Thursday, May 27, 2010

Neoliberalism and America’s Amazing Success

Scott Sumner (The Money Illusion) has a great post about America’s amazing success since 1980.

He takes issue with Paul Krugman who, in dozen of posts, « ridicules the idea that tax cuts for the rich, deregulation and privatization produce prosperity. »

Comparing the performance of many countries between 1980 and 2008 (with an intermediate observation in 1994) he concludes that :

« the performance of every single country on the list is consistent with my view that the neoliberal reforms after 1980 helped growth, and inconsistent with Krugman's view that they did not.

Krugman makes the basic mistake of just looking at time series evidence, and only two data points: US growth before and after 1980. Growth has been slower, but that's true almost everywhere.

What is important is that the neoliberal reforms in America have helped arrest our relative decline The few countries that continued to gain on us were either more aggressive reformers (Chile and Britain), or were developing countries that adopted the world's most capitalist model. (According to every survey I have seen HK and Singapore are the top two in economic freedom.)"

The evidence he provides, GDP per capita as a fraction of US GDP per person, drawn from the World Bank database, is well worth looking at.

Note: and especially the weak relative performance of European economies ...

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