Islands of Poverty in a Sea of Wealth

EconTalk Extra
by Amy Willis
Terry Anderson on Native Ameri... Chris Blattman on Sweatshops...

What do you imagine when you think about a Native American reservation? Do you see sweeping vistas of the desert or plains? Glittering casinos? Or substandard housing, stray dogs, and young men milling about? In this week's episode, host Russ Roberts welcomes back Terry Anderson of the Property and Environment Research Center (PERC), who describes most reservations today as "islands of poverty in a sea of wealth."

The conversation covers what life was like for Native Americans pre-Europeans through today, raising lots of interesting questions about the changing nature of Indian institutions and the effects of current policy on reservation life today. What did you learn from this week's episode, and what questions linger in your mind? Let us know, or have a crack at one of those posed below. As always, we love to hear from you.

1. Anderson insists that Native Americans had efficient and innovative economic institutions prior to the arrival of the Europeans, after which worsening relations prompted the Indians to adopt different strategies with the Europeans. When and why did this change? Put another way, why did Native Americans switch from "trade" to "raid?"

2. In discussing some of the measures that have been taken in recent decades to try to improve the economic prospects of those living on reservations, Anderson notes the introduction of Indian colleges, which he says have had little effect. This raises the question: What do you do with human capital once you have it? How would you answer this in the context of Native Americans and/or persons from other poverty-stricken areas?

3. In his introduction to this week's conversation, Roberts notes that Anderson is one of the founders of the free market environmentalism movement. What principles from the FME movement bear on the conditions facing reservations today? How might these principles be applied to better these conditions?

4. While Anderson is clear the he would like to see the federal government with less control over Indian nations, he also suggests that the reality is not that simple. What sort of changes need to occur to make reservations and tribal governments efficient and prosperous?

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COMMENTS (4 to date)
Michael York writes:

"And we all know the stories of blankets infested with smallpox that killed huge numbers of the Indians at that time."

I was shocked to hear someone who is ostensibly an expert on American Indian history repeat this canard. The Wikipedia article here:

gives an overview of this issue. Smallpox and other diseases brought to the Americas by Europeans had a devastating effect on the indigenous people who had absolutely no resistance to them. Virturally none of this was intentional on the part of the Europeans and by far the worst of this was hundreds of years before the single documented instance of purposeful biological warfare described here:,_1st_Baron_Amherst

Many horrible wrongs were committed against the Indians. Many are still being committed by the continued imposition of what is effectively a socialist form of governance that keeps them, as it has all peoples in all places and all times who have lived under this system, dirt poor and subject to high levels of government corruption. That is not in dispute. But the small pox blanket story needs to be, at the very bare minimum, discussed as a matter of controversy. I actually think that amongst serious scholars it is dismissed as being a major issue. There are plenty of those without repeating this myth.

Loran M. writes:

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SaveyourSelf writes:


Here’s a brief sketch of how I think best to accomplish this lofty goal of helping this particular group of poor people--the American Indian living on Reservation. There are several ways to increase a person’s standard of living. Markets are, by far, the best method based on both moral and efficiency grounds.

The assumptions necessary for ideal market function are 1. Justice 2. Stable property rights 3. Prohibitions against coercion (including barriers to entry or exit) 4. Large number of buyers and sellers 5. Easy access to information 6. Each decision maker bears the full costs and the full benefits of their decisions.

The Indian’s on reservations discussed in this podcast are substantially poor. It is very unlikely that such a sizable group of people operating in ideal market conditions remain that poor for very long. Therefore, it is likely that the Indians on the reservations are not operating in an environment anything close to the above ideal market assumptions. If the goal is to lift the American Indian’s on Reservation from poverty without kicking them off the reservation, the best means I know of is to remove from their environment any and all coercive elements, thereby establishing the conditions necessary for markets to flourish.

1) Given the podcast discussion, it sounds like the reservation already have good systems of Justice in place.
2) The Trust system, however, as it was described in the podcast, interferes with property rights. That needs to go. Liquefy the trust. Make all reservation property private property.
3) Welfare services from the government are instruments of coercion. Those need to stop. Also, the minimum wage is a price control—held in place by coercion—that literally makes it illegal to employ people whose productive potential is less than some arbitrary number. The American Indian’s discussed in this podcast are third world nation poor. They will all, almost certainly, have productive capacity below the minimum wage in the beginning. If State or National minimum wages are enforceable on reservations, there is no chance of improving the welfare of the Indian’s on those reservations.
4) There are not many people on the reservations, which will limit the Reservation's market-potential by limiting the number of buyers and/or sellers. Privatizing the reservation land may lead to sale of land which might bring in more people to the area. That would increase the number of buyers and sellers. Alternately the Indian’s could sell or lease their land and use the money to leave the reservation and go to cities which already have large numbers of buyers and sellers. A third option is internet marketing.
5) The internet is also necessary for maximizing access to information. Therefore, reliable internet is a necessary element of this reservation improvement strategy.
6) A “Public-good” is a known cause of market failure. Public-goods happen when the cost and benefits of a decision do not fall on a single decision maker. The welfare program injures one American in order to benefit a different American. Redistribution to the Indian’s must stop if markets are ever to flourish on reservations.
Piyush Athawale writes:

2. What do you mean by colleges are not successful? Are they unable to get graduates into jobs or are they unable to produce graduates? Because both of these questions have to be tackled differently. To me human capital only makes sense if the people are skilled enough to fill in employment gaps in the workforce. I also think the question of human capital is much broader and also encompasses people who have lost their jobs in manufacturing, etc. due to shift in labor overseas. The solution, if any, for bringing these people out of unemployment will also work for the American Indian population (relocation programs, education, etc.).

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