Or perhaps not so absurd, this is a point that we’ve been making around here or some years now. There’s a difference between a high tax and high redistribution society and one in which government actually tries to do things. The second, once government goes beyond what really must and can only be done by government, doesn’t work well. The first is rather more to taste.
To explain the coexistence of economic freedom and big government, this paper distinguishes between big government in the fiscal sense of requiring high taxes, and big government in the Hayekian sense of requiring knowledge that is difficult to acquire from a central authority. The indicators of government size in measures of economic freedom capture the fiscal size but ignore the Hayekian knowledge problem. Thinking about government size in both the fiscal and Hayekian dimensions suggests the possibility of Hayekian welfare states where trust and state capacity facilitate experimentation and learning, resulting in a public sector that is big in a fiscal sense but not necessarily more vulnerable to the Hayekian knowledge problem. Pensions in Sweden are used as a case to illustrate the empirical relevance of the argument. The new pension system represents big government in a fiscal sense, but by relying on decentralized choice it requires relatively little central knowledge.
It is this which explains why those icy Nordic social democracies do in fact work. They’re not to our taste, we think they’d work better without the tax and redistribution but they do in fact work. But if we look at the usual sources - the Fraser Institute, Heritage Foundation rankings - we find that they’re rather more free market and capitalist than we in the UK are, more so even than the US along many axes. True, they then tax until eyes water but do so in economically efficient ways. Not on capital but upon income and consumption for example.
This all being rather important of course. For there are those who insist we should be more like Sweden. Very well Polly, let us be more like Sweden then. Government might move more money around but it does rather less all the same. On the grounds that government can move money around but we’ve a fair body of evidence showing that government’s not all that good at actually doing anything.
We’d even be willing to discuss the issue in more detail. While we’re not, as above, in favour of the high taxation and redistribution we’d still be interested in at least exploring laissez faire plus tax.