Things Are Seldom What They Seem
23 Things They Don’t Tell You About Capitalism
by Ha-Joon Chang
New York: Bloomsbury Press
263 pp., $25.00
The worldwide economic meltdown has upended many long-held beliefs about how economics and finance really work. Since 2008, a wide assortment of authors has started to question the standard explanations that the economics gurus have been offering us about globalization, free trade, and free markets. The growing controversy is hardly surprising. America’s recession and economic decline is the most serious economic crisis since the Great Depression—and its direct effects are likely to last for most of this decade. Few, if any, recognized economists had any idea that a world financial crisis and economic implosion was imminent. Many writers now are warning of a euro meltdown; others believe a second U.S. recession is lurking like Banquo’s ghost, ready to emerge at just the wrong time.
Cambridge economist Ha-Joon Chang is a professor who maintains that he provides much more truthful explanations for our present quandary in 23 Things They Don’t Tell You About Capitalism.
As the title might suggest, 23 Things is not written primarily for professionals with economics degrees but is more of a primer for the average reader. The author explains that he aims to get past the jargon that often makes economics so opaque to nonexperts. At times the book requires a leap of faith, and it can be short on details. Yet, despite its flaws, the professor clearly hits the bullseye in more than a few instances. Dr. Chang is not the first to reveal that the wealthier countries did not achieve success by sticking to free trade or free-market economics. On the contrary, he points out, prosperous nations like England, France, Germany, and (more recently) Japan and Korea used a combination of protectionism, subsidies, and often state control of industry in the early stages of their development.
In the 19th century, the United States became the world’s economic behemoth, racing past England and France by the skillful application of free-market policies, combined with prudent nationalist laws that protected infant industries. At one time, U.S. tariffs reached 40-55 percent, among the world’s highest. Our first treasury secretary, Alexander Hamilton, deserves credit for designing the so-called American System, based on his 1791 paper “A Report on Manufactures.” Adopted by President Washington and the First U.S. Congress, it promoted the use of protectionism, public investment in infrastructure (such as roads and canals), and a robust national-banking system. Some historic examples of the American System are the U.S. patent laws, the intercontinental railroads, the land-grant colleges, and, more recently, the U.S. space program—a prime mover in creating the computer revolution.
Like many similar fantasies of the Aquarian generation, the dream of a “post-industrial” age was based on fuzzy logic. We are learning the hard way, Chang says, that a massive shift to financial products and services creates a hornet’s nest of problems. Compared with manufacturing, services have low productivity potential, which makes them a poor engine for growth. The low tradability of services means that a country committed to a service economy runs a growing trade deficit and has difficulties buying new advanced technologies, leading to even slower growth. The result is low wages. Of course, when the same country welcomes in 12 million illegal immigrants to compete for any job at any wage, that doesn’t help. For developing nations as well, a service-based model is a disaster.
In several crucial areas, 23 Things presents arguments that need to be approached with caution. A number of Dr. Chang’s ideas are either exaggerated or erroneous. A prime example is his suggestion that high inflation is not an impediment to growth and development. He credits Milton Friedman, the influential free-market economist, with convincing the rest of the world that price stability is essential and that inflation should be held to one-to-three percent per year. In spite of that, several countries that bucked this advice achieved success. Dr. Chang cites the case of Brazil, which had rapid economic growth during the 60’s and 70’s in the face of 42-percent average inflation. In South Korea, during the same period, income rose 7 percent, combined with nearly 20-percent annual inflation. Based on IMF data, 97 countries reduced inflation during the two periods (1970-89 and 1990-2008) from an average of nearly 8 percent to only 2.6 percent.
Surprisingly, lower inflation in the wealthier nations was accompanied by a decline in the growth rate, from 3 percent to only 1.3 percent. Chang concludes from this that control over inflation has been a mixed blessing. However, his assertion that stable prices are not essential to a sound economy is not supported by any other data. Many factors are necessary to achieve strong growth rates. Countries that control inflation always have great advantages, especially in encouraging business development and foreign investment. Economists now agree that, for decades, the IMF and the World Bank blundered in their hasty and overzealous efforts in combatting inflation. The agencies’ infamous austerity model, designed by bureaucrats, often left countries with economies on life support. But it is equally pernicious to imply, as Chang does, that the threat of hyperinflation is a bogeyman and that nations that fail to control prices have little to fear. Inflation undermines initiative and deprives people of their earnings. It is despised by honest persons of all classes, and by the poorest as well as the wealthiest countries. Persistent inflation creates resentment and demoralizes citizens, who understand that it is nothing but state-sponsored theft.
Similarly, although he makes a good case showing that a basic level of social insurance can have real benefits to society, Chang seems oblivious to the gathering storm of the worldwide debt crisis. On both sides of the Atlantic, the burgeoning costs of the modern welfare state have created an unprecedented social explosion. Heavily indebted nations like Ireland, Italy, and Spain are desperate to avoid bankruptcy. In Greece, citizens are in open revolt, as the government tries to make deep budget cuts and avoid a default that could destroy the euro and trigger a worldwide depression. In each case, the cost of the bloated welfare state and government corruption has been identified as a primary cause of the crisis. In America, the massive public debt, now $15.5 trillion, has quadrupled in less than a decade. As the cost of entitlements like Medicare and Social Security has accelerated, Congress and the White House have been immobilized, unable to find an appropriate solution.
Chang believes that there is no direct link between social-welfare spending and a growing economy. According to his research, various Western European economies, where social spending is at least 50-percent higher than that of the United States, have had growth rates roughly comparable to America’s. At a minimum, this assertion should be bolstered with much broader data. In addition, Chang claims that such social-insurance programs as unemployment compensation, job-retraining assistance, and continued health insurance can be very effective in giving people a second (or third) chance to succeed. Social spending, he says, also helps to prevent families from falling into destitution, while encouraging people to be more open to risk in choosing a profession or making a career change. Chang also reveals a curious anomaly: During the mid-19th century, bankruptcy statutes were radically altered. “When combined with institutions like limited liability,” says Chang, “this new bankruptcy law reduced the danger of business undertaking and thus encouraged risk-taking, which has made modern capitalism possible.” Oddly enough, there has never been any well-financed campaign to remove or reduce the government safety net that benefits big corporations, bondholders, investors, and small business.
Ha-Joon Chang manages to dissect quite a few economic “truisms” based on what he calls the “[l]azy assumptions and blinkered thinking” of the mainstream media. Clearly, Professor Chang remains enthusiastic regarding the benefits of private initiative and enterprise. Despite his unorthodox thinking, Chang’s 23 Things should not be dismissed as another antibusiness book with a biased agenda. The market, he assures us, is an extremely effective and efficient method for coordinating complex economic activities. As he writes, “The profit motive is still the most powerful and effective fuel to power our economy and we should exploit it to the full.” He agrees that international trade and open markets have increased the well-being of the world’s population. Nonetheless, Chang declares bluntly that, “by glorifying the pursuit of material self-interest by individuals and corporations, we have created a world where material enrichment absolves individuals and corporations of other responsibilities to society.” Each nation’s path to economic independence and prosperity is the result of dozens of factors and is linked closely to its unique history and culture. There has never been a simple interchangeable design or formula for economic development.
In some respects, Chang’s realism can be likened to that of the venerated champion of free markets F.A. Hayek: Both agree that economics and government require a healthy skepticism. In public policy, ambition needs to be tempered by a healthy respect for the welfare of communities and families and the socially responsible use of resources.
David J. Peterson is a teacher with a degree in economics.
This article first appeared in the July 2012 issue of Chronicles: A Magazine of American Culture. Click here to subscribe.
Entries(RSS)
“by glorifying the pursuit of material self-interest by individuals and corporations, we have created a world where material enrichment absolves individuals and corporations of other responsibilities to society.”
This is a misleading and hyperbolic statement. Just who is glorifying material self-interest? More particularly, who needs to? It is sufficient that material self-interest is the natural inclination of all intelligent entities. It is neither accurate or necessary to say that self-interest has been glorified. His purpose in using that term is to degrade self-interest. Which is just foolish, since nothing constructive is ever accomplished without it. This fact of human nature is why capitalism works and why socialism does not.
To the flawed conclusion that 'glorified' self-interest absolves individuals and corporations from responsibilities, I say poppycock. It has ever been the expansion of government intrusion into the private lives and affairs of men that has been the primary destroyer of personal responsibility. This truth is so obvious that I will spare the reader a long diatribe about multi-generational welfare families and all the rest. Suffice to say that as government assumes the responsibilities that properly reside in the private realm, they supplant and suppress individual responsibility.
As for the glorious history of government funded enterprises, I laugh. The intercontinental railroad was so badly managed the taxpayers were fleeced for millions because the contractors were paid by the mile. Glory be. Sorry, for every government funded enterprise so glorified by the author of this book, I will show you a boondoggle that, even if it accomplished it's objective, was many times the cost of an equivalent private enterprise.
Well, the review seemed fair and not everything the author says is baloney. But his take on social engineering and the benefits he ascribes to those inflated programs betrays his commie inclinations. And, since when are commies considered to be wise economic advisors?
Mr. Taqiyya,
I agree with much of what you write above but we conservatives must not feel obliged to embrace the entire economic gopel of John Meynard Keynes in defending the simpler idea of the Christian gospel and the human tendency to express oneself through the property and capital one owns. It was Keynes who stated "Avarice and usury must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight." Many thousands have tried such a rout and found it, in itself, empty of its chief promise. In fact one of the reactions to such empty and simplistic promises of the 19th century was further delusion in the 20th:
I saw the best minds of my generation destroyed by madness, starving hysterical
naked,
dragging themselves through the negro streets at dawn looking for an angry fix,
angelheaded hipsters burning for the ancient heavenly connection to the starry
dynamo in the machinery of night . . .
--Allen Ginsberg, "Howl"
The way of charity appears blocked in our times, much as it appeared blocked in that dark wood in the middle of life's journey described by Dante, but this can never be. The abstract kind such as you describe ( governments doleing out beneficence to anyone and everyone in exchange for votes) is indeed worthless or almost so, but the thing itself is still not only viable but quite necessary and the only real alternative to the way down and out in which our country is headed.
Mr. Taqiyya,
"by glorifying the pursuit of material self-interest by individuals" - I think you keyed off the wrong word. I think the point of emphasis is on "material" and not "self-interest." There's a short but lovely book about the three phases of the interior life by Fr. Garrigou-Lagrange, and in the very beginning he points out the massive shift of the Western world from seeking Spiritual Goods to Material Goods. It seems obvious, but the undeniable fact is that Material Goods are finite and diminish as they are shared. Even if I love my children very much, the fact is that the more children I have the fewer slices of pizza we each get to enjoy. Spiritual Goods, however, actually grow as they are shared with others (i.e. truth, faith, even humor can be enjoyed individually but profit by being shared with others).
All creatures are "self-interested" - of course. The will desires that which the intellect tells it is good. But if we desire material goods as that which is the chief good we cannot but create a world that is increasingly selfish. Many years ago, when the Church & the Faith played a much more prominent role, it was the calling of each individual to seek spiritual goods that lead to a better community. The landowner or nobleman had an incentive to treat his servants or peasants well - not material profit but the promise of heavenly goods where thieves & moths have no power. Likewise, the stubborn or cold had the warm threats of Hell to encourage them. This is a problem much larger than government regulations and schools of economics. This is a cultural issue at the heart of the family, of every man, of the Christian faith, and of all Western Civilization. Thus, I cannot agree with the statement "profit motive is still the most powerful and effective fuel to power our economy and we should exploit it to the full" - at least not so long as profit means material profit only.
On the other hand, Corporations aren't people, and perhaps this is the one hideous thing about democracy, at least how I understand it today. We pin the responsibility on some sort of "group" whereas there is no such thing as "group culpability". Each individual must be responsible for his decisions. I'd druther make one man, who is a good Christian raised by good parents, responsible for a corporation and make the decisions on how pollution should be handled and whether or not jobs should be outsourced. Instead, we have corporate boards (sometimes with a figurehead whose power is at the whim of the board), but this board is elected by thousands if not millions of "shareholders". So when the decision is made to dump waste into the Potomac because it increases the profit margin, who is there to say "no"? Whose decision was it? Whose fault? The shareholders? Most probably don't even vote and just send in proxy cards to support whatever decision the corporate board makes. Is it the board's fault? If they do anything other than maximize the profit, they'll have to answer to the shareholders. It's all a misty shroud of BS and one of the reasons people think government regulations are necessary to FORCE corporations to "do the right thing" not understanding that this only doubles down on the problem by putting an even more removed, faceless, irresponsible, bureaucratic monster in charge.
Mr. Reavis,
Your observations about avarice are well taken. However, while I agree that morality pertains to every human endeavor, my comment was intended to be more limited in scope. As it is, the topic of self-interest is a big one, but you have to draw the line someplace. I detected a theme in the review that I wanted to oppose. That theme is the author's dismissive attitude towards the essential element of self-interest in economics and his slick, unsupported and contradictory support of socialist policies. For example, he praises nationalization of industry. I can still remember how that worked for the British coal industry. Never mind old examples, let's take a peek at Venezuela. Every move Chavez makes, it moves his country backwards. Anyway, my comment is specific to the theme. So, I didn't embrace the entire economic gospel of John Meynard Keynes. I have no axe to grind for or against Keynes. Nor did I, by stating the importance of self-interest, endorse it's excessive expressions. Those failings, as I always assume, we have with us always.
However, it may be worth pointing out that capitalism is not the source of avarice and it's abandonment would not improve our moral standing. I add that because the quote you use from Keynes seems to imply that capitalism is something we can discard, after it has served it's purpose. I would disagree with that, unless he speaks of the life hereafter.
Again, charity is another topic. I find it interesting that you refer to government benefits as an abstraction. I understand your meaning to be as compared to the true, real, spiritual nature of charity and I agree. Still though, food stamps and monthly checks are fairly concrete things. Never mind, I like the poetic way you describe it. And I agree that false or abstract charity blocks and obscures the real kind.
Mr. Cornell,
Well, you're right, I could have taken the discussion directly to the realm of good and evil. However, my purpose was more limited. Maybe more practical and direct than you are used to seeing from me? I will assume you have read my reply to Mr. Reavis. So, as that may apply to some of the assumptions you appear to make, I won't need to restate it. I will only add that by urging a specific opinion, it does not follow that the proponent automatically endorses an extended version of his argument to include every facet at every possible angle.
I do find your opposition to the idea of group culpability interesting. We appear to agree about individual responsibility, in the main. But I would like to hear more about what makes collective guilt, doom or responsibility unreal for you. After all, it appears in many great works of literature, including the foundation of Judaism and Christianity, The Bible. Further, Pat Buchanan employed a reference to the albatross in his last article. Which indicates his belief in the concept. I wonder, if it does not exist, why is it real for so many men of intellect throughout history?
Mr. Taqiyya,
Capitalism. Socialism. Bah. I feel there must be another option or two, but regardless I don't think economics will cure what ails us. And I don't mean to be a hypocrite, because I enjoy having a home where I can watch Laurel & Hardy films with my kids and all of that jazz, but it may be that the only thing that can help us, that is give us the true medicine we need, is a complete economic collapse, horrible as that is. It was only by going mad did Lear learn to love Cordelia.
As you can see I can't talk about anything without lunging, spastically, for some sort of first cause or metaphysical schema. Please be patient with me, I honestly can't help it.
I make a distinction between culpability and consequence. All of the shipmates onboard the Pequod, with one exception, drowned because of the choice of one man. It was Ahab who bears the responsibility or culpability for his decision, but it was every sailor that had to live with the consequences. Even in Sodom & Gomorroh God would have spared the cities had there been but 10 good men found within their borders. And Lot, we presume, the one good man was spared the consequence that befell the twin cities, but had he died as well I don't think we could impute guild upon his head. The examples I used in some other post here apply as well. One man may shoot that albatross, and on the last day he will be judged before all for his actions and his intent, but in the meantime we will all suffer for it.
I guess that's what I mean. I equate culpability to that which we will bear upon our heads at the final judgment. Consequence are the effects here and now felt by sin, which is never an individual event but always has communal ramifications.
Only because I'm following Dr. Fleming's example of posting YouTube links to Rap Videos - for those interested here is a clever one with Keynes lyrically battling Hayek.
http://www.youtube.com/watch?v=GTQnarzmTOc
Count me in as one of the big skeptics of "Inflation is a problem".
No, inflation is not a problem. And Ha Joon Chang's excellent examples are testament to it.
Gentlemen, do you know the most expensive places in the world? It's Switzerland, Norway, and Australia. Are Swiss and Norwegians poorer than Americans because they pay more for everything? No, because their incomes are also higher than those of Americans. To think otherwise is the Money Illusion. Are you concerned with a) how much bread your dollars buys you or b) how much bread YOU can buy?
Of course, it will be the latter.
Are working people really better off in cheap, affordable countries....like Turkey, Poland, or Russia?
The fact is that when incomes are rising, prices rise too, lagging behind income. Sure you can have slow rising prices, but you'll have to accept a slow rising income.
Mr. Cornell,
Thank you for your thoughts on collective responsibility, I find them very helpful. Although the concept is real enough and persists today, it seems to be in the nature of a guilt trip applied by one group to another. As in blaming the Jews for the death of Jesus and the Germans for the actions of the Nazi regime. Like you, I discount the idea that all of those individuals share actual culpability. Though they may on occasion share the consequences for someone else's actions, like Ahab's crew.
"No more shall it be said that the fathers shall eat sour grapes and the children's teeth be set on edge, but every man will die for his own sins" (Jeremiah 31:30). Jeremiah prophesied that a time would come when the relationship between God and man would change. Jesus changed the rules of the game. No more collective punishment or generational punishment. I really should have found this earlier, I used to know this stuff better.
Now, having disposed of collective responsibility, since it's all about individual responsibility, are we subject to judgment for our individual actions in aid of moral wrongs? Of course. What if the moral wrong is not done with our own hands or with our permission and is done in compliance with the prevailing civil law? (taxes) I seek the boundary line. Don't worry, I will do some more homework, I don't expect you to do all of the heavy lifting. As for being patient, no worries, I sometimes wonder if what I write makes any sense at all. Funny, right?
p.s. : 'cheap,affordable countries...like Turkey,Poland,or Russia " are only cheap and affordable for those who happen to live in places like Switzerland, Norway, and Australia. were weimar germans poorer than brits because they paid more for everything? No, because their incomes were also higher than those of the british. inflation is no problem?
One remark about tariffs. It is amazing that every few months someone will post something about how tariffs were the source of American prosperity despite the fact that Dr. Wilson, myself, I believe Prateek and few others show that it is not so and it could never be. For the short answer once again, it is not possible in a world in which the standard is gold to continue mercantilist policies for a long time as the gold runs out. Furthermore, because paper US dollars can only be spent in the US and the UK pound can only be used in UK, tariffs for the most part end up benefitting one domestic interest at the expense of another rather than the county that is targeted.
In recent years there is a proliferation of economists with first class degrees and Nobel prizes that want to comment on everything. It is truly a golden age. What is puzzling is that they hardly agree on very much. Even more puzzling is that some have received Nobel prizes while claiming exactly the opposite things. One also wonders how many of them have actually tried themselves in real business, before appointing themselves to run the world.
I tend to agree with other posters that inflation does not have to be a big deal, but then again neither does deflation. It is simply a matter of good housekeeping to not have much of either. I doubt that this book claims this, according to how this review reads. the mainstream professariat abhors deflation and if you claim otherwise you will not get through your macro courses.
Much has been said about outsourcing and how now we have a service economy. But instead of blaming it singularily on labor arbitrage, let's be blatantly honest. We want a service economy, the one were everyone has an advanced degree or a Phd, were an awful lot of people are busy doing nothing for huge salaries. This is why the government sector grows, colleges are full of students, and there are so many consultants, banekrs,lawyers, game designers, TV and movie workers and the list goes on. The truth is, the party will go on as long as we can print more dollars, since the rest of the world does not seem to get enough of them. If you happen to be unemployed in all this, well so far there are still benefits. Despite what is being claimed, this ain't no Great Depression.
Mr. Bailey,
I know next to nothing about economics. Can you elaborate on your comments about the futility of tariffs? Or perhaps point me to one of the papers you or Dr. Wilson have on the topic. I have often heard the line about how tariffs helped build America's economy, but I have never heard the opposing argument. I am eager to learn.
Also, regarding inflation, is all the conern about hyper-inflation warranted, given the likelihood of another round or two or more of Quantitative Easing by the Fed, or is it hyperbolic alarmism? Once the dust in Europe settles, won't the rest of the world eventually get sick of our printing dollars? I mean, California's debt dwarfs Greece's debt.
Even regarding regular inflation, my instinct is that it is not a good thing. Yes, wages normally rise with the inflation, but that doesn't change the fact that the money I earned in the past is being robbed of its value. In my head work = money, and inflation means my hourly rate several years ago is being reduced below what I originally agreed to work at. When people quote me the fact that a peny about a hundred years ago had the worth of one dollar today, it certainly sounds impressive and disturbing to me.
I have absolutely no interest in a Nobel Prize, but I am trying to understand enough of the basics to try to prudently plan for the future. I'm not worried about making money so much as I am about not losing that which I have and am earning. It's hard for the layman, at least for this layman in particular, to make heads or tails out of anything what with the legion of economic experts all contradicting each other day in and day out.
Makes one long for the time when days were spent arguing about important things.
It's just that as long as *real* incomes are higher, it doesn't matter what the level of inflation is for the household or the worker.
It's like this. A guy gets a 15% raise over the past three years, but his cost of living has increased by 10%. He might say, "The rising prices have really eaten away part of my raise." But he does not consider that if the 10% rise in price level had not happened, he would not even get a 15% raise. Quite likely, he'd get a much lower one. If everything was cheaper, his employer would earn less and he in turn would be paid less. In all possible cases - high inflation or low inflation - his real income would have only risen by 5% or something close to that. Why? His real income depends on his real productivity, and his nominal income would eventually adjust based on what the level of inflation is.
Unless he is a pensioner or lives on a fixed income from bonds, he wouldn't be affected. Of course, in countries with high inflation, they eventually index pensions to inflation.
In the long run, inflation does not really matter, since all incomes adjust upwards. In the short run, higher inflation temporarily leads to a higher level of income, output, and employment, since workers and firms produce more - anticipating more earnings in the future - before they realize their cost of living and cost of production have also risen. If that is the case, what is wrong with demand-boosting policies - stimulus packages and monetary expansion - for temporarily increasing income, output, and employment during a recession or a slowdown? It will temporarily ease the pain for workers and unemployed. And they do achieve that, as the stunning recovery of Germany, Australia, and China show.
Mr. Cornell
It's simple.
People were howling in 2007 to expect hyperinflation in 2009. People were howling in 2008 to expect hyperinflation in 2010. People were howling in 2009 to expect hyperinflation in 2011.
They have kept howling, and their predictions have not come true. You may relax.
Hyperinflation requires a huge supply shock. When Mugabe confiscated white people's farms, there was a supply shock in Zimbabwe. When the French took over large portions of German territory including hundreds of German factories after WWI, there was a supply shock. After the end of Weimar hyperinflation, Germany money supply multiplied 30 times across the next decade, and there was no hyperinflation afterwards. New factories were rebuilt in Germany and production was so high that prices were controlled.
Rise in money supply does lead to some inflation, but it increases demand for goods to the point that production in factories is higher and a downward pressure on prices is placed due to larger supply.
Mr. Sanjay,
I think I follow the reasoning, but since we have a "service based economy" in America, how can increased demand put downward pressure on prices? Demand for service doesn't seem the same as demand for real goods (or am I wrong?). Additional cash flow for actual goods seems to mostly wind up going back to China who is the actual manufacturer (I understand . So while China might see an increased demand for goods and be able to put a downard pressure on prices by increasing supply, doesn't this just wind up making America a poorer nation since, regardless of how much money we print, the flow seems to be going out of and not into our national economy?
Mr. Cornell, actually, that's why we have both quantitative easing alongside government spending.
When government borrows and spends more money, it has a side effect of worsening the trade deficit.
But the Federal Reserve increases the money supply to counter the worsening trade deficit.
It serves to make borrowing money cheaper for American manufacturers. It also helps American bank and businesses buy assets abroad so they can make foreign currencies more expensive and thus make foreign goods less competitive. This way, the exports of American manufacturers go up.
So effective has been the Fed's quantitative easing that China has had no rise in net exports over the past year. China's real exchange rate has gone up by 20% since 2008, and US exports to China have gone up. During the time of QE1 and QE2, US trade deficit was falling very quickly, and briefly came close to nothing in some weeks.
I understand I come across as a defender of the orthodox practices of the establishment, but I believe there is a lot of sense in what the establishment does sometimes, and it warrants due credit.
Prateek,
I always enjoy your comments and questions because they reflect a serious desire to understand. Also because the manipulation of "markets" is what free marketers have always done. One of the many truths I have learned from Clyde WIlson and other writers from Chronicles is that freedom is a very broad and vague term and although every American seems to yearn for it and defend it, it remains a very elusive concept to comprehend in many ways.
I tried linking the web post about the 10,000 dollar a year lawyer salary in Boston. 32 applicants for one position. I hope it worked, I never tried to 'link' before. If it doesn't work, I will try one more time.
Mr. Bailey, You seem to have some knowledge of these matters. More than me at least. Not that it would take much for that. So, I suppose you are correct about the service economy.
But, isn't the depression just being papered over for the moment? As you said, as long as the demand for US currency lasts... Then what happens?
As for those benefits, they are running out. I know several people whose extended unemployment checks are finished. Now, they can't make rent and jobs don't exist. Heck, they can't even find a job pumping gas, doing yard work or clerking a grocery store. Plus, they are older white guys who used to work in sales. Yep, sales isn't doing so swell either. Well, as I see it, the US is in a real depression already. It is being papered over to some degree, as you say. The government is still funding food stamps. But, the pertinent economic numbers are also being fudged to a larger extent than usual. We know they fake the unemployment numbers by artificially restricting the category of 'unemployed'. Not included are larger numbers of long term unemployed, underemployed, etc. Inflation numbers are also faked because they don't include energy or food prices in those calculations. I must also assume that other important economic indicators are also faked. I know the bureaucrats use nicer words to describe the faking process. It's just that I prefer not to use fuzzy math or fuzzy words. At this point, I would be a fool to believe anything coming from Washington DC. Especially Obama's Washington. I guess my point is that while inflation may or may not be a manageable problem depending on the circumstances, this partially papered over economic depression looks to me like a house of cards. The first or second cold wind will bring it all down. The bank bailouts were the first big crack. It was papered over with more unsustainable debt. The Europeans are frantically papering over their many unsustainable debts. Partially with yet more American assumed debt obligations. This cannot end well. And I didn't even mention the long term state debts, one trillion in college loans, underwater mortgages, credit card debt, etc. Nope, I guess I did.
C'mon, don't you guys just love my doom and gloom comments?
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CFkQFjAD&url=http%3A%2F%2Fblogs.findlaw.com%2Fgreedy_associates%2F2012%2F06%2Flaw-firms-ad-for-10000-a-year-attorney-job-nets-32-applicants10kyear-job-ad-nets-applicants.html&ei=6YnXT6rELKHd0QGC-ZmCAw&usg=AFQjCNGiGzeogwKpomcLmfGu7ZvAEysz6g&sig2=JnhKjJWwhMrl5d1yHr5R1w
Cool, it worked.
http://www.coyoteblog.com/coyote_blog/2012/06/my-annual-mockery-of-arizona-budget-games.html
Here's an interesting post from coyote blog about how Arizona fakes it's numbers.
freedom is a very broad and vague term and although every American seems to yearn for it and defend it, it remains a very elusive concept to comprehend in many ways
The American dream of "freedom" is born of a Calvinistic mindset rather akin to Islam in its confounding of the sacred and the secular realms. Accordingly, once this mindset is shed of its spiritual pretensions, the notion of freedom from sin in the Beatific Vision finds a deformed material parallel, in the American national conscience, of political freedom within the confines of the flesh. The elusiveness of this freedom arises from the reality that the American, like all man, cannot be free so long as he searches for freedom within the scope of the very thing that binds him in shackles.
Mr. Sanjay,
Thank you for your comments - I am learning much and hope that I am not trying your patience. I guess I struggle with the line between good economic practice on a national level and moral actions on a personal level. I can understand the mechanics of how QE can ease the trade deficit, but part of me thinks that it's cheating. It's like having cake and eating it, too. Isn't America basically running herself into debt, much of it to China, then using QE to increase the value of Chinese money against the American dollar? It seems that if I were China I wouldn't be very satisfied with the situation.
If China decided it didn't want to buy any more of our debt, would the sudden surplus of American dollars that nobody would want combined with QE be something akin to a huge supply shock - or is that still small potatoes compared to the other examples of hyperinflation?
I know that I don't have enough economic knowledge or imagination or faith in our political leaders to hope in there not being some sort of economic catastrophe in the USA's near future. It's not something I particularly desire, but when I consider that Paul Ryan's "radical" plan doesn't even balance the government budget for almost 20 years, let alone actually pay down debt, I get the goosepimples all over again.
Rothbard: "Protectionism and Destruction of Prosperity" also "Tariffs Antiflation, Antitrust and Cartels'. Also Hazlitt. A more mainstream treatment is done by Edward S. Kaplan in "American Trade Policy" and "Prelude to Trade Wars, American Tariff Policy". It is worth noting that tariffs were the main source on federal revenue up till the beginning of the 20th Century and the real reason why they existed. It had nothing to do with protectionism. Protectionist impulses like Hamilton's only occured sporadically and were soon quickly ignored because such tariffs kept the protected industries uncompetitive.
Some of our spirited discussions on tariffs were in the comments section within the last year.
As for inflation, while there are various kinds, the one that is on everyone's mind is the one caused by printing of money as it is redistributive in nature. It is claimed that currently quantitative easing is a success because there is no such inflation, the reason being that there is currently a deflation in assets which offsets this. However commodity prices are inflating strongly which means that the "bad" inflation is happening. Paul Craig Roberts' blog keeps track of this. The main problem with QEDs is that they are just wealth transfers while they are incapable of stimulating the economy as the velocity of money continues to drop.
inflation does not affect everyone evenly. some suffer more than others. the poor usually more. it is a flat tax. the first group to benefit, benefits the most. the last groups to benefit-pensioners,fixed incomes- benefit the least. moreover , these groups will never be able to compensate for the losses they suffered during the period when their incomes had not risen at all . they will find little comfort in the govt. "eventually" indexing their payments, or their nominal incomes "eventually" adjusting to inflation. the mirage of inflation is the opium of the people.
They won't stop taking the dollars for some time to come for various reasons. Welfare rolls will continue to increase, as all these college graduates will not be willing to take up low paid service jobs, which will continue to be filled by illegals. Does all this crash eventually, who knows? Right now it does not seem that it will any time soon.
Ah, the voice of sweet reason. And just when I was gearing up for another go at that free will thing. The biblical version. As opposed to the Calvinist one.
Mr. Bailey,
Thank you for your recommendations. I am making my way, slowly, through the first Rothbard essay you mentioned. While I now understand the basic concept that tariffs are bad, especially since they put more power in the hands of the government, one thing I can't quite see eye-to-eye with him on is the idea that the only reason wages are lower in other countries is because American companies are more productive due to capital investments. It seems that some countries, like India and China, also have a surplus of workers, and so the excessive supply of labor allows corporations there to pay so little. I'm not sure how Americans are supposed to compete with that aside from lowering our standard of living & wages by increasing the number of workers here (i.e. allow unfetterred immigration), which seems not a good idea for many reasons. Its much food for thought for me.
I also did some searches on the website here for past articles and comments. There's quite a treasure trove out there! I found an article by Dr. Fleming (Abuse Your Illusions) and the comments that followed very illuminating.
Thanks again for the guidance.
That's some interesting food for thought, and I just remembered a couple of things.
Wages are rapidly rising in China, to the point that the Chinese real exchange rate is now 50% more than what it was 7 years ago (real exchange rate is just the exchange rate adjusted for local wage/price levels).
If there ever was a labour arbitrage in China, it is going to disappear soon. Eventually, Chinese wages will be at least as high as Chinese productivity levels allow them to be. Or rather, they may have already reached that threshold.
As for India, there is low wage growth rate, but only because most of the workers are casual, informal workers who get temporary jobs by the day only and that too in agriculture, where rarely more people are required on the very small farms that you find here. It wouldn't be the story in manufacturing here.