"There is always a philosophy for lack of courage."—Albert Camus

Friday, April 21, 2006

The Glories of Smith-Friedman Economics

Matt Laar became Prime Minister of Estonia when he was only 32 years old. He had read only one book on economics: Milton Friedman's Free to Choose. He naively believed the book merely reported economic reforms that had already been implemented in the West. Despite the fact that his economists told him his flat tax, free market moves to privatize an economy that had been almost completely state-run could only fail, he pushed ahead.

The result: Estonia achieved the largest real per capita income of any of the former Soviet states. His policies are now being copied in the former eastern bloc.

Now, he's being honored with the Cato Institute's $500,000 Milton Friedman Prize for Liberty. That prize is aptly named, friend, because economic liberty is a massive part of what liberty is all about.

Read more from the Cato Institute and Pejman Yousefzadeh.

5 comments:

Tom Van Dyke said...

Fascinating. Reminds me of a quote attributed to Reagan, I think, about economists along the lines of, "Sure, it works in practice, but how about in theory?"

Evanston said...

Hunter, thanks for the link. Interesting article, validates what I learned as an econ major at UVA but also what I live day-to-day. Every time I think of working harder (higher salary, etc.) I think of the higher brackets of the "progressive" tax system and prefer to "aim low" and take more time off. Liberal idealists have no clue regarding how much they suppress the spirit of productive Americans.

Hunter Baker said...

You don't know the half of it, Evanston. Pre-Reagan the marginal tax rates were so high that many high income individuals would only work a few months a year. This included people like successful salespersons. It was a seriously screwed up system with disincentives for people to earn money and pay more taxes!

Tlaloc said...

"The result: Estonia achieved the largest real per capita income of any of the former Soviet states."

Nice. But there is more to the story of course:

"The poverty survey conducted with the support of the UNDP country office in Estonia shows that families with children are the most vulnerable group exposed to poverty. 48% of children under the age of ten and 44% of those between 10 and 19 years live in poverty. It means monthly income per family member is less than 67dollars."

From the Estonian government's letter to teh UN on the topic of child welfare.
http://www.un.org/popin/unpopcom/32ndsess/gass/state/estonia.pdf

So yes the per capita income goes up but in reality that money isn't divided amongst the "capita." It is hoarded by a few while HALF the children go hungry.

Maybe the guy you want to lionize could take that half million dollar prize and buy the kids he's kicked aside a few clothes and some food. Hrmm?

Of course the Cato institute wouldn't be giving him a prize if he was the kind of person more motivated by human suffering than enacting flawed economic theories.

Evanston said...

T-Man, you're right, it's a shame that Estonia has now generated all this capital but has failed (so far) to lift all its people out of poverty. Perhaps you can give us all an example of an economy that reflects your priorities?