The Nobel Prize just gets cheaper and cheaper. Recent laureate Bob Shiller graces the New York Times with his latest rant that free-markets stink, bolstering his argument by making stuff up.
For starters, Shiller writes that America’s wealth “can be attributed” to regulation. Well, sure, it “can be attributed” to Zeus. Or sunspots. In the real world, America became the richest country long before the regulation age, and that position has been eroding ever since. Maddison (2007) estimates that by 1913 — before the New Deal regulatory explosion — the US was at $5,300 per person PPP (purchasing power parity), against $3,500 in Western Europe, $1,500 in Latin America, and $700 in the rest of Asia and Africa.
A similar pattern occurred in Europe, where the richest countries of the pre-modern age, Britain and Holland, used relatively free markets regulated by tort, while the rest of Europe mired hobbling markets with regulation and diktat. So, the story isn’t that regulation made the West. It’s that low-regulation economies soared ahead of the rest of humanity until socialists clipped their wings.
Indeed, Shiller doesn’t even seem to believe his own fantasy, writing, “The Thatcher-Reagan revolution a third of a century ago was a turning point away from market regulation, with mixed results.“
Here, the phrase “mixed results” is a red flag that the data doesn’t support his argument. Because Shiller would be kind enough to share the data if it did; it’s not very hard to look up GDP figures. And what do GDP figures tell us? That in Reagan’s eight years per capita GDP adjusted for inflation rose 3.5 percent per year. Compared to 0.7 percent in the previous eight years and 1.5 percent in the following eight years.