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Archive for the ‘Free Market’ Category

Okay, the title’s an exaggeration, but this chart is rather revealing. It shows how per-capita GDP has changed between 1980 and 2008 in Chile, Argentina, and Venezuela.

As you can see, Chile used to be the poorest of the three countries and now it is comparatively rich. Argentina has enjoyed a bit of growth. Venezuela, by contrast, used to be the richest of the three nations but has stagnated and now is in last place.

So what accounts for these remarkable changes in relative prosperity? The answer, at least in part, is the difference between free markets and statism. Simply stated, Chile has reduced the burden of government a lot in the past three decades, Argentina has reduced the burden of government a little, and Venezuela has gone in the wrong direction and increased the burden of government.

The following numbers come from the Economic Freedom of the World, which looks at all facets of economic policy, including regulation, trade policy, monetary policy, fiscal policy, rule of law, and property rights.

* Chile’s score jumped from 5.6 in 1980 to 8.0 in 2008, and the country now ranks as the world’s 4th-freest economy (ahead of the United States!).

* Argentina’s ranking has improved a bit, rising from 4.4 to 6.0 between 1980 and 2008, but that still only puts them in 94th-place in the world rankings.

* Venezuela, by contrast, is embarrassingly bad. The nation’s score has dropped from 6.3 to 4.4, and its ranking has plunged from 22nd-place in 1980 to 121st-place in 2006.

The simple lesson is that nations have the ability to create prosperity, but they have to follow a simple recipe. Adam Smith is reported to have written several hundred years ago that, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

Since Adam Smith probably never imagined a world filled with things such as OSHA, the Department of Energy, the IRS, agriculture subsidies, and fiat money, his recipe might be a bit dated, but the general idea still holds.

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I was part of a debate for an English-language Russian TV program on the international implications of economic policy, particularly with regard to the United States and China. My job was simple because I am not a big fan of either nation’s policy.

Government intervention and favoritism is bad policy – regardless of skin color.

My only comment, other than welcoming feedback, is that Michael Hudson should be in the Obama cabinet since he has no idea what he’s talking about.

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Having just done a blog post where I explained that government should stay neutral in fights between labor and management in the private sector, let’s look at a real-world example to understand why.

The millionaire owners and millionaire players from the National Football League are locked in a labor dispute. This is somewhat understandable since there are ten of millions of dollars of profit available and both sides obviously have an interest in getting the biggest slice of that income.

I don’t care who wins, but government has no role in this squabble (or in discussions about college football championships).

In a free society, people have the right to sign contracts. But freedom also means they have a right to not sign contracts. Indeed, these principle of self-ownership and control over property are key defining characteristic of liberty.

That’s why it is disappointing that the players are trying to get the government to tilt the playing field in their direction. Led by big-name stars (for PR value), the players are going to court in hopes of getting the government to use misguided and coercive antitrust laws to hamstring the negotiating position of owners.

The market should determine the outcome of this dispute, however, not the sordid world of government and politics. The players do not have a right to jobs with NFL teams, just as NFL teams do not have a right to force people into playing football.

Yes, it is a “restraint on trade” for NFL owners to not sign contracts, but it is also a “restraint of trade” for top athletes to choose not to play. But this simply illustrates why antitrust laws are so foolish and so inconsistent with the freedom of contract.

Here’s a blurb from the Associated Press report.

…quarterbacks Tom Brady, Peyton Manning and Drew Brees were among 10 players who sued the NFL in federal court Friday, accusing the league of conspiracy and anticompetitive practices that date back years. Their lawsuit asked the court to prevent a lockout. …They filed a request for an injunction that would keep the NFL and the teams from engaging in a lockout. Invoking the Sherman Act, a federal antitrust statute from 1890 that limits monopolies and restrictions on commerce, the players said they were entitled to triple the amount of any damages they’ve incurred. …The players accused the 32 NFL teams of conspiring to deny their ability to market their services “through a patently unlawful group boycott and price-fixing arrangement or, in the alternative, a unilaterally imposed set of anticompetitive restrictions on player movement, free agency and competitive market freedom.” The collective bargaining agreement with the league was expiring Friday.

One caveat. The title of this post says there is no role for government, but that’s not completely true. The courts have a role as neutral arbiters if there is a dispute about whether one side or the other has failed to live up to the terms of a voluntary contract. Though I suppose my caveat has a caveat since the two sides also could pick a private arbitration service to be the neutral judge of any dispute.

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I’ve always rejected coercive redistribution, particularly when imposed by the federal government.

But some types of redistribution are worse than others, and when big business and big government get in bed together, ordinary people are the ones who get screwed.

This is why Obama’s supposed “move to the center” is a bunch of nonsense.

Tim Carney is the go-to guy on this issue, and his column this morning in the Washington Examiner exposes the real meaning of Obama’s recent appointments of a “banker” and a “CEO.”

Let’s start with Bill Daley, the supposed banker who will be Obama’s new Chief of Staff. Does this signal a move to the right, as some left-wingers fear? That might be the case if Obama had appointed a real banker like John Allison of BB&T, who wants government to get out of the way and believes banks should sink or swim without bailouts or subsidies. But, as Tim explains, that is not the attitude of Bill Daley, who is more akin to Jim Taggart, the rent-seeking businessman in Atlas Shrugged.

Check out Daley’s resume. In the 1990s, he ran Amalgamated Bank, owned by a union and described by the Chicago Sun-Times as “one of the city’s most politically connected financial institutions.” Bill’s brother, Mayor Richard Daley, kept the city’s money on deposit at Amalgamated. Later, Bill held a seat on Fannie Mae’s board, pocketing six-figure compensation from the government-sponsored enterprise that used a housing bubble and an implicit government guarantee to fill a slush fund for well-connected Democrats — until taxpayers bailed it out in 2008. This is Obama’s kind of businessman: a banker who leverages his political connections for profit.

Or what about Obama’s appointment of Jeff Immelt of General Electric? Does this mean Obama wants to unleash the power of free enterprise? That would be welcome news, but GE has morphed into a corrupt company that specializes in fleecing taxpayers (a very sad development since GE once sponsored Ronald Reagan). Once again, Tim hits the nail on the head with a devastating indictment.

GE, which marches in sync with government, pocketing subsidies, profiting from regulation, and lobbying for more of both. …Obama bragged GE would be selling to a power plant in Samalkot, India. That sale is no triumph of free trade — Obama’s Export-Import Bank is providing at least $400 million in subsidized financing to grease the skids. Subsidies are GE’s lifeblood, and Immelt’s own words make that clear. In his op-ed announcing his appointment, Immelt called for a “coordinated commitment among business, labor and government…” He also advocated “partnership between business and government…” This is Immelt’s style. …wherever Obama has led, GE has followed. Obama has championed cap and trade in greenhouse gasses, and GE has started a business dedicated to creating and trading greenhouse gas credits. As Obama expanded subsidies on embryonic stem cells, GE opened an embryonic stem-cell business. Obama pushed rail subsidies, and GE hired Linda Daschle — wife of Obama confidant Tom Daschle — as a rail lobbyist. GE, with its windmills, its high-tech batteries, its health care equipment, and its smart meters, was the biggest beneficiary of Obama’s stimulus. To get these gears in sync isn’t cheap: The company has spent $65.7 million on lobbying during the Obama administration — more than any other company by far. So much for Obama’s war on lobbyists.

In other words, appointing Daley and Immelt does not mean a change in policy. These are people who want a bigger government because these are people who have learned to line their pockets when government has more power. They may have different motives than traditional leftists, but the result is the same. As I’ve noted before, my former Cato colleague Will Wilkinson said it best when he wrote that, “…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people.”

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I prefer the Fraser Institute’s Economic Freedom of the World over the Heritage/WSJ Index of Economic Freedom, not because I’m an expert on the methodology of the two publications, but for the simple reason that I assume Economic Freedom of the World must be slightly more accurate because, unlike the Heritage Index,  it showed the U.S. score declining during the Bush years.

That being said, the Index of Economic Freedom is my favorite Heritage Foundation publication. It is a first-rate collection of data and analysis on international economic policy trends. Today, however, the latest version of the Index was released and it brings us bad news about the United States.

America’s score dropped by 0.2. Combined with what happened to other nations, that dropped the United States down to 9th place. Lots of fascinating material in the report. The very solid scores for Chile and Estonia (both just outside the top 10) are especially noteworthy. And a special shout out to North Korea for easily beating Cuba and Zimbabwe for the last prize honor.

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The world is a laboratory and different nations are public policy experiments. Not surprisingly, the evidence from these experiments is that nations with more freedom tend to grow faster and enjoy more prosperity. Nations with big governments, by contrast, are more likely to suffer from stagnation.

The same thing happens inside the United States. The 50 states are experiments, and they generate considerable data showing that small government states enjoy better economic performance. But because migration between states is so easy (whereas migration between nations is more complicated), we also get very good evidence based on people “voting with their feet.” Taxation and jobs are two big factors that drive this process.

Looking at the census data and matching migration data with state tax systems, here’s what Michael Barone wrote. He finds (not that anyone should be surprised) that the absence of a state income tax is correlated with faster growth, which attracts people from high-tax states.

…growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England. Altogether, 35 percent of the nation’s total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade.

And here’s Diana Furtchtgott-Roth, writing for Realclearmarkets.com. She uses the presence of right-to-work laws (which prohibit union membership as a condition of employment) as a proxy for the degree to which big government and big labor are imposing restrictions on efficient employment markets. Not surprisingly, the states that have a market-friendly approach create more jobs and therefore attract more workers.

The American people have been voting with their feet, the Census Bureau announced on Tuesday, leaving states with heavy union influence and choosing to live in “right-to-work” states with higher job growth where they cannot be forced to join a union as a condition of employment. …As a result of geographic shifts in population uncovered by the 2010 Census, nine congressional seats will move to right-to-work states from forced unionization states. Some winners are Texas, Florida, Arizona, Georgia, and South Carolina, while losers include New York, Ohio, Michigan, Illinois, and New Jersey. Over the past 25 years job growth in right-to-work states has been over twice as high as in unionized states.

This leaves us with one perplexing question. If we know that pro-market policies work for states, why does the crowd in Washington push for more statism?

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The South Los Angelos City Council is not satisfied with the culinary choices of the people of South Los Angelos. While consumers have been voting one way with their wallets, the City Council has voted to use government force to override their preferences.

How many fast food eateries does one area really need? The Los Angeles City Council thinks South Los Angeles and South East Los Angeles need new choices as these regions face an over-concentration of such restaurants.

“This is not an attempt to control people as to what they can put into their mouths. This is an attempt to diversify their food options,” said councilmember Jan Perry.

Perry’s new plan bans new so-called “stand alone” fast food restaurants opening within half a mile of existing restaurants.

This is an argument straight out of Orwell’s Ministry of Plenty. Government does not offer diversity; markets do. Compare the diversity you see in any private industry, such as automobiles or cell phones, with that in more heavily regulated sectors, such as education and mail delivery.

Are we really supposed to believe that, in exercising control over the availability of goods, they are not attempting to influence how those goods are consumed? Please, councilmember Perry, you’ll have to do better than that. Of course you are trying to control what people eat.

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