Published on 15 Jul 2017
It started with famine… and ended with four great civilizations’ utter destruction. The Bronze Age Collapse is still a matter of scholarly debate, but our favorite theory rests on an understanding of Systems Collapse and how societies build themselves to survive disaster.
July 17, 2017
The Bronze Age Collapse – IV: Systems Collapse – Extra History
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July 16, 2017
QotD: The value of price controls in World War 2
In World War II price controls [in the United States] were administered by the Office of Price Administration (OPA). I have been present at discussions where serious attempts were made to assess the OPA’s damage to the Allied cause, measured in terms of the equivalent number of German panzer divisions. The estimates tended to be large.
Steven Landsburg, The Armchair Economist, 2012 revised edition.
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July 12, 2017
The Bronze Age Collapse – II: The Wheel and the Rod – Extra History
Published on Jul 1, 2017
Bronze Age societies built intricate networks of trade, advanced military infrastructure, and hugely organized central governments. But when crucial parts of those systems began to disappear, the societies built on them began to crumble.
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July 10, 2017
“Jane Jacobs was fatal to conventional wisdom”
In Reason, Sam Staley reviews Vital Little Plans: The Short Works of Jane Jacobs, edited by Samuel Zipp and Nathan Storring, calling it “Jane Jacobs in her own words”:
In her books, articles, and activism, [Jacobs] destroyed the 20th century urban planning groupthink and laid out a radically different way of thinking about cities and society — one that rejected the prescriptive and centralized approach that dominated the planning profession, and one that instead highlighted how decentralized, market-driven decisions lay the foundation for vibrant and sustainable cities.
A journalist rather than an academic, Jacobs worked regular gigs at Iron Age and Architectural Forum and contributed to popular magazines such as Vogue and Harper’s. By the time she took a leave of absence from Architectural Forum to write what remains her most iconic book, The Death and Life of Great American Cities (1961), Jacobs was already starting to acquire a reputation as a fierce critic of conventional top-down planning.
She was not opposed to planning per se. Indeed, she believed small-scale plans were vital to cities’ sustenance. Neighborhood parks were essential to urban vitality, for example, and their location required planning to be successful. But to work, planning — and governance in general — needed to be devolved to the neighborhood level, moving away from large-scale systems that concentrate authority and power. Jacobs was thus an ardent critic of regional planning and regional government. Regionalizing, or “amalgamating,” made city government too far removed from the governed.
[…]
During the 1950s and ’60s, Jacobs used her position at Architectural Forum to examine urban development and redevelopment. Though the magazine championed modernist city planning, Jacobs emerged as one of modern planning’s chief critics during her stint there. Her journey from urban observer to planning critic began, as Zipp and Storring point out, as she examined how buildings, and then cities, worked rather than how they looked or were designed to function.
In the process, she started to develop her critique. “Philadelphia’s Redevelopment: A Progress Report” (July 1955) reviews the city’s redevelopment plans for 10,000 blighted acres. The city avoided large-scale slum clearing — what economist Martin Anderson would call “the federal bulldozer” a few years later — but still targeted large swaths of land for redevelopment using “a busybody concern with what private developers will be up to next.” (It wasn’t all bad, though: She lauded the city for incorporating some neighborhood features that reinforce such institutions as churches, schools, and playgrounds.) Another Forum column discusses the difference between “pavement pounders” — planners who walk around cities and neighborhoods to get a feel for the urban fabric and dynamic — and “Olympians,” those who plan based on maps and statistics. Her appreciation for small businesses as the glue that holds neighborhoods together comes out in “The Missing Link in City Redevelopment” (June 1956), where she laments the tendency to think of businesses merely as storefronts or spaces, not as enterprises that also serve as social centers and community anchors.
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May 7, 2017
The Importance of Institutions
Published on 2 Feb 2016
In today’s video, we discuss a topic critical to understanding economic growth: the power of institutions.
To better shed light on this, we’re going to look at an example that’s both tragic and extreme.
In 1945, North and South Korea were divided, ending 35 years of Japanese colonial rule over the Korean peninsula. From that point, the two Koreas took dramatically different paths. North Korea went the way of communism, and South Korea chose a relatively capitalistic, free market economy.
Now — what were the results of those choices?
In the ensuing decades after 1945, South Korea became a major car producer and exporter. The country also became a hub for music (any K-pop fans out there?), film, and consumer products. In stark contrast, North Korea’s totalitarian path resulted in episodes of famine and starvation for its people.
In the end, South Korea became a thriving market economy, with the living standards of a developed country. North Korea on the other hand, essentially became a militarized state, where people lived in fear.
Why such an extreme divergence?
It all comes down to institutions.
When economists talk about institutions, they mean things like laws and regulations, such as property rights, dependable courts and political stability. Institutions also include cultural norms, such as the ones surrounding honesty, trust, and cooperation.
To put it another way, institutions guide a country’s choices — which paths to follow, which actions to take, which signals to listen to, and which ones to ignore.
More importantly, institutions define the incentives that affect all of our lives.
Going back to our example, in the years after 1945, North and South Korea took dramatically different institutional paths.
In South Korea, the institutions of capitalism and democracy, promoted cooperation and honest commercial dealing. People were incentivized to produce goods and services to meet market demand. Businesses that did not meet demand were allowed to go bankrupt, allowing the re-allocation of capital towards more valuable uses.
Against that grain, North Korea’s institutions produced starkly different incentives. The totalitarian regime meant that the economy was centrally planned and directed. Most entrepreneurs didn’t have the freedom to keep their own profits, resulting in few incentives to do business. Farmers also didn’t have enough incentive to grow sufficient food to feed the population. This was due in part to price controls, and a lack of property rights.
As for capital, it was allocated by the state, mostly towards political and military uses. Instead of going towards science, or education, or industrial advancement, North Korea’s capital went mostly towards outfitting its army, and making sure that the ruling party remained unopposed.
And now, look at how different the two countries are as a result of those differing institutions.
When it comes to economic growth, institutions are critically important. A country’s institutions can have huge effects on long-term growth and prosperity. Good institutions can help turn a country into a growth miracle. Bad institutions can doom a country to economic disaster.
The key point remains: institutions are important.
They represent the choices that a country makes, and as the Korean peninsula shows you, choices on this scale can have staggering effects on a nation’s present, and future.
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April 18, 2017
In WW1, the United States “was not fighting for survival. It was fighting for an ideal.”
Reason‘s Glenn Garvin reviews two new documentaries, including one called American Experience: The Great War (no relation to the YouTube channel I regularly reblog).
World War I, as American Experience: The Great War paraphrases a conclusion already reached by the cast of Friends many years ago, is probably the biggest event in U.S. history of which Americans know next to nothing. In some ways, that will still be true even if they watch The Great War, which views the events strictly through the lens of how Americans were affected. The welter of royal bloodlines and backdoor treaties that turned a seemingly isolated event — the assassination of an Austrian nobleman by a Serbian teenager — into a worldwide conflagration involving Russia, France, England, Italy, Germany, the Austro-Hungarian Empire, the Ottoman Empire, Bulgaria, Japan, and the United States is barely explored [*]. Nor are many of the war’s geopolitical shockwaves. Even the implosion of Russia’s czarist government, which would eventually result in a Cold War that for nearly five decades threatened to turn apocalyptically hot, only gets a minute or two.
What The Great War does do, in truly spectacular fashion, is limn the voracious expansion of the American government midwifed by World War I. When Woodrow Wilson’s uncertain attempts at neutrality floundered and he called for a declaration of war in 1917 because “the world must be made safe for democracy,” it made the United States unique among the combatants, notes a historian in The Great War: “It was not fighting for survival. It was fighting for an ideal.”
But as The Great War documents in horrifying detail, that ideal was the creation of a Leviathan state with unprecedented power: to draft young men and send them to a foreign war. To set price controls on food and impose dietary restrictions. To arrest and even deport political dissidents. To create a powerful government propaganda organ aimed not at enemy nations but the American people. (It expanded from one employee to about 100,000 in a couple of months.) To send goon squads known as Liberty Loan Committees roaming neighborhoods offering deals on war bonds that couldn’t be refused.
Wilson’s actions did not go without dissent (signs at a protest march in New York City: MR. PRESIDENT, WHY NOT MAKE AMERICA SAFE FOR DEMOCRACY?) and dissent did not go without punishment. Wilson demanded, and got, a new Espionage Act that made it a crime to collect, record and disseminate information “harmful to the war effort,” and he wielded it like an axe against the anti-war movement. By the fall of 1917, the federal government opened prison camps in Utah, Georgia, and North Carolina to house all the “security threats” Wilson’s Justice Department had detected.
Wilson’s security mania spread out into the population, too, where it unleashed what The Great War calls the “wholesale destruction of German culture in the United States. There were moves to ban German music, plays, and even the spoken language. Some of the xenophobic spasms, like beer-stein-smashing contests, were loony enough to be funny; others, like the slaughter of German dog breeds in Ohio, were almost too ugly for words. Though Wilson’s supporters managed to utter some. When an Illinois coal miner of German heritage was lynched by coworkers who thought he might be a spy, the Washington Post labeled it a nothing more than a slightly over-exuberant sign of “a healthful and wholesome awakening in the interior part of the country.”
* Should you want to know more about the non-American aspects of how World War 1 began, you could read my Origins of WW1 series of posts, starting here (there are 12 posts in the series, and even so, I could be accused of omitting a lot of detail).
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April 13, 2017
QotD: Soviet statistics
Being a correspondent in Moscow, I found, was, in itself, easy enough. The Soviet press was the only source of news; nothing happened or was said until it was reported in the newspapers. So all I had to do was go through the papers, pick out any item that might be interesting to readers of the Guardian, dish it up in a suitable form, get it passed by the censor at the Press Department, and hand it in at the telegraph office for dispatch. One might, if in a conscientious mood, embellish the item a little … sow in a little local colour, blow it up a little, or render it down a little according to the exigencies of the new situation. The original item itself was almost certainly untrue or grotesquely distorted. One’s own deviations, therefore, seemed to matter little, only amounting to further falsifying what was already false.
This bizarre fantasy was very costly and elaborate and earnestly promoted. Something gets published in Pravda; say, that the Soviet Union has a bumper wheat harvest – so many poods per hectare. There is no means of checking; the Press Department men don’t know, and anyone who does is far, far removed from the attentions of foreign journalists. Soviet statistics have always been almost entirely fanciful, though not the less seriously regarded fro that. When the Germans occupied Kiev in the 1939-45 war they got hold of a master Five Year Plan, showing what had really been produced and where. Needless to say, it was quite different from the published figures. This in no way affected credulity about such figures subsequently, as put out in Russia, or even in China.
Malcolm Muggeridge, Chronicles of Wasted Time, 2006.
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April 8, 2017
The “Three Stooges of the Apocalypse”
David Warren takes a well-deserved kick at Lloyd George, Clemenceau, and (especially) Woodrow Wilson:
A century has now passed since President Wilson disowned President Washington’s advice to his successors — to stay out of European conflicts — and war was declared by the United States on Germany. A moral preener, Wilson justified himself by declaring an even more extravagant mission to go with it:
“The world must be made safe for democracy.”
However large, a war is just a war. It should have a beginning and an end. As my old Indian girlfriend explained, “Too much war only leads to peace. Too much peace only leads to war.” As most people prefer peace, most of the time, it is well that war is not a permanent condition. But a war to some idealistic purpose can get very large, and go on for a long time, and morph into conditions which resemble peace, but are not peace. We’ve been making the world safe for democracy for at least a century. By now we have far too much.
[…]
In my view, that Great War, that Totaler Krieg, hasn’t ended yet. The old etiquette, that war was for soldiers — that non-combatants should be non-involved — became a thing of nostalgia. Vast conscript armies had been summoned, and would never be fully demobilized. The men I call the “Three Stooges of the Apocalypse” — Wilson, Lloyd George, Clemenceau — clinched at Versailles this new normal. It was not simply the punitive terms that were imposed on the war’s losers, but a more fundamental reorganization of all national and international affairs: “statecraft” became “policy.”
For Wilson was also the pioneer of progressive schemes to change the American way of life. He was, in some sense, a second Washington, consolidating a second American Revolution that had begun more modestly with Lincoln and the Union victory in the Civil War. America would be recreated, along bureaucratic lines, in a tireless campaign for full secularization, under centralized government control. The general mobilization of the First World War, now in America as well as Europe, created a new opportunity, by accustoming men to following orders; by the propaganda that made them identify with huge abstractions.
This is of course an inexhaustible topic, at which I pick away, in my attempts to explain if only to myself what makes our world so different from all preceding. It embraces more than any single force or event. We must also go back to the Prussian invention of the welfare state, and for that matter to the Gatling gun. Post-modernity is an invention of modernity, as modernity was an invention of the Middle Ages. The contemporary revolution has antecedents that may be found in the Enlightenment and in the Reformation. (What will post-modernity beget?)
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March 30, 2017
QotD: “Scientific” forestry
Seeing Like A State is the book G.K. Chesterton would have written if he had gone into economic history instead of literature. Since he didn’t, James Scott had to write it a century later. The wait was worth it.
Scott starts with the story of “scientific forestry” in 18th century Prussia. Enlightenment rationalists noticed that peasants were just cutting down whatever trees happened to grow in the forests, like a chump. They came up with a better idea: clear all the forests and replace them by planting identical copies of Norway spruce (the highest-lumber-yield-per-unit-time tree) in an evenly-spaced rectangular grid. Then you could just walk in with an axe one day and chop down like a zillion trees an hour and have more timber than you could possibly ever want.
This went poorly. The impoverished ecosystem couldn’t support the game animals and medicinal herbs that sustained the surrounding peasant villages, and they suffered an economic collapse. The endless rows of identical trees were a perfect breeding ground for plant diseases and forest fires. And the complex ecological processes that sustained the soil stopped working, so after a generation the Norway spruces grew stunted and malnourished. Yet for some reason, everyone involved got promoted, and “scientific forestry” spread across Europe and the world.
And this pattern repeats with suspicious regularity across history, not just in biological systems but also in social ones.
Scott Alexander, “Book Review: Seeing Like a State”, Slate Star Codex, 2017-03-16.
February 15, 2017
January 17, 2017
QotD: The role of free markets
Bernie Sanders, the Brooklyn socialist who represents Vermont in the Senate, generated a great deal of mirth on Tuesday when he wondered aloud how it is that a society with 23 kinds of deodorant and 18 kinds of sneakers has hungry children. Setting aside the fact that we must have hundreds of kinds of deodorant and thousands of choices of sneakers, Senator Sanders here communicates a double falsehood: The first falsehood is that the proliferation of choices in consumer goods is correlated with poverty, among children or anybody else, which is flatly at odds with practically all modern human experience. The reality is precisely the opposite: Poverty is worst where consumers have the fewest choices, e.g., in North Korea, the old Soviet Union, the socialist paradise that is modern Venezuela, etc. The second falsehood is that choice in consumer goods represents the loss of resources that might have gone to some other end — that if we had only one kind of sneaker, then there would be more food available for hungry children.
Lest you suspect that I am distorting the senator’s words, here they are:
You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on.
This is a very old and thoroughly discredited idea, one that dates back to Karl Marx and to the anti-capitalists who preceded him. It is a facet of the belief that free markets are irrational, and that if reason could be imposed on markets — which is to say, if reason could be imposed on free human beings — then enlightened planners could ensure that resources are directed toward their best use. This line of thinking historically has led to concentration camps, gulags, firing squads, purges, and the like, for a few reasons: The first is that free markets are not irrational; they are a reflection of what people actually value at a particular time relative to the other things that they might also value. Real people simply want things that are different from what the planners want them to want, a predicament that can be solved only through violence and the threat of violence. That is the first reason that this sort of planning leads to gulags. The second is that there are no enlightened planners; men such as Senator Sanders imagine themselves to be candidates for enlightened leadership, but put a whip in his hand and the gentleman from Vermont will turn out to be another thug in the long line of thugs who have cleaved to his faith. The third reason that this sort of planning always works out poorly is that nobody knows what the best use of resources actually is; all that the would-be masters know is that they do not approve of the current deployment of resources.
Kevin D. Williamson, “Bernie Sanders’s Dark Age Economics”, National Review, 2015-05-27.
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October 18, 2016
QotD: “Smart Growth” regulations hurt the poor
In the 1970s, municipalities enacted new rules that were designed to protect farmland and to preserve green space surrounding rapidly growing cities by forbidding private development in those areas. By the late 1990s, this practice evolved into a land-use strategy called “smart growth.” (Here’s a video I did about smart growth.) While some of these initiatives may have preserved green space that can be seen, what is harder to see is the resulting supply restriction and higher cost of housing.
Again, the lower the supply of housing, other things equal, the higher real-estate prices will be. Those who now can’t afford to buy will often rent smaller apartments in less-desirable areas, which typically have less influence on the political process. Locally elected officials tend to be more responsive to the interests of current residents who own property, vote, and pay taxes, and less responsive to renters, who are more likely to be transients and nonvoters. That, in turn, makes it easier to implement policies that use regulation to discriminate against people living on low incomes.
Sandy Ikeda, “Shut Out: How Land-Use Regulations Hurt the Poor”, The Freeman, 2015-02-05.
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August 21, 2016
QotD: Price controls and other forms of rationing
Of the numerous and occasionally contradictory techniques used to ration demand and supply [when monetary prices are not used], perhaps the most common is past behavior: persons already in apartments are given preference under rent control, or past acreage determines current allotments under agricultural price support programs. Another common technique is queuing or first come – first served: taxicabs, theater tickets, medical services, and many other goods and services are rationed in this way when their prices are controlled. Of course, discrimination and nepotism are also widely used; the best way to get a rent-controlled apartment is to have a (friendly) relative own a controlled building. Other criteria are productivity – the least productive workers are made unemployed by minimum wage laws;…. collateral – borrowers with little collateral cannot receive legal loans when effective ceilings are placed on interest rates.
Each rationing technique benefits certain groups at the expense of other groups relative to their situation in a free market. Price controls are almost always rationalized, at least in part, as a desire to help the poor, yet it is remarkable how frequently they harm the poor.
Gary Becker, Economic Theory, 1971.
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March 25, 2016
QotD: The infrastructure problem in America
[David Cay] Johnston’s piece is titled America should be more like Disneyland but instead of thinking seriously about what this means he fumbles on the 20 yard line and concludes that what makes Disneyland different is… happy thoughts. If only we were more like W.D., he says, “we could make America into a happy place.”
No, what makes Disney invest in infrastructure is not happy thoughts. Johnston is in fact clear about this:
The Walt Disney Co. invests in infrastructure because it makes the company money.
The problem with America is that our public infrastructure has been turned over to a fickle political process that is not governed by a rational calculation of cost and benefit, market test and experimentation but by a pursuit of power, glory and advantage that only rarely coincides with the public interest.
America should be more like Disneyland and to do that we need to develop institutions that allow more infrastructure to built by the private sector. Most ambitiously we need more cities as hotels, more proprietary cities. As Rajagopolan and I wrote in our study of India (in Cities and Private Planning):
The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.
Alex Tabarrok “How to make America more like Disneyland”, Marginal Revolution, 2014-12-17.
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December 22, 2015
Monty’s thumbnail sketch of the economics of scarcity
Okay, it’s perhaps a bit more than just a thumbnail sketch, but it’s still a good introduction:
A basic definition of “economics” is given by Thomas Sowell (PBUH, may he live a thousand years), which I paraphrase here: “Economics is a system of allocating scarce resources which have alternate uses.” The key word I want to focus on here is scarce. It is not abundance but scarcity that lies at the heart of economics. Scarcity of resources is what makes economics a fundamental property of nature. Scarcity is an inherent, inseparable, eternal property of reality. It is not a problem that can be solved — it is bound up in the laws of physics that govern the cosmos.
The necessities of life — water, food, clothing, shelter — are drawn from scarce resources which have alternate uses and thus require a method of allocation. We generally think of systems like “capitalism” or “communism” when we think of economic systems, and there are others (feudalism, for example). But let’s boil down the allocation method to two basic kinds: market-based, where scarce resources are allocated according to supply-and-demand dynamics; and command-based, where a central authority divvies up resources according to some set of (usually arbitrary) rules.
Nearly every variant of market-based and command-based economies has been tried over the centuries, and the market-driven economy has emerged as the best solution we have found so far. It turns out that market-based economies work far better than command-based economies for one simple reason: because of what F. A. Hayek called “the knowledge problem”. Hayek’s insight was that allocating scarce resources is a very complex business in anything other than a trivially small economy, and there’s no way that a centrally-managed economy can hope to understand all the decisions and variables that go into making the production of goods and services possible. There is no way for a centralized body to determine how to allocate scarce resources efficiently across the hugely-complex landscape of a functioning economy. Mis-allocation of resources is almost always the near-term result, with the middle-to-long-term result being economic collapse.
Market-based economies use competition and pricing to guide the allocation of scarce resources. Supply and demand fluctuate, and the marketplace uses pricing of goods and services as a signaling device for both buyers and sellers. If supply is high but demand is low, prices drop and the resources that go into the low-demand item are diverted to a good or service where demand (thus price) is higher. If demand is high but supply is low, prices will rise and prompt competitors to enter the market at a lower price or (if the resource is inherently limited, as with beach-front property) drive more intense competition among buyers.
All of this is Economics 101, and it doesn’t matter if you’re a red diaper baby Communist or an Ayn-Randian hyper-capitalist, you have no choice but to work under these constraints. You live in a reality constrained by scarce resources that have alternate uses; there is no magical elixir or scientific discovery that will exempt you from it.
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