The Three T’s in a post-coronavirus world

As countries look to recover from the economic setback caused by the coronavirus pandemic, the three t’s – trade, travel, and technology – are likely to play an important role in getting the global economy back on the rails.

Trade

Even in the midst of the pandemic, countries have been in talks regarding Free Trade Agreements (FTA’s). The UK is seeking to sign an FTA with not just the US but also Japan, so as to buttress the bilateral economic relationship and get entry into the 11-member Comprehensive Partnership for Trans Pacific Partnership (CPTPP). Vietnam’s national assembly also ratified an FTA with the European Union known as EUVFTA (European Union Vietnam Free Trade Agreement) on June 8, 2020. According to the FTA, the EU will lift 85% of its tariffs on Vietnamese exports, while the remaining tariffs will be removed over a period of 7 years. Vietnam on the other hand will lift nearly half (49%) of its import duties on EU goods, while the rest of the tariffs will be removed over a period of 10 years.

The CPTPP is also likely to expand in the near future. Japan is seeking to get Thailand, Taiwan, Indonesia, and the Philippines on board. Tokyo’s aim is to reduce dependence on China by creating an alternative set of supply chains through multilateral networks.

Technology

In recent weeks, there has also been a growing debate with regard to creating new technologies, so that the dependency upon Chinese technologies is reduced. One important step in this direction is the UK’s suggestion for creating an organisation, called D10, which consists of the original G7 countries plus India, South Korea, and Australia. The aim of the D10 is to provide alternative technologies so that dependence upon Chinese technologies is reduced.

At London Tech Week, a report titled “Future Tech Trade Strategy” was given by British Trade Secretary Elizabeth Russ. Russ spoke about a new £8 million initiative which would enable British companies to expand tech ties with Asia-Pacific countries, especially Japan and Singapore. British companies will also be assisted by tech experts stationed in its high commissions and embassies in these countries.

Travel

In recent days, the resumption of international air travel has also also been an important matter of discussion. Three members within the 11-member CPTPP – Japan, New Zealand, and Australia – have already been in talks for resuming air connectivity. Japan is also likely to ease its entry ban from countries like Vietnam and Thailand where Covid-19 cases have reduced.

Singapore, another member of the CPTPP, is also in talks with South Korea, Malaysia, and New Zealand for resumption of air connectivity. (Singapore Airlines and Silk Air have been flying passengers from select destinations in Australia and New Zealand to Singapore’s Changi Airport throughout the pandemic.)

China, too, has been seeking to revive air travel. While China has recently set up a travel corridor with South Korea, it has also signed an agreement with Singapore for reciprocal travel for essential purposes – business and official. Initially, this arrangement will be for 6 provinces – Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu, and Zhejiang (travellers will need to apply for a visa in advance, and get tested for the corona virus both before departing for China and after arriving there).

Vietnam, which removed its lockdown at the end of April and resumed domestic flights, is also reviving international travel with a few select countries, such as South Korea (South Korean students can enter the ASEAN country through a special permit).

The EU is seeking to resume air connectivity with non-EU countries by the 1st week of July (the EU has already opened travel within EU member states), and it is likely that air connectivity with countries considered low risk will also resume shortly.

The resumption of travel will of course be undertaken on a step-by-step basis. Japan, for instance, has indicated that it will open its air connectivity with other countries in stages; first for businessmen, then students, and finally tourists. What is fascinating to observe is that the narrative with regard to the three t’s is not being set by the West, it is being set by Asian countries. Even within Asia, it is not just a China-driven narrative. Japan is playing an important role and, from within ASEAN, it is not just Singapore but Vietnam as well which has emerged as an important stakeholder.

Conclusion

In a post-corona world there are likely to be a number of changes, with geopolitical and economic dynamics in Asia likely to witness a significant shift.

What is also interesting to note is that travel and technology – two of the three t’s – were broadly thought of as key ‘soft power’ tools prior to the Covid-19 pandemic. Post the pandemic, there will be a strong ‘hard Power’ component to these two t’s. While in the context of travel, each country will be cautious with regard to opening up air travel, and stick to linkages with countries that have managed to control the corona virus; as far as technology is concerned, due to the rising tensions with China, the creation of alternative technologies is likely to be viewed as a security requirement (trade, the third t, had already acquired a strong strategic component even before the outbreak of the pandemic).

Nightcap

  1. Is this a new era of far right terrorism? Hoffman & Ware, War on the Rocks
  2. Great news on US-China trade talks Behsudi & White, Politico
  3. Chinese porn preferences Katrien Jacobs, Berfrois
  4. Denmark’s own “Lawrence of Arabia” Frederic Wehrey, New York Review of Books

The Capitalist Peace: What Happened to the Golden Arches Theory?

Many are familiar with the Democratic Peace Theory, the idea that two democracies have never waged war against one another. The point is widely recognized as one of the major benefits of democracy, and the hand-in-hand development of more democracies and fewer/less-devastating wars than virtually any other period of human history, is a tempting and enticing explanation.

Now, it is not overly difficult to come up with counter-examples to the Democratic Peace Theory, and indeed there’s an entire Wikipedia page dedicated to it. Here are some notable and obvious counters:

  • Yugoslavian wars of the 1990s
  • First Kashmir War between India and Pakistan War (1947-49)
  • Various wars between Israel and its neighbors (1967, 1973, 2006 etc)
  • The Football war (1969)
  • Paquisha and Cenepa wars (1981, 1995)

Some people even include the First World War and various 18th and 19th century armed conflicts between major powers (American War of Independence comes to mind), but the question of when a country becomes a democracy naturally arises.

There’s another, equally enticing explanation, the main rationale underlying European Integration: The Capitalist Peace, or in a more entertaining and relatable version: The Golden Arches Theory – as advanced by New York Times columnist Thomas Friedman in the mid-1990s:

No two countries that both have a McDonald’s have ever fought a war against one another.

Countries, frankly, “have too much to lose to ever go to war with one another.” As a proposition it seems reasonable, an extension of the phrase apocryphally attributed to Bastiat: “When goods don’t cross borders, soldiers will”. And not because your Big Mac meal comes with a side of peace-and-love or enhanced conflict-resolution skills, but because the introduction of McDonald’s stores represents close economic interdependence and global supply chains. After all, if your suppliers, your customers or your collegues consists of people on the other side of a potential military conflict, a war seems even less useful. Besides – paraphrasing Terry Anderson and Peter Hill in their superb The Not So Wild Wild Westtrading is cheaper than raiding. Even as adamant a critic as George Monbiot admits that a fair number of McDonald’s outlets “symbolised the transition” from poor and potentially trouble-making countries, to richer and peace-loving ones.

Not unlike poor Thomas Malthus, whose convicing theory had been correct up until that  point, reality rapidly decided to invalidate Friedman’s tongue-in-cheek explanation. Not long after it was published, the McDonald’s-ised nations of Pakistan and India decided to up their antics in the Kargil war, quickly undermining its near-flawless explanatory power of Friedman’s. Not one to leave all the fun to others, Russia engaged in no more than two wars in the 2000s to undermine the Golden Arches theory: the 2008 war with Georgia, and more recently the Crimean crisis. Adherring to their namesake creation, McDonald’s pull-out from Crimea was just a tad too late to vindicate Friedman.

The Capitalist Peace, the academic extension of the general truism that trading is cheaper than raiding, came undone pretty quickly thanks in part to our Russian friends. The updated version, the Dell Theory of Conflict Prevention, may unfortunately fall into the same trap as the Democratic Peace Theory: invoking ambiguous definitions that may ultimately collapse to mere than tautologies.

Brexit Breakdown

Ir has been obvious for at least a month now that soft Brexit has won out in the UK, though the Prime Minister Theresa May would never admit such a thing directly. Government discussion of access to the EU internal market at its existing level, or very close, and keeping the border open between the Republic of Ireland and Northern Ireland (a fundamental of the peace settlement in the north) would at the very least require continuing regulatory alignment in goods (that is, following the rules made by the European Union).

It seems very likely that negotiations of the terms of exit with the EU itself would make even this partial alignment with the internal market inadequate in order to get the desired level of access. At the very least EU negotiators would demand some inclusion of services (financial services are the big issue here) and something at least resembling free movement of labour.

That inclusion would be full UK access to the internal market after exiting and would require at least a Swiss style relationship with the EU, in which there is full market access in exchange for accepting EU rules and something close to free movement of labour. Such a relationship would mean accepting judgments of the European Court of Justice even if they are not incorporated into UK law. The UK might not follow Switzerland into EFTA (European Free Trade Association, see paragraph below).

It has even been suggested that the UK might find it necessary to adopt a ‘Norway’ solution, in which the UK is directly a member of the European Economic Area. Norway has free movement but opts out of common agricultural and fisheries agreements. It is not part of the EU customs agreement. Like Iceland, Lichtenstein, and Switzerland, it is a member of the European Free Trade Area, which essentially harmonises regulations between these countries and the EU; that is, EU regulations are enforced by EFTA institutions.

It is clear that most Conservative MPs and businesses (though more large business than small business) regard something like the arrangements above, soft Brexit, as preferable to hard Brexit (trade agreement with the EU as a completely external country, possibility of no deal). These MPs and business people, along with most Treasury economists and economists in general, believe that keeping complete access to EU markets is more valuable than vague claims of a trade boom through deals with non-EU states across the world.

Hard Brexiteers believe that economic growth of other parts of the world requires breaking free of EU shackles on global free trade. The soft Brexit, as well as Remain, argument is that membership of the EU does not prevent trade with the rest of the world and that some EU countries are already doing that very well compared with the UK. On this argument, geographical proximity will always make EU trade disproportionately important so that limiting access to EU markets in the hope that non-EU countries will want free trade agreements is unnecessary and probably very damaging.

May’s drift towards soft Brexit after presenting herself as the guardian of hard Brexit has the support of most of the Cabinet, and Conservative MPs, but has been disappointing hard Brexiteers for some time. An agreement of the full cabinet at the Prime Minister’s country residence for soft Brexit has led to the resignation of the two most hard Brexit-oriented ministers.

It seems unlikely this this will deter May from a soft Brexit policy, which everyone agrees can only become more soft in negotiations with the EU to achieve an agreed exit. It also seems unlikely that most Conservative MPs will resist this policy. The biggest problem for May could be that the opposition parties want to vote against the government in call circumstances, so could vote with hard Brexit Conservative MPs to bring down any Brexit agreement.

At this point Brexit might completely break down, with the UK becoming a full member of EFTA, so in practice a member of the EU which exchanges some opt-outs for absence from the decision making processes and institutions. It might even lead to a suspension of Brexit, or a second referendum in which the electorate chooses between the exit package and staying in the EU.

At present, the most likely options in descending order are: 1. soft Brexit, outside formal association with the EU, but like that in practice, 2. formal association with the EU, maybe meaning membership of EFTA, 3. the complete breakdown of Brexit. This could change and so far change has been to move further and further away from hard Brexit.

Personally I support continuing membership of the EU. It is inevitable that large parts of the UK economy will ‘align’ with EU regulations, so it is best to be part of the institutions and processes which decide on these regulations. That is the most pragmatic version of my argument.

I am also a strong European integrationist, even a federalist romantic. The qualification of this idealism is that integration should not go further than public opinion or institutional capacity can accept at any one moment and that economic realities should guide the relationship with Europe for and against the kind of integration I favour at heart.

My own ideal is a kind of revival of the medieval dreams of ‘universal’ (i.e. European) Empire. The poet Dante was a great exponent of such a vision in his classic of political thought On Monarchy, which does not exclude city republics, even favours them under a high European sovereign. We can join it with Marsiglio of Padua’s slightly later call for an empire with elections to have something like democratic federation for Europe.

Leaving my European romanticism aside for the moment, the current realities are that the UK’s exit from the EU has become more and more complicated by the disadvantages of disentangling complex and far reaching institutional and economic links, particularly when most people involved want to keep an open border with the Republic of Ireland and keep 100% of the current level of access to the internal market.

Nightcap

  1. The applied theory of bossing people around Deirdre McCloskey, Reason
  2. How to survive being swallowed Ed Yong, the Atlantic
  3. Soviet architecture, then & now Noah Sneider, 1843
  4. The Atlantic Ocean before Columbus David Abulafia, History Today

Minorities and Economic Growth: Evidence from Jewish Communities in Premodern Europe

Urban theorist Richard Florida is celebrated for arguing that cities today succeed by attracting members of the “creative class.”  In a similar spirit I have a recent paper with Noel D. Johnson where we investigated whether or not cities in medieval and early modern Europe grew faster if they possessed a Jewish community.

Scholars have long noted the role of minority groups in economic development. This is particularly true for the the premodern period. The great scholar of long-run historical development in Europe, Fernand Braudel, observed that “successful merchants who controlled trade circuits and networks often belonged to foreign minorities.” These minorities could be other nationalities or religious minorities, for example, “the Jews, the Armenians, the Banyans, the Parsees, the Raskolniki (Old Believers) in Russia or the Christian Copts in Muslim Egypt” (Braudel, 1979, 1982, 165).

Hornung (2014) studies the impact of the Huguenot migration to Prussia. Since the nineteenth century, scholars like Friedrich List linked the presence of Huguenots with the transmission of human capital, skills, and innovation. Hornung (2014) is able to test this hypothesis using Prussian immigration lists from 1700 that document the location of Huguenot settlements and firm-level data on input and output for all 750 textile manufactories in Prussia in the year 1802. Approximately 16,000 to 20,000 Huguenots fled France to Prussia at the end of the seventeenth century.  Hornung finds that the presence of Huguenots significantly increased firm productivity. Specifically, a 1 percentage point increase in the share of Huguenots was associated with 1.5 percentage points higher productivity in 1802.

Jewish Communities and City Growth

In our paper we take a broad sweep of European history from 1400 to 1850.  We have a total of 1,792 cities in our panel data from the Bairoch (1988) dataset and 1,069 Jewish communities that appear in the Encyclopedia Judaica. The figure below shows both the cities in the Bairoch dataset and the Jewish communities mentioned in the Encyclopedia Judaica.

 

bairochandjewishcitiesgreyscale

To understand the relationship between the presence of a Jewish community and subsequent city growth we conduct a difference-in-differences style regression analysis.

The fact that we have data on city populations every century means we can hold constant the identity of a city using city fixed effects and see whether or not it grew faster in the centuries when it had a Jewish community in comparison to those centuries when it did not. We can also control for the possibility that overall city growth was faster in some centuries in comparison to others using century fixed effects.

We are also able to hold constant other factors that could plausibly have affected city growth. We control for local geography including cereal suitability, proximity to rivers, and proximity to coast, as these factors likely affected city growth in different ways over time. We also control for local infrastructure including presence of university and distance to a medieval trade route.

Our  analysis suggests that, indeed, cities with Jewish communities grew faster on average between 1400 and 1850. The effect we find suggests that cities with Jewish communities grew about one third faster than those that did not have Jewish communities. This analysis remains a correlation, however. We do not know if the presence of a Jewish community brought with it economic benefits or if Jews merely choose to settle in faster growing cities.

Instrumenting the Presence of a Jewish Community

We model the network of Jewish communities as one way to see whether the effect of Jews on city growth was indeed casual. By examining how Jewish communities expanded we hope to isolate a source of exogenous variation in the presence of a Jewish community.

We assume that a Jewish community is more likely to be established close to another Jewish community because of trade networks, financial relationships, or cultural linkages. We then calculate the closest travel path between Jewish communities using our information about the location of roads and river networks and estimates of premodern transport costs. The important assumption we make is that if cities with Jewish communities share certain “unobservable” characteristics that might make them more likely to grow rapidly, these characteristics become less correlated with distance.

We then divide Europe into 5km x 5km grids and assign the lowest travel cost to each grid. We apply Djikstra’s algorithm to determine the lowest cost of travel between all 3,211,264 city pairs (van Etten, 2012). This allows us to create a measure of ‘Jewish network access’ for each city.

Jewish network access itself is, of course, correlated with the unobservable characteristics of the city for which it is calculated. To overcome this we adopt two strategies to create valid instruments out of the network access measures. First, we calculate Jewish network access for cities that are only more than a certain distance away from each other. Second, we use information on expulsions to weight our measure of Jewish network access. The intuition behind this is that Jewish expulsions consist of an exogenous “push” factor leading to Jews settling in new cities close to the existing network of Jewish communities. Using these two strategies we obtain similar (though larger in magnitude) effects from the presence of a Jewish community on city growth. This provides further suggestive evidence that the correlation we found in our baseline analysis was indeed causal.

The Relationship Between Urban Growth and the Presence of a Jewish Community Over time

Across specifications, we find that cities with Jewish communities experienced no growth advantage in the 15th and 16th centuries. After 1600, however, they began to grow significantly faster.

motivationlpoly

The relationship we observe in the Figure does not appear to be inline with a pure human capital story. Jews had higher human capital than Christians throughout the medieval and early modern period. But the growth advantage of cities that had Jewish communities only became evident after 1600. This raises the possibility that something else changed around  17th century that made the human capital and skills of Jews more complementary to economic growth.

Two Mechanisms: Jewish Emancipation and Market Access

The two factors that stand out in explaining the emergence of a growth advantage for cities with Jewish communities after 1600 but not before are: (1) Jewish Emancipation after 1750; and (2) a complementarity between the presence of a Jewish community and market access.

The process of Jewish emancipation began in continental Europe after 1780. It was a major institutional break that signified a major change in the economic, social, and political status of the Jews in Europe. In work with Jean-Paul Carvalho, I’ve shown that Jewish emancipation lead to a religious schism and the emergence of both Reform and Ultra-Orthodox Judaism.

In the period before Jewish emancipation, legal barriers limited the ability of Jews to put their labor to its highest value use. Jewish businesses were prevented from hiring non-Jewish workers. Jews could not attend universities. Moreover, Jews and Christians were culturally isolated. This changed with emancipation, and we expect to see it reflected in the contribution of Jewish communities to city growth in the post-1750 period.

The second factor we study is the complementarity between the presence of a Jewish community and the development of markets. The historical literature points to the importance of Jewish trading and financial networks. But, while economic historians have conducted numerous studies of market integration during the early modern period, with a few exceptions these have focused on the grain trade with little systematic study of other markets due to data limitations. Jewish merchants in medieval and early modern Europe, however, did not play a prominent role in the grain trade but, rather, were involved in the transport of diamonds, sugar, silks, tobacco, and other luxury products in addition to playing a large role in banking and finance. Therefore, rather than looking at grain markets, we explore a more general measure of market integration based on market access.

Market access depends on the population size of nearby cities weighted by the cost associated with the least cost travel path. We show that market access was increasing for all cities after 1700. We find evidence that cities with Jewish communities were better able to take advantage of this increase in market access. As we detail in the paper, our findings are consistent with the argument made by numerous historians that Jewish trading and finance networks help to knit together the European economy, particularly in the period 1650 to 1800 (Israel, 1985).

 

Our analysis provides support for the accounts of historians who have emphasized the important role played by Jewish traders in 17th and 18th century Europe (such as Fortune, 1984; Israel, 1985; Trivellato, 2009). Furthermore, our story is in line with institutional arguments such as those developed by Douglass North, John Wallis and Barry Weingast, and Daron Acemoglu and James Robinson.  In the Middle Ages, the presence of Jewish communities was part of an institutional arrangement that extracted rents from society and distributed them among members of the ruling elite. The eradication of these rent-seeking arrangements and the liberalization of Jewish economic activity, first in the Netherlands and England and then in the rest of Europe following Jewish Emancipation, was of critical importance as it is in those cities that possessed emancipated Jewish communities that we observe the strongest relationship between the presence of Jews and economic growth.

NGDP, NGO and total expenditures

I did not think that my post on NGO versus NGDP would gather attention, but it did (so, I am happy). Nick Rowe of Carleton University and the (always relevant) blog Worthwhile Canadian Initiative responded to my post with the following post (I was very happy to see a comment by Matt Rognlie in there).

Like Mr. Rowe, I prefer to speak about trade cycles as well. I do not know how the shift from “transactions” to “output” occurred, but I do know that as semantic as some may see it, it is crucial. While a transaction is about selling a unit of output, the way we measure output does not mean that we focus on all transactions.  I became aware of this when reading Leland Yeager (just after reading about the adventures on Lucas’ Islands). However, Nick (if I may use first names) expresses this a thousand times better than I did in my initial post. When there is a shift of the demand for money, this will affect all transactions, not only those on final goods. Thus, my first point: gross domestic product is not necessarily the best for monetary transaction.

In fact, as an economist who decided to spend his life doing economic history, I do not like gross domestic product for measuring living standards as well (I’ll do a post on this when I get my ideas on secular stagnation better organized). Its just the “least terrible tool”. However, is it the “least terrible” for monetary policy guidance?

My answer is “no” and thus my proposition to shift to gross output or a measure of “total spending”. Now, for the purposes of discussion, let’s see what the “ideal” statistic for “total spending” would be. To illustrate this, let’s take the case of a change in the supply of money (I would prefer using a case with the demand for money, but for blogging purposes, its easier to go with supply)

Now unless there is a helicopter drop*, changes in the money supply generate changes in relative prices and thus the pattern (and level) of production changes too. Where this occurs depends on the entry point of the increased stock of money. The entry point could be in sectors producing intermediary goods or it could closer to the final point of sale. The closer it is to the point of sale, the better NGDP becomes as a measure of total spending. The further it is, the more NGDP wavers in its efficiency at any given time. This is because, in the long-run, NGDP should follow the same trend at any measure of total spending but it would not do so in the very short-run. If monetary policy (or sometimes regulatory changes affecting bank behavior “cough Dodd-Frank cough”) causes an increase in the production of intermediary goods, the movements the perfect measure of total spending would be temporarily divorced from the movements of NGDP. As a result, we need something that captures all transaction. And in a way, we do have such a statistic: input-output tables. Developed by the vastly underrated (and still misunderstood in my opinion) Wassily Leontief, input-output tables are the basis of any measurement of national income you will see out there. Basically, they are matrixes of all “trades” (inputs and outputs) between industries. What this means is that input-output tables are tables of all transactions. That would be the ideal measure of total spending.  Sadly, these tables are not produced regularly (in Canada, I believe there are produced every five years). Their utility would be amazing: not only would we capture all spending (which is the goal of a NGDP target), but we could capture the transmission mechanism of monetary policy and see how certain monetary decisions could be affecting relative prices.** If input-output tables could be produced on a quarterly-basis, it would be the amazing (but mind-bogglingly complex for statistical agencies).

The closest thing, at present, to this ideal measure is gross output. It is the only quarterly statistic of gross output (one way to calculate total spending) that exists out there. The closest things are annual datasets. Yet, even gross output is incomplete as a measure of total spending. It does not include wholesale distributors (well, only a part of their activities through value-added). This post from the Cobden Centre in England details an example of this. Mark Skousen in the Journal of Private Enterprise published a piece detailing other statistics that could serve as proxies for “total spending”. One of those is Gross Domestic Expenditures and it is the closest thing to the ideal we would get. Basically, he adds wholesale and retail sales together.  He also looks at business receipts from the IRS to see if it conforms (the intuition being that all sales should imitate receipts claimed by businesses). His measure of domestic expenditure is somewhat incomplete for my eyes and further research would be needed. But there is something to be said for Skousen’s point: total nominal spending did drop massively during the recession (see the fall of wholesale, gross output and retail) while NGDP barely moved while, before the recession, total nominal spending did increase much faster than NGDP.

NGONGDP1

In all cases, I think that it is fair to divide my claim into three parts: a) business cycles are about the deviation from trends in total volume of trades/transactions, thus the core variable of interest is nominal expenditures b) NGDP is not a measure of total nominal spending whose targeting the market monetarist crowd aims to follow; c) since we care about total nominal spending, what we should have is an IO table … every month and d) the imperfect statistics for total spending show that the case made that central banks fueled spending above trend and then failed to compensate in 2008-2009 seems plausible.

Overall, I think that the case for A, B and C are strong, but D is weak…

* I dislike the helicopter drop analogy. Money is never introduced in an equal fashion leading to a uniform price increase. It is always introduced through a certain number of entry points which distort relative prices and then the pattern of trade (which is why there is a positive short-term relation between real output and money supply). The helicopter drop analogy is only useful for explaining the nominal/real dichotomy for introductory macro classes.
** Funny observation here: if I am correct, this means that Hayek’s comments about the structure of production would have been answered by using Leontief’s input-output table. Indeed, the Austrians and Neoclassicals of the RBC school after them have long held that monetary policy’s real effects are seen through changes in the structure of production (in the Austrian jargon) or by inciting more long-term projects to be undertaken creating the “time to build” problem (in the RBC jargon). Regardless of which one you end up believing (I confess to a mixed bag of RBC/Austrian views with a slight penchant to walk towards Rochester), both can be answered by using input-output tables. The irony is that Hayek actually debated “planning” in the 1970s and castigated Leontief for his planning views. Although I am partial (totally) to Hayek’s view on planning, it is funny that the best tool (in my opinion) in support of Hayek is produced by an intellectual adversary

Slowly debunking the trade leads to peace fallacy

In 2010 I wrote that economic issues are just another factor in decisions on war or peace. There is nothing to suggest that free trade leads to peace per se (The Liberal Divide over Trade, Peace, and War, International Relations, vol 24, number 2, June 2010).

This is not a particular popular viewpoint, certainly not among classical liberals and libertarians, for reasons written about before at this blog.

So it is nice to read in Dale C. Copeland’s new book Economic Interdependence and War (Princeton University Press 2015), that indeed it all depends upon the situation. Economic factors can just as easily be cause for war, as a cause for refraining from violence. Copeland does not write from the liberal tradition, but if he had, he could have used Adam Smith, David Hume or Friedrich Hayek in support for his argument.

Anyway, the good thing is that the free-trade -leads-to-peace thesis is slowly but surely being debunked. It makes for a better and more mature discussion about international relations, inside and outside liberalism.

Around the Web

  1. When governments go after witches
  2. Borders, Ethnicity and Trade [pdf]
  3. A Lonely Passion. Libertarians in China
  4. Halloween in Germany: read this with globalization and its critics in mind
  5. Should Japan take the lead in mediating US-Iranian talks? Props to Obama, by the way
  6. Another excellent Free Speech blurb from Ken White
  7. Culture in a Cage

The Disaster: A Teenage Victory

Last Tuesday (11/6/2012) there was a vote about the future and the teenagers won. They now have the keys to the family car.

I have never in my life so wanted to be wrong in my judgment. Here it is: President Obama’s re-election is an even worse disaster than his election was. Do I think that many of the people who voted for him gave serious thought to the giant national debt, to the impending entitlement implosion, to the tepid economic growth, or even to the unusually high rate of unemployment? No. Do I think a sizable percentage did? No. Do I think a few did consider all or any of this? I am not sure.

President Obama won re-election decisively. His margin in the popular vote was nearly three million votes. Apparently* there were none of the gangsterish electoral tactics that marred his 2008 election. This makes the results worse as far as I am concerned.

President Obama is still not a monster. It’s possible that he is manipulated by a brand of leftists we thought had disappeared long ago. It’s also possible that someone like me will nurture in his brain paranoid notions at a time of major anxiety, such as now. Continue reading

One Sure Thing About Globalization – The American Motion Pictures Industry World Hegemony Part 5

[Editor’s note: this lecture was delivered to the Leavey Institute of Santa Clara University in 2003. You can find it reproduced in whole here]

The Virtuous Global Effects of American Motion Pictures Hegemony

If one concedes the possibility that screen products generate or encourage violence, one must also accepts the possibility that they may affect behavior in socially desirable ways. (One can’t have it both ways: Television and, by extension, the cinema are either impotent or they may exercise a virtuous influence, as well as a pernicious one.) Thus, Curtin (1999) argues that satellite television circulates globally beneficently subversive (i.e. non-traditional), images of femininity, and therefore, alternative ways of being a woman. A moving testimony comes from the Albanian novelist Ismail Kadaré (1999): During the long night of Albanian communism (Albania was the most isolated country on Earth for forty years. Its paranoiac regime ended up cutting off relations with all countries except North Korea), Kadaré comments at length on how frequent exposure to garden–variety Western television courtroom drama ultimately induced among Albanians a distaste for personal blood feuds as old- fashioned or un-modern.

So, I pose the question: What virtuous influence may the ubiquitous American movies have on the rest of the world and, in particular, on the poor and on the downtrodden everywhere?

Even if one subscribes to the idea that movies don’t do much directly to alter either the values or the behavior of viewers, they inadvertently carry factual information, in their settings, as well as in the mundane aspects of their plots. I don’t see how some of that information cannot cumulatively have a liberating effect on those who live under less fortunate circumstances. American movies are shot mostly in the US (sometimes in Canada).They are directed mostly by American directors (or by Americanized Brits). Although Hollywood is one of the world centers of political correctness and of left-wing piousness, Hollywood films cannot help but convey to global audiences important realities of American life (and generic features of life in Western, secular, democratic, capitalist societies, in general). Among these: Continue reading

One Sure Thing About Globalization – The American Motion Pictures Industry World Hegemony Part 4

[Editor’s note: this lecture was delivered to the Leavey Institute of Santa Clara University in 2003. You can find it reproduced in whole here]

Just another National Specialization

The massive asymmetry in films exports between the US and the rest of the world may be the result of any number of factors. The fact that foreign movies occasionally do well in the US market ( in recent years, “Life is Beautiful”, from Italy, “Amélie”, from France. The first, 1999, Pokemon cartoon from Japan grossed US$85.7 , million, according to WSJ 7/19/02:w11, and, as forecasted by same – “Read my Lips”, also from France, will do well) suggests that public preference, and possibly language barriers, are more likely to be issues than American distribution superiority, for example. Yet, language barriers may be less significant than one would guess. Luc Besson’s “Jeanne d’Arc” (“The Messenger”) released in 1999, purportedly produced in English to make it accessible to the polyglot EU markets and to the US market, registered 3.07 million admissions in the European Union in that year, against, 40 million for American-made “ Star Wars Episode 1”, 23 million for “Tarzan”, almost 21 million for “The Matrix” , and 7.4 million for “American Pie”. Even the obscure, American-made “Patch Adams” did better ( EAO 2001: 100). “The Messenger” flopped so badly in the American market that admissions and revenue figures are hard to find. For 1999 also, only one British production and two UK-US co-productions, all in English of course, figure among the top worldwide 50 admission getters. In Belgium where practically the whole population understands French , French-made movies obtain usually less than 10% market share, against an 80% share for American-made movies. (EAO 2001: 96). Finally, the foreign successes of Indian movies, almost all in languages understood hardly anywhere outside India and not everywhere in India, suggest again that language may be a small constraint. Continue reading

One Sure Thing About Globalization – The American Motion Pictures Industry World Hegemony Part 3

[Editor’s note: this lecture was delivered to the Leavey Institute of Santa Clara University in 2003. You can find it reproduced in whole here]

Broken Promises

Harm to the poor on a considerable scale occurs when rich countries suddenly violate the principles of free trade they publicly support, on the main. The US government and those of other post-industrial countries will periodically make a show of vaunting the merits of free trade on stages (such as the World Trade Organization) that guarantee worldwide publicity. These actions must encourage at least some of the most enterprising poor in poor countries to produce for distant markets they are not in a position to understand.

When the governments of rich and large entities, such as the US, Japan and the European Union, suddenly inhibit the free movement of products, those enterprising poor people in poor countries suffer, and suffer disproportionately. Thus, the recent passing of new American farm subsidies legislation (in 2002) makes it difficult or impossible for small farmers in the Sahel area of Africa to compete on the world ‘s cotton markets with American growers (Thurow and Kilman, 2002)(6). The steel tariffs erected by the Bush administration – with the full complicity of Congress – must have similar effect on steelworkers in some of the Third World and Eastern European steel-producing countries.

Neither of these policies nor the broken promises they imply, can be easily defended on moral or rational grounds. Directly, it can probably be shown that the economic actors of poor countries who embraced free trade end up worse off than they would be if they had toed to a more parochial (“autarkic”) line. Indirectly, such breaches of faith by powerful rich countries contribute to the stagnation of the Third World by seeming to prove wrong those who adopted a stance leading most surely to economic development: embracers of production for worldwide markets. (In my experience, well-educated defenders of national economic ”self-sufficiency” rarely care to argue against free trade in principle; instead, they rely on evidence that there is no real free trade but a poisonous international game where the dice are loaded against the poor in poor countries. Sometimes, they have a point.)

The American Motion Pictures Industry’s Hegemony Continue reading

One Sure Thing About Globalization – The American Motion Pictures Industry World Hegemony Part 2

[Editor’s note: this lecture was delivered to the Leavey Institute of Santa Clara University in 2003. You can find it reproduced in whole here]

Poverty, some International Trends

Now, let’s look for objectionable new facts in the worldwide distribution of income. (It’s too difficult to get international data on wealth.) In the nineteen-fifties, the total of the national incomes of all other countries in the world barely equaled the national income of the US alone (Delacroix, 1974). Today, the US GNP constitutes less than one third of the sum of all countries’ GNPs (World Bank, 2002:4.2), although the US has experienced healthy economic growth since the fifties. It’s true that a number of countries are mired in deep poverty and that some are even regressing. (See below.) It seems to me those are all countries with exceptionally corrupt or tyrannical governments, such as Haiti on the one hand and North Korea, on the other, or stand-alone plutocratically-run former colonies such as the so-called “Democratic Republic of the Congo” (formerly Zaire), or Sierra Leone (where, incidentally, the bulk of the population was almost certainly better off under European colonialism), or that they have especially poor access to current information (because of high illiteracy and other reasons, including government censorship or even deeply entrenched cultural facts [4]), such as Afghanistan (but no hard data are available). By far the worst economic performers in the past ten years are the European countries that have been trying to recover from their cruel experiment in state socialism (“communism”), not the Third World countries.

In spite of loose talk of “globalization” somehow deepening the poverty of the Third World (5), the following countries experienced higher average Gross Domestic Product rates of annual growth than the US (and higher than any Western European country, except one; see below) between 1990 and 2000: Continue reading

One Sure Thing About Globalization – The American Motion Pictures Industry World Hegemony Part 1

[Editor’s note: this lecture was delivered to the Leavey Institute of Santa Clara University in 2003. You can find it reproduced in whole here.]

The word “globalization” is often used as shorthand to suggest that the world as recently shrunk for many purposes (Friedman, 1999). At first blush, this would seem to be good news, facilitating the spread of literacy, the diffusion of useful technologies, and socioeconomic progress, in general. However, a large segment of public opinion, in this country and, apparently, a larger segment in Europe and certain other countries (such as India), takes a jaundiced view of this shrinkage. This view is propagated by numerous websites as well as by professional intellectuals such as Noam Chomsky (who is often heard on National Public Radio). It contains a large anti-American component (Menand, 2002). It is widespread – at various levels of sophistication – in American universities. (1) In recent years, it has been dramatically acted out by rioters in Seattle, Quebec and Genoa, among other places. For left-wing opinion, “globalization” seems to imply that there is something radically new under the sun that is also economically nefarious for the poor and for the weak. For the same left-wing opinion, the word often suggests a sinister plot implicating in turn, “big corporations”, the World Trade Organization, the International Monetary Fund, and other organizations little understood by the general public. (For a broad, business-oriented and mildly liberal classification of the many sins the word “globalization” covers, see Eden and Lenway, 2001.) That new something entails a clandestine hegemony, or hegemonies, of some sort, dedicated to the further “exploitation” of the already poor and weak by the already rich and powerful. In this presentation, I develop the idea that there is little that is both radically new and nefarious,
and that what is new is likely to have largely beneficial effects. I rest my argumentation on readily available, public evidence.

Note: If you don’t think such a perspective on globalization exists, or you believe it’s inconsequential, you may want to stop reading. It is very difficult to find anywhere assertions about globalization displaying at once the following features: Continue reading