Category Archives: Economics

Roger Crowley – City of Fortune: How Venice Ruled the Seas

Roger Crowley – City of Fortune: How Venice Ruled the Seas

Covering roughly 1200 to the mid-15th century, Crowley covers Venice’s rise and fall as one of the world’s major maritime trading powers. He writes vividly, quotes often from primary sources, and evokes an outward-looking, freewheeling, audacious cultural attitude in Venice–very different from the rest of Europe at that time.

That culture, more than a key geographical location, is a major reason why Venice was the richest city in Europe during this period. It fought with Genoa for that honor, sometimes violently.

Crowley also develops an important East-meets-West theme. Venice was involved in the Fourth Crusade, which resulted in the sacking of Constantinople in the early 1200s. To give an idea of the Crusades’ bumbling nature, Constantinople was a Christian city at the time.

Tragic comedy aside, Venetian traders were some of Europe’s only ambassadors to the Near and Far East during this time. They brought back spices, fabrics, and other goods, sadly including slaves. By the 1400s, as the neighboring Byzantines were falling to the Ottomans, Venice found itself dealing with a new commercial and political rival.

Meanwhile, as the rest of Europe cracked open the Great Chain of Being and the Renaissance encouraged more modern attitudes to commerce and progress, Venice entered a period of relative decline as other cities began to catch up and even outshine it during the Renaissance.

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Ronald Coase and Ning Wang – How China Became Capitalist

Ronald Coase and Ning Wang – How China Became Capitalist

China’s post-Mao transformation has been incredible, but suffers from a lack of policy certainty. Fits and starts, stops, and reverses happen at seemingly random times and places, making long-term investments extremely risky. More importantly, China’s growth is ultimately limited by a lack of a viable marketplace of ideas, both in politics and in business. If China liberalizes, its future is bright. if not, then not.

Coase was 101 years old when this book was published. He was a fully contributing coauthor; his intellectual fingerprints are all over this book, from pointing out the limitations of blackboard economics to his love of Adam Smith’s Theory of Moral Sentiments. An incredible accomplishment, and a useful one for this analyst.

Bryan Caplan – The Case Against Education

Bryan Caplan – The Case Against Education

Or rather, against more formal classroom schooling than necessary. The title is a misnomer; in a way this book is a data-backed confirmation of Mark Twain’s quip about the difference between schooling and education.

Once students get past basic math and literacy, most of what they learn in the classroom, whether history or calculus, is useless in most jobs and unused in most lives. College degrees are less about building human capital and more about signaling—a credential certifying a certain amount of intelligence, work ethic, and conformity.

Tamping back on signaling-only degrees would reduce “credential inflation” and spare millions of people from crippling debt and hundreds of hours of drudgery. At the same time, Caplan, who deeply values education, encourages opening the life of the mind in other, higher-quality ways—good conversation, books on interesting subjects, movies, culture, online courses, travel, and more.

Best Books of 2018: Clashing over Commerce

Re-posted from cei.org.

Review of Clashing over Commerce: A History of U.S. Trade Policy by Douglas Irwin (University of Chicago Press, 2017).

Douglas Irwin’s magnum opus, published at the end of 2017, is already a classic. Given the prominent role trade is playing in politics right now, it is also very timely. At almost 700 pages, “Clashing over Commerce” looks intimidating. But once you start reading, it isn’t. Irwin tells a coherent story that spans generations, showcasing the prominent personalities in the great trade debate, their larger philosophical and economic arguments, and the legislation and policies they fought over. It hits on all levels.

At the same time, Irwin’s chronological structure also makes it easy to focus on one area of interest. So readers, take advantage of the index and the table of contents if you don’t care to read the whole thing.

Interested in how tariffs contributed to the Civil War? Turn to chapter 4. Interested in the Depression-era Smoot-Hawley tariff?  Go to chapter 8 (Irwin also wrote a whole book, “Peddling Protectionism,” on Smoot-Hawley). The World Trade Organization and the bi- and multi-lateral trade agreements in today’s controversies get their due in later chapters.

One of Irwin’s biggest takeaways is that the trade debate’s basic arguments haven’t changed much over the years. President Thomas Jefferson embargoed British trade for both economic and national security reasons, and the policy was a failure. The current administration can learn from the precedent in its ongoing scrap with China.

The industrializing North’s advocacy for tariff protection against foreign competition was one of the 19th century’s biggest rent-seeking stories, and added to North-South tensions both before and after the Civil War. There are important lessons here for tamping back today’s corporate welfare and cultural divisions. The period also spawned the wonderfully-named 1828 Tariff of Abominations.

“Infant industry” protection arguments were as wrong for the 1890s tinplate industry as they are for today’s technology and green-energy industries.

Franklin Roosevelt’s Secretary of State, Cordell Hull, argued that if goods do not cross borders, soldiers will. His words are as wise today as they were when World War II broke out. Cordell’s sentiments also guided a postwar trading system that emphasized peace as much as growth. That system sharply reduced tariffs worldwide until last year. It is an important reason why absolute poverty is now below ten percent of world population for the first time, and war and other forms of violence are continuing their long-run decline.

Irwin identifies another larger theme that applies to issues far beyond trade and tariffs: mission creep. Tariffs were originally intended only to raise revenue. Protective tariffs were strictly forbidden. Of course, a tariff is a tariff, no matter the reason. Alexander Hamilton was one of the first advocates of a national government-directed industrial policy, and tariffs played a major role in his vision.

His proposals were mostly shot down, but as the years went by, more and more people followed Hamilton’s lead. Some were rent-seeking opportunists using Hamilton’s arguments as fig leaves. But other protectionists were sincere, espousing everything from nationalism, anti-foreign sentiment, and economic imperialism to arguments about economic efficiency and saving on transportation costs.

The process continued even after the 16th Amendment passed in 1913, and the new income tax displaced tariffs as the primary federal revenue source. Today, even after Trump’s doubling of tariffs, they raise less than one half of one percent of federal revenue. Tariffs are now strictly for tilting the economic playing field.

Today, the mission creep has gone global. Tariffs have become a brinksmanship tactic—I won’t lower my tariffs unless you lower yours first. This is folly, of course. As the economist Joan Robinson said, if your trading partner dumps rocks in his harbor, the solution is not to dump rocks in yours.

Trade agreements have also become a negotiating tool, and have creeped beyond just tariffs. It is now standard procedure to add trade-unrelated provisions to trade agreements, such as labor, environmental, and regulatory policies. Activists and rent-seekers both find fertile ground here.

In a classic Baptist-and-bootlegger dynamic, labor activists advocate adding expensive labor regulations to trade agreements to hobble foreign competition, though they publicly cite the need to improve foreign working conditions. Environmental activists are often willingly played by rent-seeking green energy producers to advocate for windfall environmental standards and other lucrative non-trade clauses. Steel and other manufacturing industries play to peoples’ nostalgia and patriotism to get their own special favors added to agreements.

All this is a far cry from the original neutral-revenue tariff. This continuing development is why Irwin divides his book into three main eras—revenue, restriction, and reciprocity. Revenue raising became protectionism, and now tariffs are a reciprocal weapon in international negotiations. When the Trump trade war cools down, Irwin will need to add an especially eventful chapter to an updated edition. Hopefully future years will inspire a fourth era—one of openness, peace, and free trade.

Previous posts in the Best Books of 2018 series:

James M. Buchanan – Ideas, Persons, & Events: The Collected Works of James M. Buchanan, Volume 19

James M. Buchanan – Ideas, Persons, & Events: The Collected Works of James M. Buchanan, Volume 19

An essay collection that shows Buchanan’s wide range of interests. Most economists stick to their discipline, rarely wandering outside its comfortable enclosure. Buchanan thought, read, and wrote on a much bigger scale, incorporating political science, philosophy, history, literature, and more into his work. About the only thing Buchanan wasn’t interested in was agrarian poetry, a bizarre allegation of some of his critics. And he was delighted to be at least as influenced by his colleagues as they were by him. Those aspects of this book, and Buchanan’s larger research program, are as valuable as its contents.

Donald J. Boudreaux – Free Trade and How it Enriches Us

Donald J. Boudreaux – Free Trade and How it Enriches Us

This 2018 Institute for Economic Affairs monograph is right in Don’s wheelhouse: a clear and principled primer on the economics of trade, and how it benefits people in ways both big and small. Don focuses on the core areas; specialization, comparative advantage, employment, and the trade deficit. If you have only an afternoon to learn trade policy, this is the place to go. For bite-size daily doses of economic education on trade and other economic issues, Don’s Cafe Hayek blog is one of the best in the business.

Donald J. Boudreaux – Globalization

Donald J. Boudreaux – Globalization

A 2008 book that greatly aided my work on trade during 2018. Highly recommended. Don hits a broad cross-section of trade issues, and plays both offense and defense with impressive skill. One takeaway that similar books don’t offer as clearly is that tradeoffs really are everywhere. Higher trade barriers might benefit some industries, but at the tradeoffs of consumer harm and slower growth. A lower trade deficit means less foreign investment, and less capital for domestic businesses. Don is relentless in consistently applying the economic way of thinking. An excellent example of rigor, clarity, and principle.