Jonathan Lemon on Wealth of Humans — Part 3

By Jonathan Lemon | July 26, 2017

Jonathan Lemon. Reading. Words. Takeaways. Typing. Article Posting.

Join me as I express my thoughts with the parts of speech in passive sentences for Part 3 of Ryan Avent’s The Wealth of Humans. (Active sentences are harder for me to construct for whatever reason, so I’m just going to give up. You might say I’m going to…passively accept things.)

Part 3 is Chapters 7-9.

(See past reviews for the Introduction, Part 1, and Part 2.)

Wealth of Humans, Ch 7

Impression #1

Page 153: “Workers in places like Silicon Valley earn a hefty wage premium over similar workers in other cities, but new arrivals don’t get the premium all at once. Instead it builds over time: evidence that the city is contributing to the knowledge and employability of the workers within it.”

How much of the wage premium is due to higher standard of living costs in bigger cities? If workers are actually similar, as stated, firms won’t overpay workers for comparable production just because of their address.
I live in a medium-sized city, and I’ve had increasing wages over time. Does that mean medium-sized cities also add to employability, or does it just mean that most workers receive raises?
I have a hard time attributing rising pay to the city itself. I definitely agree that opportunities accrue faster in particular locations such as Silicon Valley. However, to me, opportunities are a product of networking with other people, which is true anywhere. More people = more potential connections. I’m not sure opportunities are related to zip codes.
If I own an apartment building and some movie stars move in, I can likely raise the rent and make more. But I didn’t do anything, I’m just the beneficiary of who happens to live within my building.

Impression #2

Page 153: “[As computers spread rapidly across the American economy,] new occupations suddenly became more cognitive in nature and appeared most often in places with large numbers of college graduates.

I wonder how strong the link will remain between “opportunities” and college degrees, especially in technology.
Do you really need a degree to learn tech nowadays? There are hundreds of free ways to learn tech skills, as well as avenues like code academies where someone can hit the ground running much faster and cheaper.
As college costs continue to increase much higher than the inflation rate, the return on investment shrinks. More students might decide degrees aren’t worth it (this assumes that college costs aren’t assumed by the government at some point as an entitlement, and financed covertly through taxes).
Why should students waste money and 2 years of their lives on general studies requirements when they can learn tech skills for free online and apply for work right away?

Impression #3

Page 154: “The metropolitan resurgence is also built on the rising returns of social ties, in terms of both economic opportunity and general life satisfaction.”

Are social ties really rising in value? Seems like they’ve always been important. I would argue it was more important to have friends 5,000 or 10,000 years ago to have access to food and protection from tigers or marauders. I can have no friends and still get food today, and am currently unaware of anyone I’ve met getting eaten. If I have a computer and Internet connection, I never have to leave my house. I can work remotely and get necessities delivered to me, while paying for everything with a credit card.
Networking has always been crucial for opportunities. I’m not persuaded that it is “more important today.” There are many more avenues to get noticed and showcase skills than there have been before. I don’t have to caddy at a country club and suck up to business executives to get a career-starting internship anymore.
As an introvert, I’m aware of (and have lamented) the importance of networking!
There is much more opportunity to be rich and successful today than ever in history. 500 years ago, if I wanted to be rich I had to be lucky and born into wealth. Also, my wealth would likely have derived from a feudal estate granted at the will of some lord or king. If he stops liking me, he introduces me to his army.
I’m definitely not saying luck doesn’t play any part in today’s world. But if we stop to think about it, most of us are already insanely lucky to be alive today in an era of widespread food, shelter, electricity, plumbing, climate control, etc.

Wealth of Humans, Ch 8

Impression #1

Page 162: “Emerging-market workers represent one of the main contributors to the current abundance of labour. Their entry into the global labour markets contributed to the rise of a global middle class—and squeezed the incomes of the rich world’s less-skilled workers.”

A few chapters ago, the author stated that immigration does not suppress wages in the destination country. Yet he also asserts the above.
How can they both be true? The author does not say why increased labor availability from immigration would be different than increased labor availability from emerging-market workers.

Impression #2

Page 163: “Yet that assumes the rich world cannot do a better job of transferring its valuable social capital to those in developing economies…”

If poor countries have thus far been lacking the capacity to develop social capital, even with help from rich countries, why is the solution for those residents to move to a different country? Why does a person’s location affect their capacity to build social capital?
The author’s argument can quickly become absurd. Should all residents of poor countries be transferred to rich countries that have already developed social capital? Is this the only solution people can think of to help poor countries for the long term? Not very inspiring.
Also, what of the effect of massive immigrant influxes into rich countries? How will this not affect the current culture, including the ability to generate social capital? If there are large influxes of people who do not share the cultural values of the new country, how will this not lead to conflict and class divisions? We are seeing the friction being produced in Europe from large amounts of refugees.
The author does not even pay lip service to potential problems of mass immigration.

Impression #3

Page 168: The author discusses that Japan and South Korea have managed to turn into lasting rich countries, unlike other emerging-market countries who may experience periods of rapid growth but cannot sustain wealth.

The author does not mention that both Japan and South Korea experienced direct and long-term U.S. military intervention. What effect did this have, if any, on contributing to social capital?
Military intervention is not the solution in of itself (see Iraq and Afghanistan). But I couldn’t help noticing the possibility that success in South Korea and Japan was somehow affected by long-term relationships with the US, including longstanding US military presence.

Impression #4

Page 177: “Advanced economies cannot turn poor countries into rich ones, and we lack a foolproof recipe for poor countries seeking to make themselves rich. What can be achieved, and has been reliably achieved, is the process of helping residents of poor countries to become rich by welcoming them into places with strong social capital.”

In past decades, immigrants were expected to assimilate into the new country and adopt cultural norms. Today’s age seems more focused on multiculturalism than assimilation. One wonders if immigrants will experience the same level of social capital transfer with this change in focus.
The author has talked about the difficulty unskilled workers will have finding employment in an era where technology will replace them.
Now the author advocates that technologically-advanced countries import millions of additional unskilled workers from other countries. To do what? Unskilled workers will immigrate and have no access to jobs. But they will somehow become rich by being exposed to social capital in the ether? I’m not following the logic.
The concept of universal basic income to pay those who have been displaced has been foreshadowed in this book. I’ll get more into the topic if it makes an appearance in Part 4. However, as of right now, who would pay for all of this? Bill Gates?

Wealth of Humans, Ch 9

Impression #1

Page 180: “This condition, which economists label ‘secular stagnation’, is associated with limp and vulnerable economic expansions, which often conclude in the deflation of big asset-price bubbles, and with protracted and disappointing recoveries.”

The proposed solutions for the stagnation problem in this chapter all involve large intervention from the government and/or central banks. Why is the answer always more government intervention? Interventionist track record is not stellar.
Maybe we can try more freedom and see what happens for once?
Chapter 8 just detailed how massive foreign intervention hasn’t turned poor countries into rich ones. But maybe massive domestic intervention will work, just like it ended the Depression in the 1930s and cured poverty in the 1960s.
There was something called stagflation in the 1970s that was overcome in the 1980s. Let’s repeat that formula.
I’m not saying we shouldn’t help people. It’s just that the programs that we keep throwing money at don’t seem to work very well, yet the only thing that changes is the size of their budgets. Results should matter more than intentions.

Impression #2

The author makes multiple allusions to “the rich” in the sense of individuals who are rich. But he doesn’t talk about it in the sense of companies.
In the technology space, four huge companies (Apple, Amazon, Alphabet/Google, Facebook) are basically crushing other businesses and consolidating spending/demand onto their platforms, and hoarding cash that would have gone into operation at other businesses.
Everyone hates Wal-Mart but no one seems to hate any of the four companies above.
The author states part of the stagnation problem is people aren’t spending enough. Why is this lamentation limited to people?

Impression #3

Page 193: “Keeping demand growth on track requires the redistribution of purchasing power from savers to spenders.”

In other words, if you are responsible and save money, you should be punished with confiscation.
Let’s agree that the rich spend less (as a percentage of income) and have more propensity and ability to save. How do we know they did not become rich because of these qualities, while some are poor because they don’t understand personal finance? The relationship between saving and personal wealth could be the opposite of what the author says.
- I don’t have the answer but the possibility should at least be acknowledged.
Let’s again agree that the rich spend less and have more propensity and ability to save. Let’s suppose that a plan goes in place to redistribute the idle savings of the rich to others more inclined to spend.
- Effective immediately, let’s have a 70% top marginal tax rate and 50% of all existing savings of the rich will be expropriated.
- People respond to incentives. To think a redistribution plan could be implemented without people removing their money from banks to stuff in mattresses, or deciding to work less because it’s not worth the paltry after-tax value, is erroneous.
- Remember, the rich are also the ones that use tax shelters. Tax shelters don’t exist because people like paying taxes.

Impression #4

Finally, my opinion is that rich countries are rich because of liberal democratic values. In other words, a government that protects inalienable human rights, while at the same time is checked in its authority. Take a look at the World Freedom Index and see if freedom does not correlate with wealth. Places without “social capital” are also places that are not free.

As the size of government grows, freedom is reduced and economic growth is choked. Could my analysis be wrong and clouded by biases? Absolutely! But it’s my blog so I get the opportunity to be wrong here 🙂