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Posts Tagged ‘Free Markets’

Several months ago, I put forth a two-question challenge for our left-wing friends.

Since they relentlessly insist that we can have bigger government, higher taxes, more regulation, and added intervention without any negative impact on economic performance, I asked them to identify a single country that became rich following their policies.

And because I’m such a nice guy, I even gave them an extra option. If they couldn’t find a nation that become prosperous with statist policies, they also could successfully respond to my challenge by picking out a big-government jurisdiction that is out-performing a similar country with free markets and small government.

So what’s been the response? Zip. Nada. Zilch. Nothing.

Not that we should be surprised. After all, the rich nations of the western world all became prosperous back in the 1800s and early 1900s when the burden of government was tiny, smaller even than the public sector in Hong Kong today.

And what about the second part of the challenge? Well, our leftist friends have no answers to that query either.

But our side has lots of counter-examples. I’ve put together several comparisons of relatively pro-market jurisdictions and relatively statist jurisdictions. And when making these comparisons, I’ve used several decades of data to avoid the risk of misleading results caused by cherry-picking favorable or unfavorable years.

* Chile vs. Argentina vs. Venezuela

* Hong Kong vs. Cuba

* North Korea vs. South Korea

* Cuba vs. Chile

* Ukraine vs. Poland

* Hong Kong vs. Argentina

* Singapore vs. Jamaica

* United States vs. Hong Kong and Singapore

In every single case, the places with smaller government and free markets generate much stronger economic performance. And that translates into higher living standards.

Now we’re going to add to our list of comparisons, and we’re going to travel to Africa.

Botswana is one of the most pro-market nations in sub-Saharan Africa. It’s still a long way from being Hong Kong, but you can see from the Economic Freedom of the World data that it’s been a steady performer, averaging more than 7 out of 10 this century.

Indeed, only Rwanda ranks higher for economic freedom in the region, but that’s the result of pro-growth reforms in the past few years, so we’ll have to wait a while (assuming the reforms are durable) before having useful data.

And speaking of comparisons, let’s now look at what’s happened to per-capita GDP in Botswana as well as the data for the countries in the region that get the worst scores from Economic Freedom of the World.

As you can see, Botswana (the thick blue line) used to be among the very poorest nations in the region, but over time its per-capita economic output has easily surpassed the countries that have followed statist policies.

These numbers are adjusted for inflation, so the key takeaway is that per-capita economic output is now almost 10 times higher in Botswana than it was in the mid-1960s.

Most of the other nations, by contrast, have suffered from declining real incomes. In other words, the price of statism is very high, particularly for the less fortunate in society.

But there is a sliver of good news (in addition to the Botswana data). If you look carefully, you’ll see that the overall numbers for Africa (thin blue line) have noticeably improved since the late 1990s. Which underscores the importance of promoting business investment in the region, as explained recently by Marian Tupy.

For more information on Botswana, here’s a video put together by Ed Frank (who’s also a very good softball player).

P.S. I rarely comment on foreign policy, but I confess that my jaw dropped when I saw that an Obama Administration official said that a jobs program was key to defeating ISIS.

I thought about recycling some of the evidence showing that government efforts to create jobs are a miserable failure, but then I saw two cartoons that are too funny not to share.

Our first contribution is from Glenn McCoy.

And here’s a gem from Michael Ramirez.

You can see why Ramirez won the political cartoonist contest.

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The United States is burdened with some very bad policies that hinder growth and undermine competitiveness. But sometimes you can win a race if your rivals have policies that are even more self-destructive.

And that’s a good description of why the U.S. economy is out-performing Europe and why people in the United States enjoy higher living standards than their European counterparts.

In 2010, I shared data showing that Americans had far higher levels of consumption than Europeans.

In 2012, I updated the numbers and showed once again that people in America far ahead of folks in Europe.

And here are the most recent numbers from the Organization for Economic Cooperation and Development, showing “average individual consumption” for various member nations of that international bureaucracy.

The average for all OECD nations is 100, and the average for eurozone nations is 96, so the U.S. score of 147 illustrates how much better off Americans are than citizens of other countries.

The only nations that are even close to the United States have oil (like Norway) or are low-tax international financial centers (such as Luxembourg and Switzerland).

So why is the United States doing better than Europe?

There are two responses.

First, notwithstanding what I’ve just written, it’s a bit misleading to compare the U.S. to Europe. Simply stated, there are vast differences among European nations in terms of policies and living standards, much more than you find between and among American states.

There are nations such as Switzerland and Finland, for instance, that rank above the United States in Economic Freedom of the World. But there are also highly statist and moribund countries such as France, Italy, and Greece, as well as transition economies in Eastern Europe that are still trying to catch up after decades of communist oppression.

So overall America-vs-Europe comparisons should be accompanied by a grain of salt.

Second, now that we’ve ingested some salt, let’s draw some general conclusions about the role of public policy. Most important, nations with bigger governments and more intervention (as is the case for many European countries) generally don’t grow as fast or have the same living standards as nations with smaller governments and more reliance on competitive markets.

The comparisons can get complicated because there are a wide range of policies that impact economic performance (many people focus on fiscal policy, but trade, regulation, monetary policy, and the rule of law are equally important). Comparisons also can get confusing because there are some relatively rich nations with bad policy and some relatively poor nations with good policy, which is why it is important to look at how rich or poor nations are (or were) when there were significant changes in policy.

For instance, many nations in Western Europe became relatively rich in the 1800s and early 1900s when the overall burden of government was very small. Now they’ve adopted welfare states and growth is much slower (or, in some cases, nonexistent), but they’re oftentimes still in better shape than nations (such as Estonia and Chile) that only recently have liberalized their economies.

Now that we’ve gone through all this background, let’s look at a couple of stories that make me pessimistic about Europe’s future because they capture the mentality that seems dominant among continental policy makers.

First, one of the bright spots for the continent is that there’s been vigorous corporate tax competition. In other words, politicians have been under pressure to lower tax burdens on the business community because of concerns that jobs and investment will migrate to nations with better policy.

As you can imagine, this irks the political class (even though lower rates haven’t resulted in less revenue!).

So you won’t be surprised to learn that there’s a new push for tax harmonization in Europe. Here are some of the details from a news report.

France, Germany and Italy have joined forces to outlaw tax competition between EU countries in a letter to the European Commission. …the language and tone in the joint letter to the new Economic and Taxation Commissioner, Pierre Moscovici, is much more aggressive than in the past. …the letter from the finance ministers of the eurozone’s three largest economies says that “the lack of tax harmonisation in the European Union is one of the main causes allowing aggressive tax planning, base erosion and profit-shifting to develop”. …Vanessa Mock, commission spokeswoman said Mr Moscovici “welcomes these significant contributions to the work being carried out by the commission”.

Hmmm…., the Frenchmen who is the Economic and Taxation Commissioner “welcomes” a call from the governments of France, Germany, and Italy to outlaw tax competition. I’m shocked, shocked, by this development.

But as one British politician explained, this approach of higher business taxes will further undermine European economic vitality.

Now let’s shift to our second story, which illustrates the self-serving greed of the political elite at the European Commission.

Here are some passages from a story on the spectacular golden parachutes offered to outgoing senior Eurocrats. And we’ll focus on the former President of the European Council since he’s such a deserving target of ridicule.

Herman Van Rompuy will be entitled to more than £500,000 for doing nothing at the taxpayer’s expense over the next three years, after finishing his term as president of Europe. After standing down on Monday, the former president of the European Council will be paid £133,723 a year, 55 per cent of his basic salary, until December 2017 – to ease him back into life outside the world of Brussels officialdom.

Gee, how kind of European taxpayers to “ease him back” into the real world.

Except, of course, Van Rompuy’s never been in the real world. He’s had his snout in the public trough his entire life.

And he also gets to pay far less tax on this money compared to the poor slobs in the private sector who are footing the bill for this official largesse.

…The “transitional allowance” does not require Mr Van Rompuy to do any work at all and the cash will be paid under reduced rates of EU “community” tax, which are far lower than taxation in his native country of Belgium. …Mr Van Rompuy has not been a stranger to controversy over the perks of EU officialdom since he took the post in December 2009. He was widely criticised four years ago for using his official motorcade of five limousines as a taxi service to take his family on 325-mile round trip to Paris airport en route to a private holiday in the Caribbean. …The cost of Mr Van Rompuy’s retirement is part of a much larger bill for the handover of the administration in EU as former European Commissioners serving in the last Brussels executive pocket “transitional allowances” worth around £30million.

This scam has been in operation for several years, and keep in mind that excessive pay and lavish perks for commissioners are matched by excessive pay and lavish perks for member of the European Parliament (including taxpayer-financed penile implants).

And lavish pay and perks for European Union bureaucrats.

And don’t forget these are the folks who are pushing for bigger government and higher taxes on a pan-European basis. Like many of our politicians in Washington, they think the private sector is some sort of piñata that is capable of producing endless amounts of revenue to finance ever-expanding government.

Even though the evidence from Greece, Italy, Spain, etc, confirms that Margaret Thatcher was right when she warned that the problem with big government is that sooner or later you run out of other people’s money.

P.S. European bureaucrats have decided taxpayer-financed tourism is a human right. And they also use taxpayer money to produce self-aggrandizing comic books.

P.P.S. The European political elite are so bad that even President Obama has felt compelled to oppose some of their tax initiatives.

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Early this year, I shared an amusing but accurate image that showed an important difference between capitalism and socialism.

And in 2012, I posted a comparison of Detroit and Hiroshima to illustrate the damage of big government.

Well, if you combine those concepts, you get this very pointed look at the evolution of Cuban socialism and Hong Kong capitalism.

Some might dismiss these photos as being unrepresentative, and it’s reasonable to be skeptical. After all, I’m sure it would be easy to put together a series of photos that make it seem as if the United States is suffering from decay while France is enjoying a boom.

So let’s go to the data. In previous posts, I’ve shared comparisons of long-run economic performance in market-oriented nations and statist countries. Examples include Chile vs. Argentina vs. VenezuelaNorth Korea vs. South Korea, Cuba vs. Chile, Ukraine vs. Poland, Hong Kong vs. ArgentinaSingapore vs. Jamaica, and the United States vs. Hong Kong and Singapore.

Now let’s add Cuba vs. Hong Kong to the mix.

Wow, this is amazing. Through much of the 1950s, Hong Kong and Cuba were economically similar, and both were very close to the world average.

Then Hong Kong became a poster child for capitalism while Cuba became an outpost of Soviet communism. And, as you might expect, the people of Hong Kong prospered.

What about the Cubans? Well, I suppose a leftist could argue that they’re all equally poor and that universal deprivation somehow makes Cuban society better Hong Kong, where not everybody gets rich at the same rate.

But even that would be a lie since Cuba’s communist elite doubtlessly enjoys a very comfortable lifestyle. So while the rest of the country endures hardships such as a toilet paper shortage, the party bosses presumably drink champagne and eat caviar.

The bottom line is that statists still don’t have an acceptable answer for my two-part challenge.

P.S. If you prefer stories rather than images or data, this updated version of the fable of the ant and the grasshopper makes a key point about incentives and redistribution. And you get a similar message from the PC version of the Little Red Hen.

P.P.S. Cuba’s system is so wretched that even Fidel Castro confessed it is a failure. So maybe there’s hope that Obama will have a similar epiphany about American-style statism!

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Some of my left-wing friends have groused that Democrats didn’t do well in the mid-term elections because they failed to highlight America’s strong economic performance.

I’m tempted to ask “what strong economic performance?!?” After all, median household income is lower than it was when Obama took office. And labor force participation rates have plummeted.

However, my leftist buddies have a point. America’s economy does look good when compared to Europe.

But why should that be the benchmark for success?

If you look at today’s growth numbers compared to data on historical growth in the United States, you get a much different picture. Here’s some of what Doug Holtz-Eakin, former head of the Congressional Budget Office, wrote as part of a study for the National Chamber Foundation.

Over the entire postwar period from 1947 to 2013, the trend for economic growth in America was 3.3%. Unfortunately, looking at the period as a whole masks a marked deterioration in U.S. growth performance. Since 2007, the rate has downshifted to a mere 1.5%, which translates into a meager 0.7% in growth per capita in the United States. …At the current pace of growth, it will take 99 years for incomes to double. The poor U.S. growth performance is a threat to American families and their futures.

Here’s a chart from the report showing the 10-year rolling average of inflation-adjusted growth in the United States. As you can see, there was plenty of variation, but America usually enjoyed growth average a bit above 3 percent. But then, beginning about 2007/2008, that average dropped below 2 percent.

If you look at projections until 2024, you’ll notice that growth is projected to improve.

But you have to wonder if those projections will materialize.

And, even if they do, growth will only be about 2.5 percent annually, so we’ll still be enduring sub-par economic performance.

Moreover, it appears that those projections may be unrealistic. Here’s another chart from the National Chamber Foundation. It wasn’t in the study, but it’s worth including since it shows how the American economy has been routinely under-performing in recent years.

With this track record of anemic economic performance, it’s hard to have much sympathy for Democrats who thought they should be rewarded on election day. Doing better than France and Italy is not exactly a message that will resonate with voters, particularly when many people have been alive long enough to remember the good growth that America enjoyed during the Reagan and Clinton years, when policy was much more focused on small government and free markets.

But let’s set aside politics and consider the impact of growth on regular Americans rather than politicians. Holtz-Eakin explores some of the ramifications if the economy grows faster over the next decade.

Imagine that growth averages instead 3.3%—just one percentage point higher—for the next 10 years. …A full percentage point would eliminate $3 trillion in debt and slow the growth of the national debt. …Growing at a 3% rate means 1.2 million more jobs, and 1.3 million more if growth escalated to 3.5% for the next 10 years. …Three percent growth would mean another $4,200 in average incomes, while 3.5% growth would boost this an additional $4,500 to nearly $9,000. …faster economic growth would improve the future for the poor, the middle class, and the affluent alike.

By the way, it’s worth noting that faster growth leads to less debt mostly because the government collects a lot more tax revenue when people have higher incomes. And even a knee-jerk anti-taxer like me won’t complain if the IRS gets more money simply because people are more prosperous (though I reserve the right to then argue for lower tax rates).

Now let’s look at the most important question, which is to ask what policies will restore traditional American growth rates.

Doug has several suggestions, starting with entitlement reform.

The policy problem facing the United States is that spending rises above any reasonable metric of taxation for the indefinite future. ….Over the long term, the budget problem is primarily a spending problem, and correcting it requires reductions in the growth of large mandatory spending programs—entitlements like Social Security and federal health programs.

I certainly agree. Assuming, of course, that he wants good entitlement reform rather than gimmicks.

He also suggests tax reform.

The tax code is in need of dramatic improvements, including a modern international tax system, a lower corporation income tax rate, correspondingly lower rates on business income tax via so-called pass-thru entities, and broad elimination of tax preferences to preserve efficient allocation of investment… At the same time, one could improve work incentives by simplifying individual income tax rate brackets (recent proposals have suggested two brackets of 10% and 25%) and exclude a substantial portion of dividends and capital gains from taxation.

Once again, I agree. Though I reserve the right to change my mind and become a vociferous opponent if advocates decide that they wanted to finance these reforms with a value-added tax.

The study also includes suggestions for regulatory reform and other policy changes, but this post is too long already, so let’s now return to the central theme of economic growth.

Or, to be more accurate, the absence of economic growth. Because that’s the legacy of Obamanomics. We’re adopting European-style economic policies, so is it any surprise that our growth rates are declining in the direction of European-style stagnation?

And, to be fair, I’ll be the first to state that this bad trend began under Bush. Big government hinders prosperity, regardless of whether the policies are imposed by Republicans or Democrats.

Just as you get faster growth with good policy, even if those policies are implemented with a Democrat in the White House.

Simply stated, if you want better economic performance, there’s no substitute for free markets and small government.

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I’ve had ample reason to praise Hong Kong’s economic policy.

Most recently, it was ranked (once again) as the world’s freest economy.

And I’ve shown that this makes a difference by comparing Hong Kong’s economic performance to the comparatively lackluster (or weak) performance of economies in the United States, Argentina, and France.

But perhaps the most encouraging thing about Hong Kong is that the nation’s top officials genuinely seem to understand the importance of small government.

Here are some excerpts from a recent speech delivered by Hong Kong’s Financial Secretary. He brags about small government and low tax rates!

Hong Kong has a simple tax system built on low tax rates. Our maximum salaries tax rate is 15 per cent and the profits tax rate a flat 16.5 per cent. Few companies and individuals would find it worth the risk to evade taxes at this low level. And that helps keep our compliance and enforcement costs low. Keeping our government small is at the heart of our fiscal principles. Leaving most of the community’s income and wealth in the hands of individuals and businesses gives the private sector greater flexibility and efficiency in making investment decisions and optimises the returns for the community. This helps to foster a business environment conducive to growth and competitiveness. It also encourages productivity and labour participation. Our annual recurrent government expenditure has remained steady over the past five years, at 13 per cent of GDP. …we have not responded irresponsibly to…populist calls by introducing social policies that increase government spending disproportionally. …The fact that our total government expenditure on social welfare has remained at less than 3 per cent of our GDP over the past five years speaks volumes about the precision, as well as the effectiveness, of these measures.

And he specifically mentions the importance of controlling the growth of government, which is the core message of Mitchell’s Golden Rule.

Our commitment to small government demands strong fiscal discipline….It is my responsibility to keep expenditure growth commensurate with growth in our GDP.

Is that just empty rhetoric?

Hardly. Here’s Article 107 from the Basic Law, which is “the constitutional document” for Hong Kong

The most important part of Article 107, needless to say, is that part of keeping budgetary growth “commensurate with the growth rate of its gross domestic product.”

The folks in Hong Kong don’t want to wind up like Europe.

Last year, I set up a Working Group on Long-term Fiscal Planning to conduct a fiscal sustainability health check. We did it because we are keenly aware of Hong Kong’s low fertility rate and ageing population, not unlike many advanced economies. And that can pose challenges to public finance in the longer term. A series of expenditure-control measures, including a 2 per cent efficiency enhancement over the next three financial years, has been rolled out.

And, speaking of Europe, he says the statist governments from that continent should clean up their own messes before criticizing Hong Kong for being responsible.

I would hope that some of those governments in Europe, those that have accused Hong Kong of being a tax haven, would look at the way they conduct their own fiscal policies. I believe they could learn a lesson from us about the virtues of small government.

Just in case you think this speech is somehow an anomaly, let’s now look at some slides from a separate presentation by different Hong Kong officials.

Here’s one that warmed my heart. The Hong Kong official is bragging about the low-tax regime, which features a flat tax of 15 percent!

But what’s even more impressive is that Hong Kong has a very small burden of government spending.

And government officials brag about small government.

By the way, you’ll also notice that there’s virtually no red ink in Hong Kong, largely because the government focuses on controlling the disease of excessive spending.

Why is government small?

In large part, as you see from the next slide, because there is almost no redistribution spending.

Indeed, officials actually brag that fewer and fewer people are riding in the wagon of dependency.

Can you imagine American lawmakers with this kind of good sense?

None of this means that Hong Kong doesn’t have any challenges.

There are protests about a lack of democracy. There’s an aging population. And there’s the uncertainty of China.

But at least for now, Hong Kong is a tribute to the success of free markets and small government.

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Divided government is good for America’s economy.

Or, to be more specific, divided government is a net plus if the alternative is to have statists fully in charge of economic policy.

I made this point back in 2012 when I pointed out that the unemployment rate started falling after Republicans captured the House of Representatives, and we got further good results when gridlock led to an end to extended unemployment benefits, first in North Carolina and then the entire country.

We also see positive evidence in the new rankings from the Fraser Institute’s Economic Freedom of the World, which was published this week.

As you can see from this chart, the United States fell in 2010 to #18 in this global ranking of economic liberty, but now America has improved to #12.

That’s still far below our #3 ranking when Bill Clinton left office, so we’re still paying a high price for the statist policies of both Bush and Obama, but at least we’re finally moving back in the right direction.

If you look at the underlying data, you can see why America’s score has increased since 2010.

There was a slight improvement in the scores for trade and regulation, but that was offset by declines in the scores for monetary policy and property rights.

Fiscal policy is the area where there was a significant improvement for the United States, which matches with my data showing that sequestration and the Tea Party made a big difference by significantly slowing the growth of government spending.

But the improvement over the past two years, as noted above, is small compared to the decline in the previous 10 years.

Here’s how Economic Freedom of the World describes America’s fall.

The 7.81 chain-linked rating of the United States in 2012 is more than 8/10 of a point lower than the 2000 rating. What accounts for the US decline? While US ratings and rankings have fallen in all five areas of the EFW index, the reductions have been largest in the Legal System and Protection of Property Rights (Area 2)… The plunge in Area 2 has been huge. In 2000, the 9.23 rating of the United States was the 9th highest in the world. But by 2012, the area rating had plummeted to 6.99, placing it 36th worldwide. …the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case have weakened the tradition of strong adherence to the rule of law in United States. …To a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized, and heavily policed state.

Geesh, we’re becoming another Argentina.

Looking at the big picture, a falling score is not a trivial issue.

The decline in the summary rating between 2000 and 2012 on the 10-point scale of the index may not sound like much, but scholarly work on this topic indicates that a one-point decline in the EFW rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually (Gwartney, Holcombe, and Lawson, 2006). This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.

Amen. This is why I worry so much about the corrosive impact of big government.

Now let’s look at the overall ratings for all nations. The chart is too large to show all nations, so here are the nations with the most economic freedom.

You shouldn’t be surprised to see that Hong Kong and Singapore own the top two spots.

Other nations with very high scores include New Zealand, Switzerland, Mauritius, UAE, Canada, Australia, Jordon and Chile.

Getting a good score today, however, is no guarantee of getting a good score in the future.

I’ve already expressed concern about Australia moving in the wrong direction, but I’m even more worried about Chile. That nation’s socialist President is making very bad moves on fiscal policy, and also is trying to undermine her country’s very successful system of school choice.

But it would take a lot of bad policy for Chile to drop down to the level of Venezuela, which has the dubious honor of being in last place.

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In addition to his side job as Director of Undergraduate Studies for the Economics Department at Harvard University, Jeff Miron is Director of Economic Studies at the Cato Institute.

He’s also the narrator of this video from Learn Liberty that discusses three myths about capitalism.

Unsurprisingly, I think Jeff is right on the mark. Here are some of my thoughts on the three myths, but I’ll take a different approach. I’ll state the truth and then add my two cents to Jeff’s debunking.

1. Capitalism is pro-consumer, not pro-business.

I think the myth about a link between capitalism and big business arises because defenders of free markets often are in the position of opposing taxes, regulations, and mandates that also are opposed by the business community. But for some reason, many people overlook the fact that those same advocates of free markets also oppose cronyist policies that are widely supported by big business, such as Export-Import Bank, the so-called stimulus, TARP, and Obamacare. Part of the problem may be that far too many Republicans actually are pro-business instead of pro-free market.

2. Capitalism rewards those who best serve others.

In a genuine free market, you can only become rich by providing goods and services that are valued by others. But I think the myth that capitalism leads to unfair distribution of wealth exists for two reasons. First, a non-trivial number of people actually think the economy is a fixed pie, so they assume a rich person’s wealth came at the expense of the rest of us. This is obviously wrong. The second reason is that some people do get rich because of government intervention and coercion. This is true, of course, but as discussed in the video and in my remarks above, cronyism, handouts, bailouts, and subsidies are the opposite of capitalism.

3. Capitalism can’t work without failure and bankruptcy.

Regarding the myth that capitalism caused the financial crisis, I’ve already explained that bad monetary policy and corrupt subsidies from Fannie Mae and Freddie Mac deserve the lion’s share of the blame. So I want to focus on the bailouts that occurred once the economy soured. There’s a semi-famous saying that “capitalism without bankruptcy is like religion without hell.” Unfortunately, politicians feel a compulsion to shield people (especially if they’re politically powerful) from the consequences of bad decisions. That’s not capitalism. And I’m not just making an ideological point. For those who think that the financial system needed to be recapitalized, the “FDIC resolution” approach would have achieved everything we got with TARP, but without rewarding people who made bad decisions.

My only complaint about the video is that it was too short and didn’t address some of the other viewpoints that undermine support for capitalism.

I don’t know if these are myths, per se, but they certainly are mental roadblocks we need to overcome to build more support for a free society.

4. Some people crave security.

Capitalism is all about opportunity, but that also means uncertainty. And for those who crave predictability and security, that makes them uncomfortable. And I suspect they would be uncomfortable even if you showed them all the evidence that capitalism leads to far more wealth in the long run. Simply stated, they worry about falling through the cracks. When trying to convince these people, I point to the collapsing welfare state in Europe and argue that there’s far less long-run security in a society where everyone tries to live at the expense of everyone else.

5. Some rich people are jerks.

Whether it’s being obnoxious or ostentatious, people with a lot of money sometimes give capitalism a bad name. And that’s true even if they are genuine capitalists rather than cronyists. It doesn’t help that a lot of what comes out of Hollywood routinely paints rich people and big business as bad guys. By the way, it could very well be the case that there are fewer bad people, per capita, among the rich when compared to the rest of us. But the ones that are jerks get a disproportionate share of attention. And since I mentioned Hollywood, it is a bit of a mystery that becoming uber-rich by acting (or singing or in sports) doesn’t seem to arouse as much envy. Yet I strongly suspect those people are far more likely to engage in unseemly behavior. Go figure.

6. Some businesses try to rip off consumers.

While free markets in the long run reward honesty and punish bad behavior, that doesn’t mean much to a person who has been ripped off, whether by a local contractor or a big multinational. The fact that there are bad people, though, isn’t an argument against capitalism. After all, bad people are quite likely to obtain power in a big-government society. And backed by the coercive power of the state, they’ll have much greater ability to do bad things.

P.S. If you want to know the practical difference between capitalism and socialism, check out this image.

P.P.S. The most free-market place in North America is not in the United States.

P.P.P.S. We live in a strange world when Bono is more pro-market than the Pope.

P.P.P.P.S. Statists like to criticize free markets, but they sure seem to enjoy the fruits of capitalism.

P.P.P.P.P.S. I also suspect statists think free markets are bad because they equate capitalism with rich people and the wealthy folks they know are more likely to have obtained their money dishonestly.

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