Monday, March 23, 2015

(Re-Post): Economic Myths that Need to Die

Original post 11/9/14:  But won't, as this article from The Freeman explains.  This is a valuable article, particularly if your economic understanding is limited.  It contains five myths that most folks would probably accept as true but, as the article shows, are definitely not.  Here's the first of these myths:
Myth 1. The idea that economic growth helps the poor is trickle-down economics … it doesn’t actually help them.
In a 2001 paper titled “Growth Is Good for the Poor," economists Art Kraay and David Dollar of the World Bank found that when average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This result held across regions, periods, income levels, and growth rates. In 2013, more than a decade after their original paper, Kraay and Dollar explored the relationship between economic growth and poverty again, using data from 118 countries over four decades. They came to the same conclusion. According to the economists, this evidence confirms the central importance of economic growth for poverty reduction … institutions and policies that promote economic growth in general will on average raise incomes of the poor equiproportionally, thereby promoting “shared prosperity” … there are almost no cases in which growth is significantly pro-poor or pro-rich.
This means that policies that enhance economic growth through methods such as limiting the size of government and lowering barriers to international trade are key to alleviating poverty. Economic growth, not transfer programs, is in fact the primary driver of poverty reduction, and this empirical truth has been proved for a long time.