The Economist Intelligence Unit ranks Denmark the best place in the world to do business. The actual Hong Kong is ranked 7th. These United States finish just under Sweden. If only we could adopt the Nordic model and have a less fettered capitalism!
[Via Nordophile Justin Fox]
I’ve been complaining for a while now about Robert Frank’s insistence on using the contingent house-school link to make his positional externalities argument. Tim Lee catches the latest instance in Frank’s recent WaPo piece. Tim nails it:
This is an eloquent indictment of our perverse system of linking schools to real estate. We don’t generally limit access to hospitals, libraries, or colleges by geography, and there’s no good reason children’s schools should be determined that way either.
[...]
The most important thing to note, though, is that the scarcity of good schools Frank identifies is not an inherent fact about the universe, but a consequence of the public school monopoly. In a competitive education market, a shortage of good schools in a given area would spur people to either start new schools or expand the best of the existing ones. But the public school system has few mechanisms for doing either of those things (charter schools are a very limited mechanism for starting innovative public schools). Which means that the supply of good public schools is artificially limited, leading parents to bid up their price. The way to alleviate the shortage of good schools is not to re-regulate the mortgage market, but to reform the education system so that it’s easier to start and expand high-quality schools. Few things would do that as effectively as a robust program of school choice.
But that would make sense!
On NPR this morning I was listening to some Congressmen bloviating about the terrible injustice inherent in the Air Force’s decision to give a contract to build re-fueling tankers to EADS, a French company the Air Force says promises the most high-quality aircraft. The level of caterwauling over the Air Force not abusing the contracting system and choosing what it judges to be the best use of its massive allotment of taxpayer money nakedly reveals the normal corruption of the system. The Congressmen barely bothered to dredge up some quasi-patriotic America-first tropes to conceal their plain assumption that the function of military spending is to redistribute taxpayer money to their districts. The idea that the Air Force would want the best planes with which to serve the military functions of the Air Force: outrageous! Because transfers of tax money to politically-connected arms manufacturers and their highly-compensated employees is what wars are for. Obviously. Get with the program, Air Force.
In today’s Free Will at Bloggingheads TV, I talk with Stephen Marglin, the Walter S. Barker Professor of Economics at Harvard University, about his new book The Dismal Science: How Thinking Like an Economist Undermines Community.
I expected to hate this book, but I didn’t. Instead I found it thoughtful and stimulating, if ultimately flawed. I agreed with Marglin much more than I was expecting. It’s just that, unlike him, I don’t think the Amish are a very good moral model for anyone, and don’t think there is much worth lamenting when those kinds of communities are undermined by markets. I agree with Marglin that the transition from institutions of personal to impersonal exchange is radically transformative of community and personal identity. However, I’m willing to go to the mat for the idea that the gains in wealth, longevity, individual autonomy and creativity overwhelmingly swamps the loss of “thick” identities and tribal “meaning”. I think we’re “designed” to crave those things, however, so the cosmopolitan liberal utopia necessarily leaves us with a residue of regret. We will always be tempted to wreck Eden in a search of Eden. Thinking like an economist is inhuman and the bulwark against our ruin.
Also, Marglin’s left-communitarianism confused me. He was able to give no examples of the progressive, inclusive Gemeinschaft. I think there’s a good reason for that, and that’s reason enough not to try for it.
I say, again and again, that it is an embarrassing non-sequitur to argue that people are “irrational” and then leap to the conclusion that they need benevolent paternal guidance from the state. After all, if people are irrational then voters are irrational, politicians are irrational, bureaucrats are irrational, etc. To this, Ezra Klein responds:
I’m not sure what exactly it is that Will finds so inexplicable here. Behavioral research often finds that consumers act irrationally in certain situations. So given a specific set of constraints, they may underestimate future risk, prove oversensitive to loss, exhibit significant status quo bias, and so on and so forth. All problems.
Now, the government may be made up of people, but it is not made up of people carrying out transactions under these conditions.
Perhaps Ezra is right, but only because people acting inside government institutions are much less likely to themselves bear the cost of their mistakes, and will therefore likely make more of them. There is no way to wriggle out of the fact that people who win elections are just like the rest of us.
I really wish people would pay more attention to Vernon Smith, who invented experimental economics, won the Nobel Prize for it, and remains by far the most philosophically rigorous theorist of the relationship between individual rationality and institutional performance. (Ted Bergstrom’s paper here [pdf] is a good overview.) What Smith’s work shows is that, yes, individuals in isolation don’t act according to canonical postulates of rationality, but that well-structured market institutions will nevertheless tend to converge on the efficient outcome, as if the agents were behaving with full “rationality”, even though they are in fact limited, confused, and ignorant. The “rationality” of the outcome is more a function of the structure of the institution than of the “rationality” of those acting inside it.
Responsible social science therefore compares the way real people perform when embedded in different real-world institutional settings. What you surely don’t do is perform selective empirical work to discover an “anomaly” in decision making, and then deploy a priori high theory to infer that one set of institutions (markets) won’t work, because, in fact, the performance market institution might turn out to be indifferent to the anomaly or limitation. That’s what Smith has proved. If you’re going to be an empiricist, then be an empiricist, and actually test the effect of the anomaly in the performance of the relevant institutions. Until you do this, it’s either arbitrary, naive, or willfully ideological to posit another set of institutions (government) as a fix. Because there may be nothing to fix. And, even if there is, government may be the wrong kind of institution to fix it. You’ve got to run the experiment.
There is a great deal of carelessness in generalizing the results of anomaly-focused behavioral economics. As Steven Levitt and John List write in their short article on behavioral economics in Science ($$$) this month:
Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. Yet, there are many reasons to suspect that these laboratory findings might fail to generalize to real markets. We have recently discussed several factors, ranging from properties of the situation — such as the nature and extent of scrutiny — to individual expectations and the type of actor involved. For example, the competitive nature of markets encourages individualistic behavior and selects for participants with those tendencies. Compared to lab behavior, therefore, the combination of market forces and experience might lessen the importance of these qualities in everyday markets.
List has run a number of field experiments that show that this is the case. Smith has run a number of lab experiments that show that the frequency of a “mistake” goes down as the cost of making it goes up.
Ezra continues:
An easy example is the research on opt-out 401(k)s. We know, from the economists, that investing in 401(k)s is generally a wise idea. We know, from the statisticians, that far fewer people do it than should. We know, from the behavioralists, that far more people would do it if the default setting put you in the 401(k), rather than forced you to wander down to HR and specifically ask for it. And so folks in the government, acting with more information and in a different context than folks in an office, think up a policy to “recognize the power of inertia in human behavior and enlist it to promote, rather than hinder, saving.”
At exactly which point in this process does Will fear that the same irrationality that keeps someone from creating a retirement account will foul up a regulator’s efforts to ease their way into a retirement account?
As I said to Dan Ariely in our chat, I think behavioral work is really valuable, especially when it suggests to us how people might better structure their affairs to get more of what they want. I think the evidence shows that 401(k) opt-out defaults are often a good idea, and that businesses ought to make that part of their standard labor contract, if that is something that they think would be appealing to their prospective employees.
I also think that this minor fact about the general distaste for filling out complicated forms can hardly be used to justify further encroachments on the right of individuals to negotiate the terms of their contracts with employers. I think Ezra’s argument here is both strangely narrow and ungenerously extreme. I don’t doubt that non-terrible policies are sometimes successfully enacted. To doubt that would be a bit like a market skeptic doubting that anyone ever succeeds in buying a candy bar. That would be terrifically dense. What I doubt, very strongly, is that the discovery of “irrationalities” undermines the authority of market institutions more than it undermines the authority of government institutions. Are people more or likely to behave irrationally when voting for their congressman or when buying a sandwich? Do buyers for private organizations sign contracts for $76 screws? Etc.
So, no. I don’t fear the mandatory opt out 401(k) plans in particular will be a giant debacle. But I do fear that half-baked behavioral economics is being used to undermine support for market institutions in general, way ahead of the evidence. And I fear that a fundamentally confused assault on “rationality” is being used successfully to promote paternalistic control by elites and, necessarily, to encourage the docility of those who are to be controlled.
[Added: If you have not read Ed Glaeser's "Paternalism and Psychology" [pdf], then you probably should.]
Responding to my colleague Dan Mitchell, Matt Yglesias writes:
“Iceland is known as the Nordic Tiger because of rapid economic growth,” writes Cato’s Daniel Mitchell, “much of the nation’s prosperity is the result of free-market policies.” When I visited Iceland it struck me as more a Scandinavian social democracy than a free market paradise. And indeed the OECD stats back me up.
Matt then shows a chart of taxes as a percentage of GDP. Taxes in Iceland are high.
Can’t they both be right? Iceland, much like Denmark, is more or less Hong Kong with a huge welfare state. High personal tax rates and redistributive policies certainly do affect incentives to work, save, etc. And certain state-provided services do tend to crowd out private alternatives. That said, it is possible to have high tax rates, lots of redistribution, and no other policies regulating the operation of the market. Neither Iceland nor Denmark leave their markets that unfettered, but it is simply undeniable that they are extremely wealthy, free-market capitalist countries. Indeed, the relative success of countries like Denmark and Iceland is outstanding evidence that the best way to ensure high levels of welfare spending (in tiny, ethnically homogeneous countries) is to let the capitalism rip.
According to Heritage, Iceland ranks 14th in the world in terms of economic freedom. It has no minimum wage. Denmark, which comes in 11th, has one of the world’s least regulated labor markets and is one of the world’s easiest places to start a business. If you consider that both take a huge penalty in these rankings for their high personal tax rates (but check out the super-low corporate and capital gains tax rates!), you can get a sense of just how unregulated and conducive to business these economies really are.
Perhaps the greatest unheralded discovery of the late 20th/early 21st century is that relatively unfettered capitalism is a much better complement to the comprehensive welfare state than is dirigisme. I for one plan to herald this.
So…, James Poulos had said:
The big problem with Gerson’s ‘moral internationalism’ is not that it has a big heart or a goofy smile. The big problem is that it’s inimical to citizenship. Gerson and his ilk long for the day that Americans don’t get a better shake in life just because they’re Americans.
I was a bit confused by the possibility of a decent person denying the fundamental moral equality of human beings, so I asked in comments:
Just to be clear, you think Americans ought to get a better shake in life just because they’re Americans?
In the comments, James ends up endorsing this view, from J.A.:
Whether you subscribe to the notion that America’s prosperity and stability are undeserved accidents of a less-than-honorable history, or, alternatively, happy results of the Constitution and better than average leadership — or, in fact, if you believe neither or a combination of these — do other peoples, less fortunate in their circumstances, have legitimate moral claims on us for access to them? If you take as a given that America is, comparatively speaking, a really good place to live, work, and raise a family — which I think is obviously a true statement — then the question is not whether Americans should get a better shake in life; they do get a better shake in life by virtue of being citizens in a “really good place to live, work and raise a family.” The question isn’t even one of just deserts. The question is, what moral claims can non-citizens make on American citizens given the fact of American prosperity and stability?
Yes, Americans get a better shake in life than most people in the world in virtue of having had the good sense to get born in the United States, which does have relatively excellent institutions. Yes, those institutions are a main reason so many people come to live and work here. But I cannot make sense of the concluding question. Does J.A. think that the fact Americans are so rich weakens the obligations of Americans to non-citizens? I guess that would be an… interesting thing to think.
There is no need for confusion about the question at hand, which is clear enough: What justifies state-imposed limits on the human rights to movement and free association?
A country is not a big plot of land owned by its citizens. It is a jurisdiction of government within which there are many free people and many pieces of privately-owned property — at least if the government is decent. But suppose one is simple and thinks citizens own countries in much the way a family can own a farm. What then?
First, back up to the question of the justification of a system of private property. The division of the commons into parcels, and the use of government coercion to enforce private claims over these parcels — which include the right to exclude — requires a justification. Dave Schmidtz provides that justification here [doc]. In short, dividing the commons leaves each with more than had it remained open. The right to exclude enables general prosperity.
So, think of the Earth as a big commons, and imagine borders as fences. Can we justify the system of nation-states and its migration controls in the same way? Evidently not. The welfare gains that would come from even a mild decrease in coercive limits on travel and free association are awesomely huge, which of course implies that the status quo system of limits does not leave most people better off than they would be in a feasible alternative system. And this suggests that the global-level system of division and exclusion lacks moral justification.
Citizens may have stronger claims on one another than they have on non-citizens. And they may have stronger claims one another than non-citizens have on them, because they share the burdens and benefits of a set of common institutions. But everyone, no matter who printed their passport, has equal claim to the respect of their basic rights. Citizens are under a strict obligation not to harm or violate the rights of non-citizens. The status quo system, which limits the freedom to travel and cooperation without benefiting most of those whose freedom is limited, amounts to both a substantive and moral harm; it denies some basic conditions for human flourishing and a thereby constitutes a violation of basic rights. What non-citizens have coming to them, is the recognition of their rights, moral respect as persons.
Limiting basic rights to travel and associate may be justified if it is necessary to maintain the integrity and stability of instutitions that tend to make people better off overall. The United States economy and its supporting institutions are hugely beneficial not only to those who live and work within them, but more broadly. I am open to serious, empirically-minded arguments about the location of the point at which additional openness to migration leads to diminishing benefits. But, I’m afraid, one sees very little of this.
David Callahan has a silly op-ed in the LA Times today on "A Gentler Capitalism," which mainly caused me to recall Julian Sanchez’s rather ungentle review of his book The Cheating Culture:
An amusing game to play while reading The Cheating Culture — and perhaps the only way to avoid being driven mad by its plodding repetition — is to imagine the book’s anti-matter counterpart. It would be a right-wing screed penned by Callahan’s goateed twin from some mirror universe, his equal and opposite in zeal and tendentiousness. Armed with a Lexis-Nexis account, this Bizarro Callahan would cherry pick not tales of fallen Masters of the Universe but such tidbits as this, from a background paper on the "fall of the Swedish model" written for the United Nations’ 1996 Human Development Report:
"The tax and transfer system that developed was, to begin with, based on the citizens (sic) honesty….While tax evasion in the 1960s was regarded as a shameful crime, forcing respected citizens even to commit suicide if caught, the honourable tax payer became, in the 1980s, almost regarded as a ridiculous relic of the past. The increasingly generous social insurance systems also invited people to cheat."
Perhaps Bizarro Callahan would cite experimental data from the MacArthur Foundation’s Norms and Preferences Network, which found that participation in markets correlates with greater trust and reciprocity. He might note the strong correlation between market freedom and lower government corruption — not terribly surprising, since the effect of increasing regulatory power is to shift "cheating" from the private to the public sphere. And he could add a litany of stories of corrupt businessmen and special interests currying favor and gobbling pork. Bizarro Callahan would gravely conclude that big government and the welfare state are the founts of our cheating epidemic.
The point is not that this anti-matter version of The Cheating Culture would get it right — although it might come at least as close as the original — but rather that it’s fairly easy to churn out a partisan potboiler clothed as a meditation on some topic of pressing public concern. It’s just not a very good way to do social science.
I intend to say something about Bill Gates’ ideas about "creative capitalism" later over at Free Exchange.
I highly recommend Alex Massie’s reply to Jonah Goldberg’s column on how the EU has enabled the fragmentation of states like Belgium.
Goldberg seems to think that the EU has failed since it wanted to destroy national identity but that’s not really true: it wanted to change the way we think of nationality and, in the European context, it’s largely succeeded in doing so, decoupling patriotism from nationalism in ways that have been overwhelmingly healthy.
Matt Zeitlin also has a smart retort:
The EU is not about dissolving nationalism or national feeling, but sensibly moving certain supra-national market functions and policies up to a larger level so that markets and regulatory policies can be more easily integrated and harmonized. Thus, these states like “Britain” or “Belgium” or “Spain” which have a history of jamming together disparate ethnic, linguistic and cultural groups largely in the pursuit of some great power struggle, are less and less necessary.
The question is about the optimal size of public goods jurisdictions. There are very local public goods, such as a sewage or mass transit systems, and supranational public goods, like legal frameworks for international trade. The jurisdictions for various goods can overlap or not and in various ways. A polycentric system allows for the provision of public goods at the efficient level of administration for the good’s geographic scope without imagining that jurisdictions are nested one inside the other like Russian dolls. The Age of Nationalism has created vast inefficiencies by inflating what should be local jurisdictions, on the one hand, and, on the other, by insisting on “sovereignty” — that is, on the national level as ultimate and authoritative — basically leaving many supranational public goods to go unprovided.
Elinor and Vincent Ostrom are our greatest sources of wisdom on the matters of the scope of jurisdictions. Here [pdf] is Elinor Ostrom:
The presumption that locals cannot take care of public sector problems has led to legislation throughout the world that places responsibility for local public services on units of government that are very large, frequently lacking the resources to carry out their assignments and overwhelmed with what they are assigned to do. One should stress that this is not the way that Europe developed. Since the 11th century, thousands of independently established Waterboards were established in the delta of the Rhine River with their own rules and physical structures, drained the swampy land, and protected the land from being inundated except during extreme storms (Toonen, 1996; Andersen, 2001). In Switzerland, alpine peasants devised a variety of private and common-property systems to gain profitable income from an extreme and diverse ecology (Netting, 1981). More than 1000 free cities with their own charters and legal traditions flourished in Europe during the middle ages and were the foundation for modern constitutional democracies (Berman, 1983).
Contemporary legislation assigning regional or national governments with the responsibility for local public goods and common-pool resources, removes authority from local citizens to solve local problems which differ from one location to the next. We need to unlock their capabilities and enable them to be recognized as citizens and local public officials with the power and authority to take action to solve local problems. We need to think of the public sector as polycentric system (V. Ostrom, 1999) and not as a monocentric hierarchy.
Now, there’s a good case that moving central banking, and some trade and labor market regulation up to a supranational level makes good sense. That’s a better level. And if other public goods are most sensibly provided relatively locally, as Ostrom emphasizes, then some European states, as presently configured, may make little sense as public goods-providing jurisdictions. Now, many badly confused people think a sense of collective identity is one of the goods states should provide. But then why shouldn’t Scots, Basques, Walloons, etc., have their own states — especially if that these turn out to be, in practical terms, something like a very grand garbage collection jurisdictions with monetary policy, defense, and other big ticket public goods outsourced to the larger supranational jurisdiction? If the more encompassing jurisdiction reinforces a cosmopolitan sense of identity that balances local ethno-cultural identities, then all the better.
Discussion questions:
When the North American Union finally arrives, should we expect Quebec finally to successfully secede? How about the Western provinces? California?
If Bob Wright is correct about the inevitably widening scope of positive sum games, isn’t polycentric federalism the structure the global order will take?
My colleague Dan Mitchell complains that Denmark’s new tax cuts aren’t deep enough. That’s his job. And he’s probably right. But, I wonder: Does Denmark’s tax policy imperil its citizens’ well-being? I imagine there are a good number of Danes upset about their astronomically high taxes, but they also must be pretty popular. Also, if you don’t mind boring, or blondes, Denmark appears to be one of the best place for human beings to live in the history of world. Look at these various rankings:
GDP per capita: 7th
Human Development Index: 16th
Economic freedom: 13th
Self-reported life satisfaction: 1st
Ease of doing business: 7th
Denmark also gets top grades (not a ranking) from Freedom House for political rights and civil liberties.
Now, I think Denmark should cut their taxes. Their GDP growth is lower than the OECD average, despite their being relatively aggressive free-traders. I doubt they’ll stay so high in all these rankings if they begin to fall behind their neighbors over time, GDP-wise.
But these high taxes and slowish growth surely have something to do with this:
Welfare state and social spending as % of GDP: 1st
which leads to:
And the Danes seem to like it that way. From almost all indications, the Danish model of a free-market welfare state is a stunning success. They no doubt need to fiddle with their tax rates to keep it sustainable. But it’s certainly hard to blame them if they don’t think the cuts need to be as aggressive as Dan or I think they should be.
Also, to be clear, I don’t want the U.S. to look more like Denmark in terms of tax and social policy. I also don’t think Denmark should want the U.S. to look like Denmark. The continued viability of countries like Denmark depends on the success of countries like the U.S. But, unless one insists on being ax-grindingly ideological, you’ve got to admit that both Denmark and U.S. are huge successes in terms of human flourishing. They’ll never have our levels of innovation, we’ll never have their Gini coefficient, and you know what? That’s OK.
Also, did I say that Denmark is boring?
I am unimpressed by Tyler’s reply to Tyrone. I don’t relish the gimmicky nature of Tyrone’s proposals, and my commitment to the rule of law excludes setting forth the intentional disregard for the law as a positive reform. That said, Tyrone is in important ways both a better liberal and a better utilitarian than Tyler, at least in this case. And Tyler’s reply, “Poor Tyrone has no idea of the cultural foundations of democracy,” sounds like a glib piece of reactionary agitprop in the absence of evidence that Tyrone’s proposals would indeed erode the cultural foundations of the institutions that make the U.S. such an attractive target of migration.
I am the last person to deny that “moral infrastructure” is of fundamental importance. But opponents of liberal migration and labor policies too often confuse dynamic cultural change for cultural erosion. I more afraid that fat, tenured Americans will become too risk averse and insurance-minded than that hungry, entrepreneurial new entrants will undermine the very institutions they came to benefit from. Why not think that, on the one hand, our institutions transform newcomers culturally more than they transform our institutions, while, on the other hand, newcomers keep our institutions vital and growth-minded, rather than moribund and insurance-mided? I wonder if Anthony de Jasay’s reply 
It so happens that under the hypothesis of an accumulated pool of agreeable externalities, the very processes of production and exchange that are enriched by people helping themselves to the pool, and by so doing depleting it so that less is left for latecomers, must be agreed by the same token to be replenishing the pool by the agreeable externalities they generate. For if past social cooperation has left over externalities that enrich the present, why should we not assume that present social cooperation will likewise enrich the future?–though room may always be left for the second-order question about the present doing enough for the future.
[Update: In the comments Tyler clarifies, "Sometimes Tyler is simply too obscure. I meant the line about cultural foundations to be poking fun at others, namely that a nation can be too stupid to embrace certain bright ideas…and that, sadly, that is part of democracy too." I think I see! So... Then Tyler agrees with the upshot of Tyrone's ideas after all, but just thinks they are too infeasible to take seriously, given democractic stupidity?
You should of course pre-order Tyler's book and get access to his super-secret blog hideout. I got my hands on a review copy and have read most of it. It's good. Short review forthcoming.]
One of the best discussions I know of on the difference between positive and negative conceptions of freedom is David Kelley’s in A Life of One’s Own: Individual Rights and the Welfare State. This was the final word for me on positive and negative freedom for some time. Looking again at Kelley’s argument, I find I am not as convinced as I once was.
Let’s look at a few passages:
Freedom always involves the capacity to choose among a range of alternative actions. In that sense, freedom is a positive concept. But it is also a negative concept: the freedom to choose existss as long as no one interferes with the choice coercively, using force to prevent the person from selecting one of the alternatives. … A diner at Joe’s Cafe has a more limited menu to choose from than does a diner at the Four Seasons, but both people are equally free to choose among the entrees available. The fact that Joe’s does not serve oysters on the half shell is not an issue of freedom.
OK. The question that arises for me, then, is why is the guy at Joe’s instead of the Four Seasons? If he (let’s call him Frank) just likes Joe’s, cool. But if it’s because he cannot afford the Four Seasons, or a place with an equivalently broad and high-quality menu, then the question is, Why not? The answer to that question is important. Suppose, for the sake of argument, that Frank, and every other person at his approximate level on the economic ladder, would have the means to choose from bigger menus if only his society’s rate of economic growth had been just fractionally greater each year for the past two decades. Relative to faster growth, slower growth takes things off the menu. But is this an issue of freedom from coercion? Maybe, maybe not.
Suppose that people in Frank’s society just like relaxing more than working, and so aren’t extremely productive, leading to unimpressive rates of growth. Now, Frank is a highly motivated, hard-working, and would like to order off a Four Seasons menu, but simply can’t because his entire society is too poor. The point of this is to emphasize the interdependence of opportunities. Things can be off your menu, not because you’re lazy, or being coerced, but because of the (non-coercive) patterns in which other people are coordinating their behavior.
This brings us to Kelley’s next paragraph:
To be sure, there is not always a hard and fast distinction between the number of alternatives one has and the degree of one’s freedom to choose among them. Theoretically, any obstacle, restraint, or limitation may be looked at in either of two ways: we may view it (1) as something that eliminates one or more alternatives a person would otherwise have available or (2) something that prevents the person from choosing one or more alternatives. The difference lies in whether we consider the limitation as affecting the range of alternatives he has or the process of choosing among them. Advocates of positive freedom have exploited this fact, insisting that lack of a certain opportunity because of poverty, illness, or disability deprives a person of the freedom to choose that opportunity. Conversely, we could in principle view overt coercion, physical force, or violence, not as something that prevents a person from choosing an alternative but as something that removes alternatives he would otherwise have.
OK! Then Frank’s case is confusing, right? It looks like a case of (1). He doesn’t already have the menu, so his inability to choose from it is a moot question—not an issue of freedom. But suppose we get the exact same result—a low rate of growth—not from the indolence of the population, but from a few bad government policies that, say, restrict international trade. It turns out that Frank trades only with locals, so the trade restrictions don’t coercively prevent him from trading with anyone he wants to. But by coercively limiting others’ trade opportunities, others have less means, and thus less with which to buy Frank’s services, which ends up badly limiting his trade opportunities. And that’s why he doesn’t already have the menu he’d like. Still a case of (1)?
Here’s how Kelley asks us to tell the difference:
There are real differences between (1) and (2). One difference is whether the obstacle or limitation is imposed by reality or by other people. When some fact of reality affects the range of alternatives we face, it is wishful thinking to regard it as an obstacle to what we would otherwise be free to do. Facts are facts. The world operates a certain way, according to causal laws, and the constraints imposed by nature are the foundation for human choice, not a barrier to it.
I now find this remarkably unhelpful. Are other people’s preferences and patterns of behavior, which create huge limitations on the alternatives open to me, “imposed by reality” or “by other people”?
Here’s an illustrative example Kelly offers:
If I cannot run a five-minute mile, my incapacity does not abridge my freedom to do so; it is simply a fact about my nature. But if I can run that fast, and somebody forces me to wear lead weights as a handicap, he is restricting my freedom.
Now, imagine the following possibilities:
(a) a network of completely voluntary choices leads to air pollution as a side-effect; I could have run a five-minute mile had the air been cleaner.
(b) the anti-technology norms of my society, transmitted through education and social opproprium (no coercion!), have ensured that new physical performance technologies that, but for those norms, would have been invented, and would have made me able to run a five minute mile.
(c) bad government policy that does not directly prevent me from doing anything at any particular time, decreases the rate of growth, decreasing the amount of capital available for R&D, ensuring that new physical performance technologies that would have been invented aren’t.
(d) If super-steroids were available, I could run a two minute mile, but the price is that I would die a week later, so the government bans them. It happens that nobody would have taken them, even if they weren’t banned.
We could go on. The point is, many incapacities are contingent, and are very, very often a side-effect, intended or unintended, of human action. I understand why having weights forcibly attached to one’s body is an especially vivid, salient, and emotionally compelling violation of freedom. But I can’t see a principled reason why the very concept of freedom should apply only to coercive interference with the excercise of present capacities when present capacities are so dependent on contingent patterns of human interaction. I simply cannot see the special normative salience of coercion as a method for trimming the feasible set. I can definitely see why robust restrictions on the exercise of coercion are completely necessary for achieving the range and kinds of opportunities that allow us to create, develop, and fully excercise our capacities. But then that’s why we should care about limiting coercion.
Kelley builds his argument on the Objectivist distinction between the metaphysical and the man-made, but it is hard to know what to make of the distinction once one makes note of the interedpendence of our capacities and opportunities. Are emergent social patterns—the consequences of human action but not human design—metaphysical or man-made? I think a little bit country and a little bit rock n roll.
The reason we fight so hard over the basic structure of our formal institutions and over the basic structure of our informal institutions (i.e., over our culture) is that those structures create patterns of behavior we as individuals have no choice but to engage in their actually existing form as if they were metaphysical, as if they were constraints of nature. We can’t rewrite the laws of nature, but we can be less bound by nature by bending the laws to our will. This is how reason, science, and the institutions of market production liberate. We can TRY to rewrite the local laws of social coordination, and this may change the overall pattern of behavior, but the pattern won’t be the one we were aiming at. Other people, other factions, are always also trying to rewrite the formal and informal laws, and the equilibrium that emerges (or doesn’t) from the clash of ideas is nobody’s idea. There is a sense in which science and technology make nature more tractable than people. Or perhaps it is better to see people as fully part of nature, and to see certain formal institutions and cultures—-like a system of strong individual rights and the beliefs and norms that back them—-as just other technologies of liberation from recalcitrant nature.
I like pie, gargling, the first of May, and naming fallacies. Today’s fallacy nominee is “the United Nations Fallacy,” which is the error of assuming that supericially similar activities that take place inside two or more political jurisdictions may be usefully compared simply because those jurisdictions are each recognized as “nation states” by the United Nations. For instance, the United States of America has “an economy” and Liechtenstein has “an economy,” so let’s compare them! Suppose tomorrow the state of Iowa and the city of Osaka are declared sovereign nations by the United Nations. Would it suddenly make good sense to compare their levels of birth defects, their GDP, their relative levels of “social capital”? If so, why don’t we do it now? If not, why do we compare the U.S. to Liechtenstein, Mauritius, or Sweden?
Aaron Haspel has the best mea culpa I’ve seen about being on the wrong side of the war. I especially liked this bit:
There was also a certain haste to blame America in the anti-war arguments that bothered me. I have no desire to discourage self-criticism, least of all in this post. But even Jim Henley, who among the long-time opponents of the war most closely resembles a responsible adult, has not exactly emphasized the horrors of a culture that treats suicide bombers like rock stars and stones homosexuals to death. These very horrors, ironically, undercut the case of the warbloggers, who harp on them. Surely the least likely people to successfully impose your political ideas on are those whose core values are utterly alien to your own. You end up just killing them instead.
My initial tepidness about opposing the war was based in a thoroughgoing horror of viciously antiliberal Islamic culture, and I worried deeply about the fact that many anti-war types seemed not to share my horror. But Aaron’s incredibly important last point was one of the clinchers for me. I had the idea that maybe the war could do something to undermine Islamic religious authoritarianism, and if it was going to have that effect, that would be a strong reason in its favor. But reflection lead me to see that the depth of the problem is precisely what would make the attempt to swiftly impose liberal democracy an almost certain bloody failure. That’s what I had in mind, here:
A moral infrastructure is something neither Bechtel nor the CPA has the power to provide. Canals and constitutions are all for naught if Iraqis don’t develop norms that enable the emergence of a complex market and the benign administration of the state. If — whether because of religious conviction, political ideology, tribal affiliation or whatever — they don’t believe these are norms worth having, then they won’t have them. And despite our best intentions, our efforts there will fail.
[...]
How do you build, or grow, a moral infrastructure? That’s what we need to understand. Sadly — and let’s hope not tragically — we still don’t.
Well, it has turned out tragically.
Reihan is puzzled by my bafflement regarding Anya Kamenetz. In the course of his rather more defensible spin on what he takes Kamenetz to be saying, Reihan writes:
Kamenetz is advancing the argument that there is a danger in “performative passion.” Disguising the ultimately transactional nature of employment, by offering unpaid internships that are often very different from traditional apprenticeships (which offered valuable skills in exchange for “free” labor), may well serve the interests of employers at the expense of salaried employees. Will writes, incredulously,
Is really she saying that ingratitude is a precondition for unionization?
Well, yes. It’s not clear that one should be grateful for a job, assuming you do your work and keep your nose clean. You are, after all, providing useful services in exchange, which is why you deserve a fair wage. Gratitude doesn’t enter the picture. Gratitude is, you’d think, more something you’d find in a servile society, in which employment at a fair wage is seen as an unearned privilege. This is the left has traditionally liked tight labor markets — less bowing scraping. There’s something to this.
The anti-gratitude line of thinking strikes this quasi-Mormon lad as strange and, well, ungrateful. Let’s set aside the fact that gratitude is extremely good for psychological well-being, and that people would in general be better off if they were more grateful for more things. The bone of contention is whether being offered a job merits gratitude. I think in most cases it pretty obviously does. There is no point in being anything less than wholehearted about the transactional nature of employment. But that means not being vulgarly materialistic about the nature of the transaction.
Let’s talk about unpaid internships, and then jobs. A lot of times, the transaction between an unpaid intern and an employer comes to something like this: the employee offers the intern an opportunity (to gain experience, to make contacts, to prove herself) and the intern is expected to pay for the opportunity by making the most of it. This requires doing some work, sometimes even putting your back into it. But the scales balance in these cases not because the value of intern’s labor matches her non-existent wages, but because the intern has done justice to the opportunity she has been given. She dived in, learned the trade, made a bunch of valuable contacts, showed her chutzpah, etc. That’s often enough to make an employer both satisfied and proud. I would even say that a good employer or supervisor ought to feel grateful for the good work of a good intern, for the experience of seeing someone do justice to the opportunity they’ve been given. The idea that the exchange of gratitude is an integral part of a healthy and humane workplace seems to me worth defending.
When a Cato intern does some work for me, I’m almost as concerned with what they’re getting out of it as what I am. I’m most annoyed when I feel like they are squandering their chance to get something from the experience, not when they’re not working hard—though those things are usually pretty closely related. Maybe that’s just me, but I don’t think I’m weird or unusually benovelent. Obviously, unpaid interns aren’t working to make money. They’re not trying to make money. They’re trying to get something else. Employers and supervisors know that, and are usually trying to help them get it. If some reasearching and filing gets done along the way, then that’s wonderful. The lack of pay in unpaid internships gives employers amazingly little leverage in milking labor or pretty much anything from interns. Generally people apply for unpaid internships because their track-record doesn’t merit a paying gig in that area. They may have no relevant track-record. Or lots of people with equally good records all want scarce jobs in that field. The’re often applying for the chance to prove that their labor is valuable, that they deserve a paying spot. I can’t see why you shouldn’t be grateful for being given that chance, if a chance is what you wanted.
Now, about paid work. I think the big question here is a framework issue about how to understand employer-employee relations in general. I comprehensively reject the Marx-inflected agonistic labor-capital relationship. That might be helpful in thinking about labor contracts between coal miners and management in a company town. But not so helpful in an extended competitive labor market, and especially not helpful when thinking about internships for college kids. I want to think about the relationship as a classic Smithian positive sum game, since it is. And once you’re past the most basic physical scutwork, which is not usually intern fodder, work agreements are only partially about wages.
Employers want employees who, in addition to dependably performing their assigned tasks according to the job description, are pleasant colleagues, participate in and contribute to the culture of the firm, and so on. Employees want pleasant work environments, understanding and accomodating managers, interesting work, meaningful relationships with co-workers, a sense of being valued that goes beyond the number on the paycheck, etc. Most relevant to the internship discussion, I think, is the desire to work in an area that draws on our strengths and that really engages us psychologically. And that’s what are we’re really talking about, isn’t it? Landing a job we, and lots of other people, would really like to have. Here’s Reihan:
. . . she’s on to something, particularly as her argument relates to a narrow yet significant slice of the population, namely the young people streaming into the second-tier glamour professions, e.g., publishing, prestige journalism, etc. Unpaid internships are the gatekeepers in this world, effectively excluding a lot of people from modest backgrounds. Sad to say, this is largely a function of extremely narrow margins. Only a small handful of freelancers can thrive; the rest struggle to get by, in large part because there will always be a vast, perhaps inexhaustible supply of bright, overeducated young people who want to see their names in print. This is tournament theory at its worst.
We’re talking about competition over a handful of really attractive jobs. If Kamenetz was saying that it sucks for graduates of the University of Northern Iowa, for example, that they’re at a disadvantage relative to Yalies when it comes to landing internships at the Village Voice, then I guess she’s right. But that in a nutshell is why there is a big tournament to get into Yale, right? People from modest backgrounds are effectively excluded if they didn’t get into a prestige school. But how effectively excluded are those of us who graduated mainly with connections to the Marshalltown Community Theater? Not very!
Rather relevantly, advances in technology are partly breaking down some of the old barriers to entry. I don’t know any UNI grads who interned at the Voice, or who, like Reihan and a couple of my Ivied former housemates, were “writer-researchers” at the New Republic. But a guy from my college poetry class now has his own internet media mini-empire. And a few too many of my friends got their fancy media jobs through high-quality blogging for me to worry that much about the unpaid intern faculty club good ol’ boy network. It has never been easier for people with talent to create a platform and get recognized. So let’s just keep making it easier. If the problem is TNR not employing enough up-and-comers from the hood and the sticks, then maybe you should just ask TNR to try harder to be good egalitarian meritocrats. But nobody in competitive prestige fields—not even good egalitarians—really want to gamble much on unknown quantities, which is, again, why people compete so feverishly for the signal of a prestige school. The kid who edited the Columbia Spectator is a good bet to get the punctuation right on the magazine web site. But I digress.
[Addendum: FYI, TNR "writer-researcher" is a (not very well-) paid gig. The point was just that this is an example of an highly coveted entry point in prestige media that is almost exclusive territory of prestige school graduates.]
The point was gratitude. If Reihan is right that there is an “inexhaustible supply” of overeducated young people who would all like one of same seven (give or take) jobs, then it seems like you should feel especially grateful to get one of them. If many other people deserved the opportunity as much as you did, but you got it, then I’d think you’d feel pretty glad about that, and keen to make the most of it—to do your best to honor the opportunity and balance the scale unsettled by giving the job to you rather than someone else just as ex ante deserving. This is a pretty far cry from the cigar-chomping capitalist valuing your labor at up to $10 and hour and your accepting an offer for an immiserating $2.50 because of your utter lack of other options and hence weak bargaining power. This is getting a huge break. Taking a better paying job that you like a little bit less may be disappointing, but it hardly smacks of injustice. I know a lot of people would love to have a job like mine, and I can’t imagine being anything but immensely grateful for having it.
Let’s get back to what Kamenetz said…
. . . internships promote overidentification with employers: I make sacrifices to work free, therefore I must love my work. A sociologist at the University of Washington, Gina Neff, who has studied the coping strategies of interns in communications industries, calls the phenomenon “performative passion.” … How are twentysomethings ever going to win back health benefits and pension plans when they learn to be grateful to work for nothing?
False consciousness explanations are the last refuge of the desperate. Why doesn’t the world agree with me? Brainwashing by the liberal media! Capitalist control of the organs of propaganda! Getting people to say “death tax” instead of “estate tax” turns voters into addled zombies unable to think straight! “Performative passion!” “The coping strategies of interns”? What exactly are they coping with. Well, clearly, the profound injustice of working on terms AK condescendingly disapproves of. If someone seems to really like her internship, then she must be suffering from a kind of low-grade Stockholm Syndrome. But of course, interns aren’t hostages. And in this case, the false consciousness comes after the choice to work for free. So what explains that? Why would you choose to make sacrifices to do it? Because the expected payoff is bigger than the sacrifice? Because you want a chance to do be involved in something you love? Isn’t “I’m sacrificing to work for free, therefore I must love it?” almost exactly backwards? Rather, we make sacrifices to do things we love. We perform passionately because we are passionate about what we are doing.
Summing up, I find the agonistic conception of the labor market simply odious. I think it is false as a description of the labor market in general, super-false as a description of the market for prestige intellectual work, and encourages a sensibility that is psychologically corrosive, and (ironically?) quite likely a hindrance to labor market success. Any healthy relationship, including work relationships, involves an ongoing exchange of gratitude. Proper gratitude is not servile. Gratitude is the virtuous mean between a grasping sense of entitlement, on one extreme, and servility, on the other. Nor does gratitude breed complacency and impede progressive social change. That is the work of ignorance, fear, and hopelessness.
Addendum: In response to Reihan’s absurdly kind claim that I’m “one of his favorite public intellectuals,” let me repay the compliment and say that, on paper at least, Reihan is our greatest living freestyle rapper. I’ll address other parts of Reihan’s post later.
The BBC has been running a six part documentary called The Happiness Formula that appears to buy in almost completely to Lord Layard’s technocratic Benthamite vision. I’ll be putting up several posts responding to a number of the articles posted on the BBC website. For now, here is Daniel Ben-Ami at Spiked Online, who begins with the fundamental objection:
The critical flaw of the BBC’s new six-part documentary on happiness was apparent from the start. It assumed that happiness should be the key goal for society and then set out to illustrate the contention. . .
A crucial distinction that I’m willing to make over and over is the distinction between aggregative and coordinative conceptions of social goals.
In an aggregative or summative conception, the goal is simply to maximize the amount of something valuable, such as happiness or pleasure. Aggregative conceptions of the social good run into Rawls/Nozick separateness of persons problems, since individuals are treated primarily as little containers for value. We should want individuals to contain as much of THE VALUE as possible not primarily because that’s what makes their life go well from their point of view. Indeed, it may not be; we may wish to dispassionately contemplate significant form, to exhaust ourselves in pursuit of an elusive, recondite truth, or to achieve purity of spirit through mortification of the flesh. Well, too bad. Our projects have worth only insofar as the advance THE PROJECT—maximizing the balance of pleasure over pain.
Ben-Ami rightly notes that “the pursuit of happiness” in the Declaration names a right, not a duty. In the basically Lockean conception of agency common to many of the American Founders, it was taken as a basic psychological truth that action is motivated by the prospect of our own happiness, because that’s the way God made us. Interference with the pursuit of what God created us to pursue contravenes the laws of nature, and not even Kings have authority to do that. Given that we are each motivated by happiness, given that we will seek our self-interest, how can a society’s institutions coordinate thousands of individual happiness-oriented pursuits. Whan Adams says “the divine science of politics is the science of social happiness, and the blessings of society depend entirely on the constitutions of government,” he has in mind the way constitutions structure or coordinate individual behavior. “Social happiness” is a not a sum of individual utilities. Social happiness is a well-ordered system in which millions of acts of individual self-interest are harmoniously coordinated.
Now, Enlightenment psychological hedonism is false. People can and are motivated by all sorts of things. However, it remains that individuals are motivated almost entirely by their individual projects, if not by happiness or pleasure. We can bracket the questions of what motivates us, and of what is ultimately valuable, and find that the question of social happiness—the question of the “divine science of politics”—construed as the problem of creating a stable set of institutions that coordinates and orders the pursuit of our individual projects, remains in full force.
Now, happiness is a primary goal for very many people, and so knowledge of what contributes to happiness will be useful indeed. But it is a giant mistake to assume that happiness is the sole value, that science says so, or to extrapolate from millions of happiness-oriented projects to THE PROJECT, which is a pernicious myth. The divine science of social happiness is not the science of summation, it is the science of coordination.
[Cross-posted from Happiness and Public Policy.]
One of the things I’ve learned in my study of the happiness literature is that people don’t take enough risks. The evidence seems to indicate that many people would be happier if they quit their job and either went into business for themselves, or found a new job that better matched their individual strengths—even if it is a job that pays significantly less. (You can take a quiz here, at psychologist Martin Seligman’s website, to find out what your signature strengths are.)
Because we are so risk-averse—so wary of experiencing losses—and because we tend to predict that the downside of a risky decision will be bigger than it actually will be, doing what is most likely to make us happy—taking the periodic entrepreneurial gamble—requires a kind of bravery. But that’s just the personal side of the matter. Culturally, we need a climate of opinion that values risk and rewards initiative with respect and praise, reinforcing and encouraging personal courage. Institutionally, we need a flexible labor market that allows us to easily enter and exit new jobs in search of a good match for our interests and strengths, and a system of laws that does not make it difficult and expensive for people to start their own businesses.
This interesting article from Sunday’s Boston Globe about Brett Zaccardi, who dropped out of college to start his own “alternative media and communications agency,” makes this point well, even drawing on psychologist Daniel Gilbert’s work on predicting our future feelings:
When it comes to career schemes, we do not have accurate imaginations about what life will be like for us in different situations, says Daniel Gilbert, professor of psychology and author of ”Stumbling on Happiness.” Our most accurate information about what will make us happy comes from snooping on other people to see if they are happy. And the best way to watch other people is to be in a variety of offices. Gilbert calls the informal process of judging other peoples’ happiness ‘’surrogation.” He says ‘’surrogation is the best way to predict if we’ll be happy. Observe how happy people are in different situations.”
. . .
So what do you need to know before you decide? Figure out what was bad about the jobs you’ve had so you don’t duplicate the problem. Then just start testing the waters — put a toe in the current to see how it feels. Then take a leap, and if you don’t like where you land, reframe your landing pad as just a steppingstone. And put your foot in the water again.
”We should have more trust in our own resilience and less confidence in our predictions about how we’ll feel,” Gilbert says. ”We should be a bit more humble and a bit more brave.”
Clearly, this kind of serial toe dipping and steppingstone strolling requires an institutional climate where labor market entry and exit is easy, and where starting a new business is not a huge hassle. The predictable consequence of this kind of openness and dynamism will be a bit of volatility in employment and earnings, but if that’s what it takes, that’s what it takes.
Now, compare this absolutely gob smacking exchange between writer James Traub and Ségolène Royal in Traub’s NYT Magazine profile of the French politician (via Virginia Postrel):
In fact, Royal seems innocent of any taint of economic liberalism. She regards Villepin’s peremptory imposition of the new law as a sign of a systematic failure to listen to ordinary people; but she does not view the national suspicion of market forces as a comparable source of paralysis. I was surprised, I said during our interview, that someone whose entire life constituted a triumph over adversity would join the campaign to insure against précarité….Royal countered my observation with a familiar refrain: “The problem is that everybody isn’t subject to insecurity. Do you see businessmen being fired for incompetence? The young see politicians, who also have a stable and secure job, being civil servants, lecturing others on insecurity. So the young graduate will say, ‘In the name of what am I going to sign an insecure contract?’ ”
Then the conversation took an odd turn. Royal asked me, with the air of someone pulling out a trump card, “Are you in an insecure situation?” Actually, I explained, as a contract writer for this magazine, I have little security.
Royal wasn’t going to be put off the scent that easily. “Yes, but how many years does your contract last?”
“I sign a new one every year.”
Now she was frankly incredulous. “You could be fired every year?” For all her own experience, Royal apparently viewed précarité as a kind of socioeconomic stigma rather than the price you might choose to pay for freedom. Or maybe you could say that for her, as for the left generally–and not only in France–market liberalism and globalization have the status merely of fact, which is categorically inferior to a right. This is no less so if the fact appears to obviate the right. “The global economy shouldn’t be supported by wage earners,” Royal insisted. “They have to be able to build a future, like any human being.”
This is amazing in part because many of us have never had anything but an “at-will” contract, according to which we can be fired any minute. And we should consider ourselves lucky. Societies obsessed with abolishing précarité—the so-called precariousness of dynamic markets—tend to implement rules that lock people into the first career track they set foot in, or lock people (immigrants especially) out of the labor market altogether. Regulatory insulation against employment and wage instability does provide a kind of stability—just not the kind that makes for satisfied lives. You get, on the one hand, stable sub-optimal matches between individual strengths and jobs, since it is difficult under those conditions to dip your toes in lots of different currents. In which case, careers are less likely to be seen as “callings” and work is less likely to be experienced as meaningful and intrinsically satisfying (causing demand for things like six hour work days and six weeks of vacation to go up.) On the other hand, you get stable levels of high unemployment. Studies show that long-term unemployment delivers a big hit to happiness only slightly less toxic than divorce. As it turns out, a little précarité is not simply, as Traub writes “the price you must choose to pay for freedom,” but the price you must pay for happiness.
[Cross-posted from Cato@Liberty.]
Thinking about the “fallacy of asymmetric idealization,” it occurred to me that it would be interesting to give personality, IQ, and heuristics and biases tests to high ranking U.S. bureaucrats and, better, Congresspersons. Would we discover that these are people who are especially good at decisions?
Well, no. We wouldn’t. But it would be nice to know that, wouldn’t it? And, anyway, this isn’t the important thing. The important thing is the institutional structure—the incentives. What would be really interesting is a set of experiments that compared extremely intelligent people playing games that mimicked the incentives within bureacracies and in politics, versus below average people playing games that mimicked the incentives of well-designed market mechanisms. I think I know how this would turn out, too. But it would be useful to have experimental confirmation that no matter how smart and well-informed the bureacrats are, the quality of their decisions in the aggregate when acting in reponse to the incentives of political institutions is not in general likely to equal those of much simpler folk acting within good market institutions.
Don Boudreaux has been doing the Lord’s work by pointing out that economies are not bounded by political borders. I’ve made the point before that the better a state’s institutions are, the less the state level is the appropriate final unit of analysis. Good institutions within a state’s borders are precisely what enables the people under the jurisdiction of a state to create complex networks of economic, political, and moral cooperation with people outside that jurisdiction. Which is a way of saying the good institutions in here increase our interdependence with people and institutions out there.
Nothing has brought this point home to me more than the lovely, truthy, graphics accompanying Richard Florida’s Thomas Friedman takedown “The World is Spiky” [pdf] in the October 2005 Atlantic.
[click for full-size]
What is manifest in the pictures is that U.S. institutions, in addition to producing more wealth and using more energy, produce scientific discoveries at a rate far outpacing the rest of the world. Just glancing at picture, it appears that MIT and Cal Tech combined produce almost as much scientific discovery as all of of Europe, which in turn produces more science than the rest of the world. The market economies of the Pacific Rim produce a trickle of science, but produce on overwhelming proportion of the world’s tehnological innovation as measured by patents.
Here is one of these pictures’ 1000 stories. American institutions confer a fantastically huge positive externality, in terms of knowledge, to the rest of the world. Science is a root cause of economic growth. New knowledge enables new technologies, which enable increases in the productivity of capital, which enable growth. And good institutions are the root cause of science. If the U.S. produces most of the world’s knowledge and Asia produces most of the world’s technology, then the institutions that underpin epistemic and technical advance are chiefly responsible for growth in states that have different institutions, but which are able to import knowledge. Which is why it is nonsense to compare, say, American and French GDP growth, as if those growth rates were a function of American and French institutions in isolation from one another. Because institutions are not isolated. The interesting question is: what would French GDP growth have looked like if the U.S. had produced, say, only 10% of its actual scientific output? If the Japanese had made only a 10% of their technological advances? My sense is that French growth would not have looked good. (NB: I have picked the French because they are very good in science and tech, but even so, the point is, others are much better.)
And there’s the point. French institutions are good enough to take advantage of American science and Asian technology, and so can remain stable because they are plugged into others’ comparative advantages, and can power their system (literally: the French did not think up the nuclear reactor) on the uninternalizable positive externalities of other systems of institutions. The flip side, though, is that it would be a tragedy for the French, and the world, if American institutions produced less science. It is not just that the U.S. would be worse off if its institutions were more like France. France would be worse off if U.S. institutions were more like France.
