Government as Economic Savior is Decidedly un-American

COMMENTARY International Economies

Government as Economic Savior is Decidedly un-American

Nov 17th, 2011 3 min read
Ambassador Terry Miller

Director, Center for International Trade and Economics

Ambassador Terry Miller focuses on research into how free markets and international trade foster economic growth around the world.

The U.S. has a lot more in common these days with the struggling economies of Europe than we’d like to admit. High unemployment, stagnant growth and government debt that would take an entire year’s GDP to repay are all symptoms we share - symptoms of massively overloaded governments trying to meet the expanding expectations of our populations. For the U.S., at least, it wasn’t always so.

That a population’s prosperity should depend on the actions of its government is a peculiarly old-fashioned and decidedly un-American idea. The historical precedent goes back to the days of monarchs and warlords, the governments of their day, who claimed ownership of all of their society’s assets, controlled all of the wealth, and dispensed largesse as they saw fit.

The United States was founded on a different idea, that of sovereignty exercised by the people with our personal rights and freedoms carefully preserved by the Constitution. Of course, the exercise of individual sovereignty came with a concomitant responsibility: Self-reliance. The concepts of individual sovereignty and personal responsibility came eventually to Europe, but only in modest measure. The autocratic idea of the state as owner, director, and ultimate arbiter of economic decisions and the distribution of wealth still lingers there.

The collapsing governments of Europe, all socialist to one degree or another, are but the most benign examples of a failed ideology that has wreaked havoc around the world. The 20th Century should have taught us better. The Union of Soviet Socialist Republics, the National Socialists of Germany, the Italian Socialist Party and its step child, the Fascists, and, of course, the Communists in China all promised egalitarian utopias. Instead they all delivered human tragedy on a previously unimagined scale. Throw in the stultifying socialism of Nehru’s India, Castro’s Cuba and their imitators throughout the developing world, and you have a record of government intervention and failure that has cost hundreds of millions their lives and countless others the chance for a decent livelihood.

There is a better way, and it’s not the cronyism and rent-seeking regulatory state that have passed for capitalism and the free market in recent years in America. True economic freedom is based on the principles of individual empowerment, non-discrimination and free and open competition on a playing field untilted by government.

For 18 years, the Heritage Foundation has measured economic freedom around the world. No country gets capitalism or the free market completely right, but freer societies tend to share certain characteristics - and enjoy certain benefits as a result.

Freer societies protect private property. They control corruption. They balance their government budgets, or try to, and keep inflation under control. They regulate business and labor markets to promote competition and prevent abuse of employees or the environment, but avoid interference in the basic business decisions like hiring or investment that ultimately determine profit or loss. They open their markets internationally, improving productivity and lowering costs. They avoid subsidies and price controls, letting markets do what markets do best: Allocate resources efficiently.

The benefits are huge. Freer societies are wealthier. They tend to have higher growth rates, and their citizens enjoy much higher incomes. They enjoy longer lives, better standards of health, and higher levels of education. They do a better job of protecting the environment,  and benefit from lower levels of unemployment. They do a much better job of reducing poverty than countries that are less free.

Of course, there are exceptions to these general trends. Central planners are not always wrong, and countries may spurt ahead by exploiting comparative advantages in resource endowments or labor costs. But such gains are rarely sustainable. Overall, the evidence is clear. Societies that are more economically free enjoy, on average, far superior economic performance.

Within the U.S. economy, government has grown steadily in size and influence - a trend that has accelerated sharply over the last three years. Consequently, our economic freedom, as measured in the Index of Economic Freedom, has declined sharply. We no longer rank with the world’s freest economies. So far, we’ve avoided the kind of sovereign debt collapse that afflicts Europe’s debt-riddled welfare states, but the economic stagnation and high unemployment typical among them have arrived at our shores.

The United States still has time to act, to get our budget deficit under control, and to restore the economic freedom on which our prosperity was built. The United States was founded on a truly revolutionary idea - government of the people, by the people and for the people. As a champion of freedom, we have been exceptional, and as a free people we have excelled. To try to solve our current difficulties by emulating European statism is to abandon our identity as a nation, pushing us toward a societal structure whose rejection was at the core of the American revolution.

Terry Miller is a senior fellow at The Heritage Foundation.

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