Sweatshops - A Needed Solution

After reading this article by Nicholas Kristof at the NY Times, I had to link to it. (HT: Club for Growth)

Mr. Kristof makes the case, quite irrefutably, that sweatshops are a symptom of poverty, not a cause. They should not be shunned, but seen as a tool to lift the world's poorest from unimaginable squalor.

Here are some excerpts, but try to read the whole thing at the link:

The miasma of toxic stink leaves you gasping, breezes batter you with filth, and even the rats look forlorn. Then the smoke parts and you come across a child ambling barefoot, searching for old plastic cups that recyclers will buy for five cents a pound. Many families actually live in shacks on this smoking garbage.
...
Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children.
...
When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.
...
Look, I know that Americans have a hard time accepting that sweatshops can help people. But take it from 13-year-old Neuo Chanthou, who earns a bit less than $1 a day scavenging in the dump. She’s wearing a “Playboy” shirt and hat that she found amid the filth, and she worries about her sister, who lost part of her hand when a garbage truck ran over her.

“It’s dirty, hot and smelly here,” she said wistfully. “A factory is better.”

The El Paso Paradox

The city of El Paso statistically and geographically has much going against it in regards to the standard assumptions about crime, yet it is one of the safest large cities in America. It was featured briefly in the Oscar winning movie “No Country for Old Men”. The movie presented the Texas border areas as wild lawless regions of cross border drug violence. The movie could not be more wrong.

In the El Paso metro, per capita income is well below the national average; a whopping 43% less than in Houston's metro, and even 23% less than the relatively poor San Antonio. Cities with high minority populations tend to have more crime as well. El Paso is 93% non-Anglo. Easy accessibility to guns is often blamed, erroneously, and we know that Texas is a very gun friendly state. Added to all of these is the fact that Ciudad Juarez, a city twice the size of El Paso and so violent that police officers are routinely gunned down by drug cartels, lies right across the Rio Grande.

Given all these headwinds, one would expect El Paso to be plagued with crime and murder. It isn’t, though. Not only does it not have a murder problem it is the 2nd safest urban center of at least 250,000 in the United States. It has a murder rate 1/3rd that of San Antonio and 1/5th that of Houston or Dallas. The city is so safe that it ranks better than cities with stellar reputations like San Diego, Portland (Oregon), and Seattle. It is even safer than a number of suburban cities in Texas like Grand Prairie, Carrollton, and Irving.

One might think that murder is just an exception to other violent crimes. Of the 72 cities above 250,000 reporting information to the FBI, El Paso ranks 7th best, ranking it just ahead of the Los Angeles suburb of Anaheim, home of Disneyland.

¿Qué está pasando con El Paso?

Capitalism Does Not Cause Income Inequality

An interesting article in the British newspaper, The Financial Times.

Some excerpts:

"But the belief that market liberalisation increases social inequalities is not borne out by the evidence. The UK certainly has higher levels of poverty and inequality than France or Germany. But pointing this out is just selective use of evidence to support a predetermined conclusion. If there were a strong correlation between levels of market liberalisation and social outcomes, one would expect to see the pattern replicated across the European Union - not just in a carefully selected group of countries."

"The nation with the lowest levels of poverty and income inequality in the EU, as well as the lowest rate of long-term unemployment, is Denmark - a country with competitive product markets and some of the least restrictive labour laws. Countries with the worst social outcomes (Greece, Italy and Portugal) all have restrictive product and labour market laws. Liberalisation, it seems, no more threatens social justice than regulation guarantees it."

...

"The reason the Nordics and the Dutch have the most egalitarian outcomes is that they provide the best education. The correlation between educational and social outcomes across the EU is striking. People with low levels of attainment at secondary education are most exposed to the risk of poverty. Moreover, the more educated people are, the more likely they are to be in work: the employment rate for Europeans with tertiary education is 80 per cent, whereas it is just 50 per cent for those who fail to complete their secondary education."

...

"In short, inequality in the UK seems to have more to do with high drop-out rates from upper secondary education than with the country's privatised rail system, liberal labour laws or levels of social transfers. If this analysis is correct, it suggests that the British government faces an uphill task trying to reduce inequalities through the tax and benefits system. It also suggests that countries in which drop-out rates are high are the most exposed to increases in income inequality resulting from globalisation and technological change."

...

"The European countries most at risk of rising social inequalities are those with underperforming education systems."

So if school choice lowers the drop out rate, which I believe it does, then income inequality will decline. Interesting how a free market system accomplishes the goals of socialism better than socialism.

In Defense of Fly Over Country

Being born in Texas, one is endowed by the Creator with a certain inalienable arrogance. As a good Texan, I am required to rub it in when my state is doing better than others, thus my recent article on the housing crisis. Nevertheless, I noticed this week a couple other states doing quite well that are usually looked down upon and stereotyped as a little backwards. These two states are Oklahoma and Alabama.

Both states are doing quite well economically. The Bureau of Labor Statistics gathers data on 11 different metropolitan regions in Alabama. While the U.S., unemployment rate is currently 5.0%, the worst region in Alabama, Gadsden, is only running at 3.7%. The best, Huntsville, is coming in at 2.5%. The state as a whole has a non-seasonally adjusted unemployment rate of 3.5%.

Oklahoma, is doing even better. The non-seasonally adjusted unemployment rate there is a mere 3.1%. In the three metropolitan regions that the Bureau of Labor statistics gathers data on (Oklahoma City, Tulsa, and Lawton) the unemployment rate is the same at 2.9%. Texas, while doing quite well compared to the rest of nation registers an unemployment rate of 3.9%. California, on the other hand, comes in at 6.1%.

Things may be going well now for them, but what about the long term. Recently, I performed some analysis of the trends in poverty rates, state by state, over the last 20 years. The full list is here. The data I used came from the Census Department. Of the 50 states, 41 experienced a long-term decline in the poverty rate. Alabama had the 4th fastest declining rate of poverty, and Oklahoma was 9th. The best two states were the notoriously conservative Louisiana and Mississippi.

Analysis of other states is interesting as well. Even with massive immigration of uneducated peoples from Latin America, Florida, Texas, and California all registered modest declines in poverty rates, with Florida doing a little better than the other two, which had similar rates of decline. Of the states that experienced an upward trend in poverty rates, the worst, in order, were Connecticut, Rhode Island, and Massachusetts.

If you are noticing any correlation to politics, so did I. Eight of the ten states that experienced the most rapid declines in poverty over the last 20 years voted for George Bush. Eight of the ten states with the worst increases or least declines over the last twenty years voted for John Kerry. How interesting that states tending to the right are better at reducing poverty than states tending to the left.

As always, tell me what you think.

Let My People Go

My wife was a school teacher for 5 years and my mom has been one for over 30. Both have taught in schools where the vast majority of students were poor. On occasion I have had the privilege to meet the children of the sad stories they brought home. I remember the stained clothes of a young girl who smelled of urine because her parents didn’t have the common decency to buy a litter box or keep the cats outside. I remember the sullen dark eyes of little John whose mother would have him committed to a mental hospital during holiday breaks because she didn’t want to bother with him. I remember the feisty crooked smile of little Amy who hid under a bed with her brother as her father shot two people to death in the next room of their trailer. I remember reading their hopes and dreams written and posted on the bulletin board in my wife’s classroom.

On May 17, 1954 the Supreme Court struck down segregation in schools in a nine to nothing decision which stated that “separate educational facilities are inherently unequal.” Chief Justice Warren said:

“In these days, it is doubtful that any child may reasonably be expected to succeed in life if he is denied the opportunity of an education. Such an opportunity, where the state has undertaken to provide it, is a right which must be made available to all on equal terms.”

What breaks my heart is that 53 years later our schools are still separate and still unequal. The sad reality is that few of the hopes and dreams posted on those bulletin boards will ever come true because they face a grossly unequal education system. These children are bound by geography to attend schools overwhelmed by children with problems. With reasonable concern, more affluent areas make rules to keep their children safe from those problems. To break these bonds every child deserves the right to attend a school of their choice, whether it is the local public school or a private one. We can not place the burden of responsibility on the parents ability to afford a home in better school districts or travel long distances to take their children to better schools. School choice can and will repair the brokenness of inequality.

The unbridled creativity and compassion of our nation’s teachers can solve many of the problems those in poverty face. Their skill and determination should not be corralled by the bureaucracy and petty turf wars built into our current system. It is no wonder why so many teachers burn out so quickly. These teachers should be able to open schools in a competitive marketplace where good school programs succeed and bad programs fail.

As always, shrill voices rise to defend the status quo. They call this risky and they call it a threat to public schools. They ignore the fact that 7 different studies have shown that students that switch to private schools under voucher programs show improved test scores AND the test scores of the students who stay behind at the public schools also improve. Nobody is left behind. Competition forces everyone out of old habits to make needed changes ignored for years. History has shown that dumping billions upon billions of dollars into failed school systems hasn’t improved test scores at all. A mountain of evidence supporting school choice rises before them, but these patrons of the past defend the status quo.

They also ignore the fact that Milwaukee has had school vouchers for 17 years. They ignore that Cleveland and Washington D.C. have school vouchers, and when it came time to rebuild the tattered schools of New Orleans’, the choice was clear: Vouchers and School Choice. They ignore the fact that Sweden, Belgium, the Netherlands, and Ireland all have nationwide voucher and school choice programs. None have gone back to our old system. All of these countries not only outperform our students, they are getting further ahead every year. The only risk is to expect our children to compete in the future marketplace with a school system based in the past.

What is the status quo? I am embarrassed to say that our country is ranked 22nd in the industrialized world in education and we are falling further behind every year. We see drop out rates in many poor school districts surging past 50% and 60%. Can you look into the desperate eyes of our nation’s poor children and tell them that they don’t deserve the right to choose a better school? Can you continue to herd them into the same failing school year after year without remorse? I can not, and I will not stand idly by while injustice goes unanswered. To claim that shuffling them along the same failed pathway is fair and equal is absurd and offensive. Schools separated by geography are inherently unequal.

So I repeat the words of the Supreme Court that education “is a right which must be made available to all on equal terms.” Equal does not mean taking from some it means giving to all. Equal means that every parent and child has a choice and equal funding to attend the school that most meets their needs. Equal means that hopes and dreams are not a faded sheet of paper on a bulletin board soon to be thrown away. We must have equality, we must have vouchers, we must have school choice.

What have you done for me lately?

A week ago Saturday I attended a speech by Laura Ingraham, a conservative radio host, at my father’s invitation. I enjoyed the event, but was surprised at the emotional intensity the crowd exhibited towards illegal immigration. I do not feel so passionately about the subject. Given that surprise, I gave the subject some thought and decided to talk about it this week.

I support immigration. It lowers prices for Americans and lifts immigrants out of grinding poverty in their home countries. If we only allowed in the educated and the well-to-do, I’m not sure my ancestors would have made it here. On the other hand, because we have opened our health care, welfare and school systems to illegal immigrants there is an imbalance in the benefits from our current situation.

Who is benefiting the most and paying the least? Illegals pay sales tax and property tax (indirectly through their rent). If they are using phony documents, they still have income tax withholding and Social Security and Medicare taxes. But, because they typically live in small and modest homes, have no health insurance, low and often unreported incomes, American citizens are carrying the bigger load, and not reaping the full benefit. While the anger is directed at illegals, they are not the ones contributing the least.

Those who are benefiting the most and contributing the least are foreign relatives of illegal immigrants and their governments. Illegal immigrants send back billions of dollars to family members in their native countries. The foreign relatives pay nothing in taxes to us.

According to the Federal Reserve, remittances to Mexico in 2006 totaled $23.1 Billion, having increased annually at a rate of 20% since 2000. This is 2.7% of the national economy, and in some Mexican states, such as Michoacan, these cash flows reach 16.1% of their entire state income. According to Inter-American Development Bank, remittances totaled $9.25B during 2006 to El Salvador, Honduras, and Guatemala, which are much smaller countries. In Nicaragua, remittances may be 29% of their entire economy.

Obviously, these areas are dependent on cash from their immigrant workers in the U.S. The knee jerk reaction would be to cut off the cash, but a little more thought reveals that this can be leverage for more valuable goals.

Mexico has been a major oil producer for many decades, but their output has fallen rapidly over the last 10-15 years. Baker and Associates, an Energy Policy consulting firm, discusses in Rethinking Oil Policy in Mexico a number of problems in Mexico’s energy sector. Pemex is a government run monopoly and provides big revenues for the government in Mexico. Their oil production is declining because a lack of reinvestment in oil field exploration, while the government siphons off revenues for budget purposes. Their refinery capacity is so small that even though they export billions of barrels of oil they import gasoline because they lack the technology to expand to meet demand. The same is true for their natural gas industry. The main cause is that American companies, with their newer technologies, are restricted from investing in Mexico’s energy industry.

A threat of crackdown on illegal immigration and remittances could convince Mexico to open its energy industry to American investment. This investment could mean thousands of engineering, construction, and contract employment for Americans to work on projects in Mexico. Expanding oil output in Mexico also secures a safer source of energy for the U.S. outside of the Middle East. Other Central American countries also have a number of restrictions on American investment in their countries and public policies that hinder internal economic growth. Stricter immigration enforcement would help convince these countries to make needed changes.

As countries comply, we would offer large numbers of temporary work visas for sale to their citizens. The greater the compliance, the greater the number of work visas. Part of the price of the work visa should go to a fund to give cash rewards to legal foreign workers who give information that leads to deportations. If we are not serious about stopping illegal immigration, this leverage will be seen as a bluff.

The true source of illegal immigration is poverty in Central America. While many of their economies are beginning to grow more quickly, their failure to adopt more open markets is preventing the kind of growth it takes to lift their citizens out of poverty and into the middle class. This leaves big incentives to come to the United States illegally. Can we really expect a rural farmer from Guatemala making $800 a year to lose interest in coming to U.S. where he can make over $20K a year?

While “Just build the wall!” gets a cheer from the crowd the long-term solution is signing these agreements between the United States, Mexico and the rest of Central America. The benefits from immigration should not be a one-way street. We have to demand that these countries open up their markets to our American companies and American workers. We have to push these countries to pass free market reforms to lift their citizens out of poverty and thus decrease the demand for immigration to the United States. Illegal immigration must be curtailed to give our government the leverage to convince these countries to make these changes.

As always, tell me what you think.

Reverse Income Tax

Friends,

Last week I mentioned the “Reverse Income Tax” and I got a couple questions about it so I decided to make this week’s post about reforming poverty programs.

I recently ran across a woman who has a lot to say about these programs. Star Parker was born in a poor neighborhood in LA and like the African-American stereotype she got pregnant, got on welfare, admits to four abortions, and racked up a criminal record in her youth. However, she made a series of decisions and an acceptance of faith that changed her life. Today, she is a columnist and head of Coalition on Urban Renewal and Education. She is also a die hard Conservative who hates the welfare system.

I found this quote from her first book that puts our poverty programs in great perspective. “We have two economic systems working for America: capitalism for the rich and socialism for the poor. The problem with a government that lets both systems operate is that the middle class gets stuck working for the rich to support the poor.”

For me, it is not the existence of a poverty program that is the biggest problem, it’s the design. Before reform in 1995, Welfare (AFDC) was designed to give aid to unemployed parents of dependent children. The flaw was that for every dollar you earned at work you lost a dollar of welfare. Someone qualifying for welfare is unlikely to make much, so oftentimes they didn’t actually start earning any extra income until their work hours hit 30 or 35 hours per week. Why would anybody work 30 to 35 hours for nothing? That’s the problem. They didn’t.

Today, many of the poverty programs have the same design problems. If you work you lose a lot of benefits. If you put money into savings you lose benefits. Recently, a study by the National Center for Policy Analysis showed that for every dollar someone on benefits puts into savings, they lose $2.60 in benefits. If they get married or live with the other parent of their child they lose benefits. Those on benefits work less, save less, and they choose not to marry or stay with the father of their children because the system rewards irresponsibility. We have placed these people in a position where they must choose between dignity and putting food on the table for their kids.

How do we expect people to stay out of poverty if they aren’t building a career? How can we expect them to weather their next job loss or medical emergency without a decent savings account? The financial and emotional stability brought by marriage helps many stay out of poverty and rear healthy children. Why would we punish them for doing so? Like I mentioned last week, some on the Left have the idea that “bad luck causes poverty” so engrained in their heads that they never consider that we are eroding the strength and character of those on benefits by a poor design. We have made children out of adults and have trapped them in poverty. The reforms in 1995 accomplished a lot, but we still have a long way to go.

So how does the “Reverse Income Tax” come into this and what is it? The “Reverse Income Tax” raises your income if you make below the poverty level based on a percentage (40%) of the difference between your income and the poverty level. My idea takes the math from this and tweaks it a little. What do I mean by a percentage of the difference? Say a mother makes $7.00/hr as a day care worker. That’s $3.00 less than $10.00/hr. She would receive $3.00 * 40% = $1.20/hr added to her paycheck, giving her $8.20/hr. If this mother made $9.00/hr she would be given $0.40/hr ($10-$9=$1 * 40%).

This isn’t a perfect plan, but why is this better? Under the old system you earned nothing for each additional hour you worked until you hit 30 to 35 hours a week, so few worked. Under this system you earn not just your typical pay of $7.00/hr, you would earn $8.20/hr. It preserves the incentive to work just like Friedman’s plan. I could go into more detail, but the spirit of his idea created a system that didn’t seriously erode their character. While my idea is similar to Friedman’s, I think it offers a stronger incentive by adding it to their paycheck instead of having to wait until the next year to file a tax return.

The points of my idea are:

For every hour that a parent with children at home works they would receive 40% of the difference between their pay and $10.00/hr as long as they worked at least 20 hours a week.
Being married or living with the other parent would not count against your ability to receive the benefit.
Neither contributions to 401K, IRA, nor holding up to $10,000 in savings would count against your ability to receive benefits.

This Character Based idea is Marriage Neutral, Savings Neutral, and helps to provide a better wage to low income parents. By neutral, I mean it doesn’t discriminate for or against. Obviously there would be more details to work out to prevent fraud and cover other problems, but this is the basic framework.

Nothing in this idea requires us to bash the poor. In fact, it’s about giving them back their self respect. We can never know what they can accomplish if we don’t let them leave behind low expectations. How many Star Parkers are still trapped in poverty?

If you like this idea and can come up with a better slogan for this that would be great. As always, let me know what you think, and pass this on to friends. I got some good feedback this week so keep it coming.

From You: In Oklahoma, the state government is apparently running TV ads to encourage more people to get on welfare so that the state can maximize their grant from the Federal government. Another great incentive set up by poorly designed legislation!

Links:
Technical discussions about the reverse income tax. www.citizensincome.org/findings/abatkinson.html
Star Parker
http://www.urbancure.org/
http://www.amazon.com/ (Search for Star Parker)
http://www.wikipedia.org/ (Search for Star Parker)
National Center for Policy Analysis stat
www.latimes.com/business/la-fi-save7jun07,1,2701901.column?coll=la-mininav-business&ctrack=1&cset=true
http://www.ncpa.org/

Introduction

Friends, This being the first of what I hope to be many weekly political posts I thought I would talk about the topics I plan to discuss in them.

Those of you who know me, know that I fall into the “Republitarian” slice of political belief. Obviously, my posts are going to support free-markets, small government, and occasionally some commentary on social issues from my more traditional viewpoint. What I don’t plan to do is engage in character bashing and blowing small quotes from left wingers out of proportion to scare everyone into believing what I have to say. I think that market is more than saturated. I plan to deal in facts and solutions. My hope is that you will help me develop a plan for persuasion and not just good one-liners to throw at those who disagree with the ideals of a free society that we hold dearly. For example, I recently read a poll from Zogby International that only 44% of Americans believe that most people who are poor got that way by making bad decisions. I was really surprised by this at first, but it really helped explain why so many people continue to vote for politicians who blindly hand out money to the poor with little to show for it. In their minds they see poverty as a matter of chance, so the ethical thing to do is to help out those who suffer from it because it’s not their fault. If this was true, I can understand their logic. But it’s not true. The vast majority of the poor are able bodied people with plenty of brains to fix their own lives. In his book “Choice Theory”, Dr. William Glasser really explains how we are the result of our choices and that each of us has immense power to change our lives. I have seen this in dramatic ways in my own life in the last several years. I have also seen the mountains of evidence that our poverty programs do not work, and that they have actually made many things far worse than before. We’ve all heard the horror stories of welfare abusers and the astonishing lengths that lazy or brutish people will reach to secure their free check from the government. The problem with our approach to convert people to limited government is that we fail to recognize how deeply the beliefs of many go. Those on the Right have a habit of dismissing the poor as lazy bums, but using this as a way to convert those in favor of poverty programs doesn’t work. Some of them believe that poor people got there by accident; it’s not their fault because all people are inherently good, and we know this to be true because God wouldn’t have created a world full of bad people. Sure we could spend the weeks and years it would take to show them the evidence that they are misguided, but we don’t have the time or resources to do this, and many would still never change their minds. Believe me, I have tried. The point of these posts will be to build a bridge between the ideals of a small government/free society and the deeply held, and at times religious, beliefs that many in our society hold. How do we build this bridge? The answer is the same for any task worth doing: Hard work. I will find the information, create ideas, and pass them on to you. You tell me what’s wrong with them, and give me your own ideas. As an example, I ran across an article a while back written about the most revered economist of the last half of the 20th century, the late Nobel Laureate Milton Friedman. He suggested replacing our welfare system with a “reverse income tax”. Those with low incomes would be given money in reverse proportion to their income. His analysis showed that this would do the least harm in perverting the incentives to improve themselves, and would be the least costly to implement. While it might strike some that giving any tax dollars to them is abhorrent, we need that bridge between a truly free market and what we have today. Dr. Friedman has provided a loose framework with the “reverse income tax” with which to build our bridge. If we propose a social safety net that encourages work, encourages savings, and encourages strong families we can not only create a more free society, we can also begin to salvage the lives of millions of Americans trapped in poverty by the awful system we have today. In the coming weeks, please let me know what you think. If you see any articles that pertain to what we have talked about, please forward them to me. Pass these posts on to anyone you know who might be interested and sign them up to receive them by sending an e-mail to me. I plan to upgrade to all the snazzy tools the internet offers if your interest justifies it.