I was struck yesterday by a post on Ann Althouse’s blog, and by a Virginia Postrel piece that makes the same point, how wrong Obama was to say “You didn’t build that..”
The incident, so characteristic of this leftist ideologue president, is the stimulus for theorizing about how economies work, and perhaps why this one is so stuck with Obama in the White House.
There is an excellent analysis by David Warren printed last years in Canada and which I have saved. It is a comparison of Obama with Gorbachev and brings considerable light on the subject of success of nations.
Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.
Gorbachev seemed to assume, right up to the fall of the Berlin Wall and then beyond it, that his Communist Party would recover from any temporary setbacks, and that the long-term effects of his glasnost and perestroika could only be to make it bigger and stronger.
There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.
This brief discussion fits well with the book that was recommended by the Postrel piece.
The Bad History Behind ‘You Didn’t Build That’
By Virginia Postrel Aug 2, 2012 4:05 PM PT
The controversy surrounding President Barack Obama’s admonishment that “if you’ve got a business — you didn’t build that. Somebody else made that happen” has defied the usual election-year pattern.
Normally a political faux pas lasts little more than a news cycle. People hear the story, decide what they think, and quickly move on to the next brouhaha, following what the journalist Mickey Kaus calls the Feiler Faster Thesis. A gaffe that might have ruined a candidate 20 years ago is now forgotten within days.
Three weeks later, Obama’s comment is still a big deal.
Although his supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn’t reassuring. Whatever the meaning of “that” was, the president on the whole was clearly trying to take business owners down a peg. He was dissing their accomplishments. As my Bloomberg View colleague Josh Barro has written, “You don’t have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements.”
Hectoring Entrepreneurs
The president’s sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants — Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn’t simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.
“Bourgeois Dignity” is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today’s buying power), to the current global average of $30 — and much higher in developed nations. (McCloskey’s touchstone is Norway’s $137 a day, second only to tiny Luxembourg’s.)
That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book’s subtitle: “Why Economics Can’t Explain the Modern World.”
“Economics of a material sort can surely explain why Americans burned wood and charcoal many decades longer than did the forest-poor and coal-rich people of inner northwestern Europe. It can explain why education was a bad investment for a British parlor maid in 1840, or why the United States rather than Egypt supplied most of the raw cotton to Manchester, England,” writes McCloskey, a professor of economics, history, English and communication at the University of Illinois-Chicago, and of economic history at Gothenburg University in Sweden. But the usual stories of utility maximization and optimal pricing “can’t explain the rise in the whole world’s (absolute) advantage from $3 to $30 a day, not to speak of $137 a day.”
The book argues that economic success is as much psychology as economics and that economics is far less objective than it’s proponents would like to think. She goes into the attitude of society toward “trade” in the period of the Enlightenment. Much of what we think of a middle class began in the Netherlands, a protestant enclave nominally ruled by Catholic Spanish and next door to Catholic France. The Revocation of the Edict of Nantes by Louis XIV in 1685, is often believed to have sent the Industrial Revolution to England with the Huguenots. The result was a period of stagnation of French industry and science that ended only with the Franco-Prussian War of 1870. Napoleon attempted to reverse the effects but lost his wars.
She uses some of the ideas of economic historian Joel Mokyr who I consider a major source on economic history of the middle ages and of other countries, like China.
“Something besides thrifty self-discipline or violent expropriation must have been at work in northwestern Europe and its offshoots in the eighteenth century and later,” she writes. “Self-discipline and expropriation have been too common in human history to explain a revolution gathering force in Europe around 1800.”
Besides, as economic historians discovered in the 1960s, the economic takeoff didn’t actually require large amounts of capital. Early cotton mills, for instance, were relatively cheap to set up. “The source of the industrial investment required was short-term loans from merchants for inventories and longer- term loans from relatives — not savings ripped in great chunks from other parts of the economy,” McCloskey writes. “Such chunk-ripping ‘capitalism’ awaited the Railway Age.”
There had always been enough capital. What was different, she maintains, is how people thought about new ideas. Creative destruction became not only accepted but also encouraged, as did individual enterprise. “What made us rich,” she writes, “was a new rhetoric that was favorable to unbounded innovation, imagination, alertness, persuasion, originality, with individual rewards often paid in a coin of honor or thankfulness — not individual accumulation restlessly stirring, or mere duty to a calling, which are ancient and routine and uncreative.”
Mokyr has made the point that the Industrial Revolution could have occurred in Roman times since a working steam engine existed in the first century AD. The reasons it did not occur resulted from laws about inventions and patents, private property and, perhaps, the psychology she refers to in this book. In 1789, Antoine Lavoisier, the father of modern chemistry and a hated “tax farmer,” was executed after the revolutionary tribune declared, “”La République n’a pas besoin de savants ni de chimistes ; le cours de la justice ne peut être suspendu.” (“The Republic needs neither scientists nor chemists; the course of justice cannot be delayed.”)”.
Perhaps he was correct. The scene of revolutionary France was not ready for scientists. A good many emigrated to the American colonies, like Joseph Priestly who was forced to flee England for his life and settled in Pennsylvania where he was safe.
The controversial nature of Priestley’s publications combined with his outspoken support of the French Revolution aroused public and governmental suspicion; he was eventually forced to flee, in 1791, first to London, and then to the United States, after a mob burned down his home and church. He spent the last ten years of his life living in Northumberland County, Pennsylvania.
Her argument in the book is that it is not really capitalism nor the free market that brings our success as a society in monetary terms. It is more the psychology that allows and rewards those who adopt trade and manufacture as their source of living. She writes, “The key economic event of modern times is instead a Revaluation of Bourgeois behavior, an increased if sometimes embarrassed acceptance by others and by themselves of the bourgeois virtues– the rebuking, laughing, buying, selling so far from glittering deeds. As the historian Joyce Appleby put it in 1978, speaking of the late 17th century, and after the middle class in England “coalesced with rather than displaced the existing ruling class.”
‘Social change requires not a new class but a modern class, however formed. The result was the astonishing growth of wealth that has been repeated since the Second World War by societies as diverse as India and China.
I think I would add Paul Johnson’s opinion that capitalism was invented by the medieval Jews as a way to preserve their property in the face of ferocious opposition. The Jews had a lot to do with the development of modern finance and that is one reason why they still exist as a people
The present day attacks by the ruling class, who resemble so much the former ruling classes in ancien regime France, on industry and thrift by the middle class makes this treatise even more timely. We as middle class people are faced with a near hereditary ruling class that has no idea how to create wealth except by the equivalent of tax farming. Understanding how we got here is a considerable value. I am reading this book in an attempt to educate myself. I wish I could interest my children in also doing so.
Tags: economics, politics, Republicans