Good Institutions as the Foundation of Growth

Good institutions generate prosperity, right?

For the broader theory, see the new prominently displayed Robinson-Acemoglu treatise available in any Barns and Nobles across the world.  While I haven't even opened the new book, I am familiar with a few Acemoglu and associaties papers in which they regress various rule of law measures -- some of them quite creative -- and find a positive relationship with economic growth.

This then leads to the uncomfortable conclusion that former British colonies with English common law out-perform in terms of GDP growth, which then leads to neo-colonial efforts like Romers, which then inevitably end badly. So, now that Romer's charter city-plan of course has seemingly descended into  into violence and squabbling,  many are lambasting economics again and concluding that Central America is an ungovernable wasteland.

I take a different view

What if, empirically speaking, a non-democratic system produced greater collective wealth and growth than the one Romer advocates? Would he still advocate it?

Economists identifying property rights and personal freedom as the driver of growth are missing the point.  Following an excellent Chieften of Seir Essay (on the financial crisis, written in the summer of 2008) the United States colonialists did not rebel to set up a system of democratic governance and personal liberty because they thought it would get them rich, they set up a democratic government because they considered it a morally superior system worth fighting for. Likewise, their appeal to the common man was not promises material wealth, but a moral one.

So Romer is peddling the wrong message by promising the Hondurans riches if they all buy in to free governance. The collective may generate the most wealth if everyone buys in and respects property rights, but there is always the possibility for amassing greater personal wealth through an un-democratic, non-law-abiding system: compare the value of China's political spoils vs. America's. Wealth cannot underly rule-of-law in a society.

Unfortunately, Romer et al.'s incessant focus on economic growth is only symptomatic of America's transition to valuing its political system most highly for its wealth-creating efficiency rather than its moral superiority -- a misplaced dream which will only end badly.