Thursday, February 28, 2013
The importance of culture
In my days of writing academic journal articles (1970-1990), one of my most frequent themes was criticism of the way my fellow psychologists used students as their subjects of study. They seemed to assume that what was true of American college students was true of human beings everywhere. And those psychologists who didn't use their students as subjects of study used white rats!
So I was something of a lone voice in expressing dissatisfaction with the reigning research traditions. I was virtually the only voice in psychology saying that what is true of American college students might not be representative of other populations and sub-populations.
But as I have often found, my way of thinking does gain ground eventually and that has now happened again after the relatively recent work of a small group of researchers led by an anthropologist (Henrich). You can read a lengthy summary of their work here. They did a lot of cross cultural research among non-Western cultures which showed that in most of the world's cultures people think radically differently from the way "Westerners" generally and Americans in particular think. And their evidence was sufficiently extensive and cogent to gain widespread acceptance, though I doubt that research traditions will change much. More caution about generalizations can however hopefully be expected.
The new evidence was in fact stark in the way that Americans were shown to be at the far extremes of how the rest of the world thinks. Americans are consistently outliers on most things. There are great variations in the world's cultures but no culture is as "weird" as American culture.
The only surprise is that that was a surprise. "American exceptionalism" anyone? Modern Western civilization is an outlier to all of history. It is different precisely because it represents a new and better way of dealing with the world. It dominates the world because it is different -- but different in an adaptive way. It is a freak of cultural evolution that has transformed the world in a matter of only 200 years or so. It is clearly a pity that the Left are now beavering away to destroy that culture.
British Capital Gains Tax hike led to FALLING revenues
The Adam Smith Institute is calling on the government today to slash CGT rates in next month’s Budget in order to boost revenue and economic growth. 2010-11 figures now released by HM Revenue & Customs (HMRC) show that the rise in Capital Gains Tax (CGT) was a failure. Meant to raise more revenue, in fact it raised less.
CGT was raised from 18% to 28% for most taxpayers (entrepreneurs’ relief stayed at 10%) in June 2010, nearly three months deep into the tax year. This unusual timing allows economists to see the impact of the rate changes during the year.
Clearly, many people sought to realise gains before the rate increased, knowing that the Coalition Agreement committed the Government to a sharp increase in CGT rate. There was also a 34% drop in 10% ER disposals, probably because entrepreneurs feared further tightening.
However, this highlights the fact that CGT is effectively a voluntary tax, paid only when people choose to dispose of assets. If they perceive rates to be too high, they choose to keep assets rather than dispose of them. Only a few people are forced to sell assets – many of them elderly people who build up assets throughout their lives and then cash them in to live on.
High CGT rates depress economic activity and prevent the flow of capital to where it can be most productively used. This lowers both economic growth and government revenue. This is why the Adam Smith Institute is urging the government to slash CGT rates to their pre-2010 levels, which would raise more revenue for the Treasury and also stimulate growth.
For example, if someone owns a buy-to-let flat and is thinking about selling it to raise seed money for a new business, the fact that a large chunk of the proceeds has to be paid in tax will deter them. They may well decide to keep the flat and not start the business, thus depriving the state not only of the CGT revenue, but also the taxes that would be paid by the new business and its employees.
People’s reluctance to pay a large cheque to the state is increased by the knowledge that much of their capital gain is actually due to inflation. Indeed, roughly half of taxable gains are attributable to inflation .
Dr Eamonn Butler, Director of the Adam Smith Institute says: “The coalition policy of a sharp increase in CGT rates has failed. Not only has it raised less revenue, it has also reduced the available capital in the economy. That is the last thing businesses need at a time when bank loans are so difficult to get.”
Exports are actually a COST
by Don Boudreaux
Yesterday evening I received an e-mail from Justin Yang, a high-school student in Los Angeles, asking me to elaborate on why I object to government policies designed to promote economic growth through exports. I made a mental note to ponder how best to respond to Mr. Yang, which I’d originally intended to do only through private e-mail. But then I cuddled up in bed last night with Chris Wickam’s 2009 volume, The Inheritance of Rome. While Wickham’s work is masterful and deeply enjoyable, I noted that back on page 40 he wrote that the economies of Tunisia and of Syria/Palestine, circa the 5th century A.D., “depended substantially on exports for their prosperity.”
Many people – high-school teachers, celebrated historians, politicians, the list is long – are convinced that nations can grow wealthy through exports.
This belief is nonsense. Or, more precisely, this belief in “export-led growth” is nonsense without further elaboration in which the benefits of exports are revealed to be the imports they make possible, and exports themselves are explicitly reckoned as, and recognized to be, costs – that is, without further elaboration to make clear that exports are valuable only because they enable people to increase their imports.
But because so many people talk and write endlessly about “export-led growth” or “successful economies built on exports” – and because the economically untutored mind seems to be a natural host for parasitical mercantilist myths in which exporting generally was indeed considered to be valuable in and of itself – it’s worthwhile to explain why exporting per se is no means of growth. The explanation is simple. Here are some alternative scenarios.
First scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships – themselves American-made – and then just as routinely sunk, along with the cargo ships, in the middle of the ocean. Lots of exports in this case. No imports.
Does anyone suppose that these exports will lead to growth? No. It’s obvious even to the most ardent and misinformed protectionist that a policy of routinely sinking American-made goods into the ocean is a recipe for impoverishment and not for prosperity. (Caveat: it’s true that some Keynesian economists regard such a policy to be productive during times of slack demand. But let’s ignore that issue here and focus, not on short-run macroeconomic issues, but on longer-run questions of economic growth.)
Second scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships. These ships sail safely to foreign ports. The American-made goods are unloaded, but Americans refuse to take payment in exchange. We give these goods to foreigners. Once again, no one of sense would identify such a policy as one that promotes economic growth in the U.S.
Third scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships. These ships sail safely to foreign ports. The American-made goods are unloaded, and in exchange Americans receive money – Australian dollars, euros, yuan, yen, rubles, you name it. When this money is sent to America, Americans burn every last note of it to ashes. I here refrain from speculating on the likelihood that “no one would identify such a policy as one that promotes economic growth in the U.S.” – but, in fact, no one of sense would identify such a policy as one that promotes economic growth in the U.S.” Goods exchanged for ashes is a poor deal for the ash recipients.
Fourth scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships. These ships sail safely to foreign ports. The American-made goods are unloaded, and in exchange Americans receive money – Australian dollars, euros, yuan, yen, rubles, you name it. When this money is sent to America, Americans stash every last note into their mattresses, safes, and lock-boxes. Spending such money, it is reasoned by many, would be harmful to the American economy.
As in the first three scenarios, Americans’ trading practices in this case will only make Americans poorer, not richer. Such trading practices will not “lead” growth. Such trading practices – aimed at maximizing exports and minimizing imports – cannot possibly be ones on which to build long-term, sustained, wide-spread prosperity in America. Giving stuff away and receiving in return only paper (or digital entries in bank accounts) never to be spent impoverishes; it doesn’t enrich.
Fifth scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships. These ships sail safely to foreign ports. The American-made goods are unloaded, and in exchange Americans receive money – Australian dollars, euros, yuan, yen, rubles, you name it. When this money is sent to America, Americans eventually spend it in Australia, Europe, China, Japan, Russia, you name the foreign location. The more Americans export, the more Americans can import. And that – the ability to import – is the point of trade. In the ability to import lies the purpose and value of exporting.
So when, for example, historian Chris Wickham writes that some late-empire-period economies ”depended substantially on exports for their prosperity,” what he must mean (whether he knows it or not) is that those economies depended substantially on trade for their prosperity. Trade, not exports. Mr. Wickham could just as accurately – indeed, more accurately – have written about these economies that they “depended substantial on imports for their prosperity.” To the extent that exports played an important role in creating prosperity for denizens of those economies, exports played that role only insofar as exports enabled the denizens of those economies to enjoy more imports. The prosperity is found in the increased consumption made possible by greater imports.
Greater exports are indeed an indispensable means of increasing a people’s consumption through imports. It is, however, highly misleading – it promotes the worst sort of economic fallacies and, hence, it promotes destructive policies – to speak of exporting as being the source of prosperity. Trade in such cases is the source of prosperity, not exporting per se.
So to young Mr. Yang – and to everyone – I ask that every time you encounter phrases such as “export-led growth” or “economy built on exports” that you hear or read these phrases in your mind as “trade-led growth” or “economy built on trade.” The reason, again, is that the economic improvement at home is found not in the sending of stuff to strangers, but in the receiving of stuff from strangers. Exporting can be a means to prosperity – and an important means, to be sure – but exporting itself is not what makes people wealthy; rather, trade – the receiving of valuable goods and services in exchange for exports – is what makes people wealthy.
Shepherds and Sheep
John Stuart Mill's classic essay "On Liberty" gives reasons why some people should not be taking over other people's decisions about their own lives. But Professor Cass Sunstein of Harvard has given reasons to the contrary. He cites research showing "that people make a lot of mistakes, and that those mistakes can prove extremely damaging."
Professor Sunstein is undoubtedly correct that "people make a lot of mistakes." Most of us can look back over our own lives and see many mistakes, including some that were very damaging.
What Cass Sunstein does not tell us is what sort of creatures, other than people, are going to override our mistaken decisions for us. That is the key flaw in the theory and agenda of the left.
Implicit in the wide range of efforts on the left to get government to take over more of our decisions for us is the assumption that there is some superior class of people who are either wiser or nobler than the rest of us.
Yes, we all make mistakes. But do governments not make bigger and more catastrophic mistakes?
Think about the First World War, from which nations on both sides ended up worse off than before, after an unprecedented carnage that killed substantial fractions of whole younger generations and left millions starving amid the rubble of war.
Think about the Holocaust, and about other government slaughters of even more millions of innocent men, women and children under Communist governments in the Soviet Union and China.
Even in the United States, government policies in the 1930s led to crops being plowed under, thousands of little pigs being slaughtered and buried, and milk being poured down sewers, at a time when many Americans were suffering from hunger and diseases caused by malnutrition.
The Great Depression of the 1930s, in which millions of people were plunged into poverty in even the most prosperous nations, was needlessly prolonged by government policies now recognized in retrospect as foolish and irresponsible.
One of the key differences between mistakes that we make in our own lives and mistakes made by governments is that bad consequences force us to correct our own mistakes. But government officials cannot admit to making a mistake without jeopardizing their whole careers.
Can you imagine a President of the United States saying to the mothers of America, "I am sorry your sons were killed in a war I never should have gotten us into"?
What is even more relevant to Professor Sunstein's desire to have our betters tell us how to live our lives, is that so many oppressive and even catastrophic government policies were cheered on by the intelligentsia.
Back in the 1930s, for example, totalitarianism was considered to be "the wave of the future" by much of the intelligentsia, not only in the totalitarian countries themselves but in democratic nations as well.
The Soviet Union was being praised to the skies by such literary luminaries as George Bernard Shaw in Britain and Edmund Wilson in America, while literally millions of people were being systematically starved to death by Stalin and masses of others were being shipped off to slave labor camps.
Even Hitler and Mussolini had their supporters or apologists among intellectuals in the Western democracies, including at one time Lincoln Steffens and W.E.B. Du Bois.
An even larger array of the intellectual elite in the 1930s opposed the efforts of Western democracies to respond to Hitler's massive military buildup with offsetting military defense buildups to deter Hitler or to defend themselves if deterrence failed.
"Disarmament" was the mantra of the day among the intelligentsia, often garnished with the suggestion that the Western democracies should "set an example" for other nations -- as if Nazi Germany or imperial Japan was likely to follow their example.
Too many among today's intellectual elite see themselves as our shepherds and us as their sheep. Tragically, too many of us are apparently willing to be sheep, in exchange for being taken care of, being relieved of the burdens of adult responsibility and being supplied with "free" stuff paid for by others.
For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena . GUN WATCH is now mainly put together by Dean Weingarten.
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Posted by JR at 12:06 AM