How Rich Countries Die

[gasull]

A book review of The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, by Mancur Olson.

Olson showed back in 1982 that modern macroeconomic theory was basically worthless in developed stable countries. Macroeconomics posits a free market in which wages and prices adjust dynamically. That applies to an ever-smaller sector of the U.S. economy. We have a rapidly growing governnment that directly or indirectly employs more than one third of our workers, many of whom are unionized. We have a health care system that consumes 16 percent of GDP and is staffed with doctors who restrict entry into the profession via their licensing cartel. The financial services sector is about 10 percent of the economy and they now tap into taxpayer money to keep their bonuses flowing in bad times. The automotive industry kept itself profitable over the years by successfully lobbying for import tariffs. When the profits turned to losses, they successfully lobbied to have taxpayers pick up those losses. A university-trained macroeconomist might be able to predict what will happen to babysitters in a depression, but not the price of cereal, the wage of a manufacturing worker, or the fate of those Americans who collect most of our national income (e.g., Wall Street, medical doctors, government workers).

[gasull]

Re: How Rich Countries Die

(Deleting duplicate post)

[ricket]

Re: How Rich Countries Die

A book review of The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, by Mancur Olson.

See the thing about free markets, is that people really have *no* control over them. We live in a free market whether people want to like/admit that or not. Eventually the "dollar bubble" and the financial manipulation is going to no longer work. The "free market" is quite alive and well and is going to take care of the US dollar and send it packing like all other previous fiat currencies that are only backed by the imperialistic plutocracy and the megalomaniacal desires that control that currency.

Of course, the sad and scary part is that they won't go into the night easily...

[K Carlson]

Re: How Rich Countries Die

Thanks for the excellent link. The author explained the apparent anomalies of the 1970s as well as the current crisis. It seems he was able to predict the future (our present day) with uncanny accuracy. He also provided useful guidelines for discovering profitable investment trends. I must read the book (oh no, another book).

[gasull]

Re: How Rich Countries Die

Thanks for the excellent link. The author explained the apparent anomalies of the 1970s as well as the current crisis. It seems he was able to predict the future (our present day) with uncanny accuracy. He also provided useful guidelines for discovering profitable investment trends. I must read the book (oh no, another book).

The most interesting (and depressing) part is the very end of the article:

Practical Value

What practical advice can an individual citizen draw from this book? On the surface, it would seem to be a useful investment guide. Short New York and California; go long on Alaska and Hawaii. Invest in countries that have recently gone through a revolution or are recovering from an invasion (Cuba? Iraq?). One problem with the latter strategy is that instability itself makes it tough for an investor to make money. Only in hindsight do we know that World War II was the last war to rage through France and Germany during the 20th Century or that Red China’s conversion to running dog capitalism would last for decades.

How about as a guide for voting? Olson suggests that a rational voter should remain as ignorant as possible about politics and policies. Even if special interests manage to siphon off 80 percent of the voter’s income, the voter is better off devoting his or her energy to earning more rather than attempting to change the system (likely to require full-time effort, reducing income to $0, and be futile because the voter has no money compared to the special interests). If we ever had the opportunity to vote for something that would restrict the influence of lobbyists and special interests, we should do it, but Olson would predict that such an opportunity will never arise.

One thing an individual can do is choose where to live and in which industry to work. The logical conclusion from reading this book is to prefer a new state to an old state, a newly stable state to a long-stable state, and a new industry to an old one. The worst thing that a young person could do, for example, would be to move to Michigan to work for G.M.’s automobile division. The second best thing would be to move to Alaska or an up-and-coming foreign country and work to extract some new kind of energy. The very smartest choice would be to move to Washington, D.C. and work as a lobbyist for a decaying industry that is bleeding the U.S. economy and taxpayer…

[cjppjc]

Re: How Rich Countries Die

Who the f... wants to move to Alaska?

[BadJuju]

Re: How Rich Countries Die

Who the f... wants to move to Alaska?

Et tu, cjppjc?

[cjppjc]

Re: How Rich Countries Die

Et tu, cjppjc?

You don't live in Alaska.

[BadJuju]

Re: How Rich Countries Die

You don't live in Alaska.

I would consider moving to Alaska! :mad::p

[cjppjc]

Re: How Rich Countries Die

I would consider moving to Alaska! :mad::p

You are a little younger than me.

[doharra]

Re: How Rich Countries Die

Ahem. The view from my (paid-for) Alaska home this morning is fabulous. I may not be able to see Russia, but I can see the four inches of fresh powder snow that made skiing such a pleasure yesterday.

What is else good about living in Alaska this morning?

Redoubt Volcano erupted last night, but the ash appears to be blowing away from Anchorage. (For now.)

The local paper reports Alaska unemployment is relatively low with little sign of recession. (For now.)

And there's always a chance Gov. Sarah will send us all another $1,200 "energy rebate" to spend on new fishing gear or heavily discounted flat panel HDTVs. Combine that with the 2008 Permanent Fund dividend of $2000, every Alaska family of four took in about $12,800 last year. Those stimulus jockeys in Washington got nothing on Alaskans....

[World Traveler]

Re: How Rich Countries Die

There is wisdom in these words, at least based on my personal experiences.

"One thing an individual can do is choose where to live and in which industry to work. The logical conclusion from reading this book is to prefer a new state to an old state, a newly stable state to a long-stable state, and a new industry to an old one."

In 1975, I moved to Houston from the Mid West, mainly to get away from the cold. But I was deliberate in choosing the warm state I moved to. I picked Houston and Texas, because at the time it had one of the best job markets in the country ('70's oil boom). Getting a job was very easy - I should know, because I had lots of different jobs my first 2 years there.

In 1976, I decided to go back to school at U of Houston and get the glamor degree of the decade, an MBA, and go into an exciting, growing new field, Information Technology, where the job prospects looked good. By 1979 I had an MBA in MIS and 6 job offers.

In the mid-1980's, when oil went BUST in a big way, the major oil company I worked for kept on almost all the IT staff, because it saw additional computerization of many business functions as a way to save money. While they were laying off chemical and petroleum engineers. Long story short, I kept my job while lots around me in Houston were losing theirs!

[K Carlson]

Re: How Rich Countries Die

The most interesting (and depressing) part is the very end of the article:

You are right; the end is very depressing, especially the paragraph on "a guide for voting?". Olson paints a dire picture of the ability of one voter to affect any meaninful change against rich, powerful and vested special interest groups. I am sadly coming to the conclusion that he is correct in his assertion that the "voter is better off devoting his or her energy to earning more rather than attempting to change the system (likely to require full-time effort, reducing income to $0, and futile because the voter has no money compared to the special interests).

In my own little life, I have attempted limited political action and have achieved a failure rate of 99%. After researching intelligent sites (iTulip, Baseline Scenario, Nouriel Roubini, Naked Capitalism, Eurointelligence, Macro Man, and many others) and spending every waking free moment online, I felt I had the necessary facts and figures to present a compelling case for political change. The many emails to Congress were a waste of time. Then two grassroots political action groups sprouted--one liberal (national protest on April 11) and one conservative (Tea Parties on April 15). I approached both my liberal and conservative friends who were vocal during the election campaigns, but only one person agreed to attend.

The only time I have personally seen the public good triump over the special interests is when I lived in a small beach town in Southern California. The developers wanted to build ugly, high-density apartments and condos along the water-view properties. They always attended every single council meeting, waiting for the opportunity to vote in their agenda. However, their plan was foiled because the grey panthers were always there in greater force. They had the time, the will and the focus to protect the rest of us. IMHO, organized consumer-type groups are the only chance we have.

An interesting aside: one of the posters, Aaron Krowne made a iTulip-like statement.

"One might also conclude from it that an inflationary money system is a very bad thing to implement, as it allows special interest groups to indirectly claim the wealth of the rest of society (redistribute it) in a manner nearly impossible for most to recognize.

In fact, I had observed a while ago that the unemployment rate (when honestly assessed) seems to eerily mirror the rate of inflation in a particular country. (Note for example that the unemployment rate is very low in the Swiss Confederation, was nonexistant in Hong Kong before the Dollar peg and was under 3% in the US before the Great Depression...)

What I had been missing was the delivery channel between monetary expansion and unemployment. I ascribed it to the vague force of "malinvestment". I still think that is correct; however, Olson fills in much more detail--perhaps the greatest malinvestment enabled by expansionist monetary policy is the opportunity gained by interest groups to insulate themselves from competitive market forces."