Off the poverty treadmill

In most places and at most times throughout history, most humans have walked a treadmill. Grinding poverty has been their lot. Arnold Kling and Nick Schulz declare in From Poverty to Prosperity (Encounter, 2009) that humans are now at the brink of a Lasting Triumph Over Scarcity-if only we leverage intangible assets.

That sounds good. They use a hardware and software analogy that computer use helps us to understand. Resources are hardware, and "if only hardware mattered, rich countries would face limits to growth and progress would decelerate." Kling and Schulz are right to state that "most of the differences in the standard of living across countries cannot be tied to tangible factors such as resources or capital stocks."

Social institutions are the software layer: "Societies are held back by government corruption, resistance to innovation, and the habit of rewarding those who expropriate wealth more highly than those who create it. . . . A clumsy or buggy institutional environment will hinder economic performance. . . . One of the intangible factors is the environment for entrepreneurs. The harder it is to start a legitimate business, the lower a country's standard of living."

The problem, of course, is sin. Corruption and the desire to steal instead of earn are virtual universals in human history. If in theory we could have a Lasting Triumph Over Scarcity, in practice we always find a way to mess up, often sooner, sometimes later. Kling and Schulz neglect the most important intangible asset, faith in Christ, and without that any changes are short-lived.

The same myopia affects Power and Poverty by Dewi Hughes (IVP, 2008), which contains numerous examples of the superficial analysis that leads some evangelicals astray. Consider this declaration: "Throughout history poverty has been largely unnecessary. Generally the earth and human ingenuity have always ensured enough provision for everyone. Poverty is fundamentally a matter of distribution of the adequate provision that has always been there."

This statement that opens the book has no evidence behind it. The overwhelming majority of people in virtually every society in history have been poor, and adequate provision has come only when people learned that re-­slicing the pie does not end poverty: The way out is to bake more pies.

Power and Poverty concludes with a standard sneer at "U.S. imperial pretensions" and a "massive outlay on the military" compared to "the meanness of the U.S. aid budget." But a good chunk of U.S. military spending holds back terrorists and totalitarians who would otherwise thrust more people into poverty, and many recent books show governmental aid doing more harm than good. (See, for example, Dambisa Moyo's Dead Aid.)

Books of the Power and Poverty genre lead people to think that if only lenders were kinder, everyone would own a home. But Thomas Sowell notes, in a newly revised edition of The Housing Boom and Bust (Basic, revised edition, 2010), that "lenders did not spontaneously begin to lend to people who would not have qualified for loans under the traditional criteria that had evolved out of years of experience in the markets."

As Sowell writes, "Such risky loans were made under growing pressures from government regulatory agencies and politicians, and even threats of prosecution from the Justice Department, if the statistical profiles of borrowers whose loan applications were approved did not match the government's preconceptions."

So how do we come out of our current malaise? Optimally, through revival and reformation. Short of that, Nicole Gelinas' After the Fall: Saving Capitalism from Wall Street-and Washington (Encounter, 2009) shows the need to "recreate an orderly, consistent way for lenders to failed financial institutions to take losses, reintroducing market discipline."

The basic principle should be disclosure of risk. Sadly, bailouts have tended to dissolve the barrier between the prudent and those eager to risk money not their own. We need to stop punishing responsible individuals and companies. As Gelinas writes, we do not need a government that "acts as a guarantor of perceived favorites."