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catallaxy in technical exile

Learning from America?

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Peter Saunders of the Centre for Independent Studies urges Australian policy makers to learn from the American experience. Daniel Mitchell of the Heritage Foundation hopes American policy makers will learn from the Russian experience. These debates about individual policies often broaden into arguments about rival social orders — Sweden’s social democracy versus, say, Singapore’s ‘Asian values’ capitalism. So how do we decide which country’s model is best?

Friedrich Hayek argued that "we should regard as the most desirable order of society one which we should choose if we knew that our initial position in it would be decided purely by chance (such as the fact of our being born into a particular family)" (p132). In a recent book review Joseph Stiglitz puts the American system to a similar test:

Consider the following thought experiment: If you could choose which country to live in but would be assigned an income randomly from within that country’s income distribution, would you choose the country with the highest GDP per capita? No. More relevant to that decision is median income (the income level that 50 percent of the population is below and 50 percent is above). As the income distribution becomes increasingly skewed, with an increasing share of the wealth and income in the hands of those at the top, the median falls further and further below the mean. That is why, even as per capita GDP has been increasing in the United States, U.S. median household income has actually been falling.

There are other reasons why someone might not want to look at just per capita GDP. He might worry about his security. What happens if he gets ill? If he loses his job? What happens when he retires? He might worry about crime. He might worry about the quality of his children’s schooling. How do his children fare in competition with those who can afford the best schooling that money can buy or with those in countries such as Singapore that offer a first-rate public education? He might worry about the environment. Are there government regulations prohibiting arsenic in the water?

When viewed through these lenses, the United States does not look as good. There are some dimensions in which it is outpacing others — for instance, it boasts five to ten times the per capita prison population of other advanced industrialized countries and more working hours per week. It also has less job security, worse unemployment insurance, and fewer people covered by health insurance.

Stiglitz is reviewing Benjamin Friedman‘s new book The Moral Consequences of Economic Growth. His verdict? The book is "an important antidote to the populist antigrowth movement and also to those who say that the free market is all we need." Over at the Imagining Australia blog Andrew Leigh is "hoping that Clive Hamilton and Ross Gittins find copies in their Christmas stockings."


Written by Admin

November 21, 2005 at 11:32 am

Posted in Uncategorized

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