Thursday, January 16, 2014

The Fifty-Year War, Part II

I’m still thinking about that 50-year War on Poverty. Complaining about how it has gone badly is not useful enough to end on. What would things look like if we were to actually eradicate poverty?
I found this graphic after writing the last post on the 50-Year War on Poverty
“The poor ye have with you always,” according to scripture (Matthew 26:11, Mark 14:7 and John 12:8). So no matter what we do, eradicating poverty entirely is unlikely to happen—because we’re living in a human condition.
But at the Spherical Model, we do have a description for a successful civilization, including the economic component:
Civilized people live peaceably among their neighbors, helping rather than taking advantage of one another, abiding by laws enacted to protect property and safety—with honesty and honor. Civilized people live in peace with other civilized people; countries and cultures coexist in appreciation, without fear.
There is a thriving free-enterprise economy. Poverty is meaningless; even though there will always be a lowest earning 10% defined as poor, in a civilized society these lowest earners have comfortable shelter and adequate food and clothing—and there’s the possibility of rising, or at least for future generations to rise.
Creativity abounds; enlightening arts and literature exceed expectations. Architecture and infrastructure improve; innovation and invention are the rule.
People feel free to choose their work, their home, their family practices, their friendships and associations. And they generally self-restrain before they infringe on the rights and freedoms of others. Where there are questions about those limits, laws are in place to help clarify boundaries of civilized behavior. When someone willingly infringes on the rights or safety of another, the law functions to protect that victim as well as society from further uncivilized behavior from the offender.
We know what successful civilization would look like. And we know, in general, the rules to get there.
Suppose, instead of government instituting controls that limit prosperity, as has happened over the past 50 years, we imagine that government had gotten out of the way and actually done what it would take to “win” such a war. Instead of news stories and commentary like we got last week, we could imagine a story more like this:

Growth Cycle Hits 50 Year Mark
Washington, DC, January 2014: The President’s economic advisory team came out with their annual report this week, marking 50 years since The Great Constitutional Society instituted reforms intended to bring about prosperity for all.
“It marks the most continuous economic growth for the nation since the period between 1780 and 1830,” remarked Prof. J. Madison of Harvard, where he has been a champion of free enterprise throughout his distinguished career.
“Our President should be honored for his deft hands-off policies concerning the economy, in the pattern of his predecessors. Low taxes and predictable rules continue to encourage entrepreneurial investment and innovation,” added Prof. B. Franklin, one of the advisory team.
The value of the dollar continues to remain steady, with near zero inflation over the past several decades, “partially due to the return to the gold standard, and partially due to matching the value of the dollar to actual economic wealth creation—something we do better now with practice, and sufficient data to prove the policies work,” explained Prof. A. Smith, author of The Wealth of the American Nation.
It does appear, in hindsight, that boom and bust cycles were never well managed by government intervention. Since the implementation of the non-interventionist policies, we have seen major recessions disappear. Individual markets occasionally overextend, but using price as the key indicator of supply and demand has allowed for quick readjustment.
With the encouragement of thrift, savings, and wise use of capital investment, individuals and organizations have seen the results of their labor grow. Typical investors plan on a steady return of between 5-10% per annum. This steady expectation over time has allowed retirement nest eggs to support a large percentage of the now-retiring baby boomers without dependence on their children and grandchildren, who are just beginning to make a comfortable living.
The long economic boom has resulted in some unexpected social benefits. For example, hospitals and charity organizations report steady donations, allowing them to care for the truly indigent.
While there continues to be a wide range of income, the lower earners are likely to view their situation as temporary. They believe that hard work, education, experience, and thrift will lead to better outcomes for themselves and the next generation. This positive expectation doesn’t eliminate the human tendency to covet; however it does mitigate negative outcomes over the population as a whole. For example, crimes involving theft and fraud are at record lows.
Misguided efforts of the past to make home ownership easier by lowering borrowing standards and controlling prices have been replaced with encouraging all citizens to live within their means. The counterintuitive result has been that overall economic health has led to the highest percentage of home ownership in the nation’s history. And with that property ownership has come the incentive to care for property and maintain property values. Our towns and cities are cleaner and more beautiful. Where people have prospered, they have also been able to encourage arts and healthy recreation.
There has been a surprising emphasis on family strength during this fifty-year experiment. Community organizations, parks, recreation, and arts tend to be family friendly, with an eye toward creating valuable family experiences. Popular culture, as well, has responded to consumer demand for better quality entertainment for all ages.
Many experts believe it has been the growing strength of families—lower divorce rates, higher birth rates, more homeschooling and alternative education based on individual family needs—that has been the key to the economic growth. Families inculcate the necessary economic values of thrift, honesty, and hard work that have supported The Great Constitutional Society. Others argue that living the principles that lead to prosperity have affected society for the better in social ways as well as economic.
The consensus of economic experts is that strictly limiting government to the specific duties outlined in the Constitution freed up wealth for economic growth and encouraged the wise economic choices that have been the hallmark of The Great Constitutional Society.
In Prof. Smith’s next book, entitled Wealth for All Nations, he outlines the successes of America over this past half century, and shows that the principles of prosperity can work wherever they are put into practice. Smith said, in his comments at the White House last Tuesday, “We have empirical evidence now of what works. We want to share that. Prosperity elsewhere in the world only adds to our abundant life here. We want that for everyone.”
Sigh! Would that this were the story at the end of a fifty-year War on Poverty! Implementing the right policies now could mean stories like these a half century hence. But we have to start now.


  1. "partially due to the return to the gold standard, and partially due to matching the value of the dollar to actual economic wealth creation"

    This portion is contradictory. Pinning to the gold standard is by definition pinning the creation of money to the amount of gold they have, which has been shown to be deflationary most times with a notable exception in Spain when they were conquering the new world and hauling back tons of gold and silver. This is different than tying it to wealth creation, which would be an attempt to make purchasing power relatively consistent.
    With the gold standard you are stuck by the fluctuations in the gold market, but with wealth creations standards, such as setting an inflation target or a purchasing power parity path, you are tied to growth in the economy as a whole.

    The advantage to the gold standard is that it is hard for governments to cheat and print too much, because they might have to pay it back. However, it ties up a lot of gold on the simple task of sitting there needing to be guarded when there are many other beneficial uses for such a wonderful precious metal resource.

    I would recommend an inflation target for its simplicity for the government to enforce and because it is tied to real GDP and economic growth. The best example of this currently is New Zealand, which has successfully kept a stable currency and had significant growth since its central bank has kept an inflation target of 1% +-0.5%.

  2. You're right, of course. What we need is an ideal way to connect money supply with actual wealth creation. Any type of fiat risks the "deciders" printing more, leading to inflation. Gold standard prevents that, and it is why there's still a pull toward that. But you're right that it does depend on the supply and demand of gold--and does keep it in reserve. So, for shorthand, here, I invented an ideal world with the ability to approximate actual wealth through a combination of partial gold standard (reserves I proportions, as banks do, for relative security) combined with limited fiat connected to something measurable--preferably something even more accurate than GDP. If I could invent something perfect that wasn't fiction, I would offer that. In the meantime, we can debate the New Zealand model, which is interesting. BTW, what do you know about Bitcoins? Any worthwhile future there?