National Success

1) Sampling Bias i) Theory Looking at metrics by country is a totally arbitrary sample space. Many countries are large and diverse, while others are infinitesimally smaller and homogeneous. A sampling bias appears because some economic groups are randomly aggregated together. Undoubtedly, some combinations will score better on “Success” metrics than others. This is due entirely to sampling bias. ii) Example Industries have different rates of profit [1]. So when countries have different types AND amounts of industries, it makes a large difference. For example, Luxembourg's PCGDP is nearly $80,000. Sound good? Well their main industry is international banking. Luxembourg's next largest industry is steel, which makes up only 1.8% of GDP Total bank assets were 32x greater than domestic GDP. These are some serious bankers [2]. So metrics for Luxembourg are basically metrics for being one of the world's largest banks. This makes comparisons between Luxembourg and other nations completely moot because other nations are not similarly composed. Its apples and oranges. 2) Jurisdictional Competition i) Theory To a varying extent, populations and capital are mobile. This mobility depends on legal, linguistic, and economic barriers. Governments can attract immigrants by competing with one another on services, legal structures, and tax rates. Governments successful in attracting immigrants and capital are rewarded with higher tax revenues from the increase in economic activity. So immigration can serve as a check on governments to adopt beneficial policies. The whole population benefits in a spillover effect. ii) Example A) Individuals A list of countries by foreign population can be found here [3]. A list of countries by Sen Welfare Function (SWF) can be found here [4]. My full spreadsheet can be downloaded here [5]. The top 30 countries by SWF have more than 7 times as many immigrants as the bottom 60 countries. They have 2.5 times as many immigrants as the overall average. There are obvious exceptions like Japan. In spite of these outliers, Immigration is a overall a very significant determinant of success. B) Corporations Ireland - Wikipedia writes [6]: In 1987 Fianna Fáil reduced public spending, cut taxes, and promoted competition. Ryanair used Ireland's deregulated aviation market and helped European regulators to see benefits of competition in transport markets. Intel invested in 1989 and was followed by a number of technology companies such as Microsoft and Google. [...] The GDP per capita in the OECD prosperity ranking rose from 21st in 1993 to 4th in 2002.[20] Between 1985 and 2002, private sector jobs increased 59%. The economy shifted from an agriculture to a knowledge economy, focusing on services and high-tech industries. Economic growth averaged 10% from 1995 to 2000, and 7% from 2001 to 2004. Industry, which accounts for 46% of GDP and about 80% of exports, has replaced agriculture as the country's leading sector. Ireland is worse shape now because government began an unsustainable spending binge that outstripped revenue[7]. But this is only one country. What have the others been doing? See the following source [8]. According to Figure 1, capital has become increasingly mobile between since the early 90's. Tables 1 and 2 show a near universal reduction in corporate tax rates among developed nations. Table 3 shows that top income tax rates have also fallen significantly – from an average of 67 to 47%. Clearly, developed countries are competing vigorously for corporate investment and high skilled workers. 3) Market Growth i) Theory Prices arise on markets as signals of scarcity and demand. They also allow comparisons between otherwise heterogeneous goods. In this way, markets allocate capital efficiently towards profit maximization. This will produce growth. Governments acquire revenue by force. Without market prices, they are utterly blind to opportunity cost. As a simple thought experiment, imagine the fate of a business ignoring prices. It would misallocate resources in a second, quickly bankrupting itself. Why would governments fare any better? Because governments know this, they allow varying amounts of market activity. ii) Examples - All countries. Seriously, give me the data. A) Model I have constructed an econometric model. It is a “Sum of Centered Exponential Declines”. I call it SCED [9]. I use taxes and PCGDP as a function of time to obtain a curve fit. Here are the governing equations: EQ1 - http://www.debate.org... EQ2 - http://www.debate.org... EQ3 - http://www.debate.org... EQ4 - http://www.debate.org... Complicated? There are only three parameters - dt, C and tau. English explanation: Every year is responsible for some economic activity. This grows to a peak after a certain time, dt. The height to which it grows depends on Ci, the growth coefficient for that year. The growth coefficient is updated every period to grow at the same rate as modeled PCGDP. The steepness of the curve is governed by Tau, the time constant. So growth in 1990 depends on growth from ALL other years before that. Contributions from 1950 are probably negligible. Growth from 1985 might be very significant. Growth from 1990 is just starting, and will not have a large impact on that year's GDP. For an example, see here [10] The model has to start in medias res, so EQ1 adds initial PCGDP at the first time period as an exponential decline. This is a clumsy but approximately correct way for me to jump start the model. B) Assumptions 1) Taxes are sucked into a black hole and are never seen or heard from again 2) All growth is entirely due to markets 3) Homogeneous development profile for capital 4) Constant qualitative impact of consumption/investment Now you might argue with these assumptions. But if my assumptions are wrong, my model shouldn't fit the data very well! For example, if government can produce growth, my model will systematically under-predict GDP. C) Other Sources of Error Exogenous shocks Discretization of continuous phenomena Limited computing power – only a decimal place or two of accuracy D) Results I coded the model and optimizer into matlab. The script file for the US [11] and a trial of matlab [12] can be downloaded and run on your PC. I provide this for transparency, not because I think everyone should spend their time double checking me. I'm happy to run any data Con gives me. The longer the better. I used the World Bank's database [13] except for the USA, where I used the USBEA's to get a longer history [14]. I used expense (%GDP) for overall tax rate, and PCGDP in constant dollars. The United States – Correlation = .9923, R2 = .9846 http://www.debate.org... Ireland – Correlation = .9764, R2 = .9543 http://www.debate.org... Sweden – Correlation = .9916, R2 = .9832 http://www.debate.org... Denmark – Correlation = .9754, R2 = .9514 http://www.debate.org... Those numbers are pretty close to 1. I'm almost 100% correct. Sources: http://tinyurl.com...