Political Boundaries Are Not Economic Boundaries

by Don Boudreaux on October 28, 2006

in Myths and Fallacies, Trade

The very insightful Will Wilkinson makes this important point at his blog, The Fly Bottle:

Today’s fallacy nominee is “the United Nations Fallacy,” which is the
error of assuming that supericially similar activities that take place
inside two or more political jurisdictions may be usefully compared
simply because those jurisdictions are each recognized as “nation
states” by the United Nations. For instance, the United States of
America has “an economy” and Liechtenstein has “an economy,” so let’s
compare them! Suppose tomorrow the state of Iowa and the city of Osaka
are declared sovereign nations by the United Nations. Would it suddenly
make good sense to compare their levels of birth defects, their GDP,
their relative levels of “social capital”? If so, why don’t we do it
now? If not, why do we compare the U.S. to Liechtenstein, Mauritius, or
Sweden?

Here’s my earlier take on this same issue.

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{ 8 comments }

Kevin Nowell October 29, 2006 at 12:48 am

You compare the economies of nations so that you can measure the effectiveness of the legal code and political institutions that hold sway within them.

Trey Tomeny October 29, 2006 at 3:51 am

While the one and only economy is truly global, it is useful to compare national figures.

Each political entity exacts its own degree of taxes, regulations, corruption and other distortions upon economic actors within its borders. By comparing nations we can assess which forms of government are least foolish.

Ray G. October 29, 2006 at 10:41 am

The point isn't that comparisons of any kind can't or shouldn't be made, but to simply take a small homogenous society and compare it to a country many times larger and more diverse with no quailifiers doesn't work.

It works if one is trying to push an agenda through statistical chicanery, but not if one is actually interested in truth.

Ryan Fuller October 29, 2006 at 5:37 pm

Trey, if you'll read the link to the author's earlier thoughts, he makes the point that taxes, regulations, corruption, and other distortions are only part of the very complex reality that includes many cultural differences that can obscure the outcomes. A very industrious society featuring a culture that promotes a strong work ethic could easily outproduce a society with a more laid-back culture even if the first society has regulations that hold it back economically. There are simply too many factors at work for political comparisons to have very much meaning. Even if the differences are quite stark, empirical studies can't show us exactly why those differences exist, because in a complex world we cannot isolate variables.

Lafayette October 30, 2006 at 8:04 am

"A very industrious society featuring a culture that promotes a strong work ethic could easily outproduce a society with a more laid-back culture even if the first society has regulations that hold it back economically."

This seems true, but is not.

France, a laid back society that introduced seven years ago the 35-hour work week, actually has a high individual productivity rate.

The people simply do not work as hard as Americans, Japanese, South Koreans, and a few others. But, this is a choice they have made between leisure and work.

Still, anyone who visits the country would not say, either, that it is a backward nation without any hi-tech infrastructure or dynamic banking sector or intricate road system – because it has all of these.

It is wrong to compare France with the US on a macro-economic level. But, comparing the EU and the US IS a good comparison because of similarity demographically and economically.

The comparisons can be astounding, in fact. Give it a try. In many important attributes, the EU compares well if not better than the US – whether from distribution of wealth to health care to cost of education. All these criteria matter to Europeans, so they accept the higher taxation necessary for the state to provide them.

American notions of "success" are fixated on the accumulation of wealth by individuals. Europeans do not have such a priority as a significant value, though it certainly has a good number of very rich people. The criteria of individual achievement is subordinated to that of the social harmony of the community.

So, yes, cultural values are translated into political objectives. After all, a government is only a reflection of the people that elected it. So, government policy decisions are also the reflection of the public will.

Americans are different from Europeans in terms of intrinsic values. There is little doubt about that, despite the fact that family values (and some other social values) are priorities in both regions. America holds in high esteem the liberty of the individual to optimise his/her existence, both material and social, whereas Europe optimises that of the community.

Noah Yetter October 30, 2006 at 2:57 pm

"France, a laid back society that introduced seven years ago the 35-hour work week, actually has a high individual productivity rate."

This is a statistical artifact.

You have X workers which produce and output of Y, giving you an average productivity per worker of Y/X. You lay off one worker, causing X to fall by 1. Productivity Y, however, falls by less than Y/X. We know this because the marginal product of labor is diminishing, therefore each worker is always less productive than the one who came before. The result is that Y/X, and thus measured average productivity, increases.

It should not be a surprise that France has high measured productivity, considering their massive level of unemployment. Also, when it's nearly impossible to fire someone, you take great care in who you hire.

python October 31, 2006 at 1:12 am

"American notions of 'success' are fixated on the accumulation of wealth by individuals."

I don't know where you got this point of view about Americans but I disagree strongly. I know of no one who thinks this way and I doubt you do either. Sure, news stories frequently talk about people's wealth but that justs makes for good stories. Wealth that is accumulated is not the end goal, but rather to be used for such purposes as savings, retirement, travel expenses, paying for kids college, starting new business, etc. No one I know accumulates wealth just for the sake of accumulating wealth. Success is accomplishing goals with your time, money and hard work. You've got the 'means' all confused with the 'ends'.

And anyway, I don't really see you discussing the topic at hand. Are you suggesting that "culture" is consistent within political boundaries? You have said that the culture in Political boundary X is contrasted to the culture in Political boundary Y, as if the political boundaries make sense in your discussion. Because that is the topic here – ecomonic boundaries defined by political boundaries.

I doubt the culture in Belgium can be described as similar to that of Scotland but they both are within the "boundaries" of the EU. It's a tricky thing to make comparisons drawn up by political boundaries and that is the point of this discussion – not that the US is different than the EU.

(Those rioters in Paris didn't look very laid back. There must be more than one culture within France's borders. I wonder if there is more than one economic group there as well.)

Kevin Nowell October 31, 2006 at 5:19 am

Lafayette,

America holds in high esteem the liberty of the individual to optimise his/her existence, both material and social, whereas Europe optimises that of the community.

What you and many Europeans (and many, many Americans) don't realize is that giving individuals the "liberty…to optimise his/her existence" also optimises the health of the community.

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