Comments (11)

• Curt Howland

  "Given the results of the past 20 years, it is difficult for policymakers to argue that socialism can work here while it didn't work there."

  Difficult? Heck, it seems very easy for them to so argue, and it sure seems to work on a large majority of people.

  Published: June 16, 2008 9:39 AM

• Paul Marks

  Sadly most voters do not know that government intervention leads to problems that other interventions are then deployed to "solve".

  For example, the high cost of health care is caused by a series of government interventions. Licensing, regulations on insurance companies, "knock on" effects of the ever growing subsidy programs of Medicare and Medicaid [5 billion Dollars in 1965 many HUNDREDS OF BILLIONS OF DOLLARS now] and so on.

  However, rather that reversing previous interventions (or even introducing modest, John McCain style, deregulation and tax reductions - by our standards John McCain is no free market person, but by the standards of the media and academia he is an evil "orthodox" man, yes they have brought back the word that was used to attack Ludwig Von Mises and others as far back as the 1920's) most academics and media people demand ever more government intervention.

  Indeed, far from socialist ideas being on the defensive in the United States, it looks like Senator Obama (a man with strong socialist, indeed Marxist, connections) may be the next President of the United States.

  And even the financial press (Fortune, the Economist, the Financial Times) denounce tax reductions and demand tax increases (the end of the Bush tax rate reductions) and demand such things as "universal" (government supported) health cover.

  And many of the billionaries (Warren Buffet and so on) line up behind the left in politics.

  Actually this should not be a surprise - many business types love the idea of "private" things that are not private at all (the Federal Reserve system, Fannie Mae, Freddie Mac and so on) and would not be very unhappy if the entire economy was like this.

  And such things as the death tax help destroy family owned business enterprises (long an objective of men like Warren Buffet - he has even gone over to Germany to try and use the new tax law to try and destroy business enterprises that survived two world wars and the depression).

  The schools and universities teach doctrines that are really Marxist in origin (Ludwig Von Mises pointed this out long ago) and many of the leading business people have allied themselves with the left in politics (including the Maxist or neo Marxist left - such as Senator Obama).

  The United States may well be doomed - and with it will go the rest of the West.

  Published: June 16, 2008 10:29 AM

• Paul Marks

  test

  Published: June 16, 2008 10:32 AM

• newson

  paul marks says:
  "And even the financial press (Fortune, the Economist, the Financial Times) denounce tax reductions and demand tax increases..."

  i stopped my subscription to the economist years ago, appalled at its muddle-headed view of economics. i consider it worthy only in politics and general interest, like an highbrow reader's digest.

  Published: June 16, 2008 11:25 AM

• fundamentalist

  Paul Mars: “The United States may well be doomed - and with it will go the rest of the West.”

  The most discouraged I have been in a long time was when I finished Mises’s “Human Action” about three weeks ago. The straw that broke my camel’s back was the statement by Mises that state spending, whether borrowed or taxed, reduces by an equal amount capital accumulation. State spending does not increase capital at all; it is total consumption. So money spent on state bonds, or given up through taxes, reduces the amount of money that could have gone to investment in capital for businesses. And of course capital accumulation is the future. Reductions in capital accumulation reduces future output of consumer goods.
  Savings is not neutral. Savings used to purchase state debt does nothing to increase capital for future production; it is totally consumed. In addition to fighting taxes, Austrians need to expose state debt for the evil it truly is.

  This issue hilites the real world consequences of false GDP accounting. By including state spending in GDP, GDP convinces people that state spending is equal to private spending in producing wealth, which is a lie. Only capital accumulation creates wealth and state spending destroys capital accumulation. An increasing GDP/capita deludes people into thinking that we a growing wealthier, but the reality is that consumption is growing at the expense of capital. At some point the consumption of capital will cause GDP to fall.

  If it weren’t for foreigners buying state bonds and private bonds and stocks, we would be consuming capital at a horrendous rate and consequently destroying our future at the same rate. But at the same time, the foreign capital that sustains us keeps foreign nations from accumulating capital, so we have only transferred the problem to poorer nations. In other words, high levels of state spending in the US and Europe is impoverishing the entire world!
  

  Published: June 16, 2008 12:11 PM

• Fephisto

  I like the conclusion of this article, but I don't agree with the reasoning via 'Freedom Averages' and 'GDP'.

  Published: June 16, 2008 3:43 PM

• fundamentalist

  Fephisto, why not?

  Published: June 16, 2008 5:11 PM

• fundamentalist

  Christopher, I'm wondering if you have ever done a similar regression with a dummy variable for whether or not an economy is advanced. The reason I ask is that you can have two reasons for relatively low growth: 1) The economy is free, but very advanced and the low hanging fruit was eaten a long time ago, such as in the US. High growth rates would be very unusual for an advanced economy like the US. 2) The economy is unfree.

  On the other hand, high growth can happen only in countries that have recently (say last 20 years) opened up their economies. They can grow rapidly because they can take advantage of foreign capital and technology. But as the economy grows, it reaches a tipping point after a while and the rate slows, although the absolute $ amount of growth might be larger.

  An alternative to a dummy variable might be the real GDP. That would weight the growth rate by the size of the economy.

  One of those methods might reduce the variation around the regression line. What do you think?

  Published: June 16, 2008 5:23 PM

• Christopher Hartwell

  To all,

  I agree entirely that this analysis is somewhat superficial - I didn't try to isolate any other variables apart from growth and the freedom index. I also agree that freedom indicies are difficult to use since they are subjective (however, biases over 20 years for 12 countries tend to run in the same direction). GDP is also problematic, as I tried to argue in the article, because of course it doesn't capture all activity (and includes government spending!!!), and statistics in these countries are even more spurious than from other governments.

  There were so many other metrics that can be used to see more Austrian ideas about institutional flexibility and performance - things such as inflation rate (monetary debasers don't grow), war dummies, foreign direct investment (the market's signal of a country's prospects and business environment), doing business, etc...

  The main point was that there is a general correlation between growth and freedom, but there ARE other indicators you can see a relation from, like unemployment - basically, are there flexible institutions that promote market policies and allow people to get on with business? In many post-Soviet economies, such as Armenia, where I live, no, the institutions are still set up to stifle business; so you may get high GDP growth (consumption and government), but you're not getting economic outcomes you want (i.e. private sector growth, lack of burden).

  I'm not sure about using a dummy for "advanced" economies in this context, because it's too easy to draw an arbitrary line and say who is advanced and who isn't, thus skewing the results. If we use commonly accepted terms, none of the transition economies will fall into the "advanced" category. An oil dummy would work much better (it wasn't used here) in my opinion.

  So there is so much more to be done in Austrian analysis on transition (or transformation). This article was a first shot - let's see what else we can come up with :)
  

  Published: June 16, 2008 11:30 PM

• Silverleaf

  When will people learn that government handouts (socialism) doesn't work and is economically disastrous? My guess is "never" since those who have neither the will nor the capacity to think about it with any degree of effort beyond that required to calculate the intricacies of reality TV seem to love to get "free" handouts from the government. They don't stop to think about where those "free" handouts are coming from, and that all things have to be paid for in time. There is, after all, no such thing as a "free lunch". We would be in a much better spot as a country if, when confronted by the seemingly benevolent bloviations of our politicians, we would stop to say, "that's wonderful. How do you intend to actually *pay* for that?" Unfortunately, the seemingly "free lunch" gets votes, and until the masses learn that there's no such thing, United States politicians, from both parties, will continue to be the snake-oil salespeople that they are.

  Published: June 17, 2008 7:23 AM

• Fephisto

  fundamentalist:

  I split my argument into three parts. One is that I don't agree with the utilitarian background I see inherent in GDP, and thus include a number of arguments against utilitarianism. Second is regardless of utilitarianism, whether I have objective or subjective value scales. The third criticism is even if I have an objective utilitarian stance.

  -----

  As far as ethical reasoning goes, I don't agree with utilitarianism, of which I feel the GDP exemplifies. For the following reasons:

  *It is Deterministic. To maximize 'happiness', we must necessarily have a 'happiness function' for all human beings. However, from what I believe I know of Physics now, at least (ironically to a certain extent) empirically things tend to agree with the Copenhagen Interpretation, which agrees with a non-deterministic-verse. An objection to this might be to maximize the probability happiness function, however, my objection to this is that
  1) I believe we can accept that for a moral theory to be a moral theory it must tell us what actions are moral and immoral before they take place
  2) With maximizing a probability happiness function we can only know what actions are moral or immoral until after they take place, so
  3) I posit that this inherently breaks premise 1)

  one might argue that 1) with-holds no notion of when an action is deemed immoral; but if not before the action takes place, then implicitly 1) can not hold.

  *The "Unusual Circumstances" Objection. I believe it is fair to assume a moral rule like, "Somebody killing everyone in the world in pure rage" to be bad; racism is bad; killing for no reason, in general, is bad. However, say we have an enraged killer and that he would gain and infinitude of happiness from killing off every other person in the world, so much so, that this would outweigh the disbenefit in all the future of the rest of the current world population, by Utilitarianism, the action becomes justified. A common objection to this, is two-fold:
  1) It is rare.
  2) We can solve it with Rule Utilitarianism.
  My response to the first is also two-fold. First is that there are more common occurrences where "Unusual Circumstances" may appear. Imagine a police force that is investigating a brutal homicide of two black men, and the investigation is not going well, there are no leads, and it eventually gets to the point where the city is going to riot is the murder is not resolved somehow. So, the police take an innocent homeless guy, frame him, and jail him for the homicide. An injustice has occurred, framing innocent people is not a good thing, and yet Utilitarianism justifies it. Or, take the Utilitarianistic justification for racism: if it were not for the White Americans, the American Indians would still be living in dirt tipis; therefore, we are justified to lording over them. Which I hope we can agree to as being bad.
  My next response to the first objection is that it shouldn't matter that it's rare. The fact that a moral theory can give us contradictory results should alone be enough to discredit it.

  My response to the second objection is that Rule Utilitarianism appears to be normal Utilitarianism only on a grander scale, and thus appears to me to have the objections of normal Utilitarianism times a fold. That is I don't see how this really escapes the "Unusual Circumstances" objection. Furthermore, it is also faced with the problem of generalization.

  Also, http://mises.org/journals/qjae/pdf/qjae6_1_7.pdf is supposedly another critic of it; but I haven't really read all of that yet.

  *It is an 'end justifies the means' ethic. And thus Utilitarianism is apt to the criticisms of that.

  *Violation of the second categorical imperative, if you would agree to that.

  -----

  But, regardless of the ethical background, I still object to the use of GDP and freedom index because, if you accept subjective value:

  You can't calculate. Let alone some measure that is supposed to tell the 'worth' of an economy, let alone tell you how 'free' you are.

  ---

  Even if you did argue for utilitarianism, and then for objective value scales that as far as I see things like a 'freedom index' and 'GDP' would require, I would still argue against how the two are calculated. Especially in that GDP ignores black market activity (drugs), advocates consumerism, and escalates the importance of government spending.

  Published: June 17, 2008 10:16 AM