The Coercion Bias in Economic Measurement

Abstract

Does coercion improve economic well-being? In terms of standard narratives in normative economics, someone can answer in the affirmative using positive rights-based models. In those models, the state’s coercive powers are used to extract tax revenues that finance produce goods and services which markets would not provide (e.g., public goods such as national defense or flood controls which are non-rivalrous and non-excludable or the management of externalities). In this case, measured output and wellbeing should both increase. What if rulers apply extreme coercion by enslaving their people, by introducing serfdom or some other coercive institutions? What I answer in this chapter is that measured output (i.e., measured by national accounts data) overstates wellbeing under extreme coercion. This creates what I call the “coercion bias” – in honor Robert Higgs -- that foils the meaning of economic measurements. I argue that this bias has important ramifications for both historical debates and modern policy debates. I illustrate that importance by considering debates of the economic consequences of slavery in the United States during the antebellum period and the debates over the role of economic freedom in stimulating economic growth.

Keywords: Economic Freedom, Economic Growth, Coercion Bias, National Accounts