### A Critical Perspective on Australia's Superiority Narrative
I am highly skeptical of the narrative that Australia is vastly superior to America. While there are certainly areas where we excel, we must avoid becoming too self-congratulatory about our system.
The relatively smooth implementation of our neoliberal reforms can be attributed, in part, to the dire state of our economy in the 1980s. As Lee Kuan Yew once remarked, "Australia risks being the white trash of Asia." The 1980s marked the fastest period of economic growth in our nation's history, and the reforms that facilitated this boom were widely accepted due to the desperate need for change.
Furthermore, America's social spending as a percentage of GDP is higher than that of Australia. This fact challenges the notion that America has done less to support those adversely affected by free trade.
A closer examination of our economic landscape reveals that the concentration of economic activity is much higher than it was in the 1980s, and it is also higher relative to the UK and America. What exactly has Australia done to address this issue?
The main reason globalisation hasn't been controversial in our regions is also because they directly benefitting from it. Our export basket is primarily composed of unprocessed commodities sold to Asia, and our regions benefit from a regular influx of holiday workers from the continent. This advantage is largely due to natural endowments rather than enlightened policymaking.
Our financial regulation, while hypothetically mitigating risks, is not without its costs. If someone had predicted after World War II that two countries in the Asia-Pacific region would leverage their English language skills and British legal system to become the financial and business hubs of Asia, one might have assumed they were referring to Australia and New Zealand. However, it was Hong Kong and Singapore that seized this opportunity, as we remained closed-off economies during this period. Even today, many judges in Hong Kong are from Australia.
Additionally, while there is discussion about the Dutch disease caused by the financial sector, a comparison of export baskets clearly shows which country in the Anglosphere is actually suffering from this phenomenon. As opposed to the hypothetical problems caused by "financialisation", our Dutch disease is causing real problems for Australia. Although we have always been less productive than the USA, we were catching up in the 1990s. However, we have fallen behind in the 2010s, with the USA even surpassing us in natural gas exports as we stifle investment in our sector. While we failed to break into advanced manufacturing, we were performing well in services exports in the 1990s and 2000s. But the massive expansion of the mining sector in the 2010s essentially wiped out our comparative advantage.
In conclusion, Australia is indeed a good place to live, but we must stop being so complacent by focusing on the weaknesses of a country on the other side of the world. We Australians have developed an unhealthy obsession with America, and it is time to shift our focus inward, addressing our own challenges and opportunities.
I am making a relative, not an absolute, comment. The reality is that there is a lot we do better than the US, and it shows. That being said, there are also plenty of attempts going on to degrade or throwaway hard earned advantages. Our recent productivity problems are a danger sign, our housing/land use regulation is noxious and some spectacularly bad energy policies are being pushed.
"Anthropologists call personal connections relational wealth precisely because they are valuable assets. They definitely add to the resilience of individuals and networks—that is, they increase the ability to respond effectively to changes in circumstances."
This appears to be Lorenzo's dot connection #3792. Would you believe me if I said I was really keeping count? :-)
As an introverted child, teenager, and adult, I missed the life memo that it is just as important who you know as what you know. That part of the value of any college, but especially the higher quality ones, was the set of people you would meet, their capabilities and connections, and how your (reciprocal) networking with them would be beneficial to you short or long term.
As a retiree, your networks can also collapse back into a much smaller group unless you make strenuous efforts to maintain them or create new ones.
If possible, I wanted to ask if you could explain some of the policies Australia used to weather the shocks from opening up more? I don't know much about these but wanted to learn - thank you.
One was the Button Car Plan. There were also various training packages. The success was a bit hit and miss, but the main point was the Government acknowledging there would be losers from the shift to free trade and being seen to try and do something about it. Part of what that does it get folk thinking about what to do at various levels of government and society.
"... [the term] Exchange good also separates out using money in exchange for output (goods and services) from holding money as an asset. An economy with sufficient access to a useful exchange good will be larger—have more transactions—than one that does not." I am still trying to come to grips with the idea that money as a "store of value" is not really necessary, based on [a just now revisited] essay you had with Nick Rowe back in 2012. It seemed you did not accept that idea then as strongly as you have more recently, even as you still endorsed that a distinction be made.
[Thus, my continued ignorance is partly your fault!! :-) ]
But thinking about separating money as a medium of account from a medium of exchange, I came up with the image of my usual credit card transactions, where I leave the store with my recently purchased "wealth" and a paper receipt. The "medium of account" ends up being a piece of paper with some ink on it, containing the information about supplier, date, time, amount, etc. But the paper is simply a parallel representation of the virtual info transaction, and the real medium of account includes that information. And really that the transaction has occurred in dollars.
When it comes to money as an asset with its own somewhat separate influences on market expectations, etc., I am still struggling to grasp your views on that vs. the continued image of a store of value [such that the unit of account should be maintained at as stable a value as possible, regardless of what subjective changes occur in valuations of their wealth by the holders of that money, or the wider marketplace. ]
If I have missed the intellectual boat here, please keep up your efforts to remove false simplifications of the economics regime, including your political/social aspects.
It's a thorny subject, but I'd be interested to know your opinion, or read about the intersection with taxation, both at the individual and corporate level. I think this is one of the hidden icebergs of our [financialized] epoch.
One of the issues the debate about globalization MSM conveniently never discusses is the use and abuse of taxation. High net worth individuals (HNWIs) and corps (MNCs) can afford legions of professionals who run rings around all national IRS. If memory serves me right there was a scandal (gosh!) in Australia not too far back with KPMG (or another of the big 4) writing both govt policy and being the consultants to take advantage of how to circumvent it.
This ties into your points 3 & 4, in terms of screwing over local/national entities and reducing resilience.
It's a topsy-turvy world out there, and this divide between the plumbing of how the world really works (rarely discussed) and the narratives constructed to suit agendas and interests, etc, if the curtain ever gets pulled back ... What a mess we're in!
Arguing about tax avoidance by the rich obscures two more fundamental problems with taxation in the modern economy.
Firstly it primarily targets income & consumption rather than wealth - despite the fact that the latter has been running away from mainstream earnings for some time. There would be no way out of avoiding taxes if they fell upon end-repository of where money goes. Secondly passive rent-seeking and speculation are incentivised over authentically productive investment and labour.
Both of the above are perfectly summed up to the housing bubble (although it has other contributing factors). The ultimate financial goal in Australia seems to be to set yourself up as a rentier rather than achieve something and receive reward for it - especially something that boosts the welfare of your fellow citizens).
True, but you need to start from somewhere. The theme of the essay was globalization.
If you research the theme I originally wrote, all the trusts and cross border legal jurisdictions holding cover for "end-repository" will jump out.
To me, the issues you identify are downstream of a debt based monetary system (fractional banking, usury), incentivizing assets, valuation bubbles and what not. Financialization has misaligned incentives, hence the feudal shit-show. For instance, private equity buyouts were made illegal in the US after '29 and brought back in '86 (Reagan's advisors hollowed out the rules without retracting legislation, it was a brilliant yet underhand move).
"Yes, it might well be true—indeed, probably is true—that the net economic gain to an economy is greater than all those costs, but if the pattern of gains and losses are such that one group gets most of the gains and another group most of the losses, then free trade will be not only economically disruptive, it will be socially and politically disruptive as well."
Congratulations, you have restated Calhoun's argument against 19th century American tariffs as a case against free trade. Your gross conceptual error is in the causation. Schumpeter didn't invent the notion of creative destruction, he just explained it best, and all trade - whether domestic or foreign - is part of that process. The destruction aspect, so often overlooked by conservatives (who tend to be capitalism's greatest apologists) is exactly what you are talking about, and he never confined it to simply the outcomes of the market, but that it implied other social phenomena. A good case of that is the mass entry of women into the wage-labor economy, in the 70s and 80s. Hmmm.
I believe Jane Jacobs first used the phrase "social capital" and she was no economist (which is to her credit). Honestly, I've never heard an economist address it; as you note they classically (if not dogmatically) view all individuals as rationalizing maximizers that will seek out opportunities where the opportunities are and not just in their own locale. American mobility (the great expansion westward) was a myth they could lean on, whereas the Brits bought peace amongst the unemployed with the dole (preserving local connections and crippling labor mobility that might honestly have been tapped).
The international rules based order on trade wasn't an American shift in the 70s, it was the product of American hegemony post WWII. What changed was that instead of dealing with devastated (then recovering) trading partners, by the late 60s, the output of those economies were soaring past the U.S. (which was still riding on the labor-capital accords of the 50s). Combined with the mobility of capital (but not labor) and the better returns to that capital in non-local opportunities (the sunbelt vice the rustbelt, and internationally), industrial decay set in and community decay (urban or not) quickly followed.
It is also fair to point out that Australia never had a large pool of cheap, easily imported labor sitting right on its border. Equally, the export of that labor from Mexico (and the repatriation of the proceeds of Mexican labor in the U.S. economy) was a safety valve that allowed Mexico to maintain political stability that it couldn't have otherwise.
Creative destruction can take place in a completely autarkic economy. There can certainly expected to be more of it in an open economy, but it is not a matter of trade per se. But much of the disruptions of trade can come from it being as much a policy shock as a trade shock—from the sudden change in the policy “rules of the game”.
Why US workers should be expected to pay to stabilise Mexico is surely a good question. Also, Mexico was, in fact, remarkably politically stable prior to the 1965 changes in US migration and then NAFTA. Rather too stable, in fact. NAFTA had the effect of opening up their politics: it was disruptive in a good way.
What crippled UK labour mobility was public housing plus very restrictive land use regulation.
There was various waves of increased free trade post 1945 due to the various GATT and WTO negotiation rounds. In Australia, there was a sharp shift towards free trade under the Whitlam (1972-5) and Hawke-Keating Governments (1983-1996). Just as there was in the US with Clinton and NAFTA (1994) and, in a more mixed way, with the UK entry to the EEC in 1973.
But credit to him for his heterodox approach, which he still hews to. It isn't surprising you would cite him and not any of a dozen other equally or better known economists.
The political stability of Mexico was accomplished by siphoning off the aspiring class of workers and exporting them to the U.S., where they subsequently repatriated some of their earnings. This was both economically and socially valuable to the Mexican elite - they got money into the economy and got rid of potential political disruptors. Those Mexican immigrants would benefit politically from the Reagan amnesty which normalized them. And you are crediting NAFTA which is an after-effect from the era we were talking about. The devolution of the PRI in Mexico is a multi-faceted story, some parts of which we may be touching on, but hardly the whole story.
It has been a bit of a theme of mine, the way so much of mainstream Economics does not pay attention to social capital. But also failure to acknowledge how much culture matters—though the long-term economic growth literature is now beginning to take the latter seriously.
The visas that allowed folk to seasonally in the US clearly helped Mexico.
You make some lucid points in this and your later comment. However, it all hinges upon the unfounded belief in homo economicus, and pays no attention whatsoever to what social psychology teaches us about ingroup and the desire to maintain social capital and community at the expense of economic self-interest. Put simply, only around one third of labour with reallocate their labour if it involves moving away from community and geographical location.
You point about welfare is well-taken, but this is at best a soft incentive, the absence of which might make a small percentage difference in labour reallocation rates at the margins, but isn't really decisive. There are numerous examples from history. The refusal to urbanise on the part of rural communities during the Industrial Revolution, a feat which was only achieved gradually over generations. The Great Migration. The Great Famine in Ireland is perhaps the best example- it showed that in many instances people would rather starve than relocate. Sure, lack of funds was an issue, but not a decisive one. Relocation to Britain was a cheaper option. 4-5 million stayed in Ireland. 1 million died. 1-2 million emigrated to America. 300-400,000 relocated to mainland Britain.
This also happens to have profound implications in terms of migration and future economic prosperity. This Dutch economic study on three waves of migration to the Netherlands shows that migrants will choose to working within their communities at lower pay rather than shift upwards in pursuit of economic opportunity, even to the point of enduring periods of unemployment. People have a natural tendency to want to self-segregate into culturally homogenous communities with people who share their values and customs, even in the absence of economic factors like poverty.
The world is not as those with the neoliberal or cosmopolitan mindset would wish it to be, primarily because the people who populate it will never act in their rational economic self-interest, preferring psychic profits to real ones once basic needs are met. And it's not a problem which can easily be 'fixed'. The literature on ingroup shows that its formed during early childhood, largely a matter of parental education background, peer group and socioeconomic status, and cannot really be reprogrammed once in place (although corporate teambuilding and strong ingroup institutions like the military can impart a new ingroup, which mitigates the social barriers ingroup imposes, and youth volunteer programs, specifically designed for the blue collar class to impart skills, might encourage greater labour mobility).
Universities can help, but they naturally select for the third of the population more open to new experiences. The most worrying thing of all it that there are probably polygenic factors and high ingroup (or social conservativism) is associated with physiological brain differences. Although other parts of the research studying brain differences didn't survive replication, the research on amygdala size and high ingroup/social conservatism was successfully replicated.
Think about that. You're arguing against natural human preferences which manifest at the physical and biological layer. People are different and many of those differences are ingrained. It's not a matter of experience or education, but a bone-deep expression of irreconcilable differences in outlook and viewpoint. In real life, Shirley Valentine was more than two-thirds likely to find herself on the receiving end of a divorce.
I am obviously influenced by being an American, and with that the American history of immigration and assimilation, which only has a reasonable parallel in Australia and not in any part of Europe. That history is the movement of people who had aspirations to both prosperity (the economic factor) and liberty (political/cultural). I've tended to interpret that as the U.S. was a place for people that were misfits in their own societies, as not every single person in any culture wants to conform to the whole package. The more rigid a given culture is, the more difficult it is for those who don't conform.
It is easy to say that immigrants to Europe don't assimilate and instead self-segregate; yet there isn't a nation/culture in Europe that encourages them to do so. Germany's use of Turkish migrant labor was never meant to establish a Turkish subpopulation, though it did and the cultural discontinuity exists to this day. Immigrants to the U.S. did establish enclaves, but those mostly supported the most recent immigrants. They did not for the most part become multi-generational and they never were outposts of resistance to American society (economically or culturally).
Sure, I agree with you- to a degree. But it's worth noting that if one looks at economic growth in America, then GDP rises during periods of inward migration, but GDP per capita rises during the stricter periods. It's also the case that productivity growth is about twice as high during tight labour market periods, when employers worry over labour supply. I can make an educated guess from my experiences- most entrepreneurs heavily prioritise expansion, especially in terms of sales and market penetration. They aren't going to push money which boosts productivity but little else, unless they feel the supply of labour is either a threat or a limit on their ability to expand. The x2 productivity growth is well supported by several sources.
More generally, it's worth checking out this Google Zeitgeist talk by Niall Ferguson entitled A Recipe for Populism. He looked back into American history and found that America had experienced populism four times (not sure whether this includes Trump) and in each instance the rate of foreign-born citizens had risen above 14% with economic downturns another an ingredient which caused the populism.
I don't disagree with you. America seems to have a higher threshold for heterodox or multicultural culture than most European countries, especially the Non-Western ones. But the fact remains that prior to Trump every time foreign-born citizens rose about 14% and populism emerged, with conventional politicians defanging the populist movement by imposing strict immigration controls. It's a testament to modern American culture that curbing legal migration is far less popular. However, is does appear that the ground is shifting somewhat- a 2024 Gallup poll found 55% of Americans want to decrease overall immigration (legal and illegal), the highest in two decades, up from 41% in 2021.
With regard to self-segregation, the benchmark is to look and see what percentage of American communities don't possess a clear majority subculture/ethnicity with a neighbourhood less than 60% composed of one cultural group. I couldn't find studies on that threshold, but Grok was able to find this- a 2010 study of no-majority communities (no group >50%) found they comprised ~10% of U.S. census tracts, concentrated in metro areas like San Jose and Dallas.
"... a 2024 Gallup poll found 55% of Americans want to decrease overall immigration (legal and illegal), ..."
I suspect much of this involves a lower level of cultural and language assimilation by Hispanics over other groups. Not that some levels of assimilation are not occurring, but I still find it jarring after all this time that we can see multi-language signs and labels, "press 8 for Spanish", find people speaking Spanish outside the home in public, (and for me) minor problems with hearing accents, etc. Perhaps there is also a bifurcation in attitude towards work, with one subgroup working very hard for the money and remittances to send home, and another group soaking up welfare as much as possible. And their relative volume is higher than other waves of immigration, thus making assimilation less and less necessary for success.
The illegality and the impacts on wage scales at the lower end for whites, blacks, women, and legal Hispanics also play a role.
But this resistance is not ethnic or racial, per se.
Sure, I’ve been arguing the economic side of the argument for considerably longer. Many people are simply too proud to admit a deep sense of economic insecurity, so their complaints might manifest differently. There is a great Angus Deaton clip I will link. The other thing the pundit and anchor class doesn’t realise is that the ability to detect dissembling is no way correlated with IQ. If anything, the highly educated have a ‘people-like-us’ blind spot when it comes to experts.
The more aggressive ‘just-be-yourself’ type of multiculturalism is a real problem, if for no better reason that the more integrated and bicultural a foreign-born citizen is the more likely they are to achieve economic success. Plus, with the exception of highly concentrated indigenous groups, it’s worth noting the Hispanic or Latino culture is still principally European. I’ve known Spaniards who insisted Spanish culture is entirely Frankish in origin.
I do think that a special exception should exist for Nigerian Christians (with proper vetting). They’ve been experiencing what amounts to a small genocide for some time now. People forget that before the Second World War, the principle of asylum was specific to those fleeing religious or political persecution.
trade is always present, its literally there in 100% of instances across space and time. It always has some conflicting dimensions, each of which is also always present, to maximize the cooperative dimensions, there must be structures includes redundancy, diversity of firm types, and geographic plurality. So-called “free trade”, which is deep central planning is disguise, destroys trade capacity by eliminating firms and entire regions from the productive base. Cooperative protectionism, like the USA did for nearly 200 years, expanded the number of trading partners by enabling more regions and firms to exist in the first place.
I decided to revisit the period of American history known as the 'Bank War'. After having read five books on it, in order to find out what it was really about I had to pay to access a wide partisan range of papers from the time and then also look through us state level legislative records, and theres something telling about that.
The 'Bank War' was about capital formation, banking and finance regulations, and development economics. California was very close to having a development economics program applied to it that was almost the same as the one that has been applied to the Congo for the past fifty years. Complete with "regulatory harmonization", strict and nonnegotiable economic/legal structures that asserted the concepts of comparative advantage and a highly precise American continental division of labor. Well, we've seen the results in both cases.
Using Massachusetts as microcosm, Worcester Ma -- a socio-economic political community -- gaining the ability to, within limits, for the most part dictate the deployment of its own area capital led to huge investments in everything from new infrastructure and businesses and a high quality technical academy called WPI (at first a predecessor programs(s) to it) and lots else.
I do not intend to be critical, but I am curious about your mention of Worcester, Massachusetts. I have visited the city and left deeply unimpressed. Worcester Polytechnic Institute may retain some relevance, but I am uncertain of its current standing compared to the 1980s. The downtown area is economically many times poorer per capita compared to coastal Massachusetts cities. Its infrastructure appears adequate, admittedly. The new buildings in Mass Medical School certainly top notch. However, the social life in downtown Worcester seems fractured beyond repair, to the extent that one might be best advised to avoid the area. Progressive political community is another thing. It appears 'you build it and they will come' may not work out in this case. Could you please elaborate? I am clearly missing the point.
Hi Ron, thanks for the reply!! your observations actually prove my point:: the decline you witnessed in Worcester is just what one would expect after the dismantling of the decentralized capital formation structures, policy variability structures, and democratic governance structures that were established during the Jacksonian era and sustained, albeit imperfectly and with ups and downs, until actions during the advent of the so called Neoliberal Era began dismantling them between the late 1960s and 1980s. Worcester’s earlier success wasnt just happenstance, it was a product of local and regional control over financial, industrial, and educational development, conditions that enabled the founding of institutions like WPI and broad-based investment in infrastructure and industry and by extension of all that, arts and cultures as well.
What you’re seeing today is the result of the later dismantling of those very structures: capital consolidation with banking and finance centralization, fully harmonized from the center regulatory regimes, etc. that both sucked investment away from inland regions to a few dominant coastal hubs and also stripped the general population of local areas of the powers to even try and properly respond. The outcome is exactly what I described: fewer viable regions and firms, a narrower productive base, and shattered local autonomy, Worcester being a textbook example of a once thriving decentralized hub hollowed out by the very processes I’m critiquing.
It would be greatly improved if you showed how trade erodes social capital and connections, in and of itself. People claim that a fair bit, but never seem to demonstrate the mechanism.
Likewise, saying "It is entirely possible for free trade to make people worse off, even though the principle of comparative advantage operates. This is true even if the net gains for the economy as a whole are positive." as though that isn't commonly stated by every half decent economist is odd. Although an economist should be more careful and say that it is entirely possible for free trade to make SOME people worse off, even if the effect on the group on whole are net positive.
You also should note that importing bullion is not going to contribute to a trade surplus; bullion is a good like any other raw material.
It is a little strange that Russia was running on gold and silver at a time when most countries ran on copper, brass or silver. I suppose that depends on that date the author is referencing there, but it would be interesting to see why Russia was doing that.
I am also very curious what you mean by "let local communities rot." What does that mean, and what are the alternatives you envision?
If key local industries collapse due to a trade shock, then a community starts to decay. This is very obvious is rustbelt US and UK. In Australia, money was spent to help folk move to other industries. Remember, a trade shock is often really a policy shock, where the policy “rules of the game” are suddenly changed.
On the bullion point, that it is a good is my point. If you ran a trade surplus, so you were a net receiver of bullion, then that aided the monetisation of your economy,
Your point on bullion is mixing up the definition of "trade surplus", treating imports of bullion as though they were fundamentally different from imports of iron or rice. It is inconsistent to split out bullion as not being part of the goods being traded, any more than it would make sense to say "We run a trade surplus, in order that we might import more cars."
As I mentioned before, you don't need gold or silver to monetize. Many civilizations used other items for currencies, particularly internally, as the fancier metals were well beyond the kind of wealth the median person would carry around and use. There are many steps between full on barter and fiat paper.
I am from the rust belt in the US, and it really isn't that obvious that spending money to help folk move to new industries is the answer. Were the industries going to move to their towns? Otherwise those retrained folks would have to move to where the jobs are in any case. Which doesn't seem to solve the community issue you are hinting at; the people are going to disperse to different areas unless there is a reason to stay where they are. The town I grew up near made bricks and leather, industries that didn't require an external "trade shock" to stop being important enough to keep going there. Is the government going to step in and provide jobs and training every time a business goes under?
I am sympathetic to the point that "trade shocks" are often policy shocks, and usually it is random changes of the rules and regulations that change what industries are viable and which are not. However, that is a large part of the argument for free trade in the first place: capricious government rules screw with the markets and tear apart the workable systems of exchange people had established, leaving them to scramble to find new ones. You fix that by getting government out of the process as much as possible, not by encouraging more government involvement.
If you had a trade surplus, bullion flowed in. If you have a trade deficit, bullion flowed out. This was the reality of bullion standard money. And, for lots of reasons, silver made the best monetary metal prior to the C19th.
We are also talking about societies where elementary problems of social order were still a very real matter. Keeping the raider and slavers away, suppressing local bandits were very live issues. They were also societies where a lot of economic activity was both still highly localised and in-kind.
The problems of advanced, highly monetised societies are, different. I agree that much government regulation is wasteful and counter-productive. But one has to analyse historical periods according to how things actually worked, not congenial Theory. I find Marxists and Libertarians are equally prone to do that, just on the basis of different Theories.
You are mixing the modern definition of trade surplus/deficit with the trade of commodity money though. It makes zero sense to talk of a trade surplus or deficit if you are not talking about the difference between goods/services and capital/financial instruments. Fussing about trade surpluses in a modern economy doesn't make a great deal of sense, either, but it at least has a distinct meaning and we can see why it would be deleterious, or caused by something negative at any rate.
So Adam Smith was writing in the 18th century. You note that silver was relevant prior to the 19th century. Is that the time frame you are speaking of? Previously to that you hadn't actually picked a historical period you were analyzing. If you are going to pick a period we can examine that one more carefully. We should do so keeping in mind that Smith had those earlier periods in mind.
It is odd to me that you are fixating on silver as the primary or best monetary metal. Copper, often alloyed to bronze, was very common as well, especially for every day money. Why are you ignoring that while focusing on monetizing small scale trading and exchange? Copper is exactly what you want for that, not the more valuable silver.
Further, what exactly is your point with regards to the paragraph "We are also talking about societies where elementary problems of social order were still a very real matter. Keeping the raider and slavers away, suppressing local bandits were very live issues. They were also societies where a lot of economic activity was both still highly localised and in-kind"? It isn't clear to me what that has to do with choice of metal for coinage, trade accounts, community decay or the other topics touched on.
Silver was the dominant monetary metal in Asia, particularly East Asia, from relatively early on and in Europe up until 1873. It is simply what people were using, so folk sought to use it because people were using it, that is how any exchange good works.
Modern criticisms of “mercantilism” in the medieval and early modern period have been somewhat overstated, as having sufficient bullion to monetise transactions was an economic benefit. That doesn’t mean some of the Theorising about it at the time was correct: it was clearly over-stated. But that is a perennial problem with Theory.
Applying current Economic Theory that, for example, posits a highly monetised society to past societies runs into another problem, which is many transactions were not monetised. So, population growth could drive up demand, and so prices, even without any influx of money.
As for modern current and capital account matters, I agree that you need to look at both sides of the ledger, that was precisely what I was pointing out. Financialisation that means folk make money out of increasing levels of liabilities has … issues.
You should see my comment to Rather Curmudgeonly. It provides a social psychology background as to why labour doesn't necessarily reallocate as efficiently as most economists would hope, as well a study which examines the problem specifically looking at the migrant desire for cultural homogeneity at the expense of prosperity. I also provide historical examples.
As to your question of effective policy, I would suggest isn't anyway close to capitalising on the data resources available through online psychometrics, and through other systems like testing for manual handling speed and the potential for workers with high industrial ratings. In manufacturing the top 10% of workers outpace average worker productivity by x2-3, and this entails looking at existing production, where one presumes any line manager worth his salt is going to implement front end selection to eliminate the lower productivity end of a prospective workforce.
My point would be this- as a prospective entrepreneur looking to set up a new plant, I should have the information to identify potential workforces at my fingertips. Unemployment or Labour Participation stats are too crude instruments upon which to base important business decisions. I should be able to search to identify underutilised highly cognitive workers, STEM qualified workers working in offices or Starbucks. I should be able to find out with the press of a button that Flint has 2,000 potential high speed skilled operators and that there are 5,000 of the same category of worker in Baltimore.
We're stuck in the mid-Twentieth century when it comes to information about potential workforces. One of the very few good arguments for government is better data, data, data. Other than that, cheap industrial estates are the answer, but this also requires that local government not engage in rent-seeking on said industrial units, which I readily acknowledge is a bit like asking the alcoholic barfly to mind the store.
It would have been a great idea to start testing for production aptitude at the same time we started testing with e.g. the SAT, to give workers ways to demonstrate their skills. Being able to credential workers through a standardized test would make things much easier for them. It is a shame the US didn't take non-college degree requiring work seriously, but we could certainly start.
Sure, heterodox economics! It’s also one of my gripes about Western capitalism- incentives should stretch all the way down to the shop floor. They certainly do with the first generation entrepreneurs I’ve met, but tend to be far less popular with the professional management class. It’s also a problem with education more generally, when they aren’t cramming kids down a homogenous academic means of assessing personal value (leading so many to feel like born losers when they leave secondary education), they are lawnmowing the Tall Poppies which could thrive, given the right support and encouragement.
50’s Britain discovered the ideal formula for education. They devoted more resources to the top 10% and bottom 20%. They knew the top 10% were their future innovators and wealth creators, and they knew that if they didn’t equip the bottom 20% with the basic reading, writing and numeracy as well as other skills, far too many would end up in trouble with the Law. The rump was always going to thrive by means other than highly cognitive work. The Germans have probably got it right with around 30% routed into tertiary academic education, much of it of a technical nature.
Years ago I spent an afternoon watching an Undercover Boss UK, while awaiting a trip to the dentist to have a tooth drilled for a crown. It featured a finance director going undercover to discover why one static caravan site supervisor for cleaning services was paying twice the normal rate for cleaners compared to the rest of the company. She was advertising in the local paper (with hourly rates included), applied stringent work trials to applicants and had weekly team meetings which functioned as a crude method study, sharing ideas for continuous improvement. She was basically doing the job of an industrial engineering consultant specialising in time & motion plus leading a team. The finance director promoted her to head office, and put her in charge of national recruitment and training for cleaning services. The company probably made a mint.
Although the cleaners were getting paid twice as much, they were doing four times as much work, at high quality. Even though I was working as a junior member of a management team in manufacturing at the time the show had a profound effect on me. All because I needed a tooth crowned!
Western societies thrive because markets inherently favour heterodox economics, yet our schools are still churning out kids as though they are destined to fulfil clerical roles in huge offices. It’s basically a formula for post-Soviet socialism, guaranteed to create unhappiness and discontent, the only purpose of which is fill the universities and expose kids to a debt barrier to entrepreneurship.
Your point about work performance is well-taken, and it applies to both manual and white-collar jobs, where the Pareto principle yields an even greater multiplier effect. AI has already begun to disrupt the demand for most college-graduate jobs, as many spaceholders are becoming redundant. This development is an unexpected twist compared to expectations five years ago.
I responded to a couple of the comments which probably annoyed you on the Lorenzo from Oz 'Unlearning false simplicities within mainstream Economics' thread. I hope you like the responses.
### A Critical Perspective on Australia's Superiority Narrative
I am highly skeptical of the narrative that Australia is vastly superior to America. While there are certainly areas where we excel, we must avoid becoming too self-congratulatory about our system.
The relatively smooth implementation of our neoliberal reforms can be attributed, in part, to the dire state of our economy in the 1980s. As Lee Kuan Yew once remarked, "Australia risks being the white trash of Asia." The 1980s marked the fastest period of economic growth in our nation's history, and the reforms that facilitated this boom were widely accepted due to the desperate need for change.
Furthermore, America's social spending as a percentage of GDP is higher than that of Australia. This fact challenges the notion that America has done less to support those adversely affected by free trade.
A closer examination of our economic landscape reveals that the concentration of economic activity is much higher than it was in the 1980s, and it is also higher relative to the UK and America. What exactly has Australia done to address this issue?
The main reason globalisation hasn't been controversial in our regions is also because they directly benefitting from it. Our export basket is primarily composed of unprocessed commodities sold to Asia, and our regions benefit from a regular influx of holiday workers from the continent. This advantage is largely due to natural endowments rather than enlightened policymaking.
Our financial regulation, while hypothetically mitigating risks, is not without its costs. If someone had predicted after World War II that two countries in the Asia-Pacific region would leverage their English language skills and British legal system to become the financial and business hubs of Asia, one might have assumed they were referring to Australia and New Zealand. However, it was Hong Kong and Singapore that seized this opportunity, as we remained closed-off economies during this period. Even today, many judges in Hong Kong are from Australia.
Additionally, while there is discussion about the Dutch disease caused by the financial sector, a comparison of export baskets clearly shows which country in the Anglosphere is actually suffering from this phenomenon. As opposed to the hypothetical problems caused by "financialisation", our Dutch disease is causing real problems for Australia. Although we have always been less productive than the USA, we were catching up in the 1990s. However, we have fallen behind in the 2010s, with the USA even surpassing us in natural gas exports as we stifle investment in our sector. While we failed to break into advanced manufacturing, we were performing well in services exports in the 1990s and 2000s. But the massive expansion of the mining sector in the 2010s essentially wiped out our comparative advantage.
In conclusion, Australia is indeed a good place to live, but we must stop being so complacent by focusing on the weaknesses of a country on the other side of the world. We Australians have developed an unhealthy obsession with America, and it is time to shift our focus inward, addressing our own challenges and opportunities.
I am making a relative, not an absolute, comment. The reality is that there is a lot we do better than the US, and it shows. That being said, there are also plenty of attempts going on to degrade or throwaway hard earned advantages. Our recent productivity problems are a danger sign, our housing/land use regulation is noxious and some spectacularly bad energy policies are being pushed.
"Anthropologists call personal connections relational wealth precisely because they are valuable assets. They definitely add to the resilience of individuals and networks—that is, they increase the ability to respond effectively to changes in circumstances."
This appears to be Lorenzo's dot connection #3792. Would you believe me if I said I was really keeping count? :-)
As an introverted child, teenager, and adult, I missed the life memo that it is just as important who you know as what you know. That part of the value of any college, but especially the higher quality ones, was the set of people you would meet, their capabilities and connections, and how your (reciprocal) networking with them would be beneficial to you short or long term.
As a retiree, your networks can also collapse back into a much smaller group unless you make strenuous efforts to maintain them or create new ones.
If possible, I wanted to ask if you could explain some of the policies Australia used to weather the shocks from opening up more? I don't know much about these but wanted to learn - thank you.
One was the Button Car Plan. There were also various training packages. The success was a bit hit and miss, but the main point was the Government acknowledging there would be losers from the shift to free trade and being seen to try and do something about it. Part of what that does it get folk thinking about what to do at various levels of government and society.
https://en.wikipedia.org/wiki/Button_car_plan
I’m glad you pointed out the effects of currency manipulation. China is a master of this as I pointed out in my article:
https://www.americaoutloud.news/who-started-the-trade-war-china-or-trump/
"... [the term] Exchange good also separates out using money in exchange for output (goods and services) from holding money as an asset. An economy with sufficient access to a useful exchange good will be larger—have more transactions—than one that does not." I am still trying to come to grips with the idea that money as a "store of value" is not really necessary, based on [a just now revisited] essay you had with Nick Rowe back in 2012. It seemed you did not accept that idea then as strongly as you have more recently, even as you still endorsed that a distinction be made.
[Thus, my continued ignorance is partly your fault!! :-) ]
But thinking about separating money as a medium of account from a medium of exchange, I came up with the image of my usual credit card transactions, where I leave the store with my recently purchased "wealth" and a paper receipt. The "medium of account" ends up being a piece of paper with some ink on it, containing the information about supplier, date, time, amount, etc. But the paper is simply a parallel representation of the virtual info transaction, and the real medium of account includes that information. And really that the transaction has occurred in dollars.
When it comes to money as an asset with its own somewhat separate influences on market expectations, etc., I am still struggling to grasp your views on that vs. the continued image of a store of value [such that the unit of account should be maintained at as stable a value as possible, regardless of what subjective changes occur in valuations of their wealth by the holders of that money, or the wider marketplace. ]
If I have missed the intellectual boat here, please keep up your efforts to remove false simplifications of the economics regime, including your political/social aspects.
My views on money have been evolving. Money as an asset is simply money you do not use in the current time period.
It's a thorny subject, but I'd be interested to know your opinion, or read about the intersection with taxation, both at the individual and corporate level. I think this is one of the hidden icebergs of our [financialized] epoch.
One of the issues the debate about globalization MSM conveniently never discusses is the use and abuse of taxation. High net worth individuals (HNWIs) and corps (MNCs) can afford legions of professionals who run rings around all national IRS. If memory serves me right there was a scandal (gosh!) in Australia not too far back with KPMG (or another of the big 4) writing both govt policy and being the consultants to take advantage of how to circumvent it.
This ties into your points 3 & 4, in terms of screwing over local/national entities and reducing resilience.
It's a topsy-turvy world out there, and this divide between the plumbing of how the world really works (rarely discussed) and the narratives constructed to suit agendas and interests, etc, if the curtain ever gets pulled back ... What a mess we're in!
Arguing about tax avoidance by the rich obscures two more fundamental problems with taxation in the modern economy.
Firstly it primarily targets income & consumption rather than wealth - despite the fact that the latter has been running away from mainstream earnings for some time. There would be no way out of avoiding taxes if they fell upon end-repository of where money goes. Secondly passive rent-seeking and speculation are incentivised over authentically productive investment and labour.
Both of the above are perfectly summed up to the housing bubble (although it has other contributing factors). The ultimate financial goal in Australia seems to be to set yourself up as a rentier rather than achieve something and receive reward for it - especially something that boosts the welfare of your fellow citizens).
True, but you need to start from somewhere. The theme of the essay was globalization.
If you research the theme I originally wrote, all the trusts and cross border legal jurisdictions holding cover for "end-repository" will jump out.
To me, the issues you identify are downstream of a debt based monetary system (fractional banking, usury), incentivizing assets, valuation bubbles and what not. Financialization has misaligned incentives, hence the feudal shit-show. For instance, private equity buyouts were made illegal in the US after '29 and brought back in '86 (Reagan's advisors hollowed out the rules without retracting legislation, it was a brilliant yet underhand move).
"Yes, it might well be true—indeed, probably is true—that the net economic gain to an economy is greater than all those costs, but if the pattern of gains and losses are such that one group gets most of the gains and another group most of the losses, then free trade will be not only economically disruptive, it will be socially and politically disruptive as well."
Congratulations, you have restated Calhoun's argument against 19th century American tariffs as a case against free trade. Your gross conceptual error is in the causation. Schumpeter didn't invent the notion of creative destruction, he just explained it best, and all trade - whether domestic or foreign - is part of that process. The destruction aspect, so often overlooked by conservatives (who tend to be capitalism's greatest apologists) is exactly what you are talking about, and he never confined it to simply the outcomes of the market, but that it implied other social phenomena. A good case of that is the mass entry of women into the wage-labor economy, in the 70s and 80s. Hmmm.
I believe Jane Jacobs first used the phrase "social capital" and she was no economist (which is to her credit). Honestly, I've never heard an economist address it; as you note they classically (if not dogmatically) view all individuals as rationalizing maximizers that will seek out opportunities where the opportunities are and not just in their own locale. American mobility (the great expansion westward) was a myth they could lean on, whereas the Brits bought peace amongst the unemployed with the dole (preserving local connections and crippling labor mobility that might honestly have been tapped).
The international rules based order on trade wasn't an American shift in the 70s, it was the product of American hegemony post WWII. What changed was that instead of dealing with devastated (then recovering) trading partners, by the late 60s, the output of those economies were soaring past the U.S. (which was still riding on the labor-capital accords of the 50s). Combined with the mobility of capital (but not labor) and the better returns to that capital in non-local opportunities (the sunbelt vice the rustbelt, and internationally), industrial decay set in and community decay (urban or not) quickly followed.
It is also fair to point out that Australia never had a large pool of cheap, easily imported labor sitting right on its border. Equally, the export of that labor from Mexico (and the repatriation of the proceeds of Mexican labor in the U.S. economy) was a safety valve that allowed Mexico to maintain political stability that it couldn't have otherwise.
Glenn Loury developed the idea of social capital in his original PhD dissertation.
https://glennloury.substack.com/p/what-is-social-capital
Creative destruction can take place in a completely autarkic economy. There can certainly expected to be more of it in an open economy, but it is not a matter of trade per se. But much of the disruptions of trade can come from it being as much a policy shock as a trade shock—from the sudden change in the policy “rules of the game”.
Why US workers should be expected to pay to stabilise Mexico is surely a good question. Also, Mexico was, in fact, remarkably politically stable prior to the 1965 changes in US migration and then NAFTA. Rather too stable, in fact. NAFTA had the effect of opening up their politics: it was disruptive in a good way.
What crippled UK labour mobility was public housing plus very restrictive land use regulation.
There was various waves of increased free trade post 1945 due to the various GATT and WTO negotiation rounds. In Australia, there was a sharp shift towards free trade under the Whitlam (1972-5) and Hawke-Keating Governments (1983-1996). Just as there was in the US with Clinton and NAFTA (1994) and, in a more mixed way, with the UK entry to the EEC in 1973.
Ms. Jacobs pre-dates Dr. Loury's work by a few decades. She was publishing while he was still an undergrad.
https://www.tandfonline.com/doi/full/10.1080/09654310600779444#d1e246
But credit to him for his heterodox approach, which he still hews to. It isn't surprising you would cite him and not any of a dozen other equally or better known economists.
The political stability of Mexico was accomplished by siphoning off the aspiring class of workers and exporting them to the U.S., where they subsequently repatriated some of their earnings. This was both economically and socially valuable to the Mexican elite - they got money into the economy and got rid of potential political disruptors. Those Mexican immigrants would benefit politically from the Reagan amnesty which normalized them. And you are crediting NAFTA which is an after-effect from the era we were talking about. The devolution of the PRI in Mexico is a multi-faceted story, some parts of which we may be touching on, but hardly the whole story.
I give David Card a kicking for being blind to social capital here.
https://www.lorenzofromoz.net/p/the-migration-scam
It has been a bit of a theme of mine, the way so much of mainstream Economics does not pay attention to social capital. But also failure to acknowledge how much culture matters—though the long-term economic growth literature is now beginning to take the latter seriously.
The visas that allowed folk to seasonally in the US clearly helped Mexico.
You make some lucid points in this and your later comment. However, it all hinges upon the unfounded belief in homo economicus, and pays no attention whatsoever to what social psychology teaches us about ingroup and the desire to maintain social capital and community at the expense of economic self-interest. Put simply, only around one third of labour with reallocate their labour if it involves moving away from community and geographical location.
You point about welfare is well-taken, but this is at best a soft incentive, the absence of which might make a small percentage difference in labour reallocation rates at the margins, but isn't really decisive. There are numerous examples from history. The refusal to urbanise on the part of rural communities during the Industrial Revolution, a feat which was only achieved gradually over generations. The Great Migration. The Great Famine in Ireland is perhaps the best example- it showed that in many instances people would rather starve than relocate. Sure, lack of funds was an issue, but not a decisive one. Relocation to Britain was a cheaper option. 4-5 million stayed in Ireland. 1 million died. 1-2 million emigrated to America. 300-400,000 relocated to mainland Britain.
This also happens to have profound implications in terms of migration and future economic prosperity. This Dutch economic study on three waves of migration to the Netherlands shows that migrants will choose to working within their communities at lower pay rather than shift upwards in pursuit of economic opportunity, even to the point of enduring periods of unemployment. People have a natural tendency to want to self-segregate into culturally homogenous communities with people who share their values and customs, even in the absence of economic factors like poverty.
The world is not as those with the neoliberal or cosmopolitan mindset would wish it to be, primarily because the people who populate it will never act in their rational economic self-interest, preferring psychic profits to real ones once basic needs are met. And it's not a problem which can easily be 'fixed'. The literature on ingroup shows that its formed during early childhood, largely a matter of parental education background, peer group and socioeconomic status, and cannot really be reprogrammed once in place (although corporate teambuilding and strong ingroup institutions like the military can impart a new ingroup, which mitigates the social barriers ingroup imposes, and youth volunteer programs, specifically designed for the blue collar class to impart skills, might encourage greater labour mobility).
Universities can help, but they naturally select for the third of the population more open to new experiences. The most worrying thing of all it that there are probably polygenic factors and high ingroup (or social conservativism) is associated with physiological brain differences. Although other parts of the research studying brain differences didn't survive replication, the research on amygdala size and high ingroup/social conservatism was successfully replicated.
Think about that. You're arguing against natural human preferences which manifest at the physical and biological layer. People are different and many of those differences are ingrained. It's not a matter of experience or education, but a bone-deep expression of irreconcilable differences in outlook and viewpoint. In real life, Shirley Valentine was more than two-thirds likely to find herself on the receiving end of a divorce.
https://link.springer.com/article/10.1007/s00168-019-00953-8#Tab4
I am obviously influenced by being an American, and with that the American history of immigration and assimilation, which only has a reasonable parallel in Australia and not in any part of Europe. That history is the movement of people who had aspirations to both prosperity (the economic factor) and liberty (political/cultural). I've tended to interpret that as the U.S. was a place for people that were misfits in their own societies, as not every single person in any culture wants to conform to the whole package. The more rigid a given culture is, the more difficult it is for those who don't conform.
It is easy to say that immigrants to Europe don't assimilate and instead self-segregate; yet there isn't a nation/culture in Europe that encourages them to do so. Germany's use of Turkish migrant labor was never meant to establish a Turkish subpopulation, though it did and the cultural discontinuity exists to this day. Immigrants to the U.S. did establish enclaves, but those mostly supported the most recent immigrants. They did not for the most part become multi-generational and they never were outposts of resistance to American society (economically or culturally).
Sure, I agree with you- to a degree. But it's worth noting that if one looks at economic growth in America, then GDP rises during periods of inward migration, but GDP per capita rises during the stricter periods. It's also the case that productivity growth is about twice as high during tight labour market periods, when employers worry over labour supply. I can make an educated guess from my experiences- most entrepreneurs heavily prioritise expansion, especially in terms of sales and market penetration. They aren't going to push money which boosts productivity but little else, unless they feel the supply of labour is either a threat or a limit on their ability to expand. The x2 productivity growth is well supported by several sources.
More generally, it's worth checking out this Google Zeitgeist talk by Niall Ferguson entitled A Recipe for Populism. He looked back into American history and found that America had experienced populism four times (not sure whether this includes Trump) and in each instance the rate of foreign-born citizens had risen above 14% with economic downturns another an ingredient which caused the populism.
I don't disagree with you. America seems to have a higher threshold for heterodox or multicultural culture than most European countries, especially the Non-Western ones. But the fact remains that prior to Trump every time foreign-born citizens rose about 14% and populism emerged, with conventional politicians defanging the populist movement by imposing strict immigration controls. It's a testament to modern American culture that curbing legal migration is far less popular. However, is does appear that the ground is shifting somewhat- a 2024 Gallup poll found 55% of Americans want to decrease overall immigration (legal and illegal), the highest in two decades, up from 41% in 2021.
With regard to self-segregation, the benchmark is to look and see what percentage of American communities don't possess a clear majority subculture/ethnicity with a neighbourhood less than 60% composed of one cultural group. I couldn't find studies on that threshold, but Grok was able to find this- a 2010 study of no-majority communities (no group >50%) found they comprised ~10% of U.S. census tracts, concentrated in metro areas like San Jose and Dallas.
https://www.youtube.com/watch?v=bSLEGafuEd4&t=18s
"... a 2024 Gallup poll found 55% of Americans want to decrease overall immigration (legal and illegal), ..."
I suspect much of this involves a lower level of cultural and language assimilation by Hispanics over other groups. Not that some levels of assimilation are not occurring, but I still find it jarring after all this time that we can see multi-language signs and labels, "press 8 for Spanish", find people speaking Spanish outside the home in public, (and for me) minor problems with hearing accents, etc. Perhaps there is also a bifurcation in attitude towards work, with one subgroup working very hard for the money and remittances to send home, and another group soaking up welfare as much as possible. And their relative volume is higher than other waves of immigration, thus making assimilation less and less necessary for success.
The illegality and the impacts on wage scales at the lower end for whites, blacks, women, and legal Hispanics also play a role.
But this resistance is not ethnic or racial, per se.
Sure, I’ve been arguing the economic side of the argument for considerably longer. Many people are simply too proud to admit a deep sense of economic insecurity, so their complaints might manifest differently. There is a great Angus Deaton clip I will link. The other thing the pundit and anchor class doesn’t realise is that the ability to detect dissembling is no way correlated with IQ. If anything, the highly educated have a ‘people-like-us’ blind spot when it comes to experts.
The more aggressive ‘just-be-yourself’ type of multiculturalism is a real problem, if for no better reason that the more integrated and bicultural a foreign-born citizen is the more likely they are to achieve economic success. Plus, with the exception of highly concentrated indigenous groups, it’s worth noting the Hispanic or Latino culture is still principally European. I’ve known Spaniards who insisted Spanish culture is entirely Frankish in origin.
I do think that a special exception should exist for Nigerian Christians (with proper vetting). They’ve been experiencing what amounts to a small genocide for some time now. People forget that before the Second World War, the principle of asylum was specific to those fleeing religious or political persecution.
trade is always present, its literally there in 100% of instances across space and time. It always has some conflicting dimensions, each of which is also always present, to maximize the cooperative dimensions, there must be structures includes redundancy, diversity of firm types, and geographic plurality. So-called “free trade”, which is deep central planning is disguise, destroys trade capacity by eliminating firms and entire regions from the productive base. Cooperative protectionism, like the USA did for nearly 200 years, expanded the number of trading partners by enabling more regions and firms to exist in the first place.
I decided to revisit the period of American history known as the 'Bank War'. After having read five books on it, in order to find out what it was really about I had to pay to access a wide partisan range of papers from the time and then also look through us state level legislative records, and theres something telling about that.
The 'Bank War' was about capital formation, banking and finance regulations, and development economics. California was very close to having a development economics program applied to it that was almost the same as the one that has been applied to the Congo for the past fifty years. Complete with "regulatory harmonization", strict and nonnegotiable economic/legal structures that asserted the concepts of comparative advantage and a highly precise American continental division of labor. Well, we've seen the results in both cases.
Using Massachusetts as microcosm, Worcester Ma -- a socio-economic political community -- gaining the ability to, within limits, for the most part dictate the deployment of its own area capital led to huge investments in everything from new infrastructure and businesses and a high quality technical academy called WPI (at first a predecessor programs(s) to it) and lots else.
I do not intend to be critical, but I am curious about your mention of Worcester, Massachusetts. I have visited the city and left deeply unimpressed. Worcester Polytechnic Institute may retain some relevance, but I am uncertain of its current standing compared to the 1980s. The downtown area is economically many times poorer per capita compared to coastal Massachusetts cities. Its infrastructure appears adequate, admittedly. The new buildings in Mass Medical School certainly top notch. However, the social life in downtown Worcester seems fractured beyond repair, to the extent that one might be best advised to avoid the area. Progressive political community is another thing. It appears 'you build it and they will come' may not work out in this case. Could you please elaborate? I am clearly missing the point.
Hi Ron, thanks for the reply!! your observations actually prove my point:: the decline you witnessed in Worcester is just what one would expect after the dismantling of the decentralized capital formation structures, policy variability structures, and democratic governance structures that were established during the Jacksonian era and sustained, albeit imperfectly and with ups and downs, until actions during the advent of the so called Neoliberal Era began dismantling them between the late 1960s and 1980s. Worcester’s earlier success wasnt just happenstance, it was a product of local and regional control over financial, industrial, and educational development, conditions that enabled the founding of institutions like WPI and broad-based investment in infrastructure and industry and by extension of all that, arts and cultures as well.
What you’re seeing today is the result of the later dismantling of those very structures: capital consolidation with banking and finance centralization, fully harmonized from the center regulatory regimes, etc. that both sucked investment away from inland regions to a few dominant coastal hubs and also stripped the general population of local areas of the powers to even try and properly respond. The outcome is exactly what I described: fewer viable regions and firms, a narrower productive base, and shattered local autonomy, Worcester being a textbook example of a once thriving decentralized hub hollowed out by the very processes I’m critiquing.
Thank you, I am in complete agreement.
Money isn’t everything.
💀 - a wall of these for instance would make an excellent tariff on economists.
You want resiliency.
Trust hard experience.
This is not your best work, I am afraid.
It would be greatly improved if you showed how trade erodes social capital and connections, in and of itself. People claim that a fair bit, but never seem to demonstrate the mechanism.
Likewise, saying "It is entirely possible for free trade to make people worse off, even though the principle of comparative advantage operates. This is true even if the net gains for the economy as a whole are positive." as though that isn't commonly stated by every half decent economist is odd. Although an economist should be more careful and say that it is entirely possible for free trade to make SOME people worse off, even if the effect on the group on whole are net positive.
You also should note that importing bullion is not going to contribute to a trade surplus; bullion is a good like any other raw material.
It is a little strange that Russia was running on gold and silver at a time when most countries ran on copper, brass or silver. I suppose that depends on that date the author is referencing there, but it would be interesting to see why Russia was doing that.
I am also very curious what you mean by "let local communities rot." What does that mean, and what are the alternatives you envision?
If key local industries collapse due to a trade shock, then a community starts to decay. This is very obvious is rustbelt US and UK. In Australia, money was spent to help folk move to other industries. Remember, a trade shock is often really a policy shock, where the policy “rules of the game” are suddenly changed.
On the bullion point, that it is a good is my point. If you ran a trade surplus, so you were a net receiver of bullion, then that aided the monetisation of your economy,
Your point on bullion is mixing up the definition of "trade surplus", treating imports of bullion as though they were fundamentally different from imports of iron or rice. It is inconsistent to split out bullion as not being part of the goods being traded, any more than it would make sense to say "We run a trade surplus, in order that we might import more cars."
As I mentioned before, you don't need gold or silver to monetize. Many civilizations used other items for currencies, particularly internally, as the fancier metals were well beyond the kind of wealth the median person would carry around and use. There are many steps between full on barter and fiat paper.
I am from the rust belt in the US, and it really isn't that obvious that spending money to help folk move to new industries is the answer. Were the industries going to move to their towns? Otherwise those retrained folks would have to move to where the jobs are in any case. Which doesn't seem to solve the community issue you are hinting at; the people are going to disperse to different areas unless there is a reason to stay where they are. The town I grew up near made bricks and leather, industries that didn't require an external "trade shock" to stop being important enough to keep going there. Is the government going to step in and provide jobs and training every time a business goes under?
I am sympathetic to the point that "trade shocks" are often policy shocks, and usually it is random changes of the rules and regulations that change what industries are viable and which are not. However, that is a large part of the argument for free trade in the first place: capricious government rules screw with the markets and tear apart the workable systems of exchange people had established, leaving them to scramble to find new ones. You fix that by getting government out of the process as much as possible, not by encouraging more government involvement.
If you had a trade surplus, bullion flowed in. If you have a trade deficit, bullion flowed out. This was the reality of bullion standard money. And, for lots of reasons, silver made the best monetary metal prior to the C19th.
We are also talking about societies where elementary problems of social order were still a very real matter. Keeping the raider and slavers away, suppressing local bandits were very live issues. They were also societies where a lot of economic activity was both still highly localised and in-kind.
The problems of advanced, highly monetised societies are, different. I agree that much government regulation is wasteful and counter-productive. But one has to analyse historical periods according to how things actually worked, not congenial Theory. I find Marxists and Libertarians are equally prone to do that, just on the basis of different Theories.
You are mixing the modern definition of trade surplus/deficit with the trade of commodity money though. It makes zero sense to talk of a trade surplus or deficit if you are not talking about the difference between goods/services and capital/financial instruments. Fussing about trade surpluses in a modern economy doesn't make a great deal of sense, either, but it at least has a distinct meaning and we can see why it would be deleterious, or caused by something negative at any rate.
So Adam Smith was writing in the 18th century. You note that silver was relevant prior to the 19th century. Is that the time frame you are speaking of? Previously to that you hadn't actually picked a historical period you were analyzing. If you are going to pick a period we can examine that one more carefully. We should do so keeping in mind that Smith had those earlier periods in mind.
It is odd to me that you are fixating on silver as the primary or best monetary metal. Copper, often alloyed to bronze, was very common as well, especially for every day money. Why are you ignoring that while focusing on monetizing small scale trading and exchange? Copper is exactly what you want for that, not the more valuable silver.
Further, what exactly is your point with regards to the paragraph "We are also talking about societies where elementary problems of social order were still a very real matter. Keeping the raider and slavers away, suppressing local bandits were very live issues. They were also societies where a lot of economic activity was both still highly localised and in-kind"? It isn't clear to me what that has to do with choice of metal for coinage, trade accounts, community decay or the other topics touched on.
Silver was the dominant monetary metal in Asia, particularly East Asia, from relatively early on and in Europe up until 1873. It is simply what people were using, so folk sought to use it because people were using it, that is how any exchange good works.
Modern criticisms of “mercantilism” in the medieval and early modern period have been somewhat overstated, as having sufficient bullion to monetise transactions was an economic benefit. That doesn’t mean some of the Theorising about it at the time was correct: it was clearly over-stated. But that is a perennial problem with Theory.
Applying current Economic Theory that, for example, posits a highly monetised society to past societies runs into another problem, which is many transactions were not monetised. So, population growth could drive up demand, and so prices, even without any influx of money.
As for modern current and capital account matters, I agree that you need to look at both sides of the ledger, that was precisely what I was pointing out. Financialisation that means folk make money out of increasing levels of liabilities has … issues.
You should see my comment to Rather Curmudgeonly. It provides a social psychology background as to why labour doesn't necessarily reallocate as efficiently as most economists would hope, as well a study which examines the problem specifically looking at the migrant desire for cultural homogeneity at the expense of prosperity. I also provide historical examples.
As to your question of effective policy, I would suggest isn't anyway close to capitalising on the data resources available through online psychometrics, and through other systems like testing for manual handling speed and the potential for workers with high industrial ratings. In manufacturing the top 10% of workers outpace average worker productivity by x2-3, and this entails looking at existing production, where one presumes any line manager worth his salt is going to implement front end selection to eliminate the lower productivity end of a prospective workforce.
My point would be this- as a prospective entrepreneur looking to set up a new plant, I should have the information to identify potential workforces at my fingertips. Unemployment or Labour Participation stats are too crude instruments upon which to base important business decisions. I should be able to search to identify underutilised highly cognitive workers, STEM qualified workers working in offices or Starbucks. I should be able to find out with the press of a button that Flint has 2,000 potential high speed skilled operators and that there are 5,000 of the same category of worker in Baltimore.
We're stuck in the mid-Twentieth century when it comes to information about potential workforces. One of the very few good arguments for government is better data, data, data. Other than that, cheap industrial estates are the answer, but this also requires that local government not engage in rent-seeking on said industrial units, which I readily acknowledge is a bit like asking the alcoholic barfly to mind the store.
It would have been a great idea to start testing for production aptitude at the same time we started testing with e.g. the SAT, to give workers ways to demonstrate their skills. Being able to credential workers through a standardized test would make things much easier for them. It is a shame the US didn't take non-college degree requiring work seriously, but we could certainly start.
Sure, heterodox economics! It’s also one of my gripes about Western capitalism- incentives should stretch all the way down to the shop floor. They certainly do with the first generation entrepreneurs I’ve met, but tend to be far less popular with the professional management class. It’s also a problem with education more generally, when they aren’t cramming kids down a homogenous academic means of assessing personal value (leading so many to feel like born losers when they leave secondary education), they are lawnmowing the Tall Poppies which could thrive, given the right support and encouragement.
50’s Britain discovered the ideal formula for education. They devoted more resources to the top 10% and bottom 20%. They knew the top 10% were their future innovators and wealth creators, and they knew that if they didn’t equip the bottom 20% with the basic reading, writing and numeracy as well as other skills, far too many would end up in trouble with the Law. The rump was always going to thrive by means other than highly cognitive work. The Germans have probably got it right with around 30% routed into tertiary academic education, much of it of a technical nature.
Years ago I spent an afternoon watching an Undercover Boss UK, while awaiting a trip to the dentist to have a tooth drilled for a crown. It featured a finance director going undercover to discover why one static caravan site supervisor for cleaning services was paying twice the normal rate for cleaners compared to the rest of the company. She was advertising in the local paper (with hourly rates included), applied stringent work trials to applicants and had weekly team meetings which functioned as a crude method study, sharing ideas for continuous improvement. She was basically doing the job of an industrial engineering consultant specialising in time & motion plus leading a team. The finance director promoted her to head office, and put her in charge of national recruitment and training for cleaning services. The company probably made a mint.
Although the cleaners were getting paid twice as much, they were doing four times as much work, at high quality. Even though I was working as a junior member of a management team in manufacturing at the time the show had a profound effect on me. All because I needed a tooth crowned!
Western societies thrive because markets inherently favour heterodox economics, yet our schools are still churning out kids as though they are destined to fulfil clerical roles in huge offices. It’s basically a formula for post-Soviet socialism, guaranteed to create unhappiness and discontent, the only purpose of which is fill the universities and expose kids to a debt barrier to entrepreneurship.
Your point about work performance is well-taken, and it applies to both manual and white-collar jobs, where the Pareto principle yields an even greater multiplier effect. AI has already begun to disrupt the demand for most college-graduate jobs, as many spaceholders are becoming redundant. This development is an unexpected twist compared to expectations five years ago.
I responded to a couple of the comments which probably annoyed you on the Lorenzo from Oz 'Unlearning false simplicities within mainstream Economics' thread. I hope you like the responses.