Last week, I started talking about the various ways that Economists think about the world (The Economic Schools: Gettin’ Schooled). I have since found the summary table that Ha-Joon Chang uses:
Which I think is a bit brilliant. And from next week, I’ll start writing about each school individually.
But I thought I’d start this series of posts with a list of things I learned from Ha-Joon Chang. Mainly because there is much that we assume (yes – even the non-economic people think some of these things) that is either demonstrably false, or really not that clear cut.
Economics was not always called “economics” – it used to be called “Political Economy”.
Does that seem like a strange thing to bring up? Perhaps. But much of the movement in the economic world is to separate the State from the market through deregulation, free trade, Bitcoin, etc. As though, somehow, economics should be free of the politics of it all. Which is a bit ironic, seeing as economics is politics, and almost every economic viewpoint is based on one’s politics:
Economics is a political argument. It is not – and can never be – a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgements. Therefore, when faced with an economic argument, you must ask the age-old question “Cui bono?” (Who benefits?).
Economics is too important to be left to the experts
Economics has been uniquely successful in making the general public reluctant to engage with its territory. People express strong opinions on all sorts of things despite not having the appropriate expertise: climate change, gay marriage, the Iraq war, nuclear power stations. But when it comes to economic issues, many people are not even interested, not to speak of not having a strong opinion about them. When was the last time you had a debate on the future of the Euro, inequality in China or the future of the American manufacturing industry? These issues can have a huge impact on your life, wherever you live, by affecting, positively or negatively, your job prospects, your wage and eventually your pension, but you probably haven’t thought about them seriously.
There is no single economic theory that can explain Singapore’s economy.
The Economist likes to credit Singapore’s success with its free trade policies and low tax regime. It’s hailed as the most open and least corrupt and most pro-business economy in the world – almost as though there is no government interference with things. But nearly all of Singapore’s land is owned by the Singapore government, 85% of the housing is supplied by the government’s housing corporation, and State-Owned Enterprises produce 22% of Singapore’s gross national product (the world average is 9%). Singapore is both a socialist and a capitalist success story…
Britain and the US invented protectionism, not Free Trade
These countries were super-protectionist (way more than by modern standards) in the 18th and 19th centuries. Britain protected her industries against the “Low Countries” (Belgium and the Netherlands). And $10-dollar-note-man Alexander Hamilton developed the “Infant Industry Argument” (that some industries need to be protected in their early growth stages, until they ‘grow up’).
Free Trade was first colonial
Britain traded freely with her colonies… And Britain also imposed free trade on some of her partners by, well, winning wars. Example: in 1842, the Nanking Treaty with China after the opium wars.
The Welfare State was first proposed by conservative right-wingers
State welfare was not a “democrat-led” proposal presented by bleeding-heart liberals. The first proponent was “arch-conservative Otto von Bismarck”, who hated socialism, but felt that without a minimum safety net for workers, they might be seduced by more hardcore socialism.
The Golden Age of Capitalism took place under high regulation and high taxes
Well it’s true – everyone talks about the 1950s, 60s and 70s as being a high-point. Well, that was in a time before Ronald Reagan and Margaret Thatcher started slashing taxes and deregulating things.
The Internet was invented by the US Government
The private sector is not the only source of innovation.
“The ‘lazy’ Greeks are the hardest-working people in the rich world, after the South Koreans.”
Greeks work between 1.4 and 1.5 times as many hours per week as the Germans and the Dutch. Italians also work longer hours than the Germans. It’s not about laziness – it’s an issue with productivity*.
*And, possibly, Mediterranean statistics. But let’s not be pessimistic.
I owe some of the above to this zerohedge article: What Piketty Forgot. I also recommend this one: The Shortest Economics Textbook Ever (the article is longer than the book).
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.