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Corporate Welfare Economics Financial Sector GDP

Historical Examples Show Government Intervention Only Prolongs Economic Downturns

We’re taxing successful, competently run businesses to subsidize irresponsible, poorly run businesses. Until we realize this simple fact, the previous trend of increased productivity and standards of living will only be a memory.

This study by the Federal Reserve examines the effects of government intervention and the absence thereof in two similar financial crises which occurred simultaneously in Chile and Mexico. Chile liquidated the insolvent banks and instituted a new regulatory system to prevent future abuses. Mexico nationalized the entire banking system keeping the insolvent banks on life support at the expense of the taxpayer.

This is what happened. Over the next 25 years, Chile’s per capita GDP grew 100% while Mexico has exhibited an impressive 0% growth rate. ┬áThis means the average Chilean is twice as rich as he was 25 years ago, whereas the average Mexican stayed just as poor as he was before.

Graph Illustrating High GDP Growth in Chile and Flat GDP Growth in Mexico Since 1980. Title: Real GDP per working-age person in Chile and Mexico.

The lesson is clear. If the government subsidizes bad behavior you get more of it. If the government taxes good behavior you get less of it.

Yet that’s exactly what were doing. We’re taxing successful, competently run businesses to subsidize irresponsible, poorly run businesses. Until we realize this simple fact, the previous trend of increased productivity and standards of living will only be a memory.

By Mike P. Sinn

I have a dream of a cybernetic meadow where mammals and computers live together in mutually programming harmony like pure water touching clear sky.

I like to think of a cybernetic ecology where we are free of our suffering and all watched over by machines of loving grace.

If you'd like to help us abolish suffering, please email [email protected]