Posted on 07/24/2014 6:57:08 PM PDT by Kaslin
I’m currently in Asia, where I just finished a series of speeches about economic policy in China and Hong Kong.
These two jurisdictions offer very powerful lessons about the importance of economic policy.
Hong Kong is supposed to be Nirvana for libertarians. It holds the top spot in the Economic Freedom of the World rankings. It has an optional flat tax. It has a private retirement system. And based on IMF data, government spending “only” consumes 18.4 percent of GDP (compared to 38.6 percent of economic output in the United States and 54.4 percent of GDP in France).
In reality, Hong Kong is far from perfect. It may have a lot more economic freedom than other jurisdictions, but there is widespread government intervention in certain sectors, such as housing. And while a flat tax and spending burden of 18.4 percent of GDP sound good, let’s not forget that the western world became rich in the 1800s when there was no income tax and the public sector consumed less than 10 percent of GDP.
But when you rank countries on the basis of economic freedom, you don’t compare jurisdictions to a nonexistent libertarian utopia. You compare them to other nations. So Hong Kong gets the top spot. And that’s paying dividends. When you look at long-run comparisons with other nations, Hong Kong hasgrown faster and become more prosperous.
So what about China? This wasn’t my first visit to the country, but it was the first time I went to Shanghai, and it is a very impressive place. It’s obvious that China has enjoyed a lot of growth in the past few decades.
But just as you shouldn’t judge the United States by a visit to Wall Street, it would be a mistake to draw sweeping conclusions about China after a few days in Shanghai.
Indeed, average living standards for all of China are still far below American levels. Moreover, if you look at the Economic Freedom of the World rankings, China still has a lot of room for improvement. It ranks 123rd out of 152 nations, which is not only far below France (#40), but also Greece (#85), Haiti (#98), and Russia (#101).
That being said, China’s score is 6.22 out of 10, which is a vast improvement compared to where it was in 1980, when it had a score of only 4.00.
This has led to some wonderful outcomes. This chart (h/t: Mark Perry) shows the share of the world’s population living on less than $1 per day (blue line) and the share of East Asia’s population with the same level of deprivation (red line). A big reason the red line has fallen so dramatically is that severe poverty in China has largely disappeared.
The real question for China is the degree to which there will be ongoing improvement.
I think it would be good if China became more like Hong Kong and that this led to much higher living standards. Heck, I’d be happy if China became more likeTaiwan or South Korea, both of which have become relatively rich nations by moving substantially in the direction of free markets and small government.
But I don’t think this will happen. In one of my speeches, I posed a series of questions, followed by some less-than-optimistic answers.
Is the financial system weak? (because of too much state control over capital flows and investment)
Is there too much cronyism? (with friends and relatives getting favorable access to business)
Will China’s demographics be a problem? (the one-child policy is not just tyrannical, but it also means China’s population is aging)
Is rapid growth sustainable? (in the absence of reforms to boost economic freedom)
Have stimulus plans led to malinvestment? (such as ghost cities and other boondoggles)
Since economists are lousy when they make predictions, it’s quite possible that I’m wrong and my pessimism is unwarranted. For the sake of the Chinese people, let’s hope so.
And what about Hong Kong? I suspect they’ll remain the freest economy in the world. After all, why wreck a good thing?
Then again, the United States was the world’s 3rd-freest economy as recently as 2001. Now, thanks to Bush-Obama statism, we’ve plummeted to 17 in the ranking.
But I doubt Hong Kong policy makers would be equally foolish.
“But I doubt Hong Kong policy makers would be equally foolish.” Really? Policy makers here were that stupid. The problem for us is government and the encroaching entitlement state. The government exits to further its own interests and it remains in power by serving endless entitlements; and now we have a new entitlement class—“children” from Central America. Yes that is simplistic, but as long as we have nearly 50% on the dole, nothing will change—except for the worse. Just my two cents.
When you’re talking about China’s economy, talk also about America’s economy.
When China’s is growing, but ours isn’t, that is not good.
China’s growth is a good thing when America is growing. We both win. But we’re not growing right now.
Only China is growing. This is a growing problem.
We are less than three months away from a 23 day soiree thru Asia, Singapore bangkok and hong kong , shanghai and ho chinmmeanie city (phu my), busan and nagasaki and Beijing too.. I’ll try to report on any sightings of peace at sea.
Fingers crossed.. We’re booked on 777s three of our four flight segments..
Hope to sneak over to macau we have a night extra stayover in hong kong.. And two night stays in Singapore and Beijing.. What can ya possibly see in two days? Rome was a whirrrll.
Let the chips fall where they may..
I’d still bet there is no place like home.
It's always nice to go on a trip, but then it's nice to come home again
The author attributes the HK problem to “BushObama statism.” That’s BS; the return of HK to China happened under Bubba’s watch, not Bush’s. By the time Bush arrived, Bubba’s people had instituted most all the policies that pertained for years.
Then, along comes the Messiah who has turned every issue he touchs into drek - he’s the opposite of King Midas. Obama is King Shiite!
Just returned from Hong Kong Saturday. Take shorts and be prepared to sweat.
What article were you reading?
The author attributes the drop in ranking of our economic freedom to Bush/Obama.
Where do you see a "HK problem" in this piece?
JUMBO? Cool. We have a lot to see in two days ,, fortunately, we will be in a minisuite w/balcony ,, maybe I can just swim there. ;-} Thx for the heads up.
Don’t pack the insulated undies, got it! We will be there in early November, should be OK.. as long as typhoons don’t whupp it up.
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