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Our Editor Interviews Cato’s Deirdre McCloskey 

Blog Post | Innovation

Our Editor Interviews Cato’s Deirdre McCloskey 

They discuss the big question: how did the world get rich?

Earlier this year, I had the pleasure of speaking with Deirdre Nansen McCloskey. Deirdre is a Distinguished Scholar and Isaiah Berlin Chair in Liberal Thought at the Cato Institute, as well as Distinguished Professor Emerita of Economics and of History, and Professor Emerita of English and of Communication, at the University of Illinois at Chicago. She is a highly regarded economic historian and, in her own words, a “literary, quantitative, postmodern, free‐​market, progressive‐​Episcopalian, ex‐​marxoid, Midwestern woman from Boston who was once a man.”

Deirdre is the author of many academic articles and books. The latter include her most recent work, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All (2019), and the famed trilogy of books on the Bourgeois Era: The Bourgeois Virtues: Ethics for an Age of Commerce (2006), Bourgeois Dignity: Why Economics Can’t Explain the Modern World (2010), and Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (2016).

Over the course of two hours, we discussed the spread of classical liberalism as a chief cause of the Great Enrichment, the renewed interest of the clerisy in the discredited idea of industrial policy, the workings of spontaneous order, bureaucratic meddling in the economy and public choice theory, F. A. Hayek’s distinction between the macro and micro worlds, the importance of innovation for economic growth, the difference between Smithian and Schumpeterian growth, hierarchy and equality, progress and utopia, the differences between conservatism, classical liberalism, and progressivism, revolution versus evolution, the importance of studying history, the rise of liberalism in the 18thcentury, Francis Fukuyama, interjurisdictional competition, and ancient China.

We end our conversation on a personal note, with Deirdre reflecting on her life’s journey and her message to young people today.

Nice News | Economic Growth

Economic Growth Expected to Increase through 2025

“Things are looking up for the global economy, according to new data from the United Nations. Last week, the organization released its mid-2024 World Economic Situation and Prospects report, which forecasted that the world economy will grow by 2.7% this year, surpassing the 2.3% prediction made in January. 

The report also projected a 2.8% increase in 2025, indicating a slow yet steady progression toward a stronger financial future.”

From Nice News.

Blog Post | Progress Studies

Abundance Is a Choice about the Future

Choosing optimism clears the path to the abundance we need

Summary: Pessimism pervades our era despite unparalleled material abundance. This mindset of decline threatens America’s core identity, which is rooted in optimism and the principles of its founding. To counter this, we must embrace an agenda of abundance, reform restrictive policies, and rekindle an imaginative vision for a better, more prosperous future.

This is the final entry in Discourse’s series on building an abundance agenda. You can read more from the series here.

We live in an era of unparalleled material abundance—but also a time of widespread pessimism, a sense of inevitable civilizational decline. This pessimism is not restricted to one domain of life; rather, it’s found across politics, the arts, education, business, the media and beyond. The dominant mode in many if not most of our institutions is one that embraces managed decline, with leaders hoping only that things don’t get appreciably worse on their watch. People are resigned to things becoming worse: The question is when, and by how much.

This fatalistic pessimism is as fundamental a threat to America as any external enemy. That comparison is not hyperbole: America’s national identity isn’t rooted in the land, a shared race or scriptural revelation, but in the principles of our founding, and an indefatigable optimism about the future and our ability to immanentize these principles. Optimism about what can be, both for the nation but also for our families, is inextricably part of American identity; it is one of the most fundamental sources of our success, and one of just a handful of vital beliefs that bind us together as a people. Widespread and systemic pessimism about our past, present and future strike at the core of who we are. A fatalistic America will cease to be, in any meaningful sense, the America we and our ancestors have known, up to this point.

Pessimism is Self-Defeating

Pessimism creates vicious cycles; pessimistic communities have less social capital and lower levels of trust, pessimistic voters demand more from governments and are more attracted to demagogues, pessimistic people see the world as zero-sum. A pessimistic world is one in which there’s less social trust, less innovation, less opportunity, less sense of meaning and agency—less of everything we need and cherish, across the board. A pessimistic world is one in which there’s no expectation that things can get better, and the best case is one of managed decline.

This pessimism is driven in no small part by the many areas in which we see scarcity all around us—a scarcity that is unfamiliar to a country used to unprecedented plenty. In many cases, this is scarcity not due to the natural order of things, but because of policy choices, for instance in energy, health care and transportation, where decades of legislation and regulation combine to make optimism all but impossible. In other areas, it’s simply because we have given up on things getting better and have instead accustomed ourselves to settling—or waiting for a deus ex machina to solve our challenges.

We’re even willing to put the brakes on progress in the name of dealing with these challenges: Those who urge “degrowth” rather than continued economic progress in the face of climate change are a perfect, unfortunate example of this. Regardless of whether this scarcity is policy-induced or apathy-induced, it strips individuals, families, firms and communities of their agency and unleashes a host of social pathologies.

The alternative to pessimism is optimism—and that means developing an agenda of abundance, not scarcity. Journalist Derek Thompson introduced the phrase “abundance agenda” in a 2022 column in The Atlantic; it’s an extraordinary and pithy way to position an optimistic vision in contradistinction to the prevailing zeitgeist. Abundance is the antidote to the poison of pessimism; an optimistic vision of the future is one of abundance, progress and intergenerational improvement.

The Work Continues

Recapturing the moral high ground of abundance and optimism requires two things. First, we must change the public policies that reduce innovation and supply, empower vetocracies, encourage precautionary principle rulemaking and raise regulatory compliance costs and uncertainty. This is scarcity as a policy choice.

But again, placing abundance front and center also requires rekindling an imagination for how things can be better and urging people to abandon settling for adequacy, kludgeocracy, low growth rates, intellectual incuriosity and “good enough.”

When it comes to abundance, we still have a choice to make. It’s true that a more abundant, optimistic, innovative, prosperous, peaceful, civil and pleasant future can be ours, and sooner than we think. This is no time to think small, and no time to turn inward. If we focus on our flaws and limitations rather than the opportunities and possibilities before us, abundance can’t and won’t be ours.

The real question is whether we are willing to roll up our sleeves and make abundance happen.

This article was published on Discourse on 5/23/2024.

Blog Post | Economic Freedom

Why Javier Milei Won the Presidency in Argentina

Argentina has been flatlining for over 40 years.

Photo by Haim Zach. Image courtesy of the Spokesperson unit of the President of Israel. CC BY-SA 3.0 DEED.

Summary: Once one of the world’s wealthiest nations, Argentina has suffered economic decline since the early 20th century. Argentina’s inflation and economic stagnation have led to higher time prices for basic commodities. The election of President Milei brings hope for economic revival by encouraging entrepreneurship and reducing state control, potentially restoring Argentina’s former economic power.

It’s hard to find a country that is worse off today than it was in 1980. But Argentina makes the list. Argentina was one of the richest countries on Earth in the early 1900s. Then the Peronists gained control of the government. Free markets and entrepreneurs were suffocated by bureaucrats and taxes. When politicians maxed out on taxes, they started printing money. The results were predictable. Capital and talent fled along with growth in abundance. Not only has Argentina suffered massive inflation, but its ability to create wealth has also stagnated.

Measuring Abundance with Time

Economic growth can be measured with time. A time price denotes the time it takes to earn the money to buy a product. If you are earning $20 an hour and a pizza costs $20, the time price is one hour, or 60 minutes. If your income goes up to $25 an hour and the pizza price stays the same, the time price is now 0.8 hours, or 48 minutes. For the time it took to earn one pizza, you now get 1.25 pizzas. Your personal pizza abundance has increased by 25 percent. As long as hourly wages increase faster than prices, time prices decrease, which means personal abundance increases.

As we catalog in our book Superabundance, this has been the case for most products in most countries for the last four decades. Except for Argentina.

We compared the time prices of 50 basic commodities from 1980 to 2023 for Argentina and eight other countries. The average time prices had fallen significantly in eight of the nine countries. Argentina was the exception. Time prices are actually higher in Argentina today than they were in 1980.

The trend lines indicate that markets experience temporary ups and downs, but the longer-term trends are all positive. Except for Argentina.

Percentage Change in Personal Resource Abundance, 1980–2023

Note: Capitalism replaced Marxism in China in the early 1980s. The results were astonishing.

Enter Javier Gerardo Milei. With the election of Milei as the new president last year, maybe Argentina now has a chance to restore its former position as an economic power. In 12 months, the Argentina stock market index (AR: SPMERVAL) has grown 366.05 percent, while the US Dow Jones Industrial Average (DJIA) has only increased 19.18 percent. It looks like entrepreneurs are welcome back in Buenos Aires.

A great new book on the importance of entrepreneurship from the Chinese economics professor Weiying Zhang, Re-Understanding Entrepreneurship: What It Is and Why It Matters, could dramatically help Argentina reactivate its entrepreneurs and innovators and inspire the world. All innovation is the product of entrepreneurship, and entrepreneurs cannot exist under state control, government ownership, and excessive bureaucracy. Entrepreneurs attempt to maximize value creation. Bureaucrats, on the other hand, tend to maximize the costs of entrepreneurship. Unlike entrepreneurs, bureaucrats bear little of the costs of making mistakes.

Milei understands that capitalism activates entrepreneurs. The future is really a choice between entrepreneurs and free markets versus bureaucrats and politics. Argentina once again has the opportunity to stop flatlining and prosper. How many Elon Musks, Steve Jobses, and Jensen Huangs in Argentina are waiting to blossom and flourish under a new birth of freedom? Milei won because he was able to articulate what had caused Argentina’s demise and a vision for how it can be revitalized. Words and chainsaws and courage. Buena suerte to our friends in Buenos Aires.

Blog Post | Economic Growth

The Human Meaning of Economic Growth

Misunderstandings of the relationship between wealth and flourishing have obscured the anti-​human implications of slowing growth rates.

Summary: Economic growth has been a driving force behind the dramatic improvements in human wellbeing over the past few centuries. This growth has resulted from the Enlightenment, the Industrial Revolution and capitalism. Criticisms of growth stem in large part from misunderstandings of the relationship between economics and human values.

Why is the world as prosperous a place as it is? And why isn’t it much more prosperous? These questions are broad enough to admit countless answers, but as good an answer as any is the economic growth rate.

You might have heard that economic growth is overrated, that it’s a fine idea, but unsustainable, or even that it’s entirely counterproductive because it puts profits above people and the economy above the planet. These narratives have been widespread in recent years. They’re also based on a fundamental misconception of the nature of wealth and what a growing economy means for humanity.

Properly conceived, wealth is the actualization of human values in the real world. Economic growth is the upward trajectory of human achievement. The forms of prosperity that most of humanity strives for, such as health, knowledge, pleasure, safety, professional and personal freedom, and so many others, were vastly scarcer throughout most of human history—and would be orders of magnitude more abundant today if economic policies had been slightly different. That is the power of economic growth, and it is within our power to influence the world of future generations for better or worse.

The History of Economic Growth

Virtually everywhere and always throughout human history, economic growth was nonexistent. While pockets of momentary economic progress took place in certain instances, the overall trend was one of perpetual stagnation. But just a few hundred years ago, with the advent of the Enlightenment, the Industrial Revolution, and capitalism, that all began to change.

When the conceptual tools of science became widely applied to create the technological advancements of the Industrial Revolution, they brought an unprecedented optimism about the capacity for investment in new discoveries and inventions to reliably uncover useful knowledge of the natural world. This change inspired the broad transformation of mere wealth (resources hidden away in vaults and treasure chests) into capital (resources invested in new inventions and discoveries).

By the time Friedrich Engels and Karl Marx wrote their Communist Manifesto in 1848, the optimism of investment had already transformed Western Europe. As Engels and Marx saw it, “The bourgeoisie [capitalist class], during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-​navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground — what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?”

Marx and Engels misunderstand the complex reasons for increased productivity (attributing it to untapped “social labour”) but the quotation is significant because, despite their sympathy for state centralization of the economy, they could not ignore the success of capitalism.

While no year before 1700 saw a gross world product of more than $643 billion (in international inflation-​adjusted 2011 dollars), by 1820 global GDP reached 1 trillion. By 1940 the number had passed 7 trillion, and by 2015 it had passed 108 trillion.

Contrary to the popular misconception that capitalism has made the rich richer and the poor poorer, this new wealth contributed to growing the economies of every world region while outpacing population growth. While the world’s extreme poor have become wealthier so too have all other economic classes.

What’s So Great about Growth?

A growing economy isn’t about stacks of paper money getting taller, or digits being added to the spreadsheets of bank ledgers. These things may be indicators of growth, but the growth itself is composed of goods and services becoming more abundant. Farms and factories producing more and better consumption goods; engineers creating better machines and materials; clean water reaching more communities; sick people receiving better healthcare; scientists running more experiments, poets writing more poems, education becoming more broadly accessible; and for whatever other forms of value people choose to exchange their savings and labor.

Gross domestic product or GDP (called gross world product or world GDP when applied at the global level) is an imperfect but useful and widely employed measure of economic growth, and its reflection in the real world takes such forms as rising life expectancy, nutrition, literacy, safety from natural disaster, and virtually every other measure of human flourishing. This is because, at the most fundamental level, “economic growth” means the transformation and rearrangement of the physical environment into more useful forms that people value more.

Before the year 1820, human life expectancy had always been approximately 30-35 years. But with the great decline in poverty and rise of capital investment in technology and medicine, global life expectancy has roughly doubled in every geographic region in the last century. Similar trends have occurred in global nourishmentinfant survivalliteracy, access to clean water, and countless other crucial indicators of wellbeing. While these trends are bound to take the occasional momentary downturn because of life’s uncertainties and hardships, the unidirectional accumulation of technological and scientific knowledge since the Age of Enlightenment gives the forward march of progress an asymmetric advantage. For example, the COVID-19 pandemic and lockdowns resulted in a brief and tragic decline in life expectancy, but the number has since risen to an all-​time high of 73.36 years as of 2023.

What is the direct causal connection between economic growth and these improvements to human wellbeing? Consider the example of deaths by natural disaster, which have fallen in the last century from about 26.5 per 100,000 people to 0.51 per 100,000 people. More wealth means buildings can be constructed from stronger materials and better climate controls. And when those protections aren’t enough, a wealthier community can afford better infrastructure such as roads and vehicles to efficiently get sick or injured people to the hospital. When those injured end up in the hospital, a wealthier society’s medical facilities will be equipped with more advanced equipment, cleaner sanitation, and better-​trained doctors that will provide higher quality medical attention. These are just a few examples of how wealth allows humans to transform their world into a more hospitable place to live and face the inevitable challenges of life.

The benefits of economic growth go far beyond the maximization of health and safety for their own sake. If what you value in life is the contemplation of great art, the exaltation of your favorite deity, or time spent with your loved ones, wealth is what awards you the freedom to sustainably pursue those values rather than tilling the fields for 16 hours per day and dying in your 30s. Wealth is what provides you access to an ever-​improving share of the world’s culture by increasing the abundance and accessibility of printed, recorded, and digital materials. Wealth is what provides you with the leisure time and transportation technology to travel the world and experience distant wonders, remote holy sites, and people whose personal or professional significance to you would otherwise dwell beyond your reach.

As the Harvard University cognitive scientist Steven Pinker demonstrates in his popular book Enlightenment Now, “Though it’s easy to sneer at national income as a shallow and materialistic measure, it correlates with every indicator of human flourishing, as we will repeatedly see in the chapters to come.”

The Long-​Term Future of Growth

Human psychology is ill-​equipped to comprehend large numbers, especially as they relate to the profound numerical implications of exponentiation. If it sounds insignificant when politicians and journalists refer to a 1 percent or 2 percent increase or decrease in the annual growth rate, then like most people, you’re being deceived by a quirk of human intuition. While small changes to the economic growth rate may not have noticeable effects in the short term, their long- term implications are absolutely astonishing.

Economist Tyler Cowen has pointed out in a Foreign Affairs article, “In the medium to long term, even small changes in growth rates have significant consequences for living standards. An economy that grows at one percent doubles its average income approximately every 70 years, whereas an economy that grows at three percent doubles its average income about every 23 years—which, over time, makes a big difference in people’s lives.” In his book Stubborn Attachments, Cowen offers a thought experiment to illustrate the real-​world implications of such “small changes” to the growth rate: “Redo U.S. history, but assume the country’s economy had grown one percentage point less each year between 1870 and 1990. In that scenario, the United States of 1990 would be no richer than the Mexico of 1990.”

Cowen gave the negative scenario in which the growth rate was 1 percent slower. US Citizens would have drastically shorter lifespans, less education, less healthcare, less safety from violence, more susceptibility to disease and natural disaster, fewer career choices, and so on. Now imagine the opposite scenario, in which US economic policy had just 1 additional percentage point of growth each year. The average American today would in all probability be living much longer, having much nicer housing, choosing from far more career opportunities, and enjoying more advanced technology.

Just imagine your income doubling, and what you could do for yourself, your family, or the charity of your choice with all that extra wealth. Something along those lines could have happened to most Americans. But instead, growth has been significantly slowed in the United States because taxes and regulations have constantly disincentivized and disallowed new innovations.

At the margins, many dying of preventable diseases could have been cured, many who spiraled into homelessness could have accessed the employment opportunities or mental health treatment they needed, and so on. While economic fortune seems like a luxury to those who already enjoy material comfort, there are always many at the margin for whom the health of the economy is the difference between life and death.

These are among the reasons that Harvard University economist Gregory Mankiw concludes in his commonly used college textbookMacroeconomics, that, “Long-​run economic growth is the single most important determinant of the economic well-​being of a nation’s citizens. Everything else that macroeconomists study — unemployment, inflation, trade deficits, and so on — pales in comparison.”

When we think of the future our children or grandchildren will live in, depending on our choices between even slightly more or less restrictive economic policies today, we could be plausibly looking at a future of widespread and affordable space travel, life-​changing education and remote work opportunities in the metaverse, new sustainable energy innovations, a biotechnological revolution in the human capacity for medical and psychological flourishing, genome projects and conservation investments to revive extinct and protect endangered species, and countless other improvements to the human condition. Or we could be looking at a drawn-​out stagnation in poverty alleviation, technological advancement, and environmental progress. The difference may well hinge on what looks today like a tiny change in the rate of compounding growth.

At the broadest level, more wealth in the hands of the human species represents a greater capacity of humans to chart their course through life and into the future in accordance with their values. Like all profound and far-​reaching forms of change, economic growth has a wide range of consequences, some intended and others unintended, many desirable and many others undesirable. But it is not a random process. It is directed by the choices of individuals, and allocated by their drive to devote more resources and more investment into those things they view as worthwhile. Ever since the Scientific Revolution, the Enlightenment, and the Industrial Revolution, the investment in human values has been on balance a positive sum game, in which one group’s gains do not have to come in the form of another group’s losses. This is demonstrated by the upward trends in human flourishing since the global rise in exponential economic growth. Indeed, it is intrinsic to the fundamental difference between a growing and a shrinking or stagnant economy: In a growing economy, everyone can win.

This article was published at Libertarianism.org on 11/17/2023.