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The Organization for Economic Cooperation and Development has published a 136-page “Economic Survey” of China.

My first reaction is to wonder why the Paris-based bureaucracy needs any publication, much less such a long document, when Economic Freedom of the World already publishes an annual ranking that precisely and concisely identifies the economic strengths and weaknesses of various nations.

A review of the EFW data would quickly show that China doesn’t do a good job in any area, but that the nation’s biggest problems are a bloated public sector and a suffocating regulatory burden.

Though it’s worth noting that China’s mediocre scores today are actually a big improvement. Back in 1980, before China began to liberalize, it received a dismal score of 3.64 (on a 1-10 scale). Today’s 6.45 score isn’t great, but there’s been a big step in the right direction.

One of the most impressive changes is that the score for the trade category has jumped from 2.72 to 6.78 (i.e., moving from protectionism toward open trade is good for growth).

I cite this EFW data because part of me wonders why the OECD couldn’t be more efficient and simply put out a 5-page document that urges reforms – such as a spending cap and deregulation – that would address China’s biggest weaknesses?

To be fair, though, the number of pages isn’t what matters. It’s the quality of the analysis and advice. So let’s dig into the OECD’s China Survey and see whether it provides a road map for greater Chinese prosperity.

But before looking at recommendations, let’s start with some good news. This chart shows a dramatic reduction in poverty and it is one of the most encouraging displays of data I’ve ever seen.

Keep in mind, by the way, that China’s economic statistics may not be fully trustworthy. And it’s also worth noting that China’s rural poverty measure of CNY2300 is less than $350 per year.

Notwithstanding these caveats, it certainly appears that there’s been a radical reduction in genuine material deprivation in China. That’s a huge triumph for the partial economic liberalization we see in the EFW numbers.

Now let’s see whether the OECD is suggesting policies that will generate more positive charts in future years.

The good news is that the bureaucrats are mostly sensible on regulatory matters and state-owned enterprises (SOEs). Here are a few excerpts from the document’s executive summary.

Business creation has been made easier through the removal and unification of licenses. …Gradually remove guarantees to SOEs and other public entities to reduce contingent liabilities. …Reduce state ownership in commercially oriented…sectors. Let unviable SOEs go bankrupt, notably in sectors suffering from over-capacity.

The bad news is that the OECD wants the government to increase China’s fiscal burden. I’m not joking.

Policy reforms can greatly enhance the redistributive impact of the tax-and-transfer system. …Increase central and provincial government social assistance transfers…increase tax progressivity. Implement a broad-based nationwide recurrent tax on immovable property and consider an inheritance tax.

This is bad advice for any nation at any point, but it’s especially misguided for China because of looming demographic change.

Here’s another chart from the report. It shows a staggering four-fold increase in the share of old people relative to working-age people in the country.

This chart should be setting off alarm bells. The Chinese government should be taking steps to lower the burden of government spending and implement personal retirement accounts so there will be real savings to finance this demographic shift.

But the OECD report actually encourages less savings and more redistribution.

…rebalancing of the economy towards consumption is key. …Social infrastructure needs to be further developed…and the tax and transfer system made more progressive. …tax exemptions on interest from government bonds and savings accounts at Chinese banks could be abolished…introduction of inheritance tax.

What’s especially noteworthy is that the personal income tax in China (as is the case in almost all developing nations) only collects a trivial amount of revenue.

In 2016, PIT revenue amounted to 1.4 percent of GDP.

So why not do something bold and pro-growth, such as abolish that repugnant levy and make China a beacon for entrepreneurship and investment?

Needless to say, that’s not a recommendation you’ll find in a report from the pro-tax OECD.

And given the bureaucracy’s dismal track record, you won’t be surprised that there’s lots of rhetoric about the supposed problem of inequality, all of which is used to justify higher taxes and more redistribution.

The OECD instead should focus on growth and poverty mitigation, goals that naturally lend themselves to pro-market reforms.

Which brings me to the thing that’s always been baffling. Why doesn’t China simply copy the ultra-successful policies of Hong Kong, which has been a “special administrative region” of China for two decades?

Hong Kong has the policies – a spending cap, very little redistribution, open trade, private Social Security, etc – that China needs to become a rich nation.

If the leadership in Beijing has been wise enough to leave Hong Kong’s policies in place, why haven’t they been astute enough to apply them to the entire country?

Every so often, I think China is moving in that direction, only to then come across reasons to be pessimistic.

P.S. The OECD’s China report was predictably disappointing, but it wasn’t nearly as bad as the IMF’s report on China, which I characterized half-jokingly as a declaration of economic war.

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An essential part of a free market economy is the price system. The competitive pricing of goods and services transmits information to producers and consumers and creates incentives for the efficient allocation of resources. Just as the circulatory system or nervous system enables our bodies to function.

And when you weaken or cripple markets with various forms government intervention (price controls, taxes, third-party payer, etc), that leads to distortions that reduce prosperity.

This is why “paycheck fairness” proposals to address the supposed “gender pay gap” are so risky for prosperity. It’s no exaggeration to say that these “comparable worth” schemes are designed to empower bureaucrats and politicians to override market forces.

What makes all this especially frustrating is there is no systemic discrimination against females in the workplace.

One of the leading scholars in this field is Christina Hoff Summers of the American Enterprise Institute. She has dissected the data and demonstrated that there is no pay gap once factors such as occupational choice and work hours are added to the equation. And now she has a must-watch video on the subject from Prager University.

All of her data is very compelling, but the most persuasive part of the video is at the beginning when she asks why profit-seeking businesses don’t fire men and hire women if there really is a wage gap.

Statists might respond that businesses are part of some evil patriarchy and that there’s some sort of oligopolistic conspiracy to forego income in order to oppress females. But if that’s what they really think, why don’t these leftists start their own businesses and take advantage of the supposed pay gap? Not only would they earn large profits, but they would also bankrupt existing firms that ostensibly are engaging in discrimination.

Sounds like a win-win, right?

And if they respond by saying that they don’t happen to have business skills because they chose to study more enlightened topics while in school, then ask them why progressive companies from France or Sweden aren’t entering the American market and earning lots of business?

Or are they part of the patriarchal conspiracy as well? Like almost all theories based on conspiracies, this is nonsense.

Let’s close with some wisdom on this issue from one of my colleagues at the Cato Institute. Vanessa Brown Calder cites a considerable amount of data on occupational choice, but also focuses on quality-of-life and family issues.

…women are considerably more likely to absorb more care-taker responsibilities within their families, and these roles demand associated career trade-offs. Sheryl Sandberg’s Lean In describes 43% of highly-qualified women with children as leaving their careers or off-ramping for a period of time. And a recent Harvard Business Review report describes women as being more likely than men to make decisions “to accommodate family responsibilities, such as limiting (work-related) travel, choosing a more flexible job, slowing down the pace of one’s career, making a lateral move, leaving a job, or declining to work toward a promotion.” It’s fair to assume that such interruptions impact long-term wages substantially. In fact, when researchers try to control for these differences, the wage gap virtually disappears. …It’s likely that other, more nuanced but documented differences, like spending fewer hours on paid work per week would explain some of the remaining five percent pay differential.

The philoso-raptor agrees.

P.S. Given its track record of shoddy and biased output, is anyone surprised that the Paris-based Organization for Economic Cooperation and Development is pushing dishonest gender pay data?

P.P.S. Even the Obama-era Council of Economic Advisers had enough integrity to disavow the feminist pay-gap numbers.

P.P.P.S. On an amusing note, here are some news reports about my interaction with the feminist left during my college years.

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The Index of Economic Freedom is my favorite annual publication from the Heritage Foundation. It’s a rich source of information, using dozens of data sources, about economic liberty around the world.

I first wrote about the Index back in 2010 and shared the bad news that the U.S. score dropped dramatically in Obama’s first year.

Well, the new Index lets us see the net effect of Obama’s entire tenure. The worse news is that the U.S. score has dropped to 75.1 on a 0-100 scale. And the worst news is that this represents America’s lowest score in the twenty-plus years that the Index has been published.

The United States is ranked #17 in the latest Index. We’re only in the “Mostly Free” category, behind Luxembourg and the Netherlands and tied with Denmark.

The top-ranked jurisdiction, once again, is Hong Kong. And what’s really amazing is that Hong Kong actually increased it score. Indeed, all five nations in the “Free” category managed to increase overall economic freedom.

So congratulations also to Singapore, New Zealand, Switzerland, and Australia.

Here’s a map showing the entire world. The worst nations are in red, with North Korea at the very bottom, followed by Venezuela and Cuba.

By the way, Cuba jumped 4.1 points last year, so maybe Fidel’s death is the beginning of some much-needed liberalization.

For more information on the United States, here’s the breakdown of America’s score. As you can see, our worst category is “government size.” In other words, we tax too much and spend too much.

America’s best score is for “regulatory efficiency,” which helps to explain why the U.S. gets a top-10 score from the World Bank’s Doing Business.

Let’s close by comparing the United States with Hong Kong. This charts shows how our scores have changes over time, and also shows the average score for the entire world.

The biggest takeaway is that the U.S. basically is halfway between Hong Kong and the world average.

The great unknown, of course, is whether America’s score will go up or down under Trump.

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When trying to educate people about the superiority of free enterprise over statism, I generally show them long-run data comparing market-oriented jurisdictions with those that have state-driven economies. Here are some of my favorite examples.

It’s my hope that when readers look at these comparisons, they will recognize the value of economic freedom because it is very obvious that ordinary people become far more prosperous when government is small.

But there’s also another way of determining which approach is superior. Just look and see what happens when people are allowed to vote with their feet. Or, just as important, look at places where people are not allowed to vote with their feet.

The Berlin Wall and the Iron Curtain, for instance, existed to prevent people from escaping the horror of Soviet communism. Likewise, people in North Korea and Cuba don’t have the freedom to emigrate.

Totalitarian governments realize that their citizens would escape en masse if they had the chance.

In free countries, by contrast, there’s no need to imprison people.

And that’s why this Imgur image is not only funny, but also a good summary of population shifts around the world.

I’ll definitely have to add this to my collection of libertarian humor.

To be sure, not everybody who moves from a statist hellhole to a prosperous capitalist society is motivated by an appreciation for liberty. They may simply want a better life and have no idea that national prosperity is a function of economic liberty.

And they may not even want to earn a better life. They may simply want to get on the gravy train of government handouts (which is why I’m not a fan of America’s dependency-inducing refugee program).

But I’m digressing. The simple moral of today’s story is that decent societies don’t have to imprison their citizens. That only happens in place where government is not only big, but also evil.

P.S. Unlike some libertarians, I like borders.

P.P.S. People also vote with their feet inside nations, and the lesson to be learned is that smaller governments attract more people.

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All things considered, I like small businesses more than big businesses.

Not because I’m against large companies, per se, but rather because big businesses often use their political influence to seek unearned and undeserved wealth. If you don’t believe me, just look at the big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy scam.

It’s almost as if cronyism is a business model.

By contrast, the only bad policy associated with modest-sized firms is the Small Business Administration. And I suspect the majority of little firms wouldn’t even notice or care if that silly bit of intervention was shut down.

Rather than seeking handouts, small businesses generally are more focused on fighting back against excessive government.

That’s because taxes and red tape can be a death sentence for a mom-and-pop firm. Literally, not just figuratively.

The Daily News reports on the sad closing of popular restaurant in New York City.

For 25 years, China Fun was renowned…the restaurant’s sudden Jan. 3 closing, blamed by management on suffocating government demands. …“The state and municipal governments, with their punishing rules and regulations, seems to believe that we should be their cash machine to pay for all that ails us in society.” …Albert Wu, whose parents Dorothea and Felix owned the eatery, said the endless paperwork and constant regulation that forced the shutdown accumulated over the years. …Wu cited one regulation where the restaurant was required to provide an on-site break room for workers despite its limited space. And he blamed the amount of paperwork now required — an increasingly difficult task for a non-chain businesses. “In a one-restaurant operation like ours, you’re spending more time on paperwork than you are trying to run your business,” he griped. Increases in the minimum wage, health insurance and insurance added to a list of 10 issues provided by Wu. “And I haven’t even gone into the Health Department rules and regulations,” he added. …“For smaller businesses like China Fun, each little thing that occurs makes it harder,” said Malpass. “Each regulation, each tax — you put it all together and it’s just a hostile business environment.”

This is rather unfortunate, but perhaps it is a “teachable moment.”

There are two things that came to mind as I read this story.

  • First, at some point a camel’s back is broken by too much straw. Politicians often claim that a particular tax or regulation imposes a very small burden. Perhaps that is true, but when you have dozens of taxes and hundreds of regulations, those various and sundry small burdens become very onerous. I’ve made the point before that you don’t need perfect policy for the economy to function. You just need “breathing room.” Well, China Fun ran out of breathing room. A casualty of big government, though it remains to be seen if anyone learns from this experience.
  • Second, complicated taxes and regulations are a much bigger burden for small companies compared to big corporations. Every large firm has teams of lawyers and accountants to deal with tax and regulatory compliance. That’s expensive and inefficient, of course, but such costs nonetheless consume only a very small fraction of total revenue. For small businesses, by contrast, those costs consume an enormous percentage of time, energy, and resources for owners. For all intents and purposes, bad government policy creates a competitive advantage for big firms over small firms.

The moral of the story is that we should have smaller government. Not just lower taxes (and simpler taxes), but also less regulation and red tape.

Not just because such policies are good for overall economic performance, but also because small businesses shouldn’t be disadvantaged.

P.S. Since we’re on the topic of how government tilts the playing field in favor of big companies (at least the corrupt big companies), let’s enjoy some humor on that topic.

Starting with Uncle Sam’s universal bailout application form. And we also have the fancy new vehicle from Government Motors.

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In the spirit of the Christmas season, I’m going to be uncharacteristically happy and upbeat today by pointing out that we don’t need perfection to have more prosperity. We don’t even need very good policy to enjoy growth.

All that’s really necessary is adequate policy. Just allow the private sector a bit of freedom (I’ve referred to this as giving the economy breathing room) and living standards will improve.

We should still strive for perfection, of course, and at least hope for good or very good policy. After all, there’s a big difference in the long run between an economy that grows 5 percent per year versus an economy that grows 3 percent annually, just as there is a big difference over time between an economy 3 percent each year compared to one that grows 1 percent annually.

But my main point is that lives all over the world have dramatically improved over time because, on average, we’ve had decent-enough policy.

Just consider the United States. We’ve never been a laissez-faire paradise. But there’s been enough economic freedom that, over time, we’ve enjoyed amazing improvements in living standards.

And the same is true for the world.

I’ve previously shared powerful videos from Deirdre McCloskey and Don Boudreaux that show the world has become much richer over time, and my colleague Marian Tupy has a website, Human Progress, that provides a wealth of data (including a calculator that allows you to see how things have improved since the year you were born).

Today, I want to share some very upbeat data from Our World in Data. Here’s Max Roser’s cheerful assessment of how life has gotten better over the past 200 years.

The reduction is extreme poverty is probably the most important chart, and presumably helps to drive the big improvements in other factors such as literacy, education, and child mortality.

And what’s driven the drop in extreme poverty, I would argue, is economic liberty. Not the full explanation, to be sure, but people all over the world generally have more freedom than ever before to engage in voluntary exchange.

Yes, the state’s footprint is still far too large. Yes, all nations could grow faster with better policy. But let’s be happy about the fact that even weak growth, over time, can make a meaningful difference in the lives of ordinary people. So cheer up.

P.S. I can’t resist adding a depressing footnote. The traditional cost of bad policy is weak growth, which means living standards increase at a much slower pace. But there’s something else happening in the world that we have to add to the mix. The global change in demographics, combined with the tax-and-transfer welfare states that exist in most nations, are a very dangerous recipe. My fear is that we may move from a world where the “traditional cost” of “weak growth” may be replaced by a world with a “new cost” of “macro instability.” In other words, in the absence of reform, more and more countries are going to face Greek-style fiscal and economic chaos. Moreover, the magnitude of the mess will be so large that the International Monetary Fund and other entities won’t be able to provide bailouts (which is how Greece is being propped up).

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There’s a meme on Facebook and Twitter that asks people to “confess your unpopular opinions.”

I suppose I could play that game by saying that I’d rather eat fast food than patronize most fancy restaurants (especially if I have to pay the bill!). And I’ve unintentionally played that game already by admitting that politicians aren’t always sinister and evil.

But I have something even more astounding to confess: My leftist friends are right when they assert that the free market destroys jobs.

Not only are they right, they probably underestimate the number of jobs that are destroyed by capitalism. Over time, millions of jobs vanish because of the greedy pursuit of profits.

Mark Perry of the American Enterprise Institute shares some very sobering data on how almost all of the big companies of the 1950s have faded over the past 60 years.

Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile). …That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years.

And why did these companies disappear or shrink in size, thus leading to major job losses?

Mostly because capitalists, seeking profits, invested money in ways that displaced old technologies, hurt old competitors, and made old products less attractive.

Sounds terrible, right? Jobs are lost because of greedy rich people trying to increase their wealth.

And if you’re one of the people in the unemployment line, it is terrible.

But keep in mind that this process of creative destruction led to new technologies, new competitors and new products. And the net effect of all these changes is that – on average – we are much richer.

Mark elaborates.

…for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy… In the end, the creative destruction that results in a constantly changing group of Fortune 500 companies is driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high quality and great service.

Indeed, this system is what has given us the “hockey stick” of human progress.

All this disruption and change is what enables our society, over time, to grow faster and produce more goods and services and lower prices.

At least when the market is allowed to operate with the right set of policies – what I call the recipe for growth and prosperity.

In my speeches, I sometimes make similar points by using historical examples.

  • I ask audiences to think about how personal computers have made our lives more enjoyable and productive, but I then ask them to ponder what happened to the people who had jobs making, selling, and servicing typewriters.
  • I ask audiences to think about how the automobile boosted productivity and increased mobility, but I then ask them to consider the lost jobs of people in the horse and buggy industry.
  • I ask audiences to think about how electrification and the light bulb improved the economy in countless ways, but I then ask them to speculate on the number of jobs that were destroyed in the candle-making sector.

The sad reality is that progress has a price tag. Yes, we are far richer because of great inventions that boosted productivity and improved lives. But that doesn’t change the fact that real workers with real families often experienced genuine anguish when jobs in some sectors disappeared. And that’s still happening today.

And workers are largely blameless when job losses occur. All they did was exchange honest work for honest pay. It was the capitalists who made mistakes by not managing companies effectively and not allocating capital efficiently (or, to be more charitable, they simply failed to anticipate major changes that were about to occur).

By the way, this isn’t an argument for government intervention. We would be much poorer today if politicians tried to save jobs every time there was creative destruction in the economy. Perhaps most important, every job that they “saved” would be offset by the jobs (and prosperity) that weren’t created or didn’t materialize because the clumsy foot of government replaced the invisible hand of the market.

What Bastiat taught the world in the 1800s is still true today. We have to consider both the seen (the jobs that are saved) and the unseen (the greater number of jobs that don’t get created) when contemplating the impact of government.

This is why I want the economy to be as dynamic and innovative as possible so that displaced workers can find new positions as quickly as possible, hopefully earning even more money.

Here’s a short video from Learn Liberty that teaches about this process of creative destruction.

P.S. There’s also another Learn Liberty video that teaches about creative destruction. I’m a big fan of all their videos, including the ones on the Great Depression, central banking, government spending, and the Drug War. And the videos on myths of capitalism, the miracle of modern prosperity, and the legality of Obamacare also should be shared widely. You also should watch their videos on job creation, the price system, public choice, and the Food and Drug Administration.

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