How not to end poverty

In spite of popular belief the rich should not fight poverty by giving away their money to the impoverished. In his show, “The Big Picture”, Thom Hartmann points out that the richest 100 people in the world have enough wealth to eliminate world poverty 4 times over. In direct defiance of the show’s name, this opinion is woefully myopic.

Liquidation

Although many wealthy people have large cash sums in various bank accounts, most of their wealth is tied up in other assets. Business tycoons such as Warren Buffet, Bill Gates, Larry Ellison, Michael Dell, Donald Trump, Eric Sprott, etc. have most of their wealth invested in their respective business. Outside of that, some funds reside in real estate and other investments. If the 100 richest people were to sell these assets, they would find their wealth rapidly evaporating, as the sheer volume of stuff to sell enters the market.

Return on Investment

The wealthy have their money invested in these other assets because of the return on that investment. Specifically, they would rather not invest the money in ending poverty because they can get better returns elsewhere. Economically speaking, and I know it sounds heartless, a better return on investment in these other assets indicates that these investments are more valued by society than eradication of poverty.

Voluntary Charity

The rich, of all people know better than anyone else, how money is merely a means to an end. Often wealthy people will invest heavily in items that see no immediate benefit. For example, Rockefeller promoted better sanitation in order to eliminate anemia due to hookworm, and open up the American South as a new and vibrant market for his goods. Bill Gates is currently fighting to rid the world of polio simply because he wants to and thinks it will make the world a better place.

Coercive Redistribution

Following Thoms proposal involves theft. In the words of Penn Jilette: “Voting for our government to use guns to give money to poor and suffering people is immoral and self-righteous bullying laziness. People need to be fed, medicated, educated, clothed, and sheltered. If we’re compassionate, we’ll help them, but you get no moral credit for forcing other people to do what you think is right. There is great joy in helping people, but no joy in doing it at gunpoint.”

Markets, not Money

Suppose we follow Thom’s suggestion and transfer into the hands of the world’s poor, all the money we take out of the pockets of the 100 richest. What will the poor do with this money? They cannot exchange the money, because most of them have no corner drugstore, mall, or supermarket to spend it at. What they really need, they cannot buy, even when they have money in hand. Clearly, the infrastructure of a market is more valuable than the money being exchanged at the market.

Production creates wealth

Even assuming that the poor have a market at which to spend, they will likely spend these funds on consumer goods which depreciate in value. The impoverished will immediately purchase items which make their lives materially better. Basic things such as clean water, food, lighting, etc. and all the other baseline items for economies with established markets. But without a means of producing, the consumption is not sustainable. Without employment that gives back to the market, these people will quickly become impoverished again.

Malinvestment

I probably shouldn’t add that, in all probability, the rich sell the consumer goods, reacquire the money, and reinvest it in areas which do produce a return. Giving money to individuals undisciplined in its use represents a malinvestment. For example, Zimbabwe liberated plantations from the exploitative white owners and gave the fields to the poor working class. The farms were given to the hands of people not educated in planting and harvesting cycles, and the other logistics of farming. Massive crop failure hurt the local economy. The wealthy have money, because they are intelligent enough to put that wealth into productive use.

So giving money to the poor doesn’t end poverty. Giving material goods to the poor doesn’t end poverty. At best this redistribution can alleviate the symptoms of poverty for a short period of time. But, unless voluntarily undertaken, it represents a malinvestment of scarce resources. Our goal should be to give people a hand up. To create markets that allow people to lift themselves out of poverty. To encourage employment toward productive ends valued by others. Production and careful, deliberate investment pave to rode from poverty to wealth.