The rise and fall in income inequality is directly correlated with the trend in general prosperity because when all are better off, the better-off are more better off than the less well-off.
The New — and old — Keynesian insistence on the reason for the failure of the unprecedentedly large stimulus to kick-start the economic growth engine is reminiscent of the Hebrew prophets’ sermons blaming Jews for their own persecution on the charge of insufficient zealotry, although it is plain to see that it was in fact this excess zealotry that was the proximate cause of the Hebrews’ sufferings. Now these same economists are counseling Europe to go down the same failed path in order to preserve the Euro, never mind the dubiousness of its value to European prosperity and the pain it has already caused.
The fact is that if macroeconomics is to be taken seriously as a science rather than philosophy, to say nothing of its prescriptions being accepted by responsible decision-makers, it must abandon doctrinaire adherence to theories — all theories — that are not proved, or at least well supported, by rigorous empirical evidence. Without such proof, economics will remain indistinguishable from ideology. Keynes, Hayek, Friedman, Marx even, if he is to be included in their number — all were fallible and often wrong, in whole or in part. Politicizing economic-theoretic thought to advance social agendas — whether it be more or less governmental control and regulation over economic factors, trade, inflation, and so on — only undermines the economics as a field of study, much like Stalin’s functionaries attempted to politicize genetics, cybernetics and agronomy.
To insist primacy of theory over observation, to seek out selective facts in support of favored thought while ignoring or attacking contrary evidence, to bully those who point out its inadequacy with argumentum ad verecundiam — particularly when that authority had been a priori deified — are all acts of the pseudo-scientist. Swaddling such naked theory in mathematics does nothing to improve its relationship to measurable outcomes, or make it more a real science.
Moral argument should have no more suasion in the science of economics than it does in geology, or physics, or astronomy. As yet, however, allowing morality and wishful thinking to creep into macroeconomic thought has turned if into philosophy with pretty graphs and nice equations, with scientific rigor still a consummation devoutly to be wish’d.
Now that we have once again entered the annual time of the new year resolution and the attendant run on self-help books (and e-books) to help inspire us to improve ourselves, we even hear of such efforts — and their entirely unsurprising bad ends — on the scale of nations.
The bad end of self-improvement efforts is not surprising because it is so very nearly universal, but before we delve into the human nature — or is it a particularly American human nature?– that insists on believing that if only a measure of self-control were added to our lives then all things could improve, from melting pounds to eliminating deficits, perhaps it would be profitable to take a look at the one measure that did, once set one part of the world on the path toward prosperity, low corruption and — yes — democracy.
Let us consider first which countries have achieved this: The Netherlands came first, then England with Scotland close behind, then Germany. Also, on a different scale we have Switzerland, one half of Belgium, Canada (by extension, mostly, from England), Luxemburg and — eventually — the American Midwest. France was — and is — a laggard, and we all know of the state of South Europe and much of the rest of our little globe. Then let us consider what they have in common – and that is, without exception, a particular brand of Christianity — namely early forms of Protestantism that did away with the idea of salvation via works and substituted grace, or faith, into the equation.
Without exception these societies, when at the height of their development, far from mouthing platitudes about camels and need-eyes saw wealth instead as a big sign of divine favor rather than a result of sin, and so they honored the work of finance and commerce that were the main route to its acquisition. By contrast, all the other cultures denigrated all self-interest and viewed wealth acquisition with suspicion — not that they could succeed in banishing all wealth, but because gains were sinful it was a priori no worse to get at them through sinful means like theft or conquest.
To bring this overlong discourse back to where it started, the only way for a society to join the club of nations prosperous because of the efforts of their people rather than merely their minerals (or certain plant-based powders), one must begin by inviting preachers of the most intolerant, hell-fire breathing, patriarchal, Calvinist persuasion, setting them loose to convert the populace, and then waiting two or three hundred years for their efforts to begin to bear fruit. This would appear to work a great deal better than demonizing their wealthy for not wishing to give away large portions of their fortune or demagoguing the so-called “fair share” of taxation to pay for profligacies of the unproductive.
Whether or not we are reaching the end of the last great burst of innovation, it behooves us to remember that economic growth has through history depended on more than a single factor. Yes, the Romans did invent the arch and concrete, but most of the growth in their world came from widespread use of slaves for labor. I suppose that this was an innovation in itself, of sorts, but arguably the source of growth lay then mostly in trade.
Growth in the Western world began to manifest in the wake of Alexandrian, trade-driven integration. In China, much as it was in Rome, it was vast supplies of labor driving wealth creation. In medieval Europe, too, it was trade that made Genoa and Venice and the northern commercial towns rich.
Industrial revolution allowed for the substitution of energy for labor, thus magnifying, in effect, the available units of work at an affordable cost. We seem to have worked through the available expansion offered by mechanization now — consider how many man-hours go into making our modern gadgets — and returned to human work units as the more cost-efficient alternative. Can we predict the source of the next wave of growth, or indeed, will there be one in our lifetimes? Only time can tell us for certain.
There is much mischaracterization of the meaning of the word “Socialism” thrown about in the heat of political mud-slinging. In reality, Socialism comes in many forms, all sharing the characteristic of state control of economic activity.
In absolute, or totalitarian, Socialism, on the Soviet and, especially, the Maoist model where all private property was essentially banned, the state owns and controls all means of legitimate production. It should be added, parenthetically, that even in this model, enterprise pokes out its avaricious head by way of the underground economy without which state socialism could not even begin to function. In the mixed, or Western, model — such as for instance practiced in the UK of the 1960s-70s — the state owns some of the means of production and seeks to control the rest through empowering pseudo-statist organization such as trade unions. Both of these forms of Socialism have by now bankrupted themselves into almost complete disappearance, leaving behind only a few starving North Koreans.
Whether or not we are reaching the end of the last great burst of innovation, it behooves us to remember that economic growth has through history depended on more than a single factor. Yes, the Romans did invent the arch and concrete, but most of the growth in their world came from widespread use of slaves for labor. I suppose that this was an innovation in itself, of sorts, but arguably the source of growth lay then mostly in trade. Continue reading