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Good Policy = Good Results (Vol. 44)

mse | Mar 23, 2022

Facts Matter – Look at Real World Results

What are our objectives when we consider economic policy? This sounds trite, but it is a really important issue. Actually there are typically multiple objectives, so how do we balance them?

 

Do we want economic growth for all?  

Do we want to help the poor?  

Do we want a clean environment?  

Do we want a safe country? 

 

There may be many other desirable objectives. 

 

Yes, we want them all. But there is a PROBLEM – often policies to achieve one objective conflict with policies to achieve other objectives. So, which are more important and how do we balance conflicting desires? Is there a way out? 

 

It turns out that economic growth with limited and effective government allows for all of them to be achieved. When the economy is growing and people are free to choose for themselves, everyone’s living standards rise. And as people’s living standards rise they demand cleaner air, water and environment generally…and they can better afford it. With that comes the ability to do many of the other things we want. 

 

If you accept this premise, then what is the best way to grow - let’s examine the real world results as a guide to good policy and what works.

 

The Economic Freedom of the World is an excellent place to start. The Fraser Institute, a non-partisan economic think tank, does this ranking every year. The higher the ranking on a freedom scale, the higher the income, a direct correlation. ( For a deeper analysis, see their website here and their full PowerPoint presentation here.

 

Here is a chart from the PowerPoint presentation: 

This was done from 2019 data, at that time the US was in the top 10 in the world. In recent analysis with current data, we have slipped to #26, a very troubling direction, which will significantly impact our growth and our growing standard of living.  

 

Look at the data from some fiscally responsible Presidents.

 

President Harding took over in troubling times in 1921 amid a severe depression.  His focus was smaller government, lower taxes, and reducing the federal government’s debt. Results: The depression played out and by 1923, the economy was booming - the start of the ‘Roaring Twenties’. For more detail on this, see this excellent article by Dan Mitchell.

President Coolidge - same story. He took over after Harding, cut taxes, reduced the national debt and balanced the budget. Result, GDP rose rapidly, see this article for more information.

By contrast, President’s Hoover and Roosevelt went with big spending and government. Hoover took over in good times, but things quickly turned down in 1929. Unlike Harding, Hoover went for big government solutions - tax increases, new spending and protectionism. This was followed by Roosevelt, who went even bigger. Result: Depression that lasted a decade. UNINTENDED CONSEQUENCES!

 

Look at Botswana and its neighbor Zimbabwe in Africa. Zimbabwe followed statist policy and ranks 161 out of 165 countries in Economic Freedom. Botswana followed free markets and economic freedom to a much greater extent, ranking 45 out of 165 in Economic Freedom. Results: Today, Botswana income per capita is 8 times higher than Zimbabwe. See this short article by Foundation for Economic Education.

 

Venezuela, 165 out of 165, Cuba and N. Korea did not even make the list. All very impoverished countries.

 

BOTTOM LINE

 

When will we ever learn, the facts are clear. Limited but effective government, low taxes, limited regulatory burdens, more economic freedom, and reasonable levels of debt is the Formula for Growth, individual opportunity, and a rising standard of living.  

 

It is not magic folks, it is just the facts of life.  

 

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