It's the liberty, not the spending, Stupid!


There are times when quite wonderful, quite delightful, little papers happen to fall into our laps. This is one of them.

As we're all well aware there're a number of people out there claiming that the reason poor countries are poor is beause they don't tax enough. They don't do enough income redistribution, there's not enough government spending, they're not, in short, sufficiently like our own large government states to be able to develop.

And then along comes the World Bank to entirely destroy that contention:

Reviewing the economic performance -- good and bad -- of more than 100 countries over the past 30 years

Oooh, excellent, we're looking at reality then. empirical evidence supporting the idea that economic freedom and civil and political liberties are the root causes of why some countries achieve and sustain better economic outcomes. For instance, a one unit change in the initial level of economic freedom between two countries (on a scale of 1 to 10) is associated with an almost 1 percentage point differential in their average long-run economic growth rates. In the case of civil and political liberties, the long-term effect is also positive and significant with a differential of 0.3 percentage point.

So economic liberty leads to economic growth and civil liberty leads to it as well, even if at a lower rate. But what about that government spending, those entitlements?

In contrast, no evidence was found that the initial level of entitlement rights or their change over time had any significant effects on long-term per capita income, except for a negative effect in some specifications of the model.

Ah, those go from no effect on growth to a bad effect on growth. The conclusion?

These results tend to support earlier findings that beyond core functions of government responsibility -- including the protection of liberty itself -- the expansion of the state to provide for various entitlements, including so-called economic, social, and cultural rights, may not make people richer in the long run and may even make them poorer.

Which leads us to our policy prescription. Yes, of course we should help and aid the destitute, feed the starving, clothe the naked. But beyond such emergency aid what we should really be doing is insisting that poor countries enact proper economic and civil liberties. That's the way they'll stop being poor.

Sounds a bit familiar actually. Take it away, Adam:

Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice.

Strange the way we have to keep repeating things we've known for 235 years really.