Libertarianism and Poverty

June 5, 2006 • Commentary
This article appeared on TCS​dai​ly​.com on June 5, 2006.

“My son was in the best public middle school in San Francisco in the gifted program and I had to take him out and enroll him in an expensive private school which I can’t afford…Why? Well it’s folks like Mr. Kling who have funded and backed and argued for lessening the ‘tax burden’ so that the rest of us won’t think of wealth as something ‘redistributed.’

It isn’t redistributed. Oh no, it’s hoarded by the likes of Mr. Kling.”
— “c.r.”

“There is truth to the notion that poverty has a lot to do with mental illness. There are very few poor people who are smart but lazy. But, there are a lot of poor people with low IQ’s, mental illness, personality disorders, persistent drug addiction, or victims of violent or abusive childhoods. I know this because I grew up surrounded by these types of people.”
— “Susan”

(both of these comments were made on a blog post at the Economists View Weblog.)

This essay outlines a libertarian approach to poverty. No, it’s not “Leave them in the gutter.” It’s an approach that tries to be pragmatic and compassionate. Even if — especially if — you are not a libertarian, you need to understand that when it comes to government doing something about poverty, “less is more.” Further below, I even include a policy proposal — something that is rare coming from a libertarian.

I describe myself as a pragmatic libertarian. If I had to give up a little bit of freedom in order to see a meaningful reduction in poverty, I would do so. My problem with government is that I see it doing harm on both counts.

What is the fundamental cause of poverty? The Class Oppression view, which is expressed by the first comment quoted above, is that rich people extract and hoard wealth, leaving everyone else poorer. The Pathology view, which is expressed by the second comment, is that poverty is part of a pathology.

Neither of these comments came from a libertarian. The first comment seems to reflect the common perception that what libertarians actually believe is the Class Oppression view, and that we are looking for ways to justify continued class oppression. Instead, my position is much closer to the Pathology view, and that leaves open the question of how well or how poorly government programs work to ameliorate the pathology of poverty.

I think that the Class Oppression view has some very deep‐​seated emotional appeal. I trace this back to the Biblical story of the Exodus, which centers on an oppressive Pharaoh whose riches are built on the backs of Jewish slaves.

As a description of reality today, I think that the Class Oppression view has some problems. As a thought experiment, what do you think would happen in America if we were to take the wealthiest 20 percent of our population and exile them — er, us. As part of this exile, we would have to leave all our physical possessions and financial assets behind. Suppose that the 50 million of us are given a country of our own with enough space but no other tangible resources.

If you really believe the Class Oppression view, then you would think that without the 50 million hoarder‐​oppressors, everyone else would be better off, and in their new country the hoarder‐​oppressors would be in poverty. Instead, my guess is that in twenty years, American poverty would be worse. Meanwhile, in their new country, the hoarder‐​oppressors would be debating the problem of illegal immigration from other countries, including America.

Something resembling this thought‐​experiment has been occasionally tried with ethnic Chinese in parts of Asia or Jews in various countries. I believe that the lesson is that expelling wealthy groups tends to leave others worse off, not better off.

The strengths and weaknesses of the Pathology view are the opposite of those of the Class Oppression view. The Pathology view is as emotionally repugnant to most people as the Class Oppression view is appealing. But observation of reality tends to support the Pathology view. If people did not at some level believe the Pathology view, then why would there be social workers?

Perhaps one can combine the two views. Perhaps one can say that the pathology of poverty is something that emerged from generations of oppression. Certainly, African‐​American descendants of slaves can make a case along those lines. A problem with this view is the apparent anomaly that many of the pathologies in the African‐​American community have emerged since 1960 — black families were stronger in the first half of the twentieth century than more recently. But that anomaly does not rule out the possibility that one might be able to trace current pathology to slavery and to subsequent racial discrimination. In my experience, ordinary African‐​Americans do not tend to trace the pathology of poverty back to slavery (perhaps it’s not something they feel comfortable talking about with me). But the theory has at least some traction among academics of various races.

With the possible exception of African‐​Americans, I am skeptical of the historical version of the Class Oppression view. Moreover, even if the historical version is true, it would seem that going forward, to do anything about poverty one has to acknowledge the reality of the Pathology view.

The Government Record

Government has a mixed record in alleviating poverty. The GI bill seems to me to have been a success. Welfare seems to have been a failure — by creating a culture of entitlement for unwed mothers, it exacerbated the very problem that it was supposed to cure. Social Security probably was a positive program when it began, but by now I believe it causes too much hardship for people of working age relative to the hardship that it relieves for the retired, and this tendency is going to get worse with each passing decade.

If the tendency of government were to expand on its successes and cut back on its failures, then I probably would not remain a libertarian. Imagine politicians saying, “Gosh, the GI bill worked, but for the children who need it most, public schools fail. So let’s make K-12 education more like the GI bill, and switch from government‐​provided schools to vouchers.”

Unfortunately, that thought‐​experiment has no basis in reality. Instead, politicians have been captured by the teachers’ unions. Where I live, the teachers’ union is by far the most powerful political force. No one has any hope of being elected to the school board or the County Council without first receiving the endorsement of the teacher’s union’s political action committee.

If the woman who found San Francisco public schools unsatisfactory for her child wants me to contribute to a fund that provides vouchers to parents like her, I am open to that concept. But if she thinks that getting me to pay more in taxes is going to help those San Francisco public schools serve students better, I am sorry, but I have to differ.

When I sold my business, I decided to go into volunteer teaching. At first, I considered going into the public schools, because the children are so needy. But instead I went into a private school. I think that private schools appreciate help much more, and they also have a portion of needy students. I would rather offer my time and effort through a private school than channel it through an institution of public schools that I regard as corrupted by politics and unable to give priority to the needs of students and their parents.

Government programs persist not because they help to alleviate social problems but because they develop political constituencies. Thus, we have a food stamp program, when the number one nutritional problem among the poor appears to be obesity. I am not saying that I don’t think that poor people need help obtaining food. But a program that was focused on poor people rather than as an indirect way to aid the farming constituency would probably operate rather differently than our existing food stamp program. With government, political goals inevitably interfere with what from an idealistic perspective would be the “public good” intent of a program.

Of course, one can support government programs in spite of the inevitable political dysfunction. Just because it is not perfect does not mean that it is wrong. But I believe that we can do better with less government and more decentralized programs to address poverty.

The Role of the Family

If you have children who care about poverty, you should tell them that the most reliable thing they can do to fight poverty is to make a decent, honest living for themselves. Becoming poor or dependent is not going to help anyone.

My wife and I care a lot about the well‐​being of our own children. But my sense is that other parents among our peers do more for their children. They certainly push much harder than we do to have their children get into the college with the best possible reputation. We do not think it matters so much where our children attend college. I sometimes think that my peers treat the college that their kid gets into as if it affected their own status, but perhaps that is being unfair.

In any event, if some people err on the side of trying to do too much for their children, then that is probably better than erring on the opposite side. I think we are better off living in a society where families try to give their children the best possible head start than in a society where the state decides what is in the interests of children.

I think that there should be a lot of compassion within families. I think that relatives helping one another is better than having people live off of checks from the state.

When people care about their own children, there is bound to be some inequality. A friend of ours has worked in his parents’ store since his early teens, and he probably has averaged over 80 hours a week working in the store for the past 30 years. Now he stands to inherit the store. If you want to create a society where that store instead becomes the property of the state, perhaps your society would be more egalitarian. But it will also be very unfree and very, very poor. And in practice, societies where the state controls wealth tend to have plenty of inequality — it’s just that the winners have skill sets more suited to political maneuvering than business entrepreneurship.

The Role of Charitable Organizations

Charitable organizations are better than government as a source of aid. First, it is easier for donors to hold charitable organizations accountable than it is for taxpayers to hold government accountable. A failed government program can go on forever. An ineffective charity has a more difficult time obtaining funding.

Charitable organizations tend to be more “hands‐​on” with the needy than are government organizations. For example, although I cannot say that I am particularly happy that my daughter volunteered to go on a project with this organization, it clearly is going to put her in direct contact with poor people, which is better than going on an international “mission” where you stay in 4‐​star hotels.

Those organizations that work directly with poor people stand a better chance of learning how to meet their needs than people who lobby in Washington on behalf of the poor. Nongovernmental organizations will tend to be more innovative. They can be leaner, and they can operate with what the military would call a high “tooth to tail” ratio.

Charitable organizations are better suited to dealing with the pathology of poverty. When people get checks from the government, they tend to think of this as an entitlement. They are getting money in exchange for doing nothing. They learn that this is how you get money — you take it from others. Taking money from others is what criminals do. Productive people get money from other people by exchanging something of value.

Charities are in a position to demand something of value from their clients, even if that “something” is nothing more than a human “Thank you.” Charities are also in a position to set the terms under which their clients receive aid and to cut off clients who fail to comply with those terms.

Charities can be flexible in how they handle individuals. One person may need transportation to a job. Another person may need drug rehabilitation. With hands‐​on involvement and with flexibility, charitable organizations are more likely to discover solutions to the pathologies of poverty.

Charitable organizations are flawed, to be sure. On average, I think that profitable companies are better managed than nonprofits. But every organization has its flaws, and charitable organizations are less flawed than government alternatives.

In fact, I think that one of the factors that inhibits the effectiveness of NGO’s is that many of them are dependent on government grants for support. This forces the NGO to put much of its effort into satisfying the bureaucrats who provide the funding. That requires resources and skill sets that have nothing to do with solving the problems of people in need.

A Charitable Exemption?

Under our current tax system, donations to charity are a deduction from income. If your tax bracket is 25 percent and you give $1000 to charity, then this reduces your tax bill by $250, so that the donation only costs you $750 after taxes.

My proposal (which I suspect is not original) is that, on top of the current deduction for charitable contributions, we create a large charitable exemption, of, say $20,000. That would mean that you could donate up to $20,000 and have that amount taken off your taxes. Thus, the after‐​tax cost of your donation would be zero. For people whose annual tax obligation is less than $20,000, the income tax would essentially be optional. You could pay your taxes, or you could give an equivalent amount to charity.

A charitable exemption would have the effect of shifting resources from government to private charities. I believe that would be a net plus for people in need.

A charitable exemption would increase the proportion of money going to NGO’s that comes from private donors rather than government. I think that the effect of this would be to reward NGO’s more for effectiveness and less for their ability to work the system to obtain government funding.

In his book Good and Plenty, Tyler Cowen argues that tax‐​incented charitable gift‐​giving has been good for the arts in America, because support for the arts has been decentralized. The idea of the charitable exemption is to mobilize those sorts of decentralized solutions to address other needs.

In theory, people could give their charitable donations to organizations that do not serve the needy. For example, people might give money to elite private universities, which already have enormous endowments and mostly serve affluent students. I would be disappointed if that were the outcome, but it would not necessarily be a worse use of money than the average government spending program.

This was once a country in which Alexis de Tocqueville marveled at the spirit with which voluntary associations emerged to solve problems. A libertarian approach to poverty would seek to rekindle that spirit, rather than expand a government that sucks the oxygen out of families, private charities, and the very poor that it purports to help.

About the Author
Arnold Kling

Senior Affiliated Scholar, Mercatus Center at George Mason University