Excellent post. Money quote: "Unfortunately for Krugman’s argument, in the fifteen years since he wrote the words above, the US has diverged more from Europe and large red states have seen a boom relative to blue states. While it is true that no major advanced country has returned to the growth rates of the 1950s and 1960s, the European Union in terms of tax and regulation policy is much closer to Krugman’s preferences than the US is. And yet things have not worked out nearly as well there."
There's something realist-Hayekian to be written on following dynamic:
1) Classical liberalism is extraordinarily economically/geopolitically adaptive and therefore spreads.
2) Classical liberalism is extraordinarily unappealing to our evolved tribal-egalitarian hunter-gatherer instincts, therefore constantly being ditched.
So a kind of group selection is working against a psychological evolutionary mismatch. In principle, constitutional structures like federalism, balanced budget rules, and economic openness can favor 1) and slow 2).
Prior to the demographic transition, the game was easy enough: classical liberal societies (Anglo-America, lesser extent rest of Europe) were economically, technologically, and demographically dynamic, therefore geopolitically powerful, conquering vast stretches of the world. Nowadays economic power and demographic sucess are largely disconnected, so unclear what is sustainable. There is still group selection in favor of economically successful states in the form of brain gain and other immigration. In conjunction with higher productivity, this accounts for USA now making up an outright majority of G7 economy! But the USA might only be a generation behind Europe and Japan in terms of coming stagnation. Especially if populist corruption and incompetence becomes normalized across institutions. I have hope the rule of law, federalism, and the market can check negative trends, while reprogenetic technologies - pioneered by American technocapitalist frontier - can eventually solve the demographic challenge.
In addition to the intra-US differences (red vs. blue states) and US vs. Europe which you mentioned, intra-Europe variation in market-friendliness also clearly shows that more pro-market countries are wealthier. Switzerland, Ireland, the Netherlands all lead in pro-market policies and per capita income.
It is actually a huge problem for Europe that some of its biggest economies like France and Italy are the most statist, because it significantly drags down growth for the whole block (Germany has gotten worse with time as well). If all of the EU had the economic policies of smaller countries like Ireland or even the Netherlands it would be in much better shape.
If you look closely at where the US has really pulled away from Europe, it’s not in some generic “more free-market across the board” sense. It’s overwhelmingly in a cluster of sectors – semiconductors, computing, networking, biotech, AI – that were built on top of massive, long-run government investment. The US tech stack isn’t the spontaneous result of low taxes and weak unions; it’s the product of the Pentagon pouring money into chips and aerospace, DARPA funding ARPANET, NSF and DOE funding early networking and computing, GPS being developed as a military system, NIH underwriting decades of biomedical research, and so on. The frontier industries that Richard points to when he says “the US has pulled away” are exactly the ones that most obviously owe their existence to a big, risk-taking state.
That matters for the neoliberalism story. If your clean test case is “US vs Europe,” but the main US advantage lies in government-driven general-purpose technologies that later got commercialized, then you can’t say “US > Europe, therefore smaller government works better.” The more honest reading is that the US ran a very particular kind of activist state: heavy defense and science spending, mission-oriented agencies like DARPA, NASA, and NIH, and a willingness to socialize early-stage risk and let private firms capture the upside later. Europe built a more consumption-oriented welfare state and a more conservative financial system. Those are different choices about what the state does, not a simple spectrum from “interventionist” to “free market.”
On top of that, the US enjoys structural advantages that have nothing to do with the policy knobs Richard focuses on. A continental-scale market with a single dominant language gives American tech firms huge built-in network effects. A startup that works in English automatically has access to hundreds of millions of affluent users at home and a global lingua franca abroad; regulators, courts, and investors all operate in the same language. Europe, by contrast, is fragmented across languages, legal traditions, and still-imperfectly integrated capital markets. That makes it much harder to build US-style winner-take-all platforms, regardless of whether French or German marginal tax rates are a bit higher.
Once you factor in those two things – state-led technology platforms and US-specific network effects – the divergence between the US and Europe stops being a simple referendum on “more or less neoliberalism.” A country that runs one of the largest techno-industrial policies in history, spends lavishly on defense and research, and happens to sit on top of the world’s default language and deepest capital markets is obviously going to look different from a mosaic of mid-sized welfare states. But that doesn’t tell you that the right lesson is to shrink government or crush collective bargaining everywhere. It tells you that what government does, and the underlying structure of markets, matter at least as much as headline tax and regulation levels.
So if we’re going to use US–Europe comparisons, we should be precise. The US has outperformed in sectors that were incubated by its own very muscular state and then turbocharged by linguistic and market-size network effects. That’s not a knock-down argument against markets – private entrepreneurship absolutely mattered – but it’s also not the story Richard wants it to be. The gap he’s pointing to is as much an achievement of American industrial policy and geography as it is of classical liberalism.
The way US tech startups functions simply wouldn't be possible in a lot of European countries due to the way tax laws and regulations are written (a significant one being that equity granted to employees is often taxed as wage income), and that's obviously a massive contributing factor to the greater success of the US tech industry.
There are also privacy laws that screw up the tech industry, and the EU hasn't moved forward to integrate towards a free market in services, which Krugman talks about as a problem.
The US also taxes equity granted to employees as wage income. People defer that tax by granting options, so the tax doesn't have to be paid til there's a liquidity event to actually pay those taxes and the option is exercised, but out tax laws do in fact treat equity grants as taxable wage compensation.
I’m pretty skeptical of the claim that “the way US tech startups function simply wouldn’t be possible” in Europe because of equity taxation and similar rules. For one thing, we already have plenty of European unicorns and major startups (Spotify, Adyen, UiPath, Klarna, Revolut, etc.), many of which grew up under exactly the supposedly fatal legal regimes.
That doesn’t mean the tax and labor rules are good, they clearly can be a pain, and in some countries options have historically been taxed like wage income, but that’s a design annoyance, not an iron wall. It also varies by country, and several European governments have been tweaking their regimes specifically to make startup equity easier.
Meanwhile, the really big US advantages are more fundamental: a huge unified English-speaking market, much deeper VC and growth capital, and decades of state-driven R&D (defense, NIH, DARPA) seeding the tech stack.
Those structural factors are doing far more work than whether options are taxed optimally. So I’d say “these rules are a nontrivial friction” is fair; “US-style startups wouldn’t be possible without US-style tax law” is overstating it.
I think this is a good point, but incomplete. We would need to take account of all the government programs, not just the ones that had economically beneficial spin-offs in the US. True, the US military spent a lot of money on aeronautics and chips, but it also spent more money on ships than anyone else in the world, yet US shipbuilding is horrible. It likely also spent more on motor vehicles than most (all?) other countries, and the US has a structural advantage for cars/trucking (due to low levels of public transport but lots of roads/highways), yet US automobile industry is also weak compared to European/Asian competitors. On the other hand, Europe spent more money on stuff like fusion energy research and on particle colliders for decades than anyone else, but those did not have such a pay-off.
If there is something that points towards neoliberalism, that is more about the different outcomes within Europe itself. I do agree that the more liberal countries had better performance, but even in this case we have some very interesting details/contradictions. For example, Sweden and Denmark both have low government debt, balanced budget, competitive economies, no minimum wage, and are ahead of the US on Heritage's Index of Economic Freedom . Yet they have strong unions, high levels of tax-to-gdp ratios (in fact, Denmark had the highest in the EU in 2024), tax financed healthcare/education/childcare services and generous unemployment benefits.
I wouldn't call the US automobile industry weak, we have the most valuable car company in the world, and we've pretty much solve the self driving car problem in ride shares, hard to see how that's weak.
Shipbuilding is more a structural problem, internal US transport is almost all rail and interstate, and America's strong currency mean's it's very hard for it to win the export game on labor intensive industries.
DoD investment in shipbuilding is more about the tech stack, than just the hull itself. And I doubt the US military spends more on shipbuilding then private industry in other countries.
But I agree with your last point, treating economic freedom like a singular scalar value is silly, it's multi dimensional.
My primary issue with this kind of approach is that it can be used to explain anything, but only retroactively. Mechanisms implied by the model is usually not applied consistently for similar concepts.
E.g. we can imagine an alternative world where geography and government actions were the same, but the US ends up having a strong shipbuilding industry. This approach could easily claim again that this is due to government intervention via military/research agencies, large US markets and lucky geography (most major cities are on the shores, rivers and lakes are easily navigable and had been connected via canals since the 19th century). If an outcome and the opposite of it can be both explained by a model, it does not have predictive power.
"Shipbuilding is more a structural problem, internal US transport is almost all rail and interstate" But then again, why is the US not among the largest railway stock producers following the same rule?
"DoD investment in shipbuilding is more about the tech stack, than just the hull itself." - it is now. But during the second world war, US was the largest ship producer in the world, even for quantity/tonnage. And high performance elements, such as engine technology could be reused for civilian production, just as in case of electronics.
"I wouldn't call the US automobile industry weak, we have the most valuable car company in the world"
Tesla does indeed have the largest capitalization, but it being the largest is more of a promise/bet than a fact. It is not in the top 10 car producers by quantity.
Even if I concede Tesla being the largest just for its market cap, it only gained that place in 2020. However, European and Japanese (and later Korean) overtook US car industry around the 1970s/80s.
"and we've pretty much solve the self driving car problem in ride shares"
>E.g. we can imagine an alternative world where geography and government actions were the same, but the US ends up having a strong shipbuilding industry.
We really can't. I can't really imagine a world where America shipbuilding could compete against the massively subsidized Japanese, Korean, and Chinese industries without some change in government action.
And I think you're missing the point, the US activist state isn't typical in the form of direct subsides of industries, it tends to work by massive, high risk investment backed by the the government, that the private sector is later able to capital on and monetize to make world beating companies.
The US government high spending in military ship building, isn't supposed to make the US the best at making tankers(and isn't that large compared to subsides China gives to its industry btw), it does mean there's alot of technological spillover, but the sectors that capture those gains are many times not directly related to the sectors where the initial investments were made(addictive manufacturing and and oil and gas).
"Tesla does indeed have the largest capitalization, but it being the largest is more of a promise/bet than a fact. It is not in the top 10 car producers by quantity."
The point is that we lead in innovation at the edge of technological frontier. That's why it's the largest car company by market cap. The whole point is the US economy dominates Europe because we have these high tech, R&D intensive firms, which government helps nurse along.
And European and Japanese cars partly overtook the US car industry because of their activist state having even more aggressive export oriented policy. Telsa makes more profit per car than Toyota
"Waymo uses Jaguars."
Not sure how that's relevant? Waymo's tech stack can go on any car. The Jaguars are just regular EVs that Waymo modes, they're moving over to Hyundai's next.
I basically agree with RH, but I still appreciate this counter argument. You are right that it is too complex to just attribute everything to one cause. OTOH, when you compare less government interference with more across multiple time frames, across dozens of countries and against numerous states, a pretty clear picture emerges.
If anything the clear picture is that some government intervention is a necessary, but not sufficient condition for a hi tech, high value added economy.
I agree with almost all of this. But I will say that the perspective of Abundance/Why Nothing Works completes the picture: we shackled the government (and sometimes the private sector) with faux-Democratic local over regulation and “community” controls. That’s why the things that generally are done by government (public infrastructure+transit+safety) are done so ineffectively in America relative to other countries.
Leaving aside the libertarian fight over gov provision of services. We should ask why our government is uniquely bad at building bridges, roads, and subways relative to other governments.
The answer here is also now clear. We starved the government of agency, of talent, and deprived it of the ability to be efficient. It now has to take the interests of public sector unions, of stupid neighbors, of organized local groups, into account to such an extent that it cannot do *anything* effectively. The reforms are similar to what is needed in land use/medicine/immigration/tech regulation/corporate regulation (an aggressive pruning of rules w/cost benefit in mind), but this time aimed at government rather than private action.
That's a comically dumb way to measure the size of government. Most government spending is writing checks to old/poor people or their doctor, and that doesn't require a large government.
But none of this really address your point of " regulations imposed by one agency on the other agencies." limiting government effectiveness
You did not ask me about "regulations imposed by one agency on the other agencies." limiting government effectiveness."
You asked me what metric and I told you.
Claiming that it is "comically dumb" says more about you than the metric. It is pretty much the gold standard metric for how the size of government is measured in a modern economy.
And, yes, there is far more "writing checks to old/poor people or their doctor" than their used to be in the past. That is another excellent example of how the government as a percentage of the economy has expanded in size.
If it is not a big deal, then I am sure that you would not mind if it were eliminated.
And, yes, regulations written by one government agency apply to other government agencies. The biggest is environmental regulations.
I agree with your overall argument, but I disagree that neoliberalism made government spending plateau after 1980. Government spending as a percentage of GDP in wealthy western nations is significantly higher than in 1980. Same with taxes and regulations.
Starting from the 1980 baseline, the relative size of government in rich Western economies expanded during the 1980s and early 1990s.
Then, sometime mid-1990s onward, many countries experienced a period where government spending as a share of GDP either stopped growing or slightly declined.
Then, external shocks (financial crisis, pandemic) pushed many governments to increase spending relative to GDP again, so the trend over the full 1980–present period is upward overall, but with distinct phases (growth → plateau/decline → renewed growth).
The levels vary significantly by country (e.g., Nordic states vs. Anglo-Saxon ones), so this is a broad summary rather than a universal rule.
"What they often do is compare the US to Europe on non-economic measures like life expectancy, which America does poorly on due to factors like obesity, murders, and car accidents. GDP does not capture everything, but in comparing economic systems, we should stick to economic data, rather than tying any negative indicator to a system we do not like."
A little too convenient. You go on to say "We have reason to believe that even in highly developed states, life can be much better than it currently is." You are either crediting "the economic data" for societal well-being, or you aren't. You can't give it credit for every positive indicator and waive away every negative indicator.
Well then do the work of explaining to me how US wealth is connected to these quality of life issues. Show me how paying more for a toaster and being poorer would make inner city Americans less likely to shoot each other. Show me that Japanese would start mugging each other if they had larger houses and nicer cars. Show me cross national data connecting wealth to such problems, refuting the idea that these problems are uniquely American.
You don’t just get to just assume it because you don’t like markets and are desperate to find some way socialism is better.
I use economic data and to explain economic outcomes but not murder rates or car accidents. Just like I use data from the manufacturing of cars to understand fuel efficiency but not dating patterns.
The “show me how paying more for a toaster stops a murder” line kind of smuggles in a very weird assumption: that the price of the toaster is disconnected from everything else about how the economy is structured.
But higher consumer prices can be the downstream result of things like protection for domestic industry, stronger unions, and more bargaining power for low– and mid–skill workers. Those choices affect how fast industries deindustrialize, whether regions get hollowed out, and how much concentrated long-term unemployment and social breakdown you end up with. There’s a ton of criminology and sociology saying that concentrated disadvantage, segregation, and long-term joblessness matter for violent crime. So no, it’s not crazy to think “cheaper imports + rapid industrial collapse + weak safety nets” might get you more social pathology than a slightly pricier but more stable industrial structure.
Nobody is saying “wealth causes shootings.” The point is the opposite of your toaster example: you can optimize very hard for cheap consumer goods and GDP per capita, and in doing so design labor markets and regional economies that produce a lot of human wreckage. If you then declare the system superior because GDP is higher, and insist that murders, health, and life expectancy are off-limits as “noneconomic,” you’re just defining away the costs of your preferred model.
But this is exactly the point: you are the one using economic data (GDP per capita, growth rates) as if it tells us which system is better overall, not just which system produces more toasters. Once you make that move, you can’t turn around and say “oh, but murders, health, life expectancy, disability, etc. are off-limits, those aren’t economic outcomes.” Those are part of what people care about when they decide whether a social model is “doing better.”
One need not show that US wealth causes US murders or car crashes to question your argument. The claim isn’t “higher GDP causes shootings,” it’s “GDP alone is not a sufficient metric for judging systems when the country with higher GDP also has systematically worse health and safety outcomes than its peers.” You’re the one inferring “US model superior” from GDP; others are saying that inference falls apart once you look at a wider set of indicators.
And of course, some of these things are plausibly connected to policy choices you’re defending: car deaths to car-centric infrastructure and weak transit, health outcomes to how we structure health insurance and social protection, stress and “deaths of despair” to inequality and insecurity, etc. You may disagree about the magnitude of those links, but you can’t just cordon them off as if they’re as unrelated to institutions as “dating patterns.”
So the issue isn’t that critics “hate markets” and secretly smuggle in murder data. It’s that you’re trying to use GDP as a near-total proxy for human well-being when it flatly fails to track some very basic things people care about. If the thesis is “the US model delivers a better life,” then you have to engage those non-GDP outcomes, not rule them out of court by definition.
You just have no evidence though. Not even a correlational relationship that holds cross-nationally, where freer markets or greater wealth are associated with more murder, obesity and drug overdoses.
You just have the US being an outlier on dysfunction. Other countries have higher GDPs per capita and free markets and don’t have any similar pathologies. A sample size of one without any established mechanism is a bad theory. The pro-market case for increasing living standards meanwhile has all the cross-national data going for it plus a straightforward mechanism. That’s what makes it a good theory.
I don’t think it’s right to say there’s “no evidence” that liberalization can generate social ills unless we can show a neat cross‑section where “economic freedom ⇒ more murder.” We actually have plenty of cases where specific pro‑market reforms increase very concrete harms, even while GDP goes up.
Take Mexico after NAFTA. There’s now a pretty solid literature showing that liberalizing food trade with the US accelerated its obesity and diabetes crisis. One quasi‑experimental study estimates that increased exposure to US food imports caused roughly 422,000 additional cases of obesity among Mexican women between 1988 and 2012, disproportionately among poorer and less educated groups. Other work and public‑health reviews tie NAFTA and similar trade agreements to surges in sugar‑sweetened beverages and ultra‑processed foods, with corresponding jumps in diabetes and chronic disease. That’s a pretty straightforward mechanism: cheaper imported junk + marketing + weak regulation → worse health, even as standard trade metrics look good.
Or look at trade and pollution in China. Studies exploiting variation in tariff cuts faced by Chinese exporters show that export booms in dirtier sectors significantly increased local air pollution (PM2.5) and mortality in more exposed prefectures. Again, not “markets cause death” in the abstract, but a very specific liberalization (export growth after tariff reductions) driving up output in polluting industries and, with it, cardiopulmonary deaths, classic social cost that doesn’t show up in GDP rankings.
On the financial side, there’s an enormous literature linking capital‑account and financial liberalization to higher crisis risk and inequality, especially in countries with weak institutions. IMF work and others find that capital account opening tends to raise income inequality, particularly when followed by banking or currency crises. Crises themselves obviously carry massive social costs: unemployment, lost income, and well‑documented spikes in mental illness and mortality, even if, on average, liberalization bumps growth or efficiency measures.
You can also point to post‑communist transitions. There’s controversial but serious work (e.g., Stuckler et al. in The Lancet) arguing that rapid mass privatization in parts of Eastern Europe and the former USSR was associated with large short‑term increases in working‑age male mortality, partly mediated by unemployment and social dislocation. Other authors contest the exact magnitudes, but at minimum it’s not “zero evidence” that a certain style of shock‑therapy market reform can create major health damage even as it pushes institutions toward a more “market‑friendly” configuration.
Zooming out, a recent systematic review of neoliberal reforms (privatization, deregulation, trade and investment liberalization) found that stronger quasi‑experimental studies tend to show a mix of effects: sometimes reduced child mortality via growth, but also deteriorating worker health and increased availability of sugar, ultra‑processed foods, tobacco, and alcohol. So the empirical picture is “reforms often raise some economic indicators but also create specific, measurable harms,” not “reforms are pure upside and critics have no data.”
None of this proves that “markets cause obesity” or “economic freedom causes murder” in a universal way, and it doesn’t require an opposite grand theory. It just falsifies the very strong claim you’re making, that there is no evidence at all of liberalization generating serious social pathologies, while the pro‑market story is uniquely backed by cross‑national data and clear mechanisms. Once you admit that there are plenty of cases where liberalization both raises GDP and worsens some basic health and social outcomes, it’s harder to say “higher GDP ⇒ better system” and dismiss everything else as irrelevant noise.
Exactly, you've identified the three-card monte they always play. The free-market fundamentalist model is to be the sole organizing principle of society, but it must always remain blameless for negative societal outcomes because those are somehow outside of its remit.
The idea that economic freedom can be described by a singular scalar value is also really dumb. Japan is more free than the US in zoning, and less free in labor law. So how do we objectively weight those in a singular economic freedom index?
Total straw man. The argument is not that markets need to be “the sole organizing principle of society” or that there are no negative externalities. Bad form.
In general, freedom, health, longevity, education, opportunity and environmental quality increase with economic growth. This has been well documented across large numbers of nations, states, and time frames.
You are of course correct that some things get worse. Obesity is probably a good example. Perhaps time-wasted-arguing-over-the-internet is another.
RH is making the case that excessive regulation and governmental interference stifles growth. Again this is not just easy to prove, but blatantly obvious.
I think you are right that some regulations and some income transfers and some government initiatives also improve living standards. Nobody here disagrees. The neoliberal argument has never been for no governmental involvement. It is against excessive involvement.
Anyone can agree that excessive regulation stifles growth, the question is what regulation is excessive?
>I think you are right that some regulations and some income transfers and some government initiatives also improve living standards. Nobody here disagrees. The neoliberal argument has never been for no governmental involvement. It is against excessive involvement.
I'm not even talking about regulations and income transfers, I'm talking about about an activist state that seeds R and D funding that ends of creating the firms that cause the divergence between the US and Europe.
Richard doesn't believe in industrial policy. He thinks China is getting richer because the people there have good genes or something.
I in fact don't dislike markets, and I don't think socialism is better. That is a false binary though.
Of course it isn't the larger houses and nicer cars that make people mug each other. Japan is a fine example though.
Suppose they decide to increase their aggregate economic growth by importing large numbers of low-skill, low-wage foreigners. And it works - their GDP takes off. But they also start having widespread street violence of a kind they've never experienced before, all the things previously made possible by their exception level of asabiyyah are degraded, and most of society is unhappy with the (now irreversible) changes. I don't see how you can argue that that is a good outcome. Or that my hypothetical is implausible.
You talk about fighting for greater freedom and more markets.
That's all nice and makes for a stirring speech. Though I would humbly suggest that the average person is better off voting with their feet (and wallets): as much as possible move yourself and your family to a better place. Be that within a country or between countries.
That also nicely aligns incentives: it moves yourself to a better place and advances the cause of freedom. Or at least it raises the average level of freedom and prosperity the average human experiences.
any comparison between Europe and US economies that fails to account for our divergent approach to the global financial crisis in 2008 is grossly lacking. And here the difference goes directly against Hanania’s thesis— Europe essentially implemented a classic Hoover response to a demand crisis, slashing spending at the very moment when government stimulus was necessary. The US, in fits and starts and with unified republican opposition, had a more Keynesian response (spent a lot money, QE), and thus climbed out of the recession much faster.
The question that always fascinates me is why liberalism should be so hard to defend.
Plenty of leftists, social democrats, reactionaries, etc., including some freaks but also a number of decent intelligent people, have dedicated enormous amounts of time and effort to opposing economic liberalism for as far as I can tell no reason at all, and have achieved immense success, to humanity's general detriment. It's almost impossible to explain to these people even basic principles about things like "supply and demand" - they just think you're part of the international capitalist conspiracy.
Our whole narrative around "neoliberalism" is shaped by this. If you look into the actual history and check a few numbers you find out pretty quickly that the big neoliberal reforms weren't super successful at checking the growth of the state, and Reagan advisors like David Stockman said this explicitly at the time. But leftist historians have developed their own version of events where deregulation is the source of all evils, and been very successful at promoting it, to the point where it's a serious obstacle to making some of the deregulatory changes we need today.
Why does this occur? Is it just about the desire to wield state power? Does liberalism vaguely "seem mean", and if so, why should a vague feeling that "it's mean" determine the course of people's entire political careers? Why does nobody seem to understand that scarcity is real and states don't have infinite money? What is it about ordinary commercial activity that causes so many seemingly capable people to lose their minds and demand that it be banned?
That article tying land regs to housing prices is not very convincing bc the data it used to measure level of housing/zoning regs was simply searching for those key words in court cases by state. That's a ridiculous metric. Only people with a lot of money do things like file lawsuits over new developments and housing regs, and no one bothers where land is cheap. All those correlations tell me is that you get more lawsuits where land is really expensive - no shit. Every fancy new development with homes in the millions done around a golf course will have a dozen suits before it's done, if they're lucky. Poor and middle income people don't file suits and no one does over cheap land. There's a much better metric to measure things by, which is the WRLURI and measures the *actual* degree of regulatory burden and restrictions on building at the metro level, why wouldn't the author just use that instead of searching how many rich litigants there are per state?
I don't personally find the regulatory burden explanation for housing cost very persuasive. For one thing, it's not what actual developers cite as the biggest factor (or second or third factor) causing them difficulty. The biggest factor is simply cost of land, and secondly cost of supplies. So I suppose it makes sense for people working on a solution to try to focus on the one thing that there's arguably some control over, which is regulation, but unfortunately that's not much of a factor in constraints on actual developers.
The main factors are: 1. The GFC wiped out both tons of developers *and* thousands of local finance sources (credit unions and S&L) that traditionally financed them, in an industry that it characterized by high leverage and debt...that means you have just 20 giant developers doing most of the building now, and the little guys who used to do more affordable starter home type projects are gone, and if they they're still around they can't compete on financing terms with the big guys nor on their ability to buy land and hold it off market til timing is right to build, 2. Building is not an industry that can take advantage of a lot of gains in productivity and technology like others...ultimately it's still guys who have to show up and hammer boards and pour concrete, so there aren't cost gains from technology bc it's still ultimately about cost of land plus cost of supplies and labor plus financing terms, and 3. We have an increasing population and tens of millions more people, but you can't make more desirable land, so land costs inevitably just go up bc it's non-fungible in desirable locations. There are plenty of empty lots and affordable houses in some locations, but no one wants to live there.
The profit motive of developers will always be to build either multi-family units or large high-prife luxury homes...the profit per acre of land is way higher that way, and building small starter homes will never be as profitable. You can incentives multi-family units in metro areas, but the demand is actually for starter homes and there's no incentive for builders to build those. It used to be the smaller developers that did those and GFC wiped most of them out. If the US wants more starter homes that are single family stand-alones, which is what buyers actually want, it would probably require direct financing incentives to builders bc otherwise you're just asking them to engage in lower profit builds, which they're not going to do. This is the real issue in most areas is that all that's built are $900k luxury houses or multi-family units that no one actually wants, and nothing in between bc there's no profit motive to do so.
Interesting points. In higher-priced land metro areas the economics rewards multi-unit condos or rentals or single family luxury. This makes sense to me.
But home ownership applies to owning condos and townhouses too. So it seems the movement will be from owning single family homes to owning a piece of a multi unit dwelling. I see nothing wrong with that.
There's nothing wrong with it and builders ARE putting up tons of multi-family dwellings (condos etc) in most places. They build them non-stop where I am. Here all new builds are literally only homes that start at about $1M at the bottom range, or multi units, there are zero new affordable stand alones. But this is a problem bc the DEMAND is actually for stand alone starter homes, not multi units...particularly anyone who has or intended to have kids. People will buy the multi units, but that's not what they want to buy or live in, they want their own yard where their kids can play without being monitored or they can let their dog out to go to the bathroom without having to take an elevator to do it. So it's a total mismatch of what builders want to supply, which are the highest profit projects, vs what buyers want. Instead, to get a starter home people either have to buy a house way out in bumblef*ck that's an hour commute, or they buy a condo and just sit hoping starter homes will come back on the market once the Boomers start to die or move to nursing homes.
The 2008-2010 global financial crisis was a major inflection point in the relative fortunes of US and Europe, but it was not a major inflection point in terms of the relative degree of market freedom between the two economies.
What you are ignoring and Krugman commented on, contemporaneously, is the disastrous policy of fiscal austerity pursued by the ECB in the wake of the global financial crisis.
Theyre leaving a shit place for a better one, and theyre probably risking more by staying put. Idk if thats initiative or just yielding to pressure. Anyway, whats your point?
The idea that Americans are allowed to take long vacation is ... well, it's technically true for some of us. But it's literally not allowed for people with a lot of jobs, and for those who have the high-powered careers where they would be technically allowed to take vacations, there is tremendous pressure not to do so.
Where is the evidence people want less work and more vacations? People want health insurance, tax incentives make it cheaper to provide through the employer, so they provide health insurance. Companies are free to offer more vacations and lower pay or lower forms of other kinds of compensation. The beauty of markets is that you don’t have to assume what people want and force everyone to want the same things.
I think that your argument proves too much. "If employees really wanted X then companies would offer X" is simply incorrect.
An easy example: US companies don't offer decent maternity leave. The idea that they don't offer decent maternity leave because their employees don't really want decent maternity leave ... that's just nuts. They don't offer decent maternity leave because they don't *have* to offer decent maternity leave!
People want less work and more vacations! They just do. Ask them!
These articles aren't perfect but they gesture in the right direction, toward things that libertarians need to think about:
Isn’t the actual argument that they don’t want more maternity leave (or vacation days) as opposed to higher wages or other benefits?
The costs paid to labor are determined by supply and demand based on larger scale marginal productivity. How those wages are paid (in work conditions, wages and benefits) is also set by competition between employers to attract employees. My reading on it is that employees have spoken quite clearly on the matter that they prefer higher wages and less maternity leave. In Europe the choice is made for them.
I think that this if one looks at reality, this is very much not clear. It would be clear if we could presume that a basically libertarian reading of reality is correct, but I don't presume that.
Perhaps this example would make sense to you. We assume a standard 40-hour work week and a standard 5-day work week in the US. Some employers ask more of their employees than that, but they start from that standard, and anything over that is "overtime." Can we all agree that people *like* that? Can we also all agree that, historically speaking, the way we got there was via governmental fiat?
Baselines matter. Norms matter. When government changes a norm to be more in line with the way people want to live (whether that's mandating a 40-hour workweek, or mandating a 3-month maternity leave, or mandating 6 weeks of vacation), that's a change for the better. Of course that is assuming that employees want those things!
The libertarian argument seems to be that every employee and every employer are just in constant negotiations, and that the baseline from which those negotiations start is always completely neutral. The argument is also that the only way to find out what humans want is to look at what arrangements they come to via these types of negotiations. I think that all of that is false. It overlooks norms, it overlooks baselines, it overlooks power relations between people.
Well argued! I greatly agree with the effects of norms, baselines and traditions on the details of our institutional arrangements. I also agree that top down rules can establish new baselines and norms. I think Covid responses are a case in point.
I just had two relatives (wife and husband) over the house this AM. They work for two different employers, but both are on a 5 or 6 month maternity leave after the birth of their son. I am pretty sure the company I long since retired from also offered extensive leave and over 5 weeks of vacation.
I prefer companies differentiate themselves by their employment packages and people choose based upon their preferences rather than one solution forced on everyone. But you are right, this process isn’t entirely friction free.
This connects with something that's always confused me. Why isn't the option available, in practice, for most American wage earners to trade income for more vacation time? I know many people who would love to do this, but it's impossible in the sector of the economy they were trained for at their current career stage.
Like which employers? Especially, which employers other than schools offer any possibility of vacation time that's commensurate with what's normal in Europe (2 months or more)?
Wow, you really raised the stakes… now we are at two months of mandatory vacation?
When I left my employer 15 years ago, I had 4 weeks of vacation and a handful of additional “personal days”. Closer to 5 than 8. But when I checked on chat GPT, it tells me that 5 weeks is about the high end for mandatory in the EU. So, about the same as what I was getting.
Considering the disruption to the workplace, the potential for abuse, and the inevitable effect on wages, I am skeptical that many people would demand 8 weeks. Would you?
It makes me laugh when people claim the 50s was the best economic era of all time. US growth was a huge about of world GPD because the Europe had been literally crushed; this does not mean we were rich, or it was economically great. It only means the world was recovering from war, and trade resuming caused recovery quicker in the US because we had a country that was comparatively untouched by the war.
It's the fallacy addressed by the most famous book on economics chapter 1, Basic Economics by Bastiat and Hazlet, that addresses the claim that economic activity is benefitted by damage. It verifies what we should all know through common sense - it's better *not* to destroy, but to build.
But of course, with modern Conservatives it goes further than this. The 50s is everything they want. They imagine some Americana mythos where all the men were brothers in arms (also, we're finding out they apparently don't have a problem with Hitler - go figure) and all the women were great home makers. MAGA literally calls back this era - this was when we were "great", now is a cesspool of Leftism. Nevermind we are wealthier by every measure now, they don't care. And the Left doesn't care ether.
It is sad. When both sides what a Great Patriotic State, we will get it. And that won't be the America of a limited Constitutional Republic with economic growth. Because some form of socialism, National Conservative or Progressive, will not create wealth. We know that. People who want a strong man to save them, will get the strong man, but they definitely won't be saved.
"Those who value security over liberty deserve neither liberty or security".
Excellent post. Money quote: "Unfortunately for Krugman’s argument, in the fifteen years since he wrote the words above, the US has diverged more from Europe and large red states have seen a boom relative to blue states. While it is true that no major advanced country has returned to the growth rates of the 1950s and 1960s, the European Union in terms of tax and regulation policy is much closer to Krugman’s preferences than the US is. And yet things have not worked out nearly as well there."
There's something realist-Hayekian to be written on following dynamic:
1) Classical liberalism is extraordinarily economically/geopolitically adaptive and therefore spreads.
2) Classical liberalism is extraordinarily unappealing to our evolved tribal-egalitarian hunter-gatherer instincts, therefore constantly being ditched.
So a kind of group selection is working against a psychological evolutionary mismatch. In principle, constitutional structures like federalism, balanced budget rules, and economic openness can favor 1) and slow 2).
Prior to the demographic transition, the game was easy enough: classical liberal societies (Anglo-America, lesser extent rest of Europe) were economically, technologically, and demographically dynamic, therefore geopolitically powerful, conquering vast stretches of the world. Nowadays economic power and demographic sucess are largely disconnected, so unclear what is sustainable. There is still group selection in favor of economically successful states in the form of brain gain and other immigration. In conjunction with higher productivity, this accounts for USA now making up an outright majority of G7 economy! But the USA might only be a generation behind Europe and Japan in terms of coming stagnation. Especially if populist corruption and incompetence becomes normalized across institutions. I have hope the rule of law, federalism, and the market can check negative trends, while reprogenetic technologies - pioneered by American technocapitalist frontier - can eventually solve the demographic challenge.
I’ve had very similar thoughts.
In addition to the intra-US differences (red vs. blue states) and US vs. Europe which you mentioned, intra-Europe variation in market-friendliness also clearly shows that more pro-market countries are wealthier. Switzerland, Ireland, the Netherlands all lead in pro-market policies and per capita income.
It is actually a huge problem for Europe that some of its biggest economies like France and Italy are the most statist, because it significantly drags down growth for the whole block (Germany has gotten worse with time as well). If all of the EU had the economic policies of smaller countries like Ireland or even the Netherlands it would be in much better shape.
We're also seeing postcommunist low welfare economies like Czechia and Poland overtake parts of western (southern) Europe.
If you look closely at where the US has really pulled away from Europe, it’s not in some generic “more free-market across the board” sense. It’s overwhelmingly in a cluster of sectors – semiconductors, computing, networking, biotech, AI – that were built on top of massive, long-run government investment. The US tech stack isn’t the spontaneous result of low taxes and weak unions; it’s the product of the Pentagon pouring money into chips and aerospace, DARPA funding ARPANET, NSF and DOE funding early networking and computing, GPS being developed as a military system, NIH underwriting decades of biomedical research, and so on. The frontier industries that Richard points to when he says “the US has pulled away” are exactly the ones that most obviously owe their existence to a big, risk-taking state.
That matters for the neoliberalism story. If your clean test case is “US vs Europe,” but the main US advantage lies in government-driven general-purpose technologies that later got commercialized, then you can’t say “US > Europe, therefore smaller government works better.” The more honest reading is that the US ran a very particular kind of activist state: heavy defense and science spending, mission-oriented agencies like DARPA, NASA, and NIH, and a willingness to socialize early-stage risk and let private firms capture the upside later. Europe built a more consumption-oriented welfare state and a more conservative financial system. Those are different choices about what the state does, not a simple spectrum from “interventionist” to “free market.”
On top of that, the US enjoys structural advantages that have nothing to do with the policy knobs Richard focuses on. A continental-scale market with a single dominant language gives American tech firms huge built-in network effects. A startup that works in English automatically has access to hundreds of millions of affluent users at home and a global lingua franca abroad; regulators, courts, and investors all operate in the same language. Europe, by contrast, is fragmented across languages, legal traditions, and still-imperfectly integrated capital markets. That makes it much harder to build US-style winner-take-all platforms, regardless of whether French or German marginal tax rates are a bit higher.
Once you factor in those two things – state-led technology platforms and US-specific network effects – the divergence between the US and Europe stops being a simple referendum on “more or less neoliberalism.” A country that runs one of the largest techno-industrial policies in history, spends lavishly on defense and research, and happens to sit on top of the world’s default language and deepest capital markets is obviously going to look different from a mosaic of mid-sized welfare states. But that doesn’t tell you that the right lesson is to shrink government or crush collective bargaining everywhere. It tells you that what government does, and the underlying structure of markets, matter at least as much as headline tax and regulation levels.
So if we’re going to use US–Europe comparisons, we should be precise. The US has outperformed in sectors that were incubated by its own very muscular state and then turbocharged by linguistic and market-size network effects. That’s not a knock-down argument against markets – private entrepreneurship absolutely mattered – but it’s also not the story Richard wants it to be. The gap he’s pointing to is as much an achievement of American industrial policy and geography as it is of classical liberalism.
The way US tech startups functions simply wouldn't be possible in a lot of European countries due to the way tax laws and regulations are written (a significant one being that equity granted to employees is often taxed as wage income), and that's obviously a massive contributing factor to the greater success of the US tech industry.
Yes, The Economist had an article on this.
The Silicon Valley method of hiring and firing at will wouldn't be possible in Europe. Labor laws make it impossible.
https://www.economist.com/europe/2025/10/02/how-europe-crushes-innovation
There are also privacy laws that screw up the tech industry, and the EU hasn't moved forward to integrate towards a free market in services, which Krugman talks about as a problem.
The US also taxes equity granted to employees as wage income. People defer that tax by granting options, so the tax doesn't have to be paid til there's a liquidity event to actually pay those taxes and the option is exercised, but out tax laws do in fact treat equity grants as taxable wage compensation.
I’m pretty skeptical of the claim that “the way US tech startups function simply wouldn’t be possible” in Europe because of equity taxation and similar rules. For one thing, we already have plenty of European unicorns and major startups (Spotify, Adyen, UiPath, Klarna, Revolut, etc.), many of which grew up under exactly the supposedly fatal legal regimes.
That doesn’t mean the tax and labor rules are good, they clearly can be a pain, and in some countries options have historically been taxed like wage income, but that’s a design annoyance, not an iron wall. It also varies by country, and several European governments have been tweaking their regimes specifically to make startup equity easier.
Meanwhile, the really big US advantages are more fundamental: a huge unified English-speaking market, much deeper VC and growth capital, and decades of state-driven R&D (defense, NIH, DARPA) seeding the tech stack.
Those structural factors are doing far more work than whether options are taxed optimally. So I’d say “these rules are a nontrivial friction” is fair; “US-style startups wouldn’t be possible without US-style tax law” is overstating it.
It's almost like we could have had even more tech revolutions by now if we didn't tax labor productivity 💀
I think this is a good point, but incomplete. We would need to take account of all the government programs, not just the ones that had economically beneficial spin-offs in the US. True, the US military spent a lot of money on aeronautics and chips, but it also spent more money on ships than anyone else in the world, yet US shipbuilding is horrible. It likely also spent more on motor vehicles than most (all?) other countries, and the US has a structural advantage for cars/trucking (due to low levels of public transport but lots of roads/highways), yet US automobile industry is also weak compared to European/Asian competitors. On the other hand, Europe spent more money on stuff like fusion energy research and on particle colliders for decades than anyone else, but those did not have such a pay-off.
If there is something that points towards neoliberalism, that is more about the different outcomes within Europe itself. I do agree that the more liberal countries had better performance, but even in this case we have some very interesting details/contradictions. For example, Sweden and Denmark both have low government debt, balanced budget, competitive economies, no minimum wage, and are ahead of the US on Heritage's Index of Economic Freedom . Yet they have strong unions, high levels of tax-to-gdp ratios (in fact, Denmark had the highest in the EU in 2024), tax financed healthcare/education/childcare services and generous unemployment benefits.
I wouldn't call the US automobile industry weak, we have the most valuable car company in the world, and we've pretty much solve the self driving car problem in ride shares, hard to see how that's weak.
Shipbuilding is more a structural problem, internal US transport is almost all rail and interstate, and America's strong currency mean's it's very hard for it to win the export game on labor intensive industries.
DoD investment in shipbuilding is more about the tech stack, than just the hull itself. And I doubt the US military spends more on shipbuilding then private industry in other countries.
But I agree with your last point, treating economic freedom like a singular scalar value is silly, it's multi dimensional.
My primary issue with this kind of approach is that it can be used to explain anything, but only retroactively. Mechanisms implied by the model is usually not applied consistently for similar concepts.
E.g. we can imagine an alternative world where geography and government actions were the same, but the US ends up having a strong shipbuilding industry. This approach could easily claim again that this is due to government intervention via military/research agencies, large US markets and lucky geography (most major cities are on the shores, rivers and lakes are easily navigable and had been connected via canals since the 19th century). If an outcome and the opposite of it can be both explained by a model, it does not have predictive power.
"Shipbuilding is more a structural problem, internal US transport is almost all rail and interstate" But then again, why is the US not among the largest railway stock producers following the same rule?
"DoD investment in shipbuilding is more about the tech stack, than just the hull itself." - it is now. But during the second world war, US was the largest ship producer in the world, even for quantity/tonnage. And high performance elements, such as engine technology could be reused for civilian production, just as in case of electronics.
"I wouldn't call the US automobile industry weak, we have the most valuable car company in the world"
Tesla does indeed have the largest capitalization, but it being the largest is more of a promise/bet than a fact. It is not in the top 10 car producers by quantity.
Even if I concede Tesla being the largest just for its market cap, it only gained that place in 2020. However, European and Japanese (and later Korean) overtook US car industry around the 1970s/80s.
"and we've pretty much solve the self driving car problem in ride shares"
Waymo uses Jaguars.
>E.g. we can imagine an alternative world where geography and government actions were the same, but the US ends up having a strong shipbuilding industry.
We really can't. I can't really imagine a world where America shipbuilding could compete against the massively subsidized Japanese, Korean, and Chinese industries without some change in government action.
And I think you're missing the point, the US activist state isn't typical in the form of direct subsides of industries, it tends to work by massive, high risk investment backed by the the government, that the private sector is later able to capital on and monetize to make world beating companies.
The US government high spending in military ship building, isn't supposed to make the US the best at making tankers(and isn't that large compared to subsides China gives to its industry btw), it does mean there's alot of technological spillover, but the sectors that capture those gains are many times not directly related to the sectors where the initial investments were made(addictive manufacturing and and oil and gas).
"Tesla does indeed have the largest capitalization, but it being the largest is more of a promise/bet than a fact. It is not in the top 10 car producers by quantity."
The point is that we lead in innovation at the edge of technological frontier. That's why it's the largest car company by market cap. The whole point is the US economy dominates Europe because we have these high tech, R&D intensive firms, which government helps nurse along.
And European and Japanese cars partly overtook the US car industry because of their activist state having even more aggressive export oriented policy. Telsa makes more profit per car than Toyota
"Waymo uses Jaguars."
Not sure how that's relevant? Waymo's tech stack can go on any car. The Jaguars are just regular EVs that Waymo modes, they're moving over to Hyundai's next.
I basically agree with RH, but I still appreciate this counter argument. You are right that it is too complex to just attribute everything to one cause. OTOH, when you compare less government interference with more across multiple time frames, across dozens of countries and against numerous states, a pretty clear picture emerges.
If anything the clear picture is that some government intervention is a necessary, but not sufficient condition for a hi tech, high value added economy.
I don’t think anyone would argue with this other than some libertarian anarchists. Pretty sure there aren’t many of those around here.
The question on neoliberalism isn’t whether regulation and government should be eliminated, but whether it should be reigned in. Right?
I agree with almost all of this. But I will say that the perspective of Abundance/Why Nothing Works completes the picture: we shackled the government (and sometimes the private sector) with faux-Democratic local over regulation and “community” controls. That’s why the things that generally are done by government (public infrastructure+transit+safety) are done so ineffectively in America relative to other countries.
Leaving aside the libertarian fight over gov provision of services. We should ask why our government is uniquely bad at building bridges, roads, and subways relative to other governments.
The answer here is also now clear. We starved the government of agency, of talent, and deprived it of the ability to be efficient. It now has to take the interests of public sector unions, of stupid neighbors, of organized local groups, into account to such an extent that it cannot do *anything* effectively. The reforms are similar to what is needed in land use/medicine/immigration/tech regulation/corporate regulation (an aggressive pruning of rules w/cost benefit in mind), but this time aimed at government rather than private action.
It was not “we” who starved the government of agency.
It was government regulations imposed by one agency on the other agencies.
This is the problem with constantly expanding government: it gradually cripples it own ability to get things done.
How are we constantly expanding the government, by what metric? Certainly not civil servants as a percentage of the workforce.
The same metric as described in the article:
1) Government spending as percentage of GDP
2) Number of regulations
3) In some nations, also increased taxes as percentage of GDP.
I am surprised that you did not know that...
That's a comically dumb way to measure the size of government. Most government spending is writing checks to old/poor people or their doctor, and that doesn't require a large government.
But none of this really address your point of " regulations imposed by one agency on the other agencies." limiting government effectiveness
This is so dumb. The size of federal bureacracy grows every year, you don't need a million metrics to see that.
It actually hasn't size of the civilian service is relatively flat.
As for evidence of increased regulations, the article already gave that.
But I guess that you did not actually read the article, now did you?
https://www.richardhanania.com/p/the-neoliberal-era-was-not-pro-market
Federal regulations apply to both citizens, private institutions, as well as the government itself (unless Congress specifically adds an exclusion).
You did not ask me about "regulations imposed by one agency on the other agencies." limiting government effectiveness."
You asked me what metric and I told you.
Claiming that it is "comically dumb" says more about you than the metric. It is pretty much the gold standard metric for how the size of government is measured in a modern economy.
And, yes, there is far more "writing checks to old/poor people or their doctor" than their used to be in the past. That is another excellent example of how the government as a percentage of the economy has expanded in size.
If it is not a big deal, then I am sure that you would not mind if it were eliminated.
And, yes, regulations written by one government agency apply to other government agencies. The biggest is environmental regulations.
Government spending as a percentage of GDP is about the same as it was in 1980. So you agree government hasn’t expanded? Got it
I agree with your overall argument, but I disagree that neoliberalism made government spending plateau after 1980. Government spending as a percentage of GDP in wealthy western nations is significantly higher than in 1980. Same with taxes and regulations.
Starting from the 1980 baseline, the relative size of government in rich Western economies expanded during the 1980s and early 1990s.
Then, sometime mid-1990s onward, many countries experienced a period where government spending as a share of GDP either stopped growing or slightly declined.
Then, external shocks (financial crisis, pandemic) pushed many governments to increase spending relative to GDP again, so the trend over the full 1980–present period is upward overall, but with distinct phases (growth → plateau/decline → renewed growth).
The levels vary significantly by country (e.g., Nordic states vs. Anglo-Saxon ones), so this is a broad summary rather than a universal rule.
"What they often do is compare the US to Europe on non-economic measures like life expectancy, which America does poorly on due to factors like obesity, murders, and car accidents. GDP does not capture everything, but in comparing economic systems, we should stick to economic data, rather than tying any negative indicator to a system we do not like."
A little too convenient. You go on to say "We have reason to believe that even in highly developed states, life can be much better than it currently is." You are either crediting "the economic data" for societal well-being, or you aren't. You can't give it credit for every positive indicator and waive away every negative indicator.
Well then do the work of explaining to me how US wealth is connected to these quality of life issues. Show me how paying more for a toaster and being poorer would make inner city Americans less likely to shoot each other. Show me that Japanese would start mugging each other if they had larger houses and nicer cars. Show me cross national data connecting wealth to such problems, refuting the idea that these problems are uniquely American.
You don’t just get to just assume it because you don’t like markets and are desperate to find some way socialism is better.
I use economic data and to explain economic outcomes but not murder rates or car accidents. Just like I use data from the manufacturing of cars to understand fuel efficiency but not dating patterns.
The “show me how paying more for a toaster stops a murder” line kind of smuggles in a very weird assumption: that the price of the toaster is disconnected from everything else about how the economy is structured.
But higher consumer prices can be the downstream result of things like protection for domestic industry, stronger unions, and more bargaining power for low– and mid–skill workers. Those choices affect how fast industries deindustrialize, whether regions get hollowed out, and how much concentrated long-term unemployment and social breakdown you end up with. There’s a ton of criminology and sociology saying that concentrated disadvantage, segregation, and long-term joblessness matter for violent crime. So no, it’s not crazy to think “cheaper imports + rapid industrial collapse + weak safety nets” might get you more social pathology than a slightly pricier but more stable industrial structure.
Nobody is saying “wealth causes shootings.” The point is the opposite of your toaster example: you can optimize very hard for cheap consumer goods and GDP per capita, and in doing so design labor markets and regional economies that produce a lot of human wreckage. If you then declare the system superior because GDP is higher, and insist that murders, health, and life expectancy are off-limits as “noneconomic,” you’re just defining away the costs of your preferred model.
But this is exactly the point: you are the one using economic data (GDP per capita, growth rates) as if it tells us which system is better overall, not just which system produces more toasters. Once you make that move, you can’t turn around and say “oh, but murders, health, life expectancy, disability, etc. are off-limits, those aren’t economic outcomes.” Those are part of what people care about when they decide whether a social model is “doing better.”
One need not show that US wealth causes US murders or car crashes to question your argument. The claim isn’t “higher GDP causes shootings,” it’s “GDP alone is not a sufficient metric for judging systems when the country with higher GDP also has systematically worse health and safety outcomes than its peers.” You’re the one inferring “US model superior” from GDP; others are saying that inference falls apart once you look at a wider set of indicators.
And of course, some of these things are plausibly connected to policy choices you’re defending: car deaths to car-centric infrastructure and weak transit, health outcomes to how we structure health insurance and social protection, stress and “deaths of despair” to inequality and insecurity, etc. You may disagree about the magnitude of those links, but you can’t just cordon them off as if they’re as unrelated to institutions as “dating patterns.”
So the issue isn’t that critics “hate markets” and secretly smuggle in murder data. It’s that you’re trying to use GDP as a near-total proxy for human well-being when it flatly fails to track some very basic things people care about. If the thesis is “the US model delivers a better life,” then you have to engage those non-GDP outcomes, not rule them out of court by definition.
You just have no evidence though. Not even a correlational relationship that holds cross-nationally, where freer markets or greater wealth are associated with more murder, obesity and drug overdoses.
You just have the US being an outlier on dysfunction. Other countries have higher GDPs per capita and free markets and don’t have any similar pathologies. A sample size of one without any established mechanism is a bad theory. The pro-market case for increasing living standards meanwhile has all the cross-national data going for it plus a straightforward mechanism. That’s what makes it a good theory.
I don’t think it’s right to say there’s “no evidence” that liberalization can generate social ills unless we can show a neat cross‑section where “economic freedom ⇒ more murder.” We actually have plenty of cases where specific pro‑market reforms increase very concrete harms, even while GDP goes up.
Take Mexico after NAFTA. There’s now a pretty solid literature showing that liberalizing food trade with the US accelerated its obesity and diabetes crisis. One quasi‑experimental study estimates that increased exposure to US food imports caused roughly 422,000 additional cases of obesity among Mexican women between 1988 and 2012, disproportionately among poorer and less educated groups. Other work and public‑health reviews tie NAFTA and similar trade agreements to surges in sugar‑sweetened beverages and ultra‑processed foods, with corresponding jumps in diabetes and chronic disease. That’s a pretty straightforward mechanism: cheaper imported junk + marketing + weak regulation → worse health, even as standard trade metrics look good.
Or look at trade and pollution in China. Studies exploiting variation in tariff cuts faced by Chinese exporters show that export booms in dirtier sectors significantly increased local air pollution (PM2.5) and mortality in more exposed prefectures. Again, not “markets cause death” in the abstract, but a very specific liberalization (export growth after tariff reductions) driving up output in polluting industries and, with it, cardiopulmonary deaths, classic social cost that doesn’t show up in GDP rankings.
On the financial side, there’s an enormous literature linking capital‑account and financial liberalization to higher crisis risk and inequality, especially in countries with weak institutions. IMF work and others find that capital account opening tends to raise income inequality, particularly when followed by banking or currency crises. Crises themselves obviously carry massive social costs: unemployment, lost income, and well‑documented spikes in mental illness and mortality, even if, on average, liberalization bumps growth or efficiency measures.
You can also point to post‑communist transitions. There’s controversial but serious work (e.g., Stuckler et al. in The Lancet) arguing that rapid mass privatization in parts of Eastern Europe and the former USSR was associated with large short‑term increases in working‑age male mortality, partly mediated by unemployment and social dislocation. Other authors contest the exact magnitudes, but at minimum it’s not “zero evidence” that a certain style of shock‑therapy market reform can create major health damage even as it pushes institutions toward a more “market‑friendly” configuration.
Zooming out, a recent systematic review of neoliberal reforms (privatization, deregulation, trade and investment liberalization) found that stronger quasi‑experimental studies tend to show a mix of effects: sometimes reduced child mortality via growth, but also deteriorating worker health and increased availability of sugar, ultra‑processed foods, tobacco, and alcohol. So the empirical picture is “reforms often raise some economic indicators but also create specific, measurable harms,” not “reforms are pure upside and critics have no data.”
None of this proves that “markets cause obesity” or “economic freedom causes murder” in a universal way, and it doesn’t require an opposite grand theory. It just falsifies the very strong claim you’re making, that there is no evidence at all of liberalization generating serious social pathologies, while the pro‑market story is uniquely backed by cross‑national data and clear mechanisms. Once you admit that there are plenty of cases where liberalization both raises GDP and worsens some basic health and social outcomes, it’s harder to say “higher GDP ⇒ better system” and dismiss everything else as irrelevant noise.
Exactly, you've identified the three-card monte they always play. The free-market fundamentalist model is to be the sole organizing principle of society, but it must always remain blameless for negative societal outcomes because those are somehow outside of its remit.
The idea that economic freedom can be described by a singular scalar value is also really dumb. Japan is more free than the US in zoning, and less free in labor law. So how do we objectively weight those in a singular economic freedom index?
Total straw man. The argument is not that markets need to be “the sole organizing principle of society” or that there are no negative externalities. Bad form.
In general, freedom, health, longevity, education, opportunity and environmental quality increase with economic growth. This has been well documented across large numbers of nations, states, and time frames.
You are of course correct that some things get worse. Obesity is probably a good example. Perhaps time-wasted-arguing-over-the-internet is another.
RH is making the case that excessive regulation and governmental interference stifles growth. Again this is not just easy to prove, but blatantly obvious.
I think you are right that some regulations and some income transfers and some government initiatives also improve living standards. Nobody here disagrees. The neoliberal argument has never been for no governmental involvement. It is against excessive involvement.
Anyone can agree that excessive regulation stifles growth, the question is what regulation is excessive?
>I think you are right that some regulations and some income transfers and some government initiatives also improve living standards. Nobody here disagrees. The neoliberal argument has never been for no governmental involvement. It is against excessive involvement.
I'm not even talking about regulations and income transfers, I'm talking about about an activist state that seeds R and D funding that ends of creating the firms that cause the divergence between the US and Europe.
Richard doesn't believe in industrial policy. He thinks China is getting richer because the people there have good genes or something.
I in fact don't dislike markets, and I don't think socialism is better. That is a false binary though.
Of course it isn't the larger houses and nicer cars that make people mug each other. Japan is a fine example though.
Suppose they decide to increase their aggregate economic growth by importing large numbers of low-skill, low-wage foreigners. And it works - their GDP takes off. But they also start having widespread street violence of a kind they've never experienced before, all the things previously made possible by their exception level of asabiyyah are degraded, and most of society is unhappy with the (now irreversible) changes. I don't see how you can argue that that is a good outcome. Or that my hypothetical is implausible.
You talk about fighting for greater freedom and more markets.
That's all nice and makes for a stirring speech. Though I would humbly suggest that the average person is better off voting with their feet (and wallets): as much as possible move yourself and your family to a better place. Be that within a country or between countries.
That also nicely aligns incentives: it moves yourself to a better place and advances the cause of freedom. Or at least it raises the average level of freedom and prosperity the average human experiences.
any comparison between Europe and US economies that fails to account for our divergent approach to the global financial crisis in 2008 is grossly lacking. And here the difference goes directly against Hanania’s thesis— Europe essentially implemented a classic Hoover response to a demand crisis, slashing spending at the very moment when government stimulus was necessary. The US, in fits and starts and with unified republican opposition, had a more Keynesian response (spent a lot money, QE), and thus climbed out of the recession much faster.
The question that always fascinates me is why liberalism should be so hard to defend.
Plenty of leftists, social democrats, reactionaries, etc., including some freaks but also a number of decent intelligent people, have dedicated enormous amounts of time and effort to opposing economic liberalism for as far as I can tell no reason at all, and have achieved immense success, to humanity's general detriment. It's almost impossible to explain to these people even basic principles about things like "supply and demand" - they just think you're part of the international capitalist conspiracy.
Our whole narrative around "neoliberalism" is shaped by this. If you look into the actual history and check a few numbers you find out pretty quickly that the big neoliberal reforms weren't super successful at checking the growth of the state, and Reagan advisors like David Stockman said this explicitly at the time. But leftist historians have developed their own version of events where deregulation is the source of all evils, and been very successful at promoting it, to the point where it's a serious obstacle to making some of the deregulatory changes we need today.
Why does this occur? Is it just about the desire to wield state power? Does liberalism vaguely "seem mean", and if so, why should a vague feeling that "it's mean" determine the course of people's entire political careers? Why does nobody seem to understand that scarcity is real and states don't have infinite money? What is it about ordinary commercial activity that causes so many seemingly capable people to lose their minds and demand that it be banned?
That article tying land regs to housing prices is not very convincing bc the data it used to measure level of housing/zoning regs was simply searching for those key words in court cases by state. That's a ridiculous metric. Only people with a lot of money do things like file lawsuits over new developments and housing regs, and no one bothers where land is cheap. All those correlations tell me is that you get more lawsuits where land is really expensive - no shit. Every fancy new development with homes in the millions done around a golf course will have a dozen suits before it's done, if they're lucky. Poor and middle income people don't file suits and no one does over cheap land. There's a much better metric to measure things by, which is the WRLURI and measures the *actual* degree of regulatory burden and restrictions on building at the metro level, why wouldn't the author just use that instead of searching how many rich litigants there are per state?
I don't personally find the regulatory burden explanation for housing cost very persuasive. For one thing, it's not what actual developers cite as the biggest factor (or second or third factor) causing them difficulty. The biggest factor is simply cost of land, and secondly cost of supplies. So I suppose it makes sense for people working on a solution to try to focus on the one thing that there's arguably some control over, which is regulation, but unfortunately that's not much of a factor in constraints on actual developers.
The main factors are: 1. The GFC wiped out both tons of developers *and* thousands of local finance sources (credit unions and S&L) that traditionally financed them, in an industry that it characterized by high leverage and debt...that means you have just 20 giant developers doing most of the building now, and the little guys who used to do more affordable starter home type projects are gone, and if they they're still around they can't compete on financing terms with the big guys nor on their ability to buy land and hold it off market til timing is right to build, 2. Building is not an industry that can take advantage of a lot of gains in productivity and technology like others...ultimately it's still guys who have to show up and hammer boards and pour concrete, so there aren't cost gains from technology bc it's still ultimately about cost of land plus cost of supplies and labor plus financing terms, and 3. We have an increasing population and tens of millions more people, but you can't make more desirable land, so land costs inevitably just go up bc it's non-fungible in desirable locations. There are plenty of empty lots and affordable houses in some locations, but no one wants to live there.
The profit motive of developers will always be to build either multi-family units or large high-prife luxury homes...the profit per acre of land is way higher that way, and building small starter homes will never be as profitable. You can incentives multi-family units in metro areas, but the demand is actually for starter homes and there's no incentive for builders to build those. It used to be the smaller developers that did those and GFC wiped most of them out. If the US wants more starter homes that are single family stand-alones, which is what buyers actually want, it would probably require direct financing incentives to builders bc otherwise you're just asking them to engage in lower profit builds, which they're not going to do. This is the real issue in most areas is that all that's built are $900k luxury houses or multi-family units that no one actually wants, and nothing in between bc there's no profit motive to do so.
Interesting points. In higher-priced land metro areas the economics rewards multi-unit condos or rentals or single family luxury. This makes sense to me.
But home ownership applies to owning condos and townhouses too. So it seems the movement will be from owning single family homes to owning a piece of a multi unit dwelling. I see nothing wrong with that.
There's nothing wrong with it and builders ARE putting up tons of multi-family dwellings (condos etc) in most places. They build them non-stop where I am. Here all new builds are literally only homes that start at about $1M at the bottom range, or multi units, there are zero new affordable stand alones. But this is a problem bc the DEMAND is actually for stand alone starter homes, not multi units...particularly anyone who has or intended to have kids. People will buy the multi units, but that's not what they want to buy or live in, they want their own yard where their kids can play without being monitored or they can let their dog out to go to the bathroom without having to take an elevator to do it. So it's a total mismatch of what builders want to supply, which are the highest profit projects, vs what buyers want. Instead, to get a starter home people either have to buy a house way out in bumblef*ck that's an hour commute, or they buy a condo and just sit hoping starter homes will come back on the market once the Boomers start to die or move to nursing homes.
The 2008-2010 global financial crisis was a major inflection point in the relative fortunes of US and Europe, but it was not a major inflection point in terms of the relative degree of market freedom between the two economies.
What you are ignoring and Krugman commented on, contemporaneously, is the disastrous policy of fiscal austerity pursued by the ECB in the wake of the global financial crisis.
Hi Richard. I was going through your archive and I found parts 1 (https://www.richardhanania.com/p/organized-labor-requires-government) and 2 (https://www.richardhanania.com/p/unions-are-not-the-way-to-help-workers) of your anti-union series. I was unable to locate part 3. Did you not getting around to publishing it in the end, or did I miss it?
Not gotten around to it. One day soon hopefully.
You can bet your hat that someone who's willing to risk life and limb to cross a border is showing more initiative than most natives.
Theyre leaving a shit place for a better one, and theyre probably risking more by staying put. Idk if thats initiative or just yielding to pressure. Anyway, whats your point?
The idea that Americans are allowed to take long vacation is ... well, it's technically true for some of us. But it's literally not allowed for people with a lot of jobs, and for those who have the high-powered careers where they would be technically allowed to take vacations, there is tremendous pressure not to do so.
Where is the evidence people want less work and more vacations? People want health insurance, tax incentives make it cheaper to provide through the employer, so they provide health insurance. Companies are free to offer more vacations and lower pay or lower forms of other kinds of compensation. The beauty of markets is that you don’t have to assume what people want and force everyone to want the same things.
I think that your argument proves too much. "If employees really wanted X then companies would offer X" is simply incorrect.
An easy example: US companies don't offer decent maternity leave. The idea that they don't offer decent maternity leave because their employees don't really want decent maternity leave ... that's just nuts. They don't offer decent maternity leave because they don't *have* to offer decent maternity leave!
People want less work and more vacations! They just do. Ask them!
These articles aren't perfect but they gesture in the right direction, toward things that libertarians need to think about:
https://www.bbc.com/worklife/article/20211209-why-its-so-hard-for-some-workers-to-ask-for-time-off
https://www.pbs.org/newshour/nation/researchers-examine-why-so-many-american-workers-feel-guilty-taking-vacation-time
Isn’t the actual argument that they don’t want more maternity leave (or vacation days) as opposed to higher wages or other benefits?
The costs paid to labor are determined by supply and demand based on larger scale marginal productivity. How those wages are paid (in work conditions, wages and benefits) is also set by competition between employers to attract employees. My reading on it is that employees have spoken quite clearly on the matter that they prefer higher wages and less maternity leave. In Europe the choice is made for them.
I think that this if one looks at reality, this is very much not clear. It would be clear if we could presume that a basically libertarian reading of reality is correct, but I don't presume that.
Perhaps this example would make sense to you. We assume a standard 40-hour work week and a standard 5-day work week in the US. Some employers ask more of their employees than that, but they start from that standard, and anything over that is "overtime." Can we all agree that people *like* that? Can we also all agree that, historically speaking, the way we got there was via governmental fiat?
Baselines matter. Norms matter. When government changes a norm to be more in line with the way people want to live (whether that's mandating a 40-hour workweek, or mandating a 3-month maternity leave, or mandating 6 weeks of vacation), that's a change for the better. Of course that is assuming that employees want those things!
The libertarian argument seems to be that every employee and every employer are just in constant negotiations, and that the baseline from which those negotiations start is always completely neutral. The argument is also that the only way to find out what humans want is to look at what arrangements they come to via these types of negotiations. I think that all of that is false. It overlooks norms, it overlooks baselines, it overlooks power relations between people.
Thanks for reading ... if anyone is. :)
Well argued! I greatly agree with the effects of norms, baselines and traditions on the details of our institutional arrangements. I also agree that top down rules can establish new baselines and norms. I think Covid responses are a case in point.
I just had two relatives (wife and husband) over the house this AM. They work for two different employers, but both are on a 5 or 6 month maternity leave after the birth of their son. I am pretty sure the company I long since retired from also offered extensive leave and over 5 weeks of vacation.
I prefer companies differentiate themselves by their employment packages and people choose based upon their preferences rather than one solution forced on everyone. But you are right, this process isn’t entirely friction free.
This connects with something that's always confused me. Why isn't the option available, in practice, for most American wage earners to trade income for more vacation time? I know many people who would love to do this, but it's impossible in the sector of the economy they were trained for at their current career stage.
I know of lots of people given this choice in the US. It is a common feature of better quality employers.
Like which employers? Especially, which employers other than schools offer any possibility of vacation time that's commensurate with what's normal in Europe (2 months or more)?
Wow, you really raised the stakes… now we are at two months of mandatory vacation?
When I left my employer 15 years ago, I had 4 weeks of vacation and a handful of additional “personal days”. Closer to 5 than 8. But when I checked on chat GPT, it tells me that 5 weeks is about the high end for mandatory in the EU. So, about the same as what I was getting.
Considering the disruption to the workplace, the potential for abuse, and the inevitable effect on wages, I am skeptical that many people would demand 8 weeks. Would you?
It makes me laugh when people claim the 50s was the best economic era of all time. US growth was a huge about of world GPD because the Europe had been literally crushed; this does not mean we were rich, or it was economically great. It only means the world was recovering from war, and trade resuming caused recovery quicker in the US because we had a country that was comparatively untouched by the war.
It's the fallacy addressed by the most famous book on economics chapter 1, Basic Economics by Bastiat and Hazlet, that addresses the claim that economic activity is benefitted by damage. It verifies what we should all know through common sense - it's better *not* to destroy, but to build.
But of course, with modern Conservatives it goes further than this. The 50s is everything they want. They imagine some Americana mythos where all the men were brothers in arms (also, we're finding out they apparently don't have a problem with Hitler - go figure) and all the women were great home makers. MAGA literally calls back this era - this was when we were "great", now is a cesspool of Leftism. Nevermind we are wealthier by every measure now, they don't care. And the Left doesn't care ether.
It is sad. When both sides what a Great Patriotic State, we will get it. And that won't be the America of a limited Constitutional Republic with economic growth. Because some form of socialism, National Conservative or Progressive, will not create wealth. We know that. People who want a strong man to save them, will get the strong man, but they definitely won't be saved.
"Those who value security over liberty deserve neither liberty or security".