Felicia Daniels
How do we determine effective/ineffective government?
24.Sept.09
How do we determine effective/ineffective government?
24.Sept.09
- ____xxxIt is a proven fact that no society throughout history has ever obtained a high level of economic wealth without a form of government. Where governments did not exist, anarchy reigned and little wealth was gained by productive economic activity. After governments took hold, the rule of law and the establishment of private property rights often contributed importantly to the economic development of Western civilization, and it has similarly impacted on other societies as well. Government is a necessary, though by no means sufficient, condition for success.
____xxxIt is also a fact, however, that where governments have dominated the share of resources and other economic decisions, societies have not been successful in attaining relatively high levels of economic wealth. Economic progress is limited when government is zero percent of the economy, but also when it is at or near a hundred percent. The experience of the old Soviet Union is revealing, as was the comparison of East and West Germany during the Cold War era or of North and South Korea today. Too much government smothers the spirit of venture and lowers the rate of economic growth. If no government is too little, but excessive government is too much, what is about right from the standpoint of maximizing economic happiness?
____xxxIn a world without government, there is no rule of law, and no protection of property rights. Bullies and stronger people can steal the resources of weaker persons without consequence. There is little reason to save and invest because the threat of thievery is real and constant. Also, without some combined action, there is no protection from the bigger bullies, usually foreign nations, or pirates on the high seas. Collective action also makes possible the creation of roads that improve transportation and lower trading costs. Government can also create a reliable means of exchange, further developing the gains from trade. Thus, the establishment and early growth of government is associated with rising levels of income and positive rates of economic growth.
____xxxAmerica's large lead over many other areas of the world in economic supremacy has worn over time. Even more so, the annual real output in the United States is typically growing less rapid than was the case in earlier years. While the current economic boom has been long lived and been characterized by unemployment as low as we have seen in more than twenty years, this is the first long (more than three years) economic recovery since reliable data were first available in 1854. There has not been a single year in which real output has risen at least 4 percent. The output slowdown is not unique to the United States. Growth rates in Europe, for example, are lower in the past generation than in the previous one. Both Europe and the United States have had a marked growth in the size of government relative to total output in recent years. In comparison, growth rates in many nations of Asia today are higher than a generation ago. In many of these places, such as Hong Kong or Korea, the private sector's growth has been faster than that of government. This is more so true in the larger areas such as China and India. As government's role in resource share has declined relative to that of the market-based private economy, it seems that growth rates have accelerated.
____xxxDoes the historical experience verify the existence of the Armey Curve? The short answer is yes, whether the frame of situation is the current American economy, the American economy over long-time frames, or the economies of other nations. Statistical testing suggests that many modern Western economies are in the downward-sloping portion of the Armey Curve, where reduction in the relative size of government would have positive effects on economic opportunities for the population.
