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Wednesday, March 19, 2008

The Rich and the Poor

Once again we hear the cries to tax the rich, to make the greedy corporations share their profits, that the number of people living in poverty is criminal and that the government should do something to alleviate the suffering of the poor. These cries to help the poor are delivered with heartfelt emotion and with such passion that it appears that the poor among us have just been discovered. These cries to help the poor take many forms and among them we see concerts held to raise money to save the family farm. We see charitable organizations like Habitat for Humanity building homes for the poor. There are various government programs already in place to help the poor and indigent, there even re-training programs offered by both private industry and the government, yet year after year we hear these cries to help the poor and more needs to be done. Perhaps it is time to step back and conduct a critical review of the situation, but first perhaps a little historical perspective is in order.

From 4000 BC until 1800 AD the larger portion of the population was devoted to agriculture with a small proportion of the population occupying themselves with trades, government, and the military. Effectively the population was divided into the rich and the poor with the greatest majority being the poor. The stark reality is that farming has always been a subsistence living and only the largest farms could generate enough income to allow for expansion, which enlarged the size of the farm and the income. The large farms evolved into estates and the children climbed the ladder of success reaching senior government posts and aristocratic status, the smaller family farms remained as they were and yielded a subsistence living. Occasionally the sons of these subsistence farmers were join the military and rise through the ranks to positions of great power. Obviously it can be concluded that the family farm provides for a solid family structure and solid foundation for nation states, it does not lend itself to wealth generation or career opportunities for the children. It can further be concluded that society naturally separates itself into the rich and the poor or the haves and have-nots. But if some of the have-nots are able to rise just as some of the haves fall into poverty then the people in these categories are not forever fixed there like the Indian caste system, then it can be concluded that a person’s situation in life to some extent is self-determined.

But if the poor have always existed and in all likelihood will continue to exist, why hasn’t someone or some government solved the problem? Well there have been numerous attempts to solve the problem of poverty. The Gracchi in Rome observed that there was a large number of unemployed in Rome who were subsisting on the state while slaves were tending the fields. Their attempts to reduce the number of slaves tending the crops in an effort to provide more employment to the unemployed in the city resulted in the mob killing them. Since that time there have been numerous efforts to reduce poverty and unemployment through various redistribution programs. The French Revolution was an attempt to establish an egalitarian society, which failed and gave rise to Napoleon. Then there was the Russian Revolution and the rise of Marxism which also failed, although there continue to be many determined Marxists who insist that the failure of Communism was not in the philosophy but in the execution. Jack Kennedy established the Peace Corps which was an attempt to alleviate the condition of the poor in various foreign countries. Whether or not this was a successful program can be debated but there is no doubt that the poor throughout the world still exist. Closer to home President Johnson declared a “War on Poverty” and attempted to establish “The Great Society” which was a program fueled by taxation. This was a huge welfare program intended to improve the lives of the poor which collapsed under its own weight and left a legacy of welfare recipients that now span generations.

After all of these failures to help the poor it would seem obvious that wealth redistribution punishes the rich but does not reduce poverty or the number of the poor. However, to those people who know precisely how the rest of us should live and who seem to abound in every time period, they are once again determined to reduce poverty by taking wealth from those who earned it and give it to those who – in their opinion – deserve it even though they have done nothing to earn it. The complaint is that the number of poor people – not necessarily the poverty stricken but just the “poor” is increasing while the wealth is being concentrated in fewer and fewer hands. It is their idea that corporations should be responsible to their employees rather than to their shareholders seems to be one of the cornerstones of those who are seeking to remake the world of economics. The reality is that most of those employees also own stock in the corporations in the form of mutual funds, common stock, or 401(k)’s. The idea that corporate profits should be returned to the investors rather than to the employees in the form of bonuses and profit sharing is fundamental to their view of economics. The reality is that it was the investors who took the risk and it was their capital that allowed the company to create the jobs that those employees hold. To strip the corporations of their profits may give an immediate boost to the employees but in the long term it will result in fewer jobs as the corporation cannot upgrade equipment, expand the business, or even effectively compete. The basic premise in this philosophy is that the objective of business should be employment and not profit. This is the very foundation of socialism and it had always resulted in stagnation, high taxes, and a lower standard of living.

Currently Hugo Chavez, the President of Venezuela is in the process of redistributing the wealth. He has nationalized business, seized foreign assets, and fixed prices, all in an effort to improve the lot of the poor and improve their standard of living. Of course the result has been just the opposite as goods become scarce, black markets grow, and prices soar. While a laissez faire market may not be necessary for prosperity any plan to redistribute the wealth to alleviate poverty is doomed to failure. The poor are poor for a reason and universally that reason is not the luck of the draw but the result of their decisions. The government might mitigate their suffering but solving the problem of poverty cannot be done by government, the solution is in the hands of the poor themselves.

1 comment:

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