Why Nations Fail by Daron Acemoglu and James A. Robinson, and,
Unintended Consequences by Edward Conard.
Both of these books are about different aspects of the competition for and defense of relative status. Why Nations Fail takes a similar viewpoint to that of Max Weber (he is quoted several times within the work), while bifurcating the world into polities with predominately “extractive” institutions and processes, and ones with primarily “inclusive” institutions and processes. Unintended Consequences is, at its heart, a work of social Darwinist philosophy with a lot of “supporting statistics”, and is a sort of contemporary version of the socio-economics espoused by 19th century social theorist and proto-sociologist Herbert Spencer. Interestingly, while approaching related issues from radically differing points of view, both works start with similar fundamental assumptions. Both works believe that “creative destruction” is a socio-economic boon; both works assume that all valuable or potentially transformative resources are scarce, (Or possibly that scarcity itself confers value? Or that the perception of relative scarcity makes things seem valuable?); and both works tacitly accept that competition is natural and inevitable and that it produces positive long-term outcomes, both for societies and for their constituent individuals. Both seem also to accept some form of the labor theory of value, although it isn't directly discussed in either work. The former work is focused on the factors which contribute to relatively just, egalitarian and sustainable societies; and the latter is ostensibly focused on debunking popular economic “misconceptions” following the “financial crisis” of 2008, but in reality goes much further. Both books were “informative”, interesting and amusing reads, despite pronounced differences.
Why Nations Fail: The Origins of Power, Prosperity, and Poverty, should more properly have been titled “Our Definition of National Success and How to Emulate It.” Daron Acemoglu is an MIT economics professor; James A. Robinson is a political scientist with extensive experience in developing nations. Acemoglu has studied development for years, and Robinson has lived it; both bring informed opinions of what works and what doesn't in development. This is a historical analysis of comparative success and failure in both economic and political development throughout the world over the last five centuries, and features copious historic and contemporary examples from both developed and developing nations. It offers different contextually-dependent iterations of roughly the same hypothesis, in attempting to explain everything from the inequities and ongoing developmental retardation caused by European colonization of Africa and the Americas, to the collapse of the Soviet Union, and the rapid but uneven growth of Asian economies in the last four decades. I would excerpt and include the hypothesis, but that might tax you as a reader, as there are six different contextually-dependent iterations of it included in the book comprising nearly eighteen pages, and each one substantially differs from the others just enough that to fully do the work justice I might have to include them all. “Succinct” is not a term I would use to describe this 529 page long book. However, don't let its length daunt you: even if you aren't a political history, economics, social science or development “geek”, this book is well-written and accessible to the general reader. It is a mine of historical economic information presented as a sequence of related mini-narratives (“stories”), which are punctuated by iterations of the central theme of this mega-essay. Imagine a long, well-written dissertation with stories and jokes.
Here is my interpretive summation of the book's lengthy hypothesis:
The conditions under which prosperity occurs are created by economic institutions. Economic institutions are created by society and depend upon political institutions. Political institutions must have the power, authority and will to create the necessary conditions for prosperity, but also must represent a broad coalition or a plurality of popular interests in order to be considered inclusive and legitimate. When states lack power or are insufficiently centralized they cannot create the conditions under which prosperity may occur. States which possess sufficient power but in which either economic or political power or both are wielded on behalf of an individual or an elite group are not inclusive but extractive, and extraction is an unsustainable economic process which does not create widespread prosperity. So, societies which prosper over time have centralized authorities which include a plurality of interests. Societies which lack centralized authorities are considered chaotic “failed states;” societies in which authority is centralized but in which only the interests of an elite are represented typically feature exploitive and extractive economic institutions. Autocratic or oligarchical polities create and maintain extractive economic institutions; economic elites tend to create absolutist regimes, and to flourish under autocratic or oligarchical polities. In short, pluralism creates prosperity and a positive feedback loop ensues which creates a relatively prosperous and inclusive society; elitism creates inequity and a positive feedback loop ensues which creates a relatively impoverished and exploitive society. Contingencies can disrupt either feedback loop and impede or reverse the respective cycles.
The book cites dozens of examples. The United States, Great Britain, Australia and South Korea are used as examples of inclusive societies, and there is a very long list of contrasting extractive societies, including nations from North and South America, Africa and Asia. While my knowledge and experience of Britain, Australia and South Korea are either very limited or nonexistent, I've lived in the US for decades and I'm quite familiar with its past and present. There are certain conditions which are cited that don't necessarily pertain to the US as I've experienced it.
There are certain implicit assumptions which underlie this text: that each individual or group will vie for as much power as it can attain, and then seek to establish and maintain conditions under which it can extend or expand that power for as long as possible in order to accrue maximum wealth, using any mains available or necessary, unless held in check by other groups or bases of power; that “prosperity” is a laudable and desirable state to achieve; and that the “success” or “failure” of a nation can be measured in money or material. Relative status is what matters, and most human endeavors are directed toward this end: to raise the status of oneself or the group with whom one is associated in contrast to other individuals and/or groups within a society. In many cases war can be viewed this tendency extended to nations. In the Bruce Springsteen song “Badlands,” there is a verse which succinctly summarizes this egoistic, grasping, competitive obsessive compulsion which seems to infect and inflame so many:
“All men want to be rich,
Rich men want to be king,
And the king won't stop,
Until he rules everything.”
This is traditional Western materialism, albeit in a kinder and gentler form than that of the contrasting work which I next review.
In Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong, Edward Conard officially attempts to debunk myths concerning how the US economy actually functions, while in reality he advances a tired, dated philosophy of the merits of inequality, greed, intense competition and social Darwinism. While there is some good information in the book, especially when he addresses how the US economy experienced rather spectacular growth despite running up large debts and trade deficits, much of the rest of the book defies logic, reason, sound economics, everyday observations and common sense. Conard gained his “expertise” as a partner at Bain Capital Management between 1993 and 2007, and has degrees from Harvard and the University of Michigan. He has done a lot of research and statistical analysis, but his conclusions are distorted by his underlying Social Darwinist perspective, which calls the entire work's validity into question. Here is a quote from the introduction: “Darwinian survival of the fittest largely governs the economy. It tests real-world alternatives against fierce competition for scarce resources – food and sex in the case of biology, customers and capital in the case of economics.” I suppose the validity and veracity of that assertion depends upon one's definition of “scarce.” While the competition is real enough (although not absolutely necessary), the scarcity is artificial and illusory. With a global population that has more than doubled in the last century and a half and is now rapidly approaching seven billion people, all aggregated in one interconnected global economy, neither sex nor potential customers can be said to be especially scarce. If anything, both may be a bit too common! Over half of all food produced is not consumed... and the global population continues to grow, so, apparently, famine and starvation aren't so widespread as to limit population growth. In biological terms this is known as a“relative abundance” of food. If anything this points to artificial surpluses, overproduction of food, and inefficiencies in food storage and distribution – overabundance instead of scarcity. But what about capital? Capital is assets put to economic use. Assets can include machinery, buildings and financial instruments (like money, stocks and bonds). Basically anything that isn't labor but can be used to produce something is capital. OK... we just experienced a building boom followed by a recession where the values of all real estate declined and there were too many available buildings relative to demand... when one has too much of something terms like “overabundance”, “glut” and “surplus” are applicable... “scarce” is not. So no scarcity of buildings. What about machinery? Later on in the same book, Conard boasts about how outsourcing and “offshoring” of production between 1990 and today has created an abundance of inexpensive mass produced goods, including production machinery... so, by his own admission, no scarcity there. What about money, stocks and bonds? Money, stocks and bonds can literally be created out of nothing, as needed, any time. Any market-wide or economy-wide scarcity of any of these three financial instruments is either an aberration or has been intentionally created to produce a certain effect or range of effects. So no scarcity there... no scarcity at all. In fact, humans live in an abundant world which is an infinitessimally tiny speck of nothing in an infinite universe; not only does absolute scarcity not exist in this universe, it cannot exist (that which is infinite being by nature inexhaustible). While the Earth is finite, it isn't a closed system: if a single day's sunlight were captured and stored in usable forms it could supply our energy needs for decades, and typically 400-800 million tons of new stuff falls into our atmosphere from space each year, much of which has potential vital or economic uses. With efficient schemes of production and distribution coupled with widespread reusing, recycling and repurposing human populations could continue to rise for decades if not centuries before we experienced anything like real scarcity (as opposed to artificial scarcity). “Fierce” economic competition is a product of capitalism, one of many schemes by which economies can be structured and directed, and the intensity of capitalist competition is artificial, optional and relative and not natural, obligatory and absolute. It is because capital is created by debt and obligation, and capital is required for production, that intense economic competition exists. One cannot honestly equate an entirely artificial system which has directed the activities of some of the members of a single species for a few hundred years to a natural, organic process which has directed the development of all known life for the past three billion years. The phrase “delusional hubris” comes to mind. I'm not saying that economic competition is bad, nor am I denying its existence, just that it isn't, as Conard suggests, dictated by some inviolable natural or physical law.
Later in the book Conard suggests that eliminating the minimum wage and dramatically lowering the average wage which laborers are paid in the US is one way to grow the economy. I suppose he means by reversing the trade deficit, attracting foreign capital investment... basically “priming”, which is producing value-added goods for export (it worked for Japan and is currently working for China). In the US this would be economic suicide, and it would lead to a long term global economic depression. Consumers drive our economy, and ours is the world's largest consumer economy, one which supports a large complex global system of production and distribution. If our consumers like something, there is a good chance that consumers elsewhere will too. If one has the capacity to produce for our entire market, then one also has sufficient economy of scale to produce for the world. Our standards are as high as nearly everyone else's (with the possible exception of some European nations), so little to no retooling would be required. The demand of our consumers drives global production. One of the reasons our economy is in trouble is because, even at current wage and price levels (relative prices have rarely been lower, by the way), “our reach exceeds our grasp.” For some time now, collectively, our consumers have had more demand than current capacity to purchase (we want stuff we can't pay for), and have been purchasing goods using relatively high interest unsecured credit (buying stuff with credit cards), and purchasing relatively illiquid secured assets with credit, assets that have had either inflated relative values and/or whose relative value has depreciated over time (went deep in debt to buy too much house for too much money, or went into debt to purchase automobiles, electronics or other items which depreciate in value over time; this is a violation of Isaacson's 22nd Law of Financial Freedom “Never finance anything that depreciates unless it is absolutely necessary for your trade or profession.”). What would happen if wages dropped dramatically? Since our consumers are generally our wage earners, our capacity to consume would drop dramatically, but demand would remain constant. This would mean a whole lot of broke frustrated consumers who would then have to default on their current debts and dramatically scale back consumption to subsistence levels. This in turn would effect both domestic services and international production and finance. Domestic producers would continue to be employed, but both their per hour wage and the number of hours they worked per week would drop (less global demand for produced goods due to less capital circulation). The service workers who once depended upon the wages from providing services to these productive folks would be out of work because the producers could no longer afford to pay them. Such service workers are like 40% of our economy. An infusion of capital would keep the economy from entering a critical death spiral, but no capital would be available due to consumer defaults which would cripple or kill many existing financial institutions. So, with most of the service and financial sectors out of work (which amounts to like half of our workers), then it gets really bad and stays that way for a long time... So, yes, the US economy would eventually end up producing a lot of inexpensive high quality goods for export and run a trade surplus, but only after twenty years of misery, unemployment and depression. This belief that somehow lowering compensation for those who actually produce things in an economy would somehow increase overall productivity, or "grow" the economy as a whole, or lead to any real and lasting conditional improvement, is contrarian and in complete opposition to actual practice, as things really work out in the "real" world.
Say one has a million dollars that one must give away, and one can't give it to charity or invest it in, but must just give it to an individual or individuals. If one gives that million dollars to a single individual, that individual will consume so much, and then save and invest the rest. If one were, however, to divide that money amongst 100 families, the vast majority of it would go toward consumption, but a certain amount would be saved or invested. The former case generates some economic activity; the latter case generates much more. This has to do with three things: the capacity to consume, diversity, and the velocity of money. In the first case, our recently made millionaire will probably use some of his million to buy things, but both the quantity and quality of those things will differ substantially from that of our hundred families. How many washing machines does one person need? How many cars? How many houses? While none of these are absolute needs, they are things which are in popular demand, and this demand tends to endure regardless of specific economic conditions. These are called "normal goods" in economic terms, whereas cash for the laundromat, bus or rent are considered "inferior goods." The difference between the two is that, as income rises, one's demand for the former increases and one's demand for the latter decreases. Such is the process of economic enfranchisement, or empowerment if you will. There also exist a third class of goods for which there is no demand below a certain income or wealth threshold, and these are "luxury goods." Economies run on the demand for normal goods, not on the demand for inferior goods or luxury goods. Production of normal goods creates the greatest amount of economic activity, and creates the greatest opportunity for creativity and innovation. When our millionaire gets his money, he will probably not spend it on inferior goods, but on a limited amount of normal goods, and possibly quite a bit of it on luxury goods, with the remainder being invested. Economically, luxury goods are a dead end. They are not productively useful, in that their possession does not increase the productivity of the person who possesses them, and their "use" contributes very little to the economy generally. When was the last time someone "yachted" to work? Or "learjetted" a pizza? While the production of luxury goods employs people, it does not generate the quantity of economic activity that the production of normal goods does. Our one millionaire can only consume so many normal goods, and then he must either put his remainder into the economic dead end of status symbol luxury or into an investment instrument of some type. Such investments generate economic activity, and are the only truly "productive" activity in which the relatively wealthy engage: enabling those with skills to produce. Contrast that with the relative spending spree that would result from the distribution of our money to a hundred families: more normal goods would be consumed, and the investments made with the remainder would be much more diverse and tend to promote greater future productivity (your average middle class family saves for things like education for children and future normal goods purchases; these things perpetuate the cycle of productivity). The increased spending of our hundred families would move more money through a wider variety of arteries in our economic body... they would spend faster. Which brings me to the vital economic concept of the velocity of money. In college (a long, long time ago) I was having difficulty with economic modeling, and I worked closely with two assistant professors to come to an understanding (of economics and math... the two disciplines involved in economic modeling). One was a guy who later became famous in the world of applied mathematics, Donald Moser. He explained money to me this way: “Money is like force in physics. In order for it to work it has to be applied... it has to circulate... it has to move. Money that just sits there has potential energy... money that circulates has kinetic energy. It is the velocity of money, its function as a medium of exchange, that allows its transformative potential to be realized. When it moves it works, when it doesn't it doesn't. If an economy were a body money would be its blood. If the blood doesn't flow the organs are starved and begin to atrophy. And that is exactly what happens during a depression... the organs of the economy atrophy... they are starved of capital and die.” He also explained to me that math isn't just about quantification, counting, but about describing relationships, how interrelated processes effect each other. By the end of his course I had begun perceiving math working everywhere. Radically lowering the wage base of a nation of consumers is like starving a body of blood, or levering a great weight into place and then fixing it there... the blood stops flowing, and the weight gets stuck... the patient gets sick and toxins accrue in the blood, and the potential of the stone to lift persons and objects is arrested until some great effort pries it loose.
More of his Social Darwinist mumbo-jumbo, this time about cooperation and competition (with my comments in parenthesis):
“Lions around the carcass don't invite others to enjoy the spoils – they fight to keep them out... (a rather vivid metaphor which does not actually conform to observed pride behaviors) Money doesn't motivate us as much as status does (ah, his first sociological comment with any merit, one actually supported by years of experiments, many of which were designed by Max Weber [see, it does all connect]). It's primal (actually it is sociological, a common but not universal human trait which varies in form from one culture to another rather than a universal fixed action pattern). Skill doesn't win sought after mates; relative skill does, and then only if the differentiation is large enough to be recognized... In everyday life, people buy fancy cars, expensive suits, and homes with large entertainment spaces they rarely use in order to display their success. Men seek beautiful women – even unintelligent, unfriendly ones – for the recognizable status of having attracted a desirable mate. Academics seek recognition for their intellectual prowess. It's all the same. Money is just a means to these ends. That's not to say that status is the only motivator, only that money and status are powerful motivators – the most powerful motivators – of economic risk-taking, and that money is the predominant way talented people pursue status. Few people have enough talent to pursue status in alternative ways, and the economy does not offer many such opportunities. It's not so much the rewards per se that motivate people, but the lack of status that comes from not having achieved them. The cost of shame is far greater than the value of success.”
This, in a nutshell, is everything that is wrong with both capitalism and the culture which inevitably arises from it.
I will refute each statement in the order in which he makes it.
Humans aren't lions. While lions live in extended family groups called prides, their behaviors are less cultural and more instinctive, and they are less “social” mammals than are we. Instead of coordinated pack behaviors involving strategy, communication and tactics, lions will, en masse, rush selected prey. A group of lions brings down larger prey by persistent pursuit, mobbing, biting and scratching until the prey is brought down and killed. There is no deft maneuvering into position, hamstringing, or any of the other pack behaviors associated with more social and intelligent animals, such as wild dogs, wolves, meat-eating cetacians (dolphins and orcas) and people. Lions are the sharks of the savannah, well adapted to their particular environment but relatively stupid, venal and vicious. Of course, if one has a preconception that humans are generally stupid, venal and vicious, one will see in them lions. It is all a matter of perception, and this guy's perceptions are distorted by his underlying Social Darwinist views.
Relative status is a huge motivator among ignorant and unenlightened humans living in hierarchical societies. “Relative status” implies that you are aware of how others perceive you, the value that certain members of a group have assigned to you, and that you actually care. Since one can never fully see oneself through another's eyes, this becomes a recursive reflection or projection of self-assessment; a sort of comparative ego extension, like metaphorically waving one's genitals around in a room full of mirrors – pretty ridiculous. Even more absurd is caring about the assessments of others; unless those assessments could kill or seriously injure you it really isn't worth worry or even a moment's consideration. Unfortunately, ignorance abounds (but is finally beginning to diminish), relatively few humans are enlightened (although the number is growing), and the majority of humans remain trapped in hierarchical societies (although, as a percentage it is gradually declining). It is far from primal (derived from “being of first principles”), and is actually a secondary or tertiary trait which developed relatively recently in the history of the species. Among pastoral nomads, the ancestors from whom most of us descend, there is little or no differentiation in status. Everyone in a nomadic group has roughly the same set of skills and abilities, “leadership” is relative, contingent, tentative and ephemeral, there is little difference in lifestyle between a “leader” and a “follower”, and accumulated goods are all purposive, frequently shared, and kept to the bare minimum that is practicable (as a nomad must move everything that he or she owns frequently, and too many possessions decreases speed and increases difficulty of travel). There is little differentiation in status among subsistence farmers in villages, because, again, everyone has roughly the same knowledge, skills and capacities. “Leadership” remains relative, tentative, contingent and ephemeral. It is only once surpluses have been achieved, specialization has occurred and leisure begins to develop that a society can support castes or classes, and that stratification can begin in earnest. Still, it takes quite some time for this to be fully developed into a hierarchy and for such an unnatural system to become the traditional unquestioned culture of a people. In humans the process took nearly 200,000 years. If this were actually a primal trait humans would long ago have been extinct. We would have competed ourselves right out of existence. It is only by cooperating in the face of adversity and putting the needs of the group ahead of those of the individual that we have survived. “The needs of the many outweigh the needs of the few... or the one” is not just a catchy phrase that Spock utters at the end of a Star Trek film, it is the essence of humanity, one taught by nearly every major world religion. It is that which has allowed us, collectively, generally and relatively, to “live long and prosper.” It is that which truly separates extractive from inclusive institutions (see, there was a reason I reviewed these two books and compared/contrasted them), and it is in being liberated from the bonds of status that can constitute the first step on the path to moksha.
Developing relative, recognizable skills is important, provided that those skills are useful and result in something which serves the legitimate needs of the group. Those skills should be developed for their own sake, but if it takes recognition before the group and the awarding of special status in order to stimulate individuals to develop such skills, then it should be done. As for mating... I've done a lot of that, I've had several long-term relationships, and at least four women have expressed a desire to breed with me. That has never interested me much. While I respect parents and acknowledge the useful and necessary role which they perform, I've never much felt one way or the other about breeding. I don't have an especially novel or impressive skill set, I'm a pretty average guy in most ways, and for much of my life I was kind of an asshole. A lot of the guys that I know who are married or partnered or have kids roughly fit the same description, so his statement about developing relative skill sets doesn't conform to what I've observed. In my experience, if you are kind and caring, have a sense of humor, aren't a complete idiot or hideously deformed and can hold down a steady job, you will have many opportunities to mate. The expensive material status symbols and “bling” are unnecessary and wasteful... unless your ideal mate is shallow, materialistic, easily impressed and more interested in a cash machine than a human with whom to mate. If that is what you are looking for, then by all means work your ass off to acquire, “fancy cars, expensive suits, and homes with large entertainment spaces.” “Men seek beautiful women – even unintelligent, unfriendly ones – for the recognizable status of having attracted a desirable mate.” Wow, I barely know where to begin on this one. I've never given a damn what my women have looked like, and perhaps that is why I've been with so many amazing, talented, intelligent and funny women. The opinions and perceptions of strangers and most other people stopped mattering to me a long time ago, and I've generally been happier, more content and fulfilled for it since. Most of the guys I know who are happily married did not choose their mates based on appearance, but upon the substance of their characters, and how well their personalities and goals meshed. Common orientations and interests seem to be good indicators of a successful partnership. Physical attraction is great when one is younger, and for short-term “hook ups”, but marriage and long-term relationships are not about sex, at least not the deeply fulfilling relationships, and I don't know anyone over the age of 25 who would stay in a relationship with someone simply because they were “hot.” There has to be some deeper connection, there has to be something more. One does not form a life-long partnership to awe the dudes or to impress strangers with one's status, unless one has extremely low self-esteem, one is quite shallow, or one dwells in a state of perpetual adolescence. Mr. Conard really needs to open his eyes and his mind, leave the narrow confines of the corporate boardroom and take a long walk in the real world. And then he dwells on money and status some more... blah, blah, blah... and gets to the crux. There are few economic alternatives in a conventional capitalist system to money for either achieving or expressing status: it is that which confers status, that which rewards achievements, and that which can be traded for things associated with status (the status trappings, some of which were previously mentioned... or as I like to think of them, “the status trap... pings”). So, let me get this straight: in order to impress people you don't need to impress, whose perceptions and opinions you can never really know with any degree of certainty, you spend time and money obtaining skills and developing talents, and then more time working and honing your skills and talents, so that you can buy stuff that you really don't need, to visually and/or tangibly display your relative social status, so that you can feel better about yourself and who you are, which actually has little to do with your status trinkets. This is sort of like joining a cargo cult and then having to negotiate a difficult and dangerous obstacle course to get down to the beach where you have to compete with others for an opportunity to collect things that you don't need and can't use, which take up space you could be using for something else in your home, and risk possible loss or theft of these things to some similarly status conscious cultist. This is completely insane. Why not just like yourself, or better yet, stop caring? And that fear/shame manipulative bullshit about “feeling a loss of status,” that is old-school in group/out group stuff. “I'm currently included in the group, but, if I fail to conform in some way or live up to a certain set of expectations I may disappoint people and let them down to the point where I'm seen as more of a liability than an asset and I might be expelled from the group, and the group may cease being part of my identity, diminishing my sense of self.” The fear of failure is a big motivator. I used to have that fear until I realized that every successful person has failed many, many times. Thomas Edison tried and failed to invent the light bulb nearly a thousand times, but it was that thousandth time that counted. In science a failure can be as valuable if not more so than a success. Failure teaches humility, patience and perseverence, in addition to being generally instructive in its own right. Every failure is a learning experience. It is better to try and fail than to live to regret not having tried.
About every five to ten pages in this book Conard makes an assertion that defies logic, observation, reason and common sense. While the resultant rationalizations are interesting in a “what trick will he use to get out of this hole?” kind of way, and a lot of the research and statistics cited are stuff that I had never seen before, so it was totally worth reading, I find his underlying philosophy to be erroneous, misguided and repugnant. This guy is totally “lost in the world of maya (illusions)”. Stuff that he finds axiomatic isn't, and he has a very distorted world view. His little bubble is very small and most of it is opaque, his vision is narrow and the view is restricted to left field. If you want to talk to your ultra-conservative or libertarian grandparent in language that he or she might understand, then this book might be useful to you. If you are already an economics geek, then this book might interest you. If you are under the age of 50, not likely to converse with a geriatric relative in the near future, not an economics geek, and live in the real world, you will probably not be able to relate to the contents of this book at all.
Tags: comparative review of two books about ec, i really don't like social darwinism, review of unintended consequences, review of why nations fail
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