Thrift as a Virtue, Historically Criticized

Thrift has been viewed since the blessed Adam Smith as the foundation of economic growth. Economists, the theorists of prudence, wsh it so. But it was not, and is not true. Modern economic growth came from some other source---perhaps the stunning shift 1600-1776 in the rhetoric of economy-talk.thrift; savings; industrial revolution; growth models;

Bourgeois dignity and liberty: Why economics can’t explain the modern world

Two centuries ago the world’s economy stood at the present level of Chad. Two centuries later the world supports more than six-and-half times more people. Starvation worldwide is at an all-time low, and falling. Literacy and life expectancy are at all-time highs, and rising. How did average income in the world move from $3 to$30 a day? Economics mattered in shaping the pattern but to understand it economists must know the history and historians must know the economics. Material, economic forces were not the original and sustaining causes of the modern rise, 1800 to the present. Ethical talk runs the world. Dignity encourages faith. Liberty encourages hope. The claim is that the dignity to stand in one’s place and the liberty to venture made the modern world. An internal ethical change allowed it, beginning in northwestern Europe after 1700. For the first time on a big scale people looked with favor on the market economy, and even on the creative destruction coming from its profitable innovations. The world began to revalue the bourgeois towns. If envy and local interest and keeping the peace between users of old and new technologies are allowed to call the shots, innovation and the modern world is blocked. If bourgeois dignity and liberty are not on the whole embraced by public opinion, the enrichment of the poor doesn’t happen. The older suppliers win. The poor remain unspeakably poor. By 1800 in northwestern Europe, for the first time in economic history, an important part of public opinion came to accept creative accumulation and destruction in the economy. People were willing to change jobs and allow technology to progress. People stopped attributing riches or poverty to politics or witchcraft. The historians of the world that trade created do not acknowledge the largest economic event in world history since the domestication of plants and animals, happening in the middle of their story. Ordinary Europeans got a dignity and liberty that the proud man’s contumely had long been devoted to suppressing. The material economy followed.economics; innovation; industrial revolution; bourgeoisie; modern world

Other things equal: Samuelsonian Economics

Deirdre McClosky argues that we need to get beyond the Age of Samuelsonianism in economics and get back to theorizing and observing. Economics, especially mainstream American economics, for all its promise, is in very bad shape because it has fallen into a cargo-cult version of “science” in which qualitative theorem-making runs the “theory” and statistical significance without a loss function runs the “empirical work.” Consequently, none of the high-prestige “work” in the journals is to be taken seriously. Most (say 95 percent) of its alleged “results” have to be done all over again, by economic scientists using—in preference to the mumbo-jumbo that has passed for scientific method among economists since 1947— real scientific methods (such as serious simulation disciplined by the world’s facts; and functional-form math; and statistical significance, when relevant, with loss functions; and economic history; and inquiry into all the other human sciences we economists have been invited so long to ignore). A real science—or a real inquiry into anything about the actual world—should both think and watch, theorize and observe.Economics

Domestic Reshufflings, Such as Transport and Coal, Do Not Explain the Modern World

Transportation improvements cannot have caused anything close to the factor of 16 in British economic growth. By Harberger’s (and Fogel’s) Law, an industry that is 10% of national product, improving by 50 percent on the 50% of non-natural routes, results in a mere one-time increase of product of 2.5% (= .1 x .5 x .5), when the thing to be explained is an increase of 1500%. Nor is transport rescued by “dynamic” effects, which are undermined by (1.) the small size of the static gain to start them off and (2.) the instable economic models necessary to make them nonlinear dynamic. The same holds for many other suggested causes of the modern world: enclosure, for example, or the division of labor or the Kuznets-Williamson Hypothesis of reallocation from agriculture to industry, country to town. Wider geographical arguments, such as Diamond’s or Sachs’, turn out to be ill-timed to explain what we wish to explain. And “resources,” such as oil or gold, have both the Harberger Problem and the timing problem. Not even coal---the favorite of Wrigley, Pomeranz, Allen, and Harris---can survive the criticism that it was transportable and substitutable. The factor-bias arguments of Allen have the old problem of the Habbakuk Hypothesis, namely, that all factors are scarce. Even if we add up all the static and quasi-dynamic effects of resources, they do not explain Britain’s lead, or Japan’s or Hong Kong’s catching up.British economic growth, transportation, coal, growth hypotheses, industrial revolution

Science, Bourgeois Dignity, and the Industrial Revolution

What happened to make for the factor of 16 were new ideas, what Mokyr calls “industrial Enlightenment.” But the Scientific Revolution did not suffice. Non-Europeans like the Chinese outstripped the West in science until quite late. Britain did not lead in science---yet clearly did in technology. Indeed, applied technology depended on science only a little even in 1900.scientific revolution, science, technology, industrial enlightenment, applied technology

Other things equal: Why economists should not be ashamed of being the philosophers of prudence

McCloskey argues that economists should be proud to be so very expert in one of Seven Cardinal Virtues, Prudence.Economists

Growth, Quality, Happiness, and the Poor

Real national income per head in Britain rose by a factor of about 16 from the 18th century to the present. Other cases, such as that of the U.S. or Korea, have been even more startling, historically speaking. Like the realization in astronomy during the 1920s that most of the “nebulae” detected by telescopes are in fact other galaxies unspeakably far from ours, the Great Fact of economic growth, discovered by historians and economists in the 1950s and elaborated since then, changes everything. And 16, if one follows William Nordhaus’ persuasive arguments about quality improvements in (say) lighting, is a very low lower bound: the true factor is roughly 100. As Maxine Berg has argued, changing quality of products was as important as changes in process. But the gain is not to be measured by pot-of-pleasure “happiness studies.” These are questionable on technical grounds, but especially on the grounds that they do not measure human fulfillment. They ignore the humanities, pretending to scientific precision. It makes more sense to stay with things we economists can actually measure, such as the rise of human scope indicated by the factor of 16 or Nordhaus’ factor of 100, or by what Sen and Nussbaum call “capabilities.” Of course, what we really care about are the scope or capabilities of the poor. These have enormously expanded under “capitalism”---though a better word is simply “innovation,” arising from bourgeois dignity and liberty. It is the Bourgeois Deal: let me alertly seek profit, and I will make you rich.”growth; quality; happiness; poor; bourgeois; industrial revolution

The immoral equivalent of war

Estamos en guerra, dicen todos los presidentes, los presidentes reflexivos y cuasi liberales como Emmanuel Macron en Francia y Moon Jae-in en Corea, así como los irreflexivos y cuasi fascistas como Donald Trump en Estados Unidos y Viktor Orbán en Hungría. Una guerra terrible. Pero lo peor no es la guerra contra la enfermedad y, como daño colateral, el aplastamiento de la economía, por miserables que sean. La peor parte es la probabilidad de posguerra de un estatismo triunfante, y luego el fascismo al que regularmente da lugar el estatismo triunfante. La enfermedad es para 2020. El fascismo es para siempre.We are in a war, say all the presidents, the thoughtful and quasi-liberal presidents such as Emmanuel Macron in France and Moon Jae-in in Korea, as well as the thoughtless and quasi-fascist ones such as Donald Trump in the US and Viktor Orbán in Hungary. A terrible war. But the worst part is not the waritself against the disease and, as collateral damage, the crushing of the economy, wretched though they are. The worst part is the post-War likelihood of a triumphant statism, and then the fascism to which triumphant statism regularly gives rise. The disease is for 2020. The fascism is forever.peerReviewe

Other things equal: What's Wrong with the Earth Charter

The Earth Charter, based on the model of the United Nations Charter on Human Rights, is circulating in Green Circles. Deirdre McCloskey spells out what's bad and false about the Charter. Although Ms. McCloskey hopes the Charter fails, she is not hopeful. The document, written by biologists and other activists entirely innocent of economics, has a good deal of economic nonsense. It fails to recognize how bad the project of social engineering has been for human freedom, which also means it has a good deal of political nonsense. But as she says, "when has nonsense been a bar to the success of a manifesto, left, right, or center, Red, Blue, or Green?"Economics

Creative Language, Creative Destruction, Creative Politics

Why did the North-Sea folk suddenly get so rich, get so much cargo? The answers seems not to be that supply was brought into equilibrium with demand---the curves were moving out at breakneck pace. Reallocation is not the key. Language is, with its inherent creativity. The Bourgeois Revaluation of the 17th and 18th centuries brought on the modern world. It was the Greatest Externality, and the substance of a real liberalism. Left and right have long detested it, expressing their detestation nowadays in environmentalism. They can stop the modern world, and in some places have. The old Soviet Union was admired even by many economists---an instance of a “cultural contradiction of capitalism,” in which ideas permitted by the successes of innovation rise up to kill the innovation. We should resist it.innovation; bourgeois revaluation; liberalism; success of innovation