Why Scott Sumner is Wrong
by Mike Kimel
Why Scott Sumner is Wrong
A number of the big libertarian & rightwing blogs are putting up links to this post by Scott Sumner. I’m kind of surprised because the argument seems to have more than a few weaknesses.
What Sumner is doing is trying to show that the policies pursued by Thatcher and Reagan were a success. He does this by taking the ratio of the GDP per capita of thirteen different countries and compares them to the ratio of GDP per capita of the US. He takes this ratio for each country for 1980, 1994, and 2008. The idea here is that if a country engaged in the kinds of policies Thatcher and Reagan would have approved of, they’d grow faster. So far so good.
Sumner ends concluding that:
So there you are, all these countries support my hypothesis that neoliberal reforms lead to faster growth in real income,
relative to the unreformed alternative. There are two kinds of economists. Those who read the Economist (or FT) every week, and have a pretty good sense of what is going on in the world, and who know why some countries are doing better than others. And those who are lost in their ivory tower doing arcane research. The latter group is often much more highly skilled than I am, and come up with more important new ideas than I ever will. But when talking to this group I often find they are totally oblivious to the neoliberal revolution of the past 30 years.
I have exactly twenty minutes left to write so keep in mind, I’m going to hit the low hanging fruit only.
Update: Rdan here…also see Brad DeLong
1. Without looking at the countries, its obvious to me, a non-ivory tower guy, that the data on Sweden on wrong. He shows Sweden’s GDP per capita as a % of US’ GDP per capita dropping from 1980 to 2008 from .868 to .794. Now, I don’t know offhand what the ratio really is, but it seems kind of funny, I waste two precious minutes pulling up the World Bank data to which he alludes and another finding the figures on the sheet. The numbers I get, going for the GDP per capita, constant 2000 US $ (obviously we want to adjust for inflation, right?) are .865 and .852. In other words, about the same. Sweden no longer works for his argument. I’m not going to look for the data on the rest of the countries.
2. The next question I have is why, when the World Bank has so many countries listed, he picked 13. Why 13? Why those 13? He doesn’t say, and its not exactly a choice that makes any sense. There are some rich European countries, some rich Asian countries, and then there’s Argentina. There’s a conspicuous absence of countries that not long ago folks on the right were calling raving successes and which would probably work according to Sumner’s ratio. I’m guessing Portugal, Hungary, Ireland, Spain, Russia and Latvia, off the top of my head, would fit the bill. But we all know they wouldn’t pass the giggle test these days.
3. I’d include Argentina among the conspicuous absences, except that Sumner has mentioned Argentina, but oddly, as an example that he thinks makes his point. See, his numbers show Argentina lost ground relative to the U.S., and he seems to believe Argentina is one of those countries that did nothing that Reagan or Thatcher would approve of. But that’s odd. Argentina was the success story for folks on the right in the early to mid-90s. (I know the Economist (or FT) covered Domingo Cavallo a number of times.) There’s no way to argue that the US went through anywhere close to the same level of privatization as Argentina did during the 1980 to 2008 period. Scratch Argentina from his argument.
4. Another country on his list is Germany. Now, Sumner acknowledges the whole East German West German thing, but seems to feel that since they lost ground relative to the US since 1994, its a sign that they mostly increased regulation relative to the US. Ignore the fact that East Germany went from a prison state to a piece of West Germany and pretend they somehow became more regulated and all the events on the ground happened with the flip of a switch.
5. I’m not sure exactly how much the Singaporean economy liberalized. Wikipedia tells me the government controls companies that account for 60% of the economy. If that’s Margaret Thatcher’s paradise, I cannot imagine what isn’t.
OK. Time’s up. Gotta go. Have at it.
I love that Sumner thinks his conclusion is so obvious that anyone with a high aptitude, a graduate education and the experience of reading the Economist would agree with him. That, more than anything, discredits him. To not acknowledge the complexity of the issues at hand, the millions (nay, billions) of variables that can never be held constant for a proper evaluation of any particular policy, is to expose yourself as someone whose opinion has asymptotically reached a position not much different than valueless.
Anon Jones
Brilliant post.
I think Sumner has to respond to the Sweden issue. He also has to explain how he chose his countries. He didn’t compare per capita GDP in united Germany to per capita GCP in the FRG did he ?
Yes Singapore has a fully funded pension system = mass forced savings with the money controlled by the state. Not very Reaganite.
I think it is clear that Sumner defines “pro market” as “fast growing” and unconciously assumes what he seeks to prove.
But I mean what a blood bath in 20 minutes. I don’t want to think what you would have done to the post if you had a full hour to spare.
I think you refer to the Sumner post which states “Paul Krugman is wrong” based on the claim that Krugman said something which Krugman didn’t say. Also odd that he thinks Krugman is in the Ivory tower. In recent decades Krugman has been an economist tornado chaser dealing with the crisis of the day (and profit seeking businessmen are willing to pay him $ 20,000 for a speech). Oddly, just today, Krugman links to a post by Thoma criticizing someone who thinks Krugman is ignorant of modern macro theory. Which is he ? Basically a journalist who doesn’t keep up with theory or an ivory tower theorist.
AJ,
I’m perfectly willing to accept believing that a conclusion is obvious… if there’s data to back it up. But from what I can tell, he did something you don’t often see; he inexplicably cherrypicked observations that failed to make his point. The fact that he was so confident after doing that makes him look incredibly uninformed.
Robert W,
Sweden issue…. overnight, I started to think maybe he used nominal GDP per capita. (The World Bank had a lot of different options – I stated which one I used (inflation adjusted) and he didn’t.) But I would imagine that would make Argentina’s results look different (there were still a few high inflation years in the start of the 80s.) I really have no idea what he used and its not worth the time to go back.
FRG issue… he acknowledges he doesn’t know what the data was for 1980. He merely asserts that since the 1994 data had to include EG, and since it went downhill from there (hence my comment about integration at the flip of a switch) that proves his point.
Yes… the post is the Krugman is wrong post. I just figured I’d avoid the theory, because that’s not my thing, and the whole Krugman issue, since mention of the name Krugman just seems to inflame.
To be frank, what I found odd is all the attention this post is getting considering how obviously full of holes it is. And the comments the post had – it really doesn’t seem like his readers spotted a single issue. It seems they’re very uncritical of things that back up their opinion.
Margaret Thatcher in a Reaganesque moment said the “problem with socialism is that they would run out of people to tax”.
I don’t know the context, but the converse may be more interesting.
“The problem with market capitalism is they would run out of people who fall for the scam that there is a market”.
To my seasoned mind it boils down to: socialism versus a few running a magic market either or ecxploiting.
Who do you prefer to be exploited by Thatcher’s and Reagn’s sponsors or by government?
Sumner is joining the fray to sell a con.
Mike, if you decide to look into this in depth, you might also want to look at per capita debt — Public plus Private. If I recall correctly, US per capita debt started to soar about the time that Reagan was elected. (Not necessarily soley as a result of Neoliberal policies) It is difficult to quantify the relationship between GDP and debt, but it’s pretty obvious that increases to GDP funded by borrowing are likely to be a one trick pony unless the borrowing is to buy things like factories that will increase future production. I suspect, based on the absurd price of English housing, that something similar probably happened in England.
BTW, I quit reading the Economist when they completely failed to explain to me what Argentina did wrong in the 1990s … other than to follow the advice of North American and European economists.
Mike, you might want to review this 2009 BLS report: http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&q=%22US+per+capita+income+since+1960%22&btnG=Search&aq=f&aqi=&aql=&oq=&gs_rfai=
I haven’t compared Sumner/World Bank numbers to the BLS, but it does seem to show some similar data. See below.
Table 2. Real GDP per capita (average annual rates of change)
Country 1979-2008 1979-1990 1990-1995 1995-2000 2000-2008 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
United States —–1.8 2.0 1.2 2.9 1.2 1.6 2.7 2.0 1.8 1.0 0.2
Canada ————-1.6 1.5 0.6 3.2 1.3 0.9 2.1 1.9 2.1 1.6 -0.7
Australia ———–1.9 1.7 1.5 3.0 1.7 1.7 2.7 1.4 1.4 2.1 0.4
Japan —————1.9 3.3 1.2 0.8 1.2 1.2 2.7 1.9 2.0 2.3 -0.7
Republic of Korea –5.3 6.5 6.7 3.5 3.9 2.3 4.2 3.7 4.8 4.8 1.9
Singapore ———-4.3 5.3 5.7 3.5 2.5 5.3 7.9 4.8 5.0 3.4 -4.1
Austria ————-1.9 2.0 1.4 2.8 1.6 0.4 1.9 2.2 2.8 2.7 1.3
Belgium ————1.8 2.1 1.2 2.5 1.3 0.6 2.5 1.3 2.3 2.0 0.5
Denmark ————1.7 1.8 2.0 2.4 0.9 0.1 2.0 2.2 3.0 1.2 -1.7
France ————–1.5 1.8 0.7 2.4 1.0 0.4 1.7 1.1 1.5 1.7 -0.1
Germany ————1.6 1.9 1.5 1.9 1.2 -0.3 1.2 0.8 3.1 2.6 1.4
Italy —————–1.5 2.4 1.2 1.9 0.2 -0.8 0.5 -0.1 1.5 0.8-1.9
Netherlands ——–1.9 1.6 1.6 3.4 1.5 -0.1 1.9 1.8 3.2 3.2 1.7
Norway ————–2.4 2.3 3.2 3.1 1.6 0.4 3.3 2.0 1.5 2.1 0.9
Spain —————-2.1 2.4 1.2 3.5 1.4 1.5 1.6 1.9 2.6 2.0 -0.9
Sweden ————-1.8 1.9 0.1 3.2 1.9 1.5 3.7 2.9 3.7 1.8 -1.0
United Kingdom —-2.1 2.1 1.4 3.1 1.9 2.4 2.3 1.4 2.2 2.4 0.4
Note: Data for Germany for years before 1991 pertain to the former West Germany.
Percent changes were calculated from table 1 using the compound rate method.
I did note that the US numbers seemed to be perturbed by the past two administrations who had superior growth when compared to previous.
Mike, you might want to review this 2009 BLS report: http://www.bls.gov/fls/flsgdp.pdf
I haven’t compared Sumner/World Bank numbers to the BLS, but it does seem to show some similar data. See below.
Table 2. Real GDP per capita (average annual rates of change)
Country 1979-2008 1979-1990 1990-1995 1995-2000 2000-2008 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
United States —–1.8 2.0 1.2 2.9 1.2 1.6 2.7 2.0 1.8 1.0 0.2
Canada ————-1.6 1.5 0.6 3.2 1.3 0.9 2.1 1.9 2.1 1.6 -0.7
Australia ———–1.9 1.7 1.5 3.0 1.7 1.7 2.7 1.4 1.4 2.1 0.4
Japan —————1.9 3.3 1.2 0.8 1.2 1.2 2.7 1.9 2.0 2.3 -0.7
Republic of Korea –5.3 6.5 6.7 3.5 3.9 2.3 4.2 3.7 4.8 4.8 1.9
Singapore ———-4.3 5.3 5.7 3.5 2.5 5.3 7.9 4.8 5.0 3.4 -4.1
Austria ————-1.9 2.0 1.4 2.8 1.6 0.4 1.9 2.2 2.8 2.7 1.3
Belgium ————1.8 2.1 1.2 2.5 1.3 0.6 2.5 1.3 2.3 2.0 0.5
Denmark ————1.7 1.8 2.0 2.4 0.9 0.1 2.0 2.2 3.0 1.2 -1.7
France ————–1.5 1.8 0.7 2.4 1.0 0.4 1.7 1.1 1.5 1.7 -0.1
Germany ————1.6 1.9 1.5 1.9 1.2 -0.3 1.2 0.8 3.1 2.6 1.4
Italy —————–1.5 2.4 1.2 1.9 0.2 -0.8 0.5 -0.1 1.5 0.8-1.9
Netherlands ——–1.9 1.6 1.6 3.4 1.5 -0.1 1.9 1.8 3.2 3.2 1.7
Norway ————–2.4 2.3 3.2 3.1 1.6 0.4 3.3 2.0 1.5 2.1 0.9
Spain —————-2.1 2.4 1.2 3.5 1.4 1.5 1.6 1.9 2.6 2.0 -0.9
Sweden ————-1.8 1.9 0.1 3.2 1.9 1.5 3.7 2.9 3.7 1.8 -1.0
United Kingdom —-2.1 2.1 1.4 3.1 1.9 2.4 2.3 1.4 2.2 2.4 0.4
Note: Data for Germany for years before 1991 pertain to the former West Germany.
Percent changes were calculated from table 1 using the compound rate method.
I did note that the US numbers seemed to be perturbed by the past two administrations who had superior growth when compared to previous.
I think it is clear that Sumner defines “pro market” as “fast growing” and unconciously assumes what he seeks to prove.
Maybe it’s not unconscious. Maybe it’s a deliberate attempt to cherry pick. I don’t know much about Sumner, so I’m not prepared to accuse him of anything. But I’m suspicious, because it’s typical of the kind of dishonesty you find in Krugman’s critics. And the fact that he cherry-picked badly just makes him look dumb.
And the lack of critical thinking skills in his readership is also typical of the anti-progressive mind set.
If there were valid criticisms to be made, you’d think they might make them instead of resorting to cherry-picking, mendacity, and appeals to ignorance.
Another trend among regressives it to spout untruths that can be disproven in a 30 second Google search. They wallow in, and appeal to a culture of ignorance.
We are living in interesting times,
JzB
ilsm –
That’s the way it looks these days, but you are presenting a false choice. It’s not Reaganesque pseudo-capitalsm (to borrow brilliant phrase from Mike) vs socialism. I firmly believe that the optimum solution is heavily regulated capitalism with a steeply progressive tax code – basically what we had in this country post WWII, but pre-Reagan (or perhaps Nixon.)
Here’s Krugman with actual data.
http://krugman.blogs.nytimes.com/2010/05/23/the-bestest-generation/
Cheers!
JzB
Debt.
http://jazzbumpa.blogspot.com/2010/03/debt-and-gdp.html
You can ignore my editorializing, and just look at the graph.
Cheers!
JzB
by Bruce Webb
Gosh you have to love a post (Summers) that implicitly begins: “Assume increasing income inequality doesn’t matter and that all gains from productivity (as measured by Real GDP per capita) are perfectly distributed in strict relation to the relative contribution of capital to labor inputs”.
Because once you swallow that big-ass Glibertarian horse pill, and assuming he is not in fact cherry-picking then his conclusions DO follow.
Or we could put it: “Define educated as accepting Freshwater theorems. Take it for granted that Freshwater economists never cherry pick data. Therefore Freshwater conclusions are intuitively obvious”.
Yeah they are, just as various marxist arguments were so in the 1920s-1956 (when Stalin with show trials and invasions made this kind of hard) were obvious to the committed Marxist: ignore the theoretical and practical inconsistencies, rewrite the historical record, and behold Stalin was the greatest scientist EVAH.
Unfortunately this is not a joke. The recent example of the Texas School Board shows that they are willing to not only enshrine the basics of Freshwater Economics as the mandated starting point for studying the field in H.S., they are also explicitly endorsing the Peter G Peterson curriculum for Social Security. Catch ’em young (ideally with some hot Randian sex and metaphysics) and you got them for life. Or until they get humiliated in college by encounter with that thing I call ‘rigor’.
BTW the Peterson thing is no joke. He has committed $2.45 million to Columbia Teachers College to develop a H.S. curriculum on Social Security, to be delivered free to every district in the country.
http://www.tc.columbia.edu/news/article.htm?id=7347
As noted above such data without some further refinement for income distribution only make sense in that magical world where all those decisions are perfectly rendered by the Invisible Hand.
Based on those numbers an unwary, half-informed person like Summers might conclude there are no poor people in South Korea or Singapore because by this particular measure are enjoying the fastest such increases.
Classical economic theory of the Smith-Ricardo strain only works at all because it assumes that misery is just baked into the pie, or with Malthus and essential ingredient of the pie.
You might as well measure wealth by ‘multi-millionaires per capita’. Not much comfort for that Pakistani maid-quasi slave in those wealthy Persian Gulf shiekdoms.
“The numbers I get, going for the GDP per capita, constant 2000 US $ (obviously we want to adjust for inflation, right?) are .865 and .852.”
Why not adjust for mean summer temperature as well? (It would be just as relevant.)
No need to adjust for inflation. Too angry to think?
Gene C,
Listen. I had to guess which of the various GDP per capita series that the World Bank puts out that Sumner wanted to use. He didn’t specify. I went with the one I thought was most likely. You don’t really think I adjusted it for inflation myself, do you?
Take my response to Gene C and add an epithet. If you expect me to read someone else’s mind and then criticize me for doing it something is wrong with you.
I simply picked the first reasonable gdp per capita series I came up with. It doesn’t make any difference whether its adjusted for inflation or not so why should I have kept searching?
To repeat…. I simply picked the first reasonable gdp per capita series I came up with. It doesn’t make any difference whether its adjusted for inflation or not so why should I have kept searching?
One of the first studies Dean Baker produced compared the decades 1960-1979 and 1980-1999. The good thing about Baker’s comparison that Sumner falls short on is that Baker just looks at the US. To add in all those other countries and to say “Wel, everybody’s economy slowed down in the 1980s” is to fail to see that perhaps Reagan’s & Thatcher’s policies caused the economies of the rest of the world to slow down along with our own. Sumner’s failure is one of measurement.