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A few years ago, I shared a satirical divorce decree that would allow conservatives and liberals to amicably separate into two different countries.

This seemed like a good idea, particularly since another piece of satire suggested that Canada was being overrun by statists who were upset by the Tea Party election of 2010.

And don’t forget that I wrote a serious column in 2012 speculating whether advocates of limited government should be the ones moving north instead.

But rather than divorce or mass emigration, what if we could resolve our differences and live together in peace and tranquility?

Y’all may be thinking I’m smoking some of that stuff that libertarians want to legalize, but I want to make a serious point.

Or, to be more specific, I want to test whether our statist friends are serious.

I’m motivated by this presumably legitimate Facebook message. It’s designed, I’m guessing, to poke fun at conservatives who utilize government while simultaneously complaining about government.

Having read this diatribe, I want to make two points, and then end with a proposal.

My first point is that many of the supposed benefits of government would exist even if the public sector disappeared tomorrow.

There are some government-owned utilities, but I think we all recognize that most electricity is generated by the private sector.

Private satellite companies and private news companies would provide weather forecasts in the absence of NOAA and NASA.

Private food companies and private drug companies would have big incentives to provide safe products in the absence of government inspections.

People would know how to tell time without the government.

Auto companies would have every reason to produce safe cars even if there was no regulation.

I could continue, but you get the point.

Which brings me to my second point. The person who put together this screed conveniently left out the programs that account for the lion’s share of government spending.

Why doesn’t the author include agriculture programs?

Why doesn’t the author include the Ponzi Scheme otherwise known as Social Security?

Why doesn’t the author include all the money spent to subsidize other nations’ defenses?

Why doesn’t the author include bankrupt and counterproductive health care entitlements such as Obamacare, Medicare, and Medicaid?

Why doesn’t the author include the Department of Housing and Urban Development?

Why doesn’t the author include the corporate welfare at the Department of Commerce?

Why doesn’t the author include the welfare programs that trap people in dependency?

Why doesn’t the author include unemployment insurance payments that subsidize joblessness?

I could continue, but you get the point.

Which brings me to my proposal.

I’m guessing that the person who put together the diatribe wanted to make the point that there are some activities of government that produce value. And even though I think he is generally wrong to imply that these things wouldn’t happen without government, I’m willing to bend over backwards in the interests of reaching a deal.

So here’s a challenge for our friends on the left: If the author agrees to get rid of the programs he doesn’t include, I’ll agree to keep all the programs he does mention.

In other words, let’s have a compromise, which is what they recommend in all the articles about relationships. Both sides meet in the middle.

Yes, I know that means too much government, but it also means that the public sector would be a far smaller burden than it is today. Indeed, I would be surprised if the total burden of government spending exceeded 10 percent of our economic output under this proposed agreement. Which would put us somewhat close to the growth-maximizing size of government.

And don’t forget that this compromise also means that the already-legislated expansions in the burden of government spending presumably wouldn’t happen.

So my proposal doesn’t mean libertarian utopia. But it also means we don’t suffer welfare state dystopia.

Now we just have to see whether our statist friends will accept this proposed peace agreement.

Or will we find out that they’re the hypocrites, not the folks who post comments on Fox News and Free Republic?

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When major changes occur, especially if they’re bad, people generally will try to understand what happened so they can avoid similar bad events in the future.

This is why, when we’re looking at major economic events, it’s critical to realize that narratives matter.

For instance, generation after generation of American students were taught that the Great Depression was the fault of capitalism run amok. But we now have lots of evidence that bad government policy caused the Great Depression and that the downturn was made more severe and longer lasting thanks to further policy mistakes by Hoover and Roosevelt.

The history textbooks are probably still wrong, but at least there’s a chance that interested students (and non-students) will come across more accurate explanations of what happened in the 1930s.

More recently, the same thing happened after the financial crisis. The statists immediately tried to convince people that the 2008 mess was a consequence of “Wall Street greed” and “deregulation.”

Fortunately, many experts were available to point out that the real problem was bad government policy, specifically easy money from the Fed and the corrupt system of subsidies from Fannie Mae and Freddie Mac.

So hopefully future history books won’t be as wrong about the financial crisis as they were about the Great Depression.

I raise these examples because I want to address another historical inaccuracy.

Let’s go back about 100 years ago to the s0-called “progressive era.” The conventional story is that this was a period when politicians reined in some of the excesses of big business. And if it wasn’t for that beneficial government intervention, we’d all still be oppressed peasants working in sweatshops.

There’s just one small problem with this narrative. It’s utter nonsense.

Let’s look specifically at the issue of sweatshops. Writing for the Independent Institute, Ben Powell looks at the history of sweatshops and whether workers were being mistreated.

He starts with a bit of history.

Sweatshops are an important stage in the process of economic development. As Jeffery Sachs puts it, “[S]weatshops are the first rung on the ladder out of  extreme poverty”. …Working conditions have been harsh and standards of living low throughout most of human history. …Prior to the Industrial Revolution,  textile production was decentralized to the homes of many rural families or artisans, and output was limited to what could be produced on the  spinning wheel and hand loom. …Yarn spinning was mechanized in 1767 with the invention of the spinning jenny, and water power was harnessed shortly  thereafter. With these inventions and steam power later, large-scale textile factories that are similar to today’s sweatshops emerged. The conditions in these  early sweatshops were worse than those in many Third World sweatshops today. In some factories, workers toiled for sixteen hours a day, six days per week.

Then he looks at what actually happened in Great Britain, which is where sweatshops began.

Yet workers flocked to the mills. …sweatshop workers…were attracted by the opportunity to earn higher wages than they could elsewhere. In fact, economist Ludwig von Mises defended the factory system of the Industrial Revolution,…writing, “The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless more than these paupers could earn in any other field open to them.” …Mises’s argument is supported by historical evidence. Economist Joel Mokyr reports that workers earned a wage premium of 15 to 30 percent by working in the factories compared with other alternatives. The transformation of Great Britain during this time was dramatic. As economist and historian Donald McCloskey describes it, “In the 80 years or so after 1780 the population of Britain nearly tripled, the towns of Liverpool and Manchester became gigantic cities, the average income of the population more than doubled… Peter Lindert and Jeffery  Williamson similarly find impressive gains in the standard of living between 1781 and 1851. Farm labor’s standard of living went up more than 60 percent,  blue-collar workers’ standard increased more than 86 percent, and overall workers’ standard increased more than 140 percent. Along with this increase in  the standard of living came a decrease in the share of women and children working beginning sometime between 1815 and 1820.

Ben then looks at the American experience. Once again, he finds that sweatshops allowed workers to earn more income than they could by staying on the farm.

And this was part of a process that enabled the United States to become much richer over time.

…workers flocked to the mills. At first, in the cities north of Boston it was mainly rural women and girls who left the farm to populate the early textile mills.  During the 1830s in Lowell, a woman could earn $12 to $14 a month (in 1830s dollars) and after paying $5 for room and board in a company boarding house  would have the rest left over for clothing, leisure, and savings. It wasn’t uncommon for women to return home to the farm after a year with $25 to $50 in a  bank account. This was far more money than they could have earned on the farm and often more disposable cash than their fathers had. …much like in Great Britain, living standards improved over time. In 1820, before the Industrial Revolution, annual per capita income in the United States stood at a little  more than $2,000. By 1850, it had grown by 50 percent to more than $3,000 and then doubled again by 1900 to more than $6,600. Along with the rise in  incomes came improvements in working conditions and greater consumption.

Eventually, of course, the sweatshops disappeared. But Ben explains that it was because of higher living standards rather than government intervention.

Sweatshops are eliminated mainly through the process of industrialization that raises a country’s income. The increased income comes from increased  worker productivity, which raises the upper bound of compensation. The increased productivity isn’t just in one firm, but in many firms and industries, and  thus workers’ next-best alternatives improve, raising the lower bound of compensation. As the economy grows, the competitive process pushes wages up.  Because health, safety, leisure, and so on are normal goods, workers demand more of their compensation on these margins as their total compensation increases. The result is the eventual disappearance of sweatshops.

Now let’s look at the broader issue of whether the “progressive era” was bad news for big business.

The answer is yes and no. Politicians imposed lots of legislation that was bad for the free market, but the crony capitalists of that era were big supporters of intervention.

Tim Carney elaborates in a column for the Washington Examiner.

Every American knows the fable of the Progressive Era and that “trust buster” Teddy Roosevelt wielding the big stick of federal power to battle the greedy corporations. We would be better off if more people knew the work of the man who dismantled this myth: historian Gabriel Kolko… His thesis: “The dominant fact of American political life” in the Progressive Period “was that big business led the struggle for the federal regulation of the economy.”

Here’s what really happened.

Many corporate titans in the early 20th Century, buying into the pervasive hubris of the day, believed that a state-managed economy was the inevitable end of a rational society—the conclusion of what Standard Oil’s top lobbyist Samuel Dodd called the “march of civilization.” Competition, in their eyes, was destructive redundancy. “Competition is industrial war,” James Logan of the U.S. Envelope Company wrote in 1901. “Ignorant, unrestricted competition carried to its logical conclusion means death to some of the combatants and injury for all.”  Steel baron Andrew Carnegie constantly strove to turn the steel industry into a cartel and keep prices high. Competition, however, always had a way pulling prices down. As Carnegie wrote in 1908, “It always comes back to me that Government control, and that alone, will properly solve the problem.” Kolko also showed how the socialists welcomed corporate-state collusion to advance monopoly as part of “progress.”

And, as Tim explains, it’s still happening today.

This has its echoes in contemporary progressive politics… When conservatives challenged Obamacare’s individual mandate, the White House had the backing of the insurance industry and the hospital lobby. After Obama won at the Supreme Court, liberal Bill Scher wrote in the New York Times that progressive victories historically flow from the Left’s alliances with Big Business. …Liberal scholar William Galston at the Brookings Institution explains the economics at play. “Corporations have sizeable cash flows and access to credit markets, which gives them a cushion against adversity and added costs,” he wrote in 2013, explaining why the big guys often welcome regulation.

In other words, big business often is the enemy of genuine capitalism and free markets.

Not only did the big companies, including insurance and pharmaceuticals, support Obamacare.

They’re now supporting the corrupt Import-Export Bank.

And they’re perfectly happy to support higher taxes, at least when the rest of us are being victimized.

They also supported the sleazy TARP bailout.

The moral of the story is not just the big business can be just as bad as big labor. The real moral of the story is captured by this poster.

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I’m currently in Asia, where I just finished a series of speeches about economic policy in China and Hong Kong.

These two jurisdictions offer very powerful lessons about the importance of economic policy.

Hong Kong is supposed to be Nirvana for libertarians. It holds the top spot in the Economic Freedom of the World rankings. It has an optional flat tax. It has a private retirement system. And based on IMF data, government spending “only” consumes 18.4 percent of GDP (compared to 38.6 percent of economic output in the United States and 54.4 percent of GDP in France).

In reality, Hong Kong is far from perfect. It may have a lot more economic freedom than other jurisdictions, but there is widespread government intervention in certain sectors, such as housing. And while a flat tax and spending burden of 18.4 percent of GDP sound good, let’s not forget that the western world became rich in the 1800s when there was no income tax and the public sector consumed less than 10 percent of GDP.

But when you rank countries on the basis of economic freedom, you don’t compare jurisdictions to a nonexistent libertarian utopia. You compare them to other nations. So Hong Kong gets the top spot. And that’s paying dividends. When you look at long-run comparisons with other nations, Hong Kong has grown faster and become more prosperous.

So what about China? This wasn’t my first visit to the country, but it was the first time I went to Shanghai, and it is a very impressive place. It’s obvious that China has enjoyed a lot of growth in the past few decades.

But just as you shouldn’t judge the United States by a visit to Wall Street, it would be a mistake to draw sweeping conclusions about China after a few days in Shanghai.

Indeed, average living standards for all of China are still far below American levels. Moreover, if you look at the Economic Freedom of the World rankings, China still has a lot of room for improvement. It ranks 123rd out of 152 nations, which is not only far below France (#40), but also Greece (#85), Haiti (#98), and Russia (#101).

That being said, China’s score is 6.22 out of 10, which is a vast improvement compared to where it was in 1980, when it had a score of only 4.00.

This has led to some wonderful outcomes. This chart (h/t: Mark Perry) shows the share of the world’s population living on less than $1 per day (blue line) and the share of East Asia’s population with the same level of deprivation (red line). A big reason the red line has fallen so dramatically is that severe poverty in China has largely disappeared.

The real question for China is the degree to which there will be ongoing improvement.

I think it would be good if China became more like Hong Kong and that this led to much higher living standards. Heck, I’d be happy if China became more like Taiwan or South Korea, both of which have become relatively rich nations by moving substantially in the direction of free markets and small government.

But I don’t think this will happen. In one of my speeches, I posed a series of questions, followed by some less-than-optimistic answers.

Is the financial system weak? (because of too much state control over capital flows and investment)

Is there too much cronyism? (with friends and relatives getting favorable access to business)

Will China’s demographics be a problem? (the one-child policy is not just tyrannical, but it also means China’s population is aging)

Is rapid growth sustainable? (in the absence of reforms to boost economic freedom)

Have stimulus plans led to malinvestment? (such as ghost cities and other boondoggles)

Since economists are lousy when they make predictions, it’s quite possible that I’m wrong and my pessimism is unwarranted. For the sake of the Chinese people, let’s hope so.

And what about Hong Kong? I suspect they’ll remain the freest economy in the world. After all, why wreck a good thing?

Then again, the United States was the world’s 3rd-freest economy as recently as 2001. Now, thanks to Bush-Obama statism, we’ve plummeted to 17 in the ranking.

But I doubt Hong Kong policy makers would be equally foolish.

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Over the past several years, I’ve repeatedly argued that you get more unemployment when the government pays people to be unemployed. But I’m not just relying on theory. I’ve cited both anecdotes and empirical research to bolster my case.

You won’t be surprised to learn that many politicians have a different perspective. They say it is compassionate to provide unemployment insurance benefits. And they say it is cruel and heartless to put a time limit on those payments.

And if you believe Nancy Pelosi, unemployment handouts actually are good for the economy!

You might think this is one of these never-to-be-resolved Washington debates, but we actually have two natural experiments over the past year that show one side was right and the other side was wrong.

Writing for the Wall Street Journal, John Hood of the North Carolina-based John Locke Foundation describes what happened when his state decided to limit unemployment benefits.

Here are the changes that were made.

A year ago, North Carolina became the first state in the nation to exit the federal government’s extended-benefits program for the unemployed. …Gov. Pat McCrory and the state legislature…reduced the amount and duration of unemployment-insurance benefits, which had been higher in North Carolina than in most states. As a result the state lost its eligibility to participate in the extended-benefits program on July 1, 2013. …liberal activists pounced. …media outlets excoriated North Carolina for ending extended benefits. New York Times columnist Paul Krugman called it a “war on the unemployed.”

And here are the results.

North Carolina didn’t descend into the Dickensian nightmare critics predicted. For the last six months of 2013, it was the only state where jobless recipients weren’t eligible for extended benefits. Yet during that period North Carolina had one of the nation’s largest improvements in labor-market performance and overall economic growth. According to the U.S. Bureau of Labor Statistics, the number of payroll jobs in North Carolina rose by 1.5% in the second half of 2013, compared with a 0.8% rise for the nation as a whole. Total unemployment in the state dropped by 17%, compared with the national average drop of 12%. The state’s official unemployment rate fell to 6.9% in December 2013 from 8.3% in June, while the nationwide rate fell by eight-tenths of a point to 6.7%.

But we didn’t just have a state-based experiment. Hood explains that the same thing happened on the national level six months later. Congress rejected Obama’s call for another extension of benefits.

So what happened?

Still not convinced that leaving the extended-benefits program encouraged both job creation and job acceptance? As of Jan. 1, 2014, the extended-benefits program expired nationwide. Yet there has been no sudden exodus of discouraged workers to the fringes of the national economy. Both job creation and household employment are up. The nation’s employment-population ratio was 58.9% in May, up from 58.6% in December.

This is a powerful point.

We may not have a strong job market, but the numbers definitely have improved since the start of the year.

There’s actually an important lesson here. You don’t need perfect policy to get better performance. The private economy will generate growth so long as it has some breathing room.

Heck, sometimes the absence of bad policy is enough to boost economic performance. The post-2010 gridlock didn’t lead to a lot of good policies, but it did end the threat of major new statist initiatives from the Obama White House. And that was enough, in my humble opinion, to give us better numbers.

But better numbers are not the same as impressive numbers. This is still the weakest economic recovery since the Great Depression. So while it’s good to have a bit of improvement, we should be dissatisfied until we at least get back on the long-run trendline for 3 percent average real growth.

And what needs to happen to give us that kind of growth? The answer is simple: Free markets and small government.

P.S.  Since the main point of today’s column is unemployment insurance, let’s close with some great cartoons on that topic from Michael Ramirez, Robert Gorrell, and Chuck Asay, as well as a superb Wizard-of-Id parody.

P.P.S. On a separate topic, here’s a superb video of a 1948 cartoon comparing free markets to the poisonous ideology of “isms” such as communism, fascism, and socialism.

Very well done, particularly considering that it’s almost 70 years old. And if you want to see how economic growth can make a huge difference over that amount of time, check out this comparison of Argentina and Hong Kong.

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Back in 2010, I shared a remarkable chart showing how quickly economic output doubles in a fast-growth economy, but it also showed how long it takes for GDP to expand if an economy only grows 1 percent or 2 percent per year.

My main message was that nations should follow good policy because:

…even modest differences in economic growth can have a big impact on relative prosperity with a couple of decades.

But what’s really astounding – in a bad way – is that there used to be no growth. I recently posted a remarkable video from Learn Liberty that showed how the world was mired in poverty for century after century until growth exploded around 1800.

Now Don Boudreaux has a similar must-watch video for Marginal Revolution University.

The moral of the story is that poverty is, or at least was, the natural state of humanity.

But then something remarkable happened. The power of government was constrained and the vitality of markets was unleashed. The rest, as they say, is history.

And if you want to see a remarkable case study, the Fund for American Studies has its own great video showing how one nation went from misery to prosperity in just 100 or so years.

And to augment that video, here’s a chart from Wikipedia.

Just something to have in the back of your mind when some statist naively tells you the economy is a fixed pie and that successful entrepreneurs only become rich by making other people poor.

That’s simply not true.

Actually, allow me to revise my remarks. In the left’s fantasy world of taxes, bailouts, handouts, and cronyism, there is no growth and some people are able to use government coercion to become rich by ripping off others.

But in all likelihood, this satirical image shows the true impact of statism and redistribution.

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Why are some nations rich and other nations poor? What has enabled some nations to escape poverty while others continue to languish?

And if we want to help poor nations prosper, what’s the right recipe?

Since I’m a public finance economist, I’m tempted to say a flat tax and small government are an elixir for prosperity, but those policies are just one piece of a bigger puzzle.

A country also needs sensible monetary policy, open trade, modest regulation, and rule of law. In other words, you need small government AND free markets.

But even that doesn’t really tell us what causes growth.

In the past, I’ve highlighted the importance of capital formation and shared a remarkable chart showing how workers earn more when the capital stock is larger (which is why we should avoid punitive double taxation of income that is saved and invested).

But that also doesn’t really answer the question. After all, if a larger capital stock was all that mattered, doesn’t that imply that we could get prosperity if government simply mandated more saving and investing?

There’s something else that’s necessary. Something perhaps intangible, but critically important.

Deirdre McCloskey, in a video for Learn Liberty, says that ideas and innovation drive growth.

This is a great video for many reasons, but two points strike me as very important.

First, Deirdre is saying that economic liberty matters, but that modern prosperity also was enabled by a change in the culture. People began to appreciate and respect entrepreneurs. You could call this a form of social capital (and I think such cultural norms are critically important for a thriving society).

And entrepreneurs are the innovators who figure out ways of mixing capital and labor in ways that generate ever-larger amounts of economic output, so they play a critical role in boosting prosperity.

Second, she reminds us that poverty is the normal human condition and that the modern era truly is an amazing change. Indeed, I was so shocked by her numbers that I had to investigate to see if she was exaggerating.

She wasn’t. Using the Angus Maddison data set, I looked to see if Deirdre was right about world prosperity resembling a hockey stick.

Sure enough, there was an amazing increase in prosperity beginning about 1800, just as she explained. Indeed, she could have said that people lived on less than $2 per day for much of recorded history.

Here’s the data for world per-capita economic output over the past two thousand years.

Modern Prosperity

Wow. Unlike the make-believe hockey stick used by global warming alarmists, this one is real. And it shows that the economy definitely isn’t a fixed pie if the right policies – and the right attitudes – prevail.

So what’s the moral of the story?

Perhaps the most obvious lesson is that we should respect and appreciate entrepreneurs and other wealth creators.

Unfortunately, we live in an era where politicians would like us to believe that the economic pie is fixed and that it’s the job of government to re-slice the pie with class-warfare tax policy and lots of redistribution.

But when they re-slice the pie, they also change the size of the pie. And not in a good way.

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In previous columns, I’ve explained why a wealth tax is a very bad idea. And I’ve also pontificated on why leftists are wrong to pursue policies of coerced equality.

So it goes without saying that I’m a big fan of a new Wall Street Journal column by John Steele Gordon.

He writes that the anti-wealth ideology animating the political elite is based on a fundamental misunderstanding of how large fortunes are generated.

He starts by pointing out that many of today’s richest people earned their money as a result of the microprocessor, a technological development that has dramatically improved the lives of ordinary people.

The French economist Thomas Piketty, in his new book “Capital in the 21st Century,” calls for an 80% tax on incomes over $250,000 and a 2% annual tax on net worth in order to prevent an excessive concentration of wealth. That is a monumentally bad idea. The great growth of fortunes in recent decades is not a sinister development. Instead it is simply the inevitable result of an extraordinary technological innovation, the microprocessor… Seven of the 10 largest fortunes in America today were built on this technology, as have been countless smaller ones. …no one is poorer because Bill Gates, Larry Ellison, et al., are so much richer. These new fortunes came into existence only because the public wanted the products and services—and lower prices—that the microprocessor made possible.

He then points out that this is actually a consistent pattern through history.

New technologies make us better off, and also create riches for those who most effectively bring those new developments to consumers.

Whenever a new technology comes along that greatly reduces the cost of a fundamental input to the economy, or makes possible what had previously been impossible, there has always been a flowering of great new fortunes—often far larger than those that came before. …The full-rigged ship that Europeans developed in the 15th century, for instance, was capable of reaching the far corners of the globe. …The Dutch exploited the new trade so successfully that the historian Simon Schama entitled his 1987 book on this period of Dutch history “The Embarrassment of Riches.” …Before James Watt’s rotary steam engine, patented in 1781, only human and animal muscles, water mills and windmills could supply power. But with Watt’s engine it was suddenly possible to input vast amounts of very-low-cost energy into the economy. Combined with the factory system of production, the steam engine sparked the Industrial Revolution, causing growth—and thus wealth as well as job creation—to sharply accelerate. By the 1820s so many new fortunes were piling up that the English social critic John Sterling was writing, “Wealth! Wealth! Wealth! Praise to the God of the 19th century! The Golden Idol! The mighty Mammon!” In 1826 the young Benjamin Disraeli coined the word millionaire to denote the holders of these new industrial fortunes. …before the railroad, moving goods overland was extremely, and often prohibitively, expensive. The railroad made it cheap. Such fortunes as those of the railroad-owning Vanderbilts, Goulds and Harrimans became legendary for their size. …Many of the new fortunes in America’s Gilded Age in the late 19th century were based on petroleum, by then inexpensive and abundant thanks to Edwin Drake’s drilling technique. Steel, suddenly made cheap thanks to the Bessemer converter, could now have a thousand new uses. Oil and steel, taken together, made the automobile possible. That produced still more great fortunes, not only in car manufacturing, but also in rubber, glass, highway construction and such ancillary industries.

Gordon then concludes by warning against class-warfare tax policy, since it would discourage the risk-taking that necessarily accompanies big investments in new technology.

Any attempt to tax away new fortunes in the name of preventing inequality is certain to have adverse effects on further technology creation and niche exploitation by entrepreneurs—and harm job creation as a result. The reason is one of the laws of economics: Potential reward must equal the risk or the risk won’t be taken. And the risks in any new technology are very real in the highly competitive game that is capitalism. In 1903, 57 automobile companies opened for business in this country, hoping to exploit the new technology. Only the Ford Motor Co. survived the Darwinian struggle to succeed. As Henry Ford’s fortune grew to dazzling levels, some might have decried it, but they also should have rejoiced as he made the automobile affordable for everyman.

My only complaint about Gordon’s column is that he didn’t have the space to emphasize a related point.

All of the large fortunes that he discusses were not accumulated at the expense of those with less money.

In other words, the economy was not a fixed pie. Capitalism made everybody better off. Some just got richer faster than other people got richer.

P.S. I wrote the other day about the VA scandal and emphasized that the problem was not inadequate spending.

I want to revisit the issue because Professor Glenn Reynolds makes a very important point about greed in a column for USA Today.

People sometimes think that government or “nonprofit” operations will be run more honestly than for-profit businesses because the businesses operate on the basis of “greed.” But, in fact, greed is a human characteristic that is present in any organization made up of humans. It’s all about incentives. And, ironically, a for-profit medical system might actually offer employees less room for greed than a government system. That’s because VA patients were stuck with the VA. If wait times were long, they just had to wait, or do without care. In a free-market system, a provider whose wait times were too long would lose business, and even if the employees faked up the wait-time numbers, that loss of business would show up on the bottom line. That would lead top managers to act, or lose their jobs. In the VA system, however, the losses didn’t show up on the bottom line because, well, there isn’t one. Instead, the losses were diffused among the many patients who went without care — visible to them, but not to the people who ran the agency, who relied on the cooked-books numbers from their bonus-seeking underlings. …that’s the problem with socialism. The absence of a bottom line doesn’t reduce greed and self-dealing — it removes a constraint on greed and self-dealing.

Amen.

Greed is always with us. The question is whether greed is channeled in productive ways. In a free market, greedy people can only become rich by providing the rest of us with valuable goods and services.

In statist systems, by contrast, greedy people manipulate coercive government policies in order to obtain unearned wealth.

And that choice has big consequences for the rest of us, as illustrated by this satirical image.

P.S. Here’s a cartoon from Robert Ariail that sums up how Washington will probably deal with the mess at the Veterans Administration.

Sort of reminds me of this Gary Varvel cartoon.

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