How to Enrich or
Impoverish a Nation
What has lifted more people out of poverty,
charity or economic freedom? It's not even close.
Charity is wonderful, and I'll be the first to say
we have an obligation to share our gifts, be they material, intellectual, or
talent oriented. Yet whether our redistributionist endeavor is charity -- and
charity is voluntary redistribution -- or the less noble, coercive outsourcing
of charity known as government programs, there first must be wealth to
redistribute. But where does wealth come from?
If we go back to biblical times and beyond, a
man might be considered wealthy if he had 70 goats. In point of fact, the
standard for wealth was so different that the U.S.'s average middle-class
person today -- with his car, TVs, computer, refrigerator, and many other
luxuries -- would have been considered wealthy for most of history. And our
average "poor" man, who also usually has an old car and various creature
comforts, likewise has a material lifestyle that would have been the envy of
our forebears. The reason for this is simple: there is far, far more wealth in
the world now than in ages past.
The first lesson this teaches is that wealth can
be created. This happens when people find more efficient ways of raising
livestock (so 70 goats becomes small potatoes) and growing crops, and when they
extract raw materials from the Earth and use them to create the manifold
necessities and luxuries we enjoy. In a word, it happens when people produce,
which is why economists and businessmen will measure productivity. And how will
people be encouraged to produce?
They must have an incentive, and this is where
the profit motive comes into play. Ah, the much maligned profit motive. Let's
talk about that.
There are two extremes with respect to the
profit motive. One is typified by some libertarian Ayn Rand acolytes who seem
to treat it as the highest motivation; the other is far more prevalent today
and is represented by different "libs," people who behave as if
profit is something dirty (at least other people's profit, anyway). But the
balanced view is a bit different.
There is another kind of incentive. In America's
early Christian communes, for instance, residents' belief that they were doing
God's will -- and perhaps winning His favor -- served as a great incentive to
be productive; thus did the communal Oneida Colony create renowned flatware.
And, truth be known, there'd be no need for profit if we lived in a sinless world,
for there would be neither covetousness nor laziness. If there was an
unfulfilled need -- paper products, for example -- people would readily
volunteer to create them simply to serve others, and no one would be wasteful
or undermine the system by taking more of anything than he needed. But in a
sinless world we wouldn't need a military, police, or prisons, either.
Sane people live in the real world, however,
where different rules apply. One of them is that since the spiritual/moral
motive is the highest reason to serve your fellow man, it is also the rarest.
And because of this, it cannot be relied upon to motivate people at the level
of population. Enter the profit motive. To paraphrase economist Walter
Williams, profit encourages your fellow man to serve you even if he doesn't
give a darn about you. After all, Domino's didn't start making pizza to relieve
hunger; Ivory doesn't make soap because "Cleanliness is next to
godliness." To have your needs and wants satisfied, would you rather rely
on the charity of your fellow man or his profit-driven self-interest? For the
answer, just look at all the wonders of science and medicine, all the luxuries
around you, and ponder what percentage of them were created based on charitable
motives versus the profit motive. Again, charity is wonderful -- but it's also
relatively rare.
Of course, we should all strive to make it less
rare in ourselves. But the lesson here is this: to minimize the profit motive
personally is virtuous; to minimize it in public policy is vice. The motivation
to serve others for a higher reason must come from within; a bureaucrat can
decide to eliminate the profit motive via regulation, but he cannot replace it
in the hearts and minds of the people with a higher purpose. And this should be
very easy for the bureaucrat to understand. Would he -- or anyone else who
sneers at profit -- do his job for free? Precious few of us would. In fact, research
has shown that those who protest
the profit motive most are most driven by it (the likely explanation?
Projection).
In fact, unnecessarily reducing the profit
motive in civilization is evil. This is because productivity in a nation --
which means wealth creation -- will generally (at least) be proportional to the
degree of profit to be had. Thus, a person who institutes unjust
profit-reducers such as excessive taxes and regulations is a policy poverty
pimp who can literally rob his society of billions in prosperity. A thief in an
alley is less to be feared.
The fact that wealth is created teaches other
lessons as well. For example, class-warfare demagogues encourage the notion
that the poor have less because the rich have more. But unless the wealth has
been stolen (which does happen; e.g., Bernie Madoff), this is utter nonsense.
Consider: would it have made even one poor person richer if Microsoft's Bill
Gates hadn't pursued his dreams and made his billions? It would in fact have
made people poorer, as we wouldn't have the jobs and productivity-enhancing
products he created.
So how can nations become as prosperous as the
culture and character of their people allow? There must be a powerful profit
motive so that people produce as much wealth as possible. And there is a
prerequisite for this: great economic freedom (most still call this
"capitalism," a grave mistake because the term was originated by
socialists).
How important is this factor? In
"Self-Inflicted Poverty," Dr. Walter Williams points
out that there is an
extremely strong correlation between a nation's level of economic freedom and
its level of prosperity. He asks "Why is it that Egyptians do well in the
U.S. but not Egypt?" After pointing out that the same could be said of
others from poor nations who immigrate to the US, he points out that Egyptians
are smothered with regulations and corruption. Providing one damning example,
he writes, "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." The result is that Egypt's mummies have more life
than its economy.
Given how important economic freedom is, we
should note how it's lost: through lack of appreciation. After all, cease to
value something, and you may not preserve it -- demonize it enough, and you'll
surely destroy it.
When appearing on a radio show some years ago on
the heels of the financial crisis, the first question the host asked me was why
economic freedom (she said "capitalism") had failed. Her attitude was
a staggering tribute to a lack of perspective, a spirit of entitlement and the
tendency to count curses and not blessings.
Just walk into any American supermarket with the
thousands of products from the world over available at affordable prices, and
tell me economic freedom has failed. In fact, our whole modern world is a
tribute to economic freedom. And what of the financial crisis? Well, people
will talk about how it destroyed so many trillion dollars of wealth and place
the blame on economic freedom. But remember the time when 70 goats made you
wealthy? We only had trillions of dollars of wealth that could be destroyed to
begin with because of economic freedom! In fact, economic freedom has provided
a climate for such tremendous wealth creation that the trillions lost still
represented only a small percentage of all the wealth in existence. Our
"failure" is history's raging success.
The problem here is that people tend to take
what they have for granted and view wealth in relative terms. But returning to
what I said about the poor, historically, being so meant that you didn't have
shoes on your feet or food on the table (if you had a table). In America today
it generally means you have an older car, a TV, refrigerator, air conditioning
and a host of other luxuries. The reality? Our government's "poverty
line" is a political ploy. In an absolute sense, there is very, very
little poverty in the U.S. -- because of economic freedom.
Our great discoveries, inventions and
innovations were not made by bureaucrats, nor generally at their direction. And
while I encourage and support the charitable endeavors of my Catholic Church
(the world's largest private provider of aid to the poor), even its efforts to
end poverty pale in comparison to economic freedom's triumphs. This is no
slight. Economic freedom unleashes the creative capacities of the common man,
from border to border, transforming the populace into an army of wealth
creators. And nothing can compete with that.
Without creation, there can be no distribution.
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