THE AGE OF MILTON FRIEDMAN
June 1, 2009
The last quarter century has witnessed remarkable progress of mankind, says economist Andrei Shleifer. The world's per capita inflation-adjusted income rose from $5,400 in 1980 to $8,500 in 2005. Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just as fast. Compared to 1980, many more countries in the world are democratic today. The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes.
Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman, says Shleifer.
Some of the central facts of economic and social development during 1980-2005:
- During this period, world per capita income grew at about 2 percent per year, including rapid growth in East and South Asia.
- Between 1980 and 2000, the share of the world's population living on less than $1 a day fell from 34.8 percent to 19 percent.
- The World Bank forecasts that the number of people living on less than $1 a day will continue to fall sharply despite population growth, and account for 10 percent of the world's population by 2015.
What about economic policies?
- The world median inflation rate in 1980 was 14.3 percent; by 2005 that median declined to 4.1 percent.
- Top marginal income tax rates fell around the world from the population-weighted average of 65 percent in 1980 all the way down to 36.7 percent in 2005.
- In the 1980s, most governments restricted foreign exchange transactions; by 2005 "black market" exchange rates have nearly vanished.
- Tariff rates, which fell from the population-weighted world average of 43 parallel with vast expansion in world trade.
- Over the last six years, the number of procedures an entrepreneur must follow before he can legally start a business declined, although East Asia and Latin America remain heavily overregulated.
Source: Andrei Shleifer, "The Age of Milton Friedman," Journal of Economic Literature, Vol. 47, No. 1, March 2009.
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