Is America a republic or an empire?

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.

[Originally published on a weblog called “What Is Liberalism?”]

My friends Robert Clark and Alex Marshall and I got into a discussion, via email, about whether America is best thought of as a republic or an empire. Since Alex, at the end, asked me to define what I meant by the words “liberal”, “republic” and “empire” I thought this discussion would be relevant to this weblog. Therefore, with their permission, I’m reposting the emails of our conversation.

The conversation started on June 16th when Robert Clark sent this to both of us:

Date: Thursday, June 16, 2005 5:41 PM

From the publishers weekly review; something similar to a point I worry about. In a global market, efficiencies gained in Asia are more likely to stay there than come back here without some kind of government intervention.

Thought you might be interested in this.

Washington’s cavalier embrace of free trade and aversion to industrial policy (“they’ll sell us semi-conductors and we’ll sell them poetry,” notes one Reagan administration economist) and argues cogently that the research and development apparatus and high-tech entrepreneurship that is supposed to save America’s economy is likely instead to follow the manufacturing base offshore.

I responded days later:

Sent: Thursday, June 23, 2005 3:10 PM

The relative wealth of nations is an emotional issue.

The word “shift” has many meanings.

England is wealthier now than it was in 1850, but in 1850 it ran the world. The Dutch Republic peaked in 1650 but right now, 350 years later, the Netherlands has one of the highest standards of living in the world. In 2070 America will likely be much wealthier than it is now, but it will no longer run the world.

I find that this issue (the rise of Asia) raises two issues: the absolute decline of America, and the relative decline of America. People confuse these two issues and so in conversation they tend to talk past each other, without understanding where the other person is coming from.

Most economists use an understanding of the phrase “standard of living” that focuses on how much stuff people have, and what services they can buy. Such a definition does not take into account America’s relative standing in the world. Even liberal economists like Brad Delong and Paul Krugman favor free-trade for this reason. They can reasonably argue that in 2070 America will be wealthier than it is now.

However, most people are not economists. Many people take psychological comfort from America’s relative standing in the world. As such, America’s relative standing can be thought of as part of their standard of living – it brings them happiness. But no economist measures it as such.

There are certain events which may occur in the near future that will effect the American standard of living in ways free-trade economists will understand: if a newly powerful China engages America in an arms race, clearly that will take resources away from the consumer economy.

My own gut level feeling is that America’s standard of living will likely increase in absolute terms, but nothing we do can stop the rise of Asia or America’s relative decline as India and China emerge as super-powers (I’d bet more money on India than on China).

In so far as America’s absolute standard of living goes, trade is, I think, either a minor positive or a minor negative. It’s importance is small compared to basics that we have in our control: is our savings rate high, are we investing in R&D, is our education good, do we have enough park land, is our drinking water safe, is the air clear, are the wealthy paying an appropriate share of taxes, are we ready to convert to non-oil energy sources, is every citizen empowered to seek their own career, free from government harassment, and with a guarantee of equal rights before the law and in commercial transactions? These are all domestic issues, 100% in the control of Americans, and these will largely determine whether America grows wealthier over the next 70 years.

Robert Clark responded:

As usual very interesting. I pretty much agree with your conclusions. I would add to your list of things under our control that are more important than absolute wealth.

1) Wealth distribution. Right now we have done a good job of laying a foundation for really solidifying class divisions in the US over the next few generations.

2)Perceived Economic Security. Most peoples quality of life suffers in direct proportion to how secure they feel their incomes and economic future is. There was an interesting article on this in Scientific American a while ago. I think this was it.

By the Numbers: Quality of Life; October 2002; by Rodger Doyle; 1 page(s)

Standard economic measures such as gross domestic product per capita and median family income were not designed to gauge the material quality of life. They don’t, for instance, take into account inequality of income or damage to the environment. To get a better sense of how people experience everyday life, scholars have devised more sophisticated indices. One of the best examples comes from Lars Osberg of Dalhousie University in Nova Scotia and Andrew Sharpe of the Center for the Study of Living Standards in Ottawa.

They have measured economic well-being over time for 14 countries, using four classes of indicators: consumption (both private and governmental), wealth (which includes such diverse factors as housing and the social cost of environmental degradation), economic equality (measured by income distribution and degree of poverty), and security about future income (measured by, for example, risk of unemployment and illness). Their data for five of these countries show the U.S. with a somewhat less favorable trend since 1980 than that of Norway but better than that of the U.K. and Sweden [see left chart].

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Then Alex Marshall joined the conversation:

Date: Jun 26, 2005 10:24 AM

This is an amazing statement of yours:

“In so far as America’s absolute standard of living goes, trade is, I think, either a minor positive or a minor negative. It’s importance is small compared to basics that we have in our control: is our savings rate high, are we investing in R&D, is our education good, do we have enough park land, is or drinking water safe, is the air clear, are the wealthy paying an appropriate share of taxes, are we ready to convert to non-oil energy sources, is every citizen empowered to seek their own career, free from government harassment, and with a guarantee of equal rights before the law and in commercial transactions? These are all domestic issues, 100% in the control of Americans, and these will largely determine whether America grows wealthier over the next 70 years. ”

Do you think that’s true? You make a good case. Yet I’ve become convinced that smaller nations, at least, have to trade with other nations to have decent standards of living. I don’t know the exact percentages, but wouldn’t that hold true for USA as well? That is, we couldn’t have a high standard of living without foreign trade.

Your point about power and standard of living are really well taken. You can’t eat global power, but in a sense you can, because people do take satisfaction from it. I think people will actually accept a worse standard of living in exchange for the self identity that comes with being the most powerful guy on the block. It would be in their interest if working class people would vote for politicians who would give them health insurance and more job security. But instead many vote for politicians who vote for Empire, and actually oppose things like health insurance and more job security. On some level, people sleep easier because we have troops all over the globe.

Ted Goranson says that our standard of living is related to our military might. In some weird way, the dollar is kept aloft out of respect for American warships and planes, he says.

Marx, I think, said that Empires need lots of poorly paid workers so that someone will go into the army to supply the cannon-fodder that will wage wars abroad. That seems true about the USA. If we were to truly raise wages and provide more benefits to working people, our military would be even more trouble getting recruits than it is now. Much more.

And then I responded to Alex:

Date: Jun 26, 2005 1:33 PM

“Marx, I think, said that Empires need lots of poorly paid workers so that someone will go into the army to supply the cannon-fodder that will wage wars abroad. That seems true about the USA. If we were to truly raise wages and provide more benefits to working people, our military would be even more trouble getting recruits than it is now.”

I don’t necessarily disagree with the statement, but I’d have to surround it with a bunch of qualifiers before I’d come close to being comfortable with it.

How many wars has America fought with really poor people making up the majority of the recruits? The wars since 1960 are about the only ones I can think of. When I think of the wars against the Indians in the late 1800s, I don’t picture a lot of poverty stricken recruits being forced to go kill Indians. There were a lot of middle class kids who just loved the idea of killing Indians, and who thought a few years of service while they were young would be a great way to start their careers. There is a great book by Ward Churchill called “A Little Matter Of Genocide” that looks in detail at the Indians wars. His view is different from other radicals, such as Howard Zinn. In “A People’s History of the United States” Zinn presents the Indian wars as a clear case of capitalists driving imperialist expansion. In Churchill’s telling, the expansion is driven more by middle-class racism and bloodlust. Churchill’s telling is darker than Zinn’s. Zinn seems to have the hope that the people themselves were innocent of racism and bloodlust till the capitalists put it there in their hearts. Churchill is confident that the worst evils we associate with American history grew up from the hearts of the people.

Also, America had the highest wages in the world from about the 1850s or 1860s to about the 1960s or 1970s. So the main phase of empire building for America coincided with its ability to pay the highest wages in the world.

As to poor wages and war, now that we’ve got a volunteer army, the army has to pay competitive wages. Virginia Postrel recently made this argument on her weblog

High wages are one way of getting recruits to fight wars. It was high wages that caused massive immigration from Europe to America during the 1800s and early 1900s. It was high wages that allowed America to be populated with white people. During the 1800s, every white-dominated country in the New World was hungry for immigrants from Europe, but America out-competed all the other countries by paying the highest wage. Brazil wanted people, and Argentina wanted people, but they didn’t get anything like what America got, because they could not pay so high a wage. Most New World countries were left with a smaller white population, as a percent of the total population, because they could not pay the wage that would bring the white people in from Europe.

This is similar to the point I was trying to make in the car, when we drove down to Chapel Hill in 1997: low wages bring benefits to capitalists, but not necessarily to the state. The state wants its workers to be paid as highly as possible, for stability and for tax reasons. India is happy to see its workers go to America and make good American wages, some of which it knows will get sent home. Mexico is the same. From the point of view of the state, the capitalists are an eternal threat, always ready to take over the real power in the country, and the state is always looking to maintain its independence of the capitalists by making sure there are other power centers in the society. The state is happy to see workers paid as much as possible, so long as the wages don’t go so high as to choke off investment (but where does investment come from? from the surplus of income of the middle class, that is, from high wages. Nations with high wages will likely have high savings rate, and therefore they will be free of international pressures to lower their wages. They won’t have to attract capital from outside if they can generate it inside their own borders, from the high wages of their workers).

However, obviously, when the state feels it has no other options, or when the capitalists have got one of their own to the top of the government, then the state will obediently serve the interests of the capitalists. Still, it would rather have its independence. You look at the anti-business measures that European governments took in the 1500s, 1600s, 1700s and 1900s, and then the 1800s period of laissez-faire begins to seem exceptional. Likewise, if you look at Malaysian history, or Chinese history, or Indian history, then it becomes clear that the current pro-business attitude is an exception to what has been going on for the last 5,000 years.

When a society has nothing to compete with except low wages, then that is what it will compete with, but I doubt anyone in that society will be very happy about it.

“Yet I’ve become convinced that smaller nations, at least, have to trade with other nations to have decent standards of living. I don’t know the exact percentages, but wouldn’t that hold true for USA as well? That is, we couldn’t have a high standard of living without foreign trade.”

I agree. I think trade usually increases the standard of living. Still, I think the majority of factors that will raise the American standard of living are things that Americans wholly control.

“Ted Goranson says that our standard of living is related to our military might. In some weird way, the dollar is kept aloft out of respect for American warships and planes, he says.”

I agree. There is more safety for your property in a big country than what you can get in a small country, even in a very prosperous small country. The Netherlands is one of the wealthiest nations on Earth, but the German army overran it twice during the 1900s. So if you wanted to invest your money in a wealthy republic with a strong tradition of respecting the rule of law, you could choose the Netherlands or America, but America would be safer.

And then Alex Marshall wrote back:

Date: Jun 26, 2005 2:17 PM

Responding to what you wrote, I say that perhaps it’s the case that the United States began to be an empire in the classic British model — with potentially low-paid people from the lower class making up the mass of its army — in the 1960s, just as its wage rates peaked and its wars begin to change in character.

After all, the United States did not have a large standing army until after WWII, when the Cold War started up. Before that, the USA de-militarized after every war. At least, that’s what I have read.

After WWII though, we began to have a permanent and large military, both in terms of people and machinery. This is the famous military industrial complex.

Middle-class folks might have been willing to fight the country’s occasional wars of empire, such as those of 1898 or in the Philippines in the 1920s or so, or in Korea in the 1950s. But beginning with Vietnam, they increasingly weren’t. And so, the United States shifted to policies that allowed it to tap mostly the poor or less well paid. They did that in the Vietnam war through its draft policies, and then they did it by shifting to a volunteer army.

The result is today’s army, which is mostly made up of people with limited prospects elsewhere. I’ve seen studies that attempt to refute this, and they don’t convince me. I knew a lot of people in the military in Norfolk, and none of them were from what might be called good families.

To which I responded:

Date: Jun 26, 2005, at 4:39 PM

“Middle-class folks might have been willing to fight the country’s occasional wars of empire, such as those of 1898 or in the Philippines in the 1920s or so, or in Korea in the 1950s. But beginning with Vietnam, they increasingly weren’t. And so, the United States shifted to policies that allowed it to tap mostly the poor or less well paid. They did that in the Vietnam war through its draft policies, and then they did it by shifting to a volunteer army.”

I agree entirely. On some very abstract, metaphorical level, we are becoming less a Republic and more of an Empire. I’d reference the Romans if it weren’t such an over-used cliche. Someone recently had up on their weblog some WWI propaganda, which focused on Theodore Roosevelt’s sons in the military. All of them were in uniform, and one was killed in battle. How many of the nation’s top politicians can currently say that all of their children are now serving in Iraq? Things have changed.

At which point Robert Clark wrote back:

Date: Jun 27, 2005 10:33 AM

“Middle-class folks might have been willing to fight the countries Occasional wars of empire, such as those of 1898 or in the Philippines in the 1920s or so, or in Korea in the 1950s. But beginning with Vietnam, they increasingly weren’t. And so, the United States shifted to policies that allowed it to tap mostly the poor or less well paid. They did that in the Vietnam war through its draft policies, and then they did it by shifting to a volunteer army.”

These statements seem overly cynical, regardless of what the un-intended consequences were. Clearly a Democratic Congress went to an all volunteer army in an effort to make up for the draft inequities of the Vietnam war.

I’m still uncomfortable applying the word Empire to the US. Basically you have to redefine it to the point of changing its meaning. I really think it’s a power conceit of the both the Right and Left that distorts the way we think about the really unique situation of the US in the current world. Also I am so pessimistic about our relative political/economic standing over the next 20 years vs China that I think in hindsight its going to look laughable.

The statements concerning the power elite of the state historically being separate and antagonistic towards the power elite of capital are interesting. Aberration or not we are clearly living in a time were there is no meaningful separation of interests or even players between the State and Capital. For most of us that means we are fucked. My med ins for 2 people just increased 25% to over $1000 a month. I think this is a perfect example of this.

I then added something to the conversation:

Date: Jun 27, 2005 4:57 AM

Speaking of empire, Niall Ferguson says China is paying tribute to the American empire:

“Even the gloomiest pessimists accept that a steep dollar depreciation would inflict more suffering on China, and other Asian economies, than on the United States. John Snow’s predecessor in the Nixon administration once told his European counterparts that “the dollar is our currency, but your problem.” Snow could say the same to Asians today. If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People’s Bank of China could suffer a capital loss equivalent to 10 percent of China’s gross domestic product. For that reason alone, the PBOC has every reason to carry on printing renminbi in order to buy dollars. Although neither side wants to admit it, today’s Sino-American economic relationship has an imperial character. Empires, remember, traditionally collect “tributes” from subject peoples. That is how their costs in terms of blood and treasure can best be justified to the populace back in the imperial capital. Today’s “tribute” is effectively paid to the American empire by China and other East Asian economies in the form of underpriced exports and low-interest, high-risk loans.”

I also added:

Date: Jun 27, 2005 5:13 PM

“I’m still uncomfortable applying the word Empire to the US. Basically you
have to redefine it to the point of changing its meaning. I really think
it’s a power conceit of the both the Right and Left that distorts the
way we think about the really unique situation of the US in the current
world.”

I agree that the “empire” metaphor should be used with great caution. All other empires were military, whereas America’s current pre-eminence is mostly economic.

I think India will become an economic super power. It is already a democracy. I don’t know how China can continue its current growth. It is not a democracy. It lacks what England had in 1700 – a legal way for the business class to get their concerns heard when their concerns differ from those of the state.

Alex Marshall then wrote to chide Robert and I for not seeing clearly that America is, in fact, an empire:

Date: Jun 27, 2005 9:47 PM

I think you both are crazy if you can’t see that the USA is primarily a military empire. We have more bases, more ships, more men, and more of everything, all over the globe, than any country in history. We have so many foreign military bases we can’t even keep track of them. All this military supports our economic empire. Just how, I’m not sure, but I’m sure it does.

Here’s a thought for you. With the exception of Vietnam, which we lost, our troops have never left a country that they have invaded. Our troops are still in Germany, they are still in Korea; still in Japan and much of the rest of Asia. They are still in Iraq, and I suspect they will not leave that country in our life times.

We our a military empire first. Our guns give us authority.

At which point I wrote back:

“With the exception of Vietnam, which we lost, our troops have never left a country that they have invaded.”

I get your point, though it is slightly overstated. We’ve sent troops into nearly every Latin American country, but don’t have troops in many of them now. We had troops in China during WWII but we don’t have any there now. We conquered North Africa during WWII, but don’t have any troops there now. I suppose we still have ports in Italy, though I don’t know, offhand, which ones.

I’d be careful with the “empire” metaphor. Yes, we use our guns to stabilize our trade and prop up governments favorable to our trade. But a lot of people, when they hear the word empire, think of those governments that wanted land for the sake of land, land for tribute. There is an element of militarism to the Roman Empire and the Soviet Union that America hasn’t had.

I’m not necessarily disagreeing with you, just saying one has to be careful explaining what one means with that phrase. It is a loaded phrase, and it gets an emotional reaction.

And then Alex wrote back:

Date: Jun 28, 2005 5:31 AM

Okay, I overstated a bit. Thanks for steering me back on track. But I still think Empire is an appropriate word, even if it is loaded. I just can’t think of another word that accurately describes the domination of much of the world by the United States through military means. And yes, we do have bases in Italy, quite a few, I think. Remember the reaction when our planes based there sliced into a ski line? We also have several bases in Spain. I think France kicked us out, but we have bases in many other countries of Western Europe.

I think there is an air of militarism to our world domination. Whether it’s more or less than ancient Rome or the Soviet Union, I can’t say, but we are clearly an expansionist power that is culturally committed to an expansionist military. We are a warrior nation. This gives us both good and ill attributes. Our worship of professional sports is one sign of our warrior status. You don’t see this in Western Europe. Our waving and posting of the flag, and our near worship of it, is another attribute of our warrior nation, and of being an expansionist power in love with conquest. I could go on.

And then Robert Clark wrote back:

Date: Jun 28, 2005 9:21 AM

Hi Lawrence

I would suggest to you that China’s amazing growth for the last twenty years is evidence that business and the state in China are on the same page. I’m actually an optimist about this. The needs of capital and rising wealth across the board will drive generational change towards more freedom and democracy in China.

3 Reasons why I don’t think the US is either a military or economic empire.

1) A volunteer army, as has been amply demonstrated in Iraq, can not sustain activity even remotely approximating what’s needed to conquer and hold vassal states. Not to mention the expense.

2) The world is a much different place than it was from 1960 when the US accounted for something like 51% of all the economic activity on the planet. We may be for a while longer, the engine that drives the world economy but here’s the crucial point. While Empires traditionally have provided Hobbesian stability and therefore some economic benefit for “associated” states, the benefits of the arrangement overwhelming went in the direction of the Imperial state. The British Empire being a recent example. On the other hand US economic foreign policy has at best been mutually beneficial for most other countries and at worst has turned us into a manufacturing bereft, debtor nation with an uncertain economic future. The international economic institutions we have promoted strongly favor the free flow and concentration of Capital at the expense of our ability to pursue our own economic interests.

3) You can’t be an Empire if a foundational belief of your culture is that Government is bad and government employees have the social standing of funeral directors. We are really bad at governing ourselves, let alone others and worse we actively don’t want to get good at it. We have come to believe our own bullshit to such an extent that we have now handed the keys of the treasury over to very rich and religiously delusional and gone back to watching, of all things, reality TV shows.

“ We have more bases, more ships, more men, and more of everything, all over the globe, than any country in history. We have so many foreign military bases we can’t even keep track of them. All this military supports our economic empire. Just how, I’m not sure, but I’m sure it does. Here’s a thought for you. With the exception of Vietnam, which we lost, our troops have never left a country that they have invaded.”

This is hugely overstated. The largest concentration of US troops abroad has been in Germany and Japan. Those troops have not played a role in those countries anything like a similar contingent of Roman or Brit Empire troops would have. Politically the benefits were clearly mutual, economically clearly in favor of Germany and Japan. This is why it’s dangerous to misuse words like Empire. It oversimplifies and obscures. I got caught up in it for a while, under the spell of both Mr. Marshall and others but I have now decided it is BAD. BAD construct BAD. Sit!

Those bases have NO overt (in the sense of directed from Washington) political or economic effect on the countries they are in. There are 2 reasons why there are still bases in Italy for example.

1) Simple historical/governmental inertia. I.E. It serves the Pentagons institutional /economic interests to have all this crap to justify their budget.

2)The Italians like the Americans in Groton Ct. get a direct boost to their local economies. Since they are not politically threatened by them their experience of them amounts to another social welfare program. Those bases cost us way more than any benefit we get from them.

Robert also sent this:

Date: Jun 28, 2005 9:31 AM

Since when does “paying tribute” benefit the payor more than the payee.
Again cool idea that leads away from the truth.

Robert also sent this one-liner:

Date: Jun 28, 2005 9:57 AM

I sympathize with the “warrior nation” stuff but if we are conquerors we sure don’t have much to show for it.

At which point Alex wrote back to us:

Date: Jun 28, 2005 10:51 AM

The fact that our occupation and direct selection of governments in Germany and Japan helped all involved does not mean that these weren’t imperial acts. If you have troops in a country, which we did, if you select their governments and write their constitutions, which we did, then it’s hard not to argue that Germany and Japan are client states. This is a classic imperial policy that the Romans used as well. You give a country limited self government as long as they don’t do things that piss you off too much. Germans and Japanese are quite aware that they have a degree of self freedom, but that their leash is not an endless one.

Alex also sent this:

Date: Jun 28, 2005 10:55 AM

I know I’m overstating my arguments a lot. But really Bob, I think you should spend some time abroad. I think you really don’t understand how pervasive the American military presence is abroad, and how much it is felt. While the troops may put money into the economies of those countries, having foreign troops standing around with lots of weapons is not a small thing. The two years I lived in Spain were the most important of my life in that they allowed me to see The United States from an outside perspective. It’s a very different one.

Robert Clark responded with this:

Date: Jun 28, 2005 11:01 AM

Now who is crazy. You honestly think that forcing the replacement of horrible dictatorships with wildly successful (completely self governing) democracies is the same as the Romans installing Roman law and a Proconsul dictator to rule for Rome? You would seriously describe Germany and Japan as having “limited self-government”?

Oh Brother!

Here is the bottom line question. If Italy or Germany or Timbuktu for that matter, formally requested that the US remove its troops do you think we would? Because if the answer is yes then you have to come up with another word besides Empire.

Later that day I checked my email and replied:

Date: Jun 28, 2005 2:58 PM

“But I still think Empire is an appropriate word, even if it is loaded. I just can’t think of another word that accurately describes the domination of much of the world by the united states through military means.”

Of course you can use any word you wish, but try to avoid this mistake:

republic = peace loving
empire = war loving

Generally speaking, republics are more efficient at making war than empires. In
the same way that liberal countries generally are the most efficient at creating wealth, compared to non-liberal countries, they are also the most efficient at winning wars. In the 1900s, the liberal countries won both world wars and the cold war. In the 1700s England won all its major fights save the won it fought against America, and England was more liberal than any other country on Earth, save America. The liberal countries have the advantage, both economically and militarily, that its citizens have a high sense of ownership in the state.

A good historical example, though a bit cliche, is the Romans. The Roman Republic went from being a single city-state to conquering North Africa, most of the Mideast, southern Europe, and a piece of England. On the other hand, the Roman Empire conquered nothing that it could hold for very long. Although individual Emperors occasionally grabbed some new land, usually their successors had to give it up. For instance, the Emperor Trajan conquered what is now Iraq, but then his successor, the Emperor Hadrian, had to give it all up. I think, at a stretch, you could say that an empire is what we call a republic when it’s in decline.

The idea that Republics are peace loving seems to be widely held, which is why people say “It’s really an empire” when what they mean is “It’s really not as peace-loving as you think.”

Again, you’re free to use any word you wish, but I wonder what people are really
trying to say when they use the word “empire”.

I also sent this:

Date: Tuesday, June 28, 2005 3:15 PM

“The world is a much different place than it was from 1960 when the US accounted for something like 51% of all the economic activity on the planet. We may be for a while longer, the engine that drives the world economy buts heres the crucial point.”

America seems to have gotten a second wind. From 1932 to 1991, Germany and Japan had faster growth rates than America, save for a period of turbulence 1940 to 1950. America’s economic output was 50% of the world in 1945. In 1940, it’s steel production, in tons, was 3 times all of Europe combined (I don’t recall if that figure included the Soviet Union). Between 1945 and 1991 America’s share of the global economy shrank from 50% to 20%. It has since rebounded slightly, to something like 23% or 24%, depending on what exchange rate you use. Japan and Europe have been stuck in a slow growth mode.

In the 1980s and early 1990s I was a proponent of the idea that America was in a fatal, historical decline. Certainly, if things continued, it would not be able to any longer support the military it was supporting. It was lucky that the Soviet Union disappeared when it did, because the large cuts in military spending in the early 1990s, and the many base closings, were all inevitable, given the economics.

But it’s become clear to me that there was something of a turn around during the early 1990s. America has caught a second wind.

Fernand Braudel remarks that the Netherlands had two periods of greatness, the first in the 1500s, when the European economy centered itself on Antwerp, the second time in the 1600s when Amsterdam became the world capitol of trade. Braudel remarks that Antwerp was built entirely with outside money, northern Protestant merchants who needed a safe, neutral place where they could trade with southern, Catholic Spain, which was made with rich with gold from the New World. Amsterdam’s success was the opposite of Antwerp’s, it was built entirely with domestic money, from frugal Protestants who saved their income and invested it in trade and then reinvested the profits in a virtuous cycle that lifted Amsterdam to the top of the world.

America is doing the same in reverse order. We had one period of greatness built entirely on domestic money, frugal saving, and profits that were reinvested. We seem to now be having a second period of greatness that, like Antwerp, is being financed wholly from the outside, with money from Europe, Japan, China and elsewhere all coming here.

Robert Clark wrote back just a few minutes later:

Date: Jun 28, 2005 3:26 PM

The Dutch stuff is really interesting. I have to read Braudel one of these days, it’s been sitting on my shelf for years. But if your conjecture that something similar is happening here what is all this foreign investment buying us? It seems to me it’s just financing a lot of profligate spending on disposable crap and enabling a brief period of foreign adventurism. I don’t see any spending on improving the American political economy.

“China Economy Rising at Pace to Rival U.S.

By KEITH BRADSHER GUANGZHOU

A line of Chinese-made cars began rolling onto a ship here Friday, bound for Europe. The cars, made at a gleaming new Honda factory on the outskirts of this sprawling city near Hong Kong, signal the latest move by China to follow Japan and South Korea in building itself into a global competitor in one of the cornerstones of the industrial economy.

China’s debut as an auto exporter, small as it may be for now, foretells a broader challenge to a half-century of American economic and political ascendance. The nation’s manufacturing companies are building wealth at a remarkable rate, using some of that money to buy assets abroad. And China has been scouring the world to acquire energy resources, with the bid to buy an American oil company only the latest overture.

Indeed, fierce domestic competition and a faster accumulation of financial assets are laying the groundwork for the arc of China’s rise to be far greater than Japan’s.

“It’s going to be like the Arabs in the 70’s and the Japanese in the 80’s – we were worried they’d buy everything,” said William Belchere, the chief Asia economist for Macquarie Securities in Hong Kong. But unlike those previous challenges, which soon faded, “longer term,” he added, China will “be a much bigger force.”… .. .

To be sure, China is still at an earlier stage of development than was Japan when its economic rise became a national obsession in the United States. In the 1980’s and early 1990’s, Japanese companies claimed a sizable chunk of the American car market and purchased Rockefeller Center and the Pebble Beach golf course.

The bid by the China National Offshore Oil Corporation for Unocal has raised worries among some politicians in Washington. That $18.5 billion bid comes as America’s trade deficit with China is ratcheting ever higher and the dollar is getting support from rising inflows of Chinese capital, which also helps support low interest rates.”

I wrote back later:

Date: Jun 28, 2005, at 4:04 PM

“While Empires traditionally have provided Hobbsian stability and therefore some economic benefit for “associated” states, the benefits of the arrangement overwhelming went in the direction of the Imperial state. The British Empire being a recent example. On the other hand US economic foreign policy has at best been mutually beneficial for most other countries and at worst has turned us into a manufacturing bereft, debtor nation with an uncertain economic future.”

Is the British Empire a good example? The phrase “British Empire” was in use before 1850, but not nearly so much as it was afterward, when America and Germany were growing faster than Britain. Before 1850 British policy was “this country will be good for our trade, lets conquer it” and after 1850 British policy went something like “We must make sacrifices for the glory of Britain, so let us conquer this country though it offers us no benefit to do so.” Before 1850, British conquests are clearly driven by trade considerations, afterwards justifications like “the white man’s burden” and the need of Christians to civilize the planet come into play. In 1850 England has a huge trade surplus with India, but by 1925 India had a trade surplus with Britain.

Let’s suppose that there are certain personality types that show up in the elites of every human society. Among these personality types are the Politician, the Warrior, and the Merchant. The Politician and the Warrior don’t understand economics very well, but they often end up running the government. They are likely to undertake actions that increase their “glory” but don’t do much for the economy. The Merchant must struggle constantly to get their view across to the other two. British policy from 1850 to 1948 strikes me as policy driven those portions of the elite who didn’t much understand economics.

Regarding different personality types among the elite, I’ve noticed that nowadays the difference manifests itself especially clearly as the difference between lawyers and economists. I noticed this during the Clinton administration. It was striking. Often the FCC had to give its approval to various mergers of media companies. The board that voted on these things almost always split on the lawyer/economist divide. Party affiliation meant nothing, you could not guess how a person would vote simply from knowing whether they were Republican or Democrat. But, reliably, the economists would be pro-merger and the lawyers would want regulations and stipulations. Profession predicted the vote much better than party affiliation.

Likewise, during the period 1945 to 1991 I can offer you many, many examples where politicians sacrificed American industry to build an international anti-Communist coalition. Several extreme examples of illegal dumping, by Japan, were brought to the attention of the Nixon administration, and always the Nixon administration was willing to forgive the crime in exchange for loyal anti-Communist service.

Things changed in 1992. As David Halberstam says in his book “War In A Time Of Peace”, the election of 1992 was the first time in 50 years that domestic economic issues were elevated above concerns of foreign policy.

In this email, as in the previous one, I’m questioning the link between “empire” and “economic benefit”. If you’ll accept, for the moment, the terminology I used in the previous email, then the link between “republic” and “economic benefit” is stronger.

Above I present a simple model of personality types that might govern a society. I apologize the model is so simple and leaves so much out (the working class? the middle class?), but sometimes simple models allow us to see simple truths. I hope this model isn’t so simple that later I’m embarrassed by it, but that might be the case. Still, I’ll draw out the point for one more paragraph:

There are many characteristics, or perhaps I should say cliches, that people associate with the words “empire” and “republic”. Among these, for empires, is war for the aggrandizement of the state, concentration of wealth, a small and shrinking elite with ever greater power, mercenary armies, and a population that is increasingly alienated from the political process and economically impoverished. People associate a different set of cliches with the word “republic”: a broad-based and widening elite, citizen armies, a population that is engaged with the political process and, likely, increasingly prosperous. For the word “republic” I think it would be appropriate to add “war for the sake of trade”, but, again, some people make the mistake of thinking that republics are automatically peace loving.

I think I wrote more than I meant to, and I apologize for that.

I also wrote:

Date: Jun 28, 2005 4:20 PM

“Since when does “paying tribute” benefit the payor more than the payee.
Again cool idea that leads away from the truth.”

Always, if you assume the alternative to paying tribute is “Your cities will burn, your women will be ravished, your silos will be emptied, the soil turned over with salt and left desolate, the people scattered and enslaved, the land left a ruin, forgotten,” which is about what Cicero had in mind for Carthage.

In other words, you pay tribute to avoid even greater pain, which is what China is doing here.

Mind you, I don’t have to agree with the thesis to find the idea interesting. I recall 10 years ago I thought the “Asian Tigers” were invicible, till their economies crashed and burned in 1997. My sense is that China is also heading for a fall. It is not a democracy so it has less forces for moderation and adjustment than a place like America, and even we have bubbles. It is likely to go to an extreme of over-investment, and then crash rather hard. I recall that in 1994 Paul Krugman predicted that the “Asian Tigers” were about to burn out, from too much state-forced resource mobilization and not enough improvement of productivity. I thought he was nuts, but he turned out to be right. And what he said then of the “Asian Tigers” applies much more so to China now.

But for another view, Brad Sester, whom I respect, lays out 4 reasons why China might be doing well:

http://www.roubiniglobal.com/setser/archives/2005/06/how_to_explain.html

Reason 3 is “High savings rates and high investment rates can overcome a multitude of other sins” and that is the explanation he is leaning towards.

A little later I added this:

Date: Jun 28, 2005, at 4:54 PM

You know, coming of age in the 1980s, I didn’t think I’d live to see the day when the world’s largest Communist country lends $300 billion to the world’s largest capitalist country so the government of the capitalist country can finance tax breaks to the wealthiest elite in the world. That is an odd thing for a Communist country to do. But it happened.

Likewise, I did not predict that state-owned, Communist-run corporations would start buying up American for-profit corporations. What would Reagan say? Hell, what would Marx say?

It’s odd, but also seems to me rather blatantly non-sustainable. It’s a bubble, of sorts.

A recent poll in India found that 87% of all Indians hold a favorable view of America. I haven’t seen a similar poll for China, but I’d bet my bottom dollar the percent is much lower. If two countries are going to get economically married, shouldn’t they at least like each other?

My prediction: China will burn out, India and America will integrate.

A few minutes later I also sent this:

Date: Tuesday, June 28, 2005 5:16 PM

“But if your conjecture that something similar is happening here what is all this foreign investment buying us? It seems to me it’s just financing a lot of profligate spending on disposable crap and enabling a brief period of foreign adventurism. I don’t see any spending on improving the American political economy.”

Yes, thanks for saying that. It’s close to a point that I’ve been trying to make for years. When foreigners finance all your growth, you’re going to have growth that suits foreigners. China is currently lending us breath-taking amounts of money so that we can buy their stuff in Wal-Mart.

Having a high domestic savings rate gives a people independence. It means they can make their own decisions about what they want to invest in. They can create the economy they want. Depending on foreigners for investment means building the economy that foreigners want.

On a side note, it’s interesting that we’re even having this conversation. It says something about how big, diverse, and complicated the American economy is that the three of us, well informed as we are, can still disagree so much about what is going on.

At this point we were all writing at the same time and our emails overlapped.

Then Alex wrote:

Date: Jun 28, 2005 5:19 PM

China Economy Rising at Pace to Rival U.S.
> By KEITH BRADSHER
> GUANGZHOU, China, June 26 – A line of Chinese-made cars began rolling
> onto a ship here Friday, bound for Europe. The cars, made at a gleaming
> new Honda factory on the outskirts of this sprawling city near Hong
> Kong, signal the latest move by China to follow Japan and South Korea
> in
> building itself into a global competitor in one of the cornerstones of
> the industrial economy.

Great story. I really like this guy’s reporting. He’s the guy who used to be
the Times Detroit bureau head, who wrote the book on SUVs called “High and Mighty.” Great book. Took no prisoners.

Nevertheless, his economic thought is a bit cliche, as usual. He says things like time will tell how china will manage the transition from central planning to a capitalist economy. Obviously, China has a capitalist economy right now. It’s just that it is a capitalist economy with more central planning than in the USA. There are different varieties of capitalism, and China’s is just one. USA’s is another.

The future is hard to predict. Virtually no one saw Japan walking off a cliff in the late 1980s. Now, it seems obvious. What will China’s future hold? Hard to say. If I was a real expert on China, I might have some predictions. The only safe one is that the trend lines will not just keep going in the same direction as they are now. Futures are not linear, at least not usually.

Robert Clark then wrote:

Date: Jun 28, 2005 5:30 PM

What’s also interesting is that we are looking at it from a totally nationalistic perspective which no longer seems common or politically correct in this age of free market absolutism. Many people look at you like you have two heads when you ask questions like, “What or who is an economy for?” Or that we should actively take economic or even foreign policy positions that will benefit the US at what will inevitably be at the expense of everybody else. Alex I don’t want to speak for you but I think you are uncomfortable with this kind of thinking.

And then I wrote:

Date: Jun 28, 2005 5:32 PM

“Obviously, China has a capitalist economy right now. It’s just that it is a capitalist economy with more central planning than in the USA. There are different varieties of capitalism, and China’s is just one. USA’s is another.”

In your view, what is a capitalist economy? How is it different from a Communist
economy? Is it different from a feudal economy? Did England have a capitalist economy in 1800 or 1600 or 1400? Did China?

I don’t mean to nit-pick, but I’d like to be clear how you mean these words. I’ve stopped using the word “capitalism” in any of my writing, because I think
the word means something different to everyone.

“The future is hard to predict. Virtually no one saw Japan walking off a
cliff in the late 1980s. Now, it seems obvious.”

Why do you feel its obvious? What are the causes of the current slump in Japan?
Paul Krugman, for one, considers Japan a problem for the profession of economics. Japan is having a Great Depression after professional economists had become convinced that they knew how to fix depressions and that, therefore, no country would ever have a Great Depression again. Paul Krugman wrestles with various explanations for Japan’s stagnation on this page:

http://web.mit.edu/krugman/www/jpage.html

His essay starts “The state of Japan is a scandal, an outrage, a reproach. It is not, at least so far, a human disaster like Indonesia or Brazil. But Japan’s economic malaise is uniquely gratuitous. Sixty years after Keynes, a great nation – a country with a stable and effective government, a massive net creditor, subject to none of the constraints that lesser economies face – is operating far below its productive capacity, simply because its consumers and investors do not spend enough. That should not happen; in allowing it to happen, and to continue year after year, Japan’s economic officials have subtracted value from their nation and the world as a whole on a truly heroic scale.”

Then Robert wrote again:

Date: Jun 28, 2005 5:37 PM

Here is a real life example of exactly what I’m talking about from today’s Times. The article still pays lip service to the “will create new jobs at home” religious belief while the reality described by the article makes a mockery of it.

“The advantage of Whirlpool’s approach to globalization is that it allows the company to put the earnings of overseas affiliates to their best use anywhere in the world…”

Capital and production and finally actual sales will go where they are most efficient and the US offers neither high skill nor low skill labor for most goods and as a result, eventually a much smaller market for them.

Globalization: It’s Not Just Wages

By LOUIS UCHITELLE

BENTON HARBOR, Mich. – Who is the biggest exporter of German-made washing machines to the United States? Not Miele or Bosch-Siemens, or any other German manufacturer. It is the American appliance maker, Whirlpool, the company proudly reports.

Never mind the higher labor cost – $32 an hour, including benefits, versus $23 in the United States. The necessary technology existed in Germany when Whirlpool decided to sell front-loading washers to Americans. So did a trained work force and a Whirlpool factory already making a European version of the front loader.

“We were able to expand the capacity in Germany at a very incremental investment,” said Jeff M. Fettig, Whirlpool’s chairman and chief executive. “It was the fastest way to the American market.”

Globalization is often viewed as a rootless process of constantly moving jobs to low-wage countries. But the issue is more complex, as illustrated by Whirlpool’s worldwide operations. What attracts Mr. Fettig and other chief executives is a relatively new form of globalization that emphasizes first-rate centers of production and design in various countries – including the United States.
Whirlpool’s global network, a work in progress, includes microwave ovens engineered in Sweden and made in China for American consumers; stoves designed in America and made in Tulsa, Okla., for American consumers; refrigerators assembled in Brazil and exported to Europe; and top-loading washers made at a sprawling factory in Clyde, Ohio, for American consumers, although some are sold in Mexico…

I also wrote:

Tuesday, June 28, 2005 5:44 PM

“we should actively take economic or even foreign policy positions that will benefit the US at what will inevitably be at the expense of everybody else”

I think I’m enough of a classic liberal to think that often the benefits of trade are mutually beneficial and synergystic. At least, I’m a classic liberal sometimes. On odd-numbered days. I’m still making up my mind about a lot of economic issues.

“I am but mad north-north-west: when the wind is southerly I know a hawk from a handsaw.”

Then Alex Marshall wrote us:

Date: Jun 28, 2005 5:46 PM

The Economist recently had an article that listed the results of a poll that asked people in various countries something like: where would you like to go to make a new start? What country is a good place to go and make a life? The results varied by country, but were surprising in that the USA was relatively low on the list. I think only India chose it first. Australia and Canada topped many lists. Germany and Great Britain were somewhat high. The poll included Asian countries and European, but not Latin America, apparently.

Alex also wrote this:

Date: Jun 28, 2005 6:06 PM

This is really good stuff Lawrence. You should write a book of your own. This is very against the standard wisdom stuff.

I would add that economists don’t always understand economics. Or even often. If economics is taken to mean how you generate and distribute wealth. I think most economists understand the mechanics of markets in a very narrow sense, and not much else.

I’m not sure what mergers you’re referring to because there have been so many. But I probably would have sided with the lawyers on most of them. Economists used to fear monopolies; now, they don’t, at least the Republican ones. But there is still plenty of evidence that monopolies, or rather oligopolies, are bad for providing goods and services. The American Prospect ran an article recently about how Japan and several other countries have much more extensive high speed internet access that typically runs two or three times faster than our high-speed internet access. The writer blamed our poor speeds on the policies that have allowed regional monopolies to occur, that often give people effectively only one or two choices.

You make a good argument that empires are often self destructive, and driven more by glory than by simple self interest. Seems true, even if I’m not sure about the specifics with Britain. I read this big history of Venice recently, and it struck me how big an economic advantage Venice had because it was a stable republic (and also an empire), competing against dictators who could win a few battles but were often swept away by the next guy, who would then change policies or have to rebuild the army or whatever. Venice is an interesting case because it clearly was a military empire, and a commercial one, and the two things went hand in hand. It was also a Republic for its entire existence as a separate nation. At the height of its empire, it ruled directly much of Northern Italy, as well as much of what is now Greece and Turkey, as well as Rhodes, Crete and a bunch of other strategic islands.

But I digress.

I’m not sure I agree with you that the United States sacrificed its economic interests for anti-communism. Perhaps in the short term, but in the long run, the United States got a world that played by American economic rules. Several scholars have commented that the Marshall Plan money came with conditions, including that certain fixtures of American economic policy be accepted.

Finally, you say that:

“for empires, war (is) for the aggrandizement of the state, concentration of wealth, a small and shrinking elite with ever greater power, mercenary armies, and a population that is increasingly alienated from the political process and economically impoverished.”

The first phrase describes the United States pretty well to me. Or at least somewhat.

Then I wrote:

Date: Jun 28, 2005 6:12 PM

“Capital and production and finally actual sales will go where they are most efficient and the US offers neither high skill nor low skill labor for most goods and as a result, eventually a much smaller market for them.”

What America Offers.

America offers free speech and the rule of law. America offers periodic anti-corruption campaigns that keep the police reasonably free of corruption. America offers a culture that is mostly anti-bribery, and bribery is, I think, one of the biggest brakes on growth world-wide. America offers gay rights, racial minority rights, and gender rights, so a much larger percent of our citizens can maximize their economic potential, compared to most other countries. America offers, sometimes, a relaxed enforcement of deference to social rank, so good ideas are allowed to be heard if they come from low-ranking people. America offers a respect for creativity. America offers far greater corporate transparency than any other country, which is one reason we continue to attract foreign capital. America used to offer liberal bankruptcy laws so someone could try something, fail, and try again, but that is changing. America offers the highest percent of population that goes to college of any nation in the world. America has long offered the lowest or second lowest taxes in the industrialized world. America has the highest percent of property owners, as a percent of the population, of any nation, which could suggest a citizenry that’s vested in the health of the country. America has the highest marriage rate of any industrialized nation. America has the highest birth rate of any industrialized country.

America has a lot of cultural advantages, but they are only visible at a distance. They are long term advantages. You have to ask a question like “What’s made Anglo-Saxon culture different from other cultures over the last 500 years” before you can easily see them. In the 1600s, Galileo said the Earth revolved around the Sun, and so he was arrested, tortured, and then lived the rest of his life under house arrest. 60 years later Newton said that all things with mass were attracted to each other proportionally to their mass, and inversely proportional the square of the distance between them. Newton became a national hero for saying so. That was the difference between England and Europe back then, and that kind of openness remains an advantage of liberal societies.

Anyway, as soon as a country gets to a point where its asking “How can we keep these businesses from leaving the country?” then I think the country is dead. That is the wrong question. The right question is “What can we build, and with what money?” I’m not quite saying that every country should, at all times, be starting over from scratch, but such an attitude is less fatal than the opposite attitude – that our wealth is something that was made a long time ago and now the only way to keep is to hang onto it real hard. Things die, all the time. You’ve got to be inventing something new if you’re still going to be around 100 years from now.

Robert wrote this bit to what I’d said a little bit before:

Date: Jun 28, 2005 6:18 PM

“ I’m still making up my mind about a lot of economic issues. ”

I certainly understand. There are two many conflicting ideological influences fighting for dominance in my head when in reality I really want to just see what is and what lessons might be applicable to the future. I still constantly bump up against contradictions in my own thinking. Lots of great emails today though.

I wrote back a little later:

Date: Jun 28, 2005 6:23 PM

“I would add that economists don’t always understand economics. Or even often. If economics is taken to mean how you generate and distribute wealth. I think most economists understand the mechanics of markets in a very narrow sense, and not much else.”

That’s true, but it’s true for all professions. Taking on certain specific, limiting understandings is part of joining a profession. Doctors don’t dispense health, they dispense health care. Lawyers don’t dispense justice, they dispense law. The public wants health and it wants justice, but neither the medical nor the legal professions can hand out the ideal. They hand out something more limited.

Some people think journalists are suppose to report “the truth,” and all of “the truth,” and only “the truth,” but I imagine you appreciate the difficulties involved in that.

And I added:

Date: Jun 28, 2005 6:35 PM

“ The Economist recently had an article that listed the results of a poll that asked people in various countries something like: where would you like to go to make a new start? The results varied by country, but were surprising in that the USA was relatively low on the list.”

For immigrants, Brazil was as popular as America during the war, 1861-1865. But momentary convulsions don’t cancel out the long term trend. Of course, what makes life interesting is that sometimes the long term trends do change, and when you are in one of the convulsions you do not know if it will be momentary or permanent.

My gut level feeling, for what little it’s worth, is that someday George W. Bush will go away, and the Iraq war will go away, and America will again be the number one choice for immigrants to go.

Alex then replied to Robert:

Date: Jun 28, 2005 6:35 PM

“What’s also interesting is that we are looking at it from a totally nationalistic perspective which no longer seems common or politically correct in this age of free market absolutism. …. Alex I don’t want to speak for you but I think you are uncomfortable with this kind of thinking.”

Not so. But you probably knew that, and were trying to bait me. I’m quite comfortable with pursuing our nation’s economic self interest. But I do believe in enlightened national self interest. Often, there’s a way to make things better for yourselves and other people. Often it’s a question of short and long term planning. Right now, our policies of globalization are making our elite much richer, and our masses poorer, to oversimplify a bit. again.

And then Alex wrote again:

Date: Jun 28, 2005 6:36 PM

“ I don’t mean to nit-pick, but I’d like to be clear how you mean these words. I’ve stopped using the word “capitalism” in any of my writing, because I think the word means something different to everyone.
”

That’s fine with me. I just used the word because the writer in the Times did. I’m not going to attempt to define it.

And then Alex again:

Date: Jun 28, 2005 6:39 PM

“I think I’m enough of a classic liberal to think that often the benefits of trade are mutually beneficial and synergystic. At least, I’m a classic liberal sometimes. On odd-numbered days. I’m still making up my mind about a lot of economic issues.”

Lawrence, what is “a classic liberal?” And what is a “liberal country?”

Replying to what I wrote in my email “What America Offers”, Alex wrote:

Date: Jun 28, 2005 6:41 PM

Very well said.

I think it’s less cultural than a legal and political operating system, which includes common law. All the Anglo-Saxon countries have striking similarities, ranging from Canada, to Australia, New Zealand, etc. They endure. They are much more stable. But they also have more disparities in income, and a dropoff in educational levels once you get past the college educated. I could go on.

And then I responded to Alex:

Date: Jun 28, 2005 6:50 PM

“ Lawrence, what is “a classic liberal?” And what is a “liberal country?”
”

I guess when I think “classic liberal” I think of the writings of John Locke, Jeremy Bentham, Adam Smith, Alexander Hamilton, John Stuart Mill, Thomas Jefferson, David Hume, David Ricardo and others. But in this case I was thinking specifically of Ricardo, since he was the first to argue that nations gain mutual benefit from trade.

A “liberal country” is a country that’s adopted some of the ideas that the above writers wrote about: religious toleration, equality before the law with privilege for none, governmental legitimacy based on contested elections, freedom of speech, freedom of assembly, the right to trial by jury, the right to an attorney, etc.

As I think I said a few weeks ago, I don’t think any nation is currently perfectly liberal, but obviously some are better than others.

And then Robert replied:

Date: Jun 28, 2005 6:55 PM

“I think it’s less cultural than a legal and political operating system, which includes common law.”

I don’t see how you can decouple these 3 things. It’s a complex system with all parts reinforcing and feeding each other.

And then Robert wrote again:

Date: Jun 28, 2005 7:00 PM

“The right question is “What can we build, and with what money?” I’m not quite saying that every country should, at all times, be starting over from scratch, but such an attitude is less fatal than the opposite attitude – that our wealth is something that was made a long time ago and now the only way to keep is to hang onto it real hard. Things die, all the time. You’ve got to be inventing something new if you’re still going to be around 100 years from now.”

I totally agree. But is it the invisible hand or the master hand that does this? Do you need industrial policy or a just a really liberal, stable social and legal system?

“My prediction: China will burn out, India and America will integrate.”

Boy this is an interesting prediction. I can tell you having worked with a lot of Indians that it has struck me how much they seem like Americans in many attitudes. I haven’t worked with any Chinese so I cant make a comparison. Japanese are scary/nuts/irrational. Grossly extrapolating from my own experience I don’t know how they managed to accomplish anything like they have in the last 50 years. India doesn’t need to integrate with the US it just needs its capital which it will get. Why do you think China will burn out?

Robert also wrote this in reply to Alex:

Date: Jun 28, 2005 7:11 PM

“ But you probably knew that, and were trying to bait me. I’m quite comfortable with pursuing our nation’s economic self interest. But I do believe in enlightened national self interest. ”

No honestly I wasn’t trying to bait you. I think it would be difficult if not impossible to pursue nationalist economic polices without hurting other people just as Asia killed much of our manufacturing. Totally agree with your closing comments.

And then I wrote:

Date: Jun 28, 2005 7:24 PM

“I totally agree. But is it the invisible hand or the master hand that does this? Do you need industrial policy or a just a really liberal, stable social and legal system?”

I don’t know. I’m not sure there is a right answer. It seems like both approaches have worked at different times. It seems like one approach will give you one kind of country and the other approach will give you a different kind of country, and to some extent it’s a matter of taste about what kind of country you want. I think every economic success story has used a somewhat different mix of the master hand and the invisible hand.

And then I also wrote:

Date: Jun 28, 2005 7:31 PM

“Why do you think China will burn out?”

It’s governing structure currently lacks transparency and accountability.

Perhaps I shouldn’t use the phrase “burn out”. What I mean is, I think China faces far more social instability in the future than India. China lacks those institutions (free press, free elections) that would allow its various competing factions to compete with each other in a non-destructive manner.

In the world of weblogs, is was a big deal this last week when it turned out Microsoft was censoring the words “freedom” and “democracy” from its weblog service in China. Likewise, it turned out that TypePad was wholly banned from China. There is no free press in China, no place where China’s factions can talk about their differences in public.

Alex then replied to my earlier remarks on the question “What is liberalism?”:

Date: Jun 28, 2005 9:27 PM

It’s interesting that you describe liberal in what I think of a political terms — religious toleration, equality before the law with privilege for none, governmental legitimacy based on contested elections, freedom of speech, freedom of assembly, the right to trial by jury, the right to an attorney, — rather than economic terms, which is what I was thinking when I asked the question. Of course, economics stems from politics, but there are different spheres. What do you think it means to be economically a liberal?

I then further elaborated on the question of “What is liberalism?”:

Date: Jun 28, 2005 11:49 PM

Well, the phrase I used, “classic liberal,” for a lot of people suggests Adam Smith’s entrepreneurialism and Ricardo’s mutually beneficially free trade. And I think those things are obviously a part of the liberal tradition. Some people in recent decades have become market fundamentalists, and I think fundamentalism of any kind goes against the liberal tradition. The actual writings of the great liberal writers are deep with nuance. A person can say, if they want, that the market is never wrong, but they can’t honestly claim that Adam Smith or Ricardo ever said any such thing. Hopefully I don’t have to emphasize the obvious fact that social reforms aimed at promoting social benefit for all are part of the liberal tradition. Social reforms are defended by Jeremy Bentham and the early writing of John Stuart Mill. I think the liberal tradition is rich and deep and you can pull a lot of things out of it, and depending on circumstances, a liberal society will emphasize first one part of the tradition and then another.

For some people, to speak of a “classic liberal” economically is the same as invoking the policy of laissez-faire, yet Friedrich Hayek, who is himself a “classic liberal” has this to say on page 21 of his book The Road To Serfdom:

“There is nothing in the basic principles of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all. The fundamental principle that in ordering our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications. There is, in particular, all the difference between deliberately creating a system within which competition will work as beneficially as possible and passively accepting institutions as they are. Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire.”

The conversation then ended for the day. The next day we spoke of a Friedman column and Ireland’s economic growth. I came back to the theme of liberalism more than a week later with this:

Date: Jul 8, 2005 4:49 PM

There is odd contradiction in the thinking of many of my friends (though not necessarily yours), one that at some point I hope to ask them about. If I ask them when laissez-faire economic policies were given their greatest try in Europe, most will say the late 1800s. Yet, if I ask them what the great age of explicit Western imperialism was, they’ll mostly say the late 1800s. If imperialism implies the government using its military forces to conquer resources that might be of economic advantage to the home country, then clearly the age of imperialism can not also be an age of laissez-faire. Rather, if such an era was ever called laissez-faire, it’s like that the term laissez-faire was being used cynically as a cover for enriching the very rich and doing nothing for anyone else. I know some libertarians like to joke “Laissez-faire has one thing in common with Christianity: neither has ever been tried.”

Last week you were asking me what a liberal country was and what liberal economic policies were. I found an essay, written in 1909, that I think expresses the liberal contempt for imperialism. Here is a writer who is contrasting laissez-faire to imperialism, and finding the former economically preferable. The essay, actually a book, was written by Norman Angell in 1909, and it is called “The Great Illusion: A Study of the Relation of Military Power in Nations to Their Economic and Social Advantage”

Brad Delong has posted some long excerpts on his weblog, and its worth at least glancing at. I think this spells out clearly a point I tried to make last week, that imperialism (at least of the British 1850-1914 type) is often bad for the economy of the nation that indulges it:

http://www.j-bradford-delong.net/movable_type/2003_archives/001710.html

“p. vi: What are the real motives prompting international rivalry in armaments, particularly Anglo-German rivalry? Each nation pleads that its armaments are purely for defense, but such plea necessarily implies that other nations have some interest in attack. What is this interest or supposed interest? The supposed interest has its origin in the universally accepted theory that military and political power give a modern nation commercial and social advantages, that the wealth and prosperity of the defenceless nation are at the mercy of stronger nations, who may be tempted by such defencelessness to commit aggression, so that each nation is compelled to protect itself against the possible cupidity of neighbours.

p. vi: The author challenges this universal theory, and declares it… a pure optical illusion…. [M]ilitary and political power give a nation no commercial advantage… it is an economic impossibility… for one nation to enrich itself by subjugating another.”

To which Alex responded:

Date:

Jul 8, 2005 8:22 PM

You have interesting friends in which asking about imperialism versus liberalism in the 1800s is a common subject of discussion.

I guess I’ve tended to think that imperialism compliments laissez-faire. You conquer the countries, install pliant governments, who then keep raw materials and labor cheap. I think the USA is doing something similar now, with its insistence on democracies in developing countries. I guess to me laissez-faire is often used to describe economic policies but not very often military policies. For you to combine them is appropriate, but unusual, I think.

Brad’s essay strikes me as focusing too much on wars between the great industrial powers, and not enough on the role of the colonies in Africa, Asia and the new world. While war between the great powers may have been a bad idea, there was a real battle going on to see who could control various colonies or set ones up. The French, British and Germans were all over the world. I’m not sure if I can say their wealth was unrelated to that. The French ruled Vietnam, for example, and I think were getting lots of rubber out of it through plantations they set up. Brad talks about basics like wheat, but for something like rubber, its production cannot be separated from the conquering of a country to set up a semi-slave labor system to produce it. The Vietnamese before the French conquered them, had no interest in growing rubber. They were ruled by a Chinese-style king, and export trade was not a big part of life there. I guess in summary I’m not sure if production can be separated from the rule by force that is an inseparable part of so many parts of production. (i read a book last year on the history of Vietnam, which focused not on the American war but the century or two preceding it. Very interesting.)

To which I replied:

Date: Jul 8, 2005 10:13 PM

It’s interesting, isn’t it, that most countries now want to sell their goods to America, even Communist countries like China and Vietnam? We no longer need to conquer these countries for them to mobilize their internal resources for sale on international markets.

The essay I think indirectly raises the interesting question of whether the Western powers might have gotten even more wealthy than they did had they engaged in free trade with what became the 3rd World. That is, instead of conquering a country such as Vietnam, would France have been better off engaging in free trade with it? It seems to me that the main benefit of conquering these countries was to keep them out of the hands of other Western powers. In China, America stepped in to enforce an “Open Door” policy and suddenly the Western powers lost interest in the conquest of China. No point conquering it so long as America was ensuring everyone would continue to have access to it. It does seem clear to me that each European country would have been wealthier if it could have convinced the others not to conquer and close off the 3rd World.

It seems clear that there was a strain between the more monetized economies of the civilized societies versus the less monetized economies of the less developed societies. Hernando De Soto has explained some of the mechanics why this is so, I think. At some point I’ll try to write up my thoughts and post them to my weblog and I’ll send you the link. I do very much suspect that in, say, 1700, Europe could not have used money to entice the region now called Mozambique into joining the world economy. The economy of the area at the time was wholly based on barter and would not have responded, at all, to monetary stimulus. From the first explorations of 1360 to the 1800s Europe was mostly interested in sailing around Africa to get to the monetized economy of India. The exceptions in Africa would be some of the Gold Coast empires that sold slaves to Europe. Not till the 1800s did Europe get around to monetizing the rest of Africa by force.

To which Alex replied:

Date: Jul 9, 2005 10:27 AM

That’s a great word “monetizing.”

You might be right. Maybe France would have been richer if it hadn’t
conquered Vietnam, and instead had just insured open access.

Trade can resemble those gamesmen theories, which seem pretty relevant.
It’s hard to get to a place where everyone benefits, even though it’s
often a quite logical outcome. The fear that someone else might do
something lead people or nations to a place where everyone ends up with
a Lose-Lose situation.

And that ended that branch of the conversation.

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