I’ve been reading some more Mancur Olson. This is from a 1996 paper titled Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor.
If what has been said so far is correct, then the large differences in per capita income across countries cannot be explained by differences in access to the world’s stock of productive knowledge or to its capital markets, by differences in the ratio of population to land or natural resources, or by differences in the quality of marketable human capital or personal culture. Albeit at a high level of aggregation, this eliminates each of the factors of production as possible explanations of most of the international differences in per capita income. The only remaining plausible explanation is that the great differences in the wealth of nations are mainly due to differences in the quality of their institutions and economic policies.
The best thing a society can do to increase its prosperity is to wise up. This means, in turn, that it is very important indeed that economists, inside government and out, get things right. When we are wrong, we do a lot of harm. When we are right-and have the clarity needed to prevail against the special interests and the quacks-we make an extraordinary contribution to the amelioration of poverty and the progress of humanity. The sums lost because the poor countries obtain only a fraction of-and because even the richest countries do not reach-their economic potentials are measured in the trillions of dollars.
None of the familiar ideologies is sufficient to provide the needed wisdom. The familiar assumption that the quality of a nation’s economic institutions and policies is given by the smallness, or the largeness, of its public sector-or by the size of its transfers to low-income people-does not fit the facts very well (Levine and Renelt, 1992; Rubinson, 1977; Olson, 1986).
It does remind me of something David Manheim recently said on Twitter about the government’s inept response to the COVID-19 crisis:
Markets may be efficient, but government is not.— David Manheim (@davidmanheim) April 28, 2020
There are nearly-literal trillion dollar bills people are trying to hand to governments, begging them to take them, and it has taken months for them to notice and respond. Most still haven't.
Off the top of my head, testing capacity, tracing programs, monitoring / fixing international food supply bottlenecks, stopping trade wars, better directed small business relief programs, ramped-up unemployment benefits that don't discourage work.— David Manheim (@davidmanheim) April 28, 2020
They realize. The problem is that legislation is getting written quickly, by committee, without flexibility, and can't be renegotiated easily.— David Manheim (@davidmanheim) April 28, 2020
That doesn't mean these aren't free trillion dollar bills, it means the country is so arthritic it can't bend down to pick them up.