Saturday, January 14, 2006

Anne-Marie Lindgren's Confused Thinking

There was recently a interesting debate [In Swedish] between libertarian Johnny Munkhammar (See here, here and here ) and social democrat Anne-Marie Lindgren (See here and here ) in the Swedish web portal Europaportalen on the merits of the welfare state

Munkhammar defended himself well in the debate, replying for example to Lindgren's anecdotal "evidence" for the claim that taxes do not harm growth by pointing out that taxes lower growth all other things being equal. Because all other things are not equal, the statistical correlation will not be perfect, just as the statistical correlation between any causal factor and any phenonema will be imperfect because there are always other causal factors affecting the phenonema. And both on a theoretical basis as well as in many empirical studies (In Munkhammar's book European Dawn more studies are presented) which have tried to control for some other causal factors behind growth, the negative effect of taxes can be demonstrated.

When confronted by Lindgren with the example of China and other East Asian tigers, Munkhammar did however miss just how absurd Lindgren's argument was. Lindgren argued against Munkhammar's argument that economic freedom increases growth by saying that the governments of China and other East Asian countries restricts the freedom of its citizens in various ways. Munkhammar replied that while China is still a dictatorship, its economy is freer than under Mao. That is true of course, but Lindgren's flaw was even greater than that. The debate between Munkhammar and Lindgren was not about economic interventions in general (much less supression of free speech), but the social democratic forms of economic interventions, which is to say the welfare state. And while the Chinese government restrict economic freedom in some ways that the Swedish social democrats don't , they do not have a welfare state. Indeed the Chinese government have been attacked by some western observers for not having enough welfare state spending. Interestingly one of the restrictions that Lindgren cited was supression of labor unions, one of the most cherished social democratic institutions (and thus hardly a market phenonema).

The same thing goes for the other East Asian economies. It is true that with the exception of Hong Kong , all have to a varying extent pursued so-called industrial policy. Yet they have all also largely abstained from the social democratic welfare state. The East Asian country with the highest levels of taxes and government spending is Japan, whose welfare state is roughly as extensive as in the United States. All other East Asian countries have much lower levels of taxes and government spending than Japan and the United States both of which have in turn much lower levels of taxes and government spending than Sweden and most other Western European countries.

So, in order to defend the welfare state, Lindgren cites how East Asian countries which lacks a welfare state have reached success while pursuing other interventionist policies , policies which she incidentally opposes! Without realizing it, Lindgren was thus arguing against her own social democratic policies by citing examples of countries which have abstained from social democratic policies and have had high growth.


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