Dani Rodrik reports that the libertarian Cato Institute has just released its annual report on the Economic Freedom of the World.

Why should you care? Well, take a look at their own data on the relationship between economic growth and freedom:

Damn reality is so complicated - Colman

Ideas are weapons, and I think that the more that people have a common pool of knowledge to draw from, the easier it is to communicate. . . . The fancy word for the idea framework through which people understand how the economy works is political economy. . . . these are ideas to fight back with.

As most of you well realize, one of the left's major projects must be to challenge existing conservative frames about what is the right economic policy and offer a coherent alternative.

An important work in political economy that may provide some intellectual firepower for us is Karl Polanyi's The Great Transformation, published in 1944. Here, I intend to provide a little bit of historical background, outline some of the key themes of the book, and speculate as to the contemporary lessons this classic may hold for us in terms of justifying an economic philosophy and policy that reconciles the market economy with the values of the left -- freedom, equality, and solidarity.

I also borrow extensively (and I apologize if somewhat shamelessly) from Fred Block's excellent introduction (PDF) to GT.

From the diaries ~ whataboutbob

US-vs-Europe structural rigidities: A re-think

The pessimism that has prevailed in Europe for at least ten years is unwarranted. True, there are structural problems that should be tackled. But this focus on structural problems is excessive, if not pathological. It also falsely implies that all we have to do is to introduce structural reforms to get better. Compared to the US, Europe has structural strengths and weaknesses. Seen from this perspective, it is not evident that Europe suffers more from structural weaknesses than the US.

From the diaries ~ whataboutbob

Nations prosper by focusing on things they do best -- their "comparative advantage" -- and trading with other nations with different strengths. . . . [rich-country] trade with large low-wage countries . . . will make all of them richer -- eventually. . . . trade can create jobs . . . and bolster productivity growth.

is being called into question in some unusual places recently:

Wall Street Journal: Pain From Free Trade Spurs Second Thoughts

For decades, Alan S. Blinder -- Princeton University economist, former Federal Reserve Board vice chairman and perennial adviser to Democratic presidential candidates -- argued, along with most economists, that free trade enriches the U.S. and its trading partners, despite the harm it does to some workers. "Like 99% of economists since the days of Adam Smith, I am a free trader down to my toes," he wrote back in 2001.

Politicians heeded this advice and, with occasional dissents, steadily dismantled barriers to trade. Yet today Mr. Blinder has changed his message -- helping lead a growing band of economists and policy makers who say the downsides of trade in today's economy are deeper than they once realized.

Promoted by Colman

Project Syndicate: Europe's Success Points the Way to Better World

. . . the European project has been an enormous success, not only for Europe, but also for the world. . . .

. . . the driving motivation of the EU's founders was long-lasting peace. Economic integration, it was hoped, would lead to greater understanding, underpinned by the myriad interactions that inevitably flow from commerce. Increased interdependence would make conflict unthinkable.

The EU has realized that dream. Nowhere in the world do neighbors live together more peacefully, and people move more freely and with greater security, than in Europe, owing in part to a new European identity that is not bound to national citizenship.

This stands as an example that the world should emulate - one of shared rights and responsibilities, including the obligation to help the less fortunate. . . .

Nobel laureate Edmund Phelps is at it again (free), writing in the Wall Street Journal about Europe's alleged "culture of poverty" and lack of economic dynamism.

I responded to Phelps's views on ET here and, with much the same information, on Mark Thoma's Economist's View reader's blog here.

However, Phelps made the following comment in his current WSJ piece that I think is worth considering in greater depth:

the Continental economies began to be underperformers in the interwar period, and have remained so . . .

I think this is wrong, and thinking about why it is wrong may help us to understand better the sources of American economic leadership and what, if anything the European social model has to do with it.

***from the front page, with a paragraph put below the fold. - Jérôme

According to the FT:

Are European workers turning into swots? Although the quality of the statistics is notoriously poor, productivity appears to have accelerated significantly. . . . Short periods of data must be interpreted with caution, and it is difficult to disentangle cyclical and structural effects. Nevertheless, it is possible to identify some significant changes in productivity that may be sustainable for a number of years.

• First, through investment in information technology, Europe appears to be narrowing the "innovation gap" with the US.

• Second, corporate restructuring has led to more efficient working practices.

Europe, engine of global demand growth

That isn't a headline that you see in mainstream economy commentary.    The standard story - one that is echoed in communiqué after communiqué - goes something like this.

Global rebalancing - code for a set of changes that will slow demand growth in the US and increase demand growth outside the US to help reduce the US deficit and the rest of the world's surplus - requires policy changes in Asia, the US and Europe. . . .

What does Europe need to do contribute more to global demand growth?  Reform its labor and product markets.  It hasn't done so.  So it won't be able to contribute to global rebalancing.  

One problem.  The story isn't true.   Not right now.   Europe may not have reformed.  But it sure has contributed to global demand growth over the past year and a half.   My evidence? European imports.

Imports are the most direct way Europe contributes to global demand growth.  And they are way, way up. . . .

Promoted by Colman

The reason I ask is, let's face it, Italy (unless they royally screw up) has essentially already been gifted a place in the semifinals due to scheduling quirks, despite a relatively mediocre performance. Of the 8 group winners they are 6th based on points, goal differential, and goals scored, but they will only have had to beat Australia (16th) and Ukraine (10th) to make the semis.

Meanwhile, the most impressive performer in the first round was Spain (1st), who were rewarded by having had to beat not only France (13th) but also Brazil (3rd) to reach the semis. Plus, on Friday either Germany (2nd) or Argentina (5th) will be out. That game seems more like it should be a final or semifinal than a quarterfinal. It doesn't seem fair.

Financial Times: Economists are from Mars, Europeans from Venus

A Martian economist visits earth. . . . Our Martian friend scratches its heads. "When my economics professor last visited earth in 1945 he told me that the Europeans had just experienced a terrible civil war in which 36m people had been killed, including many of their most brilliant minds. Now you tell me that 60m French people produce almost as much economic output each year as 1.3bn Chinese, who have been the dominant economic power for most of your planet's history. What is more, the French can do this while working 35-hour weeks and producing 246 different types of cheese. How did this economic miracle come about?"

From the diaries ~ whataboutbob

Note: I use the word "liberalism" here in the American sense, meaning the center-left of the political spectrum.

I have come to an appalling conclusion -- I'm afraid I may be an "irresponsible" liberal.

From the diaries - whataboutbob

Europe: a Continent in Decline?

His conclusions:

• Once corrected for demographic changes and accounting differences, the growth performance of the Euro nations since 1990 is no worse than that of the United States;

• The income gap that still exists between Europe and the US is mostly accounted for by differences in hours worked, suggesting that higher American GDP results mainly from different preferences for leisure and not from European inefficiency;

• There has been no systematic decline in the competitiveness of European economies; changes in world export share can be explained by changes in the nominal euro-dollar exchange rate;

• The real problem with the European economy seems to be its inability to sustain rapid productivity growth and employment growth simultaneously.

From the front page - whataboutbob

For my money, he is the best English-language opinion journalist writing on the issues of security, globalization, and the clash of cultures. Forget Tom Friedman, this guy is the real deal.

Summaries of the two columns, one on the French protests, another on the lessons of US airline deregulation for Europe, follow, along with some recent suggestions for reform.

Promoted by Colman

With the constant propaganda campaign being waged by the Neo-Con/Lib's where the hell are all these people and why aren't they speaking up?

Well, some of them have proposed an Alternative Economic Policy for Europe.

Their latest memorandum is entitled Democratic Policy against the Dominance of Markets: Proposals for an Integrated Development Strategy in Europe

From the memo:

The year 2005 has added to the long experience of economic weakness and social downsizing in the EU the clear perception of the obvious crisis of legitimacy and political acceptance by large parts of the public in the Union. . . .

Building on Jerome's excellent liberal manifesto.

Moral philosophers used to talk about an "enlightened self-interest" in which people would balance individualism with concern for the community.

People will pursue their self-interest - it is an inherent aspect of being human. But, people, by nature, do not pursue only their narrow short-run individual self-interest. It is within the fundamental nature of people also to care about others and accept the responsibilities of humanity. Rethinking does not require that people deny their self-interest. Instead, it will require that we rise above the economics of greed to an economics of enlightenment. The invisible hand can still translate the pursuit of self-interests into the greatest good for society, but only if each person pursues an enlightened self-interest - a self-interest that values relationships and ethics as important dimensions of our individual well being.

Promoted by Colman. What is the lesson for the rest of us? (Back from FP on 2-4)

It gets to the debate some of us have been having about the desirability of more economic growth or productivity growth.

If, as has been suggested, citizens in post-modern societies and post-industrial economies get less happiness from accumulating more things, is there a "qualitative growth" that would provide more happiness for people through increasing non-material satisfactions and by raising the quality of the goods and services people consume?

Thus the fact that Europe appears to have fallen behind the United States in labor productivity growth in the last half-decade or so may be cause for alarm. Or is it?

New Optimism About the Japanese Economy After a Bleak Decade

College graduates face the best job market in a decade, and wages are rising again. The lead stock market index has doubled in value in two years. Corporate profits are the highest in recent memory. And for the first time since 1990, land prices in Tokyo are up.

Could it be that Japan, long the sick man among major global economies, has finally recovered?