How to have a rich country

What makes a country rich? Hint: It has nothing to do with natural resources. Places like Singapore, Hong Kong, and Japan prove that.

What makes a country rich? Hint: It has nothing to do with natural resources. Places like Singapore, Hong Kong, and Japan prove that. (See also: How to Get Rich by Being Evil)

We’ve known how to have rich countries for a while now; Adam Smith laid most of the ground work in 1776 with The Wealth of Nations, and we’ve improved on it modestly since then. You need three things:

  1. Private property
  2. Free markets
  3. Rule of law

None of those things have to be perfect for a country to get rich. Look at what China and India have done over the past twenty years. Allow a little private property, reduce government regulation a little, and you unleash a lot of entrepreneurial activity. Pretty soon, you have a bigger economy, higher incomes, and a richer population.

What’s interesting to me is how important that third point turned out to be.




As the Soviet Union began to collapse, a lot of people were offering advice on how to free the economies of the formerly communist countries. Most of the advice had to do with getting state property into the hands of ordinary people in ways that would allow the greater productivity that private property and free markets allow.

There was a lot less focus on how to imbed the rule of law into the system. It was almost as if people figured that the shift from a police state to the rule of law would be easier than getting there from a state of anarchy. (A dumb idea, once you think about it.)

So, thanks to the unhappy experiments in Russia (and other places) we now know what happens if you have (some) private property and (moderately) free markets without the rule of law. You don’t get a rich country; you just get a lot of rich people.

This insight has been guiding me politically for a while now. Obviously, it would be great to be a rich person in a rich country, but few of us have that option. Pretty much by definition, most of us are going to be somewhere in the broad middle. But if you’re going to be in the broad middle, it’s a lot better to do so in a rich country.

Happily, we know how to have a rich country.




Note: This was originally written for Wise Bread, but they decided it wasn’t for them, so I’m posting it here. I’ve kept it just as I’d written it, including the “see also” link back to Wise Bread. And, since it was written for a monetized market, I’ve gone ahead and put some ads in this post, even though I don’t general monetize my blog. Somehow, the post seemed lonely without them.

I am the 99%, and I am lucky

The crowd in West Side Park at the Occupy CU rally

I came out of college almost debt-free, because my parents paid for my education.

I got a job writing software. It was exactly what I wanted to do—the only thing I wanted to do as much as writing prose. I remember being glad that my manager didn’t know that I’d have worked for free, just to get access to the computers. (In 1981, computers were still expensive.)

I started my career right at the moment when software started to became important everywhere. Even though my degree was in economics, I had no trouble finding software jobs.

I got raises, because software went on becoming more important. Even when the companies I worked for fell on bad times, I found a new job without difficulty.

I saw things changing. After about 1990, jobs went away a lot quicker, and when they went away, they didn’t come back.

I was still okay, because software was still important.

I realized that software wasn’t going to remain special. I realized that millions of people around the world could write software just as well as I could. I realized that the ones in China and India could live a middle-class life on one-tenth the money I was earning. I realized that I couldn’t compete with them on price.

I figured I was safe for a while, but only because there were so many managers who were sure that an employee he couldn’t see working probably wasn’t working. But that wouldn’t last. Managers would adapt. And managers who couldn’t adapt would lose their jobs.

I started saving money. I could see that I wasn’t saving it fast enough, so I started living more frugally. That was a double win: Spending less left more money to save, and it also provided me with an existence proof that I could live on less.

I lost my job when Motorola closed its Champaign facility in August of 2007. By then, I had saved and invested a lot of money. Not enough to retire in any ordinary sense, but enough that I figured I could get by without a regular job.

I am a writer now. It’s exactly what I want to do.

I am very lucky. That’s not unusual; there are a lot of lucky people. What’s a little unusual is that I know just how lucky I’ve been.

I am the 99%.

An interesting variation on the patronage model

Ever since copying and storing bits became virtually free, there’s been a lot discussion about various ways “content creators” (writers, artists, musicians, etc.) might earn a living: per-copy sales, advertising, patronage, etc.

Felix Salmon’s recent piece on How the New Yorker monetizes old content is an interesting contribution to the discussion.

Apparently, the New Yorker is producing ebooks, drawing from their vast library of articles by great writers. The ebooks are paid for by a corporate sponsor, and then made available free to electronic subscribers and cheap to non-subscribers.

Now, on the one hand, having content paid for by selling advertising to sponsors is one of the standard models. But this is a little different. The things are cheap to produce (no printing costs) and cheap to market (free to subscribers, making them more willing to pay for their subscription). The New Yorker only needs to find one corporate sponsor—presumably a small task, compared to the regular job of their sales department.

I wouldn’t be surprised to see the model spread into speculative fiction. I can definitely see sf&f magazines finding sponsors willing to cover most of the cost of editing and the acquisition of reprint rights (all pretty cheap). Making the anthology ebooks free to the subscribers of their electronic editions would make the subscriptions more valuable, and making them available cheap for non-subscribers would be great advertising for both the magazine and the sponsor.

I’m always glad to see any new source of money for writers, and any new channel for getting old stories in front of new readers.

Ronald M. Laszewski’s Peak Debt and Income paper

In 2008 I posted Ron’s paper on Peak Debt. He recently extended his work, in a new paper called Peak Debt and Income.

Once again, I’ve got a piece up at Wise Bread that provides an overview of paper:

Laszewski creates a simple model of the economy as a tool for investigating the question of how to get household balance sheets back in order after suffering the problems diagnosed in the earlier Peak Debt paper…

Really, though, you ought to read the paper. (The math in this one isn’t as tricky as the math in the original Peak Debt paper.)

Finding your self-sufficient sweet spot

There’s a reason we don’t see more self-sufficiency: It’s not frugal. It almost always takes more time to make something than it takes to earn enough money to buy one—and that’s without even considering the time it takes to learn the skills (let alone the cost of tools and materials). On the other hand, frugality is a powerful enabler for self-sufficiency. So, how do you find the sweet spot?

 

 

[This article originally appeared as a guest post on Self Reliance Exchange, but that site no longer exists and the successor site doesn’t seem to be using my post. Rather than just let the article disappear, I figured I’d post it here.]

Fabric on loom
Fabric on Loom

There’s a reason we don’t see more self-sufficiency: It’s not frugal. It almost always takes more time to make something than it takes to earn enough money to buy one—and that’s without even considering the time it takes to learn the skills (let alone the cost of tools and materials). On the other hand, frugality is a powerful enabler for self-sufficiency. So, how do you find the sweet spot?

My wife spins and weaves. I have a beautiful sweater that she hand knit from hand spun yarn. It’s wonderful—and it’s comforting to know that my household is not only self-sufficient in woolens, we produce a surplus that we can sell or trade. But the fact is you can buy a perfectly good sweater at Wal-Mart for less than the cost of the yarn to knit it.

If you try to be genuinely self-sufficient—in the sense of producing through your own labor everything your household uses, like a hunter-gatherer or a subsistence farmer—you’re going to be poor. Your neighbor who works at a job for wages or a salary is going to be better off by almost every measure.

Oh, his factory-made microwave meals won’t be as good as home-cooked food from your garden and his furniture from Ikea won’t be as good as what you make in your wood shop. But he’ll have so much more! In the time it takes you just to build a kiln he’ll earn enough money to buy a thirty piece set of Corelle ware. Unless he’s only making minimum wage, he’ll probably have enough left over to buy an iPod—and you’ll never be able to make your own iPod from sand and vegetable oil.

That’s why we have trade. If everybody specializes in one or a few things, and then trades with others for what they need, everybody can be better off. It raises your standard of living, but it means that you can’t be self-sufficient.

There are still many reasons to do for yourself. You can make exactly what you want, instead of having to make do with whatever happens to be available on the market. You can use superior materials, and take them from the environment in a sustainable manner. You don’t have to worry that the stuff you use was made in a sweatshop by children or prisoners or slaves. You aren’t dependent on the continued smooth functioning of the vast global economy. But you can’t be self-sufficient in very many things—even if you had the skills and the tools and the land, you’d quickly run out of time.

So, we find ourselves trying to figure out where we belong on the continuum between actual self-sufficiency and ordinary self-reliance. How do you find the sweet spot? Here are my thoughts:

  1. Focus on necessities. It’s a lot more important to be self-sufficient in food, clothing, and housing than it is to be self-sufficient in tennis rackets and rollerblades.
  2. Focus on capabilities. Instead of trying to fill your pantry by hunting and fishing, do enough to maintain and improve your skills—and then start developing your next capability.
  3. Focus on what’s practical. It’s really hard to be self-sufficient in window glass and impossible to be self-sufficient in digital watches. Don’t waste your time.

Start with the few things where homemade actually is cheaper, like gardening. Then move on to things that can be done as a hobby—and that you’d enjoy doing as a hobby. Don’t let point #1 above (necessities) keep you from developing self-sufficiency in something that’s fun and interesting just because it’s not important. It may not be important to be self-sufficient in beer, but the equipment is cheap, brewing is a pretty easy skill to acquire, and the result is better than what you can buy.

Finally, remember that there’s a vast range between being “self” sufficient and being dependent on a global supply chain. It’s almost as good as self-sufficiency to source things from your neighbors. Short of that, it’s still an improvement to source things closer rather than farther—your home town, your region, your state, your country.

Once you set your priorities, don’t hesitate to go with the cheapest option for things that don’t make the cut.  That frees up money that you can use on the important underpinnings of self-sufficiency—things like land and tools in particular, but also things like books, training classes, materials to practice with, and so on.

Then you’re in your sweet spot.

Who are the middle class?

As someone who’s written quite a bit about what’s a decent standard of living, I was intrigued by the post on the growing global middle class that Tobias Buckell just linked to in his post the exploding middle class to come. Toby includes a graph from the source article that shows a rapidly shrinking population of poor people, squeezed by modest growth in the rich combined with surging growth in the middle class.

I quickly clicked through to the source article, to see what their definition of “middle class” was, which turned out to be daily spending of between $10 and $100 per person.

Now, in a sense, that’s pretty reasonable. For a family of two that would multiply out to annual expenses between $7,300 and $73,000. At the low end there’s considerable overlap between “middle class” and “poverty” (the US Census Bureau has $13,991 as the poverty threshold for a family of two), but I think that’s fair: From a global perspective, just barely in poverty in the US probably counts as middle class.

But I know, from my own experience writing about our rising standard of living, that people have very strong feelings about these sorts of things. Would a couple getting by on $14,000 a year in the United States feel middle class? Some would. Some people, especially rural folks living a subsistence lifestyle, feel very strongly that they’re not poor, despite a money income below the official poverty threshold. But I don’t think that will be a typical response.

I wrote an article called “Our High, High Standard of Living,” that made the case that, just like in the 1950s, a working man could still support a family with just one income—as long as they lived at a 1950s standard of living. Full-time work at minimum wage would bring in just over $15,000 a year—not only solidly in “the middle class,” but comfortably above the poverty threshold. And yet, many commenters on that article suggested that it would be utterly impossible to support a family on that income.

My sense is that it would only be possible to live a middle-class lifestyle on $14,000 to $15,000 per year under very specific (very lucky) circumstances. At a minimum, you’d have to live in an inexpensive part of the country and you’d have to find unusually cheap housing close enough to where you worked that you wouldn’t need a car. You’d also have to be young and healthy. (My wife and I would qualify as part of the global middle class just on our health insurance spending. But if we had no money for food or a place to live, we wouldn’t feel very prosperous.)

I think this order-of-magnitude spending range for “the middle class” is also at the heart of Toby’s deeper issue—whether or not a rising middle class is good for the planet.

If we see surging growth in households moving out of poverty into the lower end of this range—able to spend $7,000 to $14,000 a year ($10 to $20 per day per person)—we’re likely to see some positive effects. People with that sort of income are in a position to say no to the most pernicious efforts to turn their neighborhoods into dumping grounds for toxic waste, to insist on some level of protection for nearby natural areas, and so on. But if we see surging growth in households moving into the upper reaches of middle class—able to spend $70,000 a year or more—I think we’re in big trouble.

Those people are going to want cars.

Created a bitcoin account

I noticed that my brother now had a bitcoin payment address at the bottom of his blog, so I figured I ought to send him something.

So, I signed up for bitcoin, followed a link that gives you a bitcoin nickel for free, and then sent 4 bitcoin cents of it to Steve.

Now I only have one bitcoin penny. If you’ve got a bitcoin account (or, if you’d like to create one and get your own free nickel), and want to send me some bitcoins (not that I can see why you would), here’s my payment address:

1JizYHL53sn64hG4Nt7s2Q5PMEYpRjrWPV

Then I’d have more than just one bitcoin penny.

Some bitcoin pennies would be great, but what I’d really like is some spesmiloj.

(Note: I’d actually feel kind of uncomfortable if someone I didn’t know personally were to send me either bitcoins or spesmiloj.)

Localization—not just for food

I spent the whole decade of the 1990s hoping that the economic upturn would prove that the strategy of letting employees go the instant there wasn’t any work to do was unwise. Surely, I thought, those companies would suffer—missing out on business because they didn’t have the skilled employees to do the work (and screwing up on what business they did get, because rushing to hire new employees would result in picking up some duds).

My hopes remained unfulfilled. Oh, probably plenty of companies did suffer from an inability to hire skilled, reliable workers at reasonable wages. Certainly employers complain that they can’t, especially when they’re lobbying Congress for an expansion of the H1 visa program. But it didn’t matter, because the company’s were profitable. (Profitable companies may do as they please; unprofitable companies must kowtow to the financial markets.)

I’ve written about this before, in a two part series at Wise Bread called “What’s An Employee To Do?” Part 1 laid out the issue in some detail, and part 2 talked about the best strategies for an employee to follow. (There’s actually a lot of opportunity for employees in the current situation, as long as they don’t make the mistake of thinking of themselves as employees.)

Prompted by Tobias Buckell’s recent post Working culture, though, I wanted to talk a little about the broader impacts of the way we’ve come to arrange society, because there were other reasons that employers kept employees on during a business downturn. Business owners kept employees on during a downturn because they cared about them as people, because they were friends and neighbors, because the whole community suffered when one person lost a job.

A small part of the reason that things are different now is that this is less true. Managers are not as likely to live in the same neighborhoods as their employees. They don’t shop in the same stores. Their kids don’t go to the same schools. In any case, the decisions are being made far away. (The local managers were completely out of the loop when the site where I used to work was closed down three years ago.)

But that’s just been an enabler of this shift. The real cause is the behavior of the financial markets, which since 1990 have crushed any employer that tries to resist, by driving its stock price low enough that someone could acquire them and bring in new management—management that would lay off plenty of workers.

This isn’t new, of course. Business owners knew that going public meant putting their business in the jaws of the financial market nutcracker—but they made so much money it was worth it. You occasionally hear about the rare business owner who has declined to go public for just that reason—but you hear about it because it’s rare enough as to be news.

As Toby describes, Germany has structures and institutions in place to support businesses that are small and local. Unions are a big one—including the government support for unions that encourage and enable unions to work together in a block. Also important are rules that lean against market pressures for business consolidation, offshoring employment, etc.

Personally, I used to support a purely market-based approach. That’s why I spent the 1990s waiting for markets to punish the bad actors. I’ve changed my mind. It’s fine to leave the fate of the companies up to the markets, but it unacceptable to leave to the markets the fate of whole communities.

Similarly, I used to support the notion that the right way to address this sort of issue was education (because I believe in free choice). Yes, stuff made by prisoners, slaves, and children costs less. Yes, stuff made by heavy industry costs less if the manufacturers are allowed to wreak environmental destruction all across their supply chain. But surely people would make different purchasing choices if they understood that they’re not only paying to have all this harm done, they’re also putting their friends and neighbors (and themselves) out of work. There again, I’ve changed my mind. It turns out, I simply didn’t understand how much cheaper that stuff was than stuff made locally.

Given the option to have the accoutrements of a middle-class standard of living—clothes, dishes, furniture, gizmos—it’s become clear that most Americans will cheerfully accept any amount of slave labor and environmental destruction (as long as they don’t have to see it) and tolerate the destruction of local businesses and the bankruptcy of their neighbors.

They’ll complain about how it affects property values and how it makes it tough to find a job. But then they’ll take their unemployment check and food stamps and go buy the cheapest stuff they can find at WalMart.

Neither markets nor eduction are going to do the job. The U.S. needs to create institutional support along the lines of what Germany provides.

Recycling for apartment dwellers

Recycling Bin
Recycling Bin

To me, recycling is kind of a declaration of failure. It’s a statement that that I needed something so badly that I couldn’t just do without it, nor make do with something I already had, and yet didn’t need it so badly that it made sense to buy an item of enduring value—something I’d keep, rather than tossing into the recycling.

Champaign-Urbana, though, is very much a recycling kind of place. Locals in both communities have long had curb-side recycling—but only people who live in houses. For some insane reason, there was no easy way for people in apartments to recycle. (There was a “recycling center,” but it wasn’t satisfactory—it was 3.6 miles away, and really only accessible by car. You could get there by bus, but it took an hour—and you still had to cover a mile of the distance on foot.)

The story, as I understand it, was that apartment dwellers weren’t the sort to take to recycling: They were too lazy, too uninvolved, too low-class. Only house dwellers were the sort of upright people who cared enough about their environment and community.

It’s a story that pisses me off, because apartment living is much more sustainable than vast suburbs of detached homes. To simply dismiss people like me (who chose to live in an apartment on the grounds of simplicity, frugality, and energy efficiency) over an offensive stereotype of apartment dwellers is annoying.

Far more annoying, though, would be to have that stereotype vindicated by my neighbor’s behavior. And the opportunity to find out has arrived here in Champaign. A few weeks ago, recycle bins appeared next to our big dumpsters (sealed shut with a strip of tape asking us not to dump recyclables until Thanksgiving). We all got fliers asking us to feed the thing.

So far, I haven’t seen much use by other residents. We don’t use it a lot, because we don’t produce much recyclable waste, but we have started separating our cans, bottles, paper, and cardboard from the food waste. But even if our neighbors are quite conscientious about reducing and reusing, I’d expect to see more recyclables than I do.

It’s not looking good for team simple-living. Let’s hope it’s just some combination of newness and holiday craziness—that by early next year, my neighbors will be recycling up a storm.

I really don’t want the stereotype of the disengaged apartment dweller to be true.

[Updated 2011-03-11: Once the recycling bins had been in place for a couple of weeks, my neighbors started doing a much better job of putting the recyclables into the recycling. Phew.]