John C. M?daille wrote:
> ----------------- HES POSTING -----------------
> Dear Doug,
> 
> We are looking at the same data and coming to 
> opposite conclusions. I must say that my criteria 
> for judgment is purely Hayekian, because I 
> believe that every idea deserves to be judged, in 
> the first instance at least, on its own criteria. 
> And on purely Hayekian grounds, I don't see any 
> of the "success" that you see. Certainly, it is 
> odd to find the communist gov't of China cited as 
> a libertarian success story. You might be right, 
> of course, but the conclusion must be that the 
> libertarian ideal is broad enough to include 
> socialism and communism. I don't know much about 
> Sweden's economy in the period you cite, but is 
> it not fair to ask, "If this supposedly Hayekian 
> economy was so successful, why did the Swedes abandon it so
> completely?"

I did not say that the PRC attained any libertarian ideal. China backed away from its early program of planning, which failed miserably, and allowed some elements of capitalism. the introduction of a small amount of capitalism in the PRC coincided with improved results. Lennin also abandoned his initial effort at planning in the USSR with his New Economic Policy. The NEP was by no means what Hayek would have recommended, but it was a step in the right direction. As for Sweden, their reasons for abandoning free enterprise after it worked so well are not fully explained. I would guess that ideology and the romaticization of an egalitarian society was the cause, but I cannot prove this. 

> >I know that Reagan cut marginal income tax 
> >rates. Reagan also raised social security taxes 
> >and ran huge deficits, so that is a mixed bag.
> 
> We would seem to agree, then, that Reagan did try 
> to implement Hayek's ideas, and that the best he 
> could achieve was a "mixed bag" (your 
> description) or a complete failure (my 
> description.) As far as Reagan "cutting taxes" 
> goes, it simply isn't true, because borrowing is 
> taxing too. This can't be said often enough. 

I would disagree. If my marginal income tax rates are cut today, I have an incentive to earn more now, even if I expect future taxes to increase. Unless the taxes that pay the debt are retroactive, the real return on my current income is higher with lower tax rates. How is this not the case? Of course, if deficits cause future taxes to rise, labor supply will contract, at the margin. But people do not know what their share of future taxes will be. Ricardian equivolence is fantasy. 

To 
> lower the rate and borrow the difference is not 
> tax-cutting, it is tax-shifting, from the current 
> generation to the next. 

Yes, hence there is a positive  supply side effect of some magnitude for the current generation, and a negative one for the next.


Further, if we are 
> working with deficit financing, is that not more 
> Keynesian than Hayekian? Should we attribute any 
> "success," such as it is, to Keynes or to Hayek? 

That depends upon whether investment is crowded out or crowded in. YEa I know Hayek did not get into all this supply side stuff, but you brought up Reagan, so it needs to be mentioned. 


> And was it really a success? It is very easy to 
> produce the illusion of wealth by borrowing a lot 
> of money. 

that depends upon what the deficit financed, real public goods of genuine value or pork barrel nonsense and rent seeking transfers. 


But it seems to me that our current 
> economic conditions of enormous debt and 
> diminishing economic power have their roots in 
> Reagan. And we need to dispel the myth that 
> Reagan raised revenues by cutting rates. The 
> Treasury's own office of Tax Analysis shows that 
> this is untrue 
> (http://www.ustreas.gov/offices/tax-policy/library/ota81.pdf).

> Reagan did raise revenues--by raising taxes, and 
> still managed to run record deficits.
> 
> 
> >Dawson, John W. (2007) "Regulation and the 
> >Macroeconomy." Kyklos, Blackwell Publishing, vol.
> 60(1), pages 15?36, 02.
> >Dawson, John W. & John J. Seater (2005) "The 
> >Macroeconomic Effects of Federal Regulation." 
> >Working Papers 05?02, Department of Economics,
> Appalachian State University
> >Dawson and Seater find a negative correlation 
> >between regulation and growth. there was a drop 
> >in the level of regulation in 1985- that one 
> >year of the Reagan administration.
> 
> Yes, and I seem to remember that the most 
> immediate effect was the Savings and Loan crises. Was this
> success?

I am not an expert on the details of the S+L crisis, but the overall record on deregulation is pretty clear. 


> >There was also a drop in regulation for three 
> >years following the 1994 congressional election. 
> >Otherwise regulation has risen for every year in 
> >living memory. That is what the data shows. 
> >Depite this, the US remains less regulated than 
> >most nations in the world. Consequently the US 
> >can be seen as more Hayekian than other nations,
> 
> Exactly! And what are the results? Unmanageable 
> debts, a zero-savings rate, a bloated 
> bureaucracy, a diminishing industrial base (the 
> only real way to repay debts), a crumbling 
> infrastructure, a financial melt-down, diminished 
> labor force participation rates (giving the 
> illusion of low unemployment rates), a 
> health-care system in disarray, an increasingly 
> stratified educational system, a growing gap 
> between rich and poor, median wages static for 30 
> years, etc. If this is success, I would hate to see what
> failure looks like.

Well, recent studies have shown that nearly everyone saves enough to at least get by in retirement, so the alleged savings crisis overblown. As for the national debt, that is the result of failure to listen to hayek and Friedman. If we all took their advice on cutting government spending, the deficit would vanish and the debt would start to decline. You cannot blame Hayek for the failure of the electorate to take his full advice. As I said before, there have only been a few steps in the Hayekian direction in recent decades. We need to go further, and his program cannot be seen as a failure simply due to a lack its full implementaition. 

> >  but there has hardly been a Hayekian takeover. 
> > There is a large literature on the correlation 
> > between economic freedom and economic growth.
> 
> Does any of this literature define "economic 
> freedom"? I often see the term used, and never see it
> defined.

Yes, in detail. Its on the NET

 
> >Once more, the relative degree of free commerce 
> >correlates with actual results, real results, 
> >actual improved performance, not in theory, but 
> >in empirical observable measureable data.
> 
> But it is unclear if the data you cite supports 
> Keynes or Hayek. All we can say with certainty is 
> that the more one tries to be Hayekian, the more 
> the deficits and the government grows.

We have not tried to be Hayekian on the spending side of the budget. 


> >  The fact that Reagan was unable to translate 
> > his rhetoric into large and lasting results 
> > does not change the general 
> > correlation  between economic freedom and 
> > economic performance. The US has less ecomomic 
> > freedom than libertatrians and economic 
> > conservatives would like, but more economic 
> > freedom that most other nations. The US also 
> > happens to be quite prosperous. I have not seen 
> > any credible evidence to the contrary.
> 
> This leads me to ask, "What would you accept as
> evidence?"

Economic Freedom indexes, some of which are on the NET, moreso journal articles published in places like Public Choice and Kyklos. 


> >People like Klein use examples of crony 
> >capitalism to condemn free market capitalism. 
> >The absurdity of this practice should be obvious.
> 
> But Doug, you miss the point. There is only crony 
> capitalism. That has always been the case. It was 
> the case in Adam Smith's day, when 3/4's of The 
> Wealth of Nations was devoted to documenting the 
> cronyism, and it is true in our day. Do you have 
> some day in mind when this wasn't true? Some exception
> to the rule?

No, you have missed the point. There is an ebb and flow to crony capitalism. Adam Smith fought crony capitalism (i.e. mercantilism) and gained some ground. Hayek and Friedman also fought against crony capitalism, and managed only to slow our drift in the wrong direction (which is a real accomplishment). Klein pushes for more government control, which rapidly translates into more crony capitalism. She is pushing in the wrong direction, albeit unwittingly. 

Perhaps this discussion should go off list, or cease altogether. I don't think we will our differences, and I doubt that the rest of the list would benefit from further postings. 

Doug Mackenzie