Hope for Chile

For a few decades, Chile was very interesting for fans of free markets.

The country became famous for its system of personal retirement accounts, but there were many other reforms that liberalized the economy. Everything from free trade to privatization.

Unsurprisingly, Chile quickly became the richest nation in Latin America, surpassing countries such as Argentina and Venezuela that foolishly embraced bigger government.

But in recent years, Chile has become very interesting for fans of political drama.

• In 2019, there were big protests by the left, initially triggered by an increase in subway fares in Santiago.
• In 2020, the left enjoyed a victory as the country voted overwhelmingly in favor of writing a new constitution.
• In 2021, the left enjoyed another victory when former student activist Gabriel Boric was elected president.
• In 2022, the pendulum swung back to the right as voters overwhelmingly rejected a left-wing constitution.
• Now, in 2023, the right enjoyed another big victory in yesterday’s election for a Constitutional Council.

In a report for Bloomberg, Matthew Malinowski and Valentina Fuentes explain what just happened.

Chile’s political right dealt a crushing blow to the government of President Gabriel Boric that will undermine the young leader’s progressive agenda…right-wing candidates won 33 seats Sunday in a Constitutional Council in charge of drafting a new charter. This is above the three-fifths majority needed to push through articles at will… Left-wing contenders obtained 17 spots… A prior attempt to rewrite the charter was overwhelmingly rejected in a September referendum out of concern it went to far to the left, overhauling the foundations of Chile’s free-market economy…and weakening political checks and balances. …The election serves as a harsh reality check for Boric’s left-wing administration as it seeks to revive its progressive agenda, including plans to increase taxes on the rich.

I started today’s column by noting that Chile was interesting for fans of economic freedom and then shifted to explaining why it was an interesting country for fans of political drama.

Let’s close by revisiting the implications for economic policy.

The obvious good news is that there presumably no longer is any danger that Chile will be saddled with a leftist constitution (filled with “rights” to other people’s money).

But I’m more interested in whether yesterday’s election results indicate a rebirth in support for free enterprise.

Chile enjoyed enormous gains thanks to economic liberalization, with the poor enjoying disproportionate gains. But I worry that the nation will get caught in the “middle-income trap” without additional limits on the size and scope of government.

That won’t happen with Boric still in power, so we’ll have to see what happens in the next general election.

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Latin America and Socialist Suicide

I wrote a few days ago about Latin America’s “pink tide” and how statist policies are driving away jobs and investment.

Today, let’s look at John Stossel’s interview with Gloria Alvarez about the grim future of the region.

I especially like the part about 9:00 and 21:00 when she talks about the failure of supposed right-wing governments that continue with socialism – or even make it worse (we have the same problem in the United States).

But the best part of the 25-minute video, in my humble opinion, is her explanation of why statism is seductive and liberty is not.

She uses an iceberg analogy. With socialism, people see good things above the surface but are blind to the horrible consequences beneath the water.

By comparison, the libertarian iceberg is superficially less appealing.

The small part above the water seems cold and heartless. All the good stuff is hidden underneath.

In some sense, these two images are a different way of showing what’s captured in this cartoon.

Needless to say, there’s a big difference between superficial and real. In the video, Ms. Alvarez cites Margaret Thatcher’s famous observation about the inevitable problem with socialism.

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More Evidence of China’s Faltering Economy

At the risk of oversimplifying, here’s the three-sentence trajectory of Chinese economic policy.

• Crippling communist failure and suffering under Mao.
• Partial reform during the “Washington Consensus” era.
• Backsliding to more statism under President Xi.

So what’s all that mean? Well, when you start with awful policy, then take a few steps in the right direction, only to then move back in the wrong direction, you probably won’t be an economic powerhouse.

And that’s exactly what we see in the data.

Here’s a chart showing that there is a huge gap between per-capita economic output in the United States and China. And that gap exists whether we rely on data from either the IMF, Maddison,* the UN, or World Bank.

That chart is the bad news (and it may be even worse than shown in the above data).

The good news is that China is no longer a miserably poor nation, like it was during the fully communist years under Mao.

But it also looks like China will never become a rich nation.

Especially when the government penalizes success. Which has very negative effects, as reported by the Economist.

Regulatory crackdowns have devastated once-thriving sectors like private education. Officials rage against “money worship”… China’s wealthy…have been looking to leave. …in 2022 some 10,800 high-net-worth individuals, who have an average wealth of $6m, left the country, with the flow accelerating at the end of the year as covid controls eased. …Even more are expected to leave in 2023… In recent years, Singapore has been favoured. The city-state is the top destination for Chinese billionaires considering emigration… According to data from Singapore’s central bank, …it is likely that as many as 750 Chinese family offices were registered in Singapore.

Needless to say, it’s not a good sign when the geese with the golden eggs are flying away.

That being said, the problems in China go well beyond class warfare.

The country has a major problem with cronyism (a.k.a., industrial policy).

But I’ve written many times about that issue, so let’s look at another example of China’s bad policy. Li Yuan has an article in The New York Times about wasteful spending and excessive debt in the nation’s cities.

As part of the ruling Communist Party’s all-in push for economic growth this year, local governments already in debt from borrowing to pay for massive infrastructure are taking on additional debt. They’re building more roads, railways and industrial parks even though the economic returns on that activity are increasingly meager. …China’s local governments..are in fiscal disarray. …According to official data, China’s 31 provincial governments owed around $5.1 trillion at the end of 2022, an increase of 66 percent from three years earlier. An International Monetary Fund report puts the number at $9.5 trillion, equivalent to half the country’s economy. …China is full of wasteful infrastructure that the government likes to brag about but that doesn’t serve the most urgent needs of the public. …The Chinese government likes to say the country has the longest and fastest high-speed railways in the world. But…most lines operate below capacity and at a great loss.

Sounds like Amtrak, but on steroids.

The bottom line is that China’s economy is both weak and fragile.

Which is unfortunate. A thriving China presumably is more likely to be a friendly China.

* The Maddison data is for 2018, and uses $2011 dollars rather than current dollars, which explains why it seems significantly different than the other sources.

P.S. Rather than invade Taiwan, China should copy its economic policies. Or copy the policies of other better-performing Asian Tigers. Heck, the recipe for prosperity is not complicated.

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The Failure of Socialism in Venezuela, Part III

In Part I of this series, I documented the dramatic decline in living standards ever since socialists took power in Venezuela.

In Part II, I compared Venezuela’s decline to the other Latin American nations, particularly the success story of Chile.

Initially, I planned on this being a two-part series. After all, what else needs to be said when a nation does so poorly that even other socialists try (and fail) to disavow its policies.

But I decided to add Part III because of a remarkable report in the New York Times.

Authored by Isayen Herrera and Frances Robles, it actually acknowledges that socialism has created massive problems. Here are some excerpts.

…a socialist revolution once promised equality and an end to the bourgeoisie. Venezuela’s economy imploded nearly a decade ago, prompting a huge outflow of migrants in one of worst crises in modern Latin American history. …Conditions remain dire for a huge portion of the population…prices still triple annually, among the worst rates in the world. …Half of the nation lives in poverty…one in three children across Venezuela was suffering from malnutrition as of May 2022… Up to seven million Venezuelans have simply given up and abandoned their homeland since 2015… Last year’s inflation rate of 234 percent ranks Venezuela second in the world, behind Sudan.

What makes this story especially noteworthy is that the Times wrote another article about Venezuela’s dismal economy less than three years ago, yet that piece never once mentioned socialism.

So it’s a sign of progress that the paper now acknowledges that statist policies deserve the blame.

And I also think it’s remarkable that the article noted that socialism produces a grotesque version of inequality, with government insiders and other cronies getting rich while ordinary people suffer horrific deprivation..

Venezuela is increasingly a country of haves and have-nots, and one of the world’s most unequal societies… the wealthiest Venezuelans were 70 times richer than the poorest, putting the country on par with some countries in Africa that have the highest rates of inequality in the world.

The poster child for undeserved socialist wealth is Hugo Chavez’s daughter, who amassed more than $4 billion of ill-gotten gains.

P.S. In spite of the wretched state of the Venezuelan economy, some nutty leftists put together a “Happy Planet Index” that ranked Venezuela above the United States. I still haven’t figured out whether that was crazier than the Jeffrey Sachs’ index that put Cuba above America.

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The Global Decline of Economic Liberty

The world’s freest economy is Singapore, followed closely by Switzerland.

That’s according to the 2023 edition of the Heritage Foundation’s Index of Economic Freedom.

The bad news is that there are only four nation that enjoy “free” economies.

The worse news is that the global average for economic freedom has declined.

Here are some highlights (or lowlights) from the Index‘s executive summary.

The 2023 Index…reveals a world economy that, taken as a whole, is “mostly unfree.” Regrettably, the global average economic freedom score has fallen from the previous year’s 60.0 to 59.3—the lowest it has been over the past two decades. …fiscal soundness has deteriorated significantly. …only four countries (down from seven in the previous year) recorded economic freedom scores of 80 or more, putting them in the ranks of the economically “free;” 23 countries earned a designation of “mostly free” by recording scores of 70.0 to 79.9… On the opposite side of the spectrum, more than 50 percent of the countries…have registered economic freedom scores below 60. …and 28 countries, including China and Iran, are in the economically “repressed” category.

American readers may be wondering about the United States.

Sadly, the US only ranks #25, which is lower than many European welfare states (which generally have higher fiscal burdens, but are more market-oriented in areas like trade and regulation).

What’s especially depressing is that the United States was economically “free” less than 20 years ago.

It’s also depressing that the United Kingdom has suffered a big fall as well.

In a column for RealClearMarkets, Rainer Zitelmann comments on declining economic liberty in the US and UK.

The United States is in imminent danger of dropping out of the Index of Economic Freedom’s “mostly free.” …In the latest ranking, the U.S. only just scrapes into the second-best of the five categories (“mostly free”). If the United States were to lose just one more point in next year’s ranking, it would find itself in the “moderately free” category… The U.S. has progressively dropped down the rankings in recent years. There are now a total of 16 European countries that are economically freer, i.e. more capitalist, than the United States, such as Switzerland, Ireland, Estonia, Luxembourg, Denmark and Sweden. Even Germany and Austria are considered economically freer than the U.S. …Great Britain has already slipped out of the “mostly free” category and into the “moderately free” group of countries. With its score of 69.9 points, Great Britain has the worst rating since the Index was first calculated way back in 1995. In 2006, Great Britain was still on a respectable 80.4 points!

I’m very disappointed that Bush, Obama, Trump, and Biden have all contributed to America’s deteriorating score. A bipartisan mess.

Just like the bipartisan mess in the United Kingdom – thanks to Blair, Brown, Cameron, May, Johnson, and Sunak.

Reagan and Thatcher must be rolling over in their graves.

P.S. I’m not surprised that North Korea is the most economically “repressed” nation, followed by Cuba and Venezuela.

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The Failure of Socialism in Venezuela, Part II

Back in 2011, I shared a chart comparing economic growth in Chile, Argentina, and Venezuela between 1980 and 2008.

My simple goal was to show that market-oriented nations enjoy very fast growth compared to nations with “mixed economies  or socialist economies.

Over the past dozen years, I’ve repeatedly shared that chart and featured it in the “anti-convergence club.”

Having written yesterday about the ongoing economic misery of Venezuela, it dawned on me that is it probably time to update the numbers.

So I went to the International Monetary Fund’s World Economic Outlook database.

What did I find? As you can see from the chart, everything I wrote back in 2011 is still true. Except Chile looks even better and Venezuela looks even worse.

The obvious takeaway is that the longer a nation follows good policy, the better the results. And the longer a nation is subjected to socialism, the worse the results.

If you want numbers, inflation-adjusted per-capita output has nearly tripled in Chile over the past four decades. Call that a reward for good policy.

By contrast, economic growth in Argentina has been very anemic, just 21 percent in 42 years. Call that the price of bad policy.

But Argentina’s anemia looks great compared to Venezuela, where per-capita GDP has suffered a 70 percent collapse. I’m not sure there’s a word to describe such a cataclysmic decline. For lack of a better alternative, we’ll say that’s the “reward” for socialism.

I always challenge my leftist friends to respond to my never-answered question. Maybe I should simplify things and simply ask if they still think Venezuela is a role model.

P.S. I’m still amazed that the New York Times published a lengthy article on Venezuela’s economic misery and somehow never mentioned socialism.

P.P.S. While Venezuela is the main focus of today’s column, I can’t resist sharing my concerns about Chile. As documented in my six-part series in 2021, Chile elected a socialist president. It is therefore possible that a future version of his chart will show grim news. But hope is not lost. Chilean voters overwhelmingly rejected a proposal for a new constitution based on socialism. And just a few days ago, the legislature rejected a huge, class-warfare tax increase.

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The Failure of Socialism in Venezuela, Part I

Socialism is an immoral system that has a horrible track record of misery and failure.

One of the most tragic examples is Venezuela.

It used to be the richest nation in Latin America. But per-capita GDP has collapsed according to IMF data.

As you can see from the chart, there were a couple of decent periods, peaking in 2008 and again about five years later.

But those were driven by world oil prices. The overall trend during the Chavez-Maduro years has been negative.

Socialism has been such a disaster that the country is now largely incapable of benefiting when oil prices rise.

By the way, if you somehow think IMF data is suspect, you can also look at the UN’s Human Development Index. Over the past couple of decades, only Syria, Libya, and Yemen performed worse than Venezuela.

In his column for the Miami Herald, Andres Oppenheimer documents Venezuela’s descent into misery.

As Venezuelan dictator Nicolás Maduro celebrates his 10th year in office this week, a reality check shows that his presidency has been much more disastrous than people think. Maduro…has performed an economic miracle in reverse: He has turned what used to be one of Latin America’s richest countries into the poorest one, alongside Haiti. …Venezuela’s gross domestic product has plummeted from $350 billion in 2013 to $60 billion today… Venezuela’s poverty rate has soared from 40% of the population in 2013 to 94% today… Venezuela’s annual inflation rate has risen to nearly 350% this year from 56% in 2013… More than 7.2 million Venezuelans have fled the country during the past decade, according to United Nations estimates. That’s the biggest mass exodus in Latin America’s history.

That’s a depressing indictment.

But there’s more bad news to share. Here are some excerpts from an article by Dominic Wightman for the U.K.-based Critic.

Caracas has grown into one such city from hell. …there’s all-round cynicism, the pongs of death and dank deprivation ubiquitous. …The capital city is flatlining, the flatline only spiked by oases of ill-gotten gains underwritten by Russian gangsters, by wannabe Cuban puppet masters and the Chavistas themselves, whose grip on Venezuela has been transitorily perpetuated by narcodollars… No politics class or textbook can prepare a man for fifteen years viewing first-hand this latest chapter in the failure of socialist doctrine. The descent to hell in Venezuela has been swift and gruesome. …Too often in the West we have discussed Socialism as if it were a cheese on a cheeseboard, some kind of edible mushroom from which we might find nourishment, even as a side dish in a broader menu of political possibilities. The truth is that Socialism is poison, whichever way it is prepared or digested. It is appropriate — no, it is vital — to be so black and white about it.

Wightman’s analysis is particularly persuasive since he is married to a Venezuelan woman and has personally witnessed the nation’s decline over many years.

P.S. I’m still flabbergasted that the New York Times published a lengthy article on Venezuela’s economic misery and somehow never mentioned socialism.

P.P.S. Here’s my description of what it’s like to encounter victims of Venezuelan socialism.

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The Harmful Consequences of China’s Leftward Shift

Back in 2019, I divided China’s recent economic history into three periods.

• Mao’s utter and total failure
• Deng’s partial liberalization
• Xi’s backsliding to statism

The net result of these three periods is that China did enjoy some growth thanks to partial liberalization. The good news is that the wrenching destitution and suffering of the Mao years is now just an unpleasant memory.

But the bad news is that China is still not a rich nation.

It lags far behind the United States, and I noted just a few months ago that Poland has been out-performing China in recent decades.

And there’s no reason to expect much future progress because of Xi’s misguided policies.

Writing for National Review, Veronique de Rugy noted that Chinese officials are sabotaging the nation with industrial policy – and she warns against similar mistakes in the United States.

…some of us were always skeptical of the notion that China would achieve great economic success after having reversed its move toward market liberalization in 2012 and returned to central planning for its industrial policy. …The idea that a country can become rich through central planning is a myth. …malinvestment, economic distortion, and politically driven policies replete with special-interest-driven handouts, all of which are characteristic features of central planning, eventually inflict a sizeable economic toll that’s impossible to hide. When this happens, the economy slows, companies collapse. …we have a deep historical record that shows repeatedly that state direction of economic activity impoverishes rather than enriches. Many people in America today — on the left and right — still have faith that central planning can work economic marvels, and that we should therefore emulate China’s policies. …Too many politicians, economists, and pundits are invested in the illusion that — equipped with models that can ostensibly predict the future — they can design clever plans to organize the economy.

It’s no surprise that bad policy has bad economic consequences. But it also appears that bad policy has adverse psychological effects as well.

Here are some excerpts from a Washington Post column by Nicholas Eberstadt of the American Enterprise Institute.

China is in the midst of a quiet but stunning nationwide collapse of birthrates. …China’s nosedive in childbearing is a silent alarm. It signals deep disaffection with the bleak future the regime is engineering for its subjects. In this land without democracy, the birth collapse can be read as a landslide vote of no confidence in President Xi Jinping’s rule. …Since 2013 — the year Xi completed his ascent to power — the rate of first marriages in China has fallen by well over half. Headlong flights from both childbearing and marriage are taking place in China today. …Birth shocks of this order almost never occur under stable modern governments during peacetime. …“the birth of a baby,” in the words of the government-run publication People’s Daily, remains “a state affair.” But now Beijing wants more babies from its subjects. A dictatorship may use bayonets to depress birthrates — but it is much trickier to deploy police state tactics to force birthrates up. …The dictatorship has brought this demographic defiance upon itself.

Unhappy and pessimistic people don’t have children.

And some of them also will vote with their feet, as reported by Jason Douglas, Keith Zhai, and Stella Yifan Xie for the Wall Street Journal.

Well-heeled Chinese are leaving China for Singapore, attracted by the city-state’s low taxes and high-quality education, amid anxiety over China’s direction under leader Xi Jinping. …Around 10,800 wealthy Chinese left the country in 2022, according to estimates from New World Wealth, a research firmthat tracks the movements and spending habits of the world’s high-net-worth citizens. …Singapore…has particular attractions for Chinese citizens. It is relatively close to Hong Kong and the Chinese mainland, Mandarin is widely spoken alongside English, and the city boasts excellent schools and a financial sector heavily focused on wealth management. …permanent residency and a fast-track route to Singaporean citizenship are available for those willing to invest at least 2.5 million Singapore dollars ($1.9 million) in new or existing Singapore businesses. …another factor driving Chinese nationals to move abroad is unease over a darkening climate for accumulating wealth in China, as Mr. Xi talks up the need for greater redistribution in his drive for a more egalitarian society.

I’m not surprised that class warfare discourages entrepreneurs. That’s true everywhere in the world.

The exodus from China also was addressed by Li Yuan in an article for the New York Times.

They went to Singapore, Dubai, Malta, London, Tokyo and New York — anywhere but their home country of China, where they felt that their assets, and their personal safety, were increasingly at the mercy of the authoritarian government. …Many of them are still scarred by the last few years, during which China’s leadership went after the country’s biggest private enterprises, vilified its most celebrated entrepreneurs, decimated entire industries with arbitrary regulation… Singapore works because about three million of its citizens, or three-quarters, are ethnic Chinese, and many speak Mandarin. They also like that it is business-friendly and global-minded and, most of all, upholds the rule of law. …For decades, Hong Kong played the role of safe haven for mainland entrepreneurs because of its autonomy from China. That crumbled after Beijing introduced a national security law in the territory in 2020.

Given that is used to be a role model, the last two sentences about Hong Kong are rather depressing.

I’ll close by observing that China’s economic outlook may be even worse than we think because of dishonest data. And if China follows bad advice from the IMF and OECD, the outlook will become even gloomier.

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European Commission Recommends Economic Suicide

What’s the main fiscal and/or economic problem in the European Union?

• Is it that the burden of taxes and spending is very onerous today?
• Or is it that the burden of taxes and spending will become more onerous in the future?

The easy and correct answer is that both are major problems.

But some people think the problem is that EU nations don’t tax and spend enough.

To make matters worse, this kind of thinking infects the bureaucrats at the European Commission, which has released a new report that reads like a Bernie Sanders campaign screed.

It starts by pretending that that Okun’s tradeoff doesn’t exist.

…taxation can contribute to both social justice and sustainable growth, as well as financing the benefits which underpin the social citizenship contract… Contrary to the rhetoric about the inevitability of a trade-off between social justice and economic growth and a fiscal crisis of the State, the problems of financing the welfare state are far from being inevitable. …everyone should be willing to pay their share of the costs involved, whether individuals or companies.

It then explicitly endorses “pay as you go” as a model for fiscal policy, even though that approach is utterly impractical for a region with aging populations and falling birthrates.

The first specific suggestion is that a PAYG approach is the best way to link the rights and duties of generations over time, in line with the social citizenship contract at the heart of the welfare state.

The report has 21 recommendations. Here are the ones that endorse and embrace new and expanded entitlements.

As you might expect, all that new spending is accompanied by a seemingly endless list of new and expanded taxes.

There are two main options for reforming the taxation of personal income. The first is to expand the tax base by limiting or reducing the many tax breaks that are currently present, from tax credits and tax allowances to tax exemptions and preferential treatment of different sources of income, such as income from capital… The second option for reform is to make the taxation of income more progressive. …Increasing corporate taxation. …As with preferential personal income tax regimes, the EU has an important role to play in levelling the playing field, so eliminating the negative externalities of tax competition and ending the ‘race to the bottom’, as well as making multinationals pay their fair share of tax. …there are a number of arguments for higher taxes on wealth. …Increasing taxes on wealth could help to achieve greater fairness, both in the tax system and in the distribution of resources… A tax on net wealth could complement taxes on income from capital… Indirect taxes…can make it easier to achieve social objectives, as in the case of ‘sin’ taxes… Measures such as the EU carbon tax border adjustment mechanism…can prevent unfair competition… Another option is to tax excess profits… A ‘web tax’ aimed at the excess profits of digital service companies, based on their turnover, could be a transitional step… A levy on financial transactions can also be justified, on grounds of fairness… A further option for Member States is to introduce a new tax, …a surcharge levied at source on all incomes… In summary, there are many options for achieving an adequate, fair, and sustainable means of financing of social protection at both EU and Member State levels.

That’s a frightening list.

And if it looks like it might get implemented, one can only imagine how productive people in Europe would start making plans to escape.

But the bureaucrats recommend Soviet-style exit taxes so they can continue grabbing more money.

Another option would be to tax expatriates for a given number of years after they leave the EU.

Let’s close by looking at one final excerpt.

Nations in the European Union supposedly are bound the “Maastricht Critieria” from something called the Stability and Growth Pact.

These fiscal rules focus on limiting deficits and debt and thus are not nearly as good as the spending cap in Switzerland’s “debt brake.”

But even these weak rules apparently are too stringent according to the report.

…there is widespread agreement on the value of social investment for sustaining the inclusive welfare state in the EU… But…the long-term benefits of social investment constantly come up against short-term pressure for fiscal consolidation. …A new system is needed for monitoring public finances in the EU that would allow policy-makers to identify productive social investment…a golden rule should be applied, allowing borrowing for social investment… A starting point should be to exempt social investment from the new Stability and Growth Pact rules.

The bottom line is that Europe already suffers from excessive fiscal burdens.

Yet the European Commission wants to drive even faster in the wrong direction.

I feel sorry for European taxpayers. Their tax dollars were used to prepare a report that outlines various ways of confiscating an even greater share of their money. That’s adding insult to injury.

P.S. The report discussed today is terrible, but probably not as bad as the European Commission’s lies about poverty or attempted brainwashing of children.

P.P.S. That being said, the EC will never be the worst international bureaucracy. The OECD and IMF compete for that honor.

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The (Even-Stronger-than-We-Thought) Relationship Between Economic Liberty and National Prosperity

I frequently call attention to the “anti-convergence club” because of the many real-world examples showing that nations with free markets and limited governments enjoy much better economic performance.

Here are just a few case studies.

• North Korea vs South Korea
• Botswana vs neighbors
• Chile vs Cuba
• West Germany vs East Germany

All this seems like a strong argument for smaller government. And it is.

But all this data I’ve been sharing may understate the case for economic liberty.

I wrote last October about how satellite-based measures of nighttime light (a proxy for economic vitality) show that nations with less political freedom have a tendency to exaggerate economic performance.

So what happens if we measure the relationship between economic liberty and economic performance using this more-accurate satellite-based data?

Sean P. Alvarez, Vincent Geloso, and Macy Scheck answered that question. Here are some excerpts from their new study.

…the well-documented proclivity of dictators to fudge GDP numbers biases our estimations of the effects of economic freedom on economic development. Since dictatorships are generally also countries with low economic freedom, overstated GDP numbers can fool us into finding more modest effects of economic freedom. To test our argument, we employed newly generated adjustments to GDP numbers based on artificial nighttime light intensity that corrected for the overstatements that dictators made… Swapping unadjusted and adjusted GDP numbers as dependent variables in similar econometric setups allowed us to estimate how large is the bias. For income levels between 1992 and 2013, we find that the true effect of economic freedom is between 1.1 and 1.33 times larger than estimations based on manipulated GDP numbers. For income growth, we find smaller effect for the economic freedom index as a whole but some signs that some components (size of government and the security of property rights) have underestimated positive effects that should not be neglected.

Wonky readers may be interested in the results contained in Table 2 from the study.

And here’s some of the text discussing those results.

…the use of adjusted GDP figures suggests that the effect of economic freedom (i.e., the aggregate index) is roughly 25% larger than estimated with unadjusted GDP figures. For the different components of the index, the use of adjusted GDP figures has an uneven effect. For example, regulation and freedom to trade suggest that the true effects are roughly 20% larger than when using the unadjusted GDP figures. In contrast, the true effects for the component that speaks to the protection of property rights are more than 33% stronger. These are economically significant results that speak to a large bias against finding a pro-development effect of economic freedom.

The bottom line is that economic liberty apparently matters even more than we thought – about 25% more.

So if you want to know why I’ve been so critical of Bush, Obama, Trump, and Biden, that’s part of the answer.

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Statism, Captured in Five Images

After five columns mocking statism in 2021 (here, here, here, here, and here), I only produced one in 2022.

So let’s get an early start for 2023.

This cartoon is a helpful reminder that government has done many wonderful things throughout history.

Next we see a reminder that just because you ignore the government, that doesn’t mean the government will ignore you.

For our third item, here’s some satire about people who are ignorant of world history.

Next is a reminder that nitwit bureaucrats (I assume at the Department of Agriculture) want us to believe processed flour is better for us than vegetables.

Per tradition, I’ve saved the best for last.

Just like our third item, this is a helpful reminder that we should not trust government.

Unless, of course, you like that kind of shower.

And, as a libertarian, I support your right to like weird things…so long as one of those weird things isn’t imposing wasteful and venal government on the rest of us.

P.S. I have an entire page of cartoons and images mocking government, so feel free to peruse.

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Can Argentina Be Rescued?

I’ve written many times about terrible economic policy in Argentina, most recently two days ago while in that benighted country for a conference on fiscal policy.

Now that I’m heading back to the United States, I’m contemplating whether it is realistic to imagine an economic turnaround for Argentina.

We’ll start with some good news. Argentina has miserably low scores in Economic Freedom of the World and the Index of Economic Freedom.

So it would not be that difficult for economic policy to improve.

But the bad news is that Argentina needs to go way beyond incremental reform. The country has dropped precipitously since Peronism began after World War II. Rejuvenating the economy will require radical Chilean-style reform.

Given the current government’s statist orientation (and given the timidity of the opposition), there’s very little short-run hope.

But I am vaguely hopeful that things may get better. More specifically, Argentina almost surely will suffer a major collapse at some point in the future.

When that happens, the only option will be liberalization. Simply stated, politicians no longer will have any ability to pillage the private sector (sort of like the Soviet Union and Eastern Europe when communism collapsed).

Naomi Klein views this scenario as “disaster capitalism,” but it’s the only hope for Argentina.

But there’s a catch. Politicians in Buenos Aires will only be forced to reform if they don’t get another bailout from the International Monetary Fund.

Unfortunately, there are (according to Professor Steve Hanke) 22 reasons to expect the IMF to do the wrong thing.

The bureaucrats at that international bureaucracy have a terrible track record of rewarding Argentina when it gets in fiscal trouble.

Not just Argentina, by the way.

The IMF’s bureaucrats seem to think “moral hazard” is a good thing rather than a bad thing.

I wrote just last month that Italy is getting closer and closer to a fiscal crisis and I warned that the IMF may intervene to prop up that country’s bad policy. And when other European countries get in trouble, IMF bureaucrats will probably try to make a bad situation even worse with further bailouts.

And don’t forget what already happened in Greece (and almost surely will happen again).

The bottom line is that the IMF needs to be shut down (or at least cut off from US backing) if we want nations to do the right thing after taxing and spending themselves into a fiscal crisis.

P.S. If the US ever gets in deep trouble, at least the IMF won’t have the ability to do a bailout.

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The Hidden Cost of China’s Statism

I wrote many years ago that China did not have a “tiger economy.”

Indeed, I subsequently pointed out that China’s growth is not impressive when compared to East Asian nations that did enjoy rapid growth.

My goal was to convince people that the U.S. should not cite China to justify bad ideas such as industrial policy.

But there’s now evidence that I was understating my argument.

Check out this tweet about how the Chinese government has exaggerated the nation’s economic output.

The above tweet comes from a fascinating article in the Economist that analyzes how authoritarian governments can’t be trusted to report accurate economic data.

It turns out that China is one of the worst offenders.

Dictators are often seen as ruthless but effective. Official gdp figures support this view. Since 2002 average reported economic growth in autocracies has been twice as fast as in democracies. But…dictators’ economic stewardship may not be as effective as they claim. New research finds that autocrats greatly overstate their countries’ economic growth. …The data showed that dictators’ reported gdp tended to grow much faster than satellite images of their countries would suggest. …cumulative gdp growth between 2002 and 2021 in countries “not free” is nearly cut in half: from 147% to 76%. …In a related study Jeremy Wallace, a researcher, found misreporting by Chinese provinces, too. As he notes, a leaked American diplomatic cable from 2007 revealed the view of Li Keqiang, the prime minister, then a provincial party secretary. He had said, with a smile, that gdp figures were “for reference only”

Here’s a more detailed version of the above image.

The gray circle near the top right is what the Chinese government is telling the world. The red circle much lower on the graph shows the real performance of the Chinese economy based on satellite data.

This data is bad news for the Chinese people. And it’s an indictment of President Xi, who is pushing China in the wrong direction – toward more statism and more government control.

So I’m not surprised that the geese with the golden eggs are escaping.

But I continue to be amazed that some of the fools in Washington want to copy bad Chinese policy.

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Defending (sort of) European Economic Policy

I write frequently about the economic damage caused by European fiscal policy, but today let’s comment on the (comparatively) good policies that exist on the other side of the Atlantic.

We’ll start with this video excerpt from a presentation last month.

If you don’t have time to watch the video, everything you need to know is captured in this data from Economic Freedom of the World. As you can see, European nations (circled in red) dominate the top half.

Indeed, it’s safe the say that Europe dominates the top quartile (the blue nations, categorized as “mostly free”).

As I noted in the video, this does not mean these nations have great policy. Or even good policy.

But it does mean that European nations generally enjoy more economic liberty than countries from other parts of the world (or, if you like looking at the glass as half empty, they suffer from less economic repression).

If you dig into the details, what you will find is that Europeans nations generally have bad fiscal policy, but they tend to score highly in other areas (i.e., good rule of law, low levels of red tape, etc).

To be sure, not all European nations are the same. There’s a big difference between laissez-faire Switzerland and dirigiste Greece, for instance.

But I’ll close be reiterating a comment from the above video, which is that that there’s a much bigger gap between Greece and Venezuela than there is between the United States and Greece.

P.S. A new edition of Economic Freedom of the World has been released, but there were only minor changes for the United States (down one spot) and Europe. And if you look at the latest edition of the Heritage Foundation’s Index of Economic Freedom, the United States is only #25, lagging behind 17 European nations. Including all of the supposedly socialist welfare states in Scandinavia.

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Nigeria and the Cost of Bad Government

In a recent column about Haiti, I cited a New York Times column and expressed puzzlement that the author could write about that nation’s poverty and barely mention the role of economic policy.

Today, we’re going to focus on Nigeria.

Just like two days ago, let’s start by laying out some facts about the quality (or lack thereof) of the country’s economic policy.

We’ll begin with some very bad numbers from the Heritage Foundation’s Index of Economic Freedom. As you can see, Nigeria ranks #124, with failing grades in many key area.

To be sure, ranking #124 is not as bad as being North Korea, which is in last place at #177. Or Venezuela, or Cuba, which are the next-to-last jurisdictions.

But we can safely say that Nigeria is a country with very little economic liberty.

And the Fraser Institute’s Economic Freedom of the World tells a similar story. Nigeria is mired in the next-to-last quartile and ranks #92 (out of 165) in the world.

The country is especially bad on trade policy and the rule of law (legal system and property rights).

So why am I citing all this data?

Because I just read an article in Foreign Affairs about that nation’s economic misery and – just like the article about Haiti – it cries out for correction.

In this case, though, the article actually focuses on the role of economic policy, but from a very misguided perspective.

Authored by Amaka Anku, it tells readers that the problem in Nigeria is that government is not strong enough or active enough.

…despite having the world’s ninth- and tenth-largest natural gas and crude oil reserves, respectively; one of the world’s largest swaths of arable land; and a young and entrepreneurial population, Nigeria has fallen far behind peer countries such as Indonesia and South Korea when it comes to gross national income, GDP per capita, and industrial production. …the state is unable to stimulate broad-based economic growth. …the view that a strong and capable state is required to create the conditions for economic transformation is slowly gaining ground. …Nigeria must aspire to much more…to strengthen the federal government… A better resourced civil service…would make it easier to attract talent and help transform an inefficient bureaucracy into one that can stimulate and effectively regulate local industry. …

Ms. Anku makes several bold assertions, such as the value of “a strong and capable state” and a supposed need “to strengthen the federal government,” in part via “a better-resourced civil service.”

There is an attempt to justify the aforementioned statements.

She claims that nations such as Singapore are the role model. Or even the United States in the 1800s.

…although the role of a strong state in stimulating the economic transformation of newly industrializing countries such as China, Singapore, and South Korea is relatively well understood, ideological blinkers have prevented many Western scholars and policymakers from acknowledging that a strong central government played a similar role in the United States’ own economic takeoff. …Among the most important federal interventions—but by no means the only ones—were extensive subsidies for national transport infrastructure, strategic investments in emerging technologies, and strong support for fair labor and other redistributive policies that ensured a level playing field and improved worker productivity.

I have a semi-friendly response to Anku’s article and a…well, let’s call it a skeptical reaction.

The sympathetic response is that it’s good to have a small-but-competent government. Indeed, that’s the argument made by “state-capacity libertarians” and others who argue that the U.S. had such a system in the 1800s.

Nowadays, Singapore often is a role model for these people. So if Anku is suggesting that Nigeria should copy Singapore (the world’s second-freest economy), I’ll be the first to applaud.

But I suspect that’s not what she has in mind. For instance, Ms. Anku expresses support for “redistributive policies.”

That’s not consistent with Singapore’s approach. And South Korea has a relatively small welfare state compared to other OECD nations. Heck, the United States had no welfare state back in the 1800s.

Sadly, I fear Ms. Anku’s concept of “a strong and capable state” is probably akin to what the IMF and other international bureaucracies are peddling.

In  other words, higher taxes and bigger government based on the anti-empirical notion that this will magically deliver prosperity.

Needless to say, that’s bunk.

P.S. I also can’t resist pointing out that it’s silly for Ms. Anku to equate China, Singapore, and South Korea. Singapore and South Korea are examples of “tiger” economies. But China lags well behind because it does not have the pro-market policies that enabled the other two nations (as well as places like Hong Kong and Taiwan) to become very rich very fast.

P.P.S. Trump also misinterpreted U.S. policy in the 1800s.

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Haiti and the Cost of Bad Government

There are some Caribbean jurisdictions that are very rich and successful, such as the Cayman Islands. There are others that have middle-of-the-road track records, such as Barbados.

Then there’s the basket case of Haiti.

Here’s data from the World Bank about per-capita economic output, showing how these three jurisdictions compare to both the United States and the world average.

And if you want another perspective, the United Nations’ Human Development Index also shows big gaps (the Cayman Islands is a territory of the United Kingdom rather than an independent nation, so it’s not part of the UN’s dataset).

So why am I citing this data?

Because Lydia Polgreen has a column about Haiti in the New York Times that contains a lot of fascinating history about that unfortunate nation, including the reign of left-wing firebrand Jean-Bertrand Aristide earlier this century.

But I was especially interested in her analysis about the current crisis and what may happen in the future.

Haiti is in free fall. …Gangs, most of which have ties to political and business leaders, have all but shut down Haiti’s economy by cutting off the flow of fuel and food. Hunger is bearing down on many families. Cholera, which once killed around 10,000 people here, is again spreading. …For all its seeming complexity, the current upheaval turns on the same question that has driven almost every crisis on this island for the past 230 years: Who will rule Haiti? …Haiti has long had independence, but where was its true freedom? …What does the world owe Haiti today? First and foremost to leave it alone. To give Haitians the time, space and support to imagine a different future for their own country. ..Over the past dozen years, Haitian politics has grown ever more fractured as the country has been battered by a shattering earthquake and a series of storms and hurricanes. The political scene has been dominated by American-backed center-right leaders… In the absence of a modern industrial economy, the country quickly stratified. There is a mercantile class that makes most of its money importing goods and selling them to everybody else — desperately poor people surviving on subsistence wages and remittances from a thriving diaspora in the United States, Canada, France and beyond. …The first step to helping Haiti fulfill its destiny, to be the independent Black republic its revolution promised, may be for the rest of us to get out of its way.

I’m in favor of Haiti having a stronger and better democracy. That hopefully would lead to improvements in the “rule of law.”

But I fear that Haiti’s economy is mostly being held back by statist economic policy.

The Heritage Foundation’s Index of Economic Freedom ranks Haiti a lowly #150 (out of 177 nations), with failing scores in many categories.

The Fraser Institute’s Economic Freedom of the World gives Haiti a somewhat better score (though still a dismal #96 out of 165).

But notice that the nation’s overall level of economic liberty today is lower than it was in the early 2000s, when Aristide was in power.

So if Haiti has been “dominated by American-backed center-right leaders” in recent years, as Ms. Polgreen writes in her column, they obviously are not center-right on economic policy.

The bottom line is that we know the recipe that makes nations economically successful. And we also know that Haiti has not been following that recipe (other than perhaps looking at what works and then choosing the opposite).

So even if the nation somehow achieves perfect democracy, don’t hold your breath expecting a big jump in living standards.

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Fascism, Socialism, and Mussolini

Based on Sunday’s election in Italy, the nation’s next Prime Minister almost certainly will be Giorgia Meloni, which has some worried that Italy is returning to the “far right” fascism of Benito Mussolini.

From an economic perspective, though, it would be more accurate to say that Mussolini is “far left.”

Or to say that he is a collectivist, which puts him in the same camp as socialists and communists.

In an article for the Independent Institute, Angelo Codevilla discussed how Mussolini began his career as a socialist activist, but ultimately was forced out of the party because of his nationalist views..

He was active in socialist circles, both Italian and international, giving speeches to workers and helping to organize strikes… He got to know Vladimir Lenin… Benito became a full-time socialist activist…as editor of its socialist newspaper. …he supported himself writing essays and editing a journal called Lotta di classe—class struggle… In 1911 the party entrusted the 28-year-old with editorship of its flagship publication, Avanti!. …He had become Italian socialism’s brightest star. …In…1914…he committed socialist heresy by writing that class struggle is a bad idea because the nation is more important than social class. He called his few scattered followers fasci, bundles, of individuals. …Hence he labeled the movement “Fasci Rivoluzionari d’Azione Internazionalista” and its members “Fascisti.” …the party expelled him.

In other words, Mussolini was part of the conflict between “national socialism” and “international socialism.”

Both versions of socialism favored big government, but they differed in how they viewed the nation state.

And this conflict, driven in part by the events of World War I, led Mussolini to develop fascism as a distinct strain of statism.

…continuing to call himself a socialist and propagandizing his evolving blend of nationalism and socialism…Mussolini shifted to building fascism into a party. …Hegel, following Napoleon, had made patriotic worship of the scientifically administered, progressive state the political essence of modernity. Mussolini’s vision of Italy followed from that. “The bureaucracy is the state,” he said. …Mussolini explained, …The state personifies the country, and disciplines its several elements to its service. “Soon, we will be the state.”

And he was right, at least in the sense that he and his fascists soon took over the government.

In the 1921 elections, Mussolini’s Fascists had gained only .04% of the vote. But chaos reigned in the streets because of socialist, Communist, and anarchist mobs, as well as because of the perhaps 40,000 fascist squadristi (the Blackshirts) who fought them. …Mussolini organized the descent of some 30,000 squadristi on Rome to demand he be named prime minister. …the king appointed Mussolini to head a government with almost no fascists. But…Mussolini gradually dispossessed the rest. …Fascist Italy was the first country in which the elected legislature gave up its essential powers to the executive…thus establishing the modern administrative state. …Socioeconomic organization was fascism’s defining feature. Only employers’ and employees’ organizations approved by the government were allowed. …No longer would corporations be responsible to owners.

Mussolini’s fascism was different than traditional socialism in that the goal was to have the government control the economy, but not to have government take over “the means of production.”

Both approaches were very hostile to free markets, of course.

I’ll close with some excerpts about Italian fascism and FDR’s failed New Deal.

After Franklin Roosevelt’s inauguration in 1933, Mussolini’s enthusiasm for likening the New Deal to fascism’s political-economic order… he made clear that “the spirit of [FDR’s program] resembles fascism’s since, having recognized that the state is responsible for the people’s economic well-being, it no longer allows economic forces to run according to their own nature.” …Fascists rejoiced that FDR had forsaken liberal for corporativist principles… It could hardly have been otherwise since the essence of the National Industrial Recovery Act—the involuntary inclusion of all participants in categories of economic activity and their subjection to government-dictated prices, wages, and working conditions—was at least as detailed as those in fascism’s corporate law. 

Since I’ve written about how the New Deal (and much of modern leftism) is based on fascist economics, I obviously agree.

But I’ve also explained that it’s better to refer to such policies as corporatist or interventionist since fascism nowadays also implies support for some of Hitler’s lunatic ideas about race and conquest.

P.S. The main message of today’s column is that it’s silly to label Mussolini (and his political heirs) as being on the far right. But it’s also true that Mussolini’s nationalist approach to statism is different than the ideas advocated by Marx (and his political heirs).

Dissecting and explaining these differences is why I think the left-right ideological spectrum should be replaced by this triangle.

By the way, the top of the triangle could say “Classical Liberalism,” but I used “Libertarian” so American readers would easily understand.

P.P.S. There’s a “Political Compass Test” that does a good job of determining one’s philosophical orientation, but it completely botches where Mussolini belongs.

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Iran’s Wretched Economic Policy

The people of Iran are protesting against their tyrannical government. The trigger for the anger and unrest is the murderous brutality  of the nation’s so-called Morality Police.

I can’t help but wonder, though, whether there’s also national discontent because of bad economic policy.

According to the latest edition of Economic Freedom of the World, Iran has one of the world’s most repressive governments. Of the 165 jurisdictions, only Libya, Argentina, Syria, Zimbabwe, Sudan, and Venezuela rank lower.

In other words, the Iranian government restricts economic freedom just like it restricts political freedom.

And that has very adverse consequences for the prosperity of the Iranian people, notwithstanding the fact that the nation has abundant energy resources.

Here’s a chart, derived from the Maddison database, that shows how Iran has fallen far behind Bahrain when measuring per-capita economic output.

I picked Bahrain because that’s the nation in the Middle East that ranks highest for economic liberty (#39).

This gives us another example of the “anti-convergence” that occurs when two nations have big differences in economic freedom.

The bottom line is that Iran has a horrible government for more reasons than we’re seeing in today’s headlines.

P.S. Here’s a comparison of economic liberty over time in both Iran and Bahrain.

P.P.S. Western sanctions against Iran obviously undermine prosperity, just as similar sanctions hurt places such as Cuba, North Korea, and Venezuela. I like when people make this point since it shows they (at least implicitly) are making the case for free trade. But I disagree if they want people to believe that such sanctions explain more than a small fraction of the problems in those nations.

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Pessimistic Trends in Global Economic Liberty

When I wrote about the 2021 edition of Economic Freedom of the World, I noted that both Chile and Canada were drifting in the wrong direction.

In the just-released 2022 version, there’s not any good news about those two countries, but I was more struck by the very bad news about the United Kingdom, which fell out of the top 20 thanks to a big drop in its score.- from 8.16 to 7.71 (more evidence that Boris Johnson was bad news).

Here are the jurisdictions with the most economic liberty.

The bad news is that every nation in the top 20 had less economic liberty in 2020 than in 2019.

American readers will be interested to see that the United States dropped from #6 to #7.

And Switzerland leapfrogged New Zealand to claim the #3 slot.

Denmark, Japan, and Estonia jumped several spots in the rankings. Not because their scores increased, but rather because other nations moved in the wrong direction at an even-faster pace (note that Denmark now ranks above the USA).

By the way, few people will be surprised to see that Venezuela remains in last place, though fairness requires that I acknowledge that it was one of the few countries to get a better score.

Here are some of the other key findings.

The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. …The EFW index rates 165 jurisdictions. The data are available annually from 2000 to 2020… The most recent comprehensive data available are from 2020. Hong Kong remains in the top position, though its rating fell an additional 0.28 points. Singapore, once again, comes in second. The next highest-scoring nations are Switzerland, New Zealand, Denmark, Australia, United States, Estonia, Mauritius, and Ireland. …lowest-rated countries are…Iran, Libya, Argentina, Syria, Zimbabwe, Sudan, and lastly, Venezuela. …Nations in the top quartile of economic freedom had an average per-capita GDP of $48,251 in 2020, compared to $6,542 for nations in the bottom quartile.

The final sentence in the above excerpt is key. More economic liberty is strongly associated with more national prosperity.

I was curious about whether Hong Kong would retain the #1 slot. And it did, even though its score dropped to 8.59. For what it’s worth, the authors are not optimistic about the future.

Hong Kong has been…at the top of the EFW index for all years for which we have data, and this remains the case in 2020. In previous annual reports, we sounded the alarm bell about signs of declining economic—and other—freedoms in Hong Kong. In particular, we highlighted the new security law imposed in 2020 by the Chinese government with potential sentences of life imprisonment and the accompanying arrests in its aftermath. In this year’s report, Hong Kong’s overall EFW rating fell by a stunning 0.28 points to 8.59 for 2020 from 8.87 in 2019. …Hong Kong’s decline was much larger than the world’s average decline.

Speaking of declines, here’s a very sad chart. It shows that global economic liberty suffered a big drop from 2019 to 2020.

The pandemic is the main reason for the decline.

The policy responses to the coronavirus pandemic, including massive increases in government spending, monetary expansion, travel restrictions, regulatory mandates on businesses related to masks, hours, and capacity, and outright lockdowns undoubtedly contributed to an erosion of economic freedom for most people. Not surprisingly, virtually all jurisdictions, 146 out of the 165 to be exact, recorded lower scores in 2020 than in 2019, and the global average of the summary EFW index fell by 0.18 points. … these various policies…very well may have saved millions of lives, or they may have been completely ineffectual. That is a question for epidemiologists and health economists to work out. Our concern is economic freedom, and, on that margin, there is no question that government policies responding to the coronavirus pandemic have reduced economic freedom.

We’ll probably have to wait two years to see whether governments undo pandemic-related policy mistakes.

Next year’s version will reflect 2021 data, and many nations such as the United States were still imposing bad fiscal and monetary policy at that time.

It’s possible that we will see some improvement next year, but I’ll be even more curious to see EFW‘s 2024 edition, which will be based on 2022 data.

My fear is that politicians and bureaucrats will have self-interested reasons to retain the additional power they grabbed during the pandemic. But I’ll keep my fingers crossed.

Let’s close with a depressing look at the nations that lost the most economic freedom in the current edition.

For personal reasons, I’m sad to see the big declines in Taiwan, Georgia, Singapore, and Panama.

And it’s amazing (in a bad way) that Argentina and Greece managed to fall so much, given that they started with bad scores.

Sadly, every developed nation moved in the wrong direction. The industrialized countries that moved in the wrong direction by the smallest amounts are Switzerland (-.12), Australia (-.13), Sweden (-.14), and Denmark (-.14).

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Argentina: Another Nation Victimized by Modern Monetary Theory

It’s not as bad as Cuba, North Korea, or Venezuela, but Argentina (as illustrated by this video) is a case study of how statism can ruin an economy.

The most important takeaway from the video is that Argentina used to be one of the world’s richest nations.

Even as recently as the late 1940s, Argentina was in the top 10 for per-capita economic output.

But it’s been downhill ever since.

If you want to blame just one politician, the clear choice would be Juan Peron. But he’s been followed by plenty of other statists. Even the supposed conservatives in Argentina seem to be fans of big government.

The net result is that the people of Argentina keep losing ground relative to their peers in other nations.

To some degree, Argentina is an example of why “modern monetary theory” is a bad idea. Simply stated, it’s not a good idea to finance big government via inflation.

Not that we need another example. Sri Lanka’s economic collapse already taught us the same lesson.

But Argentina’s wretched politicians seem determined to make a bad situation worse. In her column for the Wall Street Journal, Mary Anastasia O’Grady opines about the nutty ideas of the current Minister of the Economy, Silvina Batakis.

Ms. Batakis’s resume isn’t reassuring. She’s a former minister of the economy for the province of Buenos Aires (2011-15) who left her successor with empty coffers and forced him to turn to the federal government for emergency help to pay the salaries of public employees. …In a 2019 tweet, Ms. Batakis advised that to “combat” poverty requires “a state that plans and intervenes.” Worry has quickly spread that Ms. Batakis will abandon even mild attempts to end the fiscal profligacy and money printing that has generated inflation now running at more than 60% a year, and accelerating.

So what comes next?

…another round of hyperinflation driven by government “experts” who believe in modern monetary theory—which posits that printing money to pay bills doesn’t have to cause inflation if tax rates are high enough.

No wonder the Argentinian peso has lost so much of its value.

So what’s the bottom line? Well, I asked in 2019 whether the country could break free of “economy-sapping statist governance.”

Given the country’s dependency culture, the answer almost certainly is no.

P.S. The last minute of the above video warns that Democrats have a policy agenda that will make America more like Argentina. That’s true, but the profligate spending of Bush I, Bush II, and Trump suggests most Republicans are not any better. They may even be worse.

P.P.S. Argentina’s politicians are not the only villains. The IMF also deserves to be castigated for enabling and subsidizing the nation’s bad policy.

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Russia’s Oppressive Economic Policy

Since I wrote yesterday about Ukraine’s terrible economic policy, fairness requires that I make the same points about Russia’s similarly dirigiste system.

We’ll start with Russia’s scores from the latest edition of Economic Freedom of the World.

Not exactly a good set of numbers, particularly with regards to “size of government.” And it’s safe to assume that Russia’s overall score will decline when a new version is released later this year.

But I want to make the point that Russia faced serious economic problems well before Putin decided to invade Ukraine.

Indeed, he may have attacked in part to distract from Russia’s ongoing economic problems.

To some degree, this is a story of weak demographics, as I observed last month.

But Putin is making a bad situation worse.

Consider what George Will wrote for the Washington Post back in 2020.

n Putin’s ramshackle Russia…as recently as 2018, almost a third of medical facilities lacked running water, 40 percent lacked central heating and more than half lacked hot water. …in Catherine Belton’s exhaustive new book…, “Putin’s People: How the KGB Took Back Russia and Then Took On the West…” says that “by 2012 more than 50 percent of Russia’s [gross domestic product] was under the direct control of the state and businessmen closely linked the Putin.” …state-directed capital allocation actually is crony socialism.

It’s sometimes not easy to measure crony socialism (which technically should be called fascism), but even the International Monetary Fund recognizes its downsides.

Here’s some research from the IMF, authored by Gabriel Di Bella, Oksana Dynnikova, and Slavi Slavov.

The size of the Russian State…economic footprint remains significant. Concretely, the state’s size increased from about 32 percent of GDP in 2012 to 33 percent in 2016, not far from the EBRD’s estimate of 35 percent for 2005-10. …a deep state footprint is reflected in a relatively high state share in formal sector activity (close to 40 percent) and formal sector employment (about 50 percent). The deep footprint is also reflected in market competition and efficiency. Although sectors in which the state is present are more concentrated, concentration is large even in sectors where the state’s share is low. …Finally, state-owned enterprises’ performance appears weaker than that of privately-owned firms, which may be subtracting from growth.

Last December, Jarret Decker analyzed Russia’s state-controlled economy in an article for Reason.

There’s a thorough discussion of how the oligarchs gained control of key sectors of the economy, as well as this discussion of other policy mistakes.

The 1990s in Russia and throughout most of the former Soviet Union were a time of dizzying change… As price controls were lifted and the money supply increased, inflation exploded. In 1992, Russian inflation was about 2,000 percent, with another 1,000 percent inflation the following year. Life savings disappeared almost overnight. …plummeting social indicators were all tied to the disastrous performance of the Russian economy, a chaotic mix of large enterprises still under state control, a central government heavily in debt…the “crown jewels” of the former Soviet economy—in sectors such as oil and gas, mining, and steel production—remained under state control. …in GDP per capita, Russia has fallen far behind its fellow former Soviet republics in the Baltic region, with output per person about half of Estonia’s and about 40 percent less than Lithuania’s and Latvia’s. Not coincidentally, the Baltic countries all rank in the top 30 in the world in the Heritage Foundation’s 2021 Index of Economic Freedom.

I’ll wrap up with a story that is particularly disappointing to me.

One of the few good policies Putin implemented was a flat tax.

But rather than build on that successful reform, he decided to reverse it and adopt a system with discriminatory rates. Here are some excerpts from a 2020 report in the Moscow Times.

Russian President Vladimir Putin on Monday signed a law on increasing income tax for high earners in the first move away from a flat tax system in place since 2001. Starting next year, the tax rate will rise from 13% to 15% on incomes over 5 million rubles (about $65,800/55,370 euros at the current exchange rate). …The reform is expected to give state coffers an additional 60 billion rubles, the president said… The current flat tax system was introduced in 2001 and was among the key reforms of Putin’s first presidential term.

The bottom line is that the yoke of communism has been removed but statism remains.

Which explains why Russia is not converging with the United States, as theory would predict. Here is a chart based on the Maddison database.

This is quite depressing, especially if the economy’s poor performance gave Putin an extra incentive to “wag the dog” with military aggression.

But let’s end on an optimistic note. It’s possible that Putin has miscalculated and his attack on Ukraine eventually will result in his ouster.

The best-case scenario is that he gets replaced with a free-market reformer. The Russian version of Mart Laar, perhaps. Then Russia could become a success story, which is exactly what we’ve seen in the Baltic nations.

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Can Economic Aid Help Ukraine?

Regarding Russia’s reprehensible attack on Ukraine, I’ve written three columns.

• Russian oligarchs don’t deserve much sympathy because they got their riches through cronyism rather than capitalism.
• Western nations should weaken Putin by opening their doors to young and educated Russians who wish to emigrate.
• Russia is being hit by sanctions because of the long-standing recognition that trade restrictions weaken a country’s economy.

Today, let’s address the topic of foreign aid for Ukraine, specifically whether American taxpayers should help restore that country’s economy once the conflict ends.

I’ll start by recycling an observation I made back in 2014, which is that Ukraine has been an economic laggard because of statist economic policies.

More specifically, I compared Poland (which has engaged in substantial liberalization) and Ukraine (which has not) and showed a growing gap between the two nations (another case study for the anti-convergence club).

Now let’s look at some updated data from the latest edition of Economic Freedom of the World.

As you can see, Ukraine is a cesspool of statism, ranking a miserable #129 out of 165 jurisdictions.

That’s lower than Russia, which is #100.

And the same is true if you look at the latest edition of the Index of Economic Freedom, which ranks Ukraine #130 and Russia #113.

At the risk of stating the obvious, giving economic aid to Ukraine would be flushing money down the toilet.

Unless, of course, western nations such as the United States somehow made aid contingent on sweeping economic liberalization.

We know what works. Don Boudreaux, Deirdre McCloskey, and Dan Hannan have all explained how Western Europe and North America became rich in the 1800s and early 1900s with the tried-and-true approach of free markets and limited government.

Even a curmudgeonly libertarian like me would relax my long-standing hostility to aid under those conditions.

The odds of that happening, however, are slim to none. And I would put my money on none, as explained by the “Foreign Aid Paradox.”

P.S. Some people incorrectly claim Western Europe recovered after World War II because of government aid (the “Marshall Plan”). The real credit belongs with people like Ludwig Erhard.

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The Failure of Bidenomics, Part I

Joe Biden’s economic policy has been a disaster.

• He’s bad on the issues where Trump was bad (spending and trade).
• He’s bad on the issues where Trump was good (most notably, taxes).
• And he’s bad on the issues where Trump had a mixed record (regulation).

Based on his track record as a long-time Senator, none of this is a surprise. According to vote ratings from the Club for Growth and National Taxpayers Union, Biden was to the left of even Crazy Bernie.

Unfortunately, a bad president (anyone remember Nixon?) can do a lot more damage than a bad senator.

Today is Part I of a series of columns analyzing Biden’s failure.

We’ll start with his so-called Build Back Better plan. Joe Biden didn’t explicitly mention “BBB” is his State of the Union address, but he did promote almost all of the specific policies that are in that plan.

And he even made the preposterous argument that some of those policies would help bring inflation under control.

I’ve repeatedly explained why the president’s plan for a bigger welfare state is bad news, but this tweet from Americans for Prosperity’s Akash Chougule does a great job of debunking Biden’s argument in a very succinct fashion.

You may recognize the chart. As I pointed out last year, it shows that prices rise rapidly in areas where government subsidies distort the market.

In areas where the free market operates, by contrast, prices actually tend to decline.

I’ll close with the observation that Biden’s Build Back Better is a clunky amalgamation of new and expanded entitlements. His per-child handout is the most expensive, and it’s especially pernicious because it would undo the success of Bill Clinton (and Newt Gingrich’s) welfare reform.

But if there was a prize for the most economic damage per dollar spent, Biden’s scheme for government-dictated childcare would be the worst of the worst since he subsidizes demand while also restricting supply. If it gets approved, the chart may need a new vertical axis because Biden will screw up the market for childcare even more than the government has screwed up the markets for health care and higher education.

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The Destructive Crusade to “Reimagine” Capitalism

For most of human history, we’ve had primitive and impoverished societies based on feudalism and tribalism.

The good news is that capitalism began to emerge a couple of hundred years. The parts of the world that adopted free enterprise became incredibly rich. And there even have been meaningful improvements in living standards in the parts of the world that only partly liberalized.

But not everyone likes economic freedom. They argue for alternatives to markets.

And they’ve put forth all sorts of ideas over the past 100-plus years. Some of them utterly reprehensible, such as communism and Nazism.

Others ideas have caused immense damage, such as socialism and fascism. And others such as corporatism and the welfare state, have undermined the benefits of free markets.

The bottom line is that none of those alternatives have worked. They’ve produced stagnation at best. And, in many cases, oppression and deprivation.

Yet our friends on the left haven’t given up. Like medieval monks searching for the Holy Grail, they desperately want to find something that can replace capitalism.

And some of those folks on the left are putting big money into the effort, as reported by Steve Lohr of the New York Times.

Wages have been stagnant for most Americans for decades. Inequality has increased sharply. …Those problems…are partly byproducts of…free markets, free trade and a hands-off role for government. Its most common label is neoliberalism. …The William and Flora Hewlett Foundation and Omidyar Network announced on Wednesday that they were committing more than $41 million to economic and policy research focused on alternatives. “Neoliberalism is dead, but we haven’t developed a replacement,” said Larry Kramer, president of the Hewlett Foundation. …The Ford Foundation and the Open Society Foundations have pledged to join the initiative and make grants later this year. …many prominent economists have questioned the wisdom of leaving so many human outcomes to the whims of markets. …“Reducing inequality has to be a goal of economic progress,” said Dani Rodrik, an economist at Harvard’s Kennedy School and a leader of its project on reimagining the economy. …Mike Kubzansky, chief executive of Omidyar Network, said today’s economic challenges spanned partisan divisions. “I think there’s pretty broad agreement that the traditional set of economic ideas has passed its sell-by date,” he said.

As a quick aside, when folks on the left use “neoliberal” as a slur, they are using the word to depict capitalism or libertarianism (the “neo” indicating today’s version of classical liberalism).

And I also can’t resist pointing out that Rodrik needs to learn about the “Eighth Theorem of Government.”

But let’s focus on the main issue. The Wall Street Journal editorialized on the left’s search for an alternative to free enterprise and pointed out that the real goal is to give Washington more power and control.

The 20th-century economist Joseph Schumpeter famously wrote that capitalism sows its own destruction by creating a knowledge class who despise its success. Behold the Hewlett Foundation and Omidyar Network’s $40 million gift to the paupers at Harvard and MIT to “reimagine capitalism.” …By “reimagining capitalism,” …what these foundations really mean is putting politicians and the administrative state in charge of redistributing more of its proceeds.

Amen.

One point I’ll add is that the left’s goal may be “redistributing more,” but an unavoidable economic consequence is that the economy doesn’t produce as much.

And that’s bad news over time, even for the people who are the supposed beneficiaries.

Which is why genuinely compassionate people support capitalism, which is the only system that has a proven track record of reducing poverty.

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Diminishing Economic Freedom in the United States

When I first wrote about the Index of Economic Freedom back in 2010, the United States was comfortably among the world’s 10-freest nations with a score of 78 out of 100.

By last year, America had dropped to #20, with a very mediocre score of 74.8.

Sadly, the United States is continuing to decline. The Heritage Foundation recently released the 2022 version of the Index and the United States is now down to #25, with an even-more-mediocre score of 72.1.

As you can see, the biggest reason for the decline is bad fiscal policy (we can assume that Biden’s so-called stimulus deserves much of the blame).

So what nations got the best scores?

Our next visual shows that Singapore has the world’s freest economy, narrowly edging out Switzerland.

Notice, though, that Singapore’s score dropped and Switzerland’s improved. So it will be interesting to see if the “sensible nation” takes the top spot next year.

Also notice that only 7 nations qualified as “Free,” meaning scores of 80 or above.

The United States is in the “Mostly Free” category, which is for nations with scores between 70 and 80.

By the way, notice that the United States trails all the Nordic nations. Indeed, Finland, Denmark, Sweden, Iceland, and Norway get scores in the upper-70s.

How is this possible when those countries have high-tax welfare states? Because they follow a very laissez-faire approach for all of their other policies (trade, regulation, monetary policy, etc).

I’ll close with a depressing look at how the United States has declined over the past two decades. I already mentioned that the U.S. gets a score of 72.1 in the 2022 version. That’s far below 81.2, which is where America was back in 2006.

P.S. The Fraser Institute’s Economic Freedom of the World shows a similar decline for the United States.

P.P.S. Taiwan is an under-appreciated success story.

P.P.P.S. New Zealand is still in the “Free” group, but it’s decline is worrisome.

P.P.P.P.S. Kudos to Estonia for climbing into the top group.

P.P.P.P.P.S. The bottom three nations are Cuba, Venezuela, and North Korea.

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Dunking on Oxfam: 2022’s Tweet of the Year

There were many notable tweets in 2021.

• The tweet of the year
• The most morally reprehensible tweet
• The most depressing tweet (for the left)
• The best counter-tweet

I realize there are still more than 11 months left in 2022, but we may have a winner for this year’s best tweet.

The hack leftists at Oxfam have a new report with the laughable title of “Inequality Kills.” As part of the report, they grouse about “the recent 40-year period of neoliberalism” that supposedly helped only rich elitists.

Johan Norberg destroyed Oxfam’s sophomoric argument with a tweet showing that this era of free-market policy is associated with dramatic reductions in extreme poverty.

As Johan points out, if neoliberalism (in Europe, that’s the left’s term for people who support economic liberty) was a sinister plot by “rich, powerful, and corrupt elites,” their scheme failed.

They wound up enriching poor people instead!

In reality, of course, there was no secret plot.

What actually happened is that nations did shift toward free markets. And pro-market policies are the only effective way to reduce poverty.

Here’s a chart from the latest edition of Economic Freedom of the World. As you can see, economic freedom has increased over the past two decades, from an average score of 6.61 up to 7.04.

By the way, the above chart underestimates the policy improvement in poor nations.

That’s because the level of economic liberty has declined in the United States since 2000. It’s also declined in Western Europe. And it’s declined slightly in Japan.

So if we took the average score of developing nations, we would see an even bigger increase.

And that increase from 2000-2019 would be relatively small compared to the huge increase in the average Fraser Institute score the preceding two decades.

As you can see from this chart, we got a dramatic increase in economic liberty during the years of the Washington Consensus, with average scores increasing from 5.31 to 6.60.

So what’s the bottom line?

The developing world has enjoyed huge reductions in severe poverty thanks to improvements in economic freedom.

Which is exactly the opposite of the statist agenda being advocated by the kooks at Oxfam.

P.S. For those interested, Johan added a follow-up tweet to show that the reduction in global poverty was not just the result of what happened in China.

Since we shifted to China, I’ll augment Johan’s tweet by noting that China’s partial liberalization after Mao led to more inequality in addition to a giant reduction in poverty.

So even though poor people were big winners, Oxfam probably thinks this is bad news since rich people got richer faster than poor people got richer.

P.P.S. The cranks at Oxfam are not the only ones who are willing to hurt the poor so long as the rich get hurt even more.

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Joe Biden, Wokeness, Big Government, and Popularity

Other than just-for-the-fun-of-it election predictions, I generally stick to economic analysis rather than politics.

But I acted as a pundit in this interview about Joe Biden’s waning popularity (in my defense, I also used the opportunity to slip is some criticism of his agenda).

My assertions about Biden pushing a hard-left agenda aren’t new.

I made the same point during the 2020 election campaign.

And I take second place to nobody in criticizing what he’s been doing ever since he got inaugurated.

Indeed, the only thing I’m uncertain about is whether I should be more upset about his class-warfare tax agenda or his proposals to expand the burden of government spending.

And, for what it’s worth, I don’t think my comments about Biden’s leftist ideology are controversial. Not even back in 2020.

For instance, here’s the headline from a Vox column that year by Matt Yglesias.

And here’s a headline from a column that same year by Michael Kazin in the New York Times.

Both of those columns said the same thing – namely, that Biden had embraced a leftist agenda (and both authors were very happy about that development).

I also would direct people to this 2019 Washington Post column by Lane Kenworthy, which observes (with approval) that Democrats have moved to the left.

If you want even more evidence, this analysis from 538 also makes the same point.

And a report from Pew notes that there’s a much bigger gap now between Republicans and Democrats – and it’s almost entirely because the median Democrat is now much farther to the left.

There’s one other point from my RT interview that’s worth highlighting.

I mentioned that we’ve had a strange realignment in the United States. Many rich people have moved to the left while lots of low-income people have moved to the right.

Is this because Democrats are pushing some policies that disproportionately help upper-income people, such as student loan bailouts and expanding the deduction for state and local taxes?

Maybe that’s part of the answer, but I mentioned in the discussion that social and cultural issues are probably the main reason.

In other words, wokeness may be the big dividing line nowadays in American politics – which is not exactly good news for libertarians who want the focus to be statism vs. liberty.

P.S. I also used the interview to explain that Reagan was special because he was able to enact big changes (notwithstanding America’s separation-of-powers system). But unlike other presidents who oversaw big changes (such as LBJ and FDR), Reagan actually pushed through reforms that were good for the nation.

P.P.S. I don’t like the idea of government-financed media, but my philosophical objections haven’t prevented me from appearing on PBS, BBC, and France 24, so I figured it was okay to also appear on Russia Today.

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Leftism and Hypocrisy

I periodically write about our leftist friends who display remarkable hypocrisy on issues such as taxation, education, Covid, and climate.

Here are just a few examples.

• Joe Biden
• Barack Obama 
• Elizabeth Warren
• Hillary Clinton
• Bernie Sanders
• John Kerry
• Bill Clinton
• Gov. J.B. Pritzker

Gee, it’s almost as if there’s a pattern.

Writing for Reason, Professors Jason Brennan and Christopher Freiman highlight more of the hypocrisy that seems so prevalent on the left.

It’s been a bad year in public relations for Champagne socialists—or if you prefer, Neiman Marxists. The socialist Twitch streamer and Young Turks host Hasan Piker bought a $2.7 million house in Beverly Hills, complete with a swimming pool and an outdoor widescreen… Millionaire Aurora James designed Democratic New York Rep. Alexandria Ocasio-Cortez’s show-stealing “Tax the Rich” dress, which she wore to the $35,000-per-ticket Met Gala. The phenomenon of egalitarians living in luxury while denouncing the evils of inequality is not new. …socialist Vermont Sen. Bernie Sanders…remains within the top 1 percent of U.S. earners and the top .02 percent worldwide. Curious observers may question why Sanders, a tireless critic of the 1 percent, doesn’t sell his $575,000 vacation home and give the proceeds to charity or offer them as a general donation to the U.S. government via pay.gov. The same goes for Massachusetts Sen. Elizabeth Warren, a longtime progressive who has a net worth of over $10 million… When the disconnect between personal behavior and expressed ideology is this dramatic, and when the person gets rich and famous for expressing that ideology, we have to wonder whether he was ever sincere or was instead merely trying to promote himself. …Talking about socialism is cheap (indeed, even lucrative); a $2 million donation is not. Yet rather than bear a real cost to really help the poor, Piker and other prominent egalitarians adopt a philosophy that they think demonstrates their good hearts but that allows them to live high.

So is there any defense of this type of hypocrisy?

Sort of, though I’m not sure it’s very persuasive.

In a Wall Street Journal column last year, Ted Rall defended rich leftists by claiming that put values above self-interest.

‘Limousine liberals” have driven full circle—or rather the term has returned to its origins. Coined in 1969 by Mario Procaccino, the Democratic Party’s unsuccessful challenger to New York Mayor John Lindsay, the epithet described “hypocritical wealthy do-gooders insulated from the negative fallout of their bad ideas,” in historian David Callahan’s definition. “This theme,” Mr. Callahan has written, “remained a staple of conservative attacks.” Sen. Ted Kennedy was a classic example. He sent his kids to exclusive private schools at the same time he was telling working-class whites to bus their kids to distressed schools in the slums. …The accusation of hypocrisy or inauthenticity is…less logical… Had Kennedy gotten the tax system of his dreams, he and his family would have been poorer. He voted his values, not his self-interest. That’s admirable.

P.S. Libertarians can be hypocrites, of course, but the only article I’ve analyzed on the issue was not convincing.

P.P.S. By contrast, there are plenty of hypocritical Republicans.

P.P.P.S. The champion hypocrites are the bureaucrats at the OECD and IMF, who reflexively support higher taxes while receiving very generous tax-free salaries.

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According to the Human Freedom Index, Switzerland Is the Most Libertarian-Oriented Nation

A new edition of the Human Freedom Index has been released. When you combine measures of personal freedom and economic freedom, the “sensible nation” of Switzerland is at the top of the rankings.

I don’t know if this means we should view Switzerland as the world’s most libertarian nation (or perhaps the world’s least statist nation), but it’s obviously good to lead this list.

And it’s not surprising that New Zealand is next, though many people are probably shocked to see Denmark in third place (it has very bad fiscal policy, but otherwise is a very laissez-faire nation).

The United States is #15, which is good but not great.

Here are a few passages from the report’s executive summary.

The Human Freedom Index (HFI) presents a broad measure of human freedom, understood as the absence of coercive constraint. This seventh annual index uses 82 distinct indicators of personal and economic freedom… The HFI covers 165 jurisdictions for 2019, the most recent year for which sufficient data are available. …fully 83 percent of the global population lives in jurisdictions that have seen a fall in human freedom since 2008. That includes decreases in overall freedom in the 10 most populous countries in the world. Only 17 percent of the global population lives in countries that have seen increases in freedom over the same time period. …Jurisdictions in the top quartile of freedom enjoy a significantly higher average per capita income ($48,748) than those in other quartiles; the average per capita income in the least free quartile is $11,259. The HFI also finds a strong relationship between human freedom and democracy

If you want to know the world’s worst nations, here are the bottom 10.

Venezuela is normally the worst of the worst, but in this case Syria wins the Booby Prize.

Let’s now give some extra attention to Hong Kong.

The report notes that there’s been a very unfortunate decline in human freedom in Hong Kong, mostly because of an erosion of personal freedom.

And Hong Kong’s score is expected to drop even further in future editions.

Freedom has suffered a precipitous decline in Hong Kong. The territory was once one of the freest places in the world, but the Chinese Communist Party’s (CCP) escalating violations of Hong Kong’s traditional liberties has caused its ranking in our index to fall from 4th place in 2008—when the first globally comprehensive data appeared—to 30th place in 2019, the most recent year in our report… Our survey does not yet capture the suppression of 2020 and 2021, including the CCP’s imposition of a draconian security law that enabled its aggressive takeover of Hong Kong.

Thanks to the recent election, I expect we will see a similar discussion of Chile’s decline in future editions.

Here’s a final observation that should be highlighted.

Because the report relies on hard data (which often takes a year or two to be finalized and reported), this year’s HFI is based on 2019 data.

And that means we won’t see the effect of pandemic-related restrictions, which generally were adopted in early 2020, until next year’s version.

…this year’s report does not capture the effects of the coronavirus pandemic on freedom.

P.S. Here’s what I wrote about the previous edition of the Human Freedom Index. And if you want to dig into the archives, I also wrote about the publication in 2016 and 2018.

P.P.S. For what it’s worth, I still think Australia might have the best long-run outlook for human freedom.

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Chile Election Week, Part VI: Wrecking the Constitution?

Now that a socialist has been elected (with open support from the Communist Party), what comes next for Chile?

Lots of bad policy, for sure, but Axel Kaiser warns that the left also wants to replace the country’s pro-liberty constitution.

Axel, who is President of Fundación para El Progreso and also a Senior Fellow for the Atlas Center for Latin America, just scratches the surface in this short video. He told me that there are many other desirable provisions, including school choice.

So it shouldn’t be surprising that the left in Chile is so determined to replace it with a document that empowers politicians.

I wrote about this issue last year, citing experts (including folks on the left) who all agreed that giving politicians new powers over the economy was the clear purpose of a new constitution.

This is basically a fight about whether to replace rights with entitlements (or, in the language of philosophers, whether to replace “negative rights” with “positive rights”).

By the way, there’s research showing that a society based on liberties is the best way of generating the prosperity needed for higher living standards (i.e., the access to goods and service that proponents of positive rights claim to support).

And, earlier this year, I showed how that works conceptually.

But you don’t need empirical research or theoretical analysis. Just open your eyes and look around the world. The nations based on socialism and so-called positive rights have produced economic misery and deprivation.

By contrast, there’s a much better track record – especially for ordinary people – in countries where government plays a smaller role.

It’s tragic that Chilean voters chose the redistribution approach in Sunday’s election. If they opt for a new constitution next year, the nation will be doomed.

P.S. By the way, here are some excerpts from today’s Wall Street Journal‘s editorial about the election.

Latin America, or much of it, is moving to the populist left, and Chile became the latest example by electing socialist Gabriel Boric… He’s the most leftist politician to win in Chile since Salvador Allende in the 1970s. His major theme was reducing economic inequality, which he proposes to do through state power. Mr. Boric wants to raise taxes, eliminate the country’s highly successful private pension system and increase government spending and regulation. He supports the constituent assembly now rewriting the constitution, and his goal is to give government more control over just about everything. …Foreign investors and Chileans with money and property are nervous. From the end of 2019—when the left launched riots demanding a new social contract—until August 2021, Chile’s central bank says some $50 billion (15% of Chilean GDP) fled the country. About half was investment capital and half from businesses and households. …on Monday the Chilean peso fell 2% against the U.S. dollar while the broader stock market plunged 10%. …The world is watching closely to see if the new president will…take Chile in the direction of such failing Latin states as Argentina or Peru, or worse.

Amen.

The best case scenario is that Chile is copying Argentina. The worst case is that it is copying Venezuela.

P.P.S. There was a president in the United States who wanted to remake society on the basis of “positive rights.” Fortunately, he did not succeed.

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