The Miracle of Capitalism
Part IV: Capitalism and Poverty
by Loyal to the Word


         The aims of many collectivists are actually quite noble. Ultimately, what the liberals and socialists want to see is for the poor people of society to prosper. They must rack their brains trying to understand how individualists who advocate capitalism can be so callous and uncaring as to ignore the plight of the poor. What’s the matter with these capitalists, they would ask, don’t they want to help people? Buried in this mindset, is the assumption that the best and most appropriate way to help people is by enacting a government program of force and coercion to equalize incomes to an arbitrarily desired extent. But is this assumption correct? Can the government make society more prosperous than the free market?

            Ezra Taft Benson taught:

 

“…material gain and economic security simply cannot be guaranteed by any government. They are the result and reward of hard work and industrious production. Unless the people bake one loaf of bread for each citizen, the government cannot guarantee that each will have one loaf to eat. Constitutions can be written, laws can be passed, and imperial decrees can be issued, but unless the bread is produced, it can never be distributed. Why then, do Americans bake more bread, manufacture more shoes, and assemble more TV sets than Russians do? They do so precisely because our government does not guarantee these things. If it did, there would be so many accompanying taxes, controls, and regulations and political manipulations, that the productive genius that is America’s would soon be reduced to the floundering level of waste and inefficiency now found behind the Iron Curtain. And I’ve seen it with my own eyes in several countries.”

(Ezra Taft Benson, “The Proper Role of Government,” BYU Speeches, 1968).

 

            It is apparent therefore, that the ends sought by most collectivists do not differ widely from individualists who advocate the capitalist system – both are seeking to maximize prosperity. Both would like to see the poor become wealthier. It is not a difference of ends, therefore, but chiefly a difference of means – how shall this actually be accomplished? Which method is really actually more effective for raising the standard of living – the free market capitalist system, or the myriad of government intervention schemes?

 

The Miracle of Capitalism Part IV: Capitalism and Poverty

         The last installment of the Miracle of Capitalism discussed how the principles of capitalism have created unprecedented prosperity, and has analyzed the secret of how this is done. Part IV of the Miracle of Capitalism: Capitalism and Poverty, will follow logically from there and discuss the issue of poverty in society, what the most appropriate way to deal with it is, and what the most successful method has been historically.

 

America the Prosperous

            In the last video installment we saw how America became the most prosperous nation under heaven precisely because of the free market capitalist system. This means that the standard of living of all groups of people in America was dramatically better than those of comparable social classes in other countries. The poor of today are in many important ways living far better than the rich of a few hundred years ago, because of the innovation made possible by free enterprise. And people we might today consider to live in poverty often drive cars, have television sets, and have plenty to eat. In fact, among America’s poor there is an obesity problem, not a starvation problem. We need to keep this in perspective when we’re discussing the problem of poverty in America.

            Nevertheless it is true that there are many who are living in deplorable circumstances. There are many who need help. All is not perfect in America, and never was. There have always been the poor. However, America’s poor were and are by far, much better off than the poor of other collectivist nations who have yet to unleash the productive capacities of the capitalist system. [show picture of Africa]

            Despite what liberals and socialists would have you think, capitalism is by far the best system to care for the poor and increase their quality of life. It is precisely because they want to really help the poor that many capitalists advocate the free market system, because they know that it cannot be accomplished under the myriad of government programs.

 

The War on Poverty

            In 1964, President Lyndon B. Johnson introduced to Congress his “War on Poverty,” which amounted to an unprecedented, large-scale deluge of government welfare programs to combat poverty in America, a program and general change of outlook for the country that never really went away since. Rather that combating poverty through the sure method of productive enterprise through free-market capitalism, the issue would now be dealt through sheer government fiat. What was the result?

         After the Great Depression and through the 1960’s, poverty in America was steadily decreasing due to the relatively untrammeled capitalist system.

         President Johnson’s War on Poverty did not receive its major funding until the late ‘60s. At this point, poverty stopped decreasing, and progress virtually flat lined. As time progressed, poverty began to worsen. No matter the amounts of money thrown into such various programs, they have not been successful in reducing poverty.

         As you can see on this next graph, the amount of money thrown at various welfare schemes has increased exponentially. And yet poverty is not declining anymore since the government has decided to step in and intervene with its War on Poverty.

[Charts obtained from Washington Post article: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/11/poverty-in-the-50-years-since-the-other-america-in-five-charts/ , although the author of this particular article astonishingly draws opposite conclusions, and it is clear from comments that appear below the article that his reasoning was unconvincing to many]

 

The Reality of the Situation

         Government is totally incapable of making life prosperous for society as a whole. The government cannot raise the standard of living for all groups of people. All it can do is make some people’s lives richer by making others’ lives poorer. Only capitalism can raise the standard of living for all people simultaneously.

         Welfare schemes are destructive and do not work, despite all the good intentions and high hopes of liberals and socialists. Keep in mind that when someone is on welfare, they are not productive. They are draining resources from other people who are. And so many of these people receive the equivalent of a lower paying job to do nothing. They are being paid for not working. This means that not only is the welfare recipient not producing, but the financial resources taken from the economy to give to them for doing nothing will not be able to be used in production, either. Therefore welfare is doubly anti-productive, and therefore impoverishing generally.

         Journalist and economics expert Henry Hazlitt noted:

 

“…all schemes for redistributing or equalizing incomes or wealth must undermine or destroy incentives at both ends of the economic scale. They must reduce or abolish the incentives of the unskilled or shiftless to improve their condition by their own efforts; and even the able and industrious will see little point in earning anything beyond what they are allowed to keep. These redistribution schemes must inevitably reduce the size of the pie to be redistributed. They can only level down. Their long-run effect must be to reduce production and lead toward national impoverishment.”

(Henry Hazlitt, The Conquest of Poverty, 2007, p. 143-144).

 

         Likewise Ludwig von Mises wrote:

 

“Assistance to the unemployed does not dispose of unemployment. It makes it easier for the unemployed to remain idle. The nearer the allowance comes to the height at which the unhampered market would have fixed the wage rate, the less incentive it offers to the beneficiary to look for a new job. It is a means of making unemployment last rather than of making it disappear.”

(Ludwig von Mises, Human Action, Pocket Edition, p. 770).

 

         The government programs created to fight poverty or improve social conditions themselves impose enormous costs to maintain the huge bureaucracies necessitated by them. This necessarily draws resources away from private enterprise, and therefore reduces production, and standard of living. Therefore the programs to help poor people themselves make people poorer! Such programs, by their nature, are self-defeating. One news article reported that the government spent so much on the bureaucracy of these welfare programs that it could have actually mailed to each poor family a check of almost $60,000. Yet, it is clear that each poor family received nowhere close to that amount of money, value, or benefit. If they did, they would all have been raised up to the middle class instantly. (http://cnsnews.com/news/article/report-enough-spent-welfare-programs-2011-write-every-poor-household-59523-check)

         Government programs actually perpetuate poverty. They have the very opposite effect of their intentions. But at the same time, they are very predictable in that people respond to such handouts by complying with the terms that they are contingent on. For example, welfare programs reward people for not being productive. Therefore indeed because of that fact, certain people will decide to not bother with the hard work entailed in being productive and simply sit back and receive the handout. Often government programs reward people for having broken homes with no father, and therefore young women will get pregnant out of wedlock without any intention of keeping a father around, to lay claim to the government’s promise to take care them. Of course, this contributes to the disintegration of the family. Were there no incentive for these lifestyles and behaviors, you can bet that more people would seek to be productive and seek to do what they needed to do to keep their family solidarity intact.

         The Book of Mormon discusses the evil inherent in providing the people with the government dole, in its relation of the societal ills that plagued the Jaredite nation:

 

“And it came to pass that Akish begat other sons, and they won the hearts of the people…

“Now the people of Akish were desirous for gain, even as Akish was desirous for power; wherefore, the sons of Akish did offer them money, by which means they drew away the more part of the people after them.”

(Ether 9:10-11).

 

         Under the system of capitalism, the poor do not stay poor like they do with government programs. Instead, they move up the income ladder, gradually, to where they are no longer low income earners. While it may be true that a certain percentage of people can be consistently relied on to be poor, it is not the same people who are always in that group, because they are working their way up. This is called income mobility (see Fraser Institute). And anyway, government programs have not been successful in eliminating the percentage of poor. Instead, they increase it by creating incentives for more people to go on welfare.

 

The Success of Voluntary Charitable Giving

         Government programs are not the only, and certainly not the best, way to provide for the poor. It used to be that a better way was used to help the poor. People organized voluntarily on a broad scale into charitable associations and took care of each other with efficiency and caring that the government dole has never duplicated.

         Milton Friedman stated:

 

“The capitalist system – the private enterprise system – in the nineteenth century did a far better job of expressing that sense of compassion than the governmental welfare programs are today. The nineteenth century, the period which people denigrate as the high tide of capitalism, was a period of the greatest outpouring of eleemosynary and charitable activity the world has ever known. And one of the things that I hold against the welfare system most seriously is that it has destroyed private charitable arrangements which are far more effective, far more compassionate, and far more person-to-person in helping people who are really, through no fault of their own, in disadvantaged situations.”
(Milton Friedman in “Free to Choose Part IV: From Cradle to Grave,” 1980).

 

         It is hardly coincidental that during the time and place of the most unrestrained free market capitalism was also the time and place of the greatest outpouring of charitable activity the world has ever known its history. But now because of government welfare, private charities have diminished. Also, since people are taxed so heavily, they have very little left over to give anyway.

 

The Contrast between Voluntary Giving and Government Welfare

         Voluntary charitable giving is far superior to the government dole. Surely this is the method that Christ wishes for us to employ, not the coercion and disaster of government welfare. When the voluntary Church welfare program was instituted the First Presidency declared, “Our primary purpose was to set up, insofar as possible, a system under which the curse of idleness would be done away with, the evils of the dole abolished, and independence, industry, thrift, and self-respect be once more established amongst our people. The aim of the Church is to help people to help themselves. Work is to be re-enthroned as a ruling principle in the lives of our Church membership.” (Conference Report, October 1936, p. 3).

            There is a stark contrast between voluntary charitable giving and the disaster of government welfare.

Conclusion

            Without a doubt private charity is far superior to government welfare. In fact government welfare is a unfortunate scourge upon society, leading to a myriad of social ills and is entirely incapable of eradicating the problem it is intended to solve. Indeed, it makes the problem of poverty worse. The best solution to poverty is, and always has been, the free market.

 

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