Daniel J. Mitchell

I’m currently in Asia, where I just finished a series of speeches about economic policy in China and Hong Kong.

These two jurisdictions offer very powerful lessons about the importance of economic policy.

Hong Kong is supposed to be Nirvana for libertarians. It holds the top spot in the Economic Freedom of the World rankings. It has an optional flat tax. It has a private retirement system. And based on IMF data, government spending “only” consumes 18.4 percent of GDP (compared to 38.6 percent of economic output in the United States and 54.4 percent of GDP in France).

In reality, Hong Kong is far from perfect. It may have a lot more economic freedom than other jurisdictions, but there is widespread government intervention in certain sectors, such as housing. And while a flat tax and spending burden of 18.4 percent of GDP sound good, let’s not forget that the western world became rich in the 1800s when there was no income tax and the public sector consumed less than 10 percent of GDP.

But when you rank countries on the basis of economic freedom, you don’t compare jurisdictions to a nonexistent libertarian utopia. You compare them to other nations. So Hong Kong gets the top spot. And that’s paying dividends. When you look at long-run comparisons with other nations, Hong Kong hasgrown faster and become more prosperous.

So what about China? This wasn’t my first visit to the country, but it was the first time I went to Shanghai, and it is a very impressive place. It’s obvious that China has enjoyed a lot of growth in the past few decades.


Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.