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Born Poor? Here’s $250,000 – Samuel Bowles, A Rethink In Economic Development,

07 Feb

Here’s a fascinating read on radical Santa Fe Institute economist Samuel Bowles, “Born Poor? Santa Fe Economist Samuel Bowles Says You Better Get Used To It,” written by Corey Pein of the Santa Fe Reporter.

Bowles heads the Behavioral Sciences Program at the Santa Fe Institute, which is home to dozens of big brains imported from all over the world.

Bowles posits that the state needs to completely rethink the way it does economic development.

“Bowles is a very well-educated guy with a real interesting background. He’s not of the ilk of most economists up in Santa Fe,” Kim Posich, executive director of the New Mexico Center on Law and Poverty, says. “His ideas are not always run-of-the-mill.”

Bowles, an empiricist, says his research doesn’t support the Chicago School efficient marketplace hypothesis. Instead, he argues that the wealth inequality created by strict market economics creates inefficiencies because society has to devote so much effort to stopping the poor from expropriating the rich. He calls this "guard labor" and says that one in four Americans is employed in that sector — labor that could otherwise be used to increase the nation’s wealth and progress.


The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains "illegitimate inequalities," creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time–perhaps starting their own businesses or helping to reduce the US trade deficit with China.

Guard labor supports what one might call the beat-down economy. Community Action’s Porter sees it all the time.

"We have based almost everything we have done on the idea that we always need a part of our workforce that is marginalized–that we can call this group into action at any time, pay them nothing and they will do anything that needs to be done," she says.

More discouraging, perhaps, is the statistical fact that a person born into this workforce has little chance of rising beyond it.

Gini coefficient for New Mexico: 45.7
Gini coefficient for Sweden: 23

The first number is the “Gini coefficient” for New Mexico. The Gini coefficient is a measure of statistical dispersion, developed by the Italian statistician Corrado Gini, which is used as a measure of inequality of income or wealth. The coefficient can range from 0 to 1; it is sometimes multiplied by 100 to range between 0 and 100. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, while higher Gini coefficients indicate more unequal distribution, with 1 corresponding to complete inequality.

New Mexico’s Gini score (45.7) reveals this state is more unequal than most. Utah is the most egalitarian state (with a 41.3 Gini), while the District of Columbia (53.7) is the most economically polarized, according to the most recent Census report, from 2006.

The second figure, 23, is the Gini for Sweden, the world’s most egalitarian country. Whereas most of Europe, Canada and Australia have Ginis in the low 30s, the US has over the past several decades developed inequalities usually found only in poor countries with autocratic governments.

So what? Isn’t inequality merely the price of America being No. 1?

“That’s almost certainly false,” Bowles tells SFR. “Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.”

Gini_Coefficient_World_CIA_Report_2009

CIA – The World Factbook 2009

Bowles solution? $250,000.

OK, that’s a figure Bowles picked out of the air. It’s how much each person might receive under a key economic reform he supports: universal welfare.

It could also be called direct government investment in everyone. After all, taxpayers already invest in strangers’ children through the public schools before turning them loose with nothing.
“Suppose instead what we did is this: We said, ‘Look, when somebody turns 18, he gets a quarter of a million dollars and, after that, you’re on your own,’” Bowles says. “Once you’ve got your quarter-million, you’ve got to make a decision: ‘Should I go to college or do I want to start a business?’—which you could do with a quarter of a million.”

This is a variant of an old idea, more recently popularized—at least in Europe—by the Belgian economist Philippe Van Parijs. Under his “basic income grant” proposal, the government would redistribute wealth so that everyone has enough to live.

“They just get a check. And they get it no matter what—Rockefeller, the poorest person in America, everybody gets it,” Bowles says. “There’s nothing you can do to get more; there’s nothing you can do to get less.”

Such a system eliminates the disincentives to work in the current social safety net. “The problem with the welfare system is that as soon as you get a job, they start taking your money,” Bowles says. “This basically says, ‘You’ve got this nest egg and, if you go out and get a job, you keep the whole thing—except for whatever taxes you pay.”

Can you hear the Friedmanites groaning? “It sounds very radical,” Bowles says, “but it’s very consistent with economic ideas.”

It makes as least as much sense as giving hundreds of billions of dollars to Wall Street’s largest banks—some of which helped cause the recession—so that the banks can lend it back to taxpayers at outrageous interest rates.

SOURCE: “Born Poor? Santa Fe Economist Samuel Bowles Says You Better Get Used To It,” written by Corey Pein of the Santa Fe Reporter.

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Posted by on February 7, 2010 in Economic News

 

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