Source: Index of Economic Freedom: Promoting Economic Opportunity and Prosperity by Country.
@OwenJones84 @K_Niemietz Venezuelan, Chilean and Chinese index of economic freedom rankings 2016
06 Feb 2016 Leave a comment
in development economics, economics of regulation, entrepreneurship, fiscal policy, growth disasters, growth miracles, industrial organisation, labour economics, law and economics, macroeconomics, monetary economics, property rights, public economics Tags: capitalism and freedom, Chile, China, The Great Escape, Venezuela
A bizarre Finnish amateur racing car practice for redistributing winning
06 Feb 2016 Leave a comment
in economics of media and culture, fiscal policy, income redistribution, labour economics, labour supply, law and economics, poverty and inequality, property rights, public economics, rentseeking Tags: basic income, car racing, Finland, guaranteed minimum income, negative income tax
Compulsory superannuation makes a big difference to the size of Australian public sector
01 Feb 2016 Leave a comment
in fiscal policy, politics - Australia, public economics
Indirect taxes as % of US, UK, Danish, Australian and New Zealand GDPs
30 Jan 2016 Leave a comment
in economic history, fiscal policy, public economics
There are big differences between the USA, between the USA and Australia and the rest with a mild exception for the UK.

Data extracted on 30 Jan 2016 03:05 UTC (GMT) from OECD.Stat.
The @LordAshcroft focus group research on @UKLabour
27 Jan 2016 Leave a comment
in constitutional political economy, fiscal policy, politics - New Zealand, Public Choice
The focus group work of Lord Ashcroft after the 2015 British general election reinforces what was learnt about the New Zealand Labour Party’s drift away from the values of the working class.

Source: The Unexpected Mandate: my review of the 2015 election and the unusual parliament that preceded it – Lord Ashcroft Polls.
In the 2014 election in New Zealand, the Labour Party promised to extend the in work tax credit for families to welfare beneficiaries. This was worth about $60 a week.
The following week was the worst week that Labour Party MPs and party workers experienced in their door-knocking. In their own Heartland electorates, the Labour Party door knockers received a hostile response to that proposal.
Working class Labour voters believe they had earned that family tax credit by working and it should not be paid to people who do not earn it by working.
There is a re-occurring theme among those who stopped voting labour everywhere is that Labour Party is are now too concerned about scroungers and are not interested enough in rewarding strivers, and in particular those who strive to improve themselves in the working class.
Ashcroft’s research after the 2010 British general election found that British voters who had stopped voting Labour after previously supporting it believed that the Labour Party did not have the right answers to important questions. 7 out of 10 of these voters believe that the expenditure cuts of the Conservative party when necessary.
Importantly for labour parties everywhere, two thirds of voters would take a lot of persuading before they voted for the British Labour Party again. Labour would need to change quite fundamentally before they did so again.
Many said they would wait until Labour had been re-elected and served a full term before they themselves considered voting Labour again. That means two thirds of the vote lost by Labour were unwilling to vote Labour again until the 2025 general election. They had really given up on Labour despite their support for it in the past. Issues such as a perception that Labour elected the wrong brother as its leader in 2010 were minor in comparison to this.
Fortunately for the Conservative Party, research among Labour Party members and Labour supporters in the trade unions tells a very different message as to why Labour lost the 2010 British general election.
These Labour Party members and supporters thought the voters were wrong to not vote for them according to the Ashcroft research after the 2010 election:
They thought they had lost because people did not appreciate what Labour had achieved; that voters had been influenced by the right-wing media; and that while Labour’s policies had been right, they had not been well communicated.
More than three quarters thought their party had not deserved to lose, and most rejected the idea that the Labour government had been largely to blame for the economic situation.
They thought the swing voters they had lost (and needed to win back) were ignorant, credulous and selfish. More than half thought the coalition would prove so unpopular that Labour would probably win the 2015 election without having to change very much.
The strength of British Labour in the eyes of many voters is it is seen as compassionate and concerned about fairness. Unfortunately for British Labour, many of the people who do not currently vote for Labour but are receptive to these messages of compassion and fairness re fiscal conservatives according to the Ashcroft research:
I found in my focus groups that this message was best received by those already most inclined to vote for the party.
It was less effective for those who had harder questions, particularly about how all this compassion and decency would be paid for. As one of our participants put it, ‘it’s all well and good to say we’re nicer people and we care about you more, but I want someone who can sort out the country’.
British, French, German and Italian All-in average personal income tax rates at average wage by family type
23 Jan 2016 Leave a comment
in fiscal policy, macroeconomics, public economics Tags: British economy, France, Germany, Italy, taxation and labour supply
Why @garethmorgannz wants his great big new tax @geoffsimmonz
21 Jan 2016 Leave a comment
in economic growth, fiscal policy, labour economics, labour supply, macroeconomics, politics - New Zealand, public economics Tags: Gareth Morgan, optimal tax theory, taxation of capital
Source: Poll Results | IGM Forum.
A reminder of Europe’s credit risks.
18 Jan 2016 Leave a comment
in Euro crisis, financial economics, fiscal policy
The modern macroeconomics of the Global Financial Crisis
02 Dec 2015 Leave a comment
in applied price theory, budget deficits, business cycles, economic growth, economic history, economics of regulation, Euro crisis, fiscal policy, global financial crisis (GFC), great depression, great recession, macroeconomics, monetary economics Tags: adverse selection, bank panics, bank runs, banking crises, deposit insurance, economics central banks, financial crises, moral hazard, sovereign defaults
Where are British taxes spent?
26 Nov 2015 1 Comment
in budget deficits, defence economics, economics of education, fiscal policy, health economics, labour supply Tags: ageing society, British economy, British politics, demographic crisis
Government debt since 1880
23 Nov 2015 Leave a comment
in economic history, fiscal policy, macroeconomics Tags: sovereign debt, sovereign debt crises, sovereign defaults
Eurosclerosis, Swedosclerosis, the British Disease and rising inequality harming economic growth
21 Nov 2015 2 Comments
in currency unions, economic growth, economic history, Euro crisis, fiscal policy, macroeconomics, politics - USA Tags: British disease, British economy, Eurosclerosis, France, sick man of Europe, Sweden, Swedosclerosis, Twitter left
The Washington Centre for Equitable Growth have joined the Wall Street Journal in falling for that dodgy OECD hypothesis about rising inequality holding back economic growth.
The chart below shows stark differences between egalitarian Sweden and France, and the more unequal UK since 1970 in departures from a trend growth rate of 1.9% in real GDP per working age person, PPP.

Source: Computed from OECD Stat Extract and The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/
In the above chart, a flat line is growth at the same rate as the USA for the 20th century, which was 1.9% for GDP per working age person on a purchasing power parity basis. The USA’s growth rate is taken as the trend rate of growth of the global technological frontier. A falling line in the above chart is growth in real GDP per working age person, PPP, at below this trend rate of 1.9%; a rising line is above trend rate growth for that year.
- Sweden really had been the sick man of Europe until it turned its back on high taxing, welfare state socialism in the early 1990s.
- France has been in a long decline so much so that the global financial crisis is hard to pick up in the acceleration in its long decline in the mid-1990s.
Britain did very well, both under the neoliberal horrors of Thatcherism and the betrayals by Tony Blair of a true Labour Party platform. The UK grew at above the trend annual growth to 1.9% for most of the period from the early 1980s to 2007.
Neither France or Sweden, despite their egalitarian economies, kept up with the US growth rate since 1970. Under the OECD’s hypothesis, if France and Sweden had been more unequal, their trend growth rates would have been even more appalling since 1970.
@JohnQuiggin on “How New Zealand fell further behind” @FairnessNZ
15 Nov 2015 1 Comment
in applied welfare economics, economic growth, economic history, economics of regulation, fiscal policy, labour economics, politics - New Zealand Tags: Australia, John Quiggin, lost decades
Leading Australian academic economist John Quiggin has just published an article arguing that New Zealand should not be a policy role model for anything. To quote Quiggin:
For most of the twentieth century, the New Zealand and Australian economies performed almost identically. New Zealand took a somewhat larger hit when Britain entered the European Common Market in the 1970s, but that impact has long since washed out. The real divergence came in the 1980s. Since then, New Zealand’s income per person has fallen 35 per cent behind Australia’s
He used Reserve Bank of New Zealand data going back to 1990, which is common starting point for most Reserve Bank data.

Source: John Quiggin “How New Zealand fell further behind”. Inside Story, 11 November 2015.
If he had taken that chart back to the 1970s and earlier using the Conference Board Total Database, Quiggin would have found that New Zealand economy diverged from Australia in the 1970s, not in the 1980s. His data from the Reserve Bank of New Zealand started at the low point in 1990 – at the end of that divergence that started in 1974. The New Zealand economy was depressed between 1974 and 1992. I label this Great Depression in New Zealand as New Zealand’s Lost Decades.

Source: Computed from OECD Stat Extract and The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/
Real GDP PPP per working age New Zealander fell rapidly after 1974 (a 34% drop against trend) when that economy was a heavily regulated, highly taxed economy. This heavily regulated, highly taxed, economically stagnant New Zealand is the good old days in the eyes of the Twitter Left.

Source: Computed from OECD Stat Extract and The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/
In the chart above, the base is 1974 which equals 100. A flat-line means annual growth equal to the trend rate of growth in the 20th century for the USA. A falling line means below trend growth; a rising line means above trend rate economic growth per working age Australian or New Zealander.
With the election of a National Party government in 1990 and a massive fiscal consolidation, New Zealand growth rate returned to the previous trend rate of 1.9% in 1992. Ruth Richardson’s horror budget of 1991 was so bad that the what became the Twitter Left called it the “Mother of All Budgets“.
What followed this massive fiscal consolidation where welfare benefits for cut severely was an economic boom that lasted until the GFC.

Source: Income Gap | New Zealand Council of Trade Unions – Te Kauae Kaimahi.
As shown in the chart conveniently compiled by the New Zealand Council of Trade Union, there was 20 years of real wage stagnation until the passage of the Employment Contracts Act in 1991.

Source: Income Gap | New Zealand Council of Trade Unions – Te Kauae Kaimahi with annotations.
What followed the passage of that Act was sustained real wages growth for the first time in two decades and the end of growing inequality under the previously highly taxed, heavy regulated economy that was good old days New Zealand if the Twitter Left is to be believed.
To do this, to paint pre-1984 New Zealand, pre-neoliberal New Zealand as a fairly egalitarian paradise, Max Rashbrooke is an example of that is had to ignore two thirds of the population and the inequalities they suffered:
“New Zealand up until the 1980s was fairly egalitarian, apart from Maori and women, our increasing income gap started in the late 1980s and early 1990s,” says Rashbrooke. “These young club members are the first generation to grow up in a New Zealand really starkly divided by income.”
Racism and patriarchy can sit comfortably with a fairly egalitarian society if you are to believe the vision of the Twitter Left as to their good old days. John Quiggin refers to the period in Australia known as the Menzies Era as part of his golden age of the mixed economy. The Menzies Era was most of the 23 years of uninterrupted conservative party rule between 1949 and 1972. The actual Menzies Era was the period up to 1966 when Liberal Party Prime Minister Sir Robert Menzies retired
The reforms of the 1980s known as Rogernomics stopped the long-term stagnation in real wages that started in about 1974. The reforms of the early 1990s under a National Party government including a massive fiscal consolidation and the passing of the Employment Contracts Act was followed by the resumption of sustained growth in real wages with little interruption since.
New work by Chris Ball and John Creedy shows substantial *declines* in NZ inequality.
initiativeblog.com/2015/06/24/ine… http://t.co/f94fw4Bhae—
Eric Crampton (@EricCrampton) June 24, 2015
This boom after two decades of minimal real economic growth per working age New Zealander benefited everyone. The unemployment rate fell to a record low of 3.5% about 2005. Maori unemployment was at a 20-year low of 8% in 2008. Maori labour force participation rates increased from 45% in the late 1980s to about 62% by the eve of the Global Financial Crisis.
The increase in percentage terms of Maori and Pasifika real household income is much larger than for Pakeha since the economic reforms of the 1980s and 1990s. As Bryan Perry (2015, p. 67) explains when commenting on table D6 sourced by Closer Together Whakatata Mai:
From a longer-term perspective, all groups showed a strong rise from the low point in the mid 1990s through to 2010. In real terms, overall median household income rose 47% from 1994 to 2010: for Maori, the rise was even stronger at 68%, and for Pacific, 77%. These findings for longer- term trends are robust, even though some year on year changes may be less certain. For 2004 to 2010, the respective growth figures were 21%, 31% and 14%.
@PhilTwyford fantastic @nzlabour policy breakthrough on housing affordability
08 Nov 2015 Leave a comment
in applied price theory, economics of regulation, fiscal policy, politics - New Zealand, urban economics Tags: housing affordability, land supply, New Zealand Greens, New Zealand Labour Party, RMA
Labour yesterday announced an excellent policy on housing affordability. The reforms proposed by Labour stress increasing the supply of land and improvements to local government finances surrounding infrastructure investments for new housing:
Labour will free up density and height controls to allow more medium density housing and reform the use of urban growth boundaries so they don’t drive up section costs. This will curb land bankers and speculators.
Labour has struck at the heart of two major constraints on urban land supply New Zealand: restrictions on density and height of new developments, and much more importantly, the use of urban growth boundaries to drive up land prices. These proposed regulatory reforms could not be more welcome.
The other shoe of Labour’s housing affordability reform proposals is improving the incentives for local councils to support new housing developments:
The other new element is changing the way we fund infrastructure for new developments. Currently those costs are either subsidised by the ratepayer or passed by the developer onto the price tag of a new home. That makes houses much more expensive. It also means they are paid off through mortgages at expensive bank interest rates.
Our new policy will see infrastructure funded by local government bonds, paid off over the lifetime of the asset through a targeted rate on the properties in the new development. This will substantially reduce the cost of new housing.
The reforms proposed by Labour to local government financing will reduce the financial burden on existing ratepayers of the local government funded infrastructure necessary to support new land developments.

Source and notes: International House Price Database – Dallas Fed June 2015; nominal housing prices for each country is deflated by the personal consumption deflator for that country.
These Labour Party reforms are fantastic because the main party on the left-wing of New Zealand politics has faced up to restricted land supply as a key reason behind housing unaffordability. I wonder what the New Zealand Greens will think of these major new reforms.
Of course, nothing is perfect in the art of policy development. New Zealand Labour continue to want government to build 100,000 affordable houses and scapegoat foreigners for high housing prices.
A few more sensible economic and fiscal policy announcements such as those today by the New Zealand Labour Party and it will start looking like a credible alternative government.
What’s the difference between embedded neoliberalism and Director’s Law of public expenditure?
06 Nov 2015 Leave a comment
in economic growth, economic history, fiscal policy, George Stigler, Marxist economics, Public Choice, public economics Tags: conspiracy theories, growth of government, Leftover Left, median voter theorem, neoliberalism, rational ignorance, Sam Peltzman, size of government
I learnt a new word today off the back of Jane Kelsey winning a $600,000 Marsden grant to study embedded neoliberalism and her latest transnational conspiracy theory about trade agreements.
I’ve never heard of embedded liberalism before today despite a keen interest in popular and academic news. I don’t think I’m poorer for that ignorance but let’s push on. According to that source of all knowledge and truth Wikipedia, embedded neoliberalism’s been around for about 35 years:
Embedded liberalism is a term for the global economic system and the associated international political orientation as it existed from the end of World War II to the 1970s. The system was set up to support a combination of free trade with the freedom for states to enhance their provision of welfare and to regulate their economies to reduce unemployment. The term was first used by the American political scientist John Ruggie in 1982.[1]
Mainstream scholars generally describe embedded liberalism as involving a compromise between two desirable but partially conflicting objectives. The first objective was to revive free trade. BeforeWorld War I, international trade formed a large portion of global GDP, but the classical liberal order which supported it had been damaged by war and by the Great Depression of the 1930s. The second objective was to allow national governments the freedom to provide generous welfare programmes and to intervene in their economies to maintain full employment.[2] This second objective was considered to be incompatible with a full return to the free market system as it had existed in the late 19th century—mainly because with a free market in international capital, investors could easily withdraw money from nations that tried to implement interventionist and redistributive policies.[3]
The resulting compromise was embodied in the Bretton Woods system, which was launched at the end of World War II. The system was liberal[4] in that it aimed to set up an open system of international trade in goods and services, facilitated by semi fixed exchange rates. Yet it also aimed to “embed” market forces into a framework where they could be regulated by national governments, with states able to control international capital flows by means of capital controls. New global multilateral institutions were created to support the new framework, such as the World Bank and theInternational Monetary Fund.
Source: Embedded liberalism – Wikipedia, the free encyclopedia.
Decoding Marxist rhetoric is never easy, but I think what these academic Marxists are trying to do is describe the rise of the mixed economy and the welfare state over the course of the early and middle parts of 20th century.
The welfare state was never an easy thing for your card-carrying Marxist looking forward to the immiserisation of the proletariat as the trigger for the proletarian revolution.

Embedded neoliberalism mostly all about what Aaron Director in the 1950s explained as the reasons for the growth of government in the 20th century. He put forward what George Stigler label for him Director’s Law of Public Expenditure. George Stigler published an article on this law because Aaron Director published next to nothing for reasons no one understands. Director founded law and economics through teaching law classes at the University of Chicago law school.
Long live the Slopegraph. Long live Edward Tufte. tinyurl.com/naeh7rc http://t.co/C8Lgnupxz9—
Amity Shlaes (@AmityShlaes) May 16, 2015
Sam Peltzman pointed out that most of modern public spending is supported by the median voter – the ‘swinging’ voter. He observed that governments at the start of the 20th century were a post office and a military; at the end of the 20th century, governments are a post office, a larger military and a very large welfare state.
Studies starting from Peltzman in 1980 showed that governments grew in line with the growth in the size and homogeneity of the middle class that was organised and politically articulate enough to implement a version of Director’s Law.
Director’s Law of public expenditure is that public expenditure is used primary for the benefit of the middle class, and is financed with taxes which are borne in considerable part by the poor and the rich. Based on the size of its population and its aggregate wealth, the middle class will always be the dominant voting bloc in a modern democracy. Growth in the size of governments across the developed world took off in the mid-20th century as the middle class blossomed. Peltzman maintained that:
“The levelling of income differences across a large part of the population … has in fact been a major source of the growth of government in the developed world over the last fifty years” because the levelling created “a broadening of the political base that stood to gain from redistribution generally and thus provided a fertile source of political support for expansion of specific programs. At the same time, these groups became more able to perceive and articulate that interest … [and] this simultaneous growth of ‘ability’ served to catalyse politically the spreading economic interest in redistribution.”
After the 1970s economic stagnation, the taxed, regulated and subsidised groups had an increasing incentive to converge on new, lower cost modes of income redistribution.
- economic reforms ensued, led by parties on the left and right, with some members of existing political and special interest groupings benefiting from joining new coalitions.
- More efficient taxes, more efficient spending, more efficient regulation and a more efficient state sector reduced the burden on the taxed groups.
- Most of the subsidised groups benefited as well because their needs were met in ways that provoked less political opposition from the taxpaying groups.
Sweden, Norway and Denmark could be examples of Gary Becker’s idea that political systems converge on the more efficient modes of both regulation and income redistribution as their deadweight losses grew in the 1970s and 1980s and after. Unlike some of their brethren abroad, more of the Nordic Left and, more importantly, the Nordic median voter were cognizant of the power of incentives and to not killing the goose that laid the golden egg. Taxes on income from capital are low in Scandinavia.
The rising deadweight losses of taxes, transfers and regulation all limit the political value of inefficient redistributive policies. Tax and regulatory policies that are found to significantly cut the total wealth available for redistribution by governments are avoided relative to the germane counter-factual, which are other even costlier modes of redistribution.
An improvement in the efficiency of either taxes or spending reduces political pressure from taxed and regulated groups for suppressing the growth of government and thereby increases total tax revenue and spending because there is less political opposition. Efficient taxes lead to higher taxes.
Improvements in the efficiency of taxes, regulation and in spending reduce political pressure from the taxed and regulated groups in society. This suppressed the growth of government and thus increased or prevented cuts to both total tax revenue and spending since 1980. Economic regulation lessened after 1980 and there were privatisations, but social and environmental regulation grew unabated. Certainly in New Zealand the post-1984 economic reforms followed a good 10 years of economic stagnation and regular economic crises:
In the early 1980s, New Zealand’s economy was in trouble. The country had lost its guaranteed export market when Britain joined the European Economic Union in 1973. The oil crisis that year had also taken a toll.
The post-1980 reforms of Thatcher, Reagan, Clinton, Hawke and Keating, Lange and Douglas and others saved the modern welfare state for the middle class. Most income transfer programmes in modern welfare states disproportionately benefit older people. With an aging society, that trend can only continue. That is why these reforming policies survived political competition, election after election. The political parties on the left and right that delivered efficient increments and streamlined the size of government were elected, and in turn, got thrown out from time to time because they became tired and flabby.
The rest of embedded neoliberalism is trying to explain widespread economic deregulation and liberalisation of international trade along with the continual growth of social regulation. This is something that Gary Becker, George Stigler and Sam Peltzman have written on previously.
The continued growth of social regulation is best explained by the median voter theorem. Both Bryan Caplan and Sam Peltzman pointed out that it’s hard to think of any major government program or regulation that does not enjoy widespread popular support.
As for the public been duped by neoliberal economists, George Stigler argued that ideas about economic reform need to wait for a market. As Stigler noted, when their day comes, economists seem to be the leaders of public opinion but when the views of economists are not so congenial to the current requirements of special interest groups and voting public, these economists are left to be the writers of letters to the editor in provincial newspapers. These days they would run an angry blog.



Recent Comments