Why are income levels higher in the developed world?

Over at Cafe Hayek they’ve been exploring a question they feel would make an excellent question for a final economics exam. Prompted by another bloggers experience of working in the peace corps in Nepal, the question is –

Why does a spectacularly intelligent and resourceful person in Nepal earn spectacularly less than a lazy untalented American?Robert Frank – the author that prompted the question gave this answer
Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success.

David Henderson answered
There’s a more-obvious cause of the wealth that we have been born into: a great deal of economic freedom compared to that in other parts of the world.

And the Cafe Hayek answer
Self-sufficiency is the road to poverty

The longer answer is that the lazy, unresourceful American of average intelligence has no incentive to learn how to fix a broken alarm clock or butcher a goat or thatch a roof. For the American, these elegant but time-intensive skills have a reward that is far below the cost in foregoing other activities. In Nepal these skills are worthwhile…

Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table.

Links –

Cafe Hayek The Question
Cafe Hayek The Answer

What do you think? Are they poor because we in the West are rich, or are we rich because we have a more complex and developed economic system?

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