Thursday, January 23, 2014

John Cowperthwaite, Statistics and Central Planning

Interesting article here shared by a friend, Andrew Work, co-founder of Lion Rock Institute (LRI), a free market think tank in Hong Kong. He is also the CEO and Publisher of New Work Media, which publishes Harbour Times, among others.

When Andrew was Executive Director of LRI, he would often mention to us Mr. John Cowperthwaite, the main architect of Hong Kong's free trade, free market philosophy and public policy. Today, Andrew posted this article in his facebook page, No Statistics, No Mischief by Andrew Ferguson, about the man.

Reposting portions of it here, original article is 2,000+ words. I like this story, hope you will enjoy it too.

John Cowperthwaite...

... The name is familiar to economic historians, academics in postcolonial studies, specialists in the tax policy of the Far East, and avid libertarians, but less well known to normal people. Cowperthwaite was a lifelong government bureaucrat who should be lionized by anyone who loathes and fears bureaucracies. In 1945, as a member of His Majesty’s colonial administrative service, he was sent to Hong Kong, which was then (and remained until 1997) a British protectorate. Hong Kong was in bad shape at the end of the war. Things only got worse when hundreds of thousands of refugees streamed in as the Chinese Revolution raged next door. 

Cowperthwaite rose through the ranks and became financial secretary of the colony in 1961. For the next 10 years he had near-total control over the economic laws and regulations governing Hong Kong. By the time he left office, in 1971, the number of Hong Kongers in poverty had dropped by two-thirds, average wages had risen 50 percent, and Hong Kong had gone from one of the poorest places on earth to one of the richest.

Hong Kong’s rise seems almost miraculous today, and surely the envy of any maker of economic policy. (US Fed) Chairman Yellen, unlike Cowperthwaite, is a determined advocate of the redistribution of wealth and other governmental manipulations that are guaranteed to make us happier, healthier, and more wonderful generally….

Cowperthwaite took as financial secretary…. keeping a flat income tax rate of 15 percent, deregulating nearly every enterprise that caught his attention, nullifying labor laws, and dismantling barriers to imports and exports—are things that Yellen, as Fed chairman, couldn’t do even if she wanted to, which she wouldn’t.

Instead, Chairman Yellen should contemplate another of Cowperthwaite’s initiatives. Asked once what the greatest and farthest-reaching policy of his tenure was, he replied: “I abolished the collection of statistics.” If only in this regard, Chairman Yellen, who will sit atop a vast apparatus built primarily for the gathering of statistics, could do us all a favor by following the Cowperthwaite Way. It’s true that there will suddenly be many unemployed economists wandering around Washington, D.C. But this is only one of the potential benefits. 

Cowperthwaite wasn’t anti-intellectual; he did not scorn statistics. The figures gathered by the International Monetary Fund are the most eloquent testimony to Hong Kong’s achievement in the Cowperthwaite era. As far as he knew, in his day statistics were being compiled all over the colony. He just didn’t want to know what they were. More precisely, he didn’t want other economic policymakers to know he knew what they were. He refused to allow government money to be spent cooking them up. Otherwise, he reasoned, “I might be forced to do something about them.” 

The connection between statistics and mischief is indissoluble. He explained himself to a gathering of legislators who were pressing him for figures on the colony’s gross domestic product—a term of art that everyone uses but no one can usefully define…

At other times Cowperthwaite suggested the causality works the other way around: Statistics themselves are what create, or at least justify, high taxation and other interventions in the economy. In a way it’s a supply-side problem, if you’ll forgive the expression. Say’s law tells us that supply creates its own demand. A supply of statistics will spontaneously generate a flock of people who will want to study them, and who, having studied them, will reach conclusions about them, and then, still worse, will want to shape their conclusions into government policy that will tug the citizenry this way or that, distracting workers and businessmen alike from the important task of minding their own business. 

Cowperthwaite went on:

One of the honourable Members who spoke on this subject said outright, as a confirmed planner, that he thought that [economic statistics] were desirable for the planning of our future economic policy. But we are in the happy position, happier at least for the Financial Secretary, where the leverage exercised by Government on the economy is so small that it is not necessary, nor even of any particular value, to have these figures available for the formulation of policy. We might indeed be right to be apprehensive lest the availability of such figures might lead, by a reversal of cause and effect, to policies designed to have a direct effect on the economy. I would myself deplore this….

Stripped of his numbers an economist would have to resort to the old home truths about how the world works: If you tax something you get less of it; as a general rule an individual manages his own affairs better than his neighbor can; it’s rude to be bossy; the number of problems that resolve themselves if only you wait long enough is far larger than the number of problems solved by mucking around in them. And the cure is often worse than the disease:

In the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.
Somehow the most successful practical economist of the twentieth century knew this was true, and he didn’t have to work out a single equation. 

Andrew Ferguson is a senior editor at The Weekly Standard.

See also: 
Lion Rock 5: Free Will vs. Power Over Others, December 26, 2012 
Lion Rock 11: Barun Mitra on Democracy, Reading Salon 2013, October 28, 2013 
EFN Asia 31. Friends in the Asian Free Market Movement, November 07, 2013

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