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Affluent Investor | May 24, 2017

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Stop Trying to Explain Poverty, And Start Explaining Prosperity

Wynn Macau Tree of Prosperity (Photo by WiNG) (CC BY) (Resized/Cropped)

Wynn Macau Tree of Prosperity in Macau, China
(Photo by WiNG) (CC BY) (Resized/Cropped)

Yes, the important question is: What causes growth in per capita income and wealth? Economic historians teach us that these measures were constant and at extreme poverty levels for 1700+ years, from 0 B.C. into the eighteenth century.

Growth then started to accelerate, and spread from Northern Europe to Canada, the United States, Australia, New Zealand, Hong Kong, Singapore; gradually other countries have also benefited, with Asian growth taking off in the 20th century. Many resource-rich countries have benefited indirectly by the rising price of extraction products. But there is good reason to believe that such resource wealth is a curse (with parallels in foreign AID) because it is concentrated in the hands a few of the highly privileged through government ownership, and does not lead to the development of broad-based skills that are the fundamental means of a sustainable reduction in poverty. You don’t eliminate poverty by gifts to the poor—except as a short term means to maintain life—rather the way to do this is to help the poor help themselves. I grew up in close association with poor people, and enough thrive on this approach to make it the only betterment-game in town; few know how to do this from the outside.

Property rights, I believe, were necessary but not sufficient for the emergence and spread of this Northern European phenomenon. As Deirdre McCloskey has emphasized, somehow there was a change in attitude during the 18th C in which merit became more important, privilege less important, and that the common person could excel; people did not have to do what their parents and grandparents did. The Scottish philosophers represented this intellectual position but it would be a stretch to say they caused it. Rather they were part of the change. And there was a reversal in the 20th C with Bentham and the utilitarians, who had no appreciation of tradition, culture, and ecological forms of rationality, and reduced everything to an empty constructivist exercise.

Dr. Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. Dr. Smith has joint appointments with the Argyros School of Business & Economics and the School of Law, and he is part of a team that will create and run the new Economic Science Institute at Chapman.

Dr. Smith has authored or co-authored more than 250 articles and books on capital theory, finance, natural resource economics and experimental economics. He serves or has served on the board of editors of the American Economic Review, The Cato Journal, Journal of Economic Behavior and Organization, the Journal of Risk and Uncertainty, Science, Economic Theory, Economic Design, Games and Economic Behavior, and the Journal of Economic Methodology. He is past president of the Public Choice Society, the Economic Science Association, the Western Economic Association and the Association for Private Enterprise Education. Previous faculty appointments include the University of Arizona, Purdue University, Brown University, the University of Massachusetts, and George Mason University, where he was a Professor of Economics and Law prior to joining the faculty at Chapman University. Dr. Smith has been a Ford Foundation Fellow, Fellow of the Center for Advanced Study in the Behavioral Sciences and a Sherman Fairchild Distinguished Scholar at the California Institute of Technology.

In 1991, the Cambridge University Press published Dr. Smith’s Papers in Experimental Economics, and in 2000, a second collection of more recent papers, Bargaining and Market Behavior. Cambridge published his Rationality in Economics: Constructivist and Ecological Forms in January 2008. Dr. Smith has received an honorary Doctor of Management degree from Purdue University, and is a Fellow of the Econometric Society, the American Association for the Advancement of Science, and the American Academy of Arts and Sciences.

Dr. Smith is a distinguished fellow of the American Economic Association, an Andersen Consulting Professor of the Year, and the 1995 Adam Smith Award recipient conferred by the Association for Private Enterprise Education. He was elected a member of the National Academy of Sciences in 1995, and received CalTech’s distinguished alumni award in 1996. He has served as a consultant on the privatization of electric power in Australia and New Zealand and participated in numerous private and public discussions of energy deregulation in the United States. In 1997 he served as a Blue Ribbon Panel Member, National Electric Reliability Council.

Dr. Smith completed his undergraduate degree in electrical engineering at the California Institute of Technology, his master’s degree in economics at the University of Kansas, and his Ph.D. in economics at Harvard University.

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