Sumner on Counterfactuals

Scott Sumner has written an excellent post on the evolution of economic policies, counterfactuals, and misplaced ideological views. Here is an excerpt:

Counteractuals are tricky. Without a plausible alternative timeline, a before and after comparison is nearly meaningless. Growth in the Soviet Union slowed sharply after the 1960s, and then again after the 1970s and 1980s. By 1992, when free market economic reforms first began, Russia was already in a deep depression. What caused the depression? Obviously economic reforms! It doesn’t matter that the more aggressive Soviet bloc reformers did better than Russia. It doesn’t matter that those slowest to reform (the Ukraine) did even worse. Or that those communist countries than never reformed (North Korea) did even worse than that. It must have been the reforms.

The 1970s were the turning point in modern history. Statism was exposed as a flawed economic system. The more idealistic countries like Denmark and New Zealand reformed most rapidly when new information showed that markets worked better than government. You’ve heard me talk ad nauseum about Denmark, which is number one in all sorts of rankings, from free markets to happiness to equality to civic virtue. But I actually looked at all 32 economies with per capita income above $20,000/year (i.e. as rich as Portugal.) Interestingly, just as Denmark was number one in both markets and civic virtue, the same country placed dead last in both the free markets and civic virtue rankings. And what is the country with both the lowest level of civic virtue and the least reformed statist economic system among 32 developed countries on four different continents?

You’ve probably guessed it by now . . . Greece.

Read the whole thing.

One response to “Sumner on Counterfactuals

  1. One reason why Denmark did and does so well was because of their taxation system which is very high and partly based on land values. This encourages the full use of all the land and makes its use less costly because speculators in its value are unwilling to hold it out of use (as commonly occurs in much of the rest of the world). The strong socialization of the Danish economy ment that income tax was also collected and the full benefits of land value taxation were never felt.

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