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Re: free-markets in the time of anthrax



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Hi all,
    In case anybody wants a proof that indeed Free-Market works and an
Asian
country can come close to the prosperity of United States in a small
amount
of time, here is a article by Milton Friedman:
http://www-hoover.stanford.edu/publications/digest/981/friedman.html.
And in
reply to your point
> 2. It is not that whoever wants more government
> > control is automatically
> > a
> > leftist. One can also see, for example, that
> > fascists or for that
> > matter,
> > religious fundamentalists
> > want total control of government. I think it is time
> > we moved beyond any
> >
> > kind of labels and analysed each issue on its own
> > merit.
It is said that Leftist want to be your Father (control the economic
decision making) and Rightist want to be your Mother (control your
morality,
ethics, religion etc.). As grown up people we do not need Daddy neither
Mommy to tell us how to live our lives. We need very simple criteria to
judge whether Govt. intervention is needed or not. The criteria is:
We cannot isolate the benefits or harmful effects of a particular
action:
    Example: Security (If you post a security guard outside your house
your
neighbour automatically gets protection without paying for it),
Pollution
(If you turn on loud music, your neighbour is irriated). In other words,

Capitalism depends on reasonable definition of Property Rights. If that
is
not possible whole economics collapses. In the case of Pollution, the
owner
of the Air (which carries the noise) is ill-defined.
For all other things, Free-Market principles work perfectly fine. There
is
no role of Govt.'s forceful intervention at all.
Enjoy the Article below.
Regards,
Ashish
Home| About Hoover| Library & Archives| Research| Publications| Campaign

HOOVER INSTITUTION

HOOVER DIGEST
1998 No. 1



Milton Friedman
If Only the United States
Were as Free as Hong Kong

Hong Kong may be back in the hands of mainland China, but direct
government
spending in Hong Kong remains less than 15 percent of national
income--versus some 40 or 50 percent here in the United States. Milton
Friedman considers these facts worth pondering.

Which country would you guess has the higher gross domestic product per
capita? The United States, with a population of 260 million occupying a
land
rich in natural resources stretching from sea to shining sea and a
history
of more than two hundred years of democracy and economic growth, or Hong

Kong, with a population of 6 million people crammed into a tiny area
with a
population density 225 times that of the United States, no natural
resources
other than a great harbor and the skills of its people, and a tenfold
multiplication in population since the end of World War II driven by
refugees from mainland China?

Your guess is right. The United States. What will surprise you is how
small
the difference is. In 1950, the United States had a GDP per capita
nearly
six times that of Hong Kong's; in 1996, only 7 percent higher. If growth

continues in both countries at present rates, Hong Kong will have a
higher
GDP per capita than the United States in less than five years.

What accounts for the remarkable success of Hong Kong? Clearly not the
special qualities of either its Chinese inhabitants or its former
British
governors--or else mainland China too would be one of the high-income
areas
of the world and Hong Kong's per capita GDP would not exceed Britain's
by
more than a third.

The answer to the puzzle is simple: the role of government. Direct
government spending is less than 15 percent of national income in Hong
Kong
versus 40 percent in the United States. Indirect government spending via

regulations and mandates on private individuals and businesses is
negligible
in Hong Kong but accounts for around 10 percent of national income in
the
United States.

We are more productive than Hong Kong. But we have chosen, or been led
by
the vagaries of politics, to devote roughly half of that capacity to
activities to which Hong Kong devotes 15 to 20 percent. Are we getting
our
money's worth for that extra expenditure? I believe not.

Consider the most basic functions of government, the protection of
person
and property and the maintenance of the rule of law. Most observers
would
agree that Hong Kong has been performing those functions better than we
have. Because it is doing so many things that it has no business doing,
our
government is doing those things that it should be doing badly, less
well
than it did in the past, when government spending was lower.

Government has an essential role to play in a free and open society. Its

average contribution is positive, but I believe that the marginal
contribution in going from 15 percent of the national income to 50
percent
has been negative. I firmly believe that we would be better off if we
were
free to use that part of our production in accordance with our
individual
tastes and values rather than turning it over to the political
authorities.
The result would be a per capita GDP 70 percent higher than Hong Kong's,
not
7 percent.

The obvious occasion for these remarks is the turnover of Hong Kong to
China. A less obvious but more important reason is the recent budget
agreement in this country.

Most of the emphasis is on the proposed tax cuts. I have long favored
cutting taxes at any time, in any manner, by as much as possible as the
only
way of bringing effective pressure on Congress to cut spending. Like
every
teenager, Congress will spend whatever revenue it receives plus as much
more
as it collectively believes it can get away with. Reducing spending
requires
cutting its allowance.

The tax cut in the agreement is trivial: $96 billion over five years, or
$19
billion a year, one-quarter of 1 percent of national income. If that cut

were being financed by reducing spending, and were to be repeated year
after
year, it would take more than sixty years to bring the share of national

income controlled by the government down to the same level as that in
Hong
Kong today.

Unfortunately, the cut in taxes is not being financed by reducing
spending.
On the contrary, the "balanced budget" agreement calls for higher
spending
in coming years. The hypothetical balance is to be brought about by
higher
tax revenue, not by lower spending. The tax cut is being financed by the

unlegislated increase in the effective tax rate produced in a growing
economy by a graduated income tax combined with incomplete indexation of

taxes for inflation. Taxes are going up, not down.

Neither cutting explicit taxes nor balancing the budget is an end in
itself.
Both are means to the ultimate objective of increasing the freedom of
individuals to use their own resources in accordance with their own
values--as President Reagan put it, to get the government off our back.
A
real cut in direct and indirect government spending as a fraction of
national income is required to achieve that basic objective.

Reprinted from the Wall Street Journal, July 8, 1997. Used with
permission.
 1997 Dow Jones & Company, Inc. All rights reserved.



Available from the Hoover Press is The Essence of Friedman, edited by
Kurt
R. Leube. Also available from the Hoover Press as part of the Essays in
Public Policy series is Freedom's Fall in Hong Kong, by Alvin Rabushka.
To
order, call 800-935-2882. This essay is also available on the Hoover
Institution's World Wide Web site at http://www-hoover.stanford.edu.

Illustration by Karen Stolper


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----
Milton Friedman is a senior research fellow at the Hoover Institution.
He
was awarded the Nobel Prize in economic sciences in 1976.



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