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Thursday, May 28, 2015

So, Sweden

For many decades, Sweden has been the poster child for socialism and there is no doubt in my mind that it is indeed a very nice place to live (except for the climate and depressing lack of sun in the winter).

On the one hand, I tire of talking about Sweden because it has about a thousandth of the world's population and less than a hundredth of the world's output. Consider the following thought experiment: let's say we took the world's population, divided it up into exactly 1,000 completely homogenous pieces, with the same culture, government, taxation structure, resource, etc., and turned these 1,000 "countries" loose for a century; what would the standard deviation of GDP per capita be across the countries? It wouldn't be zero and I have a hunch it would be quite large, on the order of 10% to 20% of the mean GDP per capita. If so, this would mean that the success of a tiny country like Sweden could be mostly sheer luck.

On the other hand, I do find many aspects of Sweden interesting and it is very successful, so I find it's always interesting enough to contemplate.

If countries with substantial income from oil and gas are ignored, the three most successful economies in the world are Singapore, Switzerland, and Sweden. At first glance, they have nothing in common other than they all beginning with the letter 'S'. Everything from geography to culture is substantially different.  Singapore is fairly low-tax, Sweden very high-tax, and Switzerland has tax rates in the middle.

They do have a few things in common. They all have small populations, have limited resources, were on the periphery of the big wars during the last century, have been very open to international trade, and have very strong property rights.

Overall, Sweden does have very high tax rates and government spending which leads most people to assume that it's a workers' socialist paradise. And that's certainly correct to at least some extent.

Paradoxically, Sweden is also one of the most capitalistic countries in the world. The basis of this can be found in the following statements:
Sweden's wealth Gini coefficient at 0.853 was the second highest in developed countries, and above European and North American averages, suggesting high wealth inequality. [...] 
The vast majority of Sweden's industry is privately controlled, unlike many other industrialised Western countries, and, in accordance with a historical standard, publicly owned enterprises are of minor importance.
In other words, the wealth and capital in Sweden has been and continues to be concentrated in the hands of relatively few people, and those people control the capital and the companies that use that capital. In addition, in 2005, Sweden abolished inheritance taxes, enabling this concentration of capital to continue unabated into the future. Since the traditional definition of socialism is a system where the government or collective owns the capital, Sweden is pretty much the exact opposite of that.

Has Sweden become more socialist/redistributionist/big-governmentist or less over the last few decades and how have they done? I've already mentioned abolishing the inheritance tax, which in clearly in the "less" category. Also:
According to the Organisation for Economic Co-operation and Development (OECD), deregulation, globalisation, and technology sector growth have been key productivity drivers.
Note that "deregulation" is listed first in the above statement. Parts of the safety net are also private:
Sweden is a world leader in privatised pensions and pension funding problems are relatively small compared to many other Western European countries.
Minimize government involvement with pensions and the problems are reduced according to the Western European experience. Tax rates have also been coming down:
Total tax collected by Sweden as a percentage of its GDP peaked at 52.3% in 1990. The country faced a real estate and banking crisis in 1990-1991, and consequently passed tax reforms in 1991 to implement tax rate cuts and tax base broadening over time. Since 1990, taxes as a percentage of GDP collected by Sweden has been dropping, with total tax rates for the highest income earners dropping the most. In 2010 45.8% of the country's GDP was collected as taxes.
Since Sweden has deregulated, privatized and lowered taxes, how has it fared?
Overall, GDP growth has been fast since reforms—especially those in manufacturing—were enacted in the early 1990s. 
Sweden is the fourth-most competitive economy in the world, according to the World Economic Forum in its Global Competitiveness Report 2012–2013.
In other words, really good.

Sweden is an oddball. It's a pretty homogeneous and small population with a unique mix of "socialism" and "capitalism" with the control of the capital and economy in the hands of relatively few private individuals. Deregulation, privatization, and lowering taxes certainly haven't hurt and look like they might've helped boost growth (but there's certainly not enough data to be sure).

So, Sweden is not a very good poster child for either socialism or capitalism. It's an outlier for both, it works well for the Swedes, but it's far from clear to me that their successful mix of socialism and capitalism would work on the far larger scale required for a place like the United States.

Wednesday, May 13, 2015

Takin' Care of Business

Would you tell an accountant how to do their job if you had no accounting experience and limited knowledge of accounting? Would you second guess how a guitarist played a riff if you don't play the guitar, even if you know a little bit about music? Would you criticize a quarterback on how they played a game, especially if you've never played football?

Of course, we all do things like that, especially the last one which birthed the phrase "Monday Morning Quarterback." So the real question is whether the accountant or the guitarist or the quarterback would take you even vaguely seriously. The answer is: very likely NO. Partly because after the fact second guessing is very much different than making decisions in real-time under great uncertainty. But mostly because without the experience of setting up charts of accounts, fingering guitar riffs, or calling plays, realistically, your input isn't terribly useful. On the other hand, advice from another accountant, guitarist, or quarterback is much more likely to be of value since they've had similar experience and a great deal of knowledge.

Now I'd like to switch from accounting, guitar playing, and football and consider business. Of all of the things I've ever done, from recording rock music to robotics, starting and running a business is by far the hardest. Resources have to be constantly orchestrated and many of those resources need to be kept "happy" in order that they do the best job possible. Market trends have to be guessed, regulators complied with or dodged, suppliers (who have the same issues) have to be convinced to supply at an acceptable time and price, customers need to be found and product delivered, funding needs to be found, and on, and on, and on.

All of these ons and ons and ons have to be balanced in a web of hard to fathom tradeoffs. For example, perhaps there's yet another of the many cash crunches we've faced. Do I lay off a couple of employees now, hurting them, and if so which employees, or do I hold on and keep them because there's a reasonable possibility that one of two contracts will begin generating revenue in time, but if the revenue doesn't start in a timely fashion I won't be able to pay anybody next month and the whole company will unravel in an unpredictable way and possibly everybody will be out of a job? Every day, I have a hundred questions with that level of complexity.

So when non-business folk do the Monday Morning Quarterback thing regarding some business catastrophe, I mostly just laugh. Recently, I made the following comment along those lines:
"I rarely take criticism to entrepreneurs seriously except from other entrepreneurs because I'm convinced that those who haven't started and run businesses have no idea how hard it is since I certainly didn't before I did it."
That's not my friendliest comment ever and I apologize for the dismissive tone. I made that comment during a discussion about the 2013 Savar building collapse in which 1,129 people died and thousands more were injured. There were some comments that I found not credible and/or not relevant that went something like: "it pays for itself to implement basic safety standards."

Maybe. But the question is who has the incentive to take this safety action. Let's start in the middle of story. Let's say I'm one of the factory owners/managers. I don't own the building and I'm simply leasing space. The building is evacuated because there are large cracks in the building. But the next day:
It is also reported that Kabir Hossain Sardar, the upazila nirbahi officer visited the site, met with Sohel Rana, and declared the building safe. Sohel Rana said to the media that the building was safe and workers should return to work the next day. One manager of the factories in the Rana Plaza reported that Sohel Rana told them that the building was safe.
Assume I'm the manager mentioned. I see these huge cracks and I might well be skeptical that the building is safe even though I'm told that it is. I can make one of two choices:
  1. Not have my employees go in the factory and work. In this case, I'm nearly certainly bankrupt, which I'll bet is pretty damn unpleasant in Bangladesh. Not only is my family ruined and perhaps destined to be homeless on the streets, but my dozens or hundreds of employees aren't going to get paid which will seriously damage them as well. If the building doesn't collapse, I've badly hurt a lot of people, including my family, for no good reason in hindsight. If the building does collapse, I'm still ruined, but at least I've saved some people.
  2. Have my employees go in the factory and work. Hopefully, the building won't collapse, or if it does, perhaps there will be enough warning to get out.
The trade off is certain damage to a lot of people versus possibly catastrophic damage to a lot of people. In my experience, that would be an impossibly difficult choice to make in real-time. Now that we know the building collapsed, it's easier to make the choice as a Monday Morning Quarterback.

One thing that I've found is that many non-business owners think that all entrepreneurs and business owners are rich and have essentially infinite resources at their command. Nothing could be further from the truth:
...small business owners ... are receiving an average salary of $68,000 annually, down from $72,000 a year ago. In addition, nearly 15 percent of small business owners need to work a second job while running their business in order to make ends meet.
I'm in that 15 percent. Not all entrepreneurs are Bill Gates or Steve Jobs and even they were probably short on cash in the beginning. If I had to fix the building I'm in, I'd throw in the towel and walk away. There's no possible way I could afford to fix it.

Working backwards, where could've decisions been made to prevent the catastrophe. Clearly Kabir Hossain Sardar could've declined to declare the building safe. My bet is that some sort of corrupt deal between Sardar and Rana was made. However, let's assume not for a moment. Even without bribes Sardar would've been under immense pressure to say the building was "safe." Not only from Rana (possibly a mob thug), but also from the factory owners/managers and even the employees.  No factory equals no work equals no pay equals serious problem.

Working back from there, I could've not started the factory. But my opinion is that discouraging business in Bangladesh is wildly counterproductive. No businesses, no jobs, no work, no pay, no food.

Working back from there, Rana could've not built the building and/or not allowed the modifications to the building and/or made the building safer. My guess is that Rana simply wouldn't have bothered to build the building if he had to incur the extra cost of making it safer. In other words, the ROI wouldn't have penciled out. It's easy to Monday Morning Quarterback it and say that since the building collapsed, he would've been better off making it a safer building. Yes, but he might've been even better off not building it in the first place and investing elsewhere if it was going to be more expensive. Then, no building, no factories, no jobs, no work, no pay, no food.

Another choice is that the government could've done a better job enforcing building codes. Then Rana wouldn't have built the building. Then, no building, no factories, no jobs, no work, no pay, no food.

Another choice is that the government could've taxed the people more and built the buildings themselves using appropriate building codes. With $1,100 per year GDP, higher taxes pretty much means someone's not eating. And if you think the government is somehow going to tax people like Rana instead of the poor, think about how corrupt Bangladesh is.

Nobody had the incentive to prevent the catastrophe. Note that even the government wasn't going to bother doing anything about the collapse until Americans complained.

I want to end with a snippet about George McGovern.

Senator George McGovern was the Democrat's presidential nominee in 1972 and was possibly the most left wing candidate ever to run for president as part of a major party. As a Senator, he was involved in a great deal of legislation that directly affected business.

Later, he became a businessman (my guess is he thought it would be really easy) and reminisced about the experience:
In 1988, I invested most of the earnings from this lecture circuit acquiring the leasehold on Connecticut’s Stratford Inn. Hotels, inns and restaurants have always held a special fascination for me. The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility — complete with an experienced manager and staff.  
In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender. [emphasis added]
Everybody thinks business is easy, but most who try it, find it's not.

And now, one of my favorite songs:


Monday, May 11, 2015

I Feel So Guilty

Even as cynical and jaded as I am, every once in a while I read an article that makes me realize I'm not yet cynical and jaded enough. Linked indirectly from both instapundit and brothersjudd is an Australian Broadcasting Corporation article entitled "Is having a loving family an unfair advantage?" Note that the Australian Broadcasting Corporation is owned and funded (over $1 billion per year) by the Australian government so it's not a fringe news organization.

In the article, philosopher and Social Justice Warrior Adam Swift notes:
"The evidence shows that the difference between those who get bedtime stories and those who don’t—the difference in their life chances—is bigger than the difference between those who get elite private schooling and those that don’t"
For those who think that inequality is the great evil of the universe, this inherently leads to the following contemplation:
"One way philosophers might think about solving the social justice problem would be by simply abolishing the family. If the family is this source of unfairness in society then it looks plausible to think that if we abolished the family there would be a more level playing field."
I have to wonder if Adam Swift is related to satirist Jonathan Swift who also proposed that the state should raise children in Gulliver's Travels. Alas, Jonathan was kidding, though at least Adam admits it's not a perfect solution:
The break-up of the family is plausible maybe, he thinks, but even to the most hard-hearted there’s something off-key about it.
Hmmm, a bit off-key? Yeah, a bit. Progressives have been known to be a bit tone-deaf from time to time.

Asked if "parents snuggling up for one last story before lights out be even a little concerned about the advantage they might be conferring," Swift responds:
“I don’t think parents reading their children bedtime stories should constantly have in their minds the way that they are unfairly disadvantaging other people’s children, but I think they should have that thought occasionally.”
I'm guilty, oh-so-guilty for disadvantaging other people's children by all that bedtime reading I did. I managed to disadvantage hundreds of millions of children simply by reading bedtime stories.  Oh! The horrors! Guilty, I tell you, guilty guilty guilty!

Monday, May 04, 2015

deja vu - escaping poverty

Once almost everyone was poor, usually extremely poor.  Eventually there was a significant change.  Over the course of a recent few centuries many people around the world were able to improve their circumstances and live further and further above a subsistence level.  Although there are stories of how brutal this change was, by  revisiting history  we can achieve a more realistic perspective on these past events.  Contrary to the conventional narrative Mark Perry presents a post titled  In defense of sweatshops  offering support for their role in lifting people out of poverty.  One item on the post is a TED talk presented by Leslie Chang about alleged exploitation of Chinese factory workers.  Here are some excerpts from the  transcript:

Chinese workers are not forced into factories because of our insatiable desire for iPods. They choose to leave their homes in order to earn money, to learn new skills, and to see the world. In the ongoing debate about globalization, what's been missing is the voices of the workers themselves. --- Chen Ying: "When I went home for the new year, everyone said I had changed. They asked me, what did you do that you have changed so much? I told them that I studied and worked hard. If you tell them more, they won't understand anyway." 
So I spent two years getting to know assembly line workers like these in the south China factory city called Dongguan. Certain subjects came up over and over: how much money they made, what kind of husband they hoped to marry, whether they should jump to another factory or stay where they were. Other subjects came up almost never, including living conditions that to me looked close to prison life: 10 or 15 workers in one room, 50 people sharing a single bathroom, days and nights ruled by the factory clock. Everyone they knew lived in similar circumstances, and it was still better than the dormitories and homes of rural China.  
The workers rarely spoke about the products they made, and they often had great difficulty explaining what exactly they did. When I asked Lu Qingmin, the young woman I got to know best, what exactly she did on the factory floor, she said something to me in Chinese that sounded like "qiu xi." Only much later did I realize that she had been saying "QC," or quality control. She couldn't even tell me what she did on the factory floor. All she could do was parrot a garbled abbreviation in a language she didn't even understand.  
Karl Marx saw this as the tragedy of capitalism, the alienation of the worker from the product of his labor. Unlike, say, a traditional maker of shoes or cabinets, the worker in an industrial factory has no control, no pleasure, and no true satisfaction or understanding in her own work. But like so many theories that Marx arrived at sitting in the reading room of the British Museum, he got this one wrong. Just because a person spends her time making a piece of something does not mean that she becomes that, a piece of something. What she does with the money she earns, what she learns in that place, and how it changes her, these are the things that matter. What a factory makes is never the point, and the workers could not care less who buys their products.  
Journalistic coverage of Chinese factories, on the other hand, plays up this relationship between the workers and the products they make. Many articles calculate: How long would it take for this worker to work in order to earn enough money to buy what he's making? For example, an entry-level-line assembly line worker in China in an iPhone plant would have to shell out two and a half months' wages for an iPhone.  
But how meaningful is this calculation, really? For example, I recently wrote an article in The New Yorker magazine, but I can't afford to buy an ad in it. But, who cares? I don't want an ad in The New Yorker, and most of these workers don't really want iPhones. Their calculations are different. How long should I stay in this factory? How much money can I save? How much will it take to buy an apartment or a car, to get married, or to put my child through school?
 I would contend that like the historical experience of English workers had some important similarities to that of Chinese workers.  It was a rough experience, but there was a sense that they were improving their circumstances.

Is That Sexist?

My younger daughter just got her driving learner's permit. In California, after receiving one's permit, the first two hours of driving has to be with a professional driving instructor in a special car where the instructor has a brake and steering wheel as well.

My daughter wanted her instructor to be a woman. She asked me, "Is that sexist?"

The snarky comment that almost escaped my mouth was, "No, because only white males can be sexist." Fortunately, I choked that one back.

Instead, I said, "Well, I don't know, but if so, it would be an illustration of just how meaningless negative words like that can be at times. I wouldn't worry about it."

Was that the right answer?

Tuesday, April 28, 2015

Different paths of development

In discussions on this blog and elsewhere I sometimes have the impression that differences in cultural orientation might have a significant impact on the areas of focus in building up a base of knowledge relevant to the subject under discussion.   That in turn effects historical interpretations even before personality and other things influencing world view come into play.

The first excerpt is about how the history of development in early 1800s New England is different than the impression that most people have.

   Through a European lens, in fact, America looked very backward, if only because of its overwhelmingly rural demography.  In the 1820s, more than 90 percent of Americans still lived in the countryside, a pattern that had changed very little by mid-century.  In nineteenth-century Europe, rural areas were mostly peasant-ridden backwaters, but America’s agrarian patina concealed a beehive of commercial and industrial activity.  By the end of the War of 1812, Gordon Wood suggests, the northern states were possibly “the most thoroughly commercialized society in the world.”  A Rhode Island industrialist made the same point in 1829: “The manufacturing activities of the United States are carried on in little hamlets…around the water fall which serves to turn the mill wheel.” 
   American historians have suffered their own bafflements.  It is only in recent decades that a consensus of sorts has emerged on the nation’s early growth spurt.  Winifred Rothenberg did much of the groundbreaking work—twenty-five years of patient excavation of the account books, diaries, estates, mortgages, and other records of Massachusetts farmers.  What she finds is an organic, bottom-up form of modernization, originating in the increasing prosperity of ordinary farmers.  The British experience was starkly different.  The underbelly of Victorian society mapped by Charles Dickens was a rural proletariat brutally expelled from the countryside and herded into urban factories.
(Although we shouldn't exaggerate the negatives. )

Even if someone wants to point to government actions, don't be fooled - common genius was already a very significant force driving bottom-up organic growth.

Another point worth remembering was that the negative effects of slavery were obvious to visitors from  another country.

Democracy in America  pp. 344-348
   When a century had passed since the foundation of the colonies, an extraordinary fact began to strike the attention of everybody.  The population of those provinces that had practically no slaves increased in numbers, wealth, and well-being more rapidly than those that had slaves. 
   The inhabitants of the former had to cultivate the ground themselves or hire another’s services; in the latter they had laborers whom they did not need to pay.  With labor and expense on the one side and leisure and economy on the other, nonetheless the advantage lay with the former.

   The farther they went, the clearer it became that slavery, so cruel to the slave, was fatal to the master.

There is only one difference between the two states: Kentucky allows slaves, but Ohio refuses to have them. 
   So the traveler who lets the current carry him down the Ohio till it joins the Mississippi sails, so to say, between freedom and slavery; and he has only to glance around him to see instantly which is best for mankind. 
   On the left bank of the river the population is sparse; from time to time one sees a troop of slaves loitering through half-deserted fields; the primeval forest is constantly reappearing; one might say that society had gone to sleep; it is nature that seems active and alive, whereas man is idle. 
   But on the right bank a confused hum proclaims from afar that men are busily at work; fine crops cover the fields; elegant dwellings testify to the taste and industry of the workers; on all sides there is evidence of comfort; man appears rich and contented; he works. 
   The state of Kentucky was founded in 1775 and that of Ohio as much as twelve years later; twelve years in America counts for as much as half a century in Europe.  Now the population of Ohio is more than 250,000 greater than that of Kentucky.
   These contrasting effects of slavery and of freedom are easy to understand; they are enough to explain the differences between ancient civilization and modern. 
   On the left bank of the Ohio work is connected with the idea of slavery, but on the right with well-being and progress; on the one side it is degrading, but on the other honorable; on the left bank no white laborers are to be found, for they would be afraid of being like the slaves; for work people must rely on the Negroes; but one will never see a man of leisure on the right bank: the white man’s intelligent activity is used for work of every sort.

   Antiquity could only have a very imperfect understanding of this effect of slavery on the production of wealth.  Then slavery existed throughout the whole civilized world, only some barbarian peoples being without it.
   Christianity destroyed slavery by insisting on the slave’s rights; nowadays it can be attacked from the master’s point of view; in this respect interest and morality are in harmony.

Don Boudreaux  provides additional clarification in an article titled  What's so :

Another historical myth is that Southern slavery harmed only the blacks who were enslaved. There's no doubt that those who suffered most grievously from slavery were the slaves themselves. But slavery also inflicted great economic harm on non-slave-owning whites in the South.  
Most obviously, slavery artificially reduced the supply of workers available to work in whatever factories and businesses might have been established by non-slave-owning whites. Therefore, these whites — who outnumbered slave-owning whites, even in the South — suffered reduced opportunities to launch their own businesses. In the South, chattel slavery stymied the single greatest force for widespread and sustained economic growth: market-directed entrepreneurship.  
Also, by curbing entrepreneurship in the South, slavery reduced the rate of introduction of new goods and services that would have enriched consumers' lives.
There was yet another way that slavery kept the antebellum American South economically infantile. Here's the late economic historian Stanley Lebergott writing about the United States before the Civil War:  
“British vessels began to concentrate their voyages to New York, Boston and Philadelphia. For in these ports they could both deliver a full cargo of manufactured goods (to be consumed in the cities or sent along to the West) and also pick up return cargoes. The demand for manufactured goods and such luxuries as tea and coffee, however, grew far more slowly in such Southern centers as Charleston, Savannah, and Wilmington. One reason was that much of the nearby population were slaves, consuming little in the way of manufactured goods.”  
Lebergott sensibly argues that, had slavery not existed, Southern ports such as that at Charleston, S.C., would have gotten a great deal more shipping business. But because slavery artificially kept most Southerners — unfree  and free — poor, it kept the South from being a strong market for European manufactured goods. 
These historical realities should be kept in mind by anyone attracted to the argument that capitalism was fathered by slavery. 

As if this troubled history didn't present enough problems, there were further obstacles to escaping the impediments to progress even long after the botched or neglected Reconstruction.  Earlier in the same article other impediments to Southern development are highlighted:

Everyone knows, for example, that minimum-wage legislation is meant to help the working poor. A study of history, however, shows that this just ain't so.  
What  is so is that the Fair Labor Standards Act of 1938 — the legislation that created the national minimum wage in America — was designed to protect the higher wages of Northern textile workers, and the profits of Northern mill owners, from the intensifying competition unleashed by Southern textile mills in the Carolinas and Georgia.  
The competitive advantage enjoyed by Southern mills over their Northern rivals was access to lower-wage labor. Even at 15 cents per hour, these jobs were attractive to poor Southern workers, many of whom would otherwise have earned even less as sharecroppers. 
But being insensitive to the plight of poor Southern workers, Congress and FDR in 1938 outlawed jobs that paid less than 25 cents per hour. The purpose was to stifle competition and protect the profits of politically powerful producer groups in the North.

These obstacles, self imposed and otherwise, have delayed and slowed the economic convergence of the South.  Improvements in transportation, communication and infrastructure, combined with lower cost of living and cultural changes are improving circumstances.  Lee Habeeb is both a participant in and an observer of these changes:

When I told my friends in New Jersey nearly ten years ago that I was packing my bags and heading south, they thought I’d lost my mind. Why, they wondered, would I give up the food, shopping, and close proximity to New York City to live anywhere else, especially a place like Oxford, Miss.? I might as well have told them I was moving to Mogadishu. 
I tried to lighten things up by explaining that we had running water in Mississippi. And cable TV. Heck, we even had dentists. The planes coming and going in nearby Memphis got me most places in quick order, too. I then described the quality of life in Oxford and how far a dollar stretches. When I showed them pictures of my house and shared with them the cost of that house — and the low property-tax bill that came along with it — they got depressed.
And it isn’t just millions of American citizens packing their bags and heading south. Last month, in a move that shocked residents of northern New Jersey, Daimler’s Mercedes-Benz USA announced it was moving its headquarters from Montvale (just miles from where I grew up) to Sandy Springs, Ga. And it’s bringing nearly 1,000 people along with it, at an average salary of nearly $80,000 per worker. 
“We think the infrastructure in the States has changed,” Dieter Zetsche, the chief executive of Mercedes, told reporters. “The South is much more relevant than it used to be. We think it is a new start, a rejuvenation of our company to make the move.”
And there’s another angle to the southern-migration story that hasn’t received enough media attention, though it’s perhaps more profound: The past 30 years have seen an epic migration of black people to the South. Indeed, the percentage of the nation’s African-American population living in the South hit its highest point in half a century, as more and more black people moved out of declining cities in the Midwest and Northeast. 
A great many books have been written about the migration of rural black people from the South to the big cities of Chicago and Detroit during the 1940s and ’50s. Nicholas Lemann, former dean of Columbia University’s journalism school and a professor there, wrote one of them: The Promised Land: The Great Black Migration and How It Changed America. 
Why, a curious student might want to ask Professor Lemann, hasn’t he written about the reverse migration, and about the economic and cultural forces behind it? 
I think we know why he won’t. The ideological prejudices of so many journalists and media elites — and the academic elite, too, even in the South — won’t permit it. They’re so invested in the old narrative of the South, so busy reminding Americans about the tragic history of the region, they can’t bear the thought that it’s changed, let alone that black people are fleeing blue northern cities to live in red southern states.

But this much is self-evident: If the South is so backward, why are some of the most sophisticated foreign companies moving here? For decades, American policymakers have been worried that we would lose our manufacturing base to the world, but over the past few decades, the South has become a hub of manufacturing for the world. 
This much, too, is self-evident: If the South is so racist, why are so many black people moving back here?

You won’t ever see or hear any of the above stories covered in any depth in the media. They’re too busy recounting negative stories about the South’s past — stories that no doubt need telling — to notice the progress.

An appreciation for the differing perspectives that people have of the material presented here provides some understanding of how they might have divergent ideas about economic development in America.

Tuesday, April 21, 2015


A recent post on Bookworm Room blog  pointed to post elsewhere and raised the reparations question. The real gem was an additional link to a truly outstanding post on the Wolf Howling blog titled: The Roots of Slavery & The Race Hustlers' Holy Grail - Reparations.  The three primary topics addressed are the race hustling industry and reparations, the history of slavery, and how this reflects on human nature and power.  It's worth reading the whole post.  (Video on the post as well.)

Prof. Henry L. Gates, a Prof. of African American Studies at Harvard and late of Beer Summit fame, is chasing the Holy Grail of the race-hustling industry – reparations for slavery.Prof. Gates has no problem “parcelling out the blame” for slavery on this side of the Atlantic. It is, he tells us, the “whites.” So under Gates's theory, if you are a white American, you are born with the sin of slavery hung about your neck. What troubles Gates is the fact that the historical record shows that the people on the supply side of the African slave trade – the people selling African slaves into bondage - were not the evil white skinned devils, but rather black Africans themselves.  
The issue is not divisive at all. It's ludicrous. Those who took part in slavery in America are long dead. It is a fundamental aspect of our legal system that people are held responsible for the wrongs they personally commit; responsibility for those wrongs does not follow down blood lines. But, as Prof. Gates would have us, let us leave that fundamental issue aside. Even so, over 145 years having past since the end of slavery in America, there are a host of issues associated with who should owe what to whom such that every aspect of Gate's call for reparations passes into the surreal. Obama himself perfectly encapsulates some of this. 
Slavery didn't begin with the African slave trade. To the contrary, slavery, as an accepted practice in the world, ended with the African slave trade. Slavery began with the dawn of civilization and it has involved virtually every race. Indeed, unless Gates is historically illiterate, he must know that slave based agrarian economies have been the norm throughout much of the world's history.

And of then there are the world's most prolific slavers of history – the Arabs. Indeed,the Arabs in Saudi Arabia still teach today that it is permissible to make slaves of non-Muslims. And indeed, they still practice what they preach - enslaving blacks in Mali when it fell under al Qaeda rule. Under the Gates theory, we should all be getting reparation checks from Ridyah. 
The bottom line, if slavery is, as Gates posits, an original sin that passes not only through the generations, but also among entire races, then it hangs around the necks of most people in the world today - including President Obama and Prof. Gates. Obviously that can't be right. That doesn't fit the Gate's narrative at all. 
The only way Prof. Gates call for reparations can have even a patina of legitimacy is if it holds culpable only the descendants of those who actually owned slaves and supported the institution of slavery. Fortunately, they are identifiable. The slave owning class in pre-Civil War America and the supporters of slavery as an institution were all to be found in the Democrat Party. It is beyond perverse for Gates, on this historic record, to also seek to hold culpable the Republicans who never supported slavery and whose ancestor's gave their very lives to end slavery. Do you think an Executive Order condemning the Democrat Party for slavery in America and ordering them to pay the reparations per a special levy would satisfy Dr. Gates? I for one could be persuaded to accept that as a reasonable settlement of the problem. 
Gates's push for reparations has more holes than a block of Swiss cheese. If he wanted to actually do something constructive for blacks in America, then Gates would be shouting to the rafters about the call of Dr. Martin Luther King, Jr. for a color blind society. That is certainly in the best interests of both blacks and our nation. Yet instead of focusing on furthering that cause, Gates is pursuing an issue that is sure to, by its very nature, drive whites and blacks apart. 
I am sure Dr. Gates is not so dumb as to be ignorant of any of the above. Nor can he be ignorant of the fact that the descendants of slaves in this country have, today, all of the opportunities of America open to them. No one, Prof. Gates included, could possibly believe that the call for reparations will add anything to that. 
Actually, given that Prof. Gates's wants to apportion blame to all "whites" in America for slavery, it would seem self-evident that the purpose of Dr. Gate's push for reparations is to foster a permanent sense of guilt in the white population of America on one hand and, on the other hand, to separate blacks from whites in society by keeping blacks focused on past sins. That has nothing to do with justice and everything to do with politics. It is naught but a variant on the sermons of Rev. Jeremiah Wright, damning America and calling for blacks to eschew the values of "white" America. 
More specifically, this is the “sins and grievances” approach to politics about which Thomas Sowell recently wrote in his brilliant four-part essay, Race and Politics. It directs blacks and other members of 'victim classes' to “nurse their resentments, instead of advancing their skills and their prospects.” As Dr. Sowell notes, the only beneficiaries of this type of grievance politics “are politicians and race hustlers.” The losers in this equation are those blacks ignoring their opportunities and the reality of America in 2010 and instead, following the ilk of Prof. Gates on the hunt for the race hustlers' holy grail.

The post then continues with an update that draws upon a different article by Dr. Sowell:

. . . Slavery is a classic example. The history of slavery across the centuries and in many countries around the world is a painful history to read — not only in terms of how slaves have been treated, but because of what that says about the whole human species — because slaves and enslavers alike have been of every race, religion, and nationality. 
If the history of slavery ought to teach us anything, it is that human beings cannot be trusted with unbridled power over other human beings — no matter what color or creed any of them are. The history of ancient despotism and modern totalitarianism practically shouts that same message from the blood-stained pages of history. 
But that is not the message that is being taught in our schools and colleges, or dramatized on television and in the movies. The message that is pounded home again and again is that white people enslaved black people.If American society and Western civilization are different from other societies and civilizations, it is in that they eventually turned against slavery, and stamped it out, at a time when non-Western societies around the world were still maintaining slavery and resisting Western pressures to end slavery — including, in some cases, by armed resistance. 
Only the fact that the West had more firepower put an end to slavery in many non-Western societies during the age of Western imperialism. Yet today there are Americans who have gone to Africa to apologize for slavery — on a continent where slavery has still not been completely ended, to this very moment. 
It is not just the history of slavery that gets distorted beyond recognition by the selective filtering of facts. Those who mine history in order to find everything they can to undermine American society or Western civilization have very little interest in the Bataan death march, the atrocities of the Ottoman Empire, or similar atrocities in other times and places.
Those who mine history for sins are not searching for truth but for opportunities to denigrate their own society, or for grievances that can be cashed in today at the expense of people who were not even born when the sins of the past were committed.
The politics of grievance and division and a grossly distorted version of history are meant to undermine a free society, not to promote incremental improvement.

I think this is a terrific example of how the internet allows people to share their efforts to be more knowledgeable and aware.

Thanks GW at Wolf Howling.

Sunday, April 12, 2015

Grasping the essence

It has been my experience that in studying the literature on complex subjects in social science such as economics,  many of the people with significant insights could be considered polymaths.  Some time in the past year I was discussing some ideas espoused by George Gilder with  my coblogger.  He asked if I considered Mr. Gilder to be a polymath.  I've read many articles and most of the books authored by Mr. Gilder but had not thought about that question.  After a pause to think about the matter, the reply was a clear "yes."  A few weeks later while watching a video of Deirdre McCloskey, George Gilder and his ideas came up in discussion.  It was clear that McCloskey, herself an obvious polymath, considers Gilder to be a polymath.  With that introduction, here are some excerpts from  Unleash the Mind by George Gilder:
The belief that wealth consists not chiefly in ideas, attitudes, moral codes, and mental disciplines but in definable static things that can be seized and redistributed—that is the materialist superstition. It stultified the works of Marx and other prophets of violence and envy. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly every conglomerateur who believes he can safely enter new industries by buying rather than by learning them. It confounds every bureaucrat of science who imagines he can buy or steal the fruits of research and development.  
Even if it wished to, the government could not capture America’s wealth from its one percent of the one percent. As Marxist despots and tribal socialists from Cuba to Greece have discovered to their huge disappointment, governments can neither create wealth nor effectively redistribute it. They can only expropriate and watch it dissipate. If we continue to harass, overtax, and oppressively regulate entrepreneurs, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production dissolve into so much corroded wire, abandoned batteries, scrap metal, and wasteland rot. 
Capitalism is the supreme expression of human creativity and freedom, an economy of mind overcoming the constraints of material power. It is not simply a practical success, a “worst of all systems except for the rest of them,” a faute de mieux compromise redeemed by charities and regulators and proverbially “saved by the New Deal.” It is dynamic, a force that pushes human enterprise down spirals of declining costs and greater abundance. The cost of capturing technology is mastery of the underlying science. The means of production of entrepreneurs are not land, labor, or capital but minds and hearts. Enduring are only the contributions of mind and morality.

Entrepreneurship is the launching of surprises. The process of wealth creation is offensive to levelers and planners because it yields mountains of new wealth in ways that could not possibly be planned. But unpredictability is fundamental to free human enterprise. It defies every econometric model and socialist scheme. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the establishment above them. Creativity cannot be planned because it is defined by information measured as surprise. Leading entrepreneurs—from Sam Walton to Larry Page to Mark Zuckerberg—did not ascend a hierarchy; they created a new one. They did not climb to the top of anything. They were pushed to the top by their own success. They did not capture the pinnacle; they became it.

Most of America’s leading entrepreneurs are bound to the masts of their fortunes. They are allowed to keep their wealth only as long as they invest it in others. In a real sense, they can keep only what they give away. It has been given to others in the form of investments. It is embodied in a vast web of enterprises that retains its worth only through constant work and sacrifice. Capitalism is a system that begins not with taking but with giving to others.
For this reason, wealth is nearly as difficult to maintain as it is to create. Owners are besieged on all sides by aspiring spenders—debauchers of wealth and purveyors of poverty in the name of charity, idealism, envy, or social change. Bureaucrats, politicians, bishops, raiders, robbers, short-sellers, and business writers all think they can invest money better than its owners. In fact, of all the people on the face of the globe, it is usually only the legal owners of businesses who know enough about the sources of their wealth to maintain it. It is usually they who have the clearest interest in building wealth for others rather than spending it on themselves.

Entrepreneurial knowledge has little to do with certified expertise, advanced degrees, or the learning of establishment schools. The fashionably educated and cultivated spurn the kind of fanatically focused learning commanded by the innovators. Wealth all too often comes from doing what other people consider insufferably boring or unendurably hard. 
The treacherous intricacies of software languages or garbage routes, the mechanics of frying and freezing potatoes, the mazes of high-yield bonds and low-collateral companies, the murky lore of petroleum leases or housing deeds or Far Eastern electronics supplies, the multiple scientific disciplines entailed by fracking for natural gas or contriving the ultimate search engine—all are considered tedious and trivial by the established powers. 
Most people consider themselves above the gritty and relentless details of life that allow the creation of great wealth. They leave it to the experts. But in general you join the one percent of the one percent not by leaving it to the experts but by creating new expertise, not by knowing what the experts know but by learning what they think is beneath them.

Most of the world, then as now, was engaged in one of its periodic revulsions against capitalist  “greed” and waste. Lester Thurow of MIT was proclaiming a “zero sum society,” where henceforth any gains for the rich must be extracted from the poor and middle classes. William Sloane Coffin, the formidable Yale chaplain, was inveighing against capitalist orgies of greed and environmental devastation. Howard Zinn and Noam Chomsky were denouncing Western capitalism for displacing American Indians and condemning Israelis for displacing Palestinians (rather than praising the settlers in both countries for reclaiming and redeeming wastelands and hugely enlarging the populations they could support). Edward Said was conducting his Columbia classes (fatefully introducing the works of Frantz Fanon to future president Barack Obama) on Western psychological colonization and hegemonic evisceration of the entire Third World. 
Here we go again, deep in the New Millennium. The themes of exploitation and zero-sum equality continue to preoccupy the media. Congress remains enthralled with static accounting rules that assume tax-rate reductions will not alter economic behavior. In this model, the only way to expand tax receipts is to raise rates on the “rich.”

By focusing on incentives rather than on information and creativity, free-market economists have encouraged the idea that capitalism is based on greed, although, as we have seen, entrepreneurs cannot in general revel in their wealth, because most of it is not liquid. Greed, in fact, only motivates capitalists to seek government guarantees and subsidies that denature and stultify the works of entrepreneurs. The financial crash of 2007 and beyond reflected orgies of greed among crony capitalists awash in government guarantees and subsidies, sitting on their Fannies and Freddies, feeding in the troughs of Treasury privileges and government insurance scams. Greed leads as by an invisible hand to an ever-growing welfare and plutocratic state—to socialism and near-fascist corporatism (see Jonah Goldberg’s Liberal Fascism for details).  
The secret of supply-side economics is not merely to incentivize people to work harder or accept more risk in order to gain a greater reward. That could be done under socialism. The reason lower marginal tax rates produce more revenues than higher ones is that the lower rates release the creativity of employers, allowing them to garner more information. They can move more rapidly down the curves of learning and experience. They can learn more because they command more capital to use in their trade. With more capital they can attract more highly skilled labor from around the globe. They reduce time and effort devoted to avoiding taxes and interpreting regulations and consulting lawyers and accountants. With fewer resources diverted to government bureaucracy, they can conduct more undetermined experiments, test more falsifiable hypotheses, try more business plans, generate more productive knowledge. 
It is not the enlargement of incentives and rewards that generates growth and progress, profits and capital gains for the entrepreneur and revenues for the government, but the combination of new knowledge with the power to test and extend it. Volatile and shifting ideas, not heavy and entrenched establishments, constitute the source of wealth.

These are not the conventional ideas that enter most discussions about economics, growth and wealth creation, but they are part of much deeper insight than most people will ever acquire.

Wednesday, April 08, 2015

a little is better than none

In a recent article  Jonah Goldberg provided useful guidance and clarification for conservative students:
In this exclusive Q&A with The College Fix, Goldberg explains how American progressivism was born of the same intellectual and political climate that gave rise to various European collectivist, statist and nationalistic movements – and how those mindsets are currently in control of higher education discourse today.
“Political correctness, speech codes, hate-crime hoaxes: these are all efforts by a very small number of people to control what is said and how it is said,” Goldberg explains. 
While you rightly point out that the word “fascist” is exhausted in its use, do you think the fascist connections with American progressivism carry on in any of the clichés (i.e. those buzz phrases that stop an argument) you find when you speak at different campuses? 
Goldberg: A big point of my book was an attempt to “deflate” the idea of fascism. It wasn’t an outlier in the earlier 20th century; it was a very mainstream movement (particularly before the rise of Nazism) that was part of the fad for “experimental” social engineers. The key issue is power. 
Today, the power of fascism is in using the label to silence your opponents. No one gets called a fascist for wanting more “public-private partnerships” between the feds and big business, even though that sort of thing is central to fascist economics. No, people get called “fascist” for disagreeing with feminist radicals or supporting free speech or refusing to conform. The most fascistic things routinely said on college campuses today is “if you’re not part of the solution you’re part of the problem” or “the time for debate is over.” 
There’s no safe-harbor for disagreement. You have to get with the program or you’re a “problem” that needs to be fixed. The best working definition of fascist for the left is simply a “conservative who’s winning an argument.” Because all you have to do to get called a fascist is to disagree with a leftist. Rightwing on college campuses is just another word for “non-compliant.” 
Orwell noticed this a long time ago, which is why he said that fascism had simply come to mean “anything not desirable” or something like that.

You write in your latest book, The Tyranny of Clichés, that clichés are tyrannical in that they are “the use of allegedly non-ideological insights to advance starkly ideological understandings of the world.” Is academic freedom now a tyrannical cliché, and how so? 
Goldberg: Sure. Let’s start with the word ideology. Few words have a worse reputation these days. It has become synonymous with “closed-minded” and “dogmatic,” even “brainwashed.” This is nonsense. An ideology is merely a checklist of your principles. Hopefully your principles are derived from empiricism and experience, though they needn’t always be. (I have never murdered anyone, never committed incest etc., yet I am ideologically, even dogmatically, opposed to them.) 
There’s nothing wrong with being ideological or dogmatic. When people tell me they hate dogma or certainty and brag about how open-minded they are, I tell them that I am dogmatically opposed to setting orphanages on fire. I am also dogmatically opposed to slavery, genocide and the consumption of flan. Save for that last bit, does that make me more or less enlightened? 
Again, it all comes back to power. The Progressives borrowed this neat trick from Napoleon and Marx (which sounds like a fine haberdashery). They unilaterally declared all competing ideologies to be closed-mindedly “ideological” while claiming for themselves an open-minded pragmatism. So liberalism doesn’t have to defend itself as an ideology while it can accuse all of its competing ideologies of being cult-like and other-worldly. We hear this in Obama all of the time. His opponents are “ideologues” who put their “ideology” ahead of the American people, while he is merely a “problem-solver” who only wants to do “what works.” I’m sure he believes it. 
Which points to one of the big problems with liberalism; its staggering lack of self-awareness.  Liberals simply take it as a given that they are open-minded, morally superior free thinkers. At least conservatives acknowledge our dogma. Liberals have become so dogmatic they can’t even see theirs.
So some ideology is probably better than none or pretending to have none.  I believe that Peter has made this point before.  (We could call this post applying the lesson: episode 2.)  Later in the interview:
Conservatives need to get better at convincing people that we believe what we believe not just because it is good for us but because it’s good for everybody. Capitalism is the greatest anti-poverty program in human history. Yet conservatives rarely emphasize that. Why? 
More to the point of your question, the ultimate goal must never be ridicule but persuasion.
Nothing wrong with some ideology provided one avoids being blinded by it.

Monday, March 30, 2015

What can you tell us?

This article about  Brazil appeared online last week:

print version (will load quicker)
Millions of people are out demonstrating, asking for president Dilma Rousseff’s resignation. The endemic corruption of the leftist regime is being denounced by the masses that have taken to the streets, but largely ignored by the media elites, which are connected to those neo-Bolshevik channels financially supported by the Putin autocracy and its friends. The Sao Paulo Forum with its radical exhortations continues its maneuvers of hypnotizing the public opinion. Lies abound, but are starting to not be believed anymore. Protesters are being slandered as “American agents”, “spies”, “fascists” etc. Yet, less people than ever buy into these slanders. 
The protests are being organized by a grassroots initiative with an openly liberal (non-leftist) orientation – the Free Brazil Movement (MBL). Signatures are being gathered for Dilma Rousseff’s dismissal. It turns out that philosopher Olavo de Carvalho’s anti-totalitarian ideas have taken root in Brazil. Olavo, a remarkable social thinker execrated by the Left, knows a great deal about Marxism and revolutionary utopianism in general, at any rate a far greater deal than Dilma and her followers. He is familiar with the famous 11th thesis on Feuerbach: “Philosophers have only interpreted the world in various ways, the point is to change it.” The world is changing in Brazil. 
The hyper-corrupt bureaucracy of the Workers’ Party, so outrageously obvious during the World Cup in 2014, is coming face to face with a resurgent civil society. What is being foreshadowed, it seems, is a peaceful, non-violent revolution. Marxist revolutions are explosions of violence. But not the anti-totalitarian ones. It is now clear that millions of Brazilians feel the need to expose twaddle, nonsense, irresponsible foolishness, cynical demagoguery masquerading as a springboard for collective bliss.

Clovis, what is your sense of things?