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Learn from the Lab (Vol 109)

Updated: Jun 26, 2023

Learn Economics from the Real World Lab


Economics is the ‘dismal science’. There are many views on economics and the right way to manage an economy. This old saw may be prophetic:


‘If you line up all the economists in the world head to toe, they would still not reach a conclusion.’


So rather than debate theory, just maybe we can glean a bit of useful information from examining the Real World Laboratory.


First let’s look at the sparkling wonders of the economic world, the success stories. Here are a few of the stars:


  • Switzerland

  • Hong Kong

  • Taiwan

  • Singapore


These countries have all had excellent track records for growth, and among the highest in GDP per capita, which is a good indication of the economic well being of the country. What makes them tick and do so well, when other countries do not do as well and some are abject failures for the general public.


Freedom: they all rank high on the Economic Freedom Index published by the Fraser Institute.


Government size: they all have relatively limited government in relation to the size of the economy. This has everything to do with their economic freedom.


Federalism: the small national government means they share power with the local governments and the people. The closer the government is to the people, the better the governing.


Next let’s look at those at the other end of the spectrum, the failures. Here are a few that do not do well for the population at large:


  • North Korea

  • Cuba

  • Venezuela

  • Zimbabwe


These countries all have terrible growth records and poor GDP per capita. In many cases they simply do not get enough to eat. What makes these countries so different? These countries have autocratic governments and all rank low on the Freedom Scale, except Cuba and North Korea, which are un-ratable. Those 2 countries are governed so badly they do not even make the index.


Freedom: two are not rated because they are dictatorships with little individual freedom, the other 2 are at the bottom of the Freedom scale


Government size: the national government is in charge and runs everything, and is large in relation to the size of the country.


Federalism: the national government controls almost all activities, there is little shared power.


The entire report is lengthy, but there are some excellent summaries and charts. If you want more detail, you can check it out here.


There are many countries in between, and many do well while others do not. The common thread is economic freedom, and size of government. More freedom and smaller government invariably lead to faster growth, and better economic conditions for the country and the people.


BOTTOM LINE


Most economists would agree about this: demand (market) economies work well. Command (socialism) economies do not work well. And when the government is smaller in a market economy, it takes less from the private sector. The private sector is the one that produces goods and services. The more that is left in private hands, the better the economic growth and economic well being for the populace.


Command economies never work for the citizens. This is socialism, and there as never been one example where this has worked as the utopian proponents suggest.


LEARN ECONOMICS, THEN VOTE SMART


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