Throughout almost all history, life was different in a key way than it is today. It was worse, in a way that experience over the last 300-plus years in developed economies has made it difficult for folks now living in them to understand.
However, due to negative social, political and economic trends in recent decades, greatly accelerated in the last seven years, we have been heading part way back to that grim aspect of the past. Let me explain.
Before about 1700, your lot in life generally was much the same as your parents’ lot. If they were poor, you’d probably be poor, too. If they were wealthy, likely you, too.
We still hear the rich get richer and the poor get poorer, but it really isn’t so. Economic mobility has been a key aspect of the difference between the last three centuries and the eons before. Income mobility in advanced economies has waxed and waned over the decades, and declined somewhat in the last quarter century, but it’s still much greater than before 1700.
But economic mobility is actually caused by the bigger change that began mainly in England in the late 1600s and spread to Europe and America, and since World War II to other parts of the world. That change is robust economic growth — a term that makes eyes glaze over but is central to human flourishing and individual fulfillment.
Economists now understand economic growth is driven by the social, political and economic institutions, practices and policies a society adopts. Above all, the ones that increase economic growth include the rule of law, limited government, protection of private property rights, and the freedom to trade and make contracts that are generally enforced by law.
These advances caused economic growth to rise from levels near zero to much higher levels. They promote growth in wellbeing for most individuals and overall economic growth of society. Also, economic and social mobility. For all these reasons, they lead also to human flourishing and individual wellbeing and fulfillment.
Pre-1700 annual growth of 0.25 percent per person increased incomes by only seven percent in 28 years — a difference so small it seemed nothing changed in a generation.
But the advances listed above ignited economic growth about 10 times that rate — about 2.5 percent per person per year — and led to the Industrial Revolution and the modern world. At that rate, incomes doubled in a generation, changing completely the quality of life and people’s expectations. Especially so with increased economic mobility.
This experience changed hugely the perceptions and basic beliefs of people and thus the fabric of society from ancient fatalism to modern notions of opportunity, progress and individualism.
However, the continuing and recently accelerated retreat from these principles has over the decades slowed economic growth from 2.5 percent to about 1.0 percent annually. At that rate, the next generation will enjoy income and wealth levels that are only two-thirds of what they would be with 2.5 percent growth. Instead of an annual family income of, say, $90,000, it will have only $60,000.
If we continue the erosion of freedom, opportunity and economic growth due to the ever more statist policies and practices embraced since the 1960s, we consign our children to a much diminished future. So, economic growth — enlarging the pie — is the central public policy goal, and we must nurture policies that promote it and oppose those (especially increasing government taxes, spending and regulation) which reduce it.
Growth and opportunity are the real interest of our children, not increased government spending on failed policies.
Ron Knecht is Nevada State Controller.
