Tag Archives: capitalism

Fixing the Flaw in the Political Economy : Casinos and Poverty, Welfare and Capitalism

Posted on June 2, 2011 by | Leave a comment

The following except is from the World Bank blog “Development Impact”. Jed Friedman’s post titled “Build a casino to help understand the consequences of poverty” does not favor Casinos, gambling, or the idea that either one improves the well-being of a community. Friedman believes certain types of research may still be important that can help us understand how economics affects our health and families. Even so, as you will see, the presence of a Casino was beneficial to a certain group of poor Americans in one community.

I was reminded of the legacy of natural experiment as I reread a paper that explores the relationship between poverty and mental health in children by E. Jane Costello and co-authors. It was published 8 years ago in a leading medical journal but flew under the radar in the economics community presumably because it was written by epidemiologists for the medical and public health community.

Also the study focused on the relationship between poverty and mental health – not a common cross-over area of interest in our field. However it is a long standing interest of mine. And it’s a nice example of what can be learned when researchers get lucky with an unanticipated change in the environment under study.

In the middle of an 8-year study of mental illness in children in the Smoky Mountains region of North Carolina, a casino opened on a Native American reservation that fell in the study area. The casino paid a percentage of profits to all tribal households. The casino and surrounding motels and restaurants also became a source of employment. Roughly a quarter of all children in the study was Native American and resided on the federal reservation, so there was sufficient density in the data to contrast changes in the Native American population with the neighboring white population that didn’t receive these direct transfers.

Children living in poverty are more likely than non-poor children to have a psychiatric disorder. In the baseline study data, children below the poverty line were 59% more likely to have a psychiatric symptom than non-poor children. However the problem of disentangling the relational direction of poverty and mental health is clear. It’s possible that the adversity and stress of poverty can lead to worse mental health, but it’s also possible that causation can run in the other direction — poor mental health of adults can lead to adverse economic outcomes and may also be transmittable to children.

Enter the casino and the annual transfers of up to $6000 per year to each reservation household. Poverty rates declined significantly. In these same households certain dimensions of child mental health, notably conduct disorders, improved significantly over a short period. (Although, importantly, other dimensions of mental health such as depression did not improve). The one significant mediator of the observed change in child health status appears to be an increase in parental supervision and parental presence in the child’s life.

Just in case you didn’t connect the dots, Friedman’s post reveals both the flaw in America’s political economy and suggests a way to fix it. The flaw is the stress of poverty and its terrible effects on the health of the poor. Stress and ill health both reciprocate producing dysfunctional lives and families. The American founders didn’t need a degree in psychiatry or economics to understand that ill health adversely affects the pursuit of happiness including wealth, good relationships, and enjoyment of both.

Yet, politicians today do not seem to understand.

Providing health care for all will not fix the problem and neither will welfare handouts. The idea of hard work for sub-standard living (i.e., poverty level living) does not lead to realizing the American dream.

As noted by Friedman, the poor’s health related problems significantly decreased when they rose out of poverty and became steadily employed. Their self-worth rose with routine useful work that was rewarded with wealth. Yes, unearned income received from the Casinos seems to have contributed to health improvement but so did employment. Overtime, however, the unearned casino money will be regarded as an entitlement, which in turn results in a welfare dependency mentality. From that point on, the poor will return to the problem that they began with, except the Casino does not need their votes. Their demands for the entitled money may eventually be answered with denial and silence.

Except for those who are truly disabled, welfare is not the fix to poverty. Rather, a political economy that rewards creativity and productive work with livable income, that protects both rights and property, and that promotes healthy family and other relationships will fix the poverty problem.

The fix to the flaw in the political economy isn’t socialism. Socialism isn’t need if capitalism is balanced with morality and justice for the good of all.

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Paying for Health Care Reform

Posted on November 8, 2009 by | 1 comment

By Daniel Downs

President Obama often said people like himself could pay for health care reform. That is, high-income taxpayers can afford high tax rates to help fund universal health care.

Thomas Jefferson held a similar view. He was critical of industrious citizens getting rich while others citizens were going without. He believed the wealthy should assist the less fortunate to achieve a livable income.

The difference between the views of Obama and Jefferson may not be apparent. Nevertheless, there is a significant difference in their views. Obama adheres to a form of contemporary liberalism that has embraced the values of humanism, egalitarianism, and welfare socialism. Although Jefferson was more liberal than many of his day, he was nevertheless a rock solid natural law proponent. His values were characterized by traditional moral values, entrepreneurial capitalism, and natural rights equality. Stated more simply, Obama tends towards being a big government socialism while Jefferson was oriented toward being a limited government capitalism.

To Jefferson, the term capitalist meant entrepreneurs of small businesses including farms, repair shops, small manufacturers or craftsmen, merchants, and the like.

Today, the term capitalism certainly includes owners of small businesses; but, in practice, many modern politicians favor a big business view. Internationalists, like Obama and most federal politicians, give their allegiance to supporting national, international, and especially Wall Street business.

However, Jefferson, as did Adam Smith, opposed big business as a threat to independent “capitalists”. One reason was that they regarded big business as quasi-governmental entities, and so do many financial experts today. Like incorporated federal banks and Fannie Mae, for-profit corporations are government created entities.

The point is this: Obama, as representative of the Democratic Party, says he wants the more wealthy to pay for their welfare based benefits program for middle and lower income citizens. The obvious problem is high income citizens live off the productivity of lower income employees, taxpayers, and consumers. Early Americans like Thomas Jefferson were very critical of it. Why? As expressed by John Locke, property and productivity belonged to the worker. In other words, the means of production belonged to all Americans equal to their need and capacity.

Taxing for the limited functions of government was and is the necessary cost to secure property and life as well as to maintain the freedom to pursue as much happiness as possible. Taxing for redistribution from the haves to the have-nots was regarded as robbery just as the low wage living was regarded as slavery.

Returning health care and how to pay for it, we can restate the issue like this: the wealthy own businesses, investment and legal firms, as well as medical practices. The so-called poor do not. Therefore, the rich should pay more to provide adequate health care for the poor and middle-class.

Yet, one could argue that most businesses already pay their employees’ health care. They also pay into Medicare as well as into group health care. Employees pay a small portion of the health insurance costs. It is part of the overall wage.

So then, why should we make businesses pay their employees higher wages?

The only reason to pay employees higher wages would be for them to pay 100 percent of the cost of health care insurance. Who says it has to be a responsibility of employers and government. Are not individuals capable of purchasing their own group insurance?

The same is true of all other government-initiated social safety net programs including social security, welfare, and ESEA (now called No Child Left Behind), and S-CHIP. With the proper education, individuals and their local communities would be more capable of and efficient at providing their own social safety nets.

Without poor wage earners, all of those programs would not be needed and would be more difficult to justify.

Those social safety net programs were all good ideas, but all became means to enlarging federal powers over American lives. Except for Social Security, most of those programs never produced the results that were sold to American citizens. Corporations whose revenues are in the multi-millions and billions often get welfare subsidies. Are not the bank and manufacturer bailouts a form of welfare? After billions of taxpayer funding, the ESEA program still has not closed the educational gap between children of poor families and others; it still has resolved the huge school drop out problem; add it still has not made American children’s globally competitive in math and science. One would think that over 40 years or 3 generations Americans would have achieved this goal. Then there is S-CHIP (State Children Health Insurance Program) that never has been used strictly to help the children of poor families. Why? Because the agenda of liberal bureaucrats always has been to complete the goal of making the middle class welfare dependents or good socialists.

Democrats justify their health care reform based on the millions of Americans without adequate health care. Yet, Congressional Budget Office analysis of so-called Affordable Health Care for America Act (HR 3962) shows over 18 million will still be uninsured by 2019 under the bogus reform bill.

The fake reform will not even end the injustice perpetrated by the the government’s so-called safety net. After paying 20-40 years into the Medicare retirement age health care fund, the state often takes every possession of those who cash in on the supposed safety net. That seems more like a big brother scam and not a safety net.

Maybe, Bernie Madoff’s real crime was learning and practicing the art of his liberal big brother.

The answer to the health care problem is not the enlargement of government or government run health care. It is reforming the political economy. If as President Obama, Jim Wallis, and others claim, the rich can afford to pay more taxes for health care reform, they could afford to pay better wage rates so that all American could purchase health care they and their families want. The cure for making health care affordable (reducing costs and increasing earned income) would solve many other societal problems tied to America’s political economy.

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