Why Libertarianism Will End Poverty

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As a fan of Friedrich Nietzsche, I have a fondness for clever, memorable aphorisms, on the model of his “All that which does not kill me makes me stronger,” which is one of my personal mottos. Another such aphorism (though not by Nietzsche) is: “Socialists believe that no one should own anything; libertarians believe that everyone should own something.” What this gets at, among other things, is the idea that both socialists and libertarians have an answer to the problem of poverty, but our answer differs sharply from theirs. This is an important point to hammer home to voters.

The leftists and socialists say that they want to help the poor and that the libertarians and conservatives are the enemies of the working class and we don’t care about the poor. This naturally drives working class voters to vote Democrat when they should be voting Libertarian. I can’t speak for conservatives, and I can’t speak for other libertarians either. But, speaking for myself, I can say that I do care about the poor, and my brand of libertarianism, which comes from a liberal-tarian or neoliberal strain, is very intently focused upon ending poverty.

Both socialists and libertarians have an answer to the problem of poverty, but our answer differs sharply from theirs.

My idea is to tell voters that libertarianism will end world poverty. That is a bold claim, and I expect most voters will reply: “Why? And how?” One answer can be found in my own reinterpretation and application of the business management philosophy called Six Sigma.

Six Sigma is a technique developed in the manufacturing industry and is widely credited with the high quality of electronics devices that are manufactured today. A mathematical approach to business management and products manufacturing, its basic idea is that hard math and statistics should be used to manage a business and control the work product of a factory. The key mathematical equation used by Six Sigma practitioners, which I would like you to understand, is: Y = f(X) + e, where X represents input, f(X) represents the process that is applied to the input, Y represents the output, and e represents the errors and imperfections inherent in human existence.

The core teaching of Six Sigma is that most business processes are inefficient and wasteful, and that vast amounts of money can be saved by redesigning the process to eliminate waste. The Six Sigma method analyzes the X and the f(X) in order to find the most efficient method of achieving the desired Y. The method uses math and science to find the best process to achieve efficiency, quality, and success. Six Sigma assumes that with the same input X, e.g. with the same amount of work, labor, effort, and raw materials, the output Y can be very different — if the process, the f(X), is different. What matters is the f(X), not the X, because you need a good process to get the most output out of your input.

Six Sigma is not mere abstract theory. It has been used in practical reality, for example by Motorola, Bank of America, and major car manufacturers in Detroit. The data suggest that when a Fortune 500 company implements Six Sigma, and when it does so correctly, and especially when it uses it on manufacturing processes and factories, average net profits increase by as much as 1 billion dollars a year.

The lower class and middle class bear a tax burden far worse than the taxes actually paid by the rich.

Now, let me get to the main argument in this essay. We can consider a national economy to be akin to a business or a factory. The work that people do, and the natural resources and raw materials that go into their work, are the input. The money they make and the consumable goods and services they produce are the output. And the political system, be it libertarian capitalism or socialist left-liberalism, is the process that takes inputs and creates outputs. My argument is that the process of heavy government intervention in the economy, pioneered by the New Deal and implemented by Obama and the Democrats today, is very wasteful. If Motorola could save a billion dollars by more efficient processes, then the United States of America could probably save trillions of dollars by a more efficient politico-economic process. And the trillions of dollars of added wealth would end up in the hands of the people, of the working class. I fully believe that if all the economic waste were eliminated in the USA, and if the rest of the world implemented free market economics, then the added wealth would be enough to end poverty, so that the vast majority of humans would achieve a middle class or upper class standard of living.

Why would capitalism be a more efficient economic system than Democratic left-liberalism? The answer to that question lies beyond the scope of this article. In my recent nonfiction book Golden Rule Libertarianism, I take 100 pages to explain why a system of money and prices and free choices among competing businesses is the best way to coordinate the diverse economic activity of billions of different producers and consumers in a division of labor economy. The arguments in my book can be called the Hasanian answer. There is also the Randian answer, the Rothbardian answer, the Milton Friedman answer, etc. Let’s take the Hasanian answerfor granted, for the sake of my argument, and leave the details for a different discussion.

Why would libertarianism put money in the hands of the poor and middle-class, as opposed to the rich? As a factual matter, the government spends trillions of dollars taken from the taxpayers, so if you end the tax-and-spend leftist policies, then that money will remain in the taxpayers’ hands, to be spent by the people. Of course, leftists claim that the rich are the ones who pay taxes, and that tax-and-spend helps the poor. In fact, however, the lower class and middle class bear a tax burden far worse than the taxes actually paid by the rich. This is because of the low tax rates for long-term capital gains and dividends, where the rich get their money, and the ability of the rich to hold their money in offshore tax shelters, which enable them to avoid paying taxes; and also because of the many taxes that target the poor, such as the property tax and the sales tax, and social security withholding. The high tax brackets for middle-class salaries also hurt. One thousand dollars is a ton of money for a working-class person or a middle-class person, whereas 1 million dollars is meaningless to a billionaire. So taxes hit the lower class with an impact far greater, proportionately, than their impact on the upper class. Tax cuts help the working class and middle class and often have minimal direct benefits for the rich.

A libertarian Six Sigma approach would eliminate the waste in government spending, creating huge savings for the American people. Government in the United States, including federal, state, and local governments, is the biggest spender of the people’s money, and the examples of bureaucratic failure, waste, and incompetence in government spending are too many for anyone to list. There are bridges to nowhere, statues built for no reason, railroad lines that nobody wants to use . . . mountains of waste, range upon range, all costing the taxpayers trillions upon trillions. The government is necessarily inefficient, because the government does not need to compete against anyone, and people are forced to accept what the government does. By eliminating waste at all levels of government, we could probably save $4 trillion of Americans’ hard-earned money annually — one quarter of government expenditures. Then, if you let people be free to be productive, and you unlock the money-making potential of every worker, especially the highly intelligent and creative people, and if you give them broad freedom to trade with others without regulatory controls, I believe that another $4 trillion would be added to GDP. $4 trillion plus $4 trillion is $8 trillion.

The US GDP was $16 trillion in the most recent estimate, and it is plausible to think that if we replaced a flawed f(X) with an efficient, waste-free f(X), then Y could increase by 50%. This is in line with what Six Sigma improvements have achieved for businesses that replace bad processes with good processes. In terms of Six Sigma using math and science to discover the correct process for a business, which is a core tenet of Six Sigma, I think that the work done by Milton Friedman, who completed an exhaustive, thorough scientific research using hard data and statistical math to show that capitalist-leaning economies generate more wealth than socialist-leaning economies, is true to the Six Sigma approach of statistical analysis. So my application of Six Sigma would take it as a given, proven by the libertarian economists, that the libertarian process is the right one to use to redesign the economy.

Libertarians are not the enemies of the poor and the working class; we are their best friends, with their best interests at heart.

Let us consider the number I mentioned: $8 trillion recovered due to libertarian policies. America has about 300 million citizens. Let’s assume that the poorest 90% comprises 270 million people. If we eliminated economic waste and saved or created $8 trillion, and divided that among 270 million people, then each poor or middle-class person would get an additional $29,600 a year. That would give a reasonable amount of money, enough to live a decent, happy life. This distribution would not be accomplished by means of a welfare system but by the normal, efficient practices of a capitalist economy, including simply letting people keep the money they would otherwise pay in taxes. And if we eliminate most regulations on the economy, almost everything will be cheaper to buy, allowing poor people to achieve middle-class buying power. Our policies would create new wealth for the poor to claim as their own private property. In other words, we could end poverty by using reason and logic, instead of the mushy illogic of the Left.

I conclude by repeating the point with which I opened: libertarians are not the enemies of the poor and the working class; we are their best friends, with their best interests at heart. The leftist, Democratic poor don’t understand this, but we would be well advised to teach it to its natural audience, working class voters. Remember this aphorism: socialists believe that no one should own anything; libertarians believe that everyone should own something.




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Comments

Visitor

I too am a six sigma practitioner. My boss recently took a leave of absence from the company to take a job working for the mayor of Detroit to instill CI skills in the workforce. The thinking is just as you espouse, that they will become more efficient.

Alas, I have little hope that this will occur. 1) Unlike most systems where you can identify or uncover the critical factors, in gov't there are always politics at play, and those can be extremely deceptive and counter-intuitive, even contra-rational. And 2) The culture of entitlement, particularly in Detroit, is an almost insurmountable force to overcome.

While I believe that LSS has a role, I don't think that it can be as great a one as you portray it to have here in your essay.

David M. Brown

The Loberfeld article promoted above by the author is a much better piece. I may have disagreements, but it isn't hooey-laden.

David M. Brown

I agree with the general point of the article that a free economy is much wealthier, necessarily, than a mixed economy or fully socialist system. But then we get to details. Some of the more dubious contentions:

1) "All that which does not kill me makes me stronger," proclaimed as the author's motto.

For counterexamples, let's start with losing a leg, losing a loved one, losing political freedom.

2) Systems like those applied by private actors to enhance productive efficiency can cure the inefficiencies of government. As a metaphor this is confusing and literally it's nonsense.

Only ideas and culture can enable us to downsize government, perhaps one day to restrict it to its proper limits and appropriate functions. The bureaucrats lack either the incentives or the means to function as if they were businessmen running an unsubsidized business in a free economy. Their petty-rule-boundedness and proclivity to metastasize are not accidental and not curable by distributing to them copies of the right self-help manuals.

I don't know whether Six Sigma can help with the procedures for phasing out the post office, EPA or IRS. But any enhancements of the process of shutting these agencies down is obviously of only tertiary or quarternary importance at best. The main thing is to have the political will to shut these things down, which depends on a complex cultural context and ideas. It doesn't matter how many Six Sigma manuals Al Gore consults in an attempt to streamline Social Security or Obamacare if we still have Social Security and are willing to inaugurate such a massive new assault on our wealth and freedom as Obamacare.

3) Libertarians are not "enemies of the poor."

Sort of true. I'm not the enemy of the poor qua poor; but I am the enemy of any poor person, or rich person, who believes he has the right to rob me via the political process. Persons who treat you as their enemy make them your enemy. And why single out the poor as the special victims of government interventionism? Everybody is. The immediate targets are those who have anything at all for the looters and dictocrats to grab.

4) A fully capitalist system would eliminate poverty.

It won't. Whether one is poor is a function not only of whether and to what extent one is free to produce and to keep what one has earned, but also of whether and to what extent one does in fact produce and earn a living. It is certainly true that a fully capitalist system would massively reduce poverty by making it much easier for every honest person willing to earn a living to do so. But the leeches won't disappear.

Barry Loberfeld

What About the Poor?

Scott Robinson

Dear Mr. Hasan,

That closing line is a very good illustration of the difference of socialism and libertarianism. I do tend to take the anti-socialism card farther with the government takes everything from you so you own nothing. Their logic then is that since "beggars can't be choosers", you will be ecstatic when they give you some of the confiscated property. This is why socialism always results in poverty, because the operative part of the saying is, "can't be choosers". Just like you can't choose what property you get, you can't choose to be happy. You are poor materially and spiritually.

The best argument for capitalism is that the transactions are voluntary. If either party doesn't want to partake, the transaction doesn't happen. Socialism isn't voluntary. The power in charge of "enriching the people" forces you to give them whatever you acquire and then forces you to take whatever "gift" they deem you deserve.

Good Article,
Scott

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