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Sunday, June 23, 2013

A Dilemma For Free Marketeers, Why Is Austria So Successful - A Reply

Daniel Hannan recently did an interesting article in which, as a libertarian, he asked how Austria has managed a high standard of living while being economically relatively illiberal. If economics, at least the liberal version, is a science, or even liberal, the theory must be constantly tested against actuality and hannan is right to do so. It is a question I have asked and answered satisfactorily regarding the USSR (as discussed under) and less satisfactorily, with the cresting of the UK economy in the late Victorian era. This is the answer I have put on Hannan's blog but I think it worth repeating here.
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I  know what the answer to this is. Professor Peter Cameron, professor of international energy law and policy at the University of Dundee, wrote,

"Energy is at the heart of modern life"
and
"In modern times the main driver of economic growth has been, and continues to be, energy".

Jerry Pournelle has said that "Economic freedom + cheap energy = growth" is the formula.

There is a sub-branch of economics known as energy economics which has repeatedly shown an almost 1:1 correlation between growth in electricity use and GDP (in China it has been almost exactly 10% for 3 decades). Since electricity transmission hadn't been discovered in Adam Smith's time he cannot be faulted for only knowing the first part of Pournelle's formula.

Checking Wikipedia   http://en.wikipedia.org/wiki/E... shows that 70% of their electricity is hydro which, when available, has virtually zero running costs once built. Their installed capacity is shown as 14.2 GW as opposed to our roughly 50 GW. Their population is 8.47 million, 13% of our own.
If anything the surprising thing is that they are not better off and that can be explained by the lack on the economic freedom side of the equation.

I had, for a long time, worried about a similar but larger example.

During the 1930s the USSR managed 10% annual growth while the rest of the world was in Depression. The psychological effect of that on world politics cannot be overestimated since even supporters of capitalism became convinced that "planning" was the answer to everything. For example when the USA, scared by Sputnik, decided to go to the Moon, they did it by a massive government programme.

However when you learn that in that period the Soviet electricity capacity grew by a massive 23% each year their 10% growth shows that the Soviet command economy, even then, was greatly underperforming what a free market could have done.

Looking at the relative health of the French economy, backed by 85% cheap nuclear power we see a similar result. The US economy is similarly being pulled out of recession by shale gas.

    That unlimited cheap energy is available to us - either nuclear or shale gas - any time our political class are willing to allow it, is indisputable. On this I would point you to the admirable papers on energy production produced by Roger Helmer, UKIP's energy spokesman. With that we would be out of recession in weeks, perhaps days, and obviously will be as soon as UKIP is in power.

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   So economic free market liberalism works but it is not the whole answer to economic success and may not even be most of it. Of course, by definition, a free market economy will allow energy production to be made on an economic basis, rather than by political fiat, which explains why the correlation between freedom and wealth creation remains normally so very close.
 

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