Economic Variables

By Kevin D. Williamson

Thursday, August 15, 2019

There is much to be said about Matthew Desmond’s New York Times essay on how slavery shaped the U.S. economy, which is a very interesting read even if much of its argument is fanciful in its parallelism, e.g.: Antebellum slave overseers developed quantitative tools for measuring slaves’ productivity, modern corporations use quantitative tools for measuring workers’ productivity, ergo . . . ? The difference between slavery and non-slave labor is so radical and so fundamental that comparisons between the two are not very illuminating in most cases.

One or two general points come to mind.

There are many good criticisms to make of the U.S. economy and its work practices. This is not one of them:

Consider worker rights in different capitalist nations. In Iceland, 90 percent of wage and salaried workers belong to trade unions authorized to fight for living wages and fair working conditions. Thirty-four percent of Italian workers are unionized, as are 26 percent of Canadian workers. Only 10 percent of American wage and salaried workers carry union cards.

The median household income in the United States is 25 percent higher than it is in Iceland. Average incomes are higher in the United States than in Italy or Canada, too. Would you rather have a union card or a 25 percent raise? (If that seems like a rhetorical question to you, then, congratulations: You’re rich.) It may or may not be the case that American workers earn more because of our (relatively) loosey-goosey market regulations, but it is difficult to believe that they are uniquely disadvantaged in any meaningful economic way compared with lower-paid workers in more tightly regulated markets.

There are countries with more libertarian-ish economic practices that have higher household incomes than in the United States (e.g. Switzerland, where there’s no national minimum wage or capital-gains tax) and countries with bigger public sectors and expensive welfare states that also have higher incomes (e.g. Norway and, depending on the measure you use, Sweden). What might be learned from that?

Of course, household incomes are only one measure. You might also want to look at GDP per capita — if you are interested in redistribution, you’ll want to make sure you have something to redistribute. Here are the top 40 countries (and quasi-autonomous jurisdictions) by GDP/capita, according to the IMF:

1.      Qatar

2.      Macau

3.      Luxembourg

4.      Singapore

5.      Brunei

6.      Ireland

7.      Norway

8.      United Arab Emirates

9.      Kuwait

10.   Switzerland

11.   Hong Kong

12.   United States

13.   San Marino

14.   Netherlands

15.   Saudi Arabia

16.   Iceland

17.   Taiwan

18.   Sweden

19.   Germany

20.   Australia

21.   Austria

22.   Denmark

23.   Bahrain

24.   Canada

25.   Belgium

26.   Oman

27.   Finland

28.   France

29.   United Kingdom

30.   Malta

31.   Japan

32.   South Korea

33.   Spain

34.   New Zealand

35.   Cyprus

36.   Puerto Rico

37.   Italy

38.   Israel

39.   Czech Republic

40.   Slovenia

What to make of that list? One possible takeaway is that there are a few different ways to become a rich country: You can be happily located, either atop vast reserves of oil or with a relatively small population conveniently located for trade purposes, or something like that. But strike the oil emirates and the outlier city-states (San Marino has one-tenth the population of Lexington, Ky.) and what do you have? Countries with strong labor unions? Some of them, sure, but others are the dead opposite. The most common qualities are things like reasonably secure property rights, openness to trade and investment, and more or less stable and accountable government.

That’s a lot on one little point, I know, but our understanding of the world is made up of lots of little points, some of which are not, you know, true.

Professor Desmond insists that the U.S. economy is “uniquely severe,” which I do not think is a defensible claim in a world in which India and China exist, to say nothing of places such as Pakistan, Cuba, Venezuela, etc. India is a democratic country in which a form of slavery persists (debt bondage) even though it is legally prohibited. It is a place in which heavy regulation of the agricultural economy disadvantage poor workers. The character of regulation and regulatory institutions matters a great deal.

Professor Desmond notes that Brazil has relatively heavy regulation concerning temporary workers compared with the United States. That may be true, but it would be very difficult to argue that this has left the typical Brazilian worker better off than his American counterpart. Life at the 50th percentile in Houston is not very much like life at the 50th percentile in Rio de Janeiro. These things do matter and really ought to be taken into more forthright consideration. Brazil had slavery for some years after it was abolished in the United States, but we are to believe that the U.S. economy is uniquely entangled in slavery — why?

Professor Desmond also makes much of the “financialization” of the U.S. economy; but as Tyler Cowen has shown, the share of assets controlled by the financial sector has remained more or less steady for a long time, holding around 2 percent. All this talk about “financialization” may be saying rather less than everybody seems to think.

As I said, there is much of interest in the essay. But I am not sure it makes the case Professor Desmond thinks he is making.