Feeds:
Posts
Comments

Posts Tagged ‘Free Markets’

The Index of Economic Freedom, my favorite Heritage Foundation publication, was released today.

As one might predict, Hong Kong once again ranks as the jurisdiction with the most liberty to engage in mutually beneficial exchange, followed by Singapore. Other highly ranked nations include New Zealand, Switzerland, and Australia.

Chile deserves special attention since it is the highest-ranked nation from its region and also the highest-ranked nation from what is considered to be the developing world. Estonia also deserves plaudits for being the highest-ranked nation to emerge from the former Soviet Empire.

The United States, sadly, isn’t in the top 10.

Now let’s look at some of the details from the report, starting with the important observation that good policy produces good results.

…lasting prosperity is a result of a persistent commitment to limited government, strong private property rights, openness to global trade and financial flows, and sensible regulation. Together, these interrelated factors have been proven to empower the individual and induce dynamic entrepreneurial activity. …nations that have focused on improving their competitiveness and opening their societies to new ideas, products, and innovations have done a much better job of achieving the high levels of social progress.

Looking at specific data, the good news from a global perspective is that there’s never been more economic freedom.

…economic freedom has advanced for the fourth year in a row. The world average economic freedom score for 178 economies…recorded an overall average improvement of 0.3 point from the previous year. The global average economic freedom score of 60.7 is the highest recorded in the 22-year history of the Index.

To be sure, a global average of less than 61 percent means a barely passing grade. But that’s better than a failing grade.

Moreover, there’s been some noteworthy improvement in selected countries.

Hong Kong, Singapore, New Zealand, Switzerland, and Australia…earned the designation of “free” with scores above 80. …Ninety-seven countries, the majority of which are less developed, gained greater economic freedom over the past year; 32 countries, among them Burma, Germany, India, Israel, Lithuania, the Philippines, Poland, and Vietnam, achieved their highest economic freedom scores ever in the 2016 Index. …Score improvements in eight countries were significant enough to merit upgrades in the countries’ economic freedom status in the Index. Notably, Latvia became a “mostly free” economy for the first time.

But we also have some bad news.

Declining economic freedom was reported in 74 countries, including 19 advanced economies such as the United States, Japan, and Sweden. …Within the top five freest economies, Switzerland is the only economy whose overall score did not decline in the 2016 Index.

Indeed, I’m worried that Hong Kong’s score fell by a full point and Singapore tied for the 5th-biggest decline with a drop of 1.6 points. Those two jurisdictions are supposed to be role models!

And if you’re an American reader, you probably won’t be happy to learn that the United States has never had a lower score.

The United States continues to be mired in the ranks of the “mostly free,” the second-tier economic freedom category into which the U.S. dropped in 2010. Worse, with scores in labor freedom, business freedom, and fiscal freedom notably declining, the economic freedom of the United States plunged 0.8 point to 75.4, matching its lowest score ever.

You can see from this chart how policy has been moving in the wrong direction.

I don’t want to be overly glum. Only 10 nations rank above the United States and more than 160 jurisdictions get lower scores. And being “mostly free” is better than being “moderately free” or “mostly unfree.” Or, Heaven forbid, being a “repressed” nation such as Argentina, Venezuela, Cuba, or North Korea.

That being said, the trend is not in the right direction. Heck, America is only 1/10th of a point ahead of Denmark (though, to be fair, Bernie Sanders would be horrified to learn that the Danes have very pro-market policies once you get past their awful fiscal system).

One final comment. The much-vaunted BRICS have hit a speed bump.

Progress among the so-called BRICS nations (Brazil, Russia, India, China, and South Africa) has stalled, except in India, which improved by 1.6 points. Russia plunged 10 places in the rankings to 153rd, with its score deteriorating by 1.5 points. The rankings of the other BRICS countries—South Africa, Brazil, and China—declined to 80th, 122nd, and 144th, respectively.

By the way, India’s improvement is welcome news, but don’t break out the champagne. It still only ranks #123 in the world, which is not a recipe to become an Asian Tiger.

Indeed, the big lesson from the BRICS (as I’ve explained in my analyses of Brazil, South Africa, and China) is that a little bit of economic liberalization is a good thing and  can help save a huge number of people from destitution. But you don’t become a rich nation with “mostly unfree” policy.

P.S. While I’m a big fan of the Index of Economic Freedom, I’m an even bigger fan of Economic Freedom of the World. But both tell a very similar story about the relationship between good policy and good outcomes.

For more information, here’s the video I narrated on the recipe for growth and prosperity.

P.P.S. Even though my 2012 predictions for the Iowa Caucus were less than stellar, some folks have emailed to ask what I think will happen this evening.

For what it’s worth, here’s my best guess.

For the GOP:

Cruz                  28
Trump               27
Rubio                19
Carson               8
Paul                    7
Bush                   4
Christie               2
Santorum           2
Fiorina                1
Kasich                 1
Huckabee           1

For the Dems:

Hillary               55
Bernie               45

But don’t place any bets on this basis. After my near-perfect 2010 prediction (at least for the House), my predictions for the 2012 and 2014 elections were decent at best.

Read Full Post »

The long-term trend in China is positive. Economic reforms beginning in the late 1970s have helped lift hundreds of millions of people out of abject poverty.

And thanks to decades of strong growth, living standards for ordinary Chinese citizens are far higher than they used to be. There’s still quite a way to go before China catches up to western nations, but the numbers keep improving.

That being said, China’s economy has hit a speed bump. The stock market’s recent performance has been less than impressive and economic growth has faltered.

Is this the beginning of the end of the Chinese miracle?

If you asked me about six months ago, I would have expressed pessimism. The government was intervening in financial markets to prop up prices, and that was after several years of failed Keynesian-style spending programs that were supposed to “stimulate” growth.

But maybe my gloom was premature.

An article in The Economist examines the new “supply-side” focus of China’s leader (h/t: Powerline).

Mr Xi has seemed to channel the late American president. He has been speaking openly for the first time of a need for “supply-side reforms”—a term echoing one made popular during Reagan’s presidency in the 1980s. It is now China’s hottest economic catchphrase (even featuring in a state-approved rap song, released on December 26th: “Reform the supply side and upgrade the economy,” goes one catchy line). …Mr Xi’s first mentions of the supply side, or gongjice, in two separate speeches in November, were not entirely a surprise. For a couple of years think-tanks affiliated with government ministries had been promoting the concept (helped by a new institute called the China Academy of New Supply-Side Economics).

Sounds encouraging, though it’s important to understand that there’s a big difference between rhetoric and reality.

Talking about “gongjice” is a good start, but are Chinese officials actually willing to reduce government’s economic footprint?

Perhaps.

Their hope is that such reforms will involve deep structural changes aimed at putting the economy on a sounder footing, rather than yet more stimulus. …Mr Xi’s aim may be to reinvigorate reforms that were endorsed by the Communist Party’s 370-member Central Committee in 2013, a year after he took over as China’s leader. They called for a “decisive” role to be given to market forces

Wow, the communists in China want free markets. Maybe there’s hope for some of America’s more statist politicians!

All kidding aside, there’s some evidence that officials in Beijing realize that the Keynesian experiment of recent years didn’t work any better than Obama’s 2009 spending binge.

Here’s more from the article.

Those who first pushed supply-side reform onto China’s political agenda want a clean break with the credit-driven past. Jia Kang, an outspoken researcher in the finance ministry who co-founded the new supply-side academy, defines the term in opposition to the short-term demand management that has often characterised China’s economic policy—the boosting of consumption and investment with the help of cheap money and dollops of government spending.The result of the old approach has been a steep rise in debt (about 250% of GDP and counting) and declining returns on investment. Supply-siders worry that it is creating a growing risk of stagnation, or even a full-blown economic crisis. Mr Jia says the government should focus instead on simplifying regulations to make labour, land and capital more productive. Making it easier for private companies to invest in sectors currently reserved for bloated state-run corporations would be a good place to start, some of his colleagues argue.

This is music to my ears.

Assuming President Xi is willing to adopt the types of reforms advocated by Mr. Jia, China’s economy will have a very bright future.

The key goal for policy makers in Beijing should be to improve China’s economic freedom score over the next 10 years by as much as it improved between 1980 and 2005.

In other words, if China adopts genuine free markets like Hong Kong and Singapore (and, to a lesser extent, Taiwan), then it will simply be a matter of time before living standards reach – and exceed – levels found in western nations.

I’ll close by outlining two challenges for Beijing.

First, entrenched interest groups will be an obstacle to pro-growth reform. In this sense, politics in China is very similar to politics in Greece, America, France, and South Africa. The sad reality is that too many people – all over the world – think it’s morally acceptable to obtain unearned wealth via the coercive power of government. Though there are reasons to be optimistic because a strong majority of Chinese people have expressed support for free markets.

Second, even if China’s leaders overcome the interest groups and adopt good long-run policy, there’s still the challenge of short-term dislocation and instability caused by so-called stimulus programs and easy-money policy from the central bank. Just like you can’t un-ring a bell, you can’t magically undo the malinvestments caused by those policies. So Beijing will need to weather a temporary economic storm at the same time it engage in long-run reform.

P.S. If you want to know a recipe for Chinese stagnation, simply look at the IMF’s recommendations.

P.P.S. Some senior Chinese officials have a very astute understanding of why welfare states don’t work.

Read Full Post »

There are many reasons why I’m not a big fan of the United Nations. Like other international bureaucracies, it supports statist policies (higher taxes, gun control, regulation, etc) that hinder economic development and limit human liberty by increasing the burden of government

Some people tell me that I shouldn’t be too critical because the U.N. also helps poor people with foreign aid. Indeed, the U.N. has a very active project to encourage rich nations to contribute 0.7 percent of their economic output to developing nations.

I generally respond to these (in some cases) well-meaning folks by explaining that there’s a big difference between good intentions and good results. If you examine the evidence, it turns out that redistribution from rich nations to poor nations is just as counterproductive as redistribution within a society.

An article in The Economist succinctly summarizes the issue. It starts with the rationale for foreign aid.

After the second world war, a new “development economics” came to dominate policymaking…, often at the urging of international institutions such as the World Bank. It argued that poor countries were victims of a vicious circle of poverty… The answer? Rich countries should provide the capital, in the form of foreign aid. …poor-country governments should plan their economies and…competition should be restricted through monopoly rights and barriers to foreign trade.

It then describes the revolutionary thinking of the late Peter Thomas Bauer, a Hungarian-born British economist who said the developing world needed economic freedom rather than handouts.

Lord Bauer set out alternative theories that, from the 1950s to the 1970s, were heresy. …Opportunities for private profit, not government plans, held the key to development. Governments had the limited though crucial role of protecting property rights, enforcing contracts, treating everybody equally before the law, minimising inflation and keeping taxes low.

Moreover, Bauer explained that foreign aid generally had a negative effect because it put resources in the hands of government, thus leveraging more statism. Which is the last thing these nations needed.

Aid politicised economies, directing money into the hands of governments rather than towards profitable business. Interest groups then fought to control this money rather than engage in productive activity. Aid increased the patronage and power of the recipient governments, which often pursued policies that stifled entrepreneurship and market forces. Indeed, aid had proved “an excellent method for transferring money from poor people in rich countries to rich people in poor countries.”

Writing for the U.K.-based Spectator, Daron Acemoglu and James Robinson explain that foreign aid has a very poor track record.

The idea that large donations can remedy poverty has dominated the theory of economic development — and the thinking in many international aid agencies and governments — since the 1950s. And how have the results been? Not so good, actually. Millions have moved out of abject poverty around the world over the past six decades, but that has had little to do with foreign aid. Rather, it is due to economic growth in countries in Asia which received little aid.

Meanwhile, the nations getting the most handouts have remained mired in poverty.

In the meantime, more than a quarter of the countries in sub-Saharan Africa are poorer now than in 1960 — with no sign that foreign aid, however substantive, will end poverty there. …huge aid flows appear to have done little to change the development trajectories of poor countries… Why? …economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbours and their country. …The problem is that their aspirations are blocked today…by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them.

What exactly are “extractive institutions”?

At the top of the list would be bad government policy, which creates a system in which politicians, bureaucrats, and insiders get unearned wealth via corruption and cronyism.

The authors give some powerful examples.

To understand Syria’s enduring poverty, you could do worse than start with the richest man in Syria, Rami Makhlouf. He is the cousin of President Bashar al-Assad and controls a series of government-created monopolies. He is an example of what are known in Syria as ‘abna al-sulta’, ‘sons of power’. To understand Angola’s endemic poverty, consider its richest woman, Isabel dos Santos, billionaire daughter of the long-serving president. …every major Angolan investment held by dos Santos stems either from taking a chunk of a company that wants to do business in the country or from a stroke of the president’s pen that cut her into the action.

I’d also include the wealthy Venezuelans who have used socialism as a vehicle to enrich themselves while impoverishing ordinary people.

To be sure, we have examples of insider favoritism and undeserved wealth in rich nations, but it’s a matter of degree. Cronyism is an undesirable feature of our economy, but it’s a defining feature of nations in the developing world.

So what does all this mean?

Acemoglu and Robinson basically reach the same conclusion as Lord Bauer.

When aid is given to governments that preside over extractive institutions, it can be at best irrelevant, at worst downright counter-productive. …Many kleptocratic dictators such as Congo’s Mobutu Sese Seko have been propped up by foreign aid.

Now let’s shift from looking at nations where failure has been subsidized by foreign aid and instead consider the success stories of economic development. Are there any lessons we can learn?

Well, if you look at the ranking from Economic Freedom of the World, you’ll see that the formerly poor East Asian jurisdictions that are now rich also have something else in common. They rank very high or somewhat high for economic freedom

In other words, there is a recipe for growth and prosperity. Nations that restrain the size of government and allow markets to flourish enjoy growth.

Which is exactly the message of this video.

By the way, you don’t need perfection to get climb out of poverty. China still doesn’t rank very high in Economic Freedom of the World, but it has improved its position over the past few decades and that has helped lift hundreds of millions of people out of abject poverty. Same with India.

Yes, both nations are capable of much stronger growth with further improvements in policy, but it’s nonetheless good news that there’s been considerable improvement.

Let’s address one more issue that arises in the debate about foreign aid.

Professor Noah Smith of Stony Brook University, in a column for Bloomberg, debunks the myth that poverty in the developing world is a legacy of colonialism.

…the stolen-wealth theory is wrong. Oh, it’s absolutely true that colonial powers stole natural resources from the lands they conquered. …the stolen-wealth theory is wrong…because the theory doesn’t explain the global distribution of income today. …The easiest way to see this is to observe all the rich countries that never had the chance to plunder colonies. Germany, Italy, Sweden, Denmark and Japan had colonial empires for only the very briefest of moments, and their greatest eras of development came before and after those colonial episodes. Switzerland, Finland, and Austria never had colonies. And South Korea, Taiwan, Singapore and Hong Kong were themselves colonies of other powers. Yet today they are very rich. They did it not by theft, but by working hard, being creative, and having good institutions.

Amen. And notice that he also mentions the tiger economies of East Asia.

P.S. Given what I wrote the other day about the statist proclivities of the OECD, here’s an item that shouldn’t surprise anyone.

Even though South Africa already has an excessive burden of government, the Paris-based bureaucracy wants that nation to impose even higher taxes to fund even bigger government.

I’m not joking. The OECD just put out a document entitled, “How can South Africa’s tax system meet revenue raising challenges?” and here are some blurbs from the abstract.

…considerable revenues will be needed in the years ahead to expand social spending and infrastructure in order to raise growth and well-being. …there is some scope to raise further revenue, particularly through broadening the base of these taxes further. …An important additional source of revenue is environmentally related taxes.

Yup, you read correctly. The bureaucrats at the OECD want people to believe that South Africa’s main challenge is that government isn’t big enough. Heck, they actually want readers to believe that a more bloated public sector will “raise growth and well-being”.

Huh, bigger government is associated with more growth?!? I guess that’s why Singapore is so poor and Cuba is so rich.

What’s especially remarkable about the OECD’s anti-empirical approach is that fiscal policy is where South Africa get its lowest score in Economic Freedom of the World. It’s almost as if the tax-loving bureaucrats at the OECD are trying to keep that country from prospering.

And we’re subsidizing this nonsense to the tune of about $100 million per year.

Read Full Post »

The communist economic system was a total disaster, but it wasn’t because of excessive taxation. Communist countries generally didn’t even have tax systems.

The real problem was that communism was based on central planning, which is the notion that supposedly wise bureaucrats and politicians could scientifically determine the allocation of resources.

But it turns out that even well-meaning commissars did a terrible job. There was massive inefficiency and widespread shortages. Simply stated, notwithstanding the delusions of some left-wing economists (see postscript of this column), the system was an economic catastrophe.

Why? Because there were no market-based prices.

And, as explained in this video from Learn Liberty, market-based prices are like an economy’s central nervous system, sending signals that enable the efficient and productive allocation of resources in ways that benefit consumers and maximize prosperity.

And just in case it’s not obvious from the video, a price system can’t be centrally planned. Or, to be more precise, you won’t get good results if central planners are in charge.

Now let’s look at a bunch of economic policy questions that seem unrelated.

What’s the underlying reason why minimum wages are bad? We know they lead to bad effects such as higher unemployment, particularly for vulnerable populations, but how do these bad effects occur?

Why is it bad to have export subsidies such as the Export-Import Bank? It’s easy to understand the negative effects, such as corrupt cronyism, but what’s the underlying economic concern?

Or what’s the real reason why third-party payer is misguided? And why should people be concerned about high marginal tax rates or double taxation? Or Obamacare subsidies? Or unemployment insurance?

These questions involve lots of different issues, so at first glance there’s no common theme.

But that’s not true. In every single case, bad effects occur because politicians are distorting the workings of the price system with preferences and penalties.

And that’s today’s message. We generally don’t have politicians urging the kind of comprehensive central planning found is genuinely socialist regimes. Not even Bernie Sanders. But we do have politicians who advocate policies that undermine the price system on an ad-hoc basis.

Every tax, every regulation, every subsidy, and every handout is going to distort incentives for some people. And the cumulative effect of all these interventions is like a cancer that eats away at prosperity.

The good news is that we don’t have nearly as many of these bad policies as places such as France and Mexico.

But the bad news is that we have more of these policies than Hong Kong and Singapore.

The bottom line is that America could be much richer with less intervention. But that would require less ad-hoc interventionism.

P.S. There’s a bit of economic wisdom in these jokes that use two cows to explain economic systems.

P.P.S. Here are two other videos on the price system, both of which help explain why only a decentralized market system can allocate resources in ways that benefit consumers.

P.P.P.S. A real-world example of the price system helped bring about the collapse of communism.

Read Full Post »

A couple of days ago, I (sort of) applauded Senator Bernie Sanders. Not for his views, which are based on primitive redistributionism, but because he challenged Republicans to state whether they support capitalism.

And I think it would be very revealing to see which GOPers were willing to openly embrace free markets, hopefully for both moral and economic reasons.

But not let’s look at this issue from another perspective. Why do some folks on the left oppose capitalism?

I suppose there are several answers. Old-fashioned communists and socialists actually thought capitalism was inferior and they wanted the government to directly plan the economy, run the factories, and allocate resources.

Most leftists today admit that central planning doesn’t work and you need a market-based price system, so their arguments against capitalism usually are based on two other factors.

  1. The rich somehow exploit the poor and wind up with too big a slice of the economic pie. The solution is high tax rates and redistribution.
  2. Capitalism is inherently unstable, causing painful recessions. The solution is to have lots of regulations to somehow prevent bad things.

I think both those arguments are misguided since the first is based on the inaccurate presumption that the economy is a fixed pie and the second overlooks the fact that government intervention almost always deserves the blame for downturns and panics.

Today, though, I want to focus on a new argument against capitalism. Some guy named Matt Bruenig recently argued in the Washington Post that capitalism is coercive.

I’m not joking. This wasn’t parody. He really is serious that a system based on voluntary exchange is anti-freedom.

Here are some excerpts from his column.

Capitalism is a coercive economic system that creates persistent patterns of economic deprivation. …it is well established that capitalism is fundamentally built upon threats of force. …When the physical resources necessary for production are privately held in the hands of very few, as in the United States, the majority of the population is forced to submit itself to well-financed employers in order to live.

And how does he propose to deal with the supposedly coercive nature of capitalism?

Simple, the government should give everybody money so they don’t have to work

To secure freedom and prosperity for all, it may ultimately be necessary to supplement the welfare state with a universal basic income — a program that would provide all citizens with a basic level of financial support, regardless of whether they’re employed. …no amount of labor regulation can ever undo the fact that workers are confronted daily with the choice between obeying a supervisor or losing all their income. The only way to break the coercion at the core of the employment relationship is to give people the genuine ability to say no to their employers. And the only way to make that feasible is to guarantee that working-age adults, at least, have some way to support themselves whether they work or not.

Wow.

I don’t suppose Mr. Bruenig has thought through what happens if too many people decide to stop working so they can live off the “universal basic income.”

Welfare State Wagon CartoonsCall me crazy, but I suspect the number of people riding in the wagon would exponentially expand while an ever-growing share people pulling the wagon would decide to “go Galt.”

Of course, some leftists are smart enough to realize that somebody has to produce before the government can redistribute.

But anybody capable of writing these sentences obviously isn’t moored to reality.

True freedom requires freedom from destitution and freedom from the demands of the employer. Capitalism ensures neither, but a universal basic income, if successful, could provide both.

While he’s at it, why doesn’t he wave his magic wand so every little boy can play major league baseball and every little girl can have a pet unicorn?

I’ve previously expressed skepticism about the notion of a government-guaranteed income. The fact that Mr. Bruenig thinks it’s a good idea is confirmation that this idea should be rejected.

P.S. I have a Moocher Hall of Fame to celebrate disreputable deadbeats and a Bureaucrat Hall of Fame to highlight overpaid and underworked civil servants. Maybe it’s time to have some sort of Hall of Fame for statists who say make really bizarre arguments. Mr. Bruenig could join Mr. Murphy, Ms. vanden Heuvel, and Mr. Yglesias as charter members.

Read Full Post »

Whenever I need to explain the difference between socialism and capitalism, I start by noting that socialism technically is different from Obama-style big-government redistributionism and cronyism.

Socialism involves something more pervasive, involving government ownership of the means of production (which, if you read this postscript, is why Jeremy Corbyn in the United Kingdom is far more radical than previous Labour Party leaders).

It also means eviscerating the competitive price system as a means of determining value and allocating resources, relying instead on politicians and bureaucrats to arbitrarily wield that power (some American politicians favor this latter approach in certain circumstances).

Needless to say, socialism has an unmatched track record of failure. It was such a disaster than only a few supposedly high-ranked academics (see this postscript) thought it worked.

But what about high-ranked communists who grew up under socialism. Did they think it worked?

The Houston Chronicle dug into its archives to produce a story about an incident that may have played a big role in history. It’s about a senior communist functionary who was exposed to a slice of capitalism.

Yeltsin visited mission control and a mock-up of a space station. According to Houston Chronicle reporter Stefanie Asin, it wasn’t all the screens, dials, and wonder at NASA that blew up his skirt, it was the unscheduled trip inside a nearby Randall’s location. Yeltsin, then 58, “roamed the aisles of Randall’s nodding his head in amazement,” wrote Asin. He told his fellow Russians in his entourage that if their people, who often must wait in line for most goods, saw the conditions of U.S. supermarkets, “there would be a revolution.” …In the Chronicle photos, you can see him marveling at the produce section, the fresh fish market, and the checkout counter. He looked especially excited about frozen pudding pops. “Even the Politburo doesn’t have this choice. Not even Mr. Gorbachev,” he said.

This random trip to a typical supermarket may have changed history.

About a year after the Russian leader left office, a Yeltsin biographer later wrote that on the plane ride to Yeltsin’s next destination, Miami, he was despondent. He couldn’t stop thinking about the plentiful food at the grocery store and what his countrymen had to subsist on in Russia. In Yeltsin’s own autobiography, he wrote about the experience at Randall’s, which shattered his view of communism, according to pundits. Two years later, he left the Communist Party and began making reforms to turn the economic tide in Russia. …“When I saw those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people,” Yeltsin wrote. “That such a potentially super-rich country as ours has been brought to a state of such poverty! It is terrible to think of it.”

Since the Soviet Union was mired in poverty at the time, Yeltsin presumably was speculating about the potential wealth of his country.

And the good news is that the rigid communism of the Soviet Union is gone. Heck, the Soviet Union doesn’t even exist. Reagan was right when he predicted  the triumph of freedom, with Marxism being relegated to the “ash heap of history.”

But the bad news is that Russia (the most prominent of the 15 nations to emerge after the crackup of the Soviet Union) is a laggard on economic reform. There was a shift away from close-to-pure communism in the 1990s, to be sure, but the country still has a long way to go before it can be considered capitalist.

Here’s a back-of-the-envelope “statism spectrum” that I created. It’s designed to show that there are no pure libertarian paradises, not even Hong Kong. And there are no pure statist dystopias, not even North Korea (though that despotic regime is as close to pure evil as exists in the world).

Russia, I’m guessing, would be somewhere between China and Mexico.

And this gives me a chance to close with an important point.

Perfect economic policy almost surely is an impossible goal. But that’s fine. We can still enjoy good growth so long as we strive to at least move in the right direction. As I explained back in 2012, the private sector is capable of producing impressive results so long as it has sufficient breathing room to operate.

P.S. If you want a simpler and more amusing explanation of different economic systems, here’s the famous “two cows” approach.

P.P.S. The United States isn’t a socialist nation, but we’re not fully immune to that destructive virus. After all, we have a government-run rail company in America, a government-run postal service, a government-run retirement system, and a government-run air traffic control system, all things that would function far more efficiently in the private sector.

Read Full Post »

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

If you want to know why Pope Francis is wrong about capitalism and human well-being, these videos narrated by Don Boudreaux and Deirdre McCloskey will explain how free markets have generated unimaginable prosperity for ordinary people.

But the Pope isn’t just wrong on facts. He’s also wrong on morality. This video by Walter Williams explains why voluntary exchange in a free-market system is far more ethical than a regime based on government coercion.

Very well stated. And I especially like how Walter explains that markets are a positive-sum game, whereas government-coerced redistribution is (at best) a zero-sum game.

Professor Williams wasn’t specifically seeking to counter the muddled economic views of Pope Francis, but others have taken up that challenge.

Writing for the Washington Post, George Will specifically addresses the Pope’s moral preening.

Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert’s indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak… Francis deplores “compulsive consumerism,” a sin to which the 1.3 billion persons without even electricity can only aspire.

He specifically explains that people with genuine concern for the poor should celebrate industrialization and utilization of natural resources.

Poverty has probably decreased more in the past two centuries than in the preceding three millennia because of industrialization powered by fossil fuels. Only economic growth has ever produced broad amelioration of poverty, and since growth began in the late 18th century, it has depended on such fuels. …The capitalist commerce that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.

So why doesn’t Pope Francis understand economics?

Perhaps because he learned the wrong lesson from his nation’s disastrous experiment with an especially corrupt and cronyist version of statism.

Francis grew up around the rancid political culture of Peronist populism, the sterile redistributionism that has reduced his Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today. Francis’s agenda for the planet — “global regulatory norms” — would globalize Argentina’s downward mobility.

Amen (no pun intended).

George Will is right that Argentina is not a good role model.

And he’s even more right about the dangers of “global norms” that inevitably would pressure all nations to impose equally bad levels of taxation and regulation.

Returning to the economic views of Pope Francis, the BBC asked for my thoughts back in 2013 and everything I said still applies today.

P.S. Let’s close by taking a look at a few examples of how the world is getting better thanks to capitalism.

We’ll start with an example of how China’s modest shift toward markets has generated huge reductions in poverty (h/t: Cato Institute).

Now let’s look at how a wealthier society is also a safer society (h/t: David Frum).

Or how about this remarkable measure of higher living standards (h/t: Mark Perry).

Here’s an amazing chart showing how something as basic as light used to be a luxury good but now is astoundingly inexpensive for the masses (h/t: Max Roser).

These are just a few random examples of how free markets, when not overly stifled by government, can produce amazing things for ordinary people.

We may not notice the results from one year to the next, but the results are remarkable when we examine data over longer periods of time.

And if our specific goal is to help the poor, there’s no question that economic growth is far more effective than government dependency.

Which is why I’ve explained that it’s better to be a poor person in a capitalist jurisdiction.

I’d much rather be a poor person in a jurisdiction such as Hong Kong or Singapore rather than in a “compassionate” country such as France. France might give me lots of handouts, but I’d remain poor. In a free-market society, by contrast, I could climb out of poverty.

P.P.S. Methinks Pope Francis would benefit from a discussion with Libertarian Jesus.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,961 other followers

%d bloggers like this: