Month: August 2017

From time to time, I see lists on the internet that propose to solve the problems of intergenerational poverty in America.

Unfortunately, most of the time, these lists recommend massive transfers of wealth from rich people to poorer people, or suggest the creation of new “poverty-fighting” government bureaucracies, in spite of the fact that neither of these approaches is likely to solve the underlying problems.

The Decline and Flatline of Poverty

The fact is that in the 25 years before Lyndon Johnson’s  “War on Poverty” began, the poverty rate in America was on the decline.

But now, decades after we’ve created numerous Federal bureaucracies formally dedicated to eradicating the problem for good and over $22 trillion spent, our poverty rates have flat-lined instead. Worse, many of the programs designed to benefit the poorest members of our society have actually created dependency traps that make it nearly impossible for people who grow up in impoverished conditions to escape.

And as for the idea that the problem of poverty could be solved if only rich people were forced to give their wealth to poorer people? That sounds plausible enough until you realize that it wouldn’t make a significant difference to poverty anyway.

For example, if you combine the entire net worth of Forbes’ list of the world’s 400 richest people, you’d come out with about $2.4 trillion. Yes, it’s an enormous number, but it’s not exactly what you might think.

This is not money all piled up in a grain silo somewhere, waiting for some rich guy to dive in and roll around. Instead, it’s the estimated monetary value of all the assets they own. That means all the office buildings, furniture, computers, telephone lines and other capital infrastructure of their various businesses; the value of their employee salaries, payroll, and pensions; and the on-paper economic value of the businesses themselves.

For example, Amazon reportedly holds $83.4 billion in assets. That includes all their warehouses, trucks, servers, and the actual stuff they keep in stock for people to purchase. And that money is what’s rolled into Jeff Bezos’ supposed $89 billion net worth. Bezos can’t just cash out to the tune of tens of billions of dollars without liquidating the inventory his company holds, selling all of his buildings, and divesting himself from Amazon entirely – and he could only do that in a world where there are other rich guys ready to buy.

So, that $2.4 trillion isn’t a real number in any sense that can be converted into a transfer of income.

Poverty is the natural state of the world and the big mystery of human history is not how people become poor, but how people get rich.

But let’s imagine that it was, even if we could just magically grab $2.4 trillion in cash from the world’s billionaires, when divided amongst the rest of us 99%ers in the United States (about 319,000,000 people), we’d all walk away with a one-time-payment of just $7,500.

Even if we just limited the transfer from the richest 1% to the bottom 20%; each person would get $37,151.70 – or basically a one-time payment of considerably less than the median salary in the US.

Not that we wouldn’t all like the extra cash, but let’s be honest… After that money is gone and we’ve sent a clear signal to the most successful businessmen & women in the world that the reward for building a company like Google or Apple is to have all your assets taken from you and your business destroyed, then what?

Neither long-term government dependency or wrecking the economy for a short-term payout is the answer.

So what should we do instead?

First, we should understand that poverty is the natural state of the world and the big mystery of human history is not how people become poor (that’s easy, do nothing), but how people get rich. Once we recognize that fact, we have to shift our way of thinking about poverty and start seeing growing wealth as a consequence of people’s ability to create and exchange goods and services with each other.

In the end, wealth is not just dollars in a bank account. It’s our very standard of living and quality of life. The money is just a measurement tool.

So what we need is to create a world where it’s incredibly easy for people from every conceivable starting point to enter the market and create their own success. To that end, I’d like to offer 10 actually effective ways to reduce poverty and inequality in America and around the world.

Here we go:

1. Eliminate most occupational licensing restrictions and lower barriers to entry to getting jobs and starting businesses.

It’s an issue that people often know little about, but roughly 1 in 3 occupations in the United States require a government-granted license before people can even begin to earn a living. And while it’s common to believe that these licenses are protecting the public from bad doctors, dentists, and lawyers, the truth is that most of these licenses are for barbers & hairdressers, florists, landscapers, and gym class instructors. The Institute for Justice maintains an annual report on the state of occupational licensing in America.

According to IJ:

“The report documents the license requirements for 102 low- and moderate-income occupations—such as barber, massage therapist and preschool teacher—across all 50 states and the District of Columbia. It finds that occupational licensing is not only widespread, but also overly burdensome and frequently irrational.

On average, these licenses force aspiring workers to spend nine months in education or training, pass one exam and pay more than $200 in fees. One-third of the licenses take more than a year to earn. At least one exam is required for 79 of the occupations.”

These licenses are often insurmountable barriers to entry for low-income people not only to finding employment but also to starting their own businesses. In 2014, I made a documentary chronicling the story of one such entrepreneur, Melony Armstrong, and her battle against occupational licensing in Mississippi:

 

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