Use access key #2 to skip to page content.

TMFPostOfTheDay (< 20)

Review of Ha-Joon Chang's Bad Samaritans

Recs

3

July 16, 2012 – Comments (0)

Location: Whereaminow's CAPS Blog

Author: Whereaminow

I have a good friend that just returned from Afghanistan.  His tour appears to have made him more conscious of the bigger political and economic influences that change the fate of nations. It's great to have him back in the States, and I'm happy that he's doing very well.  Since similar experiences forced me to take a hard look at the realities of the nation-state many years back, I can certainly understand how these things change your life.  I was thrilled when I found out he was reading my blogs and questioning both mine and others economic ideas.  A while back he asked that I read Ha-Joon Chang's Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Although my overall impression of the economic analysis performed by Chang is not favorable, I did learn a few things, and I was impressed by Chang's life experiences and passion for helping others.  Like the great economists before him, he truly believes that economics can show us a way to a better world.  I completely agree.  

A History of Capitalism

Any history of capitalism is going to need more than 222 pages to cover.  But we have to understand what type of economic book Chang is trying to write. He's not reaching out to the scholars.  He's trying to sway public opinion.  In that regard, it would be similar to Thomas DiLorenzo's How Capitalism Saved America, which comes from the complete polar opposite perspective.  You could take the two books side-by-side, hand them to the lay reader, and ask "who makes the better case?"  The benefit is that at the end of the day, you'll have a person who was previously rather uninformed on economic ideas suddenly able to make coherent points on a wide range of topics.  The negative, however, is obvious.  Neither Chang's nor DiLorenzo's  book are going to uncover economic truths.  You will have facts selected that fit the narrative, not rigorous analysis of the problems faced by economists. 

Chang's Story

I didn't know much about Chang before I read Bad Samaritans, and that was helpful. It would have been more helpful if Joseph Stiglitz's endorsement wasn't on the cover, but I guess the publisher doesn't expect the lay reader to know that Stiglitz is a rather famous Keynesian economist.  I did my best to not use that endorsement against Mr. Chang.  Ha-Joon started out as a Marxist understudy, but it's difficult to classify him in any way now.  I think he would prefer to just be known as an economist.  His views on central planning are certainly not those of the typical Socialist, and he does show the knowledge of a wide range of criticisms of state planning, including those of Hayek.

Growing up in post WWII South Korea, his experiences with povery shaped his view of the world.  He saw first hand how economists from rich nations helped shape policies that degraded the progress of poorer ones, including his own.  He seems to have made his mission in life to right those wrongs, so to speak.  Unfortunately, like most economists, he only goes halfway, seeking to reform inherently corrupt and fraudulent institutions, rather than abolish them.  I can see why Keynesians fawn over him.  His belief in the legitimacy of the nation-state, and its ability to make the world better through its institutions, appears unshakable.  That's really too bad.  Libertarians understand that these institutions can never be made judicious and fair, since they derive their revenue ultimately from coercion and violence.  Although Chang's intentions are honorable, his work to reform the system will always fail, and only lead to increased power for the politically connected. Chang now serves as an adviser to the IMF, the very institution that has helped to keep underdeveloped nations down for decades. 

Can't wait to hear how that works out.

According to Chang, the IMF (he has no love for the World Bank and many other supranational institutions either) was set up by "free market" economists to pry open the borders of backward nations.  Liberate them, if you will.  And this is where the pleasantries end and I tell you why Chang is one messed up bird. 

One Man vs. The Neo-Liberals

Chang classifies such a wide range of economists as neo-liberals, a term he uses so often throughout the book I wonder if there was a usage clause in his publishing contract, and free traders that it borders on construction a Strawman Argument.  Everyone not named Chang it seems, is a neo-liberal.  Being relatively unfamiliar with mainstream economic talking points, I looked it up and found out that a neo-liberal generally means "politically conservative" economist.  In other words, Republican shill.  

Normally when Republicans and Democrats get in their little catfights, I tend to treat it the same way I would if the Crips and the Bloods were duking it out.  I find a safe spot far away, grab the popcorn, and root for both sides to annihilate each other.  The problem with Chang's view, however, is that everyone is a neo-liberal, since they were all at some point or another influenced by a free market guy way back when (usually, in his view, Hayek).  I found references to "free market" economists that no serious Internet Arm Chair Economist (like me) would consider as such.  Chang's enemies on this "side" range from Riccardo to Hayek to Milton Friedman to even, Paul Samuelson!  Samuelson, the longtime predictor of Soviet triumph, is apparently a "free market" guy in Chang's eyes.  Ugh.  Left out of Chang's work, naturally, are the economists that the Internet Libertarians view as having general free market purity, i.e. the Austrians, the Physiocrats, and the Scholastics.

Of course, we don't really expect the mainstream to know or care about the real free market economists, since they have long been brushed aside by the academia.  But like it or not, there are a metric ton of us, and we are the future.  So if you really want to sway opinions for the upcoming generation, and you're a mainstream economist trying to make a name for yourself, you had better start learning the nuances of the various non-socialist and non-Keynesian realms of economic discourse.  You can't influence us unless you attempt to understand us.

Likewise, Chang's idea of free trade is equally warped.  To Chang, any policy put forward by a neo-liberal is a free trade policy.  Libertarians understand that nation-states rarely implement anything that resembles free trade.  They call it that, but what they really do is manage trade.  Republicans are famous for talking a free trade game, but pushing a managed trade agenda.  But Democrats are no better.  Clinton promoted the North American Free Trade Agreement, which somehow include thousands of bureaucrats and millions of lines of regulation. I guess it sounds better to the masses than the North American Rigged Trade Agreement, but an economist of Chang's stature should be able to tell the difference.

Again, I understand the audience Chang is trying to reach and the limitations of a 222 page book.  It's just unfortunate that he so easily settles for the (rather lazy) traditional left/right paradigm.  That makes him "mainstream", which is a label I am sure Chang would abhor.  He relishes being outside the establishment, but he's not.  He's an inch outside the narrow range of ideas that spans from Hillary Clinton to Mitt Romney.  Whoop-de-doo.  From where the Internet Judging Panel sits, he's 100% dead center mainstream. 

Measuring Wealth

As he is trapped in a mainstream cage, whether he knows it or not, Chang uses statistics to support his case that only an Ivy League grad could love.  Chang's favorite is comparing per capita income of various nations.  Per capita income is a fancy way to say: "We averaged out the income for every individual in the nation."  Repeatedly, Chang uses per capita income over selected periods to show that Non Free Trade Country A grew faster than Pro Free Trade Country B.  Since we've already shown that what constitutes actual free trade is not exactly a strong part of Chang's analysis, we're left to wonder exactly what the per capita income statistics could even show us.

And the truth is, without context, they don't show much. What makes a person wealth is not, I repeat - this time in bold letters - is not his or her level of income.  Poor people believe that it is.  That's part of the reason they are poor.  Rich people - and smart economists - know that what truly matters is what you can purchase with that income.  Let's do a quick quiz.

Which person is wealthier?

Person A has an annual income of $20,000 and can purchase $17,000 worth of goods to satisfy his family of 4, with $3,000 left over for savings.

Person B - in a neighboring country - has an annual income of $200,000 and can purchase the same exact goods for his family of 4 for $180,000, leaving $20,000 remaining for savings.

If you guess Person B is wealthier, put the dunce cap on and go to the back of the class. (Unless you're unfortunate enough to be sitting in a Princeton economics class, in which case, you just got a star.)

Person A is wealthier. Not only can he buy the same basket of goods, but his remaining $3,000 has a greater purchasing power - can get him more stuff - than Person B's $20,000.  His money has more value because his economy is more productive.   

Per Capita Income is a poor way to make cross-nation comparisons of wealth, yet it is the #1 weapon in Chang's limited arsenal.

Methodologically Flawed

I am not here just to nitpick. Oh no sir-ee!  Let's explode the entire paradigm upon which Chang has built his case.  Economics is the study of human action. It is not the study of statistics.  There is no empirical evidence to be had in this world that will prove any economic theory.  There is a very simple reason for this, yet many brilliant men (and women) have fallen victim to the Fatal Conceit - that they can know the unknowable if only they gather enough data points.

Water freezes at 32 degrees Fahrenheit. We can measure that with precision.  Not a single economist has ever discovered an economic constant that can be measured with the precision of those found in the "hard sciences".  And they never will.  Economics is about human action, and humans have to make choices that water, for example, does not. 

Once again, we see that from the perspective of the Internet Purity Club for Correctly Done Economics, Chang is just another mainstream hack.  Certainly he's a more likeable guy than a Gilbraith or a Laffer, but his work seems incredibly crude when cast in the light of a deductive theorist who starts from the a priori maxim that all economic action is purposeful action, and works to draw laws of economic activity from there.

Without theory, one can assume anything, and Chang does.  Left out of his work on "capitalism" is the role of interest rate manipulation by central banks, the economic implications of various countries' private property laws, business cycle theory, capital theory, and on and on.  We are left with a handful of statistics that are supposed to make neo-liberals shake in their boots. But really, who cares?

Conclusion

If this all sounds too harsh, I want to add that I think Chang's book is a worthwhile read, even for my libertarian friends.  His analysis of the difficulties poor countries face in influencing policy at the IMF and other supra-national institutios is worth the price alone. Grab a copy and enjoy.

David in Liberty
Follow me on Twitter
Facebook me

0 Comments – Post Your Own

Featured Broker Partners


Advertisement