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home | Tea Party Economist | Liberty Is Making the World Richer. . . .
 

Liberty Is Making the World Richer. You're Included.

Gary North - January 31, 2013
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Reality Check

"The owl of Minerva flies only at dusk." I came across that phrase many times over 45 years ago, when I was writing my first book, Marx's Religion of Revolution (1968). (You can download it for free here.) What does it mean? Wikipedia explains.

The nineteenth-century idealist philosopher Georg Wilhelm Friedrich Hegel famously noted that "the owl of Minerva spreads its wings only with the falling of the dusk"--meaning that philosophy comes to understand a historical condition just as it passes away. Philosophy cannot be prescriptive because it understands only in hindsight.

"One more word about giving instruction as to what the world ought to be. Philosophy in any case always comes on the scene too late to give it... When philosophy paints its gloomy picture then a form of life has grown old. It cannot be rejuvenated by the gloomy picture, but only understood. Only when the dusk starts to fall does the owl of Minerva spread its wings and fly." --G.W.F. Hegel, Philosophy of Right (1820), "Preface"

Keynesian ideas are dominant in government and academia today. Keynesianism is the owl of Minerva.

Keynesians think there will never be another Great Depression. They have faith in government deficits and central bank inflation. They're wrong. Those who listen to them will get hammered during the Great Default, when the Federal Reserve ceases to inflate -- as it will, either after mass inflation (likely) or hyperinflation.

In contrast, a lot of Tea Party members think the economy will collapse and wipe out everything for decades. They're equally wrong.

THERE'S GOOD NEWS TONIGHT!"

The radio news commentator Gabriel Heatter used to begin every broadcast with that announcement, beginning in the late 1930s, when news was often bad. I can recall his introduction in the late 1940s, when news was mostly good. He is forgotten today, but he helped change America. An alcoholic, he introduced Americans to Alcoholics Anonymous in a broadcast in April 1939, four years after its founding. For him, withdrawal was very good news. It still is.

This report is about withdrawal and its aftermath.

The world is going through withdrawal. This began in late 1978 in China, when Deng freed up agriculture. That began the withdrawal from Marxist Communism. The USSR followed suit in December of 1991. The withdrawal from Fabian socialism began in earnest in India in the mid-1990s. These events have re-shaped the world. The aftermath has only just begun.

In China and India, the pain has been minimal. That is because the economic effects of the earlier systems created such devastation. Think of the phrase, "I've been down so long, it looks like up to me." Think of China today and China in 1973 under Mao. The positive change has been greater than any seen in recorded history, and on a scale that was inconceivable in 1980. Every month, urban living space sufficient to house the population of Philadelphia gets built: 1.5 million people.

From 1945 until today, the American Right has decried Communism and Fabian socialism. Both are dead ideologies today. They have almost no defenders. Inside the elite, they have no defenders outside of English departments. Yet the reality of this overwhelming institutional and ideological victory has failed to register inside the Right.

One of the things which I do not understand is the appalling pessimism within the American Right. I realize that a lot of promoters are cashing in on this pessimism. They get rich by preaching that everything is going to hell in a handbasket. Everything is not going to hell in a handbasket. Communism and Fabian socialism went to hell in a handbasket. Keynesianism is going to hell in a handbasket. Liberty isn't.

What we are seeing is the greatest triumph of free-market ideas in the history of man. I have lived through it, and I am telling you, we have never seen anything like what we are seeing today. With the collapse of the Soviet Union, and the reversal of socialist economics in China a decade earlier, we have seen the complete failure of the great alternatives institutionally to the free market economy. The only really systematically communist state left in the world is North Korea, and it is visibly the poorest country in Asia.

Around the world, millions of people are entering free markets. China has made the transition from total Communism to energetic mercantilism. China has entered the Keynesian world order. There is a mixture of mercantilism with Keynesianism in the West, so it is not just a Chinese problem. The state-owned enterprises in China are still a burden on the economy, but step-by-step, they will be abandoned. It is already happening.

India has moved from Fabian socialism to something at least resembling a Western economy. There is no question in my mind that this trend is going to continue. India is going to move out of the intellectual orbit of Oxford and Cambridge of the 1930s. It is clearly experiencing massive economic growth. This is not going to be reversed.

When we are talking China and India, we are talking something in the range of 2.5 billion people. In other words, at least 35% of the world's population has moved out of either Communism or Fabian Socialism into mercantilism. That will continue, and both nations will continue to move in the direction of a much more free-market economy.

India and China have not been able to gain access to capital, because they were either Communist or Fabian socialist for so long. Prior to 1980, they were backward nations. This is changing on a scale so rapid that nothing like it has ever taken place in human history. Hundreds of millions of people have poured out of the villages into the cities, and the cities are providing employment and opportunities on a scale never before imagined.

All of the creativity that is found in any nation with ancient traditions, especially geared to mathematics and scholarship, which the elites of both of those societies have possessed for 1,000 years, is going to unleash an enormous number of technological discoveries. There is going to be invention on a massive scale coming out of both of those nations, but my guess is that India will be the major contributor. We can barely imagine the kinds of inventions that will be made available to the world over the next 20 years. When we are talking over the next 50 years, it really is inconceivable.

It is not just China and India that will provide these discoveries. They will come from all over Asia. I am still pessimistic about Africa. I am getting somewhat more optimistic about Latin America. Western Europe will continue to produce discoveries, but I do not think Western Europe is going to be the main source of these discoveries.

The United States and Canada will continue to crank out all kinds of inventions. The educational systems in both countries are better than in most other countries, and this is going to improve dramatically over the next half-century because of the rise of online education. There is going to be an exodus from the public schools in both nations, and this is going to dramatically increase both the productivity and the self-discipline in both Canada and the United States. Canada has a lot of self-discipline already. Asians have been pouring into the country for three decades.

Those trapped in public schools will fare poorly. This will not be the middle class. Digital education will overwhelm the bureaucratic educational systems in both nations.

Because the coming innovations will be primarily intellectual and technological, they will be made available to the whole world. This will make for greater competition, and therefore it is going to make for much greater wealth for the common man, all over the world.

WEALTH: AVERAGE AND COMPARATIVE

The media keep focusing on the question of comparative wealth in the United States, meaning the distribution of wealth. There is no question that the middle class has not increased its share of the wealth that has been created since 1973. But it has surely participated enormously in the increase of total wealth. It is just that, compared to the rich, the middle class have not participated to the same degree. But over the last 40 years, the innovations have been culture-changing. Consider the range of choices in home entertainment. In terms of the number of choices, it is extraordinary: cable channels by the hundreds. Admittedly, what is offered to see is mostly schlock. But that is because most people like schlock. This is why there is so much of it being offered to the public. The public eats it up. Complaining about the public's bad taste has been a cultural practice of elitists from the beginning of time. The difference is this: the little people now are the dominant force culturally, because the little people can afford to buy what they want. To complain against this is to complain against liberty.

Productivity by means of computers has created a new world. My output almost doubled in one week in 1981 after I got my first word processor, a crude version of what later became known as WordPerfect. I am still writing with WordPerfect. Most people like Word for Windows. Other people like the knockoff of Word for Windows that is free of charge in the office suite called Open Office. In any case, people's productivity is higher today than in 1973.

In 1971, I was a pretty good photographer. Why? Because, ever since 1958, I had been using Japanese cameras. Today, somebody with $300 dollars to spend on a camera, which was about $40 in 1958, can take extraordinary photographs by the thousands, and he pays nothing for film. Everybody else is catching up with me. I do not have any particular advantage anymore. The technology of photography has gotten down to the point where the middle class American has tools at his disposal that only a handful of professionals had 40 years ago. Even more important, they can take as many pictures as they want, and delete all the bad ones. This way, the percentage of good photography has increased mightily. Why? Because the technology keeps getting better.

Why does anyone think that this is going to change? I admit, if we get a terrorist attack with biological weapons, there is going to be an enormous setback. But that is not what is keeping people awake day and night in the conservative camp. They are worrying about Obama, who is a "go along to get along guy," and who has gotten almost nothing through Congress other than Obamacare (Pelosicare). This keeps them awake at night. The man is no big threat. What he really wants to do is increase his bowling score. You think I am kidding. I am not. He is an ideological radical, but he is not willing to fight very hard to implement his vision for America. In any case, he has to deal with the House of Representatives, and that body of politicians is committed to the same kind of welfare state policies that he is. So, the deficit keeps going up, but taxes do not, other than Social Security taxes. Taxes in the United States are still lower than in most other Western nations. We are still a kind of large-scale tax haven, and we are surely an entrepreneur's haven. You can start a new corporation online for a couple of hundred dollars in less than an hour. Nothing like this exists anywhere else on earth. Nothing ever has existed like this.

What I see around me is not a nation that is half empty/half full. I see a nation that is overwhelmingly full. We need the bankruptcy of the welfare state to turn this country back into a powerhouse. We will get this. That will be what I call the withdrawal process. Some people may get the DT's. But we will get through this.

Yes, the world needs a technological breakthrough in energy, but the natural gas discoveries in North Dakota and Pennsylvania will be sufficient to keep the United States competitive in world markets. Oil is getting more expensive, but natural gas is getting cheaper. It is getting cheaper to produce electricity with gas than with nuclear power. I think there will probably be a new technology breakthrough at some point, although I do not think that gasoline is going to get significantly cheaper. The price level of energy that will be required to call forth major developments in the field of energy production will be high. A lot of people will have to pay for that incentive. There are no free lunches. But the main problem facing the United States in energy today is bureaucratic regulation, not an imminent shortage of oil.

We are not going back to the 1930s in terms of productivity. Agricultural productivity will continue to rise all over the world. Digits will get cheaper. Innovations will multiply. Gadgets will continue to flow on an ever-increasing basis into the world economy, making our lives better. Medical care will get better as soon as socialized medicine goes bankrupt. Innovations relating to biotechnology will give us a better life. This is not fantasy; this is taking place daily. Think of laser surgery for eyes. Here, the federal government has not been involved, and the innovations have been revolutionary. The price goes down, and more and more people can get better eyesight. The same analysis applies to cosmetic surgery, another healing specialty that is not normally part of the insurance-government complex. This is not going to change.

I really do not have a lot of patience for people who say this country is going to hell in a handbasket. It is going to go through the wringer at the government level, meaning the welfare state level. Why is that a bad thing? An analogy: a man can get break his heroin addiction, but he has to go through withdrawal. If he is then forced by economic circumstances to quit using heroin, he is going to get better. Why is this a reason for lamenting on the sidelines of life, wringing our hands that some addicts will go through withdrawal pain? The same applies to the world economy.

Americans are like heroin addicts. They are so addicted to the welfare state mentality, and the flow of funds out of Washington, that they think they cannot survive the transition. Well, we are going to survive it, and we are going to get far richer on the far side of it. A heroin addict dreads the horrors of withdrawal, but the serious addict looks at the life he will enjoy on the far side of detoxification. He decides that it is worth paying the price, because of the better life that awaits him on the far side. This is how we should look at the welfare state today.

THE TRANSITION TO LIBERTY

We live in an era in which free-market ideas are spreading as never before. They are spreading not just because of better intellectual cases defending it, but because of the extraordinary productivity that is available to societies that abandoned socialism. This is becoming visible to the whole world. People seek out intellectual defenses of the free market, but mainly because they have already switched their opinion, and that opinion is steadfastly against bureaucratic interference in their lives.

The Internet is making available defenses of the free market, but more important, the Internet is making available ways of making money and gaining access to new information that are completely outside the control of the bureaucrats. This is where we are winning, and we are winning all over the world. Why should we think that this will not bring enormous productivity all over the world? Why do we see the glass as half-full?

I can see why a socialist who has spent his life defending government interference and the bureaucratization of society would see everything is going to hell in a handbasket -- the "hell" of liberty. But why should conservatives see this process as a threat?

The transition to liberty is always expensive. But it is always less expensive than to remain on the road to serfdom. The whole world is trying to get off that road today, except in North Korea.

The future does not belong to North Korea. Once a person understands this, it is difficult to remain pessimistic about our economic future. The black death which began in 1347 spread to the entire Western world by 1350. It killed half of the urban population of Western Europe and possibly a third of the entire population. This event was not able to reverse the economic growth of the West. Conclusion: we probably should not worry too much about the withdrawal experience that we will have to go through in order to get clean of the welfare state.

The moral issues are a problem. Pornography is free on the Web. Addictions keep getting cheaper. Marriage is under assault. But people can and do change their minds. The battles are moral and intellectual. With respect to economics, we are winning this battle. The enemy is running out of other people's money. Tax resistance is coming. Skepticism about the Federal Reserve is growing. Tax-funded education is stagnant at best. The liberal media are losing market share.

Think "Matt Drudge vs. Newsweek." Who won?

Gabriel Heatter was right. There's good news tonight.


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