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History lessons

by Charles G. Koch 1/2/2010

As a lifelong student of history, I have always been eager to learn from our past.

History clearly shows that societies have benefitted from the encouragement of certain principles. Those principles include personal accountability, political freedom, the rule of law, sound money, open markets and respect for property rights.

To the extent that nations have embraced these freedoms and disciplines, their citizens have benefitted in every measurable way, including longer lives. 

But, as is often the case with history, we can learn at least as much from the world’s failures as we can from its successes.  Let me share two such examples with you.

Argentina

At the beginning of the twentieth century, Argentina was one of the freest and most prosperous nations on earth.

When my parents visited Buenos Aires during their honeymoon, Argentina was one of the 10 wealthiest nations in the world.  

For half a century, annual incomes there grew by an average of 7 percent per year  (essentially doubling every decade).

This began to change in the 1920s and completely changed when Juan Peron came to power in 1946.

Peron’s government nationalized entire industries, censored media critics, promoted runaway budget deficits, multiplied government programs and increased taxes.  It also demonized successful businesses and the wealthy.

As a result, the Argentine Republic was transformed – and not for the better.  Unemployment jumped, as did inflation, which hit 50 percent in 1956 and soared even higher in later years.

Even after Peron was eventually deposed, a series of military coups left citizens demoralized and powerless, and their economy in a shambles.

Argentina now ranks 105th in the world when it comes to economic freedom.  (Hong Kong is first, Zimbabwe is last.)  Annual inflation is estimated at 22 percent and current unemployment at 23 percent.  

Venezuela

For nearly 40 years (from 1920 to 1957) Venezuela was a prosperous and thriving nation, with growth rates even greater than those of West Germany, Europe’s economic powerhouse.

In 1960, the gross domestic product per Venezuelan worker was equal to that of Canada, Australia and Switzerland.

Venezuela’s downhill slide began when new administrations (including those of Betancourt and Perez) instituted a series of devastating policies.  Taxes went up, the government began to bloat and runaway budget deficits became the norm. 

In 1976, President Carlos Andres Perez nationalized the oil industry, taking control of  projects largely developed and funded by British, Dutch, French, Norwegian and U.S. companies.

Living conditions in Venezuela have deteriorated under current President Hugo Chavez, whose policies have included further nationalizations, wage and price controls, media censorship and suppression of dissent.

Venezuela now ranks 138th in economic freedom, suffers from 30 percent annual inflation and has negative growth rates.

Although rich in natural resources, including several forms of energy, Venezuela suffers routine power outages.  Food shortages are becoming more widespread as the economy collapses and freedoms are being curtailed.

Parallels

Today, regardless of whether we prefer to focus on policies coming out of Brussels
or Washington, there are too many disturbing parallels with South America’s failures to overlook.

Nations that have benefitted from freedom and prosperity are now saddled with governments that want to assert ever-increasing control over every aspect of our lives.   Supporters of these policies are enriched and ennobled; opponents and detractors are punished and demonized.

In the U.S., where economic freedom and the standard of living have traditionally been among the world’s greatest, the push for centralized government control is unprecedented. 

In just one year, the U.S. government has bought a stake in or bailed out more than 600 firms.  Entire industries have essentially been taken over, enabling bureaucrats to dictate who earns what, who makes what and who gets to stay in business. 

Like Chavez, who recently lectured Venezuelans on limiting their showers to three minutes of cold water, Washington and Brussels are throwing cold water on their citizens.  All these governments are taking control away from individual consumers regarding how resources are used.  

Such centralized control comes at an enormous cost.  In the U.K., the government swung from a budget surplus of £2.2 billion to a deficit of £7.7 billion in just one year.  Net debt as a percentage of the U.K.’s GDP has more than doubled.

German officials recently admitted their budget gap for 2010 will exceed E.U. limits by more than 33 percent.  France, Spain, Ireland and Greece are also out of compliance by even larger percentages.

Meanwhile, the current U.S. administration is on the biggest spending spree in history, dwarfing even the huge increases piled up during the Bush administration.  In fact, this year’s U.S. budget deficit is larger than the combined budget deficits of the past eight years.

The new administration says it wants to “fundamentally transform America.”  Given what we’ve seen so far, which looks alarmingly similar to failed policies of the past, is this the kind of transformation we really want?

 

 

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