Bernie Panders

    I’ve heard it pointed out, by Sanders in particular, that the US has a high rate of child poverty.  And of course poverty comes up in debate online quite frequently.  So it’s important to understand exactly what is being discussed.  I’ll be very brief, but you can find some very detailed, and very interesting, information in the articles I link you to here, and I strongly encourage you to check them out.

    Economically, poverty is defined as “the condition in which an individual’s basic (economic) needs are not being met.”  You are poor, in the strict economic sense, if you cannot afford to feed, clothe or shelter yourself.  This is not what most political candidates mean when they refer to poverty.  They are usually relying on one of two statistical definitions.  The US Census Bureau defines poverty statistically, stating that a certain percentile of the population falls below the poverty line.  The criteria they use are fairly opaque, however.  (According to their 2014 report, the poverty rate in that year was 14.8%, but they don’t explain their math.)  The Census Bureau doesn’t rely on what economists say about poverty because it is promoting an agenda, rather than hewing to economic reality, and that agenda is to establish a certain segment of the population as “poor” for purposes of apportioning government aid.  (Some sources, such as The Economist, use the bottom 10% as the poverty line.  This is also fairly arbitrary, but at least by sticking to that percentile year after year, you get a consistent picture of trends.  With the CB, the poverty rate varies from year to year.)  UNICEF also defines poverty statistically, but it does so using a very definite criterion:  60% of the median income.  If 60% of the incomes below the median in your country are higher than yours, then you are, by definition, poor.

    These conflicting definitions lead to some pretty astounding (some might say absurd) results.  The “poor” in the US, defined by either the CB or UNICEF method, are wealthier than the middle class in most European nations.  If we compare the poor in the US to the poor worldwide, the distinction becomes even more glaring.  Our poor equate to the upper class in most of the world.  (If you don’t trust the Heritage Foundation as a source, then check out what Forbes has to say instead.)

    At any rate, contrary to Sanders’ assertions, the United States does not have the highest rate of child poverty of the “major nations.”  I’ll quote Mises.org’s article here:

In this week's debate, Bernie Sanders claimed that the United States has the highest rate of childhood poverty. CBS reports that Sanders said: "We should not be the country that has the highest rate of childhood poverty of any major country and more wealth and income inequality than any other country,"

As even CBS notes, according to UNICEF, which is probably the source of Sanders's factoid, the US has lower childhood poverty rates than Greece, Spain, Mexico, Latvia, and Israel, all of which are OECD countries or regarded as peer countries. The US rate (32.2 percent) is also more or less equal to the rate in Turkey, Romania, Lithuania, and Iceland. See page 8 of this report.

So, while Sanders probably doesn't even know what he means by "major country" it's clear that the US is not an outlier among OECD-type countries, even by UNICEF's own analysis.

We get much more insight, though, once we have a look at what UNICEF means by "poverty rate." In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income. UNICEF uses 60% of median as the cut off. So, if you're in Portugal, and your household earns under 60% of the median income in Portugal, you are poor. If you are in the US and you earn under 60% of the US median income, then you are also poor.
The problem here, of course, is that median household incomes — and what they can buy — differs greatly between the US and Portugal. In relation to the cost of living, the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.

   

    Living standards, which the article touches on, can be defined mathematically.  The average GDP per capita is the average living standard for a nation.  So while the media marvels at the fact that China’s economy has “surpassed that of the United States,” what they’re talking about is its total GDP, which does, finally, now exceed our own; they neglect to mention that if you divide their GDP by their national population, you get a GDP per capita that is well below the US poverty line.  Chinese prosperity is rising, but it’s still almost entirely limited to the cities; the vast majority of the Chinese population is still rural, and still very, very poor.  And this gives you some idea of how misleading media reports can be.

    Although I could only stomach a few minutes of the Democratic debate, I was around long enough to hear Sanders blame the 2008 recession on the Republicans, which is specious, and to imply that the financial crisis created the recession, which is asinine.  The recession hit first, causing the financial crisis when millions of over-leveraged low-income families found themselves unable to make payments on their loans.  The recession was part of the business cycle, just one of dozens of downturns since the Federal Reserve began monetary operations in 1923.  It cannot be blamed on any party, nor on any president, nor on government per se (unless of course you’re willing to consider the Federal Reserve as a component of government).  Sanders is rightly lambasted for his economic ignorance, but I’m only going to touch on two items here.  The “soak the rich” mentality has been around for a long time, and easily gains traction with the poor, especially if they can be convinced that they’re poor because of the rich (which is never actually the case).  Henry Hazlitt, one of the leading economists of the first half of the 20th century, wrote a very succinct book, Economics in One Lesson, which I read about a year ago.  The lesson can be summed up as a single statement:  there are always unintended consequences for government economic policy, and these consequences usually swamp any benefit that is produced by that policy.  He makes this lesson in the first chapter of the book, and then devotes the remaining chapters to various illustrations, all taken from history.  (The canonical example is the use of government spending to “create jobs.”  The government can only “create” jobs by taking money from the private sector and spending that money where the private sector would not choose to do so.  The private sector, being subject to what Surowiecki calls “the wisdom of crowds,” is nonetheless much better at deciding where to spend money, so the government almost always not only fails to allocate those resources properly, it usually results in the creation of fewer jobs than would otherwise be created.)  Three of Hazlitt’s articles on the “soak the rich” mentality are presented in this Mises article, and they demonstrate the folly of attempting to correct the economy by soaking the rich.  (The gist of it is the Laffer Curve, which was proven during Mellon’s tenure as Secretary of the Treasury throughout the 1920s, and later by Reagan, Clinton and Bush II.  Cutting taxes can increase tax revenues.  The most contentious example is Bush II, because revenues ultimately fell under his administration.  However, if you track revenues following the Bush tax cuts, you’ll see that revenues actually increased at first.  They only fell after the recession hit, and this is the result of the loss of productivity that characterizes recession.)

    There are a couple of very short lectures on YouTube that can explain in greater detail.  Economics professor Antony Davies, in approximately 3 minutes, explains that there isn’t enough wealth in the entire economy to “tax the rich” into covering the deficit, even if we taxed them at 100% of their earnings.  (The government doesn’t have a revenue problem, in other words; it has a spending problem, since it spends more than it is possible to tax away from the taxpayers.)  UCLA professor Lee Ohanian, in five minutes, demolishes the notion that the rich “don’t pay their fair share.” 

    Bernie may actually believe what he’s shovelling, but since he has refused to debate Rand Paul on the economy, I doubt that.  I suspect he’s simply taking the populist road, and exploiting popular fervent for political gain.  

Whatever the case, he’s simply wrong.  If you add up all the programs that he has proposed, you get an astronomical number for the cost, a number that there isn’t enough money in our entire economy to cover.  It’s pure folly to assume that a socialized economy can come up with the difference, since socialism has a strong tendency to contract economies.  Hence Bernie’s second major misconception. 

    I’ll quote fee.org’s article here:

Debating why the economy is so sluggish is an American pastime. It fills the op-eds, burns up the blogosphere, consumes the TV pundits, and dominates the political debates.

It’s a hugely important question because many people are seriously frustrated about the problem. The recent popularity of political cranks and crazies from the left and right — backed by crowds embracing nativist and redistributionist nostrums — testify to that.

Sometimes it’s good to look at the big picture. The Economic Freedom of the World report does this with incredible expertise. If you believe in gathering data, and looking just at what the evidence shows and drawing conclusions, you will appreciate this report. It sticks to just what we know and what we can measure. The editors of the report have been doing this since 1996, so the persistence of the appearance of cause and effect is undeniable.

The report seeks measures of five key indicators of economic freedom: security of property rights, soundness of money, size of government, freedom to trade globally, and the extent of regulation. All their measures are transparent and heavily scrutinized by experts on an ongoing basis. If you question how a certain measure was arrived at, you are free to do so. It’s all there, even the fantastically detailed data sets, free for the download.

The report examines 157 countries with data available for 100 countries back to 1980. A total of 42 distinct variables are used in the index.

The big takeaway from this report: freer economies vastly outperform unfree economies by every measure of wellbeing.

The countries in the top quarter of the freest economies have average incomes more than 7 times higher than those countries listed into the bottom quarter (the least free). This is even true for the poor: the average income of the poor in free economies is 6 times that of the average in unfree economies. The lowest income group in free economies still 50% greater than the overall average is least free economies.

Life expectancy is 80.1 years in the top quarter as versus 63.1 in the bottom quarter.

The report further shows that civil liberties are more protected in freer economies than less free economies.

It’s a beautiful thing how this report puts to rest a century of ideological debates. Indeed, these results are not generated by political ideology. They are generated by facts on the ground, the real conditions of law, regulation, institutions, legislation, and policy.

The implications are screamingly obvious. If you want a country to grow richer, you have to embrace freedom in economic life. If you want to drive a country into poverty, there is a way: grow the government, destroy the money, shut down trade, and heavily regulate all production and consumption.

   

    It’s also worth pointing out that the United States, up until recently the world’s largest economy, and up until recently the world’s most free economy, doesn’t lag in the welfare department.  You can measure the nation’s contribution to welfare entitlements in three ways:  in absolute expenditure (the US has spent 3.7 trillion on welfare in the past 5 years), as a portion of federal budget (the United States spends a higher percentage on welfare than the European welfare states, as a group), and as a portion of GDP (the US outspends Canada, Australia, and many OECD nations); currently, the US spends approximately 1.5% of GDP on welfare.  Sanders’ insistence that we need to spend more on welfare is unfounded.  What we need to do is free the market up to alleviate poverty on its own.  This brings me to my last point, which I’ve mentioned in previous discussions.

    The market does a better job of alleviating poverty than the government does.  If we go back to 1959, the first year for which the government tracked poverty in detail, we find that the poverty rate was something like 21.7%.  Johnson’s Great Society programs began taking effect in 1964, just about 5 years later.  From 1959 to 1964, the poverty rate declined by some 4.6%.  That’s nearly a percentage point a year, and it happened without government intervention.  This is capitalism, working on its own, to lift people out of poverty.  But from 1964 through last year, the 50th anniversary of the War on Poverty, that rate declined by only another 5%.  Nearly five percent in five years, versus five percent over FIFTY years.  The government’s intervention in poverty slowed the rate of decline by a factor of TEN.  The reasons for this are fairly obvious to any critic of progressivism and the welfare state; the government has created perverse incentives that have swamped the traditional incentives that allowed the market to reduce poverty. 

    Anyway, I hope you check out the articles and internalize the information.  It’s going to matter when it comes time to vote.