Anon - I'm not sure I'd consider "survival of the fittest" to be synonymous with God. Nature, as it applies to animals is "red and tooth and claw" and lawless and many progressives and conservatives quite rightly don't see it as a good model for our own behavior. It isn't exactly moral to hope for the weak to physically die off. A common progressive criticism of lassie faire economics by the left is that it is "Darwinian."

Thankfully, there's a big difference between business failure (which needs to be tolerated for a productive economy) and actual death. Being out of work is unpleasant, but not fatal.

Yes, in fact. Sorry! I had been reading the other page, noticed a very interesting comment, and then the guy apologized and said he was posting to the wrong page. Found the page he was referring to, and -- oh my! I simply couldn't believe Krugman really believed that.

Corrected! Thanks! Mea mea culpa!

The idea that a given system (in this case nature and free market economies) by their very nature are self-regulatory.

Well, I think that there are some very crucial differences that break the analogy.

Darwinian Evolution Free Market Economics

First off, free market economics works best when it's constrained by certain laws. Otherwise, you get a system like in modern Russia where you "have to enforce a contract with a contract." That situation is even more 'Darwinian'. Free market economics is not lawless anarchy and is only Darwinian in a very limited way. A free market economy is a "planned" economy, but it is planned much more diffusely and based on price signals (and other indicators of cost/value).

for them nature regulates itself just fine

But the process by which nature regulates itself is not moral and is sometimes catastrophic. It involves accepting numerous creatures being killed off and sometimes the extinction of whole species. It involves controlling population levels with starvation. It involves seeing murder and predation as morally neutral or even beneficial. It only regulates itself in that life continues to exist and adapt, but without particular regard for the individual.

It is for this reason that I've heard a number of leftists call free market economics "Darwinian" and mean it as an insult. They were not saying that such policies do not work, but that such policies were immoral. Which is why I'm a bit edgy about the term being used to describe free market economics.

Nature only regulates itself "just fine" if tragedies are morally acceptable. The majority of people, both "left" and "right", probably do not believe this.

Various responses...

Anonymous: There is a very real similarity to the concept of natural selection, evolution, "survival of the fittest", whatever you wish to call it, and the "invisible hand" of Adam Smith.

In fact, I'd argue that corporate life is the one of the few places we can clearly demonstrate "natural" (well, it wouldn't be natural, then, would it?) selection operating in a positive, Darwinian sense.

(I've been reading David Stove's critique of Darwinism -- he argues persuasively that many or even most species aren't at all involved in, nor regulated by, a fierce competition for food. Take humans: those with the most access to food often reproduce least. It seems to have been that way in other societies and times, as well. But apparently we're not alone in this regard.)

First off, free market economics works best when it's constrained by certain laws. Otherwise, you get a system like in modern Russia where you "have to enforce a contract with a contract."

I'm not sure that's always true, Ryan. If you read the bible or documents from other similarly-organized cultures, one of the things which comes through, culturally, is the importance of a good "name" (that is, reputation) and the importance of keeping oaths and vows. For example, in the story of Ester, even Xerxes cannot directly overturn his own decree (Ester 8:8) indicating the importance of keeping a king's word and thus reputation.* (And look at all the "face-saving" which is required in many other cultures, which is an indirect reference to this notion of a sort of "moral currency".)

(* Contrast this with modern Presidential candidates who consider all national treaties and promises to allies made under predecessors (NAFTA, promises to the Iraqi people, support for Taiwan) null and void once they take office. They do not care in the slightest for the overall reputation of trustworthiness of the US. Other nations will come to understand that our most solemn vows are only reliably valid for an average of half a presidential term -- or perhaps less, consider the way George HW Bush screwed the Iraqis previously.)

In such a system, people only choose to do business with reputable persons, and when word gets out that a person isn't reputable, their business prospects are severely diminished. This can work even in loosely-organized societies which afford no enforcement of contract law.

(I would point to the American West as another example: the majority of the people were generally personally moral, and there were enough guns to keep the peace otherwise.)

(I'm not saying man in his natural state is at peace. I don't believe that. I'm only saying that meaningful contracts can be made and effectively enforced in certain places and times even without a strong government to maintain property rights and contract law.)

Russia does not represent the behavior of capitalism in the absence of government. It represents the behavior of "capitalism" within a kleptocracy. Perverse incentives abounded.

For example, the Russian GOVERNMENT had created a number of monopolies and then handed them to rent-seekers -- and used the resources of the state to protect those favored sons. The GOVERNMENT presented the appearance of a system of property rights, which it selectively enforced or broke. The Russian GOVERNMENT required Western investors to have a "Russian partner" in every investment, and then repeatedly actively worked to screw Westerner investors out of their assets.

Had it been simple anarchy, Western investors would have been far more wary, and would have been able to protect their business assets in the usual way*: with guns (infrequently, at last resort) and a distrust of those with bad reputations (more often). Instead, the false appearance of a system of law and order made things far worse.

(* Look, lots of oil companies set up business with Sheiks and Sultans in the Mideast -- and generally kept their word and also made a profit.)

But the process by which nature regulates itself is not moral and is sometimes catastrophic. It involves accepting numerous creatures being killed off and sometimes the extinction of whole species.... Nature only regulates itself "just fine" if tragedies are morally acceptable.

I hate to break PC, but what's necessarily immoral or tragic about the loss of a species? True, no dinosaurs exist today, and it would certainly be fun, from our point of view, to see one. (And yes, we humans might feel "regret" that we'll never be able to see one, while not considering the trade-offs.)

But was it really immoral or bad for them to go out of existence and be replaced by, say, wolves, bears, people, badgers, and elephants? Do the souls of animals which never were protest this injustice? What could have been a dinosaur is now a lynx or prairie dog -- is that somehow tragic or regrettable?

And what's immoral (or even seemingly-immoral) about the sudden death of a species, even considering the impact of the extinction event itself? Doesn't every animal die in some fashion anyway? What makes one mode of death more "moral" than another, from our point of view? Is it more tragic to be killed by a meteorite blast, die slowly and painfully of old age, starve, or be eaten by a predator? Does it matter, really, if the animal is the last of it's kind or not -- if it's going to replaced by the same kind of animal or a different one? Is a gazelle which dies at the mouth of a tiger, as part of a stable predator/prey relationship, really happier somehow than the last triceratops to die by predation?

Look, if God doesn't exist, then we can't actually say nature (or anything, really) is moral or immoral -- it would be a bit like an artist trying to say a volcano or rock was pretty or not pretty. Stuff merely does what it does. Yeah, you can draw the judgment anyway, on aesthetic-like grounds (I like this, I don't like that), but it doesn't really ultimately mean anything. It's just your preference.

(In that case, my preference would be for all nature to serve humanity -- or at least me -- so I would be quite glad other species died out if it meant I could be here, but be sad if ours did. Or at least sad if the parts of it I loved did, while I was still alive. Explain why this wouldn't be a completely rational view, given that scenario.)

And if God does exist, then we have a number of other options.

In one view, animals are simply machines -- transient things with no souls. Do I cry if my PC malfunctions, even if it appears to "suffer" as it tries to read its crashed hard drive, over and over, in vain? Sure, it looks painful, but it's just a machine. (Likewise, someone recently discussed how unnerving it was that they could "torture" a popular dinosaur-robot toy (Pleo). But it's just an example of how convincing the illusion of mechanical suffering can be. Who hasn't mourned the "death" of a beloved automobile? My family sometimes did, even though we knew it was silly. My mom still remembers "Betsy", her '57 Chevy, quite fondly and wistfully.)

On the other hand, if we think some or all animals have some sort of "soul", something which makes at least some of them (and us) more than just meat-machines, then we also have to ask other religious questions. Who put the soul there? Why? Is there an afterlife for that soul?

If animals do have a soul, the question of suffering is not necessarily different for them than for us. If human suffer, and we believe suffering is immoral, one can pose the possibility of an afterlife to "balance the books". One dies and is judged and rewarded or punished in a fashion which makes things even. (Did you suffer unjustly? It will be made up to you.)

I don't see any reason ensouled animals couldn't be dealt with similarly.

So I don't really see a moral problem in any scenario: if animals are mere machines, their suffering is no different than the "suffering" of a paper shredder which no longer works. If animals have a "higher" existence, then "higher" forms of justice could, in theory, compensate or judge them just as humans are compensated or judged.

We could allege that God exists, but is just a wicked bastard (or would necessarily be, if he did exist) -- but there's no particular evidence for that view of which I'm aware. Suffering in nature? Again, that's only "wicked" if animals not machines, or if God doesn't make it up to them somehow. But to assume God doesn't make it up to them, as proof of one's argument that God is immoral, is circular.

(It would be equally circular to assume God DOES make it up to them in order to PROVE his goodness. But only atheists offer "suffering" as a PROOF of some sort. For a theist to make the same mistake, he'd have to offer a few instances of justice as an absolute non-inductive PROOF, or the alleged surety of justice in the afterlife, as a similar kind of proof. Which we don't. We just suggest that the atheist is overlooking a possibility, which he or she certainly is.)

So, yeah, that was a great discussion about capitalism. And while we're sticking rigorously with the subject: what kind ice cream do Random Observations readers like? ;-)

Russian Ice Cream anyone?

I hate to break PC, but what's necessarily immoral or tragic about the loss of a species?

Well, my point was not that species dying off is immoral. My point was that Darwinian processes involve blithe acceptance of catastrophes or lawlessness that we may not tolerate if applied analogously to a human society. A society can operate perfectly well while tolerating slavery, for instance. (Granted, there's been some argument that slavery is sub-optimal economically. But I haven't had the chance to read into it yet.)

Why not invade some weaker country and steal their resources or colonize them? Is the disapproval of other countries (or the inefficiency of that approach) a sufficient deterant?

he argues persuasively that many or even most species aren't at all involved in, nor regulated by, a fierce competition for food.

Raup supported a similar assertion in "Extinction" at the species level, where he sought to demonstrate that the number of species competing for food on land masses that had split from the main land mass was not a good indicator of which would still exist millenia later.

But then, what regulates population densities among animals? Disease? Predator populations? Something has to.

I know that extremely cramped rodents will stop breeding 'voluntarily', but they would have to be crawling over the forests to reach that density in nature.

one of the things which comes through, culturally, is the importance of a good "name"

I agree, it's possible to have a great deal of social stability with a sort of 'rule of honor.'

But then, you also have Pharoh sending out armies to prevent slaves from escaping after promising to free them, or China marching into Tibet, or American treatment of Native Americans (which didn't seem to affect their relationship with Europe after the French and Indian war, unless I'm mistaken) or all kinds of class hierarchies ingrained virtually into law by rules of 'honor'. I'm sure we could point to a wealth of them in traditional (Asian)Indian society.

I'm only saying that meaningful contracts can be made and effectively enforced in certain places and times even without a strong government to maintain property rights and contract law.

I agree entirely, people can make agreements without a government to back them up or come to an understanding of what is considered their fair lot within a particular group. I think that setup requires some 'balance of power' though. People avoid conflict if it might hurt them. If one person has his foot too firmly on another's throat, whether through the government or outside of it, that kind of moral balance seems less likely. Unless there's a chance the agressor could lose face somehow in front of his other allies.

Regardless of the source of the rules, I don't think that animals have a notion of 'fairness,' whether legal or instinctual, in the same way that people do.

Russian Ice Cream anyone?

The article notes that declining birth rates means fewer Russian children to enjoy the ice cream.

Well, my point was not that species dying off is immoral.

I was reacting to your opening statement that nature "is not moral", and then mentioning extinctions. So maybe you can see how I got the idea you were saying it was, um, immoral, and echoing the standard Darwinian arguments about nature progressing only through starvation, etc.

I agree entirely that we can't use nature as a model for human morals. As I've said before, people will argue: "Well, apes and mice practice homosexuality, therefore it's natural..." But that's silly: what happens in nature isn't a pattern for us. Male bears wouldn't hesitate to devour their own young, so should we apply the same argument? I hear pot is "natural" -- hey, it's a plant -- but I could also point out that so is hemlock and poison ivy. It's okay to sleep around promiscuously because, hey bonobo chimps do. But then we could point out that some geese mate for life. Whatever we think of these arguments, it's not enough simply to point out some animal does something, so we can or should too.

But, except in cases where someone or something I love is killed (this includes the Tsunami, as I care about such people, or ought to) I don't generally see nature so much as "tragic" or "not moral" as much as simply something which happens. Specific events aside, I would no more try to call nature itself "moral" or "not moral" then I would discuss the morality of the laws of physics. Attempting to graft a moral judgment onto natural laws makes no sense to me, except perhaps, in an explicitly religious context.

That said, I don't think nature is nearly as awful as Darwinist polemicists like to present it. Yes, it's true, gazelles die of predation. (Though is that worse than dying of old age?) And yet they generally live many relatively carefree years before that point. (I'm always told that human have much more stress than animals do in nature.) Yes, the occasional caterpillar serves as a living host to a wasp. But no, for each case like that, there are a thousand or more ants and flies who live and die a relatively disease-free life. (Or perhaps merely relatively pain-free, given their simplicity, even if they have some disability.) They just don't get as much camera time and sympathy, since they don't make the right philosophical/theological case.

Finally, it isn't at all clear to me that nature really moves ahead primarily (or much at all) though starvation, predation, etc. Did the trilobites and other forms appear as a result of starvation or predation? Or humans? It's true that species can become extinct through what we'd see as "tragedy", but extinction doesn't create new species. It doesn't create progress.

The Darwinian argument is always that nature progresses though "immoral" means, though suffering and tragedy and pain. That these processes are crucial, not incidental.

Yet this is the core of the blasphemy I am toying with these days: Perhaps a different mechanism entirely produces new species, and extinction at most clears a bit of a niche for the expansion for new ones. (And perhaps not even as often as we'd think -- perhaps it's often the other way around, with the humans more often eating the mastodons out of existence, rather than surviving only because something else starved and died.)

Again, the Darwinian view is that a slight modification occurs, and then this changed gene allows it's host to "starve out" (in terms of food and/or mates) the other members of its same species. So progress occurs basically by constantly screwing members of your peer group. Without the continuing ability to starve or otherwise prevent the breeding of those having less successful genes, each new minor modification would never achieve genetic prevalence in your group.

(Hence the linkage between the "progressives" and eugenics.)

Yet if large, more radical changes occur -- and if specie-producing changes could catch on by normal mating, being dominant, not recessive* or other means than competition -- this changes the picture considerably. (* This can apply to even smaller mutations too, though I increasingly suspect such changes cannot, even via aggregation, cannot produce new species.)

Americans are becoming, for example, darker-skinned and -eyed, but it's not because Nordics and Anglos are being eaten or starved to death by Hispanics and Africans. And it's certainly not because blondes can't attract sexual partners. It's because dark hair and brown eyes are dominant over (naturally) blond hair and blue eyes. The same might apply to certain sorts of larger-scale mutations.

If new species spring up though a short series of radical changes, that produces an entirely different philosophical picture of nature than a system which moves ahead though an endless series of minuscule changes which can propagate only via death, starvation, predation, and preventing otherwise-normal peers from mating.

I'm not saying this because I first object to the philosophical implications of Darwinism, and then am trying to tailor the mechanism to fit my morals. (I've already rejected such thinking above -- though perhaps, at its inception, Darwin and his disciples did. They certainly liked Malthus.) I'm just realizing that there are a lot of very serious holes, and the facts seem to fit much more closely to an alternative.

One, incidentally, that seems to tell another story, morally.

China seems to be Communist with Capitalist Zones. They have been growing at about 10 percent a year for about 50 years now. From one of the poorest countries to one of the richest without the booms and bust that plague the US Capitalist system.

With most of the scientific research having been paid for by big government and with our lifespans having been increased from around 50 years to around 85 years due mostly to big government funded research plus regulation of companies I would say big government has been a very good deal for the population.

The companies in the US haven't been recycling their profits of at least a trillion in the bank by buying more buildings and equipment and hiring more workers recently and therefore demand has been weak.

I have always thought that the dot.com bust around 2000 was caused by lack of bandwidth. With a 32k telephone link, as was prevalent then, the Internet could not bloom as it has done with broadband.

Had the governments not intervened with trillions of government guarantees and the banking
system collapsed the US would have been under martial law in a month. With people unable to access their money in the bank and business unable to access their money to pay workers complete collapse would have occurred quickly and with the food supplies being dependent on workers who work because they get paid the cities would have to live on the food on hand and when the food ran out riots. This took big government with access to trillions to stop.

We had small government and got tuberculin pork, slavery and all kinds of things we now consider abominations.

Afghanistan is great example of a free market economy and I sure wouldn't want to live there.

Various responses. It seems there are a lot of misunderstandings, myths, and mistakes behind people's desire to have an ever-larger and more powerful government.

Ralph: From one of the poorest countries to one of the richest without the booms and bust that plague the US Capitalist system.

Hey Tim,

Excellent post. But about the mortgage crisis, you wrote;

Had the government not created the CRA, Fannie Mae, and Freddie Mac (as well as their efforts to bundle "affordable" loans and resell them), we wouldn't have had the mortgage crisis in the first place.

I've been trying very hard to unravel the housing bubble for some time now, reading the various pieces on the Clinton era changes to the CRA (the defenses of which are, to a one, utterly misinformative), Gramm–Leach–Bliley Act and so forth. I don't claim to have a clear grasp over things yet, however without Fannie Mae's mortgage crisis and the CRA we may still have had a housing bubble and subsequent crash;

For the hundred years before the Communists took over 100 million citizens died of starvation under their capitalistic system. A couple of years after they gained power 30 million more died of starvation during the transition but since then they haven't had the massive famines that had plagued them, life is much much better than before. I may not want to go there but that doesn't mean the Chinese haven't benefited.

The governments of the world have done most of the basic research in the world through the universities, biology basics were almost all found by professors leading to the extensions in lifespan that we enjoy and it has taken over 100 years too long for private business.

We have delegated production to private industry but the government could buy up the stock of most companies and probably most workers would not notice the difference.

Russia couldn't afford to spend much money on research because half of their GDP was spent protecting themselves during the cold war where it only cost us about 15 percent of our GDP leaving us with a lot more to spend on research and on consumer products. Also, Russia before the communists also suffered from massive famines that killed tens of millions under their form of capitalism.

Banks haven't been lending much in the last two years to start new companies preferring to invest in safer government securities and I have heard that they actual borrow money from the government at low cost to buy the government bonds. Even so, the corporations and the wealthy in the US have more money now than they have ever had in the past and they are still not building enough factories and hiring enough workers to provide jobs for everyone that wants a job in the US maybe they are hiring overseas but not here. The poverty rate in the US is some 15 percent.

It does take a lot of bandwidth to send pictures, graphics, music or videos and even software and without pictures of products people are reluctant to buy the product. When response-time is greater than a second people get very discouraged and in 2000 32k bits was the most common speed. At that speed it would take about 200 seconds to load this page which doesn't lead to a lot of general use which the companies were counting on.

The CRA, Fannie Mae, and Freddie Mae were not the real problem. The private rating agencies that seemed to rate mortgage backed securities AAA by not including the great depression in their model and their overwhelming need to please customers was a very big part of the problem. The government agencies and everyone else relied on their rating which were faulty and still exist as far as I know.

The government before Teddy Roosevelt 1901-1908 was run for and by business. Only when he came into office did the government try to make business accountable and when Franklin D. Roosevelt the government greatly expanded to became big government to deal with the huge disaster business had created.

Afghanistan was a bad place for business and people used to the security that big government provides well before the Taliban and even the Taliban was limited by the tribal structure which really controlled the country. Afghanistan with lawlessness which requires big government and their lack of infrastructure like paved roads, sidewalks, electric service, telephones everywhere which big government. If small government bring great research and great progress Afghanistan would be one of the economic leaders of the world. It seems to me that all of the big economies of the world have the big governments and all of the poorer countries have small governments.

Internally corporations are command economies. You do what you are told to do or you are kicked out(fired) and if you are a manager you do what you are told and your underlings do what you tell them to do or you are fired. That sounds pretty communistic to me.

Big government in communistic theory is supposed to be a temporary condition until the population is highly educated and production is mostly automated then the citizens are to be free to pursue their own interests, their livelihood being secure via automation with the understanding that interests that benefit the society will be chosen.
We shall see.

Non-profits are growing and currently about 10 percent of the economy maybe they could get into manufacturing.

Workers have about the value of all corporations in their pension funds, maybe they could buy up the corporations and run them as non-profits.

Non-profits are growing and currently about 10 percent of the economy maybe they could get into manufacturing.

The federal government is around 25 percent of the economy and state and local governments are also about 25 percent.

Hopefully a better system will be discovered probably by the research work of economists that makes everybody secure.

I apologize for a second post.

1. Prior to the Communist takeover, the Chinese seemed more feudal than capitalist.

2. A couple of years after they gained power 30 million more died of starvation during the transition but since then they haven't had the massive famines that had plagued them,

Sorry. The above reply was entirely to Ralph.

Ryan: I'll respond to your question on housing with a front-page post, a bit later...

Ralph: Thanks for returning! I welcome every chance I get to dispel popular myths which lead good-intentioned people like yourself to inadvertently support policies which kill and harm more of your fellow citizens than the alternatives.

For the hundred years before the Communists took over 100 million citizens died of starvation under their capitalistic system....

Huh? Under the Tsars (a form of monarchy and feudalism (as Ryan notes) — not liberal capitalism) Russia was a huge net exporter of grain. The Ukraine, which also became part of the USSR, was even known as the "Breadbasket of Europe."

Big government can be bad also, think of Germany during WWII.
The US government has been working on Fusion for power for about 30 years at least and last year they finished what they hope will be the worlds first fusion reactor freeing us from dependence on oil eventually. Also, the current nuclear reactors only extract about 3 percent of the energy in uranium and they feel that they can extract 95 percent more taking the waste that current nuclear reactors generate and using the neutrons fusion generate to burn it also making the waste not very radioactive. see lasers.llnl.gov.
The USSR apparently used a lot of it's money rebuilding itself and Eastern Europe after WWII.
Maybe they were deluded in thinking the US was preparing to attack them but we were exploding lots of hydrogen bombs. We though they were planning to attack us especially with Khrushchev saying "we will bury you".
Wasn't it customary before Teddy Roosevelt for the president to come down from the White House and meet with the business leaders right after they obtained office and Teddy was the first not to do this declaring that the government would be independent of business.
People in Russia revolted from inside not because they were content but because they were desperate. Warehouses full of grain while people starved was a common complaint.
If I was financially secure I would work for free on something I was interested in, maybe biological research. I do some literature searching for some doctors and researchers for free now just because it is interesting and it might help them.
Companies stock may be mostly owned by workers but management often sure doesn't act like it laying off workers at will.
Still internal while at work it is a command economy, everything is provided and everybody works hopefully at what they are best at and the company needs. And while you can leave it is just to another corporation unless you have the money to start your own business which if successful will eventually be similar but with you at the top.
While telephones were not invented by the government Ma Bell a government monopoly was the provider, though the internet was a government project.
The last estimate of our poverty rate was 15 percent definitely not good and with worldwide outsourcing their are people overseas that will work for lots less than US workers which with automation continuously advancing doesn't mode well for the US population. Maybe a 4 day 36 hour workweek would help the number of people employed increase and more nonworking time is nice also sometimes.

Ralph - Big government can be bad also, think of Germany during WWII.

I don't think anyone is disagreeing with you there.

People in Russia revolted from inside not because they were content but because they were desperate.

Who said they revolted because they were content? I don't think that the point is that they were content or that life wasn't hard, but that Russia and the Eastern Bloc were far less productive under the soviets. Some points made include;

1. Pre-communist Russia was feudal, not capitalist.

2. I pointed out that the pre-revolutionary Russian government forced collectivism on many people in the form of the mir (collective farm.) So saying "the Czar was bad" doesn't really address anything about classically liberal free market economies.

3. Pre-revolutionary (feudal, monarchical) Russia still killed fewer people than Communist Russia did and was far more productive than Communist Russia was.

We could probably add to the list the (perhaps accidentally) violent government response to the peaceful 1905 protests and the loss of the Russo-Japanese war were probably contributing factors. But none of these details really alter the original points.

The USSR apparently used a lot of it's money rebuilding itself and Eastern Europe after WWII.

Russian losses were horrific during WWII. But look at the difference between East and West Germany, both of which went through World War II. 50 years after WWII, the capitalist/ socially democratic West Germany was considerably more wealthy than Soviet controlled East Germany.

I don't think it's fair, therefore, to say that Russia fared so poorly just because of the damage done to it during WWII.

We could probably add to the list the (perhaps accidentally) violent government response to the peaceful 1905 protests and the loss of the Russo-Japanese war were probably contributing factors. But none of these details really alter the original points.

In case this was unclear, I meant "to the list of causes of the revolution."

I meant to say the prey is consumers money and other businesses money.

The famines in China and Russia were probably due to changing to a brand new type of economic system not knowing what would work and what would not work, but after they figured out how to run their systems, no more famines and good economic growth.

Our system has become so short-term focused with our commercial news system not explaining much of anything in depth most of the time.

During the Eisenhower administration the top tax rate was 91 percent and the economy was robust.

It should be a question of what you get for your taxes, If my memory is correct we got the interstate highway system and lots of H-Bombs to make sure we weren't attacked, at least.

Our economic system will continue to evolve and someday maybe will be able to match the Chinese growth rate. The Chinese goal it to bring 600 million citizens up to the middle class as soon as possible whereas our middle class is shrinking with now 15 percent of the population living in poverty this has got to stop growing or we will have social unrest.

Apparently we have millions of jobs available but they are for highly educated workers which is one of the reasons the government is spending so much money on education.

Apparently demand is so weak that companies are unsure about expanding and banks won't make new loans to small business.

I have been a bit perplexed about our emphasis on small business. I would rather have a big business than a small one given the choice.

It seems like general equilibrium model do fairly good short term when conditions are stable but miss the turns and in the long run go to an average like statistical weather forecasts. Maybe a predator-prey model with the predator being businesses and the prey being consumer's and other
businesses money and the predator giving money to workers and stockholders and the government being a predator and prey giving the money they get to business, consumers and their government workers. It would probably go to a random arrangement like dynamic weather forecasts in the long run but might catch the turns.

I took an anthropology class and the Prof. said that the main method of evolution of humans has been through their cultures.

I must have forgot to send the post on 9/21 to which I sent a correction 3:25, maybe you could erase that one line post.

The famines in China and Russia were probably due to changing to a brand new type of economic system not knowing what would work and what would not work, but after they figured out how to run their systems, no more famines and good economic growth.

I'm not sure what evidence I could give to change your mind that I haven't already put forward. The problems in China persisted up until Deng's economic reforms. Deng was not an advocate of socialism. What part of that are you disagreeing with?

During the Eisenhower administration the top tax rate was 91 percent and the economy was robust.

Several issues;

1. America had no economic competitors after WW2. Europe's factories had been bombed to dust. We cannot recreate that situation.

2. America's growth rate during Eisnehower's admin was about 2.5%. That's not robust at all.

3. The top tax rate during Eisenhower's admin was for the equivalent of ~2.5 million in 2010 dollars.

Ralph - If you're interested in the role of the private sector in drug R&D check out this post and the comments section. (Megan McArdle's comments section tends to have informative replies)

I agree that private sector drug R&D is huge especially in the last 30 years.Universities have been finding out how things work but Pharma has to design drugs to implement those findings that are safe and effective for humans and don't react with other drugs a patient may be taking plus do clinical trials which is very expensive. Also, often in designing drugs they come across many basic biological facts which they publish.

There has developed a pretty large gap between basic research of the Universities and the translational research of the drug companies manly because the volume of published basic research has exploded since the Human Genome Project nobody seems to have a good way to sift through the hundreds of thousands of papers published each year to find possible drug targets for pharma to develop.

Here in Cleveland our biggest employers since most of the steel mills left are the non-profit hospitals and universities namely The Cleveland Clinic, University Hospitals-Case Western Reserve University and Metrohealth which specializes in trauma care along with Cleveland State University and Cuyahoga Community College.

I was watching a documentary on a business in China that was started by a policeman making blue jeans for export I guess.

A worker said she could make two pair an hour and was paid six cents(0.06) an hour for her work and was happy. This was in 2004.

Everything must be provided by the government or someone, even in 2004 cheap bread here was about a dollar a loaf.

How could she feed herself, pay rent, buy clothes and afford transportation on less than a dollar a day?

Is this massive subsidies by the government? I really would like to know more about the economics of Chinese export production in detail but don't know where to look.

Ralph - For what it's worth, I spent half a year in Nanjing, China teaching English back in 2004. While cities are significantly more expensive than the countryside, even in Nanjing you could get a milk tea for just a quarter in US currency (2 yuan). A clove of garlic ran about 6 cents or so in American money Beijing and Shanghai had prices about twice that. (even with my poor haggling skills.) A bus ride was about 12 cents (or a quarter, if you wanted air conditioning.) The Chinese teachers I worked with made about $125/month at their jobs (room and board was provided for them, but accommodations were cramped, several to a room. Even so, this was pretty decent pay, relatively speaking.) I got $375/month plus a place to stay and lived pretty well.

In the countryside, you could purchase a tree full of fruit for the equivalent of a US dollar or so.

China has cut back on social services and eliminated a lot of its "Iron Rice Bowl" guaranteed jobs. The government still plays a significant role in heavy industry, I've been told, and there are state run shops. But you can also find all kind of independent shops on the street (at the night market) or in buildings just as we have them here.

China has deliberately devalued its currency relative to the rest of the world, meaning that foreign goods are very expensive but Chinese goods are relatively cheap. As China grows and possibly as it changes its currency policy (or maybe it has already) things will even out a bit.
Also, China has sold short its rural agricultural areas and the people who live there in an attempt to jump start its industrial base and military.

Sorry that this isn't a resource as you requested, but I hope it provides some insight.

Best,

Ryan

I remember the week or so banks stopped working because they didn't know who was solvent and who wasn't and they didn't want to lend and lose their money, I think because of the CDOs. Because everybody keeps their money in banks and uses debt and credit cards and business often borrow money to pay their employees it would have been an absolute disaster had they failed.

I think the US government was the only entity that could insure the possible debts that had been created and I worry that the future may bring about a similar situation and the debt of the US is too high to save the system again.

It seems like the Laffer Curve moves around a lot depend on the state of the economy, maybe when their are great markets and high demand a high tax rate can be supported but when demand is low and profit opportunity is limited a lower tax rate is necessary.

Thanks for relating your China experiences.

The World Bank has the average earnings in China at around 7000 dollars per year compared to our 46,000 dollars per year.

With subsidized housing and transportation and with inexpensive food they probably have a lifestyle in the cities as good and maybe better than entry level retail employees living in apartments here in the US and being able to save as much as they do they can't be under very much financial pressure. Also, maybe there are lots of low income farmers pulling the average down.

Also, maybe there are lots of low income farmers pulling the average down.

It seems like the Laffer Curve moves around a lot depend on the state of the economy, maybe when their are great markets and high demand a high tax rate can be supported but when demand is low and profit opportunity is limited a lower tax rate is necessary.

That seems likely, and I agree that that seems possible, at the very least.

One (political) problem seems to be getting the government to cut back during those low periods. I live in California right now. Unions have been lobbying hard to resist any kind of reduction in government spending, especially on their pay checks or pensions (pension funding and promises increased dramatically during the boom.) They've made some minor concessions, but even cancellations of planned increases have been labeled as 'cuts' to services in the media. With the dramatic decrease in state tax revenue (Countrywide was headquartered out here, and the real estate bubble was particularly bad, so Cali got hit pretty hard) there's a big crunch. Something's gonna give. And those folks who have their +$100,000/year pensions are most likely going to keep them. Though the city councilmen who were taking the government for several hundred thousand a year in Bell may face some kind of punishment since those problems have gotten a lot of attention.

Rizzo's last annual salary was more than $787,000, according to Brown's office. Adams earned $457,000 and Spaccia received $336,000.

Before recently cutting their pay, Bell City Council members received $96,000 yearly, compared with $4,800 yearly for council members in similarly-sized cities, Brown said.

I'm not saying that this is the norm everywhere. But unions lobbying their 'bosses' for pay increases and similar problems seem to have created a kind of conflict of interest out here in California. Cops earn close to or more than $100,000 with all the overtime they're allowed to bill for, and can retire at 40 with nearly full pay. Basically I'm saying; if we spend money on public projects, I think we need to have some sort of check to prevent over-payment. Because when you're playing with someone else's money, there's a lot of incentive to overpay someone if you can get something for it (like votes) and get away with it.

I wasn't clear, the per capita figures I cited were 2009 figures from wikipedia.org "List of countries by GDP (nominal) per capita".

I worry that the current political climate which emphasizes cutting taxes, balancing the budget and cutting government spending quickly will result in worse economic performance not better.

Candidates are proposing laying off federal and state workers to balance the budget and ironically being better educated on average than private sector employees will probably end up replacing them somewhat in the private sector.

With tax cuts and good percentage of extra income going to pay off debt and purchase imports the combination of factors might result in higher unemployment.

What might happen is gridlock in the US government with a Democratic President and Senate and a Republican Congress and the states in the position of California.

Ohio where I live is about a 55 percent Republican state with a Democratic governor. It has a Republican House, Senate and Supreme court and is facing a predicted 6 billion dollar shortfall for next year after 3 years of tax cuts that this year was covered by the stimulus money and by selling their portion of the tobacco settlement.

All the states received stimulus money that will stop shortly and most seem to be in shaky condition plus most of the local governments are in shaky condition because of the large property tax declines and won't get much money from the Feds or State governments if budget cuts go forward leading to layoffs.

This confluence could spell even worse demand and a double dip recession next year with no politically feasible good way to get out.

Maybe the Fed will find a way out but there it a time lag to take into account and they may reach a limit if interest rates for treasuries go up because of the debt level.

Here's a cite that puts China's GDP at $3,800. I'm not sure which is correct, but $7000 sounds a bit high.

I read those articles and their comments and now I'm really uncertain about comparing the published figures to the US.

Maybe as a first approximation say they earn our minimum wage without the subsidies such as food stamps, section 8 housing and Medicaid. That with the subsidies just barely takes care of a person here. On minimum wage you have to ride the bus, live in the poorer neighborhood, buy the cheapest clothes and so on, they at least are living that good. That would give at least 14,000 dollars per year for a 2000 hour work year.

Maybe the above 14,000 dollar figure is a better per household guess.

How about using the price of haircuts to compare relative prices? Almost everybody gets them they aren't subsidized, little overhead, and not much capital involved or government regulation.

According to a first hand account in china news the writer from Australia got a good haircut for 6 yuan for about an hours work in a minimal facility. The lowest prices around here ranges from 5 dollars at a barber college to about 10 dollars at the cheapest barber shop.

Using say 6 dollars for a cheap haircut the yuan should be much closer to parity with the US dollar.

The foreign reserves of China are around 2 trillion(probably according to them) is that enough to stop speculators?

How about using the price of haircuts to compare relative prices?

For cost of services, that seems fair since It's semi-skilled labor. The value of a yuan in a Chinese city (location is important to price) may be similar to the value of a dollar in an American city.

But if you look at the cost of a computer or a car or a barrel of oil, say, things might be different. For instance;

Overseas motorists have expressed surprise at the price of cars in China, as the cost here is at least double that overseas. The new Honda Wagon, for example, retails for RMB 259,800 in China, while in the US it costs only USD 15,000 -- about RMB 121,000. Does this mean that Chinese people have become so rich they can buy a car as a matter of course? Not according to the State Statistics Bureau. During the first quarter of 2003, the per capita monthly disposable income of urban residents was about RMB 784.8, indicating a per capita yearly income of no more than RMB9,000. A household must, therefore, save for eight or ten years in order to buy a car priced at RMB 100,000.

I'm not sure whether this is set to change or has changed. It was hard to find up to date info on car prices.

Hyundai is developing a new low-cost small car for the Chinese market with plans to introduce the new model by early 2010. ...

Korea’s Yonhap News has reported that the new car will be priced around $4,800

I was unclear, I think that the value of the yuan should be 6 times what it currently is. Right now a cheap haircut in China cost about 1 dollar US(6 yuan) at the current exchange rates. I think it should cost about the same as here, six dollars. The yuan would have to go up in value from 6 yuan to the dollar to around one yuan to the dollar for what should be near equality.

In 1980 the yuan was 1.50 yuan to 1 US dollar apparently it was devalued to improve the competitiveness of Chinese exports. Maybe that was the price to get China to join the world economy, maybe companies put pressure on their governments to get cheap labor and cheap products to sell, probably it was a bunch of reasons.

This very low yuan is giving them a very great trade advantage, maybe they need it to prevent worse things from happening but I think things should be more above board. People here are very unhappy about companies boxing up their factories, firing their US workers and moving the factories to China to get inexpensive labor because of the exchange rates then saddling society with coping with the consequences and no jobs here.

This seems like the mortgage crisis where bankers thought that their selling of a few shaky sub-prime mortgages wouldn't hurt anyone, they could sell them to someone else who would deal with it. Here probably as most the movement of factories to China happened during the housing boom they also thought their moving a few factories to China wouldn't hurt anyone and at that time there were plenty of jobs.

I think another big problem is the horrible quality of the cheap imports, one is lucky if anything lasts six months and the price is the same as when it was made here and would last for years. I have gotten very gun shy about buying anything from less developed countries and I imagine others are having the same bad experience.

That seems a reasonable enough argument. And if there was a crash in the Chinese housing market, I wonder if the value of the Yuan relative to the dollar would increase even further as it did with the dollar during the housing crash (Unless the Chinese government printed a lot of new yuan. I'm not sure what would prevent that.) I don't quite have the courage to put my money where my mouth is and indulge in currency speculation. As they say "The market can stay irrational longer than I can stay solvent."

I think another big problem is the horrible quality of the cheap imports, one is lucky if anything lasts six months and the price is the same as when it was made here and would last for years. I have gotten very gun shy about buying anything from less developed countries and I imagine others are having the same bad experience.

I agree entirely. The quality of herbs from China has been horrid. I'm a bit disconcerted that a lot of canned supposedly 'organic' food comes from there as well.

All prices should scale relative to labor costs within a county I would think or one could make a profit.

If I can find an easy way to buy some yuan I'll probably buy a tiny bit just to keep my interest focused and as entertainment. I bought a little bit of Ford stock when it went down to 2 and they said they didn't need any government money. That was probably the first time I had heard anybody or company say they didn't want government money and mean it. I had to buy it or I would have been kicking myself for years for missing it. Hitting a hole in one is satisfying whether or not you get a big prize.

On our national news they reported that countries are talking about removing China from Developing Nation status but China is claiming poor farmers even though their official poverty rate is in low single digits and in either The Peking News or China Daily they are talking about a currency war.

A correction. From China Daily, Shanghai limited commercial housing purchases to one more per household with a tax of from 2-5 percent depending on price. The Shanghai government also plans to offer 1 million new subsidized apartments over the next 5 years and to act to increase available housing.

China has a population of about 1.34 billion and a labor force of around 812 million with unemployment around 4 percent, that gives 59 percent of the population at work. The US has a population of around 307 million a labor force of 150 million with unemployment of around 10 percent, that gives 45 percent of the population at work.

The deliberate drop in the yuan from 1.5 to 1 US dollar to the high of 8.25 yuan has wrecked havoc here. The US prison population has gone from 500,000 in 1980 to 2.5 million today probably the result of lack of work and the stresses that brings. That is the highest number in the world and the highest rate in the world. With 10 percent of the US population with a prison record and virtually unhireable because of it and with the jobs shortage here I think stresses will only get worse until jobs come back and employers will hire whoever will do the job.

All prices should scale relative to labor costs within a county I would think or one could make a profit.

Well, the price of a thing should be a mixture of labor used to produce and market it and the commodities used to produce it, including fuel, I would think. Plus whatever was taken in profit. (Perhaps I've misunderstood you since I don't know how you propose to "make a profit." )

Maybe the price of gold is about the same because they have to import it and that would apply to other items they have to import. Probably just the items they produce get the exchange rate benefit.

Maybe concerning profit if something is selling above what if costs to make one could arrange to make it and sell it for slightly less and pocket the difference which would eventually equalize the prices near cost plus average profit.

George Soros on his site georgesoros.com advocates the Chinese appreciating their currency 10 percent a year, he observes that their deflated yuan is like a tax placed on their export goods and I would guess that it is like a 500 percent tax on exports that goes to the government.

I would think that long run in a competitive market the price of something should be related to some combination of the education of human capital required, the physical labor, capital costs with capital items subject to same items, the risk involved, rent and profit, at least.

In haircut terms the Chinese economy at 34 trillion yuan could afford about 6 trillion haircuts, the US economy at 15 trillion could afford about 3 trillion haircuts, China's population is about 4 times the US so they would be able to afford half the number of haircuts per person.

I would think that with the yuan at 1.5 yuan per dollar in 1980 it should have risen in value not dropped to 6-8 yuan per dollar as China industrialized, especially since they have had low inflation.

Using the IMF data, the GDP deflator for China in 1980 was 25.950 and in 2009 was 119.342 a 460 percent rise. The GDP deflator for the US was 47.751 in 1980 and 314.657 a 659 percent rise. 460 divided by 659 = 0.70 which is what the value that the 1.50 yuan should be multiplied by to get what the yuan is worth in dollars which is 1.05 yuan to one dollar.

Hmm... I'm out of my depth here in terms of calculating the precise actual value of a currency. Interesting argument.

I don't know much about it either, this is the first time I have ever tried to calculate another currencies real value and i sure don't know is I'm missing something or doing something the wrong way.

I had always thought that with the currency market so large prices would adjust correctly and I sure didn't even imagine a country would be able to manipulate its currency over a long time like this appears to be.

Although being a baby boomer I was told(probably because of the Korean war) and sure didn't trust the Chinese communists. Their actions and speech during and after the Vietnam War really led me to believe they would do anything they could get away with to accomplish their objectives, so I sure wouldn't put it past them.

The minimum wage in China as of 2010 is 960 RMB per month about 6 yuan per hour, the average wage as of 2006 per month is 1750 RMB or about 10 yuan per hour. In Hunan province last year, the average monthly wage of workers was 2,274 yuan or about 13 yuan per hour.

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