[Note: This item comes from friend Pete Wilson. DLH]
Why Oxfam is getting it wrong about poverty
By Tim Worstall
Jan 16 2017
As it’s Davos time, Oxfam has issued its traditional demand for a handout. Their wealth report this year informs us that a mere eight people have more wealth than the bottom 50 per cent of the world’s population. This is entirely true of course. But Oxfam’s solution is that we should take it from the rich and give it to the poor. Which is entirely wrong.
Our essential economic problem is that there are not enough rich people. Nor is their extreme wealth a problem. Our problem is poverty, not inequality.
Oxfam’s redistribution argument has been tried before and found wanting. It was the subject of the world’s largest economic experiment: the 20th century. Anyone surveying the rubble of central Europe from the Brandenburg Gate in 1989 knows that the taking and giving solution does not work. What is needed is the wealth creation strategy that we’ve been using in the period of free-market globalisation ever since.
The result of which is this:
This depicts the greatest reduction in human poverty in the history of our species. The secret of this socio-economic system being that what we consume is value and the system which produces value is the capitalist/free market hybrid. Even Karl Marx got that one right.
Oxfam’s preferred redistribution idea, however, would not work so well. Total equality of income would leave us all on US $8,000 a year or so. We Brits wouldn’t even be able to afford the level of government we currently have, let alone any food or shelter. Face it, Oxfam, it’s not going to work.
What we need is for more value to be created in order that more value can be consumed. William Nordhaus has explained why it’s capitalism that does it:
“The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits. We then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.”
The result is that entrepreneurs get to keep some 3 per cent of the value of their creations. The other 97 per cent of the value flows to us consumers out here. Value is what we consume; value is what GDP is, what income and wealth are. And the vast majority of, near all in fact, the wealth and income created by this capitalist exploitation flows to us.