A post-ideological index of good governance

A few months ago Statsguy did a post arguing that the Heritage Index of Economic Freedom was in many respects measuring good governance, not small government.  I agree, but it’s also true that much of the index does measure small government.  It gives credit for (lack of) taxes, spending, price regulation, entry regulation, trade barriers, investment barriers, etc, etc.  So the index very definitely is biased toward the more laissez-faire economies.  Not surprisingly, Hong Kong comes in number one.

Here I’d like to develop a sort of post-ideological good governance index.  An index that focuses not on how much governments do but rather how well they do it.  A few days ago Matt Yglesias linked to the World Economic Forum’s Global Economic Report.  My initial reaction is the same as Yglesias’s:

I don’t particularly want to vouch for the methodology behind the World Economic Forum’s “Global Competitiveness Report” since ordinal lists are a little silly and competitiveness is a bit of a weird concept but just think of this as a reflection of something international businessmen think . . .

Yes, the term ‘competitiveness’ is rather vague.  But I was intrigued by the countries at the top of the list:

1.  Switzerland

2. Sweden

3. Singapore

4.  U.S.

5.  Germany

6.  Japan

7. Finland

8.  Holland

9. Denmark

10.  Canada

11.  Hong Kong

12  U.K

13.  Taiwan

14.  Norway

15.  France

16.  Australia

Number 17 was Qatar, at which point I lost interest.  In a paper entitled “The Great Danes” I described three models of neoliberalism, and in each case an outstanding example was provided:

1.  Hyper-egalitarian neoliberalism (Denmark)

2.  Hyper-economistic neoliberalism (Singapore)

3.  Hyper-democratic neoliberalism  (Switzerland)

Given that Sweden is pretty similar to Denmark, it looked to me like these three models did well in “competitiveness,” whatever that is.  Then I looked at the 12 categories used by the WEF:

1.  Institutions

2.  Infrastructure

3.  Macroeconomic environment

4.  Health and primary education

5.  Higher education and training

6.  Goods market efficiency

7.  Labor market efficiency

8.  Financial market development

9.  Technological readiness

10.  Market size

11.  Business sophistication

12.  Innovation

It seemed to me that many of those categories measure “good governance” more effectively than the Heritage Index (which doesn’t tend to measure the output of services traditionally provided by governments (infrastructure, health, education, etc.)  But market size seemed irrelevant to me, and I noticed it partly explained the high scores of the US, Germany and Japan.  And I also thought the last two categories were unrelated.  Innovation would reward countries that happened to have a comparative advantage in tech industries, and what the hell is “sophistication?”  So I averaged the first 9, and here’s what I got:

1.  Singapore   5.852

2.  Switzerland 5.799

3.  Hong Kong  5.696 5.778

4.  Sweden  5.696

5.  Denmark  5.602

6. Finland   5.584

7.  Holland   5.513

8.  Canada   5.509

9.  Australia   5.452

10.  Norway   5.444

11.  Germany   5.361

13.  U.K.   5.358

13.  Taiwan  5.271

13.  France   5.271

15.  U.S.   5.187

16.  Japan   5.147

Actually the WEF list is far longer.  I did not re-compute all of the index numbers; a few other smaller European countries would probably have overtaken the US and Japan if I had.  Here are some reactions to the new list:

1.  Small countries are better governed.

2.  The list has something for both those on the left and those on the right.  Most of the top scorers are the sort of European welfare state beloved by liberals.  France overtakes the US in this list.  On the other hand the top three are usually regarded as pretty capitalistic places, and even if you throw out the two Asian city-states (which I’d oppose) Switzerland is often called the most capitalist country in Europe.

It seems to me this list is exposing a perspective that is orthogonal to the tired left/right debate over big government.  It suggests multiple paths to nirvana.  To explain why, let me return to the three models of neoliberalism discussed in my ‘Great Danes’ paper.  I see those three models as providing answers to the three basic questions of governance:

A.   What values should government policies embody? 

B.   What policies effectively deliver those values?

C.  When there is a dispute about which policies work best, how should the dispute be resolved?

The first question is moral, and the answer I give is “utilitarianism.”  Unlike 99% of people in the humanities, I regard utilitarianism as a radically egalitarian value system—where people put the best interest of society ahead of their own narrow self-interest.  The second question is scientific, and my answer is ‘economistic’ policies, those that are implemented by people cognizant of the (counter-intuitive) way taxes and regulations often distort decision-making.  The sort of fiscal regime you get if 100 Martin Feldsteins sat down and designed a country on a pad of paper.  In other words—Singapore.  The third question is political, and my answer is democracy.  And I don’t mean just having elections; I mean a system where the people actually govern.  Where every school is a separate school district.  Where taxes must be approved by referenda.  Where every decision is made at the lowest feasible level of government.  

Low and behold, all three of these models are represented in the top 5 of my list.  What are the odds of that?  Even better, the other two countries (Sweden and HK) are nearly as good examples of hyper-egalitarian and hyper-economistic neoliberalism as Denmark and Singapore.  So here’s my point.  These countries don’t at all resemble each other.  You can’t get much more different than Hong Kong and Denmark, at least by the criteria used by most people on the left and right.  But they all do at least one thing extremely well.  They all are exceptionally good at one of the three attributes of a highly successful neoliberal society.  Either they are highly civic-minded (Denmark, Sweden), or highly aware of the sorts of policies that produce economic efficiency (Singapore, Hong Kong) or highly democratic.  Switzerland had more national referenda in the 20th century than the rest of the world combined.  And it also seems that all three have very good governance.

Because I am a right-wing liberal who thinks incentives matter more than progressives believe they do, I’d vote for the Singapore/HK low tax model, not the Danish/Swedish high tax model.  I was glad to see Hong Kong scored number one in the world in the infrastructure category.  So much for Galbraith’s “private wealth, public squalor.”  But unlike many right-wingers, I believe the Nordic approach is also pretty successful.  And I attribute their success to extremely effective governance, which overcomes the drag of high taxes and transfers.  Sweden has an educational system that every US right-winger can only dream about—100% voucherized, and even for-profit schools qualify.  They were the first to adopt a system of Social Security, but now have taken George Bush’s advice and started privatizing it through personal accounts.  Denmark even has privately run fire departments–you can’t get much more “public good” than fire-fighting, can you?  In other words, these countries have economic systems that would horrify the fashionable leftists in the U.S. and U.K. who regard terms like ‘profit’ as ‘privatization’ as dirty words (at least when applied to services traditionally in the public sector.)  BTW, there are many other examples I could provide of privatization of traditional government activities in the Nordic countries.

This list also highlights the “small is beautiful” point I keep making.  The top six countries all have fewer people than Los Angeles County.  I’m guessing they don’t spend $550 million dollars on new high schools (as LA just did.)  The Economist noted that America is spending $11 billion on its census ($36 per person) whereas Finland spends a measly $1.2 million (20 cents per person.)  It’s no surprise that the bigger countries fell sharply down the rankings, as soon as bogus categories like market size and “sophistication” were removed.  Huge size didn’t hurt us much in the US as long as we were a fairly small and laissez-faire government.  But as our government gets increasingly active (think health care) the large size and diversity of the US becomes an increasing drawback.  What works in Minnesota doesn’t work in McAllen, Texas.

So why has the US been so successful?  Because good governance isn’t everything; it turns out small government also helps a lot.  The early studies of the supply-side effects of high taxes (Lindsey, Feldstein, etc) showed the effect was powerful.  Revisionist studies by Slemrod, Saez, Goolsbee, etc, suggested the effects were rather small.  But I didn’t find the methodology of either group of studies to be at all convincing, as they measure immediate effects, whereas the important effects probably occur very gradually.  This is especially true of human and physical capital formation, which is slowed by high MTRs.  Imagine a scenario where people are only willing to put in the hard work of becoming a doctor if the pay is twice as high as other professionals—say $200,000 instead of $100,000.  If you put a 50% tax on income above $100,000, fewer people will go to medical school until salaries rise to $300,000.  Note that patients pay 100% of that tax in higher prices.  (So much for all those articles on distributional effects of taxes.  That’s right, they are all worthless.)  But the effect doesn’t occur immediately.  It takes a long time to study medicine, and the cost is sunk once the courses are completed.  The tax probably won’t stop people who are already doctors from continuing to practice.

These insights suggest that cross-sectional tests of the sort Ed Prescott did are best.   And those suggest a strong Laffer curve effect.  Despite much higher tax rates, most European countries raise about the same amount of revenue as the US does (in PPP terms.)

Here’s a prediction.  Take the 20% of GDP raised by the Federal government in 2000.  Now draw a trend line from 2008 going forward assuming a very modest 2.5% RGDP growth.  I say Obama won’t be able to raise any more than 20% of that trend RGDP in revenue, even if he pushes Federal taxes up to 22% or 24% of GDP.  That doesn’t mean 20% is the top of the Laffer curve for an efficient tax system, like what they have in the Nordic countries.   But for our ramshackle tax system, 20% Federal and 30% total (federal, state and local) are probably close to the top of the Laffer curve.   We could get a higher share of GDP, but only at the expense of reducing RGDP growth.

In my view the left/right debate is this country is so vicious because we are debating second best policies in a policy-making regime that is profoundly dysfunctional.  Thus Matt Yglesias and I probably disagree strongly about extending the Bush tax cuts for the rich, but we both favor a simple progressive consumption tax as the ideal.  I see these small countries with good governance as models that point the way forward, past our stale ideological debates.  The question is whether we will pay attention to the lessons they are providing.


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51 Responses to “A post-ideological index of good governance”

  1. Gravatar of Benjamin Cole Benjamin Cole
    14. September 2010 at 08:26

    Yet another insightful commentary by Scott Sumner.

    BTW, as a longtime observer of local government in Southern California, I also find that (generally) the smaller cities are better governed than the larger cities.
    Something happens to city government past, oh, say, 150,000 residents.

    This is abundantly clear in cities such as Glendale, Pasadena, Arcadia, Culver City (all under 200k residents), where office holders almost seem to know their turf block by block, as compared to the three-million-resident City of Los Angeles, in which city services are run down and expensive, office holders anonymous, and police officers distant.

    To be sure, there are corrupt small cities in SoCal. But in general, you are better off outside the City of L.A.

    As an aside, for all of the problems of the City of Los Angeles (in which I live), when I consider the amount of money I send to the federal government in taxes, vs. the state or local government, I am always surprised at how much service my local tax dollars provide. Street lights, streets, cops, firefighters, libraries, parks etc. My federal tax dollars seem to disappear into the air (or Iraqistan).

    In general, urban areas subsidize rural areas in America, through the heavy hand of the federal government—but that is another topic…..

  2. Gravatar of Wimivo Wimivo
    14. September 2010 at 09:03

    I wince a bit every time you write “Holland” instead of “The Netherlands”

    /geek

  3. Gravatar of mbk mbk
    14. September 2010 at 09:03

    Scott,

    have you ever considered that your criteria are likely mutually exclusive – that a society can’t be at the same time hyper-economistic, hyper-democratic, and hyper-egalitarian? It seems obvious to me.

    Switzerland for instance is not especially capitalistic or hyper-economistic. It has a huge domestic sector that is very protected, especially in agriculture, offset by a highly competitive internationalized industry and banking sector. Not to mention that democracy and liberty are not only not the same thing, but often antagonists – the whole point of constitutions being to determine what majorities can’t do.

    Your hyper-economistic model on the other hand (“good governance”) is in essence a model where the corporation that is the state apparatus, is run efficiently according to economic priorities. It may also “run” the whole country according to economic maximization, rather than political-philosophical preferences such as egalitarianism, redistribution, personal liberty etc. In other words it arguably may run up against both liberty mindedness, and democracy-mindedness. Lovers of liberty may object to policies that are clearly effective economically but dubious in terms of civil liberties (say eminent domain sanctioned razing of “blighted” neighborhoods etc).

    The egalitarian model obviously runs up against perfection in raw economic efficiency, and limit democracy on favor of equality.

    What I am curious about in the wider sense is why you as a professed libertarian of some sort, do not include liberty as a valuable end in itself, as a consumption good if you will, that is allowed to cost money, to be included as a target to be maximized, and part of your utilitarian calculations. Once you include moral goals in your utilitarianism such as liberty, the calculation of trade offs is much harder.

    So where does the US fall in this category” Somehow in neither: it is not maximizing economic efficiency, it is blessed with it almost by accident of large size, plentiful resources, history of being militarily untouchable (initially through size and geographical isolation). It is not maximizing democracy since it limits majority rule by constitution. It is also not egalitarian by outcome, obviously, and non-egalitarianism and non-democratism are also linked to the fact that the US simply has volunteered to limit the effectiveness of its government by design.

    But the US does maximize one thing. The US actually still holds up personal liberty as an explicit value, that demands that other values be curtailed. Yes I know it’s been much damaged as a system, maybe beyond repair. But the shadow of the intention is still large and present in the public mind. So the US is maybe still the only true “hyper-libertarian” nation, maybe not in its effective outcomes, but at least in its philosophical grounding.

    In my book that is, three cheers for the much-maligned US for a change.

  4. Gravatar of Richard A. Richard A.
    14. September 2010 at 09:19

    It has long been argued (by such economists as Milton Friedman) that the medical profession has a strong stranglehold on the output of medical doctors, with the result that there is a large surplus of qualified individuals willing to study medicine. If this is the case, then the long run supply elasticity for MDs would be highly inelastic (near zero). This would mean that you could hit MDs with a special tax without decreasing the supply of MDs. Also, with a supply elasticity of zero, such a tax would have to be paid by the producer not the consumer.

    Of course, the solution to high medical fees is not to hit MDs with special taxes but rather end any stranglehold on the output of MDs.

  5. Gravatar of q q
    14. September 2010 at 09:27

    > This list also highlights the “small is beautiful” point I keep making.

    are you sure that your thinking about this isn’t just a statistical artifact? you’d expect smaller pools of people to have larger variance, and so some of them would show up at the top of any kind of ranking.

  6. Gravatar of Wonks Anonymous Wonks Anonymous
    14. September 2010 at 09:49

    Alex Tabarrok discusses the variance from small pools issue here:
    http://www.marginalrevolution.com/marginalrevolution/2010/09/the-small-schools-myth.html

    It seems notable to me that you don’t have many examples for your hyperdemocratic model. Just Switzerland. California has referenda, but its badly governed. I think Switzerland would still be well-governed even if the central government was headed by a benevolent Swiss autocrat, similarly to Singapore.

  7. Gravatar of Ranking Good Governance « Let A Thousand Nations Bloom Ranking Good Governance « Let A Thousand Nations Bloom
    14. September 2010 at 09:57

    [...] Kong. (Tho some East German judge must have kept Sweden out, since it’s a tie for third.) His conclusions: 1.  Small countries are better [...]

  8. Gravatar of woupiestek woupiestek
    14. September 2010 at 10:03

    Watch out for the law of large numbers! It is much easier for a small country to score high in these indices out of dumb luck, than for larges ones that will tend to wind up closer to average. Check whether the bottom of the list is also littered with small countries.

    Oh, q mentions that too.

  9. Gravatar of Indy Indy
    14. September 2010 at 10:05

    So, how do we get there from here? Is it even possible? Shall I not despair?

  10. Gravatar of caveat bettor caveat bettor
    14. September 2010 at 10:34

    Did you restate Hauser’s Law:

    Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser’s Law, because it is as central to the economics of taxation as Boyle’s Law is to the physics of gases. Yet economists and policy makers are barely aware of it.

    Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example.

    The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

    Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.” What a pity that his discovery has not been more widely disseminated.

    http://online.wsj.com/article/SB121124460502305693.html

    or for an excerpt:

    http://caveatbettor.blogspot.com/2008/05/hausers-law.html

  11. Gravatar of CJ CJ
    14. September 2010 at 10:36

    Wait so you you think we should extend tax cuts for the rich? I always felt that the middle class deserves the most tax relief. Richer people tend to spend their money outside of the USA or sit on their money which stimulates nothing.

  12. Gravatar of scott sumner scott sumner
    14. September 2010 at 11:41

    Benjamin, Yes, I agree about smaller cities.

    Wimivo, Since Americans refuse to call Deutschland by its proper name, why shouldn’t we be able to call The Netherlands by whatever name we choose?

    I may invent my own name for Holland–perhaps “Dutchland.”

    mbk, You said;

    “have you ever considered that your criteria are likely mutually exclusive – that a society can’t be at the same time hyper-economistic, hyper-democratic, and hyper-egalitarian? It seems obvious to me.

    Switzerland for instance is not especially capitalistic or hyper-economistic. It has a huge domestic sector that is very protected, especially in agriculture, offset by a highly competitive internationalized industry and banking sector. Not to mention that democracy and liberty are not only not the same thing, but often antagonists – the whole point of constitutions being to determine what majorities can’t do.”

    I had exactly the opposite thought, that the three positive attributes are strongly correlated with each other. Switzerland does rank very high in free market indices, as does Denmark. Most of the top countries are democracies (except Singapore and HK) And HK would be democratic if China allowed it to be.

    Democracy and liberty are strongly correlated. People tend to have more liberty in democratic countries. I don’t think the purpose of constitutions is to protect us from popular rule, but rather to protect us from government discretion, which often does not reflect popular rule.

    You asked:

    “What I am curious about in the wider sense is why you as a professed libertarian of some sort, do not include liberty as a valuable end in itself, as a consumption good if you will, that is allowed to cost money, to be included as a target to be maximized, and part of your utilitarian calculations. Once you include moral goals in your utilitarianism such as liberty, the calculation of trade offs is much harder.”

    I do. I gain utility from liberty, and I assume others do as well. I’m happier when the government leaves me alone. When I don’t have to wear a seat-belt, of fill out tax forms.

    The US does many things pretty well. We are more democratic than most countries. We are fairly economistic in our policy of keeping government spending a modest share of GDP. We are more civic-minded than many countries. But we aren’t number one in any single category. Of course our huge market gives us some advantages, and partly explains our success. A point I didn’t make but intended to was that we are pretty efficient for a country that is as large as we are. And we reap the benefits of a large internal market.

    As for our alleged history of libertarianism, I have my doubts (which were recently expressed by Will Wilkinson.) We are a mixture of libertarianism, bossy Puritanism and aristocratic feudalism (in the South.)

    Richard A. No, I don’t think that is Friedman’s argument, or if it is, he is wrong. The entry is restricted by making it very difficult to become a doctor. There is no quota, the problem is that you have to work so hard to become a doctor that it is hardly worth the effort unless the after-tax pay is high. These standards were put in place by doctors to prop up incomes, but did not apply to the doctors who created the rules–they were grandfathered in.

    q, It might be a statistical artifact, but I think it is increasingly real as world trade becomes freer (market size was once the big advantage of bigger countries.) I expect the 4 Asian tiger economies will all surpass Japan in the near future. And I think in Western Europe the small countries do better on average than the big 5. But I have no proof, that’s just my impression. Germany is poorer than its neighbors Austria, Switzerland, Luxembourg, Belgium, Holland, and Denmark. And about the same as relatively big France.

    Wonks Anonymous. I don’t have many examples, but then what are the odds that the most democratic country in the world would “just happen” to be the second happiest, and also be the second best governed? Coincidence? Maybe.

    I am not expert of California, but I believe that Switzerland leaves decisions over government spending to the legislature, but voters have a veto over tax increases. Is that right? If so it seems a better system than in California. Also, California is far too populous. Taxes should be raised and spend at the local level–I think Switzerland’s big advantage is its decentralization, which I believe is essential to democracy. No local school district serving 40,000 people would build a $550,000,000 high school, if it was their own tax money being used.

    I would also note that I read an article (I don’t recall where) which pointed out that most of California’s fiscal problems are unrelated to referenda.

    Switzerland without direct democracy is Austria–also well run, but not as well run.

    woupiestek, See my response to q.

    Indy, I am despairing. So should you. As we become more like Europe (Obamacare) our size will be an increasing disadvantage. On the plus side, we know from the neoliberal revolution that began in 1979 that countries do gradually learn from others, and reform their economies.

  13. Gravatar of scott sumner scott sumner
    14. September 2010 at 11:51

    Caveat Bettor, No, I must not have explained myself well. I think they can raise taxes well above 20% of GDP, I just don’t think doing so will bring in much more revenue, if any.

    CJ, You packed a lot of fallacies into a short post. Whether money is spent in or out of the US is irrelevant. And I don’t favor tax cuts because I think they will stimulate spending. And the question of who deserves what is completely different from whether we should cut income taxes, which hurt everyone. I have no problem with “the rich” paying more, as long is it is based on consumption, not income.

  14. Gravatar of scott sumner scott sumner
    14. September 2010 at 11:58

    Caveat Bettor, No, I must not have explained myself well. I think they can raise taxes well above 20% of GDP, I just don’t think doing so will bring in much more revenue, if any.

    CJ, You packed a lot of fallacies into a short post. Whether money is spent in or out of the US is irrelevant. And I don’t favor tax cuts because I think they will stimulate spending, i favor them for supply-side reasons. And the question of who deserves what is completely different from whether we should cut income taxes, which hurt everyone. I have no problem with “the rich” paying more, as long is it is based on consumption, not income.

  15. Gravatar of TonyD TonyD
    14. September 2010 at 14:32

    Great post. But where is “quality of life?”

    I live in California, where I’ve noticed more and more people wearing clothes they haven’t replaced in years (not just the usual “hippie” fringe.) And local businesses seem to disappear with each passing day.

    And with so many of my friends, relatives, and acquaintances who’ve lost jobs, lost their homes, and now struggle to keep themselves fed – well, I’m just not quite sure how I should really react to this post.

    Honestly, if there were a fringe militia around here, I might consider joining. I’ve become convinced that there is no real concern for people in this country. Extreme reaction? I’m not so sure anymore.

  16. Gravatar of scott sumner scott sumner
    14. September 2010 at 14:47

    TonyD. One reason I favor local empowerment is that it allows average people to have more of a say in how they are governed. You shouldn’t have to form a militia, you should be able to go to a town meeting.

  17. Gravatar of david david
    14. September 2010 at 15:22

    We disagree less than our earlier argument suggests, but as a left-wing liberal I favor the high-tax high-transfers model over the low-tax low-transfers model. Taxes should be on inelastic things to reduce their impact on incentives, though.

    I wonder how much revenue Hong Kong and Singapore raise from their government ownership of land. Very Ricardian, that.

    re: Switzerland; I note that it has had an unusually static distribution of power between parties representing conflicting ideologies for a very long time; hyper-democracy has not led to the factionalization. Instead it led to phenomenally stable (albeit coalition) government, even longer than Singapore’s. This in a country with large geographical ethnic regions. I wonder how much of this is due to people who reject the existing power structure simply leaving Switzerland for France/Germany/Italy/Austria/whatever.

  18. Gravatar of david david
    14. September 2010 at 15:37

    * the factionalization that usually characterizes such simple majoritarian democracy

    re: local government – the US has a poor history of local government for obvious reasons, though: race. And this taint will not go away for a very, very long time. Even existing policy disputes degenerate into mutual accusations of ethnic plotting rapidly. Times like these, the political culture resembles the third world more than it does the first.

  19. Gravatar of Ted Ted
    14. September 2010 at 16:02

    One other thing I noticed looking at your modified list is that a lot of these nations have very homogenous cultures, as well as relative ethnic homogeneity (Japan being the random outlier since it’s both cultural and ethnically homogenous, but it scores fairly low). I’m not quite sure what to make of that, it could very well be just random, but I could think of some reasons cultural homogeneity would matter for good government. I’m not sure how you would prove that. The only cultural diversity metrics I’ve seen include language as a proxy and that would unfairly penalize Canada and Switzerland since despite language barriers the cultural values are very similar across groups, so it would be hard to do a regression. Maybe someone could do a survey to elicit the fractionalization of cultural values and then use that.

    Also, I can’t speak for all the Nordic countries, but I think you are pretty accurate when it comes to Denmark – but there is a slow, growing momentum to greater economic sense about taxes (I’ll get to that in a moment). My dad’s company transferred him to Denmark for about 3 years so I have a little bit of experience with the country (and I still occasionally follow the news there and key up with my old friends). There culture is hyper egalitarian. They really do value equality above all else. In fact, I would go so far to say that the degree of their welfare system is actually unnecessary given their cultural values. I can guarantee you that if the system was cutback somewhat and corresponding taxes were reduced you would actually see a large increase in private donations to help the less advantaged, in order to restore that desired equality. In fact, I would go so far to say that probably Denmark is one of the only countries in the world where the libertarians dream of private charity replacing welfare entirely would really work well. They value equality so much a lot of people would donate their money in order to achieve this. Also, I think one of the reasons Danish government works so well is that this sense of equality is coupled with very strong sense of honestly and fairness. I remember in school the teachers could walk out of the class for a few minutes and be completely unconcerned with the possibility of cheating. I’m assuming similar behavior occurs in government where they reject the temptations of special interests to a much higher degree due to this sense of honesty and fairness. Oh, and there government schools are run extremely well – much better than most of ours.

    Also, there is very much growing momentum in Denmark to scale back some of the most generous aspects of the welfare state and scale back taxes a bit (which they definitely should since according to Trabandt & Uhlig, Denmark is actually on the wrong side of the Laffer Curve for capital taxation). They recently cut unemployment benefits length in half and a few tax reforms are going into place. Marginal tax rates are set to reduce from 63% to 56% and share income taxation (capital gains & dividends) is set to be decreased by a few percentage points, and they also eliminated a bizarre capital gains subsidiary tax that makes no sense to anybody and is really distortionary. They did have some negative offsets like removing some VAT exemptions, but on the whole I think it comes out to a fairly sizable tax cut (at least by Danish standards). Reading some of the press accounts and the desire for more moves like this, I suspect we’ll see more of that in the future. Also, I’m slight jealous that my Danish friends get free college whereas I might have to take out a loan (hopefully I’ll get a scholarship for something other than swimming since I really don’t want to do swim team in college). But I guess I get a lower future tax liability in exchange so I probably win in the long-run since I get to keep more of my college wage premium.

    By the way, their tastes in sports in Denmark is terrible. If soccer wasn’t bad enough, their other popular sport is soccer played with your hands (football with your hands? Guess we’ll call it handball!). My greatest achievement was getting some guys at my school to play real football.

  20. Gravatar of mbk mbk
    14. September 2010 at 19:08

    Scott,

    Switzerland decides a huge amount very locally, including taxation, road construction, and immigration ( to become a Swiss, the locals have to like you, and only later does the federal government rubber stamp the passed on application). But from anecdotal evidence life in Switzerland is domestically full of abusive, restrictive, petty regional, local, community, and neighborhood regulations that leave little freedom in many decisions, especially in building codes but also right down to the way your lawn looks etc. That’s where the democracy trumps the liberty.

    Re: democracy vs liberty, indeed Tocqueville’s whole point was a critique of popular rule, he intended to show how well democracy did or did not work in America. Democracy was seen as a dangerous thing back then, witness the abuses of the French revolution which was seen as what happens if power goes to the people. The founding fathers of the US explicitly named the system a Republic, _not_ a democracy. Democracy and liberty are often correlated, but don’t have to be. The problem with “pure” (unfettered) democracy is that while it works well on average, it episodically tends to create monsters. Not to mention once majorities ignore minorities, you usually get civil wars etc. That’s why it is usually couched in restrictions and constitutions limit not just government as the potentially fallible people that they are, but government as the expression of the majority as well.

    BTW Singapore does have a democratic system of course. And it is a Republic.

    David, yes, Singapore creates a fair amount of revenue from land ownership of the state, through substantial fees for development and redevelopment, real estate transaction fees (I think after the latest revision to cool the market it is 3% both buyer and seller), property taxes, and the like. And, the leasehold system itself generates revenue too. Most land is sold as a 99 year leasehold. So every time such a 99 year leasehold reverts back to government, say after two generations “owned” the lease 50/49 years each, you could look at it as if it was an implied 50% estate tax per generation. Or look at it yet another way, your real estate depreciates 1% per year if on leasehold.

  21. Gravatar of Brett Brett
    14. September 2010 at 21:49

    re: local government – the US has a poor history of local government for obvious reasons, though: race.

    It’s not just that, either – look at the legacy of rural over-representation at the state level. It took a Supreme Court case just to finally force change in long-outdated state-level representation, because the system had been set up to favor the rural districts. The only way to change it at the local level was through the same state legislature that would be drastically changed by it.

  22. Gravatar of StatsGuy StatsGuy
    15. September 2010 at 07:48

    I keep missing good posts –

    I’m curious about your general opinion on Goolsbee. He’s a Chicago fellow, and something of an iconoclast. I’m not sure what effect he’s going to have, but he is outspoken.

    I think your reduced WEF model has merit, and I absolutely 100% concur with your comments about government size. Here is a related question:

    In the event that countries don’t have a choice to be smaller, what is the optimal system? One can look at the Danish system and think “there’s no way that would work in the US – our government doesn’t have the ability to conduct good oversight, so we’re better off with a pure market system.”

    But this presumes that somehow a pure capitalist system can function better without government oversight. Indeed, THIS is the argument that has dominated right wing rhetoric for years – that since government oversight mechanisms are doomed, rather than trying to fix them, we should get government out of the way completely.

    Yet the experience of the last few years seems to show a couple things:

    1) A shift toward purer capitalism is no substitute for good government. The only way to fix bad government is to get better government. The arguments about size of government are somewhat orthogonal to quality of government.

    2) In pure capitalism, there’s a tendency for concentrated capitalistic institutions – namely, firms – to take over rulemaking and enforcement, unless the government has the wherewithal to push back. In other words, the state needs to have some amount of real power to contest the real _independent_ power wielded by oligopolistic firms. The question is then how to constrain the state’s independent power (presumably democratic institutions, but these same institutions – voting – are heavily subject to power wielded by concentrated money). Not easy problems to solve. Different groups have different ideas – but ultimately it all comes down to controlling power. In this context, we’re still awaiting the outcome of the Madisonian pluralists (who favored large states with lots of cross cutting interest groups) and statists (like Singapore, who favored a strong and independent state) and communitarians (the northern europeans, who favor deep social institutions and tight knit communities). At least we know now that capitalism, as an institution, is not separate from these other social structures.

    The best option – but nearly impossible – may be to fragment the government. The federalist system somewhat achieves this, but then we have problems of externalities crossing state boundaries that need to be managed. It’s easy to say we overstate externalities, but there are some pretty big externalities. Disease and public health, for instance, where contagion patterns are viral. What about invasive species? The bark beetle that is ravaging our pine forests. Or consider the folks who introduced the Striped Zebra Mussel to the Great Lakes 20 years ago – now it’s a billion dollar pest. [Not that a large centralized government is doing a good job at mediating these problems.]

    Side comment – on utilitarianism, you are aware that among the range of critiques leveled at this approach are the general arguments against all consequentialist systems. That is, we’re too stupid to know the long term consequences of our actions.

    Anyway, it’s nice to see that economics and politics are starting to once again become something like political economy.

  23. Gravatar of mbk mbk
    15. September 2010 at 08:31

    Statsguy,

    the fundamental problem of the state as a rule maker is that the state apparatus itself has many aspects of a monopolistic firm. And yet, while the executive is supposed to be separate from the legislative, this firm (executive) is most applauded when it gets legislative action “done” (e.g., the president of the US pushing some kind of legislative package).

    Hayek has gone pretty far in trying to disentangle the various nomenclatures and to propose a better and truer separation of powers (Law, Legislation and Liberty, and The Constitution of Liberty).

    In the wider sense there are two possible reasons why a state would be less well run than competing firms, one is the distribution of knowledge problem, exacerbated in large states and likely less acute in small states. The other is the abuse of monopoly power inherent in the state, together with the abuse of legislative power that the state apparatus should not even have.

  24. Gravatar of ChacoKevy ChacoKevy
    15. September 2010 at 11:06

    I wasn’t born until ’79, so I have to ask how the ideas about small, local governance contrasts with Johnson’s War on Poverty. I feel, in most places that I’ve seen it mentioned, that the WoP is perceived to be big government bloat, and nothing more. Whenever I try to read about the actual WoP programs, however, I keep learning about programs that are targeted for local efficacy (VISTA, Head Start, Community Action, etc.).
    From sargentshriver.com:
    “The best way for the Federal Government to mount a broad attack on poverty at the community level is to support and stimulate community initiative and leadership.

    Poverty has as many different faces as the different places where it is found. What will work in Cleveland may not work in Los Angeles, and a program Chicago might use to fight urban poverty will not take root in the rocky soil of Appalachia. That’s why the heart of the poverty legislation is local community action, and voluntary participation. There will be no poverty Czars. There will be no giant bureaucracy, but there will be Federal assistance for local plans, worked out and presented by local leaders, and mostly run by the communities they are designed to benefit.
    http://www.sargentshriver.com/4th_goal_project.html

    Can a libertarian support a big government initiative if executed along the guidelines stated above?

    Again, great post and great comments.

  25. Gravatar of david david
    15. September 2010 at 12:41

    @mbk

    Parliamentary systems suggest that the conflation of executive and legislative power is less serious than the Founders thought it might be.

    In any case the gain in power by the US executive and judiciary has occurred largely through the legislature’s acquiescence. We have judicial activism and executive orders principally because the Congress finds it easier to create deadlocks and vague commitments rather than the fine detailing actual practical legislation requires. Congress saying anything substantive over, say, abortion in a reasonable amount of time would be impossible, but the decision had to be made so someone made it for them. And so on. Likewise desegregation of the army or of schools.

  26. Gravatar of StatsGuy StatsGuy
    15. September 2010 at 13:06

    mbk:

    “In the wider sense there are two possible reasons why a state would be less well run than competing firms, one is the distribution of knowledge problem, exacerbated in large states and likely less acute in small states. The other is the abuse of monopoly power inherent in the state, together with the abuse of legislative power that the state apparatus should not even have.”

    I don’t disagree, but against the counterarguments:

    - Sometimes knowledge is not distributed, but rather concentrated. Other times the problem is, in fact, taking distributed knowledge and concentrating it to make better decisions. Market mechanisms, while good information solicitation vehicles, are often subject to failure. More importantly, in many decision-making environment, markets don’t exist. They are expensive to set up, particularly when there is no underlying profitable transaction (the price revelation mechanism is a byproduct of trade, not a cause of trade, except in our current high frequency trading bizarro world).

    - Abuse of power is inherent whenever power exists, and power always exists. A weak state is no guarantee of freedom. Indeed, it’s often a guarantee that a weak state will be coopted by private parties and then converted into a coercive state. Russia is the prime example. During the botched transition, the central government became so weak that new power players rushed in to fill the vacuum. They then found it convenient to rebuild the power of the central state as an extension of their own private power.

    In our large democracy, the need to balance the power of the state often cripples it. In smaller countries, transaction costs to coasian bargaining are lower, and so it’s possible to coordinate to overcome these problems through side payments. Large countries – not so. Major decisions are only possible during crises (hence Rahm Emanuel’s quote – never waste a crisis). So we in the US seem to move from crisis to crisis, in a perpetual state of near-disasters and post-disasters, praying that none of the disasters we foresee are so terrible that they destroy us.

  27. Gravatar of Balloon Juice » Blog Archive » ‘A post-ideological index of good governance’ Balloon Juice » Blog Archive » ‘A post-ideological index of good governance’
    15. September 2010 at 13:48

    [...] post on good-governance countries by Scott Sumner is fascinating (via Reihan Salam). People on the left and the right may disagree [...]

  28. Gravatar of ‘A post-ideological index of good governance’ | The League of Ordinary Gentlemen ‘A post-ideological index of good governance’ | The League of Ordinary Gentlemen
    15. September 2010 at 14:24

    [...] post on good-governance countries by Scott Sumner is fascinating (via Reihan Salam). People on the left and the right may disagree [...]

  29. Gravatar of scott sumner scott sumner
    15. September 2010 at 18:21

    David, You said;

    “I wonder how much revenue Hong Kong and Singapore raise from their government ownership of land. Very Ricardian, that.”

    Quite a bit I believe. I don’t recall the amount, but I believe it might be 10% to 20% of revenues. Hopefully someone will correct me if I am wrong. Wasn’t that Henry George’s idea?

    You said;

    “re: local government – the US has a poor history of local government for obvious reasons, though: race. And this taint will not go away for a very, very long time. Even existing policy disputes degenerate into mutual accusations of ethnic plotting rapidly. Times like these, the political culture resembles the third world more than it does the first.”

    Good point, but I still think we can do better through things like education vouchers. Unfortunately, often they are supported more strongly by poor voters than suburban Republicans

    Ted, Actually, Japan is not that low, recall it is a selective list.

    It’s interesting how well Switzerland does despite its diversity. I’m convinced the decentralization helps. The French and Italian Swiss don’t feel powerless at the hands of the Germans, as they have strong local rule.

    Very interesting info in Denmark. I heard about their cut in unemployment comp from 4 years to 2, ironically as we recently went up to 2 years. All your comments about Denmark make sense to me, including the ironic fact that libertarianism would probably work best in countries that have no interest in being libertarian! That sounds like a good idea for a blog post.

    mbk, You said;

    “But from anecdotal evidence life in Switzerland is domestically full of abusive, restrictive, petty regional, local, community, and neighborhood regulations that leave little freedom in many decisions, especially in building codes but also right down to the way your lawn looks etc. That’s where the democracy trumps the liberty.”

    Yes, I agree. It’s not my cup of tea. But I don’t think the world should reflect my preferences. Lots of people think the undeniably beautiful Swiss landscape and townscapes are to be treasured. And it is regulations that help keep them so perfect looking. So I’d say there are worse problem in the world to worry about than Swiss rules that say old pickup trucks can’t be parked in the front yard.

    mbk, But we’ve lost all those freedoms the founders gave us (I’m speaking of white males of course, to give your argument the strongest force) and without gaining the advantages of Swiss democracy and decentralization. So I’d still like to move in the Swiss direction. School vouchers are a perfect example of decentralization. I’ve heard all the arguments against, and don’t find any convincing.

    Yes, I agree that Singapore is a quasi-democracy (like say Russia or Venezuela) but I don’t push the point because I’d rather not argue semantics with people.

    Brett, Good point, and I’m all for a constitution that sets the grounds rules for democracy. And for courts to enforce those ground rules.

    Statsguy, I think pure capitalism might work better than you think, I don’t view oligopolies as being all that powerful. But I won’t push the point because:

    1. Some distortions such as FDIC are inevitable, and given those, deregulation can be very costly.

    2. I view environmental regulation as neoliberalism, most liberals and progressives view it as deviations from laissez-faire.

    So putting aside those issues, I agree with much of what you say. BTW, language is a huge factor here. In Europe, language leads to nationalism which leads to small countries. That reduces the risk of tax competition, as people like their own culture. The left wouldn’t want an “American Union” of 50 independent countries, because tax competion would lead the rich to leave the high tax states (countries) and force a “race to the bottom.” Of course being a small government guy, I fine with a race to the bottom–i.e. to consumption taxes.

    I think voluntary clubs like the Great Lake states can deal with regional environmental challenges.

    I favor a Burkean approach of reforming a little bit at a time. Do vouchers to decentralize education. Introduce private SS accounts very slowly, and regulate where the money can go. HSAs, etc. In general, with decentralization it is easier to do experimentation, and see what works. We should have run the Mass health insurance plan for 10 years, before trying it nationally. I don’t think it will work very well.

    ChacoKevy, It wasn’t all local, there were welfare programs like AFDC. And those programs that were local probably got federal funding. That makes people less careful in how they spend the money. But I admit that I am not an expert on the War on Poverty.

    Everyone, Lots more great discussion, but I don’t have time (or knowledge) to address properly. I need to check out the Salam link.

  30. Gravatar of CharlesWT CharlesWT
    15. September 2010 at 18:58

    Total Wealth Estimates by Country, 2000, $ per Capita:

    (1) Switzerland – 648,241 • (2) Denmark – 575,138 • (3) Sweden – 513,424 • (4) United States – 512,612 • (5) Germany – 496,447 • (6) Japan – 493,241 • (7) Austria – 493,080 • (8) Norway – 473,708 • (9) France – 468,024 • (10) Belgium-Luxembourg – 451,714 • (11) Netherlands – 421,389 • (12) Finland – 419,346 • (13) United Kingdom – 408,753 • (14) Italy – 372,666 • (15) Australia – 371,031 • (16) Ireland – 330,490 • (17) Canada – 324,979 • (18) Israel – 294,723 • (19) Spain – 261,205 • (20) Singapore – 252,607

    Where is the Wealth of Nations? (.pdf)

  31. Gravatar of Nathanael Nathanael
    15. September 2010 at 21:05

    Bunch of anecdotal nonsense.

    The problem with the so-called data here is one of GIGO.

    I’m absolutely agreed that competent governance is crucial — I’m a technocrat by inclination — but I don’t think any of the other ideological stuff you babble about is necessarily correlated with that. Except small population. Small populations are easier to govern. Obviously.

    And here’s my counterexample to the neoliberal, privatization silliness: ancient Egypt. One of the most effective and competent states for “good governance” for *thousands* of years, under many of its kings. And it was pretty much a command economy.

    Command economies actually work if you run them competently. Egypt’s government invested huge amounts of effort into predicting and managing the agricultural production, which was the key to the entire country’s success, and secondarily to managing labor (in the off-season, the agricultural workers were kept busy building monuments).

    Egypt’s competitors were often miserable places compared to it, and this was mostly down to “laissez-faire” behavior.

  32. Gravatar of Nathanael Nathanael
    15. September 2010 at 21:09

    “I am not expert of California, but I believe that Switzerland leaves decisions over government spending to the legislature, but voters have a veto over tax increases. Is that right?”

    No. You’re completely wrong about Switzerland. Look up the referendum which obligated the government to spend billions on high-speed trains, for instance.

    Anything can be forced to referendum in Switzerland.

    In California, the fundamental problem is the crippling rule that the legislature needs 2/3 of both houses to raise taxes or pass a budget. The fact that referenda can override the legislature is not a problem in either California or Switzerland. The fact that the legislature can’t do its job at all is the problem in California.

    In Switzerland, the legislature can do whatever it likes *unless* people collect enough signatures to force a referendum on that issue. And the people have to have a supermajority to change the Constitution (to, for instance, hamstring the legislature the way it’s hamstrung in California).

    Structural issues matter, and you’ve plainly never studied them. I suggest you do.

  33. Gravatar of Nathanael Nathanael
    15. September 2010 at 21:21

    mbk wrote:

    “Statsguy,

    the fundamental problem of the state as a rule maker is that the state apparatus itself has many aspects of a monopolistic firm. And yet, while the executive is supposed to be separate from the legislative, this firm (executive) is most applauded when it gets legislative action “done” (e.g., the president of the US pushing some kind of legislative package).”

    Well, duh, that’s why Parliamentary systems work better. There, the executive is a creature of the legislative branch, so the rewards structure actually matches what people expect.

    And *of course* government has aspects of a monopolist. You think this is a *problem*?

    The whole *point* is that there are a vast number of areas which can *only* be properly and efficiently managed by a monopoly (look up “natural monopoly”), and we would like those areas to be under *democratic control* rather than to be done for the benefit of individual private interests.

    Every natural monopoly should be part of government, so as to keep them under democratic control. That includes such things as regulation of externalities (forcing polluters to pay for their pollution) and the ‘monopoly on violence’ (policing power) as well as transport networks (roads, rails, telecom backbones, water and sewer pipes, electric lines). Furthermore, most of these, as natural monopolies, demand centralized administration at a very large scale in order to function most efficiently.

    A number of the putatively “free market” countries idolized in lists like these actually have centralized monopolies for all of these services. Sometimes they’re run for the private benefit of private parties, and that can work for a while until the private parties get greedy. In general they’re run *by government*.

    There are a lot of fundamental goods and services which can simply be best provided by a competent government. Unfortunately, there is a strong Looter’s Lobby pushing to privatize them.

  34. Gravatar of Nathanael Nathanael
    15. September 2010 at 21:23

    Just as a further counter to the paeans to decentralization, note that Switzerland’s railways are aggressively centralizing.

    Decentralization is lovely for things where it works. Attempting to apply it to natural monopolies is *folly*.

  35. Gravatar of scott sumner scott sumner
    16. September 2010 at 05:46

    Charles, Thanks, a very interesting index. I’d guess Singapore is now number one. They lead the world with 11% of the households being millionaires, vs 4% in the US.

    Does anyone have 2009 estimates?

    Nathanael; You said;

    And here’s my counterexample to the neoliberal, privatization silliness: ancient Egypt. One of the most effective and competent states for “good governance” for *thousands* of years, under many of its kings. And it was pretty much a command economy.

    You’re kidding, right? France and Spain had the most sophisticated cavemen 25,000 years ago, why not copy their model? BTW, the Egyptian people didn’t do so well under centralization–their health was much poorer than than that of cavemen. You are the first progressive I’ve seen praise a system where 1000s of low paid workers dragged huge rocks in the hot sun all day.

    You said;

    “In California, the fundamental problem is the crippling rule that the legislature needs 2/3 of both houses to raise taxes or pass a budget.”

    So you are saying that California’s problems are caused by its taxes not being high enough!?!?! Isn’t the top income tax rate around 10%, vs 0% in Texas, a state without nearly as bad a fiscal crisis.

    You said;

    “The whole *point* is that there are a vast number of areas which can *only* be properly and efficiently managed by a monopoly (look up “natural monopoly”), and we would like those areas to be under *democratic control* rather than to be done for the benefit of individual private interests.”

    This seems like something out of a 1970s vintage textbook. Governments do lots of things in most countries, exceedingly few have anything to do with natural monopolies. And where natural monopolies do exist, private enterprise often does better than state-owned firms. Compare American freight rail with European freight rail.

    You said;

    A number of the putatively “free market” countries idolized in lists like these actually have centralized monopolies for all of these services. Sometimes they’re run for the private benefit of private parties, and that can work for a while until the private parties get greedy. In general they’re run *by government*.

    No one denies that the government plays a major role in all economies, indeed I did a recent post showing that even Hong Kong has a strong government role, So you are attacking a straw man. I compare relatively neoliberal economies with less neoliberal economies–it is a matter of degree.

    Many European countries have started privatizing their rail systems.

  36. Gravatar of Overcoming Bias : How Nations Vary Overcoming Bias : How Nations Vary
    16. September 2010 at 06:02

    [...] We might also add in nation size as a fourth key nation, as emphazised by Scott Sumner: [...]

  37. Gravatar of From The Money Illusion: ‘A Post-Ideological Index Of Good Governance’ « Chris Navin From The Money Illusion: ‘A Post-Ideological Index Of Good Governance’ « Chris Navin
    16. September 2010 at 06:21

    [...] Debate — chr1 @ 7:21 am Tags: Economics, Markets, Politics, The Money Illusion Full post here. “Because I am a right-wing liberal who thinks incentives matter more than progressives [...]

  38. Gravatar of mbk mbk
    16. September 2010 at 06:22

    Nathanael, just to add to Scott’s comments. Of course technocrats love having free reign to pursue their plans. No wonder that a technocrat’s ideal would therefore resemble servitude as in old Egypt. But in my book the state exists for the sake of the people, not the other way around.

    In addition, economics is not about what works. It’s about what works _better_. By your criteria even the Soviet system worked just fine: food was produced, houses were built, rockets were put into space. What’s not to like?

    I’ll pass on the concept of the separation of power for which you seem to have no interest (“Well, duh, that’s why Parliamentary systems work better. There, the executive is a creature of the legislative branch, so the rewards structure actually matches what people expect.”).

  39. Gravatar of How to govern well | The League of Ordinary Gentlemen How to govern well | The League of Ordinary Gentlemen
    16. September 2010 at 11:54

    [...] we intuitively understand there are certain important commonalities, which is probably why all five are ranked as some of the best governed countries in the world (as Erik notes below). So what do these countries have in common? Why do they work? And what can we [...]

  40. Gravatar of Nathanael Nathanael
    16. September 2010 at 12:16

    Scott: “You said;

    “In California, the fundamental problem is the crippling rule that the legislature needs 2/3 of both houses to raise taxes or pass a budget.”

    So you are saying that California’s problems are caused by its taxes not being high enough!?!?! Isn’t the top income tax rate around 10%, vs 0% in Texas, a state without nearly as bad a fiscal crisis.”

    Nope, I’m saying the problem is that the legislature can’t raise *any* taxes under *any* circumstances, or pass *any* budget, without appeasing the arbitrary whims of a supermajority of the legislature. Those whims can be pretty dangerous, troublesome, and expensive. It’s led to all manner of unreasonable stuff being kept because *in order to pass a budget, you had to appease so many individual legislators’ pet whims*.

    I won’t discuss your claims regarding the superiority of “cavemen” (who never existed) over ancient Egypt, because you clearly never studied history. I suggest you do.

    No European countries are considering privatizing their rail tracks, after the unmitigated disaster of Railtrack in the UK. Sorry you’re being wilfully contrary to reality. Privatizing the *trains* can work because that’s *not* a natural monopoly; privatizing the *tracks* cannot because it *is*.

    Regarding Europe vs. the US, perhaps you haven’t noticed that the main reason high-volume freight rail never caught on in Europe was actually the *OBSOLETE COUPLER SYSTEM* (Buffers and chain, for god’s sake), which renders freight service much more inefficient, nothing to do with private vs. public at all. Russia, with knuckle couplers, does just fine on freight rail, as does China. In fact, the fragmentation of European governments is why they never managed to mandate a better coupling system. The government interference, by standard-setting, in the US market is what gave us our efficient freight system. I’ve studied *this* one carefully.

    There are careful studies showing that government-owned utilities, on average, provide cheaper *and* better services than licensed private monopoly utilities. You can look them up if you like. And that’s with *regulated* private monopolies; the unregulated ones have fairly infamous records.

    mkv: Glad you passed on arguing about the value of Parliamentary systems. Apparently to you, your ideological bias towards executive/legislative separation outweighs all facts.

    I’m actually really disappointed. I thought you folks were thoughtful and did research. You’re obviously not.

  41. Gravatar of Nathanael Nathanael
    16. September 2010 at 12:23

    mkb:
    “In addition, economics is not about what works. It’s about what works _better_. By your criteria even the Soviet system worked just fine: food was produced, houses were built, rockets were put into space. What’s not to like?”

    In some ways it didn’t work, as we know, otherwise it wouldn’t have collapsed with food and goods shortages?

    It did provide better education than the US non-system. :-P

    As far as I can tell ancient Egypt was able to run a command economy because of its small size: there was only one major economic issue (the Nile) and the managers of the economy could deal directly with every single issue, personally even if necessary. The Soviet system failed — economically — as soon as dishonest reports from faraway started coming in to the center and nobody had the ability and incentive to correct them.

    If your objections to ancient Egypt and the Soviet system are on the lack of *personal* freedoms, the tendency towards arbitrary imprisonment, the abuse of power, that’s totally reasonable. But Singapore is frankly just as bad and y’all seem to think it’s a lovely paradise.

  42. Gravatar of Nathanael Nathanael
    16. September 2010 at 12:28

    I’m especially not sure what the crack about 1970s textbooks is about. The natural-monopolies-should-be-run-by-government rule of thumb is confirmed by ample evidence, and it’s not like we’ve had any evidence to contradict that *since* the 1970s. Do you just hate 1970s textbooks for some irrational reason?

  43. Gravatar of Neoliberalism & Culture | The League of Ordinary Gentlemen Neoliberalism & Culture | The League of Ordinary Gentlemen
    16. September 2010 at 12:54

    [...] is absolutely correct to note that the success of the Anglophone and Northern European governance models (and their Asian counterparts who have emulated and innovated with these models successfully) rest [...]

  44. Gravatar of ssumner ssumner
    16. September 2010 at 17:40

    Nathanael, You said;

    “I’m especially not sure what the crack about 1970s textbooks is about. The natural-monopolies-should-be-run-by-government rule of thumb is confirmed by ample evidence, and it’s not like we’ve had any evidence to contradict that *since* the 1970s. Do you just hate 1970s textbooks for some irrational reason?”

    You haven’t noticed any change in textbooks since the 1970s? At that time, before the neoliberal revolution, it was simply assumed that governments need to run “natural monopolies.” Or at best have regulated private monopolies like ATT. The change in attitudes since then have been dramatic, and have led almost every major country in the world to privatize all sorts of infrastructure, utlities, etc, that were once viewed as natural monopolies.

    The natural monopoly argument was used to set up the ICC to regulate the railroads. How’d that work out?

    Yes, there were “cavemen,” (although they didn’t spend much time in caves) and yes, they were much taller and healthier than the ancient Egyptians.

    And Singapore is just as repressive as the Soviet Union? Again, I assume you are joking. BTW, I have never once praised the Singapore political system, contrary to what you asserted.

  45. Gravatar of mbk mbk
    16. September 2010 at 18:49

    Nathanael, I’ll try to say as little as possible because I don’t see how this can be disentangled. You must have lived in a very different world than pretty much everyone else here. Or is it just about willful provocation, dishing out wild swings in all directions?

    Let me just take specific exception to the ludicrous Singapore-Soviet Union comparison. This one shows most clearly how little clue you have behind your show of confidence, blissfully shielded from the world by a filter that must only let select facts in. I live in Singapore now but I did grow up in a country right next to the iron curtain. I have also visited the Eastern side of it, places which reportedly were much softer than the USSR. You on the other hand do not seem to have traveled widely, or else your certainties would be less absolute. You can take issue with some aspects of Singapore but it is worlds above the USSR. The mere comparison is offensive.

  46. Gravatar of My Hammer and Some Nails, Arnold Kling | EconLog | Library of Economics and Liberty My Hammer and Some Nails, Arnold Kling | EconLog | Library of Economics and Liberty
    17. September 2010 at 12:44

    [...] of our government might not be a bad thing. According to Scott Sumner, we are only 15th among advanced countries in terms of quality of government. The top 10 are either [...]

  47. Gravatar of Jeffery Smith Jeffery Smith
    20. September 2010 at 10:36

    About how much ground rent Hong Kong recovers, see http://www.progress.org/geonomy/Numbers.html

  48. Gravatar of ssumner ssumner
    21. September 2010 at 07:46

    Jeffrey, Thanks–that offers pretty strong support for land taxes.

    Scott

  49. Gravatar of TheMoneyIllusion » Income: A meaningless, misleading, and pernicious concept TheMoneyIllusion » Income: A meaningless, misleading, and pernicious concept
    21. September 2010 at 12:16

    [...] why go for the high-tax model, when the lowest-taxed developed country entity in the world has the best infrastructure?  And the second lowest-taxed rich country also has enviable infrastructure plus universal health [...]

  50. Gravatar of Income: A Meaningless, Misleading, and Pernicious Concept Income: A Meaningless, Misleading, and Pernicious Concept
    21. September 2010 at 23:57

    [...] why go for the high-tax model, when the lowest-taxed developed country entity in the world has the best infrastructure?  And the second lowest-taxed rich country also has enviable infrastructure plus universal health [...]

  51. Gravatar of 収入: 無意味でミスリーディングで有害な概念 by Scott Sumner  – 道草 収入: 無意味でミスリーディングで有害な概念 by Scott Sumner  – 道草
    2. December 2010 at 04:38

    [...] しかし、どうして税の高いモデルを選ぶのだろう。もっとも税の低い先進国が最高のインフラを持っているという事実があるのに。二番目に税負担が少ない豊かな国がうらやましいほどのインフラと健康保険を備えていて、日本レベルの生活が見込まれているのに?  [...]

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