I grew up in Laredo, Texas, which is located on the Rio Grande, the border between the United States and Mexico. On the other side of the river was Nuevo Laredo, Mexico. The downtowns of both cities are immediately adjacent to the river and are connected by bridges. The two cities are actually one great big metropolitan area separated by a river.
In the 1950s, the rumor was the the Census Bureau had declared Laredo to be the poorest city in the United States, measured by per capita income. As poor as Laredo was, however, the poverty was nothing compared to the poverty in Nuevo Laredo. As soon as one crossed the bridge into Nuevo Laredo, it was easy to see that this part of the metropolitan area was much poorer than that in Laredo.
So, the question naturally arises: Why? Why would one side of the metropolitan area be significantly poorer than the other side? Could the Rio Grande somehow have something to do with it?
Moreover, don’t forget something: important: Mexico has oil. Big oil. Thus, how can a nation that has so much oil also have so much poverty?
It wasn’t until I discovered libertarianism that I learned the answer. The reason that Mexico is significantly poorer than the United States in terms of standard of living is because the Mexican government controls, manages, regulates, intervenes, and taxes economic activity in the nation much more than the U.S. government does in the United States.
Thus, the principle is: The more a government places a heavy hand over economic activity, the more poverty there will be. The less a government places a heavy hand over economic activity, the higher the standard of living will be, especially for the poor.
Thus, the fact that Mexico has oil has nothing to do with it. All those oil wells could dry up today and Mexico could still become a nation with a soaring standard of living.
Think Hong Kong. Before it was taken over by the Chinese communist regime, Hong Kong had one of the highest standards of living in the world. Yet, it had no oil or other natural resources. It also had no automobile industry. So, why was it so wealthy? The British government, which controlled the city, and the city government left economic activity virtually free of government control and regulation.
Compare that situation in Hong Kong to North Korea, Cuba, and Venezuela. In the latter three nations, government plays an extremely heavy role in controlling, managing, regulating, and taxing economic activity. That’s the reason those three nations are mired in deep poverty.
Could Mexico or any other nation, including North Korea, Cuba, and Venezuela, break the chains of poverty and become a nation of soaring standards of living, especially for the poor? Absolutely! Here are the keys to doing that:
- Abolish all taxes on income. Leave people free to accumulate unlimited amounts of wealth. This would means more savings coming into existence. Those savings would be converted into capital—i.e., tools and equipment that would make workers more productive. That in turn would increase productivity and then real wage rates. Capital accumulation in society equals higher standards of living.
- End all government welfare programs, including Social Security, Medicare, education grants, and farm subsidies. No more mandatory charity at all. Leave people free to do whatever they want with their own money. Welfare programs make people dependent on the government and fearful that they are going to lose their dole. Such programs destroy independence, vitality, energy, self-esteem, and can-do. Get rid of them all.
- End all government management, control, and regulation of economic activity, including minimum-wage laws, occupational licensure laws, and economic regulations of all kind. Separate economy and the state, the same way our ancestors separated church and state.
- Unilaterally lift all tariffs, sanctions, embargoes, and restrictions on trade. End all trade wars. No trade treaties and no trade negotiations. Just unilateral free trade. In every trade, both sides improve their standard of living through the simple act of trade because both of them are giving up something they value less for something they value more. Thus, any governmental restriction on trade necessarily impoverishes people.
- Also, end all government involvement in education. Government control of education damages the inquisitiveness, passion for learning, independent thinking, critical thinking, originality, and innovative mindset that are essential to a dynamic and growing economy. The mindset of regimentation, conformity, memorization, and deference to authority that is inculcated in children by state educational systems contributes to the spiritual and economic impoverishment of a nation. Separate school and state, the same way our ancestors separated church and state.
Throughout history, governments have controlled, managed, regulated, and taxed economic activity and provided relief programs for the poor. That’s because people have always believed that such control was necessary to protect the citizenry, especially those at the bottom of the economic ladder.
Yet, throughout history it has been that system of governmental control of economic activity that has been the cause of poverty. The way to end poverty is to prohibit government from waging war on poverty.