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Monday, July 11, 2005

The right and the wrong ways to tackle poverty

In an excellent essay in Tech Central Station, Arnold Kling of EconLog points out that contrary to what many of the stars behind Live 8 seem to believe, redistribution is not the solution to poverty, but market institutions are. Kling writes:
Two years ago, economist Paul Rubin published a paper called Folk Economics (note: payment or subscription required). As this description points out, Rubin suggests that in a hunter-gatherer tribe, goods are exchanged mostly through sharing and reciprocal altruism. There were no visible gains from impersonal trade or economic growth. In this zero-sum environment, people evolved an instinct to resent and punish those who took too much.

Rubin's thesis is that the instincts that evolved in prehistoric tribes account for the misguided "folk economics" that many people believe today. Anti-globalization and opposition to free trade reflect the fear of strangers that was inherent in tribal society. Resentment of the rich and a belief in redistribution reflect the hunter-gatherer's zero-sum thinking.

In a well-functioning modern economy, wealth is created rather than stolen. People develop new technologies, new ways of satisfying human wants, and more efficient ways of producing and distributing goods and services. As the quote from Lucas [earlier in the piece] indicates, we owe our well-being to this process of economic growth, not to redistribution. [Links in original.]
Kling's essay is superb, and Folk Economics is also worth a read. I followed Kling's link, and was able to download a free pdf. Good stuff.

(TCS essay link via Cafe Hayek.)
amit varma, 11:42 PM| write to me | permalink | homepage

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