Saturday, July 2, 2011

Nicholas Kristoff's Fantasy

In a piece in the New York Times, Nicholas Kristoff attempts to discredit Republicans by arguing that the epitome of what they supposedly desire - "a low tax, laissez-faire Eden" equipped with a limited government - can be found, of all places, in Pakistan. Let this be a reason to question Mr. Kristoff's expertise on foreign political economy.

Kristoff's "critique" is aimed at Republicans, and while I won't take this opportunity to defend them I will nevertheless venture to expose the errors in his argument. According to Kristoff, "[Pakistan] has among the lowest tax burdens of any major country: fewer than 2 percent of the people pay any taxes. Government is limited, so that burdensome regulations never kill jobs."

Its true that, according to the Heritage Foundation's
2011 Index of Economic Freedom, Pakistan's fiscal freedom is greater than the world average fiscal freedom, but Kristoff cannot conclude much from this premise. Hong Kong and Singapore far exceed Pakistan in terms of fiscal freedom and the standard of living in both nations is world class. Hence, it can hardly be argued, as Kristoff does, that "'starving the beast' of government, cutting taxes, regulations and social services...are steps toward Pakistan", i.e., sufficient, when combined, to plunge a nation into destitution and underdevelopment, since Hong Kong and Singapore, developed as they are, lead the world in the absence of those government controls and are neither like Pakistan nor in danger of becoming like Pakistan. The 2011 Index says it all. Furthermore, advocates of reducing government interference into the economy do not argue that tax cuts are a sufficient cause of economic development.

Kristoff's claim that the government of Pakistan is "limited" is as asinine. Again, according to the Index, Pakistan is designated as "mostly unfree" with a score of 55.1 out of 100 and a rank of 123th freest nation out of 179 nations. Read the report for yourself. For example, investment freedom in Pakistan is abysmal. According to the Index,
"Deterrents to investment include security threats, political instability, civil unrest, corruption, poor infrastructure, weak contract enforcement, inconsistent and arbitrary regulation, and a lack of coordination between the federal and regional governments. Payments, transfers, and capital transactions may be subject to approval, quantitative limits, and other restrictions. Foreign investors may acquire real property."
Financial freedom is as non-existent, as the Index states that,
"The government has a majority stake in the largest commercial bank and controls several specialized banks. Restrictions limiting the number of foreign bank branches have been removed, but the central bank must approve all new openings. Foreign investors are now allowed to hold up to 100 percent of the equity share of insurance companies."
Monetary freedom is severely obstructed. Again, according to the Index,
"The government controls pharmaceutical and fuel prices, subsidizes agriculture, and influences prices through state-owned enterprises and utilities, including electricity and water. Ten points were deducted from Pakistan’s monetary freedom score to account for measures that distort domestic prices."
Protection of property rights is atrocious and corruption is "pervasive" with the Index stating that "Pakistan’s judiciary, separate by law from the executive, remains hampered by poor security for judges and witnesses, sentencing delays, a huge backlog of cases, and corruption." According to the 2010 International Property Rights Index, Pakistan ranks 113 out of 129 (see page 117) nations examined in terms of the quality of protection for property rights, which puts it below nations like Iran and Serbia. According to the Corruption Perceptions Index of 2010, Pakistan ranks 143rd out of 178 nations examined, putting it behind countries like Zimbabwe, Syria, and Ukraine. If Pakistan was truly a capitalist paradise, then the above non-freedoms and non-respect for private property rights would not exist there.

Kristoff attempts to reassure us when he claims that,
"I spend a fair amount of time reporting in developing countries, from Congo to Colombia. They’re typically characterized by minimal taxes, high levels of inequality, free-wheeling businesses and high military expenditures. Any of that ring a bell?"
Again, Kristoff is implying that the alleged laissez-faire conditions in countries like Congo and Colombia are contributing factors to the poverty and neglect within this countries. Predictably, neither country is characterized by laissez-faire conditions, particularly Congo which ranks 168th on the Index of Economic Freedom. A variable or variables cannot be blamed for having produced a certain effect if said variable(s) do not exist to begin with; a thing must exist before it can cause an effect. Hence, one wonders from where Kristoff receives his information.

A "laissez-faire Eden" is a place where the exercise of property rights is not stifled by government interference, corruption, or violence. Why Kristoff labours under the impression that Pakistan is such is beyond me.


As a side note, I'm now settled in in my new residence in Alaska, so the long absences are a thing of the past for now.


  1. Welcome back.

    I expect your postings to at least double, since I can't imagine that in Alaska, you are going to be outside during the winter.

  2. Not unless we get fielded, which is what happened as soon as I got here in May. They moved us to Eielson Air Force Base to do construction for the infantry. Now at least I can catch up on things and the Fed project, if you're still interested.