Some Non-Covid Links

by Don Boudreaux on March 1, 2022

in Complexity & Emergence, Growth, Immigration, Reality Is Not Optional, Seen and Unseen, The Economy, Trade, War

Sam Gregg reinforces the case against industrial policy. A slice:

One of the most significant economic achievements of the past fifty years has been the radical diminishment of extreme poverty. Between 1990 and 2018 alone, those in extreme poverty (defined as someone living on less than 1.90 international dollars a day) fell from 1.9 billion (36% of the world’s population) to 650 million (about 7%). The pace and scale of this decline is unparalleled in human history. Granted, there are outliers to this trend—most notably, sub-Saharan Africa—but the reduction goes beyond China’s borders. Significant players like Indonesia and India have also realized major successes.

These changes were not achieved through massive wealth transfers from developed nations to the developing world of the type advocated by many development economists after 1945. Nor did it have much to do with foreign aid or industrial policy, likewise promoted by the same experts. It was accomplished through economic growth. And that growth was primarily driven by nations shifting their economies from the late-1960s onwards towards competition and trade openness. They did so by liberalizing imports and foreign investment rules, steadily removing export controls, and broadening the scope for individuals and businesses to pursue their comparative advantage in domestic and foreign markets.

Such policies were the precise opposite of those recommended by Latin American dependency theory economists like Argentine Raúl Prebisch in the 1950s. They insisted that developing nations should reduce their reliance on raw minerals and agricultural exports and make aggressive use of industrial policy to stimulate the emergence of new domestic economic sectors.

Markets, it turned out, were far more effective at reducing poverty than any of these measures. Beginning in the early-1990s, however, many development economists changed their tune. While acknowledging economic freedom’s role in driving the growth that reduces poverty, they maintained that insufficient attention was given to how growth was impacting inequality and unemployment levels. The effects of growth, they held, had been very uneven, with some groups benefiting more than others. Phrases like “inclusive growth” and “broad-based growth” consequently entered the development economics lexicon to describe growth that, to use the World Bank’s definition, is “broad-based across sectors, and inclusive of the large part of the country’s labor force.” Sectoral outcomes were now to be considered as important as overall poverty reduction.

…..

These transitions reflect what it means to live in an economy orientated towards the generation of growth. If an economy is to continue growing and competing with the rest of the world, then people and material resources must continuously shift to higher value-added sectors, and, within specific sectors, to the more efficient firms.

That, however, doesn’t mean that entire economic sectors disappear or become less productive. While the percentage of Americans who work in agriculture today is far smaller than what it was 100 years ago, U.S. agricultural productivity has never been higher. Technological developments ranging from tractors in the early twentieth century to high-tech vertical farming in more recent years may have reduced agricultural employment as a percentage of America’s workforce, but they also have magnified agriculture’s output many times over. The same technological transformations have changed the profile of agricultural employment. Agronomists and agricultural scientists, for example, are more needed today than unskilled labor.

A similar story may be told about American manufacturing. Although the number of Americans employed in manufacturing has dropped since the 1970s, real manufacturing production grew by 180 percent between 1972 and 2007. By 2019, it had rebounded to pre-Great Recession levels. Today, America continues to rank high among the world’s manufacturing nations and is a major global locus for manufacturing investment.

Thus, while American manufacturing constitutes a smaller slice of the U.S. economy than the services sector, it is more sophisticated and productive than it was 50 years ago. The oft-repeated mantra of economic nationalists that America is de-industrializing is simply false. The service sector may have grown faster and bigger, but that doesn’t imply that the manufacturing sector’s output has shrunk. It simply means that manufacturing’s overall share of the U.S. economy was many times bigger 50 years ago.

Mark Hannah, writing in the Wall Street Journal, argues that “[t]he U.S. shouldn’t interfere while Putin loses in Ukraine.” Two slices:

In reality, Mr. Putin’s latest war of aggression is motivated by a toxic mix of nostalgia and fantasy that seems likely to prove self-destructive. Mr. Putin has so far behaved like a man blind to the true stakes and probable consequences of this conflict. And the U.S., which is currently recovering from its own bout of military overreach, has the opportunity to revive a spirit of clear-eyed pragmatism that has been absent from major national security decisions in recent decades. If Mr. Putin’s actions are driven by an exaggerated view of his country’s power—and its insecurity—President Biden’s response must continue to be informed by a realistic appraisal of the ways the U.S. can (and can’t) defend its security interests and help the Ukrainian people.

This might seem like common sense, but not everyone sees it that way. Hillary Clinton recently called the war in Ukraine a “flash point in a larger global struggle between democracy and autocracy.” It is tempting to frame conflicts like these as existential struggles between competing political philosophies. Americans will—and should—always root for democracy. But reducing complex, distant conflicts to simplistic binaries obscures the actual grievances and motivations of hostile actors.

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The Biden administration should see this conflict for what it is: a big Russian mistake. Mr. Putin is a revanchist leader, seemingly driven more by resentment than reality, who is reaching beyond his grasp. He can’t stamp out Ukrainians’ persistent desire for independence or inspire allegiance to Moscow on the strength of his military might alone. Hearts and minds aren’t won with bombs and bullets. The best he can hope for is the installation of unpopular pro-Russian political leaders propped up by a costly occupation. All the while, crippling U.S. and European sanctions will jeopardize his support among wealthy elites, and Russian military casualties will jeopardize his popularity with the Russian public. Polling last spring by my organization, the Eurasia Group Foundation, found that ordinary Russians are concerned by U.S. foreign policy, and Mr. Putin exploits these concerns to gain popular support. An unprovoked invasion of a neighboring country where many Russians have familial and cultural ties will only weaken Mr. Putin’s self-styled image as a bulwark against Western aggression.

Kyle Smith reports on the strange left-right alliance making excuses for Putin. A slice:

Meanwhile, J.D. Vance, the “Hillbilly Elegy” guy who is running for Senate in Ohio on a MAGA platform, was outraged by the idea that the Biden administration is backing Ukraine: “We did not serve in the Marine Corps to go and fight Vladimir Putin because he didn’t believe in transgender rights, which is what the US State Department is saying is a major problem with Russia.”

Hang on, Hillbilly, there are a lot of countries that don’t have much in the way of transgender rights, but only Russia is killing little Ukrainian girls in pink unicorn pajamas by bombarding their homes. Vance is following up on Pat Buchanan, who said a few years ago that he thought Putin was “standing up for traditional values against Western cultural elites.”

David Henderson, writing about Putin’s vile invasion of Ukraine, says: “Don’t just sit there: undo something.” A slice:

While I’ve been loving watching brave Ukrainians take to the streets with guns and make fun of Russian tank drivers, I’m against hurting millions of innocent Russians by taking down Russian banks’ ability to use SWIFT and I’m against the U.S. government getting in another war. The foreign policy analyst I’ve paid most attention to for the last few decades, one reason being that he never gets stampeded or bullied into favoring wars that the U.S. can easily stay out of, is Doug Bandow. He has a great article at antiwar.com today laying out why the U.S. government should stay out of this one.

Now, if I could contribute $1,000 to someone in Ukraine to help fight the Russians, I would. Of course, I would want to make sure it gets to the right cause. But my understanding is that long-standing U.S. law has made this illegal. No way do I want the U.S. government to get into another war in Europe.

Here’s Eric Boehm on private-sector responses to Putin’s vile invasion of Ukraine.

Ali Noorani urges Americans to welcome fleeing Ukranians.

I was very happy to join Butch Browning, Henry Butler, Bryan Caplan, Ken Elzinga, Dan Houser, Dan Klein, Clay La Force, Mike Munger, Vernon Smith, Ben Zycher and 362 others in signing this letter in opposition to the fiasco that is Biden’s Build Back Better. (Note that signing this letter does not imply agreement with any other policy position that is, or might be, taken by the letter’s sponsor.)

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