onsdag 3 december 2008

Time to tackle US poverty?

It is being suggested that President-Elect Obama should appoint a "Poverty Czar". But the root cause of poverty is lack of access to land. Those who do not have it are forced to pay rent and work for wages. Rents rise to the maximum that people can afford and it is only the exceptional individuals who can get out of that trap. If everyone is educated or works harder, the effect is merely to raise the levels of rent. It is as simple as that. The Law of Rent is an iron law of economics. It was described by, amongst others, David Ricardo, whose name it bears. Unfortunately, modern economic theory ignores the role of land and rent, with the result that the cause of poverty is nearly always thought to be something else, and the problem is never solved.

Where land has been freely available, there is no poverty, since people have the option of working their own land. This was the situation on the western side of the USA in the mid nineteeth century. This was noted by a San Francisco man, Henry George, who developed a new theory of economics to account for it. But when he had finished his work he found that he had only re-stated the ideas formulated a century before by the French Physiocrats, though in an updated form. George also gave the most convincing explanation to date of the land-based cyclic boombusts such as the one we are currently experiencing. You can read his book online here.

Although a poverty czar (or perhaps czarina!) in itself will achieve nothing, the situation is not hopeless. The solution is to read George's book and apply the proposed remedy. But since it will take political courage to face-down vested interests, the czar(ina) will need to be strong.

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