Graeme Leach: Forget Nordic exceptionalism: Scandinavia grew wealthy despite big government

The Nordic Model has become the intellectual battleground over which the big versus small state war has played out in the twenty-first century. Scandinavian countries have seemingly perplexed free market economists with their ability to achieve world-class competitiveness rankings and high per capita incomes, while at the same time operating very high tax and public spending levels as a proportion of GDP. But a close look at the evidence shows that the Nordic economies aren’t exceptional at all. They don’t defy the economic laws of gravity, they confirm them. When the size of government really started to grow in the 1960s and 1970s, there was economic stagnation. [...]
These economies offset the negative effects of large governments by applying market-friendly policies in other areas, such as trade openness. The Scandinavian economies have relatively high levels of economic freedom, and on some dimensions of economic freedom actually score higher than the USA.
Small homogenous countries, with high levels of trust, can get away with – up to a point – larger welfare states in a way that larger economies cannot. Trust also reduces “transaction costs" and therefore encourages greater economic activity. So powerful is the effect that some studies show that the positive effect of trust outweighs the negative effect of big government on growth. The danger, of course, is that the rise of the welfare state and a dependency culture undermines trust, makes the welfare state increasingly inefficient, and reduces growth prospects all at the same time.

"economics research is usually not replicable"

This new working paper by Andrew Chang and Phillip Li has some really disheartening - or even depressing - conclusions:
Abstract We attempt to replicate 67 papers published in 13 well-regarded economics journals using author-provided replication files that include both data and code. Some journals in our sample require data and code replication files, and other journals do not require such files. Aside from 6 papers that use confidential data, we obtain data and code replication files for 29 of 35 papers (83%) that are required to provide such files as a condition of publication, compared to 11 of 26 papers (42%) that are not required to provide data and code replication files. We successfully replicate the key qualitative result of 22 of 67 papers (33%) without contacting the authors. Excluding the 6 papers that use confidential data and the 2 papers that use software we do not possess, we replicate 29 of 59 papers (49%) with assistance from the authors. Because we are able to replicate less than half of the papers in our sample even with help from the authors, we assert that economics research is usually not replicable. We conclude with recommendations on improving replication of economics research.

Wanted: Google scholar embedding

Citations are increasingly being counted in academia, and it is becoming increasingly common to put for example google scholar citation counts on your CV. The weird thing is that to get something like this on a webpage...
...I had to copy my citation count from my google scholar page , which means that it is probably (hopefully...) out of date when you read this.
A little research revealed that apparently it can be done using "R, scholar, ggplot2 and cron", but surely someone at google could let users do it simply by pasting some code the way it is done with youtube videos and whatever.

The fact that this yet does not exist is a bit worrying, but much more worrying is the fact that I seem to be almost the only one looking for an easy way to "embed google scholar citations" - googling this results in exactly one hit [oct 4, 2015].

Worth reading on increasing retractions

From the Atlantic, a well-researched text on retractions:
by one estimate, from 2001 to 2010, the annual rate of retractions by academic journals increased by a factor of 11 (adjusting for increases in published literature, and excluding articles by repeat offenders) [2]. This surge raises an obvious question: Are retractions increasing because errors and other misdeeds are becoming more common, or because research is now scrutinized more closely?
The short answer: both.

How does economists feel about the effective altruism movement?

The effective altruism movement is growing. Here is Alex Tabarrok reviewing MacAskill's "Doing Good Better", and here is Eva Vivalt urging economists to speak at the Effective Altruism Global summits.

So how does economists feel about effective altruism?
While economists like efficiency, they are less sure about altruism: For one thing, does it even exist? Or is it just long-run selfishness in the form of reciprocity, signaling or reputational concern? If one or more of these explanations of altruism are relevant, it is far from obvious what that means for effective altruism. Regardless of which, is altruism necessarily desirable?

On the other hand: If effective altruism simply means "doing good better", one could argue that this is exactly what welfare economics has been analyzing for decades: take a normative criterion (such as utility maximization, perhaps with some distributional restrictions) and maximize it subject to resource constraints.

To avoid having to define what "doing good" entails, economists often use less controversial normative criteria, such as the Pareto criterion or the Kaldor-Hick criterion, and look for win-win situations. But if you are doing good for someone else and for yourself at the same time, it is hardly altruism, is it?

Somewhat along these lines, I've been working on a paper that argues that under broad circumstances, investing is doing more good than giving.*
Tabarrok concludes his review as follows:
What is needed is a cultural change so that people become proud of how they give and not just how much they give.
I am tentatively leaning towards the conclusion that it would be even better if we take pride in how we trade with and invest in poor countries, rather than how we give.
Perhaps the effective altruism movement should be called the effective world improvement movement?

*The paper is called "Adam Smith vs Jeffrey Sachs: Can Social Norms in Rich Countries Explain Why Other Countries Remain Poor?" and was presented in Stockholm in june (no pdf exist yet). It is currently under revision, and a revised version will be presented at the SEA meetings in New Orleans in november.

My presentation on Hayekian Welfare States in Santander, Spain

Last week I was one of several teachers at a summer course on Economic freedom held in Santander, Spain (link). In addition to enjoying inspiring talks by giants such as Robert Lawson and Erich Weede, I gave a presentation titled
Are there Hayekian Welfare States? Why Some Countries with Big Government also Have High Economic Freedom
based on an idea I recently sketched in Econ Journal Watch. Hopefully, a working paper version based on the talk will appear after the summer. Here are the slides:

The QoG-institute solves the causality problems for you by sorting variables into three neat categories...

The Quality of Government Institute has a really nice data visualization tool, similar to gapminder. It is really useful to get a quick look att cross country correlations, check for outliers, and to see how the pattern changes over time - and create scatter plots for lectures et cetera.

I was a bit surprised to see that all variables are accessed through one of three categories: definitions of "Quality of government (QoG)", causes of QoG and consequences of QoG.

Who needs identification strategies now?

A best-practice frontier in the efficiency equity space?

Torben M. Andersen has a new book (co-edited with Michael Bergman and Svend E. Hougaard Jensen), and an official government report (SOU 2015:53, bilaga 4 till Långtidsutredningen 2015) on the welfare state and economic performance. A particularly interesting idea is that Norway, Switzerland and the US are on the best-practice frontier in the efficiency equity space, suggesting that there is indeed some kind of Okun trade-off (pdf), but also suggesting that it is not very steep.

Referring to figure 2.1 above, Andersen writes in the government report:
The analysis shows that
i) the elasticity of the frontier is close to minus one, i.e. a one percent lower equality is associated with a one percent higher income level,
ii) the slope of the frontier has not become more steep over the sample period (1980–2010), [...] and
iii) for the countries at or close to the frontier (best practice countries), there is a significant negative effect of taxes on both income and inequality, as predicted by standard theory.
The idea that a line connecting Norway, Switzerland and the US can be thought of as an efficiency frontier is interesting, but (in my view) misleading. By not accounting for the role of social trust, the trade-off seems less steep than it most likely is.
We know that countries with higher social trust tend to have higher economic growth (Algan and Cahuc, 2010; Dincer and Uslaner, 2010). A link has also been established from social trust to welfare state size (Bergh and Bjørnskov, 2011; Bjørnskov and Svendsen, 2012). Most importantly, social trust seems to cause equality both via the welfare state and directly (ie. when controlling for welfare state spending) (Bergh and Bjørnskov 2014).

The upshot of these findings (not cited by Andersen) - is that the countries on the frontier are improper counterfactuals for each other. A comparison between any Nordic country and the US is a comparison of a high-trust country to a medium-trust country. As a result, the efficiency-equity trade-off will appear relatively flat.
In reality, however, we simply do not know how USA would perform with tax revenue around 50 percent of GDP, as was the case for Sweden in the 1980s and still is the case in Denmark. Similarly, we do not know how a country with Nordic trust levels would perform with a public sector of US-size. Inference regarding the efficiency-equity trade-off should be based on cross-country evidence that control for trust. As a simple alternative we could draw the frontier between the US and a country with similar trust levels and higher equality, such as Austria or Germany (all with trust around 40 percent).

In any case: If we accept that Figure 2.1 can be thought of as a best practice frontier, the most striking pattern is arguably that most countries exhibit strikingly high levels of inefficiency.
Algan, Y., and Cahuc, P. (2010). Inherited Trust and Growth. American Economic Review, 2060-2092.
Bergh, A., and Bjørnskov, C. (2011). Historical trust levels predict the current size of the welfare state. Kyklos, 64, 1-19.
Bergh, A. and Bjørnskov, C. (2014). Trust, welfare states and income equality: Sorting out the causality. European Journal of Political Economy 35:183-199.
Bjørnskov, C., and Svendsen, G. (2012). Does social trust determine the size of the welfare state? Evidence using historical identification. Public Choice, 1-18.
Dincer, O.C., and Uslaner, E.M. (2010). Trust and growth. Public Choice, 142, 59-67.