Working in business is the activity most likely to achieve positive social change

Monday, February 28th, 2022

It is tempting to think that working at a think tank is a way to encourage possible social change, but Arnold Kling found that working in business is the activity most likely to achieve positive social change:

In 1980, I completed my Ph.D dissertation. My goal was to solve a theoretical problem in Keynesian economics, hoping to steer the profession away from the “rational expectations neoclassical” macroeconomics that was all the rage within top economics departments. The idea was to explain price stickiness as based on information problems.

Trying to solve an important theoretical problem is a terrible strategy for a dissertation. Instead, you should figure out what the departments that are hiring are looking for. What they were looking for at the time were dissertations that were based on the rational expectations approach.

For me, the result was particularly bad. A professor who interviewed me on the job market stole my idea and published it before I did, without acknowledgment. The idea had no impact on the profession. In fact, it has been periodically rediscovered since (with no credit either to me or to the man who stole it), but again with no impact. This experience has left me less than excited about the academic research process in economics as a way to generate social change through ideas.

My first job out of grad school was at the Fed. I do not recall coming up with any significant ideas when I was there.

In 1986, I started working at Freddie Mac, the mortgage giant. At the time, I thought of it as a profit-seeking enterprise, albeit with some peculiar features. One feature was that it was supposed to “serve” upward mobility in the housing market.

Another feature was that with its government guarantee, its debt costs were low, and this gave it an advantage in undertaking certain forms of financial arbitrage. I was appalled when an economist told me excitedly about an anomaly in the Eurodollar market that he thought that Freddie could and should exploit. To me, that seemed like an abuse of Freddie’s Congressional charter.

In the 2000s, long after I had left, Freddie and Fannie took on riskier borrowers in a (misguided) attempt to serve upward mobility in the housing market. They also engaged in more of what I thought of as abuses of their low-cost debt status. I ended up happy to see them shut down during the financial crisis of 2008. I think that profit-seeking and a tight relationship with the government were ultimately a bad combination.

But working at Freddie gave me the best opportunity I have ever had to produce social change. My most significant idea there was to change the underwriting process to reduce judgment and rely more on data. Instead of trying to use AI to imitate human underwriters, I pushed for using credit scores. I also promoted using the Case-Shiller method for estimating home prices in an attempt to reduce the reliance on appraisals. The goal was to reduce the cost of obtaining a mortgage loan, to reject fewer good loans, and to accept fewer bad loans.

Freddie Mac adopted the credit scoring approach in 1994. For me personally, this was more bitter than sweet. Just as the idea I was pushing for was adopted, I was treated to a humiliating demotion, and I soon left the company.

As far as social change is concerned, the move toward credit scoring dramatically changed the mortgage industry. Yes, underwriting costs fell, and decisions became more accurate, with fewer good borrowers turned down and fewer bad borrowers accepted. But it also allowed new players to enter the mortgage lending market. Some of these players developed the so-called subprime mortgage market, with mortgage securities provided by Wall Street. These new players were central actors in the financial crisis of 2008.

I am not saying that I personally brought down mortgage lending costs, or that I personally caused the financial crisis. My guess is that the move toward credit scoring was going to happen at some point, anyway, and so that my efforts accelerated the process by at most a few years. And the financial crisis had many causal elements, mostly involving the political economy of mortgage lending in the U.S. I still think that introducing credit scoring into mortgage lending was socially beneficial, at least directly. But in a complicated world, the indirect effects of actions are difficult to assess.

When I left Freddie Mac in April of 1994, I created The Homebuyer’s Fair, one of the first commercial sites on the World Wide Web. The goal was to use the Internet to disintermediate in real estate and mortgage lending. For me personally, it worked out well. But apart from any role that the site played in stimulating interest in the Web (we got tons of press in 1994-1997), I would not say that it came anywhere close to achieving any major social goals. As any number of people who have tried to get rid of the excessive costs in real estate can tell you, institutional resistance to change is strong. In principle, the Internet could have eliminated real estate commissions 25 years ago. In practice, not so much. In principle, a digital property database could eliminate the title insurance industry. In practice, the title industry’s grip on Congress is too strong.

After our web site was sold in 1999 (to a subsidiary of the National Association of Realtors(tm), ironically enough), I “retired” to a career of teaching and writing. I taught on a volunteer basis for 15 years at a local high school. I mostly taught AP economics and AP statistics. I hated the AP econ curriculum, because my experience in business had led me to believe that a lot of mainstream economics is poorly conceived. I really liked the statistics curriculum, although one of my students, an autodidact who was a follower of the rationalist community, chided me for teaching a “frequentist” rather than a Bayesian approach.

My goal was to have some long-run influence with at least a few students. I think I was somewhat successful, although by 2015 or so I was struggling with what appeared to me to be the reduced maturity of the students.

I also taught for a few years at George Mason University, at the ridiculous adjunct salary of about $1500 for a class of 100 students. And, as my wife is fond of pointing out, GMU even made me pay for parking. Again, I would have been happy to reach a small number of students with a long-term impact, but I don’t think that I did.

Overall the book is an anti-checklist for Westminster

Saturday, February 26th, 2022

If you want to examine in detail an organisational culture that is much healthier and higher performance than Whitehall, an organisation that actually lives the culture it advocates, then you will find Working Backwards, about the management of Amazon by two people who worked with Bezos in senior roles, interesting, Dominic Cummings suggests:

Discussion in Westminster suffers from false dichotomies. People on ‘the right’ who don’t know about great management talk as if ‘bureaucracy is a public sector problem’ that can be cured by ‘making government more like business’. People on the left including many defenders of the status quo say ‘government is not the same as business … it’s simplistic to say cutting bureaucracy is the answer … lessons from great teams aren’t relevant to most of government … we need more money…’

They’re both a bit right and a lot wrong. Whitehall can and should learn from great businesses and great managers, though generally not in the ways ‘free market’ Tory MPs say. And Whitehall is different in critical ways that limit the application of some lessons from business in some narrow ways. But at a more general level, the lessons from great private sector management and the lessons from great public sector case studies are the same. Great businesses can and do learn from projects like Apollo. Governments can and should learn from great businesses. The breakthroughs of ‘systems management’ came in the public sector between the 1940s and 1960s then spread to business then were largely forgotten by western governments (though are much studied in China).

One of many useful things about this book is the way it shows how many problems of ‘bureaucracy’ we see in government are the same or similar to those experienced in Amazon — and Amazon is, by common consent of the great judges of these things (e.g Charlie Munger), one of the very best managed organisations in the world.

Overall the book is an anti-checklist for Westminster in the sense that if you look at all the things they do really well and really value, and you’ve worked around No10/Cabinet office, you’ll say to yourelf ‘tick, tick, tick, government does the opposite, opposite, opposite’. It’s similar to my paper on the ICBM and Apollo projects which also illustrated a set of ideas about brilliant management that are an anti-checklist for Westminster.


A more fundamental problem than the failures of the civil service is that politicians do not care and are not incentivised to care about performance and unless this changes we can only expect the same sort of failures over and over.

When I said this years ago nobody wanted to hear it. But in 2021 we saw that even after a global pandemic costing 150k lives and hundreds of billions, Westminster collectively turned away from facing the reasons for the implosion of core institutions in 2020, No10 embarked on an attempt to rewrite history, most MPs tried to ‘move on’ rather than force honesty about what happened, while the media mainly overwhelmed serious debate with noise. Errors of spring 2020 were repeated more than once killing thousands more. Things that worked well but challenged traditional ways of doing things, such as the Vaccine Taskforce, were dismantled rather than learned from and built on. Rather than have a very fast lessons learned process, the PM and other senior figures have repeated the historical pattern — punt an extremely lengthy inquiry led by lawyers far into the future where it will have little practical effect on how critical decisions are made, just as the Iraq inquiry did not fix the problems of the MOD and Cabinet Office.

Organisational structure and dynamics can bring lollapalooza results

Friday, February 25th, 2022

A theme of Dominic Cummings’s blog since before the referendum campaign has been that thinking about organisational structure and dynamics can bring what Warren Buffett calls “lollapalooza” results:

What seems to be very esoteric and disconnected from ‘practical politics’ (studying things like the management of the Manhattan Project and Apollo) turns out to be extraordinarily practical (gives you models for creating super-productive processes).

Part of the reason lollapalooza results are possible is that almost nobody near the apex of power believes the paragraph above is true and they actively fight to stop people learning from extreme successes so there is gold lying on the ground waiting to be picked up for trivial costs. Nudging reality down an alternative branch of history in summer 2016 only cost ~£106 so the ‘return on investment’ if you think about altered GDP, technology, hundreds of millions of lives over decades and so on was truly lollapalooza. Politics is not like the stock market where you need to be an extreme outlier like Buffett/Munger to find such inefficiencies and results consistently. The stock market is an exploitable market where being right means you get rich and you help the overall system error-correct which makes it harder to be right (the mechanism pushes prices close to random, they’re not quite random but few can exploit the non-randomness). Politics/government is not like this. Billionaires who want to influence politics could get better ‘returns on investment’ than from early stage Amazon.

After accounting for indirect taxes and in-kind transfers, the US redistributes a greater share of national income to low-income groups than any European country

Thursday, February 24th, 2022

After accounting for indirect taxes and in-kind transfers, the US redistributes a greater share of national income to low-income groups than any European country.

Practice your coping mechanisms now

Wednesday, February 23rd, 2022

Arthur C. Brooks recommends seven habits that lead to happiness in old age:

Happiness tends to decline throughout young adulthood and middle age, bottoming out at about age 50. After that, it heads back up again into one’s mid-60s. Then something strange happens. Older people split into two groups as they get old: those getting much happier, and those getting much unhappier.

Right around this same time of life, many people realize the importance of having made good financial decisions in their earlier decades. Those who planned ahead and saved up are more likely to be able to support themselves in comfort; many of those who didn’t, can’t. Something similar happens with happiness, as I show in my new book, From Strength to Strength: Finding Success, Happiness, and Deep Purpose in the Second Half of Life.

Each of us has something like a “Happiness 401(k)” that we invest in when we are young, and that we get to enjoy when we are old.


The best off are the “happy-well,” who enjoy good physical health as well as good mental health and high life satisfaction. On the other end of the spectrum are the “sad-sick,” who are below average in physical health, mental health, and life satisfaction.


Using data from the Harvard study, two researchers showed in 2001 that we can control seven big investment decisions pretty directly: smoking, drinking, body weight, exercise, emotional resilience, education, and relationships.


Practice your coping mechanisms now. The earlier you can find healthy ways to deal with life’s inevitable distresses, the more prepared you’ll be if ill luck strikes in your 80s. This means working consciously — perhaps with assistance from spiritual practices or even therapy — to avoid excessive rumination, unhealthy emotional reactions, or avoidance behavior.


Do the work to cultivate stable, long-term relationships now. For most people, this includes a steady marriage, but other relationships with family, friends, and partners can fit in this category as well. The point is to find people with whom you can grow, whom you can count on, no matter what comes your way.

Brose explains a terrible truth about war with China

Tuesday, February 22nd, 2022

Tyler Cowan Alex Tabarrok used to think that however bad the US government was, the US military remained by far the best in the world, but the failing US power grid, the lethargic response to the pandemic, and the ignominious retreat from Afghanistan have all caused him to update his priors. He cites David Ignatius on Christian Bride’s The Kill Chain:

The book isn’t just a wake-up call, it’s a fire alarm in the night.

Brose explains a terrible truth about war with China: Our spy and communications satellites would immediately be disabled; our forward bases in Guam and Japan would be “inundated” by precise missiles; our aircraft carriers would have to sail away from China to escape attack; our F-35 fighter jets couldn’t reach their targets because the refueling tankers they need would be shot down.


How did this happen? It wasn’t an intelligence failure, or a malign Pentagon and Congress, or lack of money, or insufficient technological prowess. No, it was simply bureaucratic inertia compounded by entrenched interests.

Bernie Madoff’s sister and her husband dead in apparent murder-suicide

Monday, February 21st, 2022

The sister of infamous Ponzi schemer Bernie Madoff and her husband have been found dead in an apparent murder-suicide:

Deputies who responded to a 911 call found 87-year-old Sondra Wiener and her 90-year-old husband Marvin dead from gunshot wounds in their Boynton Beach, Florida home on Thursday, the Palm Beach County Sheriff’s Office said in the release Sunday.

Now I’m wondering if they were linked to Epstein somehow.

When he saw that something needed doing, he just did it

Monday, February 21st, 2022

Back before he became a movie mogul, when he was a young concert promoter, Harvey Weinstein was friends with Daniel Kriegman, who went on to an unusual career himself:

We subsequently drifted apart, and while Harvey went on to find astronomic success in Hollywood, I worked as the chief psychologist at the Massachusetts Treatment Center for Sexually Dangerous Persons from 1977–86. I’ve continued to evaluate sex offenders there ever since. The Treatment Center is a maximum-security prison where the most dangerous sex offenders are committed for observation once they have completed their criminal sentences to determine whether or not they can be safely released back into society.

The Harvey he knew was an entrepreneur with chutzpah:

One weekend evening after I had moved off-campus, Harvey dropped by the apartment I shared with my girlfriend. Our only toilet was clogged and we couldn’t get it unstuck. It was late at night, so we couldn’t buy a plunger, and we were in the middle of the city during a Buffalo winter, so we couldn’t just go outside and defecate in the woods. What were we going to do? Harvey looked at us with disdain before rolling up his sleeve, sticking his arm into the toilet, and dislodging the blockage with his hand. That may sound disgusting, but the point is not that Harvey was a dirty or unhygienic person. On the contrary, he was always freshly showered and cleanly dressed, if frequently disheveled. But when he saw that something needed doing, he just did it.

Arguably he had too much chutzpah:

When he and David were 11 years old, they had searched the Yellow Pages for bakeries that sold cookies wholesale. They then dressed themselves in Boy Scout uniforms they borrowed from David’s older brother, and went door-to-door selling them for a dollar a box (around $7 in today’s money). This was a lot of money for such young boys and they started taking cabs all over the city, going out to restaurants, and seeing shows. When a skeptical customer asked if they were really raising money for the Boy Scouts, they agreed that phonies were a terrible problem for the Scouts. The man bought two boxes.

Harvey’s parents, Miriam and Max (after whom the brothers would later name Miramax Films) had a peculiar relationship:

Miriam, a pretty, petite woman, filled her obese husband’s large plate to overflowing with spaghetti and meatballs. When Max had finished, he pushed the empty plate away and Miriam began insisting that he eat some more. He refused. Several times. He seemed to be aware that he needed to lose weight. But Miriam persisted. Finally, he gave in and ate another vast plateful. Based on this exchange, I assumed that this was a frequent occurrence. I also assumed that Max would die relatively young, which he did a few years later at the age of 51 without ever achieving the success he yearned for.

The French model agent who was charged with securing girls and young women for billionaire pedophile Jeffrey Epstein was found dead Saturday in a Paris prison cell

Saturday, February 19th, 2022

The French model agent who was charged with securing girls and young women for billionaire pedophile Jeffrey Epstein was found dead Saturday in a Paris prison cell:

Jean-Luc Brunel, 74, was found hanged by his bedsheets in his cell around 1:30 a.m. local time at La Sante prison, the Paris prosecutor’s office told CNN.

Brunel, who ran Karin Models in Paris, and later formed MC2 Model Management with Epstein, was awaiting trial on charges of sexual assault and rape. He was also being investigated for trafficking minors, including girls as young as 12 years old, according to French news reports.


Brunel — who was credited with launching the careers of models Christy Turlington, Monica Belluci and Angie Everhart — went into hiding after Epstein’s own suicide in a Manhattan lockup in August 2019.


“It was very convenient and yes suspicious,” a veteran Paris police detective told The Post, who nonetheless said he was not yet convinced Brunel was “suicided.”

Estimated 73% of US now immune to omicron

Thursday, February 17th, 2022

An estimated 73% of the US is now immune to omicron:

About half of eligible Americans have received booster shots, there have been nearly 80 million confirmed infections overall and many more infections have never been reported. One influential model uses those factors and others to estimate that 73% of Americans are, for now, immune to omicron, the dominant variant, and that could rise to 80% by mid-March.

It was like you have this house on fire, and they’re basically painting the front door

Wednesday, February 16th, 2022

Board of Education President Gabriela López, Vice President Faauuga Moliga, and controversial former vice president Alison Collins were sent packing by margins of more than 44 percentage points each, Matt Welch of Reason reports:

The recall had its roots in a series of decisions that the SFUSD did and did not make in January and February 2021. The Board of Education had, the previous fall, set January 25, 2021 as the day to finally reopen a school system that had been fully closed since March 2020. But it then failed to hammer out a reopening agreement with the local teachers union (which, like teachers unions in many Democrat-dominated cities and states, persistently used its considerable local political leverage to delay school reopening long after most Republican-governed polities had gotten back to normal).

It was against this backdrop, with anguished public school parents pulling their hair out over the personal disruption, learning loss, and social dysfunction that comes with extended remote learning, that the SFUSD board made the fateful decision to rename 44 of its schools that still weren’t open, on the ground that those names—including George Washington, Abraham Lincoln, Thomas Jefferson, John Muir, Paul Revere, and Dianne Feinstein—were too culturally insensitive and/or unrepresentative.

“It was like you have this house on fire, and they’re basically painting the front door,” Looijen told me Monday.

A statewide public pre-K program, taught by licensed teachers, housed in public schools, had a measurable and statistically significant negative effect

Tuesday, February 15th, 2022

Dale Farran has been studying early childhood education for half a century, but her most recent study has her questioning everything she thought she knew:

“It really has required a lot of soul-searching, a lot of reading of the literature to try to think of what were plausible reasons that might account for this.”

And by “this,” she means the outcome of a study that lasted more than a decade. It included 2,990 low-income children in Tennessee who applied to free, public prekindergarten programs. Some were admitted by lottery, and the others were rejected, creating the closest thing you can get in the real world to a randomized, controlled trial — the gold standard in showing causality in science.

Farran and her co-authors at Vanderbilt University followed both groups of children all the way through sixth grade. At the end of their first year, the kids who went to pre-K scored higher on school readiness — as expected.

But after third grade, they were doing worse than the control group. And at the end of sixth grade, they were doing even worse. They had lower test scores, were more likely to be in special education, and were more likely to get into trouble in school, including serious trouble like suspensions.


That’s right. A statewide public pre-K program, taught by licensed teachers, housed in public schools, had a measurable and statistically significant negative effect on the children in this study.


To put it crudely, policymakers and experts have touted for decades now that if you give a 4-year-old who is growing up in poverty a good dose of story time and block play, they’ll be more likely to grow up to become a high-earning, productive citizen.


Farran points out that families of means tend to choose play-based preschool programs with art, movement, music and nature. Children are asked open-ended questions, and they are listened to.

This is not what Farran is seeing in classrooms full of kids in poverty, where “teachers talk a lot, but they seldom listen to children.”

How little of this is enough?

Monday, February 14th, 2022

Swedish speedskater Nils van der Poel dominated the 10,000-meter race Saturday and then released a training guide for anyone who wants to get on his level:

A friend of mine thinks that my success is mostly based on me being a talent. That the training plan that devoured me wouldn’t give anyone else the same results. Perhaps he’s right, perhaps he’s not. I actually think that he is a little right and a little wrong. I like to think that I earned my success. I also wish for the sport to keep developing and for my records to be broken. I will not be the one to break 6.00,00 nor 12.30,00, but maybe someone else will. For those who might want to, I wrote this document. It’s basically a summary of how I trained from May 2019 to February 2022.


During my last two seasons I regularly skated 240 laps of 30,0 weekly, alone and with lane change. I believe that I am the only skater ever to be able to do that continuously. I was not born this way, I worked for it. From May 2019 up until August 2020 I abstained from competitions on ice and instead aim my powers at developing a strong aerobic base that enabled me to, later on, perform more high intensity work than ever before. The physical ability that enabled my success was a very strong aerobic base.


Some pro athletes say that, since they are professionals and can train as much as they like, they might as well add some weight training, and some stretching, and some core, and some technical sessions, and some training competitions, and some coordination sessions… All training sessions are performed at the expense of other, more efficient, training sessions, or at the expense of recovery after these sessions. My point isn’t that stretching is useless. If you need to stretch then go ahead and bend over. But do not fool yourself; do not drop hours from the essential sessions in order to perform something that sounds cool or is easy. Yeah, the gym is warm and nice, mirrors everywhere so that you can see your pretty face and attractive muscles. But you’re more likely 50 watts of the required bike threshold to make it below 12.00,00, than you are 50kg in squats from it. I completely cut what I thought were the sub-optimal sessions in order to increase the optimal ones. But, as I’m looking back upon it all, 5 minutes of core and stretching weekly would have been a smart way of staying clear of injury. Those “prehab” sessions I believe should be approached with an attitude of “how little of this is enough?” in order not to get injured nor steal time and effort from the essential sessions. During winter I skated a lot more competition speed laps than any other long distance speed skater, but I did a lot less of any other high intensity training than all the others.

It’s clear that the suburban way of life didn’t develop because suddenly people could afford cars

Saturday, February 12th, 2022

I was vaguely aware that the Interstate Highway System was seen as important for civil defense in the Atomic Age, because dispersed industry would be harder to take out with a limited number of atomic bombs, but the Federal Highway Administration‘s own history points to a slightly different concern:

For the President, the Formosa crisis illustrated the need for the Interstate System. He worried about evacuating Washington and other cities in the event of a nuclear attack. He knew the present roads were inadequate for that purpose. Still, in a meeting with legislative leaders on January 11, 1955, the Formosa crisis prompted a discussion of what would happen in the event of a nuclear attack on the United States. The President said he was worried about an atomic bomb attack, which prompted him to suggest the need for a plan to relocate Congress in an emergency.


[Civil Defense Administrator Val Peterson told a Senate Armed Services Subcommittee that] evacuation was the only practical solution. “It’s much better to get people out, even if in the process you may kill some of them or damage property. It’s better to do that than to have millions of Americans just stay there and be killed.”

On this same day, Governors Averell Harriman (New York), Robert B. Meyner (New Jersey), and Abraham A. Ribicoff (Connecticut) met with Mayor Robert Wagner of New York City to discuss plans for evacuating the city in the case of a hydrogen bomb attack. A report by the Mayor’s Special Committee on Civil Defense estimated that 1 million people could be moved from the worst danger zones in an hour by rail, subway, and ferryboat. Another 4 million would have to be evacuated by bus, taxi, truck, and automobile along 200 outgoing traffic lanes.


The report also estimated that 400,000 people an hour could be moved out of Manhattan in 75,000 to 100,000 available vehicles, aside from mass transportation facilities. In addition, if evacuation was not possible, 2,411,855 people could be accommodated on subway platforms serving as emergency shelters.

As illustrated by these activities on the day of General Clay’s testimony, the idea of evacuating cities was by no means unusual. Still, doubt existed about whether evacuation would prove to be practical if needed. In questioning General Clay, Senator Pat McNamara (D-MI), who was from Detroit, observed that when one crash occurs on a freeway, 10 cars pile up. “This is just normal driving, and they are not running scared for their lives.” He couldn’t “visualize it lasting for 10 minutes as a means of escape” and said he would “use the alleys rather than use the superhighway” in the face of a pending atomic attack.

The Interstate Highway System does not strike me as a system for evacuating cities. That does present an interesting thought experiment though: what would be a good system for evacuating a city and getting its population out of immediate danger from the blast and then the fallout? Subways out into the countryside?

This Treehugger piece presents the more familiar argument that one of the best defences against nuclear bombs is sprawl:

In 1945, the Bulletin of the Atomic Scientists began advocating for “dispersal,” or “defense through decentralization” as the only realistic defense against nuclear weapons, and the federal government realized this was an important strategic move. Most city planners agreed, and America adopted a completely new way of life, one that was different from anything that had come before, by directing all new construction “away from congested central areas to their outer fringes and suburbs in low-density continuous development,” and “the prevention of the metropolitan core’s further spread by directing new construction into small, widely spaced satellite towns.”

But the strategy had to change after the development of the more powerful hydrogen bomb, and with it the realization that having people living in the suburbs but working downtown was a problem. “President Dwight D. Eisenhower instead promoted a program of rapid evacuation to rural regions. As a civil defense official who served from 1953 to 1957 explained, the focus changed “from ‘Duck and Cover’ to ‘Run Like Hell.’”

To service that sprawl and to move people quickly in time of war, you need highways; that is why the bill that created the American interstate highway system was actually called The National Interstate and Defense Highways Act of 1956- they are exactly that, defense highways, designed to get people outta town in a hurry.

It’s clear that the suburban way of life didn’t develop because suddenly people could afford cars; it happened because the government wanted it.


After getting the people out, the next step was to actually move the industries and offices out of the dense urban cores, where so many corporations could be taken out with a single bomb, and establish them in suburban corporate campuses where just about every one of them would be a separate target. There was actually a National Industrial Dispersion Policy, designed to decentralize industry and commerce.

The relationship between wealth and power is essentially the relationship between potential and actual

Tuesday, February 8th, 2022

The relationship between wealth and power, Carroll Quigley argues in Weapons Systems and Political Stability, is essentially the relationship between potential and actual:

Wealth is not power, although, given time enough, it may be possible to turn it into power. Economic power can determine the relationships between states only by operating within a framework of military power itself. That is, potential power has to become actual power in order to determine the factual relationship between power units such as states. Thus the relationship is not determined by manpower, but by trained men; it is not established by steel output, but by weapons; it is not settled by energy production, but by explosives; not by scientists, but by technicians.

When economics was called “political economy” up to about 1840, it was recognized that the rules of economic life had to operate within a framework of a power structure. This was indicated at the time by the emphasis on the need for “domestic tranquility” and for international security as essentials of economic life. But when these political conditions became established and came to be taken for granted, political economy changed its name to “economics,” and everyone, in areas where these things were established, became confused about the true relationships. Only now, when disorder in our cities and threats from external foes are once again making life precarious, as it was before the 1830s, do we once again recognize national security and domestic tranquility as essential factors in economic life.

In the past century we have tended to assume that the richest states would be the most powerful ones, but it would be nearer the truth to say that the most secure and most powerful states will become the rich ones. We assumed, as late as 1941, that a rich state would win a war. This has never been true. Wealth as potential power becomes effective in power relationships, such as war, only to the degree that it becomes actual power, that is, military force. Merely as economic power it helps to win a war only potentially and actually hampers progress toward victory. We could almost say that wealth makes on less able to fight and more likely to be attacked. Throughout history poor nations have beaten rich ones again and again. Poor Assyria beat rich Babylonia; poor Rome beat rich Carthage; poor Macedonia beat rich Greece, after poor Sparta had beaten rich Athens; poor Prussia beat richer Austria and then beat richer France several times. Rich states throughout history have been able to defend their positions only if they saw the relationship between wealth and power and kept prepared or, if they were able when attacked to drag out the war so that they had time to turn their wealth into actual military power. That is wheat happened in the two World Wars. In each case the victims of German aggression were able to win in the long run only because there was a long run. If the Germans had been able to overcome the English Channel, their victims would not have had time to build up their military power.

Thus we see that wealth in itself is not of great importance in international affairs. It must be turned into military power to be effective, but then it ceases to be wealth. Wealth turned into guns no longer is wealth. But guns can protect wealth.