news flash: capitalism works

[Ancien Régime]

This chart plots the Human Development Index with the Economic Freedom Index. While I think both measures are somewhat flawed, I think it shows the effect of free markets on the development of society.

also, a few fun facts:

Canada, New Zealand, Australia and Ireland have higher HDIs than the United States.

Those countries are also more economically free.

The least economically free countries cluster at the bottom of HDI.

With the exception of France at 64, basically all the high HDI countries cluster between 1-30 on economic freedom.

The countries with high economic freedom and mediocre HDI have only recently liberalized (Hong Kong, Singapore, etc).

I think the fact that so-called social welfare states are more economically free than the USA underscores the fact that economic freedom is more than how much free stuff the government gives out, or how high the top marginal rate is.

anyway, discuss

 

[Deck Knight]

This would really be better if you supplied a link to the background information on the chart rather than just the graph of red crosses.

Mostly the US is coasting on being the only country left standing after WWII, and thus the most economically stable for the last few decades. We'll have to change our policies to mirror Europe's trend away from their social welfare states (we have less far to go, which is a huge bonus for us if our President ever finds out how to get a clue, or alternatively gets replaced and none too soon.)

Otherwise our confiscatory economic policies are going to bite us in the ass. We need to shrink the hell out of government and lower all taxes on investment. You cannot borrow forty cents of every dollar spent and expect your economy to do anything but flounder. America is exceptional only to the extent we adhere to the principles of our founders, which in part is to never suffer tyrants who abuse our treasury because of their feckless idealism and economic illiteracy. That's what put us up so high in the first place.

 

[Hipmonlee]

Interesting that among the top countries, there isnt significant improvement in HDI between 6.5 and 9 on the economic freedom scale.

Which pretty much supports my view on the matter, obviously communism doesnt work, and there is always plenty of room for godawful monetary policy, but for most countries, after a point, it doesnt really make a significant difference.

I would be curious to see what countries are which.

New Zealand won one of these indexes recently, I wonder if it was this one..

Also hasnt Hong Kong always been the worlds freest economy?

Have a nice day.

 

[cim]

Somalia has complete economic freedom (no government) and a terrible HDI. Why is there no point on the graph for them?

 

[Trax]

According to the United Nations Development Programme, Norway has held down the highest HDI for 7 years out of the last 10.

In conclusion: intelligent regulation good, apparently people like Deck Knight and yourself can't drive that through your skulls.

 

[MrIndigo]

Which pretty much supports my view on the matter, obviously communism doesnt work, and there is always plenty of room for godawful monetary policy, but for most countries, after a point, it doesnt really make a significant difference.

This is pretty much where I stand on most of these sorts of issues.

 

[billymills]

Do you actually have the data points or a source anywhere?

Also doesn't HDI cap out at 1.0?

 

[Chou Toshio]

According to the United Nations Development Programme, Norway has held down the highest HDI for 7 years out of the last 10.

In conclusion: intelligent regulation good, apparently people like Deck Knight and yourself can't drive that through your skulls.

I think the trouble is that "regulation is rarely intelligent."

Let's face it-- the greatest businesses of finance are backed by some of the world's finest minds and mathematicians-- the market still fucks them over. How much smarter do you think policy makers are?

Norway has a much smaller and simpler economy (than the US), and is sitting on incredible Natural Resources (and admittedly, has excellent administration over use of said natural resources) relative to their population size. They're like a bigger and more efficient Kuwait. They are a definite outlier when it comes to country economic policy (it's not a pattern adaptable to any country). It is also much simpler to come up with good policy.

When the government is in control of a more complicated system like the US, human stupidity leads to some major fuck-ups. The freer the market, the less effect any 1 party's fuck ups has on the overall economy.


As for the OP I'd say that the "invisible hand" cannot work without a certain degree of regulation. For instance, you can't have a free economy in the midst of civil war-- you need rule of law. "Free trade" cannot exist with rampant monopolization, extortion, blackmail, theft, false information, etc. etc.

Getting the most basic rule of law out of the way, I'd say that defining compliance regulations/practices can be much more difficult than one would expect. Dip your hands in too much and the whole economy comes to a halt. Take the companies too far off the accountant's leesh, and you get . . . well you get the Sub-Prime Crisis (or similar).


If there is one thing economics has figured out though, is that while humans are stupid (or misinformed) on individual cases, they are intelligent in the long run-- which is a whole lot more than we can say about any 1 individual trying to run a country's economic policy.

This is why there is no real "better" solution than to try to limit government intervention as best as possible to eliminating the types of "dirty" or "foul" practices I mentioned in this post, and as much as possible, trusting the invisible hand-- because in the long run, it's far smarter/better than any policy maker.

In general. This is the economy-- there are always unfortunate exceptions.

 

[MrIndigo]

The invisible hand really falls apart when you have markets where people can't/won't shop around to find the highest-price buyer or lowest-price seller i.e. when the information is in fact imbalanced (even if it's not inherently unknowable). Most market regulation, like the Australian TPA (soon to be renamed to the ACCA), is attempting to stop those with lots of information abusing it in such a way that the hand can't work.

tl;dr = regulation should be, and often is, used as an attempt to maintain the invisible hand effect.

 

[Firestorm]

I'm not going to pretend to be an expert, but in Canada I believe we have heavily regulated banks.

Banking in Canada is widely considered the most efficient and safest banking system in the world,[1] ranking as the world's soundest banking system according to a 2008 World Economic Forum report.[2] According to the Department of Finance, Canada’s banks, also called chartered banks, have over 8,000 branches and almost 18,000 automated banking machines (ATMs) across the country.[3] In addition, "Canada has the highest number of ABMs per capita in the world and benefits from the highest penetration levels of electronic channels such as debit cards, Internet banking and telephone banking".[3]

We were also less affected by the recession as a result.

Telecommunications is another area where I think we need some pretty heavy regulation due to how it's set up. Few players who hold all the cards and are providing what is now considered an essential service. Letting them do whatever the hell they want is proving to be terrible for us as citizens. Unfortunately, our regulator in that case is filled with people from those companies so we're getting nowhere -.-

 

[The_Chaser]

I'm surprised that Australia is said to be more free than the USA's economy considering Australia has higher taxes and lower ease of business rates. Being 2nd on HDI though isn't unexpected as we have good welfare system, low unemployment and was one of the only nations to avoid the recession. As far as Capitalism is concerned I believe a fair amount of government regulation is necessary to try and stop companies taking large risks. I also think there should be higher taxes on the excessively rich so that we can have a more equitable society.

 

[Ancien Régime]

Somalia has complete economic freedom (no government) and a terrible HDI. Why is there no point on the graph for them?

Because the makers of the Economic Freedom Index see no point in grading a country wracked by civil war. Iraq, Afghanistan and Sudan aren't on the list either.

Somalia has actually improved since their government left the picture - maybe it says more about how shitty that government was than anything, but any improvement in a country that's basically Darfur East

Unfortunately, our regulator in that case is filled with people from those companies so we're getting nowhere -.-

That is, I think, another inherent problem with regulation - the power of big business to influence politicians who write the regulations (how are Canada's campaign finance laws btw? Or Australia's? I think that restrictions on the power of businesses to influence legislation for their own benefit is absoutely integral to a free market).

Anyway, about Canada:

One thing the EFI seems to take into account is regulation that is not only effective, but is transparent and straight-forward. The American regulatory regime, for example, is extensive, but convoluted, opaque, and written largely by the entities it is regulating.

Meanwhile, the EFI says this about the Canadian regulatory system:

Scoring high in many of the 10 economic freedoms, Canada performs particularly well in business freedom, financial freedom, property rights, and freedom from corruption. Straightforward regulations facilitate entrepreneurial activity. Overall, regulation is thorough but essentially transparent.

This is a big one too, because the ability to start businesses without too much hassle is another prerequisite for a dynamic economy:

The overall freedom to establish and run a business is strongly protected under Canada’s regulatory environment. Starting a business takes an average of five days, compared to the world average of 35 days. Obtaining a business license requires less than the world average of 18 procedures and 218 days.

Also, Canada has lower taxes than America.

I'm surprised that Australia is said to be more free than the USA's economy considering Australia has higher taxes and lower ease of business rates.

Australia has a higher top rate but somewhat lower corporate taxes. You also spend less, and your banking system is not heavily regulated.

On another note, I took a look at France's EFI ranking - its individual rankings are okay or solid across the board, except for government spending, where it is rock bottom.

If there is one thing economics has figured out though, is that while humans are stupid (or misinformed) on individual cases, they are intelligent in the long run-- which is a whole lot more than we can say about any 1 individual trying to run a country's economic policy.

yup yup agreed 100%

 

[Hipmonlee]

Am I correct that Americans pay Social Security on top of their base taxrate?

Also, based on this, some of your stats are kinda off.. Comparing it with 2009 it goes to show that at the top levels, there isnt much differentiation.

Have a nice day.

 

[Deck Knight]

According to the United Nations Development Programme, Norway has held down the highest HDI for 7 years out of the last 10.

In conclusion: intelligent regulation good, apparently people like Deck Knight and yourself can't drive that through your skulls.

Oh Trax I simply love your economic policy, you are letting me live rent-free in your head. I wish the ammenities were better though.

Not that I've ever opposed "regulation" in the abstract at all. What I do oppose is wholesale overhauls of integral socio-econimic systems that require thousands of pages of regulations passed under the impetus the matter is too urgent for its proponents to even read it, and that we must wait until after it becomes law to find out its impact. Whatever that process is, "intelligent" is not among the adjectives suitable to describe it.

I also have a healthy distrust of government intervention after a crisis, since they tend to engage in massive overreach. This inclination is not assuaged at all when multiple government officials at the highest levels use terminology like "never waste a crisis."

Furthermore regulation which encourages bad behavior is very possible and in fact in part the cause of the economic collapse of 2008, which is almost certain to impact both indices in the OP. When a bank is put in the position that they must lend to people they previously would not have due to their credit-worthiness or else face economic sanctions or social strife and political attacks, bad behavior and people who exploit it become the norm. They enrich themselves personally until the bubble bursts, and then turn around and point fingers at everyone else. This would be another example of regulation that is not intelligent, but is very politically popular at the time of its passage.

In conclusion I would appreciate it if you exercise a little more of that tolerance I hear is quite popular these days among your contemporaries. Thank you.

 

[Ancien Régime]

Am I correct that Americans pay Social Security on top of their base taxrate?

Also, based on this, some of your stats are kinda off.. Comparing it with 2009 it goes to show that at the top levels, there isnt much differentiation.

Have a nice day.

True, I suppose; my point would have been a bit stronger if this plot had 2010 data, because the 2010 data is more differentiated.

However, there is a perception that the European social welfare states beat America in "quality of life", so the data is kind of to show that despite their social welfare focus, their success seems to be as much based on free markets as America.

 

[Chou Toshio]

The invisible hand really falls apart when you have markets where people can't/won't shop around to find the highest-price buyer or lowest-price seller i.e. when the information is in fact imbalanced (even if it's not inherently unknowable). Most market regulation, like the Australian TPA (soon to be renamed to the ACCA), is attempting to stop those with lots of information abusing it in such a way that the hand can't work.

tl;dr = regulation should be, and often is, used as an attempt to maintain the invisible hand effect.

How much do trips to the grocery store really matter? When making important decisions on big purchases like buying a house, land, or supplies for production (in a company) I am sure there is a lot more shopping around.

Information may not be perfect, but it's close-- and will only get closer with technology.

I did mention "false informative" (along with theft, coercion, civil war, etc.) as one of those things that has to be regulated for the invisible hand to work.

 

[cantab]

Am I correct that Americans pay Social Security on top of their base taxrate?

We have the same arrangement in the UK: National Insurance is separate from Income Tax. In theory the money is ring-fenced for the NHS and for certain benefits, most notably the State Pension.

How much do trips to the grocery store really matter?

Here, the grocery market is one of the most competitive around, with the slimmest of profit margins. The supermarkets compete aggressively to win customers; they wouldn't do that if we didn't care about getting cheaper food.

 

[Hipmonlee]

Yeah, I was going into the higher tax on Australians thing, I dont think that is true even at a personal level because of things like Social Security.

Have a nice day.

 

[Firestorm]

That is, I think, another inherent problem with regulation - the power of big business to influence politicians who write the regulations (how are Canada's campaign finance laws btw? Or Australia's? I think that restrictions on the power of businesses to influence legislation for their own benefit is absoutely integral to a free market).

Corporations are prohibited from donating for elections in Canada. There's also a limit on how much can be spent during the election and how much can be donated by individuals.

http://www.mapleleafweb.com/features/federal-campaign-finance-laws-canada#overview

 

[WaterBomb]

Most of this shit goes over my head. I do know that the US pays lower taxes than most other developed countries, and the reason countries like Norway and Sweden have such high life expectancy is because they enjoy cradle-to-grave coverage. This is due to the fact that almost 60% of their money goes to taxes.

Could someone explain to me how this correlates to HDI and EFI though?

 

[Chou Toshio]

Here, the grocery market is one of the most competitive around, with the slimmest of profit margins. The supermarkets compete aggressively to win customers; they wouldn't do that if we didn't care about getting cheaper food.

In which case the point stands even firmer-- what are these industries where consumers "stupidly" throw around their money without shopping around?

 

[vonFiedler]

In which case the point stands even firmer-- what are these industries where consumers "stupidly" throw around their money without shopping around?

Video games.

 

[Firestorm]

In which case the point stands even firmer-- what are these industries where consumers "stupidly" throw around their money without shopping around?

Internet, Telephone, Wireless, Cable. It's not that consumers are stupid. It's because we have no choice but to take it up the ass. The nature of these services grant companies a sort of oligopoly and they're free to do what they want unless we have regulators making sure consumers' interests are taken into account. The problem is when the regulators are ex-executives of the companies they're supposed to be regulating...

 

[Ancien Régime]

Internet, Telephone, Wireless, Cable. It's not that consumers are stupid. It's because we have no choice but to take it up the ass. The nature of these services grant companies a sort of oligopoly and they're free to do what they want unless we have regulators making sure consumers' interests are taken into account. The problem is when the regulators are ex-executives of the companies they're supposed to be regulating...

Yeah, we have the same problem here, but I don't think it's by the nature of the service; there's a lot of "regulation" that is designed to protect the profits of the big providers and lock out competition in certain markets. For the most part, our telecoms have regional monopolies at least partially assured by local or state governments, for example.

 

[WaterBomb]

Yeah, we have the same problem here, but I don't think it's by the nature of the service; there's a lot of "regulation" that is designed to protect the profits of the big providers and lock out competition in certain markets. For the most part, our telecoms have regional monopolies at least partially assured by local or state governments, for example.

Case in point: FUCKING COMCAST