The American Union; or how a right-winger learned to stop worrying and love the EU.

My impression is that most right-wingers in America are deeply suspicious of the European Union.  And fearful that the model will spread here.  But I think they are looking at things exactly backward; in fact the EU model is so good that we should adopt it right now in the US of A.

I don’t know if this story is apocryphal, but I recall reading that prior to the Civil War people used the say “the United States are” instead of “the United States is.”  I propose we split the U.S into 50 independent countries, and have Washington DC become a part of Maryland.  I can’t see any drawbacks from doing this, and I can see many huge advantages.

I envision an American Union modeled after the EU, with Washington DC playing the roles of Brussels, Frankfurt and Strasbourg rolled into one.  Each “country” would have its own military, and each could join NATO.  The coastal states would maintain navies, while the interior states would provide a disproportionate number of soldiers to NATO.  North Dakota could be one of the most formidable nuclear powers on earth, providing a nuclear umbrella over the rest of us.  (I’m sure we’d be willing to help the Dakotans with the cost of maintenance.)

Consider some possible objections:

1.  A liberal might ask if this is just a right-winger trying to bring back the “states rights” of the segregation era?

No.  The EU has some sort of bill of rights; for instance the rights of minorities are protected and capital punishment is banned.

2.  A conservative might complain that each state should have the right to decide whether to have capital punishment.

I have mixed feelings on capital punishment.  But think of all the grief we get from the Europeans about this rarely used punishment.  And for what?  Last year we executed 37 people in America.  That’s not much deterrent in a country with more than 15,000 murders each year.  I was born in one Midwestern state, and grew up in another.  And both states banned the death penalty more than 125 years before the French stopped slicing off heads.  And now we get lectured to by snobby Europeans about how barbaric people are out in Middle America.  Is the death penalty really worth the abuse we take?

3.  Wouldn’t 50 states be really inefficient?  The US is currently a very big market, with no barriers?

So is the EU.  Yes, it doesn’t work as well, but it is much easier to prevent new trade barriers from forming, than to remove those that were formerly in place.  The EU has 27 countries, and is well on its way to 40.  Why not 50 over here?

4.  Wouldn’t it be inefficient to have 50 different currencies?

Ever heard of the euro?

I know a lot of patriotic people out there are thinking that this is un-American, trying to break up the greatest country on Earth.  But the beauty of the idea is that nothing that makes America great would change at all.  We’d still have the NFL, backyard BBQs, NASCAR, etc.  What about about our flag?  Well doesn’t the EU have some sort of flag?

Others might be worried about economies of scale in governance.  Aren’t we richer because we are bigger?  At one time that was true.  When countries were very nationalistic there were huge advantages to having a big army and a big market.  But now the most successful countries in the world are often very small.

Remember my three neoliberalism models; Denmark, Switzerland and Singapore–all three are small.  The fastest growing country in the EU during recent decades is Ireland—population 4 million.  The richest country in the EU?   Luxembourg (even the name exudes wealth, like something dreamed up by the marketing people who pick names like “Lexus.”)

In fact there are diseconomies of scale in governance, which is why Ireland is richer than Britain, Austria is richer than Germany, HK is richer than Taiwan which is richer than China.  Singapore is richer than Malaysia (even controlling for ethnicity.)

And with 50 different countries the terrorists wouldn’t know who to strike.  Put a Vermont flag on your backpack and you’re even less conspicuous than those with a maple leaf.

We could end the debate over national health care in Washington, and start 50 debates out where they should be, in state (oops national) capitals.  For those on the left, consider how hard it would be for pharmaceutical companies to convince 50 different countries to stop buying low cost drugs from Canada.

Indeed, I see huge advantages for both those on the left, and those on the right.

The right has already been moving in this direction, with conservatives in places like Texas, Nebraska, and Alaska asking for more sovereignty.  But there are also big advantages to those in affluent blue states.  No longer would their heavy income tax payments be used to subsidize those low income red states in the heartland, which claim to support “small government” but eagerly take a disproportionate share of federal money to build bridges to nowhere.  And for all you “progressives” out there, aren’t you always lecturing your fellow Americans about how much better they do things in Europe?  OK, here’s your chance.

My plan would also boost our self-esteem in all sorts of ways.  No longer would red and blue states have to take turns sitting through 8 years of an idiot or a rogue running our country.  Of course there would still be a Congress, sort of like the European Parliament.  But it would be relatively weak, just as in the EU.  And there would still be a Supreme Court.  But now the 10th amendment would have real teeth.  I dare you to impose “uninumerated powers” over those North Dakotans!  And (sorry Austrians) there would still be a Fed.  The only thing missing would be a president.  The White House could be a great museum.  And isn’t it fitting that our final President would have been an African-American, after our sorry history of slavery and Jim Crow?  (Sorry ladies, Hillary was so close.)

Have you ever looked at the map and thought how much tidier it would be if we had grabbed Canada when we had a chance?  Well Canada would never join the US, but they might join the AU.  Of course they’d first have to break up just like we did.

Here is another way our self-esteem would be boosted.  When they compile lists of the highest per capita incomes in the world (PPP adjusted), the AU would completely dominate the top 20 or 30 spots, with only a smattering of petro-states and postage stamp countries scattered amongst us.

How about the lists that take intangibles into account, the so-called quality of life indices?  Right now there are 10 or 20 countries ahead of us in the various happiness rankings, but that is misleading because all these countries are small.  We are happier than any of the bigger European countries.  And the US currently ranks only 15th in the UN Human Development Index.  But this is actually much better than it sounds, as there are so many tiny countries on the list.  Our ranking is similar to that of many Western European countries.

I am almost certain that if we broke up, at least one former state would lead the world in the UN Human Development Index.  And I am pretty sure which one it is.  But first check out this link, (you’ll have to scroll down to the third graph.) Ignore obesity and look at the percentage of people making less than 200% of the poverty line.  Do you see one state that is an outlier on the right?  No surprise, it is Mississippi.  Now before continuing just think about the fact that we are essentially tied with Denmark in this quality of life index, despite our country having states like Mississippi, Louisiana, West Virginia, and many others that clearly have big problems with poverty, crime, health care, etc.

Now look at the outlier on the left.  To my eyes it looks a full standard deviation better than any other American state.  And this state also has a very low crime rate, a nice environment, a high income, and very high quality education (based on test scores.)  In a comparison with the Nordic countries I am quite sure that it would hang in there with most of the intangibles, and then when they got to the per capita income part of the index it would look like Secretariat coming down the stretch at the Belmont Stakes.

And best of all, this state has no state income or sales tax.  Take that Paul Krugman.

PS.  Ever noticed that the euro bills all look alike (for a given denomination), but the coin designs are still different from one country to the next?  Now think about our state quarters.  It’s starting already.

PPS.  The only threat to New Hampshire in the HDI contest would be Norway.  But I still insist that oil extraction isn’t really “income,” it’s depleting capital.

Update 8/1/09:  Ambrosini has an interesting take on this issue.  He mentions that Connecticut would rank third on the HDI.  No mention of NH.  New Hampshire would blow Connecticut away on any properly constructed HDI that accounted for income inequality (where NH is much better than Connecticut), crime, cost of living, etc.



56 Responses to “The American Union; or how a right-winger learned to stop worrying and love the EU.”

  1. Gravatar of David Beckworth David Beckworth
    27. July 2009 at 11:16

    Funny you would do this post now. I just discussed my research that examines whether one currency is enough for the United States.

  2. Gravatar of Scott Sumner Scott Sumner
    27. July 2009 at 11:20

    You might be right, but I wanted to reassure skittish people would thought “breaking up the US” sounded too radical. There are several currencies in the EU–so it would be possible. We could have a “subprime region currency” and a more stable “rest of the country” currency.

  3. Gravatar of David Beckworth David Beckworth
    27. July 2009 at 11:30


    Even though I find evidence that some regions might have benefited from having their own currency, such a change would come with increased transaction costs and political economy challenges. For these reasons I am not completely convinced myself that on balance regional currency unions in the United States would be a good idea. A commentator on my blog also mentioned that the USA would lose it’s “exorbitant privilege” that comes with being the main reserve currency of the world should such a breakup occur.

  4. Gravatar of TGGP TGGP
    27. July 2009 at 11:34

    50 states isn’t enough. California & Texas are still way too big. And why should they have any union at all? How about modeling the U.S on pre-EU Europe. Imitating the EU hardly seems like a way to solve the problem of centralization. The actual EU keeps gobbling more power and whenever referenda say “No”, the boys in Brussels interpret it as “Yes”.

    Finally, what supporter of capital punishment actually considers criticism from Europeans a serious cost? If anything, it makes us proud of our uniqueness when Europeans talk about how different our policies are. I think if the states were split up the pro-death penalty states would ramp up the number of executions because they wouldn’t have the legal constraints created thanks to “blue” states.

  5. Gravatar of Irrational Doomsday Blog Irrational Doomsday Blog
    27. July 2009 at 11:37

    I like the notion because I think the Federal Government is truly out of control…not that it will happen.

    But there are some battle lines being drawn over States’ rights right now. And a stricter read of Constitutional limitations could move us more towards this end of the spectrum with a better balance between different levels of government, as intended.

    So in that sense, you would see a LOT of patriotic backing for checks and balances (as opposed to some kind of 50 state secession.)

    I wouldn’t be surprised to see a movement towards a more limited Federal government if this downturn drags on and gets ugly, which I think it will.

  6. Gravatar of Current Current
    27. July 2009 at 12:05

    Well, that was amusing.

    For what it’s worth I think the EU is becoming increasingly like the US. It is the real government in Europe now. The national parliaments are less and less relevant.

    I also think it’s a terrible trend as the EU is terrible organization.

  7. Gravatar of The Ambrosini Critique » Blog Archive » Does this mean we’ll have an Americavision Song contest? The Ambrosini Critique » Blog Archive » Does this mean we’ll have an Americavision Song contest?
    27. July 2009 at 12:06

    […] presentation I gave last week to the Humphrey scholars gives support to Sumner’s call for an American Union. Didn’t “State” used to mean something like nation […]

  8. Gravatar of Andrew C Andrew C
    27. July 2009 at 13:25


    No. The EU is not becoming more powerful. No government can become powerful if when it is put up to a popular test, like the Lisbon treaty was in Ireland, it fails.

  9. Gravatar of Current Current
    27. July 2009 at 13:38

    That was only a failure in Ireland, where I live.

    It doesn’t really make any difference. The EU is popular in the rest of Europe, by hook or crook it will get what it wants.

    There will be another referendum in Ireland. I got a leaflet of pro-EU propaganda through my door last week. This time the EU will probably win. If not they will just keep demanding referenda with threats until the Irish voters capitulate. Or, and this is the simpler option, they will give some more special concessions Ireland.

  10. Gravatar of StatsGuy StatsGuy
    27. July 2009 at 14:35

    New Hampshire is a lousy example.

    First, it has among the highest property taxes in the country; it’s total tax burden is small, but…

    A major source of income is derived from STATE OWNED liquor stores, which are positioned right on the border with Massachusetts (which, btw, also has bans on liquor sales on Sundays as well).

    New Hampshire’s tax system is like a leech – hardly a sustainable model for every country. Great example of a race to the bottom.

    On the plus side, the STATE OWNED liquor stores in New Hampshire are very nice, very well stocked, very clean, and very safe. Much nicer, in fact, than the privately owned ones in Massachusetts.

  11. Gravatar of Lorenzo (from downunder) Lorenzo (from downunder)
    27. July 2009 at 14:40

    I would not inflict an equivalent of the EU bureaucracy on anyone. The EU suffers a massive accountability problem. The “democratic deficit” is not a bug but a design feature (to quote Mark Steyn). Its diseconomics of scale in governance are, if anything, worse.

    Sounds to me what you want is revitalised federalism.

  12. Gravatar of Lorenzo (from downunder) Lorenzo (from downunder)
    27. July 2009 at 14:43

    On a different note: can you recommend a good primer on the mechanics of money for lay folk?

  13. Gravatar of Less Antman Less Antman
    27. July 2009 at 15:29

    I agree that 50 isn’t enough: break it up into 300,000,000, each adopting a foreign policy of peace, commerce, and honest friendship with the others.

  14. Gravatar of EclectEcon EclectEcon
    27. July 2009 at 16:39

    Would each state send a full complement of athletes to the Olympics? What a waste!

  15. Gravatar of Tim Worstall Tim Worstall
    28. July 2009 at 01:50

    “The EU has some sort of bill of rights;”

    Not quite. That’s from hte Councl of Europe and you have to sign up to that to be an EU member. But that’s pedantry.

    The real point is that the constituent nations of the EU almost certainly already have less independent power than do the States vis a vis the EU and the Federal Govt.

  16. Gravatar of ssumner ssumner
    28. July 2009 at 04:17

    David, I pretty much agree with your second point. I do think there are some advantages to multiple currencies, but on balance the transactions cost issue makes me skeptical. For instance, I think the eurozone countries made the right decision, but the UK may have as well. It is a close call.

    And yes, with multiple currencies the euro would probably replace the dollar as a reserve currency.

    TGGP, You are right about California and Texas, but as Yugoslavia showed, there are real problems with trying to redraw boundaries. The breakup of the Soviet Union went well, except in areas where they tried to redraw boundaries. Rich areas would have an incentive to secede. It may be better to go with historical boundaries.

    The death penalty comment was thrown in half-jokingly. As you noticed, there is no necessary reason to ban it. On the other hand my plan will never work without a lot more liberal support. As I pointed out, the recent push for more sovereignty is mostly coming from those on the right. We need to compromise if this is going to happen.

    Doomsday, To me, the beauty of the EU concept is that it completely leapfrogs the tired old ‘states rights’ debate. It re-frames the issue in a way that is non-partisan. Liberals hate states rights, but love the EU. I don’t think more states rights has a prayer, liberals have too much power and will easily be able to block it. Even Reagan couldn’t succeed in that area.

    States rights are seen as a “to hell with you” attitude. whereas the EU is all about cooperation for mutual gain.

    Current, Doesn’t the EU spend about 2% of GDP? I think that is too much, but its better than 22% of GDP, which is what our Federal government spends. EU spending may be rising, but it will remain very low as a percent of GDP for many decades to come.

    Andrew and Current, I agree the EU will eventually win in Ireland, and I agree that many in the EU want to become more centralized like the US, but that’s no reason for us to not become more like them. Their governments are too big, but decentralization is still the way to go. Most of the best run countries are small. Wouldn’t it be great to still live in America and be able to move to a country with a Singapore-style tax system. I am convinced there would be some (i.e. a roughly 15% flat tax, and no tax on capital.)

    Statsguy, New Hampshire is not a leech, and it is a sustainable model. The revenue from sales of liquor to Mass residents is not that big a share of revenue. Total revenue is very low, I believe the lowest in the country as a share of income.

    Massachusetts is hardly a free market model for liquor sales, because of all the Puritans that live here liquor is heavily regulated. Things are far more convenient out in Wisconsin where I grew up, and where drinking isn’t considered a sin.

    I think the property tax is far better than the income tax. I hate doing income taxes, but property taxes are simple, just right out a check, they tell you how much you owe. If it is unfair, then have a sales or payroll tax. But please, no income taxes.

    I think New Hampshire is by far the most successful state in the country, by the criteria used in various quality of life indexes (but I wouldn’t want to live there, I’ll probably retire to nightmarish California.) The best argument against NH is that some of their success is due to suburban spillover from Massachusetts. But when I look at the data I am convinced that a lot of it is real. There are several other small states near big metro areas that are not nearly as well governed (Rhode Island, Connecticut, New Jersey, etc.)

    Lorenzo, I can’t believe the EU is as bad as our Federal government, but then the grass always looks greener on the other side of the fence.

    I’ve never seen a good book on money, unless perhaps one goes back and reads Irving Fisher, or someone like that. I think some of Milton Friedman’s books are pretty good, but I can’t think of a specific one to recommend. In terms of textbooks, I find Mishkin’s to be the lesser of evils. It contains the IS-LM model, but I skip over that and focus on the good stuff like the monetary transmission mechanisms chapter.

    Less Antman, One step at a time.

    Eclect Econ, No we wouldn’t. Little countries send very small contingents, they are the only thing making the opening ceremony worth watching.

    Tim, You are right, but I meant “sort of” to indicate that it wasn’t really a bill of rights, but that members did have to adhere to certain rules.

    I don’t understand your second point. France has far more power than an American state. It determines whether the level of government spending is 25% or 50% of GDP, it can send troops to fight in Africa, it can ban headscarves in schools, etc. In the US all those decisions are at the Federal level.

  17. Gravatar of Alex Alex
    28. July 2009 at 05:06

    That was an interesting read with my morning coffee. What you are basically saying is that we should have a more federal system in which each state is fiscally independent from the rest. Correct me if I´m wrong but didn´t things use to be like that in the US some time ago before the welfare state? The federal government provided basically two services, national defense and the pony express. There was very little income tax and the federal government was financed basically by trade tariffs. Local governments financed themselves through property taxes and other fees. Not that I don´t like that system but something happened that it changed to a more centralized system. It would be hard to go back specially given that there is ever more demand for a bigger welfare state.

    Those who are interested in the monetary aspect I recommend they read this debate between Friedman and Mundell on currency areas.

  18. Gravatar of ssumner ssumner
    28. July 2009 at 05:37

    Alex, Thanks for the Mundell/Friedman debate it is very good. I agree with Friedman, but Mundell wins the debate on points.

    I think you misinterpreted my proposal. I am not calling for federal system, I am calling for 50 independent countries, each with a seat in the UN. I think this leads to your erroneous argument that we couldn’t have an AU here because we now have a big welfare state. The EU countries have even bigger welfare states than we do, and they have 27 independent countries, on the way to 40 in this century.

  19. Gravatar of Alex Alex
    28. July 2009 at 06:00


    It is true that the EU is big on welfare. But their welfare states never depended on Norway and Finland paying for health care in Portugal. In the US the welfare state involves big transfers across states that would be very hard to keep without a federal government. Of course you could invoke some sort of Coase theorem argument to get rid of the issue but I wouldn´t go that far.


  20. Gravatar of StatsGuy StatsGuy
    28. July 2009 at 06:29

    Personally, I prefer this model for the many states:

    But “seriously”:

    New Hampshire is a sustainable model for every state only to the degree tht Switzerland is a sustainable model for every country.

    Specifically on health care: does your plan allow states to restrict citizenship? Otherwise, no state can actually control its health care policy.

    IMHO, the best part of your plan (if we control citizenship rights) would be that Massachusetts and California can stop subsidizing federal tax benefits for Mississippi and Alabama.

  21. Gravatar of Blackadder Blackadder
    28. July 2009 at 06:34

    I think New Hampshire is by far the most successful state in the country, by the criteria used in various quality of life indexes (but I wouldn’t want to live there, I’ll probably retire to nightmarish California.)

    I feel the same way. The question is why? Is it just the weather or is there some other reason?

  22. Gravatar of Joe Calhoun Joe Calhoun
    28. July 2009 at 06:45

    Bravo, Scott. This is something I’ve been thinking about for some time now, but using the EU as a model would make the argument much easier to make. With a name like Calhoun, I have to be very careful talking about states rights…..

  23. Gravatar of ssumner ssumner
    28. July 2009 at 07:09

    Alex, Statsguy answers your question. The beauty of my plan is that it is the poorer red states that have been asking for more sovereignty—so give it to them.

    Statsguy, Of course Switzerland’s model is appropriate for all countries. Do you know of any other multilingual countries where people get along? Even in supposedly civilized places like Belgium and Canada there are huge fights. If one believes in democracy, how can someone not believe in Switzerland–it is the only true democracy in the world.

    Blackadder, Just the weather, the scenic beauty, and the relatively cosmopolitan cultures in the bigger cities. I really, really wish it had been Texas that had the Mediterranean climate and the mountainous landscape, then I’d retire in Houston.

    Thanks Joe.

  24. Gravatar of Current Current
    28. July 2009 at 07:16

    Statsguy: “On the plus side, the STATE OWNED liquor stores in New Hampshire are very nice, very well stocked, very clean, and very safe. Much nicer, in fact, than the privately owned ones in Massachusetts.”

    All liquor stores I’ve been in in the US are awful. Any randomly selected liquor store in Britain or Ireland is likely to be better. That said it’s one of the few sorts of shop that we do well.

    Scott: “Doesn’t the EU spend about 2% of GDP? I think that is too much, but its better than 22% of GDP, which is what our Federal government spends. EU spending may be rising, but it will remain very low as a percent of GDP for many decades to come.”

    A large amount of the “national government” spending of EU states is dictated by EU rules. Although it may come under the budget of the nation states it does not.

    Scott: “I don’t understand your second point. France has far more power than an American state. It determines whether the level of government spending is 25% or 50% of GDP, it can send troops to fight in Africa, it can ban headscarves in schools, etc. In the US all those decisions are at the Federal level.”

    It is doubtful that an EU government could spend 25% of GDP. If it cut it’s budget that much it could not enforce EU regulations or various EU “rights”. That means it couldn’t cut it’s budget in that way.

    Tim can tell you much more about it. He is an expert on the subject.

  25. Gravatar of Blackadder Blackadder
    28. July 2009 at 07:30


    I wonder if there is a connection between good government and bad (or at least cold) weather. I’m thinking of the differences between Northern and Southern Europe, California vs. New Hampshire, etc. Obviously there are exceptions (is the weather particularly good in New Jersey?), but my impression is that there is an overall trend here.

  26. Gravatar of Current Current
    28. July 2009 at 07:49

    Blackadder, the government here in Ireland is terrible. So is the weather, it’s July and it’s rained at least once a day for the past two weeks.

    I’ve often thought that about government before. But what about ancient Greece, Egypt, Rome, Ababia and Persia?

    What about Australia for that matter?

  27. Gravatar of libfree libfree
    28. July 2009 at 08:22

    I’ll start by saying that I love the idea, but I’m also a fan of reviving Federalism. They have more similarities than differences.

    I think the trend line moves towards greater consolidation. When Europeans tell me that the US government should do X,Y, or Z policy and I point out individual state sovereignty, they tend to denigrate it. I usually tell them to wait another 50 or 60 years (this is a great way to annoy Europeans). I see the same trend in Europe. Sure, they are very independent, but power is centralizing. How many years till they fall into the same trap that we did? A lot of EU countries are very independent, but some are less so. Specifically, France and Germany like centralization but that’s because they think that they will be in charge.

  28. Gravatar of 123 123
    28. July 2009 at 08:51

    “I agree with Friedman, but Mundell wins the debate on points.”
    How can you say that after California has issued IOUs?

  29. Gravatar of Blackadder Blackadder
    28. July 2009 at 09:22


    Ireland ranks 4th on the Index of Economic Freedom, 5th on the Human Development Index, and is between 5th and 9th in terms of GDP per capita (PPP) depending on your source. The government there may seem horrible to you, but clearly they are doing something right.

    Australia is probably a good counter-example to what I’m talking about.

  30. Gravatar of Current Current
    28. July 2009 at 10:21


    Come to Ireland, I’m sure you’ll see what I mean.

    The government here were one of the first to implement a low rate of corporate taxation. In my view that is the main reason why the economy has done so well until recently.

    The health service is awful, that’s why more than half the population have private insurance. The roads are full of carefully positioned potholes. The streets are full of drunks and drug addicts. The Garda (police) are useless. The city I live in, Limerick, is full of gang warfare which they seem unwilling or unable to prevent.

    Even the Irish often say their government is useless.

  31. Gravatar of D. Watson D. Watson
    28. July 2009 at 10:23

    A few “share” buttons would be helpful public goods. That’s a fun thought experiment.

  32. Gravatar of StatsGuy StatsGuy
    28. July 2009 at 13:10

    Not Switzerland’s political model (yay for that). It’s economic model – namely, the insanely high proportion of its GDP that derives from international finance. (Hong Kong, and to a lesser extent, Singapore, share this quality.) Not everyone can be Europe’s banker, even though everyone wants that honor.

  33. Gravatar of StatsGuy StatsGuy
    28. July 2009 at 13:15

    Blackadder, there was a paper published some time ago that tried to isolate the source of long-term economic growth. The argument was that it was civic institutions. As an instrumental variable, they used whether malaria was endemic. Malaria was so deadly that where it was endemic, Europe did not send settlers – instead, they extracted resources through a plantation type system (e.g. something like slavery). Where malaria was not endemic, Europe exported its people (and institutions with them). The authors found a significant effect, but as with everything it could be conflated by other things that were collinear – for example, early industrial technology, religious persecution, etc.

  34. Gravatar of Current Current
    28. July 2009 at 14:27


    One of the great mysteries of economics is why some places developed and not others.

    I come from the north of England, one of the centres of those mysteries. Many of the most significant technologies come from there. Concrete, the glider, the hydraulic press and steam turbines, for example.

    I find the malaria idea a bit odd though, since malaria was endemic in cambridgeshire until it was drained in the 16th century. I suppose it’s possible though.

  35. Gravatar of TGGP TGGP
    28. July 2009 at 16:47

    Regarding hot places, agnostic at GNXP came up with what he called the “winged insect theory of civilization”. That and some follow-up posts can be found here.

  36. Gravatar of Current Current
    29. July 2009 at 01:20

    Then there are Max Weber and Werner Sombart’s theories….

    I don’t think there is very much in it. But, having come from a protestant country (England) to live in a catholic country (Ireland) I can certainly see the point.

  37. Gravatar of StatsGuy StatsGuy
    29. July 2009 at 04:38


    I’m not saying I agree with the civic institutions theory – but the malaria paper was cute. Other major lines of argument include the Scientific Method, and Accidents of Geography that led to specific technological developments (e.g. “Guns Germs and Steel”). DeLong (I think) posted on some recent work on iron/coal deposits in Scotland being the only place in the world where resources were cheap enough to make the combustion engine worthwhile, which led to incremental efficiency improvements that allowed the technology to spread to areas with higher marginal costs. If true, this would be a strong case for “path dependency”.

    We like to think that human history is more than a series of accidents, but maybe not…

  38. Gravatar of ssumner ssumner
    29. July 2009 at 06:02

    Current, I strongly disgree. I don’t think there are any EU rules against a Singapore-style fiscal regime, which is much below 25% of GDP. Even Sweden is augmenting Social Security with individual accounts, so I am sure that there are no rules against it.

    Blackadder, There is a correlation, but we don’t know why. There could be 100 reasons. Also recall that N. Korea is far colder than Singapore (which lies on the equator) so a warm climate doesn’t prevent good economic policies.

    Current, The government in Ireland may be terrible, but it is also one of the best in the world in terms of economic policy. So everything’s relative.

    Your comments on ancient civilizations is a good one. The advantage of a cold climate came very late in history, sometime around the dawn of capitalism. Perhaps people save more in a cold climate, or cooperate better.

    libfree, So at worst we get another 50 or 60 years of decentralization and healthy competition. Then, as Thomas Jefferson would have said, we fight for liberty all over again.

    123, I don’t follow, no new information can affect the judgment of who won a debate on points. In any case, I think the debate was more about what’s desirable than what’s possible. Maybe you were joking–I’m kind of slow so it helps to use a smiley face. 🙂

    Blackadder, I had the same thought. See above.

    Current, The best test is “revealed preference.” The Irish used to flee Ireland in droves; in recent decades they’ve been returning, with lots of other immigrants. People vote with their feet. Unlike California or Spain, they aren’t going to Ireland for the sun.

    D. Watson, Sorry, that one went over my head.

    Statsguy, The problem with your argument is that the other main sector of their economy is also really efficient. They are a major manufacturer of sophisticated, high value-added goods. (complex machines, pharma, etc.) Even without a huge banker sector they would be rich.

    I’ll bet banking’s share of GDP is less than 10%

    Statsguy, I also saw that paper. You did a nice job explaining both the pro and con side.

    Current, I think it is partly related to the fact that Europeans didn’t want to move to the high malaria areas. Is that right, statsguy?

    TGGP and Current, Yes, there are lots of interesting theories, although the right answer is probably very complex, as there always seem to be exceptions.

    Statsguy, My instincts tell me that the path dependency theory is wrong. What are the odds that the first great industrial powers of both Europe and Asia were both large islands close enough to absorb ideas from the great mainland civilizations, but far enough to be hard to invade? Coincidence? It could be, but I think there might be something more. My hunch is that culture played a bigger role than path dependency.

  39. Gravatar of D. Watson D. Watson
    29. July 2009 at 06:22

    I was making two separate points. The second was just a thumbs up – nice post – I enjoyed it.

    The first was that a handy addition to your blog would be a button that allowed someone to email the article (or a link to it) to friends, or to Digg it, or add it to Facebook, or whatever. Make it easier for us to get the word out.

  40. Gravatar of Current Current
    29. July 2009 at 06:31

    That’s Robert Allen’s view

    By the way, the iron and coal was mostly in the North of England, there was some in Scotland too though.

    There are a lot of problems with Allen’s theory though. See the comments on this thread on marginal revolution. Read my comments, Barkley Rosser’s and Travis Fast’s. Allen doesn’t understand how complicated these sorts of industries are and how difficult it is to make simple conclusions about them.

    So, I’m not sure I believe Allen’s theory. That said I’m fairly critical of many other theories too.

    The idea that combustion engines were only worthwhile in Britain is interesting. But if this were the crucial difference we should expect to have records of their invention elsewhere. But after that invention no subsequent industrial usage. As far as I know this isn’t what current historical research suggests.

    If the availability of cheap coal was the key factor then why were the first steam engines used in Cornwall? Cornwall is the south-west tip of England. It had many ore mines, steam engines were first used for pumping these out.

    There is no coal in Cornwall though so coal was transported by ship from elsewhere in England at considerable expense. If there were many industries waiting for cheap energy to be available in order to expand then why was the one that did expand in a place where energy was more expensive than elsewhere in England?

    Also, if labour was the same cost as elsewhere in Europe then why did British industry do so much to economize on it. Take Worsley coal mine for example. In the 1760s the Duke of Bridgewater built fifty two miles of underground canals in this coal mine (most of them are still there). There were inclined planes used to move the boats from one level to another. Why go to all that bother if coal trucks can be pushed by men or pulled by donkeys?

  41. Gravatar of Current Current
    29. July 2009 at 07:55

    Regarding path dependency….

    Unfortunately people seem to use path dependency to mean different things. Of course everything has causes, history matters, but that isn’t really the point. The point of citing path dependency in economics is normally that some unusual circumstance makes a trade economic that otherwise wouldn’t be. This sets of a chain of events the produce an interesting result later.

    Now, I agree that this can occur. However, I see no reason to cite this dubious deux-ex-machina all over the place as economic historians seem to. The view seems to be that it is necessary that there must be path dependency because the situation prior to industrialization was stable. But, this doesn’t make any sense. It doesn’t follow that the only sort of long-term change that can come about is that through path dependency. It’s not even known how stable things were before industrialization.

    The whole area of economic history look to me to be in a mess.

    Regarding Ireland….
    Scott: “The government in Ireland may be terrible, but it is also one of the best in the world in terms of economic policy. So everything’s relative.”

    It keeps out of the economy to a great extent. I agree that is a good policy.

    But that doesn’t reflect well on the government. Fianna Fail is a centre-left party, it isn’t a neo-liberal party. The reasons why it took on neo-liberal policies are complicated. (Here I think there is quite a lot of path dependency).

  42. Gravatar of Current Current
    29. July 2009 at 09:47

    Another thought on the Industrial revolution….

    What we really need is a big book of disproven ideas about it. Bohm-Bawerk did this for interest, he wrote a book that mostly attacked the other theories of interest. Although his view wasn’t universally accepted he successfully buried several other view this way. Something similar for history of the Industrial Revolution would be useful.

  43. Gravatar of Tim Worstall Tim Worstall
    30. July 2009 at 01:14

    “I don’t understand your second point. France has far more power than an American state. It determines whether the level of government spending is 25% or 50% of GDP, it can send troops to fight in Africa, it can ban headscarves in schools, etc. In the US all those decisions are at the Federal level.”

    Those it can determine. But depending upon who you believe (and I’m very biased on this, I was a recent candidate for the UK Independence Party, we who think that the UK should leave the EU. We came second in the elections to the European Parliament btw, so we’re not entirely nutters on the fringe) 80% of the new laws made are made at EU level and rubber stamped by the national parliaments.

    For example, the VAT (sales tax, sorta) cannot be below 15% for most items. When the British Prime Minister wanted to move tampons from an item which paid VAT to one that did not it took several years of “negotiation” in Brussels to gain the right to do so. Trivial perhaps, but a sign of quite how much power is there in the centre, not at the national level.

    The EU determines how much household rubbish must be recycled as another. What are allowable working hours (1 August new rules come in on what hours doctors are allowed to work in the NHS for example. Try not to get ill in the UK for the next few months.).

    On the larger things like the economy that you mention, EU rules do lay down what is allowable public debt, what is an allowable budget deficit and so on. The stricter version is for those in the euro but there is also a version for those not.

    I agree that you could, if you wished, argue either way on this, that States have greater freedom or less than nations in the EU. But it most certainly is a great deal closer either way than you originally assume above.

  44. Gravatar of ssumner ssumner
    30. July 2009 at 03:58

    D. Watson, Thanks for the tip, but it may be a while because I am not very good with computers. We still haven’t found a way to count hits after 4 months!

    Current, I agree. In addition, if coal was the limiting factor why didn’t China industrialize? Surely the people who built the Great Wall could have found a way to transport coal from Shaanxi to Beijing.

    I agree the path dependency argument has a lot of problems. Indeed economic history is something of a morass, as you indicate.

    Tim, Those are all good points. Both the EU and our Federal government have a lot of regulations. I have no idea who has more. I guess I tend to focus on the huge spending amounts at the national government level, and how they vary a lot from one country to another. But I can see how other perspectives might lead to a different conclusion.

  45. Gravatar of Webshopping « Economic History Blog Webshopping « Economic History Blog
    31. July 2009 at 07:11

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  46. Gravatar of spencer spencer
    31. July 2009 at 07:32

    All you have to do is observe the traffic from New Hampshire to Massachusetts at rush hour to realize a significant reason that NH ranks so high is that it free rides on Massachusetts.

  47. Gravatar of Current Current
    31. July 2009 at 08:10


    Does that mean that NH subsidizes Massachusetts though? That seems to me to be difficult to work out.

  48. Gravatar of ssumner ssumner
    31. July 2009 at 12:56

    Spenser. Just the opposite. A lot of that traffic is people that live in NH and work in Massachusetts. They have to pay Massachusetts income taxes, and the offices they work in pay lots of property taxes. But then Massachusetts free rides because the children are educated in NH schools at the expense of NH taxpayers. It is unfair to NH.

    Current, I agree.

  49. Gravatar of Current Current
    1. August 2009 at 10:33

    I think that a lot of this “path dependency” stuff comes from a lack of understanding of capital theory.

    The economy has the capability to operate at many interest rates. Suppose that the distribution of wealth is narrow. People are mostly equally poor. In this case the rate of interest will be high. Roundabout means of production will not be very practical. But they will remain available as will past capital. An odd rich person may mature his wine for a decade or build a castle that will last centuries.

    If there is a more uneven distribution of wealth then the rate of interest will be lower. The poor will have nothing to lend, the rich will and will be able to wait. Roundabout methods of production will become practical. Again this doesn’t mean that less roundabout methods necessarily disappear from knowledge.

    Technological development naturally happens around the interest rate that is prevailing in the long term. If that is low then technologies appropriate to low interest rates are built. Similarly if it is high. But technologies that are no longer appropriate at some interest rate don’t necessarily pass out of use.

    In the comments of the Brad DeLong post that Statsguy and I mention someone discusses steam locomotives. He says that at one point in the 19th century horses became so cheap (due to the end of a war) that it became cheaper to use them to pull trains. Now, the first thing that this comment misses is that the rails of a railway are as important as the locomotives. A horse pulling a railway truck can pull much more than it can pulling a cart because of the low friction of the rails.

    More importantly though this misses the point that the knowledge of steam engines would not have disappeared if locomotives became temporarily uneconomic. Stationary steam engines used for pumping were under no such threat. Also, it is not clear if such a change would have made the usage of existing steam engines uneconomic.

    Suppose for example that the price that steam engines cost drops because of the competition from horses. The steam engine is a specific factor of production so its value can fall very far. It could fall all the way to its value as scrap metal for example. If that were to happen then the only cost of using an existing steam locomotive would be the maintanence and the coal. So, existing capital good may remain in service even when the conditions that brought them into being have ceased.

  50. Gravatar of ssumner ssumner
    2. August 2009 at 11:50

    Current, I agree.

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