The poverty of liberal economics

Abstract

Liberal economic precepts have long been a foundation for the social science of poverty and continue to profoundly influence public policy. Liberal economics contends that poverty is dependent on the harmonious progress of economic growth, free market capitalism, worker productivity, and the supply and demand of labor. This paper traces its origins from classical economics and its influence throughout contemporary social science, public policy and conventional wisdom. Next, I evaluate the liberal economic model of poverty with an unbalanced panel analysis of 18 Western nations from 1967 to 1997 and with newly available comparable data on relative poverty, economic growth, government receipts, productivity and unemployment. The results demonstrate that liberal economics provides a weak and ineffective model of poverty, and many of its precepts are wholly unsupported. Moreover, a central finding emerges that the size of the state has a large and significant negative effect on poverty after taxes and transfers. It is argued that poverty researchers should seriously question the liberal economic model and instead concentrate on the central role of the state in reducing poverty.