In 1964, President Johnson declared an “unconditional war on poverty in America.” Two decades later, Ronald Reagan declared that poverty had won. But was that?
Worldwide, the number of people living in extreme poverty (defined by the United Nations as less than $1.90 a day) has fallen from more than 80 percent in the early 19th century to less than 10 percent today. This, despite a sixfold increase in the world’s population. Since the 1990s, the absolute number of people living in extreme poverty has fallen by 60 percent, while the population has increased by about 40 percent.
Obviously something good is happening globally, but what? And what about the United States?
Since 1967, the United States has spent more than $20 trillion (adjusted for inflation) fighting poverty, an amount more than five times the inflation-adjusted cost of World War II. What did the United States gain from this amount? In official figures, a relatively stable poverty rate of 15%, year after year, for more than half a century. Perhaps Reagan was right. This is what losing the war on poverty would look like.
Of course, we can’t know that the trillions were lost, because we don’t know how bad poverty would have been otherwise. What we do know is that the United States could have completely eradicated poverty more than half a century ago simply by cutting each poor person a check annually (in current dollars) of about $10,000. This would have cost the same amount of over $20 trillion.
The government could have achieved this solution without additional bureaucratic infrastructure. All Americans report their incomes to the IRS annually, and each year, the IRS drops checks for millions of Americans for tax deductions. A couple of lines of code in the IRS software would be all that would be required to implement this plan.
Why didn’t we do this? Because with $20 trillion on the table, politicians, bureaucrats, and businessmen are getting out of the woodwork to find ways to get some of that money for themselves. And so today we have over a hundred separate federal programs aimed at fighting some aspect of poverty, each supported by the political, bureaucratic, and entrepreneurial constituencies that thrive on that federal money. Even worse, these target groups benefit from poverty because when poverty persists, taxpayers’ money fights poverty as well.
Clearly, massive government spending has not worked. But what worked is clearly visible.
Countries whose governments focus their efforts on crafting and enforcing clear and fair laws, on ensuring an impartial judiciary, on maintaining sound currencies, on protecting property rights and on simplifying their regulatory systems—that is, the countries that are most economically free—tend to show the lowest rates of poverty. The average poverty rate among the least economically liberal countries is more than 50 percent. The average poverty rate among the economically freer is less than 15 percent. This pattern continues, even among the poorest countries. The average poverty rate among poor countries and economically free countries is 82 percent, compared to 93 percent among poor countries and economically not free countries.
We fought a war on poverty in the United States, and bureaucracy won. However, poverty in the United States is not extreme poverty, nor is it unattainable. And extreme poverty in the rest of the world is getting smaller and smaller by the day. And for that, we have economic freedom to thank.