Economics for the 21st Century

Economics on Trial
IDEAS ON LIBERTY
January 2000

Economics for the 21st Century
by Mark Skousen

“Nature has set no limit to the realization of our hopes.” — Marquis De Condorcet

Recently I came across the extraordinary writings of the Marquis de Condorcet (1743-94), a mathematician with an amazing gift of prophecy in l`age des lumieres. Robert Malthus (1766-1834) ridiculed Condorcet’s optimism in his famous Essay on Population (1798). Today Malthus is well known and Condorcet is forgotten. Yet it is Condorcet who has proven to be far more prescient.

In an essay written over 200 years ago, translated as “The Future Progress of the Mind,” Condorcet foresaw the agricultural revolution, gigantic leaps in labor productivity, a reduced work week, the consumer society, a dramatic rise in the average life span, medical breakthroughs, cures for common diseases, and an explosion in the world’s population.

Condorcet concluded his essay with a statement that accurately describes the two major forces of the twentieth century — the destructive force of war and crimes against humanity, and the creative force of global free-market capitalism. He wrote eloquently of “the errors, the crimes, the injustices which still pollute the earth,” while at the same time celebrating our being “emancipated from its shackles, released from the empire of fate and from that of the enemies of its progress, advancing with a firm and sure step along the path of truth, virtue and happiness!”(1)

As we enter the year 2000, the public has focused on the history of the twentieth century. Condorcet’s essay reflects two characteristics of this incredible period. First, the misery and vicious injustices of the past hundred years, and second, the incredible economic and technological advances during the same time.

The Crimes of the Twentieth Century

Paul Johnson’s Modern Times, by far the best twentieth-century history of the world, demonstrates powerfully that this century has been the bloodiest of all world history.* Here is a breakdown of the carnage:

Civilians Killed by Governments (in millions) Years
Soviet Union 62 (1917-91)
China (communist) 35 (1949- )
Germany 21 (1933-45)
China (Kuomintang) 10 (1928-49)
Japan 6 (1936-45)
Other 36 (1900- )
Total 170 million
Deaths in War (in millions)
International wars 30
Civil wars 7
Total 37 million

Economists use a statistic to measure what national output could exist under conditions of full employment, called Potential GDP Imagine the Potential GDP if the communists, Nazis, and other despots hadn’t used government power to commit those hateful crimes against humanity.

Another great French writer, Frederic Bastiat (1801-50), wrote an essay in 1850 on “What Is Seen and What Is Not Seen.”(3) We do not see the art, literature, inventions, music, books, charity, and good works of the millions who lost their lives in the Soviet gulags, Nazi concentration camps, and Pol Pot’s killing fields.

The Economic Miracle of the Twentieth Century

Yet the twentieth century was also the best of times, for those who survived the wars and repression. Millions of Americans, Europeans, and Asians were emancipated from the drudgery of all-day work by miraculous technological advances in telecommunications, agriculture, transportation, energy, and medicine. The best book describing this economic miracle is Stanley Lebergott’s Pursuing Happiness: American Consumers in the Twentieth Century (Princeton University Press, 1993). Focusing on trends in food, tobacco and alcohol, clothing, housing, fuel, housework, health, transportation, recreation, and religion, he demonstrates powerfully how “consumers have sought to make an uncertain and often cruel world into a pleasanter and more convenient place.” As a result, Americans have increased their standard of living at least tenfold in the past 100 years.

What should be the goal of the economist in the new millennium? Certainly not to repeat the blunders of the past. In the halls of Congress, the White House, and academia, we need to reject the brutality of Marxism, the weight of Keynesian big government, and the debauchery of sound currency by interventionist central banks. Most important, ivory-tower economists need to concentrate more on applied economics (like the work of Lebergott) instead of high mathematical modeling.

As far as a positive program is concerned, the right direction can be found in an essay on the “next economics” written by the great Austrian-born management guru Peter F. Drucker almost 20 years ago: “Capital is the future . . . the Next Economics will have to be again micro-economic and centered on supply.” Drucker demanded an economic theory aiming at “optimizing productivity” that would benefit all workers and consumers.(4) Interestingly, Drucker cited approvingly from the work of Robert Mundell, the newest Nobel Prize winner in economics, who is famed for his advocacy of supply-side economics and a gold-backed international currency.

Beware the Enemy

Market forces are on the march. The collapse of Soviet communism has, in the words of Milton Friedman, turned “creeping socialism” into “crumbling socialism.” But let us not be deluded. Bad policies, socialistic thinking, and class hatred die slowly. Unless we are vigilant, natural liberty and universal prosperity will be on the defensive once again.

We need to deregulate, privatize, cut taxes, open borders, stop inflating, balance the budget, and limit government to its proper constitutional authority. We need to teach, write, and speak out for economic liberalization as never before. Let our goal for the coming era be: freedom in our time for all peoples!

1. Marquis de Condorcet, “The Future Progress of the Human Mind,” The Portable Enlightenment Reader, ed. Isaac Kramnick (Penguin Books, 1995), p. 38. Several of Condorcet’s writings can be found in this excellent anthology.
2. Paul Johnson, Modern Times: The World from the Twenties to the Nineties, rev. ed. (New York: Harper, 1992). The best survey of the horrors of communism is The Black Book of Communism: Crimes, Terror, Repression (Cambridge, Mass.: Harvard University Press, 1999), written by six French scholars, some of whom are former communists.
3. Frederic Bastiat, Selected Essays on Political Economy (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1995 [1964]).
4. Peter F. Drucker, Toward the Next Economics, and Other Essays (New York: Harper & Rowe, 1981), pp. 1-21.

Say’s Law Is Back

Ideas on Liberty
August 1999
by Mark Skousen

“Keynes . . . misunderstood and misrepresented Say’s Law. . . . This is Keynes’s most enduring legacy and it is a legacy which has disfigured economic theory to this day.”
—Steven Kates[1]

In researching my forthcoming book, The Story of Modern Economics (to be published by M. E. Sharpe next year), I came across a remarkable new work by Australian economist Steven Kates, Say’s Law and the Keynesian Revolution. According to Kates, John Maynard Keynes created a straw man in order to produce a revolution in economics. The straw man was Jean-Baptiste Say and his famous law of markets. Steven Kates calls The General Theory “a book-length attempt to refute Say’s Law.”

But to refute Say’s Law, Keynes gravely distorted it. As Kates states, “Keynes was wrong in his interpretation of Say’s Law and, more importantly, he was wrong about its economic implications.”[2] And Kates is sympathetic to Keynesian economics!

How Keynes Got It Wrong

In the introduction to the 1939 French edition of The General Theory, Keynes focused on Say’s Law as the central issue of macroeconomics. “I believe that economics everywhere up to recent times has been dominated . . . by the doctrines associated with the name of J.-B. Say. It is true that his ‘law of markets’ has long been abandoned by most economists; but they have not extricated themselves from his basic assumptions and particularly from his fallacy that demand is created by supply. . . . Yet a theory so based is clearly incompetent to tackle the problems of unemployment and of the trade cycle.”

Unfortunately, Keynes failed to understand Say’s Law. By incorrectly stating it as “supply creates its own demand,” he proposed, in effect, that Say meant that everything produced is automatically bought. Hence, Say’s Law cannot explain the business cycle.[3]

Keynes went on to say that the classical model under Say’s Law “assumes full employment.” Other Keynesians have continued to make this point, but nothing could be further from the truth. Conditions of unemployment do not prohibit production and sales from taking place that form the basis of new income and new demand.

Moreover, Say’s Law specifically formed the basis of a classical theory of the business cycle and unemployment. As Kates states, “The classical position was that involuntary unemployment was not only possible, but occurred often, and with serious consequences for the unemployed.”[4]

Production and Consumption

Exactly what is Say’s Law? Chapter 15 of Say’s A Treatise on Political Economy describes his famous law of markets: “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”[5] When a seller produces and sells a product, the seller instantly becomes a buyer who has spendable income. To buy, one must first sell. In other words, production is the cause of consumption, and increased output leads to higher consumer spending.

In short, Say’s Law is this: The supply (sale) of X creates the demand for (purchase of) Y.

Say illustrated his law with the case of a good harvest by a farmer. “The greater the crop, the larger are the purchases of the growers. A bad harvest, on the contrary, hurts the sale of commodities at large.”[6]

Say has a point. According to business-cycle statistics, when a downturn starts, production is the first to decline, ahead of consumption. And when the economy begins to recover, it’s because production starts up, followed by consumption. Economic growth begins with an increase in productivity, new products, and new markets. Hence, production spending is always ahead of consumption spending.

We can see why this is the case on an individual basis. The key to a higher standard of living is, first, an increase in your income, that is, your productivity, either by getting a raise, changing jobs, going back to school, or starting a money-making business. It would be foolish to achieve a higher standard of living by spending savings or going into debt to buy a bigger house or new automobile before you increase your productivity. You may be able to live high on the hog for a while, but eventually you will have to pay the piper . . . or the credit card bill.

According to Say, the same principle applies to nations. The creation of new and better products opens up new markets and increases consumption. Hence, “the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means.” Then Say added, “Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.”[7]

The Cause of the Business Cycle

Say’s Law states that recessions are not caused by failure of demand (Keynes’s thesis), but by failure in the structure of supply and demand. Recession is precipitated by producers miscalculating what consumers wish to buy, thus causing unsold goods to

pile up, production to be cut back, income to fall, and finally consumer spending to drop. As Kates elucidates, “Classical theory explained recessions by showing how errors in production might arise during cyclical upturns which would cause some goods to remain unsold at cost-covering prices.” The classical model was a “high-sophisticated theory of recession and unemployment” that with one fell swoop by the illustrious Keynes was “obliterated.”[8]

In his broad-based book, Kates highlights other classical economists, including David Ricardo, James Mill, Robert Torrens, Henry Clay, Frederick Lavington, and Wilhelm Röpke, who extended Say’s Law. Many classical economists focused on how monetary inflation exacerbated the business cycle. They were precursors of the Austrians Ludwig von Mises and F.A. Hayek.

Free-market economists, such as W. H. Hutt and Thomas Sowell, have tried to rehabilitate Say’s Law, but none carries the punch of Steven Kates.

Notes

  1. Steven Kates, Say’s Law and the Keynesian Revolution (Northampton, Mass.: Edward Elgar, 1998), p. 1
  2. Ibid., p. 212.
  3. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), pp. 25–26.
  4. Kates, p. 18.
  5. Jean-Baptiste Say, A Treatise on Political Economy (Augustus M. Kelley, 1971 [1832]), p. 134.
  6. Ibid., p. 135.
  7. Ibid., p. 139.
  8. Kates, pp. 18, 19, 20.

Keynesianism Defeated

WALL STREET JOURNAL — THURSDAY, OCTOBER 9, 1997

By Mark Skousen

In 1992, Harvard Prof. Greg Mankiw was paid an unprecedented advance of $1.1 million to produce the “next Salmuelson”–a successor to Paul Samuelson’s “Economics,” the most successful economics textbook ever written, with more than four million copies sold in 15 editions and 41 foreign translations since 1948. Mr. Mankiw’s 800-page “Principles of Economics” has now been published, to great publicity. And for good reason: Mr. Mankiw has written a revolutionary–or rather, counterrevolutionary–work.

Virtually the entire book is devoted to classical economics, leaving the Keynesian model as an afterthought in the end chapters. Mr. Mankiw’s pedagogy is all the more remarkable given that he considers himself a “neo-Keynesian.” His liberal bias has allowed him to do what no other mainstream economist dares: He has betrayed Keynes.

Almost all economics textbooks published in the past 50 years have taken their cue from Mr. Samuelson, whose major influence was John Maynard Keynes’s “The General Theory of Employment, Interest and Money” (1936). Keynes’s book taught that Adam Smith’s classical model–founded on the virtues of thrift and balanced budgets, laissez faire capitalism and free trade–was a “special” case and only applied in times of full employment.

Keynes’s model portrayed the market as a driver without a steering wheel, a driver that could push the economy off the road at any time. He taught that the economy needed a large and activist government to steer it on the road of full employment. Keynesianism, or the “new economics,” became widespread–the “general” theory.

Modern economics textbooks thus focused primarily on the ups and downs of the capitalist system and how government policy could attempt to ameliorate the business cycle. They include many chapters studying cyclical fluctuations, while burying the study of economic growth and development–otherwise known as supply-side economics–in the back pages. Now Mr. Mankiw has changed all that, putting classical economics back at the forefront, where it belongs.

This is more than some free-market economists have been able to accomplish in tile past. James Gwartney and Richard Stroup, authors of “Economics: Private and Public Choice” (Dryden, 1997), don’t believe in the Keynesian model of aggregate supply and aggregate demand, or AS-AD, but they were forced to include it by their publisher’s review board, which consists of mainstream economists. Roger LeRoy Miller, author of another best-selling textbook, “Economics Today” (Addison-Wesley, 1997), told me, “AS-AD is a bunch of nonsense, but I’m required to teach it.” (One small victory: Paul Heyne refused to put AS-AD in his “The Economic Way of Thinking” (Prentice-Hall, 1997) and got away with it because he writes for a niche market.)

So, in a Nixon-goes-to-China twist, it took a Keynesian to accomplish what the free-market economists couldn’t–relegating Keynesian models to a minor role in textbooks.

Mr. Mankiw calls his classical model “the real economy in the long run.” His textbook, published by Harcourt Brace’s Dryden Press, teaches that increases in government spending crowd out private capital, producing higher interest rates. Higher thrift and greater savings produce lower interest rates and higher economic growth. Unemployment is caused not by greedy industrialists, but by minimum wage laws, collective bargaining, unemployment insurance and other regulations that raise the cost of labor.

Mr. Mankiw even approvingly quotes Milton Friedman: “inflation is always and everywhere a monetary phenomenon”–not the product of rising labor or supply costs, as many Keynesians believe. In fact, Mr. Mankiw cites Mr. Friedman more than he cites Keynes.

This is not to say that Mr. Mankiw’s textbook isn’t without a few sins of omission. He fails to tell students about the great postwar economic miracles of Japan, Germany, Hong Kong, Singapore and Chile. He also ignores the current debate over Social Security privatization. And there are no references to the great Austrian economists Ludwig von Mises and F.A. Hayek, or to Nobel laureate James Buchanan and the public choice theory he espouses.

But these complaints are small compared with the book’s overall message, that classical economics is now the “general” theory and Keynesian economics is the “special” case. Amazingly, Mr. Mankiw doesn’t mention most of the standard Keynesian analysis: No “consumption function,” no “Keynesian cross,” no “propensity to save,” no “paradox of thrift”– and only one short reference to the “multiplier”!

That’s quite a feat for Mr. Mankiw, a man who named his dog Keynes.

Economics in One Page

Economics on Trial – THE FREEMAN – JANUARY 1997

By Mark Skousen

“What makes it [economics] most fascinating is that its fundamental principles are so simple that they can be written on one page, that anyone can understand them, and yet very few do.”1
–Milton Friedman

The above statement by Friedman got me thinking: Is it possible to summarize the basic principles of economics in a single page? After all, Henry Hazlitt gave us a masterful summary of sound principles in Economics in One Lesson. Could these concepts be reduced to a page?

Friedman himself did not attempt to make a list when he made this statement in a 1986 interview. After completing a preliminary one-page summary of economic principles, I sent him a copy. In his reply, he added a few of his own, but in no way endorses my attempt.

After making this list of basic principles (see the next page), I have to agree with Friedman and Hazlitt. The principles of economics are simple: Supply and demand. Opportunity cost. Comparative advantage. Profit and loss. Competition. Division of labor. And so on.

In fact, one professor even suggested to me that economics can be reduced to one word: “price.” Or maybe, I suggested alternatively, “cost.” Everything has a price; everything has a cost.

Additionally, sound economic policy is straightforward: Let the market, not the state, set wages and prices. Keep government’s hands off monetary policy. Taxes should be minimized. Government should do only those things private citizens can’t do for themselves. Government should live within its means. Rules and regulations should provide a level playing field. Tariffs and other barriers to trade should be eliminated as much as possible. In short, government governs best which governs least.

Unfortunately, economists sometimes forget these basic principles and often get caught up in the details of esoteric model-building, high theory, academic research, and mathematics. The dismal state of the profession was expressed recently by Arjo Klamer and David Colander, who, after reviewing graduate studies at major economics departments around the country, asked, “Why did we have this gut feeling that much of what went on there was a waste?” 2

On the following page is my attempt to summarize the basic principles of economics and sound economic policy. If anyone has any suggested improvements, I look forward to receiving them.

ECONOMICS IN ONE PAGE

1. Self-interest: “The desire of bettering our condition comes with us from the womb and never leaves till we go into the grave” (Adam Smith). No one spends someone else’s money as carefully as he spends his own.

2. Economic growth: The key to a higher standard of living is to expand savings, capital formation, education, and technology.

3. Trade: In all voluntary exchanges, where accurate information is known, both the buyer and seller gain; therefore, an increase in trade between individuals, groups, or nations benefits both parties.

4. Competition: Given the universal existence of limited resources and unlimited wants, competition exists in all societies and cannot be abolished by government edict.

5. Cooperation: Since most individuals are not self-sufficient, and almost all natural resources must be transformed in order to become usable, individuals–laborers, landlords, capitalists, and entrepreneurs–must work together to produce valuable goods and services.

6. Division of labor and comparative advantage: Differences in talents, intelligence, knowledge, and property lead to specialization and comparative advantage by each individual, firm, and nation.

7. Dispersion of knowledge: Information about market behavior is so diverse and ubiquitous that it cannot be captured and calculated by a central authority.

8. Profit and loss: Profit and loss are the market mechanisms that guide what should and should not be produced over the long run.

9. Opportunity cost: Given the limitations of time and resources, there are always trade-offs in life. If you want to do something, you must give up other things you may wish to do. The price you pay to engage in one activity is equal to the cost of other activities you have forgone.

10. Price theory: Prices are determined by the subjective valuations of buyers (demand) and sellers (supply), not by any objective cost of production; the higher the price, the smaller the quantity purchasers will be willing to buy and the larger the quantity sellers will be willing to offer for sale.

11. Causality: For every cause there is an effect. Actions taken by individuals, firms, and governments have an impact on other actors in the economy that may be predictable, although the level of predictability depends on the complexity of the actions involved.

12. Uncertainty: There is always a degree of risk and uncertainty about the future because people are often reevaluating, learning from their mistakes, and changing their minds, thus making it difficult to predict their behavior in the future.

13. Labor economics: Higher wages can only be achieved in the long run by greater productivity, i.e., applying more capital investment per worker; chronic unemployment is caused by government fixing wage rates above equilibrium market levels.

14. Government controls: Price-rent-wage controls may benefit some individuals and groups, but not society as a whole; ultimately, they create shortages, black markets, and a deterioration of quality and services. There is no such thing as a free lunch.

15. Money: Deliberate attempts to depreciate the nation’s currency, artificially lower interest rates, and engage in “easy money” policies inevitably lead to inflation, boom-bust cycles, and economic crisis. The market, not the state, should determine money and credit.

16. Public finance: In all public enterprises, in order to maintain a high degree of efficiency and good management, market principles should be adopted whenever possible: (1) Government should try to do only what private enterprise cannot do; government should not engage in businesses that private enterprise can do better; (2) government should live within its means; (3) cost-benefit analysis: marginal benefits should exceed marginal costs; and (4) the accountability principle: those who benefit from a service should pay for the service.

Endnotes:
1. Quoted in interview, Lives of the Laureates, William Breit and Roger W. Spencer, eds. (Cambridge, Mass.: MIT Press, 1986), p.91.
2. Arjo Klamer and David Colander, The Making of an Economist (Boulder, Colo.: Westview Press, 1990), p. xiv. See also David Colander and Reuven Brenner, Educating Economists (Ann Arbor: University of Michigan Press, 1992).

Entreprenuerialship is Alive and Well in the Soviet Union

by Jo Ann Skousen

It was the final day of our trip to Russia, and our worst fears were being realized: as the children and I rushed toward the Moscow airport and home, my husband, Mark Skousen, was being taken to the police station at Red Square. And time was running out.

Two days before our departure had started innocently enough, with typical plans for a day of sightseeing — Red Square, Lenin’s tomb, and St. Basil’s Cathedral in the morning, followed by shopping at the massive state-run GUM department store in the afternoon before attending the Moscow circus that evening. But the morning had barely begun when we found ourselves hurried through twisting alleys in the drizzling rain by two unknown Russians toward every conservative American’s nightmare: the Soviet police station at Red Square. Instinctively I pulled the children closer, keeping them between my husband and myself. Then we stopped, and the head inspector looked up, eyeing each of us in turn. “How can I help you?” he asked through our interpreter. Our video camera had been left in the taxi, and the two young Russians we had met the night before, Igor and Sergei, horrified at the thought of a loss so dear, had insisted that we report it to the police.

To our surprise, the police station was not the somber fortress we had expected it to be. I looked around at the peeling yellow paint, the dilapidated veneer-topped desks, the fist-sized hole punched through a door. The inspector, who appeared to be about 30 years old, was not even wearing a uniform, but was dressed instead in a striped knit sports shirt, the kind you might buy at J.C. Penney.

We gave our report, and our Russian friend assured us privately that, if we brought the inspector a couple of cartons of American cigarettes, our camera would very likely be recovered and restored to us. The black market, we were discovering, was the only system keeping this crumbling ship afloat.

Igor and Sergei spent the next two days as our personal guides, driving us all over the city and even inviting us to their tiny but clean apartment. Igor had been to the United States on a visit and now his life’s goal was to get out of Russian permanently. To leave would require money–dollars, not rubles — and lots of it. He had smuggled a personal computer back with him, and sold it for an amount equal to three years’ salary — no wonder he felt the loss of our expensive video camera so keenly! With his profits he was able to quit his government job and become an entrepreneur, mostly exchanging currency for tourists at ten times the official rate, and providing other services. The penalty for changing money was a minimum of five years in jail, so we were amazed at how freely the two moved among the tourists, entering hotels and restaurants where local Muscovites were clearly forbidden. There was a buoyant brightness about them, in stark contrast to the vast majority of beaten down Russians standing in lines wherever we went. Imagine having to get your drivers license renewed every day of your life, and you get some idea of what it is like to be a Soviet citizen.

Even more amazing was the immediate trust our two friends put in us. After exchanging our money and selling us several hundred dollars worth of art objects, they gave all the dollars back to us, asking us to deposit the money in an account Igor had set up in the States during his visit. Even now my heart swells as I think of their courage and friendship.

We were saying our farewells at the hotel when the call came from the police station. They had found our taxi driver and insisted that Mark come down to the station to identify him, even though our plane was scheduled to leave in less than two hours. It seemed innocent enough, but as the car took him away, a lifetime of fearing “the Reds” overtook me. Did they know about Mark’s CIA background? Had this whole experience been an elaborate hoax to keep him there? Finally, with only minutes to spare, he came running through the airport, Igor and Sergei clearing the way. The police had indeed found our taxi driver, but when Mark learned what they planned to do to him — accuse him of money exchanging so they could sentence him to five years in prison — Mark’s memory faltered and he just wasn’t able to identify the fellow.

(It is now a year since our visit to Moscow. Igor is living with his wife in Norfolk Virginia, and Sergei is living in Paris, hoping for a visa to the States. They are all working hard at whatever jobs they can find, grateful to be in the West where they know that someday they will be extremely successful.)

MARCH 1991 INVESTOR GUIDE

Easy Living: My Two Years in the Bahamas

Memoir — LIBERTY

By Mark Skousen


The Island of June

If you’re feeling the need of real relaxation,
In a climate that’s lazy, a perfect vacation,
Away from the snow and the slush that annoys you,
Away from the worries and cares that destroy you,
Try Nassau, the Island of June.

There are bluest of seas at your door to enthral you,
With no sudden temperature changes to gall you,
And laziness comes on you, quietly stealing
Along with a cheerful, a ‘world’s all right’ feeling,
In Nassau, the Island of June.
-‘A Song of Nassau” by Fred Winslow Rust

I am near the end of a two-year adventure in the Bahamas, and I am finally getting a chance to put down my thoughts about this marvelous “island of June”…But before I get into that, will you excuse me? It’s Saturday in late November, and the sky is a cloudless blue and the temperature is 80 degrees, and my family is beckoning me to take them to Cabbage Beach on Paradise Island. Be back in a couple of hours…

Well, I’m back. The turquoise blue water and white sand are beautiful and refreshing. After living in the Bahamas for two years (1984-85), I have gotten tired of a few things, but I have never tired of the sparkling beauty of blue skies, warm breeze and turquoise waters calling me when I awake. It really makes the day pass quickly.

Most Frequently Asked Questions

As a financial writer, perhaps the most frequent question I have heard for the past two years is, “Why did you move to the Bahamas?”

The answer is not as simple as saying, “To relax on a boat every day,” to quote an acquaintance from England who moved to the Bahamas some time ago. That’s not what I want out of life anyway. I didn’t move to run away from work and responsibility, although I’ve been accused of that. If life was always carefree relaxation, how could you really enjoy relaxing? You can’t rest if all you do is rest every day.

Bertrand Russell wrote a little essay called “In Praise of Idleness,” in which he says that the “morality of work is the morality of slaves, and the modern world has no need of slavery.” There is some virtue to his vice. I think he really means to be in praise of “leisure,” for the “wise use of leisure…is a product of civilization and education…The modern man thinks that everything ought to be done for the sake of something else, and never for its own sake.” If you break out of the workaholic syndrome, you can achieve “happiness and joy of life, instead of frayed nerves, weariness, and dyspepsia.”

You can rejuvenate your life if you want to. I’m convinced that there is a deep clandestine desire inside everyone to break out of the day-to-day routine of modern society, the nine to five job, the same old television shows and football games, the same friends, relatives and acquaintances. Something is missing in your life, and you feel it. Most people never do anything about it, but it remains a mystique.

My wife Jo Ann and I decided to make a change, hoping for the better. We had lived in Washington, D. C. for a dozen years, and we were tired of the same old routines. It’s hard to put my finger on the problem. But we felt we were in the rut of city living, the rut people get into no matter what their career. Looking back, I think one of the problems was Washington itself–I don’t think it’s a real city. It’s just a political city, like Brasilia. Financial colleague Doug Casey calls Washington the “Death Star.” He too has left Washington.

We thought that it was extremely important for us and our children to experience new cultures and peoples. Having lived outside the U.S. before, I had come to the realization that Americans often live sheltered and provincial lives, with little exposure to other languages, musical forms, and philosophies. We also wanted to move for reasons of health. Our 4-year old daughter, Lee Ann, had caught pneumonia the past year during one of those bitter cold winters in the East, and our youngest son, Todd, was chronically ill, partly because of the cold. We wanted to move to a warmer climate.

Financial and Tax Advantages

There was of course a financial motivation. I wanted to give an international flavor to my financial writings, and I knew that the best way to achieve it was by moving abroad. Nassau, the capital of the Bahamas, is a major financial center, with hundreds of international banks.

What about taxes? They, too, were an important consideration, but I certainly didn’t leave the country because I had to. The tax burden was becoming a real drain on me, as it is for every financially successful American. Taxes were running (ruining?) my life. It seemed that no matter what financial decision I made, whether buying a new home or investing in the stock market or some new venture, the overriding concern was the tax implications. By Christmas-time every year I would have spent my last dime on tax shelters. I was always broke by the end of the year. I’m sure you know the feeling.

Then, I started realizing that I was digging a hole that was getting deeper and deeper. I found myself writing checks this year for last year’s pension contributions or last year’s income taxes! I figured that sooner or later it was going to catch up with me. And most of the tax shelters I had invested in turned sour–they were far riskier than I had bargained for. Putting more money down the tax shelter rathole wasn’t the answer. Working longer hours, being more “productive,” and therefore earning more money was one solution, but I could only determine that it would result in bad health, a workaholic attitude, and a detrimental family life.

Fortunately Congress came to the rescue. In 1980, it passed enlightened and long-overdue tax relief for Americans working abroad. It exempted the first $80,000 in earned income from Federal income taxes and permitted further deductions for housing expenses. This still meant filing U.S. tax forms, but at least expatriates could be free from most U.S. taxes, unless they earned more than $80,000 (the exemption was reduced to $70,000 in 1986). This is not to say that Americans living abroad can live “tax free.” Not at all. They are still subject to foreign levies, which are sometimes worse than those of the U.S. That was the primary reason for the legislation in the first place, to avoid “double taxation.

The Bahamas offered an intriguing alternative. They have no income tax at all or any tax on investments. This is especially advantageous to foreigners, because it means they have no disincentives to make more money. In fact, the British, Canadians, Germans and other nationalities I met there not only don’t pay any income tax to the Bahamas or their native land, but also don’t have to file any tax forms in their home country. They had complete financial freedom! Only Americans are subject to taxation (above $70,000 a year) and filing based on their worldwide income. I looked with great envy upon my fellow expatriates in the Bahamas.

This is not to say that nobody pays any taxes at all in the Bahamas. Far from it–there are huge import duties (averaging 42%), making the cost of living there at least 50% higher than in the U.S. or Europe. Overall, I would say that I saved some money, but it would be grossly inaccurate to say that I lived “tax free” in the Bahamas. From a financial point of view, I wouldn’t recommend that people move to the Bahamas unless they can make at least $50,000 a year in earned income. (And it has to be “earned” income in order to qualify–you have to be working abroad, not retired and living on your investments and “unearned” income. Needless to say, I don’t agree with the odd and wrong-headed distinction between “earned” and “unearned” income. Obviously, congressmen making this idiotic distinction have no idea of the work involved in earning “unearned” income.)

After realizing the financial advantages of working abroad, I was surprised not to see more Americans living in the Bahamas, especially writers, who don’t need a work permit. The Americans I did meet usually worked for a bank or U.S. company. I also met a fair share of tax exiles, who were there because they couldn’t go back to the U.S. without facing criminal or tax fraud charges.

Nassau, the capital city of the Bahamas, has a population of nearly 200,000. Its climate is practically ideal year round, except perhaps in the summer when it’s too hot and humid. It is a major financial center, with many Swiss, Canadian and British banks downtown. People from Canada, Britain, and the United States come to live there. The school for our children appeared to be excellent. The airport has a half dozen flights daily to Miami, or to other destinations–New York, Atlanta, Chicago, or London. Within half an hour, I could be in Miami, thence taking off to Los Angeles, or some other destination.

We considered several locations before we decided on the Bahamas. Canada was intriguing and culturally attractive, but its weather was worse than Washington’s and its taxes perhaps more burdensome. Although many Americans had chosen Mexico in the past because of its low cost of living and ideal climate, it was out of the question because of safety, both personal and financial.

We strongly considered England as a home base. London is the greatest city in the world, with its cultural, social, financial and historical background. With proper planning, British income taxes could be avoided. If it weren’t for England’s poor weather and the long distance from the United States, we probably would have moved there.

We finally chose the Bahamas.

New Year’s Eve Arrival!

We arrived in Nassau on December 31, 1983. I’ve never been more welcomed to a new home in my entire life. When we arrived at the Nassau airport, we were escorted to our newly rented house by Mike Lightbourn, our real estate agent and one of the finest people I have met. He loaned us his second car for two weeks while we got settled. Within a matter of minutes of arriving at our new home, we were greeted by two Americans who knew we were coming. Then we were invited to have dinner by some other newly found friends. In fact, that week we must have had a half-dozen invitations for dinner.

At 3 a.m. on the first night, we went downtown to view the famous annual New Year’s “Junkanoo” celebration. We saw hundreds of black Bahamians dressed up in colorful costumes dancing to the heavy beat of “Goombay” and “Reggae” music. It’s similar to Mardi Gras in New Orleans or Rio, except that it occurs on the mornings of Christmas and New Year’s, the only two days of the year that the Bahamian slaves were allowed to take holidays. The festival lasts for hours, but we stayed for about 90 minutes.

Relaxing in the sun and walking along the sandy beaches were almost heaven. It was an incredible feeling to know that this new warmth was ours, not for a week, as with most American vacationers, but for months, or years.

Our home, called Far Cry, was a refreshing change. Everyone in the family found it exciting. It was an estate on the beach with a large old house, a guest cottage, and gardens and fence surrounding. The main house was an old Bahamian-style two-story home. Each room was spacious and had high ceilings. The house was right on the seashore, so the breeze was constantly blowing and kept the place cool. Each room had a ceiling fan, which we ran during the day and at night when sleeping. We were concerned at first when we found out it didn’t have air conditioning, but we soon discovered that we didn’t need it, as long as the breeze and fans were going. The only time we felt we needed air conditioning was when the electricity went off (which happened all too often) or when we were in the car (which fortunately was air-conditioned).

The main house upstairs had four large bedrooms and a spacious balcony overlooking the sea. Jo Ann and I spent many hours on the balcony, together or separately, watching the sailboats and the moods of the sea and the clouds above. I bought a hammock when I was in Costa Rica and set it up on the balcony–the kids liked it, and Jo Ann used to read books while swinging in it.

Downstairs, there were a large living room and dining room, and an old-fashioned kitchen (too old fashioned for Jo Ann’s taste–no dishwasher, no electric disposal, etc.).

The living room looked out onto the beach and the dock. The outside of the house was decorated with palm trees and fruit trees (including bananas that taste better than you will ever taste in the States, and a special kind of cherry tree that was a natural treat throughout the year). The gardens bore a wide variety of tropical flowers, and dozens of harmless lizards that entertained the kids for hours. Our Haitian gardener did a marvelous job (almost all the gardeners and maids on the island are illegal immigrants who are generally known to be better workers than the Bahamians).

We had a small but adequate swimming pool–so refreshing and alluring that we must have spent hours poolside throughout the day. We were at first afraid of having a pool because Todd was not yet two and couldn’t swim, but after a few months, it became clear to us that the Bahamas would be only half the fun if you didn’t have a cool refreshing pool. Todd was in danger twice, once when he fell into the pool and once when he fell off the dock into the ocean, but both times we were close enough at hand to save him. My only recurring nightmare was the possibility of Todd somehow drowning. (Since then he has become a good swimmer.)

In addition to the main house, we had a guest cottage, fully furnished with two bedrooms, a kitchen, maid’s quarters, and a two-car garage. We used it for company and for my office. The guesthouse also had a nice view of both the ocean and the swimming pool, so I could write, read and research and still take a peek at the beauty around me. It was the perfect set-up for the creative writer as long as you didn’t feel like working! Leisure was at my fingertips, and I found myself succumbing to the whim of jumping into my swimming suit (actually most of the time I wore my swimming suit to the office!) and going out sailing or engaging in some other aquatic endeavor.

One Day in the Bahamas

To give you an idea of how I enjoyed living in the Bahamas, I thought I would describe a typical challenging day in the Bahamas:
8:00 — arise, take kids to school
9:00 — exercise, such as basketball, tennis, or running, following by a swim in the pool or ocean.
10:00 — breakfast on the beach terrace with Jo Ann
11:00 — go sailing
12:00 — go downtown and pick up mail, newspapers
1:00 — lunch at poolside with Jo Ann
2:00 – open mail, read newspapers, take nap
3:00 — write newsletter
4:00 — pick up kids from school, play with children
5:00 — call broker, write letters, make telephone calls
6:00 — dinner with family in dining room
7:00 — play cards or other games with family or friends, or rehearse play
8:00 — put children to bed
9:00 — free time to read a book, go to a movie, dancing or to the casino
10:00 — retire exhausted after a rough day
I guess I’m being a bit flippant, though Jo Ann would probably suggest there’s more truth in it than error. One man’s relaxation is another man’s laziness.

Be that as it may, I was able to produce some things: I wrote thirty issues of my newsletter, a 150-page biography of my father, a major updating of one of my books, and a dozen articles for other publications. I also made over a hundred speeches in the United States and around the world, and I wrote hundreds of personal letters. I also appeared, along with other members of our family, in two musical productions for the Nassau Operatic Society. I may give the appearance of leisure, but appearances can be deceiving!

No Television

Before we came to the Bahamas, we decided that we were going to enjoy the benefits of outdoor living and the relaxed atmosphere of the islands. One of the first things we decided was not to have a television. Television is not only a mindless diversion that minimizes physical and mental activity, but also a bad influence on adults as well as children. We left our TV at home, with no regrets.

When something interesting was to appear on TV–the World Series or a special show–we would go on a social outing and visit friends (like Mike Lightbourn’s family) who had a set. It made television much more enjoyable. The Bahamians, of course, are hooked on TV like everyone else, although the national station, channel 13, is awful stuff. You can get the U.S. stations from Miami on a clear day, but most Bahamians buy satellite dishes to catch the hundreds of programs in the States. For a time, it was tempting to get a satellite dish, but I believe you can waste the rest of your life watching other people do exciting things–I wanted to do these things myself and make my own contribution to life.

But you can’t deny children something without offering a good substitute. Fortunately, Far Cry provided tremendous diversions, and the kids often went exploring along the dock, the seashore and a neighboring island they called “Narnia.” We also became avid bookworms. The selection of books available in the Bahamas is not good. I must have bought hundreds of fiction and non-fiction books, usually in the States when I was traveling. Jo Ann would also buy books for herself and the children. The children devoured them at incredible speed. All of us found our interest in reading greatly heightened by the lack of television. I don’t think our “no TV” plan would have worked if we hadn’t had a decent substitute. We hungered for good novels and history and for up-to-date information.

There were quite a few books left in the house when we arrived, but we didn’t find any we wanted to read. Curiously, we found three books right next to each other: The Joy of Sex, then Open Marriage, and finally, Creative Divorce. An appropriate order, we thought.

I thoroughly enjoyed the most famous Bahamian novel, Winds from the Carolinas, by Robert Wilder, a highly thought-provoking story. I recommend that you pick up a copy if you want a novel to read while lounging on the beach in the Bahamas.

My attitude regarding sports changed. I was no longer comfortable with sitting down for several hours and watching a game. I used to spend hours at home watching baseball, football or basketball. But now I would rather be out playing the game myself.

The Bahamas, like most tropical paradises, is conducive to year-around sports activity. I tried a variety of sports to keep in physical shape. I participated in swimming, golf, tennis, water skiing, fishing, skin-diving, parasailing, basketball, softball, soccer, and weightlifting. I played basketball more than anything else. I improved quite a bit, and used to play with some Bahamians at St. Andrews; I was once asked to join the team as the only white player, but my travel schedule kept me from joining. And for the life of me, I couldn’t understand what the coach was saying. Black Bahamians speak English, but the accent is so strong that sometimes it’s difficult to understand.

To keep in shape, I prefer team games rather than individual activity. Rugby and squash are popular in Nassau, but unfamiliar to me, and rugby looked downright dangerous. Many foreigners are runners, but the roads in Nassau are narrow and threatening (I’ve seen runners hit by cars). I would rather run up and down an outdoor basketball court. Sports facilities are antiquated, to say the least. But you can find what you’re looking for if you really want to.

I took up sailing. I bought a used boat–a Force 5 single sailboat built by AMF, a vessel not much larger than a Sunfish but much speedier. Jo Ann and I spent hours out sailing in it two or three times a week–the convenience of having a boat that could be in the water in five minutes made it all worthwhile. (I know millionaires who own big boats, but because of lack of time and convenience, hardly ever use them.) I never became expert in sailing, but I learned to feel the hum of the hull, the warm breeze, the hot sun, and the cool water as I dipped down into the sea and pulled at the rig. I don’t see how others can pass up the small sailboat in favor of the large yachts–there’s such a thrill when you’re sailing so close to the sea. Now that I’m moving away, I often feel the urge to return to the sea on a small sailboat and sail away…

Slow Down, You Move Too Fast

One of the most important lessons I learned in the Bahamas was to enjoy the present. I don’t think I could have I learned the value of true relaxation in Washington, D. C., or any other busy metropolis. It’s so easy to get caught up in events, people and places to go–it’s all part of the business ethic. You can’t enjoy the “now,” you have no time to unwind, you have to look to the future, and what happens next.

We had a number of friends visit us. One of Jo Ann’s friends brought her husband down from Washington. He was constantly on the go–he couldn’t just sit there and relax, play a game with us, read a book, or put his feet in the ocean. He had to talk business; he had to make a deal. Finally, after one night, he contacted someone at a local hotel and took off. I think he cut his “vacation” short and headed home. Needless to say, the Bahamas wasn’t his style. But I wouldn’t be surprised if this man died an early death. I suppose his motto was, “Life is too short–I don’t have time to relax.

Then there are those who boast, “I work hard and I play hard.” These are the super-competitive types. Whether it’s business or a game, it’s push, push, push, and win, win, win. They can’t relax and just let someone else win. No, they have to do their best every time. I had the same problem, and believe me, it’s difficult to overcome. But the Bahamas set the stage for me.

Some famous people have moved to the Bahamas. The “mutual fund king,” John Templeton, lives there. I had a chance to meet with him for several hours, and he is still very sharp, despite his age (in the seventies). He lives modestly. He told me that he and his wife moved to the Bahamas in the mid-1960s, and his investment record actually improved because he was able to see investment trends more clearly by being away from New York and other financial centers. I think my own investment record improved as well–during 1984-85, I turned bullish on the stock market when many analysts and colleagues were timid, and I was also bearish on gold while many gold bugs were bullish.

We also met Arthur Hailey (author of Hotel, Airport, etc.) Unfortunately, the meeting was largely superficial. We learned the lesson that Ernest Hemingway taught, “Never get to know the author of your favorite books.”

Like most of the rich, Templeton and Hailey live on Lyford Cay on the western end of the island. We took a look at it when we first arrived but decided against it because it was too far away from the children’s school and city activity. We didn’t want to be a part of a millionaires’ retirement haven, uninvolved in the community.

Easy Living: for Whom?

Jo Ann, I suppose, would disagree with the title of this little essay. “Easy Living for Whom?” she would ask. I think I started relying too heavily on Jo Ann to do all the domestic chores. She was doing most of the hard work while I was basking in the sun. By the summer of 1984, she had had enough of my “relaxing,” and let me know it. I think it had a beneficial effect on our relationship–it became more of a partnership.

Jo Ann had some problems adjusting to the Bahamas. Sure, they spoke the same language, but not necessarily the same social language. It takes time to get involved with friends and acquaintances, especially when I didn’t have a regular salaried job with a local company. Gradually, over two years, we developed friendships, but it was tough initially. Mike Lightbourn helped by inviting us to some family events, and the local church helped out. We also became friends with the U.S. ambassador and his wife, Mr. & Mrs. Lev Dobriansky. After a year, we were being invited to many social events in the Bahamas.

Jo Ann had trouble writing her financial newsletter, Jo Ann Skousen’s Money Letter for Women. I confess it was mostly my idea to get her to write it, and that was part of the problem. It was more my field than hers. She felt she was always getting involved in my world, but I wasn’t getting involved in her world. Her first loves are music, dance and fiction–far from the world of Wall Street! I had shown some interest in her areas, but not enough.

That was another thing that changed in the summer of 1984. I became involved in many of her interests. I took ballroom dancing lessons in Miami (they weren’t available in Nassau), and we went dancing many times, especially when we traveled together to investment seminars. She has a natural talent for dancing, having danced since a teenager, while I struggled with my steps. I also became a member of the Nassau Operatic Society and acted in two plays, Annie and The Music Man. Jo Ann had previously joined and performed in Oklahoma. Jo Ann encouraged me to participate in the next play, Annie, which stared our 11-year-old daughter, Valerie. She received rave reviews by the local papers, one of which said “she carried the show.”

I even went to “jazz dance” for six weeks–I really felt awkward. I wasn’t too successful at any of these, and it was frustrating. But at least I was learning new things, which is something I did a lot of in the Bahamas. It’s good for the soul–and a marriage!

The Kids at St. Andrews

I think our four children will miss the Bahamas. I don’t think any of them ever came up to me and said, “Dad, I’m bored.” There was so much going on. At home, they could go swimming, fishing, exploring, play badminton, soccer, basketball or other sports, play cards and other games, read, help with the dishes or other chores, and so on.

School was one of our main concerns before we left, but we were luckily able to get into the private St. Andrews School, regarded by most people as the best school in the Bahamas. It had an excellent facility, and all four of our children seemed to enjoy it. Discipline was very good, and the teachers, primarily British, emphasized handwriting far more than American schools do. In practically every way, I considered St. Andrews a better primary school than most I had seen in the United States.

Economic Life

Like any country, the Bahamas has its pluses and minuses. Its standard of living is high compared to that of most Caribbean countries, though it is certainly lower than that of the United States. The roads were constantly in need of repair, the power went out frequently (at least once a week, and often more), and the telephone system left much to be desired. While we lived at Far Cry, it went out a dozen times a year; heavy rain was especially bad for it.

Nothing was cheap on the islands. Rent was high by U.S. standards. A simple three-bedroom house in a middle class neighborhood away from the ocean might run $1,000 to $2,000 per month; a nice place on the ocean might run $3,000 to $4,000. Utilities were also expensive, especially for water, which has to be brought to Nassau from Andros Island by barge. Phone calls to the states are about one dollar per minute, and to other countries as much as $4 per minute. But, remember, rent and utilities are tax deductible for expatriates, making the high cost seem more affordable.

You could get virtually anything you could get in the States–for a price. Fresh food, imported from the states, usually cost double or more. Milk was over $4 a gallon! Other food products were usually 50% higher than stateside.

The reason for this is not just transportation costs, which could explain perhaps 10-15% higher prices. The rest was caused by extremely high import duties imposed by the Bahamian government. Because it has no income, investment or sales tax, customs duties are its primary source of revenue (the rest coming from banking fees, a $5 departure tax, etc.) The average import duty is 42%. No wonder the Customs House is the biggest business in the Bahamas! A less competitive environment also means higher prices. For example, even though the duty on clothing is 40%, clothing prices are often 200% higher than in the States. Because of these high prices, many Bahamians go to Miami to do their shopping.

Smuggling is highly profitable and popular, and you see it occurring everywhere–even in front of customs officials at the airport. Bribery of customs officers is frequent.

Five Point Economic Plan for the Bahamas

This economic debacle could be cured if the Bahamian government would adopt a policy of gradually reducing customs duties across the board. They have already done this on a number of items, always with great success. The result would be a tremendous business boom. Competition would increase, prices would drop significantly, and locals would not try to do all their shopping in Miami. Government revenues may not even drop if the increased business means a sharp increase in imports from the United States.

Second, the Bahamas should privatize its public utilities. The standard of living could be greatly improved by having a reliable telephone system, decent roads, uninterrupted electricity, reliable garbage pick-up, competent hospitals, responsive police department, etc. All of these public facilities are state-run at the present time, and run badly. Creating private corporations through the issuance of public shares would go a long ways to relieve declining economic standards in the Bahamas.

The biggest concern we had in the Bahamas was for our safety and health in the case of a personal attack or accident. Our daughter was bitten on the nose by a Doberman pinscher, and we learned first hand how incompetent the public hospitals are: people in the “emergency” section can wait several hours to get help. Our “doctor” told us that surgery was unnecessary–the nose would simply grow back on its own! Finally, in desperation, we flew to Miami, which everyone else does in a real emergency. There’s no reason for this violation of the public trust.

The bus system in Nassau is an excellent example of what could be done. It is private, with several competing companies. It is reliable and cheap, only 50 cents anywhere on the island. Similar efficiencies could be realized in garbage collection, road maintenance, telephones and electricity.

Third, the Bahamian government should rescind its anti-foreign investment rules. The Bahamas desperately needs foreign capital, but it can’t seem to understand why little is forthcoming. Miami is booming, while Nassau is left behind. There are thousands of acres, some with excellent views of the ocean, left empty and undeveloped–by government edict. The Bahamas should do away with laws requiring government approval for foreigners to set up business or buy real estate (laws which have seriously hurt the real estate market). Some industries, such as the hotels, have certain exemptions, but the exemptions should be expanded to stimulate all business activity, not just tourism. The key to getting foreign capital is to establish long-term political stability, a free market atmosphere, and most importantly, the right to own and control business property without government authorization.

Fourth, the Bahamas would be wise to drop its work permit requirements. Work permits, like closed union shops, provide benefits to those who have jobs at the expense of the rest of the country. Efforts to protect some Bahamians only backfire and hurt Bahamians in general. Guaranteeing that jobs are only filled by Bahamians encourages inefficient work–and the Bahamian laborer has a reputation of slothfulness. Waiters are slow and unresponsive. But I don’t blame them–it’s the fault of the work permit law that prohibits foreigners from coming in and competing with them. If this competition were allowed, Bahamians would have to be responsive and efficient or lose their jobs. At the same time, the unit cost of labor would fall, bringing prices down and encouraging an expansion of business activity in other areas.

Fortunately, the Bahamas is still fairly open as far as illegal aliens are concerned. Immigration occasionally engages in a crackdown, but it’s never very effective. Most of the gardeners and construction workers are Haitian, illegally resident. Maids come from all over the Caribbean. Because of the competition, Bahamian maids can hold their own although, admittedly, we went through five maids (from the Bahamas as well as other countries) trying to find a decent worker.

I was happy to learn that writers aren’t required to get work permits in the Bahamas–residency is required if you stay longer than six months, but it’s easy to come and go in the Bahamas as a tourist. (Yes, writers, like the rich, are different! But being a writer doesn’t automatically make you rich.) I traveled frequently while residing in the Bahamas–probably once a month, either to Europe or the U.S. Getting in and out of the Bahamas and the United States was no problem. I didn’t need a visa, or even a passport–just a birth certificate. Bahamas immigration is easy for most foreigners, except perhaps for people from the Caribbean.

The biggest complaint I heard was not about Bahamian immigration, but U.S. immigration. You can’t believe how much the United States is “hated” (a commonly used word by foreigners and Bahamians) because of the power-hungry, arbitrary, abusive, and insulting immigration officers. U.S. Customs and Immigration is located at the Nassau airport, which is quite convenient. But Bahamians and other foreigners are often delayed for lengthy interviews at the airport to make sure they come into the U.S. legally and don’t plan to stay longer than permitted. (Overheard conversation between a U.S. officer and Bahamian: “What is the purpose of your visit?” “To see my relatives.” “How long will you be in the U.S.?” “Four weeks.” “Do you really need four weeks to see your relatives?”) Immigration policy is giving a bad name to America.

Fifth, the Bahamas should adopt the U.S. dollar as its national currency, anti-American feelings notwithstanding. And it should do away with exchange controls. Panama has such a policy, with favorable consequences. The Bahamian dollar is on par with the U.S. dollar (though it sells at a discount in Miami), so the transition would not be difficult. The U.S. is the Bahamas’ major trading partner, and the vast majority of tourists come from the U.S. There are plenty of dollars circulating and really no need for Bahamian dollars.

Of course, adopting a U.S. dollar standard would eliminate the Bahamian government’s exchange control power, but there’s no reason for exchange controls anyway except as a counterproductive economic policy. Bahamians are virtually prohibited from investing outside the Bahamas (for example, investing in the stock market in the United States and other countries)–surely a silly policy that even Britain abolished several years ago. Why should the Bahamian government fear its own citizens investing in the United States–doesn’t that say something about the stability of its leaders? Besides, intelligent Bahamians already know how to circumvent the law. The exchange control law should be abolished. It serves no purpose other than to enhance the power of government officials and let the central bank play games with the local currency.

One thing I commend the Bahamas for is establishing Nassau as a major financial center. Having major banks from Canada, the United States, and Europe has tremendously increased the Bahamas’ prestige and economic power. Having branches of major Swiss banks has done a great deal to create a stable, favorable atmosphere for international business and private banking in Nassau.

Political Crisis in Nassau

It’s sometimes hard for Americans to understand that the history, culture and background of the Bahamians are different from, though in some ways dependent on, our own. The Bahamas is known as a haven for the drug trade. During the American civil war, Bahamians were gunrunners to the rebel South. During Prohibition, they were bootleggers. The illegalities of popular substances and products in the U.S. have made business good in the Bahamas, and that story will never end–despite the best efforts of the Federal bureaucrats in Washington.

While we lived in the Bahamas, the Bahamian government went through a political crisis not unlike Watergate. The Prime Minster, Sir Lynden Pindling, whom we never met personally but saw driving around in his chauffeured Rolls Royce, was accused of protecting drug dealers, taking bribes, and failing to disclose hundreds of thousands of dollars in income. He built a $2 million mansion on a $100,000 salary. The whole affair cast a cloud over the economic and political future of the Bahamas, but so far, Pindling and his majority party, the Progressive Liberal Party (PLP), have weathered the storm. I think there was a lot of truth to the charges, but the Commission of Inquiry set up to examine the evidence concluded in December 1984, that it was circumstantial and the accusations unprovable. The Pindling government won another five-year term in 1987.

In the United States, such bad publicity would surely result in resignation, as it did with Richard Nixon. But the Bahamas is not the United States. The PLP will survive, at least for now. Probably it’s not going to make much difference who runs the government, which is likely to remain middle-of-the-road. As one Swiss banker in Nassau told me, “It doesn’t matter which political party is in office–both parties strongly support this country as a tax haven…without the tax and privacy advantages, the banks would disappear overnight.”

I don’t think there’s much chance of a radical takeover. Such possibilities are just not in the make-up or history of the Bahamian people. Radical communist influence is very small–the socialist Vanguard Party received only 1% of the vote in the last election. The Bahamians are too worldly wise for that to happen. The Bahamas have no generals, no secret police, no political prisoners. The government submits to a general election every five years, and the courts, modeled after the British system, are open to all citizens (although they may not work as well as the British courts).

I highly recommend the Bahamas, from Nassau to the “out islands,” for their ideal climate, aquatic delights, and private bank accounts. I don’t generally recommend getting involved in business or real estate ventures. The business climate still isn’t what it should be. The investment climate is favorable and relatively safe–I recommend particularly the Swiss banks. Foreign banks are prohibited from domestic investing in the Bahamas. Your funds are actually in Europe or the United States under the name of the bank. Foreign banks just act as middlemen, and that they do very well, as efficiently as the banks in New York, London or Zurich. Until economic policy changes in Nassau, I don’t recommend putting your money in the Bahamas, just have it go through the Bahamas.

Why We Left Paradise

If I have painted a rosy picture of the Bahamas, you may be wondering why we left. There are several reasons why we decided not to make Nassau our permanent home. We felt that the medical facilities were inadequate. With four young children who loved exploring, medical care was a constant concern. The Bahamian doctors are fine for routine illnesses, checkups and minor accidents. But in my opinion the hospital facilities are a (high) risk in case of a major threat to life. Frankly, we were extremely wary of the hospital facilities in Nassau, based on our own experience and the horror stories of others.

At times, we were concerned about our safety. Crime is a constant problem in Nassau, especially with the high level of drug use by many Bahamians. So is safety on the roads, which are often narrow, winding, and full of potholes. Traffic accidents are often fatal.

We felt that the Bahamas did not offer adequate education in the upper level high school. When children reach 13 or 14, the Bahamian system concentrates entirely on preparing the teenager for “O levels” and “A levels”, the strict exams which determine whether British students will be allowed to attend college. American parents face a difficult decision. Many parents send their children away to boarding school when they turn twelve, and there are few classmates remaining in the upper school. This was one of our chief reasons for returning to the States when our oldest daughter turned 12–we didn’t want to send her to boarding school!

These caveats aside, our experience in the Bahamas was enchanting, enriching, and unforgettable. I will always look back on my two years in paradise with tremendous nostalgia. And someday I may even return to the island of June.

Liberty – December 1987