Monday, June 1, 2015

When the data runs contrary to what people claim

This is Joseph.

We all know that correlation is not causation.  But one theme that Mark likes to bring up is that when the data on an association shows the reverse of the claimed causal mechanism there is a high burden of explanation.  One very good example was brought up by Noah Smith.  There is often a causal assumption that big government impedes economic growth.  The problem?  Rich countries appear to have big governments:
Are we supposed to believe that rich countries are rich in spite of the fact that they all have big governments? Should we believe that government is a parasite that always, without fail, finds a host in the body politic of every single country that reaches first-world status?

Or should we conclude that big government is a necessary ingredient for countries to get rich?
 The plausible mechanisms for this vary -- including the not trivial point that losing wars is bad for a country (just ask the Huron Indians, if you can find any).  But it is not a small point that the empirical relation is the opposite of what proponents of small government propose (nobody says "let's shrink the government to reduce the level of prosperity in our country and give other countries a chance to experience being rich instead"). 

What also bothers me about this discussion is that the discussion on the size of government is mostly orthogonal to the discussion about the efficiency of government.  No matter what size government happens to be, I want it to be an efficient use of resources.  I am more worried by the political burden of improving infrastructure created by things like environmental review of bike lanes.  That is an inefficient process that costs extra resources and it doesn't matter whether we spend a lot of money on infrastructure or just a little -- it is just a bad way to do things.  I have the same opinion of universal health care (say the Canadian or the British approach).  It is not that I hate markets but that there are compelling theoretical efficiency advantages to having the state handle this form of risk pooling.  Heck, there is evidence that workers still covered by their parent's insurance (thank you ACA) are able to be more flexible employees.  That is an efficiency gain for employers like Uber and potentially an important one as we transition into a more flexible work force. 

As for what the real issues are behind the push for small government, well, that is complex and we'll need to wait for a follow-up post. 

1 comment:

  1. I think that the "debate" about big vs small government is a red herring. The truth is that advocates of "small" government almost invariably increase the size and activity of government when they are in power. Moreover, the people who want the government to do less to support the poor tend to be the same people who favor massive government surveillance programs and huge military adventures.

    So "big" vs "small" government is just a smokescreen that people raise as a way to dress up their unattractive policies in language that sounds more respectable. It is, if you will, a form of porcine lipstick.