Paradigms Of Poverty

 If you put three economists in a room together one liberal, one conservative, and one libertarian and discussed minority poverty and its causes, how would the discussion unfold? After many years of reading about this topic from various sources, I have come to believe that the break down would look something like this.

The liberal economist would focus more on external causes - institutional racism, racism in general, and the overall affects society has on those in poverty. The solutions to poverty should be immediate and tend to be monetary in nature - so you get welfare, government programs, and lower taxes for the poor.

The conservative economist would focus more on internal causes - the breakdown of the family, the divorce rate, drugs, and overall cultural influences. The solutions to poverty should be long term and tend to focus more on changing the culture - so you get things like Bush's faith based initiatives, changes in the welfare system so that it doesn't reward divorce and occasionally something as creative as this.

Thomas Sowell summarizes the conservative economist well when he wrote:

The greatest dilemma in attempts to raise ethnic minority income is that those methods which have historically proved successful — self-reliance, work skills, education, business, experience — are all slow developing, while those methods which are direct and immediate — job quotas, charity, subsidies, preferential treatment — tend to undermine self-reliance and pride of achievement in the long run.

With this in mind, it is easy to see why many conservatives dislike affirmative action.

Up until now the conservative and liberal economist both had a place for government in solving the problems of poverty - whether the problem was internal or external, racial or cultural, government played a role. The libertarian, on the other hand, would have none of this. The libertarian solution to poverty would involve much less (many would argue none at all) government assistance. Though the solution (significantly limited or no government interference) is the same among libertarians, they have strong disagreements among themselves as to why that solution is optimal.

Soft libertarians will argue along the same lines as conservatives, stating that government interference is innately inferior to a free market at solving problems since no matter how you structure the assistance, it will always have a negative affect on culture and promote destructive behavior. So in the end, government assistance is like a dog chasing its tail only that with each spin of the dog the poverty gets worse and the costs more expensive. In addition, a soft libertarian sees a strong state and a strong family as incompatible. If you increase one, you will reduce the other.

For example, Arnold Kling, writes:

Most Western nations have created a cycle of dependency with respect to single motherhood. Government programs, such as welfare payments or taxpayer-funded child care, are developed to "support" single mothers. This in turn encourages more single motherhood. This enlarges the constituency for such support programs, leading politicians to broaden such programs.

He quotes approvingly, this post from Phillip Swagel on social security:

"It is convenient for us who are young to forget about old people if their financial needs are taken care of...But elderly people want and need attention from their children and grandchildren...This, then, is the ultimate trouble with the government spending other people's money for the support of one part of the family. Other people's money relieves us from some of the personal responsibility for the other members of our family. Parents are less accountable for instilling good work habits, encouraging work effort...Young people are less accountable for the care of particular old people, since they are forcibly taxed to support old people in general." (p. 116-117)

Since the family is better suited to deal with these problems than an impersonal state, in the long run this results in a reduction in efficiency and increase, not decrease, in poverty. It is this aspect of government interference that soft libertarians are attune to. For examples of solutions to poverty proposed by soft libertarians read this, this and this.

Hard libertarians, on the other hand, are in a category all on their own. Like libertarians in general, they share the belief that government has a very limited role to play in solving poverty but they take it one step further - in addition to cultural forces, they include IQ. From my reading of the literature, this breaks down into two somewhat independent parts. The first is the strong correlation IQ has with success. The second is the link between IQ and race.

The first point, the strong correlation of IQ with success, seems to be generally accepted. For example, Greg Mankiw, professor of economics at Harvard comments on a paper discussing this very thing:

Among a group of adopted sons, which is a better predictor of high education and high earnings?

(a) Having highly educated biological parents.
(b) Having highly educated adoptive parents.

According to results in a new study of Swedish data from Anders Björklund, Markus Jäntti, and Gary Solon, the answer is (a).

The results in this paper seem broadly consistent with those of Dartmouth economist Bruce Sacerdote, who examines a completely different data set in which adopted children were assigned randomly to parents.

In both papers, nature is stronger than nurture for determining the educational attainment of adopted children, although both nature and nurture have some role. And in both papers, nature completely dominates over nurture for determining income.

Nobody is arguing that IQ is everything, only that it is the strongest predictor of income, much more so than any other single data point you can provide. Hard libertarians will take this one step further and connect it to race, arguing that poverty in the United States, to a large degree, mirrors differences in IQ. For example, why are blacks and latinos disproportionately represented at the lower income levels? Hard libertarians would argue that it's because blacks and latinos are disproportionately represented at the lower end of the IQ spectrum. For more on this and how it influences the role of government programs, see this, this, this, this, this, this, this and this.

The last link discusses what impact IQ should have on government programs. The link states:

Does it matter that IQ matters? Of course! An investment in education that looks extremely profitable if you don't control for IQ could easily be a big waste of money. The reason: If you don't control for IQ, you are giving education a lot more credit than it deserves. To say "Let's focus on the things we can change" dodges the hard truth: After you adjust for what you can't change, the things that you can change may give you very little bang for your buck.

Thus, IQ is highly policy-relevant after all. The left-wing ideologues who damn anyone who even thinks the letters "IQ" are actually on to something: IQ research does turn out to be a rationale for "right-wing" laissez-faire policies. The more IQ matters, the more likely it becomes that existing government policies are a waste of money - and that you would get a bigger payoff by doing less - or maybe nothing at all.

There are several arguments, convincing IMHO, one can make against hard libertarians (Thomas Sowell, most notably, making the strongest one, see here) though admittedly I have not spent much time looking closely at the disagreements (yet). My point here is not to say who is right and who is wrong, to defend one and criticize the other, only to outline, as best as I can, what the differences are in assumptions between the various schools of thought. For even when you get all of the economics correct, the initial preferences are still very different and shape a good portion of the debate. (Originally published: (11/30/2007)