Naomi Klein, Young Earth Creationist

Some of the kindest, most thoughtful, most intelligent, and most highly educated people I know hold egregiously false beliefs. I have come to regard this fact as one of the most interesting facts in the contemporary world.

Some of the kindest, least thoughtful, least intelligent, and least educated people I know also hold egregiously false beliefs. These are my young earth creationist friends who are uniformly and brutally ridiculed by the educated classes for their beliefs in a universe created by God some 10,000 years ago.

My young earth creationists friends are mostly harmless. They raise their families, go to church, and do the best they can in their neighborhoods. They tend to be good folk.

My educated friends with false beliefs are considerably more dangerous. While they are also typically kind and conscientious in their local and interpersonal relationships, they are a direct threat to the well-being of the world’s six billion poorest people. How can this be?

For convenience’ sake, I’ll focus on Naomi Klein, whose books have sold millions and which have been used in thousands of college classrooms. She is perhaps the most high profile purveyor of the notion capitalism causes poverty. To cite a specific example which she has defended against criticism, in Shock Doctrine she claims:

“that between 25 and 60 percent of the population is discarded or becomes a permanent underclass in countries that liberalize their economies.”

If it were true that liberalizing an economy resulted in 25 percent of the population becoming a permanent underclass, I would support Klein’s hostility to capitalism. But . . . facts:

Economic Liberalization Reduces Poverty

Roughly a billion people have escaped poverty in the past few decades thanks to neoliberalism. In China the results have been especially dramatic: Average urban wages have grown from $1,000 per year to almost $6,000 per year. With 700 million urban Chinese, never before in human history have so many people escaped poverty so quickly. Even the most leftist Nobel laureate economists acknowledge that economic liberalism created prosperity (see Joseph Stiglitz here and Amartya Sen here, in his remarks on Singh, with respect to China and India, respectively).

See the extraordinary graph below from Branko Milanovic’s Global Income Inequality by the Numbers: in History and Now:

Yes, those between the 80–90% percentile of global income, the working class of the developed world, have seen stagnant incomes in the neoliberal era. But almost everyone else has seen spectacular increases in their incomes. These simple lines represent 7 billion human beings almost all of whom have had better lives because of economic liberalization.

If one dips into the economics literature, one finds diverse evidence of this escape from poverty. Studies have shown that as GDP per capita increases, every income quintile benefits. There have also been studies showing reductions in fertility rates; child mortality; increased literacy; etc. The U.N.’s Human Development Index improves along with GDP per capita. There are also studies showing that hundreds of millions of people are consuming more protein; are more likely to have access to electricity; are more likely to own washing machines, cell phones, blenders, and thousands of other basic consumer goods.

The Fraser Institute and the Heritage Foundation each have indices that measure economic freedom. A recent article summarizing the academic literature on economic freedom concludes:

Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two-thirds of these studies found economic freedom to correspond to a “good” outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a “bad” outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.

Almost all studies find positive outcomes. The few negative studies that focus on economic inequality do not disprove that economic freedom reduces material poverty. They only show that while reducing poverty, economic freedom may also increase inequality.

Debates over the relationship of economic freedom and poverty continue. Some studies show that some elements of economic freedom are more important, others less, for reducing poverty. Some economists argue that economic freedom has gone too far in some countries in some ways. Some economists argue there is no “right recipe” for economic development, and that therefore each nation must be analyzed on a case-by-case basis.

Despite these debates, Klein’s claim that

“that between 25 and 60 percent of the population is discarded or becomes a permanent underclass in countries that liberalize their economies.”

is simply inconsistent with evidence showing that a billion human beings have escaped poverty thanks to economic liberalization.

An economist who failed to acknowledge that economic liberalization has brought hundreds of millions out of poverty would be as intellectually indefensible as a creationist biologist.

Creationism

Biology professors who believe in young earth creationism are rare. Consider Dale Kenyon, a retired professor of biology at San Francisco State:

Kenyon has said, “In the relatively recent past — 10,000 to 20,000 years ago — the entire cosmos was brought into existence out of nothing at all by supernatural creation.” . . .
One of Kenyon’s most outspoken critics on campus is Professor Lawrence Swan, who calls creationism “embarrassing.”
“How can an institution of higher learning permit the teaching of an aberrant misinterpretation and what I would consider an intolerable representation of the truth?” asks Swan. “What we’re faced with is a very interesting intellectual morass. What do you do with a professor who has gone wrong?”

At what point does one simply give up arguing with such a person?

Johan Norberg’s critique of Klein’s work at Cato included the fact that she did not cite evidence for this claim:

“that between 25 and 60 percent of the population is discarded or becomes a permanent underclass in countries that liberalize their economies.”

Her response is as intellectually irresponsible as that of a creationist:

I did not provide a source for this stat because it is an amalgamation of stats I had already cited and for which I had already provided multiple sources. This is standard practice: once a statistic has been sourced, it can repeated (for the sake of brevity) without repeating the source. So here are those stats on which the 25–60 per cent amalgamation is based, with their sources, straight out of The Shock Doctrine endnotes:
Unemployment in Bolivia was between 25% and 30% in 1987 (page 186. Source: Mike Reid, “Sitting Out the Bolivian Miracle,” Guardian (London), May 9, 1987.)
25% of Russians lived in desperate poverty in 1996 (page 300. Source: Russian Economic Trends 5, no. 1 (1996): 56–57 cited in Bertram Silverman and Murray Yanowitch, New Rich, New Poor, New Russia: Winners and Losers on the Russian Road to Capitalism (Armonk, NY: M.E. Sharpe, 2000), 47.)
Unemployment for black South Africans more than doubled from 23% in 1991 to 48% in 2002 (page 272. Sources: “South Africa: The Statistics,” Le Monde Diplomatique, September 2006; Michael Wines and Sharon LaFraniere, “Decade of Democracy Fills Gaps in South Africa,” New York Times, April 26, 2004.)
Unemployment in Poland was at 25% in some areas in 1993 (page 241. Source: Mark Kramer, “Polish Workers and the Post-Communist Transition, 1989–93,” Europe-Asia Studies, June 1995)
40% of young workers were unemployed in Poland in 2005 (page 241. Source: Andrew Curry, “The Case Against Poland’s New President,” New Republic, November 17, 2005)
59% of Poles had fallen below the poverty line in 2003 (pages 241–242. Source: Przemyslaw Wielgosz, “25 Years of Solidarity,” August 2005.)

In fact all of these nations, Bolivia, Russia, South Africa, and Poland are significantly more prosperous today than they were thirty years ago.

A serious social scientist would analyzing all nations that had liberalized their economies, establish a formal definition of “discarded” and “permanent underclass,” and then discover if the data was consistent with her claim. Klein does none of this. Instead, she cites a few newspaper articles with dramatic headlines. In a world with almost two hundred nations which have liberalized their economies, over a span of thirty years, one can find a handful of dramatic headlines. If an undergraduate student turned in a paper with such an irresponsible relationship to evidence, any self-respecting social science professor would rip it to shreds and give the student an “F.”

The theory of evolution has been established through the combination of many thousands of observations integrated into a coherent theory which has been repeatedly validated. Likewise the relationship between economic freedom and prosperity has been established through the combination of many thousands of studies integrated into a coherent theory which has been repeatedly validated.

Once we dig into the examples she uses, the evidence contradicts her even more profoundly. For instance, three of her headlines are from Poland which, despite some rough years, has been one of the world’s most successful post-transition economies,

Poland entered 2015 in high spirits. Its GDP per capita based on purchasing power exceeded $24,000 and reached 65 percent of the Western European (eurozone) level of income, the highest absolute and relative level since 1500–1600 A.D. — the “golden age” when the country stretched from the Baltic to the Black Sea.
Actual individual consumption, which includes the use of public services financed by the government, rose even higher and exceeded 70 percent of that of the West. The quality of life seems to have increased in tandem, as reflected in international well-being ratings such as the OECD Better Life index, where Poland does better than what the income level alone would suggest. . . . No wonder than that more than 80 percent of Poles are satisfied with their lives, up from only half at the beginning of transition.
These successes follow more than 20 years that were likely the best in Poland’s history. Since 1989, the country’s GDP per capita more than doubled, coming ahead of all European peers.

If economic liberalism had led to greater poverty, it should be stopped. But the evidence shows that, on balance, economic liberalism is the most powerful means of eliminating poverty known to humanity.

Why Her Mistakes Are So Dangerous

One of the most tragic facts about the 20th century is that the relationship between economic freedom and prosperity largely disappeared from public awareness between the 1930s to the 1970s. Adam Smith provided the first coherent account of the relationship between economic freedom and prosperity in 1776 in The Wealth of Nations. Smith’s work became influential in Britain and among the American founding fathers. Britain liberalized its economy and the U.S. was founded on economic freedom. By the late 19th century, the working class of both Britain and America had become prosperous for the first time in human history. Never before had ordinary people had the opportunity to enjoy meats, sweets, coffee, tea, cotton clothing, travel, and hundreds of other comforts that had previously only been enjoyed by the wealthy.

Despite the success of laissez-faire capitalism in improving the working class standard of living, after 1848 the intellectuals, led by Marx and Engels, turned against it. Deirdre McCloskey, one of our leading economic historians, describes this as an act of treason against humanity, because these intellectuals began leading humanity in precisely the wrong direction. In 1917 Marxists captured the Soviet Union via a violent revolution. Sadly the world’s intellectuals became enamored of the Soviet experiment, believing that it was heaven on earth. After the Great Depression in the 1930s, it became widely believed, due to the intellectuals, that capitalism had failed. Soviet socialism, national socialism, and fascism were widely regarded as superior to capitalism in the 1930s.

The few remaining classical liberal economists were largely discarded at the universities by the 1940s. They were regarded as “right wing” and “reactionary.” A new mathematical economics was developed, largely at MIT, that was blind to the benefits of economic freedom (Paul Samuelson, its founder, believed that the U.S. and Soviet systems were equally successful as late as 1989). Meanwhile the Marxists and their sympathizers continued to advocate for revolutionary socialism. After WWII China became a Marxist socialist nation and India, following independence, became a Fabian socialist nation. As former colonies around the world rejected colonialism, most of them adopted some form of socialism across Asia and Africa.

Meanwhile, as socialism, in the traditional sense of government control of the economy, spread around the world, a handful of nations went another direction. Japan had been the first non-European nation to industrialize prior to WWII. Under MacArthur, they quickly redeveloped their capitalist economy. By the 1950s, the barren island of Hong Kong began its long drive towards prosperity by means of the closest thing to laissez-faire capitalism the world has seen in the 20th century. By the 1960s, Singapore, Taiwan, and South Korea began growing distinctively capitalistic economies. By the 1980s they were known as the “Four Tigers.” Along with the economic malaise of socialist economies around the world, the dramatic success of Japan and the Four Tigers convinced most economists that capitalist economies characterized by economic freedom were more likely to create broad-based prosperity than were government-controlled socialist economies.

The widespread recognition by economists that socialism had failed led to the “Washington Consensus,” a set of free market reforms which guided World Bank and IMF decisions in the 1980s and 1990s. These initiatives by top-down institutions were not always benign, as Klein notes. To some extent this was due to necessary transitions from excessive government control to freer economies that, in the long run, did deliver prosperity. To some extent, the top-down bureaucrats, driven by a flawed technocratic approach, promoted flawed approaches to economic freedom.

In particular, the most crucial element for economic prosperity consists of institutions, especially property rights and rule of law. These institutions are not easily changed by the levers of power available to World Bank and IMF technocrats. In some cases, forcing Washington Consensus reforms on nations without understanding local conditions and local institutions did create significant harms. In addition, of course, in many cases well-intentioned World Bank and IMF reforms with legitimate theoretical rationales were captured by corporations in cahoots with corrupt politicians causing great harm. This is the legitimate evil that Klein and others point to with their rage against injustice.

But her mistake is similar to those made by creationist critics of evolution. Yes, there are legitimate thaws in evolutionary theory. The exact process of evolution continues to be debated and some prominent hypotheses within evolutionary theory from time to time are disproven. Similarly, some elements within our understanding of economics change. The simplistic Washington Consensus reforms have been replaced by a more nuanced understanding of the importance of legal institutions. But the broader hypothesis that entrepreneurial capitalism leads to broad-based prosperity has not changed. By refusing to examine, or even acknowledge, the evidence that capitalism leads to prosperity Klein is harming the global poor.

We Still Have a Lot of Work to Do

My wife is the founder of a skin care company based on indigenous Senegalese recipes and natural Senegalese ingredients. 50% of the profits of the company go towards the financing of schools in Senegal. Yet she faces absurd government regulatory obstacles at every step of the way. Doing business in Africa is largely a matter of swimming through molasses due to unnecessary bureaucratic obstacles, each of which serves as an opportunity for a bureaucrat to request a bribe (or suggest a “gift” to speed things along).

When Klein refers to “deregulation” or “economic liberalization,” every instance brings to mind a large corporation taking advantage of the poor. The incidents which incite her hatred do exist, and most, perhaps all of them, are fully worthy of her righteous fury.

What she doesn’t realize is that in her campaign to attack the privileges of the powerful, she has utterly ignored the economic freedoms that the global poor truly need: The right to create legal businesses, the right to accept the jobs that they want, the right to trade freely with whomever they want.

I expect that Klein is unaware that Africa remains one of the most highly regulated regions in the world. The myth among Klein and most other progressives is that corporations are sending jobs overseas to unregulated tax havens where they can avoid legal protections for workers. As it turns out, most of the developing world, including the Indian subcontinent, Latin America, and Africa tends to be drowning in red tape, including complex labor protections. (This does not imply that workers are treated well; most remain in the informal economy precisely because of the red tape.) In Senegal it is difficult to fire an employee due to these “protections.” But as my wife says, “If I can’t fire you, I can’t hire you.” The over-regulation of developing nations is a significant reason why they continue to be poor.

The one developing nation which has not had significant labor legislation has been China — where workers have made more dramatic gains in wages than anywhere on earth. How can the nation with the least labor protections provide the most rapid wage gains?

We were taught by progression historians that union activism and labor legislation are responsible for gains by the working class in Europe and the U.S. This is false.

Any honest economist will acknowledge that wages roughly reflect productivity. A company cannot pay wages more than the value of what they produce and remain in business. There may well be some bargaining room between a worker’s wages and the value that he creates such that unions or individuals can increase slightly their wages without putting a company out of business. But there is no way that the discrepancy between wages in poor nations and rich nations can be eliminated by means of unions and legislation. Chinese wages increased because of competition between companies for workers. Once the Special Economic Zones made it possible to practice free market capitalism within China, massive competition among companies bid up the price of labor.

Without exception, every nation that has become prosperous has high levels of economic freedom (Denmark, Singapore). Without exception, every nation that has remained poor has had low levels of economic freedom (Burundi, North Korea). The only way to provide prosperous, hopeful lives for all of humanity is to provide all of humanity with access to jurisdictions with significant levels of economic freedom.

Klein has gone too far down her creationist rabbit hole to understand the world anew. But for the rest of you, I beg of you work to understand the role that economic liberalism plays in creating broad-based prosperity. More soberly, study the work of Adam Smith, Hernando de Soto and Nobel laureate economists Friedrich Hayek, Milton Friedman, Ronald Coase, James Buchanan, Gary Becker, Douglass North, Vernon Smith, Edmund Phelps, Oliver Williamson, Elinor Ostrom and Angus Deaton. All of them know a lot more about how to create prosperity for all than does Ms. Klein, young earth creationist.