Food for thought from Matt Yglesias:

What you see around the world is that policies of economic “neoliberalism”—fiscal discipline, controlled inflation, private ownership of businesses, openness to trade and investment—succeed in producing growth. In principle, this growth can make everyone better off. But what leaders like Lula, or the post-Pinochet leftwing governments of Chile, or Bill Clinton, or the Blair and Brown governments in the UK bring to the table is to actually deliver on that promise through tax and welfare policies that ensure growth is broadly shared. Then on the other side you have things like the center-right governments in Sweden and Denmark (and perhaps the Cameron/Clegg government in the UK) who are succeeding by persuading people that some budget cutting needn’t presage a wholesale gutting of the welfare state.

Either way it’s global movement toward a model in which the government intervenes in the economy primarily through tax-and-transfer functions rather than through planning. Nothing’s perfect in life, but this trend has served the world pretty well and I think both sides of the equation are very much necessary. This progressive liberal synthesis is taking over pretty much everywhere in the democratic world except the United States, where the GOP remains ideologically unreconciled to the welfare state and I keep coming across odd columns urging us to try to emulate the alleged successes of Chinese central planning.

For anyone needing a quick terminology primer, neoliberalism is a market-driven approach to economic and social policy.  It first took hold in Chile under Augusto Pinochet (from 1973) before spreading to the UK under Margaret Thatcher (from 1979) then came to the United States under Ronald Reagan (from 1981) and then fanned out to the rest of the world.  It’s certainly been great for economic growth and done the world a lot of good.

I don’t share Yglesias’ praise for welfare. I think things have gone well for the world in spite of such handouts–they are an economic drag.  I acknowledge plenty of personal and international welfare helps people in the short run.  But I think it necessarily causes a lot more long-term harm by reducing overall growth and creating awful incentives.  It’s those incentives which I blame for stagnant wages on the low end.  Replacing welfare with a negative income tax is my solution to the working poor’s plight.

I do share Yglesias’ disdain for China’s alleged success; their per capita GDP is lower than most nations and we musn’t forget the awful, awful failures of history’s greatest monster which are the reason they sunk so low.

Decades ago, China’s sudden openness to trade spurred a lot of international investment on account of its cheap labor.  This lead to mind-boggling economic growth.  But it’s not a success of central planning relative to the rest of the world! It is rather a recovery from the awful failures of Maoist central planning.  As Yglesias notes:

It seems to me that it’s very plausible to imagine that if China had spent the entirety of the post-war period governed by merely bad policies [instead of Mao’s overwhelmingly bad policies] they’d be as rich today as, say, the Belorussians are. And though Belarus is nobody’s idea of a great success story, its per capita GDP in PPP-adjusted terms is nearly double China’s

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