The reason that people are poor is because they lack access to productive employment. If a farmer happened to own a piece of land but never grew anything on it, he would starve. But if he were to work the farm and produce food he would be able to eat. And if extra food is produced it can be traded for other things. So the key to escaping poverty is productivity and the key to increasing productivity is capital.

For example, the reason a person digging a hole with a bulldozer can earn more money than a person digging a hole with a shovel is that his capital equipment (a bulldozer) makes him more productive by enabling him to perform the work of one hundred men using shovels.

Naturally, people want to be rich and when they are free to profit by satisfying people's desires through ingenuity, creativity and hard work, they will do so. This not only causes them to be productive in meeting the desires of others, but causes others to be productive in meeting their desires. Despite its best intentions, the biggest obstacle to this freedom is government interference in the form of punitive taxation and over-regulation. In fact there's a direct correlation between the size of a country's government as a share of its GDP (gross domestic product) to its level of poverty.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

Freedom causes an economy to prosper. People are inherently motivated to pursue their own interests by providing products and services that others want at a price they can afford. And as people earn profits and save money they are able to use these funds to more effectively and efficiently do so. But when a government intervenes in an economy, despite its best intentions, the regulations and taxes which it imposes impedes the ability and willingness of these people to start businesses and employ workers.

(SEE: How an Economy Grows and Why It Crashes)

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

A minimum wage law hurts the poorest and least skilled the most because its deprives them of employment opportunities. If a young person, for example, doesn't have any skills to justify being paid the minimum wage rate, he or she will have a difficult time landing a first job. And when it is more difficult to find a first job it will be more difficult to find a second, third or fourth job, which traps a person in poverty.

Decades ago, young people were employed as pump jockeys by gas stations to pump gasoline, wash windows and check the air pressure of tires. Between performing these services for customers they would help mechanics to repair and service vehicles so that after a few years, those unskilled pump jockeys would be trained auto-mechanics without their ever needing to attend or pay for school. These skills were then used as a springboard to open new gas stations or body shops from which they would employ others.

A minimum wage law also hurts a society because it results in capable, able-bodied people sitting idle rather than working. The effect of the squandering of these labor resources can be seen, for example, in movie theaters. Because employing a person at a minimum wage rate to operate a concession stand cash register costs so much, fewer people can be employed which results in longer lines and higher prices to cover their wages. In fact, a vast number of jobs and conveniences no longer exist precisely because of minimum wage laws, ranging from hotel porters to gasoline pump attendants to movie theater ushers.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

The government's role in an economy should be restricted to enforcing certain ground rules which facilitate commerce, including, but not limited to, enforcing contracts and protecting private property rights.

The founders of the United States held a skeptical view of government understanding that greater government involvement always comes at the expense of freedom which in turn restrains progress and lowers standards of living. With this in mind, they designed a system in which the government's role was limited to defending the freedom and liberty of its people. A little government can do a lot of good but a lot of government can do a lot of harm which is the reason that Thomas Paine said that "government, even in its best state, is but a necessary evil; in its worst state an intolerable one".

Despite its best intentions, the consequences of government intervention in an economy are almost always detrimental. For example, although it seems counter-intuitive, higher education in the United States is so expensive precisely because government subsidizes it. At its current cost, many people wouldn't be able to afford to attend universities, but because the government guarantees their student loans, universities can charge virtually any price they desire.

On the other hand, if there were no government subsidies, these institutions would have to reduce the price and increase the quality of tuition in order to make attendance more affordable and attractive. Many jobs don't even require a higher education and the result is that we have indebted college graduates waiting tables, cleaning toilets and driving buses.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

Labor unions tend to operate in a very short sighted manner, most often by attempting to maximize the pay and benefits of their members in the short term even as it ends up costing their jobs in the long term by bankrupting the employers. But while current employees might collectively benefit in the short run, the high cost of employing workers results in fewer employment opportunities for those who are unemployed.

On an individual level, because labor unions tend to bargain for wages collectively on behalf of their members, employers aren't free to pay individual employees based on merit or productivity. When employees are given equal pay for unequal productivity, it not only results in lower wages for better employees, it also reduces a company's productivity as a whole by reducing employee incentives to be more productive.

While labor unions are a legitimate force in a free market economy, they become a detrimental one largely because they're able to use their political clout to persuade politicians to enact laws which mandate union membership and certain worker benefits and protections which make hiring costs prohibitively expensive across the board, and as a result, most of the American companies which were heavily unionized have simply been bankrupted, resulting in a sharp decline in private union membership.

On the other hand, when it comes to government worker unions, these extra costs are simply passed on to tax payers in the form of higher taxes and rates. In fact, the entire process is corrupt because these unions help to elect the very government officials who they then negotiate with for exorbitant pay and benefits. In effect, nobody is looking out for the tax payer at the negotiating table while the unions are calling their own shots.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

An economy suffers when money is taken from a rich person and sent to the government because this is the very money that the rich would have otherwise used to fund the growth of their own or other people's businesses which in turn creates jobs for a population. The premise behind taxing the rich is that society as a whole will be better off when this money is transferred into the hands of the government but there is absolutely no historical data to suggest that this is true. All of the available evidence shows the opposite to be true - that private individuals and businesses are far more effective at creating businesses and jobs with their own money than government is.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

The absolute worst type of tax is an income tax because, in effect, it's a tax on people for working, producing and investing, based not on what they take out of an economy, but what they put into it. The problem with this is twofold: Firstly, taxes levied against a particular behavior end up discouraging that behavior, in this case, working, producing and investing. Secondly, because an income tax makes no distinction between, for example, income used to buy luxury goods and income saved and invested in starting or growing a business, it naturally reduces the amount of money which is available to be invested. The best alternative is to tax people based on what they spend, in the form of sales taxes which are levied against goods that individuals consume. Not only is this better for an economy, it's easy to implement because businesses - who already keep records - can simply pass on the cost directly to consumers.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond

The reason that conservatives and liberals disagree is because liberals judge their policies by their intentions while conservatives look at their outcomes.

To take minimum wage laws as an example, liberals think that the notion of a person working for $1 an hour is terrible, to which their remedy is outlawing any wage lower than, for example $8 an hour. Having accomplished this, they feel good about themselves because in their minds they've helped the poor.

Conservatives, however, look at the results of this policy and note that despite its best intentions, those who would have previously received, for example, $1 an hour, don't actually earn $8 an hour under the new law. In fact, they receive $0 an hour because the business simply can't afford to pay them that kind of rate. As a result, these employees will never accumulate the skills that at some point might have been able to earn them $20 an hour.

And while liberals protest that free market capitalism exploits workers because it allows employers to pay them as little as possible, conservatives point out that the term "possible" isn't absolute because it accounts for competition. In the same way that consumers can't simply hire a plumber at any low rate of their choosing, employers will not find it possible to hire willing workers at any low rate of their choosing.

Liberalism is an intoxicating ideology because its proponents can feel good about themselves without having to do much thinking or investigation. And because of this, it's almost always true that every liberal law results in the exact opposite of its intention.

Economist, investment advisor, author and commentator, Peter Schiff

Visit website

Tweet

Respond