Why we chose this article:We favor economic growth as a force that can improve everyone’s life. 100% economics is a better focus than 100% politics. The research behind the academic paper quoted in this article demonstrates empirically that politicians – as regulators – detract from economic growth. They are not for the people, they are against the people.
In “The Impact of Economic Regulation on Growth: Survey and Synthesis,” James Broughel and Robert Hahn review cross-country studies that use indices of regulation produced by the World Bank and the Organisation for Economic Co-operation and Development (OECD). The authors find an apparent consensus in that body of research: economic regulations appear to reduce growth and productivity.
Economic Regulations Correspond With Lower Growth
Economic regulations include regulation that imposes barriers on firms seeking to enter an industry, regulation of product markets, and labor market restrictions on hiring and dismissals. A review of 25 studies that use World Bank and OECD data to assess the impact of economic regulation on growth or productivity finds an apparent consensus that economic regulations slow growth. This is consistent with several aspects of economic theory:
Incumbent firms will lobby for regulations that benefit them. These firms can organize politically to support barriers to entry and other regulations that benefit them at the expense of new firms. This can lead to industrial concentration that reduces competition and the dynamics that spur economic growth.
Regulations hurt innovation. Entrepreneurs wrest markets from established firms by innovating production processes and final products—and firms innovate to escape competition from potential rivals. In both cases, value is created for consumers. However, regulation can dampen competition and, with it, the innovation and creativity that drive long-term growth.
Regulations may be portrayed as being in the public interest, but they often limit competition. Regulations are often defended on public-interest grounds by groups that stand to benefit from them financially. For example, physicians may defend licensing restrictions on nurse practitioners or pharmacists, framing arguments on public health grounds while actually seeking to limit competition in their industry.
Other Regulations May Also Affect Economic Growth
These include social and process regulations. Social regulations include health and safety regulations and environmental regulations.
In practice, social regulations and economic regulations tend to overlap. For example, many states have passed certificate-of-need laws that establish an approval process before a new healthcare facility can be constructed.
Much of environmental regulation involves setting up roadblocks to development in the form of permitting, environmental impact statements, or bans on certain kinds of development or modes of production.
Process regulations involve costly activities associated with filling out forms, such as tax forms.
More research is needed to better understand the consequences of social and other forms of regulation on growth. This is especially important given that social regulation has grown to be the dominant form of regulation in the United States.
Key Takeaway
Empirical evidence supports the theoretical hypothesis that economic regulations can reduce growth. Policymakers should be very cautious about increasing economic regulation. The burden of proof should be on policymakers to show that such regulation is likely to do more good than harm.
This article appeared at mercatus.org. There is a link to the quoted paper in pdf form here.
The other words for blockchain technology are world-changing. The world has now started to realize the true potential of blockchain technology. This technology has now been used in a wide array of industries including finance, supply chain, agriculture, voting, climate, and medical.
Blockchain technology was supposed to remove the possibility of any temper with the records of digital transactions as records entered in the blockchain are transparent and immutable. The technology was later repurposed for thematic areas other than digital currency. Now blockchain can also store public registries other than the digital transaction.
In the past, experts predicted that blockchain technologies would end poverty, eliminate corruption, and provide financial inclusion for all. Realizing these features of the technology, development organizations and anti-corruption communities are turning towards this technology. But how it can actually serve as a true anti-corruption tool.
Blockchain As An Anti-Corruption Tool
Blockchain technology is a distributed presentation of data, where records are duplicated among several nodes. Each new record in blockchain is connected to the previous record by the cryptographic method. To make legitimate changes in data, all the previous records have to be tempered accordingly. This means blockchain technology inherits anti-corruption capabilities in its structure.
Corruption is often associated with centralization and misuse of power. In centralized systems, any corrupt actor can easily alter the records, or can simply destroy these records. The current database and information systems are typically located in one or two locations. Such centralized databases keep the possibility of a single point of failure. Furthermore, conventional systems are sensitive to cyber-attacks.
Blockchain brings new dimensions to the decentralization of power, where not a single person or organization has the power to control the systems. This decentralization brings two main strengths to blockchain technology: security and removing a single point of failure. The decentralized nature of blockchain can allow corruption reporting platforms to be manipulation resistant.
Until now, blockchain technology has been used mostly used by the private sector to provide secure and efficient financial services to customers. What about its use in government affairs.
Blockchain for Governments
Misconducts and financial corruption have always been a headache for central governments around the world. But the very little has been discussed about the use of technology to deal with this deep-rooted challenge.
According to a paper published in 2019 OECD Global Anti-Corruption and Integrity Forum in Paris, the development of innovative technologies like blockchain provides state-of-the-art opportunities to reduce corruption in public administration.
The paper features a Delphi study about the use of blockchain in nine anti-corruption mechanisms. Out of nine, the study identifies three key government areas where blockchain can be used as a potent tool against corruption: fair elections, financial reporting & accountability, and records management.
The paper reads:
“One of the most frequently mentioned use cases of blockchain is its use for online voting. Unlike conventional technologies, blockchain allows us to bring end-to-end transparency to the voting process and results with strictly protecting the anonymity of the voters.”
Governments can leverage DLT for transparent financial reporting and accountability. The transparency and non-reversibility features of this technology allow governments to achieve transactional transparency and accountability in financial operations.
Record management and the integrity of the information it stores is the stand-alone feature of blockchain technology. The technology eliminates opportunities for falsification and the risks associated with having a single point of failure in the management of data. According to a publication by Stanford Social Innovation Review (SSIR), “it also helps overcome the data silos in traditional bureaucracies in which public entities are reluctant to share information among themselves.”
The publication reads:
“Blockchain is particularly suited to fight corruption in the registry of assets and the tracking of transactions such as procurement processes. By leveraging a shared and distributed database of ledgers, it eliminates the need for intermediaries, cutting red-tape and reducing discretionally. Governments around the world have started pilot testing a variety of blockchain-based applications to strengthen public integrity.”
Conclusion
Blockchain technology has the potential to make a critical contribution to fight against corruption and the integrity of the public sector as it can provide more transparency with disintermediation, immutable accountability, and distribution of power.
But it is not feasible for all anti-corruption mechanisms because of scalability and privacy issues. The technology is still in its infancy and has a long way to go. More importantly, the success of the blockchain-based anti-corruption systems depends on the surrounding infrastructure and the political context rather than on the technology itself.
A groundbreaking study by Just Facts has discovered that after accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries. This includes the majority of countries in the prestigious Organization for Economic Cooperation and Development (OECD), including its European members. In other words, if the US “poor” were a nation, it would be one of the world’s richest.
Notably, this study was reviewed by Dr. Henrique Schneider, professor of economics at Nordakademie University in Germany and the chief economist of the Swiss Federation of Small and Medium-Sized Enterprises. After examining the source data and Just Facts’ methodology, he concluded: “This study is sound and conforms with academic standards. I personally think it provides valuable insight into poverty measures and adds considerably to this field of research.”
The “Poorest” Rich Nation?
In a July 1 New York Timesvideo op-ed that decries “fake news” and calls for “a more truthful approach” to “the myth of America as the greatest nation on earth,” Times producers Taige Jensen and Nayeema Raza claim the US has “fallen well behind Europe” in many respects and has “more in common with ‘developing countries’ than we’d like to admit.”
“One good test” of this, they say, is how the US ranks in the OECD, a group of “36 countries, predominantly wealthy, Western, and Democratic.” While examining these rankings, they corrupt the truth in ways that violate the Times’op-ed standards, which declare that “you can have any opinion you would like,” but “the facts in a piece must be supported and validated,” and “you can’t say that a certain battle began on a certain day if it did not.”
The Times is not merely wrong about this issue but is also reporting the polar opposite of reality.
A prime example is their claim that “America is the richest country” in the OECD, “but we’re also the poorest, with a whopping 18% poverty rate—closer to Mexico than Western Europe.” That assertion prompted Just Facts to conduct a rigorous, original study of this issue with data from the OECD, the World Bank, and the US government’s Bureau of Economic Analysis. It found that the Times is not merely wrong about this issue but is also reporting the polar opposite of reality.
Poor Compared to Whom?
The most glaring evidence against the Times’ rhetoric is a note located just above the OECD’s data for poverty rates. It explains that these rates measure relative poverty within nations, not between nations. As the note states, the figures represent portions of people with less than “half the median household income” in their own nations and thus “two countries with the same poverty rates may differ in terms of the relative income-level of the poor.”
The OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.
The upshot is laid bare by the fact that this OECD measure assigns a higher poverty rate to the US (17.8 percent) than to Mexico (16.6 percent). Yet World Bank data show that 35 percent of Mexico’s population lives on less than $5.50 per day, compared to only 2 percent of people in the United States.
Hence, the OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.
The same point applies to broader discussions about poverty, which can be measured in two very different ways: (1) relative poverty or (2) absolute poverty. Relative measures of poverty, like the one cited by the Times, can be misleading if the presenter does not answer the question: Poor compared to who? Absolute measures, like the number of people with income below a certain level, are more straightforward and enlightening.
Unmeasured Income and Benefits
To accurately compare living standards across or within nations, it is necessary to account for all major aspects of material welfare. None of the data above does this.
The OECD data is particularly flawed because it is based on “income,” which excludes a host of non-cash government benefits and private charity that are abundant in the United States. Examples include but are not limited to:
Health care provided by Medicaid, free clinics, and the Children’s Health Insurance Program
Nourishment provided by food stamps, school lunches, school breakfasts, soup kitchens, food pantries, and the Women’s, Infants’ & Children’s program
Housing and amenities provided through rent subsidies, utility assistance, and homeless shelters
The World Bank data includes those items but is still incomplete because it is based on government “household surveys,” and US low-income households greatly underreport both their income and non-cash benefits in such surveys. As documented in a 2015 paper in the Journal of Economic Perspectives entitled“Household Surveys in Crisis”:
“In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
There has been “a sharp rise” in the underreporting of government benefits received by low-income households in the United States.
This “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”
Likewise, the US Bureau of Economic Analysis explains that such surveys “have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items.” The US Census Bureau says much the same, writing that “for many different reasons there is a tendency in household surveys for respondents to underreport their income.”
There is also a wider lesson here. When politicians and the media talk about income inequality, they often use statistics that fail to account for large amounts of income and benefits received by low- and middle-income households. This greatly overstates inequality and feeds deceptive narratives.
Relevant, Reliable Data
The World Bank’s “preferred” indicator of material well-being is “consumption” of goods and services. This is due to “practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.” Likewise, as a 2003 paper in the Journal of Human Resources explains:
“[R]esearch on poor households in the U.S. suggests that consumption is better reported than income” and is “a more direct measure of material well-being.”
“[C]onsumption standards were behind the original setting of the poverty line,” but governments now use income because of its “ease of reporting.”
The World Bank publishes a comprehensive dataset on consumption that isn’t dependent on the accuracy of household surveys and includes all goods and services, but it only provides the average consumption per person in each nation—not the poorest people in each nation.
However, the US Bureau of Economic Analysis published a study that provides exactly that for 2010. Combined with World Bank data for the same year, these datasets show that the poorest 20 percent of US households have higher average consumption per person than the averages for all people in most nations of the OECD and Europe:
The high consumption of America’s “poor” doesn’t mean they live better than average people in the nations they outpace, like Spain, Denmark, Japan, Greece, and New Zealand. This is because people’s quality of life also depends on their communities and personal choices, like the local politicians they elect, the violent crimes they commit, and the spending decisions they make.
For instance, a Department of Agriculture study found that US households receiving food stamps spend about 50 percent more on sweetened drinks, desserts, and candy than on fruits and vegetables. In comparison, households not receiving food stamps spend slightly more on fruits & vegetables than on sweets.
The fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.
Nonetheless, the fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.
Another important strength of this data is that it is adjusted for purchasing power to measure tangible realities like square feet of living area, foods, smartphones, etc. This removes the confounding effects of factors like inflation and exchange rates. Thus, an apple in one nation is counted the same as an apple in another.
To spot-check the results for accuracy, Just Facts compared the World Bank consumption figure for the entire US with the one from the Bureau of Economic Analysis. They were within 2 percent of each other. All of the data, documentation, and calculations are available in this spreadsheet.
In light of these facts, the Times’ claim that the US has “more in common with ‘developing countries’ than we’d like to admit” is especially far-fetched. In 2010, even the poorest 20 percent of Americans consumed three to 30 times more goods and services than the averages for all people in a wide array of developing nations around the world.
These immense gaps in standards of living are a major reason why people from developing nations immigrate to the US instead of vice versa.
Why Is the US So Much Richer?
Instead of maligning the United States, the Times could have covered this issue in a way that would help people around the world improve their material well-being by replicating what makes the US so successful. However, that would require conveying the following facts, many of which the Times haspreviously misreported:
High energy prices, like those caused by ambitious “green energy” programs in Europe, depress living standards, especially for the poor.
High tax rates reduce incentives to work, save, and invest, and these can have widespread harmful effects.
Abundant social programs can reduce market income through multiple mechanisms—and as explained by President Obama’s former chief economist Lawrence Summers, “government assistance programs” provide people with “an incentive, and the means, not to work.”
The overall productivity of each nation trickles down to the poor, and this is partly why McDonald’s workers in the US have more real purchasing power than in Europe and six times more than in Latin America, even though these workers perform the same jobs with the same technology.
Family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility has strong, negative impacts on household income.
In direct contradiction to the Times, a wealth of data suggests that aggressive government regulations harm economies.
Many other factors correlate with the economic conditions of nations and individuals, but the above are some key ones that give the US an advantage over many European and other OECD countries.
“The Truth Is Worth It”
In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.
The Times closes its video by claiming that “America may once have been the greatest, but today America, we’re just okay.” In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.
Last year, the Times adopted a new slogan: “The truth is worth it.” Yet, in this case, and others, it has twisted the truth in ways that can genuinely hurt people. The Times makes other spurious claims about the US in this same video, which will be deflated in future articles.
James Agresti is a contributing writer at Intellectual Takeout.
The OECD is the Organisation for Economic Cooperation and Development. Its stated mission is to expand market economies and democratic institutions. It is comprised of 36 members – governments funded by high income developed or mature economies – and it works with other governments of developing economies in Africa, Asia, and Latin America.
It was created in 1960 with 18 European governments, plus the United States and Canada, and now includes Chile in South America, Mexico in Central America, and Japan and South Korea in Asia. Australia belongs too, and the Near East is represented by Turkey and Israel. Ostensibly, the objective is to harness market forces that will ignite human flourishing. To that end, the OECD publishes lists of country by country economic performance.
Global Country Clubs Didn’t Build That
Two other widely recognized lists, ones maintained with private funds, are the Morgan Stanley EAFE (Europe, Australia, and the Far East) stock market index for mature economies, and the Morgan Stanley EM (Emerging Markets) index for developing economies. A cursory review of these three lists (OECD, EAFE, EM) reveal some interesting facts.
Two countries in the EAFE index are not members of the OECD – Hong Kong and Singapore, who happen to be tied for #1 on the Heritage Foundation 2017 Index Of Economic Growth. Also, the two countries with the most people, China and India, are not on either list. Why is that? After all, the primary wealth producing resource, and the jewel of human flourishing, is the individual human mind. In turn, creativity leads to specialization, division of labor, peaceful activity, and wealth creation. These are fundamental to mature economies, and when left alone, they expand geometrically. This suggests that large populations should have a great advantage.
David vs. Goliath Redux
The EAFE countries are the top 21 performing economies, yet more than half have populations between 5 and 11 million, or between 89th and 121st on Wikipedia’s national census compilation. So how are vastly less populated countries creating wealth per capita that outshines the behemoths? Common wisdom says that the richness of a country’s natural resources are also a major factor that determines its wealth. As such, it stands to reason that a very small country, and one particularly devoid of natural resources, would have zero chance of being considered a high income country, let alone be included among the EAFE heavyweights.
But included in the EAFE index is a country with a population of about 9 million. In fact, it is the world’s 32nd largest economy, yet rich only in the natural resources of sand, mud, and potash. To boot, their regional trading partners randomly lob live munitions into its population centers. Of course the country is Israel, and it has exceeded the average economic growth rate of other OECD countries by about double since 2004. According to BlueStar Global Investors, Israel also ranks in the top 5 worldwide in engineers per capita, research spending relative to GDP, quality scientific institutions, and patent applications. Today, “its technology ecosystem is second only to Silicon Valley.”
But it wasn’t always that way. In the early 1980’s Israel experienced hyper-inflation and unsustainable public debt levels. That is when Israeli politicians abandoned the socialist policies of their country’s founders. In addition, there was a massive inflow of immigrants from Russia in the early 1990’s that doubled the headcount of Israeli engineers and scientists. Economic freedom does that.
The Fallacy of Natural Resources
Israel is not the only example of a small country defying common wisdom. In 13th century Europe there was a principality known as Flanders, part of what is now western France and Belgium. Like Israel, it was very small, not rich in natural resources, and it was bordered by a violent enemy who was intellectually trapped in the past. To the medieval Franks, wealth was land, and it was to be acquired by the sword.
Flanders was to be conquered. After all, it had built a prosperous and sophisticated society through manufacturing and trade. But not only were they able to pursue arts and leisure, they had built a professional military force that repelled the cavalry of their Frankish invaders in the 1302 Battle of the Golden Spurs. This is one of many crucial events in the march of western civilization into the Renaissance, the Age of Reason, and the ensuing starburst of human achievement and prosperity we enjoy to this day.
Instead of cavalry, today’s version of the Franks surrounding Israel possess vast oil reserves. But these can only be exploited by geologists, engineers, and chemists who have the intellect to discover it, extract it, refine it, and distribute it. Oil is worthless without the human minds needed to make all this work. This is true of all so-called natural resources, and is precisely why Israel and Flanders were not limited in their ability to create a wealthy and peaceful society, and the professional army necessary to defend themselves from backwater insurgents.
Just Get Out of The Way
According to equity research analyst Joshua Kaplan, “Israel today represents the greatest concentration of innovation and entrepreneurship in the world.” However in 2003, Israel was again suffering economic recession, and newly appointed Finance Minister Benjamin Netanyahu quickly identified the root cause – a bloated public sector and stifling regulation.
His remedy was to cut the top marginal income tax rate by 20%, and the corporate rate in half. Netanyahu also took other controversial steps – he increased pension ages, capped government spending, and liberalized currency exchange laws. In other words, he got government out of the way of a generation of young professionals who are self-reliant problem solvers and risk-takers. The results were spectacular; it always works that way.
Statists Mind Your Business, Capitalists Mind Their Own
According to its website, OECD had a budget of 374 million euros in 2017, and a staff of 2500. It was also one of “the world’s largest publishers of books in the fields of economics and public affairs with more than 250 new books, 40 updated statistical databases, and thousands of new statistical tables, working papers, and journal articles each year.” And while the economic data sets have great value, how many of these books and journal articles are devoted to Israel’s policy of just getting out of the way?
But to statist bureaucracies, Israel is rogue state, and anyway, publishing that would just render the OECD irrelevant. Yet Israel is not the only role model, Switzerland is ranked 5th in the EAFE index, and Sweden (which is NOT a mythical Scandinavian socialist economy) is ranked 10th. They both have a population about the same size as Israel. No wonder economic powerhouses Singapore and Hong Kong have no use for the OECD.
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