Over in my Twitter feed, Matthew Yglesias reminds me that whatever sins committed against the Gods of Reality-Based Analysis by BernieBros pale in comparison to the total idiocy of the Wall Street Journal and modern Chicago-school economics...
Here is the scatter, for 2014, of GDP per capita levels across the world and the World Bank's "Doing Business" rating:
The U.S. economy is best-of-breed in GDP per capita--even with Hong Kong and a hair below Switzerland--excepting, of course oil economies (UAE, Norway, Qatar, etc.) and money-laundering economies (Luxembourg). The U.S. business climate is very good at an 82--albeit the World Bank says that it is not as great as New Zealand's and Singapore's in the low 90s.
What do you think would happen if the U.S. were to undertake to push its "business climate" not just to Singapore's 93 but to be what the World Bank regards as entrepreneurial best-practice worldwide in all of its components?
What curve would you draw through these points and extend out to an x-axis value of 100?
And how much would you regard that curve as cause-and-effect, with "Doing Business" rating the cause and GDP per capita level the effect, and how much as effect-and-cause or both being results of other factors?
- takes the curve to be 100% a causal relation with "Business Climate" the cause and GDP per capita the effect.
- draws this curve:
The U.S. scores well [on "Business Climate"], but there is plenty of room for improvement.... A score of 100—labeled Frontier—is certainly possible... [and] generates $163,000 of income per capita, 209% better than the U.S., or 6% additional annual growth for 20 years.... If you think these numbers are absurd, consider China. Between 2000 and 2014, China averaged 15% growth and a 700% improvement in income per capita... just [by] turn[ing] an awful business climate into a moderately bad one. It is amazing that governments can do so much damage. Yet the evidence of the graph is strong...
No. I did not believe it either.
You are not wrong to think that Chinese growth between 2000 and 2014 did not average 15%.
You are not wrong to think that China now is not 8-fold richer than it was at the start of the millennium.
You are not wrong to think that neither the cross-country scatter graph with "Business Climate" on the horizontal and GDP per capita on the vertical axis, nor the (heartening) story of China's post-Mao growth) provides any evidence whatsoever for the proposition that boosting the U.S.'s "Business Climate" rating to 100 would boost U.S. GDP per capita to $160,000/year.
But here it is: John H. Cochrane: Ending America’s Slow-Growth Tailspin: The U.S. economy needs a dramatic legal and regulatory simplification http://www.wsj.com/articles/ending-americas-slow-growth-tailspin-1462230818 | Distance to frontier and ease of doing business ranking http://www.doingbusiness.org/data/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB16-Chapters/DB16-DTF-and-DBRanking.pdf | Distance to Frontier - Doing Business - World Bank Group http://www.doingbusiness.org/data/distance-to-frontier | http://tinyurl.com/dl20160505b | 2016-05-05 Cochrane Numbers http://tinyurl.com/dl20160505b
And of course, Cochrane has even more:
If America could improve on the best seen in other countries by 10%, a 110 score would generate $400,000 income per capita, a 650% improvement, or 15% additional growth for 20 years.... The nearly controlled experimental comparison of North Korea versus South Korea, or East Germany versus West Germany.... If bad institutions can do such enormous harm, it follows inescapably that better institutions can do enormous good.... While the current presidential front-runners are not championing economic growth, House Speaker Paul Ryan (R., Wis.) and other House members are. And if economic-policy leadership moves from a chaotic presidency to a well-run Congress, that may be healthy for America’s political system as well as for the economy...
This is what John Cochrane is saying will happen if only Paul Ryan were in charge to boost our "Business Climate" rating to 110:
The University of Chicago and the Wall Street Journal have very serious intellectual quality-control problems indeed.
As does Harvard. Serious, serious quality control problems.