g m g D e s i g n . c o m

What does it take for a society to have, or maintain, economic prosperity? One can approach this from many angles, from governance to geography, or from education to gender equality. There are a myrid of angles one could take to approach this question, so I’ll narrow the question a bit: what does it take for emerging markets to reach prosperity and for developed countries to maintain it?

I claim that it takes three things in particular: religion, science and freedom.

Religion

Across the developed world (US and Europe in particular), religion has had rotten eggs thrown in its direction. After 9/11, the world discovered what happened when Salafi-Islamism is allowed to operate unchecked by our intell services. Most people probably didn’t see the nuance and instead simply became paranoid of all Muslims. Some people, mostly “intellectuals,” simply blamed America rather than worry about more plausible explanations.

The terror attacks of 9/11 (and subsequent attacks or attempts inside or outside the US) have given the likes of Sam Harris, Richard Dawkins, and others, the opportunity to launch attacks on religion in general and Christianity in particular. Hollywood is in on the fun, jeering or even demonizing religion, esp Christianity (Islam has largely been ignored from direct criticism, oddly).

Certainly, not all religions are created equally. Not all practitioners are equal in their piety. Focusing on the developed world, has religion–namely Christianity–been a bane, or a boon?

I’d argue that it has been a boon. The US was built on the system of moral values innate in Christian doctrine. Contrary to anti-Christian commentary, many scientists in this country’s history were also Christians. Our Founding Fathers were largely Christians as well. Absent their convictions, I question whether or not representative democracy would have been their priority.

But I doubt our Founding Fathers could have imagined the “values void” that we see in Europe and, increasingly, the United States. So what would happen if we were all atheists, or “humanists”? Since this blog post is economy-centered, I’ll point out that business thrives when trust and integrity are high. The “greed is good” phrase in Wall Street (a movie starring Michael Douglas) has proven to be absurdity. Look at WorldCom and Enron and you’ll see greed, not innovation, and certainly not integrity. When people are able to have a relatively high level of trust in others, and when they’re able to take them at their word, that is an environment where business is able to thrive.

The alternative is a society that requires much higher regulation and enforcement. The godless might not fear the wrath of God, but they fear the law. Since that is all that keeps them in check, regulation must be much more rigorous, and like a neighborhood of hoodlums, enforcement must be higher. Sarbox (Sarbanes-Oxley legislation) might not have been over the top after all. When people increasingly have no moral convictions and no moral concern outside themselves, more oversight isn’t just useful, but necessary.

The contrarian will argue that some religions have been harmful in some parts of the world. Look at the Middle East, where the areas of prosperity other than oil-wealth are areas where conservative Islam has taken a back seat. The UAE comes to mind. I agree with this assessment, and point again to the idea that not all religious are created equally. One could make the same argument in relation to India, whose polytheistic religion has not seemingly served to bolster their economy. Some philosophical religions, like Taoism or Buddhism, have had marginal roles in economic growth. Another contrarian argument might be this: what about “atheist China” and it’s 10%+ GDP growth for the past two decades? The China example is interesting, because China’s dabbling with the atheistic governance (call Communism) did not turn out so well for its people (tens of millions died during Mao’s unfortunate tenure). Now, China has more regular church-goers than western Europe.

So, when “God is dead,” Big Government becomes bigger. Regulations become more burdensome. People cling to their new Higher Power–the state–and freedom takes a back seat.

Science

In early 2007, Bill Gates wrote a commentary on the WP. It begins as such:

For centuries people assumed that economic growth resulted from the interplay between capital and labor. Today we know that these elements are outweighed by a single critical factor: innovation.

I think he’s right, and I think science is key to this single, critical factor. Science isn’t just about cell phones or wind turbines. It’s a thought process, one that requires analysis and detail. I can’t think of a single prosperous country that has become so without rigorous science curriculae. Although most people (that I know) would likely nod in agreement at this assertion, science courses are rarely mandatory in college, while “liberal arts” courses are always required. I suppose art history is more important than physics? Or maybe computer science takes a back seat to English Literature? In fact, current priorities are in favor of other nations excelling us in math and science, a process that is already unfolding.

Freedom

No country can achieve economic prosperity without freedom. Freedom allows us to start businesses without knowing top government insiders or being friends with the president. Freedom gives us the ability to work wherever we choose to work; it also gives employers the ability to fire employers at their whim.

Not all “free” countries are comparable. France, for eg, has restrictive labor laws. It’s difficult to fire even non-unionized employees, meaning that special care is taken in hiring them. If they’re “different,” i.e., non-white, they’re not going to be hired as frequently. The riots in France were a result to idle hands unable to get work. France’s labor laws are innately anti-freedom. Unions are inherently anti-freedom as well, displacing individual liberty with herd mentality.

Just as economies can’t prosper without freedom, freedom cannot exist without capitalism. Capitalism is freedom in the context of the marketplace, and without it, freedom (in the general sense of the word) simply doesn’t exist. How can one be free if he is a serf to the state to provide his employment and means of survival? How can he donate to charity if he does not control his own purse strings? He can’t do either.

I think this guy’s had too much vodka, seriously. He predicts that the US will break up by about 2010 (into six “pieces”). Check out the aforementioned link to see his “map” of the future disintegrated states. This guy has got to be the most delusional person on the planet. (Even if you believed the US was going to split, the map is still quite absurd. For starters, why would North and South Carolina go along with northeastern states and align themselves with Europe? Oh, and 15 north-central states go to Canada? Ridiculous.)

This guy under-estimates the US’s resiliency. One has to wonder if this is actually an ingenious FSB (KGB) plot meant to sow confusion. That would at least be more face-saving and theatrical than the “this guy’s an idiot” explanation.

Tyler Cowen asks the question that many laissez faire types (like me) are wondering:

We’re in a race to see whether politics will become the dominant means of allocating financial wealth in this country.  That could be the single biggest domestic issue today, but too few economists are speaking up about it.

So, does the government determine the allocation of wealth, or does the free market?

Related, Cowen writes (in an NY Times editorial):

In 1998, there was no collapsed housing bubble, the government’s budget was in surplus rather than deficit, bank leverage was much lower, and derivatives markets were smaller and less far-reaching. A financial crisis related to Long-Term Capital, however painful, probably would have been easier to handle than the perfect storm of recent months.

Cowen is questioning the wisdom of the bailout of a hedge fund company (Long Term Capital Management) that floundered in 1998. Was it wise for the government to save this company–or its creditors, at least? His suggestion is that letting the company fail might have precluded or lessened the severity of the current fiscal crisis, even though in the short term it would have been more painful.

Per Reuters, Canada’s (somewhat) Conservative government is blowing more money at too-big-to-fail auto companies. Is this in the aggregate interest of the economy at large? Or is this to appease labor union bosses? I’m thinking politicians are doing too much of the latter at the expense of the former (in Canada & the US).

Good summary of why the Detroit-3 bailout is bad:

The economy is hurt, as unions and large companies learn if things get really bad, they can depend on the government (as long as they spend a fortune on lobbyists and unions: Enron, Arthur Anderson, Lehman Brothers, et al. were not so wise). Auto innovation is hurt, as dinosaurs continue to take funding and investment that could go to innovative start-ups instead. Our infrastructure is hurt, as we continue to pour money into the past. The American taxpayer is hurt, as some of this money will be turned around to lobby us for even more.

Is our country headed for dependency and despotism?

“A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship….

“Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.”

These words – the author is unknown – are particularly sobering today. In the past few months, Uncle Sam has bailed out Wall Street, Fannie Mae and Freddie Mac, home-owners, banks, and US automakers, while the incoming administration promises a massive infrastructure investment.

Is it any surprise that cities, counties, and states are jostling for space at the federal trough? Who’s next? Big Media? Big Sports? Agribusiness?

I really just like the first 2 paragraphs here, though I’m probably a bit more optimistic than the author of the editorial (i.e., at present, I don’t see a hell-in-a-handbasket scenario due to the bailouts or for any other reason–our “system” is too resilient for that, though keeping up the vigilance isn’t a bad idea either).

Kids in school are not learning? Not a problem. Just promote them on to the next grade anyway. Call it “compassion,” so as not to hurt their “self-esteem.”

Can’t meet college admissions standards after they graduate from high school? Denounce those standards as just arbitrary barriers to favor the privileged, and demand that exceptions be made.

Can’t do math or science after they are in college? Denounce those courses for their rigidity and insensitivity, and create softer courses that the students can pass to get their degrees.

Fareed Zakaria has a good editorial entitled: Wanted: A New Grand Strategy. Check it out. Oh, note that Zakaria takes a pro-Obama stance and suggests that Obama is in a unique position to promote American interests worldwide (but don’t let that distract you from the very good main point: we need a grand strategy, one that doesn’t reflexively react to events but instead guides events in our strategic direction).

I suspect most people don’t do grand strategy well. First, people have a very zero-sum mindset (the “if you’re winning, I must be losing” mindset). Further, people tend to stereotype. I.e., after 9/11, the perception was that “those people” in the middle east are all bad (or, absurdly, the opposite extreme of blaming America for the attack). Lastly, people have a tendency to have a high opinion of their opinions. Differing opinions, even if the differences are superficial in substance, are meant with hostility.

Perhaps it is not just our political class that needs to develop a grand strategy, but society at large that needs to augment its strategic capacity.

U.S. Plans to Sign Nuclear Pact With U.A.E.

The Bush administration plans to sign its first nuclear-cooperation agreement with a Middle Eastern nation within the next few weeks, according to a senior U.S. official, raising concerns among congressional critics who say the deal could fuel nuclear proliferation in the region.

Actually, this is a good idea. Nuclear power is proliferating whether we like it or not, so it’s better that we forge these agreements and ensure the appropriate safeguards. Stubbornness would only lead countries like the UAE to turn elsewhere, at our peril.

A great editorial by Daniel Hamermesh on the Freakonomics blog asks that very question. The blog entry states that government intervention in the economy isn’t always a bad thing–and points out that it’s common, and for good reason. But he also states that the Detroit-3 bailout is motivated by politics and is actually bad economically.

Last few paras (note, my emphasis, below):

[A Detroit-3 bailout] certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.

It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?

Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970’s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?

The prestigious Joseph Stiglitz argues that Chapter 11 is the right course for the Detroit-3 dinosaurs. I agree. They can go through bankruptcy and re-structure (often the result of Chapter 11), or they can simply die out (also fine with me).

Extremely funny editorial by O’Rouke on why print media needs a government bailout. Teaser first paragraph:

The print journalism industry is taking a beating, circling the drain, running on fumes. Especially running on fumes. You could smell Frank Rich all the way to Nome when Sarah Palin was nominated. Not that print journalism actually emits much in the way of greenhouse gases. We have an itty-bitty carbon footprint. We’re earth-friendly. The press run of an average big-city daily newspaper can be made from one tree. Compare that to the global warming hot air produced by talk radio, cable television and Andrew Sullivan.

I like Kristof’s column, but he seems to skip stating the obvious: that we should get rid of our agri-subsidies. The subsidies are extremely wasteful in a number of ways, aside from being absurdly unfair.

Excerpt:

One measure of the absurdity of the system: Every year you, the American taxpayer, send me a check for $588 in exchange for me not growing crops on timberland I own in Oregon (I forward the money to a charity). That’s right. The Agriculture Department pays a New York journalist not to grow crops in a forest in Oregon.

That’s probably under-stating the absurdity of it all. Anyway, Repubs and Dems have been supportive of this injustice. Oh, except for McCain, who voted against the recent farm pork bill (Obama voted in favor of it, of course).

A very good commentary by Christopher Cox. I’ll just say I completely agree with his editorial & leave it at that.

From Thomas Friedman’s editorial:

Do not expect this innovation to come out of Detroit. Remember, in 1908, the Ford Model-T got better mileage — 25 miles per gallon — than many Ford, G.M. and Chrysler models made in 2008. But don’t be surprised when it comes out of somewhere else. It can be done. It will be done. If we miss the chance to win the race for Car 2.0 because we keep mindlessly bailing out Car 1.0, there will be no one to blame more than Detroit’s new shareholders: we the taxpayers.

The innovation he’s referring to is a project involving electric cars and, importantly, the infrastructure to re-fuel those vehicles. I don’t know about Friedman’s “Manhattan Project” mentality here. Like Thomas Barnett, I’m generally suspicious of that mind-set. Centralized planning doesn’t have a good record for efficiency and innovation (though some things, like the Bomb, were better planned in secrecy). But still, the innovation in question isn’t being done by the Big 3, but (I believe) by a private venture, and it looks promising. Maybe we’d see more of that in the US–in the absence of the Big 3.

I don’t know that electric cars are “the future.” More efficient vehicles, like the Toyota Corolla that I drive (it’s not even a hybrid), would extend the available oil (and there’s a lot of it) for many decades to come, while allowing for a longer and more natural transition to alternatives, such as all-electric vehicles based on non-fossil fuels.

The alternative is more junk from GM and Ford, not to mention more governmental meddling in the economy. I oppose the first by not buying their products. I oppose the last at the ballot box.

Like many others, I’m disgusted by the Big 3 “reward for failure” plan that amounts to outright nationalization of the companies. There are times that government intervention is appropriate. The recent financial crisis in the banking sector is one such example where involvement by Uncle Sam is probably for the greater social good, though the actions by government agencies (including Congress) will probably prove to include much wastefulness.

Our domestic autos are a different story. Some argue that the economy is just too fragile right now. But isn’t the point of the cash influsion into the banking sector supposed to remedy that, and if so, wouldn’t auto bailout money be a fiscal distraction from it?

OK, so maybe the jobs argument is better? I.e., maybe due to the millions of jobs that would be lost provide an argument for a “temporary” life line. That argument is bogus, of course. First, entering chapter 11 doesn’t mean millions or even thousands of jobs are lost. Further, many of the jobs in the (domestic) car industry are economically redundant anyway; some jobs, particular those “working” in the Job Bank, are completely economically unproductive. Many other jobs exist due only to union strangle-hold and management spinelessness. Such personnel, if let go, would potentially fill more economically productive roles in another company, possibly even another industry.

Reward-for-failure packages are sometimes–but rarely–necessary. Such packages, when they are doled out by government, should be allocated with strict provisos. They shouldn’t be given without serious strings attached, strings that discourage companies from accepting government freebies unless they’re truly desperate.

But though the Detroit-3 might be desperate enough for bailouts, they’re not necessary or strategic in nature. It’s not for the greater social good that the government bail them out. If they declare bankruptcy, they’ll do what many-an-airline has done and re-negotiate labor contracts and streamline operations for greater profitability and sustainability. They’ll consolidate. They’ll become more efficient, and as part of that, have a smaller work force (a sign of efficiency is when fewer bodies are required to perform a task, and that’s not a bad thing).

In the end, I predict politics will trump reason. Union bosses and the politicians that they’ve purchased have strong incentive to get this bailout, as much as the CEOs who manage the Detroit-3. Those CEOs will get their bailout and pay lip service to electric cars. They’ll keep their jobs and the union members will keep theirs as well. Everyone wins, except tax payers, free markets, and the would-be auto companies that would conceivably have emerged from the South, or even Silicon Valley, had Detroit been allowed to fall–and be replaced.

Fascinating reading on flu economics. Note that if you get the “real flu”–and not a cold that you mistake for a flu–it will put you out of commission for about two weeks, in near-constant pain.

But Doyle says these health risks don’t motivate students enough to get a flu shot. So he makes a more economic argument.

“Colleges now are typically between $15,000 and $25,000 a semester,” Doyle says. “If someone is sick for two weeks, you can gut the core of your semester. You can have to redo or dump your courses for that time period — and lose $25,000.”

But there is a cheap insurance policy against such a devastating loss: a $20 flu shot. Some colleges and universities offer them for free.

Anything to motivate students, I suppose (btw, I found that article via a Freakonomics post).

I think I got my flu vaccine once–or maybe twice at the most–in college. College keeps one very, very busy, so colleges can offer the vaccine during “down” periods to boost participation. Now, about 6 years out of college, I get the flu shot every year (and no, I’ve never gotten the flu from the flu shot).

I’ve heard that if you skip the flu shot one year and then get the flu, it will be less severe provided that you tended to get flu shots in the past. I don’t have any references for that though.