America has been a driver of technology and innovation for most of it’s history. Capitalism and free markets nurtured that innovation and brought about the incredible increase in prosperity and well being of this country.

Over the last twenty five years, this country and the world have moved to a different stage of development. The industrial age, enabled by the dawning of individual freedom and expanding markets, lifted the world out of the middle ages and improved the well being for all people that weren’t isolated by geography or government mandate. We are now in the midst the information age. As with the industrial age, it is bound to have a powerful positive effect on all countries that embrace it.

New ways to communicate and solve problems brings new markets, new technology, new products, and new customers. The real difference in the current world economy, however, is that many more countries are discovering the benefits of freedom and markets that had caused the astounding growth of western countries over the last several centuries. As one recent book by Clyde Prestowitz puts it, there are “3 billion new capitalists”. There has been much hand wringing by American economists, politicians and professional hand wringers that there is a coming massive shift of wealth from the west, namely, America and Europe, to the east, China, India and other countries that embrace the new reality.

It doesn’t have to be that way. There is an implicit assumption in the discussions that there is a wealth pie that is a set size and that an increase in the size of one nation’s slice comes at the expense of another nation’s slice. It is a fundamental of economic theory that, because of the concepts of division of labor and comparative advantage, in voluntary trade between two countries, both sides benefit from the exchange. The participants are better off after the trade than they were before, otherwise, the trade would not have taken place. That is the basis for the increase in wealth under capitalism.

The issue gets cloudy when governments intervene in the markets, in the form of tariffs, quotas, taxes, subsidies, and controls or coercion of any type. Whether or not those interventions are made under the pretense that they are good or helpful, the only result is to distort the market and hurt the citizens. Often the interventions are done as a protective measure, but it is government protecting specific individuals or industries at the expense of the rest of the population. The interventions don’t hurt the other party in international trade, and in fact may help them. It only makes the interventionist country uncompetitive.

As the reality we live in grinds on, the consequences of prior reality set in. For decades the American government has been intervening, manipulating, regulating, controlling, taxing, subsidizing, spending and inflating the dollar for Americans and American industries. It has been infected by the disease of Europitis. To the extent that we mirror the distorted policies of European politicians, we will also mirror their inevitable demise. Americans are losing their edge in innovation to those countries that have embraced economic freedom and the incentives of the market.

If there is a great shift of wealth, it will not be due to the fact that eastern countries have any inherent competitive advantage, but rather that western countries have government enforced competitive disadvantage. The calls for government to intervene to correct the problem of competitiveness is like cranking up the amperage to prevent electrocution. It is nonsensical. The only appropriate and effective way to give Americans the edge they once had is to embrace the freedom they once had. That is the only source of Americas edge throughout it’s amazing history.

Americans have been innovators and leaders from the infancy of this country. It is the independent spirit, the ability to profit from one’s own efforts and the freedom of every individual to do what is best for him or herself that has created a nation where even the poor of our population have a higher standard of living than the vast majority of the inhabitants of this planet.

America’s edge has not yet been erased, but as the world catches on to the idea of freedom and the power of the free market, only recapturing that freedom and power for Americans will keep us from falling behind. The world is catching up. That is not a bad thing unless we decide not to lead the way.