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Give the Poor Money? It Doesn’t Work
By Shlomo Maital
OK, so – I am a liberal. But my favorite erudite NYT columnist David Brooks is not! He says so in the heading of his latest column (Sept. 5): “Why I am not a Liberal”.
And, why indeed is he not a liberal? Because, apparently, liberals believe in giving poor people money – and the data show it does not work.
We’ve known this for a long time. Ever since Susan Mayer’s 1997 book, “What Money Can’t Buy: Family Income and Children’s Life Chances.” “Even if you double people’s incomes”, Brooks summarizes, “the evidence is that it would have a limited effect on their children’s dropout and teenage pregnancy rates or other outcomes.”
What DOES matter? Their parents’ characteristics. Values. Education. Social skills. Family setting. Etc.
But progressives doubled down, insisting on creating and supporting a welfare state, which simply…gives the poor money.
This, at a time, as Brooks observes, when “most of our problems are moral, relational and spiritual more than they are economic.”
And, as I boringly observe often, in the 1930’s Economist Lionel Robbins argued that “normative economics (involving right and wrong, good and bad) was wholly unscientific and should therefore be cast out of the field”. Thus making economics utterly irrelevant, for almost a century.
What does work for the poor? Investing in great schools, for a start. Narrowing the huge gap between, say, educational performance in Southern US states and those in the Northeast.
Many of my Jewish ancestors came penniless to North America – and rose to upper middle class standing, through hard work and aspiration. They weren’t given money. But they did instill key values in their children, i.e. myself and my sister.
At a time when ‘evidence-based’ is an accepted gold standard of policy, how is it that the liberal supporters of the welfare state continue to back it? When the evidence is against it.
Wrong-Way RMB?
By Shlomo Maital
Financial Times reports that “China devalued the yuan by the most in two decades, a move that rippled through global markets as policy makers stepped up efforts to support exporters and boost the role of market pricing in Asia’s largest economy. The central bank cut its daily reference rate by 1.9 percent, triggering the yuan’s biggest one-day drop since China ended a dual-currency system in January 1994. The People’s Bank of China called the change a one-time adjustment and said its fixing will become more aligned with supply and demand.” The renminbi is seriously undervalued; its purchasing power is about 4 RMB per dollar, not 6. So why devalue it, send it in the other direction?
What is going on?
Well, depends who you believe. Financial Times’ ‘take’ is that China is starting a currency war, a la 1930’s, with countries competitively devaluing their currency to gain export markets and stimulate their economy, while exporting unemployment. The small 2 % devaluation shows China’s leadership is “desperate”:
According to conventional wisdom, wars are easy to start and difficult to end. Similarly Beijing’s devaluation, the biggest one-day currency move since 1993, represents the latest skirmish in an emerging battle which, analysts warn, may be hard to reverse. The move marks a shift in China’s historical policy during times of economic stress. In the late 1990s, the country was widely credited with containing the destruction from the Asian financial crisis because it held fast to the renminbi exchange rate in the midst of competitive devaluations throughout the region. In the global financial crisis of 2008, Beijing also refused to devalue even as its exports, a key driver of the economy, evaporated overnight. But now, in the midst of a pronounced and persistent Chinese economic slowdown and continued appreciation pressure resulting from the renminbi’s “dirty peg” to the soaring US dollar, China’s leaders have decided to take the plunge. “This shows how desperate the government is over the state of the economy,” said Fraser Howie, a China analyst and co-author of Red Capitalism. “If they were trying, as the central bank said it was, to bring the exchange rate back into line with market expectations then they have failed miserably as the market is now just expecting further devaluation.”
But here is Neil Irwin’s ‘take’, in The New York Times: China is seeking twin goals, keeping the flagging economy going and establishing the RMB as a global currency, by allowing market forces to work, rather than pegging the RMB artificially to a soaring dollar.
And my own view: With the dollar losing its pre-eminence as a world currency, largely because the Fed has printed far too many of them, for domestic policy purposes, the world does need a strong well-managed global currency. It could be the RMB?
Who is right? Well, dear reader, in this, as in other issues, you’ll have to think for yourself. The main thing is, be sure you are fully aware of the real issues the world faces, and not some of the puff pieces that fill our newspapers and news websites. China, and everything that goes on there, is one of those key issues.
TIMnovate 