Fallacies of the Negative Income Tax
By Henry Hazlitt
Posted on 12/27/2006
[This essay is from Hazlitt’s book Man vs. The Welfare State (New Rochelle, NY: Arlington House, 1969, pp 84–100; available in PDF). It is an early critique of a proposal made by Milton Friedman that later came to be proposed by Richard Nixon and a version enshrined into law as the Earned Income Tax Credit, which is now the largest cash transfer program for low-income people. See Friedman’s Mistake.]
Fight Poverty With Capitalism
“But would-be income guarantors ignore or despise the capitalistic system that makes their dreams dreamable…”
Capitalism brought the Industrial Revolution, and the enormous increase in productivity that this has made possible. Capitalism has enormously raised the economic level of the masses. It has wiped out whole areas of poverty, and continues to wipe out more. The so-called “pockets of poverty” constantly get smaller and fewer.
The condition of poverty, moreover, is relative rather than absolute. What we call poverty in the would be regarded as affluence in most parts of Africa, Asia, or Latin America. If an income sufficient to enable a man “to live with dignity” ought to be “guaranteed” as a matter of “absolute right,” why don’t the advocates of a guaranteed income insist that this right be enforced first of all in the poor countries, such as India and China, where the need is most widespread and glaring? The reason is simply that even the better-off groups in these nations have not produced enough wealth and income to be expropriated and distributed to others.
One of the guaranteed-income advocates, in a footnote, admits naively: “We must also recognize that we still have no strategy for the elimination of poverty in the underdeveloped countries.” Of course they haven’t. The “strategy” would be the introduction of free enterprise, and of incentives to work, to save, to accumulate capital, better tools and equipment, and to produce.
But would-be income guarantors ignore or despise the capitalistic system that makes their dreams dreamable and gives their redistribute-the-income proposals whatever plausibility they have. The capitalist system has made this country the most productive and richest in the world. It has continued to achieve its miracles even in the present generation, and to increase them year by year. It has raised the average weekly factory wage from less than $17 in 1933 to $130 in 1969. Even after the rise in prices is allowed for, it has nearly tripled our real per capita disposable income — from $893 in 1933 to $2,473 in 1968 (in 1968 prices).
Allowed to continue to operate with even the relative freedom that it has enjoyed in recent years, the capitalist system will continue to produce these miracles. It will continue to make progress against poverty by a general increase in income and wealth. But shortsighted and impatient efforts to wipe out poverty by severing the connection between effort and reward can only lead to the growth of a totalitarian state, and destroy the economic progress that this country has so dearly bought.
Seems so elementally simple.
Allow people freedom and miracles happen.
Poverty in Africa seems to be directly related to dictators and government corruption. Not sure about Asia, but it seems logical to me. Just as it takes a government to commit genocide, it’s also need to really make the people poor.
America’s foreign policy should end at the water’s edge. Washington’s “trade with all; entangling alliances with none” is also a good rule of thumb. Trade between people; not gubamints.
I add another set of imperatives. If your country is poor, then you’re not welcome here. If you loot your country’s treasure, then don’t look for the protection of banks here. AND, if you kill your citizens, then don’t try hide here.
Capitalism is the road to peace and prosperity for everyone.