Universal Basic Income as the Foundation of Freedom

I favor a Universal Basic Income (UBI) because it offers financial security and predictability, which in turn provide freedom from necessity. This “freedom from” is required for any meaningful “freedom to“. By allowing people to effortlessly and foreseeably pay for the material resources that they need for a minimally decent life, a UBI liberates them to pursue the goals they have set for their lives – or even set these goals in the first place. Life’s pursuits all too often get pushed aside by urgencies, necessities and bouts of bad luck. The struggle to survive may even imply an incapacity to formulate goals.

What matters … is not only the protection of individual rights, but assurances of the real value of those rights: we need to be concerned not only with liberty, but, in John Rawls’s phrase, with the “worth of liberty.” At first approximation, the worth or real value of a person’s liberty depends on the resources the person has at her command to make use of her liberty. So it is therefore necessary that the distribution of opportunity – understood as access to the means that people need for doing what they might want to do – be designed to offer the greatest possible real opportunity to those with least opportunities, subject to everyone’s formal freedom being respected. Philippe Van Parijs (source)

There’s another type of “freedom from” that a UBI would achieve: it would liberate us from alienated labor (to use a strong term). I personally believe that the alienating characteristics of our current system of work are sadly ignored (read this and this). A basic income gives people the freedom to turn down unattractive work and to start cooperative ventures that are more rewarding, in the sense of more pleasant but also more in line with the goals people have set for their lives.

As a pleasant by-product, we would be able to shake off some recurrent criticisms of our existing welfare systems:

  • No more discussions about welfare queens, social security fraud, the undeserving poor, a culture of poverty, etc.
  • No more government intrusion in the private lives of welfare beneficiaries, no more means testing, fraud investigations, social security inspections, income audits, family structure controls etc.
  • We would be able to implement drastic reductions in the level of regulation, legislation and government bloat inherent in our current social security systems. A smaller government, suitably defined, may also lead to an increase in the overall level of freedom.
  • Healthcare consumption would become more wise and efficient since people have to use their basic income to pay for all of their non-catastrophic health problems. (Perhaps this rationalization could offset some of the fiscal criticism leveled against a UBI).
  • Unemployment would no longer be a problem: the concept of unemployment would become meaningless.

Some additional advantages of a UBI:

  • We would no longer be fixated on economic growth since the main justification of growth is its perceived role in the reduction of unemployment. Hence we would perhaps be able to meet some environmental concerns.
  • Increased gender equality. Wives, often still the main caregivers within families, would be less economically dependent on husbands if they have a basic income. With less dependence comes more freedom and equality. Women – as well as caring men – could even use their basic income to start up cooperatives for the caring function, making use of advantages of scale and becoming more economically active outside of the home. That as well would increase their independence.

The Ethics of Human Rights (65): The Deserving Poor and the Spectacle of Libertarianism Eating Itself

It’s a common right-wing complaint, especially among right-libertarians, that the welfare state helps the poor whether or not they have only themselves to blame for their poverty. If there should be a duty to help the poor, it should be limited to the deserving poor (although some libertarians think that even this goes too far since it implies a form of slavery for those who have a duty to help). All the others should suffer the consequences of their own bad decisions – their teen pregnancy, their lack of effort at school, their alcohol problem etc.

One could reply that people’s bad decisions aren’t always their own decisions, in the sense that making good decisions is something you have to learn, and this learning may be difficult in an environment of poverty, especially during childhood. However, let’s bracket this objection, for the sake of argument, and assume that there are indeed some people who only have themselves to blame. They may not be as numerous as those on the right tend to believe, but even if there are only a few we should decide what to do with them – help them or not.

The criticism that our current systems of social security don’t differentiate between the deserving and undeserving poor is sometimes illustrated with an analogy. If we assume that governments fund their welfare system through taxation, and that taxation is a kind of involuntary charity or enforced charity – the government steps in in order to take the money which we don’t give voluntarily to charity – then it’s only right that the government takes every effort to make sure that our money goes only to the deserving poor. If we voluntarily give money to charity, we also want to be sure that it goes to a good cause, and those collecting our money have a duty to spend it well and not waste in on people that aren’t going to use it constructively. Given the libertarian view that taxation is a form of stealing it’s all the more important that the tax money is spent well; you can perhaps argue in favor of stealing if the harm done by stealing is compensated by the greater good that is done with the stolen money, but you certainly can’t if there is no greater good and if the money goes to undeserving poor who are rewarded for their bad behavior.

Isn’t it especially outrageous to misuse charitable funds if the donors cannot legally discontinue their support? (source)

Now, it’s here that the problem begins and that libertarians who follow this reasoning tend to undermine their own libertarianism. If you want to help only the deserving poor, and if you want to be very strict about helping only those people, then you’ll have to accept systematic and wide ranging intrusions into people’s privacy. How else would you be able to distinguish the deserving from the undeserving? You’ll need detailed biographies of all potential welfare or charity beneficiaries, records of their decisions and behavior, of their job applications, their diet, their sexual mores, etc.

You’ll have to accept these intrusions whether or not you believe that charity is the perfect and only solution. If you believe, correctly I think, that charity will never suffice, then you have all the more reason to be worried, since it’s the state who will have to monitor deservingness. Either scenario is anathema to libertarians.

The distinction between deserving and undeserving poor isn’t only difficult in practice. It’s also theoretically fraught with problems. For example, if you assume that you have a system to find out which poor person is an alcoholic and which one isn’t, then you still have to answer the question whether an alcoholic is an undeserving poor person or not. This answer depends on the causes of her alcoholism: maybe the cause is a series of misfortunes combined with a weak character, in which case her alcoholism is obviously not deserved. Perhaps she deserves blame for her weak character was, or perhaps not. One can easily make the case that a strong character and a good amount of effort and discipline depend on our upbringing and the social circumstances in which we are born. And no one deserve those circumstances.

And finally, even if we can identify the deserving both in theory and in practice, and even if we accept the anti-libertarian consequences of this work of identification, then we can still argue against the claim that we should not help the undeserving poor. Perhaps it’s a sign of decency and civilization that we help even the undeserving poor. Maybe the claims of the undeserving aren’t as strong as the claims of the deserving, and maybe we shouldn’t help them as much or as quickly as the deserving. But that doesn’t mean we should let them starve.

More posts in this series are here.

Migration and Human Rights (44): Welfare State Incompatible With Multiculturalism?

David Miller has argued in favor of an affirmative answer to this question. My view is different. Miller’s story goes somewhat like this. The welfare state predates multiculturalism: most western countries have adopted some form of welfare state in the late 19th century or during the first half of the 20th century, whereas these countries only have become truly multicultural in the second half of the 20th century (as a result of decolonization, guest worker programs etc.).

According to Miller, a welfare state requires a strong sense of national solidarity. People will only contribute to the welfare system if they know that others contribute as well and that they themselves will be protected by the contributions of others when things turn bad, when they get sick or old or when they lose their job. Hence, everyone should contribute in the same way and rules about reciprocity and fairness should be respected. A welfare state is only possible when society is a warm nest where everyone cares for everyone, looks after everyone and uses the system in a fair and reciprocal manner. Free riders by definition don’t care about others and if there are too many of them, the welfare system breaks down.

Miller fears that a multicultural society can undermine support for the welfare state because large immigration flows can undo the fairness of the system. This fairness is based on the assumption that you can only withdraw from the system if first you have contributed to it (reciprocity). Newcomers are often seen as people who withdraw without contribution.

In a sense, this is the classic welfare tourism argument. It’s a popular argument against multiculturalism and immigration, especially on the right of the political spectrum, and it’s disappointing to see a noted philosopher give credence to it. He should know better. Why? Well, first, it’s simply not true that immigrants abuse the welfare system. Some do, of course, but in many cases immigrants withdraw comparatively less than natives and they often have higher labor force participation. Furthermore, many of the native poor withdraw a lot more than they contribute, over a lifetime. This “unfairness” is identical to the supposed unfair use of the system by immigrants, and raises similar complaints about the “undeserving poor”. And yet, even though the unfairness is the same, it doesn’t result in arguments that all welfare states are impossible. Or is unfairness only a problem when colored people are unfair?

Hence, Miller seems to be rushing to accept defeat in the face of xenophobia. He preemptively gives up the attempt to widen the circle of empathy and to correct misinformation about unfairness. If it is really the case that a population loses trust in and withdraws support from a welfare system because it believes that solidarity is only something for “people like us” or because it believes that rules of fairness and reciprocity are violated, then perhaps we should try to change people’s minds rather than hastily agreeing with them.

Something about a similar argument by Milton Friedman – “you cannot simultaneously have free immigration and a welfare state” – is here. More on the role of group identity in public support for redistribution is here. More posts in this series are here.

The Causes of Wealth Inequality (25): Globalization, Ctd.

Globalization is the usual suspect when people discuss the causes of contemporary increases in income inequality in many Western nations. As a result of easier transportation, trade and communication, low skilled workers in those nations now face ever tougher competition from cheap workers in developing countries, and this competition drives down wages at the poor end of Western income distributions: workers have to swallow wage reductions under the threat of outsourcing. Increased immigration – another facet of globalization – has the same effect.

At the top end of the income distribution, the reverse is happening: the job of a CEO is now more complicated in our globalized world, and hence his pay is higher. The threat of relocation also has an effect on income inequality through the channel of the welfare state: companies threaten to relocate, not just because of labor costs, but also because of tax rates. Taxes in Western countries tend to be relatively high because social security tends to be relatively generous. The threat of relocation convinces governments to reduce tax rates, but the price to pay is often a less generous welfare state. This as well puts pressure on the income distribution.

All this sounds convincing, but I’m afraid it’s too simple. The effects of globalization on inequality starts to look more complicated when we take consumption into account. Globalization tends to lower the consumption prizes of a lot of goods, and cheaper consumption can counteract downward pressures on wages and social security. If you can buy more and better stuff with your paycheck, your unemployment benefit or your disability check, then perhaps you’re not worse off.

There’s an interesting paper here by Broda and Romalis in which they look at

the compositional differences in the basket of goods consumed by the poor and the rich in America. Using household data on non-durable consumption between 1994 and 2005 we document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor. By relaxing the standard assumptions underlying the representative agent framework we find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period. The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor. We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.

When measuring income inequality, we should correct for the different prices of goods and services consumed by people in different income groups. This doesn’t mean that we should be happy about the fact that poor people live on cheap stuff; it simply means that some of the rising income inequality is compensated by cheaper stuff. And we have cheaper stuff because of globalization. Turning globalization into some sort of bogey man is therefore rather too simple. Income inequality has many causes, and it’s not clear that globalization is, everything considered, an important one.

Finally, a word about the supposed wage pressures of increased immigration: they are indeed no more than supposed.

More posts in this series.

Migration and Human Rights (41): What Will Happen When We Open Our Borders?

Regular readers know that I often advocate an open border policy on this blog. I do so because most of the arguments in favor of immigration restrictions don’t survive a confrontation with the data, but also, more positively, because I think there are four important reasons to favor open borders:

  1. Allowing immigration means respecting certain human rights, such as the right to free movement and the right of free association (most people migrate because they want to associate with employers elsewhere). Closed borders on the other hand result in various rights violations: illegal immigrants incur physical risks while traveling, and exploitation upon arrival (because they have diminished bargaining power and because they live with the constant fear of apprehension). Furthermore, they are almost permanently separated from their families and friends back home etc. That’s a heavy burden of rights violations.
  2. Immigration reduces poverty. Strictly speaking this is not conceptually different from the previous reason, since poverty is a human rights violation, but it’s worth mentioning separately because many fail to see this point.
  3. Third, allowing immigration is a matter of justice because monopolizing a piece of the earth goes against the principle of the common ownership of the earth, and because nobody deserves to be born in a certain place.
  4. Fourth, immigration restrictions are inefficient because they require resources that can better be spent elsewhere, and because efficient economic activity requires a high degree of freedom of movement for workers as well as goods. Moreover, aging populations in developed countries will need more immigrants to keep their economies going.

I agree that these arguments don’t necessarily establish the soundness of an open border policy. They do, however, make it harder to argue in favor of restrictions and they put the burden of proof on those arguing in favor of restrictions.

I can imagine that many of those people aren’t convinced by the rather abstract arguments given above. Hence it may be useful to try to estimate the consequences of a significantly higher number of immigrants in wealthy countries. I’ll assume that this increase won’t be sudden, because restrictions can be removed gradually. Hence we can discount the “shock” of increased migration as a possible negative consequence.

Wouldn’t massive immigration strain the domestic economy and possibly destroy it? I never quite understood that argument. For one thing, if that would happen, I guess the immigrants would decide to just go back home; immigrants are drawn to economic opportunity and typically return when opportunities become rare. But it won’t happen, because immigrants produce and consume. The “destruction argument” sounds ridiculously zero-sum, as if the presence of immigrants in a country is similar to leeches draining the blood from a healthy body. Immigrants generally come to work, to produce and to consume. Some of them may be a net loss for the native economy, but it’s silly to claim that most of them are or will be. In fact, in the U.S. most immigrants currently use welfare at lower rates than natives and have higher rates of labor force participation. Even if massive immigration brings in a lot more slackers their numbers will be swamped by the even larger number of productive immigrants.

So I don’t think we should compensate an open borders policy with a denial of welfare for immigrants. Most immigrant won’t come for welfare, and if you allow a whole lot of new immigrants, most of those will work and pay taxes (also because they won’t be illegal) and will thereby contribute to the funding of the welfare system rather than be a drain on it.

Perhaps the arrival of a lot of immigrants won’t destroy the destination economy or the welfare state, but maybe it will hurt certain groups of people, for example low-skilled native workers with whom the immigrants will compete for jobs. Again, that’s too much of a zero-sum focus. Immigrants are usually complementary to native workers and don’t necessarily have to replace native workers. And when they are not complementary, they can allow the latter to move to different and often better paying occupations.

To the extent that massive immigration will drive down wages in some sectors and skill levels, I would ask the following: if an immigrant is willing to work for a lower wage, why should the rights of relatively more wealthy native workers (“relatively more wealthy” because they earn a higher wage) trump the rights of the immigrant? If rights have any meaning it is that they protect the weaker against the stronger, not vice versa. From a cosmopolitan point of view it’s more important to help poorest people find a better job than to protect the jobs of the relatively less poor.

What about higher rents and house prices? Surely massive immigration would price almost everyone out of the housing market. And then what? I would guess that this will be self-correcting: huge housing prices will reduce the inflow of immigrants or increase the supply of houses. In the latter case, demand for labor – including native labor – would increase. Again, let’s drop the zero-sum thinking: why should we assume a constant supply of housing with an increasing demand for it?

What about security issues? Will open borders policies flood us with criminal immigrants? Immigrants with contagious diseases? What about the smuggling of drugs? Or terrorists moving freely into the country? Well, open borders as it’s understood here means free immigration, not the absence of borders or border controls. Allowing massive immigration doesn’t mean that we shouldn’t keep track of who or what is coming in and is going out. And we have domestic criminals, whom we don’t systematically banish. Let us also not forget that immigrants are on average less likely to be involved in crime (see here and here).

The fact that open borders doesn’t equal “no borders” should also calm certain fears about sovereignty, “nationhood”, national culture, community and national solidarity.

The same is true for the fact that an open borders policy doesn’t equal “free citizenship“. Obviously access to citizenship would not be possible for all immigrants at the moment of arrival, otherwise an open border policy would undermine the very notion of citizenship. That restriction includes voting rights.

What about the consequences for the origin countries which will lose a lot of highly skilled professionals? That’s difficult to tell but if we extrapolate from the current state of affairs, this might not be a problem. There’s already a huge brain drain going on from developing countries to developed ones, but the pernicious effects of this brain drain are heavily overstated, and compensated by the gains from remittances. Of course, this compensation effect depends on the number of people involved. Drastically higher numbers of migrants may provide a different outcome, or maybe not. And there’s also some evidence of other beneficial effects of the brain drain, unrelated to remittances.

More posts in this series are here.

Economic Human Rights (42): Some Facts About Welfare in the U.S.

Welfare – meaning the provision by the government of a minimum level of material wellbeing and social support for all citizens – is a strange thing in the U.S.: it’s not directed mainly at the poor, it’s underfunded, it seems to be compatible with a high poverty rate, and it’s not colorblind – at least not in its effects.

Take a look at the following facts (source):

  • In 2010, nearly half of Americans lived in a household that received direct government benefits. That’s up from 37.7% in 1998.
  • At the same time, government revenues have been declining: adjusted for inflation, federal tax revenue was the same in 2009 as it was 1997, even though the U.S. population grew by 37 million during that period. In 2011, the federal government took in $2.3 trillion in tax revenue, and spent the exact same amount on military, Social Security, Medicare, and Medicaid alone.
  • The share of entitlements like Social Security and Medicare going to the bottom fifth of households (based on income) has fallen from 54% in 1979 to 36% in 2007.
  • The result of all of this: nearly 1 in 6 Americans – and more than 1 in 4 blacks – still live in poverty. The unemployment rate in 2009 was around 10% – for young, uneducated African-American males it was even 48.5%.

None of this should lead to the conclusion that the U.S. welfare system is completely dysfunctional – unemployment insurance, for instance, has rescued millions of Americans from poverty during the last recession. What it should lead to is serious consideration of the possibility and desirability of a completely new system.

More posts in this series are here.

The Causes of Poverty (54): Lack of Trade Liberalization

I mentioned before that trade liberalization – the removal of trade barriers such as tariffs, subsidies and other distortions of international trade – is, on aggregate and in the medium term, a powerful mechanism for poverty reduction. I say “in the medium turn”, because some structural adjustment may be necessary, and “on aggregate” because some may lose while others gain.

The usual fears about trade liberalization – that it reduces government revenues necessary for redistribution, that it leads to labor competition, lower wages and higher unemployment rates, or that it raises prices in developing countries – are, in general and on aggregate, unfounded (an overview of the evidence is here). Of course, trade liberalization may cause local economic shocks, and there can be distributional effects: some people will benefit more than others, and some may even be worse of after liberalization, especially in the short term. But it’s the aggregate medium term effect on a country or an economy that counts.

This is similar to the positive effect of economic growth on poverty reduction:

The vast majority of the world’s poor live in the rural areas of these two countries [China and India]. Both countries achieved significant reductions in poverty during 1980–2000 when they grew rapidly. According to World Bank estimates, real GDP grew at an annual average rate of 10 percent in China and 6 percent in India during these two decades. No country in the world had as rapid growth as China, and fewer than ten countries exceeded the Indian growth rate. The effect on reduction in poverty in both countries was dramatic, entirely in keeping with the “Bhagwati hypothesis” of the early 1960’s that growth is a principal driver of poverty reduction. (source)

Not all of the poor will be automatically better of as a result of economic growth, and growth may widen income inequality or relative poverty while reducing absolute poverty. But on average and on aggregate, economic growth – like trade liberalization – reduces poverty. That’s not just a story of “trickle down” or “all boats rising on a rising tide”; economic growth also means that the government has more resources to fund welfare and redistribution. (Obviously, none of this implies that growth is always beneficial or that there isn’t room to make growth even more “pro-poor” than it already is).

Arguments in favor of trade liberalization

The interesting part of the argument is that the positive effect of trade liberalization on poverty reduction passes through enhanced economic growth: liberalization reduces poverty because it enhances growth.

[P]ractically no country that has been close to autarkic has managed to sustain a high growth performance over a sustained period. Furthermore, … if one classifies countries into globalizers and nonglobalizers by reference to their relative performance in raising the trade share in GNP during 1977–1997, the former group has shown higher growth rates… [T]he outward-orientation of the Far Eastern strategy … led to the Asian miracle. (source)

Free trade is one of the determinants of economic growth. Growth requires increased productivity, and that’s what free trade delivers. Free trade means more productivity because it means

  • more specialization
  • more use of comparative advantage
  • better access to technology and knowledge
  • better and cheaper intermediate goods (raw products etc.) and capital goods (machines etc.)
  • benefits of scale
  • and increased competition.

All these consequences of free trade have a positive effect on productivity and hence on growth. And that’s not just theory; there’s empirical proof. Reductions in trade barriers were almost always followed by significant increases in productivity (source).

And it’s not just productivity; trade liberalization has other effects as well. The removal of tariffs can reduces prices for consumers and hence reduce poverty. It’s often the case that goods consumed by poor people have a higher tariff tax than goods consumed by rich people:

In his research, [Edward Gresser, senior fellow and director of trade policy at the Progressive Policy Institute] found that the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent. A silk brassiere has a tariff rate of less than 3 percent, but the rate on a polyester one is slightly less than 17 percent. The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. Similar variations occur when it comes to household goods. Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent. A silk pillowcase has a rate of 4.5 percent; this goes up to nearly 15 percent for one made of polyester.

Overall, clothes and shoes contributed nearly $10 billion in tariff revenue in 2009, while higher-cost items including audiovisual equipment, computers and even cars added less than $2 billion. Gresser contends that the $10 billion is disproportionately borne by people who can’t afford to buy luxury goods. What’s more, when customers pay sales tax on these products, that amount is also higher than it would otherwise be thanks to the tariff that drives up the retail price. (source)

Hence, not only does free trade alleviate poverty, trade restrictions and protectionism actually aggravate poverty. Take also the example of restrictions on rice exports in rice-producing countries:

At first glance, this seems understandable, because a country may not wish to send valuable foodstuffs abroad in a time of need. Nonetheless, the longer-run incentives are counterproductive. (source)

When farmers can’t export, there’s little incentive for them to farm rice. Result: the shortages that were meant to be avoided.

Arguments against trade liberalization

However, we shouldn’t lose sight of the undisputed downsides of trade liberalization. The removal of subsidies can hurt certain producers and it can, especially in the short run, depress employment and wages in certain sectors. It can therefore reduce some people’s incomes and push them into poverty. Trade liberalization can destroy entire markets: it can force a country to abandon tomato production for example, because nonsubsidized local producers are no longer able to compete with increased import competition coming from countries with a comparative advantage. The local producers will lose their jobs and income. However, these same people may benefit in other areas: products which they consume may become cheaper. So, when assessing the impact of trade liberalization on poverty, one has to aggregate all the losses and gains in different areas, and that’s ultimately an empirical question that has to be investigated country by country. Overall, the evidence is that, on aggregate, the effect is probably positive.

There can be individual losers from liberalization, and even individual countries can lose: countries that depend on mineral resources, for example, can take the fast lane towards the resource curse when trade is liberalized. But it’s the global balance of poverty alleviation that determines the desirability and success of trade liberalization.

The claim that liberalization negatively affects government revenues because of decreasing income from tariff taxes, and hence diminishes the generosity of the welfare state, is also not well founded. First of all, liberalization also means reduced subsidies, which should improve governments’ fiscal situation. Secondly, trade volumes increase as tariffs are reduced, and hence the net effect of reducing tariffs doesn’t have to be falling revenues. And finally, even if revenues fall, the poor don’t necessarily have to suffer: it’s ultimately a political decision where to spend which types of government revenues. Priorities can change when revenues change.

Another possible disadvantage of free trade is a cultural one. The claim is that free trade means cultural imperialism: small cultures don’t have the resources to export their cultural products and risk being overwhelmed by, in particular, American culture. Hence, there may be a case for cultural protectionism, but this case doesn’t extrapolate to protectionism writ large.

Conclusion

Liberalization isn’t a magic bullet, neither for economic growth nor for poverty alleviation. Sustained growth and substantial long term poverty reduction require more than free trade. Conflict resolution, good governance, education etc. need to accompany liberalization. It’s no secret that we don’t yet fully understand all the determinants of growth and poverty reduction. The advantage of trade liberalization, compared to other possible pro-growth or pro-poor policies, is that it’s relatively easy to implement: it is – or should be – easier to abolish tariffs and other trade restrictions (especially if there’s an element of reciprocity in global negotiations) than to create a solid education system or a non-corrupt judiciary able to enforce market rules and property rights.

The evidence in favor of the pro-poor effects of trade liberalization is compelling, but we shouldn’t underestimate some measurement difficulties: the measurement of poverty, of trade liberalization and of the effect of the latter on the former is by definition imprecise. The concept of trade liberalization may also be too broad or too vague. And the specific outcomes of liberalization policies depend not only on the precise reforms being undertaken, but also on the context in which they are undertaken. The same measures will have different results in different economic environments. The extent of multilaterality also determines the effects.

Read more on the topic here and here. More posts in this series are here.

The Causes of Poverty (53): Poor Economic Growth

As an update of this previous post, here’s some more information about the nature of the relationship between economic growth and poverty reduction.

In a recent paper, Lane Kenworthy has compared growth and income data for 17 developed countries. Specifically, he looked at the ways in which the incomes of people in low to middle income groups benefit from economic growth. “Growth” here means increases in the amount of per capita GDP – this caveat is necessary in order to filter out economic growth that is the result of population growth and that doesn’t make the average person better off (although it obviously can make some persons better off, immigrants for instance). “Income” includes both wages and welfare benefits or other government transfers. Another preliminary remark: it’s wrong to think that growth automatically and by definition makes everyone – and hence also the poor – better off. It just makes the average person better off. That means that it can also in some circumstances make some people – e.g. the poor – worse off. Growth numbers are silent about the distribution of the effects of growth.

The question which the paper tries to answer is the following. Given that poor people can benefit from economic growth in two ways:

  1. either growth “trickles down“: more aggregate national income or production means more jobs, better paid jobs etc.
  2. or growth can increase the government’s tax base so that the welfare system can be made more generous,

which of these two mechanisms has been most prominent in the 17 countries examined in the paper?

The answer is “number 2”. Why? Well, in some of the selected countries economic growth was accompanied by a significant rise in low-to-middle household incomes, while in the other countries the effect of economic growth on the incomes of people in low-to-middle income groups was much smaller or zero. If economic growth trickles down (1), then one would assume it trickles down in all or most countries. After all, if growth results in more and better paid jobs for the poor, then there’s no a priori reason why this result would occur in one country but not in another.

The nature of government transfer systems is the reason why the effect of growth on the incomes of the poor is not the same in all countries:

when households on low incomes got better off, it was due most often to a rise in net government transfers. Where net transfers increased, incomes tended to increase in concert with economic growth. Norway, the UK, Sweden, Finland, and Denmark illustrate this pattern. Where net transfers were stagnant, income trends were decoupled from growth of the economy. We observe this in the United States, Canada, and Switzerland. This is an important finding. It means that, as a general rule, growth has not trickled down to low income households through wages or employment. And it means that, when government transfers haven’t grown, wages and employment haven’t stepped in to take their place. (source)

Looking at all this from the perspective of the causes of poverty: it’s clear that poor economic growth in wealthy countries cannot, by itself, explain poverty, because these countries can witness both growth and stagnation of the lowest incomes (as a result of their failure to implement the necessary transfer programs). Hence you can have growth without poverty reduction. If lack of growth is the main cause of poverty, then growth would by itself and automatically reduce poverty. We see that this is not the case.

In poor countries, on the other hand, growth can perhaps be sufficient. Those countries start from a lower base and more can trickle down. A lack of growth can, therefore, explain the persistence of poverty in developing countries, but probably not in developed countries. The latter have a basis of wealth that is large enough to fund welfare programs even if growth is poor. Growth helps to make this funding easier, but it’s not really necessary. A more progressive tax system, coupled with some good legislative will, can also do the trick.

More here.

Economic Human Rights (37): Basic Income as an Alternative to the Welfare State

The welfare state is the name for a collection of different government policies and programs designed to help the poor. Those policies and programs may include healthcare benefits, unemployment benefits, old age pensions, child benefits, some types of education subsidies, aid to the disabled, food stamps, housing subsidies, minimum wage rules, collective bargaining rights etc.

The welfare state is criticized in a number of ways. I’ll just mention a few arguments against it, without going into much detail and without replying to them:

  • it creates dependency and destroys self-reliance, responsibility, effort and other virtues
  • it rewards the undeserving and promotes subsidized idleness
  • it violates property rights because the taxes necessary for funding welfare are a form of theft
  • it imposes slavery on the productive and the responsible because it forces them to work for the benefit of the lazy and the irresponsible
  • it destroys incentives for taxpayers to become productive
  • it’s self-destructive because it destroys the prosperity that it wants to redistribute (the destruction of incentives results in the destruction of prosperity), or because it renders poverty more attractive
  • it’s not sufficiently targeted to the most needy: wealthy families may get child benefits, and wealthy pensioners may get healthcare subsidies
  • it requires a heavy state bureaucracy that usurps the right to invade the privacy of potential welfare beneficiaries (in order to ascertain whether people deserve benefits: are people really unemployed or unemployable? does their health status merit health benefits? etc.)
  • it can be gamed and people may engage in welfare fraud.

Some of these criticisms are evidently more pertinent than others, but let’s not evaluate them one by one. If we assume that there’s some truth in some of them, then it may be worthwhile to look at some possible alternatives. People often propose non-state solutions such as private charity (enhanced and encouraged by way of tax policy, education etc.). An advantage of private charity is that it fosters solidarity, virtue and a sense of belonging. However, it’s also counter-cyclical in the sense that it’s least available when most necessary (e.g. during economic recessions). Moreover, it tends to be unreliable and unequal (it may not cover all the needs of all poor people all of the time).

Another possible alternative is to keep a system of state provision of welfare, but to radically alter the specifics of the system. For example, one could give people a guaranteed and unconditional basic income at a level high enough to cover basic needs. Every individual would receive the basic income whatever his or her predicament, current or future. It would be funded with tax revenues, and therefore wouldn’t be a reply to the theft and slavery criticisms of welfare, but those criticisms are weak anyway (because they imply that all state activity, including policing and infrastructure, are illegitimate). It would, however, be a strong reply to the privacy infringing aspects of the current welfare system. A basic income, since it’s unconditional, would not require intrusions into the private lives of citizens in order to ascertain whether they deserve a benefit or not. It would undo the complexity of many current programs and hence also remove the need for a large bureaucracy. And it would counter the charge of assisting the undeserving: although many undeserving would receive a basic income, few would complain about it since everyone would receive it. Welfare fraud also would obviously become impossible.

An added advantage of a basic income system of welfare would be that it allows people to take more risks. They know that they won’t be destitute if things don’t work out. More risk taking can be socially advantageous because it can result in more innovation, more productivity etc.

However, notwithstanding the set of advantages, a basic income system will probably not be a perfect substitute for existing programs. It’s questionable, for example, whether a basic income, even one that is set at the highest sustainable level, will be enough to cover certain catastrophic healthcare costs. In general, a basic income theory doesn’t take into consideration the fact that different people have different needs and abilities and therefore require different amounts of resources.

Economic Human Rights (35b): What’s So Funny About Charity?

I’ve stated before why I believe charity helps to prevent poverty, and why it’s better than government welfare, at least in principle. The welfare state, in my view, is a fallback option when charity fails (as it often does).

The usual argument against this view is that charity is bound to fail because it’s crowded out by the welfare state. People don’t and won’t assist others because they think that they already do enough by paying taxes, whatever the effectiveness or fairness of the tax system. The evidence for the occurrence of crowding out is, however, unclear, and that’s a “charitable” interpretation of the evidence.

Another criticism of charity is closer to the mark:

Charity is counter-cyclical. When the economy is booming and there’s less need, there’s also more capacity. When the [economy] is worse and there’s more need, donations dry up and there’s less capacity. That’s not a criticism of charities: It’s hardly their fault. And nor is it a criticism of the people who donate — or stop donating — to charities. When you’re worried about paying your mortgage, it’s harder to help other people pay theirs. But it’s a big part of why we need a robust, federal safety net that’s immune … from the ravages of the business cycle. (source)

Indeed, as the need for charity rises, the supply diminishes, and vice versa. That is why a theory of poverty alleviation that depends solely on charity is incomplete. However, implicit in this argument is that the welfare state is immune to the business cycle, which is obviously incorrect. A recession means a drop in tax revenues and a simultaneous increase in demand for welfare transfers (there are more unemployed etc.). Hence, a recession means a weakening of the capacity of the welfare system. That’s exactly the same mechanism that makes charity unreliable.

Fortunately, the welfare state can bridge over recessions by going into debt, something that few private charity donors will do. This means that a welfare state can keep its anti-poverty transfers going in times of increased demand for funds and decreased supply of funds.

More on charity here.

Poverty and Privacy

The poor suffer certain specific violations of their right to privacy, and it’s fair to say that in general poverty means less privacy. Being poor often means having substandard housing. Without a proper house, or without a house at all, it’s much more difficult to be private. Furthermore, poverty often implies that people live together in “extended families”, perhaps even with others who aren’t family at all, strictly speaking. And this also reduces privacy in several ways (most obviously the intimate side of privacy).

In addition, being poor means being dependent on government welfare. But in order to benefit from welfare payments, tax credits, subsidies etc. the poor have to prove that they are indeed poor. Hence they have to divulge personal information to the government, and the government has a right to check this information. Some governments even have the right to do home searches in pursuit of welfare fraud.

If you view abortion as an aspect of privacy, then there’s an additional way in which poverty hurts privacy: the poor, because they have less access to birth control, will want to engage in abortion more often, and will therefore have their privacy violated by anti-abortion laws. Because the poor use public transportation more often, they are more likely to be tracked by police surveillance systems. They represent a disproportionate part of the prison population, and prison life obviously isn’t good for privacy. The poor are also more likely to be illegal immigrants, and therefore subject to control by the competent government agencies.

On the other hand, being poor allows people to avoid some types of privacy invasion: they use the internet less and hence are less at risk of internet related privacy violations; the poorest of the poor are less likely to take credit (credit means telling the bank about your income, spending, previous credit scores etc.) or to enroll in fidelity schemes (in which the use of a fidelity card tells the shop what you consume). Perhaps they won’t be taxed as much – or at all – and therefore don’t have to divulge private information to the tax authorities.

Still, on balance poverty is likely to have an adverse effect on privacy. Some even say that the poor are targeted by the government and that they are discriminated in their right to privacy simply because of their poverty. For instance, the way in which governments do home searches in pursuit of welfare fraud would be unthinkable if it were directed at other purposes and other social classes. It seems that the poor don’t only lose their privacy but also their right to privacy.

And poverty often also means the forfeiture of other, non-privacy rights. Simply begging or being homeless can still land you in jail and can get you kicked out of public places. In most countries, the days are gone when poor people were sterilized against their will, excluded from the vote, their children taken away from them etc. But in many parts of the world, poor children are still discouraged from going to school and forced into labor or warfare. Healthcare for the poor is still a problem, even in some developed countries, making it less likely that their health rights are respected. So don’t tell me poverty isn’t a human rights issue.

The Causes of Poverty (47): The Undeserving Poor? Stop Moralizing Already

In certain circles, it’s common to hear the claim that the poor – or many of the poor – only have themselves to blame and that their poverty is the result of their own bad decisions, mentalities and lifestyles. It’s useful to deconstruct this claim because that will allow us to show that its appeal is based on a dangerous simplification.

Inherent in the claim is a very specific, unspoken and unconvincing understanding of the concept of responsibility: the poor are responsible for their own poverty because they have failed to meet certain standards of conduct (e.g. finish school, wait to have kids, be dedicated to your job etc.). However, responsibility should ideally be understood as much more than mere conformity with standards of conduct. In many cases, this conformity is not the result of responsibility but rather a matter of habit, fear of consequences, convenience etc. In other cases, acting responsibly means violating certain standards of conduct.

And even when responsibility equals conformity to standards of conduct, failure to conform may not imply irresponsible behavior. People need the capacities necessary to act responsibly and to choose and follow through with the right form of conduct. If they don’t choose and follow through with the right form of conduct, the reason my not be a choice to act irresponsibly, but simply a lack of capacity to choose and follow through with the right form of conduct.

In order to have the capacities necessary to act responsibly and to choose and follow through with the right form of conduct, people need to grow up and live in an environment that fosters these capacities, or at least doesn’t destroy them or nip them in the bud.

Take the example of people who destroy their forests for the purpose of agriculture or animal farming. They unwittingly or wittingly encourage desertification and the erosion of fertile soil. They act irresponsibly in a superficial understanding of the word, because they fail to conform to certain standards of conduct that would guarantee their prosperity, as well as that of future generations. In this case, we’re talking about the standards of conduct that prescribe sustainable development. However, the people in the example may not have the capacity to act responsible because they may not have an alternative to their self-destructive actions.

Likewise, someone dropping out of school may seem to act irresponsibly, and others may conclude from her actions that her subsequent poverty is her own fault. But maybe she didn’t grow up in an environment that fostered her capacity to remain in school.

Hence, looking closer at what it means to act responsibly often means softening our judgments about people. Obviously, there are people who have the capacity to act responsibly – or whose circumstances and upbringing do/did not substantially diminish or fail to foster this capacity – but who nevertheless act irresponsibly. They are rightly condemned for their own failures (a condemnation which, by itself, does not automatically remove all moral obligations to assist them – the removal of those obligations, as required by many conservatives and “luck egalitarians” – can only be justified by additional arguments which aren’t guaranteed to withstand criticism and which I won’t examine now).

The problem, of course, is our lack of ability to distinguish these people from others who genuinely lack the necessary capacities and who are therefore only apparently irresponsible. It’s easy to detect cases of bad or self-destructive conduct; it’s much harder to ascertain capacities or the presence or absence of an environment that fosters capacities.

I would like to ask those who go on about the undeserving poor, about their stupidity and lack of personal morality, and about how the welfare state only encourages bad behavior, the following questions: given

  • the fact that some of the supposedly irresponsible people are not really irresponsible, and
  • the fact that it’s hard to determine who’s who, and
  • that trying to determine this would probably require a state that is much more intrusive and opposed to liberty than current welfare states

would it not be better to risk helping some genuinely irresponsible people than to risk not helping some people who do not have the capacities to act responsibly? And would it therefore not be better to work on capacities? I think the latter would be more fruitful than the attempt to moralize people out of poverty.

More on the undeserving poor here.

The Causes of Poverty (43): The Welfare State

Yes, that’s right: the welfare state… According to many conservatives, the welfare state is self-defeating and actually makes people poorer. Welfare and social security (and perhaps even private charity) unwittingly work to thwart their own goal – helping the poor – in two different ways. There’s supposed to be a supply side and a demand side to the so-called “perverse effects” of anti-poverty policies.

Take the supply side first. The delivery of welfare by the government and – indirectly – by the taxpayers is economically inefficient. It burdens the primary suppliers of the necessary funds, namely the individual and corporate taxpayers. Because of this burden, companies and individuals lose the incentive to be productive. If they have to pay large amounts in taxes in order to fund the welfare state, they can’t or won’t create the wealth that is the basis for redistribution. In other words, they can’t or won’t create a rising tide that will lift all boats. Ultimately, a tax-based welfare state will eat itself because it burdens the wealth creators whose wealth it wants to redistribute.

I’ve argued against this rejection of the welfare state before, and I won’t repeat myself here. Suffice it to say that the risks to incentives are overstated, as well as the benefits of trickle down economics. (For instance, companies may decide to be more productive in order to compensate for the losses from taxation).

Let’s now turn to the demand side of the anti-welfare argument. Again, the reasoning is based on incentives that ultimately result in a self-defeating anti-poverty system, but this time it’s about the incentives of the recipients of welfare. The argument goes roughly like this. Take unemployment benefits for instance (one part of the welfare state). These benefits supposedly discourage people from working. And when people don’t work, they fail to gain experience and to nurture certain values – such as discipline – necessary in order to escape poverty. Hence, unemployment insurance makes the recipients worse off.

Or take another kind of benefit: financial support for children born out-of-wedlock. This kind of support also triggers the wrong incentives. It encourages teenagers to get pregnant and it discourages adults to marry. Teen-pregnancies and single parenthood both make it more difficult to escape poverty. Something similar happens with scholarships or affirmative action for poor students. These so-called anti-poverty policies actually incentivize students to enroll in education programs that are above their capabilities, forcing them to drop out of school at some point, and hence forcing them into poverty. And, finally, there’s the argument about welfare dependence: when people get money from the government they tend to settle in their role as receivers and fail to take their lives into their own hands. Again the wrong incentives.

This demand side of the anti-welfare argument suffers from two fatal shortcomings. First, the data don’t (always) support it. For example, it’s not true that generous unemployment insurance leads to higher unemployment. And secondly, it’s classist in the sense that it offers an essentialist depreciation of the poor as a class. The poor, according to the argument, suffer from a series of typical deficiencies:

  • shortsightedness (in the case of the person being tempted by child benefits and ignoring the long-term costs of teen pregnancy or single parenthood)
  • a lack of self-judgment (in the case of the student accepting a scholarship and enrolling in a program beyond her capabilities) and
  • a lack of self-control (in the case of the person settling in dependency).

This classism is not only generally incorrect and unfair, but it also obscures the many other causes of poverty. The poor aren’t always to blame for their own poverty, and the welfare state doesn’t force them to make themselves poor. Moreover, and even worse, this classism can be self-fulfilling.

Also, hasn’t the recent financial crisis shown that wealthy people, especially bankers, are equally short-sighted, self-deluded and lacking in self-control? And even if it’s true that those vices are more prominent among the poor (as is claimed here for example), wouldn’t that be a good argument for welfare rather than against it? If the poor can’t rationally take care of their own fate because they are self-deluded and unable to plan for the long term, shouldn’t the rest of us try to help them?

The Ethics of Human Rights (44): Human Rights Between Cosmopolitanism and Partiality

Cosmopolitanism and partiality (or parochialism if you don’t mean it in a negative sense) are two very strong and yet contradictory moral intuitions. Let’s start with the former. Most of us have a strong sense of the arbitrariness of national borders. The accident of being born on one or the other side of a border – just like the accident of being born black or female – shouldn’t have any moral weight and shouldn’t determine one’s life prospects, as it unfortunately does.

As a result of this intuition, we believe that all people have the same moral worth, and this in turn convinces us that we shouldn’t condone the notion that the suffering or oppression of a fellow-citizen is more urgent or more important than the equal suffering of someone far away. There is something like humanity and all members of the human species have equal value. Being partial and favoring the alleviation of the suffering of some over the alleviation of the suffering of others, just doesn’t sound like the right thing to do. We should help people because they are human beings, not because they are compatriots. If I see a compatriot and a foreigner drowning in a pool I have no reason to save one before the other.

That’s the cosmopolitan intuition. On the other hand, there’s an equally strong intuition favoring some level of partiality. A father watching his daughter and her friend drown in a pool is allowed to save his daughter first if he can save only one. People care more about their friends and family than about strangers, and that’s completely uncontroversial. A bit less uncontroversial but perfectly common is the fact that citizens of a country – through their tax payments – typically provide relatively generous social security and welfare to their fellow-citizens and much less development aid, even though the beneficiaries of development aid are much less well off than many of the beneficiaries of the welfare state. Countries also impose immigration restrictions as a means to protect the prosperity of their reasonably well off citizenry, even if doing so means condemning foreigners to poverty. And finally, states generally enforce the other human rights of their citizens (poverty is a human rights violation) much more rigorously than the rights of foreigners.

Without staking out my position regarding these two contradictory intuitions, I would argue that imposing strict immigration and aid restrictions means taking partiality too far and that we should have more migration, more global redistribution and more international intervention aimed at the protection of human rights. However, you can demand this and still favor some level of partiality over strict cosmopolitanism.

So, the conclusions people draw from the partiality intuition aren’t always morally defensible, but the intuition itself is. And the same is true for the cosmopolitan intuition. In what follows I will ignore those who draw extreme conclusions from either intuition because they tend thereby to ignore the other intuition. Extreme nationalists, chauvinist patriots, racists, “ethical egoists” à la Rand etc. on one side, and the much less numerous “uprooted” citizens of the world and the corporate or non-governmental “modern nomads” who ridicule origins and meaningful national affiliations on the other side. It’s generally not a good idea to deny strong moral intuitions, and certainly not in this case. So I’ll focus on those who recognize the two intuitions and somehow try to juggle them.

How do people do that? Some choose one as the most important and believe that the other can only be followed in addition. Others just accept this as a case of irreconcilable value pluralism and believe that we can’t solve the dilemma. And still others deny that there’s always a conflict between the two intuitions.

Let’s look at those who favor the priority of partiality, see what reasons they have, and how those who favor cosmopolitanism respond. Many of those who favor the partiality intuition agree that we can and should do more to help others in distant places, but they also claim that we shouldn’t do as much for the billions of poor and oppressed people in the world as we do for our local charity, our relatives and friends and even our compatriots. They believe that once we’ve provided a minimum of care and aid to humanity in general, we’re allowed to focus our attention on a partial group or a limited circle of people that have a special meaning to us. They may provide different reasons for this claim. Let’s look at a few and at the ways in which cosmopolitans can reply:

  • Parochialists may argue that we need global institutions similar to national ones in order to provide the same amount and quality of care and aid to humanity as a whole. For example, you need a global welfare state to provide social security to everyone, and an effective global judiciary to punish gross violations of human rights in despotic regimes elsewhere in the world. We can call this the institutional objection to cosmopolitanism. Cosmopolitans could point to the progress in international criminal justice that has already been made, and could also argue that international redistribution of resources doesn’t necessarily require a global welfare state.
  • Parochialist can defend their limited partiality by claiming that relatively small groups of people are best placed to help each other, and that long distance help isn’t the most effective. For example, local judiciaries are better placed to judge local human rights violations than “ivory tower” international institutions, and small groups of people are better able and more motivated to give each other material assistance. Closeness means that you can do more, and if you can do more you should do more. It also means that appeals to help will be better heard and be more persuasive. People far away simply don’t have the necessary information or motivation to help effectively. We can call this the effectiveness and motivational objection to cosmopolitanism. Cosmopolitans could reply that there’s a certain circularity in this argument and that globalization has eroded much of the salience of closeness. I can go to an internet site and donate money to a specific person thousands of miles away. And the modern media have made the suffering of such a person much more salient and motivating.
  • Parochialists can argue that relatively small groups of people are not only best placed to help each other, but have a right to help each other and should be allowed to do so before the international humanitarians come barging in. This is akin to arguments about self-determination and cultural relativism. Caring about other places on the globe means wanting to intervene in those places in order to promote human rights and alleviate suffering. Such intervention may amount to cultural aggression. We can call this the cultural objection to cosmopolitanism. I’ve argued against cultural relativism elsewhere so I won’t repeat myself here.
  • Parochialists may claim that partiality is the result of the importance of community membership. People want to belong to communities. This belonging is important for many reasons, notably for personal identity. In order to maintain a community, there have to be special duties towards fellow members. We can call this the community objection to cosmopolitanism. The cosmopolitan could argue that those special duties are different from the global duties imposed on us by human rights and humanitarianism and don’t diminish or replace those global duties.
  • Parochialists can argue that global duties and a global morality are meaningless concepts. Perhaps a real understanding of what a moral duty is can only arise from the communal traditions and language of a particular culture. Morality is then culturally situated, embedded and determined. Moral impartiality and global justice are then oxymorons. This objection to cosmopolitanism is related to the cultural objection, and we can call it the meta-ethical objection. A cosmopolitan could reply that this is a rather strange conception of morality. It’s not uncommon for people to be influenced by moralities from far away. Hence, it’s wrong to claim that morality is completely embedded in culture.
  • Parochialists can argue that cosmopolitanism and the need to treat everyone equally imply the imposition of excessive burdens on the wealthier members of humanity and would therefore be both unrealistic and unfair. Treating everyone equally would leave them with little for themselves and for their partial circle of care. None of them would still wear expensive watches or clothes, go on vacations or give their children an expensive education. We can call this the feasibility objection to cosmopolitanism. The cosmopolitan could answer in different ways. First, things aren’t entirely zero-sum as the parochialist seems to believe. For example, a well-educated child can more effectively help humanity. Hence, the two intuitions don’t have to cancel each other out and people don’t always have to choose. Love for humanity and love for certain people don’t necessarily clash. Secondly, even if it’s not feasible to help everyone, that doesn’t mean we have to be partial. The moral equality of all human beings may require that we select a random group of people to help, rather than our inner circle. Such a random choice would guarantee that we help strangers just as much as relatives, friends and compatriots, even though we can’t help everyone equally. The problem with such a random choice is that you need to know about people in order to be able to help (see the effectiveness objection above). The cosmopolitan could reply that random selection isn’t really necessary and that we can help a lot of people a lot more than we may think, without completely undermining our own wellbeing. It’s not absolutely clear that the world doesn’t hold enough resource to give everyone a decent life.

Income Inequality (23): Income Inequality and Poverty

At first sight, income inequality and poverty are completely different things. Poverty is clearly a human rights issue, while income inequality is clearly not, at least not directly (it can have an impact on some human rights). Income inequality is a relative indicator, not an absolute one, and is, for this reason, claimed to be not about poverty at all. Poverty, it is said, is about absolute deprivation and is a lack of the resources necessary to satisfy certain basic needs. Income inequality just describes the unequal possession of resources, basic or otherwise. And indeed, it’s possible to imagine a very rich society in which no one is poor in the sense of lacking basic resources, but in which the distribution of resources is very unequal. Vice versa, there may be countries in which everyone is (almost) equally poor.

However, if we compare countries, we see that the more unequal a society, the larger the numbers of people suffering from poverty. Does that mean that high income inequality leads to more poverty? Not necessarily. That would probably be the case if we saw that a country’s poverty rate grows with increasing inequality. But that doesn’t happen:

If we look across the rich nations, it turns out that there is no relationship between changes in income inequality and changes in the absolute incomes of low-end households. The reason is that income growth for poor households has come almost entirely via increases in net government transfers, and the degree to which governments have increased transfers seems to have been unaffected by changes in income inequality. …

In some countries with little or no rise in income inequality, such as Sweden, government transfers increased and so did the incomes of poor households. In others, such as Germany, transfers and the incomes of low-end households did not increase.

Among nations with sharp increases in top-heavy inequality, we observe a similar disjunction. Here the U.S. and the U.K. offer an especially revealing contrast. The top 1%’s income share soared in both countries, and through the mid-1990s poor households made little progress … But over the next decade low-end American households advanced only slightly, whereas their British counterparts experienced sizable gains [thanks to the Labour government, FS]. (source)

So, in other words, there are countries with soaring inequality that still manage to make the poor better off in absolute terms (not in relative terms obviously) through redistribution. Other countries that witness the same evolution of inequality don’t make their poor better off. And trickle down also doesn’t seem to work, by the way. Vice versa, the less unequal countries also differ in the way they treat the poor. Income inequality doesn’t produce poverty because it doesn’t affect the welfare state.

It’s often argued that income inequality not only fails to produce poverty but actually helps to reduce it. That argument goes something like this. High levels of income inequality – and therefore high wages at the top – are necessary for economic growth. If the top economic performers are allowed to earn very high wages, they will have an incentive to produce and innovate. That will lead to economic growth, which will in turn, through a trickle down mechanism, benefit everyone, including the poor and those earning very little.

However, from the quote above it follows that it’s government transfers rather than automatic mechanisms that have helped the poor during the last decades of increasing inequality. If inequality by itself would reduce poverty, these government transfers would not have been necessary. An increase in income inequality by itself does not improve low-end incomes, as is shown by the example of the US.

And even if it could be shown that rising inequality pushes up the absolute income of the poorest, there are other reasons to object to inequality (such as this for example).

Migration and Human Rights (36): The Social Security Argument Against Open Borders

If there’s one Milton Friedman quote that’s repeated far too often it’s the following: “You cannot simultaneously have free immigration and a welfare state”. The income of relatively rich people in many poor countries pales in comparison to what the poor, unemployed, sick, young and elderly in rich countries get from welfare and social security transfers. Hence, the argument goes, opening borders and eliminating immigration restrictions would cause massive flows of people to those rich countries. Perhaps some of these people would come in the hope of finding a good job, but at the same time they have the certainty that, if they fail, they will enjoy generous social protection. And all the rest will come just for the benefits.

The problem, some say, is that rich countries can’t afford large increases in the numbers of welfare beneficiaries, and that they therefore must limit immigration. Open borders are only feasible when global poverty has been solved and income levels are more or less comparable across countries. Or, when rich countries would decide, unrealistically, to eliminate their welfare systems or at least coldheartedly decide to exclude all immigrants from welfare.

However, immigrants in the U.S. use welfare at lower rates than natives and have higher rates of labor force participation. In the U.K., immigrants represent about 13% of all workers, but only 7% percent of unemployment benefits (source).

Anyway, even if we assume that open borders will be a net negative for western welfare systems, there’s no need to limit the options to the stark choice between welfare and open borders. We could, for example, give immigrants access to labor markets but only limited access to unemployment benefits, or we could delay their benefits, demanding that they first contribute to the system during a number of years (something which might actually strengthen the system). However, we’d have to be careful and not create inequality, discrimination and a class society.

Or we could decide to grant immigrants full access to welfare because we believe that global inequality should be reduced. Access to welfare would then be a kind a development aid.

And, finally, it’s possible to view matters from an entirely different angle. Large chunks of welfare transfers go to the elderly. Given the demographic evolutions in many rich countries, it may be that immigration will be the only way for aging countries to sustain their welfare states.

Is Taxation Akin to Theft and Slavery?

The notion that taxation is theft and a violation of property rights is quite common, especially in libertarian circles. (A less extreme version of the argument claims that taxation may be a justified limitation of property rights but its level should be kept as low as possible because of concerns for economic incentives).

The classic justification of this rejection of taxation is a reduction ad absurdum: if a state can tax its citizens, how much can we reduce the group of people and still hold that this group can impose taxes on its members?

There are many variations of [this argument], but one begins, for instance, with the example of a man stealing a car, which most people would regard as unethical. It then proceeds to make slight changes to the story, with the identity of the thief gradually shifting from one man, to a gang of five men, to a gang of ten men who take a vote (allowing the victim to vote as well) on whether to steal the car before stealing it; … to one hundred men who take the car and give the victim back a bicycle; to two hundred men who not only give the victim back a bicycle but buy a poor person a bicycle as well. It ultimately challenges the reader to say how big a group needs to be, and what characteristics it needs to have, before the immorality of theft becomes the alleged morality of taxation. (source)

Taxation is not only rejected because it’s viewed as a form of official and legalized theft. It’s also viewed as a form of slavery. Robert Nozick, a famous libertarian, has argued that taxation of earnings from labor is on a par with forced labor.

Nozick starts from the reasonable assumption that people own themselves. Self-ownership also means that people own their talents and labor power. He then continues with the Lockean argument for private property: we produce goods by mixing our labor power and talents with elements of the material world, and by this mixing we generate ownership of those modified elements of the world. If the government taxes our income, it takes away – or steals – parts of what we own through our labor. But the government doesn’t just steal things from us. Because our labor and talents have been incorporated in the things we own – and we own them because of this incorporation – taking them from us means effectively that the government owns our talents and labor, and hence owns us. Taxation means that the government takes away our self-ownership. And that’s slavery. It also means that the government uses people as means rather than ends, violating Kant’s maxim.

If you’re convinced by this kind of reasoning and agree that taxation is slavery, forced labor and theft, then you’re morally allowed or even obliged to resist taxation and rebel against government. And you’re likely to be a libertarian.

However, you may also want to consider a few counter-arguments.

1. There’s first the issue of value pluralism. Private property and self-ownership are undoubtedly important, but not so important that they trump all other values. Hence, they can be limited to accommodate a balancing with other concerns.

2. The rejection of taxation becomes morally difficult when we consider the purpose of taxation, or better the – substantial – part of taxation which serves the welfare state and the realization of economic rights. Economic rights are primarily a duty of charity, as I’ve argued here. The state, with its welfare mechanisms, should only intervene when citizens don’t (sufficiently) help each other. And it needs taxes to do that. Taxes are the enforcement of the duty to charity. Which is why tax fraud, tax evasion and certainly the principled refusal to pay taxes are particularly reprehensible: the existence of taxes is already a stain on the reputation of mankind, because taxes exist as a consequence of the fact that people deny their responsibilities. Denying the duty to pay taxes is a double moral failure.

However, some libertarians go along with the first part of this argument and accept that people have a moral duty to help others (others who are starving for example). However, they deny that this creates a right. So, ideally, these libertarians would not commit the first prong of this double moral failure, in which case the second prong could not occur. And yet, in the non-ideal world, libertarians – and others – do commit the first moral failure, i.e. do not live up to their responsibilities to help others. Subsequently, libertarians and others who follow Nozick, are doomed to commit the second moral failure as well. What’s more, they can’t even call it a moral failure because according to them starving people don’t have a right to demand our help (the fact that we have a duty to help doesn’t necessarily give them a right to our help). Such a right would be incompatible with self-ownership. It would mean stealing our goods and our labor power and talents. It would mean using us as a means for their survival. In my view, the claim that the duty of generosity doesn’t create a right to generosity is a simple artifact invented to guarantee the supremacy of property rights.

3. Nozicks reasoning about self-ownership and property is shaky, as he himself admitted:

why isn’t mixing what I own with what I don’t own a way of losing what I own rather than a way of gaining what I don’t? If I own a can of tomato juice and spill it in the sea so its molecules… mingle evenly throughout the sea, do I thereby come to own the sea, or have I foolishly dissipated my tomato juice? (source)

4. Given the importance of talents in the libertarian argument, and the refusal to have people’s talents “harvested” for the sake of the minimal welfare of those without talents or otherwise unable to fend for themselves: is it not evident that there’s an injustice involved in the distribution of talents? Nobody decides freely to be born without talents, so the absence of talents is nobody’s fault. Should you be forced to suffer for something that is not your fault? In addition, is there not a small possibility that people are rewarded for the wrong talents and that some talents are not sufficiently rewarded? If all that’s the case, then the claim that the state can’t use the proceeds of your talents for the benefit of others becomes a lot weaker: if those proceeds could just as well have gone to other talents or the talents of others (in part at least), and if your talents are just a matter of luck, why should you have a right to keep those proceeds?

5. And finally, is it not somewhat gross to compare the fate of a taxpayer to the fate of a slave? A taxpayer retains many of the freedoms a slave can only dream of.

Economic Human Rights (34): The Cost of Human Rights, and of Economic Rights More Specifically

Human rights cost money. It’s often claimed that economic human rights aren’t really human rights because they are so expensive for many governments in the world that they can’t realistically impose duties: governments of poor countries can’t be expected to respect a duty to provide healthcare, housing, food, work etc. Ought implies can. You can’t be under an obligation if there’s no way you can honor that obligation. It’s claimed, therefore, that economic rights are mere aspirations rather than rights.

Yet, the same argument can be made about the supposedly more distinguished and respectable freedom rights. It’s strange, many countries in the world can’t manage to create the institutions and the governance to enforce freedom rights, simply because they don’t have the means (and sometimes the willingness), and yet this fact doesn’t make people think twice about the reality of freedom rights.

Providing effective and non-corrupt police forces and judiciaries is expensive. Probably just as expensive as providing a good public healthcare system. True, rights have to be enforceable, and duties shouldn’t be farcically unrealistic. But I fail to see the ontological difference here between freedom rights and economic rights.

We also shouldn’t overestimate the cost of economic rights. The purpose of these rights is not to have a government that gives healthcare, food, work etc. to every single citizen. That would destroy the economy. A system of economic rights will require that most people provide these goods for themselves through work and economic activity. It will also require that citizens show generosity and help each other. Economic rights also create duties for fellow-citizens. The government supplies the goods in the remaining cases, when self-help and mutual help are not enough.

As a result, the cost of economic rights isn’t as high as a cursory reading of these rights would imply. Conversely, the cost of freedom rights is often higher than one would conclude at first sight: true, these rights often require abstinence and forbearance (“don’t invade my privacy or inhibit my speech”) and that’s something cheap. But the enforcement and equal protection of those rights and the enforcement of forbearance requires an efficient government, which is expensive.

Something about another cost issue related to human rights, namely the relative cost of freedom and dictatorship, is here.

The Ethics of Human Rights (28): Private Charity vs the Welfare State

In a previous post, I wrote about my personal views regarding the best ways to help the poor. I favor private philanthropy or charity over the welfare state. Some of the reasons are:

  • The welfare state imposes certain costs on the economy, thereby damaging the prospects of the future poor.
  • Closeness and affinity imply a greater ability to help. And he or she who can do more, should do more (can implies ought). Citizens are better placed than the government to help poor people in their community/family because they better understand the needs.
  • Spontaneous mutual assistance fosters community spirit. Allowing poverty reduction to take place at the level of citizens’ relationships will strengthen feelings of belonging.

When all this fails – as it often will – and only when this fails, can a state intervene and can the welfare mechanisms and redistribution systems based on taxation begin to operate (these merely enforce deficient private philanthropy).

However, some claim that the welfare state crowds out private charity. If you don’t care about private charity and want a government monopoly on care for the poor, you won’t mind if there is crowding out. And if you don’t care about private charity or about government assistance to the poor, you won’t mind either. But I guess most people agree with me that both charity and the government have a part to play (although they may not agree with my chosen priorities). So it’s good to see that

government welfare programs [do not] appear to displace an equivalent amount of private charity. Private giving does not vary inversely with the size of government programs and there is little evidence for a “crowding out” effect. Many private charities, in fact, rely on government funding to some extent. Private charitable giving to the poor, defined in narrow terms, runs in the range of $10 to $15 billion a year [in the U.S.], and few observers believe that this sum is capable of significant augmentation in the short run, regardless of government policy. Tyler Cowen (source)

More posts in this series are here.

The Ethics of Human Rights (27): The Human Rights of Future Generations and Poverty

I’ve argued many times before that poverty is a human rights issue, so I won’t do that again. For those who are not convinced, just assume arguendo that I am right, otherwise the rest of this post won’t make a lot of sense. I’ve also presented my views on the types of duties produced by the human right not to suffer poverty, and on the moral agents that carry those duties: is it a face-to-face thing, or does the government have a role to play by way of redistribution and the welfare state? Etc. You can read about this here and here for instance, so that’s something else I won’t repeat.

I do believe the welfare state is an important institution because it can fill the gap left by deficient private charity. But my view is that private charity should come first and should be promoted. The welfare state should be a fallback option rather than the starting point. So I guess I don’t think it’s as important as people from the left usually think it is. In order to bolster my view, I can point to some problems with the welfare state. In fact, it can be argued that the welfare state is another case of a self-defeating human rights policy, in the sense that it reduces poverty but at the same time produces poverty. Tyler Cowen, in a very interesting paper, has argued that while the welfare state does indeed reduce the levels of poverty of those people currently living (at least if we focus on the level of the state and forget the global impact of the operation of a welfare state in a particular country), it also has a negative impact on the poverty of future generations.

The argument goes as follows. It’s reasonable to accept that economic growth lifts people out of poverty and that the welfare state lowers the rate of economic growth, perhaps not by much annually but small reductions of economic growth over several years may amount to a large cumulative reduction. Now, how does the welfare state lower the rates of economic growth? There are at least four effects:

[1] A welfare state will cause some people to substitute welfare dependency for private work, thus lowering the number of individuals in the active work force or causing them to work less hard. … The poor could be engaging in more productive exchange with other individuals in the economy, but to some extent they desist, for fear of losing welfare benefits. …

[2] The taxes used to support the welfare state discourage taxpayers from working or otherwise creating economic value. …

[3] The extensive welfare states of Western Europe typically are bundled with labor market protections and interventions. It is not politically or economically feasible to give the non-working significantly more risk protection than the working. Western European welfare states therefore tend to create a privileged class of working “insiders,” with high real wages, high benefits, and near-guaranteed positions of employment. This practice, of course, lowers the number of new jobs that are created, limits labor market mobility, and raises unemployment.

[4] [The welfare state] causes the economy to develop new technologies and new ideas at a slower rate. … A welfare state will plausibly have a negative effect on innovation. By withdrawing individual labor from the productive sector of the economy, the rate of discovery is likely to fall. Both the poor and the taxpaying non-poor will work less when a welfare state is in place [see 1 and 2 above]. If we think of research and development, broadly construed, as one kind of work, we can expect the rate of growth to decline. Even if the poor do not participate in ideas production directly, they do so indirectly. To provide a simple example, to the extent it is harder or more costly to hire good janitors, and other forms of cheap labor, fewer research laboratories will be opened. … The welfare state permanently discourages various individuals from contributing to technological development and thus lowers the rate of economic growth in lasting fashion. (source)

One can argue about the importance or even the existence of these four effects, and there may even be counter-effects (welfare recipients may move in the underground economy, unemployment may lead to better parenting and hence better education etc.). But even if the effects are small, it’s sufficient to spread them towards the very long term future in order to produce a lowering of the economic growth rate and an increase in future poverty. Given that the future contains an infinitely large population, the welfare state will always produce more poverty than it eliminates (given that the current population and hence also the current poor are a limited number). That would mean that the concept of the welfare state is doomed. And if that’s the case, it would seem I have proven too much (I merely wanted to buttress my argument that the welfare state should come second, after private philanthropy).

However, I don’t think it’s obvious that we should value the rights of future people the same way as the rights of existing people. After all, these future people may never come into existence. If we try to protect their welfare by giving up the welfare state, we will harm real people for the rights of people who may never exist. Furthermore, the future may bring a novel solution to the poverty problem.