Friday, July 03, 2009

Hold everything equal and offer no insight   posted by Razib @ 7/03/2009 04:40:00 PM

I was listening to Marketplace the other day and Kevin Hassett delivered a commentary combining economics with a revisionist evaluation of the American Revolution. Hassett's argument seems to be that the Revolution, which was notionally predicated on taxation without representation, will in the long run be a historical blip of no consequence as the United States converges upon the same tax and spend structure as the United Kingdom. From this convergence of tax and expenditure structures Hassett infers an eventual closing of the $10,000 GDP per capita gap between the United States and the United Kingdom. What therefore was the point of breaking away if 200 years later the USA is going to be so similar to the United Kingdom?

There are many ways to critique this sort of analysis, but there are two major issues that I jumped out for me. First, 200 years is not a trivial interval of time, especially when taking into account the large numbers of Americans who lived between then and now. To view economic history as convergence toward equilibria as a few parameters are modulated at some point in the future seems worthless, just as pointing out that the Sun will go nova, or that the universe may be doomed to heat death. There is a big difference between asserting that the GDP per capita gap will close within 10 years, and within 100 years. Tractable and elegant macroeconomic models may be mostly junk over the short term, but I'm pretty sure that they're total junk over the long term. Inferences from stylized facts may provoke, but spare me the assumption that that the error bars of projections aren't so huge as to make them useless even for government work. Second, it isn't as if the only things that separate the United States and the United Kingdom are institutional frameworks. Even within the United States there is quite a bit of regional variation in culture. Perhaps Hassett would say that specific variation in the instantiation of human capital is totally irrelevant, but most people wouldn't assume that as a given. Secondarily there is a sense here that historical contingency doesn't exist, that there is no path dependence in economic development. So the 200 year interval whereby the American Revolution served as an exogenous shock which tore the thirteen colonies out of the British Empire had no significant effect by shifting initial parameters in a manner which might "lock in" a bias toward some developmental paths as opposed to others. But evaluated over a long enough interval all historical events can be marginalized as futile acts against the trendline, whatever it is.

Instead of using an abstract framework riddled with assumptions that many people would find laughable, why not go the route of pointing to the nature of the British settler colonies which did not revolt, but eventually became independent? Obviously Australia, Canada and New Zealand are different in myriad ways from the United States, but are the comparisons more strained than the model that Hassett posits?

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