Why do markets work to alleviate poverty and governments fail?

Walter Block once wrote of a politician holding hearings on the problem of poverty. He recommended that the politician instead of wasting money and coming to the wrong conclusion just take An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith home and read it. Smith wrote in his book so long ago that those countries that rely mainly on the free enterprise system of private property rights and the rule of law prosper much more than those that do not. Much like the difference between North Korea and South Korea. Block conducted research (Gwartney, James; Lawson, Robert; and Block, Walter. 1996. Economic Freedom of the World, 1975—1995) which found a statistically significant relationship not only between the degree of economic freedom in a country and its per capita income but also between liberty and income equality. Little surprise there; but nice to see published research on the matter.

The main reason markets work and government fails is the profit and loss system of the market. The Austrian School has been telling us this truth for a long time now. There is a “feed back loop” where prices signal to all people information that helps us to make sure we are investing our efforts and our capital where we need to do that the most. Often we neglect to appreciate the entrepreneur whose job is to judge the future and to supply the wants and needs of the population before they even know what they want themselves. Success brings profit for the entrepreneur and failure brings ruin. On the other hand, a government functionary or a politician does not have to personally pay for their errors in judgment. Often they claim failure is a sure sign we need even more government!

In the private market, even with government interventions that are disruptive, we see that businesses have to serve their customers by giving the best product or service they can at the best price they can manage. Those that do the best job stay in business. But they also have to keep good employees to make the operation go and that takes making the job worth having for the qualified men and women that the firms need to function.

Government on the other hand just uses force to stay in business. The road system in the US could be much better and much safer but it is a government monopoly that does not need to compete with anyone else. In politics the government can raise vast sums of money by just stealing it (called taxes) rather than serving others as a large business must do to earn fortunes. When the government rakes in big bucks, the people get poorer. That is the nature of the game. Crumbs go out to the poor and downtrodden as government makes their lives even worse via the help they give them. I once read that slavery could not destroy the black family but government help (“welfare”) was able to turn the trick.

A lot of money goes to favored corporations in the form of subsidies, corrupt contracts, favorable laws, favorable regulations, and other crony graft and greed. The unfavored businesses then have to compete, or try to, with the “cool” corporations that have crony government connections.

We live in a world where people have differing intelligence levels and skills. We live in a world where changing market preferences will cause some industries to lay off people and other to look to hire more people. As a society we need government to stay out of the way so that that market can signal to the producers just where our efforts should be in the ever changing world we live in. As a society we want to ensure that everyone who wants to work has a chance to do so and help create the wealth and alleviate poverty.

Walter Block once wrote that by “repealing minimum-wage laws, comparable-worth rules, working-condition laws, compulsory union membership, employment protection, employment taxes, payroll taxes, government unemployment insurance, welfare, regulations, licensing, antipeddling laws, child-labor laws, and government money creation” we could unleash the market and give the unemployed and those in poverty the best chance of working and improving their lives.

Bill Bonner once wrote on how to achieve full employment:

Want to really fix the unemployment problem? Listen up. Eliminate all bailouts, subsidies, giveaways and support systems – both to business and to labor. Abolish all employment restrictions and employment paperwork. All free labor – undocumented non-citizens – to compete equally with native-born workers. Cut taxes to a flat 10% rate for everyone. Abolish every government agency that begins with a letter of the alphabet. Then abolish the rest of them.

We confidently guarantee that the nation would be back at full employment within 30 days.

The path to jobs that matter and are not government make-work jobs is the free market. It always has been. Government is the obstacle to peace, prosperity, and good jobs for those that want to work.

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One thought on “Why do markets work to alleviate poverty and governments fail?

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