WE CAN STILL CHOOSE REFORM OVER DECAY

The Wall Street Journals Brett Stephens this week predicted “a long, likely parade of horribles” for Europe as a result of the current crises. He suggests that “the riots of Athens will become those of Milan, Madrid and Marseilles. Parties of the fringe will gain greater sway. Border checkpoints will return. Currencies will be resurrected, then devalued. Countries will choose decay over reform.”

In describing the path that Europe took to get to this sorry state of affairs, Stephens catalogs the changes to some key indicators over time.

In 1965, government spending as a percentage of GDP averaged 28% in Western Europe. Today it hovers just under 50%. In 1965, the fertility rate in Germany was a healthy 2.5 children per mother. Today it is a catastrophic 1.35. During the postwar years, annual GDP growth in Europe averaged 5.5%. After 1973, it rarely exceeded 2.3%.

Obviously if Stephens’s dire prognosis proves accurate, New Zealand will be adversely affected by Europe’s decline due to our strong trading relationships. But what about the prospect of a “parade of horribles” for New Zealand itself?

New Zealand government spending has steadily risen since the post-war period and is now around 45 percent of GDP. According to Statistics New Zealand the completed fertility rate for women born in the 1930s averaged 3.54. For women born in 1976 it is now 2.01, below the replacement rate. Annual GDP growth in New Zealand has also slowed over time. We recorded real economic growth of 3.7 percent a year on average between 1992 and 2002.  Since mid-2008, average annual GDP growth has remained below 2 percent.  Productivity growth has slowed. The goal of closing the gap with Australia by 2025 appears now to be more of an embarrassment than a target.

On the positive side, our public debt ratios are relatively healthy and our banks are not heavily invested in bonds issued by heavily indebted European countries.

We do have the ability to improve our performance greatly, but there’s been a lack of leadership to do so for close to a generation. As a result we are unduly drifting and
exposed. The coming general election will give the electorate another chance to send parliament a message.

FRIDAY GRAPH: A CLIMATE-CHANGE DOOMSAYER BET

 Don Boudreaux masterfully continues the Julian Simon tradition in his WSJ article “More Weather Deaths? Wanna Bet?”, according to Mark Perry in his blog Carpe Diem:

Writing recently in the Washington Post, environmental guru Bill McKibben asserted that the number and severity of recent weather events, such as the tornado in Joplin,Mo., are too great not to be the result of fossil-fuel induced climate change. He suggested that governments’ failure to reduce emissions of greenhouse gases will result in more violent weather and weather-related deaths in the future. And pointing to the tragedy in Joplin, Mr McKibben summarily dismissed the idea that, if climate change really is occurring, human beings can successfully adapt to it.

“There’s one problem with this global-warming chicken little-ism”, Perry writes.  “It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years.”

Perry notes that:

The annual number of deaths caused by tornadoes, floods and hurricanes, naturally, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: the number of weather-related fatalities, especially since 1980, has dropped dramatically.

For the 30-year span of 1980-2009, the average annual number of Americans killed by tornadoes, floods and hurricanes was 194 – fully one-third fewer deaths each year than during the 1940-1979 period. The average annual number of deaths for the years 1980-2009 falls even further, to 160 from 194, if we exclude the deaths attributed to Hurricane Katrina, most of which were caused by a levee that breached on the day after the storm struck land

This decline in the absolute number of deaths caused by tornadoes, floods and hurricanes is even more impressive considering that the population of the United States more than doubled over these years – to 308 million in 2010 from 132 million in 1940.

 

 This is Don Boudreaux’s bet:

“So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben – or Al Gore, Paul Krugman, or any other climate-change doomsayer – to put his wealth where his words are. I’ll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I’ll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

“If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions. But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying? Do I have any takers?”

 

 

RESCUE OF THE CHILEAN MINERS A SMASHING VICTORY FOR FREE MARKET CAPITALISM

Daniel Henninger has written a great article in the WSJ about the largely unremarked, but undoubtedly remarkable, role globalisation played in the amazing rescue of the miners in Chile (hat tip: Carpe Diem).

A couple of excerpts below:

It needs to be said. The rescue of the Chilean miners is a smashing victory for free-market capitalism.

If those miners had been trapped a half-mile down like this 25 years ago anywhere on earth, they would be dead. What happened over the past 25 years that meant the difference between life and death for those men?

Short answer: the Center Rock drill bit.

This is the miracle bit that drilled down to the trapped miners. Center Rock Inc. is a private company in Berlin, Pa. It has 74 employees.

A miracle drill bit yes, but the drill bit was only one of many little miracles of profit-driven, private enterprise from all over the globalised world that helped save the miners:  

- The drill’s rig came from Pennsylvania

- The high-strength cable winding came from Germany

- The communications cable that linked the miners to the world above came from Japan

- Samsung of South Korea supplied a cellphone that has its own projector

- Cupron Inc of Virginia supplied socks made with copper fiber that consumed foot bacteria, and minimized odor and infection

Chile’s health minister, Jaime Manalich, said, “I never realized that kind of thing actually existed.”

The profit = innovation dynamic was everywhere at the mine rescue site.

That’s right. In an open economy, you will never know what is out there on the leading developmental edge of this or that industry. But the reality behind the miracles is the same: Someone innovates something useful, makes money from it, and re-innovates, or someone else trumps their innovation. Most of the time, no one notices. All it does is create jobs, wealth and well-being. But without this system running in the background, without the year-over-year progress embedded in these capitalist innovations, those trapped miners would be dead.

 

Read the full article here

To watch Henninger’s video click here

A Wealth of Ideas

The Business Roundtable published a review of a new biography of Adam Smith as one of our regular Perspectives yesterday. Adam Smith is a man much revered by the Mont Pelerin Society and his enduring ideas and their striking relevance to the problems facing many economies today have been widely discussed at the Society’s general meeting in Sydney this week. Yet little is known about the man himself, as Jeffrey Collins explains in the Wall St Journal review:

Having dined with Adam Smith on a number of occasions, Samuel Johnson once described him “as dull a dog as he had ever met with.” Smith’s biographers might be inclined to agree. The most celebrated political economist in history led a remarkably quiet life. Born in the sleepy Scottish port of Kirkcaldy in 1723, he was raised by his widowed mother and lived with her for much of his life. He studied at the University of Glasgow (which he loved) and at Oxford (which he loathed). Only once in his life did he travel outside of Britain. He wrote few letters and burned his personal papers shortly before his death in 1790. Even his appearance is a mystery. The only contemporary likenesses of him are two small, carved medallions. We know Adam Smith as we know the ancients, in colorless stone.

It is a measure of Nicholas Phillipson’s gifts as a writer that he has, from this unpromising material, produced a fascinating book. Mr. Phillipson is the world’s leading historian of the Scottish Enlightenment. His “Adam Smith: An Enlightened Life” animates Smith’s prosaic personal history with an account of the eventful times through which he lived and the revolutionary ideas that inspired him. Adam Smith finally has the biography that he deserves, and it could not be more timely.

In shedding light on Adam Smith’s character Collins explains that his philosophical ambitions were much broader than the “Wealth of Nations” might suggest, and ranged over politics, law, ethics and aesthetics.

Inspired by his friend, the skeptic David Hume, Smith swept aside all timeless or divine notions of moral and political order. In his view, society emerged from the historical experience of a needy species driven to create conditions in which property, affection and opinions alike could be stably exchanged. Manners and morals, like goods, thus had an “economy.” The material and moral economies were, indeed, linked, in that a rising material prosperity helped to encourage civility and taste. Mr. Phillipson reconstructs Smith’s intricate system with erudition and imagination, often from student notes of Smith’s long-lost lectures, which he had delivered in both Glasgow and Edinburgh.

As many of today’s debt-laden countries search for new ways to reignite economic growth, it seems a read of Mr Phillipson’s “Wealth of Ideas” would be well worth while. 

Smith’s was a complex legacy, and in reading about it one is struck by its uncanny relevance. When the “Wealth of Nations” appeared, Britain staggered under massive war spending and a colossal national debt. Bad loans blighted banks across the country. Several had collapsed, leaving their investors ruined. Gold bugs abounded. In the face of international competition, well-connected manufacturing interests clamored for protective tariffs. The times called for Adam Smith, and his theories worked to stabilize and liberate the British economy as it entered the industrial age. If we need a reminder of his achievements, and of late it appears that we may, Mr. Phillipson has given us a superlative one.