Enrico Spolaore and Romain Wacziarg (following Alberto Alesina) have a noteworthy research program about the wealth of nations. They emphasize and analyze (a) mechanisms of path dependence, (b) issues of scale (size of nations), and (c) counterintuitive impacts of heterogeneity for conflict and cooperation. Here are some nuggets (open access):
"Explaining the pace and direction of economic change throughout history presents a major puzzle."
It does. And part of the problem is that 'economic' is one of the least understood words in the English language. Most people think it's about money or the production and distribution of goods.
Economics is about human behavior. “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” (Robbins). This may seem a statement of the obvious to the professional economist but it is far from obvious to the great majority of people when they ponder why their society is or isn't thriving economically. Instead they get obsessed by ephemeral 'news' stories on 'economic policy'. Keeping it always at the forefront of thinking about economics would avoid going down a lot of misleading theoretical rabbit holes.
And so the framing of any theory on the 'puzzle' needs always start from the question: what can we say about behavior that was accentuated in (or even peculiar to) this particular society in this historical time? Whether that be its institutions or level of interpersonal trust or religiosity etc etc.
What you say is true but I don't think your Robbins quote stated the obvious. Or maybe it's not obvious what it is stating. I'd think most people would read that thinking we are dividing a pie of fixed size. Of course that is not true and I'd assume neither Robbins nor you mean that but given the number of people who think the rich have theirs at the expense of the poor, I wouldn't chance saying it that way. Similarly, the Robbins quote is not obvious in that nonmonetary "Moral Sentiments" is part of economics.
Thank you for this reply but to be honest I can make no sense of it. The profundity of the Robbins definition is the association of the 'economic' with 'human behavior' - not something much narrower like monetary or goods exchange. His definition encompasses every aspect of the human condition - anything where desires ('ends') meet with scarcity - including things as diverse as sexual bonding or where on the planet to seek to live (to give just two of potentially myriad examples). Is that what you mean by 'pie of fixed size'?
Anyone who thinks in terms of bringing democracy to a country like Iraq, Iran, or the past Soviet Union is missing the point. It's not that that country lacks a widely accepted value system; the problem is that the widely accepted value system is a harmful one, either because it denies property rights or because it embraces practices such as slavery or mob violence. Give the vote to a place like that and the bullies already in charge will keep it that way through intimidation, expropriation, or even murder.
If I had to live in a place like that I would much rather it be run by a dictator, like the Shah or Pinochet, who makes sure that the majority's harmful belief never gets enacted or enforced as law, either officially or otherwise.
Thanks for the reference to North's Nobel talk. For a non-economist it was very interesting, especially the discussions of dynamics. Being from the physical sciences where dynamic and kinetics are critical to any understanding of how the world works and what makes stable and unstable systems of all kinds from ecologies to rockets, I tended to follow discussions and the mathematics of such viewpoints in other areas.
I noted back in the 60's some economists were publishing books using partial differential equations in their models that can reproduce the dynamics of feedback type control systems including the oscillations and instabilities. With standard supply/demand models being feed back control processes where an increase in demand feeds back to creating an increasing supply this seem to be a totally rational approach.
Perhaps such dynamic economic approaches just vanished into a subset of economics, but it seem that the whole field ignored the rapid evolution in this field as Space X using the feedback control dynamic landed a rocket on a barge in the middle of the ocean. When I observed the observations of the property prices in Calif. < https://www.dropbox.com/s/7go8mum7wmgljsg/Realestate%20oscillation%20Ca.pdf?dl=0 > with their unstable oscillations I couldn't help thinking of roots and poles on the complex plane used in control theory. These oscillations can be caused by time delays being added to the response time of the supply function with environmental development rules. This is mathematically equivalent on taping a pillow over your home thermostat and wondering why your house temperature oscillates (over and under heating). Bureaucratic or any delay sources can cause a failure of a dynamic system.
Lack of understanding of dynamics by our regulators can and are create unstable economic systems. Even if the math gets you into complex numbers math with imaginary numbers, the power of understanding the dynamics is critical to economics understanding.
At Stanford I studied Engineering-Economic Systems, which had just this idea. But it became, in practice, more of an applied Operations Research (where OR was super theoretical), and has since merged with Industrial Engineering to become Management Sciences.
What I like best was the Decision Analysis, full of probabilities and expected values. My earlier studies included "Stats & Dyns" - statics & dynamics of material sciences.
The sterile macro models, with lots of math based on the models, but not so much probability, seems to have driven out most of the feedback analysis & agent response from econ. Plus Arnold's disliked "economy like a GNP factory" idea.
One would think that economics as a field would have rule of thumb discussion of market behavior related to dynamics. For example, when you have a market demand with a natural cycle tied to economic cycles, if the dynamics of the supply response time is the same frequency the system will be unstable.
As almost all engineers know, you can't control something with a proportional feedback signal whose response time is the same as the natural time of the controlled object (we don't put thermostats in closed insulated closets). With a market economy supply/demand being a feedback with only a proportional signal and not having the I & D parts of a PID controller, we know that the price will be unstable an oscillate, if the response times of the supply function are equal or longer than the dynamics of demand changes. If the supply response is much faster than demand changes, we have a well functioning and stable market.
Adding a bureaucratic time delay to construction in California housing made the whole system go unstable. Driving up the demand function for minerals with our rush for "renewable" energy will create unstable prices as it takes decades to obtain permission for new mines. Economists do note that minerals can have inelastic supply demand responses but seldom do they discuss why these systems (like oil and gas and minerals) oscillate from boom to bust and back to boom again and again.
Looking at the successful transition of S. Korea as a model for Iraq: we should have installed a US friendly Iraqi, possibly Chalabi, and pushed for more market economic development. Folks need to have choices and get used to making choices, as well as compromises.
Our Western civilization has not been good at developing democracy - but some authoritarians with market economies have evolved into democracies.
That’s an excellent review of a book I was very underwhelmed by when I read it (not long after it came out). This despite being very sympathetic to its general approach (as I still am).
I thought of North, also, when reading that ACX review. I tried to bring up Violence and Social Orders in the comments, but I think it was lost on people there. More's the pity.
"The top ten countries by population, other than the United States, are India, China, Indonesia, Pakistan, Nigeria, Brazil, Bangladesh, Russia, Mexico, Ethiopia. Not one admirable government among the bunch. Large size is protective against invasion from the outside, but otherwise there is little to be said for it from an institutional quality perspective"
I think he is saying that 9 of 10 largest countries clearly have low institutional quality compared to smaller countries. Regardless of where US ranks, 9 of 10 is pretty bad. Note he doesn't say size caused it. It might be correlation without causation.
As for the US, I think it's hard to argue it isn't far closer to the top than bottom of the list.
That does raise the question of how one measures "institutional quality". Seems to me a lot of values not related to quantifiable outcomes are putting a thumb on the scale. I am no fan of the CCP, but there's no question they have enormous state capacity consistent with high rates of economic growth and internal peace, security, order. You don't see encampments of junkies in the middle of big cities anywhere there. I have several friends who do business in China and who say that in many ways the markets are freer with much greater extent and capacity to produce a wider variety of goods and services at much more competitive prices, and the legal system is vastly superior in expense, speed, and predictability to what one puts up with in the states. I think people who don't interact with our legal system are out of touch with exactly how bad things have gotten and who therefore imagine the quality of that institution to be much higher than it now is. And the degradation of US intuitions has nothing to do with the size of the population.
North was awarded the Nobel Prize 2 years after the dissolution of the Soviet Union, at a time of peak triumphalism of the West in general and the USA in particular over having 'won' the Cold War. I think North's essay seems dated 3 decades later. Regardless of size, the countries that make up the 'Collective West' are in decline, in my opinion. The Russian defense industrial complex is giving its US counterpart a run for its money in Ukraine. Despite spending a small fraction of what the US does on military equipment, Russia outproduces our MIC in artillery and precision-guided missiles, and has superior technology in certain key areas (hypersonic missiles, air defense systems). It is true enough that all ten countries share the characteristics of large population size and governments of questionable institutional quality, but nevertheless I think grouping China, Russia and India with countries like Ethiopia and Bangladesh is a mistake you would want to avoid. And Russian history is a striking counterexample against the assertion that large size is protective against invasion from the outside (Napoleon, WWII).
Barry Weingast talking with Russ Roberts... https://www.econtalk.org/weingast-on-violence-power-and-a-theory-of-nearly-everything/
Enrico Spolaore and Romain Wacziarg (following Alberto Alesina) have a noteworthy research program about the wealth of nations. They emphasize and analyze (a) mechanisms of path dependence, (b) issues of scale (size of nations), and (c) counterintuitive impacts of heterogeneity for conflict and cooperation. Here are some nuggets (open access):
"Barriers to the spread of prosperity":
https://cepr.org/voxeu/columns/barriers-spread-prosperity
"Kinship and conflict (War and relatedness)":
https://cepr.org/voxeu/columns/kinship-and-conflict
"How deep are the roots of economic development?" [JEL]:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2079923
"Explaining the pace and direction of economic change throughout history presents a major puzzle."
It does. And part of the problem is that 'economic' is one of the least understood words in the English language. Most people think it's about money or the production and distribution of goods.
Economics is about human behavior. “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” (Robbins). This may seem a statement of the obvious to the professional economist but it is far from obvious to the great majority of people when they ponder why their society is or isn't thriving economically. Instead they get obsessed by ephemeral 'news' stories on 'economic policy'. Keeping it always at the forefront of thinking about economics would avoid going down a lot of misleading theoretical rabbit holes.
And so the framing of any theory on the 'puzzle' needs always start from the question: what can we say about behavior that was accentuated in (or even peculiar to) this particular society in this historical time? Whether that be its institutions or level of interpersonal trust or religiosity etc etc.
What you say is true but I don't think your Robbins quote stated the obvious. Or maybe it's not obvious what it is stating. I'd think most people would read that thinking we are dividing a pie of fixed size. Of course that is not true and I'd assume neither Robbins nor you mean that but given the number of people who think the rich have theirs at the expense of the poor, I wouldn't chance saying it that way. Similarly, the Robbins quote is not obvious in that nonmonetary "Moral Sentiments" is part of economics.
Thank you for this reply but to be honest I can make no sense of it. The profundity of the Robbins definition is the association of the 'economic' with 'human behavior' - not something much narrower like monetary or goods exchange. His definition encompasses every aspect of the human condition - anything where desires ('ends') meet with scarcity - including things as diverse as sexual bonding or where on the planet to seek to live (to give just two of potentially myriad examples). Is that what you mean by 'pie of fixed size'?
Anyone who thinks in terms of bringing democracy to a country like Iraq, Iran, or the past Soviet Union is missing the point. It's not that that country lacks a widely accepted value system; the problem is that the widely accepted value system is a harmful one, either because it denies property rights or because it embraces practices such as slavery or mob violence. Give the vote to a place like that and the bullies already in charge will keep it that way through intimidation, expropriation, or even murder.
If I had to live in a place like that I would much rather it be run by a dictator, like the Shah or Pinochet, who makes sure that the majority's harmful belief never gets enacted or enforced as law, either officially or otherwise.
Thanks for the reference to North's Nobel talk. For a non-economist it was very interesting, especially the discussions of dynamics. Being from the physical sciences where dynamic and kinetics are critical to any understanding of how the world works and what makes stable and unstable systems of all kinds from ecologies to rockets, I tended to follow discussions and the mathematics of such viewpoints in other areas.
I noted back in the 60's some economists were publishing books using partial differential equations in their models that can reproduce the dynamics of feedback type control systems including the oscillations and instabilities. With standard supply/demand models being feed back control processes where an increase in demand feeds back to creating an increasing supply this seem to be a totally rational approach.
Perhaps such dynamic economic approaches just vanished into a subset of economics, but it seem that the whole field ignored the rapid evolution in this field as Space X using the feedback control dynamic landed a rocket on a barge in the middle of the ocean. When I observed the observations of the property prices in Calif. < https://www.dropbox.com/s/7go8mum7wmgljsg/Realestate%20oscillation%20Ca.pdf?dl=0 > with their unstable oscillations I couldn't help thinking of roots and poles on the complex plane used in control theory. These oscillations can be caused by time delays being added to the response time of the supply function with environmental development rules. This is mathematically equivalent on taping a pillow over your home thermostat and wondering why your house temperature oscillates (over and under heating). Bureaucratic or any delay sources can cause a failure of a dynamic system.
Lack of understanding of dynamics by our regulators can and are create unstable economic systems. Even if the math gets you into complex numbers math with imaginary numbers, the power of understanding the dynamics is critical to economics understanding.
At Stanford I studied Engineering-Economic Systems, which had just this idea. But it became, in practice, more of an applied Operations Research (where OR was super theoretical), and has since merged with Industrial Engineering to become Management Sciences.
What I like best was the Decision Analysis, full of probabilities and expected values. My earlier studies included "Stats & Dyns" - statics & dynamics of material sciences.
The sterile macro models, with lots of math based on the models, but not so much probability, seems to have driven out most of the feedback analysis & agent response from econ. Plus Arnold's disliked "economy like a GNP factory" idea.
I wish I could give this essay two "like"s.
For a more theoretical description of the ontology of institutions, see “Republic of beliefs”: https://press.princeton.edu/books/hardcover/9780691177687/the-republic-of-beliefs
One would think that economics as a field would have rule of thumb discussion of market behavior related to dynamics. For example, when you have a market demand with a natural cycle tied to economic cycles, if the dynamics of the supply response time is the same frequency the system will be unstable.
As almost all engineers know, you can't control something with a proportional feedback signal whose response time is the same as the natural time of the controlled object (we don't put thermostats in closed insulated closets). With a market economy supply/demand being a feedback with only a proportional signal and not having the I & D parts of a PID controller, we know that the price will be unstable an oscillate, if the response times of the supply function are equal or longer than the dynamics of demand changes. If the supply response is much faster than demand changes, we have a well functioning and stable market.
Adding a bureaucratic time delay to construction in California housing made the whole system go unstable. Driving up the demand function for minerals with our rush for "renewable" energy will create unstable prices as it takes decades to obtain permission for new mines. Economists do note that minerals can have inelastic supply demand responses but seldom do they discuss why these systems (like oil and gas and minerals) oscillate from boom to bust and back to boom again and again.
This post was timely, as I was just finishing up part II of my series on AI and Leviathan. You'll see the North's influence throughout.
https://www.secondbest.ca/p/ai-and-leviathan-part-ii
Looking at the successful transition of S. Korea as a model for Iraq: we should have installed a US friendly Iraqi, possibly Chalabi, and pushed for more market economic development. Folks need to have choices and get used to making choices, as well as compromises.
Our Western civilization has not been good at developing democracy - but some authoritarians with market economies have evolved into democracies.
That’s an excellent review of a book I was very underwhelmed by when I read it (not long after it came out). This despite being very sympathetic to its general approach (as I still am).
I thought of North, also, when reading that ACX review. I tried to bring up Violence and Social Orders in the comments, but I think it was lost on people there. More's the pity.
"I will take narrative history over those methods any day." So agree.
"The top ten countries by population, other than the United States, are India, China, Indonesia, Pakistan, Nigeria, Brazil, Bangladesh, Russia, Mexico, Ethiopia. Not one admirable government among the bunch. Large size is protective against invasion from the outside, but otherwise there is little to be said for it from an institutional quality perspective"
Compared to what
The USA?
I think he is saying that 9 of 10 largest countries clearly have low institutional quality compared to smaller countries. Regardless of where US ranks, 9 of 10 is pretty bad. Note he doesn't say size caused it. It might be correlation without causation.
As for the US, I think it's hard to argue it isn't far closer to the top than bottom of the list.
That does raise the question of how one measures "institutional quality". Seems to me a lot of values not related to quantifiable outcomes are putting a thumb on the scale. I am no fan of the CCP, but there's no question they have enormous state capacity consistent with high rates of economic growth and internal peace, security, order. You don't see encampments of junkies in the middle of big cities anywhere there. I have several friends who do business in China and who say that in many ways the markets are freer with much greater extent and capacity to produce a wider variety of goods and services at much more competitive prices, and the legal system is vastly superior in expense, speed, and predictability to what one puts up with in the states. I think people who don't interact with our legal system are out of touch with exactly how bad things have gotten and who therefore imagine the quality of that institution to be much higher than it now is. And the degradation of US intuitions has nothing to do with the size of the population.
The USA has a lot of problems, but surely you would admit that those are worse.
North was awarded the Nobel Prize 2 years after the dissolution of the Soviet Union, at a time of peak triumphalism of the West in general and the USA in particular over having 'won' the Cold War. I think North's essay seems dated 3 decades later. Regardless of size, the countries that make up the 'Collective West' are in decline, in my opinion. The Russian defense industrial complex is giving its US counterpart a run for its money in Ukraine. Despite spending a small fraction of what the US does on military equipment, Russia outproduces our MIC in artillery and precision-guided missiles, and has superior technology in certain key areas (hypersonic missiles, air defense systems). It is true enough that all ten countries share the characteristics of large population size and governments of questionable institutional quality, but nevertheless I think grouping China, Russia and India with countries like Ethiopia and Bangladesh is a mistake you would want to avoid. And Russian history is a striking counterexample against the assertion that large size is protective against invasion from the outside (Napoleon, WWII).
The difference between North's true influence and his "reception" is indeed odd.
Taking transactions as being embedded in a wider institutional and cultural context gets in the way of mathematical modelling.