Here’s the latest data looking at how poverty has dramatically declined since the advent of capitalism, courtesy of Our World in Data at Oxford University.

I wanted to begin today’s column with this uplifting data because we’re going to be focusing on how to help the poor.

My hypothesis, amply supported by real-world evidence cited above, is that free enterprise is the best approach for poverty reduction. As I wrote a few days ago, there is not a fixed amount of prosperity. Good policies can make everyone better off.

Pope Leo may not share my perspective. Here are some passages from a Reuters report by Yesim Dikmen and Joshua McElwee.

Pope Leo on Saturday made a day trip to ‌Monaco, a tax-free microstate on the French Riviera known as a haven for billionaires and their luxury yachts, and urged its residents to share their wealth and help those in need. …The ​pope appeared to reiterate his message that the wealthy should help those less fortunate in his official gift to Albert. He gave the prince a colourful artwork created by the Vatican’s mosaic studio, an image of St. Francis of Assisi, a 13th-century son of a prosperous Italian merchant who renounced his inheritance to help ​the poor. …The second smallest state in the world after the Vatican, and one of the last countries with Catholicism as the state religion, Monaco has the highest concentration of billionaires per capita in the world. In his speech at Albert’s residence, Leo urged Monaco’s residents to “put your prosperity at the service of law and justice”.

I’m not going to be overly critical of Pope Leo because – as far as I know – he has not embraced government coercion. There is nothing in the Reuters report to suggest he wants higher tax rates or a bigger welfare state.

Assuming this is correct, he’s much better than Pope Francis, his economically illiterate predecessor.

But I want to make two points in response to the article.

First, I agree there’s more to life than dying with the maximum amount of wealth, but there are smart ways to help the poor and there are not-so-smart ways of addressing poverty. If I had several billion dollars, I would give lots of money to private school choice initiatives in states like New York, Illinois, and California where politicians are beholden to teacher unions and want to keep kids trapped in failed government schools. By contrast, I would not donate a single penny to a group like Oxfam, which was created alleviate suffering but has morphed into a sloppy left-wing advocacy organization.

Second (and more important), the best way rich people can help the poor (as I wrote nearly 15 years ago) is by being good entrepreneurs and by making wise investments. Innovation is the key to higher living standards and faster growth is the best way to help the less fortunate. With this in mind, let’s look at the concluding paragraph from Robert Lucas’ essay for the Minneapolis Federal Reserve’s 2003 annual report.

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.

Here are two charts from the Lucas column that show the link between the adoption of capitalism and changes in per-capita economic output (I added the identifying legend for Figure 3 since that was explained in the text of the essay).

Very much akin to the “hockey stick” graph that I’ve shared previously.

I’ll close by supporting Lucas’ argument that “of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor.”

That’s what U.S. evidence shows and that’s what we find when looking at evidence from other developed nations.

P.S. Regarding the specific case of Monaco, the tiny nation shows the benefit of having no income tax. And I’m glad it is a refuge for victims of fiscal oppression (though I admit to being somewhat skeptical of the rich Russians who live there since I only defend honestly accumulated wealth).