a generally deferential and ineffective Congressional spectacle, some say
minuet and I think kabuki dance, Jim DeMint's 'questioning' of Jamie Dimon, who responded to most serious questions with poker
faced whoppers, today pushed me over the edge, and so putting the internet
feed on mute, I thought I would take a moment to bring the study Why
Nation's Fail by Acemoglu and Robinson to your
differ in their economic success because of their different institutions, the
rules influencing how the economy works, and the incentives that motivate
people,” write Acemoglu and Robinson.
Extractive institutions, whether feudalism in medieval Europe or the use of
schoolchildren to harvest cotton in contemporary Uzbekistan, transfer wealth
from the masses to elites.
In contrast, inclusive institutions—based on property rights, the rule
of law, equal provision of public services, and free economic
choices—create incentives for citizens to gain skills, make capital
investments, and pursue technological innovation, all of which increase
productivity and generate wealth. Economic institutions are themselves the
products of political processes, which depend on political institutions.
These can also be extractive, if they enable an elite to maintain its
dominance over society, or inclusive, if many groups have access to the
political process. Poverty is not an accident: “Poor countries are poor
because those who have power make choices that create poverty.”
Therefore, Acemoglu and Robinson argue, it is
ultimately politics that matters.
The logic of extractive and inclusive institutions explains why growth is not
foreordained. Where a cohesive elite can use its
political dominance to get rich at the expense of ordinary people, it has no
need for markets and free enterprise, which can create political competitors.
In addition, because control of the state can be highly lucrative, infighting
among contenders for power produces instability and violence. This vicious
circle keeps societies poor.
In more fortunate countries, pluralistic political institutions prevent any
one group from monopolizing resources for itself,
while free markets empower a large class of people with an interest in
defending the current system against absolutism. This virtuous circle, which
first took form in seventeenth-century England, is the secret to economic
James Kwak, Failure Is An Option, A Review of Why
As you know I have often said that in a sovereign fiat currency, inflation
and deflation are a policy decision.
Acemoglu and Robinson take this premise a broad
step further, and show through many historical examples that national success
or failure, as one might define it in terms of the broadest happiness and
success for the most people, is also the result largely of policy decisions.
Neither austerity or stimulus will be effective in
restoring growth to the American economy. Most if not all of the pain of
austerity will fall on the hapless victims and the disenfranchised innocent,
while most of the profits of recovery through stimulus will flow to the one
percent. No matter what strategy you may employ, it is difficult to be
successful against a stacked deck in a rigged game.
The Banks must be restrained, and the financial system reformed, with balance
restored to the economy, before there can be any sustained growth and
Why Nations Fail
I would tend to add to what Robinson has to say that extractive economic
institutions tend to actively promote and fund extractive political
movements, laws, public policy, and systems of both the left and the right.
Even the subversion of effective government and a descent into near anarchy
can serve the monied interests, because effective
democratic government is a counterbalance against private power.
know what Fascism really is we must first of all know what it is we are
fighting, what the Fascist regimes really are and do, who puts up the money
and backs Fascism in every country, and who owns the nations under such
regimes, and why the natives of all Fascist countries must be driven into
harder work, less money, reduced standards of living, poverty and desperation
so that the men and corporations who found, subsidize and own Fascism can
grow unbelievably rich."
George Seldes, 1943
At their extremes, neither communism nor fascism nor corporate
capitalism are much different, as they both become
extractive for the benefit of a small elite at the expense and misery of the
remember, where you have a concentration of power in a few hands, all too
frequently men with the mentality of gangsters get control. History has proven
John Dalberg Lord Acton