Rooted in Reason: Nurturing the Seeds of Liberty

The Importance of Economic Freedom by grassroothawaii
July 8, 2011, 4:54 pm
Filed under: Economy | Tags: , , , ,

By Cannon Brooke

The Charles Koch foundation recently released this video on the importance of economic freedom, illuminating the correlation between economic freedom and quality of life.

As the video illustrates, years of data show how economic freedom is pivotal in promoting economic growth. Fundamentally, economic freedom is defined by what you are able to do with your business and whether you can keep the profit you earn, trade with others, or invest it in any way you see fit. The alternative to this (which is becoming more of a reality) is a lack of economic freedom, where the State makes important decisions for you.

The overall message from the video is sobering. Economic freedom is paramount to a robust economy and fundamental for freedom to flourish. Countries that were on [List A] or categorized as having more economic freedom, comprise of greater economic output, greater income and lower corruption compared to their counterparts on [List B].

What is most frightening about the message from the video is: we are seeing the abatement of the United States on the economic freedom list. Worse, some politicians laud this trend. It was not long ago when President Obama zealously indicated the moral imperative of his administration to “spread the wealth around.” The scary thing is – this comment was not taken out of context – and illustrates the goal of this administration. If we had a government that acknowledged private property rights were protected by an “impartial rule of law,” spreading the wealth around would not even be a consideration.

Having the option to trade with whomever for whatever we want is also being subjugated by the State. The United States government, unfortunately, has a long history of slapping arbitrary tariffs on imports, which is not limited to this administration. President Bush in 2002 placed tariffs on imported steel in order to protect local interests. And in 2009, President Obama instituted a 35% import duty on Chinese tires, claiming they were flooding the market and disrupting American jobs. These two instances demonstrate where commerce is surrendered to dogma and show a clear deviation from free-market principles.

The message to take away from this video is: wealth requires choice. In order for us to be truly wealthy, we need abundant choices from a free-market – not benefits “given” to us from government benefactors. Assuring we have sound money in conjunction with a free-market and numerous competitors jockeying for our patronage, will certainly do more to make us wealthy than benevolent handouts.

I have included an excerpt from Milton Friedman’s seminal work Capitalism and Freedom.  I believe it appropriately compliments the video.

The Relation between Economic Freedom and Political Freedom

It is widely believed that politics and economics are separate and largely unconnected; that individual freedom is a political problem and material welfare an economic problem; and that any kind of political arrangements can be combined with any kind of economic arrangements. The chief contemporary manifestation of this idea is the advocacy of “democratic socialism” by many who condemn out of hand the restrictions on individual freedom imposed by “totalitarian socialism” in Russia, and who are persuaded that it is possible for a country to adopt the essential features of Russian economic arrangements and yet to ensure individual freedom through political arrangements. The thesis of this chapter is that such a view is a delusion, that there is an intimate connection between economics and politics, that only certain arrangements are possible and that, in particular, a society which is socialist cannot also be democratic, in the sense of guaranteeing individual freedom.

Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.


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It’s important to distinguish between free trade between member states of a union (i.e. the USA) with a common political system AND free trade between nations with differing political systems.

Free trade within the same political system is desirable, but free trade between political systems (International Free Trade), although equally desirable, can be problematic and destructive to the standard of living of a nation that endures persistent trade deficits (i.e. the USA today).

International free trade is good for nations running a persistent trade surplus AND it is destructive of nations running a persistent trade deficit. Regardless of trade balances, the big winners are the owners of capital, who no longer have any allegiance to any nation. Many trans-national corporations are now larger than many nations.

Therefore, the best policy for a free people of a sovereign nation to follow is a balanced trade policy for international trade. Exports to other nations of the world should roughly balance imports from the other nations of the world.

Why is this so? … Because of what money is today and the size and power of trans-national corporations.

With balanced trade, the people of all nations in the aggregate benefit equally from trade with one another without putting any nation at a disadvantage. The federal government would adjust import duties on a annual basis to regulate this balance.

Between 1945 and 1971, the advantages and disadvantages of trade surpluses and deficits were easier to understand because the world financial system required the annual transfer of gold from nations running a trade deficit to the nations running a trade surplus. It was easy to understand why it was always in the best interests of a nation to run a trade surplus.

In today’s world of fiat money systems, gold is replaced by government bonds (IOUs) and balanced federal budgets were replaced with persistent budget deficits. If you research the relationship between annual trade deficits and annual budget deficits of the United States, you will find a peculiar synchronization. They have generally been rising in tandem since 1975 at approximately an equal level.

Business is built upon the combination of capital and labor, which produces a product, the sales of which can potentially produce a profit. Businesses which do NOT produce a profit over time cease to remain in business.

Domestic free trade between states of a union provides a level playing field for capital and labor, as it offers complete freedom of movement for both labor and capital within a single political system. This is healthy and desirable.

Free trade internationally, however, is a totally different situation. The playing field is tilted in favor of capital. Capital is free to locate anywhere in the world regardless of whether or not the political rights and protections enjoyed by individuals, which make up the labor force, are consistent with those enjoyed by individuals in the United States.

The rightful desire of a sovereign people NOT to be forced to live under a different political system severely restricts the freedom of movement of labor and typically results in lower labor costs in less-developed parts of the world for capital. As the people theoretically control their representatives in government, the people have the right to adopt a balanced trade policy that is neutral.

When a nation (e.g. the USA) endures prolonged trade deficits (now 35+ consecutive years) it necessarily ships jobs overseas as its domestic companies no longer can compete with foreign goods imported into the country. The result of adhering to free trade principles on an international basis therefore only benefits capital at the eventual expense of labor and it limits the ability of a nation to minimize the impact of external events upon the welfare of the people.

International free trade is a recipe for dependence upon trans-national corporations which have no allegiance to any nation, political system or people. In the United States, international free trade has been sold as a way to increase the people’s standard of living due to the relatively lower prices derived by imported products.

This is a short-term benefit that, with persistent trade and budget deficits, eventually results in the destruction of the monetary system and the domestic economy It also results in a national debt that is impossible to pay back and a complete loss of independence as a nation. The nation is then put in a weakened state which makes the political system susceptible to reform and eventual destruction.

Comment by Mike Higgins

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