Friday, March 20, 2009

Proof That Capitalism Is King

Numbers Prove It: Capitalism Cuts Poverty

Friday, March 20, 2009

By Michael Kling

Guess what: Capitalism works, write top University of Chicago economists Gary Becker and Kevin Murphy in a Financial Times editorial.

Numbers show capitalism prompted an enormous growth of worldwide wealth in recent decades. Even if the slowdown means GDP loses ground this year, as the OECD now predicts, we’re still way ahead of the game compare to only a few years ago.

In simple terms, the world is much less poor than it used to be, and there’s no erasing those gains.

World real gross domestic product grew by about 145 percent between 1980 and 2007, they note. Chinese and Indian incomes skyrocketed after those countries adopted market-based reforms.

Even if a recession slashes 10 percent off world GDP long-term capitalism-induced growth in prosperity would be substantial.

Legislators and regulators should appreciate those benefits, they warn.

The widespread view to do something, anything, to boost the economy, may violate the oath doctors take: First, do no harm. Government interventions hurt rather than help by increasing risk and uncertainty, Becker and Murphy warn.

“The government has overridden contracts and rewarded many of those whose poor decisions helped create the mess,” the economists write. “It proposes to override even more contracts.”
Political agendas will replace sound business judgments in government-owned companies, causing distorted decision-making, they warn.

“While such dramatic measures may be expedient, they are likely to have serious adverse consequences.”

A bill that would substantial increase taxes of employees at companies receiving TARP funding is an example of political expediency. Under the proposed law, banks would be forced to risk losing top employees or return TARP funds, thus crippling their lending ability.

“I honestly think TARP banks have a grave risk of losing just the people they need to keep to help get them out of trouble,” said Pat Wieser, an executive recruiter, told The Washington Post.


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