Warren Buffett has told us that there’s something magical about American capitalism. This isn’t quite true, because other countries have achieved much the same thing. What is true about it is that it is the system itself which has caused the incredible wealth we all enjoy in this modern world. Buffett writes:
In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth.
Other places which did much the same thing — that mixture of capitalism, the rule of law and free markets — achieved much the same end. We generally refer to those places as the developed world, while those that didn’t are still the Third World. There is nowhere at all that has become rich, absent some vast natural resource, without adopting this system.
We can show this, too, with the numbers from Angus Madison. The average GDP per capita over history, all countries, all empires, was some $600 a year or so — That’s in today’s dollars, meaning history was, by our standards, abject destitution for everyone. This is also why we use $1.90 a day (at modern American prices) as our measure of global absolute poverty. Because that’s just what the past was and we celebrate when people, a country, a nation, rise above that historical existence.
Tim Worstall, “Appalachia’s woes show the success of American capitalism”, Washington Examiner, 2018-01-09.
March 18, 2020
QotD: The “magic” of capitalism
March 1, 2020
“When you’re driving a fancy car, you’re an avatar for everyone else’s bad boss, useless trust-fund roommate, or absent workaholic father”
At Car and Driver, Ezra Dyer confirms what most of us already suspected about the folks who drive expensive rides:
Excuse us if you’ve already devoured the latest volume of the Journal of Transport & Health, but the March issue contains the results of a novel experiment that tested a cherished automotive stereotype. The study is entitled “Estimated Car Cost as a Predictor of Driver Yielding Behavior for Pedestrians,” but you can think of it as, “Are BMW drivers really jerks or what?”
Okay, so it was more nuanced than that. The authors of the study sent four pedestrians — black female, black male, white female, white male — to crosswalks in the Las Vegas area to see how many drivers would yield. The overall results were pretty dismal, with a yield rate of only about 28 percent out of 461 cars. Cars yielded more often to female and white pedestrians than male and nonwhite pedestrians, although not enough either way to register as statistically significant. The only factor that consistently predicted yielding behavior was the value of the car. Notably, the study’s authors estimated the book value on all 461 cars, so the 2004 Mercedes S-class that’s worth $5000 didn’t get ascribed automatic snob appeal.
[…]
However, if you’re driving an actual exotic, something way far up the food chain, behavior changes again. Everyone yields to the Rolls or the Lambo because cars like that are so over the top, they make you interesting by association. Plus: most people don’t know anybody with a car like that; thus they can’t associate it with anyone awful. The ultra-expensive car, and the driver, are a curiosity. What’s that guy’s deal? He probably invented that fake grass that goes between the pieces of sushi. And good for him! But the guy in the 911? He can wait an extra two turns at the four-way intersection. Probably deserves it.
Our not-scientific conclusions: If you expect fellow road users to demonstrate courtesy, you should drive either a 1984 Renault Alliance or a Lamborghini Aventador SVJ roadster. But either way, and to everybody in between: Yield at the damn crosswalks.
February 22, 2020
QotD: Veblen’s “leisure class” evolve into the “luxury belief class” in truly affluent cultures
Thorstein Veblen’s famous “leisure class” has evolved into the “luxury belief class.” Veblen, an economist and sociologist, made his observations about social class in the late nineteenth century. He compiled his observations in his classic work, The Theory of the Leisure Class. A key idea is that because we can’t be certain of the financial standing of other people, a good way to size up their means is to see whether they can afford to waste money on goods and leisure. This explains why status symbols are so often difficult to obtain and costly to purchase. These include goods such as delicate and restrictive clothing like tuxedos and evening gowns, or expensive and time-consuming hobbies like golf or beagling. Such goods and leisurely activities could only be purchased or performed by those who did not live the life of a manual laborer and could spend time learning something with no practical utility. Veblen even goes so far as to say, “The chief use of servants is the evidence they afford of the master’s ability to pay.” For Veblen, Butlers are status symbols, too.
Building on these sociological observations, the biologist Amotz Zahavi proposed that animals evolve certain displays because they are so costly. The most famous example is the peacock’s tail. Only a healthy bird is capable of growing such plumage while managing to evade predators. This idea might extend to humans, too. More recently, the anthropologist and historian Jared Diamond has suggested that one reason humans engage in displays such as drinking, smoking, drug use, and other physically costly behaviors is because they serve as fitness indicators. The message is: “I’m so healthy that I can afford to poison my body and continue to function.” Get hammered while playing a round of golf with your butler, and you will be the highest status person around.
Rob Henderson, “Thorstein Veblen’s Theory of the Leisure Class — A Status Update”, Quillette, 2019-11-16.
February 21, 2020
QotD: Thought experiment
Still, that’s not the deal on offer. You have to buy an incarnation lottery ticket, and the results would be random.
I’m not big on dividing people up by abstract categories, and I certainly don’t mean them to be pejorative. But as a historical matter, being born poor, gay, black, Jewish, ugly, weird, handicapped, etc. today may certainly come with some problems or challenges, but on the whole those traits are less of a shackle or barrier than at any time in the past. The only trait where I think it might be a closer call is dumbness. All other things being equal, a not-terribly-intelligent person with a good work ethic and some decent values might have had more opportunities before machines replaced strong backs. But even here, I can think of lots of exceptions.
Jonah Goldberg, “America and the ‘Original Position'”, National Review, 2017-12-22.
February 13, 2020
Here’s a deceptive factoid … time for you to get angry to suit someone’s political agenda
Did you know that “Three Billionaires Have More Wealth Than Half of America”!!!???!!! Are you angry now? You’re supposed to be, because this factoid was concocted specifically to make people irrationally angry. Daniel C. Jensen explains how this sound bite was created:
Amazon’s Jeff Bezos, Microsoft’s Bill Gates, and Berkshire Hathaway’s Warren Buffet.
Fox Business.
People between 0 and 24 years of age account for about 32 percent of the United States population of 320 million. Almost all of them are going to be in the bottom half of the wealth distribution for reasons including diaper rash and puberty. That means they account for about 63 percent of the “bottom half of the wealth distribution.” Should it surprise us that some kid fresh out of college does not “hold any stocks or bonds”? Or a kid fresh out of the womb?
Then we must consider people with mental and physical disabilities. They will also tend to be in the bottom half of the wealth distribution because they face greater challenges to building wealth. “About 56.7 million people — 19 percent of the population — had a disability” at last count, according to the United States Census Bureau. But there is overlap between the disabled 19 percent and the young 32 percent of the population. If we assume disabilities are evenly distributed in the population, then young people and non-young disabled people account for 45 percent of the population. So we have now accounted for 90 percent of the “160 million Americans in the bottom half of the wealth distribution.”
Next, we must think about other groups who have had limited wealth-building opportunities. What about the 2.2 million people in jail and prison? What about people in their late twenties who pursued PhDs, law degrees, medical residencies, etc., and are just beginning their careers? Now we are close to accounting for 100 percent of the “bottom half of the wealth distribution.” But this wealth distribution is not what any sensible person would expect it to be.
Maybe the factoid is true. Maybe Jeff Bezos, Bill Gates, and Warren Buffet have more wealth than all of the infants, children, students, handicapped, prisoners, and postgrads combined. But you don’t need a PhD to figure out that’s not useful knowledge. Even if the factoid is true, it’s deceitful. Whoever created it was obviously trying to manipulate people. And we uncovered this deception with nothing but some simple knowledge of the US population.
Next time you encounter an economic factoid, remember that it might be pitting a bunch of newborns against Jeff Bezos, and that hardly seems fair. Thankfully, you can save those babies from certain defeat simply by knowing some basic statistics about your country.
January 22, 2020
QotD: National “wealth”
While working on my book, I read all these different accounts of where capitalism comes from. I was amazed by how many of them start from the assumption that wealth is … stuff. Depending on which Marxist you’re talking to, capitalism is the ill-gotten-booty of the Industrial Revolution, slavery, imperialism, and the rest. I don’t want to get into all of that here — there will be plenty of time when the book comes out.
But all of these assumptions are based on the idea that having stuff makes you rich. Now, in fairness, that’s true for individuals. But it doesn’t really work that way for societies. Writing about Venezuela earlier this week is what got this in my head. Venezuela is poor and getting poorer by the minute: Babies are dying from starvation.
Meanwhile, Venezuela has the largest proven oil reserves in the world. According to lots of people, not just Marxists, this should make no sense. Oil is valuable. If you have more of it than anyone else, you should be able to make money. For a decade, the American Left loved Hugo Chávez and then Nicolás Maduro because they allegedly redistributed all of the country’s wealth from the rich to the poor. These dictators were using The Peoples’ resources for the common good. Blah blah blah.
It turns out that the greatest resource a country has is its institutions. In economics, an institution is just a rule, which is why the rule of law in general and property rights in particular are the most important institutions there are, with the exception of the family. Take away the rule of law in any country, anywhere and that country will get very poor, very fast. Stop protecting the fruits of someone’s labor, enforcing legal contracts, guarding against theft from the state or the mob (a distinction without a difference in Venezuela’s case) and wealth starts to evaporate.
But even that is too complicated. Oil is worthless on its own. If you went back in time to the Arabian Peninsula before oil became a valuable commodity, you wouldn’t look at the squabbling nomads and call them rich, even though they were playing polo with a goat’s head above billions of barrels of oil. Go get lost in the Amazon by yourself. What would you rather have, a map or big-ass diamond? The diamond only has value once you get out of the jungle, but you can’t get out without the map.
Jonah Goldberg, “America and the ‘Original Position'”, National Review, 2017-12-22.
December 12, 2019
Explaining the decline in library usage
At the Continental Telegraph, Tim Worstall refutes the claims that it’s the evil right wingers (in this specific case, British Tories) that are driving the library out of business:
“Nottingham central library” by JuliaC2006 is licensed under CC BY 2.0
Despite spending more money, library use, measured in terms of at least one visit per year, fell from 48.2% of adults to 39.7% of adults. I make that as roughly 1/5th of the adults that were using them not doing so in 5 years. 17% sounds slightly on the conservative side.
And if this was about “austerity”, you’d expect visits to be rising, rather than falling from 39.7% to 32.9% since the Conservatives/Lib Dems took over. Because the thing with libraries is that they suit the time rich and cash poor. If you’ve not got much else to do, you can spend time walking to a library, getting a book, walking home and easily finding time in the fortnight to read it. And 9-5 hours don’t bother you. There’s areas of the country, like Weston-Super-Mare, stuffed full of retired people and libraries are popular.
If you’re working all week you have to get to a library in your day, park your car, pay for parking, same on return, and make sure to set aside the time to do the reading, you might decide libraries aren’t that convenient.
The decline of libraries is a success story for us. We created them because books were very expensive once. Owning a giant library was the mark of a rich man. Paper was expensive, printing was expensive, binding was expensive. Over the decades, we figured out how to do this cheaper. Then we figured out how to do retailing cheaper. And then we got e-books which take production costs to near zero. Books are cheap. Cheap enough that most of us don’t want the faff of libraries. So, close some of them.
November 27, 2019
The “Gentrification” debate
In Quillette, Coleman Hughes explains the furor over gentrification in many big American cities:
“Shoreditch Graffiti” by Kit-Kat is licensed under CC BY-NC-SA 2.0
The word “gentrification” was coined in 1964 to describe the influx of wealthy newcomers into low-income inner-city neighborhoods, resulting in rising property values, changes in neighborhood culture, and displacement of original residents. Though gentrification predates the modern era, it has only become the target of criticism in recent decades, as cities like Washington, D.C., Atlanta, and Boston have witnessed rapid transformations. Opponents of gentrification have ranged from residents directly affected by it to wealthy college students directly responsible for it, as well as prominent Democrats such as Bernie Sanders, Cory Booker, and Alexandria Ocasio-Cortez.
Critics of gentrification give two main reasons for their opposition: (1) wealthy newcomers drive up monthly rents, thereby displacing original residents; and (2) rapid change to neighborhood culture represents an injustice to original residents. Both critiques are magnified by the presumed skin color of the gentrifiers and the gentrified, who tend to be white and black or Hispanic, respectively.
Though such critiques may seem reasonable at first glance, neither of them survive scrutiny. Not only is gentrification harmless, it’s actually beneficial. Indeed, for reasons I will lay out, it’s exactly the kind of thing that progressives should support.
Let’s begin with the charge that gentrification displaces original residents. Two economists used data from the 2000 U.S. Census and the 2010-2014 American Community Survey to track individual outcomes for all residents of “gentrifiable” — or low-income inner-city — neighborhoods in America’s one hundred largest metropolitan areas. The largest study of its kind, it divided residents of gentrifiable neighborhoods into two categories based on educational attainment. Their findings refute the displacement narrative conclusively.
[…]
On the whole, progressives ought to love gentrification. It makes black inner-city homeowners wealthier. Among less-educated homeowners — who are majority non-white and comprise over a quarter of the total population in gentrifiable neighborhoods — those who remained in gentrified neighborhoods saw a $15,000 increase in the value of their homes due to gentrification. Among more-educated homeowners — who are also majority non-white — those who remained saw a $20,000 increase in property value.
What’s more, gentrification breaks up concentrated poverty and reduces residential segregation. Progressives have frequently observed that poor blacks are more likely to live in concentrated poverty than poor whites. As a result, they lose out on the advantages that come with living in a mixed-income neighborhood. Gentrification helps solve this problem. Moreover, progressives often observe that residential segregation remains pervasive half a century after the 1968 Fair Housing Act. Gentrification helps solve that problem too.
November 17, 2019
QotD: Socialist beliefs about “capitalism”
- Wealth is either fixed in amount, or, while it might be destroyed or diminished by certain human activities (such as war), if wealth grows this growth occurs largely independently of human ideas, choices, actions, and institutions;
- trade and commerce, therefore, are largely zero-sum – that is, each exchange situation pits a party who will win against one who will lose;
- trade and commerce, in turn, involve activities are thus, at best, suspect; trade and commerce too often reward greediness and duplicity while penalizing generosity and honesty;
- the “distribution” of wealth – whether conceived as financial flows or assets, or as access to real goods and services – is determined largely by power;
- prices set on markets are largely arbitrary; prices seldom play any role beyond determining how much one party “wins” from trade and how much the other party “loses.”
- each of a handful of large groups of people, mostly as conceptualized by intellectuals with no understanding of economics, has its own “interests” – interests that are shared by all members of the group and that are at odds with the interests of other groups; for example, “labor” has interests that are are shared by all workers and that are at odds with the interests of “employers”;
- while the state can be captured by ill-intentioned people, the state – especially under unlimited majoritarian rule – is also the only possible savior of the powerless against the predations and frauds of the powerful;
- absent vigorous state intervention, ordinary people – people whose main asset is the value of their own labor – lack both the power to get their fair share of society’s wealth and the intelligence or self-discipline to use wisely whatever share of wealth they do manage to secure;
- social progress is achieved by the powerless grabbing power under the leadership of men and women of singular vision, intelligence, and courage; “the People” will be led to the Promised Land – can be led to the Promised Land – only if they faithfully follow their caring messiahs;
- those who argue in favor of free markets are either soulless mercenary cronies for the powerful propertied class or they are ideologically blinded dupes for this class; no intelligent and decent person could possibly deny the enormous benefits available to “the People” when the state is empowered to work on their behalf against the propertied few.
Don Boudreaux, “Some Links”, Café Hayek, 2017-10-08.
October 23, 2019
QotD: Climbing Maslow’s Pyramid again
If people want little orchards of native (well, you know) apples then people should have little orchards of native apples. As long as, of course, they’re creating and maintaining those little orchards of native apples at their own expense. This is, after all, what liberalism means, that the peeps get to do what the peeps want. And if we’re to add some Burkean conservatism so that it’s the little platoons sorting it out for themselves then all the better.
As long as no one is being forced to pay for this through taxation then what could possibly be the problem?
At another level this is climbing Maslow’s Pyramid again. At one level of income we’ll take fruit in the only way we can, seasonally and in a limited manner. We get richer, technology advances, we can have apples year round – but that does mean trade, commercially sized operations and the inevitable limited selection. We get richer again and now we’ve more than sufficiency, let’s have that variety back again.
After all, it’s not as if we’re not seeing this right across the food chain, is it?
That roast beef of Olde Englande was most certainly better than the bully beef from Argentina or the Fray Bentos pie. As is the best grass fed British beef of today. But we moved through the cycle to get from most not being able to eat any beef, to all being able to have bad beef, to now again thinking more about the quality – we have a more than sufficiency of beef and can be picky about it.
Tim Worstall, “I fully approve of this”, Tim Worstall, 2017-10-22.
October 21, 2019
QotD: Poverty versus relative poverty
However, viewers took to Twitter to insist that Andy and Kim Leamon and their two children from Southampton who have £170 a week to spend on food, clothes and socialising after paying their mortgage and bills are certainly not struggling.
It’s not, by local standards, exactly great riches, to be sure. But that is £2,210 of disposable income per person per year. That’s on the fringes of the top 30% of all global incomes. 70% or so are poorer.
Note again, this is their disposable income, after housing, bills and taxes, the global income number is before all of that. Or, as we might also put it, this is unimaginable riches by global or historical standards.
Tim Worstall, “Well, yes, there’s a point here”, Tim Worstall, 2017-10-20.
October 5, 2019
Losing our religion
Arthur Chrenkoff found another report on the inverse relationship between development and religious belief:
A few weeks ago I wrote a longish blog post arguing that for many people in the developed world environmentalism has become a religion, filling up the gap in spirituality left by the decline of Christianity. I don’t claim any originality or new insight in this observation; it has been noted many times before, including by my friend, former artilleryman and now man of God, Rev Donald Sensing, and it has made an appearance quite a few times subsequent to my piece, a propos Greta Thunberg’s performance at the United Nations and the reaction it inspired around the (developed) world.
Today, I chanced upon another interesting analysis by Pew Research Center, about religious belief and commitment around the world. Results are not surprising but are nevertheless interesting, including this world map:
Unfortunately, Pew does not provide additional data on those for whom religion might be “important” or “somewhat important” so as to paint a slightly fuller picture of religious sentiment, but the results illustrated above are probably quite indicative. The developed world is well and truly secular now, with the United States and Greece being the only outliers (and by a long mile), while most of the developing world (with the notable exception of China after seven decades of communism) remains extremely religious. Thus, Pew notes that “if current trends continue, countries with high levels of religious affiliation will grow fastest. The same is true for levels of religious commitment: The fastest population growth appears to be occurring in countries where many people say religion is very important in their lives.”
As the main topic of this Pew study is the age gap in religious faith around the world, it should be noted that the younger generations in the developed world are even less religious than their elders, often significantly less, putting the already low rates across the West in an even starker perspective (by contrast, throughout most of the developing world, there is little, if any, gap in religious commitment between the young and the old).
October 4, 2019
“Economics is … the science of not being able to have your cake and eat it”
Philip Booth on Greta Thunberg’s message and its economic over-simplifications:
In many senses, economic problems are more complex than scientific problems and Thunberg is, implicitly at least, pronouncing on economic matters. Whilst knowledge about climate science is uncertain, a judgement has to be and can be made on the balance of evidence. But economic decisions involve trade-offs. Economics is, as Lionel Robbins put it, the science of not being able to have your cake and eat it. We cannot both decrease carbon emissions hugely and enjoy standards of living increasing at the rate that would have been possible if emissions were not reduced.
It is tempting the believe the green rhetoric that we will all have fluffy green jobs and a green standard of living without any hardship from reducing emissions. We cannot. Reducing carbon emissions quickly to zero means that we will have much less of everything else. We might prefer decarbonisation to other goods and services, but it is not a cost-free choice. We considering this, we should remember that the average income in the UK is ten times the average income in the rest of the world. When other people face these trade-offs the sacrifice of decarbonisation is that much greater.
One of the advantages of being richer is that we are more resilient to natural disasters. It follows from this that there is a trade-off between decarbonisation, which might lead to fewer natural disasters, and our ability to cope with them, which might reduce if we become less rich. As we have become richer, deaths from natural disasters have plummeted. The figure shows the fall in deaths in natural disasters over the last century – they have reduced by, perhaps, 90 per cent.
The use of air conditioning illustrates this trade-off in a rather stark way. In a letter on the environment written by Pope Francis in 2015 called Laudato si, the pontiff strongly criticised the adoption of air conditioning in the strongest terms. An academic paper on air conditioning in the US produced such remarkable results that the abstract is worth quoting at length:
“the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days.”
Air conditioning leads to higher carbon emissions and, most likely, higher global temperatures. But the increase in resilience arising from air conditioning is astonishing – it has led to an 80 per cent drop in deaths from heat.
September 24, 2019
QotD: Conditions for the rise of tyrants in the Greek city states
Force can only ever be part of the answer. The poor have always been the majority, and sometimes the great majority. Armies of mercenaries to protect the rich have not always been available, and they have never by themselves been sufficient to compel obedience on all occasions in every respect.
Force, therefore, has always been joined by religious terrors. In Egypt, the king was a god, and the privileged system of which he was the head was part of a divine order that the common people were enjoined never to challenge. In the other monarchies of the near east, the king might not actually be a god. But all the priests taught that he was part of a divinely ordained order that it was blasphemy to challenge.
In the Greek city states until about a century before the birth of Epicurus, securing the obedience of the poor had not been a serious problem. There had been some class conflict, even in Athens. But most land was occupied by smallholders, and excess population could be decanted into the colonies of Italy and the western Mediterranean. There were rich citizens, but they were usually placed under heavy obligations to contribute to the defence and ornament of their cities.
Then a combination of commercial progress and the disruptions of the war between Athens and Sparta created a steadily widening gulf between rich and poor. There was also a growing problem of how to maintain large but unknown numbers of slaves in peaceful subjection.
The result was a class war that destabilised every Greek state. The sort of democracy seen in Athens could survive in a society where citizens were broadly equal. Once a small class of rich and a much larger class of the poor had emerged, there was a continual tendency for democratic assemblies to be led by demagogues into policies of levelling that could be ended only by the rise of a tyrant, who would secure the wealth of the majority — but who could secure it only so long as the poor could be terrified into submission. Once they could not be terrified by the threat of overwhelming force, they would rise up and dispossess the rich, until a new tyrant could emerge to subdue them again.
Unlike in the monarchies of the near east, no settled order could be maintained in Greece by religious terrors. During the sixth and fifth centuries, the Greek mind had experienced the first enlightenment of which we have record. There had been a growth of philosophy and science that revealed a world governed by laws that could be uncovered and understood by the unaided reason.
Now, enlightenments are always dangerous to an established religion. And the Greek religion was unusually weak as a counterweight to reason. The Greeks had no conception of a single, omnipotent God the Creator. Instead, they had a pantheon of supernatural beings who had not created the world, but were subject to many of its limitations. These were frequently at war with each other, and so they could be set against each other by their human worshippers with timely sacrifices and other bribes. They did not watch continually over human actions, and beyond the occasional punishment and reward to the living, they had no means of compelling observance of any code of human conduct.
And so, when the intellectual disturbance of philosophy and science spilled over into demands for a reconstruction of society in which property would be equalised, there was no religious establishment with the authority to stand by the side of the rich.
Sean Gabb, “Epicurus: Father of the Englightenment”, speaking to the 6/20 Club in London, 2007-09-06.
