The End of Poverty (in our time)?

[Astronuc]

Earth Institute News

posted 03/01/05

Contact: Ashwini Ramaswamy
212-366-2814 or ashwini.ramaswamy@us.penguingroup.com

The End of Poverty: Economic Possibilities for Our Time
Jeffrey D. Sachs writes a realistic blueprint for worldwide economic success

"Extreme poverty can be ended, not in the time of our grandchildren, but our time." Thus forecasts Jeffrey D. Sachs, whose twenty-five years of experience observing the world from many vantage points has helped him shed light on the most vital issues facing our planet: the causes of poverty, the role of rich-country policies, and the very real possibilities for a poverty-free future. Deemed "the most important economist in the world" by The New York Times Magazine and "the world's best-known economist" by Time magazine, Sachs brings his considerable expertise to bear in the landmark The End of Poverty: Economic Possibilities for Our Time, his highly anticipated blueprint for world-wide economic success - a goal, he argues, we can reach in a mere twenty years.

http://www.earthinstitute.columbia.edu/endofpoverty/

 

[russ_watters]

The drop in poverty in recent history has been nothing short of spectacular, but there are still a couple of billion people to help. I'm not optomistic that it'll end, but it may be possible in 75 years to have it down to 10-20%.

 

[Janitor]

Possible side topic here: There is some discussion of means-testing for Social Security benefits in the USA. That is, the rules could be changed so that those retirees who have done well for themselves will not get the benefits that were promised to them when they were contributing into the system. Any thoughts on the fairness of this?

 

[misskitty]

There would have to be some serious economic reforms for the percentage of people below the poverty line to advance into middle-class. It can be done, the question is how and how long?

 

[Astronuc]

There is some discussion of means-testing for Social Security benefits in the USA. That is, the rules could be changed so that those retirees who have done well for themselves will not get the benefits that were promised to them when they were contributing into the system. Any thoughts on the fairness of this?

I don't believe that one is promised to get back what one put in. There is a certain amount money to be paid depending on age or retirement. (BTW - I probably won't retire - I have too much fun working. )

I believe a person should receive back what they put in. If the system cannot do that, then the system must be fixed.

There is a currently limit on the maximum SSI tax taken out. Perhaps that should be increased.

How does society provide for those of low income, who cannot afford retirement?

 

[loseyourname]

In my time, maybe. In your time, Nuc, no way.

This highly depends on how we define "poverty," though. I've known people living below the poverty line in this country (young people, mostly) that lived fairly decent lives, certainly better lives than 90% of people in the 19th century. On the other hand, I have also known people that made plenty of money, but spent so much or were so far in debt that the quality of their lives was nothing near that of people making far less.

 

[Rev Prez]

A review in WaPo by William Easterly.

Rev Prez

 

[Telos]

I'm a 4th year economics student, specializing in international economics, so I was excited to see what this Sachs guy has to say.

But this is really disappointing. If what that WaPo review says is true, that all Sachs is doing is looking for money to fund infrastructure projects for a "big push" out of poverty, then it's doomed to fail.

World Bank programs have not failed because of free market influence, they've failed for a large number of reasons, but mostly because they fail to give poor nations autonomy in their own growth. Being supplied and being empowered are not the same thing!

The US needs to back off on its agricultural subsidies (especially on sugar, it's just criminal the extent we protect sugar). Agriculture is where poorer nations have their comparative advantage! And we stunt their growth by not buying from them. And we also need to stop tariffing cheap clothing imports. Bangladesh pays more in tariffs to the US than France does!

It's ironic - I'd like to write more but I have to study for an International Trade exam. :(

 

[loseyourname]

I'm a 4th year economics student, specializing in international economics, so I was excited to see what this Sachs guy has to say.

But this is really disappointing. If what that WaPo review says is true, that all Sachs is doing is looking for money to fund infrastructure projects for a "big push" out of poverty, then it's doomed to fail.

World Bank programs have not failed because of free market influence, they've failed for a large number of reasons, but mostly because they fail to give poor nations autonomy in their own growth. Being supplied and being empowered are not the same thing!

The US needs to back off on its agricultural subsidies (especially on sugar, it's just criminal the extent we protect sugar). Agriculture is where poorer nations have their comparative advantage! And we stunt their growth by not buying from them. And we also need to stop tariffing cheap clothing imports. Bangladesh pays more in tariffs to the US than France does!

It's ironic - I'd like to write more but I have to study for an International Trade exam. :(

Unfortunately, there isn't a whole lot of international altruism in economics. American citizens want to protect American jobs at the expense of free trade policies that could greatly help the larger world.

 

[PerennialII]

I'm a 4th year economics student, specializing in international economics, so I was excited to see what this Sachs guy has to say.

But this is really disappointing. If what that WaPo review says is true, that all Sachs is doing is looking for money to fund infrastructure projects for a "big push" out of poverty, then it's doomed to fail.

World Bank programs have not failed because of free market influence, they've failed for a large number of reasons, but mostly because they fail to give poor nations autonomy in their own growth. Being supplied and being empowered are not the same thing!

The US needs to back off on its agricultural subsidies (especially on sugar, it's just criminal the extent we protect sugar). Agriculture is where poorer nations have their comparative advantage! And we stunt their growth by not buying from them. And we also need to stop tariffing cheap clothing imports. Bangladesh pays more in tariffs to the US than France does!

It's ironic - I'd like to write more but I have to study for an International Trade exam. :(

Please enlighten us more ... the irony within the topic is not lost either. I'd be willing to believe that extreme poverty (3rd world type) be abolished given approx. half a centure (likely wishful thinking), but poverty itself is structural ... nope.

 

[Pengwuino]

Unfortunately, there isn't a whole lot of international altruism in economics. American citizens want to protect American jobs at the expense of free trade policies that could greatly help the larger world.

So does every other country in the world. Look at the EU if you want to see some real protectionism in action

 

[misskitty]

They do have some pretty big protections going on.

 

[Telos]

Please enlighten us more ... the irony within the topic is not lost either. I'd be willing to believe that extreme poverty (3rd world type) be abolished given approx. half a centure (likely wishful thinking), but poverty itself is structural ... nope.

Okay.

First of all, nothing in economics should ever be done hastily. We are never sure of the diversity and magnitude of externalties that occur as a result of decision-making. Quick decisions also cause turbulence and uncertainty in markets and may force people to readjust their entire livelihood on short notice. So, we shouldn’t even try to do anything hastily.

In the case of poverty, we should get people out of it as soon as possible, but poverty is by definition a long-term problem and needs a calm and collected long-term solution. Whether 20 years is long or short is debatable.

By all means, make haste in getting medicine out to those who need it, and food and drinking water etc. But people are impoverished because they either do not have the will or the ability to sustain resources to cover the cost of living. There is no “big push” out of poverty – that’s tantamount to selling “get rich quick” schemes. There is only a long haul, because life is a long haul – survival requires continuous attention and work. Resources will help you survive, but resourcefulness will help you live.

Second, those who are truly poor are those who are not free. Differences in political philosophy aside, people cannot capitalize on their abilities if they are forcefully prevented from doing so, especially by totalitarian regimes or by regional conflict. (I’m not sure if Paul Wolfowitz running the World Bank is the best solution, but he did say in a WaPo article that he would not change the relationship the Bank has with its clients based on the way they rule their countries… that’s just weird that he’s been nominated, he doesn’t even have economic training). Anyways, any plan to eliminate poverty will require eliminating oppression of all sorts. Economic oppression is a unique matter and deserves intense scrutiny. But simply, individuals must be free and secure in order to live life.

Now, I realize my knowledge in the following areas is mostly academic, but it’s clear there is a large amount of negligence and complacency amongst policy makers regarding trade relations with poorer countries. Just complete total utter criminal negligence. Not only must we honor the tradition of postwar trade liberalization, we most importantly must reaffirm basic principles we know are theoretically and empirically sound – namely the principle of comparative advantage.

Every freshman business student at my university learns about this principle. And it is so completely painful to see our government not only ignore it, but act against it! Comparative advantage is a keystone method for finding win-win situations. I know some of you already know this, but for those who don’t, it’s very simple and worth repeating.

Rich nations tend to have the “absolute advantage” in production. We can make just about everything poorer nations can make, and do it for a cheaper price. Poor nations are poor because they produce things relatively “poorly” compared to the more industrialized nations. However, just because they don’t have absolute advantages of their own doesn’t mean that they don’t have advantages to profit from. They still have “comparative advantage.” While poorer nations cannot produce at lower nominal costs, they can still produce at lower opportunity costs. A very simple numerical example can be found at the following site.

http://www.digitaleconomist.com/ca_4010.html

Poorer nations can maximize their profits by minimizing their opportunity costs and producing in the industries where they have their comparative advantage. Poor nations tend to have comparative advantages in goods that require large amounts of land (agriculture) and large amounts of unskilled labor (textiles).

What should rich nations like the US do? We can maximize our profit by minimizing our opportunity costs as well and specializing in the industries that we’re good at. That’s sort of confusing for us, because we’re good at lot of things. But something we can easily do is not put quotas and tarrifs on agriculture and textiles from poorer nations.

My goodness! You’ve got to see some of these numbers… here is an article we just had to read for Int. Trade a few weeks ago, available from my university’s online reserves.

http://www.marquette.edu/library/rayspring05/e-2822.pdf .

By imposing trade restrictions on the comparative advantages of poor nations, we are effectively oppressing and punishing them. We are being criminally negligent. We need to slowly back off on agriculture and clothing tariffs immediately.

We should not try to supply poor nations with absolute advantages and try to raise them to our level – they need to be free to develop their own strengths and in their own way. But, we must aid them in their growth through the comparative advantages they already have. And (now this is a contraversial “and”) we must allow them some leeway to protect their own industries.

Right now World Bank and IMF policies require poor nations to liberalize trade if they are going to accept loans and other capital assistance. But this has historically leaded to low domestic consumption and gross trade imbalances - citizens of poorer nations buy goods from industrialized nations because they are cheaper (usually because industrial nations subsidize those industries, either directly or indirectly). Not only this, but it cuts a poor nation off from a potentially significant source of tax revenue and from the long term tax revenue that would’ve occurred had domestic consumption been greater.

Every industrialized nation grew from histories of high protectionism, but now they’ve outgrown the need for it. We must understand that it no longer makes to sense to protect industries that are already dominant.

Poor nations must also be free to subsidize industries that they want to grow. Poor nations may have comparative advantages, but they may still not be very good – they must have the freedom to choose where they want to strengthen their comparative advantages using public funds. In other words, they must be free to institute industrial policy. Some of the best empirical evidence for successful poverty reduction through industrial policy comes from postwar Japan. The Japanese had poor agricultural land to begin with, and their factories had been reduced to rubble, so they had little comparative advantage in anything. This post is getting long so I should not ramble…

The point is, poor nations have small markets and small firms, so their protectionism will not have as much of an impact as, say, protectionist policies between the US and the EU. Poor nation protectionist policies on average do not affect the world price of a good.

I think I should wrap it up here. I have not read the Sachs book, so I cannot criticize what I haven’t read, but more aid simply will not work. It hasn’t been working for the past half-century and there’s little reason to expect more of it to work in the future. Instead of focusing more on aid, we must focus more on policy decisions.

Poverty will end when the poor exercise their will and are allowed to act in accordance with their abilities.

 

[misskitty]

Wow, Telos, that's a lot of information. All very good and well stated. Heres a question. You stated that giving more aid won't do anything to help the problem. Is there any kind of aid we can provide, other than food, medicine, water, etc., that we can provide that might help the situation? If there is how do we go about distributing it?

 

[Telos]

Oh, I'm sorry, misskitty. I meant that more financial aid and capital assistance will not help the problem. The debt that has been incurred by poor nations is truly staggering, sometimes prompting them to put more public funds into repaying debt then on domestic problems. The solution may be to just give them the money, but we've already done that in the form of debt forgiveness.

Certainly, we should give as much humanitarian aid as possible. I did not mean to say that more humanitarian aid will not work. Some places are genuinely crippled by disease and part of empowering them will mean healing them, but not necessarily the other way around.

People are empowered by freedom. I know that may sound flighty or romantic, but poor nations are not currently free to sell much of their comparative advantage to rich nations like the US. They are also not free to institute their own protectionist policies, as long as they've borrowed money from the World Bank or the IMF. And, of course, some do not have freedom protected by their governments. We must give them more freedom.

I don't mean we should necessarily invade them and topple their regimes ;), but we can do much to give freedom to them by removing our protectionist measures on their comparative advantages, and perhaps by allowing them to protect and grow their industries. It will definitely require sacrifice on our part, and is a better kind of aid, IMO. But, then, we're running a huge debt of our own in the US, so things are little crazy. I have read some other reviews and it looks like Sachs addresses this.

The overall theme is to make economic change slowly. A "big push" will not only fail to bring people out of long-term poverty but may actually end up hurting many, including those it intends to help. I'm responding to what was written in the WaPo review, so that is already premature. Sachs will deserve better scrutiny.