Poverty is more than a lack of money, it's in essence, a lack of marketable skills and there is very little governments can do to alleviate it.

Why is poverty so intractable?

In “rich” countries and poor, amidst free markets or government control economies, approximately 20% of the population of every nation on earth comprises an “underclass.”

The “underclass” is not defined merely by financial lack but by an inability to produce and compete, a general malaise and a surrender to fate.

That's because poverty itself is more than the lack of money. It's primarily a lack of marketable skills, or at least the lack of a temperament that would allow one to employ those skills effectively. Poverty is the inability to produce goods and services that your neighbors will pay for.

Money isn’t the only issue. We’ve all seen two people who make about the same incomes, living entirely different lifestyles.

Why?

Because people differ in many ways - some are more disciplined, better investors, more savvy shoppers, more handy, more frugal – a host of traits and skills allow two people earning the same amount of money to live very differently.

If lack of money was the true definition of poverty than any government could alleviate it with the stroke of a pen.

Government controls its nation’s currency, and as such can print as much of it as it wants, right?

Actually no, it can’t.

Certainly the government could print reams of currency and mail, say $50,000 per year, to every citizen, but that would merely de-value the currency. The more money in circulation, the less value that currency has - it’s called inflation. If the government tried to print each and every citizen “a basic living wage,” that “basic living wage” would be the new floor or baseline.

Those who could produce would be that much more ahead...those with rare skills would still garner more money for employing those skills.

It’s simply a matter of supply & demand. Rare skills, in short supply and high demand are expensive, while common skills in modest demand, are cheap. That is an economic law that is as universal and unchangeable as gravity.

What if the government only sent that $50,000 to those who didn’t work? Those who worked and made less than $50,000 would be sent the difference and those who earned more wouldn’t be sent anything at all.

Well, why work?

If you’re going to get $50,000 for doing nothing and having all your time free, why give up the 40 or more hours per week to bring home the same amount of money as someone who did nothing?

Printing more money doesn’t create more wealth, in fact it devalues wealth, because the more money in the system, the less it’s worth. Governments know that simply printing more money isn’t the answer, otherwise the printing press would have eradicated poverty centuries ago.

OK, you might ask, how about raising the minimum wage? Why not set the minimum wage at $25/hr, or even $50/hr? Wouldn’t that help alleviate poverty?

No, because, by definition, the minimum wage is the floor from which all other wage rates rise.

If the most common skill is set at $25/hr, then the wages for increasingly rare or complex skills must go up exponentially. Besides, the cost of labor is a factor just as is the cost of every other commodity.

As wages rise, the costs of goods and services that labor produces rises along with them. Raising the bottom wages puts upward pressure on all other wage rates.

Wages are based on the market rate of skills. Rare skills like thoracic surgery or mechanical engineering command more money than do more common skills like carpentry and taxi driving. Death professions, like mining, police work and trucking pay somewhat higher wages than safer jobs of an equivalent skill level.

This is supply and demand. The more demand there is for a skill, the more rare or harder it is to master, the greater its value. Supply and demand sets the value for every skill. It’s the law of gravity for economics.

The primary reason that governments fail so miserably at eradicating poverty is that raising the minimum wage or printing more money doesn’t raise the value of the floor. The only way to functionally alleviate poverty is by expanding the skill level of those mired in it and that can’t be accomplished without an awful lot of effort and faith on the part of the poor and under-educated. Effort in working to master new skills and abandoning self-limiting behaviors and faith that there will be a pay off for all these life changing sacrifices.

Access to high paying professions is the greatest barrier to that faith and that access is often barred by organized labor which creates artificial labor shortages (increasing demand and pay) for those fields at the expense of those denied entry to them.

Electricians and carpenters must buy a Union book, while the ABA and the AMA work to limit the size of law school and medical school classes (fewer workers = higher wages). All of these organizations justify their actions on the grounds that real wages would plummet if everyone where allowed free and unfettered access to the field of their choice and maybe they’re right, at least to some extent.

Still, you might ask, what right do those working in a given field have to close that field off to others?

Isn’t that condemning those without the connections, or the money to buy a Union book, or unable to meet the inflated entrance requirements for various professional degrees, access to those fields?

In the end, poverty is not as much a money problem as it is a people problem.

So long as we live in a world of finite resources, with money or currency functioning as the measure of the worth of what we have to offer in terms of skills and productive value, we will have poverty.

With Unions from the Teamsters to the AMA limiting access to the professions most in demand and with government unable to remedy the problem by simply printing more money, the only alternative is the mass of government programs that cement people into poverty rather than eradicating it, while inculcating dependency in the name of “assistance.”

 

© J Michael Kearney (Sat Sep 9 '00)