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Welcome to Econ Talk, Conversations for

0:04

the Curious, part of the Library

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Thanks for voting and for providing feedback about

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the program. And now for

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today's guest, economist Noah Smith. His

0:58

blog on Substack is No Opinion. That's

1:01

Noah Pinyon.

1:07

This is Noah's third appearance on the program.

1:09

He was last here in October of 2018

1:12

talking about worker compensation and

1:14

market power. Noah, welcome back

1:17

to Econ Talk. Thanks

1:19

for having me back. It's great to be here.

1:21

Our topic for today is the Wealth of Nations, not the book,

1:24

but the concept of that. We may talk about the book a little

1:26

bit. We're going to be referring

1:28

to a recent essay at No

1:31

Opinion that you wrote with the

1:33

title, Nations Don't Get Rich by

1:36

Plundering Other Nations. So

1:39

a lot of people would

1:41

disagree with that, I think. So

1:43

let's start with the idea of

1:45

plunder. What do you think people

1:47

have in mind when they explain

1:50

the Wealth of Nations via plunder

1:52

and what's wrong with it? Well,

1:55

usually plunder talks about natural

1:57

resources. So you have some

2:00

Ships you have some guys

2:02

with guns you send the ships and

2:04

the guys with guns to somewhere else and say hey you

2:07

know, we're in charge here now you're working for

2:09

us in the mines and And

2:12

then you open up some mines and

2:14

the local people, you know Mine the

2:16

stuff for starvation wages or you just

2:18

enslaved them or whatever and then you

2:20

take the the metal or whatever Resources

2:22

or the rubber whatever they've got right

2:24

and then you cart it away To

2:27

the metropole of empire where you use it

2:29

to build monuments to your empire's greatness and

2:31

things like that I think that's the sort

2:33

of the picture people have in their minds

2:35

when you talk about colonial

2:37

plunder This

2:41

is you know It's a

2:43

caricature but it's it's roughly accurate for

2:46

the way say that the Spanish mines

2:48

silver in South America You had the

2:50

incommienda system, which is essentially slavery you

2:52

had, you know actual literal slavery You

2:56

know in mining and a lot of it was just

2:58

enforced by Spanish military power You

3:00

also have in fact, this has

3:02

actually been kind of a common thing for a lot

3:04

of empires for thousands of years You

3:06

saw this kind of plunder and and Spain

3:09

didn't do it too differently When

3:12

the British and French came along they did it

3:14

a little bit differently They

3:17

usually co-opted local elites and

3:19

said, you know Hey local guy

3:22

just you know, sell us some stuff

3:24

and then and they

3:26

would send some soldiers in to like make Lay

3:30

down some railroad tracks or occasionally execute people you

3:32

don't like or put down a rebellion or something

3:34

like that but then the local elites would do,

3:36

you know, a lot of the extracting often with

3:39

Sort of, you know, British and French engineering help

3:41

and they'd build some but ultimately it was not

3:43

that different, you know you mines

3:45

would get built and miners would get paid low

3:48

wages or And

3:51

you know plantations rubber trees,

3:53

you know cut down grown and cut down and

3:56

all this stuff and so Of

3:58

course some Marxist say okay So, labor is

4:00

also a resource, so you're extracting labor. Fine,

4:04

if you want. But

4:08

then, personally, I thought the idea of extraction itself

4:10

just deals with the idea that you're also extracting

4:12

labor. You're making someone do some stuff for you

4:14

that they wouldn't have done on their own, you

4:17

know, if it was just like a perfect free

4:20

market or whatnot. And so, I think that's kind

4:22

of the idea of plunder. And there's absolutely no

4:24

doubt that a lot of this did happen throughout

4:26

history and the period of European

4:29

colonialism. And you

4:31

know, it was a common thing. And

4:34

so that's, I think, does that answer your

4:36

question? Well, and then, you know, a

4:39

similar analysis is done with American

4:42

economic activity in, say, Latin America

4:44

or South America where United

4:48

Fruit would exploit workers in

4:50

picking bananas and other natural

4:52

resources. We

4:55

had an episode related to

4:58

this tangentially, at least, in

5:00

the Belgian Congo, which was a

5:03

horrific example of European

5:06

exploitation of the

5:08

local population and the stealing,

5:10

which is what plunder is, the theft of both

5:13

natural resources and to a

5:15

large extent often the lives or

5:18

well-being of the people who live in those places

5:20

at the time. So the question is,

5:23

how important is that? So

5:26

all that happened, and it's a

5:28

horrible episode in history,

5:31

varying in intensity and

5:33

horrificness. All

5:36

that happened. The question is, which you

5:38

deal with in your essay, is

5:41

that the source of

5:43

the wealth that Western Europe and,

5:47

say, the United States have attained?

5:49

Is that where it came from? Is

5:51

it basically a form of exploitation?

5:55

And you argue no. You

5:58

start with – we'll talk in a minute about that. that

6:00

maybe the theory behind why no is

6:02

the wrong answer. But let's start with

6:04

the evidence. What evidence do you provide

6:06

for why plunder is

6:08

not really a good explanation for how nations

6:11

get wealthy? Right. Well,

6:13

so the first basic thing is just to look at

6:15

the timing. When you

6:17

look at when nations got really rich, like

6:21

pretty much all of the enrichment has happened in the

6:24

last 150 years, since maybe 1870. If

6:30

you look at 1870, the ancestors of people in

6:35

the United States and Britain, people

6:38

in the United States and Britain were living

6:40

very meager lives. They were living lives that

6:42

by modern standards are incredibly poor, despite all

6:44

the plunder that they had done, all

6:47

the military force they had applied and all

6:50

the suffering they'd inflicted, mass

6:52

enslavement for centuries and all

6:54

kinds of wars and

6:58

extraction and all this stuff, they

7:01

were still incredibly poor by modern standards.

7:04

And so basically,

7:09

all the plunder that had happened before 1870 or so

7:11

was essentially shooting

7:17

another poor person for a tiny amount of

7:19

money. So imagine that your neighbor has $40

7:21

to his name and

7:24

that you have $40 to your name, so you're both

7:26

really poor. You shoot your neighbor and take your

7:28

neighbor's $40. Are

7:31

you richer now that you shot your neighbor? Well, a tiny

7:33

bit. Did you harm your neighbor? Well,

7:36

absolutely, you shot him. Did

7:38

you plunder from your neighbor? Absolutely, he took his $40. Are

7:41

you rich? No, you have $80 now. You're

7:44

still a poor person. So this

7:46

understanding relative versus absolute wealth is

7:48

absolutely key to this idea, the

7:50

idea that when we look around

7:52

and we see all the cars

7:57

and the medical procedures and the

7:59

skyscrapers, and the TVs and all the

8:01

cell phones and everything else we have

8:04

that makes us rich. All the amazing

8:06

food and cool furniture and all

8:08

the other things that make us rich, those things

8:10

are new. And people in 1870 did

8:13

not have those things. They

8:15

had almost none of those things. And

8:18

I've quoted my Walter

8:22

Williams, we probably when

8:24

I interviewed him a long time ago, we probably

8:27

actually talked about this, so we'll link to that

8:29

episode. But from the

8:31

way he would summarize it, which I find it

8:33

it's similar to what you just said, but it

8:35

has an aspect I want to highlight.

8:39

Through most of human history, you got rich

8:41

by knocking your neighbor on the head and

8:43

taking your neighbor's stuff. Right. And

8:46

that was relatively rich. You wouldn't get well, you

8:48

got richer. That was a richer your

8:53

point, which is correct is that doesn't make

8:55

you rich. It makes you a little bit richer. And

8:57

the point I want to emphasize is that that

9:01

does not make the world richer. It's

9:03

a zero sum game at

9:05

that level. Plunder is almost by definition a

9:08

zero sum game. It means your neighbor

9:10

in this case nationally, it was what

9:12

we're mainly going to be talking about your,

9:14

your national neighbor has stuff. You know,

9:16

you have it, and they

9:18

don't. So that does not transform the world. It

9:20

might help you a little bit, as you point

9:22

out, not a lot through

9:24

most of history. But the

9:26

point I want to emphasize is that it's

9:28

actually not a zero sum game. It certainly

9:30

at the personal level, it's a negative sum

9:32

game, because the threat of plunder

9:35

in the personal sphere

9:37

causes you to spend resources you otherwise would

9:40

prefer not to spend with

9:42

better locks, better guns, better fences, whatever

9:44

it is. And even worse than that,

9:46

if you're if you're

9:48

weak, and you're at risk of being

9:50

plundered by your neighbor either personally or

9:52

nationally, your incentive to grow

9:55

and expand and innovate and do other things

9:57

that might lead to actual real wealth. not

10:00

so high because there's a risk

10:02

of plunder. So all of that

10:04

points to the fact that plunder, which we

10:06

think of as a zero-sum game, is probably much more

10:10

correct to think of it as a negative

10:12

sum game. And it was the way of

10:14

the world for much,

10:17

almost all of human history until just

10:20

recently. And you quote,

10:23

it's a wonderful picture. You

10:25

have a chart

10:27

from the work of Angus Madison, and

10:30

his colleagues worked

10:33

diligently to do as best as possible. It's

10:35

impossible, but they did the best they could.

10:38

And trying to measure, going back

10:40

in the case of your chart to 1820, what

10:44

is the average per capita,

10:46

what is per capita GDP for

10:49

various parts of the world? And what struck me

10:51

about it is that

10:54

until about

10:57

the middle of the 20th century, so forget 1870, until

11:01

the middle of the 20th century,

11:03

there was no part of the world that

11:05

lived on more than $10,000 a

11:07

year, a very, very low standard

11:09

of living by our modern standards. Starting

11:11

around 1930s and 40s,

11:13

ironically, in the aftermath of the Great Depression,

11:16

certainly starting in 1950, there

11:19

is a remarkable,

11:21

unparalleled acceleration of

11:24

economic well-being in Western

11:26

Europe, in

11:29

Western Europe's similar countries,

11:33

whatever you might call them, the United States,

11:35

Canada, Australia, and so on. And then

11:37

eventually, even the other parts of the

11:40

world also accelerate, nearly as dramatically, not

11:42

to as nearly as high a level,

11:44

but there's basically a

11:46

fivefold four or fivefold

11:48

improvement of standard of

11:50

living in Western Europe

11:53

and the United States, similar countries, since

11:55

1950. Certainly since 1900, there's Been a. Steady

12:00

improvement as well. So if

12:02

you want to understand how

12:04

economic activity, material well being

12:07

can be transformed, your have

12:09

to explain that. You have

12:11

to explain two things: One

12:13

why it's relatively flat for

12:15

most extreme in history. Ah,

12:18

and then wired suddenly suddenly

12:20

salaries and I can't really

12:22

be plunder because. Saw.

12:25

The know martians to plunder it the for

12:27

the whole world which. Whole. World

12:29

has gotten rich over the last seventy

12:32

years. you have to someone to take

12:34

it from so something else really underlying

12:36

and important as to be going on.

12:40

right? Yes, we know,

12:42

You know, basically. We.

12:44

Know how I'm countries get rich because

12:46

we've seen him do it again and

12:48

again. Ah, you know, basic.

12:51

We know it. Industrialization. That's right.

12:53

I'm and so and we know what the

12:56

requirements for that are. We. Know that

12:58

modern scientific discoveries are absolutely key to

13:00

in association as well as a large

13:02

accumulated amount of tacit knowledge. But how

13:04

to build industrial things? We can see

13:07

where production from some were. You can

13:09

look at a factory you can look

13:11

at, you know, supply chains and and

13:13

were that that stuff come from and

13:15

you can see that we had all

13:18

those natural resources before you know, maybe

13:20

couldn't extract them but they were in

13:22

the ground. There were there. And.

13:25

We. Can see exactly the machines. And

13:29

inventions that allowed us to extract those

13:31

natural resources more more of them than

13:33

we can before. It's a but most

13:35

importantly to to process them into new

13:37

forms of stuff. Now we can make

13:39

refrigerator before we did not. Now we

13:41

can make a microphone before we did

13:43

not and we can see very comfortably.

13:46

Were all this welcome. What's.

13:49

more we can look at this

13:51

historical or trajectory of countries that

13:53

friday rich mainly to plunder and

13:55

we can compare them to the

13:57

circle jerk trajectory of countries that

14:00

try to get rich me mainly

14:02

through making industrial stuff. So

14:04

for example, when we look at Spain and

14:06

Portugal, those countries now are

14:09

somewhat rich as countries go. But

14:12

they weren't always, that's relatively recent

14:14

and is based on their integration with

14:16

the European economy. Before, in

14:19

their colonial days, they did

14:21

not get especially wealthy from plunder, even in

14:23

the relative sense. Their people

14:25

remained desperately poor. And

14:29

they dug up all this gold and

14:32

silver and other resources from Latin America and

14:34

shipped them back to Europe, but ultimately

14:37

frittered away because they didn't really invest

14:39

it for industrialization. They spent it on

14:41

wars or like gilding

14:43

the local church or whatever they had, right? They

14:46

didn't really industrialize

14:48

much. And

14:52

that was why Spain and Portugal stayed poor

14:54

at the time. Britain is

14:56

sort of the intermediate case. But before we

14:58

talk about Britain, I wanna talk about Germany,

15:01

which Germany had a couple overseas colonies for

15:03

a very short amount of time. Very

15:07

few and for a short amount of time, and they

15:09

weren't ultimately that important. It was more of a vanity

15:11

project for Imperial Germany. Germany

15:14

became rich by making stuff in

15:16

Germany. And

15:18

they became as rich

15:20

as Britain. Eventually

15:24

now they're richer, but

15:27

they had very little

15:30

legacy of colonial exploitation. Sweden, Switzerland,

15:33

Denmark, these

15:36

countries did not have a colonial

15:38

empire. And now

15:41

you look in the modern day, you look at Japan, we

15:45

had an empire, but South

15:47

Korea did not, right? Singapore,

15:51

certainly Taiwan, there's

15:54

just this lonely little island. And

15:57

a number of countries like this have been... basically

16:00

gotten rich without ever having a colonial empire.

16:03

At this point, so we

16:05

know that countries got rich without having their

16:07

own colonial empires. We know that countries that

16:10

had their own colonial empires often did not

16:12

get rich. So it was neither necessary nor

16:14

sufficient to have a colonial empire

16:16

and order to get industrialized. But

16:19

we see that Britain and France did.

16:22

And Britain and France did

16:24

have extensive colonial empires. And

16:26

the question is, did that

16:29

make them get rich? Was

16:34

it the fact that they had colonial empires? And

16:39

the answer is we don't actually know. There

16:44

are hypotheses that say, there

16:46

is a hypothesis that says the reason

16:48

Britain industrialized was because it had cheap

16:51

capital and expensive labor. You

16:56

need to substitute capital for labor. In

17:00

other words, if workers' wages are really, really high,

17:02

but yet the price of physical

17:05

stuff, machinery, and commodities is

17:07

very low, you

17:09

need to use the machines instead of the

17:11

humans. And then once they started using the

17:13

machines, then they're like, oh, wow, the machines are

17:15

really great. And they start tinkering, and improving, and

17:17

investing. So you then got this industrial corporations, got

17:20

the virtuous cycle of investing in better

17:23

machinery and technology. And so that

17:26

is an argument for why the Industrial Revolution was

17:28

sparked. And a key part of

17:31

that argument is the

17:33

idea that cheap resources from

17:35

extraction, from colonies, made

17:38

capital cheap and prompted

17:40

business people

17:45

in Britain to use machines instead

17:47

of workers, and to get used

17:49

to using machines instead of workers

17:53

to expand. Of course, the workers' wages were eventually

17:55

raised too. So

17:58

that is an argument. work of,

18:01

say, Robert Allen, who

18:03

doesn't explicitly, you know, mention

18:06

the flood of

18:08

resources. Well, I guess he does briefly, but then,

18:11

um, but that's implicit in his

18:13

ideas. If you look at Pomeran's,

18:17

the great divergence, this, you

18:19

know, he talked about this as well, he doesn't put

18:21

it in quite the same terms as Allen. So it

18:23

is possible, it is possible that what

18:26

you that all you needed to start industrialization,

18:28

that the reason the reason that

18:31

some dynasty China or the Roman Empire, or,

18:33

you know, the early

18:35

modern Netherlands, never industrialized or India,

18:37

the reason these people never industrialized

18:40

is because they had cheap labor.

18:43

And they and business people would always

18:45

do the short term thing of invest

18:47

of using more and more cheap labor,

18:49

instead of in doing the difficult long

18:51

term thing of investing in machines. And

18:54

that all it took was for one

18:56

country to have a, you know, this

18:58

massive influx of cheap stuff

19:00

from the colonies in

19:03

order for prices, the

19:07

price of switching to machinery to go way down.

19:09

And that that was a magic spark that started

19:11

the Industrial Revolution. Now this is a theory, I

19:14

will say that I've looked at some of the

19:17

evidence for the theory and it's highly inclusive. But

19:20

it might be true, it might be that that

19:23

had Britain not had a

19:25

colonial empire, it would not have industrialized. And

19:27

if Britain had an industrialized, maybe no one

19:30

would have industrialized, and then maybe we wouldn't

19:32

have an industrial society today, and we'd still

19:34

be all desperately poor in the world. And

19:36

so according to this theory, the British

19:39

Empire's resource exploitation of the

19:42

world is what is

19:44

what saved the human race

19:46

from desperate poverty. And that all of

19:48

our all of our vast wealth now

19:50

can be owed to the, you know,

19:53

perhaps butterfly effect, you know,

19:55

it's a chain, this

19:57

this lengthy chain of causation from

20:00

You know Britain goes in Congress and people

20:02

and extract the resources all the way to

20:04

now We're rich yay, and the world doesn't

20:06

have to starve and you know have bedbugs

20:08

anymore and so There

20:11

is that argument and I've looked and I'm not sure

20:13

you know I think we don't really know But

20:17

that that's what the argument is saying I don't

20:19

want to find that persuasive for a lot of

20:21

reasons But I want to dig deeper into the

20:24

into the you know economic ideas behind

20:26

it And I just

20:28

would mention that of course many

20:30

places that have cheap labor today Have

20:32

industrialized have added a lot of capital

20:35

have added machinery have raised the standard

20:37

of living to their workers dramatically through

20:39

the use of capital So

20:42

this this has a certain Psychological

20:45

aspect to it at least the way you've portrayed it

20:47

I don't I find a little bit strange which is

20:49

like oh we didn't we didn't like that we couldn't

20:51

look forward far enough But

20:53

I think the more interesting question is

20:55

is just the theoretical one Which

20:58

is the role of resources and

21:00

their price in both

21:02

our well-being and in the

21:05

opportunities to grow? let's

21:07

let's talk about the United States for a minute a lot of people

21:09

of course the United States is rich and and

21:12

why Well, they have these

21:14

oceans Atlantic and Pacific protecting

21:16

them baby from from attack

21:19

of course not from the north and south But

21:21

fine in general the United States has been blessed with

21:23

lots of security at relatively low cost And

21:27

it has so many natural resources. Yes, it

21:29

does a big place Has

21:31

a lot of different things They're

21:34

not easy to extract as you alluded to at one point

21:37

Well for example was it thought of as a resource

21:39

it became one when people were clever enough to figure

21:41

out how to refine it And use it to create

21:43

create energy But but the the

21:46

idea that your colony is Is

21:49

an economic advantage? Because

21:52

you can steal their stuff and let's

21:54

call it that not let's talk about

21:56

pure blunder not buying things cheaply

22:00

not paying workers very little, stealing, just

22:02

taking. You send your army, they

22:04

grab the stuff. Well, that's an advantage. The

22:07

army, of course, is not free, and it's

22:09

not as cheap as it looks, but yes, it's nice

22:11

to have stuff that you don't have to

22:13

pay for. That does not make you wealthy.

22:16

It is a, you know,

22:19

it goes back to your example of you

22:21

bang your neighbor on the head and take

22:23

40 bucks from him. You now have 80

22:25

bucks this year. When that money's gone, you

22:27

have to find another neighbor. If you want

22:29

to get wealthier and stay wealthy, and

22:32

by wealthy, I mean have a higher standard

22:34

of living materially, if you

22:37

want to do that, you have to find more and more

22:39

neighbors to bang over the head. And

22:41

that's not a very realistic

22:44

description of how the world works through

22:47

most of its history. And so part of what I'm

22:49

trying to allude to here is that some

22:51

of the confusion here is about what

22:54

we might call, what is called economic

22:56

stocks versus flows. Things at a point

22:58

in time versus things that persist over

23:00

time. Growth, material

23:03

wellbeing, persistent material wellbeing,

23:05

persistent material wellbeing that's

23:07

widespread across vast swaths

23:10

of the population, that

23:12

requires growth,

23:14

not just more stuff today. It

23:16

means more stuff today, tomorrow,

23:18

the day after. That requires a

23:20

change in the underlying process of

23:22

how stuff is created. And you

23:24

focused on industrialization, but more

23:26

generally it means you have to find ways to

23:29

get more from less. You

23:32

have to find ways that what

23:34

we would call productivity, innovation. And

23:37

lastly, I just want to emphasize the point you

23:39

made about Portugal and

23:41

Spain, very much in

23:44

line with the Wealth of Nations by Adam Smith.

23:46

Adam Smith made the point that gold and silver,

23:49

there are things, and they are good

23:51

for gilding churches and filling

23:53

cavities for some of human history.

23:56

So they're not useless, but

23:58

they're not the source of true. wealth. And Smith

24:00

was a radical voice in 1776. And

24:03

he said, you don't

24:05

get wealthy by taking a bunch of so

24:08

raw metals that you

24:10

not have more of those things, and you

24:12

have some dollar or pound or peso number

24:15

associated with them, that does not transform the

24:18

standard of living of your people. It

24:20

means you have more stuff in

24:22

your warehouse, that's not actually making

24:24

life richer in any material sense.

24:26

And so I think that

24:29

inside of economics, that

24:32

growth requires a transformation in

24:34

how stuff is produced,

24:36

as you point out, but it's not just industrial,

24:39

it's all kinds of aspects of

24:41

modern life. That's the source of

24:43

material well being, not just getting

24:45

some things cheaply, getting things cheaply helps,

24:48

that's pleasant. It improves you,

24:50

as you say, through most human history,

24:52

not so much. But to have a

24:54

transformation that is ongoing, requires

24:56

a whole process of

24:58

how things get improved

25:00

over time. Exactly.

25:04

And right, that's right. And

25:06

so the unsophisticated

25:09

sort of argument that you see, you

25:11

know, pushed by pseudonymous doofuses on

25:13

the social media, who

25:15

may or may not be, you know,

25:18

teenagers living in like Pakistan

25:20

or somewhere. The unsophisticated

25:22

argument is that basically, America's

25:25

wealth, and the wealth of like

25:27

Europe and Japan, whatever is right

25:30

now based on an ongoing transfer

25:32

of resources from foreign nations, that

25:34

is obviously silly. The

25:36

more that there are two more sophisticated versions

25:39

of the argument that people, you know, who

25:41

just have thought about it for more than

25:43

five seconds and, you know, come

25:46

up with, I do want to I

25:48

just want to point out that the phrase

25:50

pseudonymous, pseudonymous doofuses, I

25:52

think has never been uttered

25:55

on a conduct before. So that's, that's very

25:57

nice. Continue carry on now. What did what

25:59

did they thought, sophisticated versions. Right,

26:02

the slightly the real name

26:04

duplicists. Shame on you. Shame

26:07

on me or the duplicists? All of

26:10

us. We'll see. All of us.

26:13

Because we're all just addicted to social media, which is

26:15

to all of our shame. But anyway,

26:19

so the one more sophisticated argument is the one I

26:21

just said, the idea that all this stuff jump started,

26:23

you know, economic development is

26:26

also popular argument that even made it

26:28

into the New York Times in the 1619 project

26:30

that slavery was responsible for the

26:33

Industrial Revolution. That has been

26:35

pretty much debunked by now. But

26:37

it's a widely held belief. And I think we should

26:39

spend a little bit of time. I was going to

26:42

ask you about it. I think it is a widely

26:44

held belief that the

26:46

opportunity to enslave people is

26:50

the source not of the well-being

26:52

of southern plantation older holders in

26:54

1833, but

26:57

of America's well-being today. Right.

27:00

The legacy of slavery

27:02

is is and of course, this leads

27:04

to arguments

27:07

for the justice of reparations and

27:09

other issues. But just let's

27:11

take that on its face. What's wrong with

27:13

that argument? Well,

27:15

so the first thing is

27:17

that the research underlying this idea is

27:20

of poor quality and has been essentially

27:23

debunked. The

27:25

historical scholarship basically

27:30

so so Ed Baptist is a historian. And

27:33

he Ed Baptist claimed after looking through some

27:35

archival sources that at some point in the

27:37

history of the American South, American

27:40

slave owners discovered

27:44

new methods of horrific torture, which

27:47

he never specified that positive must exist,

27:50

discovered new methods of horrific torture by which

27:52

they could force slaves to work far longer

27:54

and faster, basically torturing

27:56

them much worse and make, you know,

27:59

increasing their their output and

28:01

that this led to, you know, massive

28:04

multiples of

28:06

increase in the cotton

28:08

production and that that cheap

28:10

cotton was what caused the Industrial Revolution

28:13

in Britain. That

28:17

there's no evidence for such a torture system at

28:19

all. No one knows what it was. He

28:22

just made up the idea that some sort of

28:24

thing like that must have existed. And

28:26

when you look at the evidence, it

28:28

turns out it's very clear that increases

28:30

in cotton production came from the introduction

28:32

of better types of cotton. Like

28:35

we know what they are. We know when it happened. So

28:39

essentially this historical scholarship, which

28:41

is based on long chains

28:43

of supposition backed by kind

28:45

of, you know, well, ideology,

28:48

is wrong. That's not what happened.

28:51

The idea

28:55

that slaves, the

28:59

slavery system made cotton

29:02

cheaper at all is

29:04

highly questionable because Indian cotton was

29:07

extremely cheap as well. And

29:10

now of course you could say, well, Indian workers were exploited as

29:12

well. Well, that may be true. But

29:15

there doesn't seem to be, have been anything

29:17

particularly unique about slavery and its ability to

29:19

make cotton cheap. They primarily

29:22

enriched slave owners at the expense of

29:25

other people. And

29:27

now we've got some new

29:29

research by Hornbeck

29:31

and Logan. That's Richard

29:33

Hornbeck and Trevin Logan, who

29:37

have done basically they

29:40

show, they theorize and

29:44

show evidence consistent with the idea that

29:47

slavery made reasons poorer. When

29:51

you extracted wealth from

29:53

people by enslaving them, you distorted your economy in

29:56

all sorts of ways. Now

29:58

the other thing I want to talk about is the idea of slavery.

30:00

this should be music to

30:02

sort of an old libertarian theory, such as yourself.

30:04

But the idea is basically, you

30:07

know, when you enslave

30:09

people, they can't develop

30:11

human capital, they can't, you

30:14

know, basically, there's massive wedges,

30:17

that you know, efficiency wedges

30:19

that essentially, you're having a

30:21

huge percent of your population that you're

30:23

just not actually exploiting. You're exploiting them

30:25

in a sense of robbing them of

30:27

their labor and freedom. You're

30:30

not exploiting them in the

30:32

sense of actually, you know, the society

30:34

isn't getting their full potential. Yeah,

30:37

I'm going to emphasize two things.

30:39

First that none of

30:41

this is to minimize the horrors

30:44

of slavery, it's evil or it's

30:46

human depravity.

30:50

The fundamental issue here, which is very hard to talk

30:52

about, I think, it's

30:57

just hard to talk about and be respectful of those issues.

31:01

The question though is, does

31:04

it enrich the nation that

31:07

has slaves? So I want to take a

31:09

step back and look at the underlying

31:13

economics again. It is

31:16

an enormous advantage to

31:18

have a form of inexpensive labor, especially

31:21

if they don't live where you live, or if you treat

31:23

them as if they're not part of your

31:25

group. Low prices are

31:27

good for economic well being, whether

31:30

it's labor inputs that

31:32

we've been talking about, that you might

31:34

steal, those are all an advantage. Not

31:37

necessarily, Russ. Well, it depends what cost you

31:39

get them. Prices

31:42

should equal marginal costs. If prices are below

31:44

marginal costs, it's not an advantage. Fair

31:46

enough, because they would encourage you to over,

31:49

maybe overuse them. Diver too many resources to this and

31:51

take the resources away from where you need to go,

31:54

so you introduce a distortion. So you don't want prices

31:56

that are too low. No,

31:58

no. But I just meant... If

32:00

you think about your capabilities

32:02

as a nation or as a human

32:04

being, as an individual, in general,

32:07

it's nice to have access to stuff that

32:09

is cheaper rather than more expensive. Yes,

32:12

it can change your choices in ways

32:14

that might not be good for you in all

32:16

kinds of complex social and moral and emotional

32:19

ways. But in general, the way

32:21

you get richer is by expanding

32:24

your opportunities as a nation

32:26

as an individual, which comes

32:29

from effectively lowering the prices

32:31

of stuff and

32:34

having thereby more access to that

32:36

stuff. The point I want to make

32:38

is that the ultimate

32:41

cheap labor is a machine,

32:45

because a machine is a form

32:47

of labor that doesn't get tired,

32:49

generally. It gets a little tired.

32:51

It has to be maintained. But

32:53

it's different than a human being.

32:56

But fundamentally, they're somewhat interchangeable in

32:58

the economic process. The advantage of

33:00

a machine is that

33:02

you can make it more productive. You

33:05

can make the examples I used to

33:07

use, which I used to know off the top of my head. I

33:09

don't know them anymore. But if you have a

33:11

group of people sitting in a room with

33:14

knitting needles, they can make a certain number

33:16

of sweaters a year.

33:19

If you give them a loom,

33:22

they can make more sweaters per

33:24

year, or they can make the

33:26

same number with many fewer workers. If

33:28

you give them a modern technological weaving

33:31

process, the numbers go through

33:33

the roof. And this is really the fundamental

33:35

idea in the wealthy nations. When

33:37

you think about the division of labor, what

33:39

Smith points out in the very beginning in his

33:41

example of the pin factory is

33:43

that once you have

33:46

processes in place where

33:48

you've substituted some machinery for

33:50

some human labor, you can

33:53

innovate, which is ironic, because

33:55

in 1776, there wasn't that much innovation.

33:57

But he saw it. It's kind of

33:59

amazing. Adam Smith got this right

34:01

before it happened. Like, Exactly.

34:04

He didn't really understand like, you know,

34:06

scientific, blah, blah, blah, you know, sort of like,

34:10

you know, industrial labs and machinery and

34:12

stuff. But he understood that like productivity

34:14

improvements of some sort could exist. And,

34:17

and so my point about the work

34:19

of Ed Baptist, whose work I don't know, and

34:21

I'm only talking about it through

34:23

your lens and taking it

34:25

on its face. So it's not a criticism of, of

34:28

him. Which could be accurate.

34:30

And I'm going to assume for now it is,

34:33

is that you can't torture people more

34:35

and more to get ever greater

34:37

output from them. But

34:39

you can do that to a machine,

34:41

not because the machine doesn't feel pain,

34:43

but because the machine has opportunities for

34:46

human creativity and improvements in productivity that

34:48

human beings are limited because we're physical in a different

34:51

way than machines are. And

34:53

again, this is nothing to say about the cruelty

34:55

of, you know, of

34:58

driving human beings to produce

35:00

without pay and

35:02

horrible standards of living and the exploitation

35:05

of human beings and the limiting of

35:07

their freedom. It's grotesque. It's not what

35:09

we're talking about. What we're talking about

35:11

is just the opportunity to use that

35:14

technique to get richer and richer, to

35:16

have growth, not just

35:18

a one-time transfer of, of

35:21

the kind of wealth we're talking about via plunder. And

35:23

it just isn't there. It's not the way that

35:26

the world got wealthy. All these

35:28

explanations are basically having

35:31

to argue that this jump-starting idea that somehow

35:33

we had to kick it off with

35:36

this, with some of these processes. I'm

35:39

much happier saying it was the steam engine

35:43

and the innovation of the

35:45

ability to substitute mechanical

35:48

labor through machines and

35:50

capital, and

35:52

thereby surpass wildly the

35:55

limits of human physical limitation. Another

35:59

way to think about this. as is a

36:01

person can walk, they can walk quickly,

36:03

they can run. They cannot

36:05

run a horse over

36:08

any, most distances, and

36:12

they'll never outrun a car, unless

36:15

the car has no fuel. The

36:18

ability of human beings to create ever

36:20

faster and more effective

36:22

forms of transportation is

36:25

an extraordinary thing, and

36:27

it's about surpassing our physical limitations.

36:30

Those limitations are unavoidable, and

36:33

our ability to surpass them with our brains

36:36

is the reason we're fundamentally wealthier today than we

36:38

were 50 and 100 years ago. Correct.

36:43

This is obviously true from anyone who

36:45

knows how machines work or who traces

36:47

the inputs of a

36:50

modern production process, which

36:52

of course the pseudonymous doofuses on

36:54

Twitter do not. Yes.

36:59

So that's exactly right.

37:01

And we found

37:03

a better way of making people

37:05

rich in

37:07

the industrial revolution. I'm

37:11

agnostic on whether machines of pain,

37:14

maybe, chat GPT just is really pissed

37:16

about being asked to do the same

37:19

homework set yet one more time. But,

37:21

but, general, who cares?

37:23

Do the problem set, chat GPT.

37:27

But then, but yeah,

37:29

so we use machines instead of humans,

37:34

but it took people a really,

37:36

really long time to understand this.

37:39

And I would argue that it's not until relatively,

37:42

like just the last few decades, that this lesson

37:44

has really started to sink in, because you still

37:47

saw people trying to conquer their neighbors

37:49

and take their resources. In fact, some

37:51

people still think about doing this. You

37:53

see Venezuela proposing to invade and

37:56

conquer part of Guyana over this. this,

38:00

you know, oil rich territory that lies

38:02

between them. So, you know,

38:04

because Venezuela is this economic basket case and

38:06

thinks, hmm, maybe we could make a buck

38:08

by invading, conquering our neighbor. Hmm,

38:11

they can't. Brazil will probably stop them because the only

38:14

way for their troops to actually get there because of

38:16

the mountainous or whatever, mountainous is

38:18

very difficult to pass region, is to go

38:20

through Brazil and Brazil will not let them

38:22

do that. So they won't be able to

38:24

do it, but the fact that they're thinking

38:26

about it is an indication that this particular

38:28

form of stupidity has not vanished from the

38:30

earth. And the idea that

38:32

you can get rich by simply knocking over your neighbor

38:34

and taking some of their rocks. Yeah,

38:38

the other thing I want to emphasize

38:40

and encourage listeners to go back, we'll

38:42

link to them, at

38:44

least one, if not more conversations we had

38:46

with Paul Romer a long time ago.

38:51

We're talking about substituting machines for people. And again,

38:53

I think it's very common for people to think,

38:55

well, that'll be hard on the people because

38:58

the machines will get all the work. That is

39:00

not the way the last 75 years

39:03

of industrialization and growth have turned

39:05

out. The people got the

39:08

benefits. The word

39:10

capitalist, we don't think about it very

39:12

much, but it comes from

39:14

capital, meaning the

39:16

owners of the machines, the owners of

39:19

the factory. So the

39:21

substitution of capital and machinery for

39:23

human beings certainly can

39:26

make the capitalist, the owner of

39:28

the machine wealthy. But

39:30

it did something else unexpected. It

39:32

made, perhaps, it made the

39:35

workers who worked with the machines

39:37

and who lived alongside

39:39

the machines wealthy as well,

39:41

because it made them wealthier.

39:43

It made them more productive.

39:46

Machinery, which is

39:48

a human creativity embodied in the physical

39:50

world, machinery makes

39:53

our standard of living higher. And it's not just the people

39:55

who own the machines. It's most

39:58

of the people in the countries that have chosen. that

40:00

path. And that's not

40:02

intuitive, I think, and it's one of the great gifts

40:04

of economics to understand that. Right.

40:07

And you really that starts with the wealth

40:10

of nations, but it is a consistent strain.

40:12

What I'm saying is nothing new. There's

40:15

nothing new in what I'm saying. I

40:17

have no new insight on this topic. I'm simply, you

40:20

know, using new words to restate an idea that's been

40:22

around for a very, very long time, and it's still

40:24

correct. But it's important

40:26

to say it, it bears

40:29

saying over and over and over. And the

40:32

reason is because the reason we need to

40:34

say it now is because we

40:36

are entering a very scary time

40:38

in world geopolitics.

40:41

The reason being that America's long

40:43

standing hegemony has ended. We

40:46

are no longer a hegemon in the world. We

40:49

are still a powerful country. There's lots of stuff we can

40:52

do, but we are no longer a global hegemon or even

40:54

the hegemon of half the world as we were in the

40:56

Cold War. Because other

40:58

countries grew. Other

41:01

countries got more powerful. Our power

41:03

became less relatively overwhelming. You know, it's

41:05

not because we got worse or weaker.

41:07

We got weaker in some ways, but

41:10

mostly it is because countries like China

41:13

grew. In

41:15

particular, China grew and weapons

41:19

changed so that small militias

41:21

like the Houthis can now get drones

41:23

and missiles and you know, great outsized

41:25

amounts of power projection and

41:28

chaos. And so because of

41:30

various changes in technology and in globalization and

41:32

in economic development and all these things, the

41:34

United States can no longer really be the

41:36

hegemon it was in the 20th century. And

41:39

because of this, conflicts are starting to break out and

41:41

the kind of quasi enforcement of national borders that

41:43

the United States provided in the

41:46

years after World War II is

41:48

now breaking down. You see Venezuela

41:50

threatening to invade Ghana. You see

41:52

Azerbaijan threatening to invade Armenia. You

41:54

see Putin actually invading Ukraine. You

41:56

see China threatening to invade Taiwan

41:58

and ground. little

42:00

pieces of India, etc. And so

42:04

you see a number of these cases where

42:07

essentially the idea of we could take

42:09

over our neighbor, we could march our

42:11

army in and take over part of

42:13

our neighbor are starting to appear again.

42:16

And it is important. Now, I

42:19

don't think simply pointing out that this is

42:21

not a good strategy for getting rich will

42:24

deter anyone. I don't

42:27

think that this will work because you

42:29

know, China doesn't want Taiwan because they

42:31

think they can capture TSMC and make

42:34

some nice semiconductors. They can't, right? TSMC

42:36

will wipe the servers, blow

42:38

up the plants and just leave. Nor

42:41

does Russia really think they can get

42:43

rich from the wheat fields of Ukraine.

42:47

Maybe Venezuela is desperate enough that they

42:49

think that that knocking for y'all would

42:51

make them a little extra bucks. But

42:53

I don't think really there's nothing

42:56

economics strategic between China and India

42:58

really. Nothing

43:00

major. So

43:03

I don't think these people really believe the conquest

43:05

will make them rich. So I don't, but it's

43:07

important to remind people that getting rich is a

43:09

thing you can do. And you

43:11

can focus on peaceful development, you can

43:13

focus on improving your citizens

43:16

standard of living without beating up

43:18

anyone without buying a big army

43:20

full of giant missiles and marching

43:23

into neighbor's territory and telling them what to

43:25

do and saying we rule you now, ha

43:27

ha ha. You know, like, you

43:30

don't really need to do that. Economic

43:34

development is more important

43:36

than that stuff. And not everyone agrees.

43:38

Some people think, Oh, our honor demands

43:40

that we attack some people have ethnic

43:42

motivations, like, Oh, you speak

43:44

the same language as us. And therefore we should rule

43:46

you, you know, there's the or

43:49

historical, you know, like, we're so mad

43:51

that like, this piece

43:53

of our country, like broke off, you know,

43:55

like Ukraine broke off from Russia, we're so

43:57

mad about how this diminished our greatness. And

44:01

then there's many reasons to

44:03

fight, but it's important to remind people that none

44:05

of these things will make you rich. None

44:08

of these things, these things

44:11

won't really benefit your people, except

44:13

in some sort of intangible benefit of

44:15

bloodthirst if you think that that's real. Bloodthirst

44:18

and national greatness and historical

44:20

revenge. And then they're like,

44:22

shut up. Just

44:25

do something, you know, just develop your

44:27

country and make people happy and live

44:29

a happy, light, rich and happy life.

44:32

Just do that. And I think

44:34

that reminding people that national wealth

44:36

doesn't come from plunder is an

44:39

important thing in this new jungle-like geopolitical

44:41

environment we find ourselves in to remind

44:44

people that there is a better, more peaceful way. So

44:48

I want to take that transformation

44:51

of the role

44:56

that nationalism is playing in

44:58

modern psychology, at least in

45:00

many places. And I want to

45:02

tie it to what we've been talking about in a different way. So

45:05

we've been talking most of this time about plunder, colonialism,

45:08

exploitation of resources or

45:10

slavery. There's

45:12

a more sophisticated version of this argument

45:15

that we've not really talked about, which

45:17

is globalization. Globalization,

45:19

which is the uniting of

45:21

the disparate peoples of the

45:23

world through trade and

45:26

through the reduction in transportation

45:28

costs, the miraculous and glorious

45:31

ability to move stuff around the world much

45:33

more cheaply than we did before, which is

45:36

part of the industrial transformation we did already

45:38

discuss. But what that has led to is

45:41

enormous changes in where things are made and

45:43

their price and so on. And

45:47

also those things take place in

45:50

a over time way. They don't just

45:52

mean that things are cheaper today

45:54

relative to yesterday. They get ever

45:56

cheaper. We find ever cheaper ways

45:58

to transport things. idea of

46:00

a cargo container and the

46:02

way modern shipping is done

46:05

was a huge, huge change

46:07

that's I think underappreciated.

46:09

But a lot of people believe

46:12

that globalization is

46:14

a form of exploitation. They believe that

46:17

the increased trade among the nations of the

46:19

world, which is enormously larger today than it

46:21

was say 50 years ago, is

46:24

a form of exploitation that certain

46:26

nations benefit from it and other nations

46:28

are harmed. Now what is

46:30

true is that within a

46:32

country, certain people may not be helped

46:34

by globalization in the short run. They

46:38

may have skills that are now less

46:40

competitive and rewarded at lower

46:42

rates, and they will have a harder

46:44

time. And that fuels resentment. And

46:47

it fuels a form of

46:49

economic nationalism that is

46:52

widely out

46:55

there right now in the United

46:57

States and elsewhere. But I think it's important

46:59

to point out that in

47:01

the long run, and I don't mean a thousand

47:04

years from now, I mean, part of the

47:06

reason that fewer human beings

47:08

starve to death around

47:10

the world and why many human

47:12

beings have higher standards of

47:15

material well-being is because they can trade

47:17

with their neighbors when they more cheaply

47:19

than they could in the past. And

47:21

so I want to hear your thoughts

47:24

on that aspect of this

47:26

argument. Well,

47:28

so obviously that's really important. The

47:30

question is, is that now under

47:32

a threat? And

47:34

I would say that most

47:37

people when they talk about

47:39

threats to trade talk about

47:41

protectionism. I don't think that's nearly as big

47:43

a threat to trade as people think, because

47:46

protectionism is a lot easier said than done.

47:48

If you put tariffs on a country, exchange

47:50

rates will just, you know, appreciate and depreciate

47:53

until it cancels out much of

47:55

the tariffs. I think that

48:00

the biggest threat is from the

48:02

breakdown of global order. Because

48:05

freedom of the seas, freedom of

48:07

trade and freedom of the seas has been

48:09

guaranteed by the United States Navy and

48:12

allied navies. That

48:15

could really break down. Most of the

48:17

trade in the world is by

48:19

sea. You know, we put stuff

48:21

on a boat, the boat floats so it's low friction, and

48:23

then you just give it a little nudge and it goes

48:26

across the sea, and then you can move really heavy stuff

48:28

here from place to place. Very cheaply. And

48:31

so the giant container ships we

48:34

always see, or the oil tankers,

48:36

whatnot. That is under threat from

48:40

breakdown of freedom of the seas. So right now we're

48:43

seeing the Houthis, which are, you know,

48:45

what's a Houthi? It's a militia in

48:47

Yemen. It's not a very power.

48:49

Yemen is not a rich state at all. It's

48:51

not a very powerful state, but you have a

48:54

very warlike militia located at

48:56

this strategic point, you

49:00

know, where the red

49:03

sea empties into

49:05

the Indian ocean. And

49:10

that carries a ton of commerce.

49:13

A ton of ships go through the Suez Canal

49:16

and then, you know, get out into

49:18

the Indian ocean, go to Asia. So massive trade

49:20

between Asia and Europe happens through the Suez Canal

49:22

and through the Red Sea. That

49:24

is now being interdicted by the Houthis, this

49:26

ragtag militia with a few missiles. That's

49:29

just a taste. That's a preview of what's

49:31

to come. China claims the

49:34

entire waters of the South China Sea and

49:36

will be perfectly happy to interdict trade by

49:38

anyone other than China if

49:41

they feel like it. You know, they want

49:43

power and dominance over people and restricting maritime

49:45

trade is an easy way to get that

49:47

if you control the sea around your region.

49:53

So we can see threats to seaborne

49:55

trade happening, obviously threats to digital trade,

49:57

although that's much smaller. And

50:00

then threats to land-born trade from an

50:02

airborne trade that's also pretty small. But

50:06

threats to land-born trade from basically land wars like the

50:08

Ukraine war. I am worried about

50:10

that more than I'm worried about tariffs or something

50:12

like that. Yeah. Yeah,

50:16

there's a related issue of free

50:22

movement of peoples across borders. Trade

50:25

is generally thought of as movement

50:28

of goods across borders. But immigration

50:30

is an

50:33

example of a more complicated trade flow

50:36

that brings other things with it. And of

50:38

course, we've had many, many episodes of this, we'll

50:40

link to some of them. But

50:43

what's interesting to me is that the

50:46

standard economic forces that

50:49

economists like us have been talking about for

50:52

decades are suddenly seen

50:54

as less important. They're

50:57

being dwarfed by

50:59

national and tribal

51:02

impulses, which is

51:04

much more understandable in the case of immigration

51:08

and emigration. It's

51:10

much more, I think,

51:14

the impulse to economic

51:17

nationalism is a very destructive one. Immigration,

51:19

I think, is more complicated. But the

51:21

idea of tariffs and quotas and

51:24

the idea of preserving your country's well-being

51:26

is I think just a total misreading

51:29

of the economic tea

51:32

leaves while conceding

51:34

that for certain groups that

51:36

economic trade can be harmful or

51:38

challenging in the short run. And

51:41

the political implications of

51:43

that I think are not small.

51:45

So I disagree with you a little bit. I think

51:48

the risks of economic

51:51

nationalism motivated by

51:54

groups that feel harmed correctly or

51:56

not by trade and who

51:58

do not easily reintegrate into a different part

52:00

of the, into the economy, because

52:02

they don't have the educational training

52:05

that they could have had. That

52:07

is a serious force that I think is,

52:10

is really unhealthy for for well

52:12

being and economic policy.

52:16

Right. And so so we're talking about immigration

52:18

restriction, I think we need to be fairly,

52:23

we need to put that in a bit of

52:25

perspective, because immigration is much more common now than

52:27

it was even just a few years. We,

52:30

if, if immigration gets restricted, it will

52:32

be restricted from an incredibly high base,

52:34

historically speaking, you go back to 1990

52:36

or 2005 or whatever, and

52:39

immigration will all the world over was much, much, much,

52:41

much less than it is now. And

52:43

part of that is because of some wars,

52:46

like the war in Syria, that caused refugee

52:48

flows, but most of it is simply due

52:50

to growth. So if

52:52

you read the, you know, migration and the

52:54

income and migration literature, you know, Michael Clemens

52:57

has a good survey paper on it, you'll

52:59

see a hump shaped pattern where in

53:02

a poor country, people can't move. In

53:05

a rich country, people don't want to move, but in,

53:07

but in a middle income country, they both want to

53:10

and can move. And so

53:12

there's a peak of out migration pressure. That

53:14

peak is somewhere around

53:17

$10,000 a person

53:19

per capita. Now, if you

53:22

look a lot of the world less than that, a lot of the world

53:24

has just reached that, you know, very

53:26

recently, and that is giving

53:28

them the ability to move. Now,

53:30

this is not the only factor. There's a lot of

53:32

other factors like fertility rates, which have dropped and continue

53:35

to drop pretty much everywhere. And, and

53:40

then, but what we've

53:43

seen is, you know, the current waves of migration

53:45

are not being driven by climate refugees, as many

53:47

people have predicted, it is not isn't a little

53:49

bit of it is being driven by war, some

53:51

of it's being driven by war. But

53:54

most of it's being driven by income, people

53:56

are able to move in a way that they were

53:58

previously not able at all

54:00

to move. And so they are

54:02

moving. And so when you talk about immigration restriction, you're

54:04

talking about, you know, it went up,

54:06

up, up, up, up. And now restriction threatens to do

54:09

that to it. But still, it will be way up

54:11

from where it was 10 years ago, 15 years ago,

54:13

way up. And so I'm

54:15

concerned about this for sure. But

54:18

I'm not panicking yet simply because

54:20

immigration continues to go up so

54:23

far. Well, let's

54:25

close and talk about what,

54:30

you know, is the, one of the

54:32

most extraordinary achievements

54:35

in, in economic well-being

54:37

in human history, which is the transformation that's

54:40

shared to living in the

54:42

two largest countries of the world, China and India. In many

54:46

ways, you know, if you look at, say, Asian

54:48

data, and even world data about,

54:50

say, the proportion of the world that lives on

54:52

less than a dollar a day or $2 a day, or if you

54:56

look at average share in the living or in the world, which

54:58

has been steadily improving our last

55:00

50 to 100 years, a

55:03

lot of it's driven by two data points, China

55:05

and India. The rest of the world

55:08

is growing, but they're growing so much

55:10

faster than, than most other places. What

55:14

do you think we should learn from that? I

55:16

would issue a small caveat there. I would

55:18

think that Southeast Asia has also experienced extremely

55:21

substantial growth. True. By

55:23

Indonesia, Vietnam, these countries are not super giants on their

55:26

own, but they add up to quite a lot across

55:28

the region. Fair enough. But so

55:30

I would say China, India, and Southeast Asia,

55:32

it's basically Asia that

55:35

is growing. What should we learn from that? What should we

55:37

learn from it? Well, you know, a

55:39

couple things. Obviously, China and India

55:41

experienced big spurts of growth and they liberalized

55:44

their economies. China in the

55:46

80s, and then later with a

55:49

big wave of privatizations in the 90s and

55:52

2000s. And India, primarily

55:54

in the 90s, also a little bit in the 80s,

55:56

but primarily in the 90s. liberalization

56:01

Really helped these countries a lot Explain

56:06

what you mean by liberalization. No, so

56:08

liberalization took a number of forms in China

56:11

The original way of liberalization under done basically

56:13

meant allowing people to buy and sell stuff

56:17

Just allowing markets the later

56:19

waves of liberalization under who Johnson

56:21

and who's in town were primarily

56:24

privatization Essentially

56:28

Soes were privatized and

56:30

a bit State-owned

56:32

enterprises. That's right state-owned

56:35

enterprises government-owned companies were

56:37

privatized that has been that is is

56:40

starting to reverse under Xi Jinping Um,

56:43

we are seeing uh state state-owned

56:46

enterprises Um grow at

56:48

the expense of at least nominally private

56:51

enterprise now in china but

56:53

for a long time we saw the exact opposite and

56:55

there was just just relentless

56:58

campaigns under Zhang

57:01

especially but also somewhat kujin tao to

57:04

privatize privatized privatize And

57:07

it was very successful That

57:10

didn't mean that the government no longer controlled these

57:12

companies because the chinese government If

57:14

if they want you to do something you're going to do it um

57:19

You could even say the same bottom the american government But

57:22

in terms of the initiative of what to produce and

57:25

when to produce it and you know, etc all that

57:27

stuff The the decisions on a

57:29

day-to-day basis were now being made by Independent

57:32

people with a lot of financial incentives to

57:34

grow their businesses And

57:36

so that um, there were some other things too. For

57:38

example, china established a lot of scz's special

57:41

economic zones That had a

57:43

lot of that had really low taxes By

57:46

the way, if you want, uh, if you like low

57:48

taxes, if you're a low tax person, you should love

57:50

china china has been a low tax

57:52

country since imperial days since

57:55

For at least a thousand years. They

57:57

have been a notoriously low tax countries And

58:00

this is sometimes come back to bite them. But

58:02

if you like low taxes, in fact, one reason

58:05

China is in trouble now from its economic slowdown

58:07

is, but we could talk about this another time,

58:10

is because real

58:12

estate sales were used in

58:14

lieu of taxes to fund government services.

58:17

And now real estate is going down

58:19

in price and no one

58:21

wants to buy the land from the local governments, they can't

58:23

fund their stuff. So the fact

58:25

they don't do property taxes is coming back to

58:28

bite them. But anyway, so that was what it

58:30

was in China. In India, the main

58:32

liberalization under Finance Minister Man-Man

58:34

Singh was

58:38

to dismantle

58:40

what they call the license raj, which is basically

58:42

just a bunch of red tape for starting businesses.

58:46

Basically, India made it easier to start businesses.

58:50

They never really had a communist, like

58:53

price control central planning system, but they had

58:55

like a massive thicket of regulations and this

58:57

and that. And then you just flash through

58:59

a lot of them. So it's primarily deregulation.

59:02

India has made some special economic zones, but it's not

59:04

just not nearly as expensive as China. So

59:07

it's not really low taxes. I just

59:09

wanna put a footnote on the China

59:11

discussion and you can let your respond to

59:14

it. The part of the problem

59:16

is we don't really have a

59:19

good understanding of the Chinese data. There

59:23

may not be 100% accurate. Underlying

59:27

a lot of these changes was

59:29

a massive hundreds

59:32

of millions of people, hundreds of

59:34

millions of people leaving the countryside

59:36

and coming to the cities in

59:39

search of better economic

59:41

opportunity that started. And

59:45

that transformation certainly improved

59:48

the material wellbeing of the people who migrated,

59:51

but it's a little deceptive because they

59:53

went from non-market activity that wasn't probably

59:56

well measured at all to

59:58

economic activity that was better measured. the

1:00:00

size of the change was probably

1:00:02

overstated. And then

1:00:04

finally, they're not exactly a market economy.

1:00:07

There is some more privatization, but there's still,

1:00:09

as you say, a lot of top-down control.

1:00:12

And defenders of that will say

1:00:14

that's the real reason that they have had

1:00:16

a higher standard of living. And

1:00:19

I would suggest that that's the real reason they may

1:00:21

struggle to maintain it. You know, I'm very- I agree

1:00:23

with you. No, go ahead. I

1:00:26

agree with you. I think

1:00:28

you're right. The

1:00:31

increasing- liberalization

1:00:33

and privatization is the biggest driver of China's growth

1:00:35

in the 80s, 90s, and 2000s. And

1:00:41

that Xi's reversal of this will not go

1:00:44

well, especially because Xi, I think, is

1:00:46

sort of a bumbler. He's

1:00:48

not incredibly competent. He's very, very good

1:00:50

at sort of controlling China and writing

1:00:53

herd on the Communist Party and getting

1:00:56

everyone to study Xi Jinping thought and blah, blah,

1:00:58

blah. He's great at domination, internal

1:01:00

domination. He's bad at doing anything

1:01:02

with that domination actually helped the

1:01:04

people of China. Belt and

1:01:06

Road has been a flop. The crackdown

1:01:08

on IT companies was a giant flop

1:01:11

and was reversed. Real

1:01:13

estate's an absolute disaster. And

1:01:16

he's just made various other errors as well, economically.

1:01:20

And so, you know, he has

1:01:22

his worshipper, he's like, she has

1:01:24

made China stronger, but they're wrong.

1:01:28

China was made strong by the efforts

1:01:30

of Deng Xiaoping and his handpicked successors,

1:01:32

Zhang Zemin and Hu Jintao. They're

1:01:34

the ones who made China strong. Xi

1:01:36

Jinping then came and basically appropriated their

1:01:38

success, rose to dominance in the system

1:01:41

they created and

1:01:43

has been eroding a lot

1:01:45

of the fundamental strengths of the system he

1:01:47

was bequeathed by Deng and his successors. Deng

1:01:49

is the great man of Chinese history. Let's

1:01:54

close with how

1:01:57

optimistic or pessimistic you are. It

1:01:59

always... I always find

1:02:01

it extraordinary that the

1:02:04

worst economic times, which in

1:02:07

the 20th century in America was

1:02:09

the Great Depression, and

1:02:12

in the 21st century in

1:02:14

America was the financial crisis

1:02:17

of 2008, they

1:02:20

tend to look like blips as

1:02:23

you pull back farther and farther from

1:02:25

the canvas. And that's

1:02:28

amazing, and I think it

1:02:31

tends to lead us to believe that

1:02:33

there's something natural about economic

1:02:35

growth. Economists

1:02:38

like to often, at least the ones I know often,

1:02:40

will point out, no, no, no, poverty is natural. Growth

1:02:44

is unusual. Growth is what's

1:02:46

to be exploring, not poverty, because poverty is, that's easy,

1:02:49

that's what you just sit around and don't do anything

1:02:51

differently. So given

1:02:54

the somewhat

1:02:56

cheering picture

1:02:58

of when you stand back

1:03:01

from the canvas, even the worst

1:03:03

of times seem to be overcome,

1:03:05

are you optimistic about the future

1:03:07

of economic well-being in the United

1:03:10

States and elsewhere and

1:03:12

its ability to continue to grow? I

1:03:14

am, I am optimistic. I

1:03:16

think that the long upward trend

1:03:18

is not universal. I think Japan's

1:03:21

living standards are stagnated. Italy has

1:03:23

stagnated. Britain's are starting to stagnate as

1:03:25

well. So I

1:03:27

do not think that this is a universal

1:03:29

tendency. In terms of

1:03:32

natural, I won't hesitate to say what is natural and what

1:03:34

is unnatural, because I'm not sure what that means, and it

1:03:36

would take a long time to think carefully about all the

1:03:38

things that that might mean. But

1:03:40

I'm very optimistic. I'm optimistic for a

1:03:42

number of reasons. Number one, technology seems to be going

1:03:44

strong. We are still investing

1:03:47

in research and development costs

1:03:49

a lot more than it used to, but we're still making

1:03:51

those investments by and large. And

1:03:53

there's just any number of fields in which

1:03:56

innovation is proceeding apace, like the

1:04:00

The dramatic decline in

1:04:02

the cost of solar power and batteries

1:04:04

is an absolute victory for

1:04:07

research and technological progress and is going to

1:04:09

give us cheap energy and for the battery

1:04:12

portable energy in a way that

1:04:14

we've never really had before. And

1:04:18

of course, if fusion works out, then that

1:04:20

will be just magnified even more. And

1:04:23

so that's incredible. Biotech is

1:04:25

advancing in ways that are so

1:04:28

multifarious and cool

1:04:30

and complex that it's difficult for me to

1:04:32

even describe it, but we're about to

1:04:34

have vaccines for cancer. That's

1:04:37

just one little piece of what's happening

1:04:40

in biotech. Humans

1:04:42

are being genetically engineered. That's pretty cool.

1:04:45

We have antibodies for

1:04:48

like inflammatory bowel disease now and

1:04:51

migraines. You can take

1:04:53

an antibody for migraines. I

1:04:55

did take it. I took it. It worked.

1:04:58

It's great. That's amazing.

1:05:02

And AI is pretty cool. We have computers that

1:05:04

can at least seem like they think. And

1:05:07

so that's all just amazing stuff. So that's

1:05:10

one reason. The second reason is that I

1:05:12

think globalization isn't done. I think

1:05:15

there's a huge wave of globalization coming

1:05:17

and it's South and Southeast Asia. It

1:05:19

is two billion people, which is bigger than China.

1:05:23

It is India, yes,

1:05:25

also Bangladesh, Indonesia, Philippines,

1:05:28

Vietnam, and a few other countries.

1:05:30

But it's primarily those countries that

1:05:32

is huge. Together that's like about

1:05:34

two billion people. India

1:05:37

is now the most populous country in the world. It's surpassed

1:05:39

China, which is now shrinking. And

1:05:44

now you may be

1:05:46

worried that decoupling and

1:05:49

derisking are distorting our

1:05:51

trade by oh no,

1:05:53

we're having a trade war with

1:05:55

China. But really decoupling and derisking

1:05:57

are all private initiatives so far.

1:06:01

Because countries are realizing the real risks of doing

1:06:03

business with China, companies are

1:06:05

realizing the real risks of doing business with

1:06:07

all countries too, of course. And so people

1:06:09

are getting out and where they're going, they're

1:06:12

going to South and Southeast Asia. They're

1:06:14

going to the rest of Asia. And

1:06:16

that is going to spur a massive

1:06:18

wave of globalization. Foreign

1:06:21

investors will be replaced in China by Chinese

1:06:24

companies that may

1:06:26

be a bit less efficient, but they'll be

1:06:29

replaced. But the foreign

1:06:31

investment that pours into India and

1:06:33

Indonesia and Vietnam and Philippines and

1:06:36

Bangladesh and these countries, that is

1:06:38

going to teach them

1:06:40

so much technology about how to make stuff.

1:06:43

And it is going to influence

1:06:45

the progress of institutions in

1:06:47

those countries because those

1:06:49

countries are going to realize, hey, if we

1:06:52

change our institutions in this and this and

1:06:54

that way to be favorable to these foreign

1:06:56

businesses, then we'll make more money because this

1:06:58

is how we make money now. And we've

1:07:00

seen this example happen time and time again.

1:07:03

We've seen countries like Poland and Malaysia not

1:07:05

just get vaulted into

1:07:07

the ranks of developed nations by

1:07:09

primarily by FDI. We've

1:07:11

seen their institutions improve. Foreign

1:07:13

direct investment. Foreign direct investment.

1:07:15

Yes. We've seen institutions improve along

1:07:17

with it, especially like Poland, which

1:07:20

is just now has effectively Western

1:07:22

European institutions. And

1:07:24

so I'm incredibly

1:07:27

optimistic. About the progress

1:07:29

about this wave of globalization, so

1:07:31

technology and globalization.

1:07:34

And I also believe that this the

1:07:36

same innovation will prevent us will save

1:07:39

us not from any negative

1:07:41

environmental impacts from climate change, but from

1:07:44

the worst impacts. I think that there's

1:07:46

a lot of people who are doomers

1:07:48

about climate. And if you look at

1:07:50

the evidence, that's not warranted.

1:07:53

The doomerism is just absolutely not warranted. So that's not

1:07:55

going to derail us. The thing I worry about is

1:07:58

war. The thing I worry about is great. power

1:08:00

war, especially nuclear war. War

1:08:03

between China and the United States would be the

1:08:05

absolute most catastrophic, but Russia, you can't

1:08:07

count them out. And

1:08:10

so I'm worried about that,

1:08:12

disrupting global trade, disrupting global

1:08:14

investment, redirecting the

1:08:16

progress of technology toward things that kill

1:08:18

people, although in World War II, we

1:08:20

did that, and then we built civilian

1:08:22

industries after the war using some of

1:08:24

those advances. But still, I'm worried about

1:08:26

what war could do to our world.

1:08:29

I think we became a little complacent

1:08:31

after World War II, because the

1:08:33

end of World War II was favorable

1:08:36

to global growth and really supercharged global

1:08:38

growth, but war doesn't have to end like

1:08:40

that. War can end in a bad way

1:08:42

that hurts global growth. And

1:08:44

so I'm worried about it, especially

1:08:47

if the nukes come out. So that's, I think, the

1:08:49

big risk. But other than that, I'm really optimistic. My

1:08:53

guest today has been Noah Smith. Noah, thanks for being

1:08:55

part of econ talk. Thanks so much for

1:08:57

having me back.