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Sunday, March 8, 2015

Chapter 3 Economic Systems that do not lead to prosperity

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here
Chapter 2 was here

Now for chapter 3.
It's also helpful to look at which systems don't work and why they don't.  Although the right system in and of itself does not bring a nation out of poverty, the wrong system will doom a nation.  A poor system will not lead to lasting solutions to poverty.

The authors describe nine systems and critique each to show how they do or do not lead to the creation of more wealth.

  1. Hunting and gathering systems do not leave enough time and energy to devote to economic development and specialization.  Plus, there simply aren't enough of these resources left to support a nation in this fashion.
  2. Subsistence farming does not leave enough energy and time to devote to specialization and development.  All one's time and energy are spent on producing enough food to feed one's self and a few others.  Again, there aren't enough resources in the world to support a large population in this fashion.
  3. Slavery.  Living off the lives of others is not going to lift a nation out of poverty.  Enslaved people never do their best.  Plus such a system is dehumanizing.
  4. Tribal ownership.  If everyone owns it, then no one does.  Commonly owned property is usually treated more poorly than property that individuals own.
  5. Feudalism  In this system too much of the return to the labor goes to the land owner and not enough to those at the bottom of society.  
  6. Mercantilism  Although it seems that this method would increase a nation's wealth, it would not do so over the long haul.  Large companies and monopolies are favored against consumers.  The producer os favored rather than the consumer.  The government picks the winners and losers.  
  7. Socialism and communism misunderstand how goods are valued.  They are valued by how much someone else wants them, not by the resources and the time put into creating them. Communism reduces the incentive to work.  The problems of tribal ownership also haunt communism and socialism to some degree.  The history of communism also indicates that it is an evil system, with close to 100 million human beings killed by their own governments during the twentieth century.
  8. Welfare state and equality  This system can't be sustained on a large scale and for very long.  Sooner or later someone has to pay the bills.  The incentive for hard work is also removed.  
  9. Free market system  This system is the one that the authors describe as the one that is most likely to lead to the reduction of poverty.  It is important to understand what they mean by a free market system.  It is where the individuals can freely choose what to buy and not buy, what to purchase and not purchase, where to invest and not to invest.
The next chapter describes the free market system