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Thread: Wealth of nations - seems related to Dan Baron's views?

  1. #1

    Wealth of nations - seems related to Dan Baron's views?

    March 13, 2012
    Why Some Countries Go Bust
    By his own admission, Daron Acemoglu is a slightly pudgy and fairly
    nerdy guy with an unpronounceable last name. But when I mentioned that
    I was interviewing him to two econ buffs, they each gasped and said,
    “I love Daron Acemoglu,” as if I were talking about Keith Richards.
    The Turkish M.I.T. professor — who, right now, is about as hot as
    economists get — acquired his renown for serious advances in answering
    the single most important question in his profession, the same one
    that compelled Adam Smith to write “The Wealth of Nations”: why are
    some countries rich while others are poor?
    Over the centuries, proposed answers have varied greatly. Smith
    declared that the difference between wealth and poverty resulted from
    the relative freedom of the markets; Thomas Malthus said poverty comes
    from overpopulation; and John Maynard Keynes claimed it was a
    byproduct of a lack of technocrats. (Of course, everyone knows that
    politicians love listening to wonky bureaucrats!) Jeffrey Sachs, one
    of the world’s most famous economists, asserts that poor soil, lack of
    navigable rivers and tropical diseases are, in part, to blame. Others
    point to culture, geography, climate, colonization and military might.
    The list goes on.

    But through a series of legendary — and somewhat controversial —
    academic papers published over the past decade, Acemoglu has
    persuasively challenged many of the previous theories. (If poverty
    were primarily the result of geography, say, or an unfortunate
    history, how can we account for the successes of Botswana, Costa Rica
    or Thailand?) Now, in their new book, “Why Nations Fail,” Acemoglu and
    his collaborator, James Robinson, argue that the wealth of a country
    is most closely correlated with the degree to which the average person
    shares in the overall growth of its economy. It’s an idea that was
    first raised by Smith but was then largely ignored for centuries as
    economics became focused on theoretical models of ideal economies
    rather than the not-at-all-ideal problems of real nations.

    Consider Acemoglu’s idea from the perspective of a poor farmer. In
    parts of modern sub-Saharan Africa, as was true in medieval Europe or
    the antebellum South, the people who work the fields lack any
    incentive to improve their yield because any surplus is taken by the
    wealthy elite. This mind-set changes only when farmers are given
    strong property rights and discover that they can profit from extra
    production. In 1978, China began allowing farmers to benefit from any
    surplus they produced. The decision, most economists agree, helped
    spark the country’s astounding growth.

    According to Acemoglu’s thesis, when a nation’s institutions prevent
    the poor from profiting from their work, no amount of disease
    eradication, good economic advice or foreign aid seems to help. I
    observed this firsthand when I visited a group of Haitian mango
    farmers a few years ago. Each farmer had no more than one or two mango
    trees, even though their land lay along a river that could irrigate
    their fields and support hundreds of trees. So why didn’t they install
    irrigation pipes? Were they ignorant, indifferent? In fact, they were
    quite savvy and lived in a region teeming with well-intended foreign-
    aid programs. But these farmers also knew that nobody in their village
    had clear title to the land they farmed. If they suddenly grew a few
    hundred mango trees, it was likely that a well-connected member of the
    elite would show up and claim their land and its spoils. What was the

    I encountered another side of Acemoglu’s thesis during what must have
    been one of history’s great natural economic experiments: post-Saddam
    Hussein Baghdad. On April 9, 2003, the day the city was captured, one
    of the world’s most tightly controlled economies suddenly became a
    free-for-all. Amid the chaos, many former state functionaries turned
    into entrepreneurs. Nearly every engineer from the ministry of
    housing, it seemed, had opened his own construction company. Satellite
    TVs, once illegal to all but a very small elite, were sold on every
    major street. Under Hussein, only one company (widely rumored to be
    monitored by the intelligence service) offered Internet access, and it
    was incredibly bad and expensive. After it was gone, there were so
    many new Internet companies that I had far more access options then
    than I do today in Brooklyn.

    Yet the American authorities, who had not planned for this budding
    free market, all but destroyed it when they gave the bulk of new
    contracts to large companies outside the country. Often, these
    outsiders subcontracted to Iraqi firms with close ties to the state’s
    new political establishment. By the anniversary of the United States
    invasion, it was clear that economic success would again come from
    connections and corruption rather than talent and hard work. Today,
    Transparency International ranks Iraq as one of the most corrupt
    nations on earth. An Iraqi friend once told me that he had hoped we
    would teach the Iraqis how to be Americans. Instead, the Americans
    learned how to be Iraqi.

    Acemoglu, Robinson and their collaborators did not come up with the
    idea that incentives matter, of course, nor the notion that politics
    play a role in economic development. Their great contribution has been
    a series of clever historical studies that persuasively argue that the
    cheesiest of slogans is actually correct: the true value of a nation
    is its people. If national institutions give even their poorest and
    least educated citizens some shot at improving their own lives —
    through property rights, a reliable judicial system or access to
    markets — those citizens will do what it takes to make themselves and
    their country richer. This suggests, among other things, that instead
    of supporting one-off programs promoting health or agricultural
    productivity, the international community should focus its aid efforts
    on deep political and economic change.

    Perhaps just as interesting, “Why Nations Fail” also shows the effects
    of different economic and political systems over the centuries. The
    sections on ancient Rome and medieval Venice are particularly
    compelling, because they show how fairly open and prosperous societies
    can revert to closed and impoverished autocracies. It’s hard to read
    these sections without thinking about the present-day United States,
    where economic inequality has grown substantially over the past few
    decades. Is the 1 percent emerging as a wealth-stripping, poverty-
    inducing elite?

    Well, maybe. Acemoglu and Robinson’s frequent collaborator Simon
    Johnson, the former chief economist at the International Monetary
    Fund, told me that financial firms have so thoroughly co-opted the
    political proc*ess that the American economy has become fundamentally
    unsound. “It’s bad and getting worse,” he told me. Barring some major
    shift in our political system, he suggested, the United States could
    be on its way to serious economic failure.

    Charles Calomiris, an economist at Columbia University, is less
    worried. But it’s not because he thinks that banks haven’t co-opted
    our political system. “We’ve never had a good banking system,” he
    says. “What’s amazing about America is that we’ve been the most
    successful economy in the world while being crippled by political
    constraints on the quality of our banking system.” This has been going
    on since the 1700s, Calomiris says, and he doesn’t see any reason for
    the United States’ economy to stop growing anytime soon.

    Acemoglu and Robinson are on the pessimistic side of optimism about
    the United States’ chances of a resurgence. Congress, they told me, is
    too heavily influenced by the wealthy, and the advent of super PACs
    has only given elites more power. Yet Acemoglu surprised me when he
    said he was encouraged by the rise of the Tea Party and Occupy Wall
    Street. While neither has an especially coherent or subtle economic
    agenda, both show that, however frustrated they might be, large
    numbers of Americans still believe they can influence the political
    process to improve their fortunes. Since the future of American
    economic health lies in its people, Acemoglu explained, as long as
    Americans believe they can influence the process, they will.

    But, he quickly pointed out, what if Americans find their protests
    have no impact? What if the United States becomes a truly extractive
    nation, with violent repression of protest or — in some ways, worse —
    the grudging acquiescence of the beaten-down masses? While many
    Americans are frustrated by the divisive, often angry public debates
    over our economic future, we may only be in real trouble at the very
    moment that they shut up.

    Adam Davidson is the co-founder of NPR's Planet Money, a podcast,
    blog, and radio series heard on “Morning Edition,” “All Things
    Considered” and “This American Life.”

  2. #2
    thinBasic MVPs danbaron's Avatar
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    No time now.

    I'll look at it tonight.

    Believe it or not, the train won't wait for me.

    "You can't cheat an honest man. Never give a sucker an even break, or smarten up a chump." - W.C.Fields

  3. #3
    thinBasic MVPs danbaron's Avatar
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    I think what they say is both, true, and obvious.

    "You can't cheat an honest man. Never give a sucker an even break, or smarten up a chump." - W.C.Fields

  4. #4
    Good social science has to seem obvious. if it did not accord with our experience it would probably be very wrong. But to say that something is obvious in this sense is not to say that anyone could have put together the ideas, or that everyone already knew them. A good scoial scientist just makes it seem as though we always knew what is being said...


  5. #5
    thinBasic MVPs danbaron's Avatar
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    I agree.

    I guess lots of things seem obvious once they are pointed out.

    "You can't cheat an honest man. Never give a sucker an even break, or smarten up a chump." - W.C.Fields

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