-WORLDWATCH INSTITUTE, 2000¹

-BJØRN LOMBORG²

Bjørn Lomborg is a Danish professor of statistics who was an environmental activist and member of Greenpeace for years. He accepted at face value the Malthusian views, expressed by Paul Ehrlich, Lester Brown, and groups such as the Worldwatch Institute, Greenpeace, and the Sierra Club, that the world was running out of renewable resources, clean water, and forestland, and that the earth was becoming more polluted and that population growth was exploding.

Along came Julian Simon, an American economist from the University of Maryland, who challenged Lomborg’s thinking. Simon had published several books and papers filled with data supporting his view that life was actually getting better, that air in the developed world was becoming less polluted, that fewer people were starving, and that the population growth was slowing.

Simon made two devastating arguments against the pessimists: First, natural resources are virtually unlimited in the long run because higher prices, reflecting scarcity, encourage the discovery of additional reserves and the use of substitutes. In addition, entrepreneurs and inventors are developing new technologies and cost-cutting techniques allowing more resources to be discovered and developed. Second, a large and growing population leads to a higher standard of living because it increases the stock of useful knowledge and trained workers.

Lomborg decided to test Simon’s statistics. In the fall of 1997, he and a group of students examined Simon’s data. Their conclusion: Simon was right! Lomborg reversed course and, in publishing his findings in The Skeptical Environmentalist, has created a furor within the environmentalist community.

Lomborg joins Simon in refuting most of the claims of the perma-bear environmentalists: global forests have increased since World War II; the world’s population growth rate peaked in 1964 and has since declined; only 0.7 percent of species have disappeared in the past 50 years; fewer people in the world are denied access to water; incidence of infectious disease is still on the decline worldwide; the number of extremely poor/starving people is also declining; air pollution is falling in many parts of the world.

But what about global warming, the overriding concern that our capitalistic lifestyle is changing the climate and could do permanent damage to our ecosystem? The evidence is clear that temperatures have been rising in the past century, but the questions remain: how much of the temperature increase is due to global carbon-dioxide emissions and what is the best course of action? Economic analysis shows it will be far more expensive to cut CO2 emissions radically than to pay the costs of adapting to global warming.³

Economists have also debunked the popular myth that economic development is responsible for environmental degradation. The truth is largely the opposite. As Lomborg states, "environmental development often stems from economic development-only when we get sufficiently rich can we afford the relative luxury of caring about the environment."⁴

The Polluted Stat

Economists have also publicized "government failure" in the debate about the environment. Recent studies have revealed how less-developed countries, including the former Soviet Union, have more pollution, lower health standards, and more environmental hazards than industrialized nations. Economists Terry Anderson and Donald Leal point to several examples of government mismanagement: National parks such as Yellowstone are in major disrepair, the U.S. Park Service is notoriously wasteful (it built a $330,000 outhouse), the Canadian government destroyed the cod industry, and Brazil and Indonesia forced migrants to burn once-pristine rain forests to plant crops.⁵

Economics has provided real solutions to pollution and environmental degradation. One problem is what is known as the "tragedy of the commons." In a 1968 issue of Science, Garrett Hardin, emeritus professor of biological sciences at the University of California at Santa Barbara, wrote a seminal article arguing that a resource tends to be overexploited when owned by the public and not private individuals. If no one owns a piece of grazing land, each herdsman has an incentive to add another animal to the herd until the land is overgrazed. As a result, "Freedom in a common brings ruin to all."⁶

Hence, the lack of property rights and market prices creates a "tragedy of the commons"-unnecessary pollution, extinction of animals, destruction of forests, strip mining, and more. At first government favored regulation as a solution, but economists have encouraged the establishment of clearly specified property rights and accompanying price signals in water, fishing, and forestland, so that owners can preserve these resources in a balanced way.

In sum, free-market environmentalism has come a long way in showing how to replace the regulatory fist of command with a greener invisible hand. Many free-market think tanks, such as PERC and the Competitive Enterprise Institute, have challenged the supremacy of the Sierra Club and Greenpeace.⁷

Earth Day will never be the same.

Notes

1. . Worldwatch Institute, The State of the World 2002 (New York: Norton, 2002), p. xvii.
2. . Bjørn Lomborg, The Skeptical Environmentalist: Measuring the Real State of the World (Cambridge: Cambridge University Press, 2001), pp. 30, 32.
3. . Ibid., p. 318.
4. . Ibid., p. 33.
5. . Terry L. Anderson and Donald R. Leal, Free-Market Environmentalism, revised ed. (New York: Palgrave, 2001), pp. 47-58.
6. . Garrett Hardin, "The Tragedy of the Commons," reprinted in Garrett Hardin and John Baden, ed., Managing the Commons (San Francisco: W.H. Freeman, 1977), p. 20.
7. . Two additional sources written from a free-market perspective are Michael Sanera and Jane S. Shaw, Facts, Not Fear: A Parent’s Guide to Teaching Children About the Environment (Washington, D.C.: Regnery, 1996) and Ronald Bailey, ed., Earth Report 2000 (New York: McGraw Hill, 2000).

Mark Skousen is president of FEE. His website is www.mskousen.com. His latest book is The Power of Economic Thinking, available by calling 1-800-326-0996.

Related posts:

1. Perspective: Economics and Ecology
2. Linking Liberty, Economy, and Ecology
3. A Beautiful Movie, Lousy Economics

I came across a very interesting book the other day called Happiness and Economics: How the Economy and Institutions Affect Human Well-Being by Bruno S. Frey and Alois Stutzer. It’s a technical book, with lots of graphs and mathematical regressions, but the conclusions are pretty clear: "The general result seems to be that happiness and income are indeed positively _related."¹ In other words, money can provide many benefits-more opportunities, higher status in society, and the ability to travel and enjoy better food, housing, health care, and entertainment. Several studies indicate that wealthier people live longer. In short, money fulfills highly desirable wants.

I remember the day that I discovered that I would be financially independent. It was a summer day in the late 1970s when I came home and presented my wife with over a dozen checks from a mail-order business I had started. Within a year, we had bought our first home, with 20 percent down, and by 1984, we had become successful enough that we could move our entire family (with four children) to the Bahamas to "retire." The experience of becoming financially secure gave Jo Ann and me an incredible feeling of satisfaction. Of course, we didn’t really retire. We used our free time to read and write, go sailing, spend time with our children, and become involved in the local theater, a private school, and church work.²

Why Most Poor People Are Unhappy

The graph on the next page shows the relationship between income and happiness across nations. In general, people in poor countries are less satisfied than people in rich countries. One reason is that poor nations are often more subject to violence and uncertainty. As Frey and Stutzer state, "Countries with higher per capita incomes tend to have more stable democracies than poor countries have. . . . The higher the income, then the more secure human rights are, the better average health is, and the more equal the distribution of income is. Thus, human rights, health, and distributional equality may seemingly make happiness rise with income."³

But the graph also indicates that money causes diminishing returns in happiness. Subjective well-being rises with income, but once beyond a certain threshold, income has little or no effect on happiness. Many wealthy people have experienced this law of diminishing returns and are not any more happy than middle-class people. In fact, some wealthy people are downright _unhappy. Frey and Stutzer conclude, "Higher happiness with material things wears off."⁴

Four Elements of Happiness

Years ago I read a sermon by a church leader on the "Four Sources of Happiness." He spoke of work, recreation, love, and worship. I think he’s right.

First, you have to find rewarding and honest employment to be happy. Hard work and entrepreneurship offer the opportunity to create surplus wealth. Money in the bank gives you a real sense of security as well as freedom to do what you want to do. Moreover, studies show that unemployed people, believing they are not contributing to society or themselves, are generally unhappy.

Second, recreation is essential to your well-being. It helps to take a break from work from time to time. Relaxation and avocations are essential elements of a happy life. People who spend too much time at the office and can’t relax with their family or friends at home need to learn the joy of recreation with a hobby, sports, travel, or other avocation. Some of my most memorable times have been playing softball or basketball with friends, traveling with _family members on the weekend, or visiting a bookstore.

Third, love and friendship are also key elements of happiness. Everyone needs someone to confide in, to spend time with, to learn from, to reminisce with, to love and to be loved by. For most people, love and friendship take time and effort. You have to work at developing friendships, but the rewards are never-ending.

Finally, worship. Developing one’s spiritual side is essential to happiness. Some of my friends say they don’t need religion, but they are missing out on one of the joys of life-listening to a great sermon, singing hymns, meditating on the word of God, and praying for God’s help in solving business or family problems.

Let me conclude this essay with a delightful stanza by the Norwegian playwright Henrik Ibsen, who put the role of money in the proper perspective:

Money may be the husk of many things, but not the kernel.
It brings you food, but not appetite;
Medicine, but not health;
Acquaintances, but not friends;
Servants, but not faithfulness;
Days of pleasure, but not peace or happiness.

Mark Skousen is president of the Foundation for Economic Education. His most recent book, The Making of Modern Economics, is available from Laissez Faire Books, 800-326-0996.

Notes

1. Bruno S. Frey and Alois Stutzer, Happiness and Economics (Princeton, N.J.: Princeton University Press, 2002), p. 81.
2. See my article "Easy Living-My Two Years in the Bahamas" at www.mskousen.com.
3. Frey and Stutzer, p. 75.
4. Ibid., p. 78. In fact, Frey and Stutzer publish a graph showing that "Per capita income in the United States has risen sharply in recent decades, but the proportion of persons considering themselves to be ‘very happy’ has fallen over the same period" (p. 77).

Related posts:

1. Money Can Buy Happiness
2. Happiness
3. The Pursuit of Happiness: The Intellectual Defense of Liberty

—LIN YUTANG¹

“Behavioral” finance is the hot new field in the rapidly growing “imperial” science of economics. Consider the titles of recent books on the subject: Irrational Exuberance by Robert Shiller of Yale University, who correctly warned investors that the bull market on Wall Street in 2000 was not sustainable, and Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich.

Essentially, these writers take issue with a fundamental principle of economics—the concept of “rational” predictable behavior. They argue that investors, consumers, and business people don’t always act according to the “rational economic man” standard, but instead suffer from overconfidence, overreaction, fear, greed, herding instincts, and other “animal spirits,” to use John Maynard Keynes’s term.²

Their basic thesis is that people make mistakes all the time. Too many individuals overspend and get into trouble with credit; they don’t save enough for retirement; they buy stocks at the top and sell at the bottom; they fail to prepare a will. Economic failure, stupidity, and incompetence are common to human nature. As Ludwig von Mises notes, “To make mistakes in pursuing one’s ends is a widespread human weakness.”³

Fortunately, the market has a built-in mechanism to minimize mistakes and entrepreneurial error. The market penalizes mistakes and rewards correct behavior (witness how well business responded to the Y2K threat in the late 1990s). As Israel Kirzner states, “Pure profit opportunities exist whenever error occurs.”⁴

But the new behavioral economists go beyond the standard market approach. They argue that new institutional measures can be introduced to minimize error and misjudgments, without involving the government.

At the American Economic Association meetings in Atlanta in January 2002, Richard Thaler of the University of Chicago presented a paper on his “SMART” savings plan, which is being tested by five corporations in the Chicago area. Thaler, author of The Winner’s Curse and a pioneer in behavioral economics, has developed a new institutional method to increase workers’ savings rates. Thaler noted that the average workers’ savings rates are painfully low. I blame the low rate on high withholding taxes, but Thaler suggested that part of the problem is the way retirement programs are administered. He convinced these corporations to adopt his plan to have their employees enroll in an “automatic” investment 401(k) plan. Most corporations treat 401(k) plans as a voluntary program and, as a result, only half choose to sign up. In Thaler’s plan, employees are automatically invested in 401(k) plans unless they choose to opt out.

Result? Instead of 49 percent signing up (as they do in a typical corporate investment plan), 86 percent participate.

Raises Invested

In addition, Thaler has participating employees automatically invest most of any pay increase in higher contributions to their 401(k) plans, so they never see their paychecks decline, even though their 401(k) plans are increasing. Consequently, employees under this SMART plan have seen their average savings rate increase from 3 to 11 percent.

Robert Shiller was a discussant at the session and rightly called Thaler’s plan “brilliant.” I agree. Having authored several investment books advocating “automatic investing” and dollar-cost-averaging plans,⁵ I applaud Professor Thaler for taking the concept of automatic investing to a new level. If companies everywhere adopt his plan, it could indeed revolutionize the world and lead not only to a much more secure retirement for workers but to a higher saving and investment rate. The result could be a higher economic growth and standard of living throughout the world.

Most important, Thaler’s plan is a private-sector initiative and does not require government intervention. In short, through innovative management techniques and education, individuals can solve their own financial and business problems without the help of the state.

Notes

1. Lin Yutang, The Importance of Living (New York: John Day Company, 1937), p. 57.
2. References to “animal spirits” and “waves of irrational psychology” can be found in John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Macmillan, 1973 [1936]), pp. 161–62.
3. Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 268. However, Mises refuses to call bad decisions “irrational.” He states, “Error, inefficiency, and failure must not be confused with irrationality. He who shoots wants, as a rule, to hit the mark. If he misses it, he is not ‘irrational’ he is a poor marksman.”
4. Israel M. Kirzner, “Economics and Error” in Perception, Opportunity, and Profit (Chicago: University of Chicago Press, 1979), p. 135.
5. 5. Mark and Jo Ann Skousen, High Finance on a Low Budget (Chicago: Dearborn, 1993) and Mark Skousen’s 30-Day Plan for Financial Independence (Washington, D.C.: Regnery, 1995).

   Mark Skousen is president of FEE. His website is www.mskousen.com.

Related posts:

1. From The Presidents Desk – The Right to Be Left Alone
2. From The Presidents Desk: From Poverty to Riches: Is There a Magic Elixir?
3. The Social Security Trust Fund: Savings vs. Saving

“The makers of the Constitution conferred the most comprehensive of rights and the right most valued by all civilized men—the right to be let alone.”

-Justice Louis D. Brandeis

According to Thomas Jefferson and the Declaration of Independence, one of the “repeated injuries and usurpations” committed against the American people by the King of England was the erecting of “a multitude of New Offices, and . . . swarms of Officers to harass our people, and eat out their substance.”

Today, following the tragic events of September 11, 2001, the American people face another troublesome threat—swarms of security agents harassing us at airports, borders, buildings, and highways. Like many of you who travel frequently, my wife, Jo Ann, and I have been subjected to these often overzealous security guards who ask inane questions; force us to remove our shoes, jackets, and belt buckles; and meticulously go through our carry-on bags. I’ve had my fingernail clippers confiscated twice. Jo Ann was frisked three times in one day. Others have fared far worse. My friend and IOL fellow columnist Walter Williams was almost arrested in Jacksonville, Florida, after he refused to be patted down. A congressman was required to disrobe. After these security encounters, I always feel my privacy, indeed my dignity, has been violated.

President George W. Bush has urged citizens to return to normal life, but business and domestic affairs are never the same when a war is on, and this war on terrorism is no exception.¹ Bush’s proposed federal budget jumped 9 percent from last year, pushing the United States into a deficit again. Private enterprise has been forced to spend billions on security measures, a real burden on a recessionary economy. (Imagine, intelligent employees spending the rest of their lives trying to catch some nut out there, representing 1/1000 of 1 percent of travelers.) Airport security has now become federalized. And we have become, in the words of Sheldon Richman, “tethered citizens.”

In revolutionary times, colonists were so incensed by the invasions of privacy and other personal abuses by British officers that Congress’s first act was to pass a Bill of Rights, including Amendment III, “No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law,” and Amendment IV, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

The Fourth Amendment forms the basis of a “right to privacy,” the right to be left alone, as Justice Louis Brandeis put it. The enjoyment of financial and personal privacy is fundamental to a free and civil society. True liberty is to be able to walk down the street, cash a check, buy goods, talk on the telephone, or take a trip without being hassled, hounded, followed, or interrogated by government agents. People should be able to get away from the madding crowds without being followed or asked stupid questions. When I travel abroad, there is no better feeling than walking through the green customs door marked “Nothing to Declare.” When I return home and close the door, there is a feeling of security, knowing that the police aren’t going to break it down in the middle of the night for a “warrantless” search. It happened in Soviet Russia and Nazi Germany, but surely not in America!

Privacy Eroding

Yet the right to privacy so cherished by Americans of generations past is gradually eroding. New airport-security laws require all travelers to carry a “government-issued” ID, usually a driver’s license or passport. Thus we have come dangerously close to creating a national identity card for all Americans. The war on drugs has made it virtually impossible to deal legally in large amounts of cash, the most anonymous form of doing business. Some banks are requiring thumbprints for identification. Mandatory drug-testing of students and employees is becoming commonplace without any reference to the constitutional principle of “probable cause.” Since September 11, police routinely check automobiles and trucks coming into New York City without a warrant. Tampa and other big cities are videotaping citizens in “crime-prone” areas around the clock. California and other states are capturing all drivers on film and issuing tickets for alleged speeders.

I wrote the first book on financial privacy in the early 1980s.² It was a huge underground hit, selling over 400,000 copies. Clearly, vulnerable Americans felt the need for protection against potential lawsuits, government surveillance, prying relatives, aggressive salesmen, and professional thieves. From time to time, I am asked to do an updated edition, but I have refused. Why? Because the law has changed and become so complex that it takes a full-time professional to stay up on all the dos and don’ts. However, I can recommend an excellent newsletter that focuses on privacy issues: The Financial Privacy Report, published and written by Michael Ketcher (to subscribe, call 1-866-429-6681; P.O. Box 1277, Burnsville, MN 55337).

Despite the recent intrusions into individual personal affairs, you can still maintain a certain degree of privacy. You can take a car, bus, or train, and go to most destinations without being noticed or tracked. In small transactions, you can still pay with cash instead of using credit cards or checks. You can buy a large number of gold and silver coins with cash and avoid reporting requirements. You can refuse to give your Social Security number to schools, hospitals, dentist and doctor offices, insurance companies, and most private organizations (but not banks, brokers, or the IRS). You can open a foreign bank account with less than $10,000 and not have to report it. You can use a post office box to keep direct mail promoters from contacting you. You can demand a search warrant before allowing the police to come into your house or business, or to search your automobile.

In short, by maintaining a low profile, you can usually avoid the scrutiny of overzeal-
ous bureaucrats, nosy neighbors, or jealous relatives.

Notes

1. Historian Robert Higgs makes this very clear in his excellent article, “How War Makes Government Bigger,” Ideas on Liberty, December 2001.
2. Mark Skousen, The Complete Guide to Financial Privacy (Alexandria House Books, 1979; New York: Simon & Schuster, 1983).

Related posts:

1. From The Presidents Desk ~ A Painless Way to Triple Your Savings
2. From The Presidents Desk: From Poverty to Riches: Is There a Magic Elixir?
3. From The President’s Desk ~ Poverty and Wealth: India Versus Hong Kong

"Economics is a very dangerous science"

-JOHN MAYNARD KEYNES¹

"Economics is haunted by more fallacies than any other study known to man."

-HENRY HAZLITT²

There is no better example of today’s heated debate over macroeconomics than Japan. What policy should this nation-economically the second largest in the world-adopt to start growing again after a decade of sluggish performance?

It seems that Japan has tried all the traditional remedies since it collapsed into recession in the early 1990s and lost out as a world economic model. The Bank of Japan lowered short-term interest rates to zero. Tokyo raised taxes, ran huge deficits, and spent billions on public-works projects. But neither an easy-money policy nor an aggressive fiscal policy has done the trick. Japan is still mired in recession and rising unemployment, and now faces the largest debt burden among industrial nations.

In the late 1980s, Japan was considered the model of prosperity. Economists predicted that it would surpass the U.S. economy in 2000; the next century belonged to this Asian giant. Its lifetime-employment and bonus system was considered a superior business-labor management strategy. But the weaknesses of the Japanese economy became apparent in the 1990s-its model was too static and homogeneous for the dynamic global new economy. In 1990 the Fraser Institute’s economic freedom report ranked Japan ninth in the world. Now it is ranked only 20th primarily due to the growth of government and the mismanagement of the banking system.³

I witnessed firsthand this endless story of economic frustration when my wife and I spent a few days in Tokyo last June. The government has spent several trillion yen building a massive underwater highway called Aqualine. Now Tokyo residents have a fast alternate route outside the city. But the government charges $50 one way to go five miles under water and, as a result, even the Japanese are reluctant to use Aqualine.

Classical economists long taught that the government should produce only viable public works, where the benefits clearly outweigh the costs. But John Maynard Keynes turned the world upside down when he proclaimed that in a downturn, "To dig holes in the ground, paid out of savings, will increase, not only employment, but the real national dividend of useful goods and services."⁴ Apparently several Japanese prime ministers have fallen under the Keynesian spell, but to no avail.

New Medicine: Print More Yen!

Several prominent economists have urged the charismatic new prime minister, Junichiro Koizumi, to adopt a more radical proposal-flood the country with yen. "Japan needs to spur demand," argue Jeffrey Sachs of Harvard and Paul Krugman of Princeton. Even Milton Friedman, the celebrated free-market economist (famous for his refrain, "There’s no such thing as a free lunch"), has joined forces with top Keynesians to promote aggressive easy money as a way to jump-start a weak economy and counter deflation. Friedman has supported a rapid increase in the money supply in Japan since late 1997.⁵

 At the Mont Pelerin Society meetings in September 1999, I confronted Friedman on this issue. He and his wife had organized the program under the topic "Can Creeping Socialism Be Stopped?" In one of the breakout sessions I asked him about his easy-money solution to Japan’s economic problems. I held up his article in the Wall Street Journal and noted how it made no reference to cutting taxes, deregulation, or opening up the Japanese economy; only inflation was proposed as a solution. "Isn’t printing more money another example of creeping socialism?" I asked. He was not amused. Friedman said that historically increasing the money supply stimulates economic growth, and fast monetary growth was necessary given Japan’s fragile condition. "Then there is a free lunch?" I asked. "A free disaster!" responded Friedman. Afterwards, Professor Jim Gwartney came up to me and said, "You attacked God today!" Indeed. Yet even free-market icons can make mistakes.

Fortunately, Prime Minister Koizumi has rejected this artificial stimulus and favors a supply-side agenda. He supports a regimen of capping government spending, requiring banks to write off and restructure their mammoth $1.2 trillion in bad loans, and privatizing the massive postal saving system, which funded much of the misconceived public works of the 1990s. Tax cuts would also be highly beneficial. Koizumi would be wise to follow the lead of the Obuchi administration (1998-99), which pushed through moderate tax cuts in personal and corporate income taxes. But he has postponed this vital supply-side ingredient until the crushing government-debt burden can be reduced.

Structural reform, as opposed to easy money and public spending, can work wonders in getting the Japanese economy back on track. For example, in 1994, when Japan deregulated the cell-phone industry, prices dropped and sales skyrocketed, and this year cellular-related revenues are expected to exceed $72 billion, nearly 2 percent of economic output.

The lesson is clear: Free the economy and prosperity will follow.

Mark Skousen is president of FEE.

1. John Maynard Keynes, Essays in Biography (New York: Norton, 1951), p. 107.
2. Henry Hazlitt, Economics in One Lesson, 3rd ed. (New York: Arlington House, 1979), p. 15.
3. James Gwartney et al., Economic Freedom of the World Annual Report 2001 (Vancouver, B.C.: Fraser Institute, 2001), p. 182.
4. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 220.
5. Milton Friedman, "Rx for Japan," Wall Street Journal, December 17, 1997.

Related posts:

1. The Americanization of Japan
2. Book Review: Japan: Who Governs? The Rise of the Development State by Chalmers Johnson
3. Libertarianism in Japan

-JOHN TEMPLETON¹

The mutual fund magnate John Templeton traveled around the world during the 1930s, noting in particular the extreme poverty in two Asian nations under British control, India and Hong Kong. Forty years later, in the 1970s, Templeton returned. Once again he witnessed the incredible poverty in India. But Hong Kong had changed tremendously. "The standard of living in Hong Kong had multiplied more than tenfold in forty years, while the standard of living in Calcutta has improved hardly at all."²

Today neither country is under British rule, but the contrast is even more clear. Hong Kong enjoys the greatest concentration of wealth in the world. India suffers the greatest concentration of poverty in the world.³

Twenty years ago, development economist P.T. Bauer wrote a famous little essay in which he pondered, "How would you rate the economic prospects of an Asian country which has very little land (and only eroded hillsides at that), and which is indeed the most densely populated country in the world; whose population has grown rapidly, both through natural increase and large-scale immigration; which imports all of its oil and raw materials, and even most of its water; whose government is not engaged in development planning and operates no exchange controls or restrictions on capital exports and imports; and which is the only remaining Western colony of any significance?"⁴

Indeed, the prospects for Hong Kong were dismal. Yet by making cheap products for export to the faraway West, it managed to become the powerhouse of Southeast Asia. Today its citizens’ incomes rival the Japanese, despite its teeming seven million people crowded into 400 square miles. What broke the vicious cycle of poverty? According to Bauer, Hong Kong’s economic miracle did not depend on having money, natural resources, foreign aid, or even formal education, but rather on the "industry, enterprise, thrift and ability . . . of highly motivated people."⁵ Hong Kong’s "overpopulation" turned out to be an asset, not a liability.

Equally important, Britain did not interfere in private decision-making. It adopted a laissez-faire economic policy, except in the area of subsidized housing and education. Communist China has pursued a largely noninterventionist approach since it took over in 1997. Hong Kong continues to flourish with a stable currency, free port, and low taxes. Its maximum income tax rate is 18 percent, and it imposes no capital-gains tax. In its economic freedom index, the Fraser Institute has always ranked Hong Kong number one in the world.⁶

Tragic India

India is an entirely different story. Its population of one billion remains relatively poor. Unlike Hong Kong, India has valuable natural resources-forests, fish, oil, iron ore, coal, and agricultural products, among others. It has achieved self-sufficiency in food since independence in 1947, yet deep poverty persists.

Many pundits blame India’s anti-capitalist culture, its fatalistic caste system, its overpopulation problem, and its hot and humid climate (it reached 117 degrees when we visited the Taj Mahal last June). But Milton Friedman identified the real culprit when he wrote, "The correct explanation is . . . not to be found in its religious or social attitudes, or in the quality of its people, but rather in the economic policy that India has adopted."⁷

Indeed, in the decade after independence, Nehru and other Indian leaders were heavily influenced by Harold Laski of the London School of Economics and his fellow Fabians, who advocated central planning along Soviet lines. India adopted five-year plans, nationalized heavy industries, and imposed import-substitution laws. Worse, they perpetuated the British civil-service tradition of exercising controls over foreign exchange and requiring licenses to start businesses.

Even today, India is a bureaucratic nightmare.⁸ Parth Shah, an economist and head of the Centre for Civil Society (www.ccsindia.org),⁹ describes how he recently returned to India and toiled to find an apartment in New Delhi (thanks to rent controls), then spent half a day standing in line to pay his first telephone bill and another half a day to pay his electricity bill. "Corruption has become the standard among those who are in public service at every level," reports Gita Mehta, a well-known Indian writer.¹⁰ India has ranked around number 100 over the years on the Fraser Institute’s index of economic freedom.

Yet there is hope. In 1991, facing default on its foreign debt, India abandoned four decades of economic isolation and planning, and freed the nation’s entrepreneurs. It sold off many of its state companies, cut tariffs and taxes, and eliminated most price and exchange controls. As a result, India became one of the world’s fastest-growing economies in the 1990s, averaging nearly 10 percent growth per year. Most important, while the rich have gotten richer, poverty rates fell sharply in India.

What can the new prime minister, A. B. Vajpayee, do now? Can India ever catch up to Hong Kong? India must cut its government deficits (currently 10 percent of GDP); cut tariffs and taxes further; privatize state enterprises; eliminate red tape; and restore honesty in government. It’s a tall order but the only way to achieve what Adam Smith called "universal opulence which extends itself to the lowest ranks of the people."¹¹

Mark Skousen is president of FEE.

1. Quoted in William Proctor, The Templeton Prizes (New York: Doubleday, 1983), p. 72.
2. Ibid.
3. For an excellent updated survey of India, see "Unlocking India’s Growth," The Economist, June 2, 2001.
4. P. T. Bauer, "The Lesson of Hong Kong," in Equality, the Third World and Economic Delusion (London: Weidenfeld and Nicolson, 1981), p. 185.
5. Ibid., p. 189.
6. James Gwartney and Robert Lawson, Economic Freedom of the World, Annual Report 2001 (Vancouver, B.C.: Fraser Institute, 2001), p. 172.
7. Milton Friedman, Friedman on India (New Delhi: Centre for Civil Society, 2000), p. 10.
8. See John Stossel’s amazing example in his ABC Special "Is America #1?" available on videotape from Laissez Faire Books, 800-326-0996.
9. The other free-market think tank, the Liberty Institute, is run very capably by Barun Mitra. Shah and Mitra hosted my visit to India in June 2001.
10. Gita Mehta, Snakes and Ladders: A Modern View of India (London: Minerva, 1997), p. 16.
11. Adam Smith, The Wealth of Nations (New York: Random House, 1965 [1776]), p. 11.

Related posts:

1. Hong Kong Reflections
2. Book Review: The New China: Comparative Economic Development in Mainland China, Taiwan, And Hong Kong by Alvin Rabushka
3. Book Review: Hong Kong byJan Morris

Ever since moving to the Bahamas in 1984, I have been intrigued by the idea of leisure—shedding the workaholic rat race to be “free and easy” and “letting oneself go,” to quote the German philosopher Josef Pieper. To Pieper, leisure is more than merely getting off work at the end of the day or taking a vacation; rather “the soul of leisure lies in celebration” of nature, life, and the divine in perfect calm and relaxation.²

During my two-year sojourn in the “island of June,”³ I picked up a copy of Bertrand Russell’s celebrated book In Praise of Idleness. Russell, author of more than 60 books, was never idle—what he really meant was leisure time to pursue one’s own loves and goals rather than working for someone else’s objectives. In typical contemptuous style, Russell lambasted the Western penchant for hard labor: “The morality of work is the morality of slaves, and the modern world has no need of slavery.” Furthermore, “The wise use of leisure . . . is a product of civilization and education. A man who has worked long hours all his life will be bored if he becomes suddenly idle. But without a considerable amount of leisure a man is cut off from many of the best things. . . . We attach too little importance to enjoyment and simple happiness.” Russell believed that ideally man should work only four hours and spend the rest of the time engaged in playful activities, not passive activities like watching sports or television, but intellectual and scientific pursuits.⁴

Work Ethics: The East Versus the West

The Judeo-Christian West has always emphasized a strong work ethic, but what about the East? Lin Yutang, the celebrated Chinese libertarian philosopher, insisted that the American virtues of efficiency, punctual-ity, and goal-setting are actually “vices.” “From the Chinese point of view,” declared Lin, “the man who is wisely idle is the most cultured man. . . . Those who are wise won’t be busy, and those who are too busy can’t be wise.” Referring to Western business practices, Lin ruminated, “Americans have now come to such a sad state that they are booked up not only for the following day, or the following week, but even for the following month. An appointment three weeks ahead of time is a thing unknown in China.”⁵

Lin wrote his essay on loafing in 1937. Today Lin would be aghast at the degree in which the East has adopted the West’s working patterns, and even surpassed them. Anyone who has been to Hong Kong, Japan, or Korea would laugh at any suggestion that Americans are overworked.

Is Overwork an Inherent Defect in Capitalism?

Yet that is precisely what Harvard economist Juliet Schor claims in her bestseller, The Overworked American, first written in the early 1990s. Critics of the market complain that the capitalist system inherently promotes overwork and discourages leisure. According to Schor, the constant demands of the consumer society and global competition are mandating more work hours and exploding consumer debt. Leisure time is on the decline, she says. Eight million Americans are holding two or more jobs, the highest figure since data were first collected 25 years ago. Schor writes that U.S. manufacturing employees work 320 more hours per year than their German or French counterparts. She proposes, among other things, a government-mandated three-week paid vacation for all U.S. employees.⁶

I question Schor’s statistics. If Americans are working more and more, how does she explain the explosion in money spent on sports and recreational activities in the United States?

How Capitalism Liberates Man

The critics of capitalism misunderstand the role of the market. Only through capitalism can savings and surplus wealth—the foundation of leisure time—be achieved. Capitalism provides very powerful incentives to produce an abundance of material goods in less and less time (and thus at lower costs), hence freeing up time to pursue other interests. Greater leisure time is an inherent feature of an advancing capitalist system. What people do with their leisure time is another issue—some may choose to work another job, others may play. “In our opportunity economy,” write W. Michael Cox and Richard Alm, “some professionals, managers and entrepreneurs are putting in killer hours. But that’s the choice they make, in return for higher pay and faster career advancement than they might otherwise have. For the rank and file, the work week has continued to shrink in recent decades. Average weekly hours of production workers declined from 39.8 in 1950 to 34.5 in 2000.”7 The following graph demonstrates the gradual decline in average work hours.

Of course, America hasn’t reach Bertrand Russell’s goal of 20 work hours a week. In fact, average weekly hours have stagnated around 35 work hours over the past 20 years. Why? One reason ignored by Schor: Higher tax rates may be encouraging employees to work harder. A sharp cut in payroll taxes might reignite the downward trend in work hours. Schor should put that recommendation in her second edition.

Notes

1. Lin Yutang, The Importance of Living (New York: John Day, 1937), p. 148. Yutang’s classic work on leisure has been reprinted in paperback by Quill.
2. Josef Pieper, Leisure, The Basis of Culture (Indianapolis: Liberty Fund, 1999 [1952]), pp. 28, 44–45.
3. See my essay “Easy Living: My Two Years in the Bahamas,” originally published in Liberty magazine, December 1987, at www.mskousen.com.
4. Bertrand Russell, In Praise of Idleness and Other Essays (London: Unwin, 1976 [1935]), pp. 14, 22.
5. Lin Yutang, pp. 162–64.
6. Juliet B. Schor, The Overworked American: The Unexpected Decline in Leisure (New York: Basic Books, 1991).
7. W. Michael Cox and Richard Alm, “Have a Nice Day! The American Journey to Better Working Conditions,” Federal Reserve Bank of Dallas, Annual Report 2000, p. 23. The Dallas Fed puts out the best annual reports (go to www.dallasfed.org).

Related posts:

1. Why Wages Rise: 10. Leisure and the Better Life
2. The Moral Foundation of Western Culture
3. The Voluntary Basis of Trade Unionism

Mark Skousen is president of FEE and editor of his own Web site, www.mskousen.com.

In this time of thanksgiving and holiday cheer, we here at the Foundation for Economic Education wish everyone peace, prosperity, and happiness. Leonard Read, our founder, wrote that freedom of choice is one of the essential agents of peace and harmony.

According to Read, true freedom means practicing the Golden Rule and preserving the God-given rights of the individual as declared in the Declaration of Independence. “Everyone is completely free to act creatively as his abilities and ambitions permit; no restraint in this respect—none whatsoever.”²

The latest edition of the Index of Economic Freedom, published by the Heritage Foundation and the Wall Street Journal, shows that many parts of the world are “mostly unfree” or “repressed,” as judged by the level of corruption, taxation, protectionism, inflation, black markets, and government interventionism. Of the 155 nations surveyed, over half (81) receive a negative grade. Most telling, the area of the world with the highest concentration of “repressed” freedom is the Middle East, particularly Iran, Iraq, and Libya (Afghanistan was not ranked).³ Judging from recent events, the Middle East confirms Read’s thesis. Most of the Arab world continues to suffer from economic dislocation, political turmoil, and military conflict. “When the wicked rule, the people mourn” (Proverbs 29:2). Henry Hazlitt summed it up well: “It is socialist governments, notwithstanding their denunciations of imperialist capitalism, that have been the greatest source of modern wars.”⁴

Commerce and Trade Breaks Down Barriers—and Intolerance

The Middle East is also known for dictatorships and religious intolerance. It seems that economic repression goes hand in hand with political and religious repression, just as economic freedom leads to political and religious freedom.⁵ Montesquieu, Adam Smith, and other classical-liberal thinkers made the case that liberalized trade and the spirit of capitalism break down cultural and social mono-theism and destroy fanaticism and intolerance. Montesquieu saw many virtues in doux commerce, stating that the pursuit of profit-making serves as a countervailing bridle against the violent passions of war and abusive political power. “Commerce cures destructive prejudices,” Montesquieu declared. “It polishes and softens barbarous mores. . . . The natural effect of commerce is to lead to peace.”⁶ Adam Smith seconded Montesquieu and taught that the commercial society moderates the passions and prevents a descent into a Hobbesian jungle.

Business encourages people to become educated, industrious, and self-disciplined. As economist Albert Hirschman observes, “The spirit of commerce brings with it the spirit of frugality, of economy, of moderation, of work, of wisdom, of tranquility, of order, and of regularity.”⁷ Business people are the ultimate in practicality—they are by nature compromisers and tolerant of other viewpoints. They will wheel and deal to sell and produce a product. As John Maynard Keynes once said, “It is better that a man should tyrannise over his bank balance than over his fellow-citizen.”⁸

The Case for Religious Competition

The Middle East is also famous for its lack of religious freedom and diversity. A few Protestant Christians live and worship there, but proselyting is prohibited, even in Israel. Egyptians are divided into only two Muslim sects; there are virtually no Jews in the country, and no missionaries. Islamic fundamentalists hate the West’s idea (as expressed originally by John Locke) of a free religious society where churches compete for members. According to Andrew Sullivan, America has achieved “one of the most vibrantly religious civil societies on earth,” and America “is living, tangible rebuke to everything they [Taliban and bin Laden] believe in.”⁹

Adam Smith contends that a state religion breeds fanaticism, intolerance, and persecution. There are numerous examples of holy wars waged by state-supported Christianity, Islam, and other religions that demonstrate Smith’s thesis. But Smith goes further.

He argues that creating a free, competitive environment in religions would be beneficial. Natural liberty, he said, favors “a great multitude of religious sects” which would generate interest in religion and encourage higher attendance at church. “In little religious sects, the morals of common people have been almost remarkably regular and orderly: generally much more so than in the established church.”¹⁰ According to Smith, religious competition would reduce zeal and fanaticism and promote tolerance, moderation, and rational religion.

In short, a good dose of open markets and competition in all walks of life could go a long way toward bringing peace, prosperity, and good will in this dangerous part of the world. Until that happens, many will shout “peace, peace, when there is no peace” (Jeremiah 8:11).

Notes

1. Adam Smith, The Wealth of Nations (New York: Modern Library, 1965 [1776]), p. 745.
2. Leonard Read, Anything That’s Peaceful, 2nd ed. (New York: Foundation for Economic Education, 1998), p. 30.
3. Gerald P. O’Driscoll, Jr., Kim R. Holmes, and Melanie Kirkpatrick, 2001 Index of Economic Freedom (Washington, D.C.: Heritage Foundation and the Wall Street Journal, 2001), pp. 2, 4.
4. Henry Hazlitt, The Foundations of Morality, 3rd ed. (New York: Foundation for Economic Education, 1998 [1964]), p. 339.
5. See Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), chapter 1.
6. Charles Montesquieu, The Spirit of the Laws (Cambridge: Cambridge University Press, 1989 [1748]), p. 338.
7. Albert O. Hirschman, The Passion and the Interests, 2nd ed. (Princeton: Princeton University Press, 1997), p. 72. I highly recommend this brilliant book. For more discussion of the peaceable nature of capitalism, see Mark Skousen, The Making of Modern Economics (New York: M. E. Sharpe, 2001), chapter 1.
8. John Maynard Keynes, The General Theory of Interest, Money and Employment (London: Macmillan, 1936), p. 374. Today we might say, “Better that a person tyrannize over his favorite sports team or his favorite stock than over his fellow citizen.”
9. Andrew Sullivan, “This Is a Religious War,” New York Times Magazine, October 7, 2001, p. 53. I highly recommend this article.
10. Smith, op. cit., pp. 747–48.

Related posts:

1. Perspectives on Capitalism and Freedom
2. William Ewart Gladstone’s Great Campaigns for Peace and Freedom
3. Peace, Political Science, and Pedagogy

Mark Skousen is president of FEE. His Web site is www.mskousen.com.

A few days after my move to New York, I paid my respects to an icon of capitalism, Andrew Carnegie (1835-1919), whose tombstone is appropriately located only a few miles up from FEE headquarters, in Sleepy Hollow Cemetery. In three ways, Carnegie reflects the spirit of FEE—he was a fierce defender of free-enterprise capitalism; he gave generously to good causes; and he worked hard for the cause of world peace and democracy. All three are in short supply in today’s uncertain world of regulatory state capitalism, welfarism, and terrorism.

As a joint creator (along with J. P. Morgan) of U.S. Steel, the first billion-dollar corporation in the world, Carnegie was a successful entrepreneur who benefited humanity by offering cheaper and better steel with which to build a modern world. He would reject the “robber baron” title. Capitalism was not a device to enrich the rich at the expense of the poor, as the Marxists contend; “Capitalism,” he said, “is about turning luxuries into necessities.” He started out as a poor Scottish immigrant, a classic Horatio Alger hero. He liked to be different; his favorite advice to young men was, “Attract attention.”

For Carnegie, there were in the world other values than those of the business culture: he loved books, and became friends with intellectuals, writers, and statesmen such as Herbert Spencer, Mark Twain, and William Gladstone. He was intensely competitive, even glorying in beating his friends in golf. In business, he drove down the cost of steel, even as he improved the quality. “Cheaper and better” became the American way. “Watch the costs, and the profits will take care of themselves,” he explained.² He made no apologies for his ruthless competitive spirit, which he justified as a Darwinian form of “survival of the fittest” and as a fulfillment of Jesus’ parable of the talents. Like an old-fashioned Hank Rearden in Ayn Rand’s novel Atlas Shrugged, Carnegie wasn’t merely an apologist for anarchic individualism; he was its celebrant.

Carnegie objected strenuously to the “progressives” who favored socialism and communism over individualism. “To those who propose to substitute Communism for this intense Individualism, the answer therefore is: The race has tried that. All progress from that barbarous day to the present time has resulted from its displacement.”³

“The Man Who Dies Rich Dies Disgraced”

Following his retirement in 1901, the Man of Steel did not live it up with ostentatious mansions, limousines, and hundred-dollar cigars, which Thorstein Veblen labeled “conspicuous consumption” of the idle rich. Carnegie spoke of the millionaire’s duty to live a “modest” lifestyle, shunning extravagant living and administering his wealth for the benefit of the community. To do otherwise, he warned, would encourage an age of envy and invite socialistic legislation attacking the rich through progressive taxation and other onerous anti-business regulations. Carnegie practiced what he preached, giving away over $350 million in his lifetime. One of his first acts after U.S. Steel went public was to put $5 million into a pension and benefit plan for his workers. He was careful in his philanthropy, avoiding at all costs “indiscriminate charity.” He disdained the conventional practice of accumulating wealth solely to be bequeathed to heirs, which he regarded as “sterile” and even “perverse” if it resulted in profligate living. Instead, he spent millions building 2,811 public libraries, donating 7,689 organs to churches, and establishing Carnegie Hall in New York and the Carnegie Institution in Washington. He financed technical training at the Carnegie Institute of Technology and established a pension fund for teachers through the Carnegie Foundation for the Advancement of Teaching. I cannot help but think that were he alive today, he would be a major donor to FEE!

Finally, Carnegie devoted the rest of his life to promoting world peace and democracy. He was convinced that the United States surpassed Europe economically in part because Europe was constantly embroiled in wars with its neighbors while the United States largely avoided such conflicts. He campaigned against imperialistic entanglements with other nations and in favor of peaceful arbitration as a means to end conflicts. He was a passionate believer in democracy, universal suffrage, and equality of opportunity through free public education. But he opposed equality of property or ability, and argued that all citizens had the right to choose their own occupation and had the right to earn income in any amount and spend it as they wished. He expressed distaste for royalty, aristocracy, and any form of state religion.

The Spirit of Andrew Carnegie Lives at FEE

Today I am happy to report that the world has a goodly share of modern-day Andrew Carnegies. As the new president of FEE, I have had the pleasure of becoming aware of these unique men and women of the business world who have not only added value to the global economy through their entrepreneurial efforts, but have sacrificed time and money to promote FEE and its mission. For example, last week Larry Reed, president of the Mackinac Center for Public Policy and a FEE trustee, told me about a FEE donor who spent half his life sponsoring FEE seminars on free-market economics in his hometown, often at considerable personal sacrifice of time and financial resources. Another individual, on hearing that a FEE student seminar might have to be canceled due to a lack of attendees, arranged for several dozen students to attend. The seminar turned out to be a great success. Hundreds of other FEE supporters have arranged conferences, raised funds, and distributed copies of Ideas on Liberty to their friends and acquaintances. And with your help we are planning many new programs to spread the gospel of FEE and to “attract attention,” as Andrew Carnegie would advise.

When barbaric terrorists destroyed the Twin Towers at the World Trade Center—a symbol of global capitalism and individual creativity, and built with Carnegie steel—I was heartened to read how thousands of private business leaders stepped forward and provided $200 million in financial aid to rebuild the area. I salute them for being living examples of FEE’s gospel of peace, prosperity, and freedom.

Notes

1. Andrew Carnegie, The Gospel of Wealth and Other Timely Essays (Cambridge: Harvard University Press, 1962 [1900]), p. 19.
2. Michael Klepper and Robert Gunther, “Andrew Carnegie,” in The Wealthy 100 (New York: Carol Publishing Group, 1996), p. 31.
3. Carnegie, p. 18.

Related posts:

1. Capitalists Should Love the Estate Tax? It Just Aint So!
2. How To Attract Capital
3. Enviro-Capitalists: Doing Good While Doing Well by Terry A. Anderson and Donald R. Leal