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A World of Wealth: How Capitalism Turns Profits into Progress

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 “Thomas Donlan’s defense of free market capitalism is especially timely today given all the pressures to regulate and stifle it. The anti-globalization movement wants more trade protectionism and less immigration. The global credit crisis is putting pressure on governments to bail out irresponsible lenders and borrowers at taxpayers’ expense. Instead, Donlan convincingly and clearly explains why we would all prosper more by doing all we can to make markets freer.”

—Ed Yardeni, President, Yardeni Research, Inc.

“Thomas Donlan reminds us all that capitalism is not simply one choice among different and equally valid economic systems, but instead that hard work and the accumulation of wealth is the natural tendency of successful people and healthy societies around the world.”

—Christopher Whalen, Managing Director, Institutional Risk Analytics

“It has been several decades since Joseph Schumpeter observed that the philosophical defense of a free-market economy must never cease. Thomas Donlan has taken up that challenge, but this clear-eyed book is much more than a defense. It is a magnificently constructed explanation of how the world works and why free-market capitalism continues to offer the greatest hope for solving our greatest challenges.”

—Carl J. Schramm, Ph.D., President, Kauffman Foundation

“The author brings to the table a healthy skepticism of the conventional wisdom, an admirable ability to separate fact from fancy, and an undisguised repugnance for the mumbo-jumbo that’s the curse of so much commentary on anything to do with economics or investment. A World of Wealth is not only a lively read, but an exceptionally enlightening and rewarding one to boot.”

—Alan Abelson, Barron’s Columnist

“With the facts of a primer laid out in the fast-paced narrative of a storyteller, Thomas Donlan’s A World of Wealth lucidly explains today’s marketplace. From the credit crisis to immigration and from oil prices to global warming, the book guides the reader through the economic issues of our day—jargon-free. It’s a fast, fun read that illuminates while it entertains.”

—Thomas W. Hazlett, Professor of Law & Economics, George Mason University

“An indispensable—and highly readable—primer on how the economic world really works, whether politicians of both left and right want it to work that way or not. If it were required reading for all political reporters, they might do a lot more reporting and carry a lot less water in the process.”

—John Steele Gordon, Author of Empire of Wealth: The Epic History of American Economic Power

Acknowledgments xii

About the Author xiii

Introduction xv

Chapter 1: The Capitalist Answer to the “Energy Crisis”: Pay Higher Prices 1

Chapter 2: The Capitalist Approach to Environmental Pollution and Global Warming: Breathe Easy 23

Chapter 3: A Capitalist Prescription for Trade: Free Exchange Enriches Both Sides of Every Deal 43

Chapter 4: Capitalist Immigration Policy: Tear Down the Walls 65

Chapter 5: The Essential Elements of Capitalism: Investment and Invention 81

Chapter 6: The Capitalist Take on Taxes: Keep Taxes Low and Equal 93

Chapter 7: The Capitalist Struggle against Low Finance: Price Controls and Regulation Endanger the Free Market 113

Chapter 8: A Capitalist Diagnosis for the High Cost of Health Care: Pay What It’s Worth 131

Chapter 9: The Capitalist Approach to Retirement Security: It’s an Individual's Duty First 149

Chapter 10: A Capitalist Look at the Current Economy 169

Chapter 11: The Capitalist Quest for Productivity 185

Reading Further 201

Index 205

Table of Contents

  1. Copyright
    1. Dedication
  2. Praise for A World of Wealth
  3. Acknowledgments
  4. About the Author
  5. Introduction
    1. Creating Capital
    2. The 80-20 Rule
    3. The Power of Productivity
  6. 1. The Capitalist Answer to the “Energy Crisis”: Pay Higher Prices
    1. Market Movements
    2. The Power of Price
    3. The Limits of Planning
    4. Doing the Right Thing in Spite of Ourselves
    5. Are We Really Running Out of Oil?
    6. Peak Coal Foreshadowed Peak Oil
    7. Summary
  7. 2. The Capitalist Approach to Environmental Pollution and Global Warming: Breathe Easy
    1. Shrinking the Energy Budget
    2. Sustaining Progress
    3. Ecological Economics and Vice Versa
    4. Adam Smith and the Division of Labor
    5. Ecological Accounting
    6. Tragedies of the Commons
    7. A Flood of Problems
    8. Summary
  8. 3. A Capitalist Prescription for Trade: Free Exchange Enriches Both Sides of Every Deal
    1. Founding Traders
    2. Restraint of Trade
    3. The Productive Power of Outsourcing
    4. Make Jobs—Don’t Protect Them
    5. The Benefits of Free Trade
    6. Solving Our China Problem with Trade
    7. Trade Enriched without Conquest
    8. The War God Demands Gold
    9. The Earnings of Trade
    10. Summary
  9. 4. Capitalist Immigration Policy: Tear Down the Walls
    1. The Economic Lure
    2. An Unpalatable Menu
    3. A World Market for Labor
    4. Immigration and Imagination
    5. Summary
  10. 5. The Essential Elements of Capitalism: Investment and Invention
    1. Creative Capitalism
    2. Summary
  11. 6. The Capitalist Take on Taxes: Keep Taxes Low and Equal
    1. Squeeze the Rich
    2. Tax Magic
    3. The Robin Hood Principle
    4. The Impossible Quest for Fairness
    5. Tax-Exempt Citizens
    6. The Most Burdensome Tax
    7. Beneficial Taxes
    8. Summary
  12. 7. The Capitalist Struggle against Low Finance: Price Controls and Regulation Endanger the Free Market
    1. Price-Gouging Disaster
    2. Permanent Price-Fixing
    3. State of Emergency
    4. Ancient Traditions
    5. Incommunicado
    6. Restraint of Trade
    7. Summary
  13. 8. A Capitalist Diagnosis for the High Cost of Health Care: Pay What It’s Worth
    1. A Century of Failed Reform
    2. Caring about Health Care
    3. The Frightening Future
    4. The Wizard of Health Care
    5. Who Pays for Health Insurance?
    6. Free Choice at a Price
    7. Summary
  14. 9. The Capitalist Approach to Retirement Security: It’s an Individual’s Duty First
    1. It All Started with Bismarck
    2. More Straws for an Aging Camel
    3. Slouching to the Future
    4. Make Way for X and Y
    5. Summary
  15. 10. A Capitalist Look at the Current Economy
    1. Rogues’ Gallery
    2. Booms and Busts Born in Debt
    3. Depression and Recovery
    4. Summary
  16. 11. The Capitalist Quest for Productivity
    1. The Power of Capital
    2. The Wage Gap
    3. Unequal Wealth Rises Anyway
    4. The Highest Return on Investment
    5. Creative Disorder
    6. Summary
  17. Reading Further
    1. Periodicals
    2. Books
  18. Financial Times Press