Tag: free markets

Capitalism and Morality: Walter Williams vs. Pope Francis

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

“Health Care’s Future Is So Bright, I Gotta Wear Shades”

If you’ve ever wondered why a person would earn (and relish) titles like “ObamaCare’s single most relentless antagonist,” “ObamaCare’s fiercest critic,” “the man who could bring down ObamaCare,” et cetera, my latest article can help you understand.

Health Care’s Future Is So Bright, I Gotta Wear Shades” is slated to appear in the Willamette Law Review but is now available at SSRN.

From the introduction:

Futurists, investors, and health-law programs all try to catch a glimpse of the future of healthcare. Lucky for you, you’ve got me. I’m from the future. I’ve travelled back in time from the year 2045. And I am here to tell you, the future of healthcare reform is awesome.

When I presented these observations at the Willamette University College of Law symposium “21st Century Healthcare Reform: Can We Harmonize Access, Quality and Cost?”, I was tickled by how many people I saw using iPhones. I mean, iPhones! How quaint. Don’t get me wrong. We have iPhones in the future. Mostly they’re on display in museums; as historical relics, or a medium for sculptors. Hipsters—yes, we still have hipsters—who wouldn’t even know how to use an iPhone, will sometimes use them as fashion accessories. Other than that, iPhones can be found propping up the short legs of coffee tables.

I also noticed you’re still operating general hospitals in 2015. Again, how quaint.

It’s not often I get to cite MLK, Bono, Justin Bieber, the Terminator, Bill and Ted’s Excellent Adventure, two Back to the Future films, and Timbuk3, all in one law-journal article.

If Poor Nations Want Economic Convergence and Capital Accumulation, They Need Good Policy

There’s a “convergence” theory in economics that suggests, over time, that “poor nations should catch up with rich nations.”

But in the real world, that seems to be the exception rather than the rule.

There’s an interesting and informative article at the St. Louis Federal Reserve Bank which explores this theory. It asks why most low-income and middle-income nations are not “converging” with countries from the developed world.

…only a few countries have been able to catch up with the high per capita income levels of the developed world and stay there. By American living standards (as representative of the developed world), most developing countries since 1960 have remained or been “trapped” at a constant low-income level relative to the U.S. This “low- or middle-income trap” phenomenon raises concern about the validity of the neoclassical growth theory, which predicts global economic convergence. Specifically, the Solow growth model suggests that income levels in poor economies will grow relatively faster than developed nations and eventually converge or catch up to these economies through capital accumulation… But, with just a few exceptions, that is not happening.

Here’s a chart showing examples of nations that are – and aren’t – converging with the United States.

The Miracle of Modern-Day Prosperity…and the Ideas and Policies that Made it Happen

Why are some nations rich and other nations poor? What has enabled some nations to escape poverty while others continue to languish?

And if we want to help poor nations prosper, what’s the right recipe?

Since I’m a public finance economist, I’m tempted to say a flat tax and small government are an elixir for prosperity, but those policies are just one piece of a bigger puzzle.

A country also needs sensible monetary policy, open trade, modest regulation, and rule of law. In other words, you need small government AND free markets.

But even that doesn’t really tell us what causes growth.

In the past, I’ve highlighted the importance of capital formation and shared a remarkable chart showing how workers earn more when the capital stock is larger (which is why we should avoid punitive double taxation of income that is saved and invested).

But that also doesn’t really answer the question. After all, if a larger capital stock was all that mattered, doesn’t that imply that we could get prosperity if government simply mandated more saving and investing?

There’s something else that’s necessary. Something perhaps intangible, but critically important.

Why Did Western Nations Continue to Prosper in the 20th Century even though Fiscal Burdens Increased?

In the pre-World War I era, the fiscal burden of government was very modest in North America and Western Europe. Total government spending consumed only about 10 percent of economic output, most nations were free from the plague of the income tax, and the value-added tax hadn’t even been invented.

Today, by contrast, every major nation has an onerous income tax and the VAT is ubiquitous. Those punitive tax systems exist largely because—on average—the burden of government spending now consumes more than 40 percent of GDP.


To be blunt, fiscal policy has moved dramatically in the wrong direction over the past 100-plus years. And thanks to demographic change and poorly designed entitlement programs, things are going to get much worse, according to Bank of International Settlements, Organization for Economic Cooperation and Development, and International Monetary Fund projections.

While those numbers, both past and future, are a bit depressing, they also present a challenge to advocates of small government. If taxes and spending are bad for growth, why did the United States (and other nations in the Western world) enjoy considerable prosperity all through the 20th century? I sometimes get asked that question after speeches or panel discussions on fiscal policy. In some cases, the person making the inquiry is genuinely curious. In other cases, it’s a leftist asking a “gotcha” question.

Long-Run GDP

I’ve generally had two responses.

Bill Gates and the Ancient Alexandrian Party Favor

Every year, Microsoft founder Bill Gates drafts a letter charting the course for the foundation he created with his wife, Melinda. This year, the focus is on the value of precise measurement in driving innovation and progress. His inspiration was the book The Most Powerful Idea in the World, “a brilliant chronicle by William Rosen of the many innovations it took to harness steam power.”

Certainly mensuration was important to the development of the steam engine, but there was a much more crucial ingredient, and unless we understand the role that it played, solutions to the world’s most pernicious problems will remain elusive. The key to grasping this missing ingredient is the aeolipile. As shown in the accompanying video, the aeolipile is a hollow metal reservoir with multiple radial “exhaust pipes,” all of whose spouts point off tangentially from the hub. To make it work, you simply suspend it, fill it with water, and light a candle under it. And… Voila! You’ve harnessed steam power to generate rotary motion.

This device is also known as Hero’s Engine, after Hero of Alexandria—who invented it over two thousand years ago…. Despite its seemingly obvious practical applications, Hero’s Engine was never more than a party favor. It had not the slightest impact on the course of human history. Why not?

The ultimate causes are contentious (Deirdre McCloskey will give you one answer), but the proximate one is obvious: the aeolipile was never commercialized. There wasn’t a sufficient network of entrepreneurs and investors toiling away in ancient Alexandria to relentlessly seek out, capitalize, and commercialize new technologies and innovations. The steam engine was refined and widely deployed during the Industrial Revolution only because such an entrepreneurial network had come into existence by the late 18th century, first in England and soon thereafter, elsewhere.

And that’s the real key to massively disseminating the benefits of innovation: enlisting the assistance of the free enterprise system. It is not a coincidence that the productivity of elementary and secondary education has collapsed while productivity in virtually every other field has steadily improved. Education has been largely excluded from the free enterprise system for the past 150 years.

So, while precise measurement certainly has its role to play, I hope someday to read an annual letter from Bill Gates that focuses on the need to harness all the freedoms and incentives of the marketplace for the betterment of education the world over.

ObamaCare Is Pro-Market Like the Berlin Wall Was Pro-Migrant

Today’s New York Times features an opinion piece by J.D. Kleinke of the conservative American Enterprise Institute. Kleinke’s thesis is that ObamaCare’s conservative opponents should stop complaining. “ObamaCare is based on conservative, not liberal, ideas.”

If one defines conservative ideas as those that emphasize free markets and personal responsibility, there is zero truth to this claim.

  • Free markets require freedom, like the freedom to control your own property, to enter markets, and to negotiate prices and other contractual terms. ObamaCare mandates how people must dispose of their property, imposes tremendous barriers to entry into markets, and imposes price controls and myriad other terms on ostensibly private contracts.
  • Market prices are the lifeblood of a market economy. Kleinke considers them a “flaw” that ObamaCare uses “market principles” to “correct.”
  • As I have written elsewhere, ObamaCare “promotes irresponsibility by allowing healthy people to wait until they get sick to buy coverage. It creates that free-rider problem, which has been known to make insurance markets collapse. Supporters of the law could have taken personal responsibility for this instability they introduced into the market—say, by volunteering to pay the free riders’ premiums. Instead, they imposed a mandate, which attempts to stabilize the market by depriving others of their money and freedom. Forcing others to bear the costs of your decisions is the opposite of personal responsibility.”
  • Employers are hardly “free to decide” under a law that penalizes them for not offering government-designed health benefits.
  • Kleinke is apparently unaware that half of the $2 trillion of new government spending in this “pro-market” law comes from a massive expansion of a tax-financed, government-run health insurance program that crowds out private markets – Medicaid.

I could go on.

Even if one adopts the more forgiving definition that conservative ideas are whatever ideas conservatives advocate, there still isn’t enough truth to sustain Kleinke’s point. Yes, the conservative Heritage Foundation trumpeted ObamaCare’s regulatory scheme from 1989 until around the time a Democratic president endorsed it. But as National Review’s Ramesh Ponnuru writes, accurately, “The think tankers were divided, with the Heritage Foundation an outlier. It was an outlier, too, in the broader right-of-center intellectual world.” Kleinke even flubs the paternity of the individual mandate, which he says is “an idea forged not by liberal social engineers at Brookings but conservative economists at the Heritage Foundation.” In fact, the idea originated with Randall Bovbjerg of the left-wing Urban Institute.

Kleinke has done insightful work. This oped is just nutty, and emblematic of the lack of intellectual rigor among the Church of Universal Coverage members residing in both left-wing and right-wing think tanks.