Monday, May 9, 2011

The Magic Lever to Cure Poverty

Over at Matthew Yglesias' blog he has a post titled Poor Economics. He is giving his thoughts about a book of the same name by author and economist Esther Duflo. He cites two passages. The first he found "convinving":
We also have no lever guaranteed to eradicate poverty, but once we accept that, time is on our side. Poverty has been with us for many thousands of years; if we have to wait another fifty or hundred years for the end of poverty, so be it. At least we can stop pretending that there is some solution at hand and instead join hands with millions of well-intentioned people across the world—elected officials and bureaucrats, teachers and NGO workers, academics and entrepreneurs—in the quest for the many ideas, big and small, that will eventually take us to that world where no one has to live on 99 cents per day. (emphasis in original notation)
 That does sound convincing. Everybody working together, taking small steps, eradicating poverty, no idea too small, giving each other warm, fuzzy hugs. That is, it makes sense until you read the next passage cited by Yglesias:
We have started including the question “What are your ambitions for your children?” in surveys given to poor people around the world. The results are striking. Everywhere we have asked, the most common dream of the poor is that their children become government workers. Among very poor households in Udaipur, for example, 34 percent of the parents would like to see their son become a government teacher and another 41 percent want him to have a nonteaching government job; 18 percent more want him to be a salaried employee in a private firm. For girls, 31 percent would like her to be a teacher, 31 percent would want her to have another kind of government job, and 19 percent want her to be a nurse. The poor don’t see becoming an entrepreneur as something to aspire to. (emphasis in original notation)
See the disconnect?

First, it's a big problem that parents want their kids to be a government worker. If the best way out of poverty is a government job, than the government is already so large that it is stifling the economy and causing poverty, since that one government job is financed by taxes on many impoverished families.

Second, all they want are jobs. All they need are jobs. So, it seems the best way to eradicate poverty is to give them jobs. Not wanting to be entrepreneurial is not necessarily a bad thing. Many Americans are risk-adverse and prefer a "stable" job to going it alone.

And that brings us to the magic lever, which Yglesias hints with "super low wage sweatshop work": "Outsourcing American Jobs".

Free trade, free markets, globalization. Poor countries liberalizing their economies and cutting government. Rich countries outsourcing low productivity jobs. Basically, what we have been doing for decades.

I know, I know. We're supposed to "save American jobs." Though I'm not entirely sure what an "American job" is. Arnold Kling, in a post about technological job displacement, writes that "occupations that were decimated by mechanization during the Great Depression: cotton picking, cigar rolling, glass blowing (of bottles and light bulbs). Would anybody want those jobs if they became available now?" The same can be said for outsourcing. Do you really want that job in the call center? What about those "manufacturing jobs" we here so much about? The ones where you are on your feet for 8-10 hours a day performing a mindless task over and over and over and over and over and over and over and... well, you get the point.

For those worried about Americans being unemployed, I'll remind you that the unemployment rate has only gone up because of the recession. In non-recessionary times, outsourcing has no discernible effect on unemployment.

I do understand the concern that markets don't work fast enough and that's legitimate. But I think the greater concern is pouring resources into things we know don't work, like foreign aid or governments and politicians that hamper markets and trade. We have lifted billions of people out of poverty over the last few decades, why stop now?

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