dazzling growth

HAWB 1791-2001 Alexander Hamilton and the Apple I-phone - How America Was Built

In October 2015, I posted HAWB 1791 - Alexander Hamilton rejected Adam Smith. What I am posting today could be titled HAWB 1791 - Alexander Hamilton rejected Adam Smith Part 2. My October 2015 post mostly discussed Hamilton's refutation of Smith's advocacy of free trade. Near the end, I presented Hamilton's argument in favor of direct government intervention in the domestic economy, by excerpting from European Origins of the Economic Ideas of Alexander Hamilton (Arno Press, New York, 1977), by Robert James Parks:

One of the doctrines of the physiocrats which Smith had accepted was that of non-regulation of business, with a neutral policy toward its growth. Let alone, neither encouraged nor discouraged, industry would seek its most useful and profitable employment. Against this hypothesis, Hamilton offered several objections. These were that the supposed tendency of industry to seek its most profitable employment was inhibited by the force of habit, the spirit of imitation, fear of new ventures, the intrinsic hazards of new enterprises, and the unfair competition created by the bounties and subsidies given in competitive nations. Experience teaches that men change habits only slowly and reluctantly. It is the job of government to encourage and speed up change. He argued that capital is cautious, and can only be made venturesome if the government removes some of the risks.

"Experience teaches," Hamilton wrote in Section VII of his December 1791 Report to Congress on the Subject of Manufactures,

that men are often so much governed by what they are accustomed to see and practice, that the simplest and most obvious improvements, in the most ordinary occupations, are adopted with hesitation, reluctance, and by slow gradations….

The apprehension of failing in new attempts is, perhaps, a more serious impediment. There are dispositions apt to be attracted by the mere novelty of an undertaking; but these are not always the best calculated to give it success. To this it is of importance that the confidence of cautious, sagacious capitalists, both citizens and foreigners, should be excited. And to inspire this description of persons with confidence, it is essential that they should be made to see in any project which is new—and for that reason alone, if for no other, precarious—the prospect of such a degree of countenance and support from government, as may be capable of overcoming the obstacles inseparable from first experiments.

Why Conservatives Can't Govern

With all the attention being given The Donald, I think it is worth remembering that it doesn't really matter who it is, the plain fact is that conservatives are unable to govern. Back in July 2006, Boston College professor Alan Wolfe entertainingly explained why in The Washington Monthly:

Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world-class boeuf bourguignon: If you believe that what you are called upon to do is wrong, you are not likely to do it very well.

The only part I disagree with is where Wolfe writes that Alexander Hamilton was "perhaps America's greatest conservative." Just four paragraphs before, Wolfe approvingly paraphrased Louis Hartz's argument in the 1950s that the United States was born a liberal state. Since few others had as great a hand in forming the USA than Hamilton, the contradiction should be obvious. Was Hamilton somehow a great conservative who helped establish a liberal state? This confusion is sadly typical of most Americans today, who seem not to understand that Hamilton completely demolished and rejected the economic philosophy of Adam Smith. In fact, as I recently posted, Hamilton championed an economic policy that was most decidedly not conservative: active government intervention in the economy to promote innovation. Contrast this to the constant insistence of conservatives and Republicans that it is government regulation which is stifling innovation. As I am attempting to show in my HAWB series - How America Was Built - almost every single transformative technology in the history of the USA economy has been promoted and funded by government before that technology achieved commercial success.

Remembering Olof Palme

I am almost certain I would have never heard about Markings had not my father returned from some Swedish-Lutheran liturgical get-together with tales of the buzz the book had caused in the church colleges. I am pretty certain my father did not read it. My mother may have. The copy I read belonged to my mother's cousin.

Hammarskjöld is an old Viking name—as compared to a peasant name like Larson. The family has been loyally keeping the Swedish royals out of trouble for several centuries—his father served as Swedish Prime Minister during World War I and was considered a world-class expert in international law. Dag grew up in Uppsala—Sweden's premiere university town. He was a smart young man who had every possible educational door opened for him. The result was spectacular as Hammarskjöld grew into a thoughtful, wise man with profound insights into the human condition. I reread Markings a few years back and found parts that were still breath-taking.

But even reading Markings did not prepare me for my first exposure to Olaf Palme's Sweden in 1970. Except for his well publicized criticisms of the USA invasion of Vietnam, I actually knew very little about him at all. But as I toured that country humming with world-class industry and no slums, I started to get clues of just what it required to become the leader of the Social Democrats of Sweden. It turned out that Palme was another of those hyper-educated, thoughtful, and brilliant public servants that Sweden could cough up on a regular basis in those days. Not only did he make great decisions about the operation of his country, he had a sound theoretical basis for his ideas. The result was that Palme's Sweden became arguably the most imitated and admired country on earth.

Unfortunately, his belief in the intrinsic goodness of human nature did him in. On a cold February night, Palme and his wife went to the movies unescorted by guards. He hated the whole security business and ditched it regularly. It made him an easy target for an assassin. The crime has never been solved and the list of bad guys with bad motives is long. But whoever they were, they really took out the right guy. The Left in Europe has really never recovered. Sweden has lost much of its unusual character.

HAWB 1800s - It was NOT free trade - How America Was Built

During the past two weeks there have been a number of internet postings attempting to understand and explain the popularity of Donald Trump. The most insightful have been by scholars and writers who are willing to look beyond the issue of racism to see the underlying decay of the USA economy. On the Guardian's website March 7, 2015, Thomas Frank, author of What's the Matter with Kansas? How Conservatives Won the Heart of America (2004), The Wrecking Crew: How Conservatives Rule (2008), Pity the Billionaire: The Hard-Times Swindle and the Unlikely Comeback of the Right (2011), and most recently, Listen, Liberal: How the Party of the People Learned to Love Inequality (2016), pointed out that Trump actually does not talk that much about racism. Not compared to what he talks about the most: trade.

It seems to obsess him: the destructive free-trade deals our leaders have made, the many companies that have moved their production facilities to other lands, the phone calls he will make to those companies’ CEOs in order to threaten them with steep tariffs unless they move back to the US.

The fact that working Americans in flyover country are supporting Trump as a way of rejecting economic neo-liberalism and free trade, is even beginning to sink in among conservatives and Republican elites. First Things editor R.R. Reno wrote on March 4, that Trump's appeal has forced Reno to question

very powerful conservative dogma: Our economic problems will be solved by an ever-greater market freedom. This means lower taxes for the rich, those pushing the economy forward. It also means continuing the liberalization of global markets with free trade agreements, as well as de-regulation and the end of government supports for businesses (for example, the Import-Export Bank, subsidies for green power, and other market-distorting initiatives.) In rejecting this dogma, Trump is unique among Republican primary candidates.

....globalization and ever-freer markets [are] something I’ve long thought is our best option as a nation. I half-recognized the real costs to ordinary people, but I affirmed the homeopathic dogma that still more economic freedom is the best remedy.... In each instance Trump’s successes at the polls have forced me to acknowledge a degree of blindness.

Undoing neoliberalism in Russia

When Russia under Gorbachev and then Yeltsin decided to "modernize" their economy, the guys who rushed in to "help" were the neoliberals. Not surprisingly, their prescriptions mostly centered around massive de-industrialization. That was the prescription for places like USA and UK, after all, so why not Russia where their industrial infrastructure was in an even more sorry state? It was difficult to find any Russian industry with a world-class output, went the reasoning, so why not just shut it down and live off the income of the petroleum extraction business?

When the economic sanctions that followed Russia's annexation of Crimea in the spring of 2014 began to bite, Russia discovered that they were importing a lot of goods they had once made for themselves. So the decision was made to start reversing the process of deindustrialization through import substitution. This was the primary strategy of economic development in the years after WW II for much of the world. Japan was the most successful at their planned strategy of import substitution but it worked almost everywhere it was rigorously tried. The economic "liberals" hated it then and they most certainly hated it in 2014.

So Russia is in the very early stages of their new import substitution strategy and not surprisingly, it has produced mixed results. Re-industrialization is almost infinitely more difficult than de-industrialization so these things take time. Worse, Russia has a severe neoliberal hangover from the days when such was the only acceptable worldview. The most obvious example is the crazy lady running the central bank who believes that usury is the cure for inflation—even inflation caused by externally imposed sanctions. So the prime rate is still at 11%—a rate mathematically guaranteed to severely hamper or destroy any industrial activity. That any import substitution is happening at all is mostly a testament to the courage and tenacity of the Russian people.

The neoliberals from places like The Economist have already deemed Russia's strategy for import substitution an utter failure. No great shock here because such people think that Russia is literally defying the laws of their god. On the other hand, Hellevig below thinks the project is working out well.

Making sense of the Trump phenomenon

Watching the Republican establishment running in circles over their worries about the spectacle that is Donald Trump has literally triggered a spasm of schadenfreude. The Democrats are predicting the collapse of his campaign and a cakewalk for their candidate—presumably Hillary Clinton. The Stop Trump movement is pulling out all the stops—including physical disruption of campaign events.

Most interestingly, none of the attacks on Trump seem to have inflicted any damage to his growing political support. Considering that Howard Dean's presidential ambitions were derailed by repeatedly running his joyous victory shout, one might predict that the barrage of professionally-produced negative ads run against Trump in Florida should have blown him out of the water. Instead, his polling numbers went up with each new ad drop and he won the Florida primary going away.

Since the professional political pundits seem to have no real explanation for such loyalty beyond their slander of racism, we should probably jump in here with a good round of institutional analysis.

Producers vs Predators. Once upon a time, the Republican party was a party of Producers. My mother's side of the family were essentially social democrats with one exception—some of her cousins ran a machine shop in Minneapolis and they were loyal, lifetime Republicans. My guess is that this strain still exists even after more than 40 years of banksters setting the Republican agenda. Romney was a bankster and the Producer Republicans hated him. Trump has stuck his neck out to build something—risking his personal fortune along the way. So even though few write political commentaries about Producers vs Predators, Trump's following seems to have an instinctive feel for these matters.
Producer-politicians are usually pretty clumsy politically. They usually run afoul of some sort of political correctness. But as Trump has discovered, his following is not impressed by the arguments of political correctness.
The enforcers of political correctness are merely a slice of the Leisure Class who want to rule by manners. This method is extremely effective for separating the insiders from the rabble. And so the Trump-bashers take great joy in pointing out that many of those voting for him are poor and poorly educated. The Producers would point out that one can lack formal educational credentials and still be highly skilled. They would also point out that before the massive de-industrialization of USA, they were NOT poor either.

Intel founder Andy Grove passes at age 79

Here is the story from the San Jose Mercury News, the newspaper of record for Silicon Valley. And here is the story from Wired magazine's website.

Rather than replicate their biography of Grove, I would rather point readers to an article Grove wrote in July 2010, How America Can Create Jobs, in which he ripped into outsourcing and free trade, and asked a fundamental question: "what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?" (below)

It should also be noted that Grove was an immigrant from Hungary. Both the fact that Grove was an immigrant, and that he repudiated free trade, should be rubbed in the faces of Republicans, conservatives, and neo-liberals until they squeal.

A highly entertaining read, which ably contrasts the producer class ethos in conflict with predator class pecuniary culture, set in the context of the birth of the semiconductor industry, is The Tinkerings of Robert Noyce: How the Sun Rose on the Silicon Valley, by Tom Wolfe, in Esquire, December 1983.