Will on a Friday

Yet again, the end of a month has crept up on me and dropped a load of paperwork in my lap, leaving me little time to torment your inbox and RSS feeds. This being Friday afternoon in Seoul, however, I'd like to send you into the wekend with this recent gem from George Will, who, in addition to being one the best writers working today, is also generally correct about most things. For instance:

Passing through a U.S. airport is an immersion in a merciless river of words. They are intended to be helpful, but clearly they flow from an assumption that increasingly animates our government in its transactions with us. The assumption is that we are all infants or imbeciles in need of constant, kindly supervision and nudging, lest we allow ourselves to be flung off a moving walkway and over the edge of the world.

In Denver, underground trains take passengers to and from the ticketing area and departure concourses. As a train arrives, an announcement slightly louder than the noise of the arriving train says: “A train is arriving.” Do tell.

At Kansas City’s airport, a recurring announcement tells travelers: “Designated smoking areas are located outside, away from doors.” That means the designated smoking areas are pretty much the entire Midwest and everything contiguous to it — all of Creation that is “away from” this airport’s doors.

Read the rest here.

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Support the Drug War for Ethical Reasons? Then Oppose It.

"The more you support the drug war for ethical reasons, the more you should oppose it."

So argues Giancarlo Ibarguen in the video above, which notes that approximately 90% of the Colombian cocaine destined for the United States now passes through Guatemala, the old Caribbean routes now being heavily policed by the DEA. The value of this cocaine, before it even hits the streets of Los Angeles, Chicago and New York, is roughly $40 billion per year, approximately equal to Guatemala's entire GDP.

Not surprisingly, the drug cartels who control this trade are heavily armed and have no compunction about using these weapons to defend their territory. Moreover, the police and the justice system have been heavily infiltrated by this drug money, such that the average citizen is caught between crime and corruption, making Guatemala a dangerous place to live.

Most of these problems stem from the United States War on Drugs, implemented by President Richard Nixon in the early 1970s. Underlying this program seems to have been a belief that drugs like marijuana, cocaine, and heroin posed a threat both to the health of individual citizens and to the broader communities in which they were being consumed.

Yet, forty years on, it's doubtful that anything has ravaged American communities so much as the War on Drugs itself. A great portion of the crime in inner cities is associated with the illicit drug trade, either as dealers and gangs fight to protect turf, as users engage in theft to pay for drugs that, due to their black market status, are priced above open market value, and as innocent individuals are caught in the crossfire (both proverbial and literal). Thus, a policy that was supposedly designed to save lives and communities has had precisely the opposite effect. And this is only the effect of the drug war in the United States. The catastrophe is repeated in virtually every Central American, and several South American, countries, all of which makes Ibarguen's opening quote worth repeating: "The more you support the drug war for ethical reasons, the more you should oppose it."

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Book Notes: "The Morality of Capitalism"

A few days back, I came into possession of a copy of The Morality of Capitalism, a new volume edited by Tom Palmer, the title of which is sure to raise eyebrows in these days of the Occupy Wall Street protests. After all, to hear the OWS crowd (or at least a vocal portion of them) tell it, capitalism is the root of all that ails the world, putting profits above people and alienating us from each other by emphasizing competition instead of cooperation. This sort of bellyaching certainly passes muster in many a university classroom, but as the essays in this volume (written by everyone from the winners of a Nobel Prize to the founder and CEO of Whole Foods) show, such protestations betray a deep misunderstanding both of what capitalism is and why it is inseparable from a society of free individuals.

In his introduction, Tom Palmer lays down the first plank in this moral defense of capitalism, arguing that it is both the most effective and the most ethical way of raising the human standard of living. Palmer notes that throughout much of history, and in many countries today, a rich person likely gained his wealth not through the design of a new product or service which attracts consumers but through his relationship to someone in the government. This is the essence of cronyism (or crony capitalism, or "crapitalism"), wherein the state uses its monopoly on violence to take from some and give to others. By contrast, writes Palmer, "it is only under the conditions of capitalism that people commonly become wealthy without being criminals." Thus do men like Mark Zuckerberg or Forrest Bird become wealthy - that is, not by holding a gun to your head and forcing you to use their product (or by having the state do this for them), but rather by building a product which people desire to use which therefore creates value for society.

But this wealth, this emphasis on profit, does it not set humans against one another as they compete rather than cooperate? Not at all, argues David Boaz, who writes that "the market is cooperation:"

Throughout the market system individuals and firms compete to cooperate better. General Motors and Toyota compete to cooperate with me in achieving my goal of transportation. AT&T and MCI compete to cooperate with me in achieving my goal of communication with others. Indeed, they compete so aggressively for my business that I have cooperated with yet another communications firm that provides me with peace of mind via an answering machine.

Critics of markets often complain that capitalism encourages and rewards self-interest. In fact, people are self-interested under any political system. Markets channel their self-interest in socially beneficient directions.

Indeed, writes Mao Yushi, in a separate essay, the world would quickly devolve into absurd conflict if humans were entirely benevolent rather than self-interested. We would, for example, have to argue with shopkeepers to charge us more for their products, and demand that they lower the quality of those products - anything to prevent ourselves from realizing a self-interested gain. This conflict would be just as heated as anything in capitalism, but the result would be to destroy, rather than create, value.

This book, beautifully affordable at Amazon, is filled with more excellent writing than I can adequately summarize in one sitting, including pieces by Vernon Smith, David Kelley, Mario Vargas Llosa, and more. And given the ongoing economic crises in America and Europe, the fits of pique within organizations like OWS and the Tea Party, and a general skepticism about the nature of free enterprise, The Morality of Capitalism could scarcely have appeared at a better time.

Video (also above): Palmer discusses The Morality of Capitalism at the John Locke Foundation.

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Post-Gadhafi Predictions

Now that the great bogeyman of my youth, Moammar Gadhafi, has been yanked from a drainage culvert and unceremoniously terminated (sic semper tyrannus, eh?), speculation can begin in full about what awaits Libya in the future. Alas, like Alastair Smith and Bruce Bueno de Mesquita, mine is not a happy view of the world and I'm thus pessimistic about Libya's prospects as the next bastion of Jeffersonian democracy. Hell, that region has been a pain in the ass since ol' Tom Jefferson himself had the American navy chasing the Barbary pirates around the Mediterranean Sea back in 1801.

But back to Messrs. Smith and Bueno de Mesquita, who recently appeared on C-Span's After Words program to discuss their latest book, The Dictator's Handbook: Why Bad Behavior is Almost Always Good Politics. The entire program deserves your viewing time, but toward the end of the program (which, damn it, C-Span won't permit me to embed), talk turned to Libya, and specifically how it fell into civil war. The short answer? Odd as it may sound to those of us in essentially free societies, Gadhafi, according to Smith, was simply too nice to his people over the past 5-10 years, allowing for more education, as well as more freedom of assembly and the press. In short, the Colonel didn't crack enough heads. Oops.

And what comes after Gadhafi? Here's Smith (whose Libya discussion begins around 40:00):

The reality is, the next group of leaders who's going to come in is going to have unfrozen assets, billions of dollars pouring in; the oil revenue's going to come back in; the country's awash with weapons. The people are going to be fighting to become the monopolist in terms of power. Who can buy the most loyalty to get the weapons pointed at everybody else? Then, from there, they're going to cull out the supporters they don't really need, and we're going to be back in the same type of system that we had before. We're going to have a leader who's very hard to buy because he's got lots of his own wealth and he's going to be brutal to the people. A different set of people are going to be persecuted than the people who were persecuted under Gadhafi, but I don't see anything changing. Gadhafi made the error of being too kind; it's unlikely that the next guys' going to make the same mistake.

Well, that's a ray of sunshine for this autumn afternoon. And speaking of un-repeatable mistakes, you can bet that Kim Jong-il and his cronies in North Korea are looking at Gadhafi's decision to abandon the Libyan nuclear program and lighten up on the repression as yet another reason to hold tight to their own nukes and to liberalize not a whit.

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Sumner on Inequality

As if on cue, Scott Sumner offers up his own thoughts on inequality - specifically, the varieties thereof. The piece in its entirety rather defies summary, but it deserves your time and this quote is priceless, suggesting as it does a weakness in the standard ways in which we view and measure inequality. Sumner begins by listing 19 forms of inequality that he, in his everyday life, has observed:

1. Inequality of disability. Some people are blind, paralyzed, etc.

2. Inequality of talent. Some people are blessed with the ability of a Michael Jordon, or a Brad Pitt.

3. Inequality if liberty. I know one Chinese person who used to listen to Russian classical music very quietly, least the neighbors overheard. It was viewed as counter-revolutionary, and she could have gotten in a lot of trouble. Least we think America doesn’t have these problems, think of the many 100,000s of people in prison for using drugs.

4. Inequality of money (i.e. income/wealth/consumption.)

5. Inequality of personality. I know one part time instructor who always looks happy. He always whistles while he walks, and greets people with enthusiasm. He’s about 85. And I know lots of grouchy professors making 5 times more money.

6. Inequality of mental health–actually just a more extreme version of point 5–but a big driver of utility.

7. Inequality of access to health care. Often assumed to overlap with money inequality, but the Medicaid program suggests it’s more complex.

8. Inequality of power. My Marxist friends would say I have a blind spot for this one. I think I do.

9. Inequality of location. Were you born in sad Moldova, or happy Denmark?

10. Inequality of luck. Of course if there’s no free will, then it’s all luck.

11. Inequality of family situation. Are you living with an extremely difficult family member (an abusive spouse, an elderly person with Alzheimer’s, or a troubled teen.) This has a big effect on utility.

12. Inequality of disease. Do you have AIDS, or cancer?

13. Inequality of preferences. I am cursed with expensive taste. If I walk into a rug store, my eyes are immediately attracted to the most expensive oriental carpet. My daughter just bought a teal shag carpet from Target that she likes. Lucky her.

14. Inequality of pain. A hugely underrated factor in utility. And let’s not forget the poor hypochondriacs. There is no statement more stupid in the entire English language than “it’s all in your head.” Everything is all in your head, including pain. See the studies of phantom limbs. Pain is pain.

15. Inequality in social setting. Do you live in a neighborhood terrorized by crime. Again, only partially correlated with income.

16. Racial/ethnic/gender/sexual preference inequality

17. Inequality of nerdiness/awkwardness. A huge driver of utility for teenagers. (Would a poor but “cool” and popular teen trade places with a middle class nerdy teen?)

18. Inequality of job desirability

19. Inequality of appearance (beauty, obesity, etc.) Michel Houellebecq says this is the greatest source of inequality in rich countries

And I’m sure there are many more that I overlooked.

Now let’s look at the same list as drawn up by economists (including me, with my economist hat on.)

1. Inequality of money.

2. Inequality of access to health care

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The WSJ on Jeff Bezos & the Rise of Amazon

The Wall Street Journal has a fantastic piece on Jeff Bezos of Amazon.com in today's issue. The article is actually an excerpt of sorts from Richard Brandt's new book on Bezos, which I'm now keen to read. My favorite passage:

Mr. Bezos's philosophy was to get to market quickly, in order to get a jump on the competition, and to fix problems and improve the site as people started using it. Among the early mistakes, according to Mr. Bezos: "We found that customers could order a negative quantity of books! And we would credit their credit card with the price and, I assume, wait around for them to ship the books."

During the first few weeks, everyone at the company was working until two or three in the morning to get the books packed, addressed and shipped. Mr. Bezos had neglected to order packing tables, so people ended up on their knees on the concrete floor to package the books. He later recalled in a speech that, after hours of doing this, he commented to one of the employees that they had to get knee pads. The employee, Nicholas Lovejoy, "looked at me like I was a Martian," Mr. Bezos said. Mr. Lovejoy suggested the obvious: Buy some tables. "I thought that was the most brilliant idea I had ever heard in my life," he said.

Brandt's piece does an excellent job of showing just how bloody difficult it is to get a new business off the ground, what with the uncertainty, the long hours, and, as above, the never-ending trickle (or flood) of unforeseen problems - and none of this even begins to address the tangle of government regulations which stand in the way of entrepreneurship. Thank heavens Bezos stuck with his vision, though, because in making himself rich, he also enriched the lives of everyone who has access to his site.

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On Korea's Rising Income Inequality: Real or Statistical Anomaly?

In today's issue of the Joong Ang Daily, writer Kim Hee-jin describes the "increasingly polarized" nature of Korean society, wracked by rising income inequality and riven with political strife as a result. Quoting the OECD's Social Policy Brochure for Korea, Kim ascribes these ills to "unfair job opportunities and working conditions between regular and nonregular workers as well as gender discrimination."

Drawing on figures from Statistics Korea, Kim writes:

According to Statistics Korea, the nation’s middle class is shrinking each year. The middle class made up 75.4 percent of the entire population in 1990, but the figure dropped to 67.5 percent in 2010.

Instead, low- and high-income classes have expanded. Households in the bottom 20 percent of the income bracket made up 7.1 percent in 1990 but 12.5 percent in 2010. The top 20 percent, meanwhile, grew from 17.5 percent to 20.0 percent in the same period.

The gap in average monthly income has also grown. In June 2011, the top 20 percent of households earned about 7.1 million won ($5,991) per month — 1.8 million won more than in 2003. In the same period, the bottom 20 percent’s monthly income increased by only 290,000 won, from 868,000 won to 1.15 million won.

Readers who have spent any time whatsoever pondering economics statistics will have likely perked up when the word "household" made its appearance, as this is a notoriously fluid term which tends to muddy comparisons of different time periods. Consider divorce, for instance, which has grown more prevalent in the world over the past twenty years. A spike in divorce rates means a corresponding increase in the total number of households, but a decline in the number of persons per household. Or take immigration, which tends to expand the number of households in the lower income brackets. Thus, if Korea has experienced an increase in immigration over the past twenty years, we should not be surprised to find that the bottom income quintile has also expanded. This is not to say that the above statistics are wrong, but rather to suggest that, at a minimum, they beg a whole host of questions which we ought to explore before jumping to any misguided conclusions about public policy.

As it happens, Jacob Goldstein of NPR's Planet Money did a piece on the apparent increase in global inequality (within countries, not between countries) earlier this year and suggested the following explanations:

1. Robots, etc.

Trade barriers have come down. Technology has advanced. The combination of these two factors has disproportionately benefited highly-skilled workers. You want to be the guy building the robot, not the guy whose job got replaced by a robot.

2. Rich people marry rich people

Inequality is calculated by household, not by individual. And a few changes at the household level have driven some of the increase in inequality.

For one thing, it's become more common for people to choose spouses in their own income bracket. In other words, rich people are now more likely to marry other rich people, and poor people are more likely to marry other poor people. (There's a creepy term for this: "assortative mating.")

Single-parent households and single-person households without children have also become more common. Both groups are disproportionately likely to be at the bottom of the income ladder.

3. Free-wheeling job markets

State ownership of corporations has declined. Price controls have become less common. Minimum wages have fallen relative to average wages. Legal changes have made it easier to fire temporary wokers.

Taken together, these changes have actually improved overall employment levels. (Businesses are more likely to higher hire workers when they can pay lower wages and when it's easier to fire people.)

But despite the gain in employment, the same shifts may also have driven up inequality. In the words of the report, "the high-skilled reaped more benefits from a more dynamic economy."

That final line of #3 reminds of George Will's quip that if we want to reduce inequality, we just need to convince everyone to drop out of school at an earlier age.

Finally, it's important to note that inequality is not, by itself, a bad thing. Soccer star Park Ji-Sung makes millions of dollars/euros each year roaming the midfield for Manchester United, but I doubt many people would begrudge him his fortune, even if it does skew the inequality figures. Similarly, a friend of mine in Seoul makes a healthy living operating his own restaurant, which almost certainly puts him in a higher income quintile than me. Yet, I am certainly not made poorer by the success of either Park or of my friend - indeed, my life is enriched by what they contribute to the world, and their earnings suggest that other people think likewise.

Income inequality becomes a problem when the fortunes of the well-off are the ill-gotten fruits of political connections and rent-seeking. Thus, when conglomerate heads receive special treatment in the judicial system for their crimes, or when industry heads prosper behind artificial trade barriers, ordinary, middle-class citizens are rightly indignant. This, however, is a problem not so much of inequality, per se, but of crony capitalism.


For more on the tricky nature of measuring inequality, see here and here.

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Reading Recommendations

At a friend's suggestion, I've started a page (linked just below the title bar of this site, up top) on this site dedicated to reading recommendations. The titles listed are those which have had a significantly formative influence on me and which are easily accessible to the average, interested person. In other words, no dense philosophical or mathematical tomes. As an added bonus, several of the titles are even available for free online.

Happy reading!

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New Additions to the Sidebar

Just a quick post to draw your attention to two new blogs on my sidebar, both of which sport superb names.

The first is The Unbroken Window, written by a professor of economics at Cornell University, and the title of which refers to the parable of the Broken Window by the great Frederic Bastiat.

The second addition is The Pretense of Knowledge, which takes its name from the title of Friedrich Hayek's 1974 Nobel Prize lecture. I particularly enjoy this blog's regular series of "Random Morning Links" posts (such as this one), as they always contain a few internet gems which I'd otherwise never see.

Enjoy!

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Reading Chang Ha-Joon (Ch. 7)

For notes on previous chapters, see here.

"Thing Seven" of Chang Ha-Joon's 23 Things They Don't Tell You About Capitalism finds the author on familiar ground, arguing that "free-market policies rarely make poor countries rich." As evidence for this contention, Chang argues, first, that the rich countries of today became rich not via the fruits of trade, specialization and comparative advantage, but through dirigiste economic policies in which wise bureaucrats steered the economic ship. Chang claims, in addition, that today's developing countries actually performed better in the past behind high protectionist barriers and under policy regimes which eschewed typical "neo-liberal" suggestions.

These are, of course, essentially the same claims made by Chang in his previous two works of popular economics, Kicking Away the Ladder and Bad Samaritans. Despite drawing much criticism for his selective use of facts and examples in those tomes, Chang nevertheless sticks to his guns in this chapter, offering little in the way of new - much less compelling - evidence for this thesis. If nothing else, though, at least "Thing Seven" is mercifully shorter than Kicking and Samaritans.

Regarding Chang's assertion that today's rich countries attained their high standard of living through the use of protectionist policies, Douglas Irwin admits that, yes, 18th century Britain did indeed begin to develop behind tariff walls such as the Corn Laws. Yet, such barriers to trade likely slowed rather than accelerated Britain's economic growth. So, too, for Germany, the tariff code in which protected agricultural goods. Yet again, Chang confuses correlation and causation - that is, he simply takes the current level of wealth and attributes it to any policy which preceded it. Moreover, writes Irwin, Chang's evidence for his argument relies heavily on sample selection bias: "Chang only looks at countries that developed during the nineteenth century and a small number of the policies they pursued. He did not examine countries that failed to develop in the nineteenth century and see if they pursued the same heterodox policies only more intensively."

Reviewing Bad Samaritans in 2009, William Easterly takes on Chang's assertion that developing countries performed better during the 1960-1970s when they engaged Chang's preferred policies than they did post-1980 when they enacted supposedly "neo-liberal" reforms. Looking into the data, however, Easterly finds that "if we include this most recent data and use Chang's own policy breaking point of 1983, there is virtually no change: growth in developing countries was 2.6 percent between 1960 and 1982 and 2.7 percent between 1983 and 2008." Moreover, while inequality between rich countries and poor countries remains high, the 1960-2008 period, with its average 2.7% average growth rate, represents the greatest escape from absolute poverty in human history. So, yes, inequality may be up, but so are democracy and individual freedom, while child mortality rates have plummeted.

Ultimately, economists are far from certain about what policies actually spark economic growth. Easterly summarizes this humility:

In 2003, Arnold Harberger, a free- market economist from the University of Chicago, observed that "there aren't too many policies that we can say with certainty...affect growth." A year later, a group of famous economists (including some on the liberal end of the spectrum like Paul Krugman and Joseph Stiglitz) produced something called the Barcelona Development Agenda that announced: "There is no single set of policies that can be guaranteed to ignite sustained growth." And in 2007, the dean of growth research, Nobel laureate Robert Solow, said: "In real life it is very hard to move the permanent growth rate; and when it happens...the source can be a bit mysterious even after the fact."

Yet, while he's willing to lambaste what he sees as the free-market strait-jacket crowd, Chang remains awfully certain that the policies to which he is partial offer the secret to economic growth. Ultimately, writes Easterly, few of the gains in economic well-being over the past sixty years appear have anything to do with particular expert recommendations on development strategies, which leads Easterly to quip:

...in the end, third-world growth seems to have been fairly expert-proof. Perhaps prosperity is not after all designed from above; perhaps it emerges from below, from the independent actions of many individuals who figure out their own paths.

Indeed.

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Theories Galore: Korean Economic Development

Note: Last month, Korea Business Central hosted an interview with Chang Ha-Joon, as well as a discussion of his work and ideas, in which I became briefly involved, but which, for some reason, I neglected to mention here. A friend and colleague, having seen my comments on Korea's rapid economic development, suggested I re-post one of my longer comments here, if for no other reason than to archive it in the Idiots' Collective vault. In addition, interested readers might find some suggestions for reading material in the space below.

When I started studying the history of Korea's economic rise, my view was little different from what has become the conventional wisdom - i.e. that an activist Korean state, headed by the maestro Park Chung-hee, expertly orchestrated the nation's rise from prosperity. The more I dig into the data, however, the more complicated I realize the story to be. This is not to entirely dismiss that conventional narrative, but rather to say that there is cause for 'reasonable doubt' regarding this story and Park Chung-hee's role in it.

Below, then, is a brief overview of the most prominent explanations for Korea's economic development (in italics) as I understand them, followed by my comments or questions about each (bulleted). I don't claim to be anything more than an interested layperson here, so I'll appreciate any helpful comments of correction, addition, and explanation.


The "Getting Interventions Right" thesis (most prominently advanced by Dani Rodrik):

Rodrik argues that the orthodox view of Korean and Taiwanese economic growth being the result of export expansion is not very convincing. Instead, he says, government intervention enabled these economies to overcome ‘coordination failure’ and brought about an investment boom that increased imports, which in turn led to export expansion. In other words, Rodrik argues that export expansion did not lead to increase in investments, but the other way round. Rodrik also argues that the existence of a well-educated labor force and high equality in income and wealth were also helpful.

My troubles with - or, at least, questions about - Rodrik's argument:

• The switch in relative incentives towards exports in the early 1960s was not significant enough to account for the export boom. Further, Rodrik mistakenly dates the onset of Korea’s rapid export expansion to the mid-1960s. More likely, the export expansion was triggered by a series of currency devaluations that nearly eliminated serious overvaluation of the domestic currency (see here for more on these points).

• And while coordination failure is a theoretical possibility, the Korean government simply wasn't undertaking activities to alleviate such problems when exports kicked into gear. Additionally, credible evidence shows that rapid growth was not investment-led but export-led.

The "Getting Prices Wrong" Thesis (usually associated with Alice Amsden and Suk-Chae Lee):

This argument says, broadly, that Korea's industrialization was spurred by the following factors: an interventionist state; large diversified business groups; an abundant supply of competent salaried managers; and an abundant supply of low-cost, well-educated labor. Writes Amsden: the Korean government "has set relative prices deliberately ‘wrong’ in order to create profitable investment opportunities.” These prices included high interest rates for savers, low ones for investors; low foreign exchange rate to boost exports and high rate to minimize the cost of foreign debt repayment and of cost.

• Trouble is, as a general proposition, "getting prices wrong" makes no sense. Korea's economy performed best when interest and exchange rates were market-determined, and floundered when the government monkeyed with them for policy ends (e.g. the 1950s, HCI years). Amsden and Lee also ignore the cost (both financial and opportunity) of interventionist policy, be it credit policy, interest rate policy, exchange rate policy, tax policy, or trade policy. We cannot, in good faith, simply argue that "Samsung, Hyundai, etc. are successful companies now, therefore the policies were a success." To do so is to avoid a true accounting of the costs of the 1970s policies and instead focus only on the benefits. Unfortunately, to asses the HCI policies we must indulge a counterfactual - that is, we must ask an unanswerable question: "what would have happened in the absence of a particular policy?" That this can't be answered does not, however, automatically denote success of the policies in question.

The World Bank View

The WB study argues that growth was the result of: (1) High rates of investment, exceeding 20 percent of GDP on average between 1960 and 1990, (2) Rising endowments of human capital due to universal primary and secondary education, (3) Productivity growth in the High-Performing Asian Economies that exceeds most other economies. As to the role of state interventions: "Our judgment is that … government interventions resulted in higher and more equal growth than otherwise would have occurred. However, the prerequisites for success were so rigorous that policymakers seeking to follow similar paths in other developing economies have often met with failure.”

• I find the WB's report to be schizophrenic. On the one hand, it argues that government interventions drove Korea's growth, but in the next breath it has this to say about the foremost example of such state activity, industrial policy: "Despite government intentions, the manufacturing sector seems to have evolved roughly in accord with neoclassical expectations; industrial growth was largely market conforming." In other words, the government’s selective intervention did not result in higher and more equal growth than otherwise would have occurred (they said it, not me).

"The Miracle that Did Happen" (Jagdish Bhagwati)

The real miracle that requires explanation is: high levels of private investment sustained for decades and not experienced elsewhere or other time period. Bhagwati argues that this was mainly due to Export Promotion (EP) strategy as distinct from Import Substitution (IS). That is, rapid export expansion led to rapid growth in investment, as the investments were profitable because the imported newer-vintage capital equipments had high social marginal products, greater than international costs. Moreover, the high levels of literacy and education in East Asia made the newer-vintage-capital-goods more productive than would be otherwise.

• Bhagwati's view, as I understand it, has some merit, but he may overemphasize the importance of export promotion. Korea's growth was as much import-led as export-led, as Korea always ran a trade deficit even as it posted double-digit growth in its boom years (I believe Korea started running surpluses in the 1980s). On education, William Easterly has pointed out that, while Korea did indeed have high rates of human capital growth between 1960-1987, it was generally equal to or less than that of many African economic disasters such as Angola, Zambia, Ghana, Mozambique, and a bevy of others.

[Note: None of the above writings (other than perhaps, in a small way, the World Bank) addresses the many smaller-scale policies undertaken by the Korean government - such as those intended to improve health and sanitation, or agencies like KOTRA - which may have had beneficial effects. I'm afraid I don't know enough about these to offer comment today, though.]

None of this is to argue that the ROK was, or is, a bastion of free market economics. Given that the cause(s) of the Korean economic rise is hardly a settled matter within the academic community, however, I feel it only honest to remain, at a minimum, undecided on the specific policies that produced Korea's rise. And from that mindset naturally follows a reluctance to bestow upon Park Chung-hee all the standard plaudits for guiding the Korean economy to the Promised Land. Moreover, if a liberal, democratic state which respects the human rights of its citizens is, as I believe, an end unto itself, the burden of proof should be on those who insist that the repressive policies of the Park regime were a necessary evil on the road to Korea's prosperity.

Finally, for those interested in this subject, I also recommend Eberstadt's Policy and Economic Performance in Divided Korea during the Cold War, a recent book which offers a good overview of the many policy areas during this time period.

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Drink Up and Be Somebody: Honky Tonk Heroes

Not exactly an early adopter (or figure-it-outer, as the case may be), I just learned that Youtube allows a person - e.g. me - to embed playlists. Some time ago, a Korean musician friend wanted to know about classic American country and bluegrass music, so I sent him the above Youtube compilation (also here), and now I'm sharing it with you.. Call it the modern mix tape, as gooberish as that sounds, and consider yourself blessed. Blessed, that is, until one of Sony's artists comes up on the playlist and the music company for some reason blocks them from being played in any sort of queue. Hence, no Waylon Jennings, Lefty Frizzell, or Bill Monroe in this one. My deepest apologies on behalf of Sony.

The button just to the right of the 'play/pause' button will advance you to the next video, so just skip ahead if you're not feeling any particular number. My recommendation, however, is that you just turn it on and let it run in the background. You just never know what sort of dusty old liquor-soaked pleasures may await you.

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Occupy Wall Street & the Tea Party: Brothers in Arms?

From James Sinclair comes this insightful post, which includes a helpful Venn diagram:

Bailouts, subsidies, tax breaks, special rights and privileges, regulations designed to restrict competition—to name a few of the many ways the government protects and stimulates corporate interests, and those things are every bit as anti-free market as, not to mention directly related to, the high taxes and excessive bureaucracy that gets Tea Partiers riled up. In other words, aren't these two groups—Occupy Wall Street and the Tea Party—raging against different halves of the same machine? Do I have to draw a Venn diagram here?

Oh, alright, I'll draw a Venn diagram:

The trouble, Sinclair goes on to write, is that these two groups are too busy insulting each other to notice what they have in common. But as someone said on Twitter last week, Washington better watch out if they manage to stop yelling at each other for a few minutes.

For further reading on this topic, check out Sheldon Richman's letter to the OWS crowd over at The Freeman. His opening salvo:

To Occupy Wall Street:

Wall Street couldn’t have done it alone. It takes a government and/or its central bank, the Federal Reserve System, to:

• Create barriers to entry for the purpose of sheltering existing banks from competition and radical innovation, then regulate for the benefit of the privileged industry;
• Issue artificially cheap, economy-distorting credit in order to, among other things, give banks incentives to make shaky but profitable mortgage loans (and also to grease the war machine through deficit spending);
• Make it lucrative for banks – and their bonus-collecting executives — to bundle thousands of shaky mortgages into securities and other derivatives with the knowledge that government-sponsored enterprises Fannie Mae and Freddie Mac and other companies, all subject to powerful congressmen looking for campaign contributions, would buy them after a government-licensed rating cartel scores them AAA;
• Inflate an unsustainable housing bubble by the foregoing and other methods, enticing people to foolishly overinvest in real estate.
• Work closely with lending companies to establish a variety of programs designed to lure people with few resources or bad credit into buying houses they can’t afford;
• Attract workers to the home-construction bubble, setting them up for long-term unemployment when the bubble inevitably burst;
• Implicitly guarantee big financial companies and/or their creditors that if they get into trouble they would be rescued;
• Compel the taxpayers to bail out those companies and/or creditors when the roof finally fell in.

(h/t: Knowledge Problem)

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Stephen Walt on Asian Security Matters

A swarm of superstar IR scholars - including John Ikenberry, Stephen Walt, John Mearsheimer, Victor Cha, and others - descended on Seoul last week for a big conference on Asian security matters. For those of us who weren't invited, Walt (a professor of international relations at Harvard) offers his pre- and post-game comments over at Foreign Policy. Among other issues tackled by the wonky group:

A number of participants emphasized how America's continued involvement in Iraq and Afghanistan impairs our ability to respond to growing strategic pressures in Asia. Indeed, one Chinese participant explicitly argued that the US would not be able to get out of either commitment quickly and that this would limit America's ability to protect its allies in Asia. My impression was that he said this with a certain degree of satisfaction, and I have no doubts that the Chinese participants would love to see the US bogged down there forever. So the next time someone tells you that our "credibility" is on the line in Afghanistan, you should tell them that they have it exactly backwards. Our ability to focus on other theatres and to respond there if necessary is reduced by the bleeding sore of the Afghan War, and getting out of there would go a long way toward reassuring allies in more important theatres.

Read the rest at the links above.

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Endorsement: Juwangsan National Park

Photo by Edvenchers

Consider it settled: Juwangsan National Park ought to be on your itinerary if you happen to find yourself hankering for a hike in South Korea. The place is gorgeous, and I can scarcely believe it took me so long to get out and see it. Thing is, Koreans spend so much time talking about Seoraksan, Jirisan and other more prominent national parks that they never mention hidden gems like Juwangsan (which certainly tops Jirisan where scenery is concerned). This, however, is a good thing: with the exception of the lower waterfalls and the summit itself, the mountain is refreshingly uncrowded by Korean standards.

In these days of uber-convenience, Juwangsan is admittedly a bit difficult to reach. As someone who hates buses (and who lives an hour from a bus station, but a 10 minute walk to Seoul Station), I opted for the KTX bullet train to Daegu, then a slower train to Andong, followed by a 1 hour bus ride to the town of Cheongsong. A lot of transferring, to be sure, but with tight connections it took me about the same as a direct Seoul-Cheongsong bus (about 6 hours), and I was able to read comfortably and use the restroom when I pleased.

A round-trip hike to the peak of Juwangsan (Gamae-bong, 882 meters) is about 15 kilometers, most of this being on fairly easy, flat ground winding through gorgeous canyons and valleys. The final 2 km to the peak is a steep climb that'll put your lungs to the test. Anyone in reasonably decent shape will be able to handle the hike - and I saw plenty of pudgy middle-agers at the summit - but don't say I didn't warn you.

The picturesque ravines of Juwangsan have been carved by a beautiful stream, creating waterfalls and bizarre rock formations. Until 2005, this mountain puckerbrush was inhabited by the last residents of the ancient village of Naewon. The residents are now gone, and the buildings - deemed an environmental and safety hazard - were torn down, but the walls, rice threshing area, and abandoned orchards still remain. In fact, a few other artifacts remain, too, as I later discovered.

On my descent, I kept feeling something poking into my left heel. Thinking it was a thorn or a rock, I stopped and removed my hiking boot. Nothing. I turned the shoe upside down and shook it. Nothing...except that poking through the sole of my shoe (an almost brand-new pair of Merrells, I might add) was some sort of home-forged iron spike, likely part of a gardening implement. It had stabbed itself straight through my Vibram soles and was threatening tetanus with every step I took. Fortunately, it never broke my skin, but alas, said Merrells are now pretty much shot, as they can no longer be expected to keep my feet dry on a wet hike.

The town of Cheongsong (home to some sort of world ice climbing championship, if you care) is a peculiar little place. Famed for its apples, the town seems to sport not a single proper restaurant with tables and chairs. That is, every damn place requires that you sit cross-legged on the floor in traditional fashion if you have designs on the food - fine for bandy-legged Koreans, maybe, but not for a 6'3" American whose left knee has had a tendency to tense up after hiking ever since a bad ski accident many years ago. Still, the food in Cheongsong, as it is across the rural Korean countryside, is terrific. Try the seasoned chicken breast (닭떡갈비) at the restaurants clustered around the medicinal water spring (야수탕 ) if you're hungry after the hike.

Unfortunately, I have neither the camera nor the skills required for adequate landscape photography, so for pictures I'll simply direct you to the gallery of a Flickr user nicknamed Edvencher (see pic at top), who expertly captures the beauty of Juwangsan.

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Living in Two Worlds at Once

Out of masochistic curiosity, I joined the "Occupy Salem" Facebook page, just to see what sort of bee these disciples of the "Occupy Wall Street" hullabaloo have up their ass. Mostly, it seems, these folks ascribe all the world's ills to "capitalism" and are intent on...well, I'm not sure what they're intent on doing, other than sitting around in public places, banging on drums and recycling the same chants their parents used back in 1974.

Anyway, someone posted the above image to the Facebook page a few days back, surely intending it as a supremely insightful, if snarky, indictment of the free market. What this image actually shows, however, is how little thought actually goes into most critiques of capitalism.

In this post from last year, I tried, among other things, to illustrate what F.A. Hayek meant when he said that present-day humans must learn to live in two worlds at once. Here are his famous lines from The Fatal Conceit:

If we were to apply the unmodified, uncurbed, rules of [the small band or family] to the [wider civilization], as our instincts and sentimental yearnings would often make us wish to do, we would destroy it. Yet, if were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once.

In a close-knit family unit, or within our tight circle of friends, we have substantial knowledge about the needs, likes, and dislikes of our loved ones. Moreover, if I tried to charge my friend a fee every time I do him a favor, our friendship would quickly disintegrate. This combination of deep knowledge and a relationship based on love and friendship is vastly different from our interactions with strangers in the wider world. If I expect the restaurant chef to cook a meal for me for the same reasons my mother cooks a meal for me, I'm bound to be wildly disappointed. And without the direct, personal knowledge of the needs, likes and dislikes of a diverse general public, there's no way a restaurant can know the preferences of its customers without using price signals. As Hayek understood - but as the creator of that virtual bumper sticker above clearly does not - these really are two different worlds, and as I wrote last year, woe unto he who be mixing them.

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On the Road to Juwangsan National Park

Photo by Edvenchers

I'm headed out today for Juwangsan National Park, located near South Korea's east coast, for a couple days of hiking and mountainside tomfoolery. We'll probably be a couple weeks too early to see the autumn foliage, but hopefully this will mean slightly less crowded trails. Whatever the case, don't expect a deluge of posts from me this weekend.

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An End-Week Buffet of Goodness

• Reason TV continues to churn out wonderful videos, including the above interview (also here) with philosopher Matt Zwolinksi, who here discusses "bleeding heart libertarianism."
• William Easterly and friends decode aid/development jargon in their new AidSpeak Dictionary.
  
• In South Korea, laws which attempt to curb spending on private education have turned the place into a nation of snitches. Furthermore, such laws will likely do little more than make private education more expensive, thus widening the gap between the wealthy who can afford such prices and, well, those who can't.
  
• Peter Robinson eloquently remembers Steve Jobs.
• Are questions of war and peace the litmus test for libertarianism? Robert Higgs makes a strong case for a "yes" answer, writing that government "invariably tramples on the people’s rights during wartime and leaves the people with fewer liberties after peace returns."
• For some excellent audio, here's John Allison on the relationship between self-ownership and the financial crisis. Highly recommended.
• Finally, via Arnold Kling, here's Eric Raymond writing on the essential distinction that must be made between "community" and "collectivism:"

Community and collectivism are opposites. Community is valuable and powerful; it is individuals freely choosing to cooperate and identify with each other to achieve more than they can individually, as we do in the open-source community.

Collectivism is a fraud. It pretends to be about community, but it is actually about the use of force. Collectivists want us not only to bow to their desire for power over others, but to thank them for coercing us and praise them as our moral superiors.

Compassion is a duty of every individual. Groups of people organizing voluntarily to achieve compassionate ends are deserve admiration and support. Collectivists pervert compassion, speaking the language of caring but committing the actions of criminals.

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Bad Lip Reading Presents...

Thanks to the folks over at Bad Lip Reading, present-day politicians are now as coherent as they've ever been.

Here's Representative (and current US presidential candidate) Michelle Bachmann:

And here's Texas governor (and another candidate for the presidency) Rick Perry:

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Ken Burns: Unsullied by Commerce

I thoroughly enjoy Ken Burns' films. Baseball, Jazz, the Civil War, World War II, Lewis & Clark...the guy's covered them all and has put together an excellent, if not perfect, product for each. And, blessed be the god of your choice, he's now working on a documentary on the history of country music. Hank Williams be praised!

But does the fact that I enjoy Burns' films mean that I should have the ability to force you to pay for their production? Suppose you intend other uses for your money, or perhaps you don't like Burns' style, his point of view, or documentaries in general - should you nevertheless be compelled to pitch in a few dollars to see that he's still able to make his movies?

Ken Burns, apparently, thinks the answer to those questions is "yes." In the video above (or here), Burns recoils at the thought of having to do "commercial" work, or to fit his vision to the wishes of his financial backers. Better to get his money from the National Endowment for the Humanities and the Corporation for Public Broadcasting, whose taxpayer "donors" are given no choice over whether or not they contribute to Burns' projects. Putting his belief in the starkest of terms, Burns puts public funding of the arts into a category with fire departments and a military, that is, as something which "we" must have, lest the world go to hell in a commercial, partisan handbasket.

Further Reading: Funding (Public) Media in Korea and the United States

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Reading Chang Ha-Joon (Ch. 6)

For my thoughts on previous chapters, see here.

Rather than writing a full-fledged review of “Thing Six” in Chang Ha-Joon's 23 Things They Don't Tell You About Capitalism, I’m simply going to list a few of the questions that I’d like to ask Chang if he were sitting across the table from me.

In this chapter, entitled “Greater Macroeconomic Stability Has Not Made the World Economy More Stable,” Chang writes that, while inflation has indeed been low and stable over the past thirty years, this has not resulted in more general economic stability. Moreover, argues Chang, an “excessive focus on inflation” has distracted policymakers and economists from issues like full employment and economic growth. In reading this chapter, a number of questions occurred to me. The quotes which provoked the questions are provided in italics.


Question #1:

Despite the assertion that price stability is the precondition of growth, the policies that were intended to bring lower inflation have produced only anaemic growth since the 1990s, when inflation is supposed to have finally been tamed.

Most mainstream economists argue that price stability (and, usually, low inflation) are necessary, but not sufficient, preconditions for economic growth. Can you provide the name of an economist who has argued otherwise? And shouldn’t any analysis of economic growth also include an evaluation of regulatory and trade policy, demographics, and technological change? And do we really need that extra ‘A’ in ‘anaemic?’


Question #2

There is evidence that excessive anti-inflationary policies can actually be harmful for the economy.

But pray tell, why would such policies be necessary in the first place if not for inflation? That is, if a central bank were able to maintain price stability (and even low inflation), would they ever have cause to implement such measures?


Question #3

Greater labour market flexibility is demanded because, from the point of view of financial investors, making hiring and firing of the workers easier allows companies to be restructured more quickly, which means that they can be sold and bought more readily with better short-term balance sheets, bringing higher financial returns.

Well, that’s the pragmatic argument for labor market flexibility, but I don’t care to argue about its veracity here. Rather how do you respond to the moral arguments for such flexibility, that is, that each individual has the right to choose the people with whom he spends his time? As Tibor Machan has noted, “No one can give another person job security, not unless someone else is placed into involuntary servitude.” And do we really need that 'U' in "labour?"


Question #4

Taming inflation has not quite brought to most people the sense of stability that the anti-inflationary warriors had said it would.

Even if inflation were permanently subdued, and even if it were the only necessary/sufficient condition for economic growth, why should we expect it to tame the forces of creative destruction, which ultimately drives shifts in employment?

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