I don’t care whether it’s called socialism, fascism, or communism, statism is evil and destructive. And going partway down that path with “democratic socialism” may avoid brutality, but the end result is still economic misery.
In hopes of getting this point across, I utilize everything from humor to theoretical analysis.
But my favorite approach, based on decades of experience with one-on-one meetings, public speeches, and private briefings, is to share cross-country comparisons. Such real-world evidence seems to be most persuasive.
So it’s time to add to that collection.
Let’s go back to 2011, when Catherine Rampell was with the New York Times and she wrote a column about a book by World Bank economist Branko Milanovic. She focuses on a powerful visual.
My favorite part of the book was this graph…on the vertical axis, you can see where any given ventile from any country falls when compared to the entire population of the world. …take a look at America. Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants. …America’s poorest are, as a group, about as rich as India’s richest.
Here’s the graph that grabbed her attention.
I agree with everything Ms. Rampell wrote about that graph, but let me expand the focus by explaining why this is yet another piece of evidence for the proposition that policy makers should focus on growth rather than (in)equality.
From a leftist perspective, the ideal line for such a graph is horizontal because that represents complete income equality. And they naturally think that statist policies are more likely to produce an outcome closer to that redistributionist ideal (hence, their support for politicians such as Obama, Clinton, and Sanders).
But the graph shows why they are so wrong to support ever-larger government.
For instance, ponder the question of which nation produces better outcomes for poor people? Obviously, per-capita output for all income levels is higher in the United States, but the gap is especially huge for those with low incomes.
There doubtlessly are many reasons for the output gap in the chart, but one logical explanation is that the overall burden of government is much lower in the United States (#16 in the economic freedom rankings) than in China (#111), India (#114), and Brazil (#118).
By the way, some people may say it’s unfair to compare the United States with nations from the developing world. But the entire point of this comparison is that these other countries aren’t part of the “first world” in part because their economic policies are characterized by statism rather than capitalism.
But for those who want comparisons among developed nations, I’ve reviewed evidence from the United States and Europe on many occasions and the results always show that the relatively more market-friendly policies in the United States produce higher levels of prosperity than the more statist policies of Europe.
And if you want a more apples-to-apples comparison involving one of the most successful European nations, consider this chart showing the relative prosperity of different income levels in the United States and Sweden.
The bottom line is that it’s very difficult to find any evidence to suggest that any group of people enjoys more prosperity in a nation with a larger burden of government.
Which is why I’m still waiting for a leftist to successfully respond to my two-question challenge (and they actually only need to give an answer to one of the questions).
Another good way of determining whether markets work better than statism is to see how fast nations grow over time.
James Pethokoukis of the American Enterprise Institute shares a chart from Max Roser showing long-run changes in per-capita economic output for South Korea and Venezuela.
The amazing takeaway is that Venezuela was about three times richer than South Korea about fifty years ago, but now that ratio is almost reversed.
This is an amazing ratification of the all-important principle that sustained differences in growth have an enormous impact on a nation’s long-run prosperity.
And it shows that nations from the developing world can experience “convergence” and join the first world if they adopt good policies.
They don’t even need great policies. The key is simply to keep the burden of government at modest levels so the private sector has room to grow.
P.S. For those wondering about my juvenile title, I probably watched Homeward Bound: The Incredible Journey over 100 times when my kids were young and I’m borrowing a very appropriate line from that film.
P.P.S. For those who want more information about South Korean growth, check out this comparison of that country with its northern neighbor.
P.P.P.S. And for those who want to learn more about Venezuela’s lack of growth, see how that country compares to Chile and Argentina.
[…] But that’s enough economic liberty to be in the “most free” category. And this helps to explain why South Korean living standards have climbed dramatically compared to the economic hellhole of North Korea (and you see something similar if you compare Venezuela and South Korea). […]
[…] the attitude of many statists. No matter how many times socialism has failed, they never learn the appropriate lesson. It just hasn’t been tried by right people, they tell us. Or been imposed in the right […]
[…] the attitude of many statists. No matter how many times socialism has failed, they never learn the appropriate lesson. It just hasn’t been tried by right people, they tell us. Or been imposed in the right […]
[…] about one-third of economic output. That may be the second-lowest level among all OECD nations (fast-growing South Korea wins the prize for the smallest public sector relative to GDP), but it’s still far too high when […]
[…] about one-third of economic output. That may be the second-lowest level among all OECD nations (fast-growing South Korea wins the prize for the smallest public sector relative to GDP), but it’s still far too high […]
[…] gleefully compared Venezuela’s long-run stagnation with South Korea’s long-run economic […]
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the only thing that we have to protect us against the marauding hordes of socialist vandals is the constitution… and since we are a constitutional republic… maybe we should take steps to strengthen our founding documents… perhaps limit federal government spending to a percentage of of GDP… prohibit the federal government from redistributing the wealth of the nation… mandate a balanced budget… and of course… enact TERM LIMITS… serious efforts to pursue these measures would elicit howls of protest from entrenched democrat and republican politicians… and would likely get the offending patriot hanged… and/or drawn and quartered… {e.g. emasculated… disemboweled… beheaded… and chopped into four pieces…
with their remains displayed in prominent places across the country…}
needless to say… the political class is unforgiving…
it’s like Ben Franklin said… when asked if we had a republic or a monarchy…
his reply: “A Republic, if you can keep it.”
Both China and India had a 5000 year head start on America. But socialist systems are just modern day feudalism.
Democracy gives the best chances for fairness and prosperity. But democracies comprised of voter-lemmings are doomed nonetheless. Unfortunately, with so many democracies making wrong choices, it does not take that much for authoritarian regimes to begin to compete. Hence the rise of the Putins, China etc. In many ways, in a globalized world, authoritarianism has to compete too, so there’s some natural selection in that space too. Voter-lemmings that resort to the seemingly easier solution of coercive collectivism risk not only being outpaced in the world stage, but also becoming overtaken by external authoritarianism too.
Zorba, democracy is the problem, it will NEVER be the solution.
Indeed, growth vs (in)equality. That is the crux of the prosperity equation.
But growth is in the future,… and the voter-lemming votes today.
Yes, growth may be exponential, most powerful, perpetually compounding… … but when the voter lemming finally figures out how to mark the right xxxs on his ballot… some modest goodies come… … within months,… not in the long term compounding future.
That is why few developed democracies will escape their re-absorption into the world average. Once people become enlightened enough to figure out how democracy works … prosperity starts compounding away.
One could call that the “Middle Intelligence Trap”.
In the beginning you are too dumb to figure out how to use democracy to your own (immediate and short term) advantage. On the other end, when you are smart enough, you figure out that the delayed exponential compounding of higher growth beats the pants out of the fixed redistribution factor (a simple formula). But, seems like, to get to that higher intelligence you have to pass through the middle intelligence stage. That is when you figure out how to use the ballot box for redistribution and your country declines under the compounding low growth juggernaut.
Seems like Americans were in the first (the dumb) category. Unable to figure out how democracy worked, they just blindly followed the advice of their forefathers. Serendipitously so, that was the right advice, and the dumb voter-lemmings avoided the path to economic mediocrity. But European enlightment is now arriving on American shores. The era of 2% trendline growth (… and soon to morph into 1%) is here dear Americans. To take you down your voyage towards becoming a middle income country by the latter 21st century. It will be a ride full of “hope”, but will be anything than fun.
In the end, the American voter-lemming has two options:
a) Put up with the sight of the mansion at the end of the street, without envy, … and remain part of the most prosperous middle class in the world.
b) Loot it and ride down the path to becoming the middle class citizen of a middle income country by the latter part of this century.