Bryan Caplan  

Two Verdicts on Two Replies to Two Replies

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1. Garett and Me on Evil

My reply to Garett:
I'd be much more impressed by an experiment showing that subjects spontaneously try to hurt others.  Suppose you tell them they can pay some money in order to change others' endowments.  Start with an example where one player pays money to increase others' endowments.  Then see if anyone spontaneously tries to pay money to decrease endowments.
Garett's reply to me:
This experimental literature went in a lot of directions, but one matters for us: Some economists added a chance for players to punish other players by taking away their money (usually at a cost to the punisher).  The thought was that if people suspected they'd be punished if they didn't contribute, they'd contribute more.  And of course, that's just what happened. 

But something awful happened too: Some players punished people who were highly cooperative!  So here was a power that--to any casual observer--was specifically designed by the experimenter to punish the wicked.  

What did a substantial number of players do with that power?  They punished the saints.  Given a chance to spur cooperation, they "spontaneously [tried] to hurt others."
Verdict: I'm persuaded.  Well-played, Dr. Jones.

2. Sumner and Me on Economic Freedom

My reply to Sumner:
My point is not that redistribution, rather than regulation, is The Key to economic freedom.  My point is that economic freedom has Two Keys.  A solid measure of economic freedom wouldn't merely take points off for both redistribution and regulation.  A solid measure of economic freedom would only classify countries as "economically free" if they had low redistribution and low regulation - and would classify countries as "economically unfree" if they had high redistribution or high regulation.
Sumner's reply to me:
[G]overnment spending and taxes as a share of GDP can be highly misleading.  It doesn't tell us how much "redistribution" is occurring, for instance.  To a large extent the Nordic social welfare programs take money from the middle class and then return the money to the middle class.  In contrast, Singapore forces people to take care of their own medical/retirement, etc.  So the "official" level of government spending in Singapore is very low.  And I do prefer the Singapore approach, which involves less redistribution and lower MTRs.  But the G/GDP ratios vastly overstate the difference between the Nordic and Singaporean models. That's why I focus on variables like MTRs and tax complexity, which do a far better job of picking up the extent of market distortion.
Verdict: I'm not persuaded.  Yes, government spending and taxes as a share of GDP can be highly misleading.  But so can measures of regulation.  Imagine a system of universal price controls that's carefully tailored to match whatever prices would have prevailed on the free market.  Researchers would code that as extreme economic repression, but the extent of market distortion would be zero.  So why does Scott single out "size of government" measures as especially suspect?



COMMENTS (15 to date)
Peter writes:

I think the key difference between Bryan and Scott is moral libertarianism vs utilitarian libertarianism. Scott wont regard government spending/taxing as bad unless it has bad consequences in a utilitarian way.

David R. Henderson writes:

@Peter,
I think you may be right that that is one key difference, but your point doesn't address Bryan's. If you go with your distinction, Scott should be saying that regulation that constrains little or not at all would not count as a restriction on liberty either.

Scott Sumner writes:

Bryan, It's not so much that it is misleading, it's the way it's used that is misleading. Suppose you listed 100 government interventions at random:

1. Rent controls
2. Barriers to entry into prefessions
3. Immigration restrictions
4. Regulation of health insurance
5. Public schools
6. Size of government in terms of spending
7. Zoning rules

. . .

100. Perscription drug regulations.

I'd have no objection to the list. I agree that size of government is correlated with market interference. It's a factor. My objection is to people who treat it not as one item in a long list, but as THE measure of how "socialist" an economy is.

If you agree with me on this point, then I have no objection to you saying that bigger government is an indication of interventionism. But it tells you very little about how capitalist a country is, just as the fact that the Hong Kong government controls almost the entire real estate sector of the economy tells you very little about how capitalist Hong Kong is. (It's almost universally viewed as the most capitalist economy on Earth, despite it socialized housing sector.) Someone might argue "how can you say Hong Kong is a capitalist paradise when the government owns almost all the property?" Or "how can you say America is capitalist when it has more regulations (by number) than any other country on Earth?"

"Imagine a system of universal price controls that's carefully tailored to match whatever prices would have prevailed on the free market. Researchers would code that as extreme economic repression, but the extent of market distortion would be zero."

In this system of price controls, both buyer and seller could go to market knowing the price ahead of time. Right? I believe that would create a different pattern of trades than would occur where the traders go to market only with their hopes.

J.V. Dubois writes:

Let's expand that list a little bit:

101. Regulations about child labor
102. Contract regulations such as those preventing somebody to sell himself into the slavery
103. Grocery producers obliged to list food content on the package
104. Regulation on hard drugs
105. Weapon regulations

.
.
.


And now I am confused - what should be the purpose of any ranking based on such a list? To show how "free" some country is in some weird definition of what freedom is? Such ranking would be useless to anybody except handful of those almost religious libertarians. Its usefulness as indicator of the quality of living would be equal to some hypothetical ranking about how some country fares in "Muslim Ranking" - it may be useful if you are adherent of some particular muslim creed, but it will be useless otherwise.

PS: This is not a criticism of Scott's post - with whom I agree on this topic. It is a criticism of any rank based on such a broad concepts such as share of the government in the economy. In these things the devil is in details. Most of the time it is the quality of implementation of those regulations that is the most important thing to consider. Not just the question if such regulation exists.

Chris H writes:

@Richard Hammer

Since we're going with a theoretical idea that the government is somehow able to match price controls exactly to market prices over time, just add in the additional assumption that they take into account the fact that prices might be more predictable (something that may not be the case as price controls would have to rapidly fluctuate to remain at market prices) and adjust prices accordingly. The point being, there are no market distortions but this would still be a massive government intervention.

@J.V. DuBois

This type of ranking is a consistent definition of freedom (aka freedom being avoiding using non-consensual violence to achieve outcomes except for self-defense/defense of others). The point isn't necessarily to rank countries in terms of desirability directly (unless one happens to be a radical libertarian like myself, the term "religious libertarian" would be a bit odd given a lot of those would be atheists :P), but instead to look at correlations with other things people find desirable. Is more freedom correlated with higher economic growth, more stable governments, a proliferation of good Mexican restaurants etc (OK the last one probably isn't correlated but that's something you'd learn! More freedom does not always equal more enchiladas verdes).

Now, it could be that you might find an "optimum" level of freedom less than total freedom. Rankings like this can help that. Has a country gone overboard on freedom or is there more to work on?

To my thinking, given the correlations between better economic situations, less war-torn countries, lower poverty, etc. with freedom I think most countries in the world would be considered to have insufficient amounts of freedom for large swaths of the populace. More countries should be moving towards Hong Kong levels than towards France levels. Once you're at that Hong Kong level or close to it I think disputes between most people's economic philosophies become harder to reconcile (I could be wrong, this is mostly a guess based upon things which people typically say they want).

In sum, just because you (or maybe large numbers of people) would not like the potential results of a total freedom score does not make the rankings invalid, only that there may be optimal levels of freedom below total freedom for you.

J.V. Dubois writes:

Chris H: I disagree. Take a look at the top 10 countries in the Heritage Foundation with their respective Government Spending score

-----------------------
Hong Kong 90
Singapore 91.3
Australia 67.1
New Zealand 45.0
Switzerland 65.8
Canada 41.7
Chile 82.1
Mauritius 83.4
Ireland 30.4
United States 46.7
-----------------------
Average: 64.3
Median: 66.45

So the top 10 most economically free countries in the world are on average only "Mostly Free" for government spending. But the most interesting thing is that 4 out of those 10 countries are outright "Repressed" in this parameter including #4 - New Zealand.

In my opinion this tells us more about suitability of this parameter for measuring economic freedom the way it is used and defined, then it tells us about peoples of those countries being terrorized by their government.

MingoV writes:

Jones:

... What did a substantial number of players do with that power? They punished the saints. Given a chance to spur cooperation, they "spontaneously [tried] to hurt others."
Caplan:
Verdict: I'm persuaded. Well-played, Dr. Jones.
I'm not persuaded. I state once again something the most important fact: They were playing a game, not living their real lives.

Using ones resources to "punish" nice people would be cruel and perverse in real life but could be considered amusing in a game. It's the equivalent of being the devil's advocate in an argument.

mick writes:

The estate tax is just such a power. The idea is not to raise money, but to punish people for having good luck in life. It's just money, but nonetheless it flows with the envy and hate of it's supporters.

Garth Zietsman writes:

I agree with Scott that libertarians are inclined to see government size as the whole matter of economic freedom rather than just one among many - and I think this is misleading.

If economic freedom as a concept makes any sense then the diverse variables used to measure it should yield a single general factor in a factor analysis. I factor analysed the Economic Freedom of the World variables and it turns out there is a general factor - but get this government consumption, transfers & subsidies and top marginal tax rates all load NEGATIVELY on this factor i.e. LARGER government goes with the general economic freedom factor. Now I think that taking private earnings is anti-economic freedom but it appears that providing rule of law (a crucial aspect of economic freedom) is so expensive that it outweighs that factor.

Chris H writes:

J.V. DuBois writes

So the top 10 most economically free countries in the world are on average only "Mostly Free" for government spending. But the most interesting thing is that 4 out of those 10 countries are outright "Repressed" in this parameter including #4 - New Zealand.

In my opinion this tells us more about suitability of this parameter for measuring economic freedom the way it is used and defined, then it tells us about peoples of those countries being terrorized by their government.

This is simply a case of compensating factors. Obviously government spending is not the only factor describing freedom, but because there is a correlation between economically free countries and high government spending neither implies causation or the worthlessness of the measure. Economic freedom is a concept which is arrived at a priori not by examining countries. More government intervention means less freedom because of the nature of government which compels non-aggressive choices that would not otherwise be made. All that government spending does divert resources from voluntary transactions to coerced ones.

If every single country in the "Free" category had higher than average government spending, that would be an interesting correlation but it would not make government spending somehow neutral towards economic freedom.

Les Cargill writes:

Hong Kong uses Georgist "taxation" of the land, rent capture. Seems rather ... harsh to call this "socialist" or even "socialized". I won't defend Henry George, but it's certainly an interesting idea. No less a light than Wm. F. Buckley seemed to ... think it was reasonable. It seems *mathematically* elegant, but that's faint praise for a social construct... I certainly think it's clever.

And Peter, economic freedom in itself is not of particular value except that it has utilitarian cache. We are not biologically capitalist; it's an artificial arrangement we've stumbled into. SFAIK, all moral cases for capitalism depend on "well, more goods are produced" - and that's inherently utilitarian. Capitalism requires sublimating millenia-old sub-cognitive impulses selected for in hunter-gatherer contexts. We are not capitalist because we like it as an abstraction; we are capitalist because it works. Generally, *anti* capitalist ideas come from the Old Religion of the tribe around the campfire.

It's simply not in our enlightened self-interest to go along with anti-capitalist ideas without good justification, as a generality.


J.V. Dubois writes:

Chris H: I disagree. If we want to have a ranking that is useful - that measures parameters that are useful and important for the sense of freedom of citizens and for their well being, then Government Spending is clearly a loser. The fact that there 4 countries are outright Repressed countries among top 10 shows that this parameter is very important.

If you for instance take a look at some different parameter - like freedom from corruption, then suddenly you will find better correlation between success in this parameter and overall well-being and sense of freedom of citizens of respective countries.

This is how top 10 countries in corruption index look like (the overal economic freedom in parenthesis):

1.Denmark (11)
2.New Zealand (4)
3.Singapore (2)
4.Finland (17)
5.Sweden (21)
6.Canada (6)
7.The Netherlands (15)
8.Australia (3)
9.Switzerland (5)
10.Norway (40)

Suddenly an image of economic freedom tigers like Mauritius, or Bahrain starts to look more in line with what people expect.

And if you are still not convinced, let's have a look at the top 10 countries in the world in terms of the government spending parameter:

1.Burma (173)
2.Bangladesh (130)
3.Guatemala (82)
4.Madagascar (75)
5.Turkmenistan (168)
6.Uganda (78)
7.Central African Republic (145)
8.Taiwan (18)
9.Indonesia (115)
10.Dominican Republic (89)

Just eyeballing these two tables I start to think that government spending and overall economic freedom is actually anti-correlated: which is remarkable for and index 10% of which is actually based on this variable.

Chris H writes:

@J.V. Dubois

Are you actually arguing that government spending does not impinge on economic freedom? Government spending is not the same as standard voluntary spending. Consider, government spending is ultimately tax-funded or monopolistic (debt is ultimately paid with taxes and inflation is a monopoly on money). When the government spends it bids up prices for those resources it is attempting to use and takes them from use in the voluntary sector of the economy.

In this regard this argument does not rely on countries which are overall the free-est having also the lowest spending levels. In the same way, one can imagine a situation where a disproportionate number of the nicest people in the world had committed acts of vandalism and a disproportionate number of the meanest people in the world had abstained from vandalism. In that situation we wouldn't redefine vandalism as a "nice" act. Instead we would simply wonder what factors make those nice people break from their standard behavior for a clearly not nice behavior.

Now what you haven't mentioned in is any potential casual mechanism for this anomaly to occur. Allow me to suggest one. Economically freer nations tend to be richer and more trustworthy for creditors and the tax payers of their country. As such they are able to get loans and convince their people that they are able to solve societal problems more easily. Thus their freedom in other areas enables them to limit freedom in this area. It's kind of like a friend that you have who is really sweet most of the time, but sometimes pulls annoying pranks. You are far more likely to forgive those pranks from him than from a friend who is generally kind of a jerk.

J.V. Dubois writes:

Chris H: No, I argue that "Government Spending" as it is widely defined and used - with champions like Turkmenistan - is useless as a measure of anything meaningful.

It may be measure of some weird notion of economic freedom, but most people could not care less - see my first post in this thread. I always thought that economic freedom was championed as a way for peoples to increase their well-being. Then I am sorry to say that "Government Spending" alone is not something that cuts it. There is simply much more to the story - like how effectively is that government spending used.

Anyways, thank you for the causal mechanism, this is actually something I am convinced of. Countries with efficient government - by measures such as freedom from corruption - can actually utilize its effectiveness by maintaining things like public healthcare, social security and pensions. But it may also be so, that any "real" country (no small city states and tax haven Islands) must have some government-supported institutions for other things - like democracy and citizen society - to work reasonably well.

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