Mon. 10/03/15 22:37 EST
.post #10
I’ll take a stab.
Every government exists parasitically: It coercively extracts the wealth that others produce.
Like all parasites, governments must not extract so much wealth that the host ceases to produce.
Foreign Aid strengthens the parasite while also allowing it to neglect the health (wealth) of its host.
This outrageous statement must be addressed first.
Capital according to who? The soviet commissars who appraised the value of their own capital? The fact is that they lacked a functional price system for you to make any such assessments regarding capital value. Who cares about number of machines.. should we count scrap metal and dead bodies also?
After this remark, I am more curious about why you chose hayekian for your name. You obviously adhere to the mystical nature of capital as oppose to anything even remotely resembling Austrian capital theory. You also seem to not appreciate the hayekian knowledge problem, for that alone would not allow you to make such a reckless assertion.
All governments of of the countries you are talking about, without any exception, have practiced and mostly still practice protectionist policies that block foreign capital from flowing into their land, so once again, your assumptions are completely false.
Once these countries, like India for example, lower their trade barriers to some extent, behold the magic of capital accumulation and the standard of living begins to rise.
“Large” reduction? I would like to understand what you are trying to say here. Do you acknowledge that there was a reduction in interest rates over time but according to you, it simply not large enough for you? I need to know before I can respond to such a claim.
Not to say that I point the finger at “racial inferiority” or any such term, but saying that significant genetic IQ differences between races as a theory has been debunked because the IQ variance among races is smaller that the IQ variance between individuals would be rather foolish. For how do you measure the variance in races IQ? By their mean, but the mean itself is hardly a decent standards as by the very standards of the “debunking” variance within the races are so big. And what about skewness? Shortly, the test mentioned certainly does not debunk the theory that there could be genetical differences in mental capacity between races. Perhaps a simple statistical relevance test would suffice. But than again how good is IQ as a measure of mental prowess?
I’ll take a stab at this.
A way I usually like to analyze problems is, no doubt, from the point of view of an entrepreneur. That is we can all sit and around think, “Why is Africa poor?” Well, you guys can go ahead and do this, I prefer to think, “Why don’t I start up business X in Africa?” (solve poverty and get rich! Two birds with one stone!) Where X might be food importation (they seem to certainly have the demand for it) or a textile mill (they seem to have the raw labor for it) or a power plant or etc.. From here, the analysis becomes very simple, either anti-dumping laws, or the various labor movements, or the fact that I would be an idiot for starting up a business in a region in political turmoil. There are areas with a lot less risk and are a much more sound investment.
For this reason, I think the whole IQ thing is really a non-question. Just like machinery can be brought in, foreign experts can also be brought in (to train a cheap workforce no less).
Wow, really tough crowd here.
Well, it looks like none of you are really answering the question that I’m asking, and all making similar points. Look, I’m not saying that capital isn’t part of the explanation, I’m just saying that I don’t think it can account for the huge differences in income that we see across countries and across times. Let me give two quick examples, according to this source (and yes, I know you probably have a problem with Wikipedia figures and GDP in general, but that’s not the point) Luxembourg has a per capita GDP of $110,000 whereas Burundi has a GDP per capita of just under $150. Are you guys really arguing that the fact that Luxembourg’s GDP is over 700 times greater than that of Burundi is entirely the result of the former having more capital? When diminishing returns is taken into account, I found such an explanation to be really unlikely.
To use another example, off the top of my head I remember Bryan Caplan saying that the average person in the US is 50 times better off now than he was 100 years ago. Does the average person have access to 50 times more capital now than he did 50 years ago? Somehow I doubt it.
Like I said, none of you have really answered the questions I’ve asked. Even with the risks involved in investing in countries such as India due to corruption and government predation one would still expect to see capital rushing over there if it really was so scarce as to cause the fifty fold difference in GDP figures when compared to the USA. Yet, if I recall correctly, Easterly points out that most capital flows into the USA.
Now, I’ve pretty much just restated my case, but you guys really aren’t answering my questions. Saying that the numbers are somewhat arbitrary is a non answer, of course they’re not precise, none of these estimates could be. But they still give a good idea of the magnitudes that we should be seeing if capital was the explanation. I doubt I’m going to convince any of you, and I’ve yet to see a good answer to my questions. So I guess I’ll just have to recommend the book in question and hope you guys have enough of an interest in development economics to pick up Easterly’s book and give it an unbiased read.
Yes.
Not if the risk is losing your capital. Better to get 1% return in Luxembourg than -100% in Africa.
Bryan Caplan is known for bullshitting.
The law of returns refers to particular factor of production used for a particular line of production. Nobody ever said that capital accumulation refers to accumulation of just any factor, i.e., the more the better. It refers to new factors as well as old factors combined in different ways.
To take your assertion to their logical conclusions, you would have to conclude that there is an upper limit on how much you can improve and innovate the current structure of production.
You’ve restated your case but you certainly haven’t made it. I believe many of your questions were actually answered quite well. They’ve been shown to be logically inconsistent, incoherent, and incompatible with Austrian capital theory.
What don’t you understand about the terms Trade Barriers?
Have you ever been to Las Vegas?
Yes, entirely due to capital accumulation (including human capital) and the division of labor (supported by free trade, enforcement of contracts, etc…)
You are very right.
Macro economists struggle to understand basic principles because they aggregate everything into an homogeneous ‘blob’ (K for capital!) and then try to make generalization based on it (there’s diminishing returns on K!).
As you said, the lay of diminishing returns (actually the law of associations as Mises states it) applies to a given, homogeneous capital good in a specific production process, not to different, heterogenous capital goods through the economy.
That indeed sounds like a good way to approach the question.
Let’s just start by looking at agriculture. It accounts for 60% of Burundi’s economy. Of the people employed in agriculture 90% are engaged in subsistence farming. This is a huge portion of the Burundi population and there are still chronic shortages of food. In the west less than 1% of the population is engaged in agriculture and they produce enough food to make us all fat.
The subsistence farmers in Burundi produce enough food for 6-7 people; while in the west a farmer produce enough food for 150-170 people. So a very rough number is that western farmers are 25 times more productive (the real number is most likely much more). This is due primarily to western farmers having access to modern equipment, seed, fertilizer, irrigation, pesticides, etc.
At first glance it may appear this confirms your view that capital can’t account for the 700% difference. But we now have to look at the ramifications of being 25 times more productive in agriculture.
Now that 1% of the population can feed everyone that frees millions of people up to produce other things and the capital goods in each of those industries allow a handful of people produce all the cars we want, and another small group of people to produce all of the toothpicks we want. So forth and so on. This effect works with other economic factors, so that the cumulative effect being we produce 700 times as much stuff.
So we may not have 700 times as many capital goods but the difference in capital goods allows us to produce 700 times as much stuff.
But if that is all that is to it then all those folks in Burundi are already free to make cars and toothpicks. All they need to is import food from the super productive farmers in Argentina.
They have to produce something to exchange for the food from argentina dont they?
(edit)
LOL oh and build the factories and infastructure to produce the cars and toothpicks.
Guess I’ll try again.
I think you guys are largely missing my point when it comes to technology. You guys are naively assuming that there are very negligible costs associated with learning new technology, and the matter is simply as easy as opening a few schools to teach farmers the best irrigation methods or whatever. I don’t think it’s that simple, to use Hayek’s phrase there is knowledge that is very specific to time and place and there are very real costs to learning this knowledge. Clearly, since the newest technologies aren’t being adopted the incentives to do so aren’t there, I think the likelihood of expropriation and such goes a long way to explain this. Contrast this with the situation in the western, all of you have many years of education, formal or otherwise. All of this is because the incentives are in place to justify decades of learning, whereas in Africa and developing countries in general the incentives aren’t even in place to make kids turn up to school, even if the costs of doing so are very small.
This is all very true, and yet the law of returns applies to capital as a whole just as much as it does to any particular piece of capital. No matter how you’ve arranged the capital structure, if there aren’t enough workers any additional piece of capital is likely to yield very low returns. Look, I get that you guys consider capital to be a very important issue, especially issues of heterogeneity (substitutability and complementarity) but when doing empirical work the theoretical issues (which are far from being solved, Hayek and Lachmann couldn’t crack it) have to be simplified and abstracted from.
Well, unless you’ve got a source that states otherwise, I find it very difficult to believe that every developing country has such huge trade barriers as to mitigate the extraordinary returns to capital that one would otherwise expect to see (and even with trade barriers, we’d expect to see the huge interest rates I mentioned earlier, yet, we don’t).
With the return to capital you’d expect to see in the face of such a shortage of capital, the probability of expropriation would have to be pretty close to 1 for the expected rate of return to be lower in developing countries than in developed countries. There are very few countries (if any) on earth that have expropriation rates anywhere close to that.
Well, I don’t know. I think the result was first mentioned by P.T. Bauer (I could be wrong there), so it’s hardly modern. But I would have thought that you’d have appreciated economics that focuses on the incentives and knowledge facing individuals as opposed to geographical conditions. Especially since it inclines one to scepticism regarding the feasibility of government aid.
But I could be wrong.
All costs are associated with what if not investments in capital?
Who is assuming that? learning new technology requires capital. It’s part of the roundabout process.
Nobody said it was easy. A school requires capital investment.
The costs are what if not capital investments
So perhaps they are lazy. There is capital ready to flow in from abroad but the locals just don’t want to work. Even if this were true, it still about capital not being accumulated due to lazy people not willing to work.
This doesn’t make any sense. What is there some natural physical law that limits the amount of added productivity of tools and machines in general per capita? So there is some theoretical limit on how, say 10 people, can be productive no matter what tools they invent and how much savings they are ready to invest.
Go do your empirical research and try to discover this amazing natural law of yours. Don’t worry about not being able to conduct any control experiments. In this day and age, all you have to do is play scientist or play expert, and perhaps you will win your noble prize. Unlike de Soto, who according to you, has nothing original to contribute.
I’m joining this discussion late, and I have a side question: Are African nations open to foreign firms? Maybe Africans themselves don’t have the capital to industrialize or increase production of their farms, factories, etc., but foreign investors would (seemingly) be able to “capitalize” on local resources.
Technology is like any other kind of capital - it can be rented.
Global corporations would love to set up industries in Africa and exploit the local labor. It’s just not safe.
Check out this map:
http://www.fraserinstitute.org/commerce.web/product_files/Nov06ffEFWmap.pdf
And notice how brig red are many African countries.
And this statistic data:
http://www.freetheworld.com/2009/reports/world/EFW2009_BOOK.pdf
You will see how poor are African nations rate in terms of economic freedom, and understand this condition, over many, many years, leave them very impoverished and prevent any economic growth.
I don’t know what to think about this. If foreign capital investment ultimately leads to opening factories in some African country, and many Africans ditch their subsistence farming to labor in a factory, is this really exploitation? I can’t imagine anyone previously living at the subsistence level and who takes a job change would do so to be worse off. I’m pretty sure anyone who changes their line of work voluntarily is doing so out of a perceived benefit to themselves. If this is true, there really isn’t any exploitation since both parties feel as though they are better off. If its not, then I guess even wealthy westerners are being exploited by these corporations.
Other than the part about safety, which I believe is a good lead on my original question, this quote doesn’t sound very Austrian, imo.