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Comment by caiobegotti | Hacker News Reader

I believe it's not really "rethink" as if we had once figured it out correctly in the past already. We are still actually thinking it for the first time, specially if you consider economists and policy makers were yet looking for "something new" (mentioned in the article) in macroeconomics during the last, what, 50 years? It's all pretty new, which suggests to me that it is all in a pretty extremist and radicalized state: it doesn't have to be 100% trickle down reaganomics or 100% state interventionism exclusively. I'm very confident a major crisis like this one will make key people finally realize that a mix of free global markets + welfare states focused on reducing inequality + democratic institutions will be the answer to many macroeconomics problems. Very few countries have realized this, the rest of the world meanwhile will keep shouting at each other doubling down on stupid policies not based in good examples and will keep blaming keynesianism or whatever neoliberal approach they can't understand.

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They have already tried your strategy. Economists thought free global markets would lead to liberalization in other governments. That has proved to be utterly untrue with China and as a result they have become the worlds manufacturing hub, while becoming more and more totalitarian.

Production wise, an economy that is not concerned with democratic institutions or reducing inequality will outperform one that is. With that in mind, globalization is basically a race to the bottom human rights wise.

China was more totalitarian before globalization. Without it, they would be more like North Korea. You don't need technology to send people to labor camp or burn books.

Globalization is why extreme poverty has plummeted in the last few decades. Hundreds of millions of people chose to leave their subsidence farm to work long hours in a factory because it's still an improvement for the quality of life of themselves and their families. Sure it would be better if an Indonesia factory worker got paid $20 a day instead of $10, but nobody is offering them $20 and you can't force anyone to.

But you can, right?

It's a political choice not to (for example) impose import taxes on goods based on the difference between wages in the two countries concerned.

Not doing this is bad for people, but good for capital.

You can, but should you? $10 a day is better than the $5 they would get before. More is better of course, but your option isn't pay everyone the same it is pay some and not others.

Well my option is to remove the possibility of labour cost arbitrage through tariffs/customs duties.

Like, I'm Irish, so I have benefited from this trend for my whole life, but that doesn't make it right.

It's not as simple as 'outsourcing good for capital, bad for labor.' It's been a stupendously positive change for foreign labor in countries that successfully ran low-cost export industries.

Literally hundreds of millions of people in the Third World to were able to raise themselves into the global middle class over the past few decades.

The main people hurt by the outsourcing trend have been middle-class people in wealthy countries who had well-paid, lower-skill jobs producing physical things which are now shipped in from far away.

Good for foreign labor, good for capitalists, and bad for the middle class in rich countries.

This could have even been a win-win-win, if managed more carefully — Germany had pretty robust job retraining programs for people who lost factory jobs. I'd imagine the UK did not.

You're operating under the assumption that hundreds of millions of people in the Third World could not possibly have raised their living standards in any way whatsoever rather than the offshoring of the First World's labor-intensive industries as part of a decades-long political program of wage repression in the First World.

There was a win-win-win available and it didn't happen.

We should be honest about who benefited, as well as who was hurt.

>You can, but should you?

Yes. Trade is supposed to mean that no side of the bargain loses. If my country's working class loses, I'm losing. It's not our job to impoverish ourselves for other people's good.

The US government can't audit every order of widgets to see whether the difference between wages is accurate. Even if it were possible, this would just punish poorer countries where it's riskier to do business in.

Your first point is correct, but your second point is not. Bruce Bueno de Mesquita demonstrated this in "The Logic of Political Survival", and others have come to similar findings.

Briefly, rising incomes under a non-democratic regime lead to a local maximum of growth, as totalitarianism is inextricably linked with economically inefficient institutions. As an autocrat, your top priority is to compensate those who keep you in power, which requires wealth extraction from the productive; this disincentivises efficient production. Unfortunately, nothing about rising wealth will necessarily lead to regime liberalization.

"Reducing inequality" is very different from democracy, and would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production.

> "'Reducing inequality' ... would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production."

this argument gets made a lot (for instance, re: the lower capital gains rate) because proponents want it to be true and its flaws are not immediately obvious, but it's unambiguously mistaken.

first, esteem from wealth is relative, and as long as there is a spectrum of wealth, the wealthiest will derive maximal esteem regardless of the absolute value of wealth. and that's the primary driver for the ambitious and greedy, not putting resources to highest and best use (which is at best a side effect). greater equality doesn't change that equation one iota.

second, it's plain to see that large accumulations of wealth are fairly unproductive, simply illustrated by the localized real estate bubbles driven by both wealth seeking safe harbor and PE-backed landlords seeking unproductive rents.

in fact, there seems to be a central optimum. relative to now, wider dispersion of wealth (less wealth disparity) seems to provide the best bang-for-buck when it comes to efficiency, putting more potential to work rather than mostly relegating it to the menial sidelines.

This argument seems to be ignoring the propensity of wealthy people in redistributionist environments to send false signals about their own level of wealth. E.G. Stalin commanded the wealth of a global superpower, but he dressed in uncomfortable military uniforms to signal solidarity with a poor majority. That kind of 'wealth falsification' seems likely to cause its own inefficiencies not present if wealth is considered the result of better serving the market.

> "Reducing inequality" is very different from democracy, and would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production.

They are absolutely bound together. Ensuring that every person has the same power in the political process means that everyone has the time and energy to pay attention and be educated on what's going on the world, and that nobody has so much wealth that they can use it to buy influence. The trend towards more inequality while the working class has less and less political power is painfully obvious, especially in the United States.

See also "Rules for Rulers" from CGP Grey for an animated treatment

https://www.youtube.com/watch?v=rStL7niR7gs

> As an autocrat, your top priority is to compensate those who keep you in power, which requires wealth extraction from the productive

That cost is insignificant when the ruling nomenclature is a relatively small portion of the population and when basic workers rights are not respected. Especially in manufacturing stuff on a pipeline in huge quantities, a totalitarian system can be much more effective output-wise, at the cost of disregarding any environmental and human condition externalities.

The cost of compensating the “selectorate” is actually more related to regime organization (i.e. military dictatorship vs. rigged elections) than to work conditions.

This cost can be extremely high, as the autocrat has to pay off enough people to ensure that rivals cannot achieve an advantage.

Most totalitarian leaders use fear and repression as tools for maintaining the power structure. Defecting members of the nomenclature and their families are imprisoned and tortured. With modern methods of surveillance and control, that doesn't require a huge army of trusted agents, as was the case in the Eastern bloc, for example.

Even extremely repressive regimes will bribe the selectorate; as an example, you can look at North Korea (or Maoist China), where the peasants were starving and beaten, but the party officials have/had new cars.

> Production wise, an economy that is not concerned with democratic institutions or reducing inequality will outperform one that is.

The question is: How can the market be adapted to create a fair, innovative and sustainable society, globally?

How can a single government force any rules with these goals without lowering the welfare of its inhabitants and thus threaten its reelection?

I’m not sure how much economists believed this as they were materially incentivized to parrot this logic. Most of economics is just laundering the interests of the ruling class with spurious math and heuristics that are unmoored from political and social realities.

996 in the west. I think many people who operate their own service businesses already run like this. At least over here, immigrants are heavily represented there.

> I'm very confident a major crisis like this one will make key people finally realize that a mix of free global markets + welfare states focused on reducing inequality + democratic institutions will be the answer to many macroeconomics problems.

Like the Scandinavian countries, which also have the highest reported rates of happiness in the world. Why, at the government level, do we not look at best practices worldwide?

>Why, at the government level, do we not look at best practices worldwide?

Because there is a ruling class and for the rulers it is not about best practices or happiness, it is about maximizing wealth and maintaining power.

Education and healthcare (which should be considered human rights not industries) are very helpful in seeing some of the tools the ruling class uses to maintain power. Both education and healthcare are standardized enough they are rated by Country and while the US spends more on both than any other country the US is not even close to being rated number 1 in either category.

Yet, to your point, when one points to other countries as evidence how well other systems work (with less funding) that person will be demonized as Anti-American. Even in the current pandemic where the numbers speak for themselves, we are subjected to having to hear the ruling class get on TV and tell us how we are #1 and doing better than every other Country and even worse in many cases this ruling class refers to the pandemic in the past tense and proclaim how they defeated it. It is Machiavellianism incarnate.

> Why, at the government level, do we not look at best practices worldwide?

I've seriously been wondering why there isn't a field of study dedicated to comparing government policies across countries. I'm sure such a field of study exists, but I have no idea what the name of that field is - does that fall under public policy? Comparative politics? The fact that I can't put a name on it is the very problem as it shows the field (if it even exists) has very little influence on public policy (unlike say economics, which has the Council of Economic Advisors, CBO, BLS, Fed, U.S. treasury, etc).

It's hard to identify which practices are responsible for which outcomes. Suppose you wanted to combine the high happiness rate of Denmark with the low crime rate of Japan; how would you figure out which are the policies you need to accomplish that?

There is research, and it's pretty intuitive. Create stability. Reduce income inequality. Focus spending on social programs. Help people out of addiction, crime, give them a network, healthcare, education and jobs. People who cannot work need funding. Enough to live a dignified life. People are happy when they don't have to worry. People who are happy with the system doesn't really commit crime.

Why has no-one thought of this before?

We can surely agree that cheap wide good education has to be one of the policies necessary for that, yet it's quite ignored even in some rich countries.

A big problem is that many educators and school boards treat education as indoctrination. i.e. "Teach people what to think"

The real goal of education is to teach people how to think. Logic, rhetoric, analysis, scientific method, how to identify logical fallacies, understanding statistics, falsifiable theories, analyzing history not only through secondary sources, but actively seeking out primary sources to corroborate secondary sources, so on and so forth.

A useful education for a healthy well-functioning society is about inquiry, not regurgitation.

There's near-universal agreement that education should be cheap and wide and good. The question is which policies best accomplish those goals. Should we add vocational high schools like Denmark has, where teachers can focus on practical skills since it's already been decided the students won't go to college? Should we add 60 more days to the school year and universal high school admission tests like they do in Japan?

These are the kinds of questions that need to be studied and answered. But instead, politicians just say “‘Murica is #1” and leave it at that. The platitudes need to stop. We need some policy wonk technocrats to take over government.

I don't think this is something we can blame on the politicians, though. People got grumpy enough about Common Core; imagine how much worse it would go over if a school district announced that it was going to transition towards rote learning.

I can't agree with that, no. "Cheap wide good education" is not a policy. What policies need to be set to achieve it?

I agree. There are many practices common to countries reporting high levels of happiness that Americans (And certainly other western nations) ignore seemingly on principle.

How should the United States address this issue given that it is usually in the top 5 with spending on public education per student every year?

We would have to analyze the actual distribution of that spend. When this is done, we see wealthier places have higher spending per capita because public schools in the US are funded primarily by property taxes.

Yeah, and local property taxes, at that.

I mean, if I were designing a system to reinforce inequality in districts and schools, local property taxes would be first on my list of policies.

One of the thing Americans do differently is setting up systems for inequality from the get go. First past the post voting, but also using education to produce/select 'winners', rather than use it as a tool for equality. One could say this is a choice and there's no wrong way to make it, but to me it seems clear that it is the root cause for many of the issues in the US. I think superstar systems and mentality necessarily produces inequality and inequality necessarily produces problems.

The US has lots of people with a superficial understanding of Scandinavia telling everyone that their idea of Scandinavia is brilliant, easy, etc. (and btw, this is a function of generally poor policy education in the US, the US produces probably the best policy studies research...very little of this is taught in courses that people who go on to be politicians study).

If you go to Scandinavia or study comparative politics, the answer is simple: Scandinavia is Scandinavia, the US is the US. They are different places with outcomes that reflect different values and choices.

What people ignore about Scandinavia: mono-cultural society (if you tried some of the integration stuff that these countries do in the US, you would have people loading guns), huge tax burden on middle class (in the US people who currently pay no tax will have to hand over 40%+ of their income), small population, heavily monopolistic economy, significant exposure to trade/reliance on individual companies, significant natural resources (Norway has 20% of the US oil reserves, their population is smaller than almost every state in the US). Saying they are happier is very woolly, particularly as most countries in that region are societies that place significant social pressure on individuals to conform and be happy (their rates of depression and suicide are high, indeed when Sweden was the socialist paradise their rate of suicide was highest in the world).

Also, you ignore that most Scandinavian countries have moved towards the US model after decades of underperformance and then financial crisis. Even Denmark which has huge trade union membership has the most flexible labour anywhere...again, what people understand about Scandinavia is usually based on their preconceptions about America and their belief in a perfect, easy ideal that confirms their views about the world.

The US gets things far more right than wrong. It is, by far, the most successful economy that has existed to this point. No other large country has replicated that success (all the East Asian economies used Germany as their model, which has resulted in significant baggage). You can say that some stuff needs to be changed...okay, but it isn't as simple as just copying Scandinavia. That will never happen, and won't work if it did. It just makes no sense. The solution to an American problem is American, not Swedish.

Talking about US being the most successful economy in the world is kinda misleading without talking about the role that political geography, and how it applied to WW1 and WW2, played in that.

There are powerful forces whose giant profits would be threatened by such a consensus. It’s hard to say if it will actually happen.

A great deal of political thought and practice is centered around promoting personal benefit. While it might look dumb for someone promoting free markets to also support farm subsidies etc, the spoken justifications have little to do with the actual decision making process. Convincing people who don’t benefit from your policies to still support them is simply how the game is won.

Farm subsidies are wildly popular with voters, both in farm states and non-farm states, and there is not much advertising/public lobbying for them. They are an example of a voter-driven policy, not a special interest group's successful lobby.[1]

[1] https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter

I think you missed my point. Convincing people who don’t benefit from your policies to still support them is simply how the game is won.

In the US farmers don’t need to expend significant political capital maintaining farm subsidies. It still comes up from time to time, but nowhere near as much as you would think given the economic and heath costs of such policies.

My point was that in the case of farm subsidies, it doesn't take any convincing; the people believe these are necessary to maintain an adequate supply of food, and they also happen to think supporting farmers is a good cause. As a rule-of-thumb, the bills that everyone signs/votes for very publicly (with ceremonies and such) are actually vote-winners, steel tarriffs are another good example.

Voters hold many mercantilist and nationalist beliefs (on both sides of the aisle), and policies largely reflect these, not some propaganda-driven special interests.

Now sure, but farm subsidies was a battle fought before you where born. In 1800 such a large percentage of the population was farming that the idea of farm subsidies would have come off as silly. Going back further the idea of say landed nobility in Europe and not the US is such an old fight it became a cultural institution.

Well, the corn laws (of the UK) were a form of farm subsidy (actually a tariff against imports), enacted in about 1815, and repealed in 1846 in the face of opposition from factory workers. The market for agricultural goods has seen increasing subsidy/barriers to trade since the First World War, the sharpest change likely being during the Great Depression.

Outside of the US, things where different. The UK corn laws had less to do with farming than land ownership. The actual percentage of UK population owning large tracks of farm land was low enough to enable that kind of power grab. Further, they excluded potatoes which focused the benefit on the upper crust of society.

It is an interesting bit of history, but the specifics really drive home what I was talking about.

>free global markets + welfare states focused on reducing inequality + democratic institutions

The first of these is incompatible with the latter two.

The US is going down the route of mixed socialism--more stimulus and bailout programs, plus private ownership and massive wealth creation. You have tens of millions of Americans getting a soft form of UBI, which benefits privately massive companies such as Walmart and Amazon. it is a form of the government picking winners and losers, the losers being small and medium-sized businesses and the winners being these huge big box and tech companies.

I've always thought that in the absence of regulation, pure market forces will always favor power conglomerating into few large entities just due to efficiency at scale. Is the absence of enforced regulation (anti-trust, different tax treatments) still the same as actively picking winners and losers?

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