Switzerland’s left-wing party has instigated a referendum for November 24 that asks voters to limit pay ranges so that a company wouldn’t be able to pay top employees more than 12 times what they’re paying their lowest-level employees.
I talked with Neil Cavuto about this proposal and made several (hopefully) cogent points.
Since Swiss voters already have demonstrated considerable wisdom (rejecting a class-warfare tax proposal in 2010 and imposing a cap on government spending in 2001), I predicted they will reject the plan. And I pointed out that Switzerland’s comparatively successful system is a result of not letting government have too much power over the economy.
But I don’t want to focus today on the Swiss referendum. Instead, I want to expand on my final point, which deals with the misguided belief by some on the left that the economy is a fixed pie and that you have to penalize the rich in order to help the poor.
I’ve covered this issue before, and I even tried to educate a PBS audience that economic growth is key.
But maybe this chart is the most persuasive bit of evidence. It shows per-capita GDP in France and Hong Kong over the past 50 or so years. France is a nation that prides itself of redistribution to “help” the poor while Hong Kong is famous for having the most economic freedom of any jurisdiction.
Now look at this data and ask yourself whether you’d rather be a poor person in France or Hong Kong?
Since Hong Kong is richer and is growing faster, the obvious answer is that poor people in France almost surely face a bleaker outlook.
In other words, the welfare state can give you the basic necessities and allow you to survive (at least until the house of cards collapses), but it comes at a very high cost of lower growth and diminished opportunity.
The moral of the story is that prosperity is best achieved by a policy of free markets and small government.
P.S. If you want more evidence on the superiority of markets over statism, check out the comparison of South Korea and North Korea and the difference between Chile, Argentina, and Venezuela. Heck, even the data comparing America and Europe show similar results.
P.P.S. As you might expect, Margaret Thatcher addressed this issue in a brilliant fashion.
P.P.P.S. There’s a lot to like about Sweden, but click here if you want to see an impossibly absurd example from that nation of the equality-über-alles mentality.
P.P.P.P.S. There is some very interesting academic research that suggests humans are hard-wired by evolution to be statists. Let’s hope that’s not true.
[…] Example #16: Hong Kong vs. France […]
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[…] repeatedly argued that faster growth is the only effective way of helping the less […]
[…] left, if they actually cared about poor people (and I think most of them genuinely do care), should focus on growth rather than being fixated on […]
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[…] Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they […]
[…] Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they […]
[…] Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they […]
[…] challenge, for those of us who believe in economic liberty, is to educate these people about how even small differences in growth can yield remarkable benefits to everyone in society within relatively short […]
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[…] sustained growth that enables huge increases in prosperity for all income classes. In other words, everyone can have a bigger slice if the pie is […]
[…] bolster my point that economic growth is the best way to help the poor, I cited Hong Kong as a role model, both for creating growth and for enabling […]
[…] bolster my point that economic growth is the best way to help the poor, I cited Hong Kong as a role model, both for creating growth and for enabling […]
I’d choose France if I were poor because the fruits of labor are not just showered upon the 1%.
[…] Daniel Mitchell talks about, of all things, a Swiss national referendum: […]
taking money from people who have earned it… and giving it to people who have not earned it is not a legitimate function of government… the idea that politicians and bureaucrats have the wisdom… moral purity or constitutional authority to redistribute the wealth of the nation as they see fit is repugnant…
the result will be the demise of the middle class… a sharp reduction in overall prosperity… social upheaval… and ultimately a failed state… and unless we change course… quickly… this will all happen sooner rather than later….
The typical post recession US boom is now a subpar 2-3% growth that does not even match the average world growth trendline. Do you start to see the signs of the slower trendline to decline? Desperate? Grab pitchfork and head for the polls for more redistribution.With flatter effort-reward curves a bright future awaits!
Again, small differences account to big divergence in predictions. Many freedom loving people expect that Americans will see the light and correct course. I have seen the European voter-lemming-bamboozle movie many times and believe that the more desperate Americans become the more they will head to the polls for intensified redistribution. Then there are liberals… who believe that flatter-effort reward curves, and coercive collective economic dirigisme by majority… will actually pair with higher growth 🙂
If it were a stock, or if you could gamble, where would you put your money in?
And that is the crux of prosperity.
But I would like to elaborate.
Most big ideological differences stem from quantitative not qualitative differences in opinion.
So most left wing statists do understand that the pie is not finite. What they don’t understand is the magnitude of change in pie size. A society that has invented and produces bulldozers to excavate, compared to one that uses manual labor, is perhaps 100 to 1000 times more productive. Its excavation prosperity pie is not a little bigger, double or triple. It is 100 to 1000 times larger. Similarly, a world where the cure for cancer has been found, has a much larger medical prosperity pie compared to a world that has not yet found such cure — and the time when the cure is found is more or less directly proportional to growth rate, because growth rate also embodies the rate of scientific, technological and commercialization growth. And a high growth rate requires relatively unadulterated effort-reward curves, ie. weak redistribution. Shaving a mere 1% from yearly worldwide growth will reduce the human wealth pie in the next century by a factor of almost 3. If, for example we embrace environmentalism and reduce human growth rate by a mere 1% per year, our descendants four generations from now will be three times smaller than it would otherwise be. Their pie will be three times smaller. That is a much bigger damage than the 2C increase in world temperature they may inherit from out faster growing future. Not coincidentally, a 1% slower growth rate also means that the eventual cure for cancer will be delayed by a decade or two, an enormous difference in life expectancy, and suffering.
But to return to the original point…
Similarly, rational proponents of individual freedom, typically understand the value of compassion and redistribution — even the coerced type. But they also correctly understand that that the benefit is not worth the perpetually compounding slower growth rate. Not worth by a long shot — because a slower growth rate perpetually compounds you into ever deeper poverty relative to the rest of the world — until you eventually cry uncle. It is not a matter of if, but when and after how much pain you eventually abandon the dream.
I believe that humans are indeed hardwired for statism. The reason is evolutional, because for an overwhelming proportion of our history we evolved in a static environment where the pie did not grow. The phenomenon where a person is born in one environment and dies in a quite different world is very recent, dating perhaps no more than a couple of centuries, the blink of an eye on the evolutional time scale. It is because we are hardwired for statism, but also hardwired for selfishness in our motivation and desire to redistribute the fruits of our labor from our families to distant others that most western democracies will decline. The trick is spotting early the ones that will escape this vicious cycle, whereby the more they decline, the more their voters resort to the desperate immediate relief of redistribution, thus deepening the vicious cycle. Most western democracies are past the point of no return into this cycle (two thousand and eight was the tipping point for the US, though perhaps Sep 11 was what tipped the mandatory collectivism of “we all in this together” into majoritarian status. Ahh another virgin for OBL tonight). But, I’m digressing, not to mention irritate Mr. Mitchell, whom I hold to very high esteem…
The other very-very recent phenomenon is the speed of Western World decline, being taken over by the general acceleration of all human processes. While in the past, perhaps until even until mid-twentieth century, the world moved slowly and the generations to vote for the detrimental statist choices were able to pass the results to the future generations, this is now no longer the case. The world is now moving so fast that the same voter-lemming generation that falls for statism will increasingly be the very same generation that suffers the consequences. Ascents and declines that used to take centuries will now conclude in a few decades. A world where the three-four billion humans of the emerging world reach even half the US average prosperity level will be a very-very different world compared to what the typical occupy protester is accustomed to. And that world is not far away. The occupy protester will sleep in the coercive social bed he made. He will not be able to pass the problem to his/her children. The world is now moving too fast for that.
P.S. France may not quite have reached the stated point in its comparison with Hong Kong. It may still be better to be poor in redistributive France than Hong Kong. But look at the trendline in Mr. Mitchell’s graph and you see that this will likely change sooner rather than later, and may have already happened.
P.S. Now for the Swiss, there are a few of them in Singapore and they do feel lonely. They could use some help from the leftist law in getting some more of their compatriots to keep company.
Reblogged this on Public Secrets and commented:
Common sense backed up by empirical fact. No wonder progressives can’t understand this.
Keep up the good work. I’m spreading the message with your help.
P.S.: Average GDP, or per capita GDP, is not a measure of how well poor people do. Last time I had a quiet drink with Bill Gates, we each had an average of $30 billion in assets. Didn’t carry any weight with my bill collectors.
Nice to see a bit of reason creep into this blog.
Do you believe this thesis, that economic growth is the best way to end poverty? Or is it here just for discussion?
Reblogged this on U.S. Constitutional Free Press.