Michael Eriksson
A Swede in Germany
Home » Politics | About me Impressum Contact Sitemap

On poverty

Introduction

For the time being, this page discusses just one sub-topic, namely, to some approximation, causes of poverty (with, almost unavoidably, some implied hints of how to avoid it). As further sub-topics are likely to be added in due time, I chose to title the page more generically.

Unless otherwise stated, or otherwise clear from context, I use poverty in a broadly absolute sense. I do not go as far as to require that someone would have constant trouble with, say, keeping the children clothed and fed, but I do reject the intellectually dishonest propaganda trick of “relative poverty”. Nevertheless much of what is said below applies to “relative poverty” too, which very considerably reduces the problems that arise when others use the word with an unclear implication (as with the Harris voter below).

(And words like “poor” and “rich” are to be understood in economic terms. More abstract meanings, or meanings that point to other fields, might well be more important, but are off topic.)

The time of original publication is January, 2025, and phrasings like “modern” should be seen relative that baseline. (However, typically, much the same applies going back for decades and, I suspect, will apply going forward for decades.)

Causes

Introduction

At some point during the 2024 POTUS campaigns, I read about someone who wanted to vote for Harris, because Harris would understand what caused poverty. While similar sentiments are not uncommon on the Left (with the person or party of supposed understanding varying), they tend to be very, very wrong—as demonstrated by the supposed causes and the cures suggested. Note e.g. how little actual success LBJ’s “war on poverty” has actually had.


Side-note:

The alleged causes and cures also vary, and whether they are naive can depend on the context at hand. For instance, to claim a partial cause in the extended “structural inequality” family might be legitimate in an underdeveloped country with a rudimentary education system, few chances to work oneself up in the world, and wealth that is (among those few who have it) to a large part inherited or based on (an equally inherited) position in society. In a typical Western country of 2025, any such effects will be far smaller.

With Harris, likely, her main suggestion in this direction was “price controls”, which have a long history of doing more harm than good when tried in practice, are contrary to economic theory, and, in this case, utterly miss the point behind the causes of the price inflation that they were intended to combat—the poor economic policies of the Biden regime.

Deeper discussions of alleged causes, alleged cures, and/or such “structural” explanations might follow at a later time.


Likewise, it is not uncommon for works of fiction to have hyper-naive takes, say, that the poverty of the one would be a pre-requisite for the wealth of another. (Why this is hyper-naive will follow from the below discussion. Note the significant difference from the claim that an uneven distribution of wealth would be a pre-requisite, which, depending on definitions, can be partially true.)

Below, I will give some big-picture thoughts on real causes of poverty, with a broad division into the society-wide and the individual. (Similar principles will apply when we look at e.g. different and somewhat permanent sub-populations, different regions of a country, and different industries/vocations/whatnot.)

Society

Poverty is strongly related to a lack of wealth in the society at hand. Such lack of wealth was the original state everywhere (if we go back far enough in time) and can arise to various degrees even in a previously wealthy country through negative developments (e.g. a devastating war).

However, the main cause of long-term lack of wealth is a lack of economic growth, which, in turn, usually goes back to unsound economic policies, a suppression of free markets, a removal of incentives to build individual wealth, and similar. Contrast e.g. North and South Korea, East and West Germany, and the USSR and the USA at various points in time, or look at how various countries have fared when policies have changed for the worse or the better (a very notable recent case is the economic destruction in Venezuela under the Maduro and Chavez regimes). Economic growth (or, even absent growth, economic level) also often goes hand in hand with technological progress/level, with secondary implications like the importance of such progress, the benefits of channelling good minds into science and technology, etc. (However, the purpose of this text is not to give a detailed view of how to achieve economic growth, and I will leave other factors and details out.)

Of particular note is that those who are or want to be individually rich, if behaving rationally, have little interest in keeping others poor. For instance, if someone produces and sells some good, it is in his best interest that (after adjustment for the purchasing power of the currency) customers buy as much as possible at as high a markup as possible. If they have less money, his chances are the worse; if they have more money, his chances are the better. He might well benefit from keeping his own costs, including wages, down, which can reduce the wealth of others, but (a) the more he earns, the less his incentives to do so, (b) the more the economy flowers, the greater both the competition for workers and the upwards pressure on wages, (c) if wages were kept down everywhere, customers at large would have less money, leading to exactly that worsening of his own chances.


Side-note:

However, the adjustment for purchasing power of the currency is important, as is the relation to wealth, and that the purchasing power of the customers rises through growth. If the government just hands out freshly printed money, the long-term effect will be price inflation that approximately neutralizes the hand outs, the increase in sales prices and revenue, etc., in real terms.

A similar mechanism can make someone rich poorer, if he happens to, say, sell a product that sees a lesser increase in demand than most other products. Not only can a greater increase in his production costs reduce real profits, but his own living costs can rise faster than his income, also leading to worsening in real terms.



Side-note:

A situation can arise around (c), where most employers individually try to keep wages down, with the result that wages are kept down overall. However, barring some type of employment cartel, a government intervention to fix a low wage level, or similar, this will only work when the wage level actually corresponds approximately to the “market level”. If there is competition for workers, e.g. to enable an increase in production, those who pay more will get the workers and come out ahead. In reverse, paying more (in nominal terms) for the sake of paying more, absent growth and demand, will lead to issues like in the previous side-note.

(Similar remarks apply to union activity, e.g. in that raising wages above the market level will hollow out purchasing power and/or lead to lower growth. I encourage the reader to think about what might happen when wages are artificially forced up by some percentage over all workers, over all workers in a given field, and over all workers at a given business.)


With an eye at the Left, a common historical position is that the economy is a zero-sum game—what there is to go around today is what there will be to go around tomorrow and the best that we can do is to change who gets what within those limits. Worse, many naive (and/or intellectually dishonest) Leftists make similar claims even today, make policy suggestions that base on at least approximately this world-view, etc. As a quick test: are policies more about getting the economy to grow or more about redistribution?

The severe hitch with such Leftist policies is that they hinder growth, thereby preventing the increase in wealth that would truly have been of benefit.


Side-note:

To which can be added ethical arguments against robbing Peter to pay Paul and other violations of the basic “life, liberty, and pursuit of happiness” human-rights triad.

While such “redistributive” interference is particularly harmful to growth (for reasons like poor incentives and reduced chances that money will be used for investments and entrepreneurial purposes), even more general government interference very often comes with a growth reduction and, from a growth perspective, it is often for the best when the government interferes as little as possible. Note that such interference is often indirect (e.g. through great amounts of bureaucracy) and/or done with the best of intentions (e.g. by poorly implemented start-up grants that lead to misallocation of resources at the cost of the tax-payer).


Individuals

Given a certain level of societal wealth, what can make some individual poor?

Well, first we have the observation that a too poor society can make poverty almost inevitable or, say, make a move from poverty to non-poverty very much harder. At an extreme, even the “relatively wealthy” (as a mirror to today’s “relatively poor”) might seem poor by today’s standards—and even at less extreme levels it might be that they, without seeming poor, still have to forsake much of what even the “relatively poor” of a modern Western country might take for granted, simply because of a low technological, scientific, medical, whatnot development.


Side-note:

Technology (etc.) is in so far a confounding factor that it can make comparisons misleading and shows that wealth is not everything, even when we restrict ourselves to the “material” aspects of life. To claim that someone “relatively poor” with modern electronic equipment and access to the Internet would be richer than a medieval king, who lacked such equipment, might be absurd. However, in some regards he does have options that the medieval king did not—just like the king had options that he does not. (And an alternate claim of “I would rather be a low earner in modern day Sweden than a medieval king of (proto-)Sweden” is far from absurd.)

Here, we might have to use entirely different measures than wealth, e.g. quality of life (which often is more a matter of how we live our lives than what money and technology we have) or measures that pick specific criteria independent of each other, say, life expectancy and levels of physical pain. (Toothache, e.g., appears to have been a severe and chronic issue for many in the past—kings included.)

As much as I dislike the term and, to a lesser degree, the concept of “relative poverty” in the now, a retrospective application of “relative wealth” might actually have some value. To this, note two important differences: Firstly, the “relatively poor” are not poor by any reasonable standard (unless also “absolutely poor”, in which case “relative poverty” adds no further value as a concept), while the “relatively wealthy” were wealthy but simply lacked in e.g. technology and healthcare relative the modern world in a manner that potentially makes their wealth seem hollow (for want of a better word). Secondly, my introduction of “relative wealth” aims at reducing a problem of comparison, while the introduction of “relative poverty” aims at scoring cheap political points by creating a flawed view of the world among voters.

(In as far as there is an additional benefit to the concept of relative poverty, e.g. when comparing social aspects of degree of wealth, this does not justify the choice of term. I have no prior thought on what to use instead, but, off the top of my head, it might be reasonable to just speak in terms of abstract categories, which cover certain population groups, with correspondingly abstract names, without any positive or negative connotations. This could, for instance, result in five categories with names like “Category [1/I/A]” through “Category [5/V/E]”.)


Assuming, however, a sufficient degree of societal wealth and some other criteria (partially discussed below), adult poverty becomes or can be made mostly a matter of the individual himself. (Whereas poverty as a child will depend more on the parents or whoever otherwise “provides”.) Those who work hard, are thrifty, do not have more children than they can afford, etc., can normally avoid poverty, even if not very bright and even absent government help (which, next, raises the question why modern societies put such enormous amounts of money to exactly such purposes).

Unfortunately, there is no perfect guarantee, even for the bright/industrious/whatnot, because sometimes things go wrong for reasons that we cannot control. For instance, a crippling accident can leave someone willing to work unable to do so. For instance, a good business idea might fail through sheer bad luck.


Side-note:

A sad twist on such examples is the issue of unemployment insurance vs. disability insurance in Germany. It used to be that the government handled both unemployment benefits and disability-that-prevents-work (“Arbeitsunfähigkeit”; no good “official” translation occurs to me) benefits.

The latter made great sense, as it fell into the highly unlikely, yet devastating, special circumstances where the government can do much good through help, where private insurance might be troublesome, and where even the cautious might decide against insurance on a cost–benefit basis. (A private insurer might, e.g., go to extreme lengths to find excuses not to pay even legitimate claims, as the payouts could go on for decades.)

The former did not make sense, as unemployment can easily be handled by private insurance, as many or most might not need unemployment insurance (say, because they have buffers to handle short-term unemployment), as the competent/professional/industrious/whatnot are far less likely to be laid off than the incompetent/unprofessional/lazy/whatnot, and as the type of unemployment insurance popular with governments (unlike private insurers) can give incentives to remain unemployed unnecessarily long or, even, to originally enter unnecessary unemployment.

In my early years in Germany (maybe, 2000), there was a sudden revision: The disability-that-prevents-work benefits were cut and the citizens told to get private insurance, should they have the wish for continued protection. The unemployment benefits were kept. In other words, the exact opposite change was made to what should have been made. The reason? The cut, to my vague recollection, was made to save money. Cutting unemployment benefits would have saved much more money, but might also have risked losing votes or got in the way of the redistributive effects that unemployment benefits had but disability-that-prevents-work benefits did not. (Various governmental benefits and insurance schemes very often have a strong redistributive aspect, in that the wealthy should pay for the unwealthy, the industrious for the lazy, the bright for the dull, etc. In this, they are an excellent example of Leftist abuse of government power and “hidden socialism”.)



Side-note:

Some special cases pose interesting questions around what is or is not the fault of the individual, e.g. whether someone with some type of addiction that hinders work or costs money is better compared with the lazy or with the disabled. I leave such cases out, but encourage the reader to keep them in mind.


A particular complication in (at least) modern Western countries is that an apparent lack of money (e.g. in form of buffers; as opposed to the much rarer true poverty) often goes back equally or more to undue spending than to lack of income. For instance, many of low income nevertheless spend great amounts on entertainment electronics, drinking in bars, vacations abroad, and similar—and not just “great amounts” relative their own income but even relative many who earn better. Some low-earners even seem to live “paycheck to paycheck” because they have a mentality of “what comes in this month is the spending money for this month”—not because the paycheck is so small that they have no choice. Likewise, a “can I afford to X” is often measured solely by what money is in the bank (or, worse, how much credit is still available on the credit cards), rather than sober thoughts about whether a certain purchase is a good use of money relative other potential uses, including basic necessities, investments, and use as a buffer for unexpected expenses (say, a broken refrigerator).

Credit cards and other types of temporary credits are an interesting example, in that buying something on credit can be much more expensive than buying it with ready money. Yes, the product/service can be had “now” instead of “later”, but a habitual use of credit does not only bring a cost—it can also lead to the same delays in the long term, because the credit is used up or the cost of meeting payments/interest reduces spending power. If the option exists to delay purchases in the early phases, the long-term net result will then be better.


Side-note:

However, this “[i]f the option exists” also points to a problem that low earners can have even when prudent: sometimes, the option does not exist, which can force the use of credit, which can increase costs beyond what a high earner in the same position would incur. Other examples in a similar family exist, e.g. in the claim (used e.g. in one of Terry Pratchett’s books) that buying a single pair of expensive-but-lasts-a-lifetime boots can be cheaper in the long haul than ever again buying cheap-but-wear-out-in-a-flash boots. The low earner, however, might not have the option of doing the former.

(I leave unstated whether the boot example actually holds, especially today, with improved manufacturing on the cheap end of the price spectrum and outrageous brand, not quality, markups on the expensive end, but the illustration of principle is certainly valid.)


Now, to look at factors that can keep someone born into poverty back, e.g. by preventing a career in “the professions”, most factors in today’s Western world are rooted in the individual, e.g. through laziness, stupidity, poor life choices, and a general “bad attitude”. (I use the last phrase with some hesitation, as it often amounts to nothing more than a kid’s unwillingness to comply with arbitrary adult impositions; however, there are very legitimate cases of a “bad attitude” resulting in self-sabotage or missed chances, e.g. because someone prefers to “look tough” and hang around at street corners over going to the library and risking the label of “nerd”.) Here, it is important not to blame society, “structures”, “discrimination”, whatnot, in a blanket manner, but to actually look at own actions and demand own responsibility. (A point where the Left almost invariably goes wrong.)

Elsewhere and in older versions of the Western world, other rules can/could apply, including the presence of obstacles that prevent even the smart and industrious from achieving even remotely what they otherwise would. Examples of such include caste systems, a lack of educational opportunities (be it in general, for members of the “wrong” group, or for those without existing wealth), and even family obligations and long or expensive travel. (A bright farmer’s boy might have been able to make his fortune in the big city, but if he had two weeks’ travel to even reach the city and his work was needed on the farm, he would be far less likely to go than a typical modern farmer’s boy.)

Looking more in detail, this division is not as clear as it might superficially seem. It is, for instance, still often the case that someone with rich parents has an easier road to own success, e.g. through better contacts, more easily affordable education, and the knowledge that if he founds a company fresh out of college and fails, he can still fall back on his parents in another manner than someone from a low-earning/-asset family. However, for most, own characteristics will dominate, and many who were born in such a family have grown outright rich through their own efforts—and very, very many have made it to a quite comfortable life, while falling short of being rich. (Vice versa, many a “rich kid” has ended up broke through laziness, wastefulness, and irresponsibility.) Likewise, there are a great many cases of governmental mechanisms that hold the individual back, including high taxes that take away the fruit of his labors, or, paradoxically, wasteful and enforced schooling—the bright can usually learn far better outside school, and school is then something of a negative educational opportunity.


Side-note:

Here we have a paradox in Leftist thought: On the one hand, many shout loudly that everyone should be entitled to the fruits of his labor, by which they mean that, say, someone who provides him with employment, supplies him with raw materials, gives him access to a needed machine, whatnot, should have no right to an own profit, but should do all this as a civic duty, while letting the worker keep all the profit. (In some cases, the preceding is a slight caricature; in some, depressingly, it is an accurate portrait.) On the other, many (often, the same “many”) shout for higher taxes so that the government, who has done more to hinder than to help production, can confiscate the same fruits and use them for its own purposes—quite possibly, including handouts to the shouters.



Side-note:

Even with parents and similar factors, it is not necessarily the available money, contacts, whatnot, that matter the most. For instance, I had an early anti-entrepreneurial attitude instilled in me as a child, where it was taken as the normal state of affairs to work in employment to some company, where the idea of running an own business was met with a blanket claim about too high risks and too much work, and words like “workaholic” fell about various small-business owners. Looking at what I earned at various stages of employment and freelancing as an adult, I would have been far better off, had I not had this anti-entrepreneurial attitude instilled in me—or if I had shaken it earlier. (Even freelancing is not that “entrepreneurial”, but here the government and genuine obstacles come in: running a “proper” business, moving on to having employees, whatnot, has much more bureaucracy and costs, and the overhead between the cost of employment to the employer and the moneys received by the employee are ridiculous—another example of how the government prevents us from getting where we could be.)

In reverse, even a small-business owner who really struggles can bring a kid quite a few benefits for later life. Take the owner of a low-profit shop, where the kid spends just a few hours a week helping in the shop, dealing with customers, handling the cash-register, doing inventory, whatnot, and what effects this can have on later life through the benefits of broader experiences and a practical understanding of various issues related to running a business, specific business activities, customer relations, etc. To boot, there might be other positive effects, e.g. an easier later entry into the working market through having at least some record of work. (All this, of course, provided that the government does not step in to forbid it with threats of prison over child labor and exploitation.)