Reducing Poverty: Two Strategies

the AZEL PERSPECTIVE Commentary on Cuba's Future, U.S. Foreign Policy & Individual Freedoms - Issue 423 B

José Azel's latest books "On Freedom" and "Sobre La Libertad" are now available on Amazon.  Reducing Poverty: Two Strategies (Previously published) Share Tweet Forward

Broadly speaking, our intellectual politico-economic arsenal of strategies to alleviate poverty contains two competing ideas: income redistribution, and free market economic growth. The first relies on the compelling force of government, the second on individual freedoms. As citizens, our task is to choose the least flawed idea from this toolkit of imperfect alternatives. Let’s take a closer analytical look. In our society, there are millions of wealthy individuals who have more that enough resources to meet all their needs. They live alongside millions of others who do not have enough money for even their most basic needs. It is seductive to argue that we could maximize happiness, in economic terms, by redistributing resources from the rich to the poor.  The moralities of this redistribution idea flow from a concept economist fancily call the “diminishing marginal utility of wealth.” By this, economists mean that each additional dollar we earn brings us less happiness than the dollar before it. This is because we allocate our income to satisfy our most urgent needs first -our most highly valued uses.  For example, a poor homeless person will benefit greatly from $100 to be used for food and basic necessities. On the other hand, the same amount would not create much additional happiness for a millionaire. So, according to the redistribution argument, transferring wealth from someone abundantly rich to someone poor will increase the overall happiness of society, and this is the moral thing for governments to do.  However, the “diminishing marginal utility of wealth” principle upon which the redistribution argument relies is not geographically bounded. It is universal. That is, there are people across the globe far poorer that even the poorest in the  United States. Thus, the “diminishing marginal utility of wealth” principle, should lead us to policies that prioritize alleviating global poverty- not just domestic poverty- via redistribution of wealth from our poor to the world’s poorest. After all, the marginal utility of $100 to someone in impoverished Africa may be far greater than to someone in our poorest cities.  Yet, the strategy of income redistribution has an even more pernicious, often unrecognized flaw. Redistribution does not just transfer resources from one person to another; it reduces the aggregate resources available to society at large. And again, this effect can be traced to the “diminishing marginal utility of wealth” principle.  Think of it this way. Money can be used for consumption or investment, i.e., production. For the rich, given that their most basic consumption needs are already satisfied, production becomes a more highly valued use of money than consumption. As income rises, the diminishing marginal utility of consumption leads to the allocation of more resources to production. Investment is valued higher than consumption.  But redistributive policies work to reduce the incentives to produce. If we are truly concerned with social happiness, we should encourage economic production and growth. Policies that reduce investment for the sake of short-term consumption slow down economic growth and increase poverty.  Free markets are deceptively powerful mechanisms to reduce poverty, and we underestimate the power of economic growth as a poverty reduction strategy. Economist, and political philosopher Tyler Cowen reminds us that: “If a country grows at a rate of 5 percent per annum, it takes just over 80 years for it to go from a per capita income of $500 to a per capita income of $25,000. At a growth rate of 1 percent, that same improvement takes 393 years.”  Moreover, one of the great virtues of free markets is that markets promote the reduction of poverty and social happiness without anyone trying. As Adam Smith noted, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”  Markets have shortcomings, and we may consider them an inadequate poverty reduction strategy if there were a feasible alternative that would do a better job. But there is no better alternative. Redistribution necessarily contributes to slowing down growth rates, and we should understand the harm that this byproduct of income redistribution causes the poor.  Please let us know if you  this article. We welcome your feedback. Abrazos, Lily & José (click on the name to email Lily or Jose) José Azel, Ph.D. José Azel left Cuba in 1961 as a 13 year-old political exile in what has been dubbed Operation Pedro Pan - the largest unaccompanied child refugee movement in the history of the Western Hemisphere.   He is currently dedicated to the in-depth analyses of Cuba's economic, social and political state, with a keen interest in post-Castro-Cuba strategies. Dr. Azel was a Senior Scholar at the Institute for Cuban and Cuban-American Studies (ICCAS) at the University of Miami, Jose Azel has published extensively on Cuba related topics. In 2012 and 2015, Dr. Azel testified in the U.S. Congress on U.S.-Cuba Policy, and U.S. National Security.  He is a frequent speaker and commentator on these and related topics on local, national and international media.  He holds undergraduate and masters degrees in business administration and a Ph.D. in International Affairs from the University of Miami. José along with his wife Lily are avid skiers and adventure travelers.  In recent years they have climbed Grand Teton in Wyoming, trekked Mt. Kilimanjaro in Tanzania and Machu Pichu in Peru.  They have also hiked in Tibet and in the Himalayas to Mt. Everest Base Camp. They cycled St. James Way (El Camino de Santiago de Compostela) and cycled alongside the Danube from Germany to Hungary and throughout southern France.  They have scuba dived in the Bay Islands off the Honduran coast and in the Galapagos Islands. Most recently, they rafted for 17 days 220 miles in the Grand Canyon.  Their adventurers are normally dedicated to raise funds for causes that are dear to them.  Watch Joe & Lily summit Kilimanjaro. Books by Dr. José Azel José Azel’s writings are touched with the wisdom of a master, and the charm of an excellent communicator. Anyone who wishes to understand why countries do, or do not, progress will find in this book the best explanations. And, from these readings emerge numerous inferences: How and why do the good intentions of leftist collectivism lead countries to hell? Why is liberty not a sub product of prosperity, but rather one of its causes? If it was in my power, this work would be required reading for all college and university students, and I would also recommend its reading to all politicians, journalists, and policymakers. With his writings Azel accomplishes what was achieved in France by Frédéric Bastiat, and in the United States by Henry Hazlitt: Azel brings together common sense with intelligent observation, and academic substance. Stupendous, Carlos Alberto Montaner                                                                    BUY NOW Los escritos de José Azel están tocados por la sabiduría de un maestro y la amenidad de un excelente comunicador. Cualquiera que desee entender por qué los países progresan, o no, encontrará en este libro las mejores explicaciones. De estas lecturas surgen numerosas inferencias: ¿Cómo y por qué las buenas intenciones del colectivismo de izquierda llevan a los países al infierno? ¿Por qué la libertad no es un subproducto de la prosperidad, sino una de sus causas? Si estuviera en mis manos, esta obra sería de obligada lectura de todos los estudiantes universitarios, pero además, le recomendaría su lectura a todos los políticos, periodistas y policy makers. Con sus escritos Azel logra lo que Frédéric Bastiat consiguiera en Francia y Henry Hazlitt en Estados Unidos: aunar el sentido común, la observación inteligente y la enjundia académica. Estupendo. Carlos Alberto Montaner                                                            Compre Aqui "Liberty for beginners is much more than what the title promises. It is eighty themes touched with the wisdom of a master, and the charm of an excellent communicator. Anyone that wishes to understand why countries do, or do not progress, will find in this book the best explanations. Stupendous" Carlos Alberto Montaner Buy Now "Libertad para novatos es mucho más de lo que promete el título. Son ochenta temas tocados con la sabiduría de un maestro y la amenidad de un excelente comunicador. Cualquier adulto que desee saber por qué progresan o se estancan los pueblos aquí encontrará las mejores explicaciones. Estupendo." Carlos Alberto Montaner Compre Aqui In Reflections on Freedom, José Azel brings together a collection of his columns published in prestigious newspapers.  Each article reveals his heartfelt and personal awareness of the importance of freedom in our lives.  They are his reflections after nearly sixty years of living and learning as a Cuban outside Cuba. In what has become his stylistic trademark, Professor Azel brilliantly introduces complex topics in brief journalistic articles. Buy Now En Reflexiones sobre la libertad José Azel reúne una colección de sus columnas publicadas en prestigiosos periódicos. Cada artículo revela su percepción sincera y personal de la importancia de la libertad en nuestras vidas. Son sus reflexiones después de casi sesenta años viviendo y aprendiendo como cubano fuera de Cuba.  En lo que ha resultado ser característica distintiva de sus artículos, el Profesor Azel introduce con brillantez complejos temas en  breves artículos de carácter periodístico. Compre Aqui Mañana in Cuba is a comprehensive analysis of contemporary Cuba with an incisive perspective of the Cuban frame of mind and its relevancy for Cuba's future. Buy now Pedazos y Vacíos is a collection of poems written in by Dr. Azel in his youth. Poems are in Spanish. Buy now

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