January 24, 2013 1 Comment
I caught this on Wikipedia’s front page yesterday:
23 January 2013
Did you know
Why would anyone worry about "relative poverty"? The very concept strikes me as offensive. Absolute poverty is a big deal. Relative poverty is a made-up problem.
What is relative poverty? It’s the statistical "income gap" between the richest and the poorest within an economy. Note that "absolute poverty" describes how much you do or do not have. "Relative poverty" describes how much someone else has.
I think it’s safe to say that (absolute) poverty has been the most pressing issue for humankind for as long as we’ve been around. Some people have always been better at producing than others, but for the first few millennia of agriculture, it was almost impossible to produce enough to escape the hardships of nature and the threat of starvation.
The old way to escape poverty was to be strong enough and nasty enough to coerce the producers. Oppenheimer (and Nock, and Chodorov, and Rothbard) called this the "political means." Until recent centuries, the "economic means" could keep you from starving, but direct production (i.e., farming or artisanship) wasn’t going to make anyone rich, not without an indecent admixture of the political means (e.g., extracting a portion of other people’s product by whatever excuse was handy, or using slaves to do the producing for you on "your" land).
Beginning slowly a few centuries ago, and then much more quickly after the advent of the Industrial Revolution, the economic means became much more effective than they had been under lower levels of technology and more centralized forms of government.
Over time, in the West, fewer people starved to death. Fewer people feared starvation. The rural poor became the urban poor because they were better off in the cities than they were in the country. This process continues. As The Triumph of the City (which Doug French reviews here) makes clear, urban poverty can be a sign of the promise and success of a city: as poverty-reduction machines, market-rich cities attract more and more of the rural poor into the ranks of the urban poor. Over lifetimes and generations, the urban poor become the urban (and then often suburban) middle class. This is all to the good, and it’s driven by "capital," both in its financial sense (investment funds) and its older sense, "the means of production."
The market has, in a couple of centuries, undone much of the absolute poverty of the previous millennia. Those who want to see a reduction of absolute poverty and human suffering should hope to see the market spread throughout the world — that is to say, less of the political means and more of the economic means, now matched with 21st-century technology and a free flow of capital.
Chasing after the chimera of equality, trusting in the political means to, in essence, force the world to behave according to overly specific (but still arbitrary and culturally imposed) standards of "economic justice" may or may not result in a reduction in relative poverty. It’s guaranteed to increase absolute poverty.
Between my last post and this one, it’s going to seem like I’m picking on Wikipedia. I really don’t mean to. I love Wikipedia. I think I can say without exaggeration that it and Project Gutenberg fundamentally changed the quality of my life. But I can love Project Gutenberg, for example, while not loving every author or every book in the public domain. Likewise, Wikipedia is my main source of information on a daily basis. But an open project like Wikipedia can’t help but reflect some of the attitudes, values, and emotional reflexes with which I will want to take issue.
So whoever is in charge of the front page of Wikipedia decided to alert us to issue of relative poverty in South Korea.
I’m guessing that North Korea has much lower rates of relative poverty. Let’s have a look at what the lack of relative poverty looks like:
Postscript: Several years ago, I listened online to a talk by Walter Block in which he was discussing statistical work he had done for the Fraser Institute: a comparison of different degrees of economic freedom in different countries. One correlation that surprised me was Block’s claim that the more economically free countries also had the lowest income gaps, while countries whose governments were more involved in the economy produced larger income gaps. His explanation was that in a free market, an entrepreneur can only become rich by improving the lives of others. Successful entrepreneurship grows overall wealth; it does not transfer it.
I’m still not sure I buy it, but if he’s right, I’d say that relative poverty is not a problem in itself; rather it may be a sign that a market is being hampered by crony capitalists who are trying to use state intervention to earn what economists call "rent" — which I find a misleading term and prefer to call "political profit," as distinguished from honest and productive entrepreneurial profit in a free (or less hampered) market.
So, does anyone know if the South Korean government has recently become more aggressive in its regulation of the economy?
Well, not really an update. It’s just that Jeffrey Tucker just tweeted an image that I thought went well with this post: