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.
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.
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.
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.
A lot of what you argue is built on cherry-picked metrics and a very particular ideological lens. Totally feel “this feels… skewed” vibe. Sadly, people with a lower level of comprehension will eat it up without doing any research.
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:
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'm very sympathetic to this argument -- I would love to see greater deregulation across a host of sectors and unleash market-led growth, even as someone on the left. Pro-marketeers do themselves a disservice, I think, though, when they dismiss entire categories of public spending as harmful.
Pointing to the rise in government spending as a share of GDP doesn't really tell you all that much about the usefulness of that spending or how much it's hampering growth. It could be that spending is dedicated entirely to public R&D (I know it isn't, but just saying so for the sake of argument), which would have enormous social benefits, or is used entirely for pensions for the elderly, which wouldn't. Pro-market voices would be better served by discussing how to *optimize* public spending, rather than simply reducing it. While there are places the welfare state should be cut back (Social Security), there are also those where it can and should be strengthened (child benefits). It's possible to shift welfare spending to achieve a more optimal distribution of income supports while still achieving overall levels of savings. If marketeers could talk like this, maintain a greater openness to government support for the poor, sick, and elderly, and emphasize how growth is necessary to maintain certain categories of public spending, I believe they would achieve greater success in winning the hearts and minds of folks less inclined to view markets favorably, on both the left and right.
Good post. But I would remove the part about poor migrants to the US dragging down per capita income:
Migrants rarely stay poor, and the second and third generation are often richer than the average native. So migration probably increases measured per capita income over the longer run of at least a few decades.
There is no evidence that poor migrants “increase per capita income over the long run.”
The income of the immigrant is closely tied to the skills, education, and ethnicity of the immigrant when they first came. That is then passed on to their children.
Highly-skilled immigrants do increase per capita income over the long run, but they are only about 10% of legal immigrants and much lower among illegal immigrants. They are the ones whose “second and third generation are often richer than the average native.”
“One might say you can’t stop the march of big government; you can at best freeze things in place or maintain a constant state of growth. The fate of classical liberals might in fact be to continually point out that things could be much better.”
I accept my fate. But I get a little irritable about EHC. What is elite about them if they can’t grasp economics? Why are so many mired in statist thinking? When I am most uncharitable, I assume that many of them prefer safety over liberty—not for the proles/marginalized they slobber over—but *for themselves*. Or they are attracted to authoritarian systems.
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.
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.
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.
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.
A lot of what you argue is built on cherry-picked metrics and a very particular ideological lens. Totally feel “this feels… skewed” vibe. Sadly, people with a lower level of comprehension will eat it up without doing any research.
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 should invite Tom Woods on your channel. He is a Mises scholar and one of the last remaining Rothbardian economists. Also, a very sharp wit.
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.
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
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'm very sympathetic to this argument -- I would love to see greater deregulation across a host of sectors and unleash market-led growth, even as someone on the left. Pro-marketeers do themselves a disservice, I think, though, when they dismiss entire categories of public spending as harmful.
Pointing to the rise in government spending as a share of GDP doesn't really tell you all that much about the usefulness of that spending or how much it's hampering growth. It could be that spending is dedicated entirely to public R&D (I know it isn't, but just saying so for the sake of argument), which would have enormous social benefits, or is used entirely for pensions for the elderly, which wouldn't. Pro-market voices would be better served by discussing how to *optimize* public spending, rather than simply reducing it. While there are places the welfare state should be cut back (Social Security), there are also those where it can and should be strengthened (child benefits). It's possible to shift welfare spending to achieve a more optimal distribution of income supports while still achieving overall levels of savings. If marketeers could talk like this, maintain a greater openness to government support for the poor, sick, and elderly, and emphasize how growth is necessary to maintain certain categories of public spending, I believe they would achieve greater success in winning the hearts and minds of folks less inclined to view markets favorably, on both the left and right.
Good post. But I would remove the part about poor migrants to the US dragging down per capita income:
Migrants rarely stay poor, and the second and third generation are often richer than the average native. So migration probably increases measured per capita income over the longer run of at least a few decades.
There is no evidence that poor migrants “increase per capita income over the long run.”
The income of the immigrant is closely tied to the skills, education, and ethnicity of the immigrant when they first came. That is then passed on to their children.
Highly-skilled immigrants do increase per capita income over the long run, but they are only about 10% of legal immigrants and much lower among illegal immigrants. They are the ones whose “second and third generation are often richer than the average native.”
“One might say you can’t stop the march of big government; you can at best freeze things in place or maintain a constant state of growth. The fate of classical liberals might in fact be to continually point out that things could be much better.”
I accept my fate. But I get a little irritable about EHC. What is elite about them if they can’t grasp economics? Why are so many mired in statist thinking? When I am most uncharitable, I assume that many of them prefer safety over liberty—not for the proles/marginalized they slobber over—but *for themselves*. Or they are attracted to authoritarian systems.
They're elite because they get it much better than regular people.