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The Myth that Economic Success Requires Personal Freedom
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August 23, 2010
3:10 am
First-Eater
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There is a persistent myth that democracy and personal freedom are necessary to produce economic growth, and that the USA will somehow retain its economic dominance solely because of our relative degree of personal freedom. (This myth is most commonly known as 'The Power of American Ingenuity.')

I don't believe this is the case. Left to themselves, people decide at some point that free time and their own sports, hobbies, or other non-productive pursuits are worth more to them than an extra quarter point of GDP.

However, if the governing class restricts personal freedom sufficiently, then economic success is the…

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September 18, 2010
10:36 pm
Dimitri
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I totally agree. Free society is hampered by negative externalities (I think thats the term). That when the benefit to the individual is much larger then the cost to others. Ie, you pour fertilizer on your lawn and it looks great (benefit to you), but the runoff flows into the river and damages the ecosystem there (cost). The benefit to you is larger then the cost to society so you keep doing it. Also I think free markets are often not fwd looking, in the sense that they can't accurately predict future costs. In the example above we could argue that eventually the cost of clean water would go up and force you to stop polluting. The problem is that by the time this happens, it might be too late and the damage might be irreversible. Less free societies are more planned and therefore by definition more fwd looking, so they operate smoother. Totally free markets drive by looking backwards, looking at what has already happened, planned societies drive by looking fwd at what could happen.

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August 21, 2011
7:11 pm
Ottawa
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First off, you are using freedom and democracy interchangeably. Democracy is majority rule, not freedom.

A republic with a proper constitution that protects individual rights including property rights is. Requirement for progress.

What you're seeing in the west is the effects of ever increasing statism and the corresponding entitlement mentality, not the effect of too much freedom, but just the opposite.

What youre seeing in china and Singapore is the introduction of a certain amount of property rights and the corresponding improvements that are very predictable. They are thriving because of this and despite the restriction of other liberties. As they get more and more a taste of freedom, they will want more as well.

The rule of law that you speak of, is a requirement but not in the way that you state it. What is needed is rule of law that protects rights and prevents fraud and enforces contracts thus making sure you dont have rule of force of mafia types. You are crediting tyranny and oppression.

I'm hoping I misunderstood your article. If so, correct me, if not, it is disturbing.

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August 21, 2011
8:24 pm
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Rick:

Stated another way:

1) Economic and personal freedom are separable concepts, both in theory and in practice.

2) It is possible to achieve greater economic productivity by allowing economic freedom while curtailing personal freedom than by allowing both economic and personal freedom.

3) Currently, I believe that China best exemplifies this thesis.

Does that help?

JS

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August 22, 2011
3:12 am
Ottawa
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Freedom is freedom. The only reason it is working in china is because they went from no freedom to some freedom. More freedom = better economy.

You could not go the other way from more freedom to less, I.e. Curtail personal and expect more productivity.

This has been proven over and over again.. Are you advocating curtailing freedom? Or are you advocating that productivity is bad per se? This is what disturbs me about the article other than the fact that you are using democracy and freedom as synonyms, a very common error that implies a misunderstanding of the concept of individual rights at a very basic level.

Again, the decline in the west's productivity is due to decReasing not excessive freedom.

"Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries.". Ayn Rand

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August 22, 2011
2:01 pm
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Rick:

I'm not advocating curtailing freedom.  Furthermore, the current US political climate is one of decreased economic AND personal freedom, and it has been so for decades regardless of the party in power.

I'm showing that the path to maximum GDP most likely involves a combination of decreased personal freedom and increased economic freedom.  Therefore:

1) If we decide that maximum economic output is our most important goal as a society, that goal is most likely not compatible with a goal of maximum personal freedom.

2) If we choose freedom, then in the long term, how do we deal with other nations that are more economically efficient than we are?

JS

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September 13, 2011
9:52 am
Chris
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This is yet another example of the broken window fallacy: the idea that we can become more wealthy by replacing things of greater value (in this case, what we would do if we had the freedom) with things of lesser value (what we do because we can't do what we really want).

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September 13, 2011
1:49 pm
Sam
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I'm not familiar with the myth that freedom and democracy are a requirement for economic growth.  Where can I read about this myth? 

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September 14, 2011
1:20 pm
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Chris:

That's true: "GDP" doesn't measure anyone's personal wealth, it measures aggregate economic activity.  Getting cancer increases GDP in the short term, because you'll need expensive treatment...and so on.  What is seen and what is not seen, etc.

The interesting question is: how do we compete against entities willing to force the tradeoff of personal wealth (and freedom) for aggregate national productivity?

Sam:

Google "democracy and economic growth" for a raft of papers on the subject -- few of which agree.

JS

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September 14, 2011
10:40 pm
Chris
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That it doesn't matter to GDP whether I spend $100K to build a second house to spend summers in or rebuild a house destroyed by a hurricane should make it obvious that GDP is a deeply flawed metric. GDP goes up by $100K in both scenarios but I have one house in one scenario and two houses in the other. Which scenario shows a greater increase in real aggregate wealth?

How to compete is not a particularly interesting question because it's one that has long since been answered with black markets and the occasional revolution.

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September 15, 2011
1:30 pm
Sam
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OK, I think I'm starting to follow what the point of this is.  J is concerned that if our society is too free we won't be able to compete with societies with more restrictive governments.  I think I can address this a couple of different ways.  First, the United States is hardly a free society.  We may be more free than almost every other nation, but we are regulated in almost everything we do.  Try doing something where no law is directly or indirectly impacting what you are doing.  I think you will find it very difficult if not impossible.  So, we undoubtedly have plenty of restrictions and direction to keep us competitive. 

 

The other way that I look at this is that liberty as a value should have nothing to do with GDP.  If one believes, as I do, that freedom is a right, and any limitation on it should be given carefully and grudgingly, then GDP is irrelevant.  I would rather live in a smaller, less productive country with maximum freedom, then one that further limits freedoms in order to boost wealth.  I am not conceding that more freedom would make us less productive, but simply saying it doesn't matter.

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September 16, 2011
12:17 am
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Chris:

You'll hear no argument from me abotu GDP.

However, I'm not sure that "black markets and the occasional revolution" trump the Panopticon society of "everyone has a cell phone and the government knows where they are at all times".  Is it even possible for China to erupt in revolt anymore?  They do such a good job of suppressing potentially dangerous political/social movements that I'm not sure it is.  I fear the only trump is complete economic and technological collapse.

Sam:

Recall that I'm talking about economic competition.  The US was the pre-eminent world power after WWII because everyone else's industrial base was rubble and cinders.  Now we're losing our grip because an economy based on selling real estate back and forth at ever-inflating prices isn't the same thing as having the ability to make things the rest of the world wants.

And I'm pretty sure that being an economic power does matter: access to basic things like oil and copper is getting tight, which is why China is buying up the rest of the world as quickly as it can, while all its US dollars are still worth something.  Free and desperately poor (and paying rent to China/Russia) isn't a recipe for success in the long run: you'll just get overrun by countries with functional militaries.

JS

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September 16, 2011
11:02 am
Chris
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Technology is a powerful force for empowering individuals and precipitating radical change--vis. the middle east protests. And the USSR used to be very good at suppressing revolution, too, but the results of that experiment remind me of an Ovid quote: Dripping water hollows out stone, not through force but through persistence.

Regarding what you said to Sam, so what if China spends all its hoarded US dollars buying up valuable stuff? The US dollar is only valuable because it can buy stuff in the US. The global value of the dollar will drop, which will drive down US imports and drive up US exports and foreign investments in the US and lead to long-run economic growth of the sort the US is desperate for. The only one who can hurt the US in that deal is the US by imposing trade restrictions on the American people and driving up the cost and down the likelihood of foreigners doing business with the US. It doesn't matter who owns the building where your office is when you're free to do business with whoever offers the best office space at the best price.

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September 21, 2011
4:37 pm
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Chris:

Technology can be a powerful force: but the Chinese seem to be doing a smart job of making sure they control the flow of information on it.  And if China buys up access to raw materials, then a weak US dollar doesn't result in US profits.  Even bringing manufacturing home would mean that China profits, since we'd have to pay rent to them to get the raw materials.

Yes, the free market solves most problems: but since market participants profit from subverting a free market, the natural state is coercion and monopoly.  Markets must be actively maintained.

JS

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September 24, 2011
12:46 pm
DT
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JS: couldn't agree more.  China is the perfect example of what happens when you restrict personal liberty and loosen the reigns on the economy.  and it's obvious that the markets must be maintained because those in power already know that a mildly corruptable market is still better for them than a failed one.  

IMO, China is run just like a corporation: my corp tells me(tries anyway) what to wear to work, how to work, when to work, how much I get paid, when to open and close, what I'm allowed to do on the clock and not(cell phones, smoking weed lol, eating, etc.). They also determine in large part where I will live, if I can move, and all sorts of other things.  The PRC does exactly the same thing.  The only things that the Corp and the PRC dont restrict as much of is economic growth.  They both want us( or the Chinese people) to make them as much money as possible.  And ok, I'll admit that this is a grossly simplistic example and it sounds like I'm in full support of communism(which i'm not) but I believe it works.  

Never underestimate the chinese people or their government.  I've made a 15 year study of that country and it's people and traditions(especially Taoism-which despite what the modern "white people taoists" would have you believe is surprisingly Paleo; just google "taoism against grains") they are much smarter than we even give them credit for in our jokes about how smart they are.  lol  

peace

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September 26, 2011
5:50 pm
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DT:

That's a fascinating bit of information about Taoism...thanks!

And you make an excellent point about the PRC acting similarly to a corporation, which is the main problem I have with libertarianism -- the idea that profit-making entities somehow deserve special exemptions to the rules of liability.  Let's see, I can be completely not responsible for my own actions if I've first created a legal fiction known as a "corporation", which is immortal and cannot be jailed or restrained, onto which I can deflect all consequences of what I do...?  And now we're surprised that these immortal, unpunishable fictional entities own and run everything?

If libertarians really believed their own rhetoric, the first plank of every libertarian would be "Abolish corporations."  (The second is strictly a subset of the first, but to be clear, it should be "Abolish banks," which are just another set of special exemptions to the rules you and I must follow.)

JS

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October 6, 2011
7:25 pm
CMHFFEMT
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Since this is my first post on your blog I have to start by saying that I loved the book and your little corner of the internet.  That being said I think you're opinion of libertarianism is probally being biased from one popular libertarian site on the internet.  I consider myself a Libertarian and definelty do not believe in the protection given by incorporation.  Any tru free market economist would recognize that corporations are just another government intervention in the market place.  Also most libertarian writing I have read do want to get rid of the banks (or at least the current version of it).

While I think your thesis is interesting I personally think that you cant separate personal and economic freedom.  How do you say you are personally free but not economically free?  IMO your labor is the most personal thing that you can own and if you dont own it fully then you are not free.  I realize that by my definition almost no one is free and I think that it probably is an accurate reflection of the world.  That's not to say I don't believe that some people are more free than others or that we are in terrible shape because we dont live in a truly free society.  There are degrees to everything.

I agree with your assertion that markets need to be maintained by rule of law.  But I believe that like many things there is a U shaped curve where at one end government involvement increases output and at the other end it diminishes it.  Both the US and China are both on the end of to much governement involvement.  I also think that they are both to far up the curve for "Freedom"  of any type to matter.  Closer to the bottom of the curve I think "Freedom" would most definetly play a role but both economies are to centrally planned at this point to really have an affect.  At this point it is more a matter of who has the better plan which only time will tell.

Thanks again for a cool little website

 

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October 7, 2011
12:02 pm
CMHFFEMT
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I meant an inverted U shaped curve not a normal U shaped curve. 

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October 10, 2011
6:16 am
Scotlyn
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Not sure if there is any connection between (finely parsed) degrees of freedom and economic growth.  Economic growth, as we know it in this and the past century, is an artifact of an abnormally high input of energy into the system, in the form of oil, stored in the earth over hundreds of millions of years, and (largely) mined and used up all in one go in the space of around 150 years or so (including an estimated 30-50 years into the future). 

It is very hard to imagine endless economic growth under any other circumstances than this artificial, never to be repeated, energy boost. (PS - as a farmer, I can also tell you it is very hard to imagine cereal-based agriculture under any other circumstances either).  Once we are confronted with the end of the oil supply (peak oil analysts estimate that the "peak" in terms of worldwide production, occurred in 2005/2006 or thereabouts), growth will no longer be as attractive a concept as sustainability. 

Importantly, we will then have to figure out what it is we want to sustain.  For example, lifestyles that have a component of enjoyable, creative leisure time, once we have satisfied our body's wants, may turn out to be what we really want. 

I certainly see freedom as compatible with sustainability. 

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October 10, 2011
10:19 pm
First-Eater
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CMHFFEMT:

I'm glad you enjoyed The Gnoll Credo!

"Any tru free market economist would recognize that corporations are just another government intervention in the market place."

I absolutely agree!  But I don't see that acknowledged by mainstream libertarianism.  Perhaps I'm not looking in the right places, but the critique of corporations seems to belong exclusively to the Left -- and even then is generally limited to revoking corporate personhood, not to questioning the existence of corporate privilege itself.

As far as separating personal and economic freedom, look at Singapore or China.  Neither has any concept of inalienable rights -- let alone those listed in our Constitution or its first ten amendments.  Yet their residents have roughly the same degree of freedom to do business that we do.

You're probably right about the U-shaped curve.  Both ends are a free-for-all -- one end because there is no authority, one end because everything is done on the black market, which has no recourse to authority.

Thanks for your perceptive comments.  Stop by anytime!

Scotlyn:

Yes.  Even if you gloss over the oil issue and posit free energy, topsoil depletion, groundwater contamination/eutrophication, and ocean overfishing hit us very quickly.  Not to mention that all the rare earths which make technology possible are in even shorter supply, and AFAIK 98% of them come out of one hole in China...

As far as freedom vs. sustainability, it's actually a triangular tradeoff between freedom, sustainability, and population.  With low population, we can have more freedom because we don't have to work as hard at sustainability.  With high population, we have less freedom for the same sustainability.  In order to have ultimate freedom, we must either sacrifice sustainability or high population.  Etc.

JS

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