Economic Growth – Page 40 – artdiamondblog.com

“The Engine of Prosperity is Technological Progress”

Steve sometimes writes clever, entertaining essays on issues of little policy importance (like whether a rational person should stand still, or move forward, on escalators). But in the piece excerpted below, he does a great job of discussing the biggest policy issue of them all: what drives economic progress?

Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people’s lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then — just a couple of hundred years ago, maybe 10 generations — people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they’ve been growing at about 2.3%. If you’re earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they’ll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

Against a backdrop like that, the temporary ups and downs of the business cycle seem fantastically minor. In the 1930s, we had a Great Depression, when income levels fell back to where they had been 20 years earlier. For a few years, people had to live the way their parents had always lived, and they found it almost intolerable. The underlying expectation — that the present is supposed to be better than the past — is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

. . .

The source of this wealth — the engine of prosperity — is technological progress. And the engine of technological progress is ideas — not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.

For the full commentary, see:

STEVEN LANDSBURG. "A Brief History of Economic Time." The Wall Street Journal (Sat., June 9, 2007): A8.

(Note: ellipsis added.)

Mugabe Prints More Money and Beats Up Shopkeepers, as Inflation Soars: More on Why Africa is Poor

"Inflation made food cost a fortune in Harare this week. The government imposed controls that required vendors to sell some items below cost." Source of caption and photo: online version of the NYT article cited below.

JOHANNESBURG, July 3 — Zimbabwe’s week-old campaign to quell its rampant inflation by forcing merchants to lower prices is edging the nation close to chaos, some economists and merchants say.

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

“People are losing millions and millions and millions of dollars,” said one merchant in Bulawayo, referring to the Zimbabwean currency, which is becoming worthless given the nation’s inflation, the world’s highest. “Everyone is now running out of stock, and not being able to replace it.”

. . .

Gasoline was reported to be vanishing from stations as the going price, about 180,000 dollars per liter, was slashed by the government to something closer to the officially approved price of 450 dollars per liter. Mr. Mugabe’s government intends to cope with the shortages by subsidizing producers of basic goods. One of the few newspapers not under government control, The Zimbabwe Independent, reported last week that flour, which is controlled entirely by the state, will be sold to bakers for 10 million dollars a ton, half the market price. Similarly, many suppliers of basic goods have been told by the government that they will be allowed to buy gasoline at one tenth the going price, the newspaper reported. The government apparently plans to make up those losses by printing more money. Zimbabwe’s dollar has lost more than half its value in recent weeks because the government has constantly issued new bills to pay its mounting debts.

For the full story, see:

MICHAEL WINES. "Anti-Inflation Curbs on Prices Create Havoc for Zimbabwe." The New York Times (Weds., July 4, 2007): A8.

(Note: ellipsis added.)

CNN on 7/10/07 broadcast a great clip from ITN, that had been courageously recorded undercover by Martin Geissler. See "Desperation in Zimbabwe":

http://www.cnn.com/video/#/video/offbeat/2007/06/23/vo.mi.ugly.dogs.ap?DPFPR=true

(Note: ITN is sometimes also called ITV. "ITN" stands for the International Television Network.)

Postscript: According to an entry on the ITV web site entitled "Mugabe Battles Economic Crises," Mugabe "has warned he will not be restrained by "bookish economics"." (He makes a great case for cracking open the books, doesn’t he? Or at least for opening the window and looking at what is happening outside?)

For the Mugabe quote on bookish economics, see:

http://itn.co.uk/news/a1d7763de3c4778b619a72cbeab24d6d.html

“Roosevelt Warned us of Fearing Fear Itself; Now We Fear Life Itself”

Source of book image: http://ec1.images-amazon.com/images/P/159523005X.01._SCLZZZZZZZ_V46468787_SS500_.jpg

I saw Todd Buchholz on C-Span and on CNBC, and I enjoyed hearing his views, so I decided to buy his Bringing the Jobs Home. I don’t like the title, because it sort of implies that the job market is a zero-sum-game, in which one country’s gain implies another country’s loss. Us true-blue free marketers believe that the market is a non-zero-sum game in which everyone everywhere can have jobs, and have better ones over time.

But Buchholz’s little book is fun to read, and says much that is plausible about how the government hurts the worker and reduces the efficiency of the labor market.

Read the following excerpt for part of his rousing conclusion to the book.

(And, Aaron, I agree with you that Buchholz is wrong to say the American spirit is "innate.")

(p. 177) . . . : Since the 1960s, each year we’ve lost a little nerve, gained another bureaucrat, another lawyer, another layer of protection against life’s uncertainties. We have gotten used to a government that aims to coddle us but ends up both preventing us from growing and dampening the innate American spirit. The spirit still stirs but gets buried under the weight of the nanny state.

. . .

(p. 178) American government officials today cannot put our standard of living in a lockbox to preserve, protect and defend us. Franklin D. Roosevelt warned us of fearing fear itself; now we fear life itself.

. . .

(p. 179) To paraphrase Churchill, Americans did not sail the perilous Atlantic, scale the Appalachians and struggle past the Rockies because we were made of cotton candy.

Source:

Buchholz, Todd G. Bringing the Jobs Home: How the Left Created the Outsourcing Crisis–and How We Can Fix It. New York: Sentinel, 2004.

Bjorn Lomborg’s Copenhagen Consensus Against Kyoto

(p. 8) Bjorn Lomborg, a Danish statistician who recently led the Copenhagen Consensus, an economic analysis of global environment and development issues , said that while global warming was a serious problem, Kyoto-style limits would have little impact and would divert resources better spent on alleviating poverty.

He said one element missing from most climate discussions was the need for a more vigorous effort to improve climate-friendly energy technologies like solar power and carbon capture, in which greenhouse emissions are trapped and pumped underground before they can escape into the atmosphere.

While many advocates have proposed an emissions tax, Dr. Lomborg said a much smaller investment in research and development on such technologies would be more likely to help in the long run.

For the full story, see:

ANDREW C. REVKIN. "Talks to Start On Climate Amid Split On Warming." The New York Times, Section 1 (Sun., November 5, 2006): 8.

The Safety Net in Europe and the United States

Source of graphic: online version of the NYT article cited below.

FROM issues of crime and punishment to the proper domain of the spiritual and temporal powers, Americans and Europeans have long cast a skeptical eye at one another across the Atlantic.

Perhaps nowhere has the gaze been more jaundiced than in the area of work. From the perspective of Western Europe, American employers have a relatively free hand to hire and fire, coupled with meager and short-lived unemployment benefits. America’s deregulated labor markets seem to provide hardly any safety net when it comes to economic dislocations of workers.

Americans, by contrast, have found it hard to resist a touch of schadenfreude at the joblessness stoked by European governments’ intervention in labor markets, with rules on everything from wages to layoffs, on top of generous unemployment benefits.

For the full commentary, see:

EDUARDO PORTER. "Economic View; A Bridge Over the Atlantic, in Labor Policy." The New York Times, Section 3 (Sun., April 1, 2007): 5.

Morales Slaughters Snow-White Llama to Celebrate Nationalization of Tin Smelter

A snow-white llama that has not yet been symbolically sacrificed by Bolivian President Evo Morales. Source of the photo: http://www.staff.stir.ac.uk/f.r.wheater/images/25%20Llama%205_8_04.JPG

Picture it, in President Evo Morales’ Bolivia: a peaceful, innocent-looking, snow-white llama slaughtered in homage to a barbaric mystical ritual, and in celebration of the slaughter, through nationalization, of private property and economic growth. And afterwards, one imagines the visitng French brass band played on.

VINTO, Bolivia: The ritual sacrifice of a snow-white llama provided a symbolic completion Friday to President Evo Morales’ nationalization of Bolivia’s lone operating tin smelter.

Swiss mining giant Glencore International AG owned the plant until last week and has threatened to seek compensation through international arbitration. Morales still says his government will not compensate Glencore for the Feb. 9 nationalization of the Vinto plant, located on a high Andean plain 180 kilometers (110 miles) southeast of the capital of La Paz.

. . .

After the ceremony, Morales hosted plant workers, a troupe of Andean pipers and a visiting French brass band to an outdoor supper of fried chicken and chuno, a traditional Bolivian dish of dehydrated potatoes.

While the nationalization retained all but a handful of smelter employees, workers remained divided over the change in management. Some rushed to greet "Companero Evo" as he toured the plant; others hung back and wondered about the future.

"Anywhere in the world they’ll tell you the government can’t be a good administrator," said plant employee Oscar Leyton. "But we’ll just have to wait and see how they do it. If they screw up here, they’ll screw up the whole country."

For the full story, see:

"In Bolivia, llama sacrifice completes Morales’ tin smelter nationalization." International Herald Tribune February 16, 2007.

(Note: ellipsis added.)

Preventing Creative Destruction Slows Economic Growth

Source of graphic: online version of the NYT article cited below.

It would be interesting to explore why the gap in growth rates was smaller last year than previously. Was it a statistical fluke? Or did the U.S. labor market become somewhat less flexible? Or maybe the job market in Europe and Japan became somewhat more flexible?

FOR more than a decade, many American economists have pointed to Europe and Japan as prima facie evidence that layoffs in the United States are a good thing. The economies in those countries were not nearly as robust as this country’s. And the reason? Too much job security in Europe and Japan, the economists said.

American employers, in sharp contrast, have operated with much more “flexibility.” Hiring and firing at will, they shift labor from where it is not needed to where it is needed. If Eastman Kodak is struggling to establish itself in digital photography, then Kodak downsizes and labor moves to industries and companies that are thriving — software, for example, or health care, or Wal-Mart Stores or Caterpillar.

This shuffling out of one job and into another shows up in the statistics as nearly full employment. Never mind that the shuffling does not work as efficiently as the description implies or that many of the laid-off workers find themselves earning less in their next jobs, an income roller coaster that is absent in Europe and Japan. A dynamic economy leaves no alternative, or so the reasoning goes among mainstream economists.

“Trying to prevent this creative destruction from happening is a recipe for less economic growth and less productivity,” said Barry Eichengreen, an international economist at the University of California, Berkeley.

For the full commentary, see:

LOUIS UCHITELLE. "ECONOMIC VIEW; Job Security, Too, May Have a Happy Medium." The New York Times, Section 3 (Sun., February 25, 2007): 5.

Better than Socialism, but Not Free Market Enough: More on Why Africa is Poor

Voters in line to vote for President in Senegal on 2/25/07. Source of photo: online version of the NYT article quoted and cited below.

My old Wabash professor Ben Rogge used to say that rulers liked to build pyramids to proclaim their glory. He mentioned the Egyptian pyramids, and he mentioned the whole government-created capital city of "Brasilia" in Brazil.

When rulers in a poor country invest a lot of tax money in infrastructure, such as roads, how much of that is due to their belief in mistaken economic theories, and how much to their wanting to build their own version of the pyramids?

In either case, at least it can be said that the people probably benefit more from their taxes being used to build roads, than from their taxes being used to build pyramids. At least the roads can be complementary to transporting goods, and to the mobility of labor.

But the people would benefit even more if they could keep the tax money to use for their own purposes.

(p. A3) DAKAR, Senegal, Feb. 25 — Moudou Gueye was confident that Senegal’s presidential election on Sunday would turn around his fortunes, at least in the short term.

Seven years ago he voted for Abdoulaye Wade, a rabble-rousing professor who, after decades in opposition to Socialist Party rule, sailed into office buoyed by the votes of frustrated young people like Mr. Gueye, who is now 32. They hoped that Mr. Wade, a free-market liberal, would transform this impoverished nation’s economy, which had been stunted by generations of ineffective central planning.

. . .

. . . Senegal has had relatively robust economic growth that has hovered at around 5 percent over several years (it was lower last year, owing in part to high fuel prices, according to government officials), compared with the 1 percent achieved during much of the Socialist era, and dozens of huge public works projects.

While in some ways the country is better off, economic growth and a building binge have not produced large numbers of jobs in a country struggling to make the transition from an agrarian society based largely on peanut farming to one that harnesses the wealth of a global economy.

. . .

Countering criticism that Mr. Wade is too old to serve another term — his official age is given as 80, but many people suspect he is older — his daughter, Sindiély, who has worked as a special assistant to the president, said he was as sharp and agile as ever.

“It is not a question of age,” Ms. Wade said as she waited to cast her vote in downtown Dakar. “It is a question of dynamism and ideas and what you have planned for your country.”

Along Dakar’s seaside roadway, young men marveled at the cars whizzing below a brand-new overpass, one of Mr. Wade’s long-anticipated public works projects.

Pap Ndiaye, an 18-year-old street vendor who sells baby clothes to people stalled in traffic, said the newly completed road was a sign that the country was moving in the right direction.

“Wade has done a lot for this country,” Mr. Ndiaye said. “Our hope is that he will stay and finish his work.”

Less than a mile away, the road abruptly ends with a bright yellow sign that says “déviation,” or detour. With a hard turn to the right, drivers pour off the broad new highway, and back into the tangled, chaotic streets of one of Dakar’s oldest and poorest neighborhoods.

For the full story, see:

LYDIA POLGREEN. "Senegalese Vote Hinges on Views of Economic Growth." The New York Times (Mon., February 26, 2007): A3.

(Note: ellipses added.)

Mugabe Eats Cake As He Ruins Zimbabwe Economy: More on Why Africa is Poor

Tyrant Mugabe eats cake while his slaves starve. Source of photo: online version of the NYT article cited below.

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

. . .

On Wednesday, The Herald, the state-managed newspaper, included in 16 pages of tributes to Mr. Mugabe an editorial calling him “an unparalleled visionary” and “an international hero among the oppressed and poor.”

. . .

“The guy is insensitive,” John Shiri, 41, a teacher at a primary school, told a local journalist. “There is no bread as we are talking, but he will be feasting and drinking with his family and hangers-on when there is no wheat in the country.”

. . .

Tawanda Mujuru, who runs a vegetable stall on Samora Machel Avenue in downtown Harare, said that she would be working in a factory if not for the failure of Mr. Mugabe’s economic policies.

“He has the guts to eat and drink when we are suffering like this,” she said. “Let him enjoy. Every dog has his day. We shall have our day.”

For the full story, see:

MICHAEL WINES. "Mugabe Gets Ready to Eat Cake While Fellow Zimbabweans Can’t Find Bread on Shelves." The New York Times (Thurs., February 22, 2007): A6.

(Note: ellipses added.)

Zimbabwe Official Says People Eat Field Mice as a “Delicacy”: More on Why Africa is Poor

Screen capture from CNN report "A Ruined Land," broadcast on December 19, 2006.

(CNN) — Twelve-year-old Beatrice returns from the fields with small animals she’s caught for dinner.

Her mother, Elizabeth, prepares the meat and cooks it on a grill made of three stones supporting a wood fire. It’s just enough food, she says, to feed her starving family of six.

Tonight, they dine on rats.

"Look what we’ve been reduced to eating?" she said. "How can my children eat rats in a country that used to export food? This is a tragedy." . . .

This is a story about how Zimbabwe, once dubbed southern Africa’s bread basket, has in six short years become a basket case. It is about a country that once exported surplus food now apparently falling apart, with many residents scrounging for rodents to survive.

According to the CIA fact book, which profiles the countries of the world, the Zimbabwean economy is crashing — inflation was at least 585 percent by the end of 2005 — and the nation now must import food.

Zimbabwe’s ambassador to United States, Machivenyika Mapuranga, told CNN on Tuesday that reports of people eating rats unfairly represented the situation, adding that at times while he grew up his family ate rodents.

"The eating of the field mice — Zimbabweans do that. It is a delicacy," he said. "It is misleading to portray the eating of field mice as an act of desperation. It is not."

For the full story, see:

Jeff Koinange. "Living off rats to survive in Zimbabwe." CNN POSTED: 3:40 p.m. EST, December 19, 2006.

(Note: ellipsis added.)

Rats for dinner in Zimbabwe. Source: online CNN article cited above.

Listen to Ralph Raico on the Industrial Revolution

Historian and libertarian Ralph Raico. Source of photo: http://en.wikipedia.org/wiki/Ralph_Raico

If you’re looking for a wise, witty, erudite, and thought-provoking discussion of a variety of historical issues from a broadly libertarian perspective, then Ralph Raico is your man. (The flavor of libertarianism is neo-Austrian, but not dogmatically so.)

Several of his lectures can be purchased on CD or cassette from the Ludwig von Mises Institute. Or you can listen to streaming versions on your computer for free.

I particularly like his lecture on "The Industrial Revolution" in which he persuasively argues that ordinary people benefited from the Industrial Revolution, and that the benefit would have been clearer sooner, had it not been for the coincidental costs being imposed on ordinary people by the Napoleonic wars and by the corn laws.

The link for the free streaming version of the lecture is:

http://www.mises.org/media.aspx