The End of Poverty — Revisited

To a previous piece , “The End of Poverty“, my friend Indradeep added a few thoughtful and thought-provoking comments. I take him seriously since he’s a fellow member of my tribe (namely, economists). In the following, I will do my best to address the points that he has raised. But first, here’s what I wrote in summary in my piece:

Technology is advancing at an exponential pace. Therefore the cost of energy will continue to drop. Therefore the cost of production of stuff will monotonically decrease, until a point that it will be practically close to zero. Therefore all the basics of life will be available for consumption at zero price. Therefore extreme poverty will be solved. This will happen in about 15 years.

I reproduce Indradeep’s comment here for reference:

Hard to argue with the idea that technology will reduce cost to near-zero levels. But the rest of it borders on wishful thinking. Especially, the expectation that some system of distribution will magically appear, sounds almost as sanguine as the familiar and now roundly discredited argument advanced by free-market fanatics that free trade is surely beneficial and the matter of how the winners compensate the losers is only a minor wrinkle that we do not need to worry about. Political economy, voice, agency – these things are nowhere in the picture. Does not a system of representation of voice have to precede the appearance of a system of distribution? If the rich have no intrinsic interest in alleviating poverty, how will that first system come into existence?

Let’s examine the “now roundly discredited argument advanced by free-market fanatics that free trade is surely beneficial”.

It’s absolutely true that your’s truly is a proud, fully paid-up card-carrying member of the free-market fanatics club.

OK, so free trade is not beneficial. But compared to what? For me, any claim that the free trade regime is not beneficial has to be backed up by some indication of an alternative that is more beneficial or less imperfect than the free market. I am willing to become a fanatical member of any club that is proven to be better for the people at large than the free trade club.

If the alternative to free markets is a command and control system commonly advocated by the members of the collectivist clubs (namely socialism and communism), then I am afraid that that’s a non-starter. Certainly the free markets road does not lead to unalloyed universal prosperity but the alternatives to it have been demonstrated to be the fast road to perdition.

What’s the evidence, you’d ask. Here’s a simple test. When people do have the freedom and the ability to migrate, do they go from free market economies to controlled economies, or do they do the reverse? People vote with their feet and by doing so reveal their preferences. Their revealed preferences show that free markets are better than controlled economies. People go where they anticipate a better life. Unless the claim is that people are so stupid that they systematically err, it has to be admitted that free markets deliver what people prefer better than the alternatives.

Follow the money, as the dictum goes. I say, to know which system is better, follow the people because people follow the money. I will give up my membership to the free markets club the day I read that people are moving out of free market economies and into socialist countries. There will be a big market for parkas in hell the day people migrate to Venezuela and North Korea.

I note that the rate at which I am going, it will take a bit of time for me to address just this one comment, leave alone the followup comments in that discussion. So I will stop here for now and continue with the rest later.

Coming up: the matter of distribution and how winners could compensate the losers. Stay tuned.

 

 

9 thoughts on “The End of Poverty — Revisited

  1. Atanu, I’m not going to get into it with you, as intelligent people can disagree on many things. Still, I am puzzled that you like free trade and also Trump. How? πŸ™‚

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    1. Indradeep, always the persistent question arises, “Compared to what?” Regardless of how Trump measures up on some absolute scale, what I have to go on is judging him relative to his competition. I have little respect or admiration for Trump but I have even less for Hillary R. Clinton. If I had the choice, I would pick Thomas Sowell or Victor Davis Hanson to be the POTUS.

      I like free trade because I like freedom and I like trade. I inherit the tradition of freedom from the old masters of the East and the West.

      I doubt that I can convince you to join my club and I am certain that I will never join the collectivist club. But your comments motivate me to explain my position to the readers of this site. For that I am sincerely thankful to you.

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  2. Atanu … I think this is an interesting perspective … that people free to move – move towards “free market ‘ economies and not the other day . While ‘free market’ may not be the ideal system , it seems it is the best available out of the lot experimented with.

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  3. “For every economist, there is an equal and opposite economist. And generally, they are both wrong”.

    Jokes apart, Indradeep and Atanu, thanks for your posts and comments. I am learning and I am loving it. And it is all for free! Thanks.

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  4. India has seen many economic reforms in the past few years. These have brought effect on the economy. Indian economy is becoming stronger and is gaining foot in the international market. Currently India is among the fastest growing economies. Market sentiment seems good and the effect can also be seen in stock markets. Indian Budget 2018 is the one to look ahead for.

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    1. Sejal Kumar. The “India is among the fastest growing economies” may be a true statement but it is pretty meaningless. Fastest growing means nothing without laying out the context.

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  5. It seems to me sir that your belief in the favor of free trade draws more from a priori arguments instead of empirical realities.If it weren’t so you wouldn’t have so grossly ignored the economic history of the country of your current inhabitance or for that matter of other developed countries.

    U.S. became a developed economy by doing the exact opposite of Adam Smith’s principles of ‘sound economics.’
    U.S carried an extreme form of protectionism to develop it’s textile industry by imposing huge tarrif on superior textiles of Britain then.
    Same holds true of its steel industry among others.

    Similarly, England became developed by looting India and other colonies via high tariff and extreme protectionism against goods coming from colonies.
    What’s that got to do with free markets?And a huge portion of the development of economies comes from the forced slave labor.What has that got to do with ‘free’ markets?

    Will you argue that Britain would have benefited more by engaging in free trade with its colonies including India?

    That being said, in current times, U.S. is the only country which surely benefits by making arguments in favor of free trade because:
    1.) US dollars happens to be the medium of international payments settlement.So it can practically export it’s inflation to the world by printing new currency.(Importing more from the increment in money supply thereby not putting pressure on domestic supply which could have lead to inflation.)This option is not available to other countries.
    2.) U.S. has already built it’s productive capacity by massive protectionism in the preceding centuries.

    It will help if you can address these important issues in your blog post.

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    1. @Keshav Bedi.

      The case for free trade is logically sound. Just because some countries sometimes (or even all the time) restrict free trade does not negate the argument for free trade. Unfortunately the argument for free trade is not simple. It requires effort to understand it. What’s worse, sometimes one’s interests impede one’s understanding. It is hard to comprehend an argument when your lunch depends on your incomprehension.

      {β€œIt is difficult to get a man to understand something, when his salary depends on his not understanding it.” ― Upton Sinclair}

      The US should not be the touchstone for deciding what’s best. We have to remember that all trade (restricted or unrestricted) between large collectives always has differential impact on various groups in the collectives. The domestic steel industry gains from import tariffs on imported steel, and hurts the interests of the consumers of products that use steel, and the steel exporters. Decisions about import/export quotas, tariffs and subsidies are not made in some academic setting where the goal is to seek out the truth but is made politically where special interest groups influence policies.

      I don’t have a “belief” in free trade. As I said before, it is a fact that free trade is good overall. I cannot fully explain the case for free trade in a comment to a blog post. Best is to check out the literature which is readily accessible.

      The matter of trade between Britain and India. Free trade does not enter into it because India was not free. The case is somewhat analogous to that of a slave-owner and a slave. They cannot have free trade.

      Your point about “US is the only country which surely benefits by making arguments in favor of free trade” is not correct. First, the US is not all that much in favor of free trade. There are quotas, tariffs and subsidies. Second, see the case for Hong Kong. It is not in the US. It benefits from free trade.

      I think you are confusing US proponents of free trade (mostly economists) with the US as a whole. The academic support of free trade does not mean the US government and its agencies, and special interest groups in the US support free trade.

      Even if the US dollar were not a reserve currency, the US still would do what it does because of its own domestic interests.

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