Monday, March 23, 2009

Only Capitalism Can Deliver Wealth and Health

Capitalism has been wounded by the global recession, which unfortunately will get worse before it gets better. As governments continue to determine how many restrictions to place on markets, especially financial markets, the destruction of wealth from the recession should be placed in the context of the enormous creation of wealth and improved well-being during the past three decades. Financial and other reforms must not risk destroying the source of these gains in prosperity.

Consider the following extraordinary statistics about the performance of the world economy since 1980. World real gross domestic product grew by about 145% from 1980 to 2007, or by an average of roughly 3.4% a year (see chart above, data here). The so-called capitalist greed that motivated business people and ambitious workers helped hundreds of millions to climb out of grinding poverty. The role of capitalism in creating wealth is seen in the sharp rise in Chinese and Indian incomes after they introduced market-based reforms (China in the late 1970s and India in 1991). Global health, as measured by life expectancy at different ages, has also risen rapidly, especially in lower-income countries.

The Great Depression induced a massive worldwide retreat from capitalism, and an embrace of socialism and communism that continued into the 1960s. It also fostered a belief that the future lay in government management of the economy, not in freer markets. The result was generally slow growth during those decades in most of the undeveloped world, including China, the Soviet bloc nations, India and Africa.

Partly owing to the collapse of the housing and stock markets, hostility to business people and capitalism has grown sharply again. Yet a world that is mainly capitalistic is the “only game in town” that can deliver further large increases in wealth and health to poor as well as rich nations. We hope our leaders do not deviate far from a market-oriented global economic system. To do so would risk damaging a system that has served us well for 30 years.

~Nobel economist
Gary Becker and Kevin Murphy, both from U Chicago


At 3/23/2009 9:41 PM, Anonymous Anonymous said...

Yes, the global marketplace is the ideal but what are we going to do about China? The hoped for liberalisation of export subsidies by the Chinese is coming to a halt, counterfitting of foreign goods stays rampant and huge foreign reserves of mercantilist bounty grows. How do we solve this?

At 3/24/2009 12:20 AM, Anonymous Anonymous said...

Strongly agree with Mr. Becker's and Mr. Murphy's warnings and hope like them that our government leaders would be wise to keep with a "market-oriented global economic system" and to embrace socialistic approaches, masquerade as aids, would only obstruct economic recovery, stifle progress, and in place of a free-market economy a socialist market economy.

At 3/24/2009 11:56 AM, Anonymous Anonymous said...

Democrats argue 'Capitalism is bad, so let's do Socialism. But why aren't required to show proof that their changes have actually worked when tried. We all know they haven't but their feet aren't being held to the fire.

Also, the 3.4% Real GDP growth isn't a proper measure as it should be normalized on a per capita basis. Simple economic straight-forwardness.


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