Sunday, July 29, 2012

What are the Origins of Power, Prosperity, and Poverty

Lots of people would like to know the answer to that and many answers have been proposed. Daron Acemoglu dismisses the most popular explanations and proposes a contrast between societies run on extractive and inclusive lines. He says that societies are usually run on extractive lines but it is the inclusive societies that are the runaway successes. Below are his illustrative case-studies. I am not persuaded but will add my doubts at the foot of the extract below:


There is no better laboratory that demonstrates how extractive institutions emerge and persist than the New World. The Americas provide a brilliant example for understanding how different institutions form, how they become supported within different political frameworks, and how that, in turn, leads to huge economic divergences.

The economic and political institutions in the New World have been largely shaped by their colonization experience starting at the beginning of the 16th century. While the tales of Francisco Pizarro and Hernán Cortés are quite familiar, I'd like to start with Juan Díaz de Solís — a Spaniard who in 1516 initiated the colonization of the southern cone of South America, in what is today Argentina and Uruguay. Under de Solís's leadership, three ships and a crew of 70 men founded the city of Buenos Aires, meaning "good airs." Argentina and Uruguay have very fertile lands, with a climate that would later become the basis of nearly a century of very high income per capita because of the productivity of these areas.

The colonization of these areas itself, however, was a total failure — and the reason was that the Spaniards arrived with a given model of colonization. This model was to find gold and silver and, perhaps most importantly, to capture and enslave the Indians so that they could work for them. Unfortunately, from the colonists' point of view, the native populations of the area, known as the Charrúas and the Querandí, consisted of small bands of mobile huntergatherers.

Their sparse population density made it difficult for the Spaniards to capture them. They also did not have an established hierarchy, which made it difficult to coerce them into working. Instead, the Indians fought back — capturing de Solís and clubbing him to death before he could make it into the history books as one of the famous conquistadors. For those that remained, there were not enough Indians to act as workhorses, and one by one the Spaniards began to die as starvation set in.

The rest of the crew moved up the perimeter to what is now known as Asunción, Paraguay. There the conquistadors encountered another band of Indians, who on the surface looked similar to the Charrúas and the Querandí. The Guaraní, however, were a little different. They were more densely settled and already sedentary. They had also established a hierarchical society with an elite class of princes and princesses, while the rest of the population worked for the benefit of the elite.

The conquistadors immediately took over this hierarchy, setting themselves up as the elite. Some of them married the princesses. They put the Guaraní to work producing food, and ultimately the remainder of de Solís's original crew led a successful colonization effort that survived for many centuries to come.

The institutions established among the Guaraní were the same types of institutions that were established throughout other parts of Latin America: forced labor institutions with land grants for the elite Spaniards. The Indians were forced to work for whatever wages the elites would pay them. They were under constant coercive pressure — forced not only to work but also to buy what the elites offered up for sale. It is no surprise that these economic institutions did not promote economic growth. Yet it's also no surprise that the political institutions underpinning this system persisted — establishing and continuously recreating a ruling class of elites that did not encourage economic development in Latin America.

Yet, the question still remains: Could it have been geography, culture, or enlightened leadership — rather than institutional factors — that played a critical role in the distinct fates of the two teams of explorers?


Roughly a thousand miles north, at the beginning of the 17th century, the model of the Virginia Company — made up of the elite captains and aristocrats who were sent to North America — was actually remarkably similar to the model of the conquistadors. The Virginia Company also wanted gold. They also thought that they would be able to capture the Indians and put them to work. But unfortunately for them, the situation they encountered was also quite similar to what the conquistadors witnessed in Argentina and Uruguay.

The joint stock companies found a sparsely populated, very mobile band of Indians who were, once again, unwilling to work in order to provide food for the settlers. The settlers therefore went through a period of starvation. However, while the Spaniards had the option of moving up north, the captains of the Virginia Company did not have this option. No such civilization existed.

They therefore came up with a second strategy. Without the ability to enslave the Indians and put them to work, they decided to import their own lower strata of society, which they brought to the New World under a system of indentured servitude. To give you a sense of this, let me quote directly from the laws of the Jamestown colony, promulgated by the governor Sir Thomas Gates and his deputy Sir Thomas Dale:

No man or woman shall run away from the colony to the Indians upon pain of death. Anyone who robs a garden, public or private or a vineyard or who steals ears of corn shall be punished with death. No member of the colony will sell or give any commodity of this country to a captain, mariner, master, or sailor to transport out of the colony or for his own private use upon pain of death.
Two things become immediately apparent in reading these laws. First, contrary to the image that English colonies sometimes garner, the Jamestown colony that the Virginia Company was chartered to establish was not a happy, consensual place. Pretty much anything the settlers could do would be punished by death. Second, the company encountered real problems that were cause for concern — namely, that it was extraordinarily difficult to prevent the settlers they brought to form the lower strata of society from running away or engaging in outside trade. The Virginia Company therefore fought to enforce this system for a few more years, but in the end they decided that there was no practical way to inject this lower stratum into their society.

Finally, they devised a third strategy — a very radical one in which the only option left was to offer economic incentives to the settlers. This led to what is known as the headright system, which was established in Jamestown in 1618. In essence, each settler was given a legal grant of land, which they were then required to work in exchange for secure property rights to that plot. But there was still one problem. How could the settlers be sure that they had secure rights to that property, particularly in an environment in which a stolen ear of corn was punishable by death?

The very next year, in order to make these economic incentives credible, the General Assembly offered the settlers political rights as well. This, in effect, allowed them to advance above the lower strata of society, to a position in which they would be making their own decisions through more inclusive political institutions.


The above examples seem to me to offer no insight into the two runaway economic and political successes of the 19th century: Britain and Germany. Britain inherited a system of individual liberty from way back which was emphasized by the governments of the day, notably by both the Liberals under Gladstone and the Conservatives under Disraeli.

Germany, however, was created by Bismarck in 1872 and flourished under his authoritarian rule. And the systems which he set in place survived his term in office and led to continued economic advance in Germany. And by 1914, Germany was arguably more powerful and prosperous than Britain. It was only a tenuous lead in naval strength that gave Britain any headway over Germany. Compared to the German army, the British army was of course laughable. It took the combined might of France, Britain, Russia and the USA to bring Germany to heel.

So how does Germany fit the Acemoglu model? I cannot see that it does. Both Prussia before 1872 and Germany after 1872 had parliaments with varying degrees of influence but both Prussia and Germany remained substantially under the control of political strongmen, first Bismarck and then Kaiser Bill. One of the most famous episodes in his career was when Bismarck ran Prussia for four years in the name of the Kaiser alone -- completely ignoring the Prussian parliament.

So it seems to me that the Acemoglu model gives us no insight into the ORIGIN of powerful and prosperous societies. It does however give a reasonable DESCRIPTION of powerful and prosperous societies -- secure property rights etc. But we already knew that. It is the origin question that we want answered.

And I do have an answer -- but it is so politically incorrect and will initially be seen as so improbable that I hesitate to say much about it. Briefly, I think that a tradition of respecting the individual is the key and that such an orientation was historically basic among Teutonic peoples and is still alive (though gasping) today. I think it is that tradition which led to both British and German eminence in the 19th century. I set out some of the history behind my thinking on the matter here


No science can explain massacres like Aurora

In his comments below Theodore Dalrymple applies a view that is close to the heart of conservatism: An acceptance that that there will always be a lot that we do not know or understand and that we must always therefore proceed with caution. Only Leftists "know" all the answers

By a strange irony, alleged Aurora mass murderer James Holmes was a doctoral student of neuroscience—the discipline that will, according to its most ardent and enthusiastic advocates, finally explain Man to himself after millennia of mystery and self-questioning.

But what could count as an explanation of what James Holmes did? At what point would we be able to say, “Aha, now I understand why he dyed his hair like the Joker and went down to the local cinema and shot all those people?” When we have sifted through his biography, examined his relationships, listened to what he has to say, and put him through all the neuropsychological and neurological tests, will we really be much wiser?

Like Anders Breivik, the young Norwegian who killed 77 people in Norway by bomb and gun, Holmes is reported to have been a “loner,” a young man without the social skills or perhaps the inclination to mix with his peers in a normal way. But such loners, though a small minority, are numbered in the thousands and tens of thousands; vanishingly few of them act like Breivik or Holmes, and many, indeed, make valuable contributions to society. Preventive detention for loners, or even special surveillance of them, would hardly be justified.

The same is true of any other characteristic that might link Breivik and Holmes to their acts. Even the presence of a recognized mental illness, such as schizophrenia, would not suffice, since most people with that affliction don’t act in this fashion. And the temptation to indulge in a circular argument, where the explanandum becomes the explanans and vice versa, must be resisted, because it offers the illusion of understanding where there is none: “He must have been mad to do this; and he did it because he was mad.”

The multifactorial analyses to which experts are inevitably driven—a bit of genetics here, a bit of parenting there, plus a dash of social pressure, culture, and the legal availability of weaponry thrown into the explanatory soup, as the weird sisters threw eye of newt and wool of bat into their cauldron—will leave us not much better off. The mesh will never be drawn fine enough for us to be able to say: “Now, at last, I understand.”

And yet our nature drives us to seek an explanation and an understanding (the two are related but not quite the same). Even if we felt like it, we cannot say: “Well, such things happen; let us hope, Inshallah, that they never happen again.” We must know the how, but also the why.

An atrocious event like the Aurora massacre brings us up sharply against something that for the most part we ignore: that, for metaphysical reasons, our explanatory reach exceeds our grasp and will do so forever. We seek a final explanation, but cannot reach one because, as Haitian peasants say, “Behind mountains, more mountains.”



Rich Liberal Hypocrites!


I don't know about you, but I am sick of all the Democratic mud-slinging at Mitt Romney because he is rich. The level of hypocrisy tells me that Obama and his trolls are so bereft of anything to offer the voters that they insult them with this class warfare garbage about "millionaires and billionaires."

President Obama, according to a May 15, 2012 USA Today news article, "is a wealthy man with assets of as much as $10 million. Moreover, "he has a hefty stake in JP Morgan Chase, the megabank...with an account worth between 500,000 and $1 million."

Romney is rich. If he is elected, the Forbes list of the ten richest U.S. Presidents noted that in 2010 he reported adjusted gross income of $22 million of which $8 million was interest and dividends." The January 24, 2012 Forbes article by William P. Barrett said that "implies assets in the range of $200 million to $250 million."

Romney, however, would not be tops in presidential wealth. At the top of the list, in adjusted terms, George Washington was one of the wealthiest men in the nation when he became president. Mount Vernon plantation grew to 6,500 acres and Washington was a canny businessman, distilling booze, and even raising mules.

In 2010 dollars, Democrats who held the presidency in the last century included John F. Kennedy whose net worth was $1 billion. Jacqueline Kennedy was an oil heiress and his father was one of the wealthiest men in America. Almost all of JFK's wealth income and property came from a trust shared with other family members.

Clinton's wealth is estimated at $38 million. Twenty years of public service did not make him a rich man, but since leaving office, books and speaking fees earned him big bucks.

Franklin Delano Roosevelt was worth $60 million, mostly acquired through inheritance and marriage. He spent most of his adult life in public service and his mother controlled the purse strings.

Lyndon Baines Johnson made a lot of money as a politician. He would accumulate 1,500 acres in Blanco County, Texas, and he and his wife owned a radio and television station in Austin. His net worth was estimated at $98 million.

In 2011, you couldn't swing a dead cat in Congress without hitting a multi-millionaire, many of them Democrats. John Kerry who ran against George Bush has a net worth of $193.07 million, much of it the result of marrying rich wives. Jay Rockefeller whose very name suggests wealth has $81.63 million. The California ladies, Diane Feinstein comes in at $55.07 million and Nancy Pelosi is worth $35.20 million.

The Daily recently reported that Rep. Pelosi's 2011 financial disclosure statement included between $1 million and $5 million earned from partnership income with Matthews International Capital Management, a firm that invests exclusively in Asia where much U.S. outsourcing occurs.

Among the Republicans, Rep. Michael McCaul has assets of $294.21 million, much of it is held by his wife, Linda McCaul, the daughter of Clear Channel Communications CEO and founder, Lowry Mays. Rep. Darrell Issa, who earned his wealth in the private sector, is worth $220.40, and, from a celebrated New Jersey family, Rep. Rodney Frelinghuysen is worth $20.35 million. Neither of the Bush's, father and son, made it into the top, most wealthy Presidents.

Suffice to say if you weren't already wealthy when you got elected to Congress, the odds are you will accumulate wealth while there.

Obama's salary as President is $400,000 a year; he has a $150,000 expense account and a $100,000 tax-free travel account, along with a $20,000 entertainment budget. Not big money compared to the CEOs of major corporations and banking institutions, but the taxpayers pick up the tab for a lot of extras that go with the job.

If the economy will decide Obama's fate in November, then a lot of voters, Republicans, Democrats, and independents are going to be thinking about the past 40-plus months of 8.2% unemployment, billions wasted on "clean energy" companies that have gone bankrupt sticking taxpayers with the losses, the national debt of $17 trillion that robs the future from the next generation and the one after that, and the largest tax increase in history--$494 billion in one year-that will hit on January 1, 2013. I don't even want to think of the costs of Obamacare.

Caterwauling about how wealthy Mitt Romney is and telling lies about his career at Bain Capital may fool some people, but most know where their financial problems came from and have no doubt it has been Barack Hussein Obama's appalling mismanagement of the nation's economy.

Being rich in America never kept anyone from being elected President. Obama and many of his Democratic Party colleagues are the wealthiest hypocrites in public office.



My identity: jonjayray. I have deleted my old Facebook page as I rarely accessed it. For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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