Did Sachs Prove Hayek Wrong?
Jeffrey Sachs recently claimed that the Scandinavian welfare states have outperformed English-style market economies on some key economic dimensions (see here). I doubted his interpretation when I read it. He presented means without presenting the standard deviation which should always raise red flags. I checked his claims with some data from the World Development Indicators. A different picture emerges from the WDI. The English speaking market economies have a higher level of GDP per capita (once we exclude New Zealand- otherwise they are pretty close), a stronger budget situation (although excluding Sweden brings the numbers into near equality). In addition, the growth performances of the two groups is nearly the same when adjusted for outliers. The English market economies have grown at approximately 2.48 % per year since 1990 while the Scandinavian countries 1.84 % per year. Ireland drives most of this result. Overall, the evidence does not suggest that one system outperforms the other.
So what are we to make of the claims made by Sachs? I think his piece projects a non-ideological position when it really is a ideological essay. The data does not support his claims but he argues that it does. Given that Sachs is an above average economist, I doubt he does not understand basic statistics. He presented the inconclusive data as support for a policy position. Is this consistent with his plea for the removal of ideology from the discussion?