I’m halfway through The Industrial Revolution by Patrick Allitt, a historian who was born in England and got a Ph.D. at U.C. Berkeley (so he knows both sides of the Atlantic quite well).
His short explanation for the American Civil War is that it was primarily over tariffs, which benefitted the industrial North and harmed the agricultural South.
Tariffs and trade wars are back in the news these days. Will higher tariffs lead to internal political discord within the U.S.? If so, how will the lines be drawn? The North-South split no longer makes sense when it comes to manufacturing. This map shows that Alabama and the Carolinas have a larger share of their economies devoted to manufacturing than New York or Massachusetts.
Separately, the historian says that immigration to the U.S. (mostly from southern and south-eastern Europe) and to England (mostly from Ireland) resulted in lower wages for industrial workers, often down to the subsistence level. Also that U.S. workers found it impossible to unionize and gain political influence to the same extent as workers in England because of the continuous flow of immigrants and lack of shared culture. Today, of course, we have voters who say that they support both expanded immigration and expanded unionization and/or higher compensation for union workers. The lectures suggest that these two goals cannot be achieved simultaneously.
Finally, the professor talks about how the industrial revolution led to a shift in economic philosophy. In a primitive society, he says, people have a no-growth mindset. The only way that people can get wealth is by taking it from others. Therefore there cannot be social harmony unless the rich people are constantly giving gifts to the average member of the society. In the 19th century, however, there was a shift to a growth mindset in which people expected to become wealthier via an expanding pie, not by fighting someone else for a piece. Somehow, at least in the U.S., politicians have brought a lot of voters back to pre-industrial thinking such that they’re obsessed with the gifts (taxes) being provided by rich people.
That’s in interesting perspective Philip.
What’s your opinion on the tariffs?
As a Canadian, watching the NAFTA negotiations deteriorate and now tariffs implemented, it seems we’re going in the wrong direction if we want to create a world of expanding opportunity.
Personally, I’d like to see a bigger focus on sustainable economics. When I say that, I mean an economy that is not dependent on growth to be stable. That requires individuals, companies, and governments to operate within their means. Increasing debt requires us to increase our capacity to pay the interest or the whole house of cards falls down.
Consume less. Be sustainable. Coincidentally, this also reduces the impact tariffs have.
When I first read (a few years ago) that the South faced tariffs on exports of cotton I was unable to process the information. It was inconceivable to my twenty-first century mind that a state would discourage exports in such a fashion.
I am hearing more and more rumblings about civil war. It would be terrible. Orson Scott Card speculated on it in his 2006 novel, Empire. The 19th Cenury Civil War took no one by surprise. I suspect Card was right in seeing the next one proceed as more of a sudden coup by the techy Left.
Dave: What’s my personal opinion on tariffs? The services that I offer, such as filght instruction and teaching in-person classes, do not compete with imported goods. Domestic senior management works for a pharma company whose profits are mostly derived from the U.S. government’s decision to spend nearly all of our money on health care. Thanks to regulatory barriers, non-generic pharma does not need to compete with imports. So it would make sense for me to be opposed to tariffs, which would reduce our family’s standard of living by increasing the cost of stuff that we consume.
Should I spin my personal interest into a virtuous Facebook-style post about how the whole country will be better off if Econ 101 is implemented unilaterally and the U.S. eliminates tariffs on imported goods? I don’t want to be like a Hillary supporter and advocate for my personal interest on the grounds that it will help everyone!
On the third hand… there is Econ 101. The U.S. cannot manufacture a decent screwdriver, but we have oil, so it makes sense to import screwdrivers from https://www.wihatools.com/ and sell oil to the Germans. So I think that trade without tariffs can make us all better off.
I agree with you on the debt/sustainability stuff. Though I think a proper analysis under Econ 101 would cause us to eliminate policies that encourage population growth. There is a cost to congestion, especially in a country that is unable to build infrastructure at a reasonable price. If we added an infrastructure construction and maintenance cost to every immigrant, for example, we would quickly realize that every immigrant with less-than-exceptional skills and education makes us poorer. (see https://philip.greenspun.com/blog/2017/04/12/how-much-would-an-immigrant-have-to-earn-to-defray-the-cost-of-added-infrastructure/ ) We would presumably also eliminate all of the various handouts that we provide to Americans who have children (so I would have to start paying taxes at the same rate as a childless resident of the U.S., for example!). The current system of requiring population growth to pay debt (because we don’t have enough per-capita economic growth) has to fall apart eventually.
(But by “fall apart” I don’t mean in the sense of catastropic environmental or economic collapse. Mostly I mean that the median American will experience living in a cramped space, sitting for hours in traffic jams, waiting in lines for everything, etc. We will have Chinese-style population density, lower-than-Chinese levels of IQ, and therefore, eventually, lower-than-Chinese levels of consumption.)
I just read a fantastic Atlantic Monthly article https://www.theatlantic.com/magazine/archive/2018/06/the-birth-of-a-new-american-aristocracy/559130/ “The 9.9% is the New American Aristocracy”. I think this article spells out the seeds of discontent. It is not trade or tariffs that are making this generation angry. It is a basic understanding that the 90% are being crushed financially and socially, as the top 10% prosper and move to higher levels of income. The American Dream of home or condo ownership is slipping away as prices move out of the range of most Americans. The discontent is fermented in inequality, but the real fighting begins when citizens are mistreated, by violent police suppression, by social snubs and hateful comments, by abuse by the rich at the expense of the poor. It is rooted in the fact that the top 10% participate in a high education, high wage, high speed economy and the bottom 90% are left to languish on whatever handouts they get from a government which is currently not in the mood to help the poor. I believe society is also “splintering” into smaller groups as we have lost our national identity as Americans. If you ask the top 10% what it means to be an American vs the lower 90%, you will get radically different answers. Finally, I agree with a prior poster that debt, which allowed to top 9.9% to outpace their 90% rivals, to borrow and get the better education, to move to nicer neighborhoods, and have a comfortable life at a lower cost will be the undoing of society and government and the larger and larger debt service become unsustainable. The government and it’s people are in a knowledge arms race which will eventually make the 9.9% into 4.9% then 1.9%. Automation will make the 90% unnecessary. We will end up with a Police state and loss of the freedoms we have held for almost 242 years. For the bottom 90%, they cannot improve their lot as they won’t be paid more and can’t afford the interest charges to borrow more. I think there is no solution short of major war (where everyone is drafted into service and all are treated poorly), or depression where everyone is poor together. Or we can have a Civil war and destroy ourselves. Government gives unfair advantages to the rich which evade inheritance tax through trusts and corporations. Forget raising the inheritance tax, most of those with 10-20 million in net worth already have trusts. Tax the movement of money and you control the rich. But, then they just move it to another country with less taxes. England tried and failed. So, if you can, make your money, put it into gold (or crypto), guns and land. And hope you survive.
Glen: Thanks for the link. I wrote about this article in http://philip.greenspun.com/blog/2018/05/17/atlantic-you-need-not-be-in-the-1-percent-to-be-part-of-the-problem-anymore/
How much of your analysis is just a function of population growth, especially due to immigration and children of immigrants? If the population were the same as in 1970 (205 million), would a house or apartment be unaffordable? If the population had remained at around 205 million, would it be as tough to get into college? When I applied to MIT in the 1970s, for example, the acceptance rate was nearly 50%. Today it is closer to 8%. If the population were the same as in 1970, would low-skill American workers still get the same low wages? (see https://www.politico.com/magazine/story/2016/09/trump-clinton-immigration-economy-unemployment-jobs-214216 for how the costs of immigration are primarily borne by America’s lowest earners (another good example of why Americans are better off on welfare rather than working at a below-median-pay job!)).
Taxe rates are too low? Certainly compared to the Jimmy Carter years tax rates are lower, but our tax rates are higher than in a lot of other countries (including the UK, and dramatically higher than in Singapore or Estonia). It is unfair that our estate tax is where it is? Does that mean life is even more unfair in the countries that have no estate tax at all (see https://taxfoundation.org/estate-and-inheritance-taxes-around-world/ and also http://nomadcapitalist.com/2018/05/17/how-to-avoid-estate-taxes/ )? Life was completely unfair before the American Revolution when the government collected only about 2 percent of income in tax? (At least for those Americans held as slaves I think we can agree that life was less fair back then, but what about for the ordinary farmer or shopkeeper?)
If the population of the country was 205 million, the GDP would be much smaller as well. I am for immigrants who work and pay taxes, but not ones who net cost the country. It is an ROI calculation for me. The national debt per capita would be much larger, but it is pure speculation because without immigration maybe we would have less debt. For sure. economic growth would have been much slower, and we might have fallen into recession more frequently. It is clear that our hyper-accommodative monetary policy drives inflation to encourage accumulation of debt and raises property prices. As for fairness, it is fairly subjective. The country has had a clear bias against labor and towards capital, and that has gotten use where we are at. Hard assets are more important than people. A 9.9%er is worth about 3 million on an actuarial table, and people below 90 are worth some multiple of what they earn (or can earn). The technology exists today to train Americans and to screen immigrants better, but politics limit the effectiveness of that technology. I’m not saying we need higher taxes, I’m saying that all parts of the government need to spend their money better. We lost billions to bribe local warlords in Iraq, Money that probably ended up in black ops programs. After Iraq, we could have split the country Shia, Sunni, and Kurd and left. Let them work it out and stop wasting our money creating a government between 3 groups who didn’t want to be together anyways. We spend money like it’s worthless and then just rack up the debt. Personally and in government. And every dollar will be paid off, or we will be owned by another country.
The 9.9% Atlantic article got it right on blaming society’s inequities on regulatory capture. $900/hour patent attorneys do not speak of a society that innovates, but rather on a society that ties the natural human instincts to adapt, copy, improve, and invent into so many legal knots that we bind genius rather free it.
Where the Soviets created economic inefficiencies by limiting the money supply and setting price ceilings, we create them with easy credit, excessive subsidies, and price floors.
Automated computation and improved telecommunications should have made finance and insurance and real estate (FIRE) more efficient, yet they take up more and more of our GDP.
Sales and income and payroll taxes create economic inefficiencies just as surely as tariffs do.
I fear our country becoming another Rwanda, where ethnic animosities erupt in sudden and terrible violence. We are importing our executioners.
Tariffs are a part of the rent-seeking economy, they allow inefficient companies and to compete against efficient companies. More and more of our economy worldwide is mainly rent-seeking, not expanding resources or energy. For example in the province of BC in Canada, the real-estate rent seeking economy is 18.36% of the BC GDP (ref. 2017 Statistics Canada report). Investing in real-estate in BC, has a much better return than say investing in LNG, which has been brought to a halt by special interest groups or in a company like General Fusion, working on a commercial nuclear fusion reactor.
Investing in expanding societies energy and resources is not as financially rewarding as rent-seeking. It is too difficult to innovate, and has lots of risk, it is much easier and less risky to hire a lobby group to add a tariff on your competitors goods. If you make widgets and you have a competitor that also makes widgets, just get a tariff on their widgets and problem solved.
As for the explaining the madness of an exponential expanding economy, here is a good link:
“Exponential Economist Meets Finite Physicist”
https://dothemath.ucsd.edu/2012/04/economist-meets-physicist/