Dan Mitchell article Has Free Enterprise Produced More Prosperity or More Suffering?

Has Free Enterprise Produced More Prosperity or More Suffering?

I have a multi-part series making the case for capitalism (Part IPart IIPart IIIPart IV, Part V, and Part VI), and I’ve shared lots of long-run datashowing how some peoplebegan to enjoy unimaginable prosperity as capitalism emerged and monarchism, feudalism, and mercantilism began to fade.

For those interested in this remarkable story of human enrichment, Don Boudreaux and Deirdre McCloskey have must-watch videos on how capitalism enabled (some) nations to escape poverty.

But not everybody understands or appreciates the benefits of capitalism.

MSN has an article, authored by Claire Conway, about new research that ostensibly shows that capitalism has been bad news for people.

…a study recently published in World Development…provided three conclusions. They found that extreme poverty was not, in fact, a normal or universal condition prior to the 19th century. …The second conclusion is that the riseand expansion of capitalism saw a dramatic deterioration in human welfare. …The third conclusion reached is that recovery from this prolonged period of immiseration occurred only recently. Progress in human welfare did not begin until the late 19th century in Northwest Europe and not until the mid-20th century in the global South. Researchers point out that this coincides with the rise of the labor movement, de-colonization, and socialist political parties.

At the risk of understatement, these results are very shocking.

So I tracked down the study, authored by Dylan Sullivan and Jason Hickel, which can be read here. Here are some highlights from the research.

The common notion that extreme poverty is the “natural” condition of humanity and only declined with the rise of capitalism rests on income data that do not adequately capture access to essential goods. Data on real wages suggests that, historically, extreme poverty was uncommonand arose primarily during periods of severe social and economic dislocation, particularly under colonialism. The rise of capitalism from the long 16th century onward is associated with a decline in wages to below subsistence, a deterioration in human stature, and an upturn in premature mortality. ..Where progress has occurred, significant improvements in human welfare began only around the 20th century. These gains coincide with the rise of anti-colonial and socialist political movements.

Yes, shocking results. But, having read the article, they are not accurate results.

Some of the mistakes are fundamental, such as blaming capitalism for bad results under colonialism.

Other mistakes are the result of data manipulation, such as the authors arbitrarily deciding that poverty only exists during times of famine.

But I want to focus on one of the study’s final points, which is that human progress is correlated with the rise of socialism.

Here are some further excerpts from the study.

The European data, then, does not support the standard poverty narrative. …The rise of capitalism, rather than delivering improvements in human welfare, was associated with plummeting wages… Progress did not begin until the 1880s in the European core, and the 20th century in the European periphery…The evidence reviewed here suggests that, where poverty has declined, it was not capitalism but rather progressive social movements and public policies…that freed people from deprivation. …Poverty alleviation and gains in human health have historically been linked to socialist political movements and public action, not to capitalism.

Is this true? Were people in Western Europe just as poor in 1875 as they were in 1575? Or perhaps even worse off? Did living standards only increase after government started to intervene and redistribute?

Let’s go to Our World in Data, operated by Max Roser and his team at Oxford University.

Here’s a chart on major European economies (along with the United States, for the benefit of U.S. readers). As you can see, it does appear that almost all the growth has occurred very recently.

But we just looked at a linear chart, which is considered inferior when measuring and understanding long-run trends.

What happens if we look at a logarithmic chart?

As you can see, rapid growth began well before 1900. Before income taxes. Before the welfare state. And long before anything resembling socialism.

In other words, Sullivan and Hickel have a very shaky hypothesis that collapses like a house of cards when you examine real-world data.

But we don’t need to rely on numbers from 100 years ago or 200 years ago. My “anti-convergence club” is based on dozens of comparisons over recent decades and in every case we see that market-oriented nations easily out-perform countries with more bigger and more intrusive governments.

The bottom line is that Sullivan and Hickel have no good answer to my never-answered question.

P.S. The authors assert that there’s more statism today than in the 1800s, probably because they are focused on fiscal policy. But that may not be truebecause of big, offsetting improvements in other policy areas.

Yesterday I posted this on the Arkansas Times Blog:

The funny thing about Brantley calling Mike Huckabee a “tax fugative” is that liberals just can’t have it both ways. They praise Dale Bumpers for raising the state income tax to 7% and they get made when wealthy Arkansans leave the state for places like Texas, Tennessee and Florida that do not have a state income tax. Max, I called you on this before but you keep on doing it over and over. I guess it sounds good to your liberal friends, but being a being a liberal stinks when you run out of other people’s money to spend.

I got a quick response from the person going by the username “Vigilantejustice” and I answered:

“Vigilantejustice” does a great job of showing the difference between the liberal and conservative view concerning the creation of wealth and the use of that wealth.
“So, where did the rich people get it? Oh yeah, subsidies, the political buddy system, outsourcing, lying, cheating, preying on the less fortunate, fraud, their rich parents, and hiding from tax laws.”
My view is that people will always act in their self interest and the free enterprise system has been responsible for helping the poor more than any other system. I remember like yesterday when I saw Milton Friedman on the Phil Donahue Show. Donahue had thrown up one of those liberal accusations against the free enterprise system and against the rich people in the USA.
Below is the exchange that I saw that day:

Phil Donahue: When you see around the globe, the mal-distribution of wealth, a desperate plight of millions of people in underdeveloped countries. When you see so few “haves” and so many “have-nots.” When you see the greed and the concentration of power. Did you ever have a moment of doubt about capitalism and whether greed is a good idea to run on?

Milton Friedman: Well first of all tell me is there some society you know that doesn’t run on Greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy, it’s only the other fellow who is greedy. The world runs on individuals pursuing their separate interests.The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way.In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about – the only cases in recorded history – are where they have had capitalism and largely free trade.If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

Donahue: But it seems to reward not virtue as much as ability to manipulate the system…

Friedman:And what does reward virtue? You think the Communist commissar rewarded virtue? You think a Hitler rewarded virtue? You think – excuse me – if you’ll pardon me – do you think American Presidents reward virtue ?Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout ?Is it really true that political self-interest is nobler somehow than economic self-interest ? You know, I think you’re taking a lot of things for granted. Just tell me where in the world you find these angels who are going to organize society for us ? Well, I don’t even trust you to do that.



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