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EconOptimisim

Wealth unlimited by nations

Perhaps its symptomatic of my prevailing political philosophy: I’m more of a Mill than a Marx or DeMaistre, but I am immediately wary of any argument that uses “culture” to explain outcomes.  To me, in such lines of reasoning, “culture” seems akin to amber that locks organisms in one position eternally.  But there is a greater argument against using culture beyond my own sensibilities.  Cultural arguments tend to collapse on themselves, overburdened by attempts to resolve argument inconsistencies.  For example, some believe that the United States has a culture that values equality, which dates back at least as far as the Declaration of Independence.  However, “all men are created equal” and slavery are mutually exclusive: to resolve the inconsistency required arguing that slaves were not human.

One mainstream cultural argument comes from The Wall Street Journal, where Richard Landes’ article “Romney is Right on Culture and the Wealth of Nations,” defends Romney’s reference to cultural factors that influenced Israeli economic growth.  Landes goes on to compare the Arab and Israeli cultures to show that the former prevents and latter encourages wealth.

Putting aside the very real, and ignored by Landes, aid Israeli has received since its creation, the cultural argument really skims over the essential differences between wealth and power, which I earlier explored.  While Landes believes that cultures produce wealth, the desire and ability to acquire wealth transcends culture; the different ways people organize power can promote or inhibit wealth.

Wealth is simply the difference between assets and liabilities; wealth matters because it can benefit an individual.  Different cultures may have different assets: cows, cash, crops and may distribute the resources differently, but all humans try to pursue wealth by behaving in an economy.

An economy does not require cash, financial derivatives, or labor market reports, only that rational actors distribute scarce resources.  People behave in an economy to their own benefit, which can mean anything to enhancing the tribe’s, and therefore their own, harvest, or acquiring mountains of gold bricks.  While perhaps some people are lucky enough to stumble upon a land of milk and honey, maximum benefit to anyone usually comes through a trade: produce for livestock, labor for cash, meaning that people save time and resources by working their comparative advantage.

Travel anywhere and people will attempt to benefit by practicing their comparative advantage.  Consider rickshaw drivers, outdoor market, shoe shiners.  The pursuit of benefit is hardly cultural; the method can be: a pig farmer would see little benefit from selling his products in a Jewish neighborhood.

The prevailing power structure can dictate how people works towards wealth.  Some power structures promote wealth and others discourage it.  For example, the Catholic Church (the power) made laws prohibiting usury, which then stalled money lending and wealth creation: the baker couldn’t get a loan for a new oven to make more bread and increase profit; the banker was out of a job.  So the Catholic Church allowed Jews to lend money.  While the compromise was better than no money lending, it was suboptimal because more money lending (including Christians) would expand the overall pool of available money and allow for greater economic activity.

Landes should frame his argument in terms of power structures rather than culture.  He rightly suggests that power organized along “coerced and zero-sum relations” can inhibit wealth creation  For example, forcing a legless shoemaker to drive a rickshaw and a stellar cyclist to make shoes will result in very little productive activity.  Other “cultural factors” cited such as “authoritarian leadership” and misogyny don’t seem in prevent economic development.  The Chinese Communist Party provides an excellent example of ongoing authoritarian leadership that yields an astounding GDP and ROI to foreign investors; India faces a shortage of women due to sex-related abortions and is second only to China in terms of rapid wealth acquisition.

Mr. Landes rightly point out that Palestine can gain through increased cooperation with Israel.  However, he ignores that Israel can gain through increased cooperation with Palestine: the very idea of mutual benefit he earlier derides Arab nations for not recognizing.  Every day that the Separation Wall makes it harder for Israelis and Palestinians to do business with one another imposes a cost on both parties.  Some would cite the conflict as evidence of an Israeli culture of self-entitlement, but perhaps it is the result of a sub-optimal power structure.

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