July 26, 2017


There's a Hole in the Middle of Doughnut Economics (Steven Horwitz, July 26, 2017, FEE)

The last 30 years have seen the demise of the Soviet Union and its administrative-command economy as well as a revolution in technology and trade that has reduced the transaction costs of using markets.

Many governments around the world have recognized the reality of the power of markets, liberalizing international trade and de-nationalizing production to benefit from the power of domestic competition. The Scandinavian countries have understood that even supporting a generous welfare state requires domestic economic growth, which has led them to cut business regulation and taxation in ways that have given them freer markets than in the US.

The success of that basic economic insight has generated immense cognitive dissonance among many progressives.

The result of all of these events has been an unprecedented reduction in human poverty. The number of people living on less than $1.90 per day (the current standard for extreme poverty) fell from 1.9 billion people, or about 37 percent of the world's population, to about 700 million (9.6 percent) between 1990 and 2015.

In other words, severe poverty fell almost 75 percent in a mere 25 years, thanks to the freeing of global markets, especially in China and India. No government policy in human history has even come close to what markets have done over that period.

The success of that basic economic insight, that markets improve human well-being, has generated immense cognitive dissonance among many progressives.

Instead of recognizing the ways in which markets have addressed one of the left's major concerns (severe poverty around the world), progressives, most of whom are not formally trained in economics, continue to attack both economics as a discipline and economists' belief in the power of markets to address the condition of the least well-off.

Not coincidentally, it was 35 years ago that liberals made their peace with capitalism, A Neo-Liberal's Manifesto (Charles Peters, September 5, 1982, Wahington Post)

If neo-conservatives are liberals who took a critical look at liberalism and decided to become conservatives, we are liberals who took the same look and decided to retain our goals but to abandon some of our prejudices. We still believe in liberty and justice and a fair chance for all, in mercy for the afflicted and help for the down and out. But we no longer automatically favor unions and big government or oppose the military and big business. Indeed, in our search for solutions that work, we have come to distrust all automatic responses, liberal or conservative.

We have found these responses not only weren't helping but were often hampering us in confronting the problems that were beginning to cripple the nation in the 1970s: declining productivity; the closed factories and potholed roads that betrayed decaying plant and infrastructure; inefficient and unaccountable public agencies that were eroding confidence in government; a military with too many weapons that didn't work and too few people from the upper classes in its ranks; and a politics of selfishness symbolized by an explosion of political action committees devoted to the interests of single groups.

Our primary concerns are community, democracy, and prosperity. Of them, economic growth is most important now, because it is essential to almost everything else we want to achieve. Our hero is the risk-taking entrepreneur who creates new jobs and better products. "Americans," says Bradley, "have to begin to treat risk more as an opportunity and not as a threat."

We want to encourage the entrepreneur not with Reaganite policies that simply make the rich richer, but with laws designed to help attract investors and customers. For example, Hart is proposing a "new capacity" stock, a class of stock issued "for the explicit purpose of investment in new plants and equipment." The stock would be exempt from capital gains tax on its first resale. This would give investors the incentive they now lack to target their investment on new plants and equipment instead of simply trading old issues, which is what almost all the activity on Wall Street is about today.

We also favor freeing the entrepreneur from the kind of economic regulation that discourages healthy competition.

Posted by at July 26, 2017 6:20 PM