A new study released today by the Competitive Enterprise Institute (CEI) argues that to alleviate poverty, our leaders, policymakers, and activists must reexamine how they view and address the problem in America and worldwide. Instead of focusing on a ratio of income inequality, people need reforms that remove barriers to jobs and opportunities, promote an honest price-setting system for goods and services, and bolster institutions that promote entrepreneurship, openness, and commerce.
This two-part study gives a roadmap for policy reforms that improve people’s lives, not just redistribute wealth. The report recommends specific reform proposals where they are needed most: banking and finance, labor policy, energy policy, occupational licensing, and over-all regulatory governance.
“For years, experts have focused on the income gap, the difference between rich and poor, but helping people gain access to economic and job opportunities that raise their standard of living is more important,” said study co-author Ryan Young, CEI fellow. “Policy reforms that help poor people include access to affordable energy, access to capital for entrepreneurs, ending occupational licensing restrictions, an honest price system, and overhauling a range of regulatory barriers.”
“In the debate over how to end poverty, all sides have the same goal, but many activists wrongly believe that for some people to have more, others must have less.” said co-author Iain Murray, CEI vice president for strategy. “Redistributionist policies, such as a proposed global tax on wealth and assets, prevent people from gaining job skills and wealth needed to escape poverty.”
- Improve access to capital by removing regulatory barriers to lending and borrowing.
- End fuel poverty by rejecting energy taxes and restrictions and liberalizing energy innovation, such as freeing up federal lands to energy development.
- Institute occupational licensing reform at the federal, state, and local levels.
- Reject labor policies that drive up unemployment or benefit a select few at the expense of others.
- End political price distortions that result in bad investments, greater economic volatility, low overall growth, and lower living standards.
- Allow competing currencies, so consumers and investors can choose the ones most honest and shun the volatile or dishonest.
- End corporate welfare programs.
- Review and cut regulatory red tape with reforms such as: requiring congressional votes on all new major regulations and creating an independent commission to review old regulations.
- In the U.S. a third of workers need a license to practice their chosen occupation.
- Minimum wage hikes drive up unemployment. For example, if Congress had increased the minimum wage to $10.10 per hour, employment would have dropped by roughly 500,000 workers in the second half of 2016, according to a 2014 Congressional Budget Office report.
- Collective bargaining suppresses income. Over a period of 50 years, the cumulative reduction in worker wages in states that mandate union membership amounts to about 15 percent.
- Energy costs hit the poor hardest, taking up over 10 percent of poor household budgets in the U.S. alone.
- Nations with the most economic freedom have a higher average per-capita GDP. Nations in the top quartile of economic freedom had an average per-capita GDP of $39,899 in 2012, compared to nations in the bottom quartile at $6,253.
The study has two parts. The first, People, Not Ratios: Why the Debate over Income Inequality Asks the Wrong Questions, explains why mathematical ratios between rich and poor incomes are unimportant compared to the actual well-being of the poor. The second part, The Rising Tide: Answering the Right Questions in the Inequality Debate, offers real-world solutions to raise living standards for poor people worldwide.
View the reports: