Imagine you live in a society where taxes are admittedly a little high, but all the main services are provided for free: health care, education, pension, unemployment benefits, and you will even receive some little extra if you are extremely poor or if you have children. And then there is another society where taxes are quite low. However, you do not get everything for “free” – you have to pay for each and every service yourself. Which of the two societies should be preferred? And is it true, as often asserted, that the poor would be worse off in the second society? Is it true that only the rich would benefit and that the poor were harmed by these policies?
No, it is not true. For many decades, the myth that in a capitalist country the rich become richer while the poor become poorer has been spreading all over the world – despite the fact that a quick glance over the facts would show that the economically freer the country, the less poor it is. It actually is no news that countries that have more economic freedom are richer and its citizens live better than those states which isolate themselves from the world, tax high, and regulate heavily. According to the Heritage Foundation’s
Index of Economic Freedom, the five countries with the most economic freedom are in fact Hong Kong, Singapore, New Zealand, Switzerland, and Australia, while the bottom five are (of course known as being paradises incarnate) Yemen, North Korea, Venezuela, Cuba, and the Republic of Congo. An easy way to figure out where it is better to live no matter the social class is to see where people move to: Are people moving to North Korea, or to Australia? Exactly.
Usually countries with a small government, low taxes and free markets make both poor and rich people richer. Sure enough, as Kuznets
emphasized, when some countries begin to develop, there will be a wealth gap between the rich and the poor – but usually after a bit, the gap will shrink again. In pro-market countries everybody will be better off.
