The Economics of Creative Destruction

Among other remarkable characteristics, humans are intelligent, bipedal, and have opposable thumbs. But so do other great apes, albeit to a comparatively limited degree. What is uniquely human? What distinguishes humans lies in their phenomenal ability to transform matter.

Broadly understood, humans take existing matter and make stuff out of them. They cut down trees to make lumber; they smelt ores to make metals, etc. They build houses and make metal pots and pans. They do it deliberately, consciously and purposefully. To create anything, some materials have to be transformed from their original form — which necessarily means the destruction of the original form or function. Creation and destruction are inseparable. You cannot have one without the other.

Continue reading “The Economics of Creative Destruction”

The first thing we do, let’s kill all the rich

I think envy drives more people to do bad stuff than ambition or greed ever did. And politicians regularly depend on envy to motivate the masses to elect them on the promise that the wealthy are evil and therefore deserving of the pain that they are sure to suffer. Naturally the crookedest of the politicians proclaim loudly that they are just common folks (aam aadmi, chowkidar, etc) who are just like the rest of us, and therefore need not be envied or feared.

I listen skeptically to people who speak evil of those whom they are going to plunder. I suspect that vices are invented or exaggerated when profit is expected from their punishment. An enemy is a bad witness; a robber is a worse.

— Edmund Burke, 1790

Continue reading “The first thing we do, let’s kill all the rich”

Margaret Thatcher’s Tribute to Friedrich von Hayek

To mark the 75th anniversary of the publication of Friedrich Hayek‘s The Road to Serfdom, several of Hayek’s personal items were auctioned at Sotheby’s in London on March 19th.

Hayek, together with Gunnar Myrdal (the economist from the opposing camp), was awarded the “Nobel Memorial Prize” (not really a Nobel prize) in 1974. At Sotheby’s auction, Hayek’s award citation and gold medal went for over $1.5 million.[1]

Although the Nobel prize[2] gave renewed vigor to the then 75-year old Hayek, he was absolutely clear that economists should not be honored with prestigious prizes. “Nobel Prize confers on an individual an authority which in economics no man ought to possess,” he said. Continue reading “Margaret Thatcher’s Tribute to Friedrich von Hayek”

What Explains China’s Rise? — Part 3

Samuel Johnson (1704 – 1789), the great lexicographer, noted that “knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.”[1] Although I know fancy little about China, I do know where that knowledge can be had. There are very credible experts on the subject of modern China’s growth. It is best to learn from their scholarship. Fortunately for us, all we need is an internet connection and time. Here I will list some of the resources I found interesting.

Fear of China

Seen from the broad perspective of human history in the context of material prosperity, the astonishing story of China post the Mao era (starting around 1978) is heartening. From a narrower perspective though — that of an American or an Indian or Japanese or European — the China story is likely to be a cause for alarm. The prospect of China replacing the US as the global hegemon is chilling: it threatens the liberal world order. Continue reading “What Explains China’s Rise? — Part 3”

What Explains China’s Rise? — Part 2

The most concise answer to the question, “What explains China’s rise?” is one word: luck. (On the left, the Chinese character for luck.) Actually luck has been a major factor in the rise of all nations that escaped the grip of poverty.

Economists, starting with the classical economists like David Ricardo and Adam Smith around the mid-18th century, have struggled with explaining the causes of the wealth of nations. All of the various causal factors they and their successors identified are relevant and the question is far from settled, as evidenced by the hundreds of papers and books published every year by serious scholars on the subject of economic development, growth and progress. But hardly anyone invokes lady luck.[1]

Just So Stories

Is there a secret to economic development? Actually, no. Only the ignorant or the seriously deluded are convinced that they know the secret. Each country follows a unique path that cannot be duplicated. Which is not to say that there are no general principles that affect development. Just as in the case of individuals, there are general principles that push toward success: intelligence, the ability to work hard, endowments, and external factors that are beyond one’s control. But let’s be clear about this: both nature as well as nurture are luck of the draw. You are born to wealth or poverty, and so also you are born with the genes that make you hard-working or lazy or intelligent or stupid. Continue reading “What Explains China’s Rise? — Part 2”

What Explains China’s Rise?

In any discussion on economic development, China invariably shows up. How did China manage an economic transformation that it now rivals even the greatest developed economy? Isn’t it amazing that China did that without being a democracy? Or maybe precisely because it is an autocracy that it could do what India, the largest democracy in the world, cannot do?

Those are not easy questions to answer because a story as large as China cannot be easily or quickly told. Big books have been written by reputed scholars on the subject. They are useful, instructive and fascinating. My personal favorite is the book How China Became Capitalist (2012) by Ronald Coase and Ning Wang.

Anyone seriously interested in understanding the economic rise of China should read Coase’s book. (Just by the way, Coase wrote that book at the age 101.) The publisher, Palgrave, gives this as the description of the book: Continue reading “What Explains China’s Rise?”

Ask Me Anything: Owl in the Plane edition

So I am back at home after wandering around in India. I flew Jet Airways between BOM and LHR, and Virgin Atlantic between LHR and IAD. Talking of Jet Airways, an owl had offered to pilot one of their 777s.

An owl was waiting for pilots this morning in Boeing 777-300ER’s cockpit prior flight to London.

I found a nice little poem in the comments to that squawk:

A wise old owl sat on an oak,
The more he saw, the less he spoke,
The less he spoke, the more he heard,
Why can’t we be like that wise old bird?

Continue reading “Ask Me Anything: Owl in the Plane edition”

Happy Birthday, dear Mr Charles Darwin

Today, Feb 12th, marks the birth anniversary of one of humanity’s greatest innovators. Charles Darwin was born on this date in 1809. And so was another great man — Abraham Lincoln — born on the same day and and the same year as Darwin.

Darwin was one of two people who came up with the novel idea that the mechanism for the evolution of biological life was natural selection; Alfred Russell Wallace (1823-1913) was the other person. They explained what makes the biological world tick.

Continue reading “Happy Birthday, dear Mr Charles Darwin”

Whoever Fights Monsters — Revisited

My blog post of Jan 26th (Whoever Fights Monsters …) was republished by The Quint and subsequently ended up on Yahoo also.

At the Yahoo site, a few hundred comments (and replies to comments) were posted. Most of the comments were critical of my opinion, and many simply declared that I was a paid Congress agent, and anti-Hindu and anti-India to boot. I had stirred a hornet’s nest.

Which was sad because it showed that those people have reading comprehension problems. In my piece I severely criticized Nehru and Indira, and the Congress. And I faulted Modi for not keeping his “Congress-mukt Bharat” promise. The Congress is corrupt, not stupid. It would have been stupid for them to pay someone who is implacably opposed to them.

Modi bhakts read my criticism of Modi as an endorsement of his opponents. That’s stupid. My limited point in my opinion piece was that Modi has not been good for India. That is not meant as an endorsement of the opposition. It is possible to be the best (which is a relative term) and also be quite terrible (which is an absolute term.)

Some even doubted whether I had ever supported Modi. Here’s a piece I wrote in May 2014 — a few days after the 2014 election results: Narendra Modi will Transform India.

I was so wrong.

Democracy is Bloodier than Monarchy or Aristocracy

John Adams (1735 -1826) was an American Founding Father, and the second president of the United States (1797 -1801). Read the wiki page on Adams.

One marvels at all the natural wealth that the US has — immense land area, minerals, rivers, forests. You name it, the US has it all. But all that natural wealth pales in comparison to the wealth it had in the character of its founders. They were extraordinarily learned, wise, thoughtful and prudent. Given this sort of advantage, it is not at all surprising that the US became the richest and the most successful nation in the world.

The leaders that a nation gets is ultimately a random draw. The US was extraordinarily lucky. It would have drawn a Stalin, or a Lenin, or a Mao, or a Gandhi, or a Nehru. Had the US been unlucky like Russia, China or India, no amount of natural wealth would have saved the US from perdition. The US was born lucky. Continue reading “Democracy is Bloodier than Monarchy or Aristocracy”