I’ve started reading Guillermo M. Yeatts’s 2010 Plunder in Latin America. Yeatts lists thirteen American countries’ per capita GDP in 2008 US dollars, first alphabetically by country:
Brazil 8,379 Canada 46,826
I re-arranged them by GDP from highest to lowest:
What a range. The two North American countries in the middle 40s. Five countries in the 8-10 range. Another five in the 3-5 range, and one around 2.
Yeatts raises the natural question: Why are the North American countries spectacularly more prosperous than the Latin American countries? Both are well endowed with natural resources, he points out, so that can be ruled out as the explanation. Several early hypotheses for our consideration:
* Religious differences: The majority of North Americans are Protestant and the majority of Latin Americans are Catholic.
* Colonial motivation: The Spanish colonists of Latin America were motivated primarily by extracting gold and silver and the earliest British colonists of North America were motivated by the desire to practice their religion freely.
* Philosophical: The North Americans adopted a Lockean view of the priority of individual rights over the power of government, while the Latin Americans accepted the Rousseauian priority of democratic majoritarianism over individual rights.
Along the way Yeatts introduces Douglass North’s institutional theory and James Buchanan’s Public Choice theory for further discussion, and that makes sense.
Whatever the full explanation turns out to be for the difference between North and Latin America, the differences within Latin America are also important. Why are Mexico, Brazil, and Argentina on average twice as wealthy as Venezuela, Cuba, and Peru? And why are the latter three nations on average twice as rich as Bolivia?
I was interviewed by David Hutzelman on a variety of topics: entrepreneurial ethics, why business ethics should focus on the positive more than the negative, our cultural progress in developing institutions of trust and becoming comfortable with non-traditional social relationships. Here’s Part I of the interview:
Update: The full interview is now available. In the second half we discuss the exit and voice differences between political and market management, sports ethics, the parallels between sports and business, whether one should be optimistic or pessimistic about the future, Ayn Rand and (briefly) Austrian economics.
Well worth reading: “I want to start with some apologies. For the record, here and upfront, I apologise for having spent several years ripping up GM crops. I am also sorry that I helped to start the anti-GM movement back in the mid 1990s, and that I thereby assisted in demonising an important technological option which can be used to benefit the environment.”
A fascinating working paper by economists Filipe Campante and Edward Glaeser about two initially very similar cities with divergent paths over the last century. Here is their abstract:
Buenos Aires and Chicago grew during the nineteenth century for remarkably similar reasons. Both cities were conduits for moving meat and grain from fertile hinterlands to eastern markets. However, despite their initial similarities, Chicago was vastly more prosperous for most of the 20th century. Can the differences between the cities after 1930 be explained by differences in the cities before that date? We highlight four major differences between Buenos Aires and Chicago in 1914. Chicago was slightly richer, and significantly better educated. Chicago was more industrially developed, with about 2.25 times more capital per worker. Finally, Chicago’s political situation was far more stable and it wasn’t a political capital. Human capital seems to explain the lion’s share of the divergent path of the two cities and their countries, both because of its direct effect and because of the connection between education and political instability.
Especially interesting to me was the material beginning on page 19 about the impact of politics upon economic development and the analyses of human capital factors.
Two economists report on survey results of professional economists’ policy views and voting from the mid-2000s, before the financial crisis hit. Their abstract:
In Spring 2003, a survey of 1000 economists was conducted using a randomly generated membership list from the American Economics Association. The survey contained questions about 18 policy issues, voting behavior, and several background variables. The response was 264 (nonblank) surveys. The responses show that most economists are supporters of safety regulations, gun control, redistribution, public schooling, and anti-discrimination laws. They are evenly mixed on personal choice issues, military action, and the minimum wage. Most economists oppose tighter immigration controls, government ownership of enterprise and tariffs. In voting, the Democratic:Republican ratio is 2.5:1. These results are compared to those of previous surveys of economists. We itemize a series of important questions raised by these results.
The following chart diagrams the positive claims about liberal capitalism by its defenders — John Locke, Adam Smith, John Stuart Mill, Ludwig von Mises, Ayn Rand, Friedrich Hayek, Milton Friedman, and others. Click on the image for full size.
Discussion at Cato Unbound over whether the Law of Diminishing Marginal Utility is an example of an a priori truth of economics. Alfred Marshall put the law this way: “the additional benefit which a person derives from a given increase of his stock of a thing, diminishes with every increase in the stock that he already has.”
In my view, there are no a priori truths anywhere in the universe. But here I want to ask: Is the Law of Diminishing Utility even true? Returns diminish in many cases — but not all — and if diminishing returns is not universal, it can’t be a “law.”
Here’s a standard example that supports the law. You’re hungry so you eat a piece of toast. You’re still hungry, so you eat another. And maybe one more. But while you could eat a fourth, you could as easily not bother. In this example, the utility you get from each piece of toast decreases: the first piece gives you much satisfaction, the second piece a little less, the third even less, and the fourth none.
But what of this example? I am thirsty on a hot summer day, so I have a beer. I drink it quickly and hardly notice it going down. But I savor the second one, and drinking it gives me more pleasure than the first did. That’s increasing marginal utility. (In my case, if I were to have a third I would enjoy it much less and fall asleep soon after.)
Collectors are another example. Suppose I want to collect a set of ten lovely wine glasses, but I can’t afford to purchase them all at once, so I save money and purchase additional ones when I can afford to. But as each successive unit brings me closer to completing the set, the more pleasure I get from each additional wine glass and the amount I’m willing to pay for each may increase.
The three examples give us variable utility curves. The toast example is a diminishing curve. The beer example’s curve initially increases before declining. The wine-glass collection is an increasing curve.
So is diminishing utility a “law,” or does the marginal utility vary from case to case depending on the product involved and the consumer’s needs? And if it depends, do we not have to investigate the facts of the case and not assume a priori a law that can be applied deductively?
 Alfred Marshall, Principles of Economics (1890), III.III.3.
 In the wine-glass-collector example I assume each unit is identical. Those collector cases are different from cases where each unit in the collection is also unique. For example, if I were to collect 20th-century Canadian dollar coins, each coin is a Canadian dollar but each year is a different date, and each coin’s unique date adds a complicating utility factor.
 Related earlier discussion: “Are Austrian economists anti-empirical?”
Posted 7 months, 3 weeks ago at 8:55 am. 1 comment
* A comparison of how resource-poor Hong Kong’s relatively laissez-faire free market has taken it from poverty to riches while resource-rich Argentina’s experiments in statism have taken it from prosperity to decline and semi-functionality.