Isegoria

Why do we suddenly get an explosion of creativity and progress in certain places and moments, Johan Norberg asks, and why do these golden ages end?

I have learned that ages become golden because they imitate and innovate. They first emerge because of cheating. They didn’t come up with all the innovations that made them prosper; instead they took them from others.

Athenian, Italian and Dutch merchants picked up new ideas on their business trips. Like the Borg of Star Trek, the Romans constantly absorbed peoples, ideas and methods by conquest, and Abbasid Baghdad actively sponsored a translation project to lay their hands on the world’s knowledge and science.

But there is a limit to how far imitation can get you. To make this progress self-propelling, these cultures had to combine these inputs with their own thoughts to create innovations, from higher agricultural yields to artistic rebellions. This takes inclusivity back home. People have to be allowed to try new things. Free speech, free markets and a rule of law that constrains the arbitrary actions of rulers leave room for this.

But get Giotto and the flying shuttle, it takes something more: a broader culture of optimism. Innovation is difficult and controversial, and the results are never guaranteed. Therefore, you need a sense that there is hope and possibility, and you need role models around you who have shown the way, to make it seem like it is worth trying. Others to be inspired by, learn from, and to compete with.

This progress sometimes became self-sustaining because, at a certain point, it started transforming the self-identity of these cultures. That is why we often see clusters of creativity, like philosophy in Athens, art during the Renaissance, classical music in Vienna and technology in Silicon Valley.

Pessimism, the sense that it is hopeless, is a self-fulfilling prophecy. This is a clue to the decline and fall of golden ages.

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All these golden ages experienced a death-to-Socrates moment in times of crisis, when they soured on their previous commitment to open intellectual exchange. They started to support strongmen, control the economy and abandon international exchange. This made the fear of disaster self-fulfilling, since those barriers limited access to other possibilities and restricted the adaptation and innovation that could have helped them deal with the threat.

In theory, Juliet Samuel notes, the dollar ought to be a medium of exchange like any other, only useful to foreigners who want to trade with Americans, but in reality, dollars, in the form of US Treasury bonds, have become the backbone of the world’s piggy bank:

The dollar solves a dilemma. When a country accrues lots of savings, perhaps because it sells huge amounts of oil or has built a whole economy around battery or semiconductor exports, it needs to store the cash. Storing it in the country’s own currency presents two problems.

The first is that a lot of these supersaver countries have volatile exchange rates because they are ruled by capricious, thieving dictators, or because their financial markets are very small so it’s risky to have all the money in local lira or whatever. The second is that if they convert their savings into local cash, they’ll push their exchange rate up, and that will make their exports more expensive until they become uncompetitive, killing the golden goose. This, incidentally, is how a healthy trading system ought to rebalance itself.

So they don’t let that happen. Instead, what all these governments and sovereign wealth funds (and a few rich families or pensions) do is buy US Treasury bonds. Treasury markets are big and stable, open to anyone and underpinned by the rule of law.

When the US was by far the world’s biggest economy, this activity didn’t affect Americans much. In fact, letting the dollar become so important gave the US exceptional power to sanction foreigners and to borrow, seemingly without limit. But over decades, and especially since China became a full-fledged member of the trading system in 2001, the US economy has become smaller and smaller relative to the rest of the world, while the savers have become bigger and bigger. We are now at the point where there are an estimated $7 trillion worth of bonds squirrelled away as reserves by non-US savers: $3 trillion in China, the rest in Japan, Europe, Taiwan, Saudi Arabia, Korea and Singapore. This has inflated the value of the dollar to the point where it is pricing American exporters out of the game. Products made using dollars and priced in dollars are just too expensive.

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Back [during Trump’s trade war in 2018–19], the tariffs were not actually paid by consumers. As far as one can tell from the data, they were paid in two ways: first, US importers accepted lower margins on goods bought from abroad, and second, the dollar rose in value, boosting US spending power almost by exactly as much as Trump had put up tariffs.

Self-evidently, a rising dollar is not what a Trump White House would want if its aim is to revive American manufacturing. But this underscores a central trade-off not just with tariffs but with any solution to the problem of gargantuan trade and currency distortions: someone, somewhere has to pay. If Trump lets the dollar appreciate, then American consumers don’t have to bear the cost. But then American factories won’t recover either. So the whole trick, as far as US policy is concerned, is to get the rest of the world to pay.

If there is a grand strategy behind the trade war, which there certainly is in the mind of Trump appointees like the Treasury secretary Scott Bessent, it is an opening salvo in a struggle to fix the US trading position and to sort allies from enemies in doing so. Start with tariffs on everyone, let them feel the pain, then offer relief to those willing to help gradually deflate the dollar by slowly selling down Treasuries, opening up their own markets to US goods and agreeing to impose a tariff wall on China.

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At the same time, domestically, the US could embark upon a massive deregulatory programme to cut production costs, pump more oil, clear away planning hurdles, cut payroll taxes and so on.

When Bryan Caplan‘s twin sons were about ten, they loved a videogame called Tropico, which makes you the caudillo of a Caribbean island, its sovereign ruler and economic czar:

As you play, you face constant criticism from the island’s political factions. If you displease too many of your subjects, you fall from power and lose the game. Game after game, the most vocal critics of my twins’ regimes were the Communists. Which led to a memorable conversation.

“Dad, I’m really confused about the Communists in Tropico.”

“How so?”

“Well, you’re always telling us how terrible the Communists are.”

Guilty as charged. My wife and her parents were refugees from Communist Romania. Reading books about mass murder and slave labor under the likes of Lenin, Stalin, and Mao is one of my long-time hobbies. I’ve written several academic pieces about the economics and politics of Communism, including an encyclopedia article. And it is in my character to share my knowledge with the next generation.

True to form, I responded, “Yes, ‘terrible’ is right.”

“In the game, though, the requests of the Communists always sound so good: grow more food for the hungry; build better housing for the poor; give everyone free health care. What’s wrong with all that?”

Hearing this thoughtful question put a big smile on my face. I was so proud of my progeny. And an answer was already in my head. “Sons,” I began, “in life, there are many things that sound good but are bad – and many things that sound bad but are good. Suppose someone says, ‘The government should just give everybody whatever they need.’ How does that sound?”

“Good!”

That’s from the introduction to his upcoming book, Unbeatable: The Brutally Honest Case for Free Markets, which makes one central claim:

My central claim is that free-market economics should be rebuilt on the foundation of psychologists’ notion of Social Desirability Bias (SDB). Once you take SDB seriously, you realize that most alleged “market failures” are actually market successes, and most alleged “government successes” are actually government failures.

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To repeat, the lessons of Social Desirability Bias are twofold. First: When you spend your own time and money, actions speak louder than words. Second, when you spend other people’s time and money, words speak louder than actions. Now consider: If everyone spends only their own time and their own money, what do we call it? Among other things, “the free market.” What about when people spend other people’s time and money? Among other things, “government.”

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What exactly does brutal honesty buy us? To start, brutal honesty lets us affirm that the correlation between what is good and what sounds good is quite low. So low, in fact, that we can justifiably praise free markets because they give business incentives to do good stuff that sounds bad and criticize governments because they give politicians incentives to do bad stuff that sounds good. “Good stuff that sounds bad” like: downsizing superfluous workers, hiring tens of millions of low-skilled foreigners, deliberately infecting volunteers with Covid to speed up drug testing, greatly curtailing end-of-life medical care, and leveling historic neighborhoods in San Francisco to build new skyscrapers. “Bad stuff that sounds good” like: free roads, free parking, free college, free health care, licensing medical workers, regulating prescription drugs, requiring building permits, banning recreational drugs, sanctioning employers who hire illegal immigrants, and ensuring a dignified retirement for every American.

The Nile, the longest river in the world (4,160 miles), Tim Marshall explains (in Prisoners of Geography: Ten Maps That Explain Everything About the World), affects ten countries considered to be in the proximity of its basin — Burundi, the DRC, Eritrea, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, Uganda, and Egypt:

As long ago as the fifth century BCE, the historian Herodotus said: “Egypt is the Nile, and the Nile is Egypt.” It is still true, and so a threat to the supply to Egypt’s seven-hundred-mile-long, fully navigable section of the Nile is for Cairo a concern—one over which it would be prepared to go to war.

Without the Nile, there would be no one there. It may be a huge country, but the vast majority of its 84 million population lives within a few miles of the Nile. Measured by the area in which people dwell, Egypt is one of the most densely populated countries in the world.

Egypt was, arguably, a nation state when most Europeans were living in mud huts, but it was never more than a regional power. It is protected by deserts on three sides and might have become a great power in the Mediterranean region but for one problem. There are hardly any trees in Egypt, and for most of history, if you didn’t have trees you couldn’t build a great navy with which to project your power. There has always been an Egyptian navy—it used to import cedar from Lebanon to build ships at huge expense—but it has never been a blue-water navy.

Modern Egypt now has the most powerful armed forces of all the Arab states, thanks to American military aid; but it remains contained by deserts, the sea, and its peace treaty with Israel. It will remain in the news as it struggles to cope with feeding 84 million people a day while battling an Islamist insurgency, especially in the Sinai, and guarding the Suez Canal, through which passes 8 percent of the world’s entire trade every day. Some 2.5 percent of the world’s oil passes this way daily; closing the canal would add about fifteen days’ transit time to Europe and ten to the United States, with concurrent costs.

In January 1806 Napoleon made his first really significant error of statesmanship, Andrew Roberts explains (in Napoleon: A Life), when he offered his brother Joseph the throne of Naples, saying: ‘It will become, like Italy, Switzerland, Holland and the three kingdoms of Germany, my federal states, or, truly, the French Empire’:

Joseph was crowned king on March 30, and Louis became king of Holland in June. This reversion to the pre-revolutionary system of governance struck at the meritocratic system for which Napoleon had initially stood, installed largely inadequate brothers in key positions and stoked up problems for the future. In December 1805 Napoleon was writing to Joseph of Jérôme: ‘My very positive intention is to let him go to prison for debt if his allowance isn’t enough … It’s inconceivable what this young man costs me for causing nothing but inconvenience, and being useless to my system.’

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Yet within two years he had made the utterly unchanged Jérôme king of Westphalia. There were plenty of local pro-French reformers whom he could have installed in power – Melzi in Italy, Rutger Jan Schimmelpenninck in Holland, Karl Dalberg in Germany, Prince Poniatowski in Poland, for example, even Crown Prince Ferdinand in Spain – who would have done a far better job than most Frenchmen, let alone squabbling, vain, disloyal and often incompetent members of the Bonaparte family.

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Holland had astonished the world in its heyday, defying Imperial Spain, moving its Stadtholder, William of Orange, to become king of England, founding a global empire, buying Manhattan, inventing capitalism and glorying in the golden age of Grotius, Spinoza, Rembrandt and Vermeer. Yet by the late eighteenth century, Britain had taken over most of Holland’s colonies, often without a fight, her shipping and overseas trading systems were all but destroyed, her cities were declining in population (in sharp contrast to the rest of Europe), and in manufacturing only gin production was doing well.

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One immediate problem was that the Pope refused to recognize Joseph as king of Naples, which together with his designation of Jérôme’s wedding as against canon law began an entirely unnecessary quarrel between Napoleon and Pius VII that was to lead to the seizure of papal lands in June 1809 and Napoleon’s excommunication.

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Murat became the ruling Grand Duke of Berg (roughly the Ruhr valley) in April, Talleyrand became Prince of Benevento in Italy (a former papal principality south-east of Naples), Bernadotte was made Prince of Ponte Corvo (an entirely artificial principality created out of another former papal possession in south Lazio near Naples), Fouché was given the hereditary dukedom of Otranto, and Berthier became Prince of Neuchâtel on the condition that he got married.

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Although there was undoubtedly a Ruritanian feel to some of these titles, and they were duly sniggered at by Bourbon snobs and propagandists, they all came with lands and incomes that were real enough.

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Keen to establish that he wasn’t impotent, Napoleon impregnated Éléonore, who on December 13 gave birth to his illegitimate child, Comte Léon (who was rather unsubtly given the last four letters of his father’s name). The experiment reassured Napoleon that he could found a dynasty if he were to divorce Josephine. It also solved Éléonore’s financial problems, especially once Napoleon found her an army lieutenant to marry and gave her a large dowry.

Ruritanian!

Governments are resorting to tariffs and industrial policy, not because their prime ministers and presidents flunked Econ 101, Michael Lind says, but because they do not want their economies deindustrialized by a flood of low-priced, state-subsidized Chinese imports:

The Chinese import threat is why Canada has levied a 100 percent tariff on imported Chinese EVs, along with a 25 percent surtax on Chinese steel and Chinese aluminum. The European Union has slapped electric vehicles made in China with tariffs ranging from 7.8 percent to 35.3 percent, on top of the standard European tariff of 10 percent for imported automobiles. India imposes tariffs of 70 percent to 100 percent on imported electric vehicles from China and other countries.

Like the leaders of Canada, the EU, and India, former president Joe Biden is not generally thought of as a disciple of the Donald Trump school. But last May, the Biden administration imposed new duties not only on Chinese EVs but also on Chinese-made steel and aluminum, semiconductors, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. According to a Biden White House press release in May:

China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care — creating unacceptable risks to America’s supply chains and economic security.

In December, the Biden administration announced new restrictions on the export of chip manufacturing to China. The Biden White House even taunted the first Trump administration for not having gone far enough with its protectionist policies: “The previous administration’s trade deal with China failed to increase American exports or boost American manufacturing as it had promised.”

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In 2023 China produced roughly half of the world’s crude steel. China is the world’s largest automobile maker, accounting for a third of the global total. China’s state-backed aerospace company, the Commercial Aircraft Corporation of China (COMAC), threatens to take global market share from America’s Boeing and Europe’s Airbus. China is also the world’s largest commercial shipbuilder, responsible for more than half of all shipbuilding. America’s share of the global shipbuilding market is 0.10 percent. Yes, zero point 10 percent. Most of the goods shipped across the oceans to and from the U.S. are in ships built in China (51 percent), South Korea (28 percent), or Japan (15 percent). During the Covid pandemic, Americans were shocked to learn how dependent the U.S. is on medical supplies from China, which provides around 30 percent of active pharmaceutical ingredients used in drugs by value and 78 percent of the vitamins in the U.S. A single Chinese company, DJI, controls 90 percent of the American drone market, including 90 percent of the drones used by American police departments and first responders.

China’s trade with the U.S. resembles that of a dominant manufacturing nation with a resource colony. In 2023, China’s main exports to the U.S. were broadcast equipment, computers, and office machine parts. Apart from integrated circuits, one of the few industries in which the U.S. retains an advantage, America’s main exports to China in 2023 were soybeans and crude petroleum, with the value of soybeans ($15 billion) more than twice that of silicon chip exports ($7 billion).