Why is the US so Cheap? – Part 2
This is a response to the comments on the last post “Why is the US so Cheap?” I had argued that the US is more efficient in producing stuff compared to India. The people in the US are more productive because they don’t face as many hurdles – they have bigger and better machines, they use more energy, they have more economic freedom, and so on.
Economic freedom is a matter of policy. Policy is made by people who are entrusted to do so. Determining who the policymakers are in an economy is part of the political process. The political system evolved as a historical process from a set of initial conditions which are to a large extent a random draw. Smart people figured out the set of rules that the economy would play under. It is my belief that differences in the performances of economies arise from the differing set of rules that economies adopt. One set of rules may allow greater economic freedom to the people relative to the government; another set may allow the government control over most of what an individual is allowed to do. I believe that the US is successful (to the extent that it is) primarily because it got the rules worked out better (not perfectly, though) than the others.