Contributor Post Created with Sketch. The Power of Economic Freedom, in Pictures and Words

 

What happens when societies reject economic freedom? Perhaps the most vivid illustration of that outcome is the famous photo of the two Koreas at night. This natural experiment shows the democratic capitalist South as a bright hub of progress and prosperity, the totalitarian communist North a dark nightmare of poverty and wasted human potential. A less dramatic, though still illustrative, photo is the above viral Twitter pic of San Francisco from the air, giving needed context to that city’s housing crisis and its restrictions on building high-density dwellings.

A picture may be worth a thousand words, but the following couple hundred by economist William Easterly also have plenty of value. In the Boston Review, Easterly writes in “defense of neoliberalism” and explains why markets are important to raising living standards and increase opportunity.

… there are numerous examples of disaster when extreme policies inhibit market functioning. By 1982, for example, Ghana had lost its historic domination of the world cacao market after centralized control meant that Ghanaian cacao exporters received only 6 percent of the world price of cacao. With so little incentive to produce, there were not many cacao exporters left. Moreover, those who tried to smuggle their product out of the country in order to find better prices faced the death penalty. This was but one example of the draconian controls of markets in Ghana that are associated with a steep decline in living standards in the decades after independence in 1957. After a drought in 1983 made things even worse, economic reforms to liberalize markets finally began — reforms that have been associated with healthy, positive growth.

This is a familiar story — indeed, one that gets to the heart of why many economists tend to believe in markets. In the 1980s and 1990s, in Latin America and Africa, extreme policies on inflation, interest rate controls, foreign exchange controls, artificial exchange rates, and international trade used to be common — and growth was poor. Now, extreme anti-market policies have mostly disappeared, which is correlated with growth recoveries in both Latin America and Africa. (A big exception is Venezuela, where severe price controls have led to starvation.) Even more famously, the movement from a planned economy toward markets in China (though hardly ending up at laissez-faire) is associated with rapid growth and a historic decline in poverty.

Of course, there’s always the risk that embracing market capitalism might, you know, bring with it uncomfortable disruption as well as wealth-creating technological progress. And some people seem pretty allergic to the former. Probably the latter, too. As Carl Benedikt Frey and Ebrahim Rahbari write over at VoxEU:

Indeed, historically, resistance to new technologies that threaten people’s jobs and skills have been the norm rather than the exception (Citi 2019, Frey 2019). The Luddite risings, which have been the focus of most popular commentary, were merely part of numerous machinery riots in Britain, France, Germany, and China. For example, as the Parisian crowds stormed the Bastille at the dawn of the French Revolution, woollen workers in Saint-Sever destroyed all the machines that had been used there (Horn 2009). What’s more, in the 17th century, a host of European cities banned automatic looms fearing social unrest. Economic historians have also argued that one reason for China’s late industrialisation is that resistance to labour-replacing technologies persisted even longer there. In the late 19th century, for example, imported sewing machines were smashed by local workers (Desment et al. 2018). As Frey (2019) points out, British governments were actually the first to side with inventors rather than rioting workers, which might explain why Britain was the first country to industrialise.

And the resistance continues. Frey and Rahbari also point out a 2017 Pew Research survey that found 85 percent of US respondents favored policies to restrict the use of machines beyond hazardous work. Then there’s a post earlier this week from my AEI colleague Brent Swanson, in which he highlights a piece in The Atlantic, which asked: “If you could go back in time and change one thing, what would it be?” And a Rutgers professor gave this gem of an answer:

The invention of agriculture. Imagine: far less environmental degradation and income inequality, a shorter workday for all, a varied diet and possibly better health outcomes for certain communities, and a profound confidence that the future would provide. A world without industrial agriculture would pretty much be the Eden of the Bible. Hunter-gatherer life isn’t sounding so bad.

I like agriculture and how it helped lead to our modern civilization. Of course, innovation-generating market capitalism, liberalism, gave a big boost, as this chart shows:

Published in Economics
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There are 14 comments.

  1. MISTER BITCOIN Coolidge

    The US became the largest economy and richest country after the civil war, after it abolished slavery.

    This only confirms life liberty and property rights cultivates economic growth and prosperity.

     

    • #1
    • November 7, 2019, at 2:58 PM PST
    • 2 likes
  2. Skyler Coolidge

    What am I supposed to be noticing about that picture? All I see is a dearth of shipping in what should be a major commerce area.

    • #2
    • November 7, 2019, at 3:29 PM PST
    • 1 like
  3. MISTER BITCOIN Coolidge

    Skyler (View Comment):

    What am I supposed to be noticing about that picture? All I see is a dearth of shipping in what should be a major commerce area.

    the graph of world gdp?

     

    • #3
    • November 7, 2019, at 3:49 PM PST
    • Like
  4. Gary McVey Contributor

    Skyler (View Comment):

    What am I supposed to be noticing about that picture? All I see is a dearth of shipping in what should be a major commerce area.

    The shipping is in Oakland, just outside the border of the picture. That’s also where the north-south railroad lines are. Unlike SF, land is cheaper and mostly flat, making trucking easier. 

    • #4
    • November 7, 2019, at 5:07 PM PST
    • 1 like
  5. Kephalithos Member

    Skyler (View Comment): What am I supposed to be noticing about that picture? All I see is a dearth of shipping in what should be a major commerce area.

    San Francisco doesn’t look like Hong Kong. Something must be wrong — because, as we all know, every major city should look like Hong Kong.

    </sarcasm>

    • #5
    • November 7, 2019, at 5:10 PM PST
    • Like
  6. DonG Coolidge

    James Pethokoukis:

    Then there’s a post earlier this week from my AEI colleague Brent Swanson, in which he highlights a piece in The Atlantic, which asked: “If you could go back in time and change one thing, what would it be?” And a Rutgers professor gave this gem of an answer:

    The invention of agriculture.

    The correct answer is: Marxism. 

    • #6
    • November 7, 2019, at 5:29 PM PST
    • Like
  7. Al French, Count of Clackamas Member

    Skyler (View Comment):
    like

    The lack of tall buildings everywhere except the central core.

    • #7
    • November 7, 2019, at 5:37 PM PST
    • 1 like
  8. Skyler Coolidge

    Al French, Count of Clackamas (View Comment):

    Skyler (View Comment):
    like

    The lack of tall buildings everywhere except the central core.

    What’s wrong with that? It seems a rather vague criticism.

    • #8
    • November 7, 2019, at 8:34 PM PST
    • 1 like
  9. Mendel Member

    Skyler (View Comment):

    What am I supposed to be noticing about that picture? All I see is a dearth of shipping in what should be a major commerce area.

    That’s probably because the photographer intentionally didn’t want to show it.

    As Gary points out, there’s a large shipping harbor just out of sight in Oakland, plus a major oil terminal a few miles further north. When I lived in SF (up until a few years ago), I would often hang out on the bright green meadow just to the right of the Golden Gate Bridge. A container ship would usually pass by there at least every half hour, and there was usually at least 10 or so ships anchored in the Bay waiting for a berth to be freed up. So the shipping industry is still fairly healthy in the Bay Area.

    Gary McVey (View Comment):
    The shipping is in Oakland, just outside the border of the picture. That’s also where the north-south railroad lines are. Unlike SF, land is cheaper and mostly flat, making trucking easier.

    That’s only half the story, though.

    Up until the mid-20th century SF was still the dominant cargo port in the Bay Area. Then containerization came along and harbors around the world upgraded their infrastructure to accommodate TEUs.

    The dockworkers in SF had a strong union and protested vehemently against an upgrade, viewing it as a threat to their jobs. As the rest of the city was in the process of becoming a leftist paradise, they wholeheartedly supported the union. Oakland saw their chance and immediately built a modern harbor, sending the SF cargo industry into terminal decline.

    • #9
    • November 8, 2019, at 2:23 AM PST
    • 4 likes
  10. Mendel Member

    Skyler (View Comment):

    Al French, Count of Clackamas (View Comment):

    Skyler (View Comment):
    like

    The lack of tall buildings everywhere except the central core.

    What’s wrong with that? It seems a rather vague criticism.

    What’s wrong is that demand for housing in SF so vastly outstrips supply that $3,000 is now a normal rent for a rickety 1-bedroom apartment.

    Due to the obvious topographical limitations, expanding the suburbs is much more difficult than in most cities. So that leaves three choices:

    1. Build a more dense city (i.e. high rises)
    2. Limit construction but let the market dictate real estate prices, which would result in the displacement of thousands of long-term lower- and middle-class residents, or
    3. Put in protections for the lower- and middle-class residents that make it nearly impossible for the affluent workers driving the economic boom in San Francisco to actually live near San Francisco

    Viewed in that context, building high rises is by far the lesser evil. But San Francisco politics being what they are, this is of course the one option its citizens have consistently rejected. And the results are as expected: a city that has become too expensive for the working class yet still inaccessible to a large number of the affluent tech workers.

    And of course, human excrement on the sidewalks.

    • #10
    • November 8, 2019, at 2:45 AM PST
    • 5 likes
  11. Chris Member

    Mendel (View Comment):

    Skyler (View Comment):

    Al French, Count of Clackamas (View Comment):

    Skyler (View Comment):
    like

    The lack of tall buildings everywhere except the central core.

    What’s wrong with that? It seems a rather vague criticism.

    What’s wrong is that demand for housing in SF so vastly outstrips supply that $3,000 is now a normal rent for a rickety 1-bedroom apartment.

    Due to the obvious topographical limitations, expanding the suburbs is much more difficult than in most cities. So that leaves three choices:

    1. Build a more dense city (i.e. high rises)
    2. Limit construction but let the market dictate real estate prices, which would result in the displacement of thousands of long-term lower- and middle-class residents, or
    3. Put in protections for the lower- and middle-class residents that make it nearly impossible for the affluent workers driving the economic boom in San Francisco to actually live near San Francisco

    Viewed in that context, building high rises is by far the lesser evil. But San Francisco politics being what they are, this is of course the one option its citizens have consistently rejected. And the results are as expected: a city that has become too expensive for the working class yet still inaccessible to a large number of the affluent tech workers.

    And of course, human excrement on the sidewalks.

    These are great points, but does anyone know of any other limitations beyond politics that might have historically been at play? For example, is the soil not conducive to building “earthquake proof” buildings everywhere on the peninsula? I am guessing that at this point the safety and building tech exists but it is being hamstrung by local politics. 

     

    • #11
    • November 8, 2019, at 3:57 AM PST
    • 1 like
  12. Jon1979 Lincoln

    Skyler (View Comment):

    Al French, Count of Clackamas (View Comment):

    Skyler (View Comment):
    like

    The lack of tall buildings everywhere except the central core.

    What’s wrong with that? It seems a rather vague criticism.

    There’s nothing wrong with it — if the vast majority of those living in the low-rise buildings weren’t people demanding that people outside of the area conform to lifestyles that might work in San Francisco, but don’t elsewhere, or were supporting policies that they personally might have the incomes to afford, but which force middle class workers complete out of the metro area.

    They don’t want their own personal lifestyles to change. But they also hate cars, big suburban houses and think everyone should live in clustered high-rise apartments to save the planet. They just don’t want those high-rise apartments to be in San Francisco.

    • #12
    • November 8, 2019, at 6:04 AM PST
    • 2 likes
  13. Randy Weivoda Moderator

    James Pethokoukis:

    Then there’s a post earlier this week from my AEI colleague Brent Swanson, in which he highlights a piece in The Atlantic, which asked: “If you could go back in time and change one thing, what would it be?” And a Rutgers professor gave this gem of an answer:

    The invention of agriculture. Imagine: far less environmental degradation and income inequality, a shorter workday for all, a varied diet and possibly better health outcomes for certain communities, and a profound confidence that the future would provide. A world without industrial agriculture would pretty much be the Eden of the Bible. Hunter-gatherer life isn’t sounding so bad.

    That’s even crazy by Bernie Sanders standards. A shorter workday? Yeah, if you don’t count hunting and gathering as work. It’s true you would have very little time for any other work at all.

    • #13
    • November 8, 2019, at 1:17 PM PST
    • 1 like
  14. Mendel Member

    Chris (View Comment):
    but does anyone know of any other limitations beyond politics that might have historically been at play? For example, is the soil not conducive to building “earthquake proof” buildings everywhere on the peninsula?

    I’m no expert, but I’m not aware of any major constraints on building high rises historically. Most of San Francisco is on solid bedrock, and the low-rises aren’t exactly that seismically stable either with their typically flimsy post-and-beam construction.

    If anything, I think the reason San Francisco was traditionally built as a city of low rises is because San Francisco is a fairly young city that didn’t experience much of a population boom until relatively recently. Many of the current major low-rise neighborhoods in the city were still farmland and sand dunes until about WWII.

    And when the wave of hippies arrived in the 60s, one reason so many unemployed, unskilled druggies were able to afford to live in the city was because there were blocks upon blocks of empty apartments that could be rented for a song. The city had never been considered particularly desirable until that point (and many would say it still isn’t).

    So there really wasn’t a need for denser housing until recently.

    • #14
    • November 8, 2019, at 2:30 PM PST
    • 1 like