Arnold Kling  

The Plight of the Poor

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Austrian Economists and the ma... In Search of Another Theory of...

William Easterly writes (also can be found here) ,


The poor have neither the income nor political power to hold anyone accountable for meeting their needs--they are political and economic orphans. The rich-country public knows little about what is happening to the poor on the ground in struggling countries. The wealthy population mainly just wants to know that "something is being done" about such a tragic problem as world poverty. The utopian plans satisfy the "something-is-being-done" needs of the rich-country public, even if they don't serve the needs of the poor.

Thanks to Tim Harford for the pointer.

Meanwhile, Steven E. Landsburg writes,


For the cost of reconstructing New Orleans, the government could simply give $200,000 to every resident of the region—that's $800,000 for a family of four. Given a choice, which do you think the people down there would prefer?

For Discussion. Can you connect the dots between these two articles?


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CATEGORIES: Income Distribution



TRACKBACKS (6 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/367
The author at Different River in a related article titled The Economics of Hurricane Relief writes:
    As usual, Steven Landsburg puts things in the right perspective (Thanks to Arnold Kling for the pointer): Before we spend $200 billion on New Orleans disaster relief, can we just pause for about three seconds, please? That should be long enough t... [Tracked on September 23, 2005 3:39 PM]
The author at Houston's Clear Thinkers in a related article titled Throwing money at All the King's Men writes:
    John Fund explores in this OpinionJournal piece the risk that long-standing Louisiana elements of corruption are likely to hijack a good part of the extraordinary amount of federal aid that will be flowing into the state in the wake of... [Tracked on September 26, 2005 7:51 AM]
COMMENTS (5 to date)
spencer writes:

Both ignore the reality of the situation.

The US economy really needs a port at the mouth of the Misissippi. The port and energy workers
in LA will need some place to live, including business services. This is why we need to rebuild. Otherwise, giving each individual the capital to relocate elsewhere is a fine idea.

The biggest cost of rebuilding NO is going to be rebuilding flood control projects and other public capital not to replace the individual homes flooded out that are probably in areas where we will not rebuild anyway.

So giving each individual $200,000 is a non-starter that ignores why we will rebuild.

In the same way the primary objective for foreign aid is as a foreign policy tool. We give foreign aid to influence other government. Whether it help poor people live better lives does not really matter. That, for example is why we give Iceland food aid. It is to compensate them for the use of their airport facilities by the US military.

Landsberg gets the numbers wrong--the $200 billion has to cover the destruction in three states not just New Orleans and suburbs. But, he's right about the principle.

And, we could get by with a lot less than $200,000 per person to do it.

I like the idea of Robert E. Mittelstaedt Jr. and Wellington Reiter, make the French Quarter a national park, create a port on Lake Ponchartrain, build housing and commercial building north on higher ground.

Jason Bradfield writes:


The underlying point here is that aid is better given directly to those who need it as opposed to the top-down approach mysteriously always favored by those at the top.

However, Landsburg's approach would have a similar effect of the government flood insurance he rightly denounces. Everyone who lives in a risky area or even engages in risky business endeavors will factor the possibility of getting a post-disaster handout into their decisions.

He may be right to suggest the best approach is to do nothing. However, a better approach may be to strengthen general social insurance - this might encourage riskier behavior than otherwise, but it will not encourage as much as de facto insurance againt specific risks (flooding, earthquakes, terrorism, etc.)

Some believe government shouldn't be in the risk management business at all - that may be a noble sentiment - but it certainly won't fly in a mass democracy. Others support government's de facto insuring of specific risks, which is guaranteed to produce perverse incentives. A better approach is to seek the middle ground and agree that governments should underwrite general social risks (employment, medical care, homelessness, etc.), but stay away from specific risk insurance. That way when a specific catastrophic loss occurs - people can say "Thanks goodness, no one is going to go without sufficient income, health care, or affordable housing because of this."

Alex writes:

Related to the point of how to distribute the aid money needed for disaster relief, what I see happening here is that Bush is going to overcompensate for his feeble initial reaction to the hurricane. Obviously the initial federal reaction was insufficient, but now the impulse is to throw money at the problem to show people that "something is being done", regardless of the effectiveness or logic of the spending choices.

Chris Bolts writes:

[quote]A better approach is to seek the middle ground and agree that governments should underwrite general social risks (employment, medical care, homelessness, etc.), but stay away from specific risk insurance. That way when a specific catastrophic loss occurs - people can say "Thanks goodness, no one is going to go without sufficient income, health care, or affordable housing because of this."[/quote]

But, in a way, we already do this. We have unemployment insurance, Medicare for the old, Medicaid for the poor, SSI for the disabled and homeless, Social Security for the old and disabled, housing subsidies, education subsidies, etc., etc. Yet they do not solve the problem.

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