Yes, Compare Nations

I called for more empirical work on the effects of liberty:

Libertarians focus too much on trying to argue abstractly that liberty would be better, and not enough on just concretely describing how liberty would be different. … From [our] vast literature we should be able to identify many concrete patterns and “stylized facts” about how government-provision and heavy-regulation tends to change products and services. (more)

David Henderson agrees:

The reality is that after Stigler’s speech, many economists did look more at the data and the data tended to show that the free market and economic freedom work better than government control. But Robin is not satisfied. There is more to be done, he says, and he’s right.  (more)

But he does have a criticism:

I do have one main criticism of Robin’s post. … It’s the West/East Germany and the South/North Korea comparisons that I want to defend. With all the variables that could affect economic growth, think about how hard it is to know what some of the most important factors are. … The stark contrast between those two pairs of countries and what that said about some economic freedom versus harsh totalitarianism.

I very much agree that those nation pairs make useful comparisons; sorry that what I wrote could mislead on that point. These comparisons do indeed suggest that “some freedom” is better than “harsh totalitarianism”, and they are good data-points on which to base stylized facts on the general effects of more liberty. Their main limitations are that they don’t say much directly about the effects of a lot more liberty than is found in West Germany or South Korea. To imagine even more liberty, we need those stylized facts.

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  • IMASBA

    “Their main limitations are that they don’t say much directly about the effects of a lot more liberty than is found in West Germany or South Korea.”

    Yes, that does seem to be the elephant in the room… There are good reasons to think unfettered capitalism eventually isn’t sustainable either.

    • http://entitledtoanopinion.wordpress.com TGGP

      It may be getting off track, but could you elaborate on your view of what those reasons are?

      • IMASBA

        It doesn’t do very well with the environment and there’s the r>g issue (which could get even worse once artificial upgrades of the human body and mind become feasible).

        There is a word game to be played here. I could propose a system that has a basic income/negative tax pegged to GDP/capita, some basic antitrust laws and taxes for income from capital that reach 100% at some high point, but that otherwise has very liberal trade rules and a free market, and then people would disagree about whether that’s still capitalism or not, that’s why I used the term “unfettered capitalism”.

      • http://entitledtoanopinion.wordpress.com TGGP

        r > g? Is that a Piketty reference?

      • IMASBA

        Sort of, it’s useful to use Piketty’s phrasing because he popularized this issue, but he was by no means the first person to recognize it and he didn’t take into account future technology (which probably helped his book sales but also means his warnings actually underestimate the problem).

        P.S. I’m not a Marxist, I recognize the importance of having competition and a price mechanism.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        “Unfettered capitalism” is an impossibility: concentration of wealth leads to concentration of political power (and to successful rent seeking).

        For the same reason, egalitarian capitalism is impossible. Politics can’t override economics.

      • brendan_r

        weak:
        a) relation between economic freedom and wealth inequality not at all clear,
        b) wealth is one among many factors that enables political power; asians are richer than blacks but far less political pull
        c) among wealthy people and institutions interests are quite diverse; Harvard and Koch Bro’s, for example.
        d) lobbying increases in proportion to things (agencies, programs) to be lobbied.

        the claim that unfettered capitalism causes inequality which causes more rent seeking is weak.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Regarding D: Would unfettering capitalism reduce the amount of wealth directed politically? Why, when creating new targets for lobbying is always, itself, a lobbyable option?

        [If anarcho-capitalism ever came to exist, would it not likely to be rapidly replaced by a highly authoritarian state?]

      • IMASBA

        I was taklking about the period where unfettered capitalism thrives and hasn’t yet maximized rent-seeking. I don’t think a society that has maximized rent-seeking would automatically not qualify as capitalist anymore either. It’s possible the rent-seeking elite might eventually try to officially establish an aristocratic system but that could take a while, or they could choose not to. In any case I think we agree we both want to avoid that maximized rent-seeking endgame.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I meant they were sociological impossibilities, not logical ones.

    • hoodathunkit

      There are good reasons to think unfettered capitalism eventually isn’t sustainable either. – IMASBA

      Can you elaborate on the unfettering in your ‘unfettered capitalism’? As opposed to unfettered authoritarianism, fascism, communism, etc? The term ‘unfettered’ appears a canard device —automatically making any system irrational and unsustainable— in order to favorably compare restraints and regulations in [some other, any other] system.

      From the dictionary [numbers added for clarity] capitalism is an economic system in which 1) the means of production and distribution are privately or corporately owned and 2) development occurs through the accumulation and reinvestment of profits 3) gained in a free market. Fettered or not, capitalism doesn’t preclude taxation or regulations on sustainability.

  • IMASBA

    Presumably many other factors besides the basic economic system of a nation are terribly important towards economic succes as well. East Germany was a communist country that was richer than many capitalist countries in the third world. If there’s no war and you have a people with the mentality and culture of the Germans you can probably make any economic system work reasonably well, at least for a while. So much depends on simple things like whether you can reasonably trust people to stick to agreements and use arbitration rather than corruption or violence to resolve things.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    The West poured aid into S. Korea (after destroying the North) precisely to try to make your point. Both East Germany and North Korea were largely isolated from international capital markets.

    You’re resurrecting a miserable piece of Cold War logic (and calling it “economics”).

    • Christopher Chang

      Two can play that game. The Soviet Union and China did support North Korea, and, looking at a map, one would expect NK to have the advantage.

      The SK-NK comparison is fair enough to be informative.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        It may well be informative, but it is far from definitive.

    • http://entitledtoanopinion.wordpress.com TGGP

      Tyler Cowen has an interesting essay on the Marshall Plan.

    • TheBrett

      They had Soviet support. And people overrate the size of the Marshall Plan.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        The Soviet Union itself didn’t have access to international capital markets.

      • IMASBA

        Did they need to though? They traded with other communist countries and the third world. They and their trading partners had access to every natural resource imaginable and had a large population and land area.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        It sure looks like Chinese access to Western capital markets made a world of difference. The rich countries have the cutting edge technology.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    Here’s what I don’t understand: Why would Robin “lean libertarian” when the empirical evidence to support libertarian policies remains to be collected?

    Isn’t this “leaning” a bias, which he should strive to overcome?

    • Tyrrell_McAllister

      One man’s bias is another man’s prior.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        If Robin is rationally entitled to his rather strong priors, shouldn’t he be optimistic about arguing his actual reasons rather than putting his faith in future data?

        Unless the data serve an esoteric purpose.

      • stargirl

        Here is an example. I am very skeptical of government regulations. Regulatory capture is a very serious problem that isn’t going to be solved soon. And the incentives faced by regulators tend to be terrible. For example the FDA faces a huge backslash if it approves a drug that turns out to kill people. But little if any backslash for not approving drugs that would have saved lives. Similar issues face msot regulators. So the type1 and type2 errors are not going to be in balance.

        I am not opposed to all regulations. I tend to like the ones that are discrete and do not require discretion to enforce. For example (moderate) minimum wage laws. Or enforced parental leave. But I “lean” very heavily against regulations that are ill-defined. Though I do think we need something like the EPA even if its going to cause alot of problems 🙁

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Thanks for the example.

        Is it rationally compelling? In my view, no, although it is perhaps the way people generally reason politically. As I see it, looking at the problems with regulations outside of a comparison with the harm they were designed to avert is no different from a socialist who finds in defects in capitalism an automatic argument against it.

        It seems to me that it would be very hard to construct a plausible basis for such “leanings,” because there’s no reason to suppose that an arbitrary construct like “libertarianism” or “well-defined regulations” is a natural kind likely to yield strong justified priors.

        One way to construct such a justification for a “leaning” is by means of a theory that dominant societal processes produce over-regulation. If society over-regulates because of some social dynamic (and there is no counter-dynamic) then you’ll have justification for tending to prefer less regulation at the margin. (I don’t see much promise for such a theory.)

    • stargirl

      He has theoretical reasons for leaning libertarians. Though it is possible his “true” reasons for supporting libertarianism are emotional, such as distaste for many authorities. However he is intellectually honest enough to want empirical support for his beliefs. You cannot make sense of the world from just empirical data, everyone has to have a map of the territory. Since Hanson is actually trying to test his beliefs his attitude seems like the best approach a person can realistically take.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Have you heard those theoretical reasons?

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I don’t see how it is possible to “lean” libertarian rationally. You either accept libertarian theories and are libertarian (or classic liberal or anarcho-capitalist or Objectivist or whatever)–or not.

        Perhaps it’s possible to “lean” rationally; I don’t have an argument that it isn’t. I just don’t see what considerations could, in rational fashion, cause one to “lean” a certain way. It seems like a bias. [Which is supported by my observation that Robin has never presented any abstract arguments for libertarianism or indicated that he agrees with any of them.]

        Perhaps a certain kind of Bayesianism is involved, as suggested by the comment about priors. Some Bayesians seem to recommending using your priors, no matter how weakly founded.

      • AspiringRationalist

        >I don’t see how it is possible to “lean” libertarian rationally. You either accept libertarian theories and are libertarian (or classic liberal or anarcho-capitalist or Objectivist or whatever)–or not.

        You can have a weak theoretical justification, something along the lines of “government intervention in economic matters tends to move prices away from competitive equilibrium, which results in dead-weight losses, which are bad for the economy, so I tend to favor libertarian policies, but I recognize that reality is often more complicated than microeconomics 101, so I only lean libertarian.” You don’t have to fully accept the theories behind an ideology to think that that ideology’s policies are correct some, or even most of the time.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        But you have to have some theory, perhaps of your own, to justify your leanings, and you provide an example: the harmful effect of government intervention in economic life.

        The problem is: how would anyone justify believing that government intervention merely “tends” to be bad? Of course, government intervention has costs; but so does abstention, in the form of externalities. What kind of abstract considerations would lead someone to a strong belief that government intervention is, on balance, usually deleterious?

        One can’t, after all, just drop the ideology but retain the conclusions.

  • potatoesoup

    Comparing authoritarian to permissive countries seems like a bad way to learn about whether it’s good for permissive countries to be more permissive or less. A lot of the problems with authoritarianism might have been averted if even a little bit of liberty existed.

    Actually, as long as I’m asking for nuance: “liberty” is an overly broad category. It encompasses literally all imaginable permissions. Better to break it down into subtypes and investigate those specifically.

    Be sure not to artificially privilege looking at governmental constraints on liberty over social or economic constraints. The source of restrictions doesn’t seem likely to be near as important as the category being restricted.

    • potatoesoup

      Argh. I retract that last paragraph, it actually seems very likely to be important.

  • sanxiyn

    I am from South Korea. As I understand, North Korea was ahead of South Korea up until mid-1970s, and the reversal had a lot to do with Vietnam War and the restructuring of international trade route after containerization and Pusan being part of it.

    In the alternative universe, Rajin could have been Pusan. It is a natural port at the fantastic location, and Imperial Japan had a plan to make it the major cargo port but didn’t complete it.

    • http://juridicalcoherence.blogspot.com/ Stephen Diamond

      If the understanding you express in the second sentence is true, it demolishes the comparison endorsed in the lead essay.

    • consider

      in.2005.$s:
      S.Korea:
      1960–$1,900
      1965–$2,100
      1970–$3,000
      1975–$4,000

      maybe tied

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    Let’s first note that the liberty in question is economic liberty. South Korea hasn’t been known for civil liberties, such as under the Rhee regime. Let’s then note that relatively small countries make for poor comparisons because they are so affected by exogenous factors.

    Then, the key comparison could be that between China and India (where women in the news for being dehumanized by their extreme poverty).

    The results of that competition thus far are too obvious to require comment.

    • IMASBA

      I don’t know. China pretends to be communist but major sections of its economy have been liberalized while in India pretends to be capitalist but actually has a lot of restrictions in place (I believe it was only sometime this year that foreign supermarkets were first allowed to set up shop in India). China ranks higher on the ease-of-doing-business list than India, and Denmark ranks higher than the US, so apparently there’s a world of difference between theory and reality…

    • stargirl

      I don’t think many people believe its “civil liberties” that create economic prosperity. Its economic liberties. And China is clearly more economically free than India.

      Though I think the Heritage rankings of economic freedom point toward economic freedom only being useful up to a point. While the richest countries are fairly free the correlation we care about is freedom and economic growth. There is little evidence freedom beyond the level in say France is especially useful.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I wasn’t aware of the Heritage rankings. As I find out, China and India are very close, and both are in the “mostly unfree” category.

        This pretty much rebuts my comparison based on India and China, but it leads to another point. The economically fastest growing country in the world today is “mostly unfree.”

      • IMASBA

        China isn’t the fastest growing economy in the world (Mongolia and some African countries grow faster). I suppose it’s also unfair to compare China to Western democracies when it comes to growth: China is poor so it can grow easily because its people are used to low wages and because they still have a lot to gain from merely implementing existing technology and knowledge.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Fastest in a longer time frame. China has been growing rapidly since the 70s.

      • JW Ogden

        but it leads to another point. The economically fastest growing country in the world today is “mostly unfree.”

        It is the delta that matters. It took a huge amount of suppression to keep China, a country with everything but economic freedom going for it, down. A little freedom goes a long way in a place with people and a culture like China has.

  • jjbees

    You also have to consider that there are genetic differences between groups that lead to economic differences.

    Are West and East Germans genetically identical? Are North and South Koreans?

  • http://utopiayouarestandinginit.wordpress.com Jim Rose

    In the early 1960s, Joan Robinson argued with a colleague about the great economic success of Korea.

    It was a confusing debate until a listener realised Robinson was talking about North Korea and the other about the South.

    Soon after this discussion, there was a military coup in South Korea.

    Gordon Tullock is an interesting writer on South Korea and the
    consequence of this military coup saying that:

    1. Syngman Rhee was a socialist who knew nothing of
    capitalism when he took over after the Second World War.

    2·To make his country look capitalist to the Americans, Rhee gave many previously Japanese owned industries to his friends
    as monopolies.

    When General Park overthrew Syngman Rhee in 1961, he knew no economics, but Park knew the bureaucracy was filled with Rhee’s cronies, so he fired them all.

    Before a new lot of cronies got properly in place, the economy boomed.

  • Sieben

    Empiricism can never convince anyone of anything significant. Yes, a hypothetical free market is probably better than most communist dictatorships that have actually existed. But in the minds of every liberal college student, there exists a “government of only good things” that is at least stoichiometrically possible.

    Personally I am a little disgusted with political philosophy. The underlying goal seems to get everyone to be as middle class for as little effort as possible. What about those of us who want to live in a shark tank?

    • http://juridicalcoherence.blogspot.com/ Stephen Diamond

      But in the minds of every liberal college student, there exists a “government of only good things” that is at least stoichiometrically possible.

      Which is mirrored, in the mind of every libertarian college student, the view that there exists a truly egoistic capitalist, who won’t combine with his fellows, politically and economically, to advance his interests.

  • diversity trainer

    It’s been a while since I read Chomsky, but I can’t help but share his view that smaller government is dissimilar from liberty. Can we claim that a society like Pakistan is more “libertarian” than the United States? Or even Sweden?

    • JW Ogden

      I know nothing about Pakistan but from my experience living in Honduras, I would say that they Honduran government is far bigger relate to their economy than that of the USA. In Honduras the Government provides the electricity, the phone service and the water. It also provides medical care but most people with a little money to private providers. I worked for technical mission of Kansas state university in the Honduran institute of Agriculture and so I can tell you that they mess extensively with agriculture. Also imports where highly taxed and my wife a native Honduran would bribe that customer people.

  • Unanimous

    North Korea and East Germany ignore(d) their own regulations. Regulations in those countries are a branch of public relations, not anything worthy of the name. Those countries are examples of lack of regulation.

    Regulations are what make the freedom that we have, and that libertarians appreciate, possible. Bad regulations can also reduce freedoms. The whole issue is a question of quality of regulation, and adherence to them, not the amount of them.