Freedom and Economic Performance

Monty Pelerin / EconomicNoise.com

The rise and fall of countries has everything to do with the industriousness of its people. Wealth is created only by the productive sector, not by government. Governments grow large and powerful only by exploiting the wealth creation of the productive sector. Large and powerful governments are generally signs of wealthy nations. They are also signs of wealthy nations who have peaked in terms of economic growth and standard of living. Often, they are nations in decline.

In order for government and the military to become large and important, they must take from the private sector. The bigger they become, the weaker becomes the wealth base that supports them. Although I am not a historian, I believe this cycle is a reasonable one to describe the rise and fall of civilizations.

Government economists like to look at the economy as an engineering problem. In their minds, the economy can be managed by manipulating the money supply or fiscal spending. When things slow down, merely inject more of one or the other into the system and things will speed back up. (Rarely do they ever suggest reducing these stimuli.)

This view of economics is fatally flawed. Economics is not a physics or engineering problem . Economics is a behavioral science predicated on individuals pursuing their own self-interest. The miracle of Adam Smith’s “invisible hand” is not understood by the idiot savants turned out by today’s universities. Economics is the study of individuals and the social coordination produced by a free economy, free markets and free prices. It has nothing to do with engineering or believing that an economy can somehow be managed from the top down.

If one were to accept the proper definition of economics, government economic advisers would not be necessary. Economist’s incomes would fall and government central planning would be curtailed if not eliminated. Keynesian economics is pseudo-economics, adopted purely out of self-interest by power-seeking politicians and sycophant economists. Keynesianism furthers their interests while harming the rest of society. By professing this false doctrine, these parasites are able to live off the productive efforts of others.

To understand why the US is floundering in terms of an economic recovery, it is pointless to talk about what the Federal Reserve can do or whether the stimulus programs should have been larger. The reason that the US economy became the envy of the world was that it was the freest market in the world. Likewise, the reason that our economy is not responding is not the lack of interventions or the proper amounts of them. Each intervention makes the economy less free because the purpose of each intervention is to thwart the outcomes produced in free markets.

Each intervention reduces freedom, the driver of economic well-being. Here is a summary of what has happened to freedom recently:

The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the chain-linked EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 and 19th in 2010… [“Chain-linked” simply refers to a method that ensures the study, when measuring changes over time, is comparing apples to apples].

To not believe the economic problems are due to government meddling and interventions which reduce freedom is to be ignorant of economics and what allowed the US to become great. To believe that freedom isn’t the most important factor in economic success, you must be a government economist or politician, protecting your own interests at the expense of society. Either that or you must be ignorant, but perhaps that is redundant.

http://www.economicnoise.com (http://s.tt/1p7QQ)