Via Matt Yglesias, Ryan Cooper wonders why “why smaller countries are so much better at macroeconomic management“. Cooper suggests that smaller countries have smaller banks that are less able to distort policy debate. Yglesias suggests that larger countries get distracted by “national prestige” projects at the expense of their public.
Between the two of them they provide two short lists of large failures (the US, Japan, Eurozone ) and small sucesses (Poland, Sweden, Australia, Canada, Israel).
The first is the correlation may well be spurious. On almost any metric we’d find most of the top performers are small, but we’d also find the failures are also predominately small – simply because there are far more small countries, especially since if we treat Poland (38M people) as small. For example on the HDI 8 of the top 10 are below 40M people, but so are 9 of the bottom 10.
Likewise with macroeconomic stabilisation, we may have the successes above, but we still have Estonia or indeed Australia of the early 90s as catastrophically bad failures. That there are not more may be sheer randomness.
However, assuming the correlation is valid, I think it may be because a small country is less likely to make morality out of macroeconomics. Greater exposure to the changing climate of international trade year after year is likely to create an understanding that booms and busts are no more a reward for virtue or punishment for vice than real weather.They just happen for reasons beyond your own actions, and you have to deal with them with relevant policy.
A large country that trades within its own borders and is less conscious of the constant chaos of the economic climate becomes accustomed to thinking they are masters of their own destiny. Bad weather, when it comes, is less bad luck than a sanction by the cosmos. So begins a round of soul searching, then forgotten when the sun emerges only to be revived when the clouds gather once again. I think the worst extent is a tendency amongst Japanese to attribute the effects of bad monetary policy on an inherent defect in the character of the people. All this searching for deep reasons for success and failure comes at the expense of the genuine problem at hand.
That said, I still favour the spurious correlation hypothesis.
 And I guess the UK