US laissez-faire serves a greater global good

Liberals across the developed world are very concerned by inequality within the United States, as demonstrated by global interest in the Occupy Wall Street movement. This is peculiar because poverty within the United States is less common, and less severe, than it is in most countries around the world. The US does have a high level of inequality for a developed country, but it is not extreme by global standards Unfortunately, this disproportionate concern for Americans leads to attempts to narrow income inequality that may increase poverty and inequality worldwide. [1] I’ll explain how.

The US has long been one of the most innovative countries in the world, and exports the technologies it develops everywhere it can. This is, at least in part, due to its relatively cut-throat culture and laissez-faire economic system. Low taxes and ungenerous welfare mean the benefits of working hard, taking risks and making it big, are higher in the US than most other developed countries. More importantly, weaker regulation in the US means incumbents are less protected from competition, and talented people can more easily start new firms and overturn the status quo. Conversely, daring entrepreneurs are less rewarded in countries which redistribute a great deal of wealth to the poor, or build thickets of regulation that unintentionally (or intentionally) slow down disruptive businesses and technologies. While tempering the ravages of the market may on balance improve the welfare of current Americans, doing so is likely to lead to less experimentation in science, equipment, software, art, business models and so on.

Such innovation generates enormous and enduring positive externalities because the successes are copied at low cost across the world and enrich everyone’s lives. Economic theory would predict that coordinating to stimulate more of these costly but invaluable innovations would be a major concern in international diplomacy. But for some reason it is not, and so it is up to individual countries and the people within them to take these risks on behalf of us all.

Miserly social security and weak regulation in America at most harm 0.3 billion people as long as such policies persist; any resulting innovation spillovers help the remaining, poorer 6.7 billion for centuries to come because improvements in technology persist and compound over time. We all continue to benefit from the hard work of those who developed the telephone and prompted the development of an ever-growing number of related products.

This is not to say that the Occupy movement does not have some important points; it is crucial to oppose the US’s many ‘crony capitalist’ policies which enrich the wealthy while also stifling competition and creative destruction. [2] Nor would the ideal necessarily be a minimal government; there is a prima facie case that government investment in education, R&D, natural-monopoly infrastructure, and so on, can spur technological change. Unfortunately, a higher and higher share of US government spending is going to the opposite: the military, Medicare, Medicaid, unemployment benefits and pensions. These programs are not investments in the future, and generate few if any positive spillovers for future Americans and the rest of the world. And because these programs are funded by taxes on the hard-working and successful, they blunt the incentives to invent things that help the whole of humanity.

Anyone who cares about lowering poverty and inequality, and doesn’t believe that American citizens are dramatically more important than everyone else, should think carefully before encouraging the US to follow the European economic model. If the US were go even further and slip into the sclerotic ‘extractive‘ economic model found in most of the developing world and some of southern Europe, it would be a global catastrophe. Resisting any movement in this direction is one way that heartless US conservatives are inadvertently more compassionate than they look.

Update: Turn out I’m I’m not the first person to notice this problem!

Update 2: Many people below doubt whether the US is more laissez-faire, and whether a laissez-faire model does as a general rule foster innovation. If you doubt these things, at least take away the point that whichever policies you think do stifle innovation, whichever countries they are found in, are much more harmful than they first seem. I will research and write up more on the topic of which broad economic settings lead to the most innovation in the future.

[1] The effect on wealth inequality is unclear, but the effect on ‘welfare inequality’ is likely to be negative.

[2] Though perversely, lousy healthcare policies have led to very high prices for medicine in the US, which has driven investments in new procedures and drugs, which have been borrowed by other countries. My guess is that effort probably would have been better directed at other industries.

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  • https://www.facebook.com/duongbrendan Brendan

    I’m surprised there was no mention of this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2132939

    • Robert Wiblin

      Oh I had never heard of that one! Thanks for the link.

  • Matt66

     During the healthcare debate, some made the argument that our system was great at producing advances, and that if we switched to a socialized system these advances would slow down. At the time I retorted, they would not because China and india still have large pay for service medical systems, and the people there were getting richer, and also wanted those advances. Does the US have to shoulder the burden of innovation forever or will other nations eventually step up. The US won’t be the sole superpower forever, other nations need to lead. In health care its China’s turn to innovate, let’s raise the quality of life here and let other nations lead, while our people enjoy the benefits. 

    Also your argument assumes the current US entrepenural model is the only one that could produce innovations. This is far from clear. In fact people like Peter thiel think the US political model is stifling innovations, and I agree. 

    • http://www.facebook.com/peterdjones63 Peter David Jones

      switching to public delivery of healthcare won’t directly affect things like pharma research. What is the arguemnt? That a more efficient delivery system will be less profitable for drug companies?

  • Stuart Armstrong

    Can you provide data to back up your point that the low US welfare is responsible for a large innovation (most innovations seem to be made my people who would not be at risk of falling back on welfare at all)? Your post repeats standard talking points, but is lacking in numbers to back them up. Is the US even particularly innovative (per capita), as compared to, say Germany or Japan or Denmark? I have no idea, but would like to see some evidence.

    Your links for weaker regulation in the US go to… papers about Denmark!

    Also, US healthcare costs are at 17.6% of the economy (http://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_(PPP)_per_capita ), much higher than other countries, for generally worse outcomes – and a large chunk of this is private insurance, which tends to cost more than public. This does not sound like a triumph of the American system! You should at least address that issue in some form in your post (if only to show that the standard narrative is false).

    • Robert Wiblin

      Hi Stuart, hopefully I will be able to investigate the magnitude of this effect at some point. I expect it’s going to be very hard to do convincing cross-country empirical work on this question though. Why Nations Fail paints a narrative of history that places protectionist regulations at the centre of variation in economic development. I found it quite persuasive. Other theoretical and anecdotal evidence is fairly persuasive to me but your milage may vary.

      And I agree the US healthcare system is a disaster. I even refer to “lousy healthcare policies”.

      • Stuart Armstrong

        >I expect it’s going to be very hard to do convincing cross-country empirical work on this question though.

        In that case, one must hold the ultimate conclusion tentatively.

        Theoretical arguments are fine, but are very weak in comparisons with actual evidence (Marx had a nice-seeming theory of value, after all). Anecdotes are worthless as evidence, unless gathered through some impartial statistical method.

        I only brought up healthcare because you seemed to criticise the government for providing Medicare - therefore implying that things would be better if it didn’t, ie that purely private insurance would work better. That’s a conclusion that seems to go against nearly all the evidence, so it needed to be backed up.

    • Robert Wiblin

      Oh and yes Denmark is a low-regulation country. Not all of Europe is high regulation (nor all of the US unregulated), but that doesn’t change the overall point.

      • VV

        What do you mean by “low-regulation”?

        According to Wikipedia, Denmark public expenses amount to 55.9% of GDP, while the US public expenses amount to 22.4% of GDP.

        For reference, the public expenses of Italy, one of those ‘extractive’ southern European economy you mention, amount to 50.6% of GDP, less than Denmark!

      • Robert Wiblin

        Yes it’s a high tax/high welfare, but otherwise low regulation economy. There is little protection for privileged incumbents. See http://www.themoneyillusion.com/?p=368, https://docs.google.com/viewer?url=http://econfaculty.gmu.edu/pboettke/workshop/Fall2009/Sumner.pdf or http://www.heritage.org/index/country/denmark .

        It’s also just a very well run and educated country full stop. It matters that tax revenue is well spent.

      • IMASBA

        Yes, exactly. Denmark has high government spending, low income ineqaulity, better social security, same, if not higher, standard of living, and it still consumes less energy per capita and spends more on development aid (% of GDP) than the United States. So Denmark is better for the developing world AND its own citizens. It’s the perfect counterexample to Robert Wiblin’s narrative.

        Business killing Southern European style regulations being necessary to have low income inequality is an assumption Robert Wiblin has made here, but Denmark is one of many countries that prove otherwise.

      • VV

         

        Yes it’s a high tax/high welfare, but otherwise low regulation economy. There is little protection for privileged incumbents.

        It seems to me that it is a well regulated economy, as opposed to a badly regulated one like Italy.

        As you can see in the Index of Economic Freedom pages:

        http://www.heritage.org/index/country/denmark
        http://www.heritage.org/index/country/italy

        the largest differences are in the Rule of Law department.

        So good regulation with proper enforcement yields welfare, while bad regulation with poor enforcement yields economic disaster. I don’t see this as an argument in favour of curtailing regulation.

      • VV

         @3e64f67468791024f2c2e2ecdabca9c4:disqus

        Business killing Southern European style regulations being necessary to
        have low income inequality is an assumption Robert Wiblin has made here,
        but Denmark is one of many countries that prove otherwise.

        In fact, countries like Italy and Portugal don’t even have low income inequality w.r.t. the US:
        http://en.wikipedia.org/wiki/List_of_countries_by_income_equality#Gini_coefficient.2C_after_taxes_and_transfers

      • KPres

        “…while the US public expenses amount to 22.4% of GDP…”

        This is only the national government.  Total government spending at all levels last year was $6.2 Trillion, which is about 40% of GDP (~$15 Trillion), which is on the low end, but more or less in line with most European countries spend.

        http://www.usgovernmentspending.com/total_spending_2012USrn

  • Jonatas Mueller

    How
    does the USA compare in a per capita basis with countries in
    Scandinavia or Western Europe as for research and innovation? How does
    it compare with the European Union, more or less? Is the difference in
    research in innovation significant? I don’t think so, but it would be
    important to compare it in order to substantiate the argument.In other aspects, lacking welfare and having a big income inequality hurts people considerably.Furthermore,
    the increasing automation in production (robots and machines) increases
    productivity while demanding less human work. This creates economic
    value, but demands welfare measures to distribute it, lest it greatly
    increases income inequality.http://www.businessinsider.com/the-negative-effects-of-income-inequality-on-society-2011-11?op=1

    • Doug

      The US has 9.7 scientific nobel prize winners per 10 million compared to 6.4 per 10 million for the EU. Certain European countries outpace the US, including all the German countries, the two low countries without a French sub-populaiton, all the Nordic countries, and the UK.

      This Northern European sub-group (excluding Switzerland which is non-EU and is debatable about whether they are in fact more laissez-faire of less than the US), averages about 30% higher more Nobel prize winners per capita. However the remaining Southern EU has a staggering 75% fewer Nobel Prize winners per capita than the US. 

      It might be an issue of how you’re breaking down the EU. Same North-South differentiation, appears in the US, with certain states like Massachusetts, Vermont, Minnesota and Oregon having a higher per capita Nobel prize population than any European state. 

      Perhaps the best measure of what a more socialist US might look like is Canada. Who has 40% fewer Nobel prize winners per capita.

      • http://www.facebook.com/peterdjones63 Peter David Jones

        But the Nordic countries, Germany etc, aren’t particularly un-socialist. I think it is a problem with the original article that it strains to explain something on a single more-or-less laisse-faire access, when the truth is more complex. 

      • Robert Wiblin

        To be fair, I say it’s pro-competition policies ‘at least in part’, and mention some government programs that I expect to help.

      • lemmycaution

        This isn’t really a result of the free market in the US.
        The US has a particularly good college system setting up its citizens for opportunities to win scientific nobel prizes.

      • Robert Wiblin

        Good point Doug. In retrospect I would not use a broad US/Europe comparison as people are geting hung up that political issue which isn’t really central.

  • Юрій Дубас

    Do you have any evidence supporting your view on growth and inequality? I’m an economist and despite this I don’t have any strong data or even clear understanding. (Acemoglu et al seem less persuasive than Stiglitz)

    • Robert Wiblin

      What’s Stiglitz’ take on this?

      • Proper Dave
      • dEMOCRATIC_cENTRALIST

         The key point that Stiglitz and Krugman agree on is that in equality fosters economic crisis.

        So do tell us, Robert Wiblin, how economic crisis, which today takes on an international character, benefits Third World countries!

        And how, if you haven’t considered this obvious point, your post is anything but intellectually irresponsible rightist propaganda.

      • KPres

        Krugman dances back and forth on this issue depending on the political expediency of the particular issue at hand.  The problem with the idea, from his perspective, is that if true, it suggests that inequality might be self-correcting in a healthy market given that the wealthy suffer greater losses during recessions, and that’s a narrative he doesn’t want to get around.

  • VV

    This is, at least in part, due to its relatively cut-throat culture and laissez-faire economic system.

    Why? One would think that a cut-throat culture and laissez-faire economic system allow the creation of monopolies that live on economic rents.

    Low taxes and ungenerous welfare mean the benefits of working hard,
    taking risks and making it big, are higher in the US than most other
    developed countries.

    Most innovation doesn’t come from working class people, and the utility of money is sublinear. If taxes reduced Bill Gates’s profits by 9/10, he would have had the same incentives to do whatever he did.

    More importantly,
    weaker regulation in the US means incumbents are less protected from
    competition, and talented people can more easily start new firms and
    overturn the status quo.

    That seems dubious. How do you compete with a gigantic monopolist? Even if you had better tech, it would be extremely difficult to overcome the huge gap in market shares. And anyway, most technical innovation actually comes from large companies, not from small start-ups.

    • KPres

      “Why? One would think that a cut-throat culture and laissez-faire economic system allow the creation of monopolies that live on economic rents.”
      Monopolies, by definition, are the opposite of cut-throat.

      “If taxes reduced Bill Gates’s profits by 9/10, he would have had the same incentives to do whatever he did.”

      It isn’t about the utility of money, it’s about cost/benefit.  A fixed expense like taxes alters the risk-reward analysis so that risky endeavors aren’t undertaken in the first place.  INOW, Microsoft, or any other investor, are less likely to buy the next upstart company and expand it if they’re margins are being cut by taxation.

  • Douglas Knight

    Conversely, daring entrepreneurs are less rewarded in countries which redistribute a great deal of wealth to the poor

    That Economist article is pretty good about the problems of entrepreneurship in Europe, but it says nothing about reward and redistribution. That’s because your rousing slogan is completely backwards about the details of the tax code. Europe takes a lot of money from the middle class and professionals with high salaries. But ambitious founders hope to pay capital gains taxes which are lower in Europe than in America. European tax codes encourage entrepreneurs and VCs.

    Perhaps the European tax system penalizes small businesses, but, IIRC, they are more common in than in the US.

    Why do you think the lack of a safety net encourages risk-taking? This seems utterly backwards to me. I expect a safety net to encourage risk-taking, while its lack to encourage unambitious stable careers. Most famously, JK Rowling took the risk of writing a novel while on welfare. 

    There are many ways that Europe discourages ambitious entrepreneurs, such as the legal and social attitudes to bankruptcy, but they have little to do with inequality or socialism. Yes, Europe has lots of regulations, but I describe all the Greek ones in the article you link as designed to increase inequality. The only example I can produce of a regulation identified with socialism that hurts start-ups is the high cost of firing people.

    European law is diverse. It is easy to fire people in Denmark, but hard in Sweden. Freedom house rates the two countries as having very different regulatory environments. Yet they seem pretty similar to me.

    • Douglas Knight

      Sweden vs Denmark: not Freedom House, which is about political freedom, not economic freedom. I was probably thinking of the Heritage Foundation list that RW links elsewhere in the comments, but that shows less of a difference than I remembered. The big difference is “labour freedom,” ie, ease of firing. And other than Denmark on this one variable, it does not show much diversity through Europe. At least, its scoring system does not; perhaps this just means that the developed world is much better than the rest of the world that these distinctions pale.

    • http://www.facebook.com/peterdjones63 Peter David Jones

      The thing of having high personal tax but low corporate tax is problematical because individuals can shelter themselves from personal tax by setting up dummy businesses. There’s a lot of hair salons and poodle parlours with no customers in the back streets of Brussels.

  • http://www.facebook.com/peterdjones63 Peter David Jones

    The US isn’t even the worlds largest filer or patents–Japan, with a somewhat different economic model is. It’s followed by China and S. Korea, and the rest of the top 10 are European countries.

    http://en.wikipedia.org/wiki/List_of_countries_by_patents

    • lemmycaution

      Patent applications per capita have japan and south korea way ahead of the US:

      http://www.nationmaster.com/graph/ind_pat_app_res_percap-patent-applications-residents-per-capita

      • http://www.facebook.com/peterdjones63 Peter David Jones

        Yeah. The US barely scrapes ahead of germany by that measure.

      • KPres

        But the highest among western european countries, which is significant. The Asians are different, since those economies were built up around technology, it makes sense that they would have more patent applications.

  • Dgo

    regarding healthcare, it is well-established that leading pharmaceutical and medical device companies charge disproportionately high prices in the US…and lower prices in Europe…and lowest prices in developing markets…pricing to each based upon each market’s ability to pay…so, of course, aggregate US healthcare costs will be higher…

    also, why are US liberals opposed to “job exporting”, when that activity most directly benefits those most at need (the world’s poorest)…does the liberal mantra of empathy stop at the shoreline?

    • http://www.facebook.com/peterdjones63 Peter David Jones

      Pharma companies wouldn;t be able to get away with stiffing the US 
      on prices if the US wasn’t used to paying how prices for some other reason.

  • Dude Guy

    ‘. Unfortunately, a higher and higher share of US government spending is going to the opposite: the military, Medicare, Medicaid, unemployment benefits and pensions. These programs are not investments in the future, and generate few if any positive spillovers for future Americans and the rest of the world.’ – Well tell that to JK Rowling, or Jim Carey, or David Letterman, or however many other people – Kurt Cobain, Jay-Z (and you’ll notice the emphasis on the arts here), who used government support so that they could – get this – survive while they honed their ideas and craft until they could not only support themselves (and of the ‘support yourself- variety there are obviously a million more examples here, me being one of them) but became leaders in their field, excelling far beyond probably even their own wildest dreams.

    • Robert Wiblin

      There will be some exceptions, especially when so many people claim unemployment benefits at some point, but overall they are not a cost effective innovation-stimulating policy.

      • IMASBA

        Without unemployment benefits crime would shoot up, as would homelessness, because there sure as hell aren’t enough jobs to employ everyone at 40 hours/week, even if all the Chinese workers reduced their work week to 40 hours. That’s a global trend: unemployment and working hours keep dropping across the world while production barely suffers from it. The explanation is simple: automation is proceeding faster than the improvement of natural resource utilization. The only ways to give people jobs is a) force the more well-off people to hire lots of strippers (jobs that don’t cost natural resources and can’t (yet) be done by robots) or b) shortening working hours. The latter option would make technological progress the blessing it’s supposed to be (inventors want to make life easier, remember), but our asinine economic system keeps ruining things.

      • dEMOCRATIC_cENTRALIST

        shortening working hours. The latter option would make technological progress the blessing it’s supposed to be (inventors want to make life easier, remember), but our asinine economic system keeps ruining things.

        Exactly right. If Robert were correct–which he’s presented zero evidence to support–the conclusion should be that we need an economic system that doesn’t exhibit such perversities.

      • KPres

        “Without unemployment benefits crime would shoot up, as would homelessness”

        Unlikely.  There’s little correlation between the crime rate and the unemployment rate.  What little there is has to be factored against the lower unemployment you would have without the benefits.

        “That’s a global trend: unemployment and working hours keep dropping across the world while production barely suffers from it.”

        That’s also the US trend (weekly hours have been dropping since the 60s), so I’m not sure what your gripe is.

  • IMASBA

    “Unfortunately, this disproportionate concern for Americans leads to attempts to narrow income inequality that may increase poverty and inequality worldwide. I’ll explain how.”

    Yes, but not in the way the author suggests. For example stopping outsourcing would benefit Americans but hurt people in developing countries, though of course the American rich do not share in the sacrifice and THAT’s the big problem here: you can’t tell others it’s their moral duty to sacrifice when you are not sacrificing yourself. 99% of Americans have seen their purchasing power stagnant for many years now so they are contributing to the developing world, why is the other 1% not leading by example on this? Another way the developed world is hurt is rich countries borrowing money that would otherwise have been borrowed to the most promising developing countries.

    “The US has long been one of the most innovative countries in the world, and exports the technologies it develops everywhere it can.”
    When you account for population size is the United States still that much more innovative than Germany or Great Britain? I would think not.

    “More importantly weaker regulation in the US means incumbents are less protected from competition, and talented people can more easily start new firms and overturn the status quo.”

    On the contrary: incumbents have much more political power and the worst IP laws in the world on their side to help them crush incumbents: rankings of the most competitive economies often place European welfare states above the United States.

    Also, government spending is necessary for long term innovation: while big business was busy inventing new recipes for viagra, government spending paid for the development of spaceflight and the internet. And don’t get me started about the importance of public infrastructure for the economy.

    “Low taxes and ungenerous welfare mean the benefits of working hard, taking risks and making it big, are higher in the US than most other developed countries.”

    True, except for the taking risks part: you don’t quit your boring job to start a business of your own when you depend on that job for access to health care. President Obama even said something along those lines in his inauguration speech last week.

    Ultimately this entire article is build around a falsehood: income inequality has risen in the United States primarily because the rich got richer. This may be hard to understand for people with certain political leanings but OWS wasn’t people demanding a bigger pie, it was about people demanding a greater share of the existing pie. The American economy as a whole has grown much slower than the global average, so it is not stopping economic development in the developing world. If America’s rich gave more to the poor in the developing world both American and global economic inequality would go down.

    • Robert Wiblin

      “On the contrary: incumbents have much more political power and the worst IP laws in the world on their side to help them crush incumbents”

      Agree their IP is awful and corporations have far too much political power, but nonetheless the US has faster firm turnover as shown in that Economist link.

      “True, except for the taking risks part: you don’t quit your boring job to start a business of your own when you depend on that job for access to health care. ”

      That’s one of their worst polices – precisely the kind of innovation destroying regulation I’m against  Welfare can promote risk taking in that way, but you don’t need much of it – the US and EU both provide what is required for that purpose.

      “The American economy as a whole has grown much slower than the global average”

      It should be compare to other countries at the technological frontier and on that measure it is doing OK.

      “…so it is not stopping economic development in the developing world.”

      The reason some countries are not developing is not that the capital is all absorbed by rich countries. That just doesn’t make sense.

      • IMASBA

        “but nonetheless the US has faster firm turnover as shown in that Economist link.”
        No doubt those statistics count small businesses and count a business as a new business when it changes name and/or owners.

        “That’s one of their worst polices – precisely the kind of innovation destroying regulation I’m against”

        Who is “they”? The Americans who don’t want universal affordable health care like European nations have?

        “It should be compare to other countries at the technological frontier and on that measure it is doing OK.”

        Didn’t mean anything by it, there is nothing wrong with an already developed economy if it grows slower than China, there simply is less potential for growth per unit of time.

        “The reason some countries are not developing is not that the capital is all absorbed by rich countries. That just doesn’t make sense.”

        Not capital, but natural resources and technology, which are finite at any given point in time. If rich countries fully use al their growth potential and are protectionist about it, they can stay ahead of the other countries indefinitely (the others can still grow but they can’t overtake the rich countries). Poor countries can only catch up when rich countries are not protectionist (allowing jobs to be outsourced to countries where people work more hours) and/or do not fully use their growth potential (disregarding infrastructure, shortening working hours, reducing consumption or even teaching creationism in schools).

      • KPres

        “Who is “they”? The Americans who don’t want universal affordable health care like European nations have?”

        They probably don’t want the shortages and rationing the Europeans endure (80% of Americans are satisfied with the health care THEY receive).The best system would be dynamic, allowing people to spend what they can afford for the highest quality they want.  The wealthy would spend more on low-marginal benefit procedures, driving innovation so that over time those innovations become commonplace and affordable by those in the lower strata.  The US health care system’s biggest problem is mostly at the low end, where regulatory and licensing restrictions have priced millions out of the market.

  • ThaomasH

    According to many measures, the US is NOT an especially laissez fair country, compared to some European and East Asian countries.  On World Bank rankings it scores low on Starting a Business, Dealing with Construction Permits, Registering Property, Taxation, and Trade as these apply to a small firm.  And regulatory capture is probably more important than redistribution per se.

    • IMASBA

      The US is the most laissez-faire (of the developed countries) when it comes to big business and environmental legislation, but it’s not especially laissez-faire when it comes to small business and IP legislation. Also, the US as below average infrastructure and above average expensive tertiary education.

  • http://twitter.com/AlexeiSadeski Alexei Sadeski

    It seems that the US may not, in fact, have very high income inequality relative to other developed nations:

    http://alexeisadeski.wordpress.com/2012/08/06/quick-look-at-income-inequality-international-comparison/

    • IMASBA

      In France and Germany the income share of the top 1% is half of that in the United States, in the Netherlands and Sweden it’s a quarter, and Germany and Italy have local governments too (the US is not unique in that regard, contrary to your claim).

      Unfortunately American income inequality is not a statistical invention.

      • KPres

        In at least one regard it is.  The US has a high corporate tax rate and a low top-marginal rate on personal income.  This leads to lots of pass-through corporations, where the income gets counted as personal rather than corporate.

  • http://www.facebook.com/peterdjones63 Peter David Jones

    “Unfortunately, a higher and higher share
    of US government spending is going to the opposite: the military,
    Medicare, Medicaid, unemployment benefits and pensions. These programs
    are not investments in the future, and generate few if any positive
    spillovers for future Americans and the rest of the world.”

    What’s the point of future innovation or growth if doens’t benefit people? And isn’t it a bit illogical t sacrifice the well being of present people for that.. “We don’t want future generations to die of treatable diseases, Mrs Smith…so YOU have to die of a treatable disease”

    • KPres

      Long run economic growth is critical, because even if not distributed evenly, over time even the lower strata will be better off than in a slow growth economy where distribution is more flat.

  • dEMOCRATIC_cENTRALIST

    Unfortunately, this disproportionate concern for Americans leads to attempts to narrow income inequality that may increase poverty and inequality worldwide. 

    “May” increase. Like, it’s logically possible. Well, yes, I suppose, but it isn’t true. Compare the Blue states where there’s more regulation and higher taxes to the Red States where there’s little. How much innovation is coming out of Texas as compared to California and Massachusetts?

    The OP is just vulgar trickle-down economics repackaged for a globalized economy. It’s the electoral nonsense about “job creators” mouthed by some stooges of capital. Most real economists either reject (or are at worst agnostic about) current U.S. regulation limiting growth or technological progress.There are many other effects besides those that are vulgarly obvious or that you choose to attend to, which is the narrow question of motivation to invest, which in a complex capitalist economy is far from the crux of the matter.

    It’s also a ridiculously myopic view, even if there were any demonstrable truth in it: strengthening big capital in the U.S. will serve to strengthen its hand in the economically backward courtries too. The “analysis” ignores economic imperialism entirely.

    What credentials, knowledge, or experience do you have to justify applying your common sense intuitions to what’s a highly systemic question?

    I also have to further question the sincerity of your previous moralizing. What would you say to the argument that we shouldn’t regulate the treatment of livestock because it crimps profits that trickle down to the third world?

    • KPres

      “Compare the Blue states where there’s more regulation and higher taxes to the Red States where there’s little.”

      This lacks historical perspective.  The northeast developed industry and capitalism first, and they’ve led the south and midwest economically ever since.  The more recent trend, however, is for jobs and industry to move from blue to red, which coincides with the rise in government control in those blue states.

  • http://juridicalcoherence.blogspot.com/ srdiamond

    To put the matter bluntly, do you really propose that turning the whole U.S. into a vast Texas “Red State” would benefit the third world. It’s no accident that the capitalists in Texas and similar places are eager to use U.S. military might to drive down living standards in the third world as well as at home.

    What do you say about the U.S. sanctions against Cuba, Iran, and North Korea? What are they doing to the living standards of those third world countries? It’s no accident that socialists who favor egalitarianism at home also oppose imperialism and militarism.

    • KPres

      “ It’s no accident that the capitalists in Texas and similar places are eager to use U.S. military might to drive down living standards in the third world as well as at home.”

      Citation?

  • http://newstechnica.com David Gerard

    The trouble is that the economic interests that make the US like this spread themselves outside the US, e.g. the attempts to privatise the NHS in the UK.

  • VV

    Many people below doubt whether the US is less regulated, and whether
    regulations do as a general rule stifle innovation. If you doubt these
    things, at least take away the point that whichever policies you think
    do stifle innovation, whichever countries they are found in, are much
    more harmful than they first seem. I will try to research and write up
    more on this topic of what general kinds of economic models are most
    innovative in the future.

    You may want to consider that innovation has probably diminishing returns.

  • http://www.facebook.com/peterdjones63 Peter David Jones

    It’s not even clear that policies are the problem. Arguably, the Southern European disease is that regulation isn’t followed — govts don’t enforce them, people don’t follow them.

  • http://twitter.com/RekLeCounte Anthony Rek LeCounte

    Military spending doesn’t belong on the list with entitlements. In the first place, investment in the military has given us things like the internet and GPS. In the second, military spending as a portion of the U.S. budget has actually been declining, whereas entitlements are rising.

  • http://www.facebook.com/CronoDAS Douglas Scheinberg

    The U.S. trade deficit is the world’s biggest and most successful antipoverty program.