Exposing the myth that government eliminates poverty

America has been embroiled in a losing war far longer than any engagement in Afghanistan or Iraq. In declaring a “War on Poverty” in 1964, then President Lyndon Johnson asserted the grandiose claim that government could be the conqueror of a foe as old as mankind.

But with rising poverty rates and an exploding national debt it is time to reconsider just how to fight a “war on poverty” and whether government is of any lasting help at all.

Fundamental to the current rules of this war on poverty is the assumption that government can redistribute wealth efficiently from those that “Have Too Much” to those that “Have Too Little.” This myth of epic proportions claims that the right balance of taxes on the rich with offsetting aid programs for the poor will bring about an economic utopia. While many hold this position as the gospel, the facts do not agree.

In 1962, about the time the so-called war began, 11.7  percent of Americans received some form of government assistance, as compared to 21.8 percent in 2010. (To read the full Index of Dependence on Government, please visit: Feb. 8, 2011) To meet such growing demand, federal spending on entitlements of all kinds has exploded. A recent report in Investor’s business Daily noted, “The amount of money the federal government hands out in direct payments to individuals steadily increased over the past four decades, but shot up under [President] Obama, climbing by almost $600 billion – a 32  percent increase – in his first three years.” By 2016, such spending will account for “fully two-thirds of all federal spending,” reported John Merline.”

Ironically, in the face of such investment, poverty rates are on the rise. At the end of 2011, the Census Bureau reported that one in six Americans is living in poverty. The New York Times observed that this marked the fourth year in a row in which poverty had actually increased.

How can it be that as federal investment and debt in social programs has increased, so has poverty? Obviously, the recession caused many to lose their jobs or experience a sharp decrease in wages, hours worked or both. But even as aid programs  increased as a result of the recession, they have been unable to stop the increase in poverty.

When government policies enable people to work, protect their rights, legislate with justice and integrity and allow laborers to be rewarded for their efforts then poverty is eliminated… en mass.   

When misguided politicians interfere with this system of personal advancement and reward for work based on merit, and replace it with a wealth redistribution program, regardless of the intent or sincerity of the motives, poverty and suffering increase. 

Two modern examples are worth noting: China and Zimbabwe. Both are nations where I have been privileged to travel.  What follows is a look from a macro-economic view only, and it is not an argument against all social aid or welfare programs, but rather against the danger of allowing the “government solution to poverty elimination” to become entrenched in an overly active public policy model.

China: From mass starvation to mass poverty eradication

Mao Tse-tung forced his theory for poverty reduction and advanced industrialization called The Great Leap Forward upon the nation of China with little regard for the outcome. Mao centralized control of the economy, managed national food production, eliminated any form of meritocracy and pushed forward his worldview of equalitarianism. It was a catastrophe resulting in death and suffering on an unimaginable scale.

By some estimates, 65 million Chinese died of starvation and government executions to enforce Mao’s pogrom. Yes, philosophy does matter.

Government’s effort to eliminate poverty was quietly and effectively changed after Mao’s death in 1976. As China’s de facto leader, Deng Xiaoping introduced a reform policy that brought China back toward a market economy so vilified by Chairman Mao. Deng is credited with having the courage to proclaim this truth: “Socialism does not mean shared poverty.”

He also used a proverb to make his point while avoiding offense to either side of the political aisle: “It does not matter if the cat is black or white, the cat must catch mice.” My translation: “We should not fight over communism versus capitalism; we need to work or we will all starve to death.”

Deng’s strategy became known by the oxymoronic term “socialist market economy.” It led to reforms that allowed millions to experience prosperity and launched China on the path to becoming a modern, industrial nation. Since its implementation, the Chinese people have “caught mice” in spectacular fashion as they were liberated to work and reap the rewards.

What became obvious was that government had not eliminated poverty in China—it caused it. When the profoundly misnamed Great Leap Forward ended, the people leaped out of their poverty and carried their nation with them. 

Zimbabwe – from paradise to tragic poverty 

Zimbabwe is a beautiful country full of an abundance of natural resources and intelligent people. It boasts one of the highest literacy rates in all of Africa at 90 percent and was once among the leading economies of the entire continent.  It has vast mines, farmland and tourist attractions. The bounty from the nation was so great that it was once considered the “breadbasket of South Africa.”

Under the leadership of President Robert Mugabe, the nation has plummeted from its once high position of strength and prosperity to one of the worst, most devastated economies in the entire world. Today the country suffers under widespread poverty with 94 percent unemployment and 80 percent of the population living below the international poverty line.

While there are numerous natural and geo-political contributions to the terrible plight of the country, most experts agree that the reforms of Robert Mugabe have largely caused the tragic downfall of the nation.

Through the decade of the nineties, Zimbabwe’s gross domestic product grew an average of 4.5 percent annually. But with the advent of government land “reforms” designed to redistribute private commercial farm operations that produced vast exports of coffee, tobacco, peanuts and fruit, the economy began a downward spiral.

These farms were given to politicians, military leaders and police officials who were inexperienced or incapable of managing them. This lead to a 51 percent drop in farm production and export income. The government reacted by implementing even more measures that led to the epic downward spiral.

Today, state enterprises in Zimbabwe are highly subsidized. Taxes and tariffs are high. State regulation makes starting or closing a business slow and costly. 

The labor market is also highly regulated. Hiring a worker is cumbersome, firing a worker is difficult and as a result, unemployment is now epidemic. The country is rated as one of the least favorable business climates in the world today. These are all common denominators of a government that has crippled its greatest asset, the people.

Today, government spending is 97.8 percent of GDP. Imagine the economic implosion that occurs when government is the only producer. This massive spending was partly financed by borrowing and partly by printing money, which has led to hyperinflation and a collapse of the Zim dollar which peaked at $2,000,000,000,000 Zim to $1 US dollar in April of 2009. 

Zimbabwe is Exhibit A for a failed wealth redistribution program.

President Mugabe took from the “Have Too Much” and gave to the “Have Too Little,” which caused multiple unforeseen consequences: the commercial farmers (wealth producers) left the country, leaving non-farmers with assets they were not equipped to manage. Production dropped, export income dried up and the loss of trust in the leadership caused outside investment to also drop off the cliff.  To supplement their losses and domestic problems, the government borrowed and printed money until it became worthless thereby destroying the middle class and sending most of the entire population into abject, life destroying poverty.

Confronting the myth of the Big Government fix

It a highly charged election year, it takes a lot of courage to assert that government programs aimed at the poor are missing the mark. It takes even more fortitude to suggest that the programs themselves may be the problem. While we must be compassionate to those currently dependent on government payments and help them find their way out, we must also have the moral courage to declare that many federal programs designed to eliminate poverty are ineffective if not actually harmful. 

To make matters worse, nearly half of the nation (49.5  percent) pay no federal income tax. The disincentives for change can be clearly seen. Few politicians want to address the unsustainable federal deficits for fear that cutting back on aid programs will cause them to appear unmoved by the financial needs of the poor. All the while, a growing group of people vote for a living, rather than work for a living.

The entitlement mentality that has gripped our nation has caused millions to become enslaved to a life of hopeless dependency. Promising the poor more help from the federal or state welfare system is the wrong message and economically unsustainable. We must resist a solution destined to bring about equal poverty for all.

They need a way out and America needs a way forward. I for one prefer that we strive for more empowerment, not more entitlement. 

Until our policies focus on empowering people to create opportunity – rather than punishing people when work yields its harvest – the imbalance in the current American system will continue to throw the economy off kilter. But both history and current events tell the same story, extreme government intervention in picking winners and losers will in fact hurt everyone.