Nation Fail

Why are some countries rich and others poor? This is a question that has bedeviled economists for centuries. A new book that attempts to explain this discrepancy is getting a lot of attention - Why Nations Fail by Daron Acemoglu and James Robinson. This book by two prominent economists ambitiously attempts to answer that fundamental question. Their answer, in a nutshell, is that some countries develop inclusive political institutions that lead to inclusive economic institutions where anyone has a fair shot at succeeding. Poor counties, by contrast, have political structures ruled by oligarchs, often family-centered, and thus develop extractive economic institutions, where economic growth is siphoned off by the elites for their own benefit, so people see no use in trying to get ahead. That's a vast oversimplification, of course, and I have not yet read the book. Matt Yglesias has a good summary of what this is like in practice:

The basic framework of the book is to lay out the relationship between economic institutions and political institutions. Some countries (Canada, Denmark, Japan) have "inclusive" political institutions and consequently develop "inclusive" economic institutions. When your economic institutions are inclusive, everyone gets a chance to go to school and learn, everyone has a chance to switch jobs or start a new business, and everyone has the opportunity to save and invest. But where countries have "extractive" political institutions they end up with "extractive" economic institutions. The president's wife's brother's son gets an exclusive license to import exercise machines (mostly used in hotel gyms since local people are too poor to use them) and earns a nice living do so free from competition. Eventually some eager beaver comes along and says, hey if this other guy is earning monopoly rents importing exercise machines then I'll just build some here domestically. But the eager beaver is naive. The exclusive import license isn't a coincidence, it reflects the president's wife's brother's son's privileged position in the political system. Smart hoteliers will know better than to buy from a competitor since it will only buy them regulatory trouble. Smart bankers will know that the new business is doomed and won't lend him money and even if it weren't doomed, lending him money would only buy them regulatory trouble. Eventually, the eager beaver's savvier wife will explain to him why the plan is doomed. Absent opportunity, human and physical capital stagnates and ambitious people focus their attention on climbing the ladder of corruption. Even if the President realizes that on some level he's running a counterproductively dysfunctional system, he knows that if he starts threatening the economic privileges of the people he counts on to support the regime that his own base will vanish.

So that's the story. To get rich you need to either land on a bunch of oil (Qatar) or else have the kind of inclusive institutions that allow for "creative destruction" and widespread opportunity. They don't deny that countries with extractive institutions (the Soviet Union in the 1950s, China in the 2000s) can grow rapidly, but this kind of extractive growth isn't sustainable.

Two Cheers for Growth Under Extractive Institutions (Slate)

There seems to be widespread agreement on this fundamental thesis, but according to to some others it overlooks a number of other key points, points where one would expect conventional economists to have blinders. As this review points out, you can't just talk about "property rights" without pointing out that who has property and how it's distributed matter a great deal too:

The authors place enormous emphasis on property rights, for example. But property, too, is fundamentally a political matter. The aristocrats who seized common land in 18th century England did so because they controlled parliament. They violated centuries of custom and practice because they could. The settlers who created a society of independent farmers in the American colonies did so because those very same English aristocrats were too far away to stop them. The violation of property rights in North America promoted widespread prosperity because it shifted economic opportunity from the few to the many.

And the exploitation of certain nations through "free trade" matters too:

The Koreans were strong enough politically to protect their native industries from foreign competition until they were able to compete. And rather than allowing domestic producers to enjoy easy profits behind tariff barriers, Korea's political elite drove them to modernise and export. All rich industrial countries have followed a similar path. In countries where the majority are poor, on the other hand, foreign interests often work with local elites in an arrangement that suits them both - but is a disaster for everyone else. Industry is strangled at birth and vast mineral and oil wealth finds its way offshore. It is odd that the authors don't feel able to set this out in plain terms.

This review concludes, pointing out that the wealth of countries is based on political factors, and these factors can change:

But the book is correct on the key point: Economic development is determined by political factors. We should all be relieved that the economics establishment is finally willing to acknowledge the fact.

And of course the point has implications for countries that have achieved general prosperity. In Europe and North America inequality has been growing for the past generation or so. In the United States, median hourly earnings have scarcely increased in real terms since 1972. Stock markets and executive pay, on the other hand, have boomed. More widely, in the rich, industrialised world, the percentage of GDP captured by all workers in the form of wages fell from 75 per cent in the mid-1970s to 66 per cent in the first decade of this century. For a generation now, the owners and controllers of capital - the financial sector in particular - have secured the lion’s share of the new wealth.

This steepening inequality is not inevitable; it is a political achievement. Like their ancestors in 18th century England, successive governments have crafted legislation and distributed state patronage in the interests of the wealthy and the well connected. The unions have been stripped of bargaining power and large companies have shifted both production and profits offshore. The state has paid for technology and then given it to private corporations. This new technology has reduced the need for unemployment and boosted profits. Meanwhile, the tax levied on large companies and rich individuals has fallen, and the rest of us have had to make up the shortfall through increases in sales taxes and cuts in public services.

Why nations fail (Al Jazeera)

One of the best reviews was by the noted scientist Jared Diamond, author of Guns, Germs and Steel, and Collapse. He sums up the authors' thesis in this way:

In particular, [the authors] stress what they term inclusive economic and political institutions: “Inclusive economic institutions…are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish.” ...Such inclusive economic institutions in turn arise from “political institutions that distribute power broadly in society and subject it to constraints…. Instead of being vested in a single individual or a narrow group, [inclusive] political power rests with a broad coalition or a plurality of groups.”...Inclusive economic and political institutions provide individuals with incentives to increase their economic productivity as they think best. Such inclusive institutions are to be contrasted with absolutist political institutions that narrowly concentrate political power, and with extractive economic institutions that force people to work largely for the benefit of dictators....While absolutist regimes with extractive economic institutions can sometimes achieve economic growth, that growth is based on existing technology, and is nonsustainable and prone to collapse; whereas inclusive institutions are required for sustained growth based on technological change. One might naively expect dictators to promote long-term economic growth, because such growth would generate more wealth for them to extract. But their efforts are warped, because what’s economically good for individual citizens may be bad for the political elite, and because economic growth may be best promoted by political institutions that would shake the elite’s hegemony.

He cites historical examples:

For example, in South Korea but not in North Korea people can get a good education, own property, start a business, sell products and services, accumulate and invest capital, spend money in open markets, take out a mortgage to buy a house, and thereby expect that by working harder they may enjoy a good life....South Korea recently, and Britain and the US beginning much earlier, do have broad participation of citizens in political decisions; North Korea does not. ..The ultimate development of inclusive political institutions to date is in modern Scandinavian democracies with universal suffrage and relatively egalitarian societies. However, compared to modern dictatorships (like North Korea) and the absolute monarchies widespread in the past, societies (such as eighteenth-century Britain) in which only a minority of citizens could vote or participate in political decisions still represented a big advance toward inclusiveness.

In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors.

Diamond goes on to list those factors:

1. Some regions are richer because they literally had a head start. Large-scale agriculture - and the institutions that are created from it including civilization itself - happened much earlier in certain parts of the world with various natural advantages.

The various durations of government around the world are linked to the various durations and productivities of farming that was the prerequisite for the rise of governments. For example, Europe began to acquire highly productive agriculture 9,000 years ago and state government by at least 4,000 years ago, but subequatorial Africa acquired less productive agriculture only between 2,000 and 1,800 years ago and state government even more recently. Those historical differences prove to have huge effects on the modern distribution of wealth.

2. In areas colonized by European powers where native populations remained to exploit, the conquerors developed extractive institutions. In placed where Europeans had to do their own work, they created ones that rewarded hard work. Countries that are rich in mineral, agricultural or fossil fuel wealth are often paradoxically poor. This is because they are more likely to have extractive institutions put in place by societal elites. Countries without such resources realize that the only path to riches is to develop their human capital, and so create institutions to allow this to flourish (good schools, honest legal system, skilled bureaucrats, meritocracy etc.):

...in formerly rich countries with dense native populations, such as Peru, Indonesia, and India, Europeans introduced corrupt “extractive” economic institutions, such as forced labor and confiscation of produce, to drain wealth and labor from the natives. But in formerly poor countries with sparse native populations, such as Costa Rica and Australia, European settlers had to work themselves and developed institutional incentives rewarding work...The extractive institutions retarded economic development, but incentivizing institutions promoted it.

3. Tropical countries tend to be poorer because there are more tropical diseases like malaria and parasites that affect the population.

Tropical diseases differ on average from temperate diseases, in several respects. First, there are far more parasitic diseases (such as elephantiasis and schistosomiasis) in tropical areas, because cold temperate winters kill parasite stages outside our bodies, but tropical parasites can thrive outside our bodies all year long. Second, disease vectors, such as mosquitoes and ticks, are far more diverse in tropical than in temperate areas. Finally, biological characteristics of the responsible microbes have made it easier to develop vaccines against major infectious diseases of temperate areas than against tropical diseases; we still aren’t close to a vaccine against malaria, despite billions of dollars invested. Hence tropical diseases impose a huge burden on economies of tropical countries.

4. Tropical countries tend to be poorer because their agriculture is less productive overall:

First, temperate plants store more energy in parts edible to us humans (such as seeds and tubers) than do tropical plants. Second, diseases borne by insects and other pests reduce crop yields more in the tropics than in the temperate zones, because the pests are more diverse and survive better year-round in tropical than in temperate areas. Third, glaciers repeatedly advanced and retreated over temperate areas, creating young nutrient-rich soils. Tropical lowland areas haven’t been glaciated and hence tend to have older soils, leached of their nutrients by rain for thousands of years. Fourth, the higher average rainfall of tropical than of temperate areas results in more nutrients being leached out of the soil by rain. Finally, higher tropical temperatures cause dead leaves and other organic matter falling to the ground to be broken down quickly by microbes and other organisms, releasing their nutrients to be leached away. Hence in temperate areas soil fertility is on average higher, crop losses to pests lower, and agricultural productivity higher than in tropical areas.

5. Some countries have easy access to water to participate in global trade while others lack access:

It costs roughly seven times more to ship a ton of cargo by land than by sea. That puts landlocked countries at an economic disadvantage, and helps explain why landlocked Bolivia and semilandlocked Paraguay are the poorest countries of South America. It also helps explain why Africa, with no river navigable to the sea for hundreds of miles except the Nile, and with fifteen landlocked nations, is the poorest continent.

6. Some counties irreparably damage their natural resource base, leading to cycles of poverty:

Countries that excessively deplete their resources—whether inadvertently or intentionally—tend to impoverish themselves, although the difficulty of estimating accurately the costs of resource destruction causes economists to ignore it. It helps explain why notoriously deforested countries—such as Haiti, Rwanda, Burundi, Madagascar, and Nepal—tend to be notoriously poor and politically unstable.

He takes the authors to task for neglecting historical factors and the natural environment in their analysis:

Some countries, such as Britain and Japan, have such institutions, while other countries, such as Ethiopia and the Congo, don’t. To explain why, the authors give a just-so story of each country’s history, which ends by concluding that that story explains why that country either did or didn’t develop good institutions...But it’s obvious that good institutions, and the wealth and power that they spawned, did not crop up randomly. For instance, all Western European countries ended up richer and with better institutions than any tropical African country. Big underlying differences led to this divergence of outcomes. Europe has had a long history (of up to nine thousand years) of agriculture based on the world’s most productive crops and domestic animals, both of which were domesticated in and introduced to Europe from the Fertile Crescent. Agriculture in tropical Africa is only between 1,800 and 5,000 years old and based on less productive domesticated crops and imported animals. As a result, Europe has had up to four thousand years’ experience of government, complex institutions, and growing national identities, compared to a few centuries or less for all of sub-Saharan Africa. Europe has glaciated fertile soils, reliable summer rainfall, and few tropical diseases; tropical Africa has unglaciated and extensively infertile soils, less reliable rainfall, and many tropical diseases.

Although not the conclusion, this is a good summary:

These, then, are the main factors invoked to understand why nations differ in wealth. The factors are multiple and diverse. We all know, from our personal experience, that there isn’t one simple answer to the question why each of us becomes richer or poorer: it depends on inheritance, education, ambition, talent, health, personal connections, opportunities, and luck, just to mention some factors. Hence we shouldn’t be surprised that the question of why whole societies become richer or poorer also cannot be given one simple answer.

What Makes Countries Rich or Poor? Jared Diamond, The New York Review of Books.

That said, there are a few omissions in Jared Diamond's review that I find surprising. I'm surprised Diamond didn't mention overpopulation and Malthusian constraints. Countries like Nigeria and Bangladesh with their enormous populations are certainly at a disadvantage.  Countries like Iceland and Norway have high per capita incomes because of their low populations, and the small distance between representatives and the general populace helps prevent political and economic corruption (look at Iceland's response to the banking crisis).

Another omission by Diamond that surprises me is an exploration of the use of fossil fuel enabled technology. This allows wealth to be extracted from local communities and concentrated in relatively few hands, with the byzantine workings of the money system serving as a sleight-of hand. Without fossil fuels and technology, it's harder to concentrate wealth and transport it out of a community. Before fossil fuels, transporting goods from afar was a slow and difficult process, so economies, and political institutions, were semi-local and size-constrained. Now with the global economy and the Internet, the elites are able to command the resources and skilled labor of the entire world, and concentrate the resulting wealth in financial centers like Manhattan, The City (London), Shanghai, Dubai, and various offshore tax havens. Much national wealth centers around these areas.

Another omission is the timetable for the development of fossil fuel-based technology. Some countries, notably Western Europe, particularly Great Britain, and North America, had a huge advantage in the harvesting of fossil fuels and the adaptation of mechanized agriculture. Diamond mentions the age of various civilizations, but most modern wealth is also determined by the use of modern technology. This head start has obviously had a major role in which nations are rich and others poor. For most of history, China was the world's wealthiest and most technologically advanced nation. That diverged with the development in Western Europe of the joint-stock corporation, the scientific method, and the steam engine. In addition to institutions, this must also be considered. England's coal sources were relatively accessible in comparison to a country like Japan, which was a country very similar in institutional and political advancement. The European discovery of the Americas plays a role here too (the distance from Western Europe to North America is half that from Asia)

Genetic factors play a role too. Some societies have a greater portion of society with facilities in technical subjects like math and science. Africa, one of the poorest continents, has less genetic diversity than many other areas of the world, since it is the origin point of humanity before migration to other continents. This genetic diversity may play a role in making modern economies work. According to Gregory Clark, the recurrent plagues and famines through European history caused the upper class to have more surviving children, dispersing them through "downward mobility" into all walks of life - blacksmiths, butchers, colliers, etc. According to Clark, this played a role in England's escape from the Malthusian trap of greater populations gobbling up any accumulated surplus.

The other factor, and it's politically explosive, is religion. Countries where large amounts of people claim belief in a deity, pray, and attend religious services regularly tend to be poorer than those who have populations who say religion is not that important. This even holds true within countries - in the United States, the poorest and most backward states are those of the "Bible Belt" where religious fundamentalism is widespread. This goes hand-in-hand with political corruption, cultural backwardness, repression by elites, and poverty. Go into the poorest areas of any city and you're sure to see churches everywhere, as you will in poor rural areas. Why this is so is not understood.

Elites have always used religion to justify their rule, from the very first civilizations in ancient Egypt, Mesopotamia, China, and the Americas. Only the gods changed. Usually the leader spoke for the deity, or was himself a deity. Belief in the majority organized religion seems to be tightly correlated to authoritarian behavior throughout history for whatever reason. Religious beliefs seems to be correlated with acceptance of one's fate, submission to authorities and deference to elites. Religious populations tend to be very credulous of the leaders claims on their wealth, even if those claims are outrageous. They tend to be more susceptible to propaganda and the control methods used by elites. And they tend to be less likely to act up - they accept their lot in life even when elites run roughshod all over them. Thus, in religious countries, extreme concentrations of wealth and political corruption tend to be rationalized away. This might be because religious populations are not only more susceptible to strong, charismatic leaders and more credulous of the national leadership mythology. Another reason might be because they view the afterlife as more of a goal, and hence do not try and upset the order down here, which they believe is ordained by God. Latin America, the Middle East and Africa are all prime examples of this. Economists who have looked at this have found one major outlier - The United States. Thus it makes sense that the United States is rapidly devolving to the level of government and development it "should" be at considering the widespread fundamentalist religious beliefs of its population. See this.

Francis Fukuyama, in The Origins of Political Order, argues that societies that develop institutions based upon loyalty to the state, rather than kinship, tend to be more successful than ones where institutions are designed to benefit the genetic kinsmen of elites. On page 210, he says:

A number of political scientists have compared the early modern European state to organized crime. they mean that rulers of states seek to use their expertise in the organization of violence to extract resources from the rest of society, what economists call rents. Other writers use the term "predatory state" to describe a range of more recent developing world regimes like Zaire under Mobutu Sese Seko or Liberia under Charles Taylor. In a predatory state, the elites in charge seek to extract the highest level of resources they can from the underlying society and divert them to their own private uses. The reason these elites seek power in the first place is the access that power gives them to economic rents.

By contrast, bureaucratic institutions where merit rather than kinship is an important factor tend to have better outcomes and wealth creation.

It's no secret that wealthy oligarchs in the  United States have been working double-time to dismantle it's inclusive institutions built in the past and replace them with predatory ones. This is why the US is looking less and less like Denmark, and more and more like a banana republic - a tiny group of plutocrats living like oriental pashas amongst widespread desperation and squalor. My own feeling is that as the global economy slows down due to the limits to growth and the imbalance between our archaic medieval money system and the real world of scarce resources, we will see inclusive institutions dismantled in every country all around the world in favor of extractive ones. Social mobility will no longer be achievable, and the institutions that made capitalism work will be dismantled in favor of ones beholden to elites. The elites will maintain a veneer of democracy, while taking ever more extreme measures to control the unruly population that they are looting, as described here many times. Inclusive institutions will increasingly be seen as a threat to their power, and will be crushed or rendered impotent. All of this will become more intense as fossil-fuels become more expensive, jobs whither away and economic growth stalls.

How this plays out depends on a number of factors. I think it will depend on a nation's own cultural background and social fabric. Suffice it to say, places like Denmark and Japan will fare far better than places like Russia or the United States. But I think we'll be seeing a lot more nations fail in the years ahead.

For a look at how America's institutions have changed, see this: The Oligarchy’s Rule of Law: From Boris Yeltsin’s Russia to Aubrey McClendon’s Oklahoma (The Exiled)

Why Nations Fail - the blog of the authors about these topics.

De Nobis Fabula Narratur

Absolutely fascinating article on BBC news today from historian Michael Wood on the similarities between the fall of Roman Britain and the decline of the Western Roman Empire and today. A must-read. First he gives a historical overview of what collapse was like in Roman Britain:

If people were still there they weren't using coins, or wheel-made pottery, and they certainly weren't shopping for luxuries. As Dr Carenza Lewis of Cambridge University puts it: "It's almost wiped out - as far as the pottery goes you could hold post-Roman Long Melford in your hand - with a bag of chips!" By the early 5th Century in Britain, currency stopped being used altogether. "It became a century of make do and mend," says archaeologist Peter Liddle on Burrough Hill in Leicestershire.

Some towns survived - Carlisle for example still had a town council and a working aqueduct in the 7th Century - but in most of them, with the rubbish piled up in the streets and the civic buildings left to decay, eventually the people left.

The British went back to an Iron Age rural farming economy. The population declined from its four million peak to maybe only a million, devastated by the great plagues, famines and climate crises of the 500s. In the countryside life went on, but with barter and self-sufficiency, out of which, building from the bottom, our medieval and modern societies eventually emerged.

... history tells us that complex societies do collapse. And the great constant, along with climate and economic forces, is human nature. Societies, then and now, are made by people, and they are often brought down by people. Rome in the 4th Century had been a great power defended by a huge army. A century later the power and the army had gone. Instead the West was ruled by new barbarian elites, Angles and Saxons, Visigoths and Franks. And nowhere were these changes more dramatic than on the very fringe of the Roman world in Britain.  

Then he goes on to draw similarities to today:

Modern historians, though, see it differently, and some of their ideas seem startlingly relevant to us now.

First was the widening gulf between the social classes, rich and poor. When rich and poor start to live completely different lives this leads (then as now) to the poor opting out of the state. All studies today show that society is happier when the gap between rich and poor is reduced. Widen it and you affect the group ethos of society, and also the ability to get things done through tax.

In the Roman West real wealth lay more in land and property than in finance (though there were banks) - but in the 300s the big land-owning aristocrats who often had fantastic wealth, contributed much less money than they had in the past to defence and government. That in turn led as it has today to a "credibility gap" between ordinary people and the bureaucrats and rich people at the top. Not surprisingly then, many people - especially religious groups - tried to opt out altogether.

Other strands in the collapse of the Roman West are more difficult to quantify, but they centre on "group feeling", the glue that keeps society working together towards common goals. Lose that and you get a kind of nervous breakdown in the social order, which leads to what archaeologists call "systems collapse". The British historian Gildas (c 500-570) in his diatribe against contemporary rulers in the early 500s, looking back over the story of the Fall of Roman Britain, lists the military failures, but behind them he speaks bitterly of a loss of nerve and direction, a failure of "group feeling".

Gildas talks about right-wing politicians advocating glibly attractive solutions that appealed to the populace while "any leader who seemed more soft, or who was more inclined to actually tell things as they are, was painted as ruinous to the country and everyone directed their contempt towards him". Gildas also singles out his leaders' sheer ineptitude and bad judgement, recalling some governments and financiers in today's banking crisis.

"Everything our leaders did to try to save the situation ended up having the opposite effect. Society became prey to corrosive quarrels and dissensions, anger towards the rich, and political opportunism was rife that made no distinction between right and wrong."

Another element Gildas saw as being crucial was the major influx of newcomers from the continent - Angles, Saxons and Jutes who had already been employed in the country as security guards, mercenaries, field workers and street cleaners. These people now took advantage of the lack of central order to create small regional sub-Roman kingdoms in eastern Britain. Only ever a minority, nonetheless they would have a tremendous effect on our culture as they were the ancestors of the English and most of us in Britain speak their language today.

And a terrific conclusion:

So, the Roman Empire didn't fall everywhere or all at one time. Indeed you could argue that the last part of the Roman Empire to fall anywhere was Gwynedd in the English conquest of 1282. Standing in Llantwit, the Dark Age stones testify to the long, slow, almost imperceptible process of change in history, by which one world becomes another. Rome wasn't built in a day and it didn't fall in a day either. Its shadow still falls on us, a memory imprinted almost like genetic information, a memory to which we all belong.

Viewpoint: The time Britain slid into chaos (BBC)

I love everything Michael Wood does. He has my dream job. I remember watching his In Search of Alexander The Great as a little kid; I'm sure it influenced my love of history and far-away exotic places (if only I ever get to see them...)

I've drawn similar parallels in the past, most notably here and here, where I wrote:

Imagine life for an average citizen in the provinces during the sunset of the Roman Empire. One day the Roman soldiers are pulled back from the fort defending your town due to lack of manpower. The harvests are smaller due to soil exhaustion and lack of rain. The ceramic and metal goods are a little bit shoddier every year, and the quality of building bricks declines. The baths run out of wood for heating, and the arena shuts down for lack of funds. The ships fail to arrive on time with amphoras full of olive oil, and the only blacksmith has left town. Stone buildings crumble for lack of maintenance, replaced by cheaper wooden ones. Administrators stop doing their jobs, and people stopped listening to their edicts or paying taxes long ago anyway. Over time, the Empire slowly decays from the far-flung outer regions in towards the center. It's like watching ice freeze - it seems like nothing special is happening. Only when you compare the beginning and end states do you realize the drama of what has occurred. Eventually, the new state just becomes "the new normal."

De Nobis Fabula Narratur, indeed.

BONUS HISTORY LESSON:

Courtesy The New York Times:

Greece may be on Europe’s periphery today, but in the 12th century Constantinople was the gateway to a lucrative trade in spices, silks and luxury goods coming from the east. This trade had made fortunes for men across Europe — as the economies of Greece, Spain, Portugal and Italy have done over the last two decades.

Traders from places like Venice, Genoa and Pisa in the late 12th century managed to win for themselves the sort of advantages and loopholes in Constantinople that bright young fund managers would kill for today: they negotiated positions that allowed them to undercut local traders, alongside smart commercial treaties that let them minimize or even sidestep their taxes. As with modern Greece, this led to a flow of cheap foreign capital into the markets.

Around 1200, though, things went sour. A sharp contraction of trade in the Byzantine Empire was exacerbated by wild overspending by Venice, the medieval equivalent of a European central bank.

Almost overnight there was a switch from the easy money, where everyone was a winner, to the dark arts of debt collecting. As with Athens since the financial crisis took hold, it became clear that no one would take responsibility for lending too much, for basing forecasts on only best-case scenarios.

Someone would have to cover the losses, and Venetian merchants were adamant that it would not be them. Constantinople and the Greek-speaking empire, riven by internal divisions, was the obvious mark.

Eventually, one of the rival factions in Constantinople offered a deal with Venice: in exchange for covering the Most Serene Republic’s losses, the faction would receive Venetian military muscle to secure its claim on the Byzantine throne. Venice jumped at the deal.

But Constantinople had vastly underestimated the size of its new debt obligations — and overestimated the stabilizing effect of Venetian arms. Financial obligations mounted abroad, while political paralysis deepened at home.

Everyone from the pope to the kings of Europe knew about the pressure building against Constantinople. One Western delegation after another told the Greeks to get their act together — or, to put it more bluntly, to pay up. The crusaders, under the sway of Venice, lay siege to the city.

Eventually, the Westerners had enough of the procrastination. Seizing their chance, the knights stormed Constantinople. What happened next was a disgrace: the prize assets of the empire were looted at will, seized as collateral by a mob that behaved with no concern for the city’s inhabitants, its culture or its history.

According to one account, prostitutes danced on the altar of St. Sophia, the most beautiful church in the whole of Christendom. Palaces, gardens and holy places were ransacked, with treasures taken off by the cartload. The great collections of relics held in the imperial capital were seized by the Westerners to adorn cathedrals and churches across Western Europe; to this day four bronze horses, stolen from the hippodrome of Constantinople, stand atop the Cathedral of St. Mark in Venice.

Judging the Greeks fiscally and politically incompetent, the conquerors appointed a regent. Baldwin of Flanders, crowned emperor of Constantinople in 1204, was a classic I.M.F.-style appointee: a safe pair of hands, someone with whom other Western leaders could do business.

Meanwhile, the noblemen leading the Crusade, many of whom had brought ruin in the first place with their reckless promises, took control of whole areas of the city and empire for themselves — a classic case of getting in at rock bottom. (So keep an eye on those bankers and their villas in the Aegean; you don’t need to be a historian to know it is a buyers’ market.) The new Latin Empire of Constantinople lasted just 50 years before the Greeks returned to power.

Corn-Pone Nazis

We've covered the continuing transformation of capitalist democracy to a totalitarian state many times  here - something we've called authoritarian capitalism. To keep the capitalist project going as living standards start to fall and profits shrink, increasingly drastic measures to keep the citizenry in line  must be taken, just as they were when communism started to fail. I use this term for a couple of  reasons - one to point out that authoritarian repression is just as possible under a capitalist economic  system as it was under a state-controlled economy (some would say more so), and to point out that China  is now not only the model for the new economy, but for the future world political order (unelected  oligarchies beholden to the financial class with no limits or checks on their power). The latest example is a truncheon law being passed hurriedly in Canada to whip Montreal protesters in line. This is used in combination with "kettling" tactics in an increasingly draconian crackdown north of the border in supposedly "enlightened" Canada.

More and more people are starting to  take notice. My colleague Bill Hicks did a two part post on some of the historical aspects of the Nazi regime that are often forgotten:

Though obviously much shorter lived, the German empire built by the Nazis followed a trajectory very similar to our own. Germany in the 1930s went through a period of rapid expansion not all that dissimilar to how America aggressively conquered a continent and then began expanding its reach overseas. The amount of physical territory acquired by Germany didn’t actually peak until 1942, at the time of its greatest advance on the eastern front but well beyond the point where its battlefield successes were going to be sustainable in the long run. Likewise, America’s “Operation Barbarossa” moment came in the wake of 9/11 when the Bush administration decided to double down on America’s planetary hegemony by launching two wars of choice in the Middle East while simultaneously expanding both our military presence around the globe and the national security state here at home. Ten years later, the national debt has nearly tripled in size and we have already passed the point where our “successes” at expanding the reach of the empire during the War on Terror will be sustainable in the long run.

The lesson here is again fairly simple: governments become more repressive during times of national crisis, and that repression increases as the situation becomes more desperate. Looking back at some of the greatest assaults on individual liberties throughout American history—the Alien and Sedition Acts in the late 1790s, the suspension of Habeas Corpus during the Civil War, the imprisonment of antiwar protestors during World War I, the Palmer raids during the first wave of Red scares, the internment of Japanese-Americans during World War II, the McCarthy hearings early in the Cold War, the Kent State shootings when the Vietnam War had become a hopeless quagmire and waterboarding, rendition, and warrantless wiretapping during the “War” on Terror—shows that they all occurred at a time when America was either actively at war or feared it was about to be attacked.

The fact is, if you were a non-Nazi “Good German” during this time—law abiding, able bodied, willing to work and not too vociferous in your complaints about the nation’s leadership—the first seven years or so of Hitler’s rule must have seemed like a glorious time to be alive. Even after Hitler launched the war and chronic shortages of nearly every consumer good became endemic, for awhile you could at least take national pride in the seemingly never ending stream of German military successes. In fact, unless you were one of the unlucky souls slogging it out in the brutal combat of the eastern front, it was only after the defeat at Stalingrad and the appearance of American and Royal Air Force bombers overhead with relentless regularity that your quality of life really began to suffer.

People think of fascism as just a man with a silly mustache. Because of their compartmentalized thinking, they cannot accept the tell-tale signs when they are wrapped in pro-America rhetoric. Simply put, people supported Hitler because in the short run things were better, he had the backing of wealthy industrialists, and they were the finest masters of twisting manipulating people's passions the world had yet seen at that point.

Morris Berman has an excellent post in the same vein documenting many of the things we've been talking about here. I urge you to read it in its entirety. He documents six major areas of creeping authoritarianism:

• I. The creation of a political climate in which the police are out of control, arbitrarily free to  intimidate anyone for virtually anything.
• II. The persecution of whistleblowers, protesters, and dissenters
• III. The dramatic expansion of the surveillance of American citizens on the part of the National  Security Agency (NSA)
• IV. The corruption of the judicial system by means of show trials of Muslim activists
• V. The construction of political detention centers, also known as Communication Management Units  (CMU’s)
• VI. The shredding of the Bill of Rights by means of the National Defense Authorization Act.

Some of his points:

In June 2011 the sheriff of Nelson County, North Dakota, called in a Predator B drone from the local Air Force base to capture three men who had stolen some cows. Once the unmanned aircraft located the suspects, police rushed in to make the first known arrests of U.S. citizens with the help of a Predator spy drone. It turns out that predator drones are frequently used for domestic investigations all over the U.S.—by the FBI, the Drug Enforcement Administration, and by state and local law enforcement officials.

At the height of its insanity, the Stasi in East Germany was spying on 1 out of 7 citizens. The U.S. is now spying on 7 out of 7.

The NDAA, also known as the “indefinite detention bill,”  was signed into law by President Obama on 31  December 2011. It has no temporal or geographic limitations, and can be used by Mr. Obama or any future  president to military detain U.S. citizens.  As in pre-Magna Carta days, you can simply be swept up and  put away forever—disappeared—with no explanation of why, no right to call a lawyer or anybody else, and  no right to a trial.  You can actually be tortured to death, if the government decides it is in the  national interest. The NDAA is probably the greatest rollback of civil liberties in the history of the  United States.

The bottom line, of course, is that if you destroy the judicial system, then finally nobody is safe. The government could wind up railroading anyone they don’t like, and I very much doubt that this possibility is far-fetched.  First they came for the Muslims...

Where do the suspected Muslim terrorists go? It turns out that the government is using secret prison facilities to house inmates accused of non-violent activities, i.e. of allegedly being tied to terrorist groups. As it turns out, these are not just Muslim groups; the CMU’s are also being used to house environmental activists.

Just as an aside, there are, in general, more people under “correctional supervision” in America than there were in the Russian gulag under Stalin, at its height. Writing in the New Yorker on 30 January 2012, Adam Gopnik declared: “Mass incarceration on a scale almost unexampled in human history is a fundamental fact of our country today.”

Berman concludes:

This leads me to my final point. The distinctive characteristic of American democracy, from 1776, was  the protection of the individual and the preservation of individual rights. That no longer exists.  Anyone is a potential terrorist now; anyone can be persecuted, prosecuted, and in effect, destroyed.  Democracy is only  possible if dissent is not only permitted, but also respected. This too is finished.  What does this mean for someone such as myself?, is something I lay awake nights thinking about. I have  published three books, and half a collection of essays, showing where we have gone wrong, predicting  our eventual collapse—indeed, this repression is part of that collapse—and arguing that the U.S. no  longer has a moral compass; that it is spiritually bankrupt. I run a blog that is anything but polite:  it says the U.S. is finished; that it is basically a corporate plutocracy, run by a gangster elite;  that the American people are basically morons, with little more than fried rice in their heads; and  that anyone with half a brain and the means to do so should emigrate before it’s too late. I’m not  really a threat to the U.S. government, largely because I am not a political activist and because it’s  not likely that more than 74 people out of 311 million regularly read my blog (it’s probably more like  24, in fact). But as the definition of terrorism widens in this country, what is to prevent the  creation of a category known as “intellectual terrorism” from arising, and putting folks like myself in  that category? What is to prevent the government from calling such activity a clear and present danger  to national security? As must be obvious by now, the government can do anything it wants to now; as in  Nazi Germany, we now have a government of men, not of laws. Indeed, the “laws” are little more than a  pretext for whatever the government wishes to do.

-When a country puts laws such as torture or indefinite detention or arbitrary assassination on the  books, sooner or later it will use these legal instruments.  They won’t just lie dormant, in other  words. As in the case of technology, once the mechanisms are there, the temptation to employ them  simply becomes too great to resist. That is what is happening today.

-In a world that is politically construed along Manichaean lines—which, as I have argued elsewhere,  America has been doing since Day 1—the first line of attack is against the enemy outside. It doesn’t  matter if we are talking about Protestants or Catholics or al-Qaeda operatives or infidels of any kind,  the first order of business is to go to war with them. But as the British anthropologist Mary Douglas  shows in her book Purity and Danger, or Norman Cohn demonstrates in The Pursuit of the Millennium, if  the war goes on long enough, inevitably the enemy is also seen to be a fifth column, i.e. within the  walls of the body politic itself.  They become Huguenots or Marrano Jews or heretics of whatever  stripe, and as in the case of Goya’s famous painting, Saturn Devouring His Son, the country begins to  eat itself alive.  Everybody becomes an enemy; no one is safe any longer. And so I believe that I, and  you, really do have reason to worry.

Slouching Toward Nuremberg (Dark Ages America)

That last point is one that worries me too. Are we going to have to watch what we say; watch what we do? Is this what the Founding Fathers wanted?

In a similar vein, Naomi Klein writes in The Guardian:

Some have argued that this present "war on women" is a war against progressivism – or a war against feminism, in particular. I would say, looking at the big picture, that it is more serious than that – not that those options are not plenty serious enough. I would say that the call for transvaginal probes, for gagging medical providers, for sending the state to shake a finger for an extra 72 hours at a distressed woman and stand between her and the discussion she is having with her inner-most and private conscience, is all part of the larger crackdown we see on privacy, private space, freedom and personal choice.

It is on the same spectrum of control: the will to gag Bradley Manning or Julian Assange also seek to gag a medical provider in South Dakota. The same impulse to peer into personal emails and listen to private phone calls that has led the NSA to pour billions into surveillance stations in Utah, is the same impulse of panopticon state control that wants to get between the sheets of men and women in consensual sexual decision-making, and monitor or restrict their access to condoms and contraception. And it is the same Big Brother impulse for control that maintains that what a woman does with her own care-provider is a function of state management.

But in fact, the bigger crackdown shows us that it is merely the genderized manifestation of state control. This impulse to mediate and regulate personal choices has been inflamed, I would argue, not by women being particularly uppity – but by people being uppity. The awakening of protesting and demanding behavior of Occupy communities and of Ron Paul supporters, of the unions in Wisconsin, and the students in Montreal, and the rebellious Greeks in Athens, has made the gatekeepers seek every kind of method of control available to them.

If Germany, one of the most intelligent and literate places on earth, with multiple newspapers and an  educated citizenry could not hold off fascism, then how can America, full of cranks, charlatans, opportunists, and zealots, seething with poverty and racial tension, where most people have no access to any  information outside of Fox News, and with no essential cultural connections binding us together, hold off the tide?

I'm surprised, given his recitation of the rollback of civil rights for Jews, Berman did not point out that  the exact same things are being done in the United States today using homosexuals as scapegoats.  Numerous states have taken the time to take legislative action to strip civil rights from gays (while simultaneously  ignoring more pressing issues like mass unemployment and deteriorating infrastructure). And now the corn-pone Nazis are now openly calling  for homosexuals to be rounded up into concentration camps and murdered, every last one. Please watch the following, and feel a chill go up your spine:



Laugh and dismiss these clowns all you like. That's exactly what they did with Hitler and his reprobate followers early on too. Who had  the last laugh there?

Faulty Towers

I see Dmitry Orlov over at Club Orlov has written about the Skyscraper Index, a topic we've covered here many times before. As noted in the article and the comments, civilizations tend to build bigger and bigger monuments as their resource base increases, partly for status, and partly to keep people occupied so that the economy can grow. As commenters noted, this has held true in the past too; some of the largest Roman monuments were built during the late stages of the empire (The baths of Caracalla, The Palace of Diocletian, The Colosseum), the largest Mayan temples were built on the eve of collapse, the largest Easter Island Moai statues came before the end, the tallest Gothic spires rose on the eve of the population crash of the 1300's (The Great Famine and the Black Death), and as a commenter noted, The Cloth Hall in Ghent was started when the cloth trade was about to go into decline.

The tallest towers in the world are typically banking and finance entities in the financial districts of various cities, often directly surrounded by slums and squalor. Every major city seems to have an art museum nowadays designed by the same small core of international design superstars (Gehry, Hadid, Liebeskind, Calatrava, Novel, Foster, Piano, OMA, etc.) financed by the generous droppings from the tables of the modern-day Medicis who control global commerce. College campuses and hospitals are gigantic complexes the size of small cities with the latest technological bells and whistles, including hi-tech "green" design features (paid for by student and patient debt donkeys). And even as our suburbs, schools and infrastructure crumble and decay and become ever more decrepit, and portions of entire cities are bulldozed due to foreclosures, we build ever-more elaborate sports stadiums, with ever-more luxurious skyboxes for the one percent. You can tell a lot about a culture by what it builds and what it lets decay.

And you can tell where the money is too. In the twentieth century, all the tall buildings were in the United States. Now they are almost all in the Far East, with the exception of the Xanadu-like playground of the world's rich in Dubai. Note that buildings are almost always financed by debt. See this:

Once Upon a Time in Dubai: Amazing photographs of a time before the boom. (Foreign Policy)

Who wants to bet Dubai looks very similar one hundred years from now? Here are some other recent news items from the world of architecture:

Possible design flaw could add millions to the cost of One World Trade Center (WAN)

The agency building the new World Trade Center says that a design flaw could add millions of dollars to the cost of the complex’s signature tower. The Port Authority of New York and New Jersey said Tuesday that a loading dock serving One World Trade Center won’t be finished in time for tenants to move into the 104-storey tower. So it’s building five temporary loading docks above the ground.

A temporary station that was built for the Port Authority Trans Hudson subway is blocking access to the underground area. The station can’t be dismantled to make way for underground freight areas until the crews finish the permanent stations. Commenting on the state of affairs, Patrick Foye, executive director for the Port Authority told reporters Tuesday that, 'several years ago there was a design miss.” Should it have been caught? The answer is probably'.

The temporary loading bays will add millions to the cost of the tower, which is now 90 storeys high. The Wall Street Journal on Monday reported that the cost of the David Childs-designed One World Trade Center has soared to $3.8bn, $700m more than last estimate announced in 2008. Foye would not confirm the $3.8bn figure but said that the rising costs will be examined in a review of the agency that is being prepared for the governors of New York and New Jersey.

A fact mysteriously lost in all the triumphant rhetoric when the tower, which took almost three times as long to build as World War 2, was completed. Meanwhile, the governor of New Jersey cancels important infrastructure projects as "unaffordable."

Azerbaijan Tower in the works? (WAN)

News has been leaked that Azerbaijan is planning to surpass Skidmore Owings and Merrill’s 828m Burj Khalifa and Adrian Smith + Gordon Gill’s proposed 1,000m Kingdom Tower in Jeddah with a 1,050m spire in its capital city of Baku. An architect for the scheme has not yet been named.

The city has undergone a dramatic transformation. Azerbaijan is recognised as having one of the earliest recorded settlements and has undergone a turbulent history as its fate passed from dynasty to dynasty until it became part of the Russian Empire in 1813. The oil-rich land tempted a Soviet invasion in the early twentieth century which led to the formation of the Azerbaijan Soviet Socialist Republic, a title which the country only shook off some twenty years ago.

Since this emergence into independence Azerbaijan has flourished architecturally, instigating a new range of large-scale architectural projects over the past few years. In a month’s time the city of Baku will host the Eurovision Song Contest at gmp’s predictably angular Crystal Hall venue and Atkins has unveiled plans for a 220 hectare masterplan for White City.

Details of the world’s most recent tallest building are few and far between, with the name ‘Azerbaijan Tower’ floated on a preliminary basis. The spire is allegedly planned to sit on the edge of the Caspian Sea and overlook Baku’s major new development: Khazar Islands. This immense project involves the production of 41 artificial islands dubbed the ‘new Venice’ and is currently under construction.

So, what is the per capita income of Azerbaijan?

Future Dubai Hotel Will Sit 21 Stories Underwater (Gizmodo)

Imagine waking up in a hotel room, and instead of getting a view of a bustling city, or beach, or maybe a parking lot, you are greeted by underwater wildlife 200 feet below the surface. And while it sounds like something out of a early 20th-century sci-fi novel, one group is trying to make this a reality in Dubai.

Deep Ocean Technology just approved a design for the Water Discus Hotel, which would anchor half of the hotel 21 stories underwater, with the other half peeking out above the water. But whether or not this thing is actually built is a whole other story. As inhabitat points out, there had previously been plans for another underwater hotel in Dubai before that idea fizzled out, and until construction begins, nothing is ever set in stone. I can also imagine environmentalists are not pleased by the idea of something like this.

You'd never know millions of people in arrival cities all over the world lack running water would you? Meanwhile, in austerity-gripped Spain, where one-quarter of the population is unemployed:

On Wednesday, world-renowned architect Sanitago Calatrava unveiled his Museum of Tomorrow; a project that is intended to revitalise Rio de Janeiro's waterfront in time for the 2014 World Cup and 2016 Summer Olympics. But closer to home, in his native Spain, troubles are brewing over the escalating costs of his City of Arts and Sciences, a giant cultural park that some say is his greatest project.

What went wrong is a matter of opinion and investigation and also a political tug-of-war between opposing parties. The complaint, lodged by the leftist party, is over the architect's fees, which reportedly are based on a percentage of the cost of construction. But with the project costs now estimated to be double or triple the original figure, some are asking whether Calatrava is entitled to such enrichment for delivering the project over budget and behind schedule.

A week of highs and lows for Calatrava (WAN)

Plans to increase the city of Moscow to 2.4 times its existing size took a big step forward this week as the ten shortlisted teams flew to Russia to meet with the Russian Federation Council and present their design concepts. A consortium of OMA, AMO, Strelka Institute for Media, Architecture and Design, Project Meganom and Siemens rated highest for their proposal, which suggests the creation of logistical hubs outside Moscow’s current city limits linked by a high-speed rail network.

OMA wins first round of Moscow City Agglomeration Development Competition (WAN)

And I thought this was interesting:

Construction will begin on a $350m Chinese-funded highway through Uganda in the next six months, according to the Uganda National Roads Authority. The four-lane carriageway will reduce congestion between two of the most important cities within the Greater Kampala Metropolitan Area (GKMA) on completion, linking Kampala and Entebbe International Airport.


With Chinese backing, a new strategy to construct a lengthy four-lane carriageway has taken off and China Communication Construction Co. Ltd are expected to begin physical works on the project later this year. The GKMA economy is the strongest in Uganda, contributing 40% of the country’s GDP, however the lengthy travel times in and out of the GKMA - and consequentially escalating travel costs - have presented Uganda with a need for alternative infrastructure

$350m Chinese-funded highway in Uganda to start construction in next few months (WAN)

And see this post from the Original Green blog: Unsustainable High-Rises.

I don't want to say architecture as an institution is failing us. We know more about building and urban design that we ever have before (as well as the collected knowledge that we've forgotten). Architecture always serves the society which uses it, and our architecture is nothing more than a reflection of our failing institutions and our suicidal world view. We can, and should, do better.

How The Market Ate Society

Source

What does it mean to have a society where nothing is for free and everything is for sale? This is the fundamental question behind a new book by Michael Sandel. In a bit of an ironic twist, it turns out Sandel is a childhood friend of none other than the pope of gloablism, Thomas Friedman, who wrote a good review of his book in his column a few weeks back:

...Seen in isolation, these commercial encroachments seem innocuous enough. But Sandel sees them as signs of a bad trend: “Over the last three decades,” he states, “we have drifted from having a market economy to becoming a market society. A market economy is a tool — a valuable and effective tool — for organizing productive activity. But a ‘market society’ is a place where everything is up for sale. It is a way of life where market values govern every sphere of life.”

Why worry about this trend? Because, Sandel argues, market values are crowding out civic practices. When public schools are plastered with commercial advertising, they teach students to be consumers rather than citizens. When we outsource war to private military contractors, and when we have separate, shorter lines for airport security for those who can afford them, the result is that the affluent and those of modest means live increasingly separate lives, and the class-mixing institutions and public spaces that forge a sense of common experience and shared citizenship get eroded.

This reach of markets into every aspect of life was partly a result of the end of the cold war, he argues, when America’s victory was interpreted as a victory for unfettered markets, thus propelling the notion that markets are the primary instruments for achieving the public good. It was also the result of Americans wanting more public services than they were willing to pay taxes for, thus inviting corporations to fill in the gap with school gyms brought to you by ShopRite.

Sandel is now a renowned professor at Harvard, but we first became friends when we grew up together in Minneapolis in the 1960s. Both our fathers took us to the 1965 World Series, when the Dodgers beat the Twins in seven games. In 1965, the best tickets in Metropolitan Stadium cost $3; bleachers were $1.50. Sandel’s third-deck seat to the World Series cost $8. Today, alas, not only are most stadiums named for companies, but the wealthy now sit in skyboxes — even at college games — that cost tens of thousands of dollars a season, and hoi polloi sit out in the rain.

Throughout our society, we are losing the places and institutions that used to bring people together from different walks of life. Sandel calls this the “skyboxification of American life,” and it is troubling. Unless the rich and poor encounter one another in everyday life, it is hard to think of ourselves as engaged in a common project. At a time when to fix our society we need to do big, hard things together, the marketization of public life becomes one more thing pulling us apart. “The great missing debate in contemporary politics,” Sandel writes, “is about the role and reach of markets.” We should be asking where markets serve the public good, and where they don’t belong, he argues. And we should be asking how to rebuild class-mixing institutions.

http://www.nytimes.com/2012/05/13/opinion/sunday/friedman-this-column-is-not-sponsored-by-anyone.html

And in Boston Review, the author writes about makets and morality, worth reading in its entirety:

How Markets Crowd Out Morals
By Michael J. Sandel

We live in a time when almost anything can be bought and sold. Markets have come to govern our lives as never before. But are there some things that money should not be able to buy? Most people would say yes.

Consider friendship. Suppose you want more friends than you have. Would you try to buy some? Not likely. A moment’s reflection would lead you to realize that it wouldn’t work. A hired friend is not the same as a real one. You could hire people to do some of the things that friends typically do—picking up your mail when you’re out of town, looking after your children in a pinch, or, in the case of a therapist, listening to your woes and offering sympathetic advice. Until recently, you could even bolster your online popularity by hiring some good-looking “friends” for your Facebook page—for $0.99 per friend per month. (The phony-friend Web site was shut down after it emerged that the photos being used, mostly of models, were unauthorized.) Although all of these services can be bought, you can’t actually buy a friend. Somehow, the money that buys the friendship dissolves it, or turns it into something else.

This fairly obvious example offers a clue to the more challenging question that concerns us: Are there some things that money can buy but shouldn’t? Consider a good that can be bought but whose buying and selling is morally controversial—a human kidney, for example. Some people defend markets in organs for transplantation; others find such markets morally objectionable. If it’s wrong to buy a kidney, the problem is not that the money dissolves the good. The kidney will work (assuming a good match) regardless of the monetary payment. So to determine whether kidneys should or shouldn’t be up for sale, we have to engage in a moral inquiry. We have to examine the arguments for and against organ sales and determine which are more persuasive....

Although money can’t buy friendship, it can buy tokens and expressions of friendship—up to a point. As we’ve seen, converting wedding toasts and gifts into commodities doesn’t destroy them altogether. But it does diminish them. The reason it diminishes them is related to the reason that money can’t buy friends: friendship and the social practices that sustain it are constituted by certain norms, attitudes, and virtues. Commodifying these practices displaces these norms—sympathy, generosity, thoughtfulness, attentiveness—and replaces them with market values. In this sense, markets corrupt expressions of friendship.

And see the discussion here: http://economistsview.typepad.com/economistsview/2012/05/do-market-economies-make-us-greedy-selfish-and-amoral.html

The "market society" where everyone is hustling and there is no other virtue besides making money and stepping over everyone else to do so, is tearing the very fabric of society apart. Commercial transactions have always been there, of course, and that's OK, but they seem to be reaching their apotheosis under the tutelage of a professional class of economists who have told us that the secret to success is to have something called "the free market" (which has always been a fiction) be the fundamental basis of all society (a view championed by libertarians especially*). But what this does ironically is undermine the very basis of trust that makes society, and by extension, the market itself - function. Is my doctor prescribing these pills because I need them or because he owns stock in the drug company? Is this college telling me there are openings in my field because there are or because it wants tuition money? If the big guys can just buy their own brand of justice, why should I trust any institutions, and so on. If I can't trust anybody, I withdraw, and without trust, society itself falls apart as people become nothing more than atomized individuals who have to be hypervigilant about constantly getting ripped off and being taken advantage of. See this lengthy post from" George Washington":

Lack of Trust – Caused by Institutional Corruption – Is Killing the Economy

Anything "not for profit" such as schools, art, etc. is derided and eliminated. It eventually leads to a hellish dystopia where all relationships are superficial and temporary, money is everything, and people need to pop pills (at gouging prices, natch) to get through the day. Welcome to the golden age of capitalism.

* I would distinguish between libertarians and anarchists primarily on this principle. Anarchists despise unearned hierarchy and tyrannical authority in all its forms - a position I have sympathy with. Libertarians simply want a vacuous market society where money equals power and might makes right, a position I find abhorrent.

The Job Creators

I don't get it. If they're the job creators, why are they eliminating jobs? This doesn't make sense, somebody please explain.

Hewlett-Packard to cut 27,000 jobs by the end of 2014 (BBC)

Straight Talk About Jobs

One of the first things written on this site was a lengthy six-part series on automation and its implications for the economy titled What Are People Good For? That article predicted continuing unemployment and decay, and sure enough, that's exactly what has occurred. You're sure to hear politicians blathering over the next few months about "creating jobs", while at the same time dismissing government jobs as somehow illegitimate and merely "waste". They will be sure and prescribe measures to get the private sector hiring again, which will be sure to be another round of tax cuts and subsidies. i.e. corporate socialism, to get employers to do what they should be doing anyway (and which will be ineffective).

The problem is a deep structural change in the economic order. We can do "necessary" tasks with a minimum of human labor. Thus, we need to make all sorts of unnecessary tasks for people to do so that we can continue to grow the economy. And increasingly we create nothing but claims on wealth, and businesses are turning to scams, social dysfunction or privatizing the commons to keep profits flowing (privatized prisons, security guards, online universities, etc.). One often misunderstood point is that we need to keep creating enough jobs for new entrants into the workforce, year in and year out, enough for billions of people worldwide, millions in individual countries (approximately 1.2 million per year in the U.S). And certainly the quality of those jobs matters - with so many in the low-paid service sector, competition for higher-paying higher-status jobs is fierce, so all sorts of barriers are put up to keep certain people out (high college tuition, professional licensure, etc.).

The mainstream commentariat will simply declare that the jobs will somehow come back as if by magic when demand reappears (from where?), or that the fault lies in workers just not having the right skills, and if only they would buckle down and learn what the economy demands, dammit, full employment would surely result. The always-excllent blogger Charles Hugh Smith takes a blowtorch to many of these notions, making points I've wanted to make myself much more elegantly and concisely (emphasis mine):

What policy makers and pundits dare not admit is that the global economy is entering the "end of paid work" foreseen by Jeremy Rifkin. I have covered this topic in depth many times, starting with End of Work, End of Affluence (December 5, 2008).

The industries that are rapidly increasing productivity and profits are doing so by eliminating jobs and the need for labor. The Web is chewing up industry after industry, wiping out entire sectors that once supported hundreds of thousands of jobs while creating a few thousand new jobs that require high-level skills and mobility.

Robotics are replacing factory labor throughout the world--yes, even in "low-wage" China. When I first toured a variety of factories in China in 2000, many were little more than simple warehouses filled with long tables where workers assembled and packaged cheap light fixtures, etc. by hand. Others had robotic machines stamping out circuit boards that were then hand-assembled into monitors, etc.

The defect rate was high in these settings. Machines are increasingly replacing hand labor in China. Much is made of "labor shortages" in certain southern cities, but what that actually means is a shortage of young workers (overwhelmingly preferred over older workers by manufacturers) willing to work for low wages.
The Internet has enabled enormous reductions of labor input. A mere 15 years ago when I first learned HTML (1997), you had to code your own site or learn some fairly sophisticated website creation/management software packages, and you needed to set up a server or pay a host. Now anyone can set up a Blogspot or equivalent blog for free in a few minutes with few (if any) technical skills, and the site is free.

A staggering range of complex business services are available for low cost, enabling one person to perform work that a mere 15 years ago required a half-dozen people. Everyone talks about offshoring as the primary cause of jobs being scarce in the U.S., but the much larger force is technology in the form of Web-enabled software.

That is simply one example of many. Here's another: a tax preparation program that costs $60 can (for the common conventional tax situations) typically replace an accountant that charged $500 or more.

And he follows up here with some truly great points:

One key reality that is rarely if ever discussed is that the number of workers needed to provide the bare essentials of life to the 313 million residents of America is modest. Let's stipulate that bare essentials include food, heat in winter, clean water, sewage and waste disposal, public health (innoculations against pandemics, etc.), public safety and enough energy to fuel these essentials. If life were suddenly reduced to these basics, and no energy were available for anything but these essentials, then how many full-time workers would be needed?

Roughly 1% of the workforce raises the vast majority of our food, and a modest number of workers maintain the water and sewage systems, natural gas pipelines, furnaces, etc., A similarly modest number of workers maintain public health and safety and provide transport of essentials.

Of the official workforce of 154 million, how many fall into this "absolute essentials of life" category? Perhaps 10% or 15 million people? Even if we double that to include all sorts of non-essential but "critical" goods and services, then that's perhaps 30 million workers, roughly 10% of the population and about 12.5% of the real workforce of 240 million (the Federal government has relegated roughly 88 million working-age people to the zombie-status of "not in labor force" to keep the official unemployment rate low).

We all know the dynamic behind this dramatic reduction in the number of people needed to provide the essentials of life: enormous increases in productivity based on abundant fossil fuels and advanced technology.

Even well-made infrastructure requires maintenance, but this process of replacing aging transmission lines, water mains, highways, refineries, etc. requires a relatively modest number of workers because machines do much of the work. Ask how many frontline police officers are on your local force. Cities of a few hundred thousand might have 200-300 officers, larger cities might have 800-1,000. It's not a large number.

He goes on:

On a macro-scale, the challenge in advanced economies is creating "make-work" for 80% of the working age population. This is not an issue in developing economies, as most of the workforce is non-market and does not participate much in the cash economy. For example, only 7% of India's vast workforce of hundreds of millions of people gets a paycheck. The other 93% survive via barter, raising their own food, a bit of trade or occasional labor for cash, etc.

Before industrialization, roughly 50% of the U.S. population and workforce lived and worked on farms. The surplus of their labor fed the other 50% who lived in urban areas, and that cash supplied the few essentials the rural dwellers needed.

The paradox of post-industrial economies is that the cost of living rises even as the efficiencies of providing essentials reduces the number of essential jobs.

And finally, some great points here:

A lot of people are assuming the healthcare field will be permanently short of workers, but if enough people reach this conclusion then qualified labor will be in oversupply. The same can be said of MBAs and a number of other degrees that are widely viewed as "meal tickets" to a secure job. Since millions of other people are pursuing the same path, there is now a glut of MBAs and lawyers.

The problem is that the job market is not causally aligned with education. If we encourage a million students to get PhDs in physics and biochemistry, that doesn't mean the economy will magically create 1 million jobs in these fields. These fields are small not because there is a shortage of qualified labor, but for other reasons: the limitations of Research and Development funding, the limited market for products in these fields, and so on.

While a highly educated workforce can do a wider range of work, it doesn't necessarily follow that the economy has more higher-level jobs. One of the key reasons for the confidence that higher degrees were secure "meal tickets" was their relative scarcity: there are relatively few PhDs in math, relatively few physicians, etc.

But this belief is implicitly based on unlimited funding. When funding goes away, then there is suddenly a surplus of once-scarce "knowledge" workers. As more people get college educations and advanced degrees, the scarcity value of those degrees declines. In many fields, the scarcity value is zero: there is an abundance of people with degrees and a shortage of paid jobs.

If security is the goal, there will be stiff competition for "essential" jobs, as everyone else sees these as secure, too. This is where graft and corruption come in handy; in corrupt locales, the few plum secure positions are passed on to family members or those who paid a hefty bribe.

If you want to make a lot of money in the Status Quo, the competition will also be fierce. ...When competition is fierce, you not only have to possess the requisite drive and perseverance, you also have to love the trade. If you're just hoping for a secure job but could care less (or even actively dislike) the work itself, you will probably lose out at some point to someone who wakes up excited to go to work.

Spot-on as always. Thank you, Charles, for busting a lot of the myths our leaders like to throw at us to keep us complacent, or to make us feel that we workers are somehow to blame for the dismal state of the economy and falling living standards when we are collectively more educated and productive than ever before in human history. During the full employment years of the 1950's less than five percent of Americans have college degrees. Today with the real unemployment rate hovering around twenty percent, a quarter of Americans have degrees, and many more advanced degrees to boot. Any human population will show a roughly normal distribution of talent and cognitive skills. News flash: you need to create jobs for all of them, not just PhD's., and not just STEM field graduates.

There are solutions: we could reduce the working hours for non-essential services to share the work, which would be logical considering our productivity courtesy the internet. We could print up money and hire people to do the services the private sector has ignored in it's desire for profits, and rebuild the nation's crumbling infrastructure, physical and social. As long as you're giving people the ability to buy back what the economy is inherently producing efficiently through automation, it won't be inflationary (inflation happens when too much money is chasing too few goods; automation can produce lots of goods quickly and cheaply). Or, we could just go underground, as Spain and Greece appears to be doing as documented just a few days ago.

So how long will people continue to accept the bullshit they're being spoon-fed as society decays around them? Let's take a look at some recent developments:

TOKYO — Canon Inc. is moving toward fully automating digital camera production in an effort to cut costs — a key change being played out across Japan, a world leader in robotics.

If successful, counting on machines can help preserve this nation’s technological power — not the stereotype of machines snatching assembly line jobs from workers, Jun Misumi — company spokesman, said Monday

he move toward machine-only production will likely be completed in the next few years, perhaps as soon as 2015, said Misumi, although he declined to give specific dates.

Japanese manufacturers have been moving production abroad recently to offset the earnings damage from the soaring yen.

And fears are growing about a hollowing-out of Japan Inc. as jobs move to China, India and the rest of Asia, where labor costs are cheaper.

Misumi was adamant that jobs won’t be cut at Canon.

“When machines become more sophisticated, human beings can be transferred to do new kinds of work,” he said.

Despite growing pressure from the high yen, Toyota is innovating production efficiency to keep annual Japan production at 3 million vehicles, about a third of its global production, by reducing costs through boosting robotics use.

Akihito Sano, professor at Nagoya Institute of Technology, said Japan needs to do more to fine-tune its sophisticated technology so robotics can become more practical, and was doing some soul-searching lately about practical applications.

Japan has tended to focus on research and come up with razzle-dazzle humanoids and then get been beaten in simple but practical products like the Roomba vacuum cleaner by iRobot Corp. of the United States, he said.

Honda Motor Co.’s walking and talking Asimo human-shaped robot comes with voice recognition, pours juice into a cup and can run around on two legs. But, unlike Roomba, it has yet to enter a real living room to do actual vacuuming and it merely plays mascot at events.

Since the late 1990s, like other manufacturers, Canon began using the “cell” production method, in which a team of workers or one worker puts together a major part, rather than doing a simple task over and over.

In recent years, robots have become so much a part of this cell production, Canon calls it “man-machine cell.” Eventually, human involvement will be phased out in making some products, according to Canon.

In the U.S., Amazon.com Inc. is buying Kiva Systems, which makes robots and software to help companies fulfill orders, for $775 million.

Amazon has been using automation at its order fulfillment centers for some time. But Kiva’s technology is designed to lower costs and will be used to help workers pick and pack books.

Sano, the academic, stressed the need for a system so workers can communicate with robots. He also stressed that there will always be room for human intelligence, using the Japanese for “craftsmanship,” or “takumi.”

“Human beings are needed to come up with innovations on how to use robots,” said Sano. “Going to a no-man operation at that level is still the world of science fiction.”

Canon moving toward robots-only full automation in digital camera production (Washington Post)

The main purpose of warehouse robots is to reduce labor costs, so there is no question that they are beginning to replace workers in large numbers. Kiva claims that workers in its automated warehouses are up to three times more productive. A silver lining to the job reductions is the possibility of improved working conditions for those remaining in warehouses using robots. The robot-equipped warehouses are typically quieter than those using conveyor belt systems and, because warehouse owners only need to climate control a small portion of the total space, they can do a better job of providing reasonable working conditions. That’s in contrast to the sweltering conditions reported at some non-robotic Amazon warehouses. It is fair to ask, though, given the increasing sophistication of the software running the warehouse, whether the computers or the human workers are the sorcerer.

Of course, automating with robots also creates jobs, in refitting the facilities as well as designing and building the robots, pods, and control systems. These are certainly better quality, and require more skill, than the jobs that are eliminated, but they are not nearly as numerous. The march of technology, and Moore’s law, also raise the question of when robots will be able to do their own tote loading. Certainly robots have been built which can pick up, move, and place arbitrary items. They are just expensive and slow — for now. It is only a matter of time before Amazon’s and the other 600,000 warehouses in the United States can go completely dark.

Warehouse Robots Come of Age (Extreme Tech)

And then there's this:

The first robots reached the world of industry over 60 years ago. Since then, for security reasons, they have performed their work isolated in cages, and that prevented collaboration between workers and machines. The research centre Tecnalia Research & Innovation is embarking on a new era by incorporating into European industry the first robot capable of working shoulder to shoulder with people. There are two aims: to improve the capacities of the workers in conditions of safety; and to increase the competitiveness of the factories in international markets. For this it has the robot Hiro, Japan's most closely guarded secret in recent years in the sphere of industrial robotics.

Through Hiro, Tecnalia is aiming to ensure worker safety, increase the capacities of European manufacturing plants, and fight off the competition existing in international markets. So it has committed itself to combining the intelligence of the human being with the characteristics of industrial robots, since 99% of the tasks are more efficient if the two are combined. What is new about Hiro is that it is a social robot, in other words, it is built to share working space with people in conditions of absolute safety, and should it come into physical contact with any human being, it is programmed to stop automatically. It should be added that robots will undertake to carry out tasks that could signify a health hazard for the workers, and that way staff safety can be guaranteed to a maximum.

It is reckoned that within six years 60% of the industrial base state-wide that performs final product assembly work will have this type of robot on its production lines. The sectors set to benefit from this new technology will be the automotive, auxiliary, plastics, food, timber, beverages, agricultural, aeronautical, railway and energy ones, among others.

Humanoid Robot Works Side by Side With People (Science Daily)

And see this from Early Warning: Global Robot Population:

Read the entire post, and see the excellent econfuture blog for more. What are the end results?

One in five new graduates is out of work, while many more are being forced to take jobs that do not require a degree, official figures show.

Data published by the Office for National Statistics reveals that the unemployment rate for new graduates stood at 18.9% in the final three months of 2011.

The report says that this rate has dipped slightly from a peak of 20.5% following the recent recession.

But the statistics also show a rise in the proportion of recent graduates who are taking up lower-skilled jobs after leaving university.

In the final three months of last year, one in three people (35.9%) who completed their degree in the last six years was working in a role that was suitable for a school leaver.

Fifth of new graduates unemployed (The Indepndant)

According to the Office for National Statistics (ONS), the proportion of graduates employed in jobs requiring less skill than they were trained for stands at 36 per cent, up from just over 25 per cent a decade ago.

The findings mean that around 500,000 people of the 1.5 million who graduated in the last six years are in low-skilled work.

The figures will lead young people to question the value of university education, according to recruitment experts.

The ONS said that around one new graduate in every five available for work is unemployed.

A third of graduates take low skilled jobs (Telegraph)

In 2010, a total of 44 million people nationally received food stamps or some other form of public aid, according to the U.S. Department of Agriculture. People who don't finish college are more likely to receive food stamps than are those who go to graduate school. The rolls of people on public assistance are dominated by people with less education. Nevertheless, the percentage of graduate-degree holders who receive food stamps or some other aid more than doubled between 2007 and 2010.

During that three-year period, the number of people with master's degrees who received food stamps and other aid climbed from 101,682 to 293,029, and the number of people with Ph.D.'s who received assistance rose from 9,776 to 33,655, according to tabulations of microdata done by Austin Nichols, a senior researcher with the Urban Institute. He drew on figures from the 2008 and 2011 Current Population Surveys done by the U.S. Census Bureau and the U.S. Bureau of Labor.

Meet the new generation of welfare queens: master's and doctorate degree holders who can't find work. (BoingBoing)

     Out of 9 million unemployed in April, 4.7 million had gone to college or graduated and 4.3 million had not, seasonally adjusted Labor Department data show.

    That's a swing of more than 2 million since the start of 1992, early in another jobless recovery, when 4.1 million who hadn't gone to college were jobless vs. 2.3 million jobless who had gone.

    Mostly, this dramatic shift reflects broad demographic forces. A greater share of the population has attended college, at least for a time. Meanwhile, older Americans who were less likely to pursue higher education are exiting the work force.

    In 2011, 57% of those 25 and up had attended some college vs. 43% in 1992. Those without a high school diploma fell from 21% to 12% over that span.

    But along with the increasing prevalence of college attendance has come a growing number of dropouts, who have left school burdened by student loan debt but without much to kick-start their careers.

    For those in the labor force — either with a job or in active pursuit of one — 57% of high-school grads with no college (2.9 million of 5.1 million) have found a full-time job.
   
    For labor force members who have attended — and left — college or earned an associate degree, a depressing 64% (2.2 million of 3.5 million) have gained full-time employment.

    Among everyone up to age 24 who has left college or earned a two-year degree — including those not actively searching — the full-time employment-to-population ratio has plummeted from 69% in 2000 to 62% in 2003 to 54%.

The Benefits Of A College Education (Zero Hedge)

Are we just going to keep waiting forever for some technical innovation that's going to put all these people back to work (as opposed to replacing them)? Everything is falling apart, even whole societies. Our economy is in crisis. I don't have answers, but I know that we as a society are not asking the right questions. But first, we need to stop listening to excuses and stop believing the lies we're fed that everything's going to work itself out as if by magic.