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Archive for the ‘Free Markets’ Category

I periodically share tweets that have some sort of remarkable feature, either good or bad.

Clever counter-tweets are especially appreciated. I even started giving recognition to the most brutally effective response each year.

But I may have been too quick to assign a winner for this year.

That’s because a Twitter account called @architecturpic published this tweet yesterday.

While it’s accurate to point out that highway exits don’t produce scenic architecture, is this an indictment of capitalism?

Not if you compare it to the slums of socialism, which is the message in this devastating response from @BrentCochran1.

Ouch. As the announcers might say at a tennis tournament, “game, set, and match for Brent Cochran.”

Suffice to say that there will have to be co-winners for the best counter-tweet of 2020.

By the way, it’s normally quite easy to find both nice and ugly architecture in any nation.

So to add a bit of hard data to today’s column, I’ll simply note that the average poor American has more spacious housing than the average middle-class person in Europe.

That doesn’t mean the housing will be architecturally significant, but it does indicate that people are better off in countries with smaller government and more economic liberty (indeed, it’s also worth noting that the average poor American enjoys higher overall living standards than middle-class folks in most other industrialized nations).

Which is why any tweet comparing socialism and capitalism has a foregone conclusion.

P.S. At some point, I’ll probably set up a special page for “Remarkable Tweets.” But since that hasn’t yet happened, here are the other tweets that I found to be noteworthy.

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I don’t know whether I’ll live 3 more years or 30 more years.

But I’m increasingly convinced that my “Never-Answered Question” will still be unanswered when I kick the bucket.

One of the reasons for my confidence is that folks on the left have remarkably shoddy arguments on economic issues.

For instance, in a column for the New York Times, Mehrsa Baradaran condemns the “neoliberal” revolution in the United States.

A law professor from the University of California, Irvine, Ms. Baradaran is unhappy that this modern version of classical liberalism resulted in more economic freedom.

…an ideological coup quietly transformed our society over the last 50 years… The roots of this intellectual takeover can be traced to a backlash against socialism… Austrian School economist Friedrich A. Hayek was perhaps the most influential leader of that movement, decrying governments who chased “the mirage of social justice.” Only free markets can allocate resources fairly and reward individuals based on what they deserve, reasoned Hayek. The ideology — known as neoliberalism — …leapt from economics departments into American politics in the 1960s, where it fused with conservative anti-communist ideas and then quickly spread throughout universities, law schools, legislatures and courts. By the 1980s, neoliberalism was triumphant in policy, leading to tax cuts, deregulation and privatization.

Since I’m a big fan of Prof. Hayek, I like this part of Professor Baradaran’s column.

And it is true that the United States became more “neoliberal” during the Reagan and Clinton years (though it’s definitely a huge exaggeration to think that pro-market ideas were dominant in “universities, law schools, legislatures and courts”).

Indeed, the entire world moved in the direction of free markets during the last two decades of the 20th century, thanks is part to the “Washington Consensus” for more economic liberty.

Ms. Baradaran, however, does not approve of these developments.

And she specifically doesn’t like some of the folks on Wall Street.

The private equity industry embodies the neoliberal movement’s values, while exposing its inherent logic. Private equity firms use money provided by institutional investors like pension funds and university endowments to take over and restructure companies or industries. …In the last decade, private equity management has led to approximately 1.3 million job losses due to retail bankruptcies and liquidation.

I have no idea whether there’s any validity to the specific estimate of 1.3 million job losses as a result of private equity investors over the past 10 years (an average of 130,000 jobs per year).

But it certainly is true that lots of jobs are lost every year as a result of “creative destruction.” Indeed, 130,000 jobs are just a tiny fraction of the total losses.

Here’s a chart taken directly from the Bureau of Labor Statistics showing that more than 10 million jobs are lost – on average – every single year.

That’s the bad news.

The good news is that average job gains have been even higher over the past decade, averaging more than 12 million per year.

Call me crazy, but this seems like a ringing endorsement of “neoliberalism.” Especially when you consider that Americans enjoy much higher living standards than their counterparts in European nations with bigger burdens of government.

There are two additional excerpts from her column that merit some attention.

First, she regurgitates the myth that the 2008 financial crisis was caused by free markets and deregulation.

An examination of the recent history of private equity disproves the neoliberal myth that profit incentives produce the best outcomes for society. …Faith in market magic was so entrenched that even the 2008 financial crisis did not fully expose the myth: We witnessed the federal government pick up all the risks that markets could not manage and Congress and the Federal Reserve save the banking sector ostensibly on behalf of the people. Neoliberal deregulation was premised on the theory that the invisible hand of the market would discipline risky banks without the need for government oversight.

At the risk of understatement, the Federal Reserve, along with Fannie Mae and Freddie Mac, deserve the lion’s share of the blame.

Also, she closes her column by embracing genuine socialism (i.e., government owning and operating parts of the economy).

Federal or state agencies can provide essential services like banking, health care, internet access, transportation and housing at cost through a public option. …we can move beyond the myths of neoliberalism…we should choose flourishing communities over profits.

At the risk of understatement, I don’t want more of our economy to be like the Post Office or DMV. I prefer private businesses, which face pressure to please consumers, rather than government-run businesses, which care mostly about pleasing politicians.

And I also think Ms. Baradaran needs a lesson from Walter Williams so she learns that profits make flourishing communities possible.

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When writing yesterday’s column about new competitiveness rankings from the IMD business school in Switzerland, I noticed that I have not yet written about this year’s edition of the Index of Economic Freedom.

Time to rectify that oversight.

We’ll start with a look at the nations with the most economic freedom. Interestingly, Singapore has now displaced Hong Kong as the world’s most market-friendly jurisdiction (because Hong Kong’s score declined, not because Singapore’s score increased), with New Zealand, Australia, and Switzerland rounding out the top 5.

The United States, meanwhile, isn’t even in the top 10. Instead, America dropped from #12 last year to #17 this year.

The decline is partly due to a lower score (with Trump’s protectionist policies deserving the biggest share of the blame), but mostly caused by better scores from nations such as Chile, Georgia, Estonia, and Lithuania.

What may shock people, though, is that even supposedly socialist Denmark (score of 78.3) ranks above the United States (score of 76.6). Here’s a look at U.S. and Danish scores from 1995-present.

Regular readers already know that Denmark is not a socialist nation. Indeed, it’s never been socialist. By world standards, there’s basically no history of government ownershipcentral planning, or price controls.

The most accurate way of describing Denmark is that it combines laissez-faire economics with tax-and-spend redistributionism.

Since this is a common approach among nations in that part of the world, some people even refer to this set of economic policies as the Nordic model.

So how does this approach compare to policy in the United States? The short answer, as illustrated by this table, is that America generally does better on fiscal policy, but gets lower scores when looking at almost every other type of policy.

The great irony of all this is that Bernie Sanders wants the U.S. to be more like Denmark, but he only says that because he doesn’t realize it would mean reducing the negative impact of government.

P.S. While Denmark has some awful fiscal policies (the tax burden is terrible), there are some bright spots. It has done a good job in recent years of restraining the growth of government, and it also has a partially private retirement system.

P.P.S. Not that any of these will be a surprise, but the three lowest-ranked nations in the Index of Economic Freedom are Cuba (26.9), Venezuela (25.2), and North Korea (4.2).

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I have applauded the incredible economic success of Hong Kong, which has long been ranked as the world’s most economically free jurisdiction.

Well, given China’s recent decision to impose more controls on Hong Kong, I want to share this interview I did last October.

At the risk of patting myself on the back, I think everything I said still applies.

Especially when compared to what some others are saying. Writing for Bloomberg last October, Shirley Zhao and Bruce Einhorn seemingly want readers to think that low tax rates somehow are the cause of Hong Kong’s challenges.

Hong Kong has remained the world’s freest economy, thanks partly to low taxes and the rule of law. But widening inequality has also fueled the worst unrest the city has seen since the former British colony returned to China in 1997. …The combined net worth of the territory’s 20 richest people…is pegged at $210 billion… the city’s income inequality, as expressed in Gini coefficient, was the most for any developed economy in 2016… About 1 in 5 residents lives below the poverty line. …Lam is under pressure to soothe tensions and find ways to ease the housing crisis in the least-affordable market without rocking a tax regime that made Hong Kong Asia’s financial hub.

I disagree with much of their analysis.

As I noted in the interview, the problem with housing is caused by government ownership of land.

Moreover, I can’t resist pointing out that the assertion about 20 percent of the population living in poverty has been shown to be utter nonsense. That figure comes from “poverty hucksters” who deliberately conflate inequality with poverty (an example of the “Eighth Theorem of Government“).

And, speaking of inequality, Hong Kong historically has been a great place to be poor for the simple reason that it’s a great place to climb out of poverty.

Or, to be more precise, it’s been a great place to climb out of poverty. Whether that will still be true in the future depends on China.

I have no idea what Beijing will do, but I explained in the interview that it would be good for everyone if China took a hands-off approach to Hong Kong.

Why? This chart, based on the Maddison database, shows that Hong Kong’s rapid growth rate has slowed ever since Hong Kong was transferred from British rule to Chinese rule. Since China has wisely not interfered with Hong Kong’s pro-growth economic policy, the most logical explanation for the slowdown is that entrepreneurs and investors are worried about what may happen in the future.

Needless to say, the best way to rejuvenate rapid growth is for Beijing to somehow display a commitment to economic liberty in Hong Kong (consistent with the one-country-two-systems approach).

P.S. As I warned in the interview, the United States should not goad China into any sort of crackdown, either political or economic.

P.P.S. The best-case scenario is a Singapore-style evolution in China, meaning sweeping economic liberalization and gradual political liberalization.

P.P.P.S. The worst-case scenario is backsliding by China on previous economic liberalization, combined with unfriendly relations with the western world.

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The current crisis teaches us that excessive regulation and bureaucratic sloth can have deadly consequences.

Here’s John Stossel’s video with another lesson, explaining that we need more capitalism rather than more government.

This seems like a no-brainer, especially given the wretched economic performance of countries where the government owns or controls the means of production.

But not everyone agrees. The appropriately named Paris Marx wants government to have more power, making the case for nationalization of Amazon in an article for Jacobin.

The government needs to…respond to the needs of people across the country as the pandemic situation deteriorates. The response should be to nationalize Amazon and integrate it with the USPS. …Nationalizing the company would also allow Amazon workers to get covered by the same union as postal workers… Amazon isn’t just an online e-commerce marketplace. …Amazon Web Services (AWS) is a cloud computing platform…the cloud should be placed under public ownership. Taking control of AWS would allow the government to…ensure the cloud platform is serving the public good… We have a rare opportunity to fundamentally alter the economy to serve the needs of people instead of private profit, and it’s time to seize it.

Call me crazy, but if the government takes over Amazon and merges it with the Postal Service, I’m guessing that what emerges will have the inefficiency of the latter rather than the nimbleness of the former.

Just imagine a giant Department of Motor Vehicles (or, on a related note, the government’s track record on teaching kids to drive).

Which is why the U.K.-based Economist warned back in 2017 about the dangers of government-run companies.

Expanded state ownership is a poor way to cure economic ailments. For much of the 20th century, economists were open to a bit of dirigisme. …But in the 1970s economists came to see state ownership as a costly fix to such problems. Owners of private firms benefit directly when innovation reduces costs and boosts profits; bureaucrats usually lack such a clear financial incentive to improve performance. Firms with the backing of the state are less vulnerable to competition; as they lumber on they hoard resources that could be better used elsewhere. …economists saw in the productivity slowdown of the 1970s evidence that an overreaching state was throttling economic dynamism. …State-owned firms pose risks beyond that to dynamism. Government-run companies may prioritise swollen payrolls over customer satisfaction. More worryingly, state firms can become vehicles for corruption, used to dole out the largesse of the state to favoured backers or to funnel social wealth into the pockets of the powerful. As state control over the economy grows, political connections become a surer route to business success than entrepreneurialism.

The good news is that very few politicians are supporting explicit nationalization.

The bad news is that there’s plenty of support for intermediate steps involving cronyism, industrial policy, and various types of direct and indirect subsidies.

Including in the legislation recently approved in Washington (not that anyone should be surprised).

Professor Amit Seru from Stanford and Professor Luigi Zingales from the University of Chicago warn, in a column for the Wall Street Journal, that the U.S. has take a dangerous step on the road to central planning.

The need to help individuals and small firms has provided cover to the largest corporate subsidy program in U.S. history. Under intense pressure from lobbyists, the Cares Act allocates $510 billion to support loans for large businesses. A small chunk of this money ($56 billion) will be used directly by the Treasury to grant loans to airlines and other “strategic” firms (read: Boeing). The Treasury will then confer the rest ($454 billion) to the Federal Reserve to absorb losses the Fed might incur in lending to firms in the private sector. The expectation is that the central bank will leverage this money… This is the largest step toward a centrally planned economy the U.S. has ever taken. And it socializes only losses. Profits, when they come, remain private. …The urgency of the moment facilitated a giveaway to vested interests. Now that the Cares Act is law, policy makers need to find ways to impose restrictions on how the money is deployed. It isn’t only a question of fiscal prudence; the nature of American capitalism is at stake.

In other words, the U.S. is moving in the wrong direction on my “Industrial Policy Spectrum.”

The key unanswered question is whether the government’s new powers will be temporary or permanent.

There’s a legitimate argument for some form of intervention while the crisis in ongoing. But what happens once things go back to normal? Will politicians allow the “creative destruction” of capitalism, or will they use their expanded power to permanently interfere with market forces?

If they choose the latter, there will be less long-run prosperity.

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Five days ago, I wrote “Coronavirus and Big Government” to highlight how sloth-like bureaucracy and stifling red tape deserve much of the blame for America’s slow response to the crisis.

And I started that column by sharing four points from a previous column on “Government, Coronavirus, and Libertarianism.” I’ll start today’s column by repeating the final observation.

4. The federal government has hindered an effective response to the coronavirus.

Here’s a video from John Stossel documenting the federal government’s clumsy incompetence.

And here are a bunch of stories and tweets that provide additional elaboration.

Feel free to click on the underlying stories if you want to get even angrier about the deadly impact of big government.

The silver lining to all the bad news is that politicians and bureaucrats have been relaxing regulatory barriers.

But will they learn the right lesson and permanently repeal government-created barriers that hinder the provision of health care?

Is it true, as Robert Tracinski wrote for the Bulwark, that “We’re All Libertarians now”?

This talking point has since been taken up by others in a more technically accurate form: there are no libertarians in a pandemic. The idea is that when a crisis hits, everyone suddenly realizes how much they need Big Government. This is a bizarre argument to make about a virus that got a foothold partly because of the corrupt and tyrannical policies of a communist government in China. The outbreak is currently at its worst in Italy, where socialized medicine has not turned out to be a panacea. And it was allowed to get out of control in America because the feds imposed an incompetent government monopoly on COVID-19 testing, blocking the use of better and faster tests developed by private companies. …There has been a surge of emergency deregulation to lift artificial barriers that prevent people from solving problems. …the loosening of federal controls on the private development of diagnostic testing, after the disastrous attempt to centralize it all at the CDC. We’re also seeing the suspension of restrictive licensing requirements on doctors and nurses to allow them to work across state lines, so they can go where the shortages are worst. There has also been a whole series of waivers on restrictions on the transportation and serving of food and beverages in order to help restaurants stay in business and feed their customers by offering curb-side service.

Needless to say, I hope Tracinski is right.

But I worry that the net result of this crisis is that we’ll have more red tape and the CDC and FDA will have bigger budgets.

If you think I’m being too pessimistic, just remember that the Department of Veterans Affairs was rewarded with more money after letting veterans die on secret waiting lists, the IRS was rewarded with more money after persecuting Tea Party groups to help Obama’s political prospects, and the education monopoly endlessly gets rewarded with more money even though student outcomes stagnate or deteriorate.

All as predicted by the First Theorem of Government.

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After Hitler’s National Socialists were defeated in World War II, the allies imposed price controls on the German economy for the ostensible purposes of fighting inflation and preventing “price gouging.”

That policy led to massive shortages, black markets, and hoarding. Fortunately, as described in this video, a very clever economist abolished those controls, thus setting the stage for Germany’s post-war economic miracle.

The lesson to be learned is that politicians should let markets determine prices. Price controls of any kind, as indicated by the cartoon, will cause people to withhold goods, services, and/or labor from the marketplace.

Unfortunately, many people overlook that lesson when there’s some sort of disaster.

In a column for Bloomberg, Scott Duke Kominers asserts that sellers should not be allowed to increase prices when there’s a sudden increase in demand.

One might think that steep prices for disinfectant in the middle of an epidemic are just markets at work — a way of getting scarce goods to the people who value them the most. I’m sure that’s what price gougers tell themselves. …But that’s not the right way to think about disinfectant at this particular moment. …if you can pay $87 for a bottle of Purell instead of the usual $2 that probably doesn’t mean you’re more concerned about the risk of infection than your neighbor; it just means that you have more disposable income. Thus buying low-priced disinfectant and selling it at steep markups effectively transfers disinfectant supplies from lower-income people to wealthier ones. …in situations such as this it may be best for society to force prices below market-clearing levels in order to make sure everyone has access; that’s exactly what laws prohibiting price gouging attempt to do. …There’s a serious consequence to keeping the price low, of course: we end up with rationing, since there’s not enough to go around. But that hits everyone — rich or poor — more or less equally.

Politicians obviously like this argument. Most states have laws against “price gouging.”

That may be smart politics, but it’s bad economics.

J.D. Tuccille of Reason explains why such laws are misguided.

…as common as accusations of “price gouging” are, the term has no fixed meaning. Asked when rising prices cross the line to become criminal, New York Attorney General Letitia James told NPR, “there’s no definitive answer to that question, but you know it when you see it.” …Someincluding Alabama, Florida, and Maineforbid selling at an “unconscionable” price. Idaho and Texas ban sales at an “exorbitant or excessive price.” And New York splits the difference with restrictions on “unconscionably excessive price” increases during an emergency… Laws can’t change the market conditions that drive prices up. Prices for hand sanitizer, face masks, and easily stored food are rising right now not because sellers are mean, but because demand is rising relative to the immediately available supply. Those rising prices tell…manufacturers and distributors that they should increase production, and where they should send the goodsif they’re allowed to. …Sure enough, GOJO industries is “operating around the clock” to produce hand sanitizer, 3M has “ramped up production” of respirators, and many other companies are responding to the messages they’re getting from the market. Allowed time, goods will get to where they’re needed, and prices will drop as supply meets demand. …Price-gouging laws, by contrast, falsely tell the public that politicians are watching out for them even as they extend shortages and the resulting pain. Crises like the COVID-19 pandemic come and go, but “price-gouging” laws demonstrate that intrusive politicians are a recurring plague.

Art Carden, an economics professor at Samford University, shows why anti-gouging laws backfire on consumers.

You’ve seen the pictures on your social media feeds: Empty shelves across America. Panic-buying. Hoarding. …this is exactly what the supply-and-demand model we teach in introductory economics courses predicts when we actively prevent the free market from functioning. The shelves are…empty because…governments aren’t letting prices change to reflect new market conditions. …“price gougers”…get tarred as villains while it’s actually the politicians who are making the problem worse by interfering with prices. …the fact remains that we get a lot more hand sanitizer, toilet paper, and other supplies when we make room for people who are just in it for the money. You may not like their motivations, but they’re doing something your state’s governor and attorney general aren’t doing. Namely, they’re getting valuable emergency supplies into your hands.

Veronique de Rugy of the Mercatus Center warns about adverse consequences in her syndicated column.

It’s normal for people to stock up on supplies during crises. The immediate results are empty store shelves, soon followed by higher prices. When this happens, politicians around the globe demand an end to the price hikes. …such heavy-handed intervention is a mistake… If prices are kept artificially low, there’s little incentive for shoppers not to buy as much as they can. …The fact is there’s no better means of slowing the rising demand — and, especially, reducing excessive hoarding — than allowing the very price hikes that governments are trying to prevent. But price hikes have another important advantage: They create the necessary incentives for entrepreneurs to shift resources toward activities that increase the supply of these goods. The higher prices encourage higher levels of production for goods like masks and hand sanitizers, which then increases supply. …When governments prevent price hikes, they unwittingly create shortages of vital supplies. …Aren’t we better off when products are actually on the shelves and available for purchase, even if only at higher prices? When no such products are to be found, except by the politically and socially connected, ordinary citizens lose out.

John Hirschauer’s piece in National Review cites some academic research on this topic.

The unintended consequences of price controls have been confirmed…in empirical literature. Take, for instance, the study published by three scholars in the Journal of Competition Law and Economics who examined the merits of proposed price-control laws in the wake of Hurricanes Katrina and Rita. …The researchers reviewed the historical data on gasoline price hikes and found that “price increases were due to the normal operation of supply and demand and not price manipulation.” Upon reviewing the body of gasoline price-control studies, the group found that “neither consumers nor the economy benefit [from price controls], because the apparent monetary savings to consumers are transformed into costs of waiting or other forms of nonmarket rationing that exceed the monetary savings.” Through econometric analysis, they estimated that the “economic damages would have been increased by $1.5–2.9 billion during the two-month period of price increases” if the federal government had instituted price controls.

The only thing I’ll add to this discussion is that people are sympathetic to anti-gouging laws because of a belief in social equality. We think that everyone – rich and poor – should be treated equally during a disaster.

And in some cases, such as a group of people stranded on a lifeboat, that’s the right approach. Nobody would argue that scarce supplies (limited emergency provisions of fresh water and food) belong to the person with the biggest bank account .

But the economy isn’t a lifeboat. As explained in the above excerpts, it’s possible to get more provisions with the right incentives. Higher prices will encourage entrepreneurs to produce more scarce supplies (in this case, everything from toilet paper and hand sanitizer to respirators and ventilators).

So what’s the bottom line? Price gouging is no fun if you need to buy supplies in an emergency. But a free market is better than the alternative of government controls that lead to shortages, black markets, and hoarding.

I’ll close with this cartoon, which Art Carden included at the end of his AIER column.

And I’ll also add this joke that Mark Perry shared on twitter.

P.S. This video explains why the price system is so important and these three videos explain why anti-gouging laws backfire because they hinder the price system.

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Brexit was a battle over whether the United Kingdom would:

  1. Be a component part of the European Union
  2. Be a self-governing democracy

Now that British voters have chosen the second option, there’s a secondary debate about what path to choose.

Many Brexit supporters hope that the United Kingdom will use its newly restored independence to chart a more laissez-faire path, including lower taxes and less red tape.

Critics fret that this approach would mean the U.K. becoming a European version of Singapore.

My former colleague Marian Tupy explains for CapX that this would be a very desirable outcome.

Earlier this month Guy Verhofstadt, the Belgian MEP…, tweeted that…”We will never accept ‘Singapore by the North Sea’!” What exactly is wrong with being Singapore? …Back in 1755 Adam Smith observed that “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice” – that certainly holds true for Singapore, which has become one of the world’s most prosperous countries by following Smith’s formula… In the last few decades, Singapore’s economy grew at a faster pace than that of the UK and the EU… Singapore’s GDP per capita, which amounted to 72 percent of the EU’s GDP per capita in 1950, amounted to 219 percent of the EU’s GDP per capita in 2019. …Life expectancy at birth is the best proximate measure of the overall health of the population. …life expectancy in Singapore trailed the EU and UK in 1960. In 2017, Singaporeans lived, on average, longer than Europeans.

Marian is right.

Singapore is an amazing example of a nation that broke through the middle-income trap, as I noted back in 2014 and 2017.

I’m particularly fond of the country because of the very modest burden of government spending. This chart, based on numbers in the IMF’s world economic outlook database, shows that the public sector consumes less than 20 percent of the economy’s output.

To put the above chart in context, government spending in the United States consume nearly 40 percent of GDP in the United States and more than half of economic output in some European nations.

Why does this matter?

Because good public policy is a recipe for more prosperity (and Singapore is very good in areas other than fiscal policy as well).

Building on Marian’s analysis, I’ve used the Maddison database to to see how Singapore compares to the United States, the United Kingdom (the former colonial master), and Malaysia (it was part of Malaysia until 1965).

This isn’t just convergence. Singapore caught up with the U.K., then caught up to the U.S.A., and now has a comfortable advantage.

Seems like a good model for the U.K. to follow. Though Hong Kong also is a very good option (though it’s unclear if that will be true in the future).

P.S. To be sure, Singapore is not a libertarian paradise. There are some strict laws governing private behavior, including the death penalty for certain drug offenses and a ban on the import and sale of chewing gum. More worrisome (given my focus on economic policy) is that officials have contemplated class-warfare tax policies.

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Since libertarians are motivated by the non-aggression principle, it’s easy to understand why they support the capitalist system of voluntary exchange rather than alternative systems based on government coercion.

But there are some who think markets are immoral, and that’s the topic of this book and this related video.

Virgil Henry Storr and Ginny Seung Choi are the authors of Do Markets Corrupt Our Morals, and the Mercatus Center explains the book’s core message.

…people in market societies are wealthier, healthier, happier and better connected than those in societies where markets are more restricted. More provocatively, they explain that successful markets require and produce virtuous participants. Markets serve as moral spaces that both rely on and reward their participants for being virtuous. Rather than harming individuals morally, the market is an arena where individuals are encouraged to be their best moral selves.

And Professor Michael Munger from Duke University explores the implications in his review.

The useful thing about this book…is that it considers a more dynamic problem than the classical literature on the morality of markets. …doesn’t “commodification” and the pursuit of gain for its own sake distort, and ultimately corrupt, the human impulses of altruism and mutual aid on which society depends? …Their answer is “perhaps, but not necessarily.” And, compared to other actual systems that might be used to organize large scale human activity, they argue that markets are actually more likely to nurture moral spaces in which people can find ways to cooperate and help each other.

He identifies the main arguments about the putative shortcomings of markets.

…there are three central charges commonly leveled against the morality of markets. One is the claim that markets exploit workers and turn them into brutes; the second is that the commodification of things and the use of prices to direct allocation decisions corrupts the moral sense humans naturally possess and would otherwise use to motivate cooperation; and the third is that a common consequence of markets, extreme inequality, is corrosive to collective institutions of community and democracy.

And here’s Munger’s summary of the answers to those three questions.

Markets, in the Storr and Choi view, actually improve the lives of workers, rather than making them brutes. …it quickly becomes cheaper to “pay” workers with better and more comfortable conditions, safer working spaces, and more interesting activities…higher pay and the improvements in access to desirable consumer products that come with a market economy mean that workers have leisure time and the resources to enjoy it.

…commodification and division of labor foster a dramatic increase in scope and variety of new communities for humans to join and be part of. Further, the relation among workers in a firm, or the relation between a seller and a repeat customer, create new and important “moral spaces” in which the importance of character and personal familiarity produce both legitimately warm comradery and an increase in the efficiency of contracts and cooperation because of improvements in trust and personal commitment.

…market systems can in fact be associated with high levels of inequality, but it appears that increased inequality may often be the price a society pays for reducing poverty, a trade-off that very poor citizens are likely to embrace. Further, Storr and Choi show that (a) market societies generally have lower inequality than non-market societies, and (b) market societies show a great deal more social mobility, or a capacity for the very poor to become much more wealthy than their parents, than non-market systems.

In other words, markets generate higher income, better lives, and upward mobility.

Not a bad result.

My two cents on this debate is to expand on Munger’s point about capitalism when “compared to other actual systems.” In my humble option, this is what really matters.

Yes, markets can be cold and impersonal. And, yes, “creative destruction” is no fun when you’re part of the “destruction” (even if it results in your children and grandchildren living better lives).

But if our goal is prosperity, there’s no alternative that comes close.

Especially since every alternative empowers politicians and their cronies. Indeed, my readings on this topic reminded me of this passage in Atlas Shrugged when one of the anti-market interventionists said it was time to replace the “aristocracy of money” and one of the book’s good guys noted that this meant an “aristocracy of pull.”

And when an economy is based on political influence and power, P.J. O’Rourke warns that there’s an inevitable consequence.

P.S. Here’s David Burton’s bullet-point comparison of the morality of capitalism and socialism.

P.P.S. And Walter Williams has a great video on the morality of markets.

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Back in 2013, I talked to the BBC about Pope Francis and his bizarre hostility to free enterprise.

Sadly, it doesn’t appear that the Pope took my advice (though I think it’s amusing that at least someone in the Vatican is paying attention).

There’s a wealth of evidence that markets are the best way of helping the poor. But the Pope wants more government.

Moreover, there’s also plenty of data showing that higher tax rates and more spending hurt the poor. Yet the Pope wants more government.

And there’s lots of research on capitalism and upward mobility for the less fortunate. Nonetheless, the Pope wants more government.

For instance, he’s once again advertising his ignorance about economics, development, and fiscal policy.

Pope Francis blasted the practice of tax cuts for the rich as part of a “structure of sin” and lamented the fact that “billions of dollars” end up in “tax haven accounts” instead of funding “healthcare and education.” Speaking at the seminar set up by the Pontifical Academy for Social Sciences  the Pope criticized “the richest people” for receiving “repeated tax cuts” in the name of “investment and development.” These “tax haven accounts” impede “the possibility of the dignified and sustained development of all social agents,” claims the Pope.  He added that “the poor increase around us” as poverty is rising around the world. This poverty can be ended if the wealthiest gave more.

Wow. Sounds more like Bernie Sanders or Alexandria Ocasio-Cortez rather than a religious leader.

Libertarian Jesus must be very disappointed.

In an attempt to add some rigorous analysis to the discussion, Professors Antony Davies and James Harrigan wrote a column for the Foundation for Economic Education on capitalism and its role in global poverty reduction.

Galileo ran afoul of the Inquisition in 1633 when he was found “vehemently suspect of heresy.” …One might think that being this profoundly wrong about something well outside the realm of theology would cause the magisterium, and the pope specifically, to tread very carefully even 386 years later. But one would be wrong. Because here comes Pope Francis yet again, offering economic opinions from the bulliest of pulpits about something he understands no better than a garden-variety college freshman. …According to the pontiff, “the logic of the market” keeps people hungry. But “the market” has no logic. The market isn’t a thing, let alone a sentient thing. “The market” is the sum total of individual interactions among billions of people. …Whenever a trade occurs, both sides are better off for having made it. We know this because if they weren’t, the trade wouldn’t occur. …Not surprisingly to anyone but perhaps Pope Francis, some of the first financial speculation in which humans ever engaged involved food. Financial speculation and its more evolved cousins, options and futures contracts, evolved precisely as a means to fight hunger. …speculators took some of the risk of price fluctuations off the backs of farmers, and this made it possible for farmers to plant more food.

Davies and Harrigan inject some hard data into the debate.

If these arguments are too esoteric for Francis, there is also overwhelming evidence. Economic freedom measures the degree to which a country’s government permits and supports the very sorts of markets against which Francis rails. …If we list societies according to their economic freedom, the same pattern emerges again and again and again. Whether comparing countries, states, or cities, societies that are more economically free exhibit better social and economic outcomes than those that are less economically free. …even Francis should be able to see it quite clearly from his Vatican perch. …Extreme poverty rates for the half of countries that are less economically free are around seven times the extreme poverty rates for the half of countries that are more economically free.

Here’s one of the charts from their column.

As you can see, the state-controlled economies on the left have much higher levels of poverty than the market-driven economies on the right.

They also share some economic history.

…if the world around Francis doesn’t provide enough compelling evidence, the world prior to Francis certainly does. At the turn of the 18th century, around 95 percent of humans lived in extreme poverty. That was at the advent of the Industrial Revolution and of capitalism. …the extreme poverty rate fell from 95 percent to below ten percent. With the flourishing of capitalism, the extreme poverty rate fell tenfold at the same time that the number of humans grew tenfold.

Amen. Videos by Deirdre McCloskey and by Don Boudreaux confirm how the world went from near-universal poverty to mass prosperity (at least in the nations that embraced free markets and the rule of law).

By contrast, there’s not a single example of a nation that became rich and reduced poverty with big government.

P.S. Mauritius is a good test case of why Pope Francis is wrong. Very wrong.

P.P.S. To learn more about why Pope Francis is off base, I also recommend the wise words of Thomas Sowell and Walter Williams.

P.P.P.S. To be fair, there was plenty of bad economics in the Vatican before Francis became Pope. And also some sound thinking.

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Back in 2014, I compared Hong Kong’s amazing growth with Cuba’s pitiful stagnation and made the obvious point that free markets and limited government are the right recipe for prosperity.

Especially if you care about improving the lives of the less fortunate.

Communists claim that their ideology represents the downtrodden against the elite, yet the evidence from Cuba shows wretched material deprivation for most people.

In Hong Kong, by contrast, incomes have soared for all segments of the population.

Today, let’s update our comparison of Cuba and Hong Kong. Law & Liberty has posted a a fascinating review of Neil Monnery’s book, A Tale of Two Economies, authored by Alberto Mingardi from Italy’s Bruno Leoni Institute.

As Alberto explains, the book is about how developments in both Hong Kong and Cuba were shaped by two individuals.

How important are key individuals in shaping the success or failure of economies? …Neil Monnery’s A Tale of Two Economies is in some sense a polemic against historical determinism, at least insofar as promoting economic reforms is concerned. It stresses the importance of two single individuals, one a great man for many, one an obscure official and political unknown to the most, in shaping the destiny of their respective countries. …Ernesto “Che” Guevara and John Cowperthwaite. …Monnery insists that both of them were “deep and original thinkers.” …The key difference between the two was perhaps that Cowperthwaite had a solid education in economics… Neither the way in which Hong Kong progressed, nor Cuba’s, were thus inevitable.

I’ve written previously about the noble role of John Cowperthwaite.

Here’s what Alberto culled from the book.

Monnery points out that Hong Kong’s success happened not because Cowperthwaite and his colleague were trying “to plant an ideological flag,” but because they were “professional pragmatists.” …Then the success of relatively libertarian arrangements in Hong Kong perpetuated itself. …Cowperthwaite tested what he knew about classical economics when he “first arrived in Hong Kong, in 1945” and “was put in charge of price control.… He soon realized the problems with attempting to set prices low enough to meet consumer needs but high enough to encourage supply, and in a dynamic environment.” He opposed subsidies that he saw as “a brazen attempt to feed at the trough of government subsidies.” …Cowperthwaite is a hero to Monnery, who emphasises his competence, and even more, his integrity.

And I’ve also written about Che Guevara, but only to comment on his brutality.

It turns out he was also a lousy economic planner.

Guevara held office in a variety of capacities related to economic matters and took them seriously. In 1959, he took a three months trip to countries as different as India, Japan and Burma, to learn “how they managed their economy.” He was struck by examples of countries that succeeded in developing heavy industries and thought Cuba could do the same. …Guevara, who, once converted to Marxism, had swallowed the whole thing. Since he maintained that “the sine qua non for an economic plan is that the state controls the bulk of the means of production, and better yet, if possible, all the means of production,” he acted accordingly.

So what’s the bottom line?

Hong Kong and Cuba were roughly equal at the start of the process. Today, not so much.

To the reader of A Tale of Two Economies, it is rather obvious which lessons ought to be taken: “in the late 1950s, both economies had a GDP per capita of around $4,500 in today’s money. By 2018 Cuba had slightly more than doubled its GDP per capita to around $9,000 per person. But Hong Kong reached $64,000 per capita”—seven times Cuba’s, and even exceeding the UK’s as well.

Here’s my modest contribution to the discussion, based on the Maddison database.

P.S. Hong Kong still ranks as the world’s freest economy, though there are increasing worries about whether China will allow economic liberty in the long run.

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I’ve always been puzzled by those who criticize capitalism (“it’s unfair!” and “it’s coercive!”) and urge its overthrow or replacement.

I actually agree with them that markets can be harsh, especially in the short run (think of the damage to the typewriter industry when personal computers exploded on the scene).

But the critics are unable to suggest a successful alternative to capitalism.

This is why I keep reissuing my challenge for them to identify a single nation that has ever become rich because of big government.

Needless to say, my left-wing friends have never provided an answer.

(Some of them say the Nordic nations and other countries in Western Europe are relatively rich, and that’s true, but I point out that those jurisdictions became rich in the 1800s and early 1900s when government was very small.)

By contrast, we have lots of evidence that modern prosperity is the result of free markets.

And so long as we give capitalism enough breathing room to function, we’ll get even more prosperity in the future.

Michael Strain of the American Enterprise Institute, in a column for Bloomberg, debunks the notion that capitalism is failing.

Use of the term “late capitalism” has exploded during the past decade… Capitalism may have once delivered broad prosperity, the critics argue, but now the system serves to entrench the elite. …Now is an odd time to argue that capitalism is broken. Only 35 U.S. workers out of every 1,000 are looking for jobs but unable to find them — the unemployment rate is lower than it has been in a half-century. The rate at which people in their prime working years hold jobs is higher than it has been in over a decade. …The level of inequality is high, but this is an odd decade to bemoan its rise. …from the beginning of the Great Recession, when criticism of capitalism became much more common, to 2016 (the last year data are available), inequality actually decreased by 7 percent.

Here’s the part of the column that is most interesting.

…critics of modern capitalism seem to be confused about the market’s ability to distribute benefits. …In a 2004 paper, the economist and Nobel laureate William Nordhaus concluded that “most of the benefits of technological change are passed on to consumers,” not the innovators themselves. Using data from 1948–2001, his model suggests that innovators capture only 2.2 percent of the total social value they create. Applying a back-of-the-envelope calculation using Nordhaus’s result to Bezos suggests he has created $5.4 trillion in value for the rest of society. A team of economists…recently attempted to measure the benefit of several new digital services that are free to consumers. …The typical U.S.-based Facebook user in their study values the social networking site at $42.17 per month. …Because they are free, these services are not well captured in current national income statistics. Brynjolfsson and his coauthors calculate that the benefits from Facebook alone would have added between 0.05 and 0.11 percentage points to the annual growth in U.S. gross domestic product growth starting in 2004. …Capitalism has delivered significant increases in purchasing power for typical households. The phrase “late capitalism” suggests that capitalism is spent and exhausted. It isn’t.

Interestingly, the academic researchers confirmed the insights provided in this video.

Though it is helpful to have some rigorous evidence to confirm how free enterprise has made our lives better.

The Wall Street Journal recently editorialized about the blessings of capitalism.

…deregulation and tax reform unleashed a surge of business investment…which has drawn workers off the sidelines and raised wages. …wages for the bottom 10% of earners over age 25 rose an average 5.9% annually compared to 2.4% during Barack Obama’s second term, according to the latest demographic data from the Bureau of Labor Statistics. …Less educated workers have also seen the strongest gains. Wages have risen at a 6.1% annual clip for workers over 25 without a high school degree and 3.9% for those with some college—both about three times faster than during the second Obama term. …Socialism-loving young people are getting the biggest pay raises. Wages have increased on average 5.8% annually for teens, 4.4% for 20 to 24-year-olds and 4.8% for 25 to 34-year-olds during the Trump Presidency. …Forty million fewer people last year lived in households receiving government assistance than in 2016, and the food-stamp rolls have shrunk by 9.5 million over the past three years. Reduced government dependence is a social good far beyond the lower costs to taxpayers. …Between 2016 and 2018 the number of taxpayers earning less than $25,000 declined 5% while increasing 8% for those making between $100,000 to $200,000 and 13.9% for those making more than $200,000, according to IRS data.

Here’s the graphic that accompanied the editorial.

By the way, I always warn never to over-rely on short-term economic data.

Yes, the recent numbers look good, but what if they are – at least in part – the result of a monetary policy-driven bubble?

That wouldn’t be an argument against better tax policy and better regulatory policy, of course, but it might mean some of the gains are illusory (much as the good economic news in 2006 now looks rather hollow considering we now know the country was in the midst of a Fed-created bubble).

This is why I prefer to look at multi-decade comparisons. And when you compare market-oriented nations with statism-oriented countries, it becomes very obvious that capitalism is the only way to deliver broadly shared prosperity.

P.S. Regarding capitalism vs. statism, here’s the best-ever tweet.

P.P.S. And here’s the best-ever counter-tweet.

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By global standards, the United States is a bulwark of capitalism. Yes, government is too big and there’s far too much intervention, but we have enough private property and free enterprise to be ranked #5 for economic liberty. Which helps to explain why Americans enjoy higher living standards than Europeans.

But capitalism had to be learned. One of the first European settlements in North America, the Plymouth Plantation in Massachusetts, was based on socialism.

And it was real socialism, with common ownership of the means of production.

Unsurprisingly, it was not a rousing success. Indeed, it was a miserable failure.

Here’s Larry Reed’s analysis of what happened.

We should never forget that the Plymouth colony was headed straight for oblivion under a communal, socialist plan… Land was held in common. Crops were brought to a common storehouse and distributed equally. For two years, every person had to work for everybody else (the community), not for themselves as individuals or families. Did they live happily ever after in this socialist utopia? Hardly. The “common property” approach killed off about half the settlers. Governor Bradford recorded in his diary that everybody was happy to claim their equal share of production, but production only shrank. Slackers showed up late for work in the fields, and the hard workers resented it. …The disincentives of the socialist scheme bred impoverishment and conflict until, facing starvation and extinction, Bradford altered the system. He divided common property into private plots… Communal socialist failure was transformed into private property/capitalist success, something that’s happened so often historically it’s almost monotonous.

And here are some excerpts from a column that Professor Ben Powell wrote back in 2004.

Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did. In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on “equality” and “need” as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. …Because of the poor incentives, little food was produced. Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. …This change, Bradford wrote, “had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been.” Giving people economic incentives changed their behavior. …Once the Pilgrims in the Plymouth Plantation abandoned their communal economic system and adopted one with greater individual property rights, they never again faced the starvation and food shortages of the first three years.

By the way, the settlement in Jamestown, Virginia, also had a very unsuccessful experiment with socialism.

Every Thanksgiving, I like to remind people about America’s failed experiment with big government.

This year, I want to build on that history lesson by looking at how capitalism’s invisible hand is making our modern holidays ever-more affordable.

We’ll start with Mark Perry of the American Enterprise Institute, who explains how free enterprise makes Thanksgiving possible.

…most of you probably didn’t call your local supermarket ahead of time and order a Thanksgiving turkey this year. Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you appeared “unannounced” at your local grocery store and selected your Thanksgiving bird. Or it will be there…when you “skip the trip” to the grocery store and get free 2-hour delivery from Amazon Prime Now… The reason your Thanksgiving turkey was waiting for you without an advance order? Because of the economic concepts of “spontaneous order,” “self-interest,” and the “invisible hand” of the free market. Turkeys appeared in your local grocery stores primarily because of the “self-interest” (greed?) of thousands of turkey farmers, truck drivers, and supermarket owners and employees who are complete strangers to you and your family. But all of those strangers throughout the turkey supply chain co-operated on your behalf and were led by the “invisible hand” to make sure your family had a turkey (or two) on the table to celebrate Thanksgiving.

By the way, just imagine what would happen if a government bureaucracy (like the Department of Agriculture) was in charge of Thanksgiving. Everything would cost more and have lower quality.

And the entire experience would be like a trip to the Department of Motor Vehicles.

But this isn’t just a story about how food appears on store shelves because of market forces rather than central planning.

It’s also a story about the competitive forces of capitalism make that food ever-more affordable. As shown in this chart from Marian Tupy of Human Progress, the cost of a Thanksgiving dinner is dropping over time.

But even that’s not the full story.

We’re also getting richer over time thanks to free enterprise.

So the amount of work that is required to buy Thanksgiving dinner is falling even faster. Here’s a chart from Mark Perry.

Now you know what to be thankful for.

P.S. I embedded a couple of humorous anti-libertarian memes in the column. If you want some more Thanksgiving-themed humor, you can click here and here for some mockery of Obama. And here’s a satirical look at a future Thanksgiving in a nation controlled by our friends on the left.

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I’m a big fan of Marco Rubio. The Florida Senator has been very good on some big issues and on some small issues. And he’s willing to fight important philosophical battles.

No politician is perfect (for instance, Rubio defends sugar subsidies), so I’ve always judged them by whether – on net – they’re on the side of more freedom or more statism.

Which is the ideal framework for today’s column.

Earlier this month, Rubio wrote a column for National Review asserting it is time for “common-good capitalism.”

Pope Leo XIII wrote that the ultimate goal for any society should be to “make men better” by providing people the opportunity to attain the dignity that comes from hard work, ownership, and raising a family. …What makes this society possible is the rights of both workers and businesses, but also their obligations to each other. …In the economy Pope Leo described, workers and businesses are not competitors for their share of limited resources, but partners in an effort that strengthens the entire nation. …This…doesn’t describe the economy we actually have today. Large corporations have become vehicles for shareholders and banks to assert claims to cash flows, rather than engines of productive innovation. Over the past 40 years, the financial sector’s share of corporate profits increased from about 10 to nearly 30 percent. The share of profits sent to shareholders increased by 300 percent. This occurred while investment of those profits back into the companies’ workers — and future — dropped 20 percent. …This is what it looks like when, as Pope Francis warned, “finance overwhelms the real economy.” …Diagnosing the problem is something we should be able to achieve… Ultimately, deciding what the government should do about it must be the core question of our politics. …What we need to do is restore common-good capitalism. …our nation does not exist to serve the interests of the market; the market exists to serve our nation.

Some of this rhetoric rubs me the wrong way (and citing an economic illiterate like Pope Francis is appalling), but what really matters is whether Rubio is proposing more power for government or less power for government.

That’s hard to say because he doesn’t offer much in terms of policy.

Though I’m not overly impressed by the handful of ideas that were mentioned.

I don’t pretend to know anything about rare-earth minerals, but it’s laughable to think the Small Business Administration is a wellspring of innovation, and there’s plenty of evidence that paid parental leave is bad policy (child tax credits aren’t bad, but there are other tax policies that are far better for families).

On the other hand, Rubio also has been making the case for “full expensing,” which is a very good policy.

Since we don’t have any additional details, I don’t know whether his new agenda is a net plus or a net negative.

Kevin Williamson of National Review, by contrast, is definitely not a fan of Rubio’s approach. Here’s some of what he wrote last week.

Senator Rubio…joins the ranks of those who propose to reinvent capitalism — “common-good capitalism,” he calls it. …Senator Rubio, working from remarks originally delivered in a speech at Catholic University, references a series of popes — Leo XIII, mostly, but also Benedict and Francis — to describe (whether the senator understands this or not) the familiar moral basis of fascist economic thinking… I write this as a fellow Catholic: God defend us from these backward, primitive-minded Catholic social reformers. …power is what is at issue. Men such as Senator Rubio desire for themselves the power to overrule markets — to limit trade and property rights, enterprise and exchange — in the service of what Senator Rubio describes as the “common good.” The problems with that are…Senator Rubio does not know what the common good is and has no way of knowing. …What we need from men in government is not the quasi-metaphysical project of reinventing capitalism in the name of the “common good.” …This is not a brief for anarchism. …We need stability and predictability from a government that secures our liberty and our property in the least obtrusive way that can be managed.

And he followed up two days later with another critical column, even equating Rubio’s agenda to Elizabeth Warren’s loony proposal.

From Senator Marco Rubio and his “common-good capitalism” to Senator Elizabeth Warren and her “accountable capitalism,” politicians right and left who want politicians to have more power over private economic decisions assume a dilemma in which something called “capitalism” must be balanced against or made subordinate to something called the “common good.” This is the great forgetful stupidity of our time. …Capitalism, meaning security in one’s own property and in the right to work and to trade, is the common good… What is contemplated by Senator Rubio and Senator Warren — along with a few batty adherents of the primitive nonidea known in Catholic circles as “integralism” and everywhere else more forthrightly as “totalitarianism” — is to invert the purpose of the U.S. government. …We’re supposed to give up our property rights so that these two and their ilk can use corporate welfare to fortify their own political interests? …The “stakeholder” thesis put forward by Rubio and Warren would strip shareholders of control of their own property and use that property in the service of interests of other parties, who are not its rightful owners. …the great prosperity currently enjoyed by North Americans and Western Europeans — and, increasingly, by the rest of the world — is a product…of capitalism… It wasn’t magic. It wasn’t the cleverness of Senator Rubio or Senator Warren. It wasn’t the big ideas of Pope Francis, to the modest extent that he has any economic ideas worth identifying as such.

Oren Cass argues that Williamson is both unfair and wrong about Rubio.

Williamson believes that Rubio wants to “be . . . the bandit, taking control of other people’s property”; “strip shareholders of control of their own property,” which “is robbery”; “redefine away the property rights of millions of Americans”; “limit . . . property rights”; and “run Apple or Facebook or Ford.” …I’ve read the Rubio speech carefully and can find none of this. …Rubio’s project is to explore the vast gray expanse between the white of liberty and the black of property theft. …This is the terrain on which many of American history’s great public deliberations have unfolded, yielding policies from Hamilton’s Report on Manufactures to the “internal improvements” of the early 1800s, the tariff debates between McKinley and Bryan, Teddy Roosevelt’s trust-busting, Franklin Roosevelt’s New Deal, Kennedy’s space race, and Reagan’s import quotas. Property theft all of it, at gunpoint no less, if I understand Williamson correctly. …Someone will have to make a value judgment as to what “goods” are in fact “good” and thus worthy of providing publicly.

Cass is right that there’s a lot of space between pure capitalism and awful statism. I’ve made the same point.

But it does worry me that he favorably cites a bunch of historical policy mistakes, such as protectionism, antitrust laws, and the New Deal.

Jonah Goldberg makes the should-be-obvious point that the United States is hardly a laissez-faire paradise.

For as long as I can remember, people on the left have complained about “unfettered capitalism.” …Senator Bernie Sanders said earlier this year that “we have to talk about democratic socialism as an alternative to unfettered capitalism.” …Recently, the concern with capitalism’s unfetteredness has become bipartisan. Senators Josh Hawley and Marco Rubio have taken up the cause in a series of speeches and policy proposals. Conservative intellectuals such as Patrick Deneen and Yoram Hazony have taken dead aim at unrestrained capitalism. J. D. Vance, the author of Hillbilly Elegy, and Tucker Carlson of Fox News have suggested that economic policy is run by . . . libertarians. My response to this dismaying development is: What on earth are these people talking about? …If you think there are no restraints on the market or on economic activity, why on earth do we have the Department of Labor, HHS, HUD, FDA, EPA, OSHA, or IRS? The United States has one of the most progressive tax systems in the world (i.e., the share of taxes paid by the rich versus everyone else). If you take into account all social-welfare spending, we spend more on entitlements than plenty of rich countries. Now, if you think we don’t spend, regulate, or tax enough, fine. Make your case. If you think we should spend and tax differently, I’m right there with you. But the notion that the United States is a libertarian fantasyland is itself a fantasy.

Amen.

And this brings me to my modest contribution to this discussion.

I’ve already admitted that Rubio hasn’t provided enough details to assess whether he wants more liberty or more statism.

That being said, I’m skeptical of “common-good capitalism” in the same way I’m suspicious about “nationalist conservatism” and “reform conservatism” (and we know for a fact that “kinder-and-gentler conservatism” and “compassionate conservatism” meant more statism).

So here’s my challenge to Rubio and Cass (as well as everyone else who proposes an alternative to Reagan-style small-government conservatism). Please specifically identify how much government you want. Yes, there is a “vast gray expanse” between pure laissez-faire and pure statism, as Cass noted. But he didn’t say where in that expanse he wants America to be.

To help people respond to this challenge, here’s a chart, based on the data from Economic Freedom of the World. In that “vast gray expanse” between pure capitalism and pure statism, should policy makers try to shift America in the direction of Hong Kong? Or in the direction of Sweden, or even Greece?

The bottom line is that we need to climb the scale (i.e., have more overall economic liberty) if we want more prosperity.

That’s what will help facilitate all the things, such as good jobs and strong communities, that Senator Rubio wants for America.

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Last month, I criticized the New York Times for a very inaccurate attack against Chile’s successful pro-market reforms.

The paper’s editorial asserted that only the rich have gained, a view that is utterly nonsensical and inaccurate.

Indeed, I visited Chile about a year ago and finished a three-part series (here, here, and here) showing how the less fortunate have been the biggest winners.

But numbers and facts are no match for ideology at the NYT.

We now have a new story, written by Amanda Taub, asserting that free markets have failed in Chile.

For three weeks, Chile has been in upheaval. …Perhaps the only people not shocked are Chileans. …The promise that political leaders…have made for decades — that free markets would lead to prosperity, and prosperity would take care of other problems — has failed them. …Inequality is still deeply entrenched. Chile’s middle class is struggling… There is broad agreement, among protesters and experts alike, that the country needs structural reforms.

This view is echoed by a Chilean professor in a column for the U.K.’s left-leaning Guardian.

Inequality in Chile is scandalous and most middle-class Chileans live in precarity. …the country has a structural problem with a clear name: inequality. The per capita income of the bottom quintile of Chileans is less than $140 a month. Half the population earns about $550. …This crisis is, at heart, an urgent message to the Chilean elite: profound changes are needed to rebuild the social contract.

But if Chile is a failure, then other nations in Latin America must be in a far worse category.

Look at what’s happened to average incomes over the past three decades.

It’s also worth noting Argentina’s decline and Venezuela’s collapse. Does Ms. Taub prefer those outcomes over Chile’s growing prosperity?

Speaking of which, here’s a powerful video comparing Chile and Venezuela.

So why is there discontent when Chile has been so successful?

In her Wall Street Journal column, Mary Anastasia O’Grady worries that the left controls the narrative in Chile.

…the hard left has spent years planting socialism in the Chilean psyche via secondary schools, universities, the media and politics. Even as the country has grown richer than any of its neighbors by defending private property, competition and the rule of law, Chileans marinate in anticapitalist propaganda. The millennials who poured into the streets to promote class warfare reflect that influence. The Chilean right has largely abandoned its obligation to engage in the battle of ideas in the public square. Mr. Piñera isn’t an economic liberal and makes no attempt to defend the morality of the market. He hasn’t even reversed the antigrowth policies of his predecessor, Socialist Michelle Bachelet. Chileans have one side of the story pounded into their heads. As living standards rise, so do expectations. When reality doesn’t keep up, the ground is already fertile for socialists to plow.

Incidentally, even the center-left Economist doesn’t agree with the argument that Chile is a failure.

In Chile, free-marketeers’ favourite economy in the region, protests against a rise in fares on the Santiago metro descended into rioting and then became a 1.2m-person march against inequality… Despite its flaws, Chile is a success story. Its income per person is the second-highest in Latin America and close to that of Portugal and Greece. Since the end of a brutal dictatorship in 1990 Chile’s poverty rate has dropped from 40% to less than 10%. Inflation is consistently low and public finances are well managed. …This is no argument for complacency in Chile. …Chileans still feel underserved by the state. They save for their own pensions, but many have not contributed long enough to provide for a tolerable retirement. Waiting times in the public health service are long. So people pay extra for care.

Sadly, the article then goes on to endorse bigger government and more redistribution – policies which would erode Chile’s competitiveness and prosperity.

Unfortunately, the President of Chile seems willing to embrace these bad policies.

In another column for the WSJ, Ms. O’Grady warns about the possible consequences.

The pain for Latin America’s most successful economy is only beginning. …Mr. Piñera…has opened the door to rewriting Chile’s Constitution to meet the demands of socialists, communists and others on the left. If Latin American history is any guide, a constitutional rewrite will strip away political and economic rights, concentrate power and leave the nation poorer and more unjust. The biggest losers would be the aspirational poor, who will be denied access to a better life in what has become one of the world’s most socially mobile economies. …Mr. Piñera has agreed to talks with the “citizens” whose interests are presumably represented by the firebombers and looters. …This is a stunning surrender and it is hardly surprising that it seems only to have whet the appetite of the radical left.

She points out that Chile’s market reforms have been hugely successful.

What isn’t debatable is the economic gains, across the board, that the market model has created. Less than 9% of the nation now lives below the poverty level. In a 2018 Organization for Economic Cooperation and Development report titled “A Broken Social Elevator? How to Promote Social Mobility,” Chile stands out for its social mobility. According to the data, 23% of sons whose fathers were in the bottom quartile of earners make it to the top quartile. By this measure, Chile had the highest social mobility among 16 OECD countries in the study. …inequality in Chile has been falling for 20 years. …That’s something for Mr. Piñera to think about before he helps the left destroy a model that works.

Amen.

It would be a tragedy if politicians wrecked Latin America’s biggest success story.

Let’s close with some analysis in Harvard’s Latin America Policy Journal by Rodrigo Valdés, who was a finance minister under the previous center-left government.

What are the facts? Chile’s per capita GDP increased almost threefold between 1990 and 2015, with short-lived and shallow recessions in 1999 and 2009 only. More precisely, per capita GDP increased a cumulative 280 percent, or 5.3 percent per year (at PPP and constant dollars). At the same time, the distribution of income improved. …Remarkably, all but the top quintile (actually, all but the top decile) improved their share of total income after taxes and transfers. …For the middle 20 percent or “middle class,” growth explained more than 10 times what they gained through better income distribution. For the bottom 20 percent, the redistribution effort was more relevant, though growth was still dominant, explaining six times more than redistribution. Second, what Chile accomplished in the last 25 years is impressive. For the middle class, even a sudden transformation to the Nordics in terms of income distribution (without changes in aggregate GDP) produces less than one-tenth of what the combination of actual growth and better distribution produced for this segment. The bottom 20 percent gained in these two and half decades more than four times what they would achieve with a sudden Nordic distribution.

I suppose I should highlight the fact that a high-level official for a left-leaning government is pointing out that Chile’s reforms have been very successful.

But what really matters is the point he makes about how growth being far more important than redistribution – assuming the goal is to actually help low-income people live better lives.

The third column shows how much income has expanded for each segment of the population. And you can see (highlighted in red) that the bottom 10 percent has enjoyed more than twice the income gains as the top 10 percent.

But pay extra attention to the first and second columns. Economic growth far and away is the most important factor in boosting prosperity for the less fortunate.

Which shouldn’t be a surprise. I’ve shared lots of evidence (over and over and over again) showing that market-driven growth is the best way of helping low-income people.

Indeed, even the World Bank agrees the Chilean model is vastly superior to the Venezuelan approach.

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Many libertarians support capitalism because of ethics and morality. Simply stated, they want an economic system based on voluntary exchange compared to statist alternatives (socialism, fascism, communism, etc) that rely on government coercion.

I also like the non-aggression principle, so I certainly don’t want to dissuade anyone from supporting free markets for that reason.

But one of my main goals is to show people that economic liberty also is the best approach from the utilitarian perspective.

This is why I share so many examples showing how market-oriented jurisdictions out-perform statist nations over multi-decade periods.

I want to build on this empirical foundation by sharing some 2009 research from Professor Peter Leeson. Here’s the abstract from his study.

According to a popular view that I call “two cheers for capitalism,” capitalism’s effect on development is ambiguous and mixed. This paper empirically investigates that view. I find that it’s wrong. Citizens in countries that became more capitalist over the last quarter century became wealthier, healthier, more educated, and politically freer. Citizens in countries that became significantly less capitalist over this period endured stagnating income, shortening life spans, smaller gains in education, and increasingly oppressive political regimes. The data unequivocally evidence capitalism’s superiority for development. Full-force cheerleading for capitalism is well deserved and three cheers are in order instead of two.

Here are his data sources.

I consider the trajectory of capitalism and four “core” development indicators in countries that have embraced and rejected capitalism over the past quarter century. These categories are average income, life expectancy, years of schooling, and democracy. …My data are drawn from several sources. The first is the Fraser Institute’s Economic Freedom of the World Project (2008), which provides data on the extent of capitalism across countries and over time. …I get data for my development indicators from Shleifer (2009), who collects his information from several standard sources. His data on countries’ GDP per capita and life expectancies are from the World Bank’s World Development Indicators (2006). His data on education and democracy are from the Barro-Lee (2000) dataset and the Polity IV Database (2000) respectively.

He then compares nations that moved toward free markets with those that gravitated to statism.

The results are unambiguous.

The data are clear: countries that became more capitalist became much wealthier. The average country that became more capitalist over the last 25 years saw its GDP per capita (PPP) rise from about $7600 to nearly $11,800—a 43% increase. If rapidly rising wealth deserves cheering, so does capitalism. What about longevity? All the money in the world doesn’t mean anything if you’re not alive to spend it on things that improve your life. Figure 2b charts the movement of average life expectancy at birth in countries that became more capitalist over the last quarter century at 5-year intervals. Growing capitalism is clearly associated with growing life expectancy. In the average country that became more capitalist over the last 25 years, the average citizen gained nearly half a decade in life expectancy. … In the average country that became more capitalist, the average number of years of schooling in the population rose from 4.7 to just over 6. …Countries that became more capitalist over the last 20 years became dramatically more democratic.

Here are the charts showing great results from capitalism.

Now let’s look at what Professor Lesson discovered about nations that moved in the wrong direction.

The good news is that there weren’t that many since this was the era when the “Washington Consensus” held sway.

Although most countries became more capitalist over the past quarter century, not every country did. …Fortunately, only five countries became significantly less capitalist over the last quarter century when most everyone else was busy reaping the rewards of becoming more capitalist. These countries are: Myanmar, Rwanda, Ukraine, Venezuela, and Zimbabwe. Each of these countries lost more than 1 point of economic freedom over the period on Fraser’s 10-point scale. This decline translates into a 20–40% loss of economic freedom depending on the country one considers.

Unsurprisingly, bad things happen when nations suffer a decline in economic liberty.

Here’s what happened to the four key indicators in countries that moved toward statism.

Professor Leeson’s conclusions are very blunt…and very accurate.

Unless one prefers poverty, premature death, ignorance, and political oppression to wealth, longevity, knowledge, and freedom, less capitalism deserve no cheers. …Global capitalism’s effect is clear to the point of smacking one in the face: it has made the world unequivocally better off.

Amen.

We know the recipe for growth and prosperity. The challenge is convincing self-interested politicians to reduce their power and control over the economy.

P.S. I’m still waiting for any of my left-leaning friends to provide an answer – even just a partial answer – to my two-question challenge.

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In early September, I wrote about how capital and labor are both necessary to create prosperity.

Economists sometimes explain this with lots of jargon, referring to capital and labor as “factors of production” and pointing out how they are “complementary.”

In ordinary English, this simply means that workers earn more income when they are equipped with better machinery, equipment, and technology. Similarly, investors can only generate earnings if they have people to utilize capital.

This doesn’t mean that there’s a happy relationship between labor and capital. Indeed, there’s a constant tug or war over who gets what slice of the economic pie.

That being said, the relationship tends to be reasonably cordial so long as the pie is growing.

According to some folks on the left, though, that’s not the case. From their perspective, workers get screwed and capitalists grab ever-larger slices. Consider, for example, this tweet from @existentialcoms.

This tweet made a big splash, with nearly 30,000 likes and more than 12,500 re-tweets.

But there was a slight problem. Actually, a big problem.

There was a counter-tweet from @ne0liberal featuring three graphs that demolish the core premise of the tweet from @existentialcoms.

Here are the three graphs that @ne0liberal shared.

The first one confirms that workers enjoy far more leisure time than in the past.

The second one uses current data to show that more productive workers have much more leisure time.

And the third one reveals that worker compensation has increased significantly.

The unambiguous conclusion is that capitalism produces very good outcomes for workers. If @existentialcoms and @ne0liberal were in a boxing match, this would be a first-round knockout.

My modest contribution to this discussion is to point out that there are no real-world examples of good results produced by socialism. Or Marxism. Or fascism. Or by any form of statism.

Yes, there are some rich nations with big welfare states, but they only imposed those policies after they became rich.

Which is why I’m still waiting for any of my friends on the left to successfully respond to this challenge.

P.S. Since I’ve decided that @ne0liberal produced the counter-tweet of the year, I may as well also call attention to the best-ever tweet about capitalism and socialism, the world’s most-depressing tweet, and Trump’s worst-ever tweet.

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By every possible measure, Chile is the most successful country in Latin America.

Income has soared and poverty has plummeted thanks to market-based reforms.

It’s not perfect, of course. The nation’s economic freedom score – 7.89 on a 0-10 scale – is good enough for a #13 ranking, but there’s still room for improvement.

But there’s also plenty of room for economic decline, and that might be the unfortunate outcome if politicians respond in a misguided way to recent protests.

Especially if they take advice from the wrong sources. For instance, the New York Times opined yesterday about the supposed shortcomings of the Chilean model.

Chile is often praised as a capitalist oasis, a prospering and stable nation on a continent where both prosperity and stability have been in short supply. But that prosperity has accumulated mostly in the hands of a lucky few. As a result, Chile has one of the highest levels of economic inequality in the developed world. …Chileans live in a society of extraordinary economic disparities. …What makes Chile an outlier among those 36 nations is that the government does less than nearly any other developed nation to reduce economic inequality through taxes and transfers. As a result, Chile has the highest level of post-tax income inequality among O.E.C.D. members. …Even after increases in recent years, the Chilean government still spends a smaller share of total economic output than every other nation in the O.E.C.D. The obvious path for Chile is for the government to spend more money.

As is sometimes the case with the New York Times, parts of the editorial are downright false. Income in Chile has jumped significantly for all quintiles, not just a “lucky few.”

And even the parts that are technically accurate are very misleading.

Notice, for instance, what the NYT is doing with inequality numbers. It is comparing Chile with rich nations, mostly from Europe.

But what happens if Chile is compared to other countries from Latin America.

That tells an entirely different story, as you can see from this poverty map (dark red is bad, light yellow is good) produced by the Center for Distributive, Labor, and Social Studies in Argentina.

All of a sudden, Chile looks very good.

Even if you use U.N. numbers that rely on the left’s misleading definition of poverty (i.e., based on relative income), Chile is a success story compared to other nations in the region.

It’s especially important to understand that Chile is getting good results for the right reason.

Poverty is falling because of the private economy rather than coercive redistribution. Here are some excerpts from a recent U.N. release.

In an analysis of the countries with the greatest reductions in poverty in the 2012-2017 period, in Chile, El Salvador and the Dominican Republic, the increase in income from wages in lower-income households was the source that contributed the most to that reduction, while in Costa Rica, Panama and Uruguay, the main factor was pensions and transfers received by lower-income households.

Sadly, some people in Chile don’t have the fortitude to build on the market reforms that have boosted national prosperity.

Indeed, it appears there will be backsliding according to the aforementioned New York Times editorial

Sebastián Piñera, the billionaire elected president in 2017, …proposed a slate of reforms, including an increase in the top income tax rate, an increase in retirement benefits, and a guaranteed minimum monthly income. …Andrónico Luksic Craig, chairman of Quiñenco, a financial and industrial conglomerate, wrote on Saturday on Twitter that he was ready to pay higher taxes.

I’m disappointed but never surprised when politicians unravel progress.

But it’s always discouraging when guilt-ridden rich people embrace statist policies (sounds familiar, huh?).

For the sake of the Chilean people, let’s hope this is empty rhetoric.

P.S. Since we’re on the topic of Chile, here are some excerpts from the abstract of a study in the Journal of Development Economics that estimated the heavy economic cost of the nation’s detour to socialism in the 1970s.

…we look at share prices in the Santiago exchange during the tumultuous political events that characterized Chile in the early 1970s. …deploying previously unused daily data and exploiting two largely unexpected shocks which involved substantial variation in policies and institutions, providing a rare natural experiment. Allende’s election and subsequent socialist experiment decreased share values, while the military coup and dictatorship that replaced him boosted them, in both cases by magnitudes unprecedented in the literature. The most parsimonious interpretation of these share price changes is that they reflected, respectively, the perceived threat to private ownership of the means of production under a socialist government, and its subsequent reversal.

By the way, this in no way should be interpreted as support for the Pinochet dictatorship.

But what it does say is that dictatorships that allow economic freedom produce much better results than dictatorships impose totalitarian economic policies in addition to totalitarian political policies.

Which is basically the point Milton Friedman made when asked about his connection to Chile.

For what it’s worth, Pinochet eventually allowed a transition to democracy, which somewhat atones for his sins.

P.S. To be fair, the NYT editorial was merely misguided, which is better than the wild inaccuracy that has characterized some analyses.

P.P.S. If you want to learn about Chile’s reforms, here are columns about the private social security system and the national school choice system. And this World Bank comparison of Chile and Venezuela is very instructive as well.

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John Papola has done it again. His video showing a Keynes v. Hayek rap contest was superb, and was followed by an equally enjoyable sequel featuring a boxing match between Keynes and Hayek.

Now he has a rap contest about capitalism and socialism featuring Ludwig von Mises and Karl Marx.

The video touches on three economic topics.

The obvious focus is the track record of capitalism vs. socialism. Given the wealth of evidence, that’s a slam-dunk victory for free markets.

But there are also two wonky issues referenced in the video.

  • The socialist calculation debate – As I’ve repeatedly noted, genuine socialism involves government ownershipcentral planning, and price controls. Economists from the Austrian school, such as Mises, were the ones who explained that governments were incapable of having either the information or knowledge to make such a system work.
  • The labor theory of value – Marxism is based on the strange notion that the value of a product is a function of the hours it took to produce. This overlooks the role of capital and entrepreneurship. Moreover, as explained in the video, value is subjective, determined by the preferences of consumers.

Let’s close with a nice compare-and-contrast image a reader sent to me.

P.S. John Papola also did a great satirical commercial for left-wing toys.

P.P.S. Even though it’s not the right time of year, here’s his satirical commercial for Keynesian Christmas carols.

P.P.P.S. If you want to learn about the Austrian macroeconomics, click here and here.

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Last century, I remember reading about the “Washington Consensus,” which was a term that was used to describe the kind of policy advice in those days provided to (or imposed upon) the developing world by the IMF, World Bank, and U.S. Treasury.

I never studied the topic since I was focused at the time on domestic issues such as tax reform, Social Security reform, and the economic effect of government spending.

But I recall thinking that the Washington Consensus was pro-market, but nonetheless a bit timid because it did not include a plank to limit the size of government.

Wikipedia helpfully lists the 10 policies that defined this consensus.

  1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
  2. Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
  10. Legal security for property rights.

With the benefit of hindsight, I now want to praise the Washington Consensus.

Yes, it would be nice if there had been some focus on the size of government, but all of the advice on trade, regulation, monetary policy, and quality of governance was very sound. And those policies account for 80 percent of a nation’s grade according to Economic Freedom of the World.

Moreover, the planks on fiscal policy were good, even if they didn’t go far enough.

Additionally, it was good to have multilateral institutions such as the International Monetary Fund and World Bank using their leverage to push for pro-market reforms (unlike today, when international bureaucracies often push a statist agenda).

So what was the effect of – to use the terms of opponents – this emphasis on “neoliberalism” or “market fundamentalism”?

Well, it seems to have made a difference. Here the data from the Fraser Institute on economic freedom for all nations. As you can see, economic liberty around the world increased significantly between 1980-2000, the years when the Washington Consensus was most influential.

But did that period of pro-market reform lead to better outcomes?

The answer is a resounding yes, at least in my humble opinion.

Here’s the most persuasive evidence, showing the dramatic decline in extreme poverty.

Let’s also look at some new research from Professor William Easterly, who worked for many years as an economist at the World Bank.

He notes that many people think the Washington Consensus was a failure. So he took a fresh look at the data.

Many authors…have proclaimed the failure of a package of market-oriented reforms proposed in the 1980s and 1990s — variously known as the Washington Consensus, …globalization, or neoliberalism. This paper seeks to update the stylized facts on policies and growth that influenced this verdict. …The earlier stylized facts featured the zero or low per capita growth in the regions that were the focus of reform: Africa and Latin America. …these stylized facts have not been updated in the literature, as much more data have become available with the passage of time. …This paper will report new stylized facts. First, there has been additional and quite remarkable progress on reform outcomes since the late 1990s — this is a principal finding of this paper. Earlier judgments on the reforms often happened before the reform process was complete and/or had enough post-reform growth data to evaluate reforms. …The second stylized fact is that there is a strong correlation between improvements in policy outcomes and changes in growth outcomes. The third stylized fact is that growth has recovered in Africa and Latin America in the new millennium, and the regression of growth on policy outcomes explains a substantial part of the growth recovery. …This paper will extend the method of analyzing extremely bad and moderately bad policy outcomes to other policies, specifically — in addition to inflation — the black market premium on foreign exchange, overvaluation of the domestic currency, negative real interest rates on bank savings deposits, and abnormally low trade shares to GDP. Updating the data on these outcomes is not trivial and constitutes one of the main contributions of this paper.

And what did Prof. Easterly discover?

It turns out that the prevalence of bad outcomes has declined.

Figure 6 shows a summary measure of share of countries with any bad policy. Any bad policy is defined as having any of the moderate or extreme policy dummies set to one, with a minimum of 4 policy observations available for that country-year. The summary measure shows a downward trend in bad policy outcomes worldwide, in Latin America, and in Sub-Saharan Africa. The sharpest break is around the mid-1990s, somewhat after the formulation of the Washington Consensus and the first negative reactions it received.

Here’s the aforementioned Figure 6.

And he also looks at the prevalence of extremely bad poliicy.

Figure 7 shows a similar graph to Figure 6, but now limited to extremely bad policy outcomes. It shows if any of the extremely bad policy dummies is set to one, for the sample with a minimum of at least two out of five policy outcomes available. The decline in the prevalence of any extreme policy is even more dramatic beginning in the early 1990s, going from surprisingly common (above 35 percent of countries up to the early 1990s) to almost non-existent for the world. The same pattern is even more striking for Africa and for Latin America.

Here’s Figure 7.

Most important, these better outcomes also are associated with stronger growth.

This paper showed these changes in policy outcomes – especially away from extreme policies — were accompanied by growth increases. It documented that the policy reforms can explain the growth increases in the regions most emphasized earlier – Africa and Latin America. We have seen that the old data available through 1998 was indeed consistent with the reform pessimism, partly because of weaker results on growth payoffs associated with reform outcomes and partly because less reform had happened.

Prof. Easterly acknowledges that there are still many issues to investigate and that his research is just one slice at a big pie.

But the bottom line is that we now have some good evidence that the Washington Consensus led to better results. Simply stated, capitalism produces more growth and less poverty. Too bad the IMF and other international bureaucracies have forgotten this lesson.

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The folks at the Fraser Institute in Canada have just released a new version of Economic Freedom of the World.

As has been the case for many years, Hong Kong is #1 and Singapore is #2, followed by New Zealand (#3) and Switzerland (#4).

Interestingly, the United States improved one spot, climbing to #5.

Here’s the data for the top two quartiles.

The new version includes 2017, so fans of Trump will be able to claim vindication.

But not much.

As you can see, the EFW data shows that America’s score rose only slightly, from 8.17 to 8.19.

My view, for what it’s worth, is that Trump’s economic policy is somewhat incoherent.

He’s been good on taxes and red tape, but bad on spending and trade. So I’m not surprised we’re mostly treading water.

Now let’s look at the bottom half of the ranking.

In last place, unsurprisingly, we find Venezuela.

Let’s close with two final visuals.

Here’s a chart showing that poor people in the nations with the most economic liberty have much higher incomes that poor people in countries with less economic liberty.

The moral of the story, needless to say, is that people who genuinely want to help the poor should support free markets and limited government.

Last but not least, here are two tables I prepared.

The one on the left shows the nations with the biggest positive and negative changes since 2010, while the one on the right shows the biggest changes since 2000.

In some cases, such as Zimbabwe, a nation improved because it was in such terrible shape that it would have been difficult to do worse.

Though Venezuela seems determined to show that a terrible score can drop even farther.

For what it’s worth, Egypt’s slide toward statism is being subsidized by massive amounts of aid from American taxpayers.

And speaking of America, I’m embarrassed to acknowledge that the United States has suffered the 10-largest drop when looking at changes since 2000. That’s a legacy of the bad policies we got from George W. Bush and Barack Obama. Thanks for nothing, guys!

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I first opined about Pope Francis in 2013, when I told a BBC audience why the Pope was wrong on economic policy.

The following year, I expanded on that point, explaining that statist policies are bad for the poor. And I revisited the issue again last year.

I’m not the only one making these arguments. In a column for Reason, Stephanie Slade explained why Pope Francis is deeply misguided.

I’ve had some harsh words to describe Pope Francis. …the pontiff’s ignorance of basic economics has led him to a bad conclusion about which public policies are best able to reduce the crushing yoke of poverty in the world. …as a matter of empirical fact, markets are the single greatest engine for growth and enrichment that humanity has yet stumbled upon. …He seems to be arguing that an outlook that places the individual above “the common good” is morally suspect. …his statements betray a shallowness in his understanding of the philosophy he’s impugning. If he took the time to really engage with our ideas, he might be surprised by what he learned. …what Pope Francis calls an “antisocial” paradigm…is better known by another name: the liberty movement, a cooperative and sometimes even rather social endeavor among people who cherish peaceful, voluntary human interactions.

Sadly, there’s zero evidence that Pope Francis has learned any economics since taking up residence in the Vatican.

For instance, he just visited Mauritius, a small island nation to the east of Madagascar.

His economic advice, as reported by Yahoo, was extremely primitive.

Pope Francis on Monday urged Mauritius, a prosperous magnet for tourists and a global tax haven, to shun an “idolatrous economic model” that excludes the youth and the poor… While the island is a beacon of stability and relative prosperity, Pope Francis honed in on the struggles of the youth… “It is a hard thing to say, but, despite the economic growth your country has known in recent decades, it is the young who are suffering the most. They suffer from unemployment, which not only creates uncertainty about the future, but also prevents them from believing that they play a significant part in your shared history,” said the pope. …Since independence in 1968, Mauritius has developed from a poor, agriculture-based economy, to one of Africa’s wealthiest nations and financial services hub. …General unemployment is low compared to the rest of the continent at 6.9 percent in 2018 according to the World Bank…

I’m glad the article acknowledges that Mauritius has been economically successful.

Though I’m frustrated by the failure to explain why.

So I’ll redress that error of omission by showing that Mauritius dramatically expanded economic liberty in the 1980s and 1990s. The nation’s absolute score jumped from 5.11 in 1980 to 8.07 in the most-recent estimates from Economic Freedom of the World.

It’s done such a good job that Mauritius is now ranked as the world’s 9th-freest economy.

So what has greater economic liberty produced?

More national prosperity.

A lot more. Based on the Maddison data, you can see that living standards (as measured by per-capita GDP) have tripled over the past three-plus decades.

I confess that I’ve never been to Mauritius.

So maybe it’s possible that the country is filled with “idolotrous” folks who think of nothing but money.

But I’m guessing that people in Mauritius are just like the rest of us. But with one key difference in that they’ve been following the recipe for growth and prosperity.

Too bad Pope Francis instead believes in the Peronist model that has wreaked so much havoc in Argentina.

P.S. The Pope should read Stephanie Slade’s column. Walter Williams and Thomas Sowell also should be on his list.

P.P.S. Methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

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I’ve periodically explained that capital formation (more machines, technology, etc) is necessary if we want higher wages.

Simply stated, workers get paid on the basis of what they produce and the most effective way of boosting productivity is to have more saving and investment.

This is (one of the reasons) why I have so much disdain for politicians who try to foment discord and division between workers and capitalists.

To be sure, there will always be a tug of war between investors and employees over which group gets bigger or smaller slices. But so long as we have the right policies, they’ll be bickering over how to divide an ever-growing pie.

That’s a nice problem to have. Especially compared to what happens when politicians intervene – for the ostensible purpose of helping workers – and adopt policies that create economic stagnation.

Think Greece or Venezuela.

Larry Reed of the Foundation for Economic Education wrote with great insight about the link between labor and capital a few years ago. He starts with some basic economics.

…as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well. Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan. …There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture funding behind him. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

He concludes that we should be celebrating Labor Day and Capital Day.

I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business. …I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. …on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. …Labor Day and Capital Day. I know of no good reason why we should have just one and not the other.

Courtesy of Mark Perry at the American Enterprise Institute, here’s a nice depiction of how labor and capital are interdependent.

P.S. When economists write about the relationship between capital and labor (savings => investment => productivity => wages), some critics assert this is nothing other than “trickle-down economics.”

Yet this is the mechanism for growth under every economic theory – even Marxism and socialism. The only thing that changes under those approaches is that politicians and bureaucrats control investment decisions. And we know that doesn’t work very well.

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Having been inspired by Ronald Reagan’s libertarian-ish message (and track record), I’ve always been suspicious of alternative forms of conservatism for the simple reason that they always seem to mean bigger government.

To be fair, proponents of all these approaches always paid homage to the role of markets, so we’re not talking about Bernie Sanders-type nuttiness.

But I don’t want to travel in the wrong direction, even if only at 10 miles-per-hour rather than 90 miles-per-hour.

Now there’s a new alternative to Reaganism called “national conservatism.” It’s loosely defined, as you can see by reports from both left-leaning outlets (New York, New Republic) and right-leaning outlets (Townhall, Daily Signal).

There are parts of this new movement that are appealing, at least if I’m reading them correctly. Proponents are appropriately skeptical of global governance, though maybe not for the reasons that arouse my antipathy. But the enemy of my enemy is my friend in this battle.

They also don’t seem very fond of nation building, which also pleases me. And I also am somewhat sympathetic to their arguments about national unity – assuming it’s based on the proper definition of patriotism.

But their economic views, at best, are worrisome. And, as George Will opines, they’re sometimes awful.

…“national conservatives”…advocate unprecedented expansion of government to purge America of excessive respect for market forces and to affirm robust confidence in government as a social engineer allocating wealth and opportunity. …The Manhattan Institute’s Oren Cass advocates “industrial policy” — what other socialists call “economic planning”… He especially means subsidizing manufacturing..he admits that as government, i.e., politics, permeates the economy on manufacturing’s behalf, “regulatory capture,” other forms of corruption and “market distortions will emerge.” Emerge? Using government to create market distortions is national conservatism’s agenda. …Their agenda is much more ambitious than President Richard M. Nixon’s 1971 imposition of wage and price controls, which were temporary fiascos. Their agenda is even more ambitious than the New Deal’s cartelization of industries, which had the temporary (and unachieved) purpose of curing unemployment. What national conservatives propose is government fine-tuning the economy’s composition and making sure resources are “well” distributed, as the government (i.e., the political class) decides, forever. …Although the national conservatives’ anti-capitalism purports to be populist, it would further empower the administrative state’s faux aristocracy of administrators who would decide which communities and economic sectors should receive “well”-allocated resources. Furthermore, national conservatism is paternalistic populism. This might seem oxymoronic, but so did “Elizabeth Warren conservatives” until national conservatives emerged as such.

Since Nixon and FDR were two of America’s worst presidents, Will is drawing a very harsh comparison.

To give the other side, here are excerpts from a New York Times column by Oren Cass.

…a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy. Genuine prosperity depends upon people working as productive contributors to their society, through which they can achieve self-sufficiency, support their families, participate in their communities, and raise children prepared to do the same.

None of this sounds bad.

Heck, it sounds good. I’m in favor of strong families and strong communities.

But what does this rhetoric mean? Here’s where I start to worry.

Crucially, while a labor market left alone will seek an efficient equilibrium, economic theory never promises that the equilibrium will be a socially desirable, inclusive one. A genuine conservatism values markets as powerful mechanisms that foster choice, promote competition and deliver growth, but always in service to the larger end of a cohesive society in which people can thrive. …In some cases, …conservatives will head in new directions or even reverse course. …an insistence that workers throughout the labor market share in productivity growth……longstanding hostility toward organized labor will give way to an emphasis on reform. …new forms of organizing through which workers can support one another, engage with management and contribute to civil society should be a conservative priority.

And my worry turns to unfettered angst when I read some of the specific ideas that Cass mentions.

…a wage subsidy delivered directly into each low-wage paycheck…skepticism of unfettered international trade…legislation that would require the Federal Reserve to close the trade deficit by taxing foreign purchases of American assets.

To put it mildly, more redistribution, more protectionism, and taxes on investment is not a Reaganite agenda.

I’ll close with a political observation. Defenders of national conservatism have told me that the Reagan message is old and stale. It supposedly doesn’t apply to new problems in a new era.

Yet non-conservative Republicans lost twice to Obama while a hypothetical poll in 2013 showed Reagan would trounce Obama.

Some national conservatives point to Trump’s victory as an alternative, but I think that had more to do with Hillary Clinton. In any event, I very much doubt Trumpism is a long-term model for political success. Or economic success.

Maybe the real lesson is that good policy is good politics?

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For libertarians, there aren’t many good role models in the world. There are a few small jurisdictions such as Bermuda, Monaco, and the Cayman Islands that are worth highlighting because of strong rule of law and good fiscal policy. There are also a few medium-sized nations that are – by modern standards – very market-oriented, such as Switzerland, Singapore, and New Zealand.

But Hong Kong generally gets top rankings for economic liberty. Which helps to explain why I’m so worried about a potential crackdown by China.

As I noted in the interview, intervention by Chinese security would not be good news for Hong Kong.

But it also would be bad news for China’s economy. Especially since it already is dealing with the adverse consequences of both internal statism and external protectionism.

Indeed, the only reason I’m not totally pessimistic is that the power elite in China doubtlessly would experience a big loss in personal wealth if there is a crackdown.

That being said, I can’t imagine President Xi will allow China’s implicit control over Hong Kong to diminish. So I’m reluctant to make any prediction.

But I very much hope that Hong Kong will emerge unscathed, in part because I don’t want to lose a very good example of the link between economic liberty and national prosperity.

Marian Tupy, writing for CapX, explains that Hong Kong is a great role model.

In 1950, …compared to the advanced countries of the West, Hong Kong was still a relative backwater. …the average resident of the colony earned 35 per cent and 25 per cent compared to British and American citizens respectively. Today, average income in Hong Kong is 37 per cent and 3 per cent higher than that in the United Kingdom and America. …Unlike some British ex-colonies and the United Kingdom itself, Hong Kong never experimented with socialism. Historically, the government played only a minor role in the economy… The territory kept taxes flat and low… The territory followed a policy of unilateral trade liberalisation, which is to say that the colony allowed other countries to export to Hong Kong tariff-free, regardless of whether other countries reciprocated or not. …In 1755, the great Scottish economist Adam Smith…wrote, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice…” Hong Kong prospered because it followed Smith’s recommendations.

Here’s his chart showing how Hong Kong has surpassed both the United Kingdom and United States in terms of per-capita economic output.

In a column for the Wall Street Journal, Jairaj Devadiga explains a key factor in Hong Kong’s success.

Sir John Cowperthwaite was Hong Kong’s financial secretary from 1961-71 and is widely credited for the prosperity Hong Kong enjoys today. An ardent free-marketeer, Cowperthwaite believed that government should not try to manage the economy. One salient feature of Cowperthwaite’s policies: His administration didn’t collect any economic data during his tenure. Not even gross domestic product was calculated. When the American economist Milton Friedman asked why, Cowperthwaite replied that once the data were made available, officials would invariably use them to make the case for government intervention in the economy. …Without data, busybody bureaucrats had no way of justifying interference in the economy. In Cowperthwaite’s Hong Kong, the government did only the bare minimum necessary, such as maintaining law and order… The rest was left to the private sector. …When asked what poor countries should do to emulate Hong Kong’s success, he replied, “They should abolish the office of national statistics.”

Amen.

When you give data to politicians and bureaucrats, they generally find something they don’t like and then can’t resist the temptation to intervene.

Now that we’ve looked at some of the factors that enabled Hong Kong’s prosperity, let’s consider what may happen if there’s a crackdown by China.

Professor Tyler Cowen shares a pessimistic assessment in his Bloomberg column.

Hong Kong has been a kind of bellwether for the state of freedom in the wider world. …By 1980, Milton Friedman’s “Free to Choose” series was on television, portraying Hong Kong as a free economy experiencing huge gains in living standards. The skyline was impressive, and you could get all the necessary permits to start a business in Hong Kong in just a few days. The territory showed how Friedman’s theories worked in the real world. Hong Kong stood as a symbol of a new age of freer markets and growing globalization. …Hong Kong still ranks near or at the top of several indices of economic freedom. But…[n]ot only is there the specter of Chinese intervention, but there is also a broader understanding that the rules of the game can change at any time… Meanwhile, many Hong Kong residents know their behavior is being monitored and graded, and they know the role of the Chinese government will only grow. …Freedom is not merely the ability to buy and sell goods at minimum regulation and a low tax rate, variables that are readily picked up by economic freedom indices. Freedom is also about the…legitimacy and durability of their political institutions. …Circa 2019, Hong Kong is a study in the creeping power and increasing sophistication of autocracy. While it is possible there could be a Tiananmen-like massacre in the streets of Hong Kong, it is more likely that its mainland overlords will opt for more subtle ways of choking off Hong Kong’s remaining autonomy and freedoms. …right now, I would bet on the Chinese Communist Party over the protesters.

If Cowen is right, one thing that surely will happen is that money will flee.

And that may already be happening. Here are some excerpts from a Bloomberg report.

Private bankers are being flooded with inquiries from investors in Hong Kong…wealthy investors are setting up ways to move their money out of the former British colony more quickly, bankers and wealth managers said. A major Asian wealth manager said it has received a large flow of new money in Singapore from Hong Kong over recent weeks, requesting not to be identified due to the sensitivity of the issue. One Hong Kong private banker said the majority of the new queries he receives aren’t coming from the super-rich, most of whom already have alternative destinations for their money, but from individuals with assets in the $10 million to $20 million range. …The extradition fight reinforced concerns among Hong Kong investors and democracy advocates alike that the Beijing-backed government is eroding the legal wall separating the local judicial system from the mainland’s. …The recent demonstrations are the latest trigger in a long process of Chinese money flowing to Singapore, London, New York and other centers outside Beijing’s reach. …“Hong Kong has shot itself in the foot,” said Chong, a Malaysian who has permanent residency in both Hong Kong and Singapore. “Can you imagine Singapore allowing this?”

And keep in mind that big money is involved. Here’s a chart that accompanied the analysis.

Looking at these numbers, I want to emphasize again that China also will suffer if a crackdown causes money to flee Hong Kong.

Which is President Xi should resist the urge to intervene.

I’ll close with this visual depiction of Hong Kong’s amazing growth.

Let’s hope Beijing doesn’t try to reverse this progress.

P.S. You’ll notice that I didn’t advocate for democracy, either in this column or in the interview. That’s because I’m more concerned with protecting and promoting liberty. Yes, it’s good to have a democratic form of government. If I understand correctly, there’s also an empirical link between political freedom and economic freedom. But sometimes democracy simply means the ability to take other people’s money, using government as the middleman. That’s why the people of not-very-democratic Hong Kong are much better off than the people of democratic Greece.

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Back in 2014, I shared two videos – one narrated by Deirdre McCloskey and the other narrated by Don Boudreaux – explaining how the world went from near-universal poverty to mass prosperity (at least in the nations that embraced free markets and the rule of law).

Here’s a video with a similar theme, narrated by Dan Hannan, a British member of the European Parliament (hopefully not for long).

I like this video because it goes back 10,000 years to the invention of agriculture.

Hannan explains how this led to the creation of governments, basically acting as “stationary bandits.”

And for thousands of years, a tiny elite of kings and nobles basically acted as dictators while 99 percent of people endured horrid lives of slavery, oppression, poverty, and misery.

But then, as Hannan discusses (and also explained in the McCloskey and Bourdreaux videos), arbitrary power eventually was replaced by the rule of law and government control was replaced by economic liberty.

Not completely, of course, but to a sufficient degree that there was enough “breathing room” for a private economy to develop. And, in some cases, to flourish.

The result? Massive, amazing, and unthinkable prosperity for ordinary people.

Which gives me a good excuse to share this quote from Joseph Schumpeter, one of the economists from the Austrian School.

Yes, capitalism does wonderful things…assuming politicians don’t get too greedy and saddle us with “goldfish government.”

At times, I’m not overly optimistic. Given the growth of dependency, the expansion of government, and demographic decline, I fear there may be 22nd-century videos discussing how the United States reached a “tipping point” and went downhill.

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I’ve applauded China’s economic progress.

It’s economic liberty score jumped from 3.64 in 1980 to 6.46 in the most recent edition of Economic Freedom of the World.

That shift toward markets (which started in a village) helped to dramatically reduce poverty and turn China into a middle-income nation.

That’s the good news.

The bad news is that most of China’s economic liberalization (from 3.64 to 6.15) occurred between 1980 and 2003.

Since that time, China’s score has improved at a glacial pace. Moreover, because other nations have been more aggressive about reducing the burden of government, China’s relative ranking has actually dropped (from #88 to #107) since 2003.

Which is why I’ve warned that China needs another burst of pro-market reform if it wants to become a rich country.

Regarding this issue, the Wall Street Journal has a very interesting report about how China is under-performing.

The country’s state-led growth model is running out of gas. A recession or crisis may not be imminent, but the long-run implications are just as serious. Absent a change in direction, China may never become rich. …First, official statistics probably paint too flattering a picture. Per-capita income may be a quarter lower than reported, based on a study of nighttime light co-authored by Yingyao Hu of Johns Hopkins University. …Second, it doesn’t measure up to the economies China seeks to emulate. Taiwan, South Korea and Japan all opened their economies to global trade and investment, enjoyed superfast growth for several decades… In fact, China seems to be slowing sooner than the others.

Why is China underperforming?

Too much statism. Simply stated, the government has too much control over the allocation of labor and capital.

For 30 years the Communist Party opened ever more of the economy to private enterprise, trade, foreign investment and market forces. Yet it never relinquished its commitment to socialism and Mr. Brandt says that since the mid-2000s the government has tightened control over sectors… An inefficient state sector matters less if the private sector grows fast enough. But in recent years, private firms in China have faced multiple headwinds. State-controlled banks prefer to lend to state-owned enterprises… The domestic private sector’s share of total sales has dropped about 5 percentage points since 2016, according to Goldman, while the state sector’s share has risen roughly as much.

By the way, many observers (from the American Enterprise Institute, Peterson Institute for International Economics, the New York Times, the New York Post, and Investor’s Business Daily) echo the concern about China becoming more statist in recent years.

I’ll make a more restrained point.

I’ll start by sharing this very interesting chart from the WSJ story. It shows how China’s growth, while impressive, has not been as rapid as the growth enjoyed by other Asian economies.

If you look below, you’ll see I’ve now augmented the chart to explain why China has under-performed.

On the right side, I’ve added the historical rankings from Economic Freedom of the World. As you can see (and just as theory and evidence teaches us), the other nations on the chart enjoyed more growth because they had more economic freedom.

These numbers reinforce my argument that China needs more pro-market reform. Though I should add the caveat that EFW has added more nations over time, so this comparison overstates the degree to which China is lagging.

But it is lagging. The bottom line is that China needs to copy Hong Kong and Singapore if it wants to become a rich nation. Or even Taiwan, which is an under-appreciated success story.

P.S. Keep in mind that China also faces demographic decline, which makes good policy even more necessary and important.

P.P.S. Amazingly, both the OECD and IMF are trying to sabotage China’s economy.

P.P.P.S. The WSJ story is an example of good reporting. If you want an example of bad reporting about China, check out this bizarre story from the New York Times.

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The candidates for the 2020 Democratic nomination are competing to offer the most statist agenda, with Crazy Bernie, Elizabeth Sanders, and Kamala Harris being obvious examples.

But let’s not overlook Mayor Pete Buttigieg. He has a moderate demeanor, but he’s been advocating hard-left policies.

And he justifies his class-warfare agenda by arguing against Reaganomics and claiming that incomes have been stagnant since the 1980s.

South Bend Mayor Pete Buttigieg, a 2020 Democratic presidential hopeful, said the governing philosophy of Republicans such as former President Ronald Reagan, who signed across-the-board tax rate cuts to grow the economy, should not be repeated in the future. “What we’ve seen is that the rising tide rose, right? GDP went up. Growth went up. Productivity went up — big numbers went up and most of our boats didn’t budge. For 90 percent of Americans, you start the clock right around the time I’m born. Income didn’t move at all — so lower to middle income, really, almost all of us,” Buttigieg said.

Is this true? Have Americans been on a treadmill?

We can easily answer that question because I was at “FEEcon” this past weekend, an annual conference organized by the Foundation for Economic Education.

There were plenty of great presentations (including, I hope, my remarks on the economics of protectionism).

I was most impressed, however, by Professor Antony Davies, who gave some upbeat remarks about living standards.

Here’s one of his slides, which shows some headlines that echo the pessimistic view of Mayor Pete.

But do those headlines reflect reality?

If we look at cash wages since 1979, it seems that there hasn’t been much growth.

But cash is only part of total compensation.

Professor Davies showed that total compensation is up by a significantly greater amount.

By the way, I don’t think this is unalloyed good news.

A big reason for the difference between cash income and total compensation is that we have an exclusion in the tax code that encourages the over-provision of fringe benefits (which, in turn, contributes to the third-party payer problem).

But I don’t want to digress too much. The key point is that workers have seen healthy increases in compensation, notwithstanding the fact that I wish it was more in the form of wages.

Now let’s look at some more headlines from Davies’ presentation.

According to many news sources, the middle class is in trouble.

Is that true?

Professor Davies goes back to 1970 and (after adjusting for inflation) shows the distribution of households in America by income.

And then he shares the same data for every five-year period since 1970 to show that the middle class has shrunk.

But it shrank because a greater share of the population became rich.

Let’s close with two more slides, both of which look at 100 years of data.

This chart shows take-home pay for three types of workers.

And, more importantly, here’s a chart showing how much those three workers could buy based on hours of work.

As you can see, even a minimum-wage worker is much better off today than an average worker 100 years ago (with the exception of movie tickets).

Since we just looked at long-run data, let’s close today’s column with some short-run numbers.

In a column for the U.K.-based Guardian, Michael Strain of the American Enterprise Institute explains that capitalism currently is delivering some very positive results for ordinary people.

This is a strange time to be debating whether capitalism is broken, at least in the United States. The economy has added jobs every month since October 2010 for a total of over 20m net new payroll jobs. The unemployment rate is below 4%, lower than it has been since 1969. Wage growth is finally accelerating, clocking in at a rate well above 3% a year for typical workers. The workforce participation rate for people ages 25 to 54 has increased by 1.6 percentage points since 2015, wiping out half a decade of decline. There are more job openings than unemployed workers in the US. …So much for a stagnant economy. …Since 2016, weekly earnings for the bottom 10% of full-time workers have grown more than 50% faster than for workers at the median. The unemployment rate for adults without a high school degree is further below its long-term average than the rate for college-educated workers.

By the way, I’m not trying to be a Pollyanna with rose-colored glasses.

We have numerous bad policies that are hindering prosperity. If we reduced the size and scope of Washington, we could enjoy even greater levels of prosperity.

But we shouldn’t make the perfect the enemy of the good. The United States is one of the world’s most market-oriented nations.

This tweet nicely captures the choice we face in the real world. We have “almost capitalism,” which has made the U.S. a rich nation.

Some politicians, such as Mayor Pete and Crazy Bernie, would prefer to move the nation toward “almost socialism.”

They don’t intend (I hope!) to go too far in that direction, but incremental moves in the wrong direction will cause incremental weakening of American prosperity.

And they’re dead wrong on the issue of income growth.

P.S. Many of the Democrats say we should copy the statist policies of various European nations. I wish a journalist would ask them why we should copy the policies of nations that have lower living standards.

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I wrote yesterday about the debate among leftists, which is partly a contest between Bernie Sanders-style socialists and Elizabeth Warren-style corporatists.

Now let’s look at the debate on the right.

There’s an ongoing argument over what it means to be conservative, especially when thinking about the role of the federal government.

You can view this debate – if you peruse this “political compass test” – as being a battle over whether it is best for conservatism to be represented by Friedrich Hayek or Angela Merkel? By Donald Trump or Gary Johnson?

As far as I’m concerned, it’s a debate between whether the right believes in the principles of small-state classical liberalism or whether it thinks government should have the power to steer society.

Representing the latter view, here’s some of what Henry Olsen wrote for the Washington Post.

…libertarian-minded opinion leaders have criticized Trump… For these people, Trump was…an apostate whose heresies had to be cast out of the conservative church. Trump’s overwhelming victory in the primaries should have shocked them out of their ideological slumber. …the market fundamentalists seem to see nothing— absolutely nothing — about today’s capitalism to dislike. …National Review’s founder, William F. Buckley, famously wrote that…the federal government’s proper peacetime duties are solely to “protect its citizens’ lives, liberty, and property.” With respect to its efforts to do anything else, “we are, without reservation, on the libertarian side.” But that dog don’t hunt politically. ..libertarian-conservatives remain oblivious or intentionally in denial… The New Deal’s intellectual core, that the federal government should vigorously act to correct market failures, remains at the center of what Americans expect from Washington. Trump’s nomination and election proved beyond a shadow of a doubt that even a majority of Republicans agree. Less doctrinaire conservative thinkers understand this. Ramesh Ponnuru noted in his National Review essay that…capitalism “require[s] invigoration” as a result. The American Enterprise Institute’s Yuval Levin goes further, noting that “sometimes our economic policy has to be determined by more than purely economic considerations.” Other factors, such as social order and family formation, are also worthy goals to which pure economic efficiency or growth must bend at times. …this debate is fundamental to the future of conservatism and perhaps of the United States itself.

And here’s the beginning of a history-filled article by Joshua Tait in the National Interest.

When FOX television host Tucker Carlson recently attacked conservative faith in free market economics, he probably surprised a number of his viewers. For too long, Carlson charged, libertarians and social conservatives have ignored the fundamental part economic structures play in undermining communities. Families are crushed beneath market forces. Disposable goods—fueled by consumer culture—provide little salve for drug addiction and suicide. Markets are a “tool,” Carlson said, not a “religion.” “You’d have to be a fool to worship” them. Carlson put a primetime spin on an argument that has been brewing for some time on the right. Just as the 2008 economic collapse and the national prominence of Bernie Sanders have begun to shift the Democratic Party’s stance toward socialism, so the long effects of the downturn and Trump’s election have caused a rethinking of conservative commitment to free markets.

Last but not least, Jonah Goldberg examines a slice of this divide in a column for National Review.

The idea holding together the conservative movement since the 1960s was called “fusionism.” The concept…was that freedom and virtue were inextricably linked. …Today, conservative forces concerned with freedom and virtue are pulling apart. The catalyst is a sprawling coalition of self-described nationalists, Catholic integralists, protectionists, economic planners, and others who are increasingly rallying around something called “post-liberal” conservativism. By “liberal,” they…mean classical liberalism, the Enlightenment worldview held by the Founding Fathers. What the post-liberals want is hard to summarize beyond generalities. They seek a federal government that cares more about pursuing the “highest good” than protecting the “libertarian” (their word) system of individual rights and free markets. …On the other side are…conservatives who…still rally to the banner of classical liberalism and its philosophy of natural rights and equality under the law. …this intellectual mudfight really is…about what conservatism will mean after Trump is gone from the scene. …the so-called post-liberals now want Washington to dictate how we should all pursue happiness, just so long as it’s from the right. …Where the post-liberals have a point is that humans are happiest in communities, families and institutions of faith. The solution to the culture wars is to allow more freedom for these “little platoons” of civil society… What America needs is less talk of national unity — from the left or the right — and more freedom to let people live the way they want to live, not just as individuals, but as members of local communities. We don’t need to move past liberalism, we need to return to it.

For what it’s worth, I prefer Jonah’s analysis.

But I’ll also make three additional points.

First, if we care about maximizing freedom and prosperity, there’s no substitute for classical liberalism.

In my lifetime, there have been various alternatives to free markets. There was pre-Reagan Rockefeller Republicanism, post-Reagan “kinder and gentler,” George W. Bush’s so-called compassionate conservatism, reform conservatism, and now various strains of Trumpism and populism.

It may very well be true that some of these alternatives are more politically palatable (though I’m skeptical given the GOP’s unparalleled electoral success with an anti-big government message in 1980, 1994, 2010, and 2014).

But even if some alternatives are more popular, the associated policies will hurt people in the long run. That’s a point I made when arguing for supply-side tax cuts over family-friendly tax cuts.

In other words, you demonstrate compassion by giving people opportunity to prosper, not by giving them other people’s money.

Second, there’s nothing about classical liberalism or capitalism that suggests people should be selfish and atomistic.

Indeed, I pointed out, starting at the 3:36 point of this interview, that a libertarian society is what allows family, neighborhood, and community to flourish.

And, as Jonah explained, the “platoons” of “civil society” are more likely to thrive in an environment where the central government is constrained.

My third and final point is that I’m pessimistic.

The debate on the left is basically about how to make government bigger and how fast that process should occur.

Unfortunately, there isn’t a similar debate on the right, featuring different theories of how to shrink the size and scope of government.

Instead, the Reaganite-oriented classical liberals are the only ones who want America to become more like Hong Kong, while all the competing approaches basically envision government getting bigger, albeit at a slower rate than preferred by folks on the left.

In other words, we’re in a political environment where everyone on the left is debating how quickly to become Mexico and many people on the right are debating how quickly to become France.

No wonder I’ve identified an escape option if America goes down the wrong path.

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I’m in Sydney, Australia, but not because I’m confirming that this country will be my escape option if (when?) the United States suffers a Greek-style fiscal collapse.

Instead, I’m Down Under for the annual Friedman Conference.

This gives me an excuse to write about Australia, especially since national elections just took place this past weekend. Interestingly, the incumbent, right-of-center government retained power in an upset, winning 77 or 78 seats (out of a possible 151).

Here’s the breakdown.

The folks at Slate lean to the left, so their article is understandably riddled with anguish.

Australia’s dysfunctional, unpopular, conservative government…held onto power for a third term in Saturday’s national election. This happened despite the fact that most analysts expected it to lose a large number of seats; despite being (seemingly) out of step with the nation’s emerging consensus on climate change.. A Labor Party win had been anticipated for three years, with the opposition winning every single poll of the last term. …Expected swings against the coalition in several regions of the country didn’t materialize, while there was a crucial 4 percent swing against Labor in the state of Queensland (alternately described as Australia’s Alabama or Florida). …Progressive Australians are—to understate things—“hurting,”…(only they’re threatening to move to New Zealand instead of Canada). …Labor’s environmental stance, while not actually all that bold, hurt it in coal-friendly Queensland and among voters worried about the costs of acting on climate change… Progressive Australians are reeling because any lingering illusions that we were a “fair” nation have been shattered. Whatever Labor’s political shortcomings, Australians in general voted against a detailed platform that aimed to seriously address climate change, raise wages, increase cancer funding, make child care free or significantly cheaper, close tax loopholes for corporations and the wealthy, fund the arts, fund the underfunded public broadcaster… Instead, they voted for … not much of anything (other than some tax cuts).

Since I’m a wonk, I’m much more interested in the policy implications rather than the political machinations.

The good news is that Labor’s defeat means Australia will be spared some costly tax increases and some expensive green intervention.

But it’s unclear whether there will be many pro-growth reforms.

The right-of-center Liberal-National Coalition has promised some tax relief, but I don’t know if it will be supply-side rate reductions or merely the distribution of favors using the tax code.

For what it’s worth, Australia needs to lower its top tax rate on households, which is nearly 50 percent. European-type tax rates are always a bad idea, and they are especially senseless for a country that has to compete with Hong Kong and Singapore.

It would also be nice if the newly reelected government chooses to fix some of the housing policies that have made Australian cities very unfriendly to families.

Joel Kotkin explains why this is a problem in an article for City Journal.

Few places on earth are better suited for middle-class prosperity than Australia. From early in its history, …the vast, resource-rich country has provided an ideal environment for upward mobility… Over the last decade, though, Australia’s luck has changed… Despite being highly dependent on resource sales to China—largely coal, gas, oil, and iron ore—Australia has embraced green domestic politics more associated with Manhattan liberals or Silicon Valley oligarchs than the prototypical unpretentious Aussie… Historically, the Australian Labor Party, like its counterpart in Britain, was a party of the working class. …These views seem almost quaint today, particularly for a Labor Party increasingly dominated by those operating outside the tangible economy, as part of the professional class—media, finance, public service—and concentrated in the largely family-free urban cores. …Australia’s commitment to renewable energy dwarfs that of even the most committed green-leaning countries. Per capita, Australia has installed roughly five times as many renewable-energy installations as the E.U., the U.S., or China, and even two-and-a-half times more than climate-obsessed Germany. …The most pernicious assault on Australia’s middle class comes from regulation of land and expenditures to promote urban density. …In Australia, only 0.3 percent of the country is urban. As in major cities in Great Britain, Australia, the U.S., and Canada, “smart growth” has helped turn Australia’s once-affordable cities into some of the world’s costliest. …Sydney’s planning regulations, according to a Reserve Bank study, add 55 percent to the price of a home. In Perth, Melbourne, and Brisbane, the impact exceeds $100,000 per house. Australian cities once filled with family-friendly neighborhoods are becoming dominated by dense apartments. …Today, many Australians face an uncharacteristically bleak future. Urged to settle where the planners and pundits prefer, they’re stuck in places both unaffordable and inhospitable, as part of a needless governmental drive to make life there more like that of the more congested, socially riven metropoles of Britain.

For all intents and purposes, I want Australian lawmakers to rekindle their reformist zeal.

If you look at the historical data from Economic Freedom of the World, you can see that Australia enjoyed a big jump in economic liberty between 1975-2000.

Basically climbing from 6 to 8 on a 0-10 scale.

Sadly, there hasn’t been much reform this century. That being said, Australia’s era of liberalization last century is still paying dividends. The country is routinely ranked in the top-10 for economic liberty.

Interestingly, many of the changes between 1975-2000 happened when the Labor Party was led by reformers such as Bob Hawke and Paul Keating.

Mr. Hawke, incidentally, just passed away. His obituary in the New York Times acknowledges that he liberalized the economy.

Bob Hawke, Australia’s hugely popular prime minister from 1983 to 1991, who presided over wrenching changes that integrated his nation into the global economy…, died on Thursday… Rising to power as a trade union leader, Mr. Hawke led his center-left Australian Labor Party to four consecutive election victories in a tenure of nearly nine years, in which Australia emerged dramatically from relative isolation… Confronting chronic strikes, soaring inflation, high unemployment and trade deficits, Mr. Hawke revolutionized the economy. He cut protective tariffs, privatized state-owned industries…reined in powerful unions… “We are now living in a tough, new competitive world in which we have got to make it on our own merits,” Mr. Hawke told The New York Times in 1985.

I’m irked, though, that the article doesn’t mention that Hawke (in power from 1983-91) began Australia’s system of personal retirement accounts.

That excellent reform, which was expanded by the Keating government (in power from 1991-96), is paying big dividends to Australia.

Indeed, let’s wrap up today’s column with some excerpts from a laudatory article in the Economist.

The last time Australia suffered a recession, the Soviet Union still existed and the worldwide web did not. …No other rich country has ever managed to grow so steadily for so long. …Public debt amounts to just 41% of GDP—one of the lowest levels in the rich world. That, in turn, is a function not just of Australia’s enviable record in terms of growth, but also of a history of shrewd policymaking. Nearly 30 years ago, the government of the day overhauled the pension system. Since then workers have been obliged to save for their retirement through private investment funds.

It’s noteworthy that the system of personal accounts, known as superannuation, manages to attract praise from unlikely quarters.

And it is one of the reasons for the country’s success. Here’s an accompanying chart showing that Australia has enjoyed more growth, higher wages, and less debt than other major nations.

Is Australian policy perfect? Of course not.

But does the data from Australia show that better policy leads to better results? Definitely.

P.S. The Aussies also reaped big benefits by unilaterally reducing trade barriers (it would be nice if a certain person residing at 1600 Pennsylvania Avenue learned from that experience).

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