Why I Think Free Markets Rock
March 7th, 2008Here’s a must-read paper published by Harvard.
The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005.Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just asfast. Compared to 1980, many more countries in the world are democratic today.
The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.
March 8th, 2008 at 12:19 am
A lot of the big government lovers just do not understand two simple concepts. The effect of compounding calculations and the probable negative effect that higher taxes and higher regulation has on the growth of economies.
To make my point, assume that the growth rate of Nevada’s GDP is 5% per year for the next 20 years. The state legislature raises taxes and implements new laws and regulations that reduce that GDP growth rate to 4% over the next 20 years. In June of 2007 (http://strangemaps.wordpress.com/2007/06/10/131-us-states-renamed-for-countries-with-similar-gdps/) Nevada’s GDP is $203 billion which is 32nd in the world.
The future value of $203 billion at 5% is $538.61.
The future value of $203 billion at 4% is $444.79.
In year 20, that would be a $93.82 billion difference or a 17%.
In 2004, Nevada took $.48 out of every $10 of GDP. I am sure it is much higher now. Anyhoo, this reduce growth would result in $4.5 billion reduction in tax revenue for Nevada in year 20. Also there would be a reduction in available revenue every year up to year 20. So the cumulative reduction in revenue over 20 years would be around $40 billion.
So if one was a true big government lover then they would make economic growth a number one priority.
This differential of growth of GDP is one of the core reasons why US won the Cold War with Soviet Union. Even though Soviet Union had a comparable size in population and had a more natural resources, it system of government had a much lower GDP rate. In 2007, Russia’s GDP was 15th in the world which equals the State of Jersey at $733 billion. The US GDP in 2007, was $13 trillion which is about 17 times the size of Russia. The US GDP is equal to about the size of Japan, China, Germany and UK GDP’s. One can look at Russia to see the side effects of lower GDP. Russia has a declining growth in population because of a poor health system infrastructure due to the lack of funds.
March 8th, 2008 at 11:27 am
Excellent and well cited paper from Harvard no less. Thanks for bringing this paper to our attention. I am filing it in my referrence file for my arguments with misguided Collectivists.