equality

Deirdre McCloskey latest book

Yes, the great problems humanity faces are not inequality or environmental decay, despite what you read, or write, in the newspaper. The great problem is poverty. But let's stop using these leftist metaphors of "fighting," s.v.p. Running out into the street and shouting at people, much less kidnapping businessmen and murdering them (listen up, Antonio Negri.), is not how the workers get better off, economically or spiritually. They get better off by living in a better functioning economy. How to get it? As the businessmen or Paris said in 1681 when Colbert asked them what the government could do for them, "Laissez-nous faire." That was the "experiment" of the 19th century, to use Joe's term. Leave ordinary people pretty much alone, let them open shops or enter occupations, and you get gigantic betterment--electric lights, railways, radio, espresso machines, containerization, dropped ceilings, books, newspapers. Or as I put it in my books, what enriched us was the Bourgeois Deal: "Let me, une bourgeoise, start a business bettering some activity, and let me in the first act keep the profits (in the second act the irritating imitators of my success enter and spoil my profits), and in the third act I will make you [voi] better off, gigantically." And it happened, and goes on happening, if we let it.

Can foreign aid reduce poverty?

Foreign aid does not work. Read anything by William Easterly, the American economist who gave out foreign aid for decades at the World Bank. What helps is nothing "we" can do, except encourage foreign governments to stop sitting on top of their citizens and stealing from them and jailing them if they do better business. Liberalism enriches people. Most of the various governmental "programs," of which the Italian people have extensive experience with, result in autostrade to nowhere, so to speak. .

Universal Basic Income, UBI, has seen a surge in popularity over the last few years. The basic idea is that people should be able to receive a certain amount of money as a guaranteed source of income. Is it a viable solution to end poverty and inequalities?

A selective, only-to-the-poor minimum income is a fine idea, if we get rid of all the other "programs." Poor people are poor because they are poor. It doesn't end the inequalities that foolishly worry Piketty, but a basic minimum income---not for every Italian, but for those who are struggling, and an minimum income "taxed" gradually as the poor get more income from wages---would eliminate the worst of poverty. I repeat: poverty is the problem, largely solved already in places like Italy and the United States. The problem is not how many Rolexes Liliane Bettencourt has.

Recently, public attention has increasingly focused on the corporate tax dodging as a strategy based on the exploitation of gaps and divergences in tax rules in order to transfer profits to low or no-tax countries. The result? Cuts for essential public programs, from education, to health care, and to clean air and drinking water…

Yes, well, if you provide everything through the government, you are going to worry if the government does not get its taxes. But if the government is "governo ladro," then one can reasonably have another attitude.
I am amazed that all thinking Italians are not members of the liberal Istituto Bruno Leoni. If Italians were Swedish, with a competent and honest state, I would not wonder. But every sentient Italian knows that it is a terrible idea to send more money and power to Rome. Most Americans, especially in a corrupt state like my own Illinois, know the comparable truth. I am in favor of tax competition among countries, because I do not want the government to provide education, health care, clean air, drinking water, roads, and so forth. All these, even clean air, can be provided, with a few moderate taxes on carbon and some exclusively governmental activities such as going after the Mafia, by private firms. Clean water is widely provided worldwide by private companies. Sweden introduced in the 1990s educational vouchers for everybody. Le Autostrade could easily be privatized, with transponders in cars to pay the peak price. And so forth. I cannot weep that Ireland's corporate tax rate is lower than yours, or that of the USA---especially as every competent economist agrees the corporate taxes are double taxation and their incidence (that is, which people actually end up paying them) is utterly unclear, after seventy years of research on the topic.