Keeping America’s Edge, ctd. 2

In a series of exchanges that is presumably increasingly only of interest to our respective mothers, Jonathan Chait has replied to my most recent post. Mr. Chait says of me that I am trying to “reframe the argument about Western European social democracy into something other than the one [I] originally made”.

Mr. Chait says that

My problem with the essay is that Manzi does a terrible job of establishing his premise that social democracy (his label for President Obama’s agenda) destroys growth and innovation.

In his article, Manzi’s only attempt to prove this relied upon a comparison between the share of world economic output of Europe from 1973 to the present with the United States from 1980 to the present.

Mr. Chait then proceeds to reiterate several concerns he has previously raised concerning the geographic and time period definitions that I used to show that Europe has ceded very large amounts of global GDP share, while the U.S. has not. Further he reiterates the concern that I evaluated total GDP, when GDP per capita would be a better proxy for living standards.

Mr. Chait then writes that I’m trying to change my argument to really be about the fact that “Ultimately, absolute size of an economy matters because economic clout represents the latent capacity for military and cultural power.”

But, Mr. Chait says:

The problem is, that isn’t what Manzi was actually arguing in his essay. He was making a traditional right-wing argument that social democracy (and, by implication, the Obama agenda) inhibits economic growth.

Now that its been pointed out that Reagan’s policies did not cause higher per-person growth, Manzi is focusing on total growth, which is almost entirely the function of a more rapidly growing population. In other words, we can ignore all that rhetoric about the welfare state strangling innovation. His real argument is that the welfare state prevents rapid population growth.

Unfortunately, each of Mr. Chait’s claims is incorrect. Let me take them one by one.

1. I “do a terrible job establishing his premise that social democracy (his label for President Obama’s agenda) destroys growth and innovation.”.

I don’t “do this job” at all. As per an earlier post, the purpose of the article was not to provide an empirical demonstration that less regulated markets tend to provide faster economic growth under many conditions than more regulated markets. Nor did it ever claim to provide this. The purpose of the article was to describe why even though I (like many, many other people) accept the advantages that less regulated markets can provide, that this does not lead to the conclusion that we can or should continue on the deregulation-oriented path on which we find ourselves without considering the balancing consideration of social cohesion. Mr. Chait apparently wishes that I had written an article designed to convince people who don’t believe that less regulated markets tend to drive faster growth than more government-directed markets, but this is not the article that I was writing, and again, never claimed that it accomplished that purpose.

2. The statistical analysis that supports the conclusion that Europe lost massive global GDP share and the U.S. did not over the past several decades is flawed.

Again, as shown in detail in a prior post, my conclusion is supported by any interpretation of the data. Mr. Chait has now raised this objection several times. While exact magnitudes will vary slightly, I defy Mr. Chait, or any critic, to present any responsible analysis using any reasonable definition of Europe or any relevant time periods or any reputable data source that does not support this conclusion.

3. We now know that “Reagan’s policies did not cause higher per-person growth”.

Also as per a prior post, we know that per-person GDP growth was similar between Europe and the U.S. over the period in question. This does not address the counterfactual question of what growth would have been in the U.S. had different policies been followed. In the period between 1950 and 1980 Europe had, broadly speaking, been catching up to the U.S. in per capita GDP, and the expectation was that convergence would likely continue. Maintaining a lead in per capita GDP was an unexpected advantage for the U.S.

4. Most centrally, in the article, I “was making a traditional right-wing argument that social democracy (and, by implication, the Obama agenda) inhibits economic growth.”, but am now changing my tune in the face of criticism to say it was really about explaining that “Ultimately, absolute size of an economy matters, because economic clout represents the latent capacity for military and cultural power.”

Once again, I asserted (and also, once again, neither proved nor attempted to prove) that government direction of resources will tend to produce less economic growth and prosperity than freer markets under many conditions. There are therefore many quotes in the article that are, in part, predicated on this belief. I also argued that one of the most important pernicious implications of less growth is loss of global economic clout that will very likely be translated into loss of global power in the long-run. This is not an after-the-fact change. Mr. Chait has repeatedly focused on two sentences that describe changes in relative share of total GDP. Here are the sentences that immediately follow them in the article:

The economic rise of the Asian heartland is the central geopolitical fact of our era, and it is safe to assume that economic and strategic competition will only increase further over the next several decades.

It is common to think of the post-war global economy as a baseline of normalcy to which we wish to return. But it seems more accurate to see that era as an anomaly: the apogee of relative global economic dominance by the West, and by the United States within the Western coalition. The hard truth is that the economic world of 1955 is gone, and even if we wanted it back — short of emerging from another global war unscathed with the rest of the world a smoking heap of rubble — we could not have it.

Yet the strategy of giving up and opting out of this international economic competition in order to focus on quality of life is simply not feasible for the United States. Europeans can get away with it only because they benefit from the external military protection America provides; we, however, have no similar guardian to turn to. We do not live in a Kantian world of perpetual commercial peace. Were America to retreat from global competition, sooner or later those who oppose our values would become strong enough to take away our wealth and freedom.

I stand by these words, just as I stand by every other word in the article.