David R. Henderson  

Oxfam or Oxgov?

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There are two ways to close the gap [between rich and poor]. The first is to concentrate on making the poor better off. Mostly that has happened, thanks to liberalized international trade and reduced costs for shipping goods. Just as Walmart and Amazon have cut costs for Americans, the introduction of container shipping crushed transportation costs for the world. The second way to reduce inequality is to make the rich worse off. Any guess which method Oxfam's report emphasizes? "Governments should use regulation and taxation to radically reduce levels of extreme wealth," the authors conclude.
This is from David R. Henderson, "A War on the Rich Won't Help the Poor," Wall Street Journal, February 8, 2018 (electronic) and February 9, 2018 (print.)

In the piece, I point out how huge a budget Oxfam has--over $1 billion annually, almost half of which is financed by governments (if you include the UN as a government)--and how far it has strayed from being a group that favored free trade to help starving people in Nazi-occupied Greece during World War II.

Under my contract with the Journal, the above paragraph is about all I can quote, but I can reproduce the whole thing on March 11.


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CATEGORIES: Income Distribution




COMMENTS (14 to date)
Alan Goldhammer writes:

@David - you could insist that your contract with the WSJ insures open access to your pieces. I don't know why the WSJ doesn't allow a certain number of free articles a month like most other newspaper websites. I find their behavior on this a PITA.

Charley Hooper writes:

@Alan Goldhammer,

I'm sure David wishes he had that level of clout with the WSJ.

Tom DeMeo writes:

Liberalized international trade and reduced costs for shipping goods are examples of the kind of market improvements that create growth overall. These are not strategies targeted to help the poor. The poor overall get substantial benefits, but so do the rich.

The rich are in a much better position to compete for new market opportunities, so the more opportunities there are, the more inequality we should expect. The only thing that will prevent the gap from widening are political and cultural pressures.

Mark writes:

Tom DeMeo,

"The rich are in a much better position to compete for new market opportunities, so the more opportunities there are, the more inequality we should expect."

Why would the rich be in such a better position? If better opportunities means more competition among investors (e.g., opening up of international investment opportunities), it would increase competition among (the assumed to be rich) investors, driving down their returns.

IMO, it's closer to (though I don't think exactly true) precisely the opposite of what you state: there's no purely economic reason why the rich should benefit disproportionately; only political and cultural factors (mainly political) can induce this outcome.

Cyril Morong writes:

The article says "Finally, the Oxfam report mentions nothing about what would be the quickest way to reduce world-wide economic inequality: let people emigrate from poor countries to rich ones."

John Kenneth Galbraith wrote a book in 1979 called The Nature of Mass Poverty (not one of his better known works). He devoted the entire last chapter to migration. One passage reads: “Migration, we have seen, is the oldest action against poverty. It selects those who most want help. It is good for the country to which they go; it helps to break the equilibrium of poverty in the country from which they come. What is the perversity in the human soul that causes people so to resist so obvious a good?”

Tom DeMeo writes:

@ Mark

"Why would the rich be in such a better position?"

Really?

Some people are good at looking for and capitalizing on opportunities. It is a set of talents. People who have these talents become more wealthy. Wealth also provides access to more resources, more opportunities and provides margin for error. If you have these abilities and resources, more opportunities mean your skills are more valuable. Bill Gates on a deserted island probably isn't that impressive. In a complex, highly technical world, he is.

"Why would the rich be in such a better position? If better opportunities means more competition among investors (e.g., opening up of international investment opportunities), it would increase competition among (the assumed to be rich) investors, driving down their returns."

So you are arguing that more opportunities have somehow unlocked a disproportionate increased competition for those opportunities? That's possible in a dynamic marketplace, but wouldn't that mean we would see less inequality?

Strangely, you come around to the point I was trying to make. The last sentence of both are posts say almost exactly the same thing.

Jon Murphy writes:

@Tom Demeo

Quick empirical fact: study after study shows that the overwhelming majority of benefits from international trade go to the poorest (to wit see this)

The logic is straightforward: since trade tends to reduce the prices of consumption goods, and the poor spend a much greater share of their income on consumption than the wealthy, they benefit disproportionately.

Procrustes writes:

I stopped supporting Oxfam years ago when they announced a policy of supporting “fair trade” instead of free trade. Talk about a misguided policy that really does little to assist the poor.

Tom DeMeo writes:

@Jon Murphy

The link you cited doesn't exactly say what you claim. There is no use of the word "overwhelming" or any other similar adjective, particularly for industrialized countries, where they state:

"The main benefits for industrial countries would come from the liberalization of their agricultural markets."

That won't mean a lot of lift for most poor people in the US. International trade helps the poor in developing countries far more.

I agree that international trade means lower prices, and that helps the poor substantially. But that is one side of the equation. On the jobs side, the story is much more of a mixed bag.

International free trade is clearly a good thing overall. I think it can, and often does help the poor. My point was that ultimately, it is important to acknowledge that who it ends up helping most is not a matter of unfettered free markets, but political and social norms. Without those norms, inequality will increase.

Fred Anderson writes:

Tom DeMeo;

You write, "The rich are in a much better position to compete for new market opportunities, so the more opportunities there are, the more inequality we should expect. The only thing that will prevent the gap from widening are political and cultural pressures."

At first, I assumed you were holding up equality as the primary social objective. Hence I rebelled against your statement, since history seems to tell us that enforcing equality requires tyranny and this leads to mass impoverishment. (E.g., Venezuela.)

But upon reflection, your statements seem reasonable. Thus my assumptions must be flawed. Are you merely saying that equality is *a* goal, but not the only -- or even the primary -- one? Are you merely stating the obvious: That a society where the highest and lowest incomes are $1,000,000 and $0 is a society with more inequality than one where the highest and lowest incomes are $1,000 and $0? Reading what you wrote, you made a statement about one avenue by which inequality increases but made *no* explicit statement about its desirability or un-desirability.

Come to think of it, if the rich have limited attention spans (such that they cannot effectively pursue all of the opportunities open to them), and if the poor may have human capital (although they lack tangible capital), mightn't the poor -- or at least some of them -- also benefit from the increased opportunities presented by growth?

And why would we assume that the new opportunities (say, ladies luxury handbags) would be more attractive as a theatre for the investment of money and attention than the old ones (say, owning and operating the country's largest railroad)?

That last raises another line: mightn't the rich find it easier / more practical to invest their money and attention into a business they know, rather than taking a chance by diverting money and attention into a new -- and therefor poorly understood -- future venture? Mightn't many of these new opportunities be left for the poor to exploit because the rich are too busy and/or risk-averse?


Mark writes:

Tom,

Increased competition among investors should indeed drive down wealth inequality.

And I don’t think we’re saying the same thing, but rather the exact opposite; you seem to be saying government intervention is necessary to prevent rich people from benefiting disproportionately from free trade; in saying the exact opposite: that absent intervention this would not happen, and intervention tends to make it so.

Ultimately, of course, it is irrelevant if free trade benefits one class more than another, as it benefits every class more than its absence.

Jon Murphy writes:

@Tom DeMeo

"Overwhelming" is my word. The studies put it in much more quantifiable phrases.

That won't mean a lot of lift for most poor people in the US. International trade helps the poor in developing countries far more.

In other words, the poor are overwhelmingly benefitted by international trade. The US poor are not really poor; the bottom 5% of the US live better than about 80% of the world.

On the jobs side, the story is much more of a mixed bag.

Not really, no. Division of labor creates more jobs.

My point was that ultimately, it is important to acknowledge that who it ends up helping most is not a matter of unfettered free markets, but political and social norms. Without those norms, inequality will increase.

I don't understand what you mean by this. Can you elaborate?

Tom DeMeo writes:

@Fred Anderson

I don't believe equality should be a primary social objective. I think that government should strive to organize society in a way that benefits and includes the widest number of people possible.

I also appreciate that you recognized that I didn't recommend anything, because I don't know what the right thing to do is. I was only pointing out that I think the relative advantages of the top economic tiers to capture opportunities will probably increase for the foreseeable future.

I would acknowledge that government probably would do more harm than good by trying to equalize things. I know government could be run smarter and and serve the lower half of the economic spectrum better without plundering the rich, but I don't know how that would happen politically.

I would also guess that severe inequality would eventually result in imbalanced markets and generate less value for the rich. Natural corrections to promote more balanced markets might even take place if given enough time, but I would expect political instability to occur first.

I would rather live in a world where political systems remained stable indefinitely, and markets made all the corrections necessary to retain political cohesion. I just think history is pretty clear about this. Sometimes it takes political pressure and even violence to settle things.

Jon Murphy writes:

@Tom DeMeo

I think that government should strive to organize society in a way that benefits and includes the widest number of people possible.

Why should government "strive to organize society" and not society strive or organize society? It seems to me that government would suffer from exactly the same problem you do, namely: "I don't know what the right thing to do is." If you don't know, how can government?

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