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Saturday, February 21, 2009


Jerry Pournelle had a bit of discussion going on whether Obama's stimulus plan was worth trying because nobody knows whether it will work or not. I sent in this, which I have discussed before which he published:

You put this up previously so I am not asking you to do it again but the answer to Roy's question about experimental evidence for what economic policies work is in this statistical correlation of the world's economies & what correlates with growth.

I regard it as the last word on the subject until somebody competent does it again.

Their answer is economic freedom. More surprisingly to me it says there is little correlation between welfarism paid from high personal rather than business taxes & lack of growth - as someone surprised by this bit I find the finding more credible because they do not exactly aline with any political philosophy.

My previous article highlights these conclusions:

P9 "When published data for all countries has been analyzed the correlation between higher taxes & lower growth (which exists in OECD countries) is not found"

p 10 "During recent years, simple techniques have developed for predicting probable effects of individual measures. It should therefore be easy for all countries to prosper, yet very few do, which suggests that policy makers in most countries:
sub-optimal or counter-productive policies unwittingly;
 Do not use readily available techniques to avoid, identify and correct mistakes, or
 Have higher priority anti-growth objectives
." (since this report was prepared for the new South African government it seems itself proof of government not making growth a priority - this suggests that what is needed to obtain growth is to put it higher on the political agenda - precisely my intent)

p12 "There is no evidence that foreign "aid" has the potential to "make poverty history". On the contrary, the evidence suggests that aid may be harmful......The aid paradox is that to be a positive incentive, aid would have to go to countries where it is not needed, that is, where governments adopt policies that
result in high growth." (I would point out that aid recipients are self selecting as failed states statistics shown a correlation between aid & failure may be because more aid is the effect rather than the cause)

p13 "What matters, as far as economic growth is concerned, is not the characteristics of rich countries, but of high-growth countries." (The fact that Ireland & Norway are richer doesn't matter. The fact Ireland is growing far faster than us should be a lesson)

p 25 "Everything gets better with growth....
few people realise how much faster countries become much wealthier if they achieve just slightly higher growth rates" (indeed few people understand in their bones how fast compound growth in anything works)

p40 "Most of the world's top 10 richest or highest growth countries never had

p41 "welfare states under-perform on average, which could also be attributable to the fact that welfare statism tends to coincide with other policies which compromise growth, Sweden being the conspicuous exception, where the market has been characterised by regulatory liberalism and privatisation." (I would also hold up Singapore as having a cradle to grave welfare system, though one which is cost conscious, yet has an obviously high growth rate)

p 43 "The world's experience appears to support the view that economic freedom may be a necessary and sufficient condition for prosperity"

p50 "Firstly, China cannot be thought of as a single economy or even as a single country as far as its economy is concerned. The diversity of economic systems within China, from one province to another, is bigger than the diversity of economic systems internationally. Secondly, almost all its growth (industrialisation, investment, etc) is not only confined to provinces with high scores on the marketisation index, but to a few special zones. Thirdly, these zones have the freest economies on earth, if not the freest economies the world has ever known."

PP50 & 51 - China's 10% annual growth conceals even greater success. China is not an enormous free economy, it is a range of economies from Guandong province which is nearly as free as Hong Kong (& growing at about 20%) to Quinghai, which has an economically less free market than the world's least free independent country Burma accordingly China is "close to a controlled experiment in social science". An experiment which goes largely unnoticed here. This proves 2 things.

Firstly that 10% growth is not a maximum beyond which other countries cannot aim but merely an AVERAGE. If China has a province the size of European countries (85 million) growing at 20% then a mere 8% is indeed for wimps (granted internal movement in China means the population is growing far faster than anybody would for the UK as a whole & this probably considerably helps growth). Applying this to the Scottish example it suggests that we can continue falling behind England & continue to see the decline of Scotland's population if we choose to do nothing.

Secondly that the Chinese "bubble" is not going to burst, indeed because the faster growing provinces are becoming an ever larger proportion of the economy we should expect their 10% growth, which represents the average, to increase.

PP 54 & 55 - Countries with high taxation levels are not automatically going to have lower growth rates than those with high taxation. This comes as a surprise to free marketists & somewhat less so to me, who at one stage was a great supporter of the state capitalism which really did produce high growth in the early days of the USSR. The reason seems to be that if government spends the money as wisely as the free market it will achieve at least as good results. To spend effectively government should (!) build infrastructure especially transport, (2) provide services rather than regulate (ie the NHS rather than smoking police) (3) do things that don't merely duplicate what the market does (don't run the railways) (4) increase efficiency by outsourcing & privatisation. To extend my point about the early USSR I believe that where government is bad is in the long term - because it doesn't have the spur of bankruptcy an efficient government enterprise may start efficient but, over time, inefficiencies will grow. I believe that is what happened to NASA & the USSR, both government organisations which once performed spectacularly & over time became mired in bureaucracies. By comparison a Scottish executive which insists on spending 70% of its transport budget on outdated railways & prefers windmills to nuclear has managed to omit the first stage of the process.

P58 - Most studies find that less regulated countries out perform more regulated ones (unsurprising) & that regulations cost the people 20 times more than they cost the government (surprising).

p60 - "The relative size of education budgets does not significantly influence growth"

Obviously the same arguments apply to our own beloved leader's borrow & spend on government bureaucracy programme.

The entire pdf report is long but highly recommended - statistical correlation is applying the scientific method to economics which I think is a good idea.

That's a good list.

But 'high taxes' is a rather vague term, it depends on the taxes. £1 of LVT does not reduce the size of the productive economy at all; £1 of income tax might reduce it by ten pence; and £1 of VAT or Employer's National Insurance might cause 50p of damage.

Hence why Hong Kong or Taiwan (high land value taxes, low income taxes, no VAT) do relatively well.

Then, as you point out, we have to look at how much value government spending adds. With core functions like police and legal system, the value vastly exceeds the cost. But once a government does more than core functions and a bit of redistribution, the cost exceeds the value, so that's more wealth destruction.
I'm more worried about how productively it is spent. £1 spent on real NHS patient care probably provides more than £1 worth of wealth because it means somebody can get back to work. £1 on road improvement will produce several. £1 on X-Prizes may well ultimately produce thousands. £1 on a diversity awareness officer may produce about 40p (his own salary). £1 spent on the H&S bureacracy produces minus £20.

If you haven't read the pdf Mark I hope you will even though it is long.
NC, sure, NHS spending (to reply to your specific example) produces benefits in excess of cost - it must do. But privately provided health services - even if funded via taxpayer vouchers - would produce higher benefits at a lower cost. I fail to see why the State should run health services, they are about as far from 'core functions' as you can get.

I personally include roads under 'core functions' because they are there for everybody to use. As long as maintenance is covered by fuel duties, we know that the overall spend is worthwhile, and all things being equal, better roads increase overall land values and hence ...
I would also be happy to see much of the care provided by the NHS done by provate entities in the same way & for the same reasons that education vouchers would work. I do think that that government funding of both is also a good thing. In health because collecting a flat national rate is more efficient & more fair than individualised pension schemes & in schools because having a competent next generation is a national good - probably the single most important national good (even if our present schools aren't good enough at providing it). I think our opinions are failrly close though coming to them from slightly different directions.
I agree with MW. Switzerland has a private healthcare system and it is a lot cheaper than the US system.

Here in the US, I can not endorse public education since that has led to the rise of statism and ultimately Obama.

In fact, let me take one of your arguments to the extreme:

your argument:

In health because collecting a flat national rate is more efficient & more fair than individualised pension schemes...

Collecting a flat national rate for food would also be more efficient since we could eliminate cashiers and needless duplication of stores. We could also eliminate unnecessary products that clog up our store shelves and just have a completely standardized selection. Remember that food is a national good and we all benefit.
And indeed I would support a welfare system that ensures everybody gets basic foof. One of the Larry Niven stories refers to "dole yeast" presumably made from algae which was "free & barely worth it".
Here in the US we have a system that ensures that everyone gets basic food, its called Food Stamps. The system is used to subsidize (legal and illegal) immigrants, Blacks and others who vote democratic and refuse to work. The system is also used to subsidize single mothers and others who are a net drain on society.

You may also support a system that ensures free healthcare for the poor, so let me give you a personal anecdote about that one. My mother and brother both live with me at no cost to the state. My mother wanted to sign up for the free health care coverage that is available for the poor and was rejected for some unknown reason even though she probably makes 10k a year. If she had applied for the full ride including food stamps, section 8, and medicaid she probably would have been approved.

The Republican party is basically composed of cowards who will not mention that 95% of coloreds vote Democratic and collect welfare and are basically feeding and breeding at the expense of Republicans. The Republicans even go so far as to actively work with the Dems to crush those members of their party who speak out.

In fact, the entire goal of the welfare system is the destruction of the White race on this continent. If our gov payed White women to have children for the benefit of their race it would be denounced by the Dems as the first step to genocide. The Dems (with the support of cowards) pay their supporters to gib birf to hopenchange and this is considered progress.

Essentially the Democratic party is a communist front group that has become self financing. I believe that it is no coincidence that the Dems lost control of Congress in 1994 after the Soviet Union broke up amid bankruptcy.
I accept that a welfare state does encourage people not to work (or indeed to work in the black economy). Nonetheless I believe it is a mark of civilisation that a safety net be provided - certainly in a civilisation as wealthy, in historical terms, as ours is. I don't know of any perfect way of balancing it but it is certainly the case that in Britain & America the level of income inequality between richest & poor is wider than it has been at least since medieval times.

I don't think the welfare system has goal as such though Jerry Pournelle's line that government exists primarily to pay government workers & only secondarily for its official policies like welfare. Nor do I think the Democratic (or Republican or any of ours) have a coherent idea of what they stand for. Most of today's self styled socialists are in fact Luddites who know little of what Marx stood for & are opposed to the sort of technologicaly progressive society Lenin & Stalin believed they were building. I don't believe in really large well thought out intelligent conspiracies (though there are many of other sorts) & go with Twain;

“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.”

They are not quite imbeciles & may not mean everything they say but I incline that way.
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