Good Policy - Begets Good Results: Bad Policy - You got this - Begets Bad Results
The laws of economics are immutable.
When we apply sound economic principles to the real world, miracles emerge. No, they really aren't miracles, they are just the results of good economic policy applied to real world situations. When that happens, the results are good. And when sound economic theory is ignored, the results are bad.
When will we ever learn?
In our recent book, co-authored with economist Dan Mitchell, The Greatest Ponzi Scheme on Earth, we devoted a third of the book to an examination of the real world. All we were trying to do was to prove the point. And we did. In spades. The winning countries had the best economic policies based on economic theory, and the losers, just the opposite. It included an entire chapter on the US economy, citing periods of successes and failures, and the policies in place during each period. Read it, it is worth a few hours of your time. And the conclusions we drew from that illustrative analysis are the basis for our recommendations in the balance of the book.
So, what is good policy?
Incentives, Incentives, Incentives. In the real estate world, it is said that the 3 most important factors are location, location, location. So in economics, incentives are the key. Incentives are the most powerful force in the world. When you align incentives with the desired objectives, good things happen. We have in earlier emails discussed the ‘invisible hand’ concept in Adam Smith’s The Wealth of Nations. The invisible hand is simply self-interest, that is what motivates people. Each person’s self-interest is served best when society is organized to allow and encourage individuals to provide goods or services that others want and will pay for. And each person, in creating things others value, provides an improvement to the lives of others as well as their own. One of Smith’s most famous quotes:
‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest.’
When we have an economic system that maximizes individual incentives, voila, everything works well. We all benefit and the standard of living rises for all. When individuals are paid based on their work, they are motivated to do the best they can. And the better they do, the more they make. Some government programs have experimented with a guaranteed income, paying people without working. Guess what happens, they don't work. That cannot be a surprise to any thoughtful person. Yet some politicians propose such nonsensical policies.
Freedom, Freedom, Freedom. Creating a society that maximizes individual freedom is the cornerstone of a government that allows people to work for their own self-interest. When a government provides that environment, it succeeds (free enterprise/ market economy, AKA Capitalism). When a government tries to run things, it fails (Socialism). Cuba is a great example of failure, their communist/socialist approach produces terrible results for the masses. It is no wonder that 10% of the population have fled over the past 2 years because of their poor economic conditions. China had similar results in the 60’s and 70’s under Mao with his strict socialist approach, 50 million Chinese died from starvation. When he died they moved to policies with more individual freedom and rewards for work. That is when they began to grow.
BOTTOM LINE
Why can’t we learn from history, or the real world results we can plainly see? The right policy prescriptions are all there.
Private Property, Rule of Law, and Limited Government (i.e. maximum freedom) are the hallmarks of a government that has adopted sound economic principles. These are the key immutable principles. But they can be employed to varying degrees. As you provide more freedom and incentives, the results just get better. It’s not magic, it’s just Common Sense.
LEARN ECONOMICS, THEN VOTE SMART