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Countries are not anecdotes

Summary:
Most of us know very little about foreign countries. Our lives are quite busy and we have only so much space in our brains to store information. I notice that people often think about foreign countries in terms of anecdotes. Thus if you mention Singapore, then people might say, “Isn’t that the place that bans chewing gum.” If you mention Saudi Arabia, they might talk about the fact that women are not allowed to drive (a ban that was recently lifted.) Even big, complex countries such as India and China are often described in terms of anecdotes. To see the problem with this, listen to foreigners describe anecdotes about your country. If I hear foreigners say America is the place where people can carry assault rifles, or where it’s legal to burn the Koran, or the

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Most of us know very little about foreign countries. Our lives are quite busy and we have only so much space in our brains to store information.

I notice that people often think about foreign countries in terms of anecdotes. Thus if you mention Singapore, then people might say, “Isn’t that the place that bans chewing gum.” If you mention Saudi Arabia, they might talk about the fact that women are not allowed to drive (a ban that was recently lifted.) Even big, complex countries such as India and China are often described in terms of anecdotes.

To see the problem with this, listen to foreigners describe anecdotes about your country. If I hear foreigners say America is the place where people can carry assault rifles, or where it’s legal to burn the Koran, or the place where there is a death penalty, I recognize that the anecdote is true. But it also seems like a weird way to characterize my country. I don’t know anyone who carries an assault rifle, or that burns the Koran. The death penalty is hardly ever implemented—a couple dozen times a year for more than 15,000 murders.

Over the past 10 years, I’ve frequently pointed out that Switzerland is the European country people should be looking at, not the Nordic countries. The New York Times has finally caught on:

There is, however, a country far richer and just as fair as any in the Scandinavian trio of Sweden, Denmark and Norway. But no one talks about it.

This $700 billion European economy is among the world’s 20 largest, significantly bigger than any in Scandinavia. It delivers welfare benefits as comprehensive as Scandinavia’s but with lighter taxes, smaller government, and a more open and stable economy. Steady growth recently made it the second richest nation in the world, after Luxembourg, with an average income of $84,000, or $20,000 more than the Scandinavian average. Money is not the final measure of success, but surveys also rank this nation as one of the world’s 10 happiest.

This less socialist but more successful utopia is Switzerland.

While widening its income lead over Scandinavia in recent decades, Switzerland has been catching up on measures of equality. Wealth and income are distributed across the populace almost as equally as in Scandinavia, with the middle class holding about 70 percent of the nation’s assets. The big difference: The typical Swiss family has a net worth around $540,000, twice its Scandinavian peer.

So if Switzerland is clearly the best, why do people spend so much time talking about places like Sweden?

But for the most part, intellectuals ignore Switzerland as a model, perhaps put off by its exaggerated reputation as a shady little tax haven, where Nazi gold and other illicit fortunes hide behind strict bank secrecy laws. In 2015, Switzerland agreed under pressure to share bank records with foreign tax authorities, but that has not slowed the economy at all. Switzerland always was more than secretive banks.

I’ve heard the same thing.  If I touted Switzerland, people would tell me it’s only rich because of its bank secrecy laws.  That was never even close to be true, just as Singapore is not rich because it bans chewing gum.  Switzerland is rich because it is highly productive, and the recent end of the Swiss bank secrecy laws did almost nothing to dent its prosperity.

Anecdotes are a really bad way to think about countries.  America has launched an ill-fated trade war with China partly due to anecdotes about China stealing intellectual secrets.  It’s true that China steals intellectual secrets, as does India, Vietnam, and lots of other developing countries.  But that’s no more an important feature of China than the US death penalty is an important feature of life in America.

Perhaps if people did not think in terms of anecdotes, then they would have recognized the obvious superiority of the Swiss system much sooner.  Switzerland is by far the most democratic country in the world.  They had more national referendums during the 20th century than the entire rest of the world combined.  Their government is extremely decentralized, very close to the local voters.  They are unable to raise taxes without the consent of voters.  But intellectuals don’t want to recognize the Swiss success because they think average people are stupid.  They believe we already have too much democracy and that we need to be ruled by experts.  So they look for anecdotes to dismiss the Swiss success.  That will work for a while, but eventually the truth wins out.  The recent NYT article is a sign that this is beginning to happen.

PS.  I live in a state that has statewide referenda, but lacks Switzerland’s decentralization. All of Switzerland has fewer people than LA County. And yet, a major portion of Swiss income tax rates are set at the canton level.  (Total maximum income tax rates (federal and local) ranges from about 20% to roughly 36% for married couples, depending on the region.)Countries are not anecdotes

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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