…and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.
One of the reasons I fell in love with economics, and free markets in particular, is because of their ability to do good in the world. Markets allow for individuals to build skills, sell their goods and services, and generally support themselves. This is a truly glorious thing. This is, in the final analysis, why markets are such an effective tool at fighting poverty: they can address the underlying root causes of the poverty.
Consequently, this is also why government welfare and private charity often fail to cure poverty: they do not address the root causes. If a man is starving because he cannot grow food, giving him a meal won’t change that. It’ll just mean he needs another meal the next day. But if a man can grow food thanks to market-supplied fertilizer, seeds, and protected property rights, then he won’t need to beg.
In the past 30 years, 26 of them I’ve been alive, global poverty has more than halved. This isn’t due to a rise in socialist states or government welfare programs; those have existed for hundreds, and in some cases thousands, of years and they did nothing to solve poverty. It is due to increased market liberalization, especially in China, India, and the former USSR. Whereas government welfare merely masked the issues, markets solved them.
The world is becoming a better place, and I am optimistic for the future, especially as more Asians and Africans learn to fish.
You’re walking down your street and you notice a neighbor’s home on fire. You see him standing outside and rush over to him. “Hey, are you ok?” you ask. “Yes. I’m just getting some gasoline to throw on the fire to put it out.” You stare at him. “Why would you do that?” you ask. “It’ll only make it worse!” “But I have to do something!” he replies.
The above scenario is pretty silly. No one in their right mind would throw gasoline on a fire. But, if we use this story as a parable, it brings a deeper meaning: think before you act.
Oftentimes, in economic situations, people do throw gasoline on a fire. The urge to do something, especially in a recession, can be overwhelming. When there are large job losses, failing companies, and hurting people, there can be a rush to judgement and the cry “we must do something!” is heard loud and clear. But few ever stop to ask if what they’re doing will help.
Unlike my house on fire story, there is often very little direct observations of cause and effect in economics. Economics, like Nature, is a highly complex system and ripple effects can be felt among long and distant channels. You throw gasoline on a fire and the fire increases, that’s pretty obvious. But if you increase minimum wage and some folks lose a job/lose the opportunity for a job, the effect is less obvious (especially when dealing with the unseen).
I’m not about to launch into a prescription for solving the world’s problems. I’ll save that for a future post (and I suppose readers can guess with reasonable accuracy what I’ll say). At this point, all I want to say is be careful of rushing to do something; it can sometimes cause more harm than good.