poverty

How to Extirpate Poverty

Fred Foldvary Economics, Liberty , ,

To “extirpate” means to complete eliminate, from the Latin word meaning to pull out by stem and root. To extirpate poverty means to eliminate its cause, so that it does not come back. Fundamentally, poverty comes from a low wage level, so we need to examine what makes a wage level low.

The wage level of an economy can be thought of as the wages paid to unskilled people. Those with greater skill and talent get higher wages, so some think that the solution to poverty is better education. But a stagnant economy also depresses the return to human capital, the extra wage for those who are more productive. In a thriving productive economy, even those with few skills are better off than skilled labor in a depressed economy. Indeed, in an unproductive economy, those with skills often find little market for their human capital.

The wage level of an economy is set by marginal labor, those who work at the least productive land in use. The classical “law of wages” says that when workers are mobile, the wage at the margin of production will set the wage level for the rest of the economy.

The margin of production has several edges. There is the horizontal extensive margin of land that is just barely worth using, land so unproductive it fetches no rent. There is the vertical extensive margin of the space above a city, into which taller buildings can rise, without increasing the site rent. There is also the intensive margin of adding more workers to land already being used. The wage at the intensive margin will equalize to that of the extensive margin. Workers are paid what they add to production, which is called their marginal product. Continue reading →

National Economic Systems: An Introduction for Intelligent Beginners – 3

Jacques Delacroix Current Events, Economics, Liberty , ,

My Debt, your Debt and Future Poverty.

I told you in previous installments of this series of essays that we, in the USA, are not facing one economic crisis but two.

The fist crisis is a recession. It’s a common event in the long run of market economies. Recessions are defined by serious people (according to me) as two consecutive quarters or more of economic shrinkage. Recessions go away whether any government does anything about them or not. One school of thought (Keynesian), to which the Obama administration belongs, maintains that large government spending – stimulation- can lessen or shorten a recession. I argued that the Obama stimulus package of several months ago cannot possibly stimulate, even if you believe in the stimulation scenario.

The second crisis, by far the most serious, is the abnormally high debt the federal government has incurred since President Obama came to office. It disturbs me because the people, you and I, will have to pay interest on the debt for a long time, and eventually re-pay the principal. Else, the government will have to repay its debt in bad currency, in devalued or in eroded currency. If this happens, we will simply all be poorer, in real terms, If your dollar is worth half in ten years of what it is worth now, you will simply have to pay two dollars for what you buy today for one dollar. There is no reason to assume your income will automatically follow. This is a common fallacy (perhaps the topic for another essay): It takes about forty Indian rupees to buy a US dollar today and the same mountain bike that costs 400 US dollars in this country costs 600 US dollars in India. A good income in India would be 12,000 dollars per year. (That’s about twelve times the national average.)  Continue reading →

The Good Old Days

Jacques Delacroix History , , , , , ,

Here is a story that’s more than a story.

All our food was organic and no one was overweight. We wore only natural fibers, from sheep and from the cotton fields of Africa.

Children did not get fat spending their days and nights in front of a stupid screen of one kind or another. We read instead.

No one was over-caffeinated or on pills. We rarely went to the doctor.

Kids with Attention Deficit Disorder did not disrupt any school.

We used water sparingly and washed our hair and bodies in simple, non-polluting soaps. We did not waste water or energy with long showers.

My own personal carbon footprint was close to zero, I am sure.

There were few car accidents, unlike now.  Continue reading →

Normal Poverty

Jacques Delacroix History , , , , , ,

Here is a short excerpt from my memoirs: “I Used to Be French….”:

Young and youngish Americans of the early 21st century have personally only known prosperity. That is, historically unheard off prosperity. They are also fairly familiar with extreme poverty, with misery, because of the good job television often does documenting it in other parts of the world. More rarely, foreign travel gives them glimpses of appalling living conditions. And, of course, the many who have served in the Peace Corps are well informed on this topic. It seems to me that our contemporaries know little, by contrast, about the kind of poverty that prevailed in developed countries until recently. I call it “normal poverty.” I grew up in normal poverty, in Paris, in the forties and fifties. Here is what it was like.

My family of seven lived entirely off my father’s small public servant’s salary and off what he scrounged from after-hours bookkeeping for small merchants. We lived on the edge of Paris, in a charmless but well-maintained area of apartment blocks built by the city twenty years earlier. Municipal rents were probably kept artificially low. The seven of us shared an apartment that was smaller than the house I now occupy with my wife in California, a state where living spaces tend to be smaller than in most other parts of the country. Yet, we had central heating and hot water in the single bathroom. Other blocks nearby had indoor plumbing but no hot water, incredibly. Telephone service was the pay-phone at the café downstairs. When my family got its own phone, after the expected ten year wait, my mother immediately clamped a padlock on it. Continue reading →