book response: False Economy by Beattie (2009)

I know nothing about economics, but the topic floods the airwaves. I figured I need to learn something about this critical topic, so I went to the library and found this available for my Kindle. Alan Beattie is the

Cover via Amazon

International Economy Editor of the Financial Times. I am finding that I really enjoy books written by journalists. The crucible of the daily deadline tends to refine the art of writing. I also enjoy books that are historical. The subtitle of False Economy is "A surprising economic history of the world."

I enjoyed the amoral perspective of an economist. Every social decision is viewed through the effect onto accounting. He only condemns poor business decisions, not human rights violations. I admit, I'm jealous of the liberation that perspective brings from melancholy. Of course, poor business decisions do diminish the quality of life of entire nations. Maybe the melancholy is over the collective instead of the individuals.

Regarding an alternative American Civil War outcome, no tears over slavery.

Even if the North had lost, and failed to bring the South back into the Union by force, it would likely have gone its own way, building an economy based on manufacturing and commerce and leaving the South to wallow in its victorious stagnation. Manufacturing and finance were supplanting farming. No country was going to keep up with the leading pack by remaining in agriculture. p.19

He sees globalization as the best route forward for economic success. Becoming self-sufficient in every sector of an economy, including those where the geography are not conducive to success, only hinder a country, not help it. He uses Egypt as an example, that even with the great Nile River only has so much water, so they import grain, when they used to be the breadbasket of the Roman world. Wheat is a water-intensive crop, so is cotton, but they can export their cotton and buy grain on the international market and get a better return on their water investment. He shares the novel concept of another economist that Egypt is actually importing water this way, but not in casks but in food. In contrast he points to American cotton farms, which are owned by relatively few families, who lobby successfully for import protections, so they can  compete on the wallets of American consumers. Beattie argues if others can do it cheaper we should use the land for something competitive that we can export without the need for tariffs. Does America really need to be self-sufficient in cotton?

He investigates the impact of mineral wealth on countries. Diamonds and oil can bring sudden wealth, but that wealth will destroy a weak country but enhance a strong one. Weakness and strength are not about dictators, but about collective morality and economy. Does the new wealth dominate the economy or become a part? If the economy is weak, does the political leadership have the morality to resist claiming it all  to the neglect of those it represents?

In Norway, oil revenue above a certain level is kept in a national oil stabilization fund, a giant state savings account. The money is held in dollars to prevent sudden surges of upward pressure on the Norwegian krone and released for spending according to projections of Norway’s future wealth and future needs. Chile, which is the world’s largest copper producer, has a similar system. These funds need be treated like endowments, not windfalls. Spending should flow at a rate that can be maintained into the long term. p.118 

He investigates the impact of religion on economic success and doesn't see it, contrary to the "Protestant work ethic" claims. The United States was successful with it's Calvinistic origins, but Scotland was not, though sharing the same theology. It made me chuckle to learn that WWJD was used as a political economic rally cry in England in the 1800's.

John Buckmaster, a free-trade agitator who toured country towns and villages, trying to recruit farm laborers and craftsmen to the cause of repeal, employed a prototype “What would Jesus do?” campaign. “If the Corn Laws had been in evidence when Jesus Christ was on earth,” he rather presumptuously declared, “he would have preached against them.” p. 178 

Morality is also important to economies as long as it is consistent. Infrastructure is more than roads. Although roads are important, so are laws, and a consistent response to them. If bribery is accepted, the bribery has to be consistent as well, which makes it simply another business tax which can be figured into expected costs.

Still, it is African countries that seem to suffer most from weak infrastructure: not just bad roads, but the lack of an efficient economic system. As we have seen, trade needs suppliers to trust that they will get paid, and legal and judicial systems that help rather than hinder business. A recent World Bank study that asked four big freight companies about shipping times around the world found that three-quarters of the delays in transport were administrative procedures—customs clearance, tax, cargo inspections, and the like—and not potholed roads or crumbling ports. p.216 

He looks at ancient China and Indonesia under it's dictator, Suharto, as examples of consistent graft that allowed economic trade and growth. Either there are expected payments at each level of bureaucracy or one payment at the higher levels that guaranteed no trouble from those further down. But when anyone in the bureaucracy can ask for a bribe for any amount, effectively randomizing the export process, then the costs will make the exports too expensive to compete, thus killing the goose that could have laid golden eggs.

Over and over again, he points to the greater good. If sectors can't compete, don't prop them up. The pain will be short term, but can result in a less expensive economy in the long term. But thinking of others before ourselves and for the long term instead of today is so anti-American, but I think I've heard that worldview before.

This 10 minute interview with the author about the book might be what you need to step out of your comfort zone and try something new, like I did.