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Free Markets Working For Us


In order to understand what's going on, we must submerge ourselves deeper into data. For that, we have prepared the following chart which plots the debt chart above (as %GDP) as well as the percentage growth YOY (year over year) of the GDP per person corrected for inflation but not for public debt.

We know.

This is difficult to take in, but don't despair. Allow us to simplify. The red line is the Singaporean debt. The blue line is the percentage of growth of standards of living from one year to another. The green line is the percentage of growth of standards of living in a free market.

And this is very, very interesting. It is abundantly clear that as the Singapore government takes on more debt or pays off the debt, the economic growth slows down irrespectively. This is exactly what Keynesian economics says it cannot happen! More debt should spur more economic "stimulus" which should increase the growth rate. What should not happen is a situation at which no matter how much debt governments take on, this debt does not impact the economy. However, we have seen how this operates post-2008 when the phrase "Pushing On A String" was coined to visualize this very same phenomenon!

Yet, in the Singaporean example this phenomenon is not at play. What is at play is the fact that all that debt is not being used to prop-up the market. Basically and from a Keynesian point of view that debt does not exist. What we are seeing is a more-or-less free market in action once all (most) of the government market manipulations have been removed.

In Austrian Economics terms this is quite simple, really. All that borrowed money is not being pumped into the economy and thus it does not distort the market and it does not makes it addicted to it. Market participants (i.e. producers) do not have to distinguish between real market demands (i.e. what people want) and fake market demands (i.e. what the government is buying) because the government is not buying anything with the borrowed money! As a consequence of that, producers adapt to real market needs and not government demands. As such, when governments begin to pay the debt off, government money begins to dry out… but the government is not buying less stuff. As a consequence of that, there is no impact to all those producers since their systems are geared at selling to the public and not to the government and thus the demand is not affected! Voila! The economic growth remains more-or-less the same!

Now, was this soooooo difficult to understand? We believe not!

Singapore Debt Growth


But why stop here? We can obtain some more good stuff from this data. If we look closer at the above chart, we can see that growth is slowing down. Growth is trending towards a level of about 2% … which is very consistent with the historical growth rate of free markets (i.e. between %2 and %3 per year) where there is no government debt! Yet another validation of Austrian Economics… from mainstream, official and formal data straight from the Singapore government! How about that!


From the chart above it would seem that there is an advantage in having a government doing "stuff" because of the economic boost it generates at the beginning. In other words, between 1990 and 2017 the growth rate was significantly above %2, the lower growth limit of the free market growth rate (which we will call the "natural" growth rate). Wouldn't this be an advantage? Wouldn't it be great to have a government to accelerate economic growth as Keynesianism teaches?

In a word…

Well…no (OK two words).

To begin with, we need to understand whether or not the Singapore government was doing "stuff" or, for the most part, it stayed out of markets altogether. In order to obtain an answer to this question we need to look at historical data. Between 1900 and 1960 the chart below provides an answer to that question:

Singapore GDP

Why is that this chart provides an answer? Because the GDP growth was -for the most part- not or slightly exponential. Exponential growth is the hallmark of all free markets; this is so due to the relentless action of compounding growth rates. No exponential growth or slight exponential growth indicates that there are other factors at play which slow down economic growth. So, between 1900 and 1960 a government was messing around with the Singapore market. Which government? British. Singapore became independent in 1965.

Note: please note that the linearity of the growth is not as clear as we would like it to be because the chart depicts GDP and not GDP per capita.

Between 1960 and today we have:

Singapore GDP Per Capita

Which shows the same pattern up to 1965. Coincidence? No. After 1965 the Singapore government took a free-market friendly approach as much as possible (i.e. hands-off)… which created a jump in or about 1965. However, it did not reach the current policy until approximately 1980.

It is possible to argue that up to 1965 the growth was more-or-less linear. After 1965 the growth suddenly accelerated as the chains were off, but it remained more-or-less linear up to 1980 when the new policy kicked-in.

Now let's compare Singapore against the "natural" growth rate in free markets:

Singapore GDP per Capita


Did Singaporeans gained an increased 70% in standards of living when compared to free markets just because they had a government!!!?? Should we all jump boat and do what the Singapore government did?

Yes… and no.

Yes in the sense that the Singapore government did more-or-less nothing to interfere with the free markets. In this sense, the Singapore government simply allowed the free markets to prosper and it shows! And all governments should be doing this; basically, do nothing!

But if this is the case, how can we explain the massive difference?

If you remember what you have seen above, the "natural" economic growth rate is of about 2% to 3% per year. This is the growth rate that the Singapore economy is fast approaching today. However, between the past and now (e.g. 200+ years excluding the last 55), the Singapore economy was not a free market. The difference we see in the chart is the Singapore economy catching-up for all the lost time. If we would to re-calculate using the free market growth rate of Singapore for the last 200+ years, that number would be consistent with the current GDP per capita.


Aren't we hedging our position?

Yes, we are.

We are so doing because although the natural growth rate of a free market is 2 to 3 %, this does not mean that that it will happen everywhere. This is the average, or the mean, if you like. There will be places where it will be lower and places where it will be higher. Singapore may just be one of those places. However, don't let this distract you from the fact that, what allowed such an impressive growth rate to occur, is, essentially, that the Singapore government stayed away from the markets! And that's the point to remember!

But there is also a No answer to the question whether or not we should do what the Singapore government did.

The answer is no because all things are not being equal. This is so because the Singapore government does drain the market through taxation and does distort the market through their activity in it (i.e. spending those taxes).

There is a price to be paid to have a government and that price is quite significant. Unfortunately it would be too complex and time consuming to even attempt to calculate what the current Singaporean GDP per capita would be should the Singapore (and British) governments would have never existed. But one thing is certain; it would be far higher than what it is today!

And so the conclusion is obvious. Singapore did not "lose" standards of living by having a government, on the contrary, it lost standard of living by having one. However, Singapore is far, far closer to free markets when compared to almost any other free market and it shows!


In typical free markets, the economy grows smoothly and so does the GDP. In the previous charts we can see that the Singapore GDP was fairly smooth.

In typical free markets, there is no inflation but dis-inflation (i.e. you money is worth more as time goes by). In the previous charts we can see that the Singapore inflation was mild (i.e. your money is worth less as time goes by) but all in all stable.

In typical free markets, we don't have to worry about governments paying off their debts. And we explained how for Singapore paying off the government debt is, for the most part, a non-event.

Even assuming that the last 55 years of Singapore economic history can be sustained as-is (which would be unlikely), at the end of the day we come to the conclusion that once everything is done, the rate of economic growth irrevocably trends towards the "natural growth rate" of the free markets anyways!

In typical free markets, we don't have to worry about massive economic crisis, booms and busts, cuop d'etats, hyperinflation, depressions, stagnations, military expenditures, balance of payment crisis, debt crisis, austerity programs, shock therapies, military interventions, overheating economies, structural reforms, chronic current account deficits, heavy debt servicing costs, sensitivity to oil prices, high unemployment, unutilized industrial capacity, inability to pay back loans (or interests for that matter), mercantilism, devaluations, inflexible exchange rates, taxation, manipulation of money supply and credit, subsides and de-subsidizing processes, nationalizations, privatizations, wild public expenditures fluctuations, sudden reductions in GDP, government induced interest rate speculation at a massive scale, wild interest rate moves, monetization of fiscal deficits through Central Banks, massive fluctuations of credit ratings, "dollarization", massive capital outflows, banking weaknesses and crises… and on and on and on and on.

And interestingly enough, Singapore did not have any of this over the last 55 years (except when affected by external events such as the 2008 debacle triggered by the US).

In the Singapore market there is very little artificiality created by the Singapore government. Therefore Singaporeans don't have to go through all the ups and downs that everybody else goes through.

Yet, the situation could be even better should Singapore had a truly free market, which provided most of the economic growth and is capable of providing much, much more automatically!


Allow us to recap. If there is something we will ask you to remember from this article, this would be the following:

Free Markets work. Period.

There really, truly is a massive benefit in having no government(s) manipulating the economy. Disastrous economic consequences happen when they do. The example we showed above illustrated what happens when a government stays -fairly- away from the markets and actually behaves in a manner opposite to what was preached by Keynes; the free market takes over providing massive benefits for all without the need for any intervention or leadership of any kind. It happens automatically. For everybody. Smoothly. Constantly. Forever.

Now you have to ask yourself, do you prefer to live in a country that follow Keynes' advice or would you prefer in a peaceful and far wealthier world? Because, you know, it's your choice. Yup! The one that you make every time you vote.

And so we say: How about this? Don't vote. We guarantee you will like it.

And you will be helping your fellow human beings at the same time!

But, then again, it is your choice. Red or Blue. You decide!

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

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