Saturday, May 19, 2012

The Greek debt crisis - part 1

In early 1989, Poland legalized Solidarnosc as a political party and Hungary announced that it would become a multi-party state. These two moves set off a domino effect that spread throughout the entire Eastern bloc. (source)

The debt crisis that is today crippling Greece strangely resembles the one that overwhelmed Eastern Europe back in the late 1980s. The resemblance is not just confined to the existence of a huge debt. A quarter-century ago, there was a growing feeling among East Europeans and their elites that no solution was possible within the limits of the current ideology. As the debt became more and more unmanageable, more and more people came to see it as part of a larger problem. The debt crisis thus sparked a broader civilizational change. It became possible to debate a much wider range of issues that had hitherto been ruled off-limits to debate.

Will the current crisis play out in a similar way? Will one or two countries reach a breaking point and begin a process of change? And will this change then spread to other countries, with the result that an entire world-system will collapse like a house of cards?

Perhaps. But keep in mind a key difference between then and now. In the late 1980s, there was an alternate world-system that could inspire hope in those who wanted change. No such alternative exists today. There are simply countries that are less integrated into the current system and its ideology of globalism and post-nationalism. People will certainly become disillusioned, but without an alternate model their disillusionment will not necessarily lead to change.

Thus, the process may be slower and more erratic than the one a quarter-century ago. Change will likely come in fits and starts. Much more effort will be needed not only to explain why globalism is fundamentally unsound but also to articulate a viable alternative. And such an effort will have to be directed at people in all walks of life, including the elites. No, it won’t be easy.

In the next few posts, I will examine the roots of the Greek debt crisis, which is much more than about debt and much more than about Greeks. What does it portend for them and for the rest of us?


Anonymous said...

While this is interesting it seems far afield from your usual fare.

Anonymous said...

The Cambridge economist Ha-Joon Chang wrote in his recent book 23 Things They Don't Tell You About Capitalism:

“Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the ‘free’ labour market, which, if left alone, will end up replacing 80-90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined.”

Ben10 said...

Everything goes down to Usury.
Almost 20 centuries ago, the roman historian Tacitus reported that borrowing with interest was a practive absolutely unknown of the german tribes, as it has been before to the celts. The very ccncept of usury was unknown by the native european populations because it was simply abhorent to them. Borrowing money with additional interests would have bring shame, and possibly death, as it was considered stealing, to the loaner. It is because these early europeans saw their entire tribe or nation as nothing else than an extended family. Indeed even now, fathers rarely ask for interests in addition to the money they give to their sons. The success of the borower was simply the INTEREST of all and no additional one was necessary.
Human greed quickly changed that, under the 'christian' framework who nonetheless hold the pressure for about 3 centuries. Even until the council of Nicea of 325, was Usury strictly forbidden within the christian kingdoms, with possible capital Punishment.
After that, the Church shifted its original positions of married priesthood and forbidden Usury, to an army of unmarried psychotic men working within a bureaucratic organisation who did more than tolerate Usury.
How come the Church lost its balls so quickly? big question.

Sean said...

In 1984 the chief of the Soviet general staff was sacked for public ally complaining about the backwardness of Soviet industry, and its inability make the modern weaponry required to keep the USSR a military superpower. The late Soviet state's priority was purely military-strategic, and reforms were aimed at strengthening their military force, while taking the heat out the arms race with the US by playing nice with subject peoples. The Soviet empire's ability to stifle popular unrest was weakened by a need to appease the rival US system, that was a big reason for the political unrest in Poland enjoying success. A Polish youth bulge was also a factor (Arab spring proved YB theory). Poland had a local particularist culture then. Now Chuck Norris is used to advertise financial services there, the birthrate is 1.2 per woman, millions of their young people are leaving, (to the extent that Chinese workers are being brought in). The Law and Justice party are regarded as retrograde homophobic nationalists by the elites who have administered a non stop series of austerity programs since democracy came to Poland. The average Pole only lives to 72 but the retirement age has been raised to 67.

The European mulch cow (German taxpayers) will bail out the rest of Europe (ie French and German banks) and thus subsidised German industry will then continue to do well in a reconstituted Euro area governed by elite approved place men (technocrats). Any complaint will be dealt with by warning that failing to bail out the Euro is populism, which will lead inevitably to war. Merkel is always going on about this, although Germany is not a sovereign state (it has no nuclear weapons and US forces stationed on its territory). Anyway Germany hasn't enough young people for any radical political realignment.

I don't think any European country has the age structure for an activist political movement. By 2050 a third of Italians will be 65or over

Peter Frost said...


I'm interested in globalism both as an anthropologist and as a citizen. For better or for worse, it has become the dominant ideology on both the "left" and the "right." I'm using quotation marks because I don't think the left and the right really exist anymore.


The free market doesn't exist in a vacuum. People have been familiar with markets since the dawn of history (and probably long before). Yet the market economy is relatively recent. It originated about three centuries ago in northwestern Europe and its settler societies and has since spread elsewhere to varying degrees.

The market economy was made possible by the development of a high-trust social environment. Eliminate that environment and the market economy will either collapse or be maintained by an authoritarian power structure.

This is why libertarianism is self-destructive. It tends to liquidate the cultural and demographic base that makes possible a high-trust environment and, hence, a market economy.


The problem is not so much lending per se as the lack of checks and balances. These checks and balances can be internal (i.e., a future-directed time orientation) or external (e.g., close friends and family who will be held responsible for your debts).

These checks and balances are weaker when governments go into debt (because the debt will be transferred to a successor government). They're even weaker when we have supranational structures like the European Union (because the other member states will collectively share in a debt incurred by one state).


Political activism tends to be strongest among the very young and the very old. The people in-between are too caught up in the system.

Sean said...

The young want soft but well paid government jobs, the old want someone to pay for their pensions. The in-betweens don't want to be the ones to pay. Latvia has lost 20% of its population since Independence, like all the east European counties it is desperate to get in the EU and get them to pay.

In the Sunday Times Niall Ferguson says Greece's need for imports, and the fact has become so financially integrated into the Euro single currency zone, means it's impracticable for it to leave. He also says that the single currency was designed so that it would be practically impossible to exit it. According to Ferguson the architects of the euro zone understood that it would fail, and that the rescue package would require a closer political union of the member countries. The outcome of this crisis is the Euro enthusiasts have achieved their objective. is Federalism in Europe.

Political union was always the real aim, and it is the US which has been pushing it since the end of WW2. After Suez the establishment in Britain decided it could not follow any policy that did not conform to the guiding assumptions of the United States.

The elites in every country have become, relatively speaking, far more wealthy and powerful through globalism. Populism has only one strength: people. The falling birthrate means a civilisational shift would have to be a historically unprecedented 'wrinkly revolution'.

Anonymous said...

Putin has said that the demographic effect of just privatizing Russian real estate, and industry and following Western advice has lost maybe 30 million Russians from what the normal demographic growth would be to 2050. So the effect of neo-liberal financial policy has been more devastating to Russia than WW2.

The birth rate has fallen, life spans are shortening, and this is throughout the former Soviet Union. People of working age are emigrating. Instead of getting rid of the old Stalinist bureaucracy the neo-liberals simply privatized it and the result of course is corruption. Now public officials that used to be in charge of handing out public policies and administering them- not very efficiently its true – simply say give us a bribe or we won’t work.

20 years ago when there was the revolution that turned over power to Yeltsin in Russia and broke up the Soviet Union there wasn’t any debt at all. Families had all been living in their homes without paying rent and getting a free public education, public services were free and employers provided lunch, vacations and pensions, cultural and all of these connections were pulled up. And all of a sudden instead of just turning over the property to the people who lived in the homes and the businesses that used the offices the government said, okay, we are going to put it all up for sale and let the banks, usually the foreign banks, lend you the money, to buy it.

And the result was the biggest real estate bubble in the world in the mid 90’s and this is what started the whole real estate bubble- certainly what catalyzed it in the West because all of a sudden Russians, Latvians, Estonians and other people had to take on a lifetime of debt in order to get the homes that they’d been living in and not be thrown out on the street. So essentially they were told your money or your life – that’s neo-liberalism.

They were told that the way to get rich was to become a raw materials exporter or what the American protectionists and the Bible called “hewers of wood and drawers of water”. So Russia simply dismantled its industry. The West said, oh, you’re not competitive and what the Russians didn’t realize is that all of this was very self serving to the West. The West, especially the American planners - the Harvard boys that went over said, well, we really don’t want is for Russia ever to be a military threat.

So without an industrial, manufacturing base there can’t really be much of a military. So the first thing they did was say – get rid of your manufacturing, get rid of your engineering, begin charging for your schooling, close down the schools – you don’t need engineers all you really need to do is make a hole in the ground.

But none of this export revenue from the hole in the ground should really be turned over to the state – we want to make sure that you only tax labor and tax business, but don’t tax natural resources – let it all be privatized. And so Russia thought, gee this sounds like a funny way to get rich but that’s what they did. And so they followed the Harvard advice to give away the oil, the nickel companies, the mineral resources, and that’s how they got the money to begin sending it all to the west. There wasn’t any Russian money to buy these companies because the IMF and World Bank wiped out Russian savers with a hyper inflation by getting rid of all the capital controls and letting the rouble float. So it was just one bad advice after another and now the Russians realize they’ve been taken.

Chris Crawford said...

Well, there's certainly a spicy goulash of opinions in the responses: a goodly chunk of conspiracy theory, some wacko economics, constrained points of view, as well as some solid points. This promises to be a lively discussion.

Mr. Frost, let me caution you that globalization has had many complex effects, both positive and negative. Its greatest effect appears to be a huge leap in prosperity in the underdeveloped nations and a concomitant decline in poverty. We still have a long, long way to go before we can declare poverty eliminated, but the progress that has been made in the last twenty years is unparalleled in human history.

True, this progress has come at the cost of serious economic difficulties in the developed world. Forty years ago, the developed world hogged most of the world's resources and enjoyed most of the world's wealth. Nowadays, we're seeing those proportions moving towards greater equality around the world.

I can understand that members of the developed world are unhappy with these developments. However, as a citizen of the world (rather than a citizen of one country), I embrace globalization as a positive development for humanity.

Kiwiguy said...

***No such alternative exists today. ***

They could start by looking to countries like Switzerland and Denmark which are not in the EU? In fact I read one opinion piece in a UK paper suggesting the fear was that Greece would rebound quite quickly with its own currency and it would encourage other nations to also leave the EU.

Kiwiguy said...

***huge leap in prosperity in the underdeveloped nations and a concomitant decline in poverty. We still have a long, long way to go before we can declare poverty eliminated,***

The sub-saharan population is forecast to go from 770 million in 2005 to 2 billion in 2050. That will pose a bit of a problem to ending poverty? Especially with populations in Asia & Europe reducing. Also, some HBD-unaware politicians may consider that those populations can be maintained by simply increasing immigration from the high growth areas.

Just on that issue, there is a recent paper Biology, Immigration and Public Policy which gives a nice summary of pitfalls to avoid with globalization.

Anonymous said...

Also, some HBD-unaware politicians may consider that those populations can be maintained by simply increasing immigration from the high growth areas.

I don't think the elites necessarily think that the immigrants from the high growth areas are the same and as capable as the developed world populations.

I think the elites just hope that the high growth populations will turn into lower growth populations via immigration into more consumerist, secular environments.

Anonymous said...

'Polymorphism in the oxytocin promoter region in patients with lactase non-persistence is not related to symptoms' explains that north Europeans (lactase persistance) don't have oxytocin polymorphisms. Oxytocin is the
trust hormone. High trust North Europeans invented the first commerical civil societies in Holland and England.

South Europeans? The Greeks lied about their economy so they could to get into the single currency eurozone so stoopid Germans would pay them to do nothing (eg a hospital that employed and paid 45 gardeners, yet had no garden). Now the Greeks are angry at the Germans, but them Greeks are like hat.

'Anti-social punishment can prevent the co-evolution of punishment and cooperation' :"In the most extreme cases, participants in countries such as
Greece and Oman were as likely to punish those who contributed more than them as those who contributed less. The high level of punishment directed at cooperators in this and other experiments indicates that this behavior is not merely the result of errors or lack of comprehension, but is instead
a surprising aspect of human behavior requiring explanation.

Globalism leeads to greater inequality within each country. Look at India. The wealthy elites created by globalism have a vested interest in seeing globalism continue.

Anonymous said...

Previous comment was by me, Sean.

Not really anon said...

Something is deleting my comments, so I'll sign as "Anon" (Peter)


The elites are made up of people, who think and doubt and read. Change often happens where you least expect it.


The end of communism was badly managed in Russia. Gorbachev himself wanted things to change gradually, but the process of change spun out of control. In retrospect, Russia should have followed the Chinese model.

But it wasn't just American advisors who gave Russia bad advice. In the early 1990s, many Russian neoliberals were arguing for "shock therapy." They felt that the pace of change should be faster and not slower.

But you're right. Many of those Harvard "advisors" were motivated by self-interest (or by the self-interest of those who had bought them). This is a serious problem in the West today. Different interest groups are promoting their agendas by buying up support in academia and the media.


I'm sure that globalization has good effects. But it also has bad ones that are seldom discussed. Therein lies the problem.

Globalization will have three main adverse effects:

1. A leveling of incomes and working conditions throughout the world. This leveling will be much more downward than upward.

2. A replacement of homogeneous high-trust societies with a more heterogeneous low-trust environment. There will be a corresponding drop in productivity, not because individual workers will be less productive but because the reduction in trust will dramatically raise the costs of all economic transactions.

3. A loss of much of our cultural and genetic diversity. It's difficult to quantify this loss in economic terms, partly because we still don't fully understand the nature of this diversity and partly because this diversity often has a purely aesthetic value.

I once had Maoist and Trotskyite friends who embraced their ideologies out of love for humanity. An ideology isn't right just because it makes you feel all warm and fuzzy.


Switzerland and Denmark are still part of the larger world-system. But I basically agree with you. It's the smaller non-English-speaking countries that will start thinking outside the box.


In general, the elites don't really think about these questions. That's the problem. Things will change when they start thinking.


It's a bit more complex than that. The Greek debt exploded when the EU began negotiations on Turkey's admission to the EU. I don't think that was simply coincidence.

Chris Crawford said...

Peter, you rightly observe that there will be a leveling of incomes and working conditions worldwide due to globalization. But you also state that this leveling will be mostly downward. This has certainly not been the case so far: average incomes in the developing nations have risen dramatically. China certainly provides an impressive example of big income increases. It's true that average incomes in developed nations have stagnated and, in some places, fallen. But the global picture is unquestionably one of increased incomes.

The larger problem, IMO, is that Gini coefficients are rising everywhere. The rich are getting richer faster than the poor are getting less poor. I suspect that this will ultimately produce the same kind of intense social unrest that we saw in the 1930s, leading to a renewal of redistribution policies.

I disagree with your second point that social capital will decrease, and in fact I see no forces driving in that direction other than the aforementioned increase in Gini coefficients. Globalization itself springs from increased trade, which in turn depends upon trust. In the long run, the most successful trader is the one who is most trustworthy. There's lots of historical evidence to demonstrate this.

Moreover, social capital is a domestic trait rather than an inter-societal trait. In general, members of different cultures place little trust in each other, even when one or both of the cultures enjoys high internal social capital. The success of globalization arose, IMO, from the global realization after 1990 that the basic capitalist model based on the rule of law was the best overall scheme for organizing economic activity, and the consequent development of some global social capital.

Contrary to you, I do not fear a loss of cultural and genetic diversity. In case of genetic diversity, global interbreeding doesn't destroy genetic diversity, it distributes it through the overall gene pool. True, certain idiosyncratic genes will diminish in frequency -- but would this not be the reverse of inbreeding? Is not broad genetic exchange a healthy development?

As to the loss of cultural diversity, that's a blade that cuts both ways, and I believe that much of the change will be a matter of reducing undesirable cultural components.

Let me be specific: worldwide, most social capital has been confined to familial groups. This is especially true in China, with its strong cultural support of extended families. This has been the basis for many of the highly successful Chinese enterprises in times past and recently. But it is also the basis for a lot of corruption. Most corruption cases (not just in China, but worldwide) arise from a powerful person using his/her power for the commercial benefit of relatives.

In Western countries, loyalty to family has been supplanted by loyalty to the nation-state (and, more importantly, its laws; we swear allegiance to the Constitution). This is the source of the much higher social capital enjoyed in Western nations.

One could argue that this cultural shift is not necessarily good; indeed, many decry the dissolution of the extended family in the USA. Yet I think we can agree that, all in all, empathy for all one's fellow-citizens is more desirable than empathy confined to one's relatives. If so, then is not the extension of empathy to all humans even more desirable?

Sean said...

It is 60 years since Turkey and Greece both joined NATO, the Greeks have never liked the situation and have made noises about withdrawing from NATO in the past. Wikipedia: "In office, Papandreou backtracked from much of his campaign rhetoric and followed a more conventional approach. Greece did not withdraw from NATO, United States troops and military bases were not ordered out of Greece, and Greek membership in the European Economic Community continued, largely because Papandreou proved very capable of securing monetary aid for Greece"

Obviously Papandreou stayed in NATO because Greece would benefit from the EEC, and he was told 'leave NATO and you won't get the benefits of EEC membership'. As Ferguson says Greece is "ruins and beaches".

Chris, It seems to me you're assuming arrangements similar to those in the USA, but better, are going to to be adopted by all other countries. The rest will converge on the model of the West (USa) to form a universal society (so that they can be rich too). This idea might have been realistic before China demonstrated that it's unfree system could outdo the West, but
not now.

John Gray:"Maynard Keynes wrote of Bertrand Russell:'Bertie held two ludicrously incompatible beliefs: on the one hand he believed that all the problems of the world stemmed from conducting human affairs in a most irrational way; on the other hand that the solution was simple, since all we had to do was to behave rationally.'

Keynes was not reminding his readers of the banal truth that it is difficult for human beings to be reasonable. His point was that human conflicts do not come about simply, or even mainly, because people make stupid errors. A smarter world might be more fun. There is little reason to think it would be less conflict-ridden, or more just."

[About the disappearing comments. This sometimes is caused by copying and pasting text from Word or Email into the comment. There are settings for allowing this on your Blog I think.]

Chris Crawford said...

Sean, I quail at the thought of the rest of the world emulating the USA. Other countries do not need to slavishly copy the American system in order to accommodate the changes driven by globalization; indeed, I very much hope that we'll see some interesting and productive variations on the American approach that the USA can learn and benefit from. In particular, I suspect that the American adversarial legal system might well be bettered by other approaches.

America does not have a corner on capitalism; there are lots of different ways to implement a successful and productive capitalistic system. After all, capitalism has so many intrinsic problems that, in order to be successful, an economy must implement a huge range of legal constraints to keep the market functioning smoothly.

The Chinese experiment has not yet produced democracy, but it is still in motion. There are a great many instabilities in the Chinese system that will surely drive it in the general direction of democracy. I admit, however, that this could take several generations.

Ben10 said...

No, no relativisation and no rationalization for the 'need' of Usury.
The concept was abhorent to native european morality, and it was abhorent to the Church at least for a few hundred years. The Church then started to relativize, leave a little bit of freedom, and
The position was clear: USURY IS NOT ALLOWED.

PROOF: if you can read french, you will be flabergasted by what is said by this insider observer of the finacial world:
It's long but worth the time.

Now from the same blog, about the greek crisis, video in English:

People on the net start to say that the only reason the EU leaders oppose a greek exit, is that a return to the Drachm currency will actually be followed by a quick recovery, and this recovery will give incentives to other to exit the EU as well.

Anonymous said...

The market economy was made possible by the development of a high-trust social environment. Eliminate that environment and the market economy will either collapse or be maintained by an authoritarian power structure.

The legal scholar Brian Z. Tamanaha wrote an interesting article called “The Dark Side Between the Rule of Law and Liberalism,” 3 New York University Journal of Law & Liberty 516 (2008) in which he discusses the neoliberal economic and anti-democratic values shaping the future of law around the world. In his view there is a contradictory tendency to promote political liberalism and rule of law, economic growth, stability, etc. on the one hand, and, on the other, an anti-democratic tendency which favors strong property rights, freedom of contract, and other measures which thwart redistributive and welfarist social measures.

I'm not sure a "high trust social environment" naturally produces a market economy. That kind of environment also seems to have a tendency towards a socialistic economy and to inhibit the anti-democratic tendencies often necessary for a market economy. The maritime empires of the Dutch and English, the great increase of land available for settlement in the New World, may have provided an outlet that made these tendencies tolerable.

Ben10 said...


Look at the link for the video I posted in the previuos post. It's about how the Banks are going to deal with Greece, Bloomberg's plan B of the Greek exit.

First step: 'Contain civil unrest'
I spare you the rest. Trust no more.

Sean said...

Peter, I am a person who 'thinks and doubts and reads' all the time. But it hasn't really changed anthing about me though I keep expecting and hoping it will.

Chris, There is going to be ever declining instability in China because of their ever declining lack of young (men). "If you have an extra child we will demolish your house" (Current billboard put up by officials there.)

Democracy is what the people want, ALL Chinese insist that Taiwan is theirs. A few years ago China said if Taiwan declares Independence it will invade. When the US said that China would face 'incalculable consequences' (diplomatic code for use of nuclear weapons) the Chinese responded with a veiled threat about their ability to hit the US homeland with nuclear strikes. Right now Taiwanese are learning French so they can get into North America via Quebec.

Democracy = "welfarist social measures"? (like Denmark) Don't forget that even high trust Denmark introduced serfdom a few hundred years ago. The Dutch and English came to monopolized trading and establised colonies by smashing rival traders and indigenous societies with brute force. The 'free' (for them) trade came later. Hence anti-democratic tendencies and the market economy are the same thing.

Chris Crawford said...

Sean, I'd like to comment on this statement of yours:

"anti-democratic tendencies and the market economy are the same thing."

I think that you're treating society as monolithic. In a free market, there will always be plenty of people seeking advantage by all number of unethical means. That doesn't mean that the society itself is unethical or anti-democratic; it is the duty of government to rein in such anti-social behavior. Inasmuch as governments are always one step behind the evildoers, they can never eliminate their crimes -- but they can eventually punish the worst and deter most of the others.

The American government for the last 30 years has been particularly soft on this kind of crime, and so we have seen an increase in such behavior, but that does not provide justification for a blanket condemnation of the free market. The libertarians have got it backwards: a free market can only be truly free when a strong government keeps it free through strict regulation.

There's a great essay on this topic by Douglas J. Amy, entitled "Capitalism Requires Government". Here's a link:

In any case, there's no fundamental antipathy between free markets and democracy.

Anonymous said...

In any case, there's no fundamental antipathy between free markets and democracy.

Joe notices Fred is walking among trees where Joe has buried members of his family. Joe says to Fred, "Don't walk around here. It is a sacred grove to me." Fred says, "Where is your title in fee simple to this grove?" Joe says, "I have not pledged myself to any fighting force that claims to hold this grove by force of arms so I have no title in fee simple to it." Fred says, "Get lost." Joe bodily subdues Fred and ejects him from the grove. Fred walks back defiantly, saying, "You had better not do that again or I'll tell my Lord that you, who have no title in fee simple to this grove, are acting as though you do!" Joe, again, subdues and ejects Fred from the grove. Fred goes and notifies his Lord, who sends some vassals who then offer Joe the opportunity to pledge fealty to their fighting group, or they will take him prisoner for violating the title in fee simple of someone in their group who claims the grove. Joe, understanding full well that there can be no such thing as a "fair fight" between an individual and a gang, turns the other cheek and submits.

Not really anon (Peter) said...


In most Western countries, median incomes have stagnated since the mid-1970s. This stagnation is partly due to outsourcing of high-paying jobs to low-wage countries, mainly in manufacturing. The remaining jobs tend to be the ones that, by their very nature, cannot be outsourced. This is notably the case with employment in services and construction. But here is where we see the reverse trend: insourcing of low-wage labor.

You seem to feel that income stagnation is the worst that will happen. In fact, there already has been a real decline in workers' incomes if we allow for the monetization of services that were formerly done outside the cash economy(such as child care).

Yes, incomes have risen in some countries, notably China and India. But how much of that increase is due to globalization and how much to the abandonment of a heavily state-regulated economy?

Suppose that China had focused on selling primarily to its domestic market (as the U.S. did for most of its history). Would China be as poor today as it was when Chairman Mao died?

"In the long run, the most successful trader is the one who is most trustworthy"

Trust is only one of many factors to be considered when a trader decides on an optimal strategy. Yes, there are cases where it pays to screw a client. This typically happens when another client comes into the picture, but there are other ones.

Anyhow, who said that traders are the only people in an economic system? What about you and me? In a heterogeneous society, the average citizen is more indifferent to the negative consequences that his actions may have. This indifference, bordering on hostility, will generate huge negative externalities.


Greece will probably leave the EU. As for what follows, it's going to be pretty messy.


The purpose of thinking is not just to change oneself. It's also to change others. The most profound changes are those that happen "under the radar."


This is a point I wanted to make with Chris. It's all well and fine to call oneself a citizen of the World. But doing so amounts to unilateral disarmament. You're giving up your own ethnic and national loyalty in the unrealistic expectation that others will reciprocate. They won't, you know.

Ben10 said...

The debate about free matket is irelevant for Greece, the greeks have lost ALL their markets. In the past Greece had a florishing tourism industry. Now, the return to the Drachme can revive that.
That's good for Americans too.
I mean, WHERE can american actually go for a sunny vacation these days?
South America/Merhico? decapitated policemen and kidnapping is the landscape.
Sub saharian Africa? not much better.
North African arab countries? yeah, for suicide.
China, asia, Iran xxxshtkan ...take your pic?, nope.
basically Australia and Europe, that's it. But a flight in Europe is minimu $1200. WTF, i can't aford a direct fly ticket to France, but via Athens,I might.
Also, when Greece returns to its currency, it will be in very good position to compete with Spain for agrumes. Oil will increase, yes, but they cam make deals with Iran.
Honestly, after they are back on the Drachme, Greece will probably enjoy very quickly an economic boom. A greek success would be so scarry for the EU unelected technocrat Von Rompuy. You bet, Ireland would follow, maybe Spain with its huge unemployement rate. And France, but for political reasons.

PS: I don't want to hurt some feelings here, OF Course americans can go to Canada in 'Summer'.

W.LindsayWheeler said...

It is amazing that most people miss this in the comment section about Greece--the failure of democracy and the failure of socialism. The Greek people are thoroughly Democratic and since democracy is socialism, Greece is made up of a majority of socialist parties. Socialism being idealism.

Greek politics is not based on reality but on an utopian ideal. They want something for nothing. Furthermore, it doesn't help that Greece has really no natural resources to sell.

The Greek demise is due soley to democracy and socialism. It has been ruled by both for over 50 years! Proof that the Vulgar class can not rule itself.

Chris Crawford said...

Peter, you ask:

"Yes, incomes have risen in some countries, notably China and India. But how much of that increase is due to globalization and how much to the abandonment of a heavily state-regulated economy?"

There's no question that liberalization of their economies played a large role in the dramatic growth enjoyed by China and India. But a large portion of that liberalization comprised opening up the economy to foreign participation, which is, after all, the whole idea of globalization. Moreover, the increase in global economic growth in the last twenty years is certainly not confined to China and India; developing nations all over the world have shown big income jumps. Ideal exemplars here are Brazil and Indonesia.

Let's at least grant globalization its main upside: an overall increase in global economic output. We can still acknowledge its downsides.

"In most Western countries, median incomes have stagnated since the mid-1970s."

I don't think that's the case in most Western countries, but I'll have to do some research on that. My understanding is that median incomes in the USA have not risen since 1980, but I believe that much of this is attributable to government policies that favor the wealthy. After all, the USA has shown solid economic growth for the last 30 years. The money had to go somewhere; most of it went to the wealthy.

This has not been the case in the Western European countries, which have also enjoyed steady (if less rapid) growth. Their wealth gains have been enjoyed throughout their societies. It's true that they've suffered some losses due to globalization, but these losses are not the source of European economic problems. Recall that the German economy remains the bright spot in the EU -- largely because of its manufacturing output.

My overall point is that the world as a whole is wealthier because of globalization. The losses in developed nations are more than offset by the gains in the less developed nations.

Lastly, I'm quite befuddled by this statement:

"This is a point I wanted to make with Chris. It's all well and fine to call oneself a citizen of the World. But doing so amounts to unilateral disarmament. You're giving up your own ethnic and national loyalty in the unrealistic expectation that others will reciprocate. They won't, you know."

What do you mean by 'unilateral disarmament'? Do you see the global economy as a battlefield, a matter of US versus THEM? Do you see it as a zero sum game, in which somebody else's gain is necessarily our loss? Are you suggesting that the life of on Malian is somehow less worthy than the life of one Westerner?

A bit of a digression: we can get a good measure of how people value the lives of foreigners by comparing safety spending with foreign aid. In the USA, the Environmental Protection Agency currently sets the value of one human life at $1 million; that number will be rising to $5 million. This means that, if a factory can reduce its emissions by enough to save one life over the life of the factory, then the expenditure for the antipollution equipment is required if it costs less than $1 million.

Compare this with American foreign aid to countries stricken by famine. Comparing the amount spent with the number of lives that can be sustained by that amount of money, we calculate that America values the life of one such starving person at about $200. Thus, Americans consider their own lives to be worth roughly 5,000 times more than the life of a starving foreigner.

This is a large digression, I confess, but I thought you'd appreciate it. I would greatly appreciate a clearer explication of the meaning of your remark above.

Anonymous said...

My understanding is that median incomes in the USA have not risen since 1980, but I believe that much of this is attributable to government policies that favor the wealthy. After all, the USA has shown solid economic growth for the last 30 years. The money had to go somewhere; most of it went to the wealthy.

Didn't most of it go to the wealthy because of lowering of labor costs via outsourcing and insourcing labor, and due to greater financialization?

Would the wealthy be pro-globalization if it didn't enable them to become wealthier via lower labor costs? It's not clear that they would be.

Recall that the German economy remains the bright spot in the EU -- largely because of its manufacturing output.

Germany is an export oriented, high skilled industrial and manufacturing economy. They protect their labor very much.

Chris Crawford said...

I just finished rummaging through all sorts of economic numbers trying to get a grip on the effects of globalization for many different countries. It's difficult because many developing nations have suffered from war or civil war in the last 50 years, which clobbers the economy, and then there's a rebound -- is that simply recovery or genuine growth?

Then there are countries like Uganda and Myanmar that suffer from horrid government; there are also countries whose wealth is derived largely from resource exports; they are only indirect indicators of growing global wealth. If the world as a whole is getting richer, then resource prices will rise, enriching the countries with resources to export. Is this a benefit of globalization? That's a tricky question to answer.

In general, what I found is that global GDP growth per capita has run around 1% to 2% over the last 50 years. In general, it has steadily fallen over the entire 50-year period I looked at. This came as a surprise to me; I was under the impression that there had been a jump over the last 20 years. Instead, it seems that the developing nations have indeed seen a substantial boost due to globalization, while the developed nations have suffered an overall reduction in the growth of GDP per capita due to globalization.

Anonymous asks:

"Didn't most of it [the gain in GDP] go to the wealthy because of lowering of labor costs via outsourcing and insourcing labor, and due to greater financialization?"

No, lowering labor costs doesn't automatically make rich people richer; it makes stockholders in companies that have high labor costs wealthier. Of course, since the rich derive a greater portion of their income from equity ownership, they ended up getting the lion's share of the benefits. However, I believe that the most important factor at work is the change in the tax structure. In the 1960s, the tax rate at the highest tax brackets was 90%; now it's 35%. Capital gains, a major source of income for the wealthy, also enjoyed big reductions in tax rates. Thus, we've seen huge reductions in tax rates for the wealthy and no significant change in tax rates for the middle class. That's the biggest reason for the increase in the Gini Index in the American economy.

Lastly, let me point out a simple fact: we no longer get to hog all the world's resources. The wealth gap between the West and the rest of world was enormous in the mid-twentieth century, and the West enjoyed the benefits of the world's resources almost exclusively. Now that the rest of the world is catching up, they're starting to consume resources, too, which drives up the price of those resources. Gasoline costs more now because you're bidding against a billion new drivers in the developing world.

What this all boils down to is a simple truth: we're not worthier or better than they are. An American is not necessarily deserving of more wealth than a Bangladeshi. It used to be that being born in America was a guarantee of relative wealth, while being born in Bangladesh doomed one to poverty. That's changing: with each passing year, wealth is allocated more on the basis of hard work, energy, and talent instead of nationality. And that, I think, is a good thing.

Anonymous said...

"Yet I think we can agree that, all in all, empathy for all one's fellow-citizens is more desirable than empathy confined to one's relatives."

We're not wired that way. Small leftist leaning states in Scandanavia can operate with policies that suggest "empathy for all one's fellow-citizens" because (at least until very recently with their Muslim problem) they are not diverse at all. There is an ethnic, a national, and a biological sense of their nations being an extended family.

The Obamacare debacle here occurred for many reasons, not the least of which is that the occupant of the Oval has no political skills (nor evidently any inclination to learn them) in working with those in the opposing party and his own party who disagree with him and he rammed through a poorly put-together hodgepodge that no one understood, all for the sake of going down in the history books.

However, one major reason the bill/law is rejected by more than half of Americans is that they realize that they, the producers, will be footing the bill for strangers who have no intention of ever contributing their fair share, and to add insult to injury, the producers realize that they will receive inferior medical care while footing that bill for themselves and these non-contributing strangers.

We are not a small Sweden, not a fairly homogeneous group of people and we do not feel "empathy" for strangers who are slackers and who wish to remain slackers.

I reject your understanding of human nature. DNA is still quite binding.

W.LindsayWheeler said...

The Problem with Greece is the 400 years of cruel Turkish Muslim oppression. This affected Greek mentality and character. 400 years is a long time. Turkish rule was very harsh, vindictive and cruel.

The general population had no education. At the War of Independence, Greek intellectuals got their training from the Enlightenment centers, mostly from Paris where they imbibed Socialism. This has been the modern Greek Intellectual History.

America is trodding down the same path. It is just Greece, being small with no natural resources, is the first to break. I see no difference between Greece and 15 TRILLION Dollar US debt whatsoever. The Democratic Party in both California and in Washington DC is just as spend happy as the Greek socialists are.

Get rid of the Democrats and the Socialists---NO Debt problem. How hard is that? Problem solved! Move onto the next, or not enough navel gazing yet?

Chris Crawford said...

I'll not respond to the provocative political statements in the previous two posts; this discussion has already drifted too much. However, I think it useful to address the assertion that kinship is the only basis for human empathy. I do not believe that this is true.

The most widely recognized term here is "loyalty", but a newer and more precise term has been developing for over twenty years: "social capital". While loyalty is the personality trait of an individual, social capital is a trait characteristic of an entire society. It's rather like the difference between 'personal income' (a measure of individual income') and GDP (total wealth generated by a society). Social capital can be described as 'group trust' or 'confidence in society'; other terms that help are brotherhood, group altruism, and solidarity.

The value of this term is that it describes an important trait that goes far beyond kinship. The history of society is one of expanding social capital providing ever greater economic efficiency. The earliest form of human relationship was the tribe, a group of a few hundred people broken into bands of a few dozen. With agriculture came increases in both population and group size; societies quickly expanded to sizes on the order of thousands to tens of thousands. These societies had insufficient social capital to hold them together, so they developed two institutions that provided the social glue they otherwise lacked: organized religion and strong kingship.

However, societies quickly outgrew the capacity of kings to directly maintain social capital, forcing them to refine two new institutions: feudalism (delegated sub-monarchy) and law. Different societies adopted different mixes of these two strategies. Meanwhile, however, social capital was slowly growing. In the Middle East, the city-states of Mesopotamia slowly coalesced into a single Mesopotamian state. Much of Rome's early success lay in its clever idea of extending citizenship to newly conquered peoples, making everybody a Roman and vastly boosting social capital.

The Germanic tribes who supplanted Rome did not have as much social capital, so civilization and trade withered for centuries. Slowly, slowly, trade routes were rebuilt and economic integration brought people together and increased social capital. The feudal structure of the Germanic lands inhibited the growth of social capital, but the replacement of feudalism by monarchy eventually returned Europe to the path of increasing social capital. The French stumbled onto nationalism, increasing their social capital in a quantum leap that led to empire.

The other nations of Europe quickly embraced nationalism in self-defense, which in turn led straight to democracy. Meanwhile, America found a path to high social capital through reverence for the rule of law.

My point in telling this long story is that the history of humankind is one of increasing economic integration tied closely to increasing social capital. The typical American may well be separated from relatives by hundreds of miles and see them rarely; is not willing to fight and die for his town, city, county, or state. American loyalty is to the nation, a tightly integrated society of 300 million people. These people are not bound together by common ethnicity -- it's the American ideal of the rule of law that powers the social capital that makes America thrive. Sadly, the intense political polarization of recent years appears to be eroding American social capital.

Now economic integration is spreading globally, which in turn both requires and encourages greater international social capital. Like it or not, the world is integrating ever more tightly. We can either figure out how to make this work or we can act like rats in a box.

Sean said...

"What this all boils down to is a simple truth: we're not worthier or better than they are'

Chis, if the West knowingly facilitates a world where the developing countries benefit at our expense because "wealth is allocated more on the basis of hard work, energy, and talent instead of nationality, then that means we are better than them, at least by Western standards of morality and ethics (the 'good'). But would you complain that Tibetans are acting like 'rats in a box', if they don't like hard working, talented and energetic Chinese crowding them out, and tearing the Tibetan environment apart like a car in a wrecking yard? Would you lecture the Andaman Islanders about 'international social capital' and explain that they have no moral right to their traditional lifestyle while Indian peasants are landless?

Chris Crawford said...

Sean, you're mashing together some independent factors. The Chinese are not in Tibet as immigrants, they're there as invaders. Nations all over the world protect their cultures by placing limitations on the number of immigrants they permit. There's nothing in this that runs afoul of globalization, which concerns trade, not homogenization.

I agree that globalization induces some homogenization, but where this is voluntary, I see no problem. Sure, it may be odd to find a McDonald's in Kazakstan, but it's there only because Kazakhs like McDonald's products and continue to purchase them. If they want it, who's to say that they should retain their culture by continuing to eat their traditional foods? How would you feel if somebody forbade you to eat anything but traditional American food?

"Chis, if the West knowingly facilitates a world where the developing countries benefit at our expense because "wealth is allocated more on the basis of hard work, energy, and talent instead of nationality, then that means we are better than them, at least by Western standards of morality and ethics (the 'good')."

Here you're relying on a broad definition of "good". My phrase was "worthier or better", and it was used in reference to the division of wealth. I maintain that the nation into which one is born should not, in an ideal world, determine one's economic success. Do you disagree?

I'm not sure what you mean by your reference to the Andaman Islanders; after all, they have precious little land of their own to share with landless Indians.

You seem to think that I recommend the elimination of the nation-state as a political unit. I believe nothing of the sort. Globalization should be recognized as a positive development in global affairs, but that doesn't make it mandatory. I approve of nations establishing diplomatic relations with each other, but I do not require that every nation establish diplomatic relations with every other nation; that should be a voluntary decision.

I do expect that, in the long run, globalization will weaken the role of the nation-state in global affairs. This is the obvious and natural next step in the progress of human society. 900 years ago in Europe, the strongest political unit was the manor comprising at most a few thousand people. We still have low-level political units such as townships, and a sequence of higher-level political units such as counties and states, but most of the power these days is vested in the nation-state. If humanity continues to integrate, then the nation-state will diminish in importance. That's an obvious extrapolation of historical experience.

Sean said...

Chis, you did call it 'good'.

"That's changing: with each passing year, wealth is allocated more on the basis of hard work, energy, and talent instead of nationality. And that, I think, is a good thing"

A Rawlsian veil of ignorance this is not! If wealth is going to be distributed by merit, starting from circumstances where the West has vast unmerited relative wealth, then the West is inevitably going to be the you admit.
"My overall point is that the world as a whole is wealthier because of globalization. The losses in developed nations are more than offset by the gains in the less developed nations."

Self interest can not lead a Westerner to think that would be a 'good thing'. Hence you clearly think it is a good thing on ethical grounds, not economic ones.

Economically speaking, China is an aggressor. Its policy toward its own workers, Tibet and Taiwan shows it acting as a nation-state seeing the world from a power politics standpoint. A Megapower China will be a threat. There will be conflict with other states, not a weakening of the state system.

I stand by my earlier comment, you're using the language of economics to talk ethics.

Chris Crawford said...

"Self interest can not lead a Westerner to think that would be a 'good thing'. Hence you clearly think it is a good thing on ethical grounds, not economic ones."

Not so. Observe that Western GDP per capita has continued to grow even as globalization has advanced. It's true that GDP per capita declined in some Western nations in the last few years, but that is due to the near-depression we suffered, not globalization; the latest numbers suggest that GDP per capita growth has again become positive in most Western nations (Greece, Spain, and Ireland excepted).

Yes, globalization has its downsides for the West: loss of jobs, reduction of the tax base, higher prices for resources. But it also has important upsides: more jobs for people in export-oriented industries; reduction in prices of many manufactured goods; and higher prices for American exports (due to increased demand). When you put all this together, you get a growth rate of GDP per capita in 2006 (before the financial catastrophe) of 1.9%. In other words, the positives outweighed the negatives.

Therefore, an informed and selfish Westerner should applaud the advance of globalization. I agree that a Westerner has no reason to be pleased by the loss of jobs in some industries -- but looking at globalization as a whole, it's still a win-win deal.

W.LindsayWheeler said...

The Natural Law is "Birds of a feather flock together", and that "Blood is thicker than water".

Did not all the people under the Soviet Union have a "social capital"? But what was the experience 80 years after the founding? Did it not break up along racial lines? Did not Yugoslavia break up along racial lines? America is also breaking along racial lines. What about La Raza? They certainly are not assimilating and are not going to. They refuse. They don't care about no "social capital" whatever that means.

Thru political correctness and coercive trade policies of our elites are we being manipulated into and being social engineered to accept globalization.

I'm an informed and selfish Westerner and I abhor and detest globalization. America doesn't need globalization. From Michigan, I can tell with a fact that globalization is bad for Michigan! We've lost more jobs than we have acquired. Kellog Company moved a 2500 person plant to Mexico. The last Juke Box company moved its operations to Mexico. Those are all jobs lost. Win-Win? Ross Perot was right---We hear that Giant Sucking Sound!

This thread on the Greek case is about saving globalization, not about the Greeks themselves.

Sean said...

Western GDP per capita has continued to grow, like it didn't before globalization? US productivity growth is dubious in view of the hedonic accounting there.

Re.Jobs, the EU single currency requires free movement of labour. Like the first commenter said, that is only going to have one result. Officially, of the 25.1 employed in Britain 4.1 million are foreign born. And how many million are unemployed?

You keep talking about democracy but like I keep pointing out China is a totalitarian state, and it is beating the West at its own game. They can see that there is no conection between economic developement and democracy. . The Chinese and Indians(BTW the poorest in India are as badly off as any African) do not have to worry about giving workers proper pay and conditions. Maybe once they eliminate all manufacturing in the West the Chinese will give their workers some rights huh? We send our children to school they send theirs down the mine. We let them sell products in the West that have been manufactured in total disregard for employment and environmental regulation, is it surprising they undercut on price. The West will have virtually no manufacturing at all, and do you think the Chinese and Indians will be content with just manufacturing. All kinds of jobs will move there. Win-Win?

Chris Crawford said...

Sean, China is not 'beating the West at its own game': Chinese GDP per capita and labor productivity remain well below Western levels. The dramatic growth in Chinese output is due to the liberalization of its market combined with abysmally low starting levels. As Chinese labor productivity rises, it will asymptotically approach Western labor productivity. There's no reason to believe that it will exceed Western labor productivity.

You are correct to note that Chinese environmental protections are inferior to Western standards. This is not solely a Chinese phenomenon; history has shown that labor and environmental standards are a function of overall economic well-being; as a country grows richer, it increases its labor and environmental standards. Developing nations all over the world have very low environmental and labor standards. Ironically enough, their standards are higher than those of the USA when its GDP per capita was at their level, largely because of political pressure from the West. In effect, the West is saying, "Do as we do now, not as we did when we were like you."

I agree that China is not a liberal democracy, but the expansion of their economy has triggered faster political progress than at any time in Chinese history. It is an iron rule of history that the development of a middle class propels a nation towards democracy. However, such evolution does not take place on a time scale of years; the typical time scale for this is generations.

Your fears regarding the loss of jobs are misplaced. Economies change as they grow. The US economy started off as an agrarian economy; in the late 19th and early 20th century it shifted to become a manufacturing economy. Over the last 50 years, it has been making the transition to being a service and design economy. The great bulk of economic growth in the USA over the last 20 years has been based on high technology: materials science, computers, biotechnology, telecommunications. These areas are immensely profitable and provide lots of employment.

The central problem of employment in the USA is that it is no longer possible to enjoy an affluent lifestyle based on a high school education. A college education is now required to remain in the middle class. It is understandable that many Americans who lack such education deeply resent the shifts in our economy. Nothing constructive can be accomplished by blaming China for our own economic problems; the solution lies in expanding our educational capacity to insure that most Americans earn college degrees.

Sean said...

'expansion of their economy has triggered faster political progress". Just because their farsighted program of one child has obviated the need to kill lots of recalcitrant young, that doesn't mean they are not still prepared to. Look at Tibet.

"Chinese GDP per capita and labor productivity remain well below Western levels" That is academic (like a 'pound for pound' comparison' of a featherweight and a heavyweight) They have a vast rural reserve army of labour that has still to enter the fray. China has economies of scale that make it impossible for manufacturing in the West to compete, here start at 10.50. What do you think the EU is about? The single European market was designed to create economies of scale for Europe; harmonization within Europe was implicitly intended as a way of putting up non tariff barriers to free trade with the rest of the World, but they are having to quietly restrict the entry of Chinese goods all the same. And the Chinese are not going to take 50 years to have a huge service and design economy alongside their manufacturing, they'll dominate software and much else, they have the human resources (see Asian Americans' emerging predominance in technical educational attainment). China will have a competitive advantage in the higher value economy in 15 years not 50. They aren't good at everything though; they don't make good entertainers. The west will always have an advantage in movies or porn. Maybe the solution lies in expanding our educational capacity to insure that most Westerners earn a living in those areas.

"Nothing constructive can be accomplished". You've got that right. We are like the Indians after the British arrived in a rich area (what is today Bangladesh) They destroyed the cotton industry, institute a landlord system to keep the populace under control, ploughed up rice to plant opium to sell to China and made similar arguments to your ethical-globalisation ones. Responding to Chinese complaints about the opium trade; the British claimed they were bringing China into God's plan for the world.

Chris Crawford said...

Sean, I'd like to ask you to take more time to compose your responses.

For example, your first paragraph is a complete non-sequitur. I write that expansion of their economy has triggered faster political progress and you respond by saying they're nasty??? Do you disagree that expansion of their economy has triggered faster political progress?

Your second paragraph is equally bereft of logical tightness. You dismiss without explanation the point that Chinese labor productivity is still well below Western levels. Then you claim that China has a vast pool of untapped labor. You should consult some of the recent Chinese labor statistics. Chinese wages have been rising for the last few years as the supply of labor has declined. Already some labor-intensive manufacturers are moving their operations to Vietnam and other places with lower labor costs.

You refer to Chinese economies of scale, but in fact the truth here is quite patchy. Yes, their large domestic market promises to generate great demand for many consumer products -- but much of that demand has yet to materialize. In areas where the Chinese domestic market is large (such as construction), economies of scale are already kicking in. But the kind of high-tech manufactures that Germany specializes in are way beyond Chinese capabilities.

You claim that the Chinese will quickly dominate information industries such as software. That's not going to happen, because software development is not something that can be hammered together with huge floors of hundreds of programmers in a rectangular grid of desks. The really low-end stuff can be done that way, but the action in software is being done by a completely different approach.

Thirty years ago, while I was lecturing in Singapore, a government official approached me to hear my opinions on the government's plans to set up a high-tech cluster specializing in software. I told him bluntly that programmers are a libertarian bunch that will not tolerate intrusions into their freedom. Any good programmers you train here will emigrate to more open societies, I said. Thirty years later, Singapore still doesn't have a respectable software industry (although they've started making progress in the last decade in parallel with the liberalization of the government).

China already has tens of thousands of programmers, yet their software productivity is really low; the best they can do is copy Western ideas. They *do* have some good hackers, I confess -- but they're still nowhere near as good as the best Western hackers.

Your comparison with India during the years of the British takeover is another non-sequitur. I have yet to see any Chinese soldiers taking over America, nor any Chinese gunboats bombarding our ports.

Sean said...

I most certainly do disagree that expansion of their economy has triggered real political progress in China. I gave reasons for thinking that the Chinese leadership are still very 'nasty', perhaps I missed where gave your rejoinder to them. Youth bulge theory is widely accepted, especially since the Arab spring. China's government seems to have grasped the gist of it long ago, and so their one child policy means have every-declining political unrest/young % population, hence they have to take hardly any overt punitive measures like the Syrian government needs to. It is perfectly reasonable to say that economic development of China is not the main cause of the Chinese government seeming to have become less totalitarian. (Economic development's association with lower birthrate makes this an easy mistake to make) The Syrian government was feted by the West as moving toward democracy, right up until they started slaughtering their own people. They did not become suddenly less democratic; they just needed to use strong punitive measures - unfortunately for Assad there is a youth bulge there. The West advised the Algerian government to move to democracy the result was a victory for Islamicists in elections and mass killing by the government to reverse the Democracy. It is lack of a youth bulge not democracy that enables China to seem less totalitarian. You will have a long wait for free elections in China.

China's advantage in economies of scale is far more than having a lot of people. Take a simple thing like the size of a factory plant. Laying a production line out in a straight line, rather than fitting it into a factory that is built to a planning-restricted shape and size makes a big difference to efficiency and can be done as needed there. These and many other similar things make a difference. That was the point of the link about the complex with a bigger workforce than the British Army, that's going to be producing 80 million laptops a year.

From what I have read most people who have taught Chinese students say that they are very bright though a little rigid. That slight lack of creative outside the box thinking is also noticed in Chinese who have been born and bred in America too, so the political culture in China is not responsible.

Western bankers are desperate to invest in China. Serious money is going into Chinese soccer because the new leader is said to be a fan In technical areas where the West has a lead it will not be possible to deny China access to western technical innovation. China's banker pals will lobby against any restrictions. China will buy access by simply buying strategically important companies and their technology. The idea that China will lose its best programmers to the West (even in Europe everyone wants to go to the US) cuts both ways. The Chinese will have the money to to tempt them (and their knowledge of the US cutting edge) back, and we all know how respectful of intellectual property rights China is.

There is more than one way for a society to be successful in the modern world. The idea that all societies will pass through the stages that the West has is rather far fetched.China and the end of westernisation.

Chris Crawford said...

Well, Sean, the Chinese government has been liberalizing (that is to say, showing greater respect for individual property rights) since the 1980s. During this time their economy has been growing frenetically. There's no question that the liberalization was a causative factor in the economic expansion. I cannot prove that the rise of a strong middle class has been a causal factor in further liberalization. Although the two are certainly correlated, we know that correlation is not causation.

However, there's a lot of historical experience that the rise of the middle class is most often associated with political liberalization. If you choose to believe that this historical commonplace does not apply to China, that's your business.

You emphasize the role of the youth bulge in political unrest. You misinterpret the common thinking about the effects of a youth bulge. It has certainly been shown that a youth bulge precipitates a rise in violent crime. Its role in political unrest has not been established, and the suggestion that the Chinese government adopted the one-child policy to restrain political unrest assumes that the Chinese government was aware of research findings well before they were found. I think we still have to assign some of the liberalization in the Chinese government to the expansion of the middle class.

I agree that it will be a long time before we see robust democracy in China; my point is that China is making progress in that direction. As I wrote earlier, the transition will take generations.

Your suggestion that arranging production lines in straight lines has a significant effect on efficiency is just silly. You seem to think that the zoning, environmental, and health and safety laws in this country reduce its economic output. That's backwards -- those laws increase overall economic output. Sure, Factory A can save a million dollars by releasing mercury into the river -- but the health costs arising from that mercury will vastly exceed a million dollars. The various restrictions on business in this country increase overall economic output.

"That slight lack of creative outside the box thinking is also noticed in Chinese who have been born and bred in America too, so the political culture in China is not responsible."

If you're saying that there's some sort of racial inferiority here, I can assure you that this is not the case.

You point out that Chinese companies will be able to hire American talent. Yep. But that observation has no bearing on the point I was making: that American jobs will have to evolve from brute-force labor to more knowledge-intensive work. It doesn't matter whether those Americans work for Chinese employers -- they're still employed. The Chinese employers will still have to pay high wages if they want to get the best talent in a free market. And the American cultural lead guarantees that American can continue to outproduce China in the generation of such top-notch workers.

There's a strong streak of paranoia and China-hate in your writing. You would do better to focus your energies on solutions than enemies.

Sean said...

Ethical advances aren't like technology which is unlikely to be lost. You have no more idea what the political system will be anywhere six generations hence than what fashions in hats will be.

America does have a lead in advanced technology. But by definition most people are not going to be capable of being top-notch workers in such demanding occupations, no matter how hard they try, or how much education they get. For them, I see no available solutions.

Chris Crawford said...

Sean, I do not share your pessimism regarding the likelihood of Americans being able to learn advanced skills. You should read some of the arguments raised against democracy in France, England, and America during the mid-eighteenth century. Those writers also have a low opinion of the average person; they argue that giving power to the people will result in chaos because people are just too stupid to run a country. While current political headlines sometimes make me sympathetic to such arguments, in my calmer moments I do not accept such thinking.

Sean said...

The discipline necessary for acquiring advanced technical skills comes easier to some peoples than others. It is not a case of underestimating Europeans, but of not underestimating the Chinese. During the Korean War US strategists were sure that China would not intervene. The US experts included military advisors who had trained the Chinese during WW2 who said if the Chinese intervened their logistical chain could not support an effective force. It was also thought the Chinese would have poor morale, and be no match for US troops. None of this proved to be true.