The Great Danes

Although this is my first non-monetary post, even this project started with monetary economics.  I had published a paper arguing that new Keynesianism was a synthesis of monetarist and old Keynesian ideas (which is where I cited Brad Delong’s paper.)  The basic idea was that economists originally misinterpreted the Great Depression.  They thought it showed monetary policy to be less effective than fiscal policy (because they failed to understand how the gold standard had constrained monetary policy), and thought that the economy did not naturally self-correct back to full employment (because they overlooked the impact of FDR’s high wage policy.)  By the early 1980s they understood that they had overreacted, and built a new Keynesian model with elements of the old (sticky wages and prices, interest rate targeting, activist policy), and elements of monetarism (the natural rate hypothesis, highly effective monetary policy.)  Then I noticed that this Quantity Theory–> Keynesian–>new Keynesian dialectic was uncannily similar to what had occurred the in the broader field of economic liberalism.

(Hang in there, the first half of this post is necessary but boring, but the second half is interesting.)

Classical liberalism began evolving into modern (socialist) liberalism in the late 19th century, and the changeover became complete after the Great Depression made capitalism look not just unfair, but inefficient.  But once we realized that the problems of the 1930s required nothing more than inflation targeting, we began to prune back on the more counterproductive statist policies that had built up between the 1930s and the 1970s.  In particular, I noticed that after 1980 almost all countries cut marginal tax rates, privatized, and deregulated prices and market access.  Yet there wasn’t much change in the size of government (as a share of GDP.)   Outside the U.S. this new synthesis is called “neoliberalism,” although it might just as well be called postmodern liberalism.  So it seemed to me that the most sensible way to view neoliberalism is as a synthesis of free markets and egalitarian social insurance, roughly what Tony Blair called the “Third Way.”

This made me wonder what the term ‘liberal’ actually means?  Or more pragmatically, what is the most useful definition of liberalism?  I find it useful to think of liberals as people with idealistic, progressive, and most importantly, somewhat utilitarian (or at least consequentialist) value systems.  And that the three different types of liberalism (pragmatic libertarian, socialist, and neoliberal) actually represented people with similar values, but differing views of how economic systems work.  (The normative/positive distinction is less clear cut than many economists assume, but it’s roughly the distinction that I am making here.)

Let’s call positive views about cause and effect “worldviews.”  Then my hypothesis is that there are two basic worldviews, the economistic worldview (imports are good, markets set prices, etc.) and the commonsense worldview (imports are bad, oil companies set prices, etc.)  The relative popularity of right wing versions of liberalism (laissez-faire) and left wing versions of liberalism (democratic socialism) depends on the relative plausibility of each worldview.  As the term ‘commonsense’ suggests, we right wing liberals are at a disadvantage–indeed it is only because we are correct that we make any headway at all.  Bryan Caplan has done some interesting research on what I call ‘cognitive illusions,’ which I may discuss in another post.

So after 1980 “brute facts” about the weaknesses of statism pushed most of the world toward free markets.  But there was (as yet) not enough evidence to abandon the egalitarian systems of social insurance.  If I am right, then countries with more liberal values should have responded to this new information by becoming much more free market oriented, but not necessarily by reducing the size of government.  But how do we measure liberal values?

I ran across a paper by two French economists, Algan and Cahuc, which showed that countries with a high level of civic trust (such as the Nordic countries), tended to have generous unemployment compensation and fewer restrictions on firing workers, and countries with less generous benefits tended to have more rigid labor laws.  I realized that their measure of values (a survey question asking “would you accept government benefits to which you were not entitled?”) was perfect for my research.

They found Denmark to have the most civic honesty, but when I used a more complete sample of developed countries, Denmark was just edged out by Malta.  But I also had a nagging worry about self-reports on honesty (“You Maltese say you are honest, but . . . )  Thus I decided to average this self-described civic honesty metric with a more objective survey—the corruption index produced by Transparency International (which was topped by Denmark.)    When the two indices were averaged Denmark moved far ahead of the field—if its score was set at 100, the next three countries were tied way back at 86.  Because of this blog’s growing popularity, I won’t mention how far Malta slipped, as I wouldn’t want to embarrass any readers from that tiny island nation.

Then I decided to measure neoliberalism by using the (2008) Heritage Institute’s Index of Economic Freedom minus the two “size of government” components (taxes and spending.)  If one simply averaged the other eight components, Denmark edged ahead of Hong Kong as the surprising winner of “most free market economy on earth.”  I was pleasantly surprised by this finding (achieved without any data mining) as it beautifully fit my dialectical approach to neoliberalism.

Even better, I found this index of neoliberal (or free market) policies was strongly correlated with my index of “liberal” (or idealistic) values.  Indeed the correlation is even pretty strong for the unadjusted Heritage Index of Economic Freedom (despite the fact that that index is topped by a country, Hong Kong, with considerably less liberal values than Denmark.  You’re probably thinking, OK, but correlation doesn’t prove causation.  Lots of country characteristics are positively correlated.  And what my hypothesis actually requires is that a place like Denmark only became highly free market-oriented after the changing intellectual climate made liberals less enamored with statist policies.

To get data going back to 1980, I had to use the Fraser Institute’s Index of Economic Freedom, a (surprisingly fierce) competitor to the Heritage Index.  Here the results were even more gratifying.  My first regression showed that the more liberal a country’s values, the more rapidly it moved away from statism after 1980.  How about that, Naomi Klein? Between 1980 and 2005 only New Zealand moved toward free markets more rapidly than Denmark.  My interpretation is as follows.  Free market reforms threaten to erode rents earned by various special interest groups.  Thus after 1980 these reforms were more likely to occur in countries where the civic culture is more oriented toward the common good.  (In other words if you hear that culture is “tribal,” or that “family comes first,” it’s economy is likely to have statist economic policies.)

My initial reaction was that Deirdre McCloskey would love this finding.  I had just published a long-winded 27 page book review of her fascinating (but equally long-winded) The Bourgeois Virtues.  In that book she fires her shots in both directions at once.  She concedes the good intentions of those on the left, but scolds them for not being more open to what I called the economistic worldview.  Indeed many don’t even understand that such a worldview exists.  She thinks people on the right such as George Stigler were right about free markets, but wrong about values.  Stigler had argued that it is a waste of time for idealistic economic researchers to try to persuade policymakers, as the later group is motivated by self interest.  And rent seeking special interest groups are more able to satisfy those interests then are idealistic economic professors.  McCloskey countered that one cannot run a sound economic system on just self interest.

My findings suggest that Stigler is wrong, as the more idealistic a country’s values, the more rapidly they moved toward free markets when statism became discredited.  But to people like Paul Krugman, Joe Stiglitz, James Galbraith and Naomi Klein, the findings are equally inconvenient.  Far from being a right wing plot, the strong move toward freer markets and lower marginal tax rates that occurred in almost all developed countries after 1980 was actually driven by idealistic values, indeed I would argue by “liberal” values.

As this was my first foray into a cross-sectional study of country characteristics, I kept coming across other data sets.  I couldn’t help noticing that the Nordic countries stood out in all sorts of different ways.  For instance, Denmark had the world’s most equal distribution of income in two different surveys.  Denmark also came in number one in all three happiness surveys that I was able to find.  Interestingly, there isn’t much evidence that egalitarian systems produce happiness, rather the causation seems to go in the opposite direction.  (Anyone interested in happiness research should first check out Will Wilkinson’s skeptical take on the whole enterprise.)  Even so, I couldn’t help wondering what was so special about this seemingly ordinary northern European country.  How could one country be the most egalitarian, and the most free market, and the most idealistic, and the happiest place on earth?  Was there something in the water?  Does Denmark somehow provide the secret key to all the social sciences?  In other words (sorry, I can’t resist):

Is there nothing rotten in Denmark?

Actually there is.  They have fairly high marginal tax rates, and hence they are somewhat poorer than Switzerland, and even farther behind ultra-low tax Singapore.  These three countries, each with fairly similar populations, became my models of hyper-egalitarian liberalism, hyper-democratic liberalism, and hyper-economistic liberalism.  I’ll consider Switzerland’s political system in another post, but let’s finish up this overlong post by briefly comparing the two extremes of neoliberal economic policies, Denmark and Singapore.  You already know about Denmark, but Singapore also has a decent system of social insurance (universal health care, etc.)  The difference is that Singapore achieved this result through a system of self-insurance, i.e. forced saving at roughly 33% of income.  (With government transfer payments merely covering the gaps in the system.)  This allows Singapore to have very low taxes on labor, and almost no taxes on capital and trade.  And it has fully funded private retirement accounts.  And health saving accounts.  And huge budget surpluses.  A nation ruled over by hundreds of Martin Feldsteins.   (Sounds like a lot of fun!)  As a result, Singapore has a per capita GDP (in PPP terms) as high as any non-oil country on earth (or any with at least million people.)  Denmark is also reasonably prosperous, but far below Singapore.

So which is the model for the 21st century?  Which should China and India try to emulate?  Let’s compare the two:

Denmark

Highly egalitarian

Stylish furniture

Lars von Trier films

Singapore

Very wealthy

High longevity

Great food

The happiness data suggests Denmark, except that as I already noted there appears to be reverse causation.  And Algan and Cahuc argued that the less civic-minded countries couldn’t afford generous unemployment insurance because they were populated by people who said “yes” when asked if they’d accept government benefits to which they were not entitled.  And just so people don’t think I’m singling out one or two countries, almost everyone is far behind the Danes in civic virtue.

So perhaps for now China and India should settle on the Singapore model (preferably without the petty authoritarianism.)  But I am not as pessimistic as most about the possibility of changing cultural values.  I think McCloskey is on to something when she argues that free markets promote bourgeois virtues.  I don’t expect to live long enough to see a world where Afghan tribesmen have a culture indistinguishable from the Danes, but I do think the world is moving in that direction.

Which brings me back to monetary policy.  I argued that a misdiagnosis of the Great Depression led the world into a long, fruitless experiment with statism.  Forty years in the wilderness.  It is not hard to see the danger we face today.  That’s why I am so passionate about diagnosing the current crisis correctly.  Which brings me back to my previous post.  Does anyone have connections with someone who can pass my previous post on to Paul Krugman, so we can quickly recover from this recession and get on with ending history?


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28 Responses to “The Great Danes”

  1. Gravatar of kball kball
    1. March 2009 at 15:05

    My understanding of Krugman’s stance (I have read fewer of Stiglitz etc’s works) is not that it is anti-market, but rather that he believes that there are a large range of market failures that are best resolved by collective (generally government organized) action.

    I’m curious if you believe there are any market failures, and if so what are the characteristics that lead to them, and what the proper response is.

    Thanks

  2. Gravatar of ssumner ssumner
    1. March 2009 at 18:59

    kball, I agree I am being unfair to lump Krugman in with Naomi Klein, but I do have a problem with the way he reads the neoliberal revolution. He is opposed to the big cuts in marginal tax rates, and also to making labor markets more flexible. When he talks about how the Reagan tax cuts were some sort of right wing plot to help the rich, he ignores the fact that all other developed countries also cut taxes for the rich (and for corporations) at roughly the same time. I suppose his views on privatization and deregulation are probably mixed. But almost everything I read in his columns has an anti-neoliberal slant, so I take my impression from what he chooses to emphasize. And he ignores that fact that all four of the major neoliberal initiatives in the U.S. (much lower MTRs for the rich (1986), deregulation of prices and market access in transport and communications and banking, Nafta, and welfare reform), were all bipartisan bills.

    I’m sure that where Krugman would argue with me is in insisting he likes the northern European model. But that model is privatizing all sorts of things done by the government in the U.S. (mail, airports, rail, water systems, etc.), features vouchers in education (Holland, Sweden), no inheritance tax in Sweden, no capital gains tax in Holland, Germany and Austria. (This is all from memory, so I might be slightly off.) If these things were advocated in the U.S. he would call them a right wing agenda.

    I think the biggest market failure is the environment, where I favor carbon taxes, tradable fishing quotas, etc. I think the other so-called market failures (monopoly, etc) are generally less of a problem than most people imagine. But there are exceptions, and I am not dogmatically opposed to government involvement in areas like monopoly and public goods where action can pass a cost/benefit test.

    Again, I know I over simplified a bit. I intended the column to be more fun that my usual posts.

  3. Gravatar of kball kball
    1. March 2009 at 21:04

    Hi Scott,

    I appreciate your response. I think you have a very good point, in that the distribution of what is privatized or not (or even, what we’ve decided is right or left wing), is extremely arbitrary. One thing I’ve encountered a lot in the liberal blogosphere (I suspect it exists in the conservative blogosphere as well, but I spend less time reading there) is that particularly policy choices often become imbued with far more meaning than they individually have. One example is school vouchers; I think it is possible that a voucher system could create a better school system. However, in the US the debate over vouchers has taken on a lot more significance, with some of those pushing them attempting to do so as a way to take funding from public schools, and those opposing them now assuming that everyone who supports them wishes to eliminate public schools.

    I’m interested in probing a little more the example of Singapore. Singapore has indeed been highly successful, though one of the reasons why they are able to keep lower taxes as you mention is that they make a great deal of their revenue from state owned companies. I haven’t been able to dig up any current figures, but I found a report (http://web.archive.org/web/20030512010447/http%3A//singapore.usembassy.gov/ep/2001/GLC2000.html) indicating that in the 90s government linked companies were responsible for 60% of Singapore’s GDP.

    The government is also extremely proactive in investing government money in industries of interest, particularly technology and biotech.

    I’m not certain that you’re not right, but it seems to me that Singapore could be used just as powerfully as evidence for a government that is extremely involved in the economy, so long as that government can be cleansed (at least mostly) of corruption.

  4. Gravatar of Lorenzo (from downunder) Lorenzo (from downunder)
    1. March 2009 at 23:03

    Great post. I hate the term ‘neoliberal’ though. First, it was coined as a way of morally and intellectually distancing the user from the policies described. Alleged ‘neoliberals’ almost never described themselves as such, except ironically. Second, it tends to cut the evolution of market reforms from their intellectual history, treating it as some passing policy fad.

    There are three “lines of history” that feed into post 1979 reform push.
    (1) The tradition of market liberalism (‘classical liberalism’) including/as well as shifts in economic thought.
    (2) The longer term patterns of economic reform.
    (3) The long term trend in social democracy (since social democrats of various stripes were so important in the reform push).

    To take the last first, social democracy is a marriage between liberalism and socialism. It started off by adopting political liberalism (parliamentary politics), that is what distinguished social democracy from revolutionary socialism. The later adoption of economic liberalism (markets and private property) had three stages. First, abandonment of further nationalisation. Second, corporatisation, privatisation and de-regulation–i.e. the increased use of market mechanisms. Third, a shift from passive to active welfare (the first stages in moving away from the “nationalising” of households). So there is a long term pattern of liberal element in social democracy increasing and the socialist element decreasing (because it doesn’t work).

    Regarding (1), the strongest advocates of market reforms typically saw themselves as continuing the tradition of classical liberalism by pushing for economic liberalism based on the thought of Friedman, Hayek, Coase, etc.

    As for (2), there is a long tradition in Western economic history of (particularly) fiscal crunches leading to policy actions to:
    reduce transaction costs (e.g. de-regulation),
    reassign and more precisely define property rights (e.g. corporatisation and privatisation),
    broaden funding for infrastructure, including from private sources (e.g. privatisation).

    After all, what is a medieval “enterprise zone”? A borough with a charter.

    As for why the reforms happened when they did, there were the following:
    (1) Major increase in the welfare state as a % of GDP in the 1960s-1973 period.
    (2) This increase was much more concentrated in transfer payments and much less in investment in physical and social infrastructure compared to previous expansions in government activity.
    (3) Productivity growth slumped from 1973, making it harder to pay for the above expansions.
    (4) Stagflation both discredited previous policy approaches and made sustaining the expanded welfare state more difficult.
    (5) The movement of women into the workforce and mass migration put downward pressure on wages, increasing resistance to higher taxes.

    So, economic efficiency achieved an increased policy “premium”. All this led to the liberalisation of domestic markets, restructuring the scope of government, and trade liberalisation to create an economically sustainable welfare state based on a mixture of employment and economic growth (increasing incomes–government and household–and reducing demand on welfare) with more targeted (and affordable) redistribution.

    This is not to deny that the shift in economic thought mattered, merely that it had resonance because of the problems policy makers were facing. And, in support of your contention, that the reform push was about achieving a sustainable welfare state is quite clear. That is why the reform “policy alliance”, to use Andrew Norton‘s term, extended across the left-right divide. And why government share of GDP did not decline notably (though it did not increase much either).

    And I think you are quite right that economic world views are crucial in why people of broadly similar social egalitarian views have distinct political differences. Though I also think that the distribution of said world views have some distinct patterns underpinning them

  5. Gravatar of Michael Siscar Michael Siscar
    1. March 2009 at 23:48

    Just very curious and overwhelmed with all the logical explanations pertaining to standards of living, happiness, culture, behavior of people, social values, social obligations, government policies, labor, wage, regulations and control, free enterprise, depression, recession, best options, etc., with the end in view of making the best of everything for all the people on this planet…But i feel it is hard if not impossible to make a standard mathematical formula for all the social, political, economic, religious, technological, and unexpected factors to be placed in one finite equation that would produce the best desired output or outcome (happiness) to all human beings in a given time, space and location. The situation is always like a human being walking on a tight rope maintaining his balance to be able to survive from Earth to Heaven without the assurance that life would be just like a piece of cake if you have the best economic equation and or formula. Well, it is nice to explore all the things that are so challenging. Hopefully somebody would discover the secret solution and stumble upon immortality. He he he…More rigor on your studies…I like what you have achieved and is now exploring at that very young age.

  6. Gravatar of franko franko
    2. March 2009 at 05:37

    another aspect/conclusion is that smaller populations do better than larger ones – ofcourse if you are part of the elite, being part of a large group is better than being part of a smaller one

    demnark, NZ and canada are all small populations….that trade with larger ones (symbiosis or parasitic?)

  7. Gravatar of Giancarlo Angulo Giancarlo Angulo
    2. March 2009 at 08:00

    Hi,
    Nice post. Hope you can update it considering social mobility. I hazard a guess that social mobility is much better in Denmark compared to Singapore.

  8. Gravatar of Sumner on Free Markets and Liberal Values Sumner on Free Markets and Liberal Values
    2. March 2009 at 09:20

    […] Scott Sumner is on my wavelength:  So after 1980 “brute facts” about the weaknesses of statism pushed most of the world toward free markets.  But there was (as yet) not enough evidence to abandon the egalitarian systems of social insurance.  If I am right, then countries with more liberal values should have responded to this new information by becoming much more free market oriented, but not necessarily by reducing the size of government.  But how do we measure liberal values? […]

  9. Gravatar of Carsten Valgreen Carsten Valgreen
    2. March 2009 at 14:50

    Hi Scott

    I happen to be a Dane and an Economist. Great post. But there are some anomalies that I dont think you take into account. For instance the difference between the Nordic countries is big in some respects. The labor market legislation you mention is for instance very different in Sweden (which more resemble German rules) with much more restrictive hiring/firing rules. In part this has to do with economic history and industry concentration. Read Charles Tillys “Coercion, Capital and European States”, for some great thinking on why history matters also.

    I also think that the big spending state/welfare system has some long term feedback effects on culture (maybe thats what McClsokey is on to?).

  10. Gravatar of ssumner ssumner
    2. March 2009 at 16:28

    Thanks. There are some long and thoughtful comments, so I am going to put off replying for a few days. I did a lot of snow shoveling today, spent a lot of time on the Krugman thing, and still have papers to grade. But I promise I will give you guys feedback. Here is my tentative plan; I will mostly stick to money issues in this blog but will do about one political/economy/culture piece a week. Don’t expect them to be all like this, I plucked my most interesting finding from a long paper. But I can strip mine the paper for a few more posts, and then maybe do posts in response to some of the comments. I was gratified that Will Wilkinson gave this piece a big play on his blog today.
    Welcome to my first Danish visitor–I hope I didn’t scare off the Maltese.

  11. Gravatar of Thigl Thigl
    3. March 2009 at 05:15

    You paint a rosy picture, as if market liberalization was an obvious logical progression that was happily embraced by a populace of liberals. You give a distorted picture of cause and effect because you omit the role of recessions (in this blog entry at least).

    The big before/after event in Scandinavia is the banking crisis of the early 1990s (granted, Denmark was not as badly affected as other Nordic countries, but the Danes did have a severe shock in the 1970s). The banking crisis was the result of deregulation and liberalization of banks in the 1980s. When the bubble burst it caused severe recessions, and an outright depression in Finland. The high cost of recapitalizing banks caused spiraling deficits, that in turn made Nordic governments unwilling to try a Keynesian approach. Policy options were therefore severely constrained, and paradoxically made further deregulation/liberalization necessary. In a nutshell it was far cheaper to legislate than stimulate. Market reform become more rapid and far ranging as a response to the crisis, rather than as an outgrowth of liberal values.

  12. Gravatar of Is There Nothing Rotten in Denmark? « Vox Nova Is There Nothing Rotten in Denmark? « Vox Nova
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    […] propos of Morning’s Minion’s post last week on unemployment, I thought I would link to this post from Scott Sumner’s blog Money Illusion. I found the post to be a fascinating read, though it […]

  13. Gravatar of Is There Nothing Rotten in Denmark? « Blackadder’s Lair Is There Nothing Rotten in Denmark? « Blackadder’s Lair
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    […] propos of Morning’s Minion’s post last week on unemployment, I thought I would link to this post from Scott Sumner’s blog Money Illusion. I found the post to be a fascinating read, though it […]

  14. Gravatar of ssumner ssumner
    5. March 2009 at 11:32

    kball, Those are good observations. Most of my info comes from “Singapore’s Success” which argues that the government ownership data are misleading, as companies like Singapore Airlines are (de facto) run as private companies. But you raise a good point. There is, in principle, nothing wrong with government ownership from a libertarian perspective. Shocked? You shouldn’t be as the only real problem with government ownership is that it is often associated with subsidies and limits on market access. Alitalia has huge subsidies–which is bad. Singapore Airlines has neither subsidies nor market protection–which is good.

    Lornezo, You know more about this than I do. But let me also say that I had to boil a 40 page paper down to 5 pages, so I left out stuff like the post-1973 productivity slowdown (which was partly due to big government) and also the political views of economists. Indeed, I argued that economists’ thinking is much more “economistic” than non-economists, and right wing economists are much more economistic than center or left wing. I’ll pursue that in another post. But you have many interesting ideas that I had never heard of, such as the impact of women entering the workforce, and I greatly benefited from reading your comments.

    Michael, Thanks for the support.

    Franko, I agree that small is beautiful, and covered that in my longer Denmark paper. I’ll plan a future post.

    Giancarlo, What’s the best data for social mobility? It seems to me that change in income over time is too influenced by the life cycle changes in wages (I started in the bottom quintile and am now in the top.) I suppose it is relative to parents. Is cross sectional data like that easy to find?

    Carsten, I know less about the Nordic countries than you do. I agree with you about welfare, but McCloskey puts more weight on how the market generates virtuous people. When you run a small business you have to treat people well enough that they want to come back for more–this builds trust. If you work for a big Soviet bureaucracy, you can be surly and mean, take bribes, and it doesn’t cost your “firm” any business.

    Thigl, First let me make a general observation about critiques of economic reform. Some people look at how well a country has done in isolation, not relative to how it would have done without reform. Thus people said growth under Reagan was no faster than in the 1970s, ignoring the fact that U.S. growth was much faster in a relative sense—relative to what other industrialized countries did in the 1970s and 1980s. Most slowed down sharply, we did not.

    Same thing in the Eastern bloc. Yes, the reformers often suffered major problems, especially early in the process. But as a general rule the faster a former Soviet bloc country reformed, the better it did. Communist countries that did little reform often suffered major depressions. (N. Korea being the worst example, but some of the CIS countries also fit this pattern.)

    None of this specifically relates to your point, it is just to indicate that I don’t put too much weight on the specific troubles that were experienced early in the neoliberalism era, as countries that did not reform almost always did worse. Any reform process will have successes and failures.

    When the intellectual climate moved toward free markets, any time a country got into trouble the natural “reform” was less statism. Under a very different intellectual climate in the 1930s, it was exactly the opposite. Contrary to Naomi Klein, there is nothing sinister about this.

  15. Gravatar of Wrong classical liberal predictions « Entitled to an Opinion Wrong classical liberal predictions « Entitled to an Opinion
    10. March 2009 at 17:11

    […] Will Wilkinson but with domain competence) compares it to his  favorite national model (Denmark) here. William Easterly (very glad he’s blogging) points to it as the exception to the rule of […]

  16. Gravatar of Steve Sailer Steve Sailer
    12. March 2009 at 00:12

    Singapore’s accomplishment is the more impressive, considering its tropical location and multiethnic population.

  17. Gravatar of ssumner ssumner
    12. March 2009 at 05:35

    Steve, I agree (assuming that you mean by “multiethnic population,” that they lack the social cohesion of the Danes.)
    I think is it easier to run an effective economy if you have a population whose cultural values are already strongly anti-corruption, as appears to be the case in Denmark. I just want to point that out, because unless I am mistaken, in your blog you have noted that ethnic Chinese and Indians do well in many different settings, and some of my readers may not have understood this. Let me know if I misinterpreted your comment.

    By the way, thanks for taking a look at my blog. I thought your recent “boiler room” post was very good–I especially liked the last paragraph.

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    16. June 2009 at 15:18

    […] strong taste for redistibution. But, setting tax rates and government as a percentage of GDP aside, Denmark has a higher level of economic freedom than any country in the world. And the latest Heritage index puts Denmark at 8th in economic freedom, with no really meaningful […]

  21. Gravatar of TheMoneyIllusion » The aesthetics of inequality TheMoneyIllusion » The aesthetics of inequality
    18. July 2009 at 18:11

    […] neoliberal models for the 21st century (in a paper a wrote a year ago and briefly discussed on my Great Danes post.)  Hyper-egalitarian neoliberalism (Denmark), hyper-economistic neoliberalism (Singapore) and […]

  22. Gravatar of TheMoneyIllusion » Character and Circumstance TheMoneyIllusion » Character and Circumstance
    26. August 2009 at 06:12

    […] other words, the extent to which it resembles Denmark (to refer to one of my earlier posts.)  The communist Chinese media get […]

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    3. May 2010 at 04:42

    […] I see that a Tyler Cowen link is bringing more people over.  This post on Denmark explains the methods I used in constructing free market and civic virtue indices.  In the post I […]

  24. Gravatar of dieter dieter
    8. May 2010 at 08:27

    1. You can add Austria to the list of countries without inheritance taxes. The reason capital gains (on equity, real estate) was abolished based on the supply side argument from the center right. The left gave in, because taxes on capital amount to peanuts in a high tax country anyway and come with high administration costs. (Especially back when we still had truly anonymous banking)

    2. Forced savings of 33% look like a tax to me and statist as well. I fail to see how this is any more or less free market than a simple paygo system.
    Where are the capital markets that could absorb some 20% of world gdp (every year) if most countries would adopt such a system? That is one of my main concerns, which is almost never raised or addressed either by advocates or opponents of such a system.

    3. I can’t understand the notorios Paul Krugman bashing self proclaimed free market economist blogs. My suspicion is that this mainly driven by envy by his peers. He got a nobel price and reaches huge non economist audiences.
    The attacks are usually strawmen with no basis in his actual views. He opposes labor market restrictions, farm subsidies, trade restrictions, etc. which alone puts him comfortably in the libertarian camp compared to any real existing western economy or almost all political parties of any significance.
    Taxation on the other hand is necessary anyway. So the question of who should pay more or less taxes arises and is orthogonal to most free market concerns.

    But why don’t the Paul Krugman bashers simply ask him about his views on specific market restrictions to clear things up?

    4. Different economic outcomes (between Denmark, Greece, Singapore) can’t be reduced to policy alone. Greece for example didn’t border any EU nation until recently, so the benefits of EU membership from trade were limited.

    ****

    But I agree with your main point that center left idealists (liberals, as they are called in the US) are more likely to adopt and foster free market reforms than special interest center rightists, whether they are aware of it or not.

    The first news item that came out of the coalition negotiations between the CDU and the supposedly libertarian FDP in Germany was that what little deregulation the SPD and Greens did in the drug market would be taken back. In Germany and Austria, there are no internet pharmacies allowed. There is a maximum number of pharmacies any pharmacist is allowed to run and you can’t open a new pharmacy in any neighbourhood that is already serviced by an existing one. Pharmacists are of course part of the traditional backbone of the FDP.

    I could produce numerous examples of this kind.

    The rejection of specific free market proposals, such as labor market deregulation in Germany, has to do with the fact that these are usually put forward by arrogant CEOs or Bankers, together with a mix of nonsensical mercantilist and corporatist views, who claim that their income is a reflection of their labour pain and responsibility and that wages should be lowered in order to export more. This toxic package gets to be what the center left perceive as the case for “neoliberalism” or free markets.

    Naomi Klein’s views are basically a distillation of how the pro market side comes across to center leftists.

    The case for free markets needs idealists because regulations frequently benefit a special interest group a lot and hurt everybody else only a little bit, frequently without them even noticing it. Who else but an idealist would take up the job to make the case for general welfare?

  25. Gravatar of Radical, progessive, decent people Radical, progessive, decent people
    9. May 2010 at 22:36

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  26. Gravatar of Scott Sumner Scott Sumner
    16. May 2010 at 17:55

    dieter, I agree about Austria.

    2. Taxes transfer money from one person to another. Forced saving transfers money from one person to the same person in the future. The effect on incentives to create wealth are vastly different.

    3. You said,

    “I can’t understand the notorios Paul Krugman bashing self proclaimed free market economist blogs. My suspicion is that this mainly driven by envy by his peers. He got a nobel price and reaches huge non economist audiences.
    The attacks are usually strawmen with no basis in his actual views. He opposes labor market restrictions, farm subsidies, trade restrictions, etc. which alone puts him comfortably in the libertarian camp compared to any real existing western economy or almost all political parties of any significance.”

    Wow. I am surprised that you are surprised that right wing bloggers would criticize the most famous left wing blogger in the world. If we are going to judge talent by Nobel Prizes, let’s recall that the University of Chicago has far more in economics than any other university. Krugman does support trade restrictions and labor market restrictions, and frequently says so in his columns.

    The point about Germany is a good one, but let’s not confuse idealistic center leftists with actual real world political center left parties like Labour, the Democrats, or the SDP.

    You said;

    “Naomi Klein’s views are basically a distillation of how the pro market side comes across to center leftists.”

    ????? Naomi Klein a center leftist?

  27. Gravatar of TheMoneyIllusion » Links to my views on money/macro TheMoneyIllusion » Links to my views on money/macro
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  28. Gravatar of Overcoming Bias : US laissez-faire serves a greater global good Overcoming Bias : US laissez-faire serves a greater global good
    28. January 2013 at 07:39

    […] hard, taking risks and making it big, are higher in the US than most other developed countries. More importantly, weaker regulation in the US means incumbents are less protected from competition, and […]

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