# THE QUESTION
I had one fundamental
question about economics : Why do some places prosper and thrive while
others just suck?
It's not a matter of brains. No part of the earth is dumber than Beverley Hills, and the residents are wading in gravy. In Russia, meanwhile, where chess is a spectator sport, they're boiling stones for soup. Nor can education be the reason. Fourth graders in the American school system know what a condom is but aren't sure about 9 x 7. Natural resources aren't the answer. Africa has diamonds, gold, uranium you name it. Scandinavia has little and is frozen besides. Maybe culture is they key, but wealthy regions such as the mall are famous for lacking it.
Perhaps the good life's secret lies in civilization. The Chinese had an ancient and sophisticated civilization when my relatives were hunkering naked in trees. In 1000BC, when European were barely using metal to hit each other over the head, the Zhou dynasty Chinese were casting ornate wine vessels big enough to take a bath in - something else no contemporary European had done. Yet today, China stinks.
Government does not cause affluence. Citizens of totalitarian countries have plenty of government and nothing of anything else. And absence of government doesn't work either. For a million years mankind had no government at all, and everyone's relatives were naked in trees. Plain hard work is not the source of plenty. The poorer people are, the plainer and harder is the work they do. The better off play golf. And technology provides no guarantee of creature comforts. The most wretched locales in the world are well-supplied with complex and up-to-date technology - in the form of weapons.
Why are some places wealthy and other places poor? It occurred to me, at last, that this might have something to do with money.
Love, death, and money - these are the three main human concerns. We're all keen students of love. We are fascinated by every aspect of the matter, in theory and in practice from precise biological observations of thrusting this and gaping that to ethereal sentimentalities marketed in miles of aisles at Hallmark stores. No variety of love is too trivial for exegesis. No aspect of love is so ridiculous that it hasn't been exhaustively reviewed by the great thinkers, the great artists, and the great hosts of daytime talk shows.
As for death, such is the public appetite for investigation of the subject that the highest-rated television program in America is about an emergency room. The most hardheaded and unspeculative of persons has his notions of eschatology. The dullest mind can reason extensively about what causes kicking the bucket. Dying sparks our intellectual curiosity.
Economics happens a lot more often and involves multitudes of people and uncountable goods and services. Economics is just too complicated. It makes our heads ache. So when anything economic goes awry, we respond in a limited and personal way by searching our suit-coat pockets to see if there are any wadded up fives inside. Then we either pray or vote for Democrats, depending on our personal convictions of faith.
Or maybe economics is so ever present, so pervasive in every aspect of our lives that we don't really perceive it. We fail to identify economics as a distinct entity. We can watch a man slip and fall and almost never hear him say, "God-damned gravity!" And we can watch a man fall ten times and not see him become interested in how gravity works. Almost never does he arise from the eleventh tumble saying, "I went down at a rate of 32ft/sec - the force being directly proportional to the product of the earth's mass times my weight and inversely proportional to the square of the distance between that patch of ice on the front steps and my butt." And so it is with economics. No amount of losing our jobs or our nest eggs sends us to the library for a copy of John Maynard Keynes's The General Theory of Employment, Interest, and Money.
I decided that if I wanted to know why some places were rich and other places were poor, I should go to those places. I would visit different economic systems: free market, socialist, and systems nobody could figure out. I'd look at economically successful societies: the U.S., Sweden, Hong Kong. I'd look at economically unsuccessful societies: Albania, Cuba, Tanzania. And I'd look at societies that hadn't decided whether to be successful or not: Russia and mainland China. I'd wander around, gape at things, and simply ask people, "Why are you so broke?" Or "How come you're shitting in high cotton?"
# GOOD CAPITALISM : WALL STREET
Debt means that you're renting your money to someone. Equity means you're buying something from him. If you buy a share of a corporation's common stock rather than buying its corporate bond, you own part of the corporation.
Oh, and because you're one of the owners of the corporation, you get to vote. This means that once in a while you receive something in the mail called a 'proxy statement.' The proxy statement allows you to give your vote to the people who are paying themselves enormous bonuses. Either that or you can travel to the corporation's annual meeting (held in Indonesia this year) and stand up in the back and holler shrill questions like some Ralph Nader fruitcake.
You buy stock because you have one of those opinions mentioned earlier. You think other people will think this stock is worth more later than you think it's worth now. Economists call this - in a rare example of comprehensible economist terminology - the 'Greater Fool Theory.'
Can men who have guns restrain themselves from interfering in the affairs of men who have nothing but checkbooks?
The unemployment rate was so low that if your dog wandered into a MacDonald's, it would wander out wearing a TRAINEE badge.
# BAD CAPITALISM : ALBANIA
There is not, so far as I was able to discover, an Albanian Child Abuse Hotline. That's becuase it would be jammed with how-to-calls.
# GOOD SOCIALISM : SWEDEN
A government can give most people something for nothing by taxing the few people with money. This is how Sweden has gotten into trouble. There are never enough of those people with money. And the people with money are the people with accountants, tax lawyers, and bank accounts in Luxembourg, so they end up not paying their taxes.
Stockholm is one of the more attractive cities in the world, sombre beauty division. The city is modern in all the things that should be modern (phones, roads, cars, toilets), while all the things that should be old (royal palaces, battle monuments, trees in the parks) are as old as they're supposed to be.
"It's not so cold," say the Swedes. "We're right on the water here, so it never really gets that... Darn it, hand me the hammer Rolf. The Mr. Coffee has frozen solid again."
# BAD SOCIALISM : CUBA
Cuba isn't exactly the future most of us have planned for our kids. Unless we're really mad at the little buggers.
The pace of economic reform in Cuba is determined by the learning curve in Economics of Fidel Castro. And he's a slow learner.
The big restaurants were nationalized and in a nation that's suffering severe food shortages, this meant that only rice and beans were available to foreigners who had dollars. Ha-ha-ha. Hard-currency joke. I could get anything I wanted-lobster, steak, Cohiba cigars actually made by Cohiba and rum older than the prostitutes sitting at all the other tables with German businessmen.
Of course the embargo is stupid. It gives Castro an excuse for everything that's wrong with his rat-bag society. And free enterprise is supposed to be the antidote for socialism. We shouldn't forbid American companies from doing business in Cuba, we should force them to do so. Bring them ashore with Marines if necessary. Although I guess we've tried that.
And the Cubans are stupid for rising to the bait. There's another little island next to a gigantic, powerful country that threatens to invade and enforces an embargo. And Taiwan has done okay.
# TAKING ECON 101 FOR KICKS
It's great if everybody has a job. Computers are taking jobs away. We could guarantee full employment if we removed computers, and electricity too, from the telephone companies. When James Watt invented the Steam Engine, thousands of 10 year old boys who had been hauling coal carts were put out of work. However, this left them free to do other things, such as live to be 11.
# HOW TO REFORM AN ECONOMY : RUSSIA
Russia does not yet have an effective system of civil law. The only way to enforce a contract is, as it were, with a 'contract'-and plenty of enforcers. What would be litigiousness in New York is a hail of bullets in Moscow. Instead of a society infested with lawyers they have a society infested with hit men. Which is worse, of course, is a matter of opinion.
St.Basil's Cathedral in Russia was commissioned by Ivan the Terrible in 1552. According to legend, Ivan had the architects blinded to keep them from building another. Perhaps he went too far, but he certainly should have had them beaten over the head with a book of lessons on how to make vaults and arches.
I was an American and supposed to know all about the problems of liberty. "You have had over 200 years of democracy," said one of the Irkutsk men, sighing as though self-rule were something that had to be achieved by Darwinian selection, like an opposable thumb.
# HOW TO MAKE NOTHING FROM EVERYTHING : TANZANIA
Statistically, there are poorer countries than Tanzania; that is, countries so chaotic that all their statisticians have been chased up trees-Liberia, Somalia, Congo-and countries which are so reclusive-North Korea-that it's impossible to tell what's going on. But Tanzania is right at the bottom of the aforementioned barrel, which would probably have to be imported from an industrially advanced nation.
There's a sad little econometric debate about Tanzania's per-capita gross domestic product. Tanzanian government figures (given foggy population projections and a Tanzanian-shilling with an exchange rate that varies between worth-little and worthless) work out to approximately $128 U.S. a person a year. The World Bank believes it's about $117. The CIA, in its 1995 World Factbook, estimates Tanzanian per-capita GDP at $750. But this is from the organization that (as late as 1989) thought the Soviet Union's per-capita GDP was nearly as high as Britain's. The CIA is using something called the purchasing-power-parity (PPP) method to measure gross domestic product. PPP is supposed to compensate for the lower living costs found in poorer countries. It's like having your boss tell you, 'Instead of a raise, why don't you move to a worse neighborhood - your rent will be lower and so will your car payments, as soon as someone steals your Acura.'
Vast sections of Tanzania are infected with sleeping sickness borne by the tsetse fly. The fly's devastating effects are similar to those of other known sleeping sickness carriers, the tsetse professor, and the tsetse boss.
# HOW TO MAKE EVERYTHING FROM NOTHING : HONG KONG
Curing poverty equals allowing people to get rich. This very simple equation has eluded some of the deepest thinkers of the world's advanced nations.
How a peaceful, uncrowded place with ample wherewithal stays poor is hard to explain. How a conflict-ridden, grossly over-populated place with no resources whatsoever gets rich is simple. The British colonial government turned Hong Kong into an economic miracle by doing nothing.
Hong Kong is the best contemporary example of laissez faire. The economic theory of 'allow to do' holds that all sorts of doings ought, indeed, to be allowed, and that government should interfere only to keep the peace, ensure legal rights, and protect property.
Cowperthwaite has said
of his role in Hong Kong's astounding growth : "I did very little. All
I did was try to prevent some of the things that might undo it."
He served as the colony's financial secretary from 1961 to 1971. In the debate over the 1961 budget, he spoke words which should be engraved over the portals of every legislature worldwide; no, tattoed on the legislator's faces :
"In the long run the aggregate of decisions in individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government; and certainly the harm is likely to be counteracted faster."
Maybe Hong Kong wasnt one of those vital, strategic places worth fighting for, like the Falklands. Maybe the Poms only intervene militarily when there's enough sheep to keep the troops entertained.
Why didn't the British give some other island to China. Great Britain, for instance. This would get the UK back on a capitalist course-Beijing being more interested in money-making than Tony Blair. Plus the Chinese have extensive experience settling royal family problems.
How did the Chinese
of Hong Kong feel about being ruled by England? It's a complex question.
Or, as a number of Chinese people said to me, "No, it isnt." Being an American,
and an Irish-American to boot, I was, maybe, told certain things that the
English didnt hear. "We hate the English," for instance.
When a Chinese friend said that, I said, "Wait a minute, I was in Vietnam not long ago, and nobody seemed to hate the Americans. If the Vietnamese can forgive Americans for napalm, carpet-bombing, Agent Orange, and the rest, surely you can forgive the English for the odd opium war and some "Land of Hope and Glory" karaoke."
"Its a different thing," said my friend. "You just killed the Vietnamese; you never *snubbed* them."
# HOW TO HAVE THE WORST OF BOTH WORLDS : SHANGHAI
A free market is a natural evolution of freedom. There's a missing link in Shanghai. This is not a Darwinian economy where enterprises prosper according to their ability to survive and grow. This is a creationist economy where prosperity is bestowed by a greater power. The Chinese communists are attempting to build capitalism from the top down, as if the ancient Egyptians had constructed the pyramid of Khufu by saying, 'Thutnefer, you hold up this two-ton pointy piece while the rest of the slaves go get 2,300,000 blocks of stone.'
I don't want to disparage private enterprise. The world has political, religious, and intellectual leaders for that. But when a totalitarian government gets cozy with large financial and manufacturing concerns, it rings a 20th century historical bell. I'm thinking how a certain 'people's car'-ein Volkswagen-got its start. I'm thinking, 'Made the trains run on time.' I'm thinking, 'Greater Asian Co-Prosperity Sphere.' There's a technical name for this political ideology.
And omnipresent amid all the frenzy of Shanghai is that famous portrait, that modern icon. The faintly smiling, bland, yet somehow threatening visage appears in brilliant read hues on placards and posters, and is painted huge on the sides of buildings. Some call him a genius. Others blame hum for the death of millions. There are those who say his military reputation was inflated, yet he conquered the mainland in short order. Yes, it's Colonel Sanders.
# A TREATISE ON ECONOMICS
We're so close to being rich. Everybody in the world could berich as hell. The benighted masses of India could quit peddling bicycle rickshaws and start dragging Lear jets through the streets of Calcutta. Indians in the Brazillian rain forest could be singing in the rain. Eskimos could give up clubbing baby seals and devote their arctic vastness to building an Olympic-quality ice dancing team.
Money wont solves all our problems. But money will give us options, let us choose the problems we want to have. Leisure conglomerates may open franchises in Bosnia where Muslims and Serbs can blast each other in paintball wars. Self destructive individuals will still exist, but instead of dying from drug overdoses in toilet stalls, they will be able to expire in luxury.
All this is possible
because the modern industrial economy works. Obviously it works better
in some places than in others. But it works even in the poorest areas.
The Ivory Coast now produces almost as much per-capita wealth as the United
States did when the Monroe Doctrine was declared, and Egypt produces more.
America did not consider itself a poor country during the 1820s, and, in
fact, at that time it was one of the world's most prosperous nations.
Measured in US Dollars, the world gross domestic product, the value of everything produced on earth, went from $565 per person in 1500 to $651 per person in 1820. That was an increase in wealth of about 27 cents a year.
But after the Industrial Revolution, something wonderful happened. The total world GDP grew from $695 billion in 1820 to almost $28 trillion in 1992. This planet has the same amount of arable land, and arguably, fewer natural resources. Plus, population has grown from a little more than 1 billion to nearly 5.5 billion. But even so, world GDP per capita swelled from $651 to $5,145. Prosperity increased by $26 a year.
The modern economy
works, and we know how to make it work better. Free markets are extremely
successful. Even a free market with lots of tax baggage amd regulatory
impediments is much better than a market that isn't free. Sweden has about
the same amount of arable land as Cuba, a similar range of natural resources,
a worse climate, and a couple of million fewer people. But Sweden's GDP
is more than 11 times the size of Cuba's.
And the free market trumps education and culture. North Korea has a 99% literacy rate, a discilpined, hardworking society, and a $900 per-capita GDP. Morocco has a 44% literacy rate, a society that spends all day drinking coffee and pestering tourists to buy rugs and a $3,260 per-capita GDP.
We know what to do,
and we know how to do it. So what's wrong with the world? To a certain
extent, it's the same thing that's wrong with me. Because the prosaic,
depressing, and somewhat shameful fact is that the secret to getting ahead
is just what my parents told me it was :
Hard Work, Education, Responsibility, Property Rights, Rule of Law, Democratic Government.
However, billions of people don't have a chance to get an education, and some of them, like religious fundamentalists and deconstructionist college professors, don't believe the education when they get one. There are also billions of people who don't have property rights, not to mention property. Or the property rights are arbitrary, and the property can be taken away be anybody with a gun or government title. These billions of people have trouble being responsible because being responsible means thinking of the future. They haven't got one.
Democracy is a bulwark against tyranny - unless the demos get tyrannical. People can vote themselves poor, as the Swedes seem to be trying to do.
There is a worldwide pigheadedness about money. There is a willful and even beillgerent ignorance concerning ways and means. There is a heartful and near-universal refusal to understand the basic economic principles behind the creation of wealth.
Political systems must love poverty - they produce so much of it. Poor people make easier targets for a demagogue. No Mao or even Jiang Zemin is likely to arise on the New York Stock Exchange floor. And politcians in democracies benefit from destitution, too. The US has had a broad range of poverty programs for 30 years. Those programs have failed. Millions of people are still poor. And those people vote for politicians who favour keeping the poverty programs in place. There's a conspiracy theory in there somewhere.
General poverty benefits specific wealth. If most people are broke, that's great for the wealthy few. They get cheap household help, low ancestral manor real-estate prices, and no crowds on Martha's Vineyard. This explains the small, nasty plutocracies in impoverished countries. Maybe it also accounts for the rich socialists prominent on the political landscape for the last two centuries.
Fairness is a potent emotional issue, but how is fairness to be delivered? It's hard to build a political structure that provides economic fairness. The map is full of failed attempts, and so is this book. When a government controls both the economic power of individuals and the coercive power of the state, we get, at best, Shanghai. A businessman finds that one of his stockholders has tanks, artillery, and jet fighter planes. This violates a fundamental rule of happy living. Never let the people with all the money and the people with all the guns be the same people.
We may say something like, 'People have a right to food, a right to housing, and a right to a good job at decent pay.' But from an economist's perspective, all those rights involve making finite goods meet infinite wants. Unless the fair society generates tremendous economic growth - which societies that put fairness first have trouble doing - the goods will come from redistribution. Try rephrasing the rights statement thus : 'People have a right to my food, a right to my housing, and a right to my good job for my decent pay.'
A belief in a free market means a belief that people have an innate right to the fruits of their own endeavour, and the right to dispose of the fruit the way they see fit, as long as other people dont get pasted in the face with a rotten peach, or something.
It was Adam Smith in
"The Wealth Of Nations" ( published in 1776 ) who originally argued that
a free market is good for evrybody. Smith seems to have been the first
person to realize that all voluntary exchanges increase prosperity. Wealth
is created by any swap. It may seem like an even trade, but each trader
gives up something he values less in order to recieve something he values
more. Hence the wealth of both traders grows.
The free market outcome benefits all. It's moral. And the beautiful thing about this morality is that we dont have to be good to achieve it. "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." Snith saw that a man's selfish concern with his own well-being is a desirable, indeed, a splendid thing for society. "He intends only his own gain," wrote Smith, "and he is in this... led by an invisible hand to promote an end which was no part of his intention." That end is economic progess.
The worrier about fairness
can recite the old line : "The rich get richer and the poor..."
"Get entertained by People magazine stories about divorces among the rich." That is not how the worrier was going to finish his sentence. "Get lower mortgage rates because banks have more money to lend." That is not it either. "Get better jobs because there's more capital to be invested in businesses." No the cliche is, "The rich get richer and the poor get poorer."
Except there is no evidence of this in recent history. Per capita GDP is a tricky figure and doesnt tell us much about the well-being of individual people.
But there are other statistics that dont present the same problems of averaging.
Between 1950 & 1990 infant mortality rates declined in both rich and poor countries, and so did the gap between them. Life expectancy tells the same story. The difference between the world's rich and poor has decreased by 6.5 years. The rich are getting richer. The poor are getting richer. And we're all getting older.
Almost everyone now admits that the free market tells the economic truth. Economic liberty makes wealth. Economic repression makes poverty. Poverty is hard, wretched and humiliating. Poverty is schoolgirl prostitutes trying to feed their parents in Cuba. Poverty is a father driving around in the Tanzanian night looking for a doctor while his daughter dies. It's grandmothers begging on the streets of Moscow. But what poverty is not is sad. These things don't have to happen. These conditions don't need to exist. We can't solve all the problems of life, but we can solve the problem of gross, worldwide material deprivation.
So if wealth is not
a worldwide round-robin of purse snatching, and if the thing that makes
you rich doesnt make me poor, why should we care about fairness at all?
We shouldnt. As a foundation for a political system, fairness may be no
virtue at all. The Old Testament is clear on this point.
The first 9 Commandments concern theological principles and social law. Fair enough, but then there's the 10th Commandment : "Thou shalt not covet thy neighbour's wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor anything that is thy neighbour's."
Here are God's basic rules about how we should live, a very brief list of sacred obligations and solemn moral precepts, and right at the end of the list is, "Dont envy your buddy's cow."
What is it doing there? Why would God, with just 10 things to tell Moses, choose as one of them, jealousy about the livestock next door? And yet, think about how important to the well-being of a community this Commandment is. If you want a donkey, a pot roast, a cleaning lady, dont bitch about what the people across the street have. GO GET YOUR OWN.
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