Government Creates Poverty

There are many ways by which government interventions lower a society's net wealth and increase poverty. Let us examine some of the key interventions by which this is done.

Taxation should be the most obvious government intervention that reduces net wealth, because it is so direct. Obviously, the higher taxes are, the less money people get to keep in their wallets. In terms of "utility", taxation in itself is for all intents and purposes, a loss on the part of the tax-payer. In terms of ethics, it is not distinguishable from theft, because it is always imposed under the threat of the jailhouse or bayonette if it is not paid.

A market price functions entirely differently than this. On the market, the consumer is free to simply not buy the product. No buisinessman hunts them down with a gun and threatens to lock them up in a jail if they don't buy the product. A market price is the cumulative result of all of the value judgements of everyone in the economy. Exchange of goods and services on the market constitutes a mutually beneficial exchange between the buyer and seller, at the consent of both.

Most importantly to our analysis, a private service functions on the basis of profit and loss, while a government does not. A government has no real mechanisms of economic calculation. It has no way of rationally allocating resources because it functions irrespective of supply and demand. That is not to say that these laws do not still apply, but that government has no way of rationally calculating them. If a government service fails, it does not go out of buisiness. Most likely, it will raise taxes or inflate the money supply to spend more money on the failed program, as if that's going to make things better. A government retains a monopoly on the basic services that it administers.

On the market, if a buisiness fails, it is penalized with losses. If the buisiness does not adjust its policies to avoid and overcome such losses, it goes out of buisiness. Capitalists profit by producing something for others. Government cannot "profit" in any real sense (it can leech, however), because it is not payed on the basis of consumer demand. It does not produce and engage in a mutually beneficial exchange with its "customers". A private firm, on the other hand, has to actually deal with competition, it has to actually compete with other providers of the service. Government, to the contrary, always moves in the direction of outlawing competition in whatever area it presides over.

A government does not produce anything on its own accord. It inherently cannot truly produce. It can only create something by funds that were taken away from people, rather than funds that it earned or saved itself as a worker or employer would on the market. It could contract out buisinesses, but this would not be the government itself producing, but spending money that was taken away from people to pay a buisiness to produce something.

In short - all of the resources necessary for government to provide a service are not derived from the government's production, but from taking away the production of the citezens. It does not recieve its revenue through a mutually beneficial exchange between its production and that of others as a buisiness or worker does. Consequentially, it cannot be considered productive in any real economic sense.

A typical counter that some may be prone to make at this point in our analysis is that the net loss to the tax-payers is made up for because the government spending of those tax dollars constitutes a net gain. But this simply is not true. The "benefits" of government spending is not spread about equally to everyone in society.

There is in fact a "class divide" of sorts between the tax-payers and the tax-consumers. Most of everyone are tax-payers, while a relatively small band of individuals within and allied with the government are the major tax-consumers. The government itself and its employees pay no taxes. As such, they are for all intents and purposes funtioning at a net gain at the expense of the tax-payer.

Government spending does not per se constitute a benefit. It is money that was taken out of the private economy to begin with. It cannot be considered truly productive because it was achieved at the expense of private production, and this is precisely why government spending must be subtracted, not added, from the GDP (Gross Domestic Product) statistics. If it does benefit people economically, it is the government bereaucrats themselves and a confined special interest group.

Thus, taxation is an incredible waste of resources in that it creates a net loss for most of everyone in order to, at best, bestow a net gain on one particular special interest. The result is a reduction in overall and long-term prosperity in order to create a short-term gain for one particular interest. It must be kept in mind that every tax dollar spent could have otherwise either been saved by the tax-payer or spent on their needs and wants. To the extent that it is siphoned away from this and redirected towards political ends, it will constitute a decrease in net wealth.

Inflation is another highly contributing factor to poverty. It is less likely to be seen as such because it is less direct than taxation. It can be said to be an indirect form of taxation. Inflation is often improperly defined as a rise in prices in itself. But this is a major effect of inflation, not inflation in itself. Inflation is an increase in the money supply (without actual production backing it up; hence, it is counterfeitting), and a rise in various prices is a result in an increase in the money supply because it devalues the value of the monetary unit.

When the value of money is decreased by the expansion of credit by the federal reserve, this loss will directly lead to raises in prices. The price increases are the market's reaction to the lower value of each monetary unit. There is somewhat of a time-lag in this process. Some people may benefit in the short-term from the new credit. However, once the inflation really kicks in, this ends up being misleading as prices rise.

The people who benefit the most from the initial inflation of credit are government contractors and the special interests that the government spends money on; essentially, mostly rich and powerful people. These people get away with enjoying the short-term benefits of the newly created money before the full inflation effect kicks in. By the time the inflation effect kicks in, those people likely spent much or all of it, and therefore they aren't so effected.

The middle class and below are effected worst, because they are less able to deal with the rising prices. In short, the special interest beneficiaries of government handouts use the money before the price hike, while everyone else pays through the nose when it hits. As such, in a sense inflation creates a pattern of regressive wealth redistribution over time.

Inflation also has a harmful effect on consumption. In general, inflation tends to lead to an increase in people's consumption, with more credit in their pockets. Even without inflation, if people consume something at an increased rate, diminishing supply, this will tend towards an increase in prices, as the availability of the good has been diminished by the consumption spree (to be clear, increased consumption in itself is not inflation, and a price increase resulting from it is not inflation either).

The problem that arises when we put inflation on top of this is that we are stimulating consumption in the short-term, but this scenario is not sustainable, as once the inflation kicks in, people are spending money that they don't have (I.E. endebting themselves), as the money posseses a lower purchasing power than before and thus prices have increased. It is precisely this process that leads to economic depressions, as the "boom" of consumption created by the inflation cannot be sustained, and everyone must withdraw their consumption, clear their malinvestments and pay off debt.

Many people these days are starting to correctly be concerned about the government's debt. Government debt is particularly harmful to the economy in that it perpetuates and necessitates the above two problems of taxation and inflation. What I mean by this is that essentially the only way for the government to truly pay off its debt is through more taxes or printing up more money, both of which will pass the cost onto the average person.

Basically, whatever the debt number is, it is the general loss that will be passed onto American citezens in the future. The combination of taxation, inflation and debt creates a perpetual erosion of the economy, and given enough time it will lead to an all-out disaster.

Many people seem to be in love with the idea of using the government to artificially bid up wages. But this is foolish. The more that the cost of something is increased, the less people buy it. Obviously, if the price of cars suddenly is increased by 10x, less people would buy cars, in most cases simply because they wouldn't be able to afford it. This works the same with wages.

The more that wages are artificially bid up, the higher the cost of labor becomes. The higher the cost of labor becomes, the less people are employed or able to be employed. Consequentially, rising wages above the market level causes unemployment. Minimum wages cause unemployment for any job below the mandated wage.

Similarly, many seem to be in love with the idea of price controls. This is also foolish. If prices are bid above the market level, this inevitably necesitates a decrease in the availability of the good or service to the multitude, and a special privilege to the provider of that good or service. If prices are bid below the market level, this inevitably necessitates a decrease in the incentive for providing that good or service, as it forces losses on the provider. Inevitably, focus will be shifted away from providing that service and into areas with higher incentives; hence, a "shortage".

Think of this in terms of geographical areas and comparative advantage: if, say, the state of Ohio imposed price controls below the market level on milk, and Texas has no price controls on milk, milk providers in Ohio would have an incentive to move their operations to Texas. In time, Ohio would experience a milk shortage. The same logic applies to comparing countries. Those countries that persue the heaviest price controls will soon find themselves with massive shortages, with buisinesses persueing incentives in other countries with less market regulation.

Tariffs are another drain on the economy. They can be considered a tax on foreigners. In either case, they protect certain buisinesses from competition, thus limiting the choice of consumers and essentially making them pay for higher priced products in the name of "keep our jobs" rhetoric. The cost of tariffs is passed onto American consumers through higher prices. Blocking international trade (trade across land masses) has the same general effects of blocking trade within a territory. That is, it lowers production and puts an artificial cap on the wealth generation that results from exchange.

The essence of the market economy is that it allows wealth to generate cumulatively through people engaging in voluntary exchange of private property titles. Protectionism blocks this exchange, and hence limits the overall amount of wealth for both sides in question in the long-run. Free trade is beneficial to both parties in the same way that trade within the domestic economy is.

It is impossible to sustain a modern, complex industrial economy with 100% "national self-reliance" (I.E. keeping all economic activity internal, only buying American products and refusing to trade abroad). Suppose we used that same methodology with every individual - that is, the only way a person could economically function is to work for themself, produce their own food, build their own house, etc. They would be disallowed from any inter-dependance and exchange with others. Most people would die in no time under such a scenario.

Likewise, lets apply this to nations. The same laws of economics apply - America would slowly starve its economy out if noone was allowed to trade across national borders and we had to rely entirely on domestic production for everything. We would only effectively be putting a cap on competition and overall productive capacity.

Wealth redistribution is much misunderstood. The government itself cannot and does not create net wealth. Wealth redistribution does not create any wealth. At best, it can shuffle it around, always with the same overall amount. However, the effects of forced wealth redistribution actually lowers overall wealth because it takes it away from it's original productive use and transfers it into consumption.

To begin with, wealth redistribution is split up into two basic parties: the person having their wealth taken away, and the person recieving it at their expense. There is also a 3rd party: the government, which takes a piece of the pie for itself to cover the ever-expanding costs of adminstering the program, and of course is the institution that confiscates from person A in order to redistribute to person B. Redistribution is even worse than this though, because the amount of net payers in many cases outnumber the net recievers, and therefore the resources of multiple people are being inefficiently used on a lesser amount of people.

The net payer is at an economic loss. They may have otherwise saved that money, used it to invest or used it to purchase things. If they would have kept that money in the first place, it would have likely gone to a cumulative productive use. It must be kept in mind that money has a reproducable use in the free economy in that it is a medium of exchange that is constantly changing in ownership. Money "circulates" in an economy. People buying X may tend to generate future production of X, and their exchange for X is mutually beneficial. It is beneficial to them, and it is beneficial to the seller, and thus it is in turn beneficial to the workers and many others further down the line.

But if someone is simply recieving X at someone else's expense, this is not productive. What would have previously been used for a mutual and cumulative benefit has been transfered into a privilege to one party at the expense of another. The net reciever of the redistribution is being payed money with in an incentive not to produce, or given "free" services to use without any production on their part.

Consider the difference between working for wages and being on welfare. The person who is working for wages is engaging in a mutual beneficial exchange: they benefit from the wages, and in turn they benefit their employer and consumers by producing a good or service. Note that the effects of this are cumulative and extend to many others in society; it generates wealth for many people, from consumers to employers. The consumers may in time benefit the worker by increasing the buisiness's profits, which provides more capital available for increases in production, improvements in capital goods, and in time, raises in wages.

On the other hand, the person on welfare is not producing anything; they are essentially being payed to not produce. They might "benefit" from being payed money, but instead of them personally benefiting while simultaneously benefiting many others down the line as the worker is, the welfare reciever is benefiting purely at the expense of many others.

In many ways, the welfare system creates and perpetuates poverty, as it provides every incentive for the reciever to stay unemployed. The welfare state keeps people in poverty, and when it is expanded, all that is going on is an expansion of the "net" of stagnation by covering more people under it.

Public sector services are just like personal welfare accept that the net reciever gets goods and services instead of monetary payments. The consequence of "universalizing" such public services can only mean the creation of a massive, entangled web of wealth redistribution in conjunction with the provision of such government services.

Of course, such universal government services are ridiculously costly, and therefore inevitably constitute a drain on the economy. Just like monetary welfare, it takes away from the original productive use of people's money in order to bestow a privilege of pure consumption on an individual or group, accept the money pays for services for some to recieve "for free".

Of course, it isn't free, it has a cost, a huge one. The point is that this money could have originally been used to produce the exact same services in a way that is mutually beneficial and less costly, while now this money has been siphoned away from this to enable short-term consumption of those services without respect to production or rational allocation of resources. The choices that the original owners of the money would have otherwise made would have been more efficient then the transferance of those funds all into a one-size-fits-all deal.

America also creates or preserves poverty by sending foreign aid to 3rd world countries with tyrannical governments. All that this amounts to is, first, a net loss for the American tax-payer (if not an increase in inflation and debt), and the perpetuation of those dictatorships in those countries, the perpetuation of the funding of those countries economically backward policies. To put it plainly, foreign aid merely blows up the wealth redistribution problem to the global level.

To finally flesh things out, government contracting and bail-outs of buisiness should be considered a form of wealth redistribution. It should also be considered a form of protectionism, as should anti-trust laws. This "corporate statism" is at the expense of the taxpayers and victims of inflation, it erodes competition to bestow privileges to certain buisinesses, and hence creates artificial monopolies that would not have arisen on the market. They are not the result of capitalism, but the result of government protectionism of buisiness and the merging of buisiness and state ("shared" ownership of the means of production between the state and certain buisiness interests).

Prohibition is another intervention that may tend to increase both poverty and crime. Prohibition is, afterall, the illegalization of ownership and exchange of a particular type of property. This denies owners and consumers of whatever is being prohibited the benefits of legal market activity, while simultaneously it necesitates the rise of a black market for the thing in question.

The key difference between a free market and a black market is that a black market is illegal while a free market is not. A black market can only arise in response to the government illegalizing a particular good or service. A free market arises naturally, without any governmental interferance. A black market is the consequence of government interferance; of prohibition of property ownership and exchange.

Using the above information, we can form a simple "plan" to address poverty. Reduce/abolish taxes and spending as much as possible, liquidate the federal reserve, return to a sound commodity monetary system with no monetary inflation, bar the government from borrowing foreign credit, abolish all wage and price controls, abolish all tariffs, abolish all wealth redistribution programs (including foreign aid and the corporate state), privatize public services and abolish all prohibitions on ownership and exchange of property. Much more could be done than this, but any one item on this list would be wonderful in itself, not only for the cause of liberty, but for the goal of making everyone better off economically, which is a consequence of liberty.

The facts speak for themselves: those countries with the heaviest economic interventions are among the most poor, while those countries with the most free enterprise are the richest. As Walter Block has recently stated, "the only legitimate way to earn vast sums of money under free enterprise is by enriching others". I would like to add: the only way to earn money through government is by stealing from some to give to others. The general lesson is that government intervention in the market erodes production, artificially stimulates consumption (without production) and eats up capital, which in turn lowers the overall prosperity of a society.