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Monday, June 26th, 2006

A 50 Year Experiment

HONG KONG AND THE UNITED STATES
According to the latest figures I have, per capita income in Hong Kong is almost identical with that in the United States.

That is close to incredible. Here we are—a country of 260 million people that stretches from sea to shining sea, with enormous resources, and a two-hundred-year background of more or less steady growth, supposedly the strongest and richest country in the world, and yet six million people living on a tiny spit of land with negligible resources manage to produce as high a per capita income. How come?

The explanation is the same as for Britain and Israel. Direct government spending is less than 15 percent of national income in Hong Kong, more than 40 percent in the United States. Indirect government spending via regulations and mandates is negligible in Hong Kong but accounts for around 10 percent of national income in the United States. In both respects, the United States differs from Hong Kong less than either Britain or Israel, both of which have even higher government spending as a fraction of national income and even more intrusive and extensive regulations and mandates, which is presumably why per capita income in the United States is more than a third higher than that in the United Kingdom and nearly 80 percent higher than that in Israel.

We are more productive than Hong Kong. But we have chosen, or been led by the vagaries of politics, to devote roughly half of our resources to activities to which Hong Kong devotes 15 or 20 percent. Our higher productivity means that we can produce with 50 percent of our resources the same per capita income as Hong Kong can produce with 80 to 85 percent of its resources.

The real lesson of Hong Kong for the United States is that we’re using our resources inefficiently. Our government is spending our money to subsidize tobacco and to penalize smoking; to subsidize childbearing and to discourage childbearing; to build new housing and to tear down housing; to subsidize agriculture and to penalize agriculture; and on and on—not to mention converting square miles of forests into billions of paper forms and spending many man-years of labor filling them out and then filing them.

In the process, government tends to neglect its basic functions: as I once put it, “to protect our freedom both from the enemies outside our gates and from our fellow citizens: to preserve law and order, to enforce private contracts, to foster competitive markets.’’

Kudos to Steve for the link.

Milton Friedman on Wikipedia

One of the problems I see with “laissez-faire capitalism” is that people who are phased out by it’s process suffer, so a balance is necessary. I wouldn’t describe our current policies as balanced. George Bush has spent far too much money on everything from war to farming, and democrats like John Kerry and Hillary Clinton seem hell bent on turning the United States into a socialist state. I find myself bending more and more toward a ‘moderate libertarian view’ of things these days (assuming I’m not there already).