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April 19, 2009 – Comments (9)

This post is a response to devoish's excellent post on Models for limited government.  devoish is a thoughtful and courteous debater as well as a skilled investor and I have nothing bad to say about him.  I hope I can keep the discussion as elevated as he has.  I post articles because I enjoy the debates and not for any other reason.

Since the subject of creating, mimicking, or striving for economic models are central to classical economic analysis, I would like to continue the discussion.  This is a lengthy response, unsuitable for a comment, and hopefully worthy to stand as its own post.

Qatar / UAE

First, however, I would like to correct some of the information provided on Qatar.  According to the 2009 Index for Economic Freedom government spending as portion of GDP was 32.1%, not 57% as indicated in devoish's post.  I do not know from where devoish pulled that statistic but it is likely outdated, as government spending as a percentage of GDP has been shrinking on a year to year basis for over three decades.  It was over 90% in the early 1970's.  In the UAE, government spending as a portion of GDP was 21.4% in 2008. 

There are different ways to measure freedom, one being social freedom and the other being economic freedom.  On both accounts, Qatar has made progress over the last three decades that are spectacular when compared to any other nation's history.  The trend in Qatar is toward freedom, albeit in a two steps forward one step back manner.  The trend in America is away from freedom.  

Qatar is an example of a country where the government becomes a smaller part of the lives of its citizens each year.  America is an example of a country where the government becomes a larger part of the lives of its citizens each year.  Qatar may not be a great example of limited government, but I went with my observations on that one, and I stand by it.  It is not a free market utopia and I never claimed that it was.  It is, however, moving towards greater economic and social freedom rather than away.

Qatar's political system is not a democracy, nor did I claim otherwise.  It would be nice to have representation, but since I don't have taxation (the individual income tax for all residents, foreign and Qatari is 0%) and I am free to leave whenever I please, it's not the end of the world.  Democracy is a spectacular advancement in the history of government.  Democracy, either limited or socialistic however, is not a panacea for social and economic problems.  In fact, it has created many new problems that are rarely considered or addressed by democratic scholars.  Economic and social freedoms are much more important to me than rocking the vote, since my vote would be cast for someone who could continue those freedoms.  However, neither democracy nor monarchy can guarantee long term protection of current freedoms.

On the subject of medical care, Qatar has almost the exact same mixed medical system as the United States, having copied the USA as its model.  As I have noted before, the American medical system is a mixture of fascism (Congressional mandated HMO's, PPO's [via law in 1973]) and socialism (VA, Medicare, Medicaid). However, hospitals such as Al-Emadi Hospital in Doha offer private care that is unmatched in the Western world.

On the subject of education, American universities both public and private receive significant assistance from the government.  It would surprise many Ivy League students to know that these so-called private universities receive up to 50% of their funds from the federal government.  I see little difference between the two countries. The oil industry in America was cartelized under FDR seventy years ago, so no difference there either.

Zimbabwe, Somalia, and other Failed States

There is a reason these countries are referred to as failed "States" and not failed "markets."  Zimbabwe has a ruler, a tyrant that manipulates democratic elections, destroyed the market economy, employs an army of thugs that killed and expropriated the farming community, terrorizes its own citizens, drove away foreign investment, destroyed its trade relationships, and otherwise erased any existence of a market economy.  To call this a failure of limited government would be comical except that so many believe it.  Somalia has suffered from competing warlords ruthlessly outshining each other in the art of brutality for decades.  Calling this a failure of limited government would be like calling 1790's France a failure of limited government.  

If anything can be determined from the models of Zimbabwe and Somalia, it is that war, dictatorship, and brutality are devastating to freedom and economic growth.  These are failures of all-powerful governments and rulers, not failures of freedom.   

When we talk about limited government, we don't mean limited in terms of numbers of bureaucrats or the amount of laws; we mean limited in power or limited in the way that government manifests itself in the lives of its subjects.  I would enjoy seeing any argument which proposes that Zimbabwean President Mugabe's power is too limited in scope or that if only his government was bigger and more powerful and had health care, the Zimbabwean people would be better off.

Economic Models

Creating economic models has long been the staple of classical economics, furthered by the two most significant economic treatises of the 20th century, Human Action by Mises and Man, Economy, and State with Power and Market by Rothbard.  If creating and analyzing economic models is your taste, I can't implore you enough to give these two a whirl, particularly Rothbard's, which expands upon Mises' foundation, fills in the holes in his work, and presents the most complete analysis of economic study in human history.  I have linked the free pdf's of both works above.  These are not political works.  Rothbard was a member of the New Left, the Conservative Goldwater movement, and the Libertarian Party during various times of his life, failing to embrace any of them. In the end, he stands as an economist solely, with a model of how a free market could work in Power and Market and For A New Liberty (free pdf.)

The economic modeling by free market academics has not stopped there.  Most recently, Professor Walter Block has released a model for privatizing roads and highways (free pdf).  There are scores of similar works for every facet of the economy currently under government control or strict supervision, whether your interests are banking, emergency services, utilities, etc.

Economic modeling has long been criticized by Keynesians and pro-big government economists as out of touch and simplistic.  Empiricism is the preferred form of economic study.  There is nothing wrong with empiricism as a science; however we disagree that it should be the basis of economic science.  For example, Math is not an empirical science rather it is based upon logic and deductions.  We did not determine that a straight line is the shortest distance between two points by employing an empirical study of every straight line in history. 

The Model of Paper Money

"So far as I can discover, paper money systems have always wound up with collapse and economic chaos." - Congressman Howard Buffett, father of Warren Buffett

The quote above matches my own study. I have posted my findings which cover two thousand years from the simpler market economies of Christ's time until today.  Classical economists attempted several models of paper money, eventually rejecting all of them as inherently flawed.  It may only be coincidental that modern economists embraced empiricism at roughly the same time they embraced paper money, but it is suspicious nonetheless.  China, Rome, Germany, Austria, and many other countries have experimented with paper currencies with tragic endings. (Note: I make a clear distinction between paper money and redeemable paper certificates, i.e. money tied to a commodity.) I have attempted to explain the reasons that governments continue to walk down this seemingly destructive path.  Even though it is possible that every reason I have listed is false, there is still no economic model we can point to which shows that paper money works. 

In a democracy, the most crucial aspect of the legitimacy of government is the vote. If the vote is fraudulent, corrupted, miscounted, manipulated, or earned through empty promises, the system suffers.  The same can be said for the most important element of a market economy: its money.  This is the most important issue for me, as evidenced by the seven part blog series I presented in defense of sound money.  Money is the graduation of a primitive barter economy to a market economy.  Its proper use is one of the hallmarks of civilization. Its manipulation always leads to economic chaos. I find little inspiration in the academics who assign vague concepts like greed and self interest to our economic ills without addressing the crucial element that unbacked paper money plays in an economy.  That is why I am here.

The argument against Limited Government

Devoish's argument is that there are no longer any truly limited governments. In fact, due to population expansion, they may not even be possible anymore.  It is certainly true that State power has risen dramatically since World War I.  This is a sad development.  As Randolph Bourne noted at the dawn of the war to end all wars:

"War has an immemorial tradition and heredity only because the State has a long tradition and heredity. But they are inseparably and functionally joined. We cannot crusade against war without crusading implicitly against the State. And we cannot expect, or take measures to ensure, that this war is a war to end war, unless at the same time we take measures to end the State in its traditional form. The State is not the nation, and the State can be modified and even abolished in its present form, without harming the nation."

If it is true that we are headed for an age of unprecedented State power, then we may also be headed for an age of unprecedented war. This concerns me as it should anyone who cares for the survival of humanity.  I have no desire to increase the capacity of the State to wage war, thus I must resolve myself to continue to fight for an end to the State.  I do not support limited government (or the Qatari government), but rather no government at all.  Choosing between the lesser of two evils is still choosing evil.

Is an increase in global population a problem for limited government supporters? I don't see why. Limited government allowed the market economy to prosper, fostering in an age of population growth unmatched in history. No time in history has seen advancement in survival like the 18th and 19th centuries. I have never heard of any study that makes the case that a market economy can not handle a growing population.    

In conclusion, each of us wants the same thing.  We want a better world for all humanity, not just a select few. Any Libertarian who only supports the rich should be exposed as a fool, as should anyone who supports an economic policy that only benefits a small group at the expense of humanity.  That is the basis of Hazlitt's timeless line:

"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

David in Qatar

9 Comments – Post Your Own

#1) On April 19, 2009 at 10:05 AM, ralphmachio (29.37) wrote:

Very nice post. The only one thing that I would add, is that these systems have not really failed. The purpose of these systems was never to have a lasting economic system, but one that moves all the wealth to a select few.  These systems have done a marvelous job of that. Government and individual consciousness move at two separate speeds, and I agree that the long term effects of government actions are only understood by those orchestrating them.(And maybe a few others) That is why we keep heading towards a one world government, and people can only see the fabricated 'left-right' political argument designed to confuse the masses.

Good work  

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#2) On April 19, 2009 at 12:17 PM, jgseattle (29.79) wrote:

"In a democracy, the most crucial aspect of the legitimacy of government is the vote. If the vote is fraudulent, corrupted, miscounted, manipulated, or earned through empty promises, the system suffers."

I live in WA State.  Here almost everything is going to an public vote.  The failure of democracy is two fold -

1)  Politicos are in office to be re elected not do the best good for the most people.  Agency issue.

2)  So many issue are being put to the voter that the average person cannot educate themselfs enought to make good decisions. 

Democracy also has another big flaw which is a diriviatitive of issue 1.  Politicos will not make hard decisions that are needed on spending, entitlements, and other hot issues.  The big one here is spending.  Even when defense says the country does not need a system, F-22, congress funds it because BA on Lockhead are big lobbyists. 

I am not sure how to correct these issue and for this blog I thiink they are present in both big and small government. 

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#3) On April 19, 2009 at 9:41 PM, devoish (95.76) wrote:

Dave,

Qatar is not small Gov't. I'm sorry. There are big Governments that work well, Qatar is one. There are no small governments that work well.

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#4) On April 20, 2009 at 1:41 AM, whereaminow (< 20) wrote:

Devoish,

I'll admit that its not a limited government in the sense that modern limited government supporters would like, though it does stay out of the areas I most want government to leave alone (ranking 99.9 percentile in financial freedom on the Heritage foundation scale.)  I think the UAE is a better example, but I wanted to focus on a place I have actually have lived.

I'm going to do some more research since this is an interesting subject.  Singapore, Taiwan, Australia, New Zealand, Hong Kong, all before the rise of central banks seem like good choices to look at, as well as the Czech republic in the first decade after communism.

Are you willing to engage the possibility that the rise of central banks and paper money over the last 38 years has led to government growth, and not the will of people worldwide?  

I suppose a clever debater would have first asked you to show him an example of a country that doesn't have a central bank and he'll show you a country with limited government, but I never claimed to be clever.

Thanks for the debate.

David in Qatar

 

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#5) On April 20, 2009 at 5:23 AM, devoish (95.76) wrote:

Are you willing to engage the possibility that the rise of central banks and paper money over the last 38 years has led to government growth, and not the will of people worldwide?

I am willing to engage the possibility that the rise of central banks and paper money over the last 38 years (?) has been caused by a disinformation campaign against Representative Government, leaving private companys acquiring the same level of power once held by Kings.

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#6) On April 20, 2009 at 7:01 AM, whereaminow (< 20) wrote:

devoish,

Getting reliable statistics on GDP is proving to be quite difficult. I went over to EarthTrends.org which pulls stats from the World Bank and we get significantly different numbers:

Government Consumption as percentage of GFP

Qatar:

1994 - 34.5 (first year reported)

1995 - 31.9

1996 - 33.0

1997 - 29.8

1998 - 31.6

1999 - 25.7

2000 - 19,7

2001 - 18,6

2002 - 16.7

2003 - 15.4

2004 - 13.1

2005 - 11.5

This backs up my own observation that the trend is towards less government involvement in economic affairs and the tremendous growth of the private sector here.

Now, that's not the be-all end-all however.  Each country reports GDP differently, and looking at the databse as a whole it certainly is a mixed bag. Singapore and Hong Kong have consistently low percentages, as does Vietnam, which has a growing economy. On the hand so does Loas, but certainly that wouldn't be a country that reflects limited government (unless you want to consider competence as a criteria, in which case they'd be quite limited).

I think we have to consider several factors.  I know that we're not going to find a country that reflects the U.S. 1776-1912, but this is worth investigating.

Btw, I use 38 years, since that's when (1971) the U.S. dollar was officially removed from the gold standard (although it was unofficially gone way before that), and every country in the world moved to free floating paper.

David in Qatar

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#7) On April 20, 2009 at 10:45 AM, devoish (95.76) wrote:

David,

According to the news reports I linked to on Dares "bet on red" blog Qatar Nationalized it oil industry quite a few years ago. According to the CIA factbook as of last year the oil industry still accounted for more than half the GDP of Qatar. It was funneling a substantial portion of that money back into the local economy through the buliding of higher education schools, hospitals and rail service. So I like my number with Government expenditures accounting for 57% of GDP, in 2008. Whatever "Government consumption" is, it sounds like something different than "Government expenditures". (G F P I am presuming is a typo)That 57% number could change lower with the lower price of oil.

Your Government (Emir) has made some very smart decisions by understanding that the oil is going to run out in 37 years at 2008 pumping levels. His father (?) nationalized the oil industry and he is reinvesting the income it provides into creating new industry within the Country which will look very wise if he is succesful and I hope that he is. One article I could not verify is that he is borrowing (30bil in debt?) in order to help to fund the new industrys and that obviously is potentially a blunder. Especially if he cannot service the debt with oil at $50/gallon.

Your Emir also funds the entire cost of healthcare for its citizens, and 80% for non immigrants in varying degree depending on classification. The model of Gov't funded and private insurer coverage for non citizens to cover the last 15-20% of a very few procedures is a far cry from the USA version of private insurers covering 80% and leaving you hanging for the last 20%.

A Government that Nationalized what was 70% of the economy at the time, funds 100% healthcare for all its citizens, and is a major investor and financier of Qatars future is not the model you have been suggesting for the USA on your blog. In order to follow the Qatar path of Nationalizing 70% of the economy, the USA would have to nationalize the entire FIRE industry and Energy combined, and you certainly haven't been promoting that plan, which is the step that got Qatar to be the example of as nice a place to live as you have held it up as.

It is an example of Big Brother Government, blessed with a benevolent ruler. Were all Kings that generous with distributing income, the USA would probably still be part of England.

regards,

Devoish

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#8) On April 20, 2009 at 11:24 AM, whereaminow (< 20) wrote:

Devoish, 

In comparison to America, Qatar is definitely a limited government. 

A Government that Nationalized what was 70% of the economy at the time, funds 100% healthcare for all its citizens, and is a major investor and financier of Qatars future is not the model you have been suggesting for the USA on your blog.

You are misrepresenting my position and unaware of how big America's government really is.

I have advocated the following:

1. I support the financial freedom provided in Qatar, including 0% taxation for all residents and 10% corporate tax. I have advanced that, and only that (financial freedom) as something I would like to see in the United States. 

2. I responded to your challenge to find limited government by focusing on the place that I live and the elements of limited government here. 

3. As I stated already, the U.S. oil industry has been under strict government control for 70 years.  I don't advocate the cartelization present in America or the nationalization here.  I've always advocated a complete separation of State and economics.  Both American and Qatari models depend upon the whims of bureaucrats.  Here in Qatar they have taken the profits and reinvested them in the country. That is a wise practice but one that could never be guaranteed by the State.  In America, the record is less spectacular.

4.  The entire Energy industry in America is already de facto nationalized and has been for decades. 

5. Qatar does not have a massive defense department. It rents America's and makes money off the deal by leasing land for American bases at a tidy profit. I haven't even dissected the comparison of intelligence agencies. 

You may quibble over my assessment of Qatar as limited government but it is far less involved in its citizens lives than America.  I just don't think you realize how big the American government's power over its citizens actually is. 

List of United States Federal Agencies

David in Qatar

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#9) On April 21, 2009 at 10:25 AM, whereaminow (< 20) wrote:

Misleading statistics.  100% of Qataris citizens makes up less 20% of the actual population.  That's a much smaller health coverage than in Europe or America, leaving 80% of the health care system private.

Again, Qatar is limited government in comparison.  If you don't want to believe it, that's fine, but it helps to know what you're talking about.

David in Qatar

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