Data Intuition

Paul Krugman:

Even more strikingly, however, the level as opposed to the growth rate of French GDP per capita is substantially lower than that of the US.

This is my main concern about Ostry et al. Suppose we think that strong redistributionist policies reduce the level of output — but that it’s a one-time shift, not a permanent depression of growth. Then you could accept their result of a lack of impact on growth while still believing in serious output effects.

I might be able to accept the one time shift theory of redistribution, where reducing inequality lowers the overall GDP of the economy.  But if these effects are dynamic (they change the rate of growth instead of shifting the absolute level) then they should show up in the historical record.  After all, there are a number of highly unequal societies -- have they outcompeted the more equal societies repeatedly? 

Did the French revolution greatly depress French output and dynamism? 

Now it could be that this is one element of a complex system.  That is totally plausible.  But then it should also be a candidate for trade-offs.  But the countries that have done large levels of redistribution (think US versus Canada or Denmark) have not obviously done worse. 

In general, simple explanations for complex phenomenon are always suspect, especially if it is difficult to formulate a test that night falsify the hypothesis