One of the most important insights of James’s book is that severe political and economic upheavals have in many cases accelerated globalization. The second half of the nineteenth century is often seen as a type of golden age for the global integration of the world’s economies. James demonstrates, however, that the roots of this globalization are to be found in crises.
“The surge of interconnectedness in the nineteenth century,” James states, “started as a response to a shock: the harvest failures, famines, and then financial and business collapse of the mid-1840s.” These events were accompanied by the liberal-nationalist revolutions that swept Europe in 1848.
The sheer scale of these upheavals should, one might assume, have undermined the growing degree of cross-border economic integration that Karl Marx had noticed and which, he believed, enhanced society’s vulnerability during crises. The contrary, however, occurred. The experience of economic misery caused people and many governments to look not inwards but outwards.
In the face of food shortages, for example, countries sought to obtain supplies from other nations. It made little sense for buyers or sellers to be protectionists in such conditions. Likewise, many people reacted to economic hardship and political chaos by moving to the Americas and far-flung British colonies in the Southern Hemisphere. Cross-border monetary integration eventually followed as the foundations of the international gold standard were laid to re-establish monetary stability. Similarly, capital became more mobile as bankers engaged in financial innovations that helped them overcome widespread banking failures.
Jack Salmon explains that it’s unconstitutional to tax unrealized gains.
Reason interviews Adam Smith – that is, Adam C. Smith, GMU Econ alum and grandson of Bruce Yandle.
Richard Hanania correctly observes that “at the ideological core of the free market position is epistemic humility.” (HT Roger Meiners) Two slices:
Take the issue of whether a nation should have an industrial policy, which is defined as a strategic effort to develop specific parts of a national economy, or manufacturing in general. A country may decide it wants to, say, manufacture cars, rather than let the market send price signals about what its citizens should be doing.
When I hear such plans, I’m taken aback by the faith it puts in intellectuals and politicians. At most, I think the smartest human beings might be capable of being small cogs in vast machines that no one can understand or control. I trust that the guy who runs a single car factory, or the logistics manager of a major hotel chain, might know what he’s doing in his limited domain. I am, in contrast, inherently suspicious of those who think they have answers to questions like “What kinds of jobs should most people have?” or “Which goods should we manufacture at home instead of buying from China?” If you believe that you have 20 extra IQ points on proponents of industrial policy, but it would take a superhuman AI to even have the possibility of doing central planning well, is that arrogance or humility? Sounds like arrogance relative to fellow humans, but humility in the sense of understanding your limitations.
Markets take into account the information necessary to allocate goods and resources in efficient ways. Through the price system and individuals making decisions that they’re directly responsible for, they provide answers to an endless array of questions that no central planner can even begin to consider and weigh in their entirety.
Is your nation any good at making cars? Are the people culturally or temperamentally suited for that kind of work? Would forcing them to manufacture their own cars make them better off than just doing whatever produces the most value and then buying cars from other nations? Are you sure, from all the goods and labor it takes to produce a car, the market can’t figure out a better way to create wealth or make technological breakthroughs? Can the supply chains for each product that goes into making a car be put together at a reasonable cost? What are the second and third order effects of distributing resources toward what are, based on the choices of those who could risk their own money, inefficient uses?
Many conservatives who support industrial policy seem to see economic efficiency as no more than a secondary concern. They somehow think manufacturing jobs are better for people getting married, forming families, and instilling virtue. As someone with a background in the social sciences, I find the idea that one can not only plan an economy, but also predict the cultural impacts of an economic policy to be absurd. That project is way beyond any tools that we have. Just because in previous decades the US had better manufacturing jobs and higher rates of family formation does not mean one can recreate through trade policy the culture of Eisenhower’s America. This is pure cargo cultism.
When I read through the website of American Compass, I see hubris masking what is little more than a stream of non-sequiturs.
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Epistemic humility is not the same as epistemic nihilism. The study of history, social science, and data gives us some very clear signals. Markets are better than central planning. Free societies are better than unfree ones on a wide variety of dimensions, whether we want to measure objectively through things like GDP or subjectively based on where people want to live. Genetics determine differences in outcomes, and denying that will lead to foolish interventions. Territorial aggression is a bad thing and should be stigmatized and resisted. The naturalistic fallacy is a terrible guide for ethics or public policy. So we know quite a few big and important things.
Yet we should draw a line in the sand and be completely honest about what we don’t know: things like the net impact on national well-being of cultivating any particular industry; how different economic policies have downstream effects on culture; and how to make tradeoffs with regards to planning for different stages of life. In the case of direct externalities, of course, government intervention can be justified. The state might not be particularly good at solving the problems that the actions of individuals cause for third parties, but here it arguably at least has to try. The more indirect and theoretical the harms that a government is trying to prevent, and the more a policy requires superhuman foresight on the part of state officials, the more skeptical you should be.
