taw comments on Hayekian Prediction Markets? - Less Wrong

9 Post author: David_J_Balan 15 February 2010 11:50PM

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Comment author: taw 17 February 2010 01:18:25PM 0 points [-]

Focusing on success stories of Capitalist growth (Western Europe and East Asia) and not on global average is simply wrong.

South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).

The paper does not include North Korea, but it's so atypical for a "Communist" country it really shouldn't be treated as one - it is more like an isolationist militaristic monarchy.

Comment author: teageegeepea 17 February 2010 03:27:57PM *  3 points [-]

My point is not that East Germany and North Korea are typical communist countries, but that they can be easily compared to a neighboring capitalist country sharing much of the same culture and history: a "natural experiment" in the effect of policy differences.

Also, I think life expectancy is very different from GDP. Death rates appear to go up during economic booms and down during recessions.

Comment author: taw 17 February 2010 04:07:55PM *  3 points [-]

First, in the long term, GDP - life expectancy correlation is ridiculously high - just look at gapminder.

Now back to the main subject.

With Korea it's not much of a natural experiment - it involves two extreme outliers in their camps, so every explanation should also explain why North Korea was so much less successful than almost every Communist country, and why South Korea was so much more successful than almost every Capitalist country.

Anyway, Germany. It is comparable enough to work as a "natural experiment" - but then:

  • West Germany got plenty of money from USA, while East Germany was looted by Soviets and forced to pay reparations
  • West Germany traded with rich countries, while East Germany traded with poor countries, and by argument of regional convergence mentioned in the paper we should expect West Germany to do much better.
  • East Germany was actually the richest Communist country, due to its atypically high starting point.

And the big argument. According to data I've been able to find - almost all of the difference comes from very early time - in 1950 West Germany to East Germany GDP per capita ratio was 2.04:1.00. In 1989 it was almost identical 2.14:1.00. So 40 years hardly widened the gap, and 1950 gap can be easily blamed on harshness of Soviet occupation and reparations.

German "natural experiment" provides very little support for Capitalism vs Communism economy. On the other hand it seems to show quite well (together with Japanese / South Korean etc. examples) that American/British occupation is much better thing to happen to you than Soviet occupation.

Comment author: knb 03 March 2010 04:54:07AM *  1 point [-]

South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).

Most of those countries were not capitalist, but rather socialist mixed economies. New Zealand is actually rather capitalistic, and has respectable growth for an advanced economy and persistent low unemployment, so I'm not sure what you're getting at there. Here's Wikipedia on India:

Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation, and central planning.[8] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[9] Elaborate licences, regulations and the accompanying red tape, commonly referred to as Licence Raj, were required to set up business in India between 1947 and 1990.

India liberalized starting in the 1980s but mostly since 1991. Growth accelerated rapidly after the state declared bankruptcy (basically) in 1990 and liberalization began. When Chile liberalized its economy, it went from one of the poorest to the wealthiest country in Latin America, which strongly refutes your hypothesis.

Dividing countries into two categories, as TGGP says, is not the best option. Most countries aren't fully capitalist or communist but rather a mix. On the one extreme you have countries like Singapore, Switzerland and Hong Kong, on the other you have North Korea.

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