Relevant and even prescient commentary on news, politics and the economy.

Banishing Racism From Racism

In the last few months I have gotten accused of racism a few times at this blog. I don’t think I am misrepresenting my accusers by stating that their claim is based primarily because of my views on a) immigration and b) the differences between the economic performance of different countries. The two issues actually collapse into one. I have stated repeatedly that I believe that culture is a key factor affecting the difference in economic outcomes (and many social outcomes) between countries. Furthermore, I have stated that people carry culture with them when they move, so a wise immigration policy would select immigrants whose culture is both compatible and likely to generate positive economic results and limited friction.

I claim no credit for these ideas, mind you. Outside of some quarters, the idea that culture is a driver economic growth is widespread, long standing, well established and supported by data. I find it stunning that anyone would question the importance of culture in driving growth and the assimilation of immigrants.

But it is important to always be willing to question one’s beliefs, so I am going to do that here and now. So… how would we show that culture is not a determinant in how well a country does? I can think of a few possible tests but I want to avoid data at this time and just talk it through.

If we do that, we could start by defining “countries that do well.” In general, these would be countries that are stable, pleasant to live in, and relatively wealthy. Over the past few decades, if someone were to make a list of such countries, it would probably look more or like this (in no particular order): the US, Canada, Northwest Europe, Switzerland, Scandinavia, Australia, New Zealand, Japan, South Korea, Singapore and, until China began applying a heavier thumb, Hong Kong. Those also happen to be the countries that would attract the most foreigners interested in being citizens, so this quick and dirty list should pass a basic smell test. (If some of these nations don’t have much of an immigrant population and don’t rank on high on the destination of potential immigrants, it is because they are very selective about the who they let in as opposed to being shunned by would be immigrants.)

So what do these places have in common? It isn’t natural resources. Just ask the Japanese. (Plus, in countries outside of the list above, being blessed by nature somehow correlates with suffering from the “Resource Curse.”) It isn’t Democracy as we know it. That’s a relatively new thing for South Korea, Hong Kong was ruled by foreigners for most of the last century, and then, of course, there’s Singapore. It isn’t coming into the post-WW2 period wealthy; quite a few countries on the list were in miserable shape in 1945. It isn’t a matter of exploiting other countries (which Americans of a certain bent are always fond of claiming is the US’ secret) – South Koreans will proudly tell you that the country has never invaded anyone in well over 2,000 years. Switzerland, too, is proudly neutral. The Scandinavians have also been pretty pacifist for well over a century as well. Small government? As much as libertarians like to claim Singapore for their own, ignoring the massive government participation in the economy (think Temasek, Singapore Airlines, Mediacorp, Singtel, Singapore Power, etc.). Nor did Japan, Inc. qualify. Something about about geography and environmental factors that these countries have in common? Nope and nope.

To be blunt, there doesn’t seem to be a factor or group of factors that can be applied to these countries but not to countries that are “developing.” I also hesitate to go with supernatural explanations, particularly since, as I learned about four decads ago (long before the stupid movie was made), Deus é Brasileiro. Besides, there is no such thing as empirical theology. For completeness, I should also say the Guns, Germs and Steel explanation got a few things right about the past. However, unless I missed something, Papua New Guinea is not is not putting out the performance you’d expect from the world’s smartest people in the Internet Age, which should go some way toward invalidating Diamond’s hypothesis.

On the other hand, I can describe a few cultural factors that distinguish these countries from others. For instance, these countries have (or had) reputations of being the home of people who were, on average, diligent, frugal, studious, and punctual among other traits. I presume those traits are largely learned, I might add.

And just like that, I slipped back into my sinning ways. So let us assume that like Winston Smith, I really would prefer to believe something that presently I don’t. Perhaps my reasons are not as noble as Smith’s. Maybe I am only concerned because I know that cultures change, and I wonder about the direction in which ours is currently headed. But regardless of my motives, how do I convince myself?

Tell me, please, what are the factors that explain economic and social performance so well that we can dispense with culture entirely as an explanation?

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Culture Matters – Oil Curse Edition

The concept of the so-called Oil Curse is that countries that have an abundance of oil tend to be basket cases – undemocratic, kleptocratic, and poorly developed.  The Oil Curse is a special case of of what is sometimes called the Resource Curse.

Of course, not every country rich in oil has suffered from the Oil Curse.  Norway is a prime example of a nation that has benefited greatly from finding oil, but it is almost the exception that proves the rule.

On the other hand, if you think about it more broadly, there are plenty of other exceptions.  The big one is England.  Historians seem to think one of the reasons that the Industrial Revolution began there is because England had plenty of easily accessible coal and iron.  Which is to say, England struck oil, or at least the 18th century version of it.  Similarly, the oil boom that began in Titusville, PA around 1860 did great things for the US economy.

So what causes oil to be a curse for some countries but a boon to others?  One explanation commonly brought up is exploitation, particularly by Western oil companies.  I am no historian, but I don’t think this is right.  Many of the Oil Curse countries chose to go it alone, though some did so after expropriating the initial investments made by foreigners.

I think countries that appear to fall prey to the Oil Curse or any other Resource Curse don’t actually do so.  Instead, they are basket cases before the discovery of whatever resource, and they remain basket cases after.  On the other hand, countries that have functional economies that encourage innovation tend to find stumbling upon a resource to be a blessing.

Put another way…  having a culture that is conducive toward positive outcomes matters a lot.  And it seems to me that England on the verge of the Industrial Revolution, the US before 1860, and Norway before it stumbled on oil have a lot, culturally in common.  And the cultural traits those three cases have in common don’t seem to be shared by Oil Curse countries.

As I keep pointing out, the data shows that culture is a strong determinant of economic outcomes..

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Is Anyone Crawling to the USA???

Floyd Norris lists the Unlucky 13, a.k.a., my portfolio.*

Ignoring AIG (of which more later, maybe), here are the top Market Cap losers in the S&P 500 YTD, who combined have dropped by more than half a trillion dollars:

  4. AT&T

After reading that list, I fully except to see Declan MacManus, in his guise as The Earl of Manchester, and am starting to wonder when McCain/Palin will adopt “I am not a schmuck” as its official campaign slogan.

*Well, not exactly mine. I’ve been 85-90% in cash since Q4 2007. Can you say risk averse?

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Action, Reaction

In honor of this post (from another blog whose political posts I’ve stopped reading; Hilzoy is in good company*), I have decided today to shave off my beard and mustache.**

After all, David (“Axis of Evil”) Frum is always right, as John Holbo originally documented:

This sentiment or intuition or feeling (whatever you call it) produces a strangely hypertrophic concern with what seem (to me anyway) like rather ornamental details:

“If I am bearded, and I notice that my boss and the last four men in my section to win promotion are clean-shaven, I will find myself slowly nudged toward the barbershop.”

which led to:

Frum: Just think about it. Our economy depends on a healthy culture.

BG: But you don’t even care about the economy. You said you don’’t.

Frum: I wish you hadn’t mentioned that.

BG: But I did.

Frum: Look, if you shave the beard, everything will be better.

BG: You’’re a moonbat.

Frum: It’’s all related to foreign policy and wheelchair access in public school, in ways that would take a long time to explain.

*Exception noted.

**This, of course, has nothing whatsoever to do with a much higher proportion of white hairs being prominently displayed in those two parts of the hair.

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