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The Economist published today quite a complicated article titled “Dumb-bell or emerging middle?” where Andy Summer analyzes the distribution of wealth going on since 1980. It attempts to describe the current situation of the middle class and its trend.  His conclusion? People are moving from the first type of economic  classe (poor or insecure) into the second class (prosperous or secure) in richer emerging markets only.  Actually, we don’t care. What we care about is why this article leads us to notice that Austro-Libertarian economics strike again.

The article is full of theoretical models leading to the following conclusions regarding types of growth in different countries:

  • Growth that hurts poor and/or the middle (Nigeria and Zambia)
  • Growth that helps poorer people most (Ethiopia, South Africa, Malawi and Mali)
  • Growth that help the middle most (Brazil)
  • Growth that is equitable across all incomes (Vietnam, Nepal and Philippines)

The clever conclusion is that the question of the direction of growth is one of governance, this is, how different countries manage growth.

The author got it half-right. It is not a question of growth management, but the level of disconnection between a government and economic activity. We have already explained this in our lesson When Countries Dissolve. We said that the future of all countries is dissolution, the separation of the formal country from its inner workings. The more dissolved a country is, the better off will be economically. This is exactly what is going on here. If this lesson is true, then the most corrupt countries (at all levels) must be the most prosperous, but more importantly, the most prosperous across the board. This is so because everybody has the same opportunity through bribes. There is a plain level field.  Let’s see if this holds true:

 

  • Growth that hurts poor and/or the middle (Nigeria and Zambia)

Nigeria and Zambia are very corrupt countries, but the corruption is high level mostly due to natural resources. This level of bribery is not accessible by the general people. Therefore, only the rich and powerful who can impose artificial monopolies (i.e. the control of natural resources) become wealthy. There is very little disconnection between the government managed economy and the real economy. This type of regressive wealth accumulation harms poor and middle class the most.

 

  • Growth that helps poorer people most (Ethiopia, South Africa, Malawi and Mali)

There is a level of corruption in these countries but it is mostly at lower economic levels. This is the disconnection between government managed economy and real economy happens mostly at the lower income level, therefore, poor people benefit the most.

 

  • Growth that help the middle most (Brazil)

The corruption level is low and therefore the government dictates the direction of the economy, in this case, towards the middle class.  There is no significant disconnection between the government managed economy and the economy.

 

  •  Growth that is equitable across all incomes (Vietnam, Nepal and Philippines)

The corruption level in these countries is rampant and widespread. The playing field is flat and everybody has the same chance to economic prosperity. The disconnection between government managed economy and the real economy is massive.

 

In other words, the places where the disconnection is highest are the same places where prosperity across the board is highest.

Translated to an Absolute Austro-Libertarian point of view, this makes sense. The most prosperous economies are those where the government has the lowest chance of interfering. Simple. No government = highest prosperity.

But there yet another important lesson to be learned here. In places where government interference is minimum, prosperity is not only maximum but it is widespread across all economic classes (poor, middle and rich).  A free market lifts everybody’s standards of living. No other system does that.

Sadly, Andy Summer missed the whole point. And it is an important one. But you didn’t. You now have the information at your fingertips. How you use it, it’s up to you. Prosper or decay. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words

 

 

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