The art of the possible

One of my favorite Adam Smith sayings is that “There’s a great deal of ruin in a nation.”  When reading others, I often think that people get too pessimistic about this or that country, based on a few highly visible problems.

But another way of thinking about this idea is that maybe even very well run countries fall far short of their “potential.”  I use quotation marks, as potential seems like a very slippery and unscientific concept.  After all, there may be deep-seated reasons why countries struggle to come up with good governance.  Still, you never get anywhere without setting goals.

Bryan Caplan and Will Wilkinson have been discussing the possibility of a regime of open immigration, and whether it could co-exist with a modern welfare state.  I can’t answer that question, but I will argue that we are very far from the “policy possibilities frontier” for liberaltarianism.  Imagine a country:

1.  Which accepts more immigrants per capita than almost any other nation on earth, despite being the most densely populated country with more than 5 million inhabitants.  So densely populated that they need to reclaim land from the sea in order to find places to put people.

2.  Has very high taxes on activities that produce environmental externalities, yet remains the most free market country according to several indices of economic freedom.

3.  Has a very comprehensive welfare state including national health care and pensions for all, yet still maintains a highly efficient tax system at rates far below that of other developed countries.  And if that’s not enough, runs gigantic budget surpluses year after year, despite the ultra-low tax rates and very generous welfare state.

You think that’s utopia?  No place like that could exist?  Think again.

This example tells me that while there may be some political limits to how many immigrants we can absorb, and we may not be able to provide the same welfare benefits to immigrants as to native-born Americans, we aren’t even close to the policy frontier.  We can have much lower taxes, a much more complete welfare state, and much higher rates of immigration.  And while we’re at it, let’s also run a gigantic budget surplus.  We just need to try harder.

And here’s a nice side effect.  Success get emulated.  As others see how well you are doing with the liberaltarian model, they’ll want to copy the policies.  That speeds up the day when the entire world can become a giant Schengen area.

PS.  I cheated a bit in point #2 above.  As my wife keeps reminding me, Hong Kong is not a “country.”

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30 Responses to “The art of the possible”

  1. Gravatar of marcus nunes marcus nunes
    1. February 2011 at 07:06

    In the world described by this rogue Australian everything´s possible!

  2. Gravatar of S. O. S. O.
    1. February 2011 at 07:37

    Singapore vs. Hong Kong

    Milton Friedman frequently used Hong Kong as an example for the positive effects of economic freedom. Now, given that Hong Kong has introduced evil laws like minimum wages, do we need to turn to Singapore?

    I’d love to see a comparison of both. Hong Kong is number one (Singapore #2) in the Heritage ranking (, but in terms of “Ease of Doing Business”, Singapore is #1 and Hong Kong is #2 (

  3. Gravatar of Bryan Willman Bryan Willman
    1. February 2011 at 08:44

    Can models of smallish places like HK or Singapore apply to regions the size of the US or EU?

    And since when are Singapore or HK viewed as politically free or libertarian? Do you suggest that abandoning political freedom (with all the risks that entails) is somehow necessary for economic freedom and success?

  4. Gravatar of honeyoak honeyoak
    1. February 2011 at 09:18

    I never understood the romance that people have to “political freedom” which is generally defined as “stuff that western countries allow”. Bryan do you really think that your ability to go to a booth every year really gives you control?

    Never mind that in Quebec it is illegal if you fail to provide sufficient cause for not helping someone or in France they have effectively banned the Burqa for students. In the US 5% of black males are in prison at any given time.

    I am not saying that Singapore is perfect, or even on the right side of history. what I am saying is that they have a different system then and it works for them.

    Having lived in the “politically” free country of Israel I can tell you that western democracy with elections and free speech, doesn’t always work. after elections happen you get 4-6 months of political haggling to form a coalition whereby nobody is happy and inevitably dissolves after 18 months so that you can repeat the process again. none of the politicians talk about the violations of political freedoms that are a daily occurrence and would appall more sensitive left wing types(via the military, police, courts, etc).

  5. Gravatar of Mark Phariss Mark Phariss
    1. February 2011 at 09:49

    “we may not be able to provide the same welfare benefits to immigrants as to native-born Americans”

    You’ve hit upon the key to enacting comprehensive immigration reform, with a side benefit of improving the fiscal outlook of entitlements.

    1) Make Social Security, Medicare, & Medicaid available only to citizens, but tax all payroll for them; for naturalized citizens, only the post-naturalization working years would be used to calculate benefit eligibility.

    2) Path to legality for current illegal immigrants, including a modest fine & perhaps a probationary period after legalization before their time in country starts counting towards naturalization eligibility.

    3) Open the borders for peaceful workers. Combined with the token punishment for those already here, this takes the wind out of law & order and fairness detractions of the ‘amnesty’, as those who waited can enter with no fine and their residency time starts immediately.

    Thus, it becomes inescapable that increased immigration is a net economic gain for citizens, as immigrant workers pay for entitlements from which they do not benefit. No need for a new guest worker program.

  6. Gravatar of Benjamin Cole Benjamin Cole
    1. February 2011 at 09:53

    Great post.

    I think small countries, and smaller cities, have an advantage in government. It is simply easier to manage a small enterprise.

    I am deeply familair with several smaller citiesin SoCal, and Los Angeles. The small cities are better managed. All of them, even with corruption, they are still better managed.

    Large nations evolved, in part, for national defense. City states could not survice nations.

    It would be fin to go back to city states, but we would have to ban war first.

    Also, if each city state devised its own trade laws, that would crimp things.

    I am thinking of a null set for some reason….

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. February 2011 at 10:32

    Scott wrote:
    “And here’s a nice side effect. Success get emulated. As others see how well you are doing with the liberaltarian model, they’ll want to copy the policies. That speeds up the day when the entire world can become a giant Schengen area.”

    Precisely why I got involved in doing cross sectional studies in the first place.

    However, I share Bryan’s skepticism about Singapore and Hong Kong as appropriate models. How about Australia? It’s third on the Heritage Foundation Economic Freedom Index, and has the highest scores on Civil and Political Freedom according to the Freedom House. It also does very well in measures of Advanced Human Development such as life expectancy, combined educational enrollment and productivity:

    And it’s relatively large. (Not to mention it has good monetary policy.)

    Also, given my European focus, how about countries that are actually part of the Schengen area? Denmark and Switzerland are both in the top ten on Heritage Foundation’s Economic Freedom Index (ahead of the US) and have perfect scores on Political and Civil Freedom.

    P.S. I’m teaching Economic Development this semester. I asked my class why should we as Americans care about Economic Development? My answer: because it’s a process without end, and there’s always something you can learn from other countries.

  8. Gravatar of scott sumner scott sumner
    1. February 2011 at 11:38

    Marcus, Yes, “no budget constraint” in the very first sentence. 🙂

    S.O. Yes, HK is getting more statist, so it’s becoming close. Of course HK is not a “country”.

    Bryan, You asked:

    “Can models of smallish places like HK or Singapore apply to regions the size of the US or EU?”

    Yes and no. Singapore and HK have about the same population as Denmark, and all three are heavily urbanized. But compared to the US, Singapore is easier to govern, as it’s smaller. I’ve suggested breaking the US up into 50 countries, and forming an (EU-like) “American Union.”

    Yes, They are not particularly politically free, although neither are quite as “unfree” as most dictatorships. Hong Kong has plenty of civil rights, and Singapore has elections that while not completely fair, are probably broadly representative of public opinion. I was talking about economic policy.

    Of course a country like the US with 400,000 innocent people in prison for using drugs can hardly be described as a libertarian paradise. All countries have flaws.

    honeyoak, I strongly favor democracy, but I agree with your general observations. There are many types of freedom. For instance, in terms of freedom modern China is closer to the US, than to Maoist China. Not many outsiders realize that, when they read about the “communist dictatorship.”

    Mark Phariss, Those are good ideas.

    Benjamin, I’d love to go back to city states. Greece is basically where western civilization started.

    Mark, I love Australia and hype their model all the time. But people will say (partly correctly) that they are the lucky country, with lots of land and resources. I thought Singapore was interesting, as it’s the most densely populated (sizable) country on earth, has a welfare state, and still welcomes lots of immigrants. That’s impressive.

    I like your last paragraph. Or you could ask if there are any Christians in class. Point out that there religion says the poor in Africa are just as important as the poor that live in their own town.

  9. Gravatar of Bryan Willman Bryan Willman
    1. February 2011 at 12:36

    scott, honeyoak – actually, I’d say that voting in the US gives very crude control over a very limited set of options, and mostly keeps the car on the track, though often only after very serious off course excursions.

    I’d rather have a real legal system, with obvious serious failiings, then no legal system. A system where a change of power can and does happen without violence. However, the red-team/blue-team arrangement should not be mistaken for the variety of choice that would be desirable.

    But the US is no libertarian, nor liberal, nor conservative paradise.

    I’ll also argue that without strong political constraints (which the US has, albeit it not always distributed fairly), that political entities can decide to be “less free” and do random things. See North Korea.

    Note that in political freedom I include american style freedom of speech, a stronger set protections than even the 4th amendent gives, etc. The voting booth is in some ways only the end expression of politics.

  10. Gravatar of Blackadder Blackadder
    1. February 2011 at 16:51


    Democratic countries tend to have more economic freedom than nondemocratic ones. So even leaving aside issues of civil liberties, libertarians ought to prefer democracy to the alternatives.

  11. Gravatar of Richad W Richad W
    1. February 2011 at 19:08

    In the ease of doing business chart that S.O. posted the common denominator is eight out of the top ten countries were part of the British Empire. I think the legal system and adopting broadly English common law is a big factor.

    I don’t think the U.S. will quite break up into 50 countries. Considering the huge regional diversity in the U.S., it really is surprising that it works at all as a coherent whole. It has worked really well so far but it might not in the future. I suspect before the end of the century it may split into about eight parts.

  12. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. February 2011 at 19:46

    Richard W wrote:
    “I suspect before the end of the century it may split into about eight parts.”

    That’s two more than Igor Panarin predicted the US would split into by 2010:

    Well if somebody keeps making similar predictions eventually they might be proved right.

  13. Gravatar of Rien Huizer Rien Huizer
    2. February 2011 at 03:11

    Singapore happens to be a country where I spent 5 years – as a foreigner and working- I found it so fascinating that I decided to learn as much about it and its mechanisms as I could. Clearly, one, it is very hard to emulate what happens there (for reasons that are too numerous to explain here) and second, if you look beyond GDP, you have a country with an incredible gap between “consumers” and “producers” (or, linked to that due to hard budget constraints, a very low employment share of NI) and that in a country with only about 100.000 self employed and no farm sector. The key: selective economic freedom managed by a state with very high credibility based on discipline and longevity of the ruling party.

    But not: an example of the effects of openness to immigration and hardly a libertarian paradise, with the State dominating the economy that most citizens experience, in many ingeneous ways. If you do not offer what they want, they will not let you in…And immigration is becoming a political issue, in as far as there is a need for politics in Utopia

  14. Gravatar of scott sumner scott sumner
    2. February 2011 at 19:13

    Bryan, Yes, voting only gets you so far. And I’d add that democracy works better in small decentralized places like Switzerland and New Hampshire, not big centralized places like LA or India.

    Blackadder. Yes democracy is clearly better than the alternative.

    Richard, I hope we decentralize somehow. Yes, the British connection has been noted by many people. Also note that Britain was settled by people from places like Denmark and Holland, which also score well on many surveys.

    Rien, No state is completely open to immigration (as far as I know) but they are more open than any country, other than the big Persian Gulf oil producers. More than 40% of the population are migrants.

  15. Gravatar of Rien Huizer Rien Huizer
    2. February 2011 at 20:31

    OK, Scott, if you use openness in a statistical sense, Singapore is open of course, but the type of immigration that drives Singapore’s GDP growth would not be sustainable in (a) a larger country (because it relies very much on struct policing of illegals) (b) a country where people care about equal rights (over half the immigrant workers are unskilled temps, like our -much missed- domestic helper from the Philippines, the working conditions of the immigrants at the bottom of the scale would not exist and (c)the model relies on politics diametrically opposed to libertarianism..

    It is really a matter of blending and at the same time separating three different worlds: (a) a luxurious and expensive first world with generous (and confidential) state incentives to FD and a small population of expats and PRs entering on a highly selective basis, (b) a high/middle income Asian country with security and basic care for the true locals (bordering on socialism) (c) a typically Asian environment with low pay, hard work, poor living conditions, but more attractive than at home. These people are deported as soon as they lose their jobs or fail medical tests and are the responsibility of their employer. But they keep coming..

    Try to emulate that anywhere. That is , legally: bits and pieces of the US system look similar: (a) high level immigrants, a reasonably well looked after middle class (Medicare etc) and a not so well looked after army of illegals. And it is the latter category that makes the difference: Singapore harnesses the low-wage competitive benefits and very low social burden of its low-skilled immigration program: no families (hence no schools etc) no old age, no disabled etc. But also no criminal entrepreneurs who manage the illegals.

    So, it would make sense for the US to be far more open to immigration, if that immigration is carefully designed, like in Singapore. What politician could campaign for that?

  16. Gravatar of Rien Huizer Rien Huizer
    2. February 2011 at 20:48


    Another view on openness to immigration is to look at stocks and flows. Australia for instance, has had long periods of high flows under certain circumstances. Currently, we are in one of these periods where “skilled temporary workers” (which would not include an economics PhD) are more numerous than domestic gross new entrance to the labor market, or interstate flows. That is about as open as you can be. But these people are not necessarily cheaper than locals, they just keep the market from overheating. Stock-wise of course, some Australian states (like Western Australia) contain more than 40% foreign born residents, roughly comparable to Singapore. The Eastern States have lower numbers but still, for the country as a whole the percentage is probably close to or higher than Singapore. Singapore’s immigrants are overwhelmingly temporary, because it is quite hard to become a PR (you have to be skilled or both). So their gross flows are much larger than their temporary ones. Singapore does not publish the number of “citizens”, it publishes only the number of “Citizens and PRs”. I estimate a citizenship of around 2.5 million, 1 million PRs (who can bring their families etc) and around 1- 1.5 million low skilled employment permits, about half of which would be domestic workers. But the whole thing is very opaque.

  17. Gravatar of rb rb
    3. February 2011 at 15:36

    I guess the the question in the immigration argument for me is the type of work performed. Are people flooding south from Malaysia to perform agricultural labor? I don’t think so. Or is it more like the white collar finance majors of the region flooding NYC? That has to have implications on the ability to raise taxes and limit the needs of the welfare state. Is Singapore directly subsidizing and providing the welfare you speak of for its supply chain (Malaysia)? I doubt it. Lack of land sure does make it easy to turn away migrant farm labor.

  18. Gravatar of Rien Huizer Rien Huizer
    4. February 2011 at 00:15


    No, Malaysians tend to be either cross-border dayworkers (not counted as residents) or (well-qualified) PRs. Malaysians are not very cheap and not attracted to the packages the Bangla Deshis get.., in fact Malaysia has over a million immigrant workers (mainly from Indonesia) itself. Most of the domestic workers in Spore are from Indonesia or the Philippines, Construction workers come from Bangla Desh, Sri Lanka, China, Thailand (and of course not all of those are low-skilled) etc. Usually an employer must pay a “levy” per low-paid foreign worker. There are also some 300-500K well educated/wealthy ethnic Chinese PRs from HK and SE Asia who may spend most of their time outside Spore. Finally there is anecdotal evidence of high numbers of top students from China etc populating the more demanding advanced degree and PhD programs of Spore’s universities. The key expression in Spore politics is “foreign talent filling gaps”, sometimes used ironically by the local “man in the street”. One thing about Singapore is that Singaporeans who prefer leisure are not subsidized. Immigrant wages plus the levy create a sort of break-even point below which wages (and gvt pension fund contributions) for locals cannot fall, but that leads to a very low wage for those who have to compete for jobs in the service sector etc.

    And yes, there is not a lot of agriculture..

  19. Gravatar of david david
    4. February 2011 at 03:48

    Hong Kong institutionally gives some people a larger voter than others. It is not quite democratic, either. Before handover it was generally unelected and had government dominated by dealmaking between local interest groups and London-appointed administrators. Singapore only has to suppress political organization because the votes in Singapore might actually matter.

    Both Hong Kong and Singapore have levels of inequality we would normally associate with third world tinpots. There is a welfare state in both, but it is not interested in redistribution (but rather an openly paternalistic provision of welfare), and the enforced inequality and rigidity of the political system is necessary to sustain that. If you want to provide, say, public housing cheaply, your government must be in a position to suppress NIMBYism and attachment to local neighborhoods without significant repercussions.

    Both Hong Kong and Singapore had convenient massive fires when public housing en masse was first initiated, incidentally. The communists in both alleged arson. It’s been decades and we’ll never know.

    Optimistically there is a good case to be made that at least Singapore has found a way to encourage its local rich and powerful to sustain the system rather than pillage it for rent or political capital. Hong Kong, on the other hand, is yielding to democratic pressures.

  20. Gravatar of scott sumner scott sumner
    4. February 2011 at 20:00

    Rien, You said;

    “(b) a country where people care about equal rights (over half the immigrant workers are unskilled temps, like our -much missed- domestic helper from the Philippines, the working conditions of the immigrants at the bottom of the scale would not exist and (c)the model relies on politics diametrically opposed to libertarianism..”

    I don’t define libertarianism the same way as my fellow libertarians. For instance, I view Singapore’s forced saving policy as highly libertarian. In the US, immigrants work in agriculture under appallingly bad conditions, so I don’t agree with your view that the working conditions you describe wouldn’t exist elsewhere.

    You said;

    “high/middle income Asian country with security and basic care for the true locals (bordering on socialism)”

    Singapore is the most economically free country in the world according to the Heritage Foundation and the Fraser Institute rankings. (HK is not a country) I guess you could call that ‘socialism,’ but I prefer to reserve the term for the more extreme cases of government involvement in the economy, like North Korea.

    You said;

    “So, it would make sense for the US to be far more open to immigration, if that immigration is carefully designed, like in Singapore. What politician could campaign for that?”

    Unfortunately you are right. And you are right that we are too clumsy to do things the Singapore way. I’ve advocated breaking the US up into fifty little Singapores, but of course it won’t happen.

    rb, Yes, small size does have its advantages, although I don’t think the land issue is crucial. Indeed I think with 5 times as much land Singapore could have much higher living standards (people could have more single family homes.)

    David; You said;

    “Both Hong Kong and Singapore have levels of inequality we would normally associate with third world tinpots.”

    That’s exactly why I think the income inequality data is so useless. Someone reading that might assume that the Singaporeans would be better off with the Nordic system. But of course that system would only work if the Bangladeshis returned to Bangladesh. That is, Singapore could be made more “equal” by making the very poorest Singaporeans worse off. A better measure of welfare is to compare the living standard of each person, with what it would be under some alternative policy regime. And I think you’d find the answer is usually favorable to Singapore. Certainly for those who chose to move to Singapore, and also for the vast majority born there.

    I think the public housing system in both countries was a mistake. At least in HK, the crowded conditions lower living standards sharply from what you’d expect of a country that rich. It’s not that they have no room to build, it’s that the government sharply restricts the land available for building.

    Everyone, Thanks for all the info, I learned a lot.

  21. Gravatar of Morgan Warstler Morgan Warstler
    4. February 2011 at 21:26

    Yet another reason why the only solution to what ails us is Guaranteed Income + and online auction of the manweeks of the unemployed.

    If farm owners in CA can bid $5 on citizen man weeks for picking grapes, there will be no illegal immigrants.

    20M more Americans will be working for a $1-10 an hour – problem solved.

  22. Gravatar of Morgan Warstler Morgan Warstler
    4. February 2011 at 21:27

    Which BTW solves for Open Door Immigration and a Strong Safety Net.

  23. Gravatar of ssumner ssumner
    5. February 2011 at 17:10

    Morgan, You’ll have to pay Americans far more than $10/hour to get them to do farm work.

  24. Gravatar of Rien Huizer Rien Huizer
    6. February 2011 at 06:17

    Sorry Scott, I could not help going back to this last one: puzzled by:

    “I don’t define libertarianism the same way as my fellow libertarians. For instance, I view Singapore’s forced saving policy as highly libertarian.”

    what is your brand of libertarianism?

  25. Gravatar of david david
    6. February 2011 at 06:34

    Scott, it doesn’t matter whether the Bangladeshi immigrants would be worse off; the poor generally have little influence in a democratic polity, and immigrants even less so. The people in Singapore are indeed better off on net; the point is that this was only made sustainable via sacrificing some elements of democracy and liberalism.

    Public housing is not just about building enough houses; there is also elaborate social engineering involved here, to prevent racial or class enclaves from appearing, or to discourage the formation of personal loyalties to neighborhoods (which would form an interest group preventing future development) while encouraging loyalty to a national identity that didn’t exist a few decades ago. You cannot achieve these things in a free real-estate market. You especially cannot achieve these things in 1965 Singapore, when the construction companies are monopolies enforced by a politically active Chinese Chamber of Commerce not especially enthusiastic about the government the British are leaving them. Singapore today is culturally reliant on formal planning, design, and hesitation, but once upon a time it was driven by guanxi as Hong Kong’s domestic economy still is today.

    I should note that Hong Kong resists immigration, even from the Chinese mainland. Perhaps especially from the mainland. Singapore’s government is more accepting.

  26. Gravatar of Scott Sumner Scott Sumner
    7. February 2011 at 12:47

    Rien, I am a pragmatic libertarian like Milton Friedman or Freidrich Hayek, not a dogmatic libertarian (like most libertarians are).

    Pragmatists favor some income redistribution and paternalism through programs like education vouchers (which are both paternalistic and redistributive. But vouchers are still more liberal than the status quo. Similarly, forced saving is far more liberal than forced taxes, because you still have wide latitude to control the money you save, whereas forced taxes cause you to lose all contol over the money that is taken from you.

    David, You are mixing up what is and what should be, and the perfect vs. the pretty good.

    The immigration program may not be perfectly liberal, but letting in lots of Bangladeshis with an illiberal program, is still much more liberal than not letting then in at all.

    Yes, the government does control housing, and you’ve given me lots of reasons why. But that doesn’t change the fact that Singapore would be better off with a free market in housing. In HK the housing policy is run for the benefit of the developers, not the public.

  27. Gravatar of david david
    8. February 2011 at 06:28

    Singapore with a free market in housing since independence would have turned communist by 1970. Singapore with a free market in housing since 1985 would have turned into Johor Bahru. Singapore with a free market in housing now, after having contrived to squash three more million people into the same space, would implode back to two million by violence and emigration.

    It was as recent as 1998 that racial pogroms went on in Jakarta, Indonesia, and the situation has only become more tense as the divides have taken on a religious edge. I think you take law and order for granted too easily.

  28. Gravatar of ssumner ssumner
    10. February 2011 at 06:56

    David, To say your predictions are far-fetched would be an understamtent. Free markets in housing provide much higher living standards that government-run housing. Look what happened after Thatcher sold of the public housing in the UK. Much higher living stndards is hardly a recipe for communism.

    China is now selling off public housing, and the quantity and quality is rising fast.

  29. Gravatar of david david
    10. February 2011 at 14:03

    Higher living standards would certainly discourage a turn to communism, but they take some time to occur. Surely you are willing to acknowledge that much! Communists were already in Singapore, and their leaders briefly had a majority in parliament, before Lee had the British detain them. Without trial, disappearances, exile, etc. But I’m sure you knew that already.

  30. Gravatar of ssumner ssumner
    11. February 2011 at 19:29

    David, I forgot that, but I still think it was unlikely they were going to rule Singapore–being a free trade/investment port is a huge advantage to a tiny country like Singapore. Even Lee started out a socialist, and then quickly saw that capitalism was the way to go.

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