Libertarian Anti-Poverty Policy

A few weeks ago, Elizabeth Nolan Brown explained how the War on Sex Workers is making the problems usually associated with prostitution worse. I noted that it seems like a rule that whenever government declares war on something, bad things happen.

The War on Poverty has been no exception. In the 1960s, Lyndon Johnson sought prevent and even cure poverty, much like Nixon unsuccessfully sought to cure cancer. Some 60 years later, the poor are still with us and bad policies alleviate poverty effectively trap them there.

The Cato Institute’s Michael Tanner has written the definitive book on a libertarian anti-poverty policy. The Inclusive Economy: How to Bring Wealth to America’s Poor is both readable yet scholarly. It plots the history of welfare from the Middle Ages to the present, and shows how the current system arose from two conflicting outlooks about why poverty exists. Both liberals and conservatives have missed the mark in their diagnosis and, more importantly, their cure for poverty.

Free markets and exponential growth have lifted millions of Americans out of poverty, but government continues to create artificial barriers that keep people stuck on the lower rungs of the economic ladder. We can start by pointing out the harmful effects of minimum wages, occupational licensing and the like, but it goes much beyond this.

A Short Lesson in Marginal Tax Rates
Rule #1 for thinking clearly about welfare is that incentives matter. Rule #2 is that we have to think at the margin. In other words, we have to ask what the incentives are for a person at the poverty line to earn or save an additional dollar? Since many benefits are conditional on low income or a scarcity of savings, the poor are faced with the devil’s dilemma of either bettering themselves and losing their free benefits, or remaining economically secure wards of the state.

The marginal tax rate for people just above the poverty rate is 34%, meaning 1/3 of every additional dollar earned goes to the government. That puts them in a higher bracket than those earning more than $250,000 a year.

Stopping the Blame Game
Tanner notes that while conservatives are likely to blame the poor for a lack of personal responsibility — citing a “culture of poverty” as the reason for their poverty — liberals tend to focus too much on structural issues. While both cultural and structural causes are real, they are also hard to disentangle. Debating which factor predominates is usually done to assign blame to some group to score political points. Both sides share a paternalistic attitude that uses poverty as an excuse to limit freedom of choice, and neither side acknowledges what actually works to alleviate poverty.

Like a good doctor, Tanner’s approach is to “first do no harm.” From poverty traps, to dismal public schools, to incarceration for victimless crimes, the government already does a great deal to guarantee the existence of an entrenched lower class.

Tanner’s book points to five specific areas where we can help the poor by enhancing freedom and helping people become captains of their own fate. Hear what these areas are, on the show of ideas, not attitude.