Unraveling the myths of 'cowboy capitalism'

Some economists are known as abstract theoreticians only, but P.J. Hill, a professor at Wheaton College since 1985, stays grounded by paying close attention to the way institutional structures actually work and by returning to his cattle ranch in Montana each summer. He has researched and published intriguing articles on off-the-beaten-track subjects such as the organization of cattle drives from Texas and mining camps in California.

Professor Hill has a Ph.D. in economics from the University of Chicago and taught at Purdue, the University of Iowa, and Montana State University before joining Wheaton. He has published numerous articles and has co-authored The Birth of a Transfer Society, Growth and Welfare in the American Past, and Eco-Sanity: A Common-Sense Guide to Environmentalism. He also advised the Bulgarian government in its transition to a market economy.

WORLD: Western Europeans complain about America's "cowboy capitalism," but how do unemployment rates in the United States and Western Europe compare?

HILL: Unemployment rates in Western Europe are about twice that of the United States. This is a good example of what happens when one doesn't think through efforts to promote economic justice. Western European labor markets are hampered by numerous rules about severance pay, conditions for firing workers, and high minimum wages.

All of these, and many other restrictions on free economic exchange, are part of the campaign for "greater justice" in the United States. But high unemployment rates can be an indicator of a less just society compared to one with low unemployment. This is particularly true in the case of Europe, where unemployment is especially high among the young and minorities. Thus those campaigning for greater justice need to think through the impact of their proposals on the health of the economy.

WORLD: Why is it very difficult to decrease economic inequality without increasing political inequality?

HILL: Economic inequality is the result of millions of decisions by millions of people. Only by continually using the coercive power of the state to interfere with those decisions can extensive income redistribution be carried out. That doesn't mean Christians shouldn't be concerned about the poor and the marginalized. But they should also be aware of the implications of using the state as the primary engine for ameliorating inequality.

WORLD: Some charge that the Bush tax cuts were very unfair in that most of the benefits went to the well-off. Is that true?

HILL: That is true, but it doesn't necessarily mean the tax cuts represented an unjust policy action. In 2002 the top 50 percent of the income earners paid 96.5 percent of individual income taxes. That means the bottom 50 percent paid only 3.5 per cent. Any tax cut will benefit the people who pay taxes. It is not surprising that the bottom half of the income distribution didn't reap large benefits from the tax cuts since they pay such a small proportion of the taxes.

WORLD: In what ways do you disagree with the evangelical left's positions?

HILL: I find the evangelical left's concern for the poor and downtrodden an important voice in our world, and I applaud its efforts to make us aware of issues of justice in our society. I disagree with how effective the left's proposals would be in helping the poor and the marginalized.

Two areas come to mind immediately. Despite considerable expression of heartfelt concern for the inner-city poor, I find very little discussion of educational vouchers as a way of helping those people. I am surprised that the evangelical left has not been a stronger voice for the use of vouchers to empower inner-city parents by giving them more control over the education of their children.

Second, I find most of the discussion of Third World poverty remarkably devoid of a discussion of the benefits of globalization. Bringing poor nations into the international trading sphere and allowing them to take advantage of their own skills and resources is the most effective way I know of for helping the poor in poor nations. Wealth creation is a remarkable and powerful mechanism for reducing poverty, and specialization is an important part of the wealth-creation process.

WORLD: What is the relationship between economic freedom and poverty-fighting internationally?

HILL: Several indices of economic freedom have been developed over the past 25 years. They all indicate that a limited government, the rule of law, a stable monetary system, well-defined and enforced property rights, and an independent judiciary that enforces contracts are crucial to the economic well-being of a country. And overall economic growth in a country improves the economic lot of those in the bottom part of the income distribution at about the same rate as the overall economy grows.

WORLD: Why is the "rule of law" important in fighting poverty internationally?

HILL: The biggest barrier to economic growth in developing countries is corrupt governments where the politicians use the power of the state to feather their own nest. Under the rule of law, government officials are constrained and citizens face less oppressive governments. Entrepreneurial action and wealth creation is dramatically affected by enforcement of the rule of law.

WORLD: What reading recommendations do you have for people who want to educate themselves about international poverty?

HILL: I recommend reading The Mystery of Capital, by Hernando de Soto. De Soto cares deeply about the poor and argues that the lack of access to the legal system for gaining clear title to land and for registering small businesses has directly harmed the poor in developing economies.

For those who think that simply increasing the amount of economic aid is the answer to poverty in developing economies, I suggest The Elusive Quest for Growth by William Easterly. Although the book is a bit technical in places, it does a masterful job of explaining why most of the aid programs of the past 40 years have failed. And for an overview of the globalization issue I recommend Martin Wolf's Why Globalization Works.