Wednesday, August 29, 2012

Economic Growth Lowers Poverty More Than Government Aid To Poor Families: Predicted Poverty Rates From Economic Growth Suggest Government Aid Increases Poverty: Suggests Government Aid Increases Income Inequality

From John Goodman's Health Policy Blog, "Do You Care More than Paul Krugman Cares?" by John Goodman
At a conference at the Vatican I attended some years ago, Nobel laureate Gary Becker gave the opening speech. I found what he said quite remarkable:
The greatest beneficiaries of capitalism are those at the bottom of the income ladder. That’s why I favor capitalism. Were that not the case, I would not be in favor of capitalism. Milton Friedman feels the same way.
Some years back the Council of Economic Advisers (CEA) calculated a "predicted poverty rate" based on economic growth alone. In other words, economic growth by itself lifts people out of poverty, even if nothing else is happening. The CEA results suggest that if there had never been a welfare state (no Aid to Families with Dependent Children, no food stamps, no Medicaid, etc.) the poverty rate would actually be lower today than it actually is! This adds to a wealth of evidence that the welfare state is subsidizing poverty, not eliminating it.
If government aid to individuals increases poverty over the rate predicted from economic growth as the CEA study suggests, then re-distributive income policies (government aid) also increase income inequality. It could be that the more the government tries to balance income inequality by redistributing income, the more income inequality the government creates.

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