Free Market Road Show 2013 | Dan Mitchell


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AEC, KI a INESS v spolupráci s ďalšími partnermi organizovali medzinárodnú
konferenciu v rámci Free Market Road Show 2013 na tému Šetriť alebo
nešetriť: Zachránia Európu len úsporné opatrenia?, ktorá sa konala dňa 7.
júna 2013 v Bratislave. Ďalšie súvisiace informácie nájdete na

AEC, in cooperation with the Conservative Institute and INESS, and in
association with international partners organized the Free Market Road
Show 2013 in Bratislava on June 7, 2013. More information at

Published in: Economy & Finance, Technology
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  • Free Market Road Show 2013 | Dan Mitchell

    1. 1. Deregulation vs. Regulation:What brings an economy back on track?May 15, 2013
    2. 2. What Is Economic Growth?More laborMore capitalBetter efficiency of laborBetter allocation of capitalLabor and capital are the ingredientsThe chef mixes the ingredients
    3. 3. Which Chefs Do You Prefer?
    4. 4. Years Needed to Double Economic Output1 percent growth2 percent growth3 percent growth4 percent growth5 percent growth6 percent growth7 percent growth0 10 20 30 40 50 60 70 801
    5. 5. The Libertarian Vision: CapitalismWhat is capitalism?A system of voluntary exchangeA system where the price system, reflectinghow consumers value good and services,allocates resourcesA system based on limited governmentA system of competition
    6. 6. The Socialist ModelTechnically, government ownership of themeans of productionGovernment has the power to direct theallocation of resources.Closely linked to redistributionism asgovernment seeks coercive equality ofresults.Presumably means very large governmentand high tax rates.
    7. 7. What Battle Are We Fighting?The battle in today’s world is not really a fightbetween capitalism and pure socialism.With some important exceptions, politiciansgenerally do not want to control the“commanding heights” of the economy.Politicians want a redistributive state and/orprivate ownership with government control,which means our real fight is against…
    8. 8. Corporatism or StatismIf the “means of production” are in private hands,but politicians have power over all majordecisions, that is said to be corporatism.This does not necessarily mean pro-corporation,though cartels are a common feature.This was the fascist economic model.Mussolini had many admirers in FDR’s braintrust.
    9. 9. The Economic Case for FreedomMany factors determine economicperformance.According to Economic Freedom of theWorld, 20% each for fiscal policy, tradepolicy, regulatory policy, monetary policy, andrule of law/property rights.Which implies that taxes and spending eachaccount for 10% of a nation’s score.
    10. 10. The Moral Case for FreedomThe outcome-based argument: Whenmarkets allocate resources, nations tend tobe wealthier and/or grow faster.The liberty/opportunity argument: Freedom isa social good, even if it doesn’t lead to higherliving standards.The Rawlsian argument: The less fortunate inmarket-based nations are better off than themiddle class where government is pervasive.
    11. 11. What Is Good RegulatoryPolicy?The government has a role, maintaining alevel playing field, protecting property rights,and upholding the rule of law.But markets generally should determine theallocation of resources – which businessessucceed and fail, where capital gets invested,and what consumers purchase.This means more growth and less corruption.
    12. 12. A Case Study: The Financial CrisisThe defining issue in recent years is thefinancial crisis.The left blames the crisis – and theaccompanying recession – on deregulationand capitalism.Governments responded with bailouts andKeynesian “stimulus”.Those policies have failed, but who will winthe “narrative fight”?
    13. 13. Who Deserves the Blame?In the U.S., the problem was largely createdby government policy mistakes.Easy-money policy by Federal Reserve.Corrupt system of subsidies from Fannie Maeand Freddie Mac.So-called affordable-lending rules thatextorted banks into making bad loans.Preferences for debt in the tax code.The result: A bubble that collapsed.
    14. 14. The Misguided BailoutGovernments should not bail out any privatecompanies.Bailouts reward the people who makemistakes.Bailouts create moral hazard.Bailouts hinder the necessary and desirablereallocation of resources.Bush supported bailouts, but no hope andchange with Obama
    15. 15. What Should Happen?If financial institutions are insolvent, theyshould be shut down.Shareholders, bondholders, and seniorexecutives absorb the losses.“Capitalism without bankruptcy is like religionwithout sin”Perhaps some taxpayer cost for insureddeposits.No moral hazard in this system
    16. 16. Two Major IssuesWhat is theappropriate role ofgovernment?The classical liberalvision of smallgovernment.Or the welfare statevision of largegovernment.How shouldgovernment befinanced?Broad-base andlow-rate systemdesigned tominimize distortions.Or a tax code as atool of social policy.
    17. 17. Big Government Inevitably…
    18. 18. …Erodes America’s Social Capital
    19. 19. Does Big Government Work?
    20. 20. What About Wealthy Welfare States?Don’t Europe’s welfare states show that biggovernment is not an impediment to growth?No. They became rich because they used tohave small public sectors and laissez-fairepolicy.Government expanded after they becamewealthy and could afford anti-growth policies.A nation (or state) can tolerate one percentgrowth once it is rich. But a poor nation (orstate) will never become rich with one percentgrowth.
    21. 21. Burden of Government Used to be Small051015202530354045501870 1913 1920 1937 1960ExpendituresasapercentofGDPSwedenUKUSJapanGermanyFranceSource: Tanzi and Schuknecht, "Reforming Government: An Overview of Recent Experience,"
    22. 22. What Are the Lessons?The world is a laboratory showing the benefitsof small government and sound institutions.Jurisdictions such as Estonia, Chile, andHong Kong are role models (at leastcompared to the alternatives).Poor people reap enormous benefits, thoughrich people may become richer faster thanpoor people become richer.Long-run growth is the key variable.
    23. 23. ConclusionFor more