and in particular, too little incentive for many people to generate formal wealth.
I’m skeptical of that. The undeveloped world has less welfare (since they have less money to give) which means people are more desperate to make money.
I suppose it’s possible that the problem is that, since they tend to be much closer to the brink of starvation, their less willing to take risks for money. Better to have a sure subsistence wage than a risky luxury wage. In that case, giving the poor more of the wealth would seem to help.
I strongly recommend reading The Mystery of Capital. Its basic premise is that most developing countries have very weak legal systems, which dramatically reduces the level of trust individuals can have with each other, leading to dramatically lower incentives for wealth accumulation. Why bother improving your tin shack when your neighbors could collectively agree that it’s not your shack and kick you out, or the President’s cousin who officially owns the land you’re squatting on could bulldoze it at any time? Why enter into a business agreement with someone else, when you can’t enforce any written agreement between the two of you? Much safer to invest only with your family members who will have a much harder time running away with the profits, though they may not be the best people for the job.
The answers are also not found in modern American or European law, but in frontier American law; things like homesteading make great sense in most of the developing world, but are rarely implemented, often because of ignorance that it’s a good or possible option.
That’s an entirely separate issue. If you want people to make contracts, you don’t do it by making them desperate. You do it by making them keep their contracts.
That’s an entirely separate issue. If you want people to make contracts, you don’t do it by making them desperate. You do it by making them keep their contracts.
The claim is that it’s not an entirely separate issue, because bad legal systems are (in de Soto’s view, at least) the primary cause of poverty in the third world, and so fixing the legal systems will seriously reduce the poverty.
The phrase “too little incentive” may have been unclear; I meant it in the sense that income taxes reduce the incentive to put effort into earning income, not that the utilons that result from post-tax earnings are lower. A lack of legal protection for capital held by the poor makes it often irrational for the poor to invest heavily in capital that they are not sure will remain theirs, and so they remain poor. Adding legal protections changes the incentive structure, and thus changes rational behavior.
Claim: Primary controllable cause of poverty in the developing world is low incentive for the poor to develop formal wealth.
No, this is absurd. Poor people do not respond to complex tax incentives; in most cases they don’t have the education or information to even comprehend them. The primary causes of poverty in the developing world are lacks of resources of various kinds (capital, education, nutrition), which are themselves caused by past poverty, in a self-reinforcing cycle.
Poor people do not respond to complex tax incentives; in most cases they don’t have the education or information to even comprehend them.
Tax incentives aren’t the incentives I’m talking about here. I’ll point you to de Soto again, as he makes the argument much more convincingly than I can.
The primary causes of poverty in the developing world are lacks of resources of various kinds (capital, education, nutrition)
This agrees with de Soto’s view, but the resource he focuses on is “trust,” which can be developed by developing the legal systems.
I’m skeptical of that. The undeveloped world has less welfare (since they have less money to give) which means people are more desperate to make money.
I suppose it’s possible that the problem is that, since they tend to be much closer to the brink of starvation, their less willing to take risks for money. Better to have a sure subsistence wage than a risky luxury wage. In that case, giving the poor more of the wealth would seem to help.
I strongly recommend reading The Mystery of Capital. Its basic premise is that most developing countries have very weak legal systems, which dramatically reduces the level of trust individuals can have with each other, leading to dramatically lower incentives for wealth accumulation. Why bother improving your tin shack when your neighbors could collectively agree that it’s not your shack and kick you out, or the President’s cousin who officially owns the land you’re squatting on could bulldoze it at any time? Why enter into a business agreement with someone else, when you can’t enforce any written agreement between the two of you? Much safer to invest only with your family members who will have a much harder time running away with the profits, though they may not be the best people for the job.
The answers are also not found in modern American or European law, but in frontier American law; things like homesteading make great sense in most of the developing world, but are rarely implemented, often because of ignorance that it’s a good or possible option.
That’s an entirely separate issue. If you want people to make contracts, you don’t do it by making them desperate. You do it by making them keep their contracts.
The claim is that it’s not an entirely separate issue, because bad legal systems are (in de Soto’s view, at least) the primary cause of poverty in the third world, and so fixing the legal systems will seriously reduce the poverty.
The phrase “too little incentive” may have been unclear; I meant it in the sense that income taxes reduce the incentive to put effort into earning income, not that the utilons that result from post-tax earnings are lower. A lack of legal protection for capital held by the poor makes it often irrational for the poor to invest heavily in capital that they are not sure will remain theirs, and so they remain poor. Adding legal protections changes the incentive structure, and thus changes rational behavior.
And what does that have to do with printing money and giving it to the poor?
Claim: Primary controllable cause of poverty in the developing world is low incentive for the poor to develop formal wealth.
Claim: Printing money lowers the incentive to develop formal wealth because it is a tax on formal wealth (in cash form, at least).
Conclusion: Printing money would exacerbate primary controllable cause of poverty in the developing world.
Now, this is not the total cost-benefit analysis, but it is the part that will dominate it given my values and discount function.
No, this is absurd. Poor people do not respond to complex tax incentives; in most cases they don’t have the education or information to even comprehend them. The primary causes of poverty in the developing world are lacks of resources of various kinds (capital, education, nutrition), which are themselves caused by past poverty, in a self-reinforcing cycle.
Tax incentives aren’t the incentives I’m talking about here. I’ll point you to de Soto again, as he makes the argument much more convincingly than I can.
This agrees with de Soto’s view, but the resource he focuses on is “trust,” which can be developed by developing the legal systems.