Friday, November 22, 2013

The Rhetorical Question

On Monday I ended the post about economics in Venezuela with a somewhat rhetorical question:
Does government’s disrespect of property lead to the people’s disrespect of property—the looting? Or does a people who fail to live the rules of civilization naturally end up with a life-controlling government? It may be a chicken/egg question. But my guess is that imposition of tyranny—taking away God-given rights—demoralizes a people, quite literally.

Economist Walter Williams
My son Economic Sphere took on the challenge of responding to the question from the economic point of view. He passed along a piece written in July by economist Walter Williams. Williams’s point is that “political liberty thrives best where there's a large measure of economic liberty.” He shows that some people, essentially the same culture, are different living in different countries. Egyptians do well in the US, but not in Egypt. Nigerians do well in the US, but not in Nigeria. Indians suffer severe poverty in India, but in the US they “start more Silicon Valley companies than any other immigrant group.” And they succeed not just in relatively “red” places like Texas and Florida, but also in Massachusetts, New York, and New Jersey.
It’s something like the economic version of the Bush assertion—“I believe that God has planted in every heart the desire to live in freedom.” Given circumstances that grant economic freedom, a good people will eventually prosper.
Looking more closely at Egypt, Williams emphasizes the need for property rights. They don’t have clear titles to their capital property, so they can’t use it as leverage or investment to grow businesses.
Government is a major employer in Egypt—almost equal to the private sector. Only the underground economy is a bigger employer. Government size means greater government interference, which is another hindrance to prosperity. Williams quotes a Wall Street Journal article by Hernando de Soto:
To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.
There are states in our country where government interference, while not that extreme, feels onerous enough to prevent opening a business, but there are other states where the process is streamline to welcome business.
Williams uses the nation of Chile as a comparison—one of the few modern nations to move from controlled economy to free market economy, rapidly enough that we can see it as a lesson. Chile also helps in answering our question about the influence of economic freedom on political freedom. In 1973 Chile had a military coup—not that uncommon in those decades in Latin American countries. However, the new military dictator, Pinochet, did a surprising thing for a tyrant: he instituted, by edict, free market reforms. Pinochet eliminated “thousands of restrictive laws governing labor, mining, fishing, vineyards, startups and banking.” The economy turned around, and has thrived since—despite some of the expected savagery over the years that you expect in a tyrannical regime. Nevertheless, even decades later Chile rates in the top quartile of nations for economic freedom. Also today, political freedom ratings for Chile are mixed but mostly toward the free end of the scale.

World Economic Freedom Report 2013
Venezuela, which we talked about on Monday, lags at the bottom of the economic freedom scale, along with the least free African nations. The five subjects of economic scrutiny in this report are:
1)      Size of government.
2)      Legal system and property rights.
3)      Sound money.
4)      Freedom to trade internationally.
5)      Regulation.
We could spend a day covering each of these. But we can summarize, by number, what we know:
1)      Bigger government is not better government, but is in most cases worse government.
2)      Government’s main purpose is to protect life, liberty, and property—and almost any additional governmental role is likely to interfere with those rights, rather than protect them.
3)      Messing with the money supply is a hidden form of tax—or “authorized” theft.
4)      Trade tends to improve the economic lifestyle level for both sides of the trade; the only possible exception might be receiving trade from a country that refuses to receive trade the other direction. But sometimes even in those worst cases, being the free-trade country is better than being the trade-protection country.
5)      Regulation is often code for protection of those in an economic sector from competition, preventing entry for starting businesses. Often this is a combination between politicians and the businesses which financially support their security in office. If there is a real need for regulation, it is arguable that every such case would be handled better in the private sector.
Back to the original question, which was not limited to whether political problems led to economic problems—they do. The question is a bit more existential—whether immorality follows from the interference with life, liberty and property rights.
Maslow’s hierarchy probably comes into the question. It’s harder to maintain integrity when hunger is an urgent and ever present need. (Stealing a loaf of bread was the beginning of the miseries for Jean Valjean in Victor Hugo’s epic story.) It’s harder to maintain integrity when surrounded by others who cheat on their taxes or in their businesses, where others do not respect life, liberty, and property rights. It’s harder to maintain marriage and family integrity—among the best predictors of economic prosperity—when divorce and infidelity get normalized around us. Morality is more difficult, but not impossible.

Conversely, communities of healthy families, with stable fair laws protecting life, liberty, and property, thrive culturally—and prosper economically. I think there is an inextricable connection between property rights, along with protection of life and liberty, and living the laws of civilization. Telling the truth, refusing to steal, refusing to lie, and even controlling one’s thoughts to prevent coveting—these are all among the rules for civilization. And they are also essential for economic prosperity. So every effort to make the moral choice adds to the likelihood of prosperity.

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