Category Archives: Economics

The Cost Shifting Economy

Posted on by

When most people think of business, they think of people buying and selling, making something, and selling it or maybe selling a service. The old adage of buy low and sell high is still the basic idea of business. Rich people, however, like the people who currently rule over us, do not think about any of that stuff when they hatch a business scheme. Instead, they think about how they can shift the cost of doing business onto the public or some unsuspecting suckers, like the American taxpayer. It is how rich people do business.

This is not a new idea. Cost shifting was an integral part of the Industrial Revolution. The factory owner was not covering the full cost of his labor, for example, because he did not have to cover the cost of workplace health a safety. Building a bridge was a lot cheaper, because the cost of worker deaths was not the responsibility of the builder. No one thought about the costs of environmental degradation in the 19th century, so companies were free to dump poison into rivers and pump pollutants into the atmosphere.

It is reasonable to argue that the great fortunes made during the Industrial Revolution, at least in America, were made in large part from cost shifting. After all, it was not just the direct costs like labor, which were shifted onto the public. Once a man got rich, he could afford to buy politicians, who would pass laws giving the rich business owners leverage over their smaller competitors. It is not an accident that those great fortunes were created early in the industrial age, and none were created in later stages.

The political class in the early 20th century was still strong enough to push back against the industrial barons. It became politically popular to push through trust busting to weaken the industrialist. Then it became popular to push through reforms and allow unions to organize labor. Conservative proselytizing against these policies over the decades has obscured the fact that much of it was an effort to push those private costs back into private hands. The end of the industrial age corresponded with the end of cost shifting.

Today, cost shifting is everywhere in the economy. Tech companies have exploited public utilities, like the internet, to provide media services, without having to pay distribution costs. Amazon built its business, in part, on not having to collect sales taxes like every other retailer in America. Currently, their shipping costs are subsidized by the US Postal Service which loses billions every year. Then there are the many rackets that rely on government subsidies. Higher education is just one big upper middle-class subsidy.

The biggest cost shifting racket today is the use of imported labor. Recruiting, hiring, and training Americans is expensive because America is a first world society. Citizens expect first world working conditions. That makes it hard to shift labor costs onto the public, so companies prefer foreign labor. That way, they can pay lower wages and they avoid having to deal with employees who know their rights or have ideas about forming a union. Plus, foreign workers do not sue for things like discrimination or poor safety conditions.

There is a cost to this sort of predatory labor system, but those costs are shifted to the public in the form of depressed wages and high social costs. The migrants in every hospital emergency room are not having their bills picked up by their employer. When Pablo decides to get drunk and drive over an American, his employer is not paying the victim’s family or covering the cost of Pablo’s incarceration. The fact is, there is nothing more expensive to a society than cheap labor, it is just hidden from public view.

The question though is whether it is possible to get rich in a mature economy without massive cost shifting. No great fortunes were amassed from the end of World War Two until the technological revolution. That was a period when business costs were shifted back onto business. The tech revolution made it possible to get around the regulations and laws, because the government never anticipated a digital economy. That is starting to change just as the technological revolution is winding down and the public is pushing back.

Take a look at the newspaper business. Prior to the digital age newspapers could be run profitably, but they had high labor and capital costs. In theory, the digital age offered the chance to slash those costs. The internet does not require printing presses and delivery trucks. But the internet also slashed their revenue stream. All those ad dollars are now on eBay, Monster and so forth. Newspapers, without monopoly power and with no ability to shift their costs to the public, are all losing money and headed for extinction.

That does not mean it is impossible to turn a profit without cost shifting, but it does suggest it is impossible to get rich without it. At least not billionaire rich. That would certainly explain the fanatical commitment to migrant labor by American business. It also explains the increasingly opaque financial system. It is not so much about reducing costs as hiding them in the costs of other goods and services, like taxes and health care. It is a lot easier and profitable than trying to make a better product or become more efficient.

The Cheap Credit Era

Posted on by

The current age is one of extreme short-term thinking. Americans have always been known for taking the short view, but today our culture is built around a “live for the moment” attitude. Sit in a business meeting and exactly no one talks about downstream possibilities. It is all about this month, this quarter or, for the sprinkling of long-term planners, the remainder of the year. You see this in our politics, where everyone reacts to the latest polls or latest news event. We are a high time preference society now.

This is why immigration reform is proving to be a non-starter. The Left side of the political class sees nothing but opportunities to rig the next election with foreign ringers, so anything that interferes with that is blocked. The Right side is wholly owned by the cheap labor lobbies, who like the idea of disposable labor. It is not that the people in charge think their grandchildren will be exempt from the ravages of mass migration. It is that they are unable to think past the moment. For our rulers, tomorrow never comes.

Just because the people in charge have no interest in the future does not mean the future is equally disinterested in us. That is what will make the coming years interesting, with regards to the economy. The Fed has finally begun the process of tightening the money supply, after a decade of an extremely loose policy. That means rising interest rates in the US and a strengthening dollar, relative to other currencies. This is not going to happen overnight, but the Fed is going to move quickly now that there are signs of real inflation.

The trouble is a big chunk of the economy has become addicted to cheap money. Take a look at the car business. Every car maker has set up special lending facilities so they can entice buyers. Instead of figuring out how to make cheaper cars, they offer near zero interest and extended terms. You can get from most makers a seven-year term on a new car, along with a super-low interest rate. They may even offer cash back you can use for the down payment. There’s even sub-prime lending at the lower end of the market.

Now, the Feds are not bringing back 1970’s interest rates and they are going to move slow. Still, it has been a long time since interest rates have been close to historic averages and that means most people making decisions do not know what it is like to live in that world. It has been 18 years since mortgage rates were above seven percent. It has been 27 years since we saw eight percent rates. It has been a decade since rates were above five percent. In other words, the world has become used to historically low rates.

It is not just the retail end that will have to come to terms with a world of rising interest rates. Most business runs on credit these days. The bigger the business, the bigger the debt burden. US corporation have $4 trillion in debt that will roll over in the next five years, according to industry analysts. What this means is their debt service will increase as they refinance old debt with new, more expensive debt. That is how corporate debt works. Most of it is fueled by bonds, so new debt pays maturing debt plus interest.

Of course, business is not the only institution relying on cheap credit. Governments around the world have come to depend on the endless appetite for sovereign debt to keep borrowing rates low. When central banks take money off the street, it means there is less money to chase after sovereign debt. Healthy debtors like the US government will not feel the pinch, but the struggling countries in Europe and South America are going to find it more difficult to sell debt. It may not take much to topple a country like Argentina.

Again, the Fed is not bringing us back to the 1970’s. Barring some inconceivable catastrophe, no one reading this will ever see double-digit interest rates again. It is just that since the end of the Cold War, America has been living with historically low interest rates and it has changed the nature of our economy. Cheap credit makes short term deals more viable and more common. It also increases risk taking. The result of all this cheap money is an economy that lives for the moment. Everyone is in it for the quick buck.

In theory, the slow gradual return of interest rates to something close to historic norms should not have a big impact. Almost thirty years of super-low rates, means most of the institutional knowledge about working in a normal rate environment is gone or heading for retirement. That means a lot of people are going to have learn the hard way about how business and finance works in a less than free money era. Therefore, no one can really be sure what is going to happen as the Feds slowly raise rates over the next years.

Celebrity Experts

Posted on by

A few years ago, Greg Cochran pointed out that western economists had been very wrong about the economic condition of the Soviet bloc countries. Paul Krugman had claimed that the East German economy was 80% of the West German economy. When the wall fell, what was revealed was a backward economy with environmental devastation and low-quality consumer goods. All of this was obvious from the outside. All you had to do was take a look at the cars, which were a joke compared to the cheapest western cars.

The reason western economists were so laughably wrong about the Soviet economy is that it was worth their while to be wrong. The Left side of the ruling class wanted to believe the commies were doing well. They owned the media and the academy, so it is not hard to figure out the rest. That, of course, calls into question the integrity of the field, but in reality, they just believed what was convenient. Even PhD’s can delude themselves if it has social value. You see that in this post by celebrity economist Tyler Cowen.

Will Ethiopia become “the China of Africa”? The question often comes up in an economic context: Ethiopia’s growth rate is expected to be 8.5 percent this year, topping China’s projected 6.5 percent. Over the past decade, Ethiopia has averaged about 10 percent growth. Behind those flashy numbers, however, is an undervalued common feature: Both countries feel secure about their pasts and have a definite vision for their futures. Both countries believe that they are destined to be great.

Consider China first. The nation-state, as we know it today, has existed for several thousand years with some form of basic continuity. Most Chinese identify with the historical kingdoms and dynasties they study in school, and the tomb of Confucius in Qufu is a leading tourist attraction. Visitors go there to pay homage to a founder of the China they know.

This early history meant China was well-positioned to quickly build a modern and effective nation-state once the introduction of post-Mao reforms boosted gross domestic product. That led to rapid gains in infrastructure and education and paved the way for China to become one of the world’s two biggest economies. Along the way, the Chinese held to a strong vision that it deserved to be a great nation once again.

My visit to Ethiopia keeps reminding me of this basic picture. Ethiopia also had a relatively mature nation-state quite early, with the Aksumite Kingdom dating from the first century A.D. Subsequent regimes, through medieval times and beyond, exercised a fair amount of power. Most important, today’s Ethiopians see their country as a direct extension of these earlier political units. Some influential Ethiopians will claim to trace their lineage all the way to King Solomon of biblical times.

Cowen is either trying hard to please the Ethiopian economic and cultural ministers or he has spent too much time in the sun. The reason Ethiopia has seen growth rates tick up is the Chinese, and to a lesser degree India, have been investing. The reason they are investing is both are competing for control of the Indian Ocean. In fact, the Chinese have invested in other East African countries, including a naval base in Djibouti. That is why China and Indian are investing in East Africa. It is a modern form of colonialism.

Further, comparing China and Ethiopia, at the civilization level, is a bit ridiculous. China is basically one people, the Han, with minority populations around the fringes. This has been true for a long time. Ethiopia is a combination of pastoral and settled people, who see one another as rivals. The country is experiencing civil unrest, bordering on civil war, in response to the ruling Oromo minority. China has never had this issue. China also has an average IQ over one hundred, while Ethiopia is one of the lowest on earth, estimated below 70.

Now, economists are easy targets, because the profession has evolved into something similar to the celebrity chef racket. There is not a lot of money in making good food and running a quality restaurant. There’s big money in being an entertaining chef with a TV show on cable television. Something similar has happened to economics. You do not actually have to be particularly good at economics to get a spot in the commentariat. You just have to sing the praises of the managerial class and play the professorial role well.

Even so, it takes special talent to be this wrong about observable reality. Cowen’s trick, like most celebrity experts, is to couch his obsequiousness and nutty ideas in the form of a question. “Is Ethiopia the next China?” This way, when called on it, he can pretend it was just an intellectual exercise, a thought experiment. Meanwhile, he appears to be lending his authority to the rather ridiculous notion that Ethiopia is poised to be the next boom town. It is no wonder that so many in the managerial class are so vapid and silly.

It is tempting to dismiss this, but the proliferation of celebrity experts says something about the nature of managerialism. It has evolved a class of people that are luxury goods. They have no utility other than to make the people inside feel special. The TED Talk is a great example. Cloud People pay to be told by a celebrity expert that their lives have purpose, and they are on the side of angels. It is not explicit, but the point of the expert is always to confirm the beliefs of the audience, rather than broaden their understanding.

If the celebrity expert were just the current version of the court jester, it would probably be harmless, but that is not the case. The people making public policy have risen through the system, never having been told a discouraging word. They end up having opinions about the world that border on lunacy. The people running the Bush foreign policy really believed they could democratize the Middle East. They still believe this, and they probably think East Africa is the next economic boom town. That is what the experts tell them.

There is an argument that the proliferation of lawyers is responsible for the proliferation of laws. The extra lawyers, looking for a way to make a living, inevitably started to pervert the law to create opportunities for themselves. This results in more cases in court, which means more courts, more judges and then more laws to address the crazy outcomes. It is a bit of chicken and egg theory, but there is no question that having a lawyer for every conceivable case has changed the nature of the law, as well as the volume of laws.

Something similar seems to be happening in the other parts of the managerial class. The excess of middling strivers means an excess of mediocre men pitching themselves as experts. Since being an expert is hard, the more fruitful course is to tell the audience what they want to hear. As a result, in the public policy arena, the people charged with actually knowing stuff are surrounded by an amen chorus that cheers their every move. Instead of rule by experts, as some imagine, we have rule by people who never faced adversity.

Markets Are Not Gods

Posted on by

One of the many reason libertarians had no choice but to evolve into the pep squad for the managerial state is they could never finish their own sentences without sounding like loons. For example, their reification of free markets, often has them sounding like primitive shaman. Their deification of personal liberty would lead them to defending morally abhorrent things like the poor selling their organs to the rich. In order to avoid this, they developed the habit of not finishing the thought.

One of the errors of libertarianism, as well as the various tribes of the New Right, is the mistaken belief that markets are a Platonic good. The free market is the end, rather than a means to some end. A popular trope among those in the post-war New Right was the claim that an undesirable end, arrived at through principled means, was superior to a desirable end, arrived at through unprincipled means. It is has always been a ridiculous idea as a basis for politics.

The marketplace is never perfect and it can often lead to undesirable ends. This is why it has to be viewed as a tool, one of the many tools a society has to better itself and insulate itself against its own internal division. A fair and open marketplace for housing, for example, will result in the maximum amount of affordable housing. Open borders and unfettered trade will lead to the corruption of the people’s laws. An unfettered recreational drug market will end up with this.

A less emotional example of this is the market for concert tickets. It used to be that states protected the primary market by suppressing the secondary market. The internet and the unwillingness of the people in charge to enforce the laws has changed that. The primary market has now been captured by the secondary market. The bulk purchase of tickets by brokers now makes them the primary player in the market. In fact, they can control the market, by manipulating availability.

With the curtain rising on her “Reputation” tour, Taylor Swift blinked.

She buckled by having Ticketmaster turn off resale ticket listings on its interactive venue charts for the first leg of her North American tour, according to music-industry veterans.

The tour, which begins on Tuesday in Glendale, Ariz., shows plenty of primary tickets still available for the first nine shows.

But the delisting of secondary, or resale, tickets — a move experts called unusual if not unprecedented — makes the inventory of available seats seem much smaller.

On July 20, for example, Swift is scheduled to appear at MetLife Stadium as part of her tour’s third leg.

About half the seats still available for that show are represented by red dots on Ticketmaster’s venue chart, meaning they are up for resale.

The other half, represented by blue dots, signify primary sales. Those are the only dots currently visible to visitors trying to score tickets for a show on the first leg of “Reputation.”

Ticketmaster’s shutting down ticket resales for Swift’s early shows perplexed many in the industry because it handed secondary sales to competing resellers like StubHub.

On blockbuster tours, Ticketmaster admittedly makes more revenue on ticket resales than primary sales.

It also left some wondering if Ticketmaster was taking orders from its parent company, Live Nation, which as the tour’s overseas promoter, has much riding on “Reputation” being perceived as a success.

Now, the libertarian argument is that the venue should simply auction off the tickets for their show and not worry about the secondary market, because the bidding process would no doubt undermine the secondary market. The trouble is, there are no pure markets, so the sophisticated players in the market will game the auction just as they game the direct sales market now. In other words, there can never be a free market, as long as there is informational asymmetry.

If we stop pretending that a free market is an end in itself, we can think about the desirable ends would like to see in something like the concert business. Obviously, one end is for the performer and the venue owner to make a profit. Without them, there is no market for concert tickets. Secondarily, you want the fans to have access to tickets at a price that they see as reasonable. The libertarian idea of an initial auction solves one problem, but it requires shutting down the secondary market, like we used to do.

This is a trivial issue, as the world is not going to stop spinning if Taylor Swift can no longer make a living doing concerts. In fact, if all of our mass market entertainments dried up tomorrow, people would find new ways to entertain themselves. The point I’m trying to make is the market place, is a means to an end. When thinking about what’s happening to us, the question is not how best to get people cheap stuff. It is about the kind of society we want the type of people we want in it.

Reality Returns

Posted on by

All of the usual suspects are freaking out over Trump’s decision to impose tariffs on steel and aluminum. Most of it is by silly people. Some of it is simply the innumerate throwing yet another tantrum about the bad man who vexes them. Some of the hysteria is due to the fact that people in the chattering classes were sure they had talked this bit of reality into going away for good. Reality, however, is that thing that does not go away when you stop believing in it. The reality of trade is now back.

The amusing thing about trade debates among the chattering classes is that they never bother to mention the trade-offs that come with trade policy. Trade is like any other public policy. It is all about trade-offs. Our rulers, however, were sure they had sacralized their preferred set of trade-offs a long time ago. It turns out that the only people on whom this worked were the innumerate numskulls in the press. The rest of us remain skeptical about “free trade.”

Trade between countries is a net benefit to both countries. Open trade with Canada means they can sell more beaver hats and hockey sticks to Americans, thus making the typical Canadian richer. Similarly, it means Americans can sell more apple pies and boomsticks to Canadians, thus making the typical American richer. In reality, there will be Canadians who suffer from free trade with America and Americans who also suffer in the exchange. That is how the world works.

While the hockey playing folks of northern Virginia will benefit from cheap hockey sticks from Canada, the suddenly unemployed hockey stick makers in Minnesota are the ones paying the price for it. Similarly, the apple growers of Canada get stuck with the bill for the suddenly cheap apple products in Toronto. The hidden cost of free trade is a lot of people you do not know losing their jobs. When you are the guy getting the pink slip, the cost is not hidden and that has a social cost, as well.

Now, trade can be beneficial to both countries in that it promotes efficiency. The lazy and unscrupulous hockey stick makers in Maine, suddenly have to compete with the crafty canucks. This means better hockey sticks, but also less waste. Protectionism, like all public polices, comes with a cost too. That cost is more often than not carried by the consumer. Worse yet, it often promotes the sorts of corruption of public officials that erodes public trust in institutions.

That is why the ruling class is in a panic over the Trump trade policies. It is not about the cost of steel and aluminum. It is not about the possibility of retaliation. The real fear here is that Trump is re-opening the debate about trade. It means all of these trade-offs that come with trade between nations will have to be discussed. The billionaire class that has benefited from the current set of polices, is in no mood to defend their fiefs from the rabble. So, in waddles the clown army.

The current trade regime, has proven to be the boondoggle critics like Pat Buchanan warned about 30 years ago. Open trade with Canada, an English-speaking first world country, is mostly beneficial. Trade with Mexico, a third world narco-state that now operates as a pirate’s cove, has been a disaster. NAFTA has made Mexico a massive loophole in American labor, tax, environmental and trade policy. A loophole ruthlessly exploited by alien predators like China.

The current trade regime is also at the heart of the cosmopolitan globalism that seeks to reduce nations to a fiction and people to economic inputs. This neoliberal orthodoxy has eroded social capital to the point where the white middle class is nearing collapse. It is not just America. The collapsing fertility rates in the Occident are part of the overall cultural collapse going in the West. Slapping tariffs on Chinese steel is not going to arrest this trend, but it does open the door a debate about it.

That is the reality our betters would like to avoid. What defines France is the shared character and shared heritage of the people we call French. What defines a people is not the cost of goods or the price of labor. What defines a people is what they love together and what they hate together. It is the collection of tastes and inclinations, no different than family traditions, which have been cultivated and passed down from one generation to the next.

Even putting the cultural arguments aside, global capitalism erodes the civic institutions that hold society together. Instead of companies respecting the laws of host nations and working to support the welfare of the people of that nation, business is encouraged to cruise the world looking for convenient ports. There is a word for this type of work. It is called piracy. Global firms flit from port to port, with no interest other than the short term gain to be made at that stop. Globalism is rule by pirates.

That is the reason for the panic in the media. To question “free trade” is to question the arrangements that keeps the current regime in place. It may seem like a small thing, tariffs on steel, but it is the sort of thing that can unravel the entire project, because it legitimizes the sorts of questions that threaten the regime. To his credit, Trump seems to get this, which is why he has pressed ahead with this. He is flipping over an important table in this fight.

The New Zeros

Posted on by

In the coming decades, Western nations are going to be faced with a number of problems stemming from the technological revolution. We are now post-scarcity societies, where we have more than enough food, medicine and housing for our citizens and even some non-citizens. The pruning force of scarcity is no longer doing its magic to keep the population fit or even sensible. The next big problem is what to do with the tens of millions of extra humans, no longer needed to contribute to society.

The hardest part of the automation wave will simply be language. What do you call people who no longer have any purpose, in terms of producing goods and services through their labor? For as long as anyone has been alive, the small slice of the population that has fit this definition could simply be dismissed. The underclass is assumed to be lazy or anti-social. Trying to fix this has been a good way to keep the useless off-spring of the middle classes busy in social work.

When the numbers swell as automation eliminates the need for human labor in wide swaths of the economy, it will be impossible to dismiss the idle. When many of the idle are people who formerly occupied office jobs or semi-skilled laboring positions, blaming their condition on a lack of ambition is not going to be possible. The current labor participation rate is about 63% right now. In the coming decades, that number will fall below 50% due to automation and demographics.

The other challenge is how to support the swelling ranks of the useless in a way that keeps them from causing trouble. The hot idea currently is the universal basic income, which is being experimented with in Finland. In the US, some states are talking about how to replace their welfare programs with something simpler like the UBI. Libertarian economists like the idea of the UBI, because it theoretically allows the under classes to participate in the market economy, unencumbered by the state.

The trouble with this idea is math. If all citizens have a floor, in terms of their basic income, whatever that floor is, will be the new zero. The only possible way to have a negative income, in real terms, is if someone is paying their employer. There may be some bizarre situations where that exists, but in the main, zero is the smallest number that can appear in box #1 of your W2. If that number is bumped up by the UBI, that becomes the new zero, the lowest possible.

Imagine the government decides to help BMW sell more cars, so they offer every citizen $5000 if they spend it on a BMW, rather than some other car. BMW is now facing a wave of people coming into American dealerships toting a $5,000 check. The logical thing for BMW to do is raise the price of their low end models by $5000. That way, they do not increase production costs, but they increase the profit per car. In effect, the floor for entry level buyers was just raised by $5000 by the government.

There is a fairly good real world example of this. The government decided to do something to help working class people get into college. Since many need remedial help, before taking on college work, the scheme was to offer a subsidy to be used for community colleges. The students would use the money to prep for college then head off to a four year university, presumably using loans and aid at that level. The result, however, was the community colleges just raised their tuition.

The UBI would most likely follow the same pattern. By guaranteeing that no one would earn less than some amount, in lieu of traditional welfare payments, the absolute floor becomes the subsidy level. In effect, the new zero becomes the subsidy so all other wages would be based off that number. It is really no different than printing up money and dropping it from helicopters into the ghetto. The UBI would be as inflationary as debasing the currency.

The truth is the zeroes that our rulers will be forced to address are zero population growth and zero TFR among the surplus populations. For example, you could fix Baltimore in a generation with mandatory Norplant for the underclass. A generation of childless females means the last generation of 80 IQ residents. The reason Baltimore is a violent city is not an excess of hard working, college educated STEM workers, but a surplus of violent stupid people.

It also means zero immigration. When 80% of today’s immigrants end up on public assistance, the immigrants of tomorrow will be nothing more than useless people to police, feed and house. Japan is the model to follow. They have no immigration and their population levels are about to drop in the coming decades. They are the only nation on earth that is truly ready for the automated future, as they have the demographics to meet a shrinking demand for labor.

There is one other zero and that is zero participation. The fact is the free-market and democracy work when the right answer is not obvious. As automation takes over more and more tasks, the number of issues that need to be hashed out collectively will diminish. Rule by robot means exactly that, which means voting and popular government will have to be reconsidered. What is the point of being mayor when there are no more patronage jobs to dole out to friends and family?

The River’s Edge

Posted on by

Reorganizing a bookshelf, the other day, I found a book that I was sure I had read a few years ago, but I had no memory of it. Looking it over, I realized I never did read it, so I put it in the queue. For some reason, I read a lot more in the winter than the summer, so I can knock out a book every few days. The book in question is Why Nations Fail, by economists Daron Acemoglu and James Robinson. It was a big seller back in 2012 when it came out. That is probably why I bought it, but for some reason I never read it.

The book starts out describing the city of Nogales, which straddles the border between Mexico and the United States. The authors point out that the part of the city on the US side is fairly safe, well organized and reasonably prosperous, for that part of the country. The part of the city on the Mexico side is riddled with corruption, rocket high crime rates and grinding poverty. They quickly point out that the demographics of both halves are about the same, so the only possible explanation for the difference is the institutions.

What they do not mention is that the Mexican half of Nogales is attached to Mexico, a land full of Mexicans. The American side is attached to a country not full of Mexicans, at least not yet. Nogales is an hour south of Tucson, which is more than 50% white. Arizona is now 60% non-Hispanic white and only about 4% black. Further, the Hispanic population is mostly the El Norte variety. In other words, it is good demographics that results in those good institutions. They do not go there. In fact, they never go there.

The book runs through a bunch of examples of how institutions can make or break a society. They even travel back in time to examine how events like revolutions or wars broke old bad institutions, allowing for good institutions to flourish. The English Civil War comes up multiple times, to explain how the Industrial Revolution started there first. They spend a considerable amount of time talking about colonialism, to explain how the bad institutions created by the West, forever crippled their former colonies.

Again and again, the authors work backwards from present economics, through politics and history to arrive at institutions as the first cause. As a survey of world history, it is interesting. The authors even accidentally make the point that serendipity has a huge role in history. They call this “critical junctures” and use a bunch of examples where a country’s elite chose poorly, but they can never ask the question, why did they choose poorly? Instead, they just treat that as the river’s edge, never bothering to go further.

In fact, that is the reason for the title of this post. The image that kept coming to mind while reading this book is of a group of explorers trying to find their way out of a valley. They keep ending up at the edge of a river. Instead of wading over to the other side, they wander around, sure that there must be some other way out. In this case, the river is culture. The authors stop at culture, never wondering what is beyond it, not because they fear what is on the other side, but because they do not seem to think there is another side.

That is what is so weird about this book. Usually, there is at least one section where the author goes to great pains to acknowledge the arguments from biological realism, but vigorously dismiss them as bad-think. That never happens here. Instead, it is as if the authors have never considered the possibility that Africa is the way it is because it is full of Africans. Instead, they just repeatedly make the point that poor countries have corrupt institutions, while rich countries have more open public institutions.

For instance, the authors write stuff like “World inequality exists because during the 19th and 20th century some nations were able to take advantage of the Industrial Revolution and the technologies and methods of organization that it brought, while others were unable to do so.” The implication of this is that the Industrial Revolution just happened by magic in England, instead of Botswana. The best they can muster is to point out that the English Civil War accelerated the end of feudalism in England, compared to the Continent.

One of the more comical bits is how they try to explain why Western nations did not fall back into despotism, like European colonies after independence. The answer is what they describe as a virtuous cycle, which is a special brand of magic that makes sure only white countries maintain open institutions. The serendipitous magic creates the inclusive institutions and then the magic of virtuous cycles keeps the magic flowing. Of course, there are the vicious cycles that work the opposite, but only on non-white countries.

It is tempting to think that the people on the blank slate side of the river know the truth, but they just prefer to carry on with the blank slate fantasy. In individual cases, which may be true, but a lot of people honestly believe that all people are the same everywhere, despite the mountain of evidence to contrary. Instead of reality causing doubts in their beliefs, they do like Acemoglu and Robinson. They invest all of their time and energy looking for the magic cause that explains reality, without contradicting the blank slate.

The result is we have this great divide in the West. I use the image of a river separating two groups of people. On the blank slate side of the river, they will come to water’s edge, but they never look across it, much less contemplate crossing it. On the other side, the biological realism side, the people wait patiently for the others to cross over, shouting words of encouragement to them. Every once in a while, a ferryman reaches the blank slate side and then picks up some people and brings them across the river.

We could use more ferrymen.

Family Friendly

Posted on by

If science suddenly noticed that birds were laying fewer eggs, they would ring the alarm and warn of a coming bird-apocalypse. The assumption would be that humans were doing something to make the birds unable to reproduce. The same would be true of any species that saw its fertility decline. The starting assumption of biology is that all living things are built primarily to reproduce. That is the biological imperative. With one exception, a drop in an animal’s fertility must be due to some exogenous factor. That exception is humans.

In the West, human fertility rates have steadily fallen for over a half century. This is celebrated by our betters as the hallmark of human progress. Anytime the subject of fertility rates is raised, the knee-jerk response is to start hooting about women being more educated and having more options. The underlying assumption is that stupid people have lots of kids while smart people have few children. The implication of this is that the people who built Western Civilization were stupid, because they had high fertility rates.

The whole “women are more educated” argument is not really an effort to understand why fertility rates, especially white fertility rates, have fallen. Rather, it is an effort to not understand it. It is a deliberate distraction, a way of shifting the focus from a problem that cannot be addressed by the Left, whether it is the materialist Left of Europe or the spiritual Left on America. To even acknowledge that the purpose of women is to have children gnaws at the extreme egalitarianism that animates the Western Left.

To some degree, efforts to level off fertility in Europe make sense. There are lots of people on the Continent who do not always get along with one another. Generations of warfare pounded home the message that stable societies, respectful of national borders, is the way to keep the peace. Keeping fertility rates at something just above replacement was an understandable goal. In America though, that is not an issue. The country is mostly empty space with lots of room to expand. Americans should be breeding like Africans.

It really is an odd thing that has happened in America over the last fifty years. Starting in the 1960’s, motherhood became something close to a badge of shame with our cognitive elites. This rather quickly oozed into the upper classes and then the middle class. As a result, public policy has been altered to discourage childbearing. Just look at the hysterics from Progressive women anytime they do not get their way. They immediately start howling about how they will not get easy access to abortions and free prophylactics.

This came to mind when I saw a tweet by the left-wing political science professor George Hawley, commenting on the GOP tax bill. He linked to an essay he posted about public policy and fertility rates. For those familiar with this territory, the points he makes and the errors he commits are all familiar. France may have a TFR of 2.08, but the French people do not have that TFR. The invader population has rocket high fertility rates, but the French, well, not so much. Steve Sailer touched on one aspect of this in a Taki post.

A similar pattern, though less pronounced, is seen in the US. White fertility rates are below replacement, while black fertility is still above replacement. Although the homicide rates among blacks probably requires a different definition of “replacement.” Hispanics have the highest fertility rates. In other words, simply looking at TFR for a country that is slowly being overrun by a third world population will lead to errors. In majority white countries, the salient issue is not TFR, but white fertility rates, relative to the whole.

Putting that aside, we return to the original question. Two questions, actually. Is it simply that whites are choosing to die out or have whites simply wandered down a cul-de-sac, in terms of public policy, which is having adverse effects on white fertility? One way to tease this out is something that Steve Sailer did after the 2012 election. He looked at how white women voted, relative to their marriage habits. In places where white women can and do marry, stay married and raise children, whites vote Republican.

Another way of putting this is that where affordable family formation is highest, you get more families. Despite being run by a cult, Utah is a wonderful place to raise a family. It is like the set of Leave It to Beaver, but the size of a European country. At the other end, a state like Massachusetts is wildly expensive and hostile to family formation. Those who do choose to marry and start families, often move to other states. The decades long migration, north to south and east to west, has largely been driven by cost of living.

None of this answers the basic question. Is it crackpot public policy driving down white fertility or is some weird desire for extinction? The latter is impossible to know, so the prudent course is to assume the former is the correct answer. That is basic logic. This means any movement that is explicitly for preserving the nation’s racial character should promote public policies that are explicitly and overtly pro-family. That is the part of Hawley’s post that is correct. The GOP should be fanatically pro-family, not pro-business.

This especially holds for the dissident right. The alt-right is all over the map on public policy, because they get bogged down squabbling over aesthetics. Oddly, the best thing they could do, in terms of “optics”, is cast themselves as the extreme end of the pro-family spectrum. Redefining pro-women to mean pro-mother would go a long way toward rallying white Americans to their cause. After all, being for something always trumps being against something, even when the thing you oppose is awful. Positive always beats negative.

A Foundation of Nonsense

Posted on by

Math and science are built upon axioms. Very simply, an axiom is something that is always true by its nature. An example is the reflexive property in algebra. A number is always equal to itself. Axioms are the building blocks, from which new truths are discovered. A proof is an inferential argument for a mathematical statement, using other previously established statements. That means a proof can be traced back to those axioms that are the foundation of mathematics.

This is how we accumulate knowledge about the physical world. The proofs based on those building blocks are incorporated into new building blocks. The theorems and proofs multiply, slowly building up the stock of things we know to be true. Calculus was built upon algebra and physics was built upon calculus and so on. It why a student can quickly go from zero to trying to discover new truths about the world. They inherit a supply of things assumed to be true.

This accretive process of increasing our stock of knowledge is not limited to math and science. It is the way human societies evolve over time. We start with basic truths about the human condition and the realities we face as a society. Over time we acquire new knowledge, by building on what we know or that which we think we know. For example, libertarians rely on the concept of homo economicus. This asserts that humans are consistently rational and self-interested agents pursuing their ends optimally.

In theory, at least, this is the basis of democracy. One side builds a set of policies and proposals, allegedly based on the assumed truths. The other side does the same thing arriving at different policies. After a vigorous examination of the competing claims, a consensus is formed around one solution. If it works out, then that becomes part of society’s truths, from which new problems will be addressed in the future. That is not really how it works, but people believe it. It is axiomatic that democracy works this way.

What we know to be Western liberal democracy, assumes certain things about humanity to be true all the time. The blank slate is the most obvious example. Everything about our politics and culture assumes that humans are infinitely malleable. From school policy to prison reform, public policy assumes that people can be whatever they choose, because they have free will and a blank slate that can be erased and re-illustrated at any point in their life. You are what you make of yourself.

It is how our rulers arrived at the idea of open borders. Those foreigners can be re-purposed into tax paying Westerners, through education and enculturation, to pay the pensions of the native stock. Those Somali goatherds can be plopped down into Minnesota and over time, develop all of the habits of the average Minnesotan, just by emulation and proximity. Race laws are all based on the assumption that you can train people to stop noticing racial difference and therefore, end racism.

Of course, science is putting the lie to the blank slate. Genetics is filling out the truth of the human condition, which is that we are the result of our coding. We are the product of thousand of mating decisions made before us. Everything from our height to our sense of humor is baked into our genetic coding. Our health outcomes and our life outcomes are the results of that coding. Not surprisingly, the closer our coding is to others, the greater the similarities.

While no one is prepared to say free will is a lie, at least not publicly, no serious person accepts that we are infinitely malleable. The argument that you can change your personality is as nutty as saying you can make yourself taller or younger. This reality used to be a building block of Western thought but was “discredited” by the blank slate theorists, but it is now being reestablished by genetics. In other words, one of the main building blocks of modern social democracy is about to crumble.

That is a big one, but it is not the only one. Both Freudian and Jungian psychology still cast a long shadow over Western culture. Freud is no longer taken seriously, outside of his historical importance. The idea that your emotional state is the product of childhood sexual trauma is a click less realistic than phrenology. Jungian psychotherapy is also being overrun by neuroscience. Few people still think they can be talked out of their madness anymore. Instead, pharmaceuticals are used to treat diseases of the brain.

It is not just the quackery. The moral philosophy that underlies our political philosophy is similarly built on a foundation of nonsense. The Enlightenment thinkers all started by considering man’s natural state. It was either a harmonious communal existence or a brutal war like existence. From both starting points, they worked forward to build a model how man went from the state of nature to what was then civilization. The resulting moral philosophy is the basis of our political and legal philosophy today.

Property rights, the rule of law, the relationship of man and state, these are all based on those assumptions about man’s natural state. Libertarians and so-called Conservatives take the Lockean position that society is built upon the social contract. Those on the Left assume Hobbes was right and order must be imposed on society. Marxists further accept the materialist claims about the nature of man. All of the iterations and flavors of political ideology are rooted in one of those two broad assumptions about humanity.

Those assumptions are all wrong. We know that much now. Better archaeology and anthropology are helping illuminate the pre-history mankind. Evolutionary biology is also helping explain the fossil and archaeological record. Genetics, of course, are re-writing the map of mankind, explaining how we spread across the globe. What we are finding out is that man, in his “natural state” was not what Hobbes imagined nor what Locke imagined. Man’s “natural” state is much more complicated and much more local.

The implication should be obvious. As the underlying assumptions give way to new knowledge, the conclusions built on those assumptions must give way. If tomorrow we learn that two plus two is not always four, everything we know about the world stops making sense. If everything we thought we knew about man and civilization turns out to be wrong, we suddenly do not know a whole lot about how we should organize ourselves, other than the old rules are probably not going to work.

It seems today that Western societies are painfully re-learning things that were common knowledge a few generations ago. The old axiom, fences make good neighbors, was replaced with “diversity is our strength.” Every time a swarthy fellow blows up in the public square, we inch a bit closer to the realization that diversity is a nightmare. That is the part we see. The part we do not see, at least not yet is the crumbling of the foundation of the modern West.

The BQ

Posted on by

We live in an age of great inequality. In fact, some economists think America may have greater inequality now than at any time in human history. Americans do not think about it too much, as generations of indoctrination about class envy have made questioning such things seem un-American. That and the middle-class may be swamped with debt, but they have all the trappings of prosperity. Even poor people are fat.

Few people on this side have much to say about economics. The main reason, obviously, is that demographics take up most of the space. A big part of the aesthetic is ignoring the trivial things like tax policy, in order to remain focused on the bigger topics that are assiduously ignored by our rulers. That and the subject is full of libertarian hucksters, peddling apologies for globalism and the billionaire class.

The Left has always argued that inequality is immoral on its face. They may not use that phrasing, but that is the underlying assumption behind their arguments for taxing the rich and redistributing wealth. Perhaps that can be debated, but there’s little doubt that great inequality brings with it great social and political change. A society with relatively small differences in wealth, where there is economic equilibrium, is unlikely to lurch into unrest or reckless adventures.

When Henry VIII ascended the throne in 1509, he became king of a country that could be described as a three-legged stool. The Church held 25-30% of the land in the country and had a monopoly on moral authority. The aristocracy, including the king, held an equal amount of land, but had a monopoly on secular authority. The rest of the land was owned by the commoners and petty nobles. The result was a balance of power between the three key elements of English society.

Henry is best known for his serial adultery and his habit of having wives sent to the gallows, but his biggest contribution is the destruction of the Church as a force in British political and economic life. The Acts of Supremacy, passed in 1534, recognized the King’s status as head of the church in England and, with the Act in Restraint of Appeals in 1532, abolished the right of appeal to Rome. The king had effectively assumed the moral authority that had once been the monopoly of the Church

This was made possible by the oldest of political tactics. When Henry seized Church lands, he used these to buy support from other nobles, as well as large land holders who also sat in Parliament. Naturally, Parliament was strongly in favor of not only seizing Church lands, but supporting their good friend, the King, in his efforts to assert his authority over the Church. When he seized Church lands, the crown ended the economic power of the Church and its moral authority.

This had a radical effect on the politics and culture of England. Hilaire Belloc argued in The Servile State that it was this reorganization of capital in England that gave birth to what we call capitalism. In this case, capital was land. When land was distributed between the people, the state and the church, the concentrated use of capital was impossible. Once the crown and nobility seized the property of the Church, capital was for the first time concentrated in a small number of hands. This allowed the propertied class to dominate English society.

This was clear after Henry VIII died. A dozen years of violent political turmoil followed his death. Edward VI never made it to adulthood. Lady Jane Grey was queen for nine days until Mary I, with support of the nobles, deposed her. Bloody Mary made it five years before dying and then began the reign of Elizabeth I. This also corresponded with the birth of the British Empire. Whether or not any of this would have happened if Henry had not sacked the Church is debatable, but it is clear that the change in English economic order was an inflection point.

Another example is what happened to the Roman Republic after the defeat of Corinth and Carthage. The Republic had been at war with both city-states, off and on, for over a century. In 146 BC, the Romans finally defeated and destroyed Carthage and then provoked a war with the Greeks. They defeated the Greeks at Corinth, destroying the city and its population. The male population was killed and the females and children were sold into slavery. Rome was the undisputed power in the Mediterranean.

Something else happened. Those slaves that poured into the Republic from the conquered lands first ended up in the hands of the wealthiest landowners. This influx of cheap labor allowed the large land holders to replace their native labor, which flowed into the cities, not having anywhere else to go. The small landowners suddenly found themselves at a disadvantage, as the larger landowners had an army of slaves to work their land. The result was a great economic re-ordering of the Roman Republic.

It is not an accident that this sudden change in political and economic of fortune changed the nature of the Republic. The constant campaigning created a class of soldier that was more loyal to his general than to the Republic. The turning over of large tracts of land to slave farming resulted in a new problem, slave revolts. The Servile Wars, the Social War and two civil wars dominated the Late Republic. It has this title because the Republic came to an end with Julius Caesar and the founding of the Roman Empire under Octavian.

The relevance of all this to our age should be obvious to those who have been following what is going on with our tech oligarchs. A generation ago, arguments for taxing the rich got little traction, because no one had any real fear of the rich. That and they were not so rich as to feel alien to the rest of us. Today, the billionaire class feels like they are from another planet and they are a real threat. They are advocating for policies that promise to dissolve the ties that bind the nation together.

A popular issue on the Dissident Right is that the old framing of politics, based on the blank slate and egalitarianism, is no longer relevant. Race and demographics are what will define politics going forward. That is true, but none of that will matter if the West is going to succumb to what amounts to techno-feudalism, where a relatively small number of oligarchs control not only capital, but information. Addressing the threat to free speech means addressing the Billionaire Question.

In order to address the BQ, the Dissident Right is going to have to break free from the old moral paradigm with regards to class, inequality and economics. The fact is, no one will care if Mark Zuckerberg drowns in his bathtub. The things that the vast bulk of Americans care about do not depend on getting cheap stuff on-line. The billionaire class is no more essential to society than any other luxury good. They are tolerable unless they become a burden.

That’s going to be hard for our side and it is going to be even more difficult for the sort of people attracted to the Oaf Keepers or the PoofBerries. That is the effect of a few generations of telling people that it is un-American to think ill of the rich. Even so, part of breaking free from the old thinking will be adopting a new brand of economics, along with tackling the realities of demographics. You can be pro-white all you like, but that is of no use if you are a serf living on the modern version of a feudal estate.