Tag Archives: Wealth

News

Why are Egyptians wealthier in America than they are in Egypt?

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Walter Williams
Walter Williams

This is from Walter Williams, my second most favorite economist after Thomas Sowell.

Excerpt:

Why is it that Egyptians do well in the U.S. but not Egypt? We could make that same observation and pose that same question about Nigerians, Cambodians, Jamaicans and others of the underdeveloped world who migrate to the U.S. Until recently, we could make the same observation about Indians in India, and the Chinese citizens of the People’s Republic of China, but not Chinese citizens of Hong Kong and Taiwan.

[…]Much of Egypt’s economic problems are directly related to government interference and control that have resulted in weak institutions vital to prosperity. Hernando De Soto, president of Peru’s Institute for Liberty and Democracy (www.ild.org.pe), laid out much of Egypt’s problem in his Wall Street Journal article (Feb. 3, 2011), “Egypt’s Economic Apartheid.” More than 90 percent of Egyptians hold their property without legal title.

De Soto says, “Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called ‘dead capital’ — property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor.”

Egypt’s legal private sector employs 6.8 million people and the public sector 5.9 million. More than 9 million people work in the extralegal sector, making Egypt’s underground economy the nation’s biggest employer.

Why are so many Egyptians in the underground economy? De Soto, who’s done extensive study of hampered entrepreneurship, gives a typical example: “To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.”

Poverty in Egypt, or anywhere else, is not very difficult to explain. There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.

Some people use the excuse of colonialism to explain Third World poverty, but that’s nonsense. Some the world’s richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world’s poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it’s bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world’s most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world’s richest nations.

What is necessary for wealth is a capitalist economy, that emphasizes the rule of law, private property, judicial restraint, limited government, etc. Egypt has none of those, and that’s why Egypt is poor. India and Chile used to be like Egypt, but then they revamped their societies to be more like America. Now India and Chile are more prosperous. Economics is not rocket science.

Capitalism creates wealth, and raises the standard of living of the poor and the wealthy. It doesn’t matter what rung of the social ladder someone is on – as long as they can keep what they earn, instead of having it redistributed by socialists, then they will work hard to create something of value to share with others. Poverty is caused by economic ignorance.

More Walter Williams stuff here, and more Thomas Sowell stuff here. These are the clearest-thinking economists operating today.

Commentary

Should Christians support wealth redistribution as a way to alleviate poverty?

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Here is an article by Jay Richards for the American Enterprise Institute.

First, his introduction:

If you’re like me, when you think of wealth and poverty, you picture its material manifestations. To have wealth, we imagine, is to have money, stocks, real estate, or valuable commodities, which, in turn, gives us the means to achieve various material ends, such as food, clothing, cars, housing, and healthcare. Poverty, in contrast, is the lack of such goods, which, in turn, leads to a lack of food, shelter, basic medical care, and other such items. These mental associations can make it hard to discover the preconditions of wealth creation, many of which are immaterial, even spiritual, rather than material.

For most of human history, discovering the sources of wealth creation would have been devilishly hard, since most economies, such as there were, tended to be static. If a Mesopotamian farmer or Greek shepherd in the second century BC ever asked, “Where does wealth come from?” he would have assumed that wealth came from rain, common labor, good luck, or some combination of these. He probably also would have assumed that to get really wealthy, you need to plunder other people.

But we now have concrete examples of cultures that have created vast new wealth, moving the majority of their citizens from poverty to relative prosperity. And when we look at these cultures retroactively, we discover answers that, for most of us, are counterintuitive. I’ve argued elsewhere that we’re able to discern ten crucial features allowing such cultures to alleviate poverty and create wealth. The more of these a culture has or does, the more likely it is to be prosperous.

The Top Ten Ways to Alleviate Poverty

  1. Establish and maintain the rule of law.
  2. Focus the jurisdiction of government primarily on maintaining the rule of law, and limit its jurisdiction over the economy and the institutions of civil society.
  3. Implement a formal property system with consistent and accessible means for securing a clear title to property one owns.
  4. Encourage economic freedom.
  5. Encourage stable families and other important private institutions which mediate between the individual and the state.
  6. Encourage belief in the truth that the universe is purposeful and makes sense.
  7. Encourage the right cultural mores.
  8. Instill a proper understanding of the nature of wealth creation and poverty.
  9. Focus on cultivating your comparative advantage rather than protecting what used to be your comparative advantage.
  10. Work hard.

There is a striking correlation between societies that exhibit these traits, or some subset of them, and the large-scale wealth creation. But notice that only one of them describes a material good. All the others are intangible, immaterial, spiritual. You can’t find economic freedom or cultural mores on a map or put them in a safe. You can’t bottle diligence or weigh the ingredients for stable families and voluntary institutions on a scale. These goods involve beliefs, social conventions, institutions, commitments, virtues, and creativity. Having listed them in brief, now I want to hold each of the ten immaterial ingredients up to the light and consider how each helps a society move from poverty to prosperity.

If someone has a spiritual or moral sickness that is preventing them from working, then the solution is not to hand them someone else’s money. That’s not going to make them happy. They need to earn their own pay and be responsible for their own independence.

Family Research Council lecture

Here’s a lecture that Jay Richards did for the Family Research Council, on the topic of Christianity and Economics. It’s a very good lecture that discusses some basic economic principles and some common economics myths. You can also listen to the MP3 file, but it’s 60 megabytes.

UPDATE: Letitia also put up a post on Christianity and socialism today.

News

Fewer people are paying taxes because fewer people are married

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Here is an interesting essay from The Family in America.

Here’s the problem:

Just two days before Tax Day this year, the Heritage Foundation was quick on the draw with a Backgrounder by Curtis S. Dubay citing IRS data showing that the bottom 50 percent of tax filers pay less than 3 percent of all income taxes. According to Dubay, “the rapid increase in the number of nonpaying tax filers caused by tax credits is leading the country to a dangerous tipping point.” Like other conservatives and libertarians, he fears that once the bottom half of tax filers pay no taxes whatsoever, they “could vote themselves an increasing share of government benefits at no cost to themselves.”

And here’s what’s causing the problem:

More important, this relatively new concern about the growth in the number of Americans paying no income taxes overlooks the social roots of the problem, particularly the decline of the most economically productive segment of the population: the married-two parent family.5 Consequently, few economic conservatives seem willing to connect the dots between the changing demographics of the American taxpayer, which Hodge at least acknowledges,6 and the growth of Americans paying no taxes. They seem more eager to blame the latter on the addition and expansion of refundable credits, especially the child tax credit, not changing demographics. Yet Roberton Williams of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, estimates that married couples are far less likely to be non-taxpayers in 2009 than single filers or head-of-household filers. In this last category, his model shows 72 percent paying no income taxes, the highest percentage of all tax filing categories. Only 38 percent of married-joint filers, and 26 percent of married-separate filers, pay no taxes.7

Indeed, the Tax Foundation’s own analysis of IRS data documents the decline in the proportion of married filers from 65 percent of returns in 1960 to 41 percent in the years 2000–02, and the dramatic growth of head-of-household filers, representing largely unwed mothers, from 2 percent to 15 percent during the same period. Moreover, looking at data from 2002 returns, the foundation finds that married couples, while they file less than half of all tax returns, pay nearly three-quarters of all income taxes paid by the American people.8 Even though the analysis does not include changes that might arise from the doubling of the child tax credit to $1,000 in 2003, the numbers nonetheless suggest that the growth in the number of Americans who pay no income taxes is driven more by the retreat from marriage than by the proliferation of credits in the tax code, as problematic as that might be. The numbers further suggest that if conservatives are serious about tax reform, they can no longer ignore the elephant in the room—the retreat from marriage and family life—that undermines the very economic growth they seek. Nor can they presume that a flatter tax system with lower rates and a wider base, favored by the  libertarian wing of the GOP, will lead to smaller government, as analysis by economist Gary Becker shows that countries with flatter tax systems tend to have larger governments.9 They must therefore be open to tax reform proposals that recognize the natural family as the social and economic ideal as well as reinforce the recovery of marriage and the child-rich family—not economic growth for its own sake—as centerpieces of American life.

This is yet another reason for fiscal conservatives to take notice that you cannot have economic growth if the traditional family is replaced with single-mother families. Single motherhood is not a situation where men are responsible and work hard as providers. It infantilizes men and rewards them for acting like nomads and barbarians. And the children who are raised without fathers are not going to be as mentally healthy or productive as the ones raised with fathers. The traditional family, with children raised by biological parents who are attached to them, is an important part of future economic growth. It’s all linked together – social conservatism and fiscal conservatism.