Skip to content

Poverty’s Most Common Fallacies

idea de pobreza, El American

Esta entrada también está disponible en: Español

[Leer en español]

It is well known that poverty and wealth are relative terms: we are all poor or rich depending on who we compare ourselves with. But in this article, we focus on those who do not have enough to meet their basic needs, a concept that naturally refers to the absolute and leaves aside relative positions. Undoubtedly, this is a serious problem.

In this context, several observations are in order. In the first place, we must refute the tiresome idea that poverty, as previously defined, leads to delinquency. This assertion is an affront to our ancestors, since we are all descended from caves and the most appalling misery, so it does not follow that we come from criminals.

Moreover, it is very common to find that people who are very modest in their economic condition cultivate values of reciprocal respect, while others with a succulent income reveal immoral behaviors wherever they may be seen. In other words, the ethical principles that are adopted are not causally related to one’s pocket, but have to do with cultivating oneself as a human being.

Secondly, it has been said that populism runs deep in poor places, which is not the case in affluent or higher-income areas. This is not true either: first of all we must realize that rich countries were poor and did not embrace statism when they became rich, otherwise they would have remained poor. Again, it is a matter of values and principles that not only lead to decency but also to prosperity.

Thirdly, it is pertinent to underline that it is also insisted that poverty invites a climate of social plans, which goes against the culture of work. Undoubtedly, the so-called social plans -that is, the delivery by the State apparatus of resources compulsively subtracted from the fruits of other people’s labor- degrade the notion of one’s own effort while creating unhealthy dependence on demagogic and unscrupulous politicians and inexorably accentuate poverty.

But this is not exclusive to the poor, many rich people are also granted hidden social plans by the statists, only with a different name: it is called customs protectionism, captive markets, subsidized credits, tax exemptions, debt “bailouts”, handouts and privileges of all kinds at the expense of the workers who have no lobbying power.

And now comes the fundamental issue, what is the procedure to reduce poverty. On other occasions I have written about this crucial issue, but it is necessary to insist in view of the reiteration of fallacies in this matter.

Individual rights are prior and superior to the existence of governments and come from the characteristics of the human condition that require the power to use and dispose of one’s own in order to pursue one’s personal life projects. Like roses and stones, human beings have characteristics that define their species. No one should be used as a means to the ends of others, since the human being is an end in itself.

The “social balances” with the intention of establishing peculiar utilitarianisms are totally inappropriate and lead to the greatest arbitrariness as when they are intended to weigh the advantages of circumstantial majorities against defenseless minorities. Pseudo-rights are clearly contrary to law.

We live in an era in which the defense of the most needy is claimed but at the same time they are severely affected by highly counterproductive measures. This is so mainly but not exclusively through the misnamed “social conquests” that paradoxically ruin the most vulnerable.

To understand this, it is necessary to allude to the cause of the increase in wages and incomes in real terms. This is what is generically called capitalization rates, which is equivalent to per capita investment, i.e. instruments, machinery, equipment, facilities and relevant knowledge that provide logistical support to work in order to increase yields.

In turn, investments come from internal and external savings to the country in question, which is maximized to the extent that there are civilized institutional frameworks, in other words, respect for the property rights of each person, starting with life itself, the expression of thought and the use and disposal of what is legitimately acquired.

In this context it is necessary to point out the danger of misusing the meaning of the term “investment”. This concept refers to the individual estimation of one’s own resources in the context of which the subject in question values future yields more than present ones and, therefore, chooses to abstain from consuming in order to save, and the destination of savings is always investment (they are two sides of the same coin).

It is totally inappropriate to allude to “investment” when the State apparatus takes possession of the fruits of the labor of others, in which case it is a question of expenditure that can be current or destined to fixed assets, but in no case does it make sense to claim that it is an investment for the reasons mentioned above.

If a guy takes someone else’s wallet, it makes no sense to tell him that he will “invest” it, regardless of whether that guy is part of the state apparatus or is a private individual. In the first case, the expenditure may or may not be justified, but in no case is it an investment process. In everyday language, there is a use and abuse of this concept.

Today it is fashionable to strongly criticize this or that union leader for his aberrant behavior, but the legislation that makes it possible to have illegitimate unions instead of free and voluntary associations and the figure of the “withholding agents” that get their hands on the fruits of the labor of employees so that they cannot use their belongings is still in place.

Once these clarifications have been made, it is clear that Bolivian salaries are lower than Canadian ones, not because in the first case the employers are perverse and the latter are more generous, it is a matter of different capitalization rates and that makes all the difference, which does not mean that the relative positions are irrevocable. There are countries that have had high capitalization rates which they have then squandered, with the result that their wage levels have fallen. As mentioned above, everything depends on the quality of the prevailing institutional frameworks.

In German and American environments there is practically no domestic service in the respective households. It is not because housewives do not need help, it is because the capitalization rates are such that they do not allow for this service, since they would have to compete with high salaries in business and equivalent environments, a situation that becomes impossible.

Typically in countries with very low rates of capitalization, some people carry out tasks such as four people fanning a certain subject at nap time, but if that same person were to move to a city where high capitalization rates prevail, he/she should immediately abandon this habit, since the salaries for this activity are impossible to afford.

It has been erroneously maintained that governments should regulate labor contracts since “inequality in hiring power” shows that it is not possible to allow a millionaire to hire a person who does not have enough to make ends meet at the end of the month, end of the week or end of the day. This analysis suffers from the serious defect that it does not take into consideration that it is clearly irrelevant how large or small the respective current accounts or net worth of those contracting is. What is relevant, what is decisive, are the capitalization rates that force them to pay market salaries.

If a millionaire comes to a town and finds out how much it costs to paint his house but claims that since he has a large net worth he will pay half, by definition he will not paint his house. It does not matter if the person in question is very rich or if he is broke, the salary to paint his house is the one set by the capitalization rate.

It should also be taken into account that if an employer decides to pay more for the same work than the capitalization rate, on the one hand he will have a greater supply of labor than he needs and on the other hand he will proceed to waste his resources and if he persists in this line his days as an employer will be numbered.

It is necessary to point out that where labor contracts are free there will be no unemployment, that is to say, a surplus of that essential factor for rendering services and producing goods. This situation for the normal worker (not for the one who, for example, is in a vegetative state or suffers from deficiencies of such a nature that he is unable to do anything) occurs independently of the most extreme poverty or the most exuberant wealth in which the environment in question is found. In the first case, wages will be low and in the second case, high, because in no case will there be a surplus of this essential human resource.

In reality, unemployment is observed in several countries because contractual arrangements are not free. On the contrary, the misnamed “social conquests” appear, which unfailingly cause unemployment, since this happens when monetary or non-monetary wages are set by decree above what the capitalization rates allow. And this should not be seen only in terms of marginal workers, if by law salaries are set higher than those obtained by finance managers, personnel managers or general managers, they will be unemployed.

Usually, those wrongly called social conquests are decreed with the best goodwill and the idea of protecting the neediest, but it is of great importance to realize that they greatly harm them.

Thus, for example, the minimum wage, by definition higher than the market wage, sweeps away those who need to work the most. There are also “conquests” that constitute insults to intelligence, such as the Argentinean case of the Christmas bonus, that is, the thirteenth month, without perceiving that inexorably less is being paid during the twelve months of the year in order to be able to face the thirteenth month. Actually, it would be interesting to decree that the year has forty months, but that is not possible, and the same is true for the rest of the sadly famous social conquests.

Needless to say that the salary established by the capitalization rates does not appear drawn in the sky, we need to find it out. In any case, try hiring a secretary for half the market salary and she will surely last until lunchtime of the first working day because she will immediately be informed that she is undervalued.

What we are talking about is especially directed to the ongoing robotization phenomenon that frees up human and material resources to cover other needs that were impossible to contemplate until now because those resources were sterilized in the previous areas. As is well known, resources are limited in the face of unlimited needs. If we were in Jauja and there was everything for everyone all the time, the labor problem would disappear.

In order to achieve new arbitrations, the businessman is encouraged to train personnel in new activities. Saving the distances, it is the same thing that happened with the ice-bar man before refrigerators, or the stoker before Diesel locomotives.

Unions as free and voluntary associations play a role appreciated by their members, which implies the figure of legal personality, but by no means the fascist figure of union membership that blocks contractual freedom. In the same way, the strike must be understood as the right not to work, which is openly opposed to intimidation and violence that has nothing to do with that right.

When we understand that welfare does not depend on magic or voluntarist decrees, only then will we be in a position to open the doors to progress, especially for the neediest. As Bruno Leoni, among many others, explains, when we understand that law is not the result of social engineering but the fruit of a process of discovery, only then will we understand the value of institutional frameworks that guarantee reciprocal respect. Only then will we be able to understand the danger of pseudo-law.

Edmund Burke in 1756 wrote that “the secure enjoyment of natural rights is the ultimate and greatest purpose of civil society and therefore every form of government is only good if it is consistent with that purpose to which it is entirely subordinate”, which, among others, was taken up by Juan Bautista Alberdi in the publication of his first legal perspective study in 1837 and then in the context of his economic analysis in 1854.

This is the way to lift people out of poverty and set them on the road to progress: reciprocal respect, in which context it is worth recalling that in 2003 Alexander Solzhenitsyn summarized the whole problem as follows: “In different places over the years I have had to prove that socialism, which many Western thinkers say is a kind of kingdom of justice, is coercion, bureaucratic greed, corruption and avarice”.

Alberto Benegas Lynch Jr. is president of the Economy Section of the National Academy of Sciences of Buenos Aires. // Alberto Benegas Lynch (h) es presidente de la Sección Ciencias Económicas de la Academia Nacional de Ciencias de Buenos Aires.