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Libraries continue to sign Transformative Agreements while becoming increasingly convinced that they do not represent the desired transformation. Peter Barr explains why this happens.
The post Guest Post — Why Are UK Libraries Signing a Springer-Nature Deal They Don’t Seem to Like? appeared first on The Scholarly Kitchen.
"Researchers have only so many hours in a day; if they can spend one less hour on a research article because we have implemented improved workflows and better technology, that’s one more hour they can spend on research to try to save my life, and the lives of all ALS patients." In today's post, Bruce Rosenblum shares his experience as a clinical trial participant and how that contributed to scholarly publications.
The post Guest Post — Being Research Data appeared first on The Scholarly Kitchen.
You’ve probably heard that everyone is “paid what they’re worth.” Don’t buy it.
According to this mythology, workers at the bottom are “unskilled” and don’t deserve more than what they currently earn.
Minimum wage workers at McDonald’s are paid what they are worth in the so-called “free market.” If they were worth more, they’d earn more.
By the same logic, the CEO of McDonald’s is worth his multi-million dollar compensation package.
The notion that people are paid what they’re “worth” is by now so deeply ingrained in the public consciousness that many who earn very little assume it’s their own fault that they don’t earn more. That they simply lack the skills they need to be paid more.
But there’s no such thing as unskilled workers. Only underpaid workers. Their productivity — that is the value of what they produce — has been growing for decades. The problem is that their wages haven’t kept pace with their productivity.
The “paid what you’re worth” mythology also lures the unsuspecting into thinking nothing can be done to change what people are paid. It’s simply the way the market works.
Meanwhile, according to this same view, CEOs who rake in tens of millions and Wall Street traders who rake in hundreds of millions, are simply being paid what they’re “worth” because that’s what the market has dictated.
Rubbish. The “paid what you’re worth” fairytale ignores power and disregards policies that have made inequality skyrocket. Like the demise of antitrust enforcement, which has given big corporations the power to set prices, make record profits, and reward their CEOs unprecedented compensation. This fairytale ignores the attacks on labor unions that have reduced union membership from over a third of all private-sector workers in the 1950s to just 6 percent today. All of this resulting in a massive shift in power and wealth from workers to owners.
Those at the top justify their staggering wealth, and they’re “worth,” three ways:
The first is trickle-down economics. They claim that their wealth trickles down to everyone else as they invest it and create jobs. Just wait for it… But as we know, wealth at the top has soared for decades and nothing has trickled down.
The second is the “free market.” They talk about market forces beyond their control. But remember, markets are created by rules. These rules don’t exist in nature; they are human creations. The political power of the wealthy has let them change the rules for their own benefit — busting unions, monopolizing industries, and reaping big tax cuts.
The third is the idea that they’re superior human beings. Sure, they may be talented but this doesn’t justify the staggering amount of wealth they are now taking home. Nor does it justify the amount of wealth they will pass down to heirs. The biggest intergenerational transfer of wealth in history will occur over the next 25 years as the richest 1.5% of Americans hand down roughly some $36 trillion dollars to their children and grandchildren. That doesn’t make those heirs superior. It makes them lucky.
The reality is there’s no justification for today’s extraordinary concentration of wealth at the very top. Or for how little people are paid at the bottom.
The “paid what you’re worth” myth has proven to be a cruelly effective way to put the blame on workers for not getting ahead — while giving the rich and powerful cover to rig the game for their own benefit.
It is distorting our politics, rigging our markets, and granting unprecedented power to a handful of people while millions of Americans struggle to get by.
Don’t fall for it.
Missing from most history books is a key moment leading to the culture wars now ripping through American politics.
In 1970, hundreds of construction workers pummeled around 1,000 student demonstrators in New York City — including two of my friends. The “Hard Hat Riot,” as it came to be known, ushered in an era of cynical fear-mongering aimed at dividing the nation.
The student demonstrators were protesting the Vietnam War and the deadly shooting of four student activists at Kent State University that occurred just days before.
The workers who attacked them carried American flags and chanted, “USA, All the way,” and “America, love it or leave it.” They chased the students through the streets — attacking those who looked like hippies with their hard hats and steel-toed boots.
When my friends in the anti-war movement called to tell me about the riot later that day, I was stunned. Student activists and union workers duking it out in the streets over the war? I mean for goodness’ sake, weren’t we on the same side?
According to reports, the police did little to stop the mayhem. Some even egged on the thuggery. When a group of hardhats moved menacingly toward the action, a patrolman apparently shouted: “Give ’em hell, boys. Give ’em one for me!”
The construction workers then marched toward a barely-protected City Hall. Why? Because the mayor’s staff had lowered the American flag in honor of the Kent State dead. In a scene eerily foreshadowing the January 6th Capitol Riots, they pushed their way towards the building.
Fearing the mob would break in, city officials raised the flag.
The hard hats also ripped down the Red Cross banner that was hanging at nearby Trinity Church. They stormed a Pace University building, smashing lobby windows with their tools and beating students and professors.
Around 100 people were wounded that day, many of whom were college students. Several police officers were also hurt. Six people were reportedly arrested, but only one construction worker.
My friends escaped injury but they were traumatized.
The Hard Hat Riot had immediate political consequences. It was, in my opinion, a seminal moment in America’s culture wars.
Then President Richard Nixon exploited the riot for political advantage. His administration had been working on a “blue collar strategy” to shift white working-class voters to the Republican Party.
“Thank God for the hard hats,” Nixon exclaimed when he heard about the riot.
But rather than passing pro-labor policies to court workers, which would go against the values of the pro-business Republican Party, Nixon sought to use cultural issues like patriotism and support for the troops to drive a wedge between factions of the Democratic Party.
Nixon invited union leaders, some of whom were involved in the riot, to the White House. They presented Nixon with a hard hat inscribed with “Commander in Chief”and an American flag pin. Nixon praised the union workers as, “people from Middle America who still have character, and guts, and a bit of patriotism.”
Nixon’s strategy to use the Hard Hat Riot to appeal to blue collar voters paid off. In his 1972 re-election campaign against the anti-war Democrat George McGovern, he secured a victory with ease and gained the majority of votes from organized labor – the only time in modern history a Republican presidential candidate accomplished such a feat.
The Hard Hat Riot revealed a deep fracture in the coalition of workers and progressives that FDR had knitted together in the 1930s, and the later alliance of Black Americans, liberals, and blue-collar whites that led to Lyndon Johnson’s landslide re-election in 1964.
The mostly white construction workers who attacked the demonstrators had felt abandoned — and forgotten – as the Civil Rights movement rightfully took hold. They felt stiffed by the clever college kids with draft deferments, and burdened by an economy no longer guaranteeing upward mobility.
The class and race based tensions that Nixon exploited would worsen over the next half century.
I witnessed this when I was secretary of labor during the Clinton Administration. I spent much of my time in the Midwest and other parts of the country where blue-collar workers felt abandoned in an economy dominated by Wall Street. I saw their anger and resentment. I heard their frustrations.
Many Democrats, whether they will admit it or not, have not done enough to respond as Republicans have destroyed unions, exacerbated economic inequality through trickle-down nonsense, tried to gut just about every social safety net we have – and stood in the way of practically every effort to use the power of government to help working people.
Today, the right is trying to channel that same anger and violence against the Black Lives Matter movement, the LGBTQ+ community, particularly drag queens and transgender people, and whatever they consider “woke.”
It is the same cynical ploy to instill a fear of “the other” as a means to distract from the oppression and looting being done by the oligarchs who dominate so much of our economy and our politics.
As such, today we face the same questions we faced in 1970:
Will we finally recognize that we have more in common with each other than those who seek to divide us for political and economic gain?
Can we unite in solidarity, and build a future in which prosperity is widely shared by all?
I truly believe that we still can.
In general, the American right praises tax cuts while condemning what they call “handouts.” Thanks to a well-established narrative, this seems to be a consistent and sensible position. People generally see taxes as a negative and taxes take money away from people as a cost. Hence, a tax cut can be presented as being positive since it results in taking less from people. And who would not want their taxes reduced? In contrast, while people might like money for nothing, handouts have been presented in a negative light. The narrative is that while a tax is wrongfully taking away from a person who has earned their money, a handout is giving money to someone who does not deserve it. But a tax cut is the same thing as a handout and this can be shown by the following.
Imagine that Richie Rich and Poor Paul are hungry and go to a restaurant. Richie Rich’s order is $100, which he therefore owes to the restaurant. Poor Paul, tired and hungry from working two jobs, digs around in his pocket and can only find $5, not enough to buy even a sandwich. The restaurant owner sees Paul’s plight and offers him a handout of $2 so he can buy a sandwich. Richie Rich scowls at this–he thinks that Paul should not receive that handout and, if he cannot afford a sandwich, he should go hungry. Or, as a bit of compassion arises in Rich’s soul, maybe buy $5 worth of food at Publix and make a sandwich at home. He turns towards Paul and says as much, feeling the righteous fire in his soul for having complained about this unearned handout. Paul says that he is in a hurry–he has another shift in twenty minutes. Rich scoffs at this, and explains the importance of time management and planning ahead.
After Richie Rich finishes his lunch, he gets the $100 bill. Outraged that he has been charged the full amount, he demands to speak to the manager and explains, in detail, that he earns his money, that he is a job creator and he gives money to charity. In response, the restaurant agrees to cut his bill down to $20. Paul looks over at Rich and says, “hey, looks like you got a handout, too.” Almost having a stroke, Rich yells at Paul that it was a bill cut and not a handout. Handouts are for lazy poor people. Bill cuts are for hard working job creators who have earned the cut. Paul points out that the effect is almost the same, though the bill cut seems way better: Paul got $7 worth of food for $5 while Rich got $100 worth of food for $20. Rich is enraged by this comparison and repeats that he is a job creator who earned his money while Paul is lazy and practically stealing from the restaurant. As he rushes towards the door to get to his next shift, Paul says that bill cuts and handouts are effectively the same.
There are, obviously, differences between the restaurant scenario and taxes but the core idea is the same: Having your bill cut by $2 is the same as being given a $2 handout: either way, the cost of your sandwich to you is $2 less. Having your taxes cut is the same as being given that amount of money: either way, you have more money than you would without the cut or handout. The main difference is rhetorical: as noted above, the narrative is that tax cuts are good (and usually earned) and that handouts are bad (and practically theft).
Guest post by Vilde Lunnan Djuve and Carl Henrik Knutsen
In March 2020, COVID-19 generated a major emergency in countries across the world with public fear of the virus, lockdowns, and economies going into a tailspin. Yet, observers and citizens in many countries were worried about one additional thing, namely that their leaders would use the ongoing crisis as a window of opportunity for concentrating power in their own hands and thereby (further) undermine democracy. This was the case in Hungary, for example, where Viktor Orban’s government was granted the power to rule by decree. Such fears are not unfounded: History suggests that whenever leaders declare states of emergency in response to a (perceived or real) crisis, democratic decline becomes much more likely.
The COVID-19 crisis, in many ways, was unprecedented in its global scope and wide-ranging ramifications. Yet, even more conventional crises such as a “regular” economic recession with increased unemployment and reduced incomes, could have notable political consequences. From previous research, we also know that crises are related to various tumultuous political events such as civil war, coups d’état, and revolutions.
But very often regimes are changed not by some outside force such as military officers conducting coups or by revolutionaries in the streets. Instead, global data from the last two centuries show that the incumbent regime elites, including the sitting leaders themselves, are very often involved as key actors in processes of regime change. Does economic crisis increase the chances also of such incumbent-guided transitions?
In our new study, we investigate the relationship between economic crisis and regime changes driven by regime incumbents. We find that the relationship between economic crisis and incumbent-driven transitions (when treating them as one category) is very clear and at least as strong as the relationship between crisis and coups d’état. In other words, the risk of regime change driven by sitting presidents or other top leaders increases just about as much as the risk of coups, in the wake of economic crisis.
Why do we find such a robust relationship between economic crisis and incumbent-guided transitions? We propose two complementary explanations:
First, we argue that economic crises can work as windows of opportunity for incumbent leaders who are eager to expand their grip on power, make sure that they stay in power in the future, and diminish the role of the opposition. The idea is that, like during a pandemic (albeit typically on a smaller scale), citizens are more willing to accept extreme measures from their incumbents when crises loom. This gives leaders leeway to blame common enemies, ensure support where they otherwise cannot find it, and pursue regime change in a direction they inherently prefer.
Indeed, we find in our study that there is a strong and systematic relationship between economic crises and non-democratizing regime transitions driven by the regime incumbent. For examples of this unfolding in the real world, we can look to the self-coup of President Fujimori in Perú in April 1992, which took place after a long slouch in growth and the ascension of the armed group Sendero Luminoso.
In a more hopeful vein for supporters of democracy, we also have reason to believe that crises can trigger incumbent-guided liberalization. Both previous scholarship and real-world examples suggest that crises may force concessions from cornered autocrats because they ultimately would prefer gradual democratization to full-fledged revolution or armed insurgency. Since we know that crises make both coups and revolutions, perceptive autocrats should anticipate the heightened threat levels and thereby be more motivated to, e.g., hold general elections to diffuse tensions.
For a classic example of crisis driving popular discontent, rising insurgency, and mediated democratization guided by the incumbent, we can look to Zambia when the rule of the United National Independence Party (UNIP) ended in 1991. Kenneth Kaunda and UNIP had ruled Zambia for 27 years, whereof 18 under a formalized one-party state. Yet, in 1991, multi-party elections were held, followed by a relatively peaceful transfer of power to the Movement for Multi-Party Democracy (MMD). Here, the economic crisis built up substantial pressure on the regime by way of widespread protest and increasing opposition alliance building. Under such conditions, the regime ultimately opted to reform a less favorable regime type than the status quo, presumably because this outcome was preferable to them compared to forced regime change by outside actors.
We thus know that crisis can help push the needle in some instances. However, we do not find in our analyses that there exists a robust, systematic relationship between crisis and incumbent-guided democratization, more specifically. It might be that many cornered dictators, during times of crises, preempt the need for concessions by consolidating power instead of liberalizing. Or, they make policy concessions to the opposition that fall short of democratization, but still ease tensions, such as increasing pensions payments.
Overall, then, we find that crises rarely pressure incumbents to democratize. Rather, crises enable regime leaders to alter their regimes either without affecting their democracy score, or by lowering it. In the midst of a global halt in democratic progress, there is thus particularly good reason to pay close attention to the actions of incumbents in weak democracies during times of crises.
Vilde Lunnan Djuve is a Postdoctoral Fellow at the Department of Political Science at the University of Oslo. Carl Henrik Knutsen is a Professor of Political Science at the University of Oslo and a Researcher at the Peace Research Institute Oslo.
Our bodies, our houses, our land, our space - we humans don’t always like to share. Author Bette Adriaanse talks with Chelsea T. Hicks, and virtual guests Brian Eno and Aqui Thami, about property and sharing, and how to make a lasting positive change in the way we share the world with each other. Alternating between thinkers and doers, whose actions help foster long term equality, this evening explores the choices that can be made to share time and resources with others in radical ways.
Chelsea T. Hicks is an author, activist, and citizen of the Osage Nation.
Brian Eno is a musician, artist, writer, and co-founder of Earth Percent and The Long Now Foundation.
Aqui Thami is an artist, activist, and Thangmi woman of the Kiratima peoples of the Himalayas.
If there’s one thing that brings our divided nation together, it’s our hatred of junk fees.
Junk fees are extra charges you don’t know you’re paying until you get the bill. They hide the true cost when you buy a good or service, so it’s impossible to comparison shop. For example…
Say I want to travel to go see my favorite musician Dolly Parton play at Nashville’s Grand Ole Opry.
When I book my plane ticket, I have to fork up extra cash to bring luggage or change my flight. My grandkids are more into Blippi than Dolly — so they won’t be traveling with me. Otherwise, I might have to pay a fee just to sit with them.
I need a rental car once I land, so I’ll be stuck paying an extra fee to pick up the car at the airport and another fee they never told me about to cover the rental company’s costs for disposing old tires. Seriously?
When I pay my hotel bill, the price is way higher than I thought I’d pay when I booked the room, to cover wi-fi, pool access, a gym, state and local taxes and other special fees.
Before I get to the show, I better look at my checking account balance if I want to buy a record. Even if I see that I have enough money to make a purchase, the timing of other charges hitting my account could result in me getting slapped with a surprise overdraft fee. It’s a simple mistake, but could make a $20 record end up costing $50.
Oh and don’t forget the concert tickets themselves. Major ticket sellers like Ticketmaster tack on fees to attend shows, which can drive up the final ticket price as much as 78% percent higher than what I was told the initial price was.
It’s all bait-and-switch. You thought you could afford to see Dolly Parton, but it turns out it’s gonna take a lot more than working “9 to 5”.
Corporations often label these types of charges “convenience fees” or “service fees.” Probably because they “conveniently” “serve” to pad their bottom lines, costing Americans at least $29 billion dollars a year we didn’t expect to pay. This is a huge problem spanning many different industries — not just the ones I’d encounter on my trip.
But there’s good news: President Biden has urged Congress to draw up legislation to prevent these outrageous fees.
Turns out, one of the few things as popular as Dolly Parton is tackling junk fees.
It’s time for Congress to act.
Ufuk Akcigit and Nathan Goldschlag (my co-author and former student) have an important new paper on the employment and invention dynamics of US inventors. Amazingly they link data on inventors from patents to census data using anonymized, person-level identifiers, known as Protected Identification Keys (PIKs) so they also have individual data on earnings and employment and they link that data to data on firms.
Ultimately, we observe the employment histories of approximately 760 thousand inventors associated with 3.6 million patents granted between 2000 and 2016.
What they find is twofold. First, an increasing number of inventors are being hired by large incumbent firms (left below). Second, when inventors move to large incumbent firms they earn more but they invent less, compared to similar inventors who go to young firms (right below). Why would an incumbent firm pay more for less productive workers? One possible answer is the Arrow replacement effect, namely a monopolist has less incentive to innovate than a competitive firm becasue the monopolist has a bigger opportunity cost, namely it’s own profits. As Arrow put it: “The preinvention monopoly power acts as a strong disincentive to further innovation.” A logical extension is that a monopolist will be willing to pay not to innovate and one way of doing that is to hire inventors who, if they worked at an entrant, would threaten their monopoly profits.
This is an important paper on declining dynamism in the US economy.
Addendum: In a second paper they use their extensive data to discuss the demographic characteristics of inventors.
The post The Arrow Replacement Effect and the Dynamics of US Inventors appeared first on Marginal REVOLUTION.
One model of a future course is a super-textbook: lectures, exercises, quizzes, and grading all available on a tablet with artificial intelligence routines guiding students to lectures and
exercises designed to address that student’s deficits and with human intelligence—tutors—on call on an as-needed basis, possibly for extra marginal fees.
That was Tyler and I in our 2014 paper. Here’s the Washington Post on the Khan Academy and OpenAI colloboration.
…last week, the private Khan Lab School campuses in Palo Alto and Mountain View welcomed a special version of the [GPT] technology into its classrooms.
Rather than solve a math problem for a student, as ChatGPT might do if asked, Khanmigo is programmed to act like “a thoughtful tutor that’s actually going to move you forward in your work,” says Salman Khan, the technologist-turned-educator who founded Khan Academy and Khan Lab School.
Khanmigo was developed in concert with OpenAI, the nonprofit tech start-up that created GPT-4, the underlying technology for the latest version of ChatGPT. OpenAI did not respond to a request for comment on the partnership.
The post Khan Academy Joins with OpenAI appeared first on Marginal REVOLUTION.
This is the final essay of four in a series by James E. Hartley on what literature can teach us about economics. You can read the first here, second here, and third here.
Nobody ever stopped him in the street to say, with gladsome looks, “My dear Scrooge, how are you? When will you come to see me?” No beggars implored him to bestow a trifle, no children asked him what it was o’clock, no man or woman ever once in all his life inquired the way to such and such a place, of Scrooge. Even the blind men’s dogs appeared to know him; and when they saw him coming on, would tug their owners into doorways and up courts; and then would wag their tails as though they said, “No eye at all is better than an evil eye, dark master!”
But what did Scrooge care! It was the very thing he liked.
(Dickens, A Christmas Carol)
Over the course of this series of essays, we have been exploring why it is that people object to an unequal distribution of wealth. We saw in the first essay that the objection is not limited to concern for people living in poverty. In the next two essays, we saw that while there are related complaints about the sources of great wealth, such complaints are not well grounded. So, what is it? Is it that wealthy people are inherently more wicked?
Once again, we turn to literature to guide us. Consider Charles Dickens’s A Christmas Carol. If one is looking for an exemplar of the despicable rich, one can do no better than Ebenezer Scrooge. The first description of him is “a squeezing, wrenching, grasping, scraping, clutching, covetous, old sinner!”
If this portrait of Scrooge is underneath the complaints about unequal wealth, it is not hard to understand the problem. Do people like him really deserve to be the wealthiest people in town? Why should Scrooge be able to lord over his clerk, the impossibly charming Bob Cratchit? In the depths of winter, Bob is working next to a fire that amounts to nothing more than a single coal because Scrooge refuses to let him add another. The entire set-up of this story is designed to raise the complaint about the horrible distribution of wealth in Victorian England.
If the Scrooge at the beginning of the story is the example of what is wrong with wealth inequality, then why doesn’t the story end with Scrooge losing his wealth?
But Dickens is clever. As everyone knows, A Christmas Carol ends on such a happy note that it can only be described as Dickensian. After the ghostly visitors, Scrooge is a reformed man. The final description of Scrooge: “He became as good a friend, as good a master, and as good a man, as the good old city knew, or any other good old city, town, borough, in the good old world.” You would love to know this reformed Scrooge; you would enjoy having dinner, even Christmas dinner, with him.
What is so clever about this ending? Scrooge is every bit as rich at the end of the story as he was at the beginning of the story. If the Scrooge at the beginning of the story is the example of what is wrong with wealth inequality, then why doesn’t the story end with Scrooge losing his wealth?
Bad Scrooge, Good Scrooge
If Scrooge is any indication, it is not the source of wealth or the existence of wealth that rouses our opprobrium. The difference between Scrooge at the outset and Scrooge at the end is neither how wealthy he is, nor how he earned his wealth. He doesn’t become poor or change jobs, and yet we move from abhorring him to loving him. What changes? The only difference between Scrooge at the beginning and end of the story is what he does with his wealth. Scrooge learns to be charitable.
The masterly Dickens sets up the contrast beautifully. As the story begins, we learn that Scrooge is a very unpleasant person, someone not worthy of emulating and someone with whom you would rather not spend time. Scrooge is not just a terrible person; he is a terrible rich person. His riches seem to be the source of his badness.
The defining scene comes early, as Scrooge is in his office and two “portly gentlemen, pleasant to behold” come in. The conversation is worth quoting at length both because it is illustrative and because, well, it is Dickens at his best:
“At this festive season of the year, Mr. Scrooge,” said the gentleman, taking up a pen, “it is more than usually desirable that we should make some slight provision for the Poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.”
“Are there no prisons?” asked Scrooge.
“Plenty of prisons,” said the gentleman, laying down the pen again. . . .
Scrooge goes on to ask if the workhouses and other institutions for the sequestering of the poor are “still in operation,” and the gentleman assures him they are.
“Oh! I was afraid, from what you said at first, that something had occurred to stop them in their useful course,” said Scrooge. “I’m very glad to hear it.”
“Under the impression that they scarcely furnish Christian cheer of mind or body to the multitude,” returned the gentleman, “a few of us are endeavouring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?”
“Nothing!” Scrooge replied.
“You wish to be anonymous?”
“I wish to be left alone,” said Scrooge. “Since you ask me what I wish, gentlemen, that is my answer. I don’t make merry myself at Christmas and I can’t afford to make idle people merry. I help to support the establishments I have mentioned—they cost enough; and those who are badly off must go there.”
“Many can’t go there; and many would rather die.”
“If they would rather die,” said Scrooge, “they had better do it, and decrease the surplus population. Besides—excuse me—I don’t know that.”
Why be charitable when there is plenty of prison and workhouse space to go around? After this passage, what redemption is possible for Scrooge?
Scrooge meets one of these gentlemen at the end of the story, and immediately goes up to him offering an astonishingly large gift to this enterprise to help the poor and destitute. The reader’s heart is warmed. Similarly, Scrooge tell Bob Cratchit that he is not only going to give Bob a raise but also, in a perfect small detail, he tells Bob to build a roaring fire and get a brand new coal scuttle. Wealth inequality, therefore, seems like less of a problem when the wealthy are generous.
The Gospel of Wealth
Andrew Carnegie reflects on how wealth inequality benefits everyone in his short essay “The Gospel of Wealth.” Suppose wealth is created because of the ingenuity and hard work of some set of people. Moreover, when those people get more wealth, they are able to use it to generate even more wealth by expanding the scope in which they can apply their particular genius and work ethic. The creation of this wealth is a benefit to all. But suppose also, that as the wealth is created, a large amount of it accrues to these innovative and entrepreneurial people.
Carnegie notes the difference between the creation of wealth and the distribution of wealth. Surely, Carnegie argues, a society should do all that it can to encourage the creation of wealth. But, when extraordinary wealth is created, it inevitably ends up being distributed unequally. We should not discourage this wealth creation, but we should think more carefully about the final disposition of the wealth.
Carnegie notes three possibilities for the disposition of vast fortunes: first, the wealth could be given to heirs; second, the wealth could be appropriated by the government and used for public purposes; or third, the wealth could be voluntarily given away during the earner’s lifetime. All too often, Carnegie notes, the debate is entirely about the relative merits of the first two possibilities. Carnegie does not like either of those options. The heirs of the person who earned the wealth are rarely good stewards of the wealth after they inherit it. One should not bequeath great wealth to the idle and feckless. Similarly, the government has not proven itself to be a good steward of public resources.
The final option, however, has enormous benefits for society. If the talented earn vast fortunes and then set out to distribute those fortunes in ways that will genuinely benefit the poor, then who would complain? “Even the poorest can be made to see this, and to agree that great sums gathered by some of their fellow-citizens and spent for public purposes, from which the masses reap the principal benefit, are more valuable to them than if scattered among them through the course of many years in trifling amounts.”
Now imagine a society in which everyone who is wealthy acted in the manner suggested by Carnegie. Pick your least favorite billionaire and ask yourself if your opinion would change if you knew that before the person died, all of that person’s wealth, all of it, would be voluntarily given to things that benefited the poor. Benefiting the poor does not have to mean cash grants; Carnegie, for example, built public libraries in small towns across the country. If every rich person acted like that, would anyone still be concerned about the distribution of wealth in a society?
If the talented earn vast fortunes and then set out to distribute those fortunes in ways that will genuinely benefit the poor, then who would complain?
On Charity
If this is right, then there is a massive unstated assumption at the heart of the debate about wealth. If one assumes that the wealthy are shallow, selfish people unconcerned about the welfare of others, then the fact that these morally reprehensible people have acquired great wealth will seem like a social problem. If on the other hand, the wealthy are all kindly, benevolent people who are creating wealth through investment and hard work and then give all that wealth away to help others, then great wealth suddenly does not seem like such a problem. In the latter case, we might actually prefer the greater inequality because the good for the poor will be greater than if the wealth were more evenly distributed.
Why has this underlying feature of the debate about the distribution of wealth been so obscured in the public debate? If the problem is not inequality per se or that wealth has been acquired by improper means but rather that the stereotypical wealthy person is not using the wealth to help others, then why do we talk about wealth distribution instead of talking about the lack of charity among the rich?
I am afraid the answer is simpler than we would like to admit. Imagine someone living in the wealthiest country in the history of the world, someone whose wealth vastly exceeds the dollar a day level that defines global poverty. Now ask: if we are worried about wealth inequality because we don’t think the wealthy are using their wealth to help others, then it seems worth asking, “Who are the wealthy people?” Can I, the writer of this essay, and you, the reader of this essay, afford to give $20 more than we are giving to something that will genuinely benefit those less fortunate? Would any of us really argue we cannot do that? It is an uncomfortable question, to be sure.
As C. S. Lewis put it in Mere Christianity:
I do not believe one can settle how much we ought to give. I am afraid the only safe rule is to give more than we can spare. In other words, if our expenditure on comforts, luxuries, amusements, etc, is up to the standard common among those with the same income as our own, we are probably giving away too little. If our charities do not at all pinch or hamper us, I should say they are too small. There ought to be things we should like to do and cannot do because our charitable expenditure excludes them.
The next time you are involved in a discussion about wealth distribution, no matter which argument you take, why not consider increasing your own private charitable efforts just a bit? Embrace your inner reformed Scrooge.
It may very well, owing to the condition of the world, and especially to the progress of knowledge, present itself at the same time to two or more persons who have had no intercommunication. Bentham and Paley formed nearly at the same date a utilitarian system of morals. Darwin and Wallace, while each ignorant of the other’s labours, thought out substantially the same theory as to the origin of species.--A.V. Dicey [2008] (1905) Lectures on the Relation between Law & Public Opinion in England during the Nineteenth Century, Indianapolis: Liberty Fund, p. 18 n. 6 (based on the 1917 reprint of the second edition).
As regular readers know (recall), I was sent to Dicey because he clearly shaped Milton Friedman's thought at key junctures in the 1940s and 50s. So, I was a bit surprised to encounter the passage quoted above. For, I tend to associate interest in the question of simultaneous invention or multiple discovery with Friedman's friend, George J Stigler (an influential economist) and his son Steven Stigler (a noted historian of statistics). In fairness, the Stiglers are more interested in the law of eponymy. In his (1980) article on that topic, Steven Stigler cites Robert K. Merton's classic and comic (1957) "Priorities in Scientific Discovery: A Chapter in the Sociology of Science." (Merton project was revived in Liam Kofi Bright's well known "On fraud.")
When Merton presented (and first published it) he was a colleague of George Stigler at Columbia University (and also Ernest Nagel). In his (1980) exploration of the law of eponymy, Steven Stigler even attributes to Merton the claim that “all scientific discoveries are in principle multiple." (147) Stigler cites here p. 356 of Merton's 1973 book, The Sociology of Science: Theoretical and Empirical Investigations, which is supposed to be the chapter that reprints the 1957 article. I put it like that because I was unable to find the quoted phrase in the 1957 original (although the idea can certainly be discerned in it, but I don't have the book available to check that page).
Merton himself makes clear that reflection on multiple discovery is co-extensive with modern science because priority disputes are endemic in it. In fact, his paper is, of course, a reflection on why the institution of science generates such disputes. Merton illustrates his points with choice quotes from scientific luminaries on the mores and incentives of science that generate such controversies, many of which are studies in psychological and social acuity and would not be out of place in Rochefoucauld's Maximes. Merton himself places his own analysis in the ambit of the social theory of Talcott Parsons (another important influence on George Stigler) and Durkheim.
The passage quoted from Dicey's comment is a mere footnote, which occurs in a broader passage on the role of public opinion in shaping development of the law. And, in particular, that many developments are the effect of changes in prevaling public opinion, which are the effect of in the inventiveness of "some single thinker or school of thinkers." (p. 17) The quoted footnote is attached to the first sentence of remarkably long paragraph (which I reproduce at the bottom of this post).* The first sentence is this: "The course of events in England may often at least be thus described: A new and, let us assume, a true idea presents itself to some one man of originality or genius; the discoverer of the new conception, or some follower who has embraced it with enthusiasm, preaches it to his friends or disciples, they in their turn become impressed with its importance and its truth, and gradually a whole school accept the new creed." And the note is attached to 'genius.'
Now, often when one reads about multiple discovery (or simultaneous invention) it is often immediately contrasted to a 'traditional' heroic or genius model (see Wikipedia for an example, but I have found more in a literature survey often influenced by Wikipedia). But Dicey's footnote recognizes that in the progress of knowledge, and presumably division of labor with (a perhaps imperfect) flow of ideas, multiple discovery should become the norm (and the traditional lone genius model out of date).
In fact, Dicey's implicit model of the invention and dissemination of new views is explicitly indebted to Mill's and Taylor's account of originality in chapter 3 of On Liberty. (Dicey only mentions Mill.) Dicey quotes Mill's and Taylor's text: "The initiation of all wise or noble things, comes and must come from individuals; generally at first from some one individual." (Dicey adds that this is also true of folly or a new form of baseness.)
The implicit model is still very popular. MacAskill's account (recall) of Benjamin Lay's role in Quaker abolitionism (and itself a model for social movement building among contemporary effective altruists) is quite clearly modelled on Mill and Taylor's model. I don't mean to suggest Mill and Taylor invent the model; it can be discerned in Jesus and his Apostles and his been quite nicely theorized by Ibn Khaldun in his account of prophetic leadership. Dicey's language suggests he recognizes the religious origin of the model because he goes on (in the very next sentence of the long paragraph) as follows: "These apostles of a new faith are either persons endowed with special ability or, what is quite as likely, they are persons who, owing to their peculiar position, are freed from a bias, whether moral or intellectual, in favour of prevalent errors. At last the preachers of truth make an impression, either directly upon the general public or upon some person of eminence, say a leading statesman, who stands in a position to impress ordinary people and thus to win the support of the nation."
So far so good. But Dicey goes on to deny that acceptance of a new idea depends "on the strength of the reasoning" by which it is advocated or "even on the enthusiasm of its adherents." He ascribes uptake of new doctrines to skillful opportunism in particular by a class of political entrepreneurs or statesmanship (or Machiavellian Virtu) in the context of "accidental conditions." (This anticipates Schumpeter, of course, and echoes the elite theorists of the age like Mosca and Michels.) Dicey's main example is the way Bright and Cobden made free trade popular in England. There is space for new directions only after older ideas have been generally discredited and the political circumstances allow for a new orientation.
It's easy to see that Dicey's informal model (or should I say Mill and Taylor's model?) lends itself to a lot of Post hoc ergo propter hoc reasoning. So I am by no means endorsing it. But the wide circulation of some version of the model helps explain the kind of relentless repetition of much of public criticism (of woke-ism, neoliberalism, capitalism, etc.) that has no other goal than to discredit some way of doing things. If the model is right these are functional part of a strategy of preparing the public for a dramatic change of course. As I have noted Milton Friedman was very interested in this feature of Dicey's argument [Recall: (1951) “Neo-Liberalism and its Prospects” Farmand, 17 February 1951, pp. 89-93 [recall this post] and his (1962) "Is a Free Society Stable?" New Individualist Review [recall here]].
I admit we have drifted off from multiple discovery. But obviously, after the fact, multiple discovery in social theory or morals can play a functional role in the model as a signpost that the world is getting ready to hear a new gospel. By the end of the eighteenth century, utilitarianism was being re-discovered or invented along multiple dimensions (one may also mention Godwin, and some continental thinkers) as a reformist even radical enterprise. It was responding to visible problems of the age, although its uptake was not a foregone conclusion. (And the model does not imply such uptake.)
It is tempting to claim that this suggests a dis-analogy with multiple discovery in science. But all this suggestion shows is that our culture mistakenly expects or (as I have argued) tacitly posits an efficient market in ideas in science with near instantaneous uptake of the good ideas; in modern scientific metrics the expectation is that these are assimilated within two to five years on research frontier. But I resist the temptation to go into an extended diatribe why this efficient market in ideas assumption is so dangerous.
*Here's the passage:
The course of events in England may often at least be thus described: A new and, let us assume, a true idea presents itself to some one man of originality or genius; the discoverer of the new conception, or some follower who has embraced it with enthusiasm, preaches it to his friends or disciples, they in their turn become impressed with its importance and its truth, and gradually a whole school accept the new creed. These apostles of a new faith are either persons endowed with special ability or, what is quite as likely, they are persons who, owing to their peculiar position, are freed from a bias, whether moral or intellectual, in favour of prevalent errors. At last the preachers of truth make an impression, either directly upon the general public or upon some person of eminence, say a leading statesman, who stands in a position to impress ordinary people and thus to win the support of the nation. Success, however, in converting mankind to a new faith, whether religious, or economical, or political, depends but slightly on the strength of the reasoning by which the faith can be defended, or even on the enthusiasm of its adherents. A change of belief arises, in the main, from the occurrence of circumstances which incline the majority of the world to hear with favour theories which, at one time, men of common sense derided as absurdities, or distrusted as paradoxes. The doctrine of free trade, for instance, has in England, for about half a century, held the field as an unassailable dogma of economic policy, but an historian would stand convicted of ignorance or folly who should imagine that the fallacies of protection were discovered by the intuitive good sense of the people, even if the existence of such a quality as the good sense of the people be more than a political fiction. The principle of free trade may, as far as Englishmen are concerned, be treated as the doctrine of Adam Smith. The reasons in its favour never have been, nor will, from the nature of things, be mastered by the majority of any people. The apology for freedom of commerce will always present, from one point of view, an air of paradox. Every man feels or thinks that protection would benefit his own business, and it is difficult to realise that what may be a benefit for any man taken alone, may be of no benefit to a body of men looked at collectively. The obvious objections to free trade may, as free traders conceive, be met; but then the reasoning by which these objections are met is often elaborate and subtle, and does not carry conviction to the crowd. It is idle to suppose that belief in freedom of trade—or indeed any other creed—ever won its way among the majority of converts by the mere force of reasoning. The course of events was very different. The theory of free trade won by degrees the approval of statesmen of special insight, and adherents to the new economic religion were one by one gained among persons of intelligence. Cobden and Bright finally became potent advocates of truths of which they were in no sense the discoverers. This assertion in no way detracts from the credit due to these eminent men. They performed to admiration the proper function of popular leaders; by prodigies of energy, and by seizing a favourable opportunity, of which they made the very most use that was possible, they gained the acceptance by the English people of truths which have rarely, in any country but England, acquired popularity. Much was due to the opportuneness of the time. Protection wears its most offensive guise when it can be identified with a tax on bread, and therefore can, without patent injustice, be described as the parent of famine and starvation. The unpopularity, moreover, inherent in a tax on corn is all but fatal to a protective tariff when the class which protection enriches is comparatively small, whilst the class which would suffer keenly from dearness of bread and would obtain benefit from free trade is large, and having already acquired much, is certain soon to acquire more political power. Add to all this that the Irish famine made the suspension of the corn laws a patent necessity. It is easy, then, to see how great in England was the part played by external circumstances—one might almost say by accidental conditions—in determining the overthrow of protection. A student should further remark that after free trade became an established principle of English policy, the majority of the English people accepted it mainly on authority. Men, who were neither land-owners nor farmers, perceived with ease the obtrusive evils of a tax on corn, but they and their leaders were far less influenced by arguments against protection generally than by the immediate and almost visible advantage of cheapening the bread of artisans and labourers. What, however, weighed with most Englishmen, above every other consideration, was the harmony of the doctrine that commerce ought to be free, with that disbelief in the benefits of State intervention which in 1846 had been gaining ground for more than a generation.
There’s a dirty trick many employers use to keep workers from getting a better job.
Some 30 million Americans are trapped by contracts that say if they leave their current job, they can’t work for a rival company or start a new business of their own.
These are called non-compete agreements.
They block workers from seeing higher wages or better working conditions. And they enlarge corporate monopoly power by stifling competition.
But a sweeping new rule from the Federal Trade Commission would put a stop to these non-compete agreements.
The FTC estimates that banning them could increase wages by nearly $300 billion a year overall by allowing workers to pursue better job opportunities.
But non-competes aren’t just bad for workers. They also harm the economy as a whole by depriving growing businesses of the talent and experience they need to build and expand.
Experts argue California’s ban on non-competes was a major reason for Silicon Valley’s boom.
For several decades, non-compete agreements have been cropping up all over the economy — not just in high-paying fields like banking and tech but as standard boilerplate for employment contracts in many lower-wage sectors such as construction, hospitality, and retail.
A recent survey found that non-competes are used for workers in more than a quarter of jobs where the typical employee only has a high school diploma. Another found that they disproportionately impact women and people of color.
Employers say they need noncompete agreements to protect trade secrets and investments they put into growing their businesses, like training workers.
Rubbish. Employers in states that already ban these agreements (such as California) show no sign of being more reluctant to invest in their businesses or train workers.
The real purpose of noncompetes is to make it harder (or impossible) for workers to bargain with rival employers for better pay or working conditions. Workers in states that have banned non-compete agreements have seen larger wage increases and more job mobility than workers in states where they are still legal.
As we learn again and again, the economy needs guardrails — and workers deserve protection. Otherwise, unfettered greed will lead to monopolies that charge high prices and suppress wages.
America once understood the importance of fighting monopolies. Woodrow Wilson created the Federal Trade Commission in 1914 to protect the public against the powerful corporate monopolies that fueled unprecedented inequality and political corruption.
In 1976, when I ran the policy planning staff at the FTC, it began cracking down on corporations under its then assertive chairman, Michael Pertschuk.
Corporate lobbyists and their allies in Congress were so unhappy they tried to choke off the agency’s funding, briefly closing it down. Pertschuk didn’t relent, but eventually he (and I) were replaced by Ronald Reagan’s appointees, who promptly defanged the agency.
Now, under its new Biden-appointed chair, Lina Khan, the FTC is back. Its ban on non-compete agreements nationwide marks the first time since Pertschuk that the agency has flexed its muscle to issue a rule prohibiting an unfair method of competition.
The rule is hardly a sure thing. I wouldn’t be surprised if the radical-right Republicans, now in control of the House, tried to pull off a stunt similar to what the House tried in the late 70s. And corporations are sure to appeal the rule all the way up to the Supreme Court.
In the meantime, kudos to Lina Khan and the FTC for protecting American workers from the unfettered greed of corporate America.
Judged by the course of events of the last century, rather by the avowed aim of Mill and Marx, there is much for reversing the stereotyped roles assigned to the two men. If collectivism ultimately triumphs over individualism, it will be in no small measure a result of the influence of the ideas first popularized and made respectable by Mill; whereas, if individualism ultimately triumphs, it will be in no small measure a result of the ultimate effects of the belief in revolutionary action to which Marx and Engels gave such vivid expression in the Manifesto…
The great defect of the Benthamite liberals among whom Mill grew up was the absence of any theory or doctrine of the positive role of the state in the organization of economic activity. Benthamism was at bottom a fervent belief in the possibility of improving the condition of mankind through legislative enactment devoted to achieving the “greatest happiness of the greatest number.” These central premises do not themselves prescribe any particular content for legislative action. They are, in strict logic, consistent equally with fargoing collectivism and paternalism or with the ”laissez faire” doctrines with which they were in fact combined. The acceptance of laissez faire as a guiding principle was far less the product of explicit analysis or comparison of any exhaustive set of alternatives[;] prohibited were largely assaults on person or property overwhelmingly regarded as clearly indefensible and the appropriate subject for punitive legislation. In this way, the success of laisses faire removed one of the chief factors responsible for the initial acceptance of laissez faire. By the end of John Mill’s life, the state was no longer what it was during his father’s or Bentham’s time—a corrupt, inefficient instrument whose enactments were widely held in low repute. It had become a relatively honest and efficient body, whose enactments were held in high esteem by the body politic.
The sweeping away of the hindrances to the free movement of men, goods, and capital was followed by the great improvements in economic well being. Yet there obviously remained much misery and poverty to which a passionate humanitarian like Mill could not remain blind. It was perhaps not unnatural that we was willing to sanction action by an honest and much improved state administration to redress grievances. He had no principles of state action by which to test proposals for reform. He was almost certain to minimize or reject entirely the argument—if it were made—that direct interference by the state would threaten that private liberty he prized so highly. For this argument conflicted with his deep, though naïve, belief in the perfectibility of human beings through education. Once men were educated, he believed, they would become not only wise but also good.--Milton Friedman (September 10, 1948) "Discussion of Paper by V.W. Bladen The Centenary of Marx and Mill" at The Eight Annual meeting of the Economic History Association. Hoover Institution, Collection Title: Milton Friedman papers Container: box 39. [HT David M. Levy]
Bladen's paper can be found here. Originally Friedman had been invited to comment on a paper on laisser faire by J. Bartlett Brebner (which was turned into an influential article: "Laissez Faire and State Intervention in Nineteenth-Century Britain." The Journal of Economic History, 8(S1), 59-73.) From the correspondence at Hoover it's unclear what prompted the move, but Bladen's paper was the opening and keynote to the conference, and Friedman did not object. The other commentator on the program is Elizabeth Schumpeter--the schedule adds in parenthesis: "Mrs. Joseph A." And it would be lovely to locate her comments.
Bladen was late sending Friedman his paper, and this may help account for the fact that much of Friedman's discussion reads as a riff on A.V. Dicey's (1905 [1914]) Law & Public Opinion rather than a detailed criticism of Bladen (although Friedman added a passage on trade unionism that clearly is critical of Bladen). Throughout Friedman's writings Dicey is an important source, not the least his better studied (1951) “Neo-Liberalism and its Prospects” Farmand, 17 February 1951, pp. 89-93 [recall this post] and his (1962) "Is a Free Society Stable?" New Individualist Review [recall here] some other time I will return to that. (The 1962 piece draws on themes from the manuscript I am discussing today.) And while in today's post 'Marx' is clickbait in the title, I will return to Friedman's comments on Marx, too. Okay, with that in place, let me turn to the text.
Friedman attributes to Dicey (1835 – 1922) a kind of road to serfdom thesis in which Mill's good intentions lead not just to the prevailing support for collectivism that Dicey diagnoses as the effect of Mill's writing at the end of the nineteenth century, but also that the collectivist reforms proposed by Mill would (now quoting Friedman) "seriously threaten political liberty" in virtue of the gradualism that Mill advocated and the tendency to attribute difficulties consequent intervention to the "defects of the price system." Crucially, for Friedman it's the historical experience of Marx's effect on the Russian revolution that halts the English road to serfdom.
Now, in his analysis Friedman ignores the role of imperialism, and the opportunities for rents this provided, in changing the political culture of nineteenth century liberalism. Hobson, for example, argued that this undermined the pacific, free trade coalition. And while Dicey has less nostalgia for this coalition, he concurs with Hobson's diagnosis. {Of course, given Mill's own advocacy for a civilizational mission of British imperialism, it's not as if this lets Mill off the hook.} It is worth noting that Dicey thinks that imperialism (and high taxation that is the effect of it) may well have slowed the road to serfdom process that Friedman attributes to him (see, especially, the 1914 introduction to the second edition, and chapter XII).
It's a bit odd that Friedman misses the significance of (financial and military procurement) rents to imperialism. Because earlier, in describing the rise of laissez faire, Friedman argues in a public choice vein, that “The Benthamites devoted much attention to improving public administration. Their success in this connection was as great as in establishing a large measure of laissez faire, and the two achievements are not of course unrelated. The establishment of laissez fair enormously reduced the benefits which civil servants could confer on private individuals and greatly lessened the incentive or opportunity to break laws.”
As an important aside, I am pretty confident that Friedman had read Hayek's Road to Serfdom by 1948. And there is no sign in his 1948 argument that he is as critical of Hayek in the way that his later use of Dicey in 1962 suggests (recall here).
What's neat about the material I have quoted above is that according to Friedman the key defect in Mill's political economy is that "he had no principles of state action by which to test proposals for reform." That is, the central problem that Mill faces in using state action to ameliorate the plight of the poor and miserable, is that according to Friedman Mill lacks -- and now I am using terminology common to Mill, J.N. Keynes, Friedman, and Foucault -- an art of government.
In fact, (recall) we know from his correspondence with Stigler (Hammond & Hammond) that by 1948 Friedman had started working on his (1953) "Methodology of Positive Economics" paper that uses that very terminology. And that Friedman ends up echoing Mill by treating the art of economics as dependent on empirical science. For it’s this science that provides the knowledge that constitute at least part of the rules of how one gets from given ends to proper outcomes. That is, the dependence of the art on positive science is epistemic in character. And so lurking here is a more fundamental (Marshallian) criticism of not just Mill's art of government, but his political economy more generally one that attributes to Mill a kind of violation of a do no harm principle in political life. To be continued.
In my previous article, I explained five ideas. First, that computer chips are the fundamental building block of the modern economy, much more so than oil. Second, that because of the enormous economies of scale in the industry, semiconductor production—especially of the most advanced ones—is incredibly concentrated in Taiwan and South Korea, a region with high geostrategic instability. Third, that the United States controls the most important part of the value added in the semiconductor industry (since the physical production of semiconductors is only one step in the industry, which also requires design, software, etc.). Fourth, that for the past decade, China has been trying to capture a larger share of this global value added. And fifth, given the military repercussions of the Asian giant’s progress in semiconductor production, the United States launched an aggressive and unusual campaign of restrictions on the export of technology in this sector to China, with the announcement of new regulations on October 7, 2022, which heralded a new stage in the world economy.
Today I will explain how we have arrived at this situation and outline future prospects for the coming years. It is a complex story, which I will have to summarize and—much to my regret—in some cases simplify (a more extensive treatment appears in Chris Miller’s 2022 book, Chips War, although events have accelerated since the book’s publication).
Recent History
For many decades, U.S. semiconductor policy was relatively lax. The idea was that the U.S. could always “run faster” and stay two generations ahead of its competitors with semiconductors (this strategy was called “sliding scale”). Though the cheapest semiconductors were manufactured in East Asia, this benefited American companies, which could control their production costs and keep the most profitable links of the value-added chains (programming, marketing, etc.) in the United States. In addition, this division of labor helped to foster strategic allies surrounding China (Japan, South Korea, and Taiwan).
This U.S. policy had one exception: the Soviet Union. From the American perspective, limiting the Soviet Union’s access to the most advanced technology meant that Soviet military forces could not adequately compete. In reality, the only real advantages of export limitations on the Soviet Union were rhetorical. Its socialist system was so flawed at its roots that it could never support a powerful semiconductor industry. Much of East Germany’s economic ruin came precisely from trying to mass-produce semiconductors under a system as absurd as a centrally-planned economy.
Most of your material possessions, except for your house, are probably not made in your home country—from the electronic device you are using to read this to the clothes you are wearing
These pragmatic considerations (advantages of the international division of labor, aid to East Asian economies, the inefficiency of socialism) were complemented by economic ideas that in the 1980s and 1990s emphasized the advantages of international trade and distrusted governmental industrial policy. As Michael Boskin once, evidently, said: “Potato chips, computer chips—what’s the difference?”
Boskin had a point. Look around you, dear reader. Most of your material possessions, except for your house, are probably not made in your home country—from the electronic device you are using to read this to the clothes you are wearing. This incredible internationalization of the economy has also meant, for instance, that for my home country, Spain, we have been able to emerge from the morass of economic autarky that resulted from decades of misguided policies. Internationalization works, and Spain is the best example: in 1960, Argentina had a per capita income 19 percent higher than ours, today Spain enjoys more than double Argentina’s per capita income.
The problem, of course, is that international trade is a very good idea when your partner does not intend to use the profits from this trade to undermine your national security. There is no perfect trading partner (as there is no perfect person) and every partner is going to overstep the mark on more than one occasion (as Spanish, Danish, or Slovakian companies often do). But everything is a question of proportionality. Driving at 26 mph in a 25-mph zone is not the same as driving at 190 mph.
Yes, Japanese or Korean companies often overdid it in the ’80s and ’90s, but all within a basically reasonable margin. Even China, from the beginning of its economic reform in 1979 until about 2012, behaved in a way that could be accommodated by international trade rules. Again, I stress, China was not perfect, but no other nation was.
As I pointed out in my previous article, the problem is that Xi Jinping came to power in 2012 with the idea of breaking the deal. Xi distrusts international rules (both political and economic). He thinks that the United States is in terminal decline, that Europe is a pygmy obsessed with irrelevant issues such as human rights and democracy, and that the time has come for China to retake its rightful place in international relations, merited by its history, population, and economy. Moreover, this repositioning must be done through the iron grip of the Communist Party, which is the only institution that, in his opinion, can ensure China’s future. And all this, of course, involves semiconductors: the backbone of the entire modern economy.
In 2014 and 2015, the United States began to realize that Xi is different from his predecessors. The final years of Obama’s presidency marked growing concern over China’s new aggressive style, both internally (increased repression, massive concentration camps in Xinjiang) and externally. Suddenly, the question seemed no longer to be whether Chinese companies are going to take a 5-percent market share from them in the semiconductor industry in a somewhat crooked way. Instead, it was about a geostrategic rival that wants to reorganize the world map.
The Opening Shot
Although the details of this shift in U.S. foreign policy are complex, for our issue, semiconductors, the opening shot was fired in October 2016 when Commerce Secretary Penny Pritzker warned in a speech to the Center for Strategic and International Studies in Washington, D.C., that there are “new attempts by China to acquire companies and technology based on their government’s interests—not commercial objectives.” And before that, “The U.S. government will make clear to China’s leaders at every opportunity that we will not accept a $150-billion industrial policy designed to appropriate this industry.”
The unexpected electoral victory of Donald Trump a few days after Penny Pritzker’s speech reinforces this new vision. There is a fundamental and underappreciated continuity in U.S. foreign policy from Obama’s second term through Trump to Biden.
The first battle in this U.S.–China standoff centered on ZTE and Huawei. These two companies specialized in telecommunications equipment, a particularly tricky subject. Several European governments learned during the last few years that their ministers’ cell phones had been hacked and their private conversations spied on by unknown third parties. The problem here was not just that ZTE and Huawei violated too many intellectual property rules and skirted sanctions on Iran and North Korea, but that both companies had close relationships with the Chinese government—one being semi-public and the other with opaque shareholding.
ZTE was fined in 2017 for selling banned equipment to Iran and North Korea, and after much back and forth, the company remains sanctioned in the United States, with a recent prohibition on exporting telecommunications equipment. The case of Huawei is similar, with a ban on purchases of this company’s products by the federal government in 2018 and additional sanctions in the years that followed. There was the issue of controlling such an important technology as 5G, where Huawei had significant advantages. And in 2022 it was SMIC’s turn to be banned, due to its close links with the Chinese armed forces.
China’s reaction to this first battle was interesting. Of course, it complained in public and protested to international organizations (there are complex issues here of international trade law and the jurisdiction of the World Trade Organization). But on the whole, there was little retaliation. Did Xi think that this was not the time to escalate the confrontation? Or that perhaps the United States would tire of these battles, as the price of phones and other telecommunications equipment went up, and the sanctions would fade over time, especially given Trump’s volatile nature? Or did he think simply that the sanctions were not very effective and therefore not worth fighting over?
Then came COVID and everything accelerated. In a production-constrained world, securing semiconductor supply was a clearer priority than ever. Significantly, one of the few companies to receive exemptions from the draconian COVID containment policy by the Chinese government was Yangtze Memory Technologies. Moreover, we all became aware of the lack of chips and the enormous risks that the concentration of production in Taiwan and South Korea carried in a world where the old rules of collective security were being pulverized by Putin’s aggression in Ukraine and China’s change of rhetoric regarding Taiwan.
And as in the 1980s, faddish ideas tend to reinforce these geostrategic tensions. Although the empirical evidence that industrial policy works is rather scant (for every example where it has worked, there are five examples of failure—a pretty bad batting average), it came back into vogue a few years ago in certain circles. My interpretation is that this resurrection of interest in industrial policy is based on a clear reality—that is, the poor productivity growth in many advanced economies since 2000 and the consequent stagnation of wages. But that diagnosis is incorrect (again, with a few exceptions): this stagnation has more to do with demographics than with any other factor.
New U.S. Strategy
It is the confluence of all these forces (economic, geostrategic, and ideological) that led Jack Sullivan, the National Security Advisor for the Biden administration, to give two key speeches, one on September 16, 2022 and another on October 12, 2022. I invite the reader to read the two speeches in their entirety. It is better to start with the second speech, which announced the new U.S. national security strategy, and then go to the first one, which, although delivered earlier, describes in more detail the specific measures regarding semiconductors.
Here are some of the fundamental ideas of these two speeches (I am merely summarizing what Sullivan said, not agreeing or disagreeing with it):
What does “small yard, high fence” mean? That, instead of establishing very broad restrictions on the export of technologies, in this case semiconductors, the United States is going to focus on creating very strong barriers (the “high fence”) at very specific pressure points (the “small yard”; for example, as I explained in my previous article, on extreme ultraviolet light photolithography machines and the lasers they use), which are essential in the manufacture of more advanced semiconductors. It is this “robust guardrails” strategy that is reflected in the October 7, 2022 restrictions.
My reading of the situation is that at least in the short term, the United States will control enough pressure points to make life seriously difficult for the Chinese semiconductor industry.
Will this new U.S. strategy work? There are several points to consider. First, the United States does not control all the most advanced technologies. In particular, we have the leading lithography company, ASML, located in the Netherlands; and a leading company in the silicon wafer industry, Tokyo Electron in Japan (the other three key companies here, Applied Materials, Lam Research and KLA are U.S. companies and therefore fully subject to federal government restrictions).
The United States appears to have secured some government cooperation from the Netherlands and Japan, although its effectiveness remains to be seen. Technology companies have a long history of “obey but don’t comply” on these issues. ASML does not seem to be in the mood to be overly helpful, and since some of their equipment does not depend on U.S. patents that are subject to possible restrictions, they have a certain degree of freedom. Japan, on the other hand, with China on the prowl, appears to be more willing to cooperate with the United States. And then there is Taiwan, which is in a complicated situation: it neither wants to lose its technological advantage by setting up factories in the United States (which also makes it less important for the United States to defend), nor to unnecessarily provoke China.
My reading of the situation (while cautioning that I lack access to insider information on the trade secrets of these companies) is that at least in the short term, the United States will control enough pressure points to make life seriously difficult for the Chinese semiconductor industry.
How Will China React?
The second point to consider is China’s ability to react to these restrictions. I do not buy the argument made by opponents of the new export restrictions. They claim the restrictions will incentivize China to develop its own industry. But the reason the United States approves the sanctions is that China is already doing this. The incentive already existed! Perhaps it is stronger now, but the difference is marginal.
In the past, China has been very creative in solving its problems of access to forbidden technologies, as it did during the development of satellites in the 1990s (I recommend Hugo Meijer’s book about the U.S. restrictions on technological exports to China since 1979). This past success suggests that in a few years, China may have made up much of its backlog in semiconductor manufacturing, especially in a world of high technological diffusion. For example, RISC-V is a free hardware instruction set that has improved tremendously in recent years and may change the future of the industry for some time to come. There are no secrets in RISC-V: it’s all in the network.
If China catches up to the United States in 2030, rather than 2025 (to posit two arbitrary years), then thanks to restrictions, that is five years of additional geostrategic advantage. Foreign policy is about surviving tomorrow.
As before, this argument about China’s ability to catch up is often presented as a reason not to impose restrictions. Again, I believe this argument is flawed. From the U.S.’s perspective, any additional delay in China’s convergence on the technological frontier is a net gain. If China catches up to the United States in 2030, rather than 2025 (to posit two arbitrary years), then thanks to restrictions, that is five years of additional geostrategic advantage. Foreign policy is about surviving tomorrow. The day after tomorrow, we shall see.
But it is not just a question of short-sightedness or short-termism. The United States believes that the reputational cost with China of these new restrictions is small (relations were already broken, so there is not much “continuation value” to maintain) and that in the long term, the future is in its favor. Both demographically and in terms of social vitality, the U.S. is much better positioned than China (this book, and this other one, are two recent accounts of this perspective). My own more recent research on China suggests that the combination of perverse demographics and a clear drop in productivity growth predicts economically bad times in the 2030s for the Asian giant.
Considering these two points together, yes, the United States will be able to inflict damage on the Chinese semiconductor industry, and while this impact is not absolute, it is enough to justify embarking on this policy. In a world where there are no magic wands for anything, but only partial patches to complex problems, this is the policy that maximizes the benefits to the United States, at least in light of what we know right now.
This article is adapted from a version originally published in February 2023 at El Confidencial, a leading Spanish digital newspaper. We are grateful to Professor Jesús Fernández-Villaverde for his permission to publish it in English here, and to Thomas Howes for his translation.
On Friday, the Internet Archive lost its "controlled digital lending" case on summary judgment. Reactions today from our Chefs Rick Anderson, Joseph Esposito, Lisa Janicke Hinchliffe, Roy Kaufman, Roger C. Schonfeld, and Karin Wulf.
The post The Internet Archive Loses on Controlled Digital Lending appeared first on The Scholarly Kitchen.
Today’s essay is the third of four in a series by James E. Hartley on what literature can teach us about economics. You can read the first here and the second here.
On Wall Street he and a few others—how many?—three hundred, four hundred, five hundred?—had become precisely that, … Masters of the Universe. There was … no limit whatsoever. … Moving the lever that moves the world was what he was doing.
That was Sherman McCoy in Tom Wolfe’s brilliant 1987 novel, The Bonfire of the Vanities. As an expression of the age, it is right up there with Gordon Gekko’s “greed is good” from Oliver Stone’s 1987 Wall Street.
Over time, the popular perception of bankers as soulless and depraved hasn’t changed a bit. In 2011 a protest about wealth distribution was dubbed Occupy Wall Street. Interestingly, no protests targeted the industries that generate even greater wealth: Silicon Valley, Hollywood, and major sports stadiums. Nor were the protests in the parking lots at Wal-Mart, Target, or Home Depot. The anger about wealth distribution was directed straight at bankers.
As we have seen over the last couple of essays in this series, the contemporary discussion about wealth distribution is not really about inequality per se. Underneath the discussion about wealth distribution is an often unstated belief that high levels of wealth were not earned in an appropriate manner. One avenue of this discontent is the latent belief that merchant activity is immoral, violating the principle that goods should always sell for their “just price.” The belief that a good has an inherently just price has vanished, but the implications of that belief still linger a bit.
The most vehement criticisms of wealth are translated into criticisms of the financial industry. When, and why, did the financial sector begin to arouse such ire?
The Financier
Complaints about bankers long predate Sherman McCoy and Gordon Gekko. American history is filled with complaints about Main Street versus Wall Street. Andrew Jackson’s fight against the Second Bank of the United States is part of the lore. Banking regulation is littered with measures attempting to prevent banks from becoming large and potentially powerful.
Theodore Dreiser’s 1912 novel, The Financier, depicts the longstanding view of bankers, which makes the fictional 1980s bankers look tame and mild-mannered. The Financier is the story of Frank Cowperwood, who rises from humble origins to become the titular financier.
In the first chapter, Dreiser provides an unforgettable portrait of Cowperwood. At the age of ten, young Frank regularly passed by a fish market. “One day he saw a squid and a lobster put into the tank, and in connection with them was witness to a tragedy which stayed with him all his life and cleared things up considerably intellectually.” A few days later, the drama was done; the lobster had carved up the squid. Frank’s life was set:
“The squid couldn’t kill the lobster—he had no weapon. The lobster could kill the squid—he was heavily armed. There was nothing for the squid to feed on; the lobster had the squid as prey. What was the result to be? What else could it be? He didn’t have a chance,” he concluded firmly, as he trotted on homeward.
That is on page 5 of the novel. The next 500 pages are a record of how Frank became a lobster. Through prosperous times and crises, Frank rises and falls and rises again in the mysterious world of finance. He is deeply involved in shady backroom deals and with corrupt politicians.
It is a devastating portrait of a financier. The true nature of Cowperwood’s soul becomes obvious when he is charged with embezzlement and larceny of public funds.
Cowperwood, despite various solemn thoughts concerning a possible period of incarceration which this hue and cry now suggested, and what that meant to his parents, his wife and children, his business associates, and his friends, was as calm and collected as one might assume his great mental resources would permit him to be. During all this whirl of disaster he had never once lost his head or his courage. That thing conscience, which obsesses and rides some people to destruction, did not trouble him at all. He had no consciousness of what is currently known as sin. There were just two faces to the shield of life from the point of view of his peculiar mind—strength and weakness. Right and wrong? He did not know about those. They were bound up in metaphysical abstrusities about which he did not care to bother. Good and evil? Those were toys of clerics, by which they made money.
It isn’t just Frank, though. The novel has many soulless financiers, caring nothing about anyone around them.
The Sin of Usury
Dreiser paints a bleak picture of finance. Yet, on closer inspection, it is hard to see what is so particularly immoral about bankers. For one thing, other professions can lead to riches, too: why does a rich banker’s wealth seem more inappropriately acquired than a rich computer programmer’s, for example?
Furthermore, everyone benefits from banking and finance. Some people want to save and others want to borrow, and the financier comes along to help the savers and borrowers find each other. There are enormous cost advantages to their work. Suppose you want to buy a house and need to borrow a few hundred thousand dollars. To whom would you go? Your friends or your family? If you asked complete strangers, would they lend to you? At the very moment you realize you would never be able to buy a house, a friendly financier comes along and lends you funds borrowed from people you have never seen. The same thing happens for a business that wants to expand its operations or someone who wants to go to college or buy a car. Financiers seem so useful. So why such hatred for the ones that are successful?
Moral suspicion of bankers’ wealth is quite ancient. In fact, modern mistrust of banks is tame compared to ancient criticisms of it. Here is Aristotle:
The most hated [means of earning income], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And the term usury which means the birth of money from money is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of making money this is the most unnatural.
If you thought that was harsh, look at the list of sins to which the prophet Ezekiel compares collecting interest:
Behold, the princes of Israel in you, every one according to his power, have been bent on shedding blood. Father and mother are treated with contempt in you; the sojourner suffers extortion in your midst; the fatherless and the widow are wronged in you. You have despised my holy things and profaned my Sabbaths. There are men in you who slander to shed blood, and people in you who eat on the mountains; they commit lewdness in your midst. In you men uncover their fathers’ nakedness; in you they violate women who are unclean in their menstrual impurity. One commits abomination with his neighbor’s wife; another lewdly defiles his daughter-in-law; another in you violates his sister, his father’s daughter. In you they take bribes to shed blood; you take interest and profit and make gain of your neighbors by extortion; but me you have forgotten, declares the Lord GOD. (Ezekiel 22:6–12, ESV)
Aristotle and Ezekiel are not outliers. It is difficult to find anyone before around 1600 who said anything different about bankers.
Indeed, just go back a few hundred years and everyone (everyone!) would have agreed that your banker was doing something worthy of absolute condemnation by charging you interest on your student loans and home mortgage. You would be right to be indignant about the wealth gained by those godless bloodsuckers. Before you become too indignant, however, remember: if you are collecting interest on your checking or savings accounts, you are every bit as worthy of condemnation as the people from whom you borrowed. No wonder bankers generated such ire; their entire job is arranging to pay one set of horrible people interest in order to charge interest to another set of people.
Just go back a few hundred years and everyone (everyone!) would have agreed that your banker was doing something worthy of absolute condemnation by charging you interest on your student loans and home mortgage.
This idea that collecting interest on your savings account is as bad as those things Ezekiel lists strikes the modern ear as quite odd. If you are like most people, you never knew you were doing something tantamount to murder when you received your interest payments. Why did everyone think interest was so wrong?
The argument about the immorality of usury begins with the idea of a just price. In this case, however, it is very easy to determine the just price. How much is a $20 bill worth? Imagine you needed to break a $20. You would expect four $5 bills, or two $10 bills. If you demanded more than $20, or someone offered less, would you consider that a fair exchange? Perhaps you are so desperate you might agree to be cheated, but your agreement doesn’t change the nature of the wrong.
Interest is exactly that situation. I lend you one sum of money and then demand a larger sum in exchange. I lend you a bottle of wine and then expect two bottles of wine in exchange. In both cases, I am demanding more in return than the amount I gave you. That is deeply immoral. Regardless of what we think about this today, for many generations before us, there was an obvious reason to despise bankers; they are ignoring Christ Himself and refusing to lend expecting nothing in return.
Is Usury Still a Sin?
We clearly no longer live in an age when most people believe charging interest is a vile sin. What changed? Some time around the early eighteenth century, there was an increasing acceptance of the idea of charging interest. It is almost certainly not a coincidence that this change in the moral code coincided with the first glimpses of the Industrial Revolution.
Consider the difference in the nature of loans in a rural agricultural society and a modern industrial society. Why would a farmer in 400 BC want to borrow funds? The most probable answer is that the money is necessary to buy food. In such a world, charging interest is equivalent to charging higher prices for food to poor people than to wealthier people who do not need to borrow. Now compare someone wanting to borrow money in order to build a new factory that will produce cloth to be sold at a profit. Is it really wrong for a person who has saved enough funds to pay the cost of a new factory to ask for a portion of the returns from that factory? Why should anyone lend with no expectation of a return to someone who is going to use the loan to reap profits?
In an agricultural society, charging interest is equivalent to charging higher prices for food to poor people than to wealthier people who do not need to borrow.
As the nature of the economy changed, the purpose of a loan underwent a massive transformation. It is rather difficult in a modern economy to simply adopt the older prohibition on usury. Once upon a time, people condemned all merchant activity and all banking activity, but as we have seen, the rationale for those condemnations has been obviated by developments in the economy. This is why you feel zero moral guilt from charging interest on your savings account; the institution to which you are lending is using your funds to generate a profit stream and, unless charging interest is inherently immoral, there is no reason why you should not share in the wealth.
Dreiser’s novel still offers a moral lesson, but it is not a lesson about finance. Frank Cowperwood’s occupation is not the source of his immorality. If he had become a grocer or a lawyer, his complete lack of a conscience would have been no less blameworthy. In an era in which everyone believed that financiers were inherently immoral, this important moral lesson of the novel could easily be lost. It is only when we realize that there is nothing inherently immoral about banking that we can realize the universality of The Financier. Bankers aren’t the only workers in high-profit sectors who behave badly, so the unique distrust about bankers is largely vestigial.
However, this raises another related question: why do people distrust the wealthy? In the final essay in this series, we will look to Ebenezer Scrooge for an explanation.
A bluntly powerful essay by my friend and colleague Jonathan Tran:
What began as a struggle of and for the dispossessed has devolved into a culture war fixated on harms, microaggressions, and sensitivity trainings. No one can live up to the standard of being sensitive to every possible sensitivity, setting everyone up to fail. More importantly, almost none of this has anything to do with repairing and redistributing structures and systems.
Nothing captures antiracism’s mission drift better than the explosive growth of its billion-dollar diversity industry, which promises to address inequality by diversifying the faces of gatekeeping institutions—the very institutions that facilitate upper-middle-class mobility precisely by leaving inequality in place. These antiracist initiatives, often staffed by well-meaning and high-minded people, bring with them all the conviction but little of the power to actually get anything done, at the end of the day achieving so little that one begins to wonder if futility was the point.
FreshRSS 