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Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here’s a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It’s from the issue of January 26, 1856, with his first-person reporting on “A Nightly Scene in London.” Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls “the unreasonable disciples of a reasonable school.” Dickens writes: “I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity …” 

Here’s a fuller passage from Dickens:

A NIGHTLY SCENE IN LONDON

On the fifth of last November, I, the Conductor of this journal, accompanied by a friend well-known to the public, accidentally strayed into Whitechapel. It was a miserable evening; very dark, very muddy, and raining hard.

There are many woful sights in that part of London, and it has been well-known to me in most of its aspects for many years. We had forgotten the mud and rain in slowly walking along and looking about us, when we found ourselves, at eight o’clock, before the Workhouse.

Crouched against the wall of the Workhouse, in the dark street, on the muddy pavement-stones, with the rain raining upon them, were five bundles of rags. They were motionless, and had no resemblance to the human form. Five great beehives, covered with rags— five dead bodies taken out of graves, tied neck and heels, and covered with rags— would have looked like those five bundles upon which the rain rained down in the public street.

“What is this! ” said my companion. “What is this!”

“Some miserable people shut out of the Casual Ward, I think,” said I.

We had stopped before the five ragged mounds, and were quite rooted to the spot by their horrible appearance. Five awful Sphinxes by the wayside, crying to every passer-by, ” Stop and guess! What is to be the end of a state of society that leaves us here!”

As we stood looking at them, a decent working-man, having the appearance of a stone-mason, touched me on the shoulder.

“This is an awful sight, sir,” said he, “in a Christian country!”

“GOD knows it is, my friend,” said I.

“I have often seen it much worse than this, as I have been going home from my work. I have counted fifteen, twenty, five-and-twenty, many a time. It’s a shocking thing to see.”

“A shocking thing, indeed,” said I and my companion together. The man lingered near
us a little while, wished us good-night, and went on.

We should have felt it brutal in us who had a better chance of being heard than the working-man, to leave the thing as it was, so we knocked at the Workhouse Gate. I undertook to be spokesman. The moment the gate was opened by an old pauper, I went in, followed close by my companion. I lost no
time in passing the old porter, for I saw in his watery eye a disposition to shut us out.

“Be so good as to give that card to the master of the Workhouse, and say I shall be glad to speak to him for a moment.”

We were in a kind of covered gateway, and the old porter went across it with the card. Before he had got to a door on our left, a man in a cloak and hat bounced out of it very sharply, as if he were in the nightly habit of being bullied and of returning the compliment.

“Now, gentlemen,” said he in a loud voice, “what do you want here?”

“First,” said I, ” will you do me the favor to look at that card in your hand. Perhaps you may know my name.”

“Yes,” says he, looking at it. ” I know this name.”

“Good. I only want to ask you a plain question in a civil manner, and there is not the least occasion for either of us to be angry. It would be very foolish in me to blame you, and I don’t blame you. I may
find fault with the system you administer, but pray understand that I know you are here to do a duty pointed out to you, and that I have no doubt you do it. Now, I hope you won’t object to tell me what I want to know.”

“No,” said he, quite mollified, and very reasonable, ” not at all. What is it?”

“Do you know that there are five wretched creatures outside?”

“I haven’t seen them, but I dare say there are.”

“Do you doubt that there are?”

“No, not at all. There might be many more.”

”Are they men? Or women?”

“Women, I suppose. Very likely one or two of them were there last night, and the night before last.”

“There all night, do you mean?”

“Very likely.”

My companion and I looked at one another, and the master of the Workhouse added quickly, “Why, Lord bless my soul, what am I to do? What can I do ? The place is full. The place is always full—every night. I must give the preference to women with children, mustn’t I? You wouldn’t have me not do that?”

“Surely not,” said I. “It is a very humane principle, and quite right; and I am glad to hear of it. Don’t forget that I don’t blame you.”

“Well!” said he. And subdued himself again. …

“Just so. I wanted to know no more. You have answered my question civilly and readily, and I am much obliged to you. I have nothing to say against you, but quite the contrary. Good night!”

“Good night, gentlemen!” And out we came again.

We went to the ragged bundle nearest to the Workhouse-door, and I touched it. No movement replying, I gently shook it. The rags began to be slowly stirred within, and by little and little a head was unshrouded. The head of a young woman of three or four and twenty, as I should judge; gaunt with want, and foul with dirt; but not naturally ugly.

“Tell us,” said I, stooping down. “Why are you lying here?”

“Because I can’t get into the Workhouse.”

She spoke in a faint dull way, and had no curiosity or interest left. She looked dreamily at the black sky and the falling rain, but never looked at me or my companion.

“Were you here last night?”

“Yes, All last night. And the night afore too.”

“Do you know any of these others?”

“I know her next but one. She was here last night, and she told me she come out of Essex. I don’t know no more of her.”

“You were here all last night, but you have not been here all day?”

“No. Not all day.”

“Where have you been all day?”

“About the streets.”

”What have you had to eat?”

“Nothing.”

“Come!” said I. “Think a little. You are tired and have been asleep, and don’t quite consider what you are saying to us. You have had something to eat to-day. Come! Think of it!”

“No I haven’t. Nothing but such bits as I could pick up about the market. Why, look at me!”

She bared her neck, and I covered it up again.

“If you had a shilling to get some supper and a lodging, should you know where to get it?”

“Yes. I could do that.”

“For GOD’S sake get it then!”

I put the money into her hand, and she feebly rose up and went away. She never thanked me, never looked at me— melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost.

One by one I spoke to all the five. In every one, interest and curiosity were as extinct as in the first. They were all dull and languid. No one made any sort of profession or complaint; no one cared to look at me; no one thanked me. When I came to the third, I suppose she saw that my companion
and I glanced, with a new horror upon us, at the two last, who had dropped against each other in their sleep, and were lying like broken images. She said, she believed they were young sisters. These were the only words that were originated among the five.

And now let me close this terrible account with a redeeming and beautiful trait of the poorest of the poor. When we came out of the Workhouse, we had gone across the road to a public house, finding ourselves without silver, to get change for a sovereign. I held the money in my hand while I was speaking to the five apparitions. Our being so engaged, attracted the attention of many people of the very poor sort usual to that place; as we leaned over the mounds of rags, they eagerly leaned over us to see and hear; what I had in my hand, and what I said, and what I did, must have been plain to nearly all the concourse. When the last of the five had got up and faded away, the spectators opened to let us pass; and not one of them, by word, or look, or gesture, begged of us.

Many of the observant faces were quick enough to know that it would have been a relief to us to have got rid of the rest of the money with any hope of doing good with it. But, there was a feeling among them all, that their necessities were not to be placed by the side of such a spectacle; and they opened a way for us in profound silence, and let us go.

My companion wrote to me, next day, that the five ragged bundles had been upon his bed all night. I debated how to add our testimony to that of many other persons who from time to time are impelled to write to the newspapers, by having come upon some shameful and shocking sight of this description. I resolved to write in these pages an exact account of what we had seen, but to wait until after Christmas, in order that there might be no heat or haste. I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity; and I address people with a respect for the spirit of the New Testament, who do mind such things, and who think them infamous in our streets.

There’s a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like “decrease the surplus population” and the sarcastic use of “a good man of business” would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And if Scrooge hadn’t saved money, would he have been able to save Tiny Tim?

It’s all a good “talker,” as they say about the topics that get kicked around on radio shows every day. As part of my own holiday break, I republish this essay each year near or on Christmas day.

I went looking for some other perspectives on how Charles Dickens perceived capitalism that were not embedded in a fictional setting. In particular, I checked the weekly journal Household Words, which Dickens edited from 1850 to 1859. Articles in Household Words do not have authors provided. However, Anne Lohrli went through the business and financial records of the publication, which identified the authors and showed who had been paid for each article. The internal records of the journal show that Dickens was the author of this piece from the issue of February 11, 1854, called “On Strike.” (Lohrli’s book is called Household Words: A Weekly Journal 1850-59, conducted by Charles Dickens, University of Toronto Press, 1973. Household Words is freely available on-line at at site hosted by the University of Buckingham, with support from the Leverhulme Trust and other donors.)

The article does not seem especially well-known today, but it is the source of a couple of the most common quotations from Charles Dickens about “political economy,” as the study of economics was usually called at the time. Early in the piece, Dickens wrote: “Political Economy was a great and useful science in its own way and its own place; but … I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods.” Later in the article, Dickens wrote: “[P]olitical economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it.”

But more broadly, the article is of interest because Dickens, telling the story in the first person, takes the position that in thinking about a strike taking place in the town of Preston, one need not take the side either of management or labor. Instead, Dickens writes, one may “be a friend to both,” and feel that the strike is “to be deplored on all accounts.” Of course, the problem with a middle-of-the-road position is that you can end up being hit by ideological traffic going in both directions. But the ability of Dickens to sympathize with people in a wide range of positions is surely part what gives his novels and his world-view such lasting power. The article goes into a fair amount of detail, and can be read on-line, so I will content myself here with a substantial excerpt.

Here’s a portion of the 1854 essay by Dickens:

“ON STRIKE”

Travelling down to Preston a week from this date, I chanced to sit opposite to a very acute, very determined, very emphatic personage, with a stout railway rug so drawn over his chest that he looked as if he were sitting up in bed with his great coat, hat, and gloves on, severely contemplating your humble servant from behind a large blue and grey checked counterpane. In calling him emphatic, I do
not mean that he was warm; he was coldly and bitingly emphatic as a frosty wind is.

“You are going through to Preston, sir?” says he, as soon as we were clear of the
CharPrimrose Hill tunnel.

The receipt of this question was like the receipt of a jerk of the nose; he was so short and sharp.

“Yes.”

“This Preston strike is a nice piece of business!” said the gentleman. “A pretty piece of business!”

“It is very much to be deplored,” said I, “on all accounts.”

“They want to be ground. That’s what they want to bring ’em to their senses,” said the gentleman; whom I had already began to call in my own mind Mr. Snapper, and whom I may as well call by that name here as by any other. *

I deferentially enquired, who wanted to be ground?

“The hands,” said Mr. Snapper. ” The hands on strike, and the hands who help ’em.”

I remarked that if that was all they wanted, they must be a very unreasonable people, for surely they had had a little grinding, one way and another, already. Mr. Snapper eyed me with sternness, and after opening and shutting his leathern-gloved hands several times outside his counterpane, asked me
abruptly, ” Was I a delegate?”

I set Mr. Snapper right on that point, and told him I was no delegate.

“I am glad to hear it,” said Mr. Snapper. “But a friend to the Strike, I believe?”

“Not at all,” said I.

“A friend to the Lock-out?” pursued Mr. Snapper.

“Not in the least,” said I,

Mr. Snapper’s rising opinion of me fell again, and he gave me to understand that a man must either be a friend to the Masters or a friend to the Hands.

“He may be a friend to both,” said I.

Mr. Snapper didn’t see that; there was no medium in the Political Economy of the subject. I retorted on Mr. Snapper, that Political Economy was a great and useful science in its own way and its own place; but that I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods. Mr. Snapper tucked himself up as if to keep me off, folded his arms on the top of his counterpane, leaned back and looked out of the window.

“Pray what would you have, sir,” enquire Mr. Snapper, suddenly withdrawing his eyes from the prospect to me, “in the relations between Capital and Labour, but Political Economy?”

I always avoid the stereotyped terms in these discussions as much as I can, for I have observed, in my little way, that they often supply the place of sense and moderation. I therefore took my gentleman up with the words employers and employed, in preference to Capital and Labour.

“I believe,” said I, “that into the relations between employers and employed, as into all the relations of this life, there must enter something of feeling and sentiment; something of mutual explanation, forbearance, and consideration; something which is not to be found in Mr. M’CulIoch’s dictionary, and is not exactly stateable in figures; otherwise those relations are wrong and rotten at the core and will never bear sound fruit.”

Mr. Snapper laughed at me. As I thought I had just as good reason to laugh at Mr. Snapper, I did so, and we were both contented. …

Mr. Snapper had no doubt, after this, that I thought the hands had a right to combine?

“Surely,” said I. ” A perfect right to combine in any lawful manner. The fact of their being able to combine and accustomed to combine may, I can easily conceive, be a protection to them. The blame even of this business is not all on one side. I think the associated Lock-out was a grave error. And
when you Preston masters—”

“I am not a Preston master,” interrupted Mr. Snapper.

“When the respectable combined body of Preston masters,” said I, ” in the beginning of this unhappy difference, laid down the principle that no man should be employed henceforth who belonged to any combination—such as their own—they attempted to carry with a high hand a partial and unfair impossibility, and were obliged to abandon it. This was an unwise proceeding, and the first defeat.”

Mr. Snapper had known, all along, that I was no friend to the masters.

“Pardon me,” said I; ” I am unfeignedly a friend to the masters, and have many friends among them.”

“Yet you think these hands in the right?” quoth Mr. Snapper.

“By no means,” said I; ” I fear they are at present engaged in an unreasonable struggle, wherein they began ill and cannot end well.”

Mr. Snapper, evidently regarding me as neither fish, flesh, nor fowl, begged to know after a pause if he might enquire whether I was going to Preston on business?

Indeed I was going there, in my unbusinesslike manner, I confessed, to look at the strike.

“To look at the strike!” echoed Mr. Snapper fixing his hat on firmly with both hands. “To look at it! Might I ask you now, with what object you are going to look at it?”

“Certainly,” said I. ” I read, even in liberal pages, the hardest Political Economy—of an extraordinary description too sometimes, and certainly not to be found in the books—as the only touchstone of this strike. I see, this very day in a to-morrow’s liberal paper, some astonishing novelties in the politico-economical way, showing how profits and wages have no connexion whatever; coupled with such references to these hands as might be made by a very irascible General to rebels and brigands in arms. Now, if it be the case that some of the highest virtues of the working people still shine through them brighter than ever in their conduct of this mistake of theirs, perhaps the fact may reasonably suggest to me—and to others besides me—that there is some little things wanting in the relations between them and their employers, which neither political economy nor Drum-head proclamation writing will altogether supply, and which we cannot too soon or too temperately unite in trying to
find out.”

Mr. Snapper, after again opening and shutting his gloved hands several times, drew the counterpane higher over his chest, and went to bed in disgust. He got up at Rugby, took himself and counterpane into another carriage, and left me to pursue my journey alone. …

In any aspect in which it can be viewed, this strike and lock-out is a deplorable calamity. In its waste of time, in its waste of a great people’s energy, in its waste of wages, in its waste of wealth that seeks to be employed, in its encroachment on the means of many thousands who are labouring from day to day, in the gulf of separation it hourly deepens between those whose interests must be understood to be identical or must be destroyed, it is a great national affliction. But, at this pass, anger is of no use, starving out is of no use—for what will that do, five years hence, but overshadow all the mills in England with the growth of a bitter remembrance? —political economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it. Gentlemen are found, in great manufacturing towns, ready enough to extol imbecile mediation with dangerous madmen abroad; can none of them be brought to think of authorised mediation and explanation at home? I do not suppose that such a knotted difficulty as this, is to be at all untangled by a morning-party in the Adelphi; but I would entreat both sides now so miserably opposed, to consider whether there are no men in England above suspicion, to whom they might refer the matters in dispute, with a perfect confidence above all things in the desire of those men to act justly, and in their sincere attachment to their countrymen of every rank and to their country.

Masters right, or men right; masters wrong, or men wrong; both right, or both wrong; there is certain ruin to both in the continuance or frequent revival of this breach. And from the ever-widening circle of their decay, what drop in the social ocean shall be free!

Here is a story of two possible Pacific Rim trade agreements. The idea of a trans-Pacific free trade agreement of some kind had been bubbling around since the early 2000s. By 2016, it had turned into the Trans-Pacific Partnership, with 12 countries signed on as members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. You could think of it as the North American Free Trade Agreement (NAFTA), which has now morphed into the U.S.-Mexico-Canada Agreement, plus four high-income countries (Australia, Japan, New Zealand, Singapore), a couple of Latin American countries (Chile, Peru), and some growth economies in east Asia (Brunei, Malaysia, Vietnam).

The Trans-Pacific Partnership never went into effect because President Trump promptly withdrew the US signature from the agreement upon assuming office in January 2017. I hold no brief for all the specific details of that trade agreement, but you will notice one main reality about the TPP: China was not a member. The agreement was properly viewed not just as an economic agreement, but also as a way for the United States to of building economic bridges and reassurance with other Pacific Rim countries that might otherwise come under heavy pressure from China.

Of course, this strategy was clear to China, which responded with its own trade agreement, the Regional Comprehensive Economic Partnership, which begins on January 1, 2022. UNCTAD (the United Nations Conference on Trade and Development) has just published a short overview titled “A New Center of Gravity: The Regional Comprehensive Economic
Partnership and its trade effects.”

The RCEP has 15 members. One way to think of the group is that it includes the 10 members of ASEAN (Association of Southeast Asian Nations): Myanmar, Vietnam, the Lao People’s Democratic Republic, Thailand, Cambodia, Malaysia, Philippines, Indonesia, Brunei, and
Singapore. Then add five more countries: China, Korea, Japan, Australia, and New Zealand.

This combination of countries obviously has a lot of overlap with the ill-fated Trans-Pacific Partnership, but it’s entirely centered on Japan and China. It covers a larger share of GDP than any other regional trade agreement.

The UNCTAD report notes:

A key aspect of the RCEP is tariff concessions. The agreement is expected to ultimately eliminate tariffs on more than 90 per cent of goods traded within the bloc. … The implementation period is 20 years, it allows for exemptions for sensitive and strategic sectors, and some distinctions among members. The agreement goes beyond tariff concessions and encompasses other areas of cooperation to foster regional integration among its members. For instance, by setting up a time limit for the release of goods at customs, and by harmonizing rules of origins so as facilitate businesses to take advantage
of the preferential terms of the agreement. RCEP will further advance trade relationships among signatory members, especially for those not previously regulated by any trade agreement. By enhancing market access conditions, largely by reducing tariffs and implementing trade facilitation measures, RCEP countries are a step closer to
becoming a regional trading bloc. … The economic size of the emerging bloc and its trade dynamism will make it a centre of gravity for global trade.

Regional trade agreements have two main effects: trade diversion and trade creation. Trade diversion refers to the pattern that countries inside the group are likely to divert some trade that otherwise would have happened from countries outside the group: for example, countries in the RCEP will become less likely to import from countries outside the group, like the US, and more likely to import from countries inside the group. In addition, the greater ease of trade will create new trade within the group. UNCTAD writes:

Overall, RCEP tariff concessions are expected to increase trade within RCEP by nearly US$ 42 billion, equivalent to almost 2 per cent. Most of the effects would be driven by trade diversion (about US$ 25 billion) away from non-member countries. Trade creation due to lower tariffs would contribute about US$ 17 billion.

Meanwhile, the countries that had been negotiating over the Trans-Pacific Partnership went ahead Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). My sense is that they were hoping the US would sign up again in the future, although President Biden has expressed little interest in doing so. China applied to join that agreement in September 2021. James McBride, Andrew Chatzky, and Anshu Siripurapu of the Council on Foreign Relations have a backgrounder, “What’s Next for the Trans-Pacific Partnership (TPP)?” (last updated September 21, 2021). They write:

For its part, Beijing pushed a separate trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which includes fifteen Asia-Pacific countries but not the United States. It also launched its Belt and Road Initiative, which seeks to develop trade and energy infrastructure throughout South and Central Asia. The RCEP was signed in November 2020 after eight years of negotiations. The deal is not as comprehensive as the TPP: it eliminates fewer tariffs, and doesn’t address services trade, intellectual property, or labor and environmental rules to the same extent. Additionally, India withdrew from the pact, reducing its market size. Still, the RCEP creates one of the world’s largest trade blocs, and analysts say it is another sign, along with the CPTPP, that countries in the region are moving on without the United States. 

It’s not yet clear to me if the new RCEP is more form or substance. As written, the RCEP is clearly not envisioning the very close economic ties of, say, the European Union. Most countries in that area already have fairly extensive trade ties. As the agreement phases in, it will be interesting to watch as countries postpone and delay implementation.

But in this tale of two trade agreements, it remains striking that the United States is choosing to opt out. President Trump or now President Biden could try to use a non-China Trans-Pacific Partnership as a counterweight to China’s growing economic and political influence. Back in 2015, when President Obama was advocating membership in the Trans-Pacific Partnerwhip, he stated:

[W]e have to make sure the United States — and not countries like China — is the one writing this century’s rules for the world’s economy. … We have the chance to open up more markets to goods and services backed by three proud words: Made in America. For the sake of our businesses, and American workers, it’s an opportunity we need to take. But beyond greater access to the world’s fastest-growing region, the agreement will establish enforceable commitments to protect labor, environmental, and other crucial standards that Americans hold dear. Right now, China wants to write the rules for commerce in Asia. If it succeeds, our competitors would be free to ignore basic environmental and labor standards, giving them an unfair advantage over American workers.

Again, I hold no brief for all the details of the TPP. Such agreements often include fine print and details that end up favoring big incumbent firms. But with the United States is choosing to sit on the sidelines and not enter trade agreements like TPP, the rest of the world is moving ahead. The common rules and practices for world trade that result from those negotiations will be governed by the priorities of those countries, and for the trade agreements in Asia, China will have outsized influence over the results. When the US chooses not to play, it also doesn’t get a say.

  

Michael Chui of the McKinsey Global Institute served as interlocutor in “Forward Thinking on globalization and the evolving role of corporate leadership in the 21st century with Matthew Slaughter (December 15, 2021, podcast and edited transcript available).  Here are a few comments that jumped out at me.

On the entry of China and India into global markets

If I go back to when I didn’t have any gray hair and I was graduating and finishing at MIT and coming to Dartmouth, a lot of the research on globalization and labor markets was focused on the NAFTA, the North American Free Trade Agreement, the accession of Mexico into the Canada–US free trade agreement that caused so much political activity in the 1992 presidential election. Ross Perot running for president, getting 19.2 percent of the popular vote in no small part because of proclaiming that there was going to be this “giant sucking sound” if we signed the NAFTA, of losing manufacturing capital and jobs from the United States down to Mexico.

Well, no disrespect against the good people of Mexico, but the Mexico economy and labor force is a rounding error when you’re trying to measure the labor force of China or China plus India, or what has happened in the subsequent 30, 40 years from the NAFTA in terms of the magnitude of shocks to the global economy from after the fall of the Berlin Wall, billions of people around the world wanting to accede into the global economic system, and the flows of capital and people and ideas around that. I think that’s been a big lesson, and I don’t think we’ve quite figured it out in this country.

About Infosys, an India-based company that employs 13,000 Americans at its Indianapolis base and other locations in the US

Infosys was one of these Indian multinationals that really grew from India to provide these outsourcing services to a lot of Western-based multinationals. And yet, like a lot of global multinationals, their competitive advantage evolved over time. They realized as more competitors arose in that, they realized they could create more value for their clients by actually providing a broader range of services that were higher talent, more complementary to what those firms were already doing. …

They’re foreign-based multinationals who establish and expand operations here. And they’ve realized proximity to clients in the US matters. They’ve realized that the risk-taking, the pools of talent, the dynamism of the US economy, some of the deep sources of competitive advantage for the United States, they wanted more access to.

On global supply chains during the pandemic:

Global supply chains, we have known, generate great efficiencies, but that efficiency of lower prices, and costs, wider variety, enabled a lot of firms to have had what was oftentimes called a just-in-time production and inventory management system. That was a finely optimized system. … Ehat we’ve experienced, both on the demand and the supply side amidst the pandemic, are these perturbations to the initial system that have led to wildly nonlinear results.

On the demand side, I think not everybody anticipated that when the pandemic hit, and there was going to need to be this supply shock, a withdrawal of a lot of production of services, nontradable services, that households, either from their own balance sheets or with the unprecedented fiscal supports, would dramatically shift and increase the demand for goods. That surge in demand for goods was unexpected. And then we continue to see supply-side shocks in the global supply chains. … You see, at key nodes in global supply chains, port shutdowns that have been unprecedented because of public health requirements. In certain sovereign nations where one or two COVID cases will shut down ports for 48 or 96 hours—and in the United States and other countries, I think we’ve realized—the fragile optimization around some of the domestic supply chain linkages …

You give me demand shocks, you give me supply shocks, in a very finely optimized global system, and you see shortages, you see rising prices in ways that are oftentimes hard to predict. But if you go back to the academic research, we kind of knew this could be possible. We simply hadn’t had this confluence of demand and supply shocks that the pandemic tragically has brought upon us.

One piece of personal advice

I know the world is fractious and hard, but be a Tigger. Find the optimist, and channel that in yourself and those around you.

David A. Price interviews Edward Glaeser, with the subheading “On urbanization, the future of small towns, and “Yes In My Back Yard” (Econ Focus, Federal Reserve Bank of Richmond, Fourth Quarter 2021, pp. 19-23). Here are a few comments that caught my eye.

On centripetal and centrifugal forces in cities

I see urban growth as almost uniformly a dance between technologies that pull us together and ones that push us apart.

Technologies of the 19th century, like the skyscraper — which is really the combination of a steel frame and an elevator — the streetcar, the steam engine, all of these things enabled the growth of 19th century cities. They brought people together. This was a centripetal age.

In the mid-20th century, we had technologies that were major jumps forward in transportation cost. In transportation technology, like the car, and in technology for transporting ideas and entertainment — television and radio — these were centrifugal forces that basically flattened the Earth and made it easier to live in far-flung suburbs or even rural areas. Those centrifugal technologies … were the backdrop for the exodus of people from dense cities that had been built around streetcars and subways and to suburbs that were built around the car.

But then in the late 20th century and early 21st century, the tides turned again. … We’ve started to see the electronic cottages become a force during the pandemic, and suburbanization has continued, but downtowns are vastly stronger than they were in the 1980s. And I think the primary reason is that globalization and new technologies have radically increased the returns to being smart, and we are a social species that gets smart by being around other smart people. That’s why people are willing to pay so much to be in the heart of Silicon Valley and why they’re willing to pay so much for downtown real estate in Chicago or New York or London.

On the shift to a rental market in single family homes

Traditionally, single-family homes were overwhelmingly owner-occupied in the U.S. More than 85 percent, I think, of homes were owner-occupied. The usual view of the housing economics community was that the agency problems involved in renting them out were huge. There are estimates that suggest that renting out for a year involves a 1 percent decline in the value of the house, or something like that, because the renter just doesn’t treat it properly. By contrast, traditionally more than 85 percent of multi-family housing was rented, at least once you get to over five stories. It’s much easier to manage a multi-unit building when you have one owner. One roof, one owner, because otherwise you’ve got the problems of coordination of the condo association or the co-op board, which can be more fractious.

So those were the things, I think, that were responsible for tying ownership type and structure type so closely together. We are starting to see that break down, which is quite interesting. I don’t know if these buyers have fully internalized their difficulties with the maintenance that goes into rental houses as a long-run issue. Or if technology has changed in such a way that they think that they can actually solve that agency problem and that they can figure out ways to deal with the maintenance costs in some efficient fashion. I’m happy to see an emergence of a healthy rental market in single-family detached housing, but I’m keenly aware of the limitations and difficulties of doing that. So, we’ll have to see how this plays out. I can’t help thinking some part of it just has to be that investors are simply searching for new investment products.

On new models of where workers will live

Take your Silicon Valley startup with 15 smart, hungry young people. Do we truly think in five years these people are just going to be Zooming it in from their suburban bedrooms? That sounds totally implausible to me. That sounds like a totally different work model that will lack all the energy and high quality in-person connections you get from being in the same room as one another.

But on the other hand, are these 15 people going to decide, “Well we all love skiing, we’re tired of paying Silicon Valley prices, should we relocate to Vail?” Or say, “We don’t want to pay taxes, let’s relocate to Austin.” Or, “We want better surfing, let’s relocate to Honolulu.” That feels entirely plausible to me. The technology supports the mobility en masse of these groups to some different area. Places they’re most likely to relocate to are high-amenity places that will appeal to them along one of these dimensions. These would be probably the best index right now of whether or not a place is likely to benefit: Among small towns, is it a skilled place already? Prior to COVID-19, did it do a good job of attracting large numbers of college graduates or people who had advanced degrees?

Global debt as a share of GDP rose to an all-time high in 2020, according to the latest update of the IMF’s Global Debt Database. Here’s a descriptive figure from a blog post by  Vitor Gaspar, Paulo Medas, and Roberto Perrelli at the IMF showing the overall pattern.

As you can see, global debt jumps from 227% of global GDP in 2019 to 256% in 2020. The authors write:

Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP. Private debt from non-financial corporations and households also reached new highs. … Advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020.

You can also also see in the figure the comparable jump in debt of 20 percentage points during the Great Recession from 2007-9. The rise in debt as a share of GDP in 2020 has already exceeded the rise from 2007-9, and one suspects the number will rise still higher in 2021.

The gradual rise in global debt over the decades should probably be viewed as a good thing. There is a natural pattern that debt tends to rise as the financial sector of an economy becomes more developed. After all, low-income countries with few banks and tiny bond markets tend not to have much borrowing and lending.

But two booms in global debt in the last 14 years–once in the Great Recession and now in the pandemic recession–also bring some constraints and vulnerabilities. If interest rates rise around the world, debtors who borrowed using adjustable rate loans, or who have been planning to roll over their old fixed rate loans with new borrowing, will find that their costs are much higher. Debt is often not that flexible, and so an inability to make payments on past loans, or to afford the borrowing for new roll-over loans, can lead to threatened defaults and forced reorganizations. The authors write: “But the debt surge amplifies vulnerabilities, especially as financing conditions tighten. High debt levels constrain, in most cases, the ability of governments to support the recovery and the capacity of the private sector to invest in the medium term.” Also, high debt levels mean that inflation becomes more attractive to governments and other borrowers, because it allows them to repay past borrowing in cheaper inflated dollars.

During a global financial crisis or a pandemic recession, it can make sense for governments and others to borrow heavily for a year or two. But such rises in debt should be viewed as a short-term palliative, with costs and risks and tradeoffs.

As I have written before, the $18 billion spent on the Operation Warp Speed program to accelerate the development of COVID vaccines may well have the highest benefit-to-cost ratio of any government program that has ever existed. Moreover, the benefits will continue to grow as more people get vaccinated here and around the world, and as future vaccines are developed based on the accumulated knowledge. Over at the Commonwealth Fund, Eric C. Schneider, Arnav Shah, Pratha Sah, Seyed M. Moghadas, Thomas Vilches, and Alison Galvani have updated their model to answer the question: “The U.S. COVID-19 Vaccination Program at One Year: How Many Deaths and Hospitalizations Were Averted?” (December 14, 2021). They write:

The U.S. vaccination program campaign has profoundly altered the trajectory of the COVID-19 pandemic, preventing nearly 1.1 million deaths. Even with only about 60 percent of Americans vaccinated to date, the nation has dodged a massive wave of COVID-19 deaths that would have started as the Delta variant took hold in August 2021. Because of Delta’s rapid and nationwide spread, deaths due to COVID-19 would have far exceeded all previous peaks. Our estimates suggest that in 2021 alone, the vaccination program prevented a potentially catastrophic flood of patients requiring hospitalization. It is difficult to imagine how hospitals would have coped had they been faced with 10 million people sick enough to require admission. The U.S. has 919,000 licensed hospital beds and typically accommodates about 36 million hospitalizations each year.

Their model predicts the death rates and hospitalization rates with and without vaccinations:

Of course, all models like this are open to question. Maybe the delta variant of COVID would not have been quite as bad for an unvaccinated population at their model predicts. If vaccines had not been available, probably alternative steps would have been taken to limit the spread of COVID in 2021–steps that would of course have had benefit and costs and tradeoffs of their own. But my point here is not to quibble over the numbers: after all, reducing deaths and hospitalizations by half of these projects, or one-tenth of these projections, would still be an extraordinary success. Instead, I want to emphasize that the COVID pandemic, awful as it has been, could have been much worse. And I’m not sure we have internalized the lessons we need to learn for the next pandemic, just in case “invent a vaccine really fast” doesn’t work so well next time.

The countries of sub-Saharan African have the lowest per capita GDP and the highest birth rates of any region in the world. The December 2021 issue of Finance & Development, from the International Monetary Fund, has a series of short articles on some of the challenges and opportunities. Abebe Aemro Selassie offers an optimistic vision in “The African Century” (pp. 58-61). He writes:

The population of sub-Saharan Africa is projected to double from 1 billion to 2 billion by about 2050. This will account for half of global population growth, with the working-age population growing faster than any other age group. These projections—while not uniform across the continent—should be placed in the context of the opposite trend in advanced economies, which typically see aging populations, an inverted population pyramid, and a reduction in population once immigration is excluded. This trend represents perhaps the region’s single greatest opportunity. It embodies a growing pool of human talent and ingenuity coupled with large market size—historically important drivers of economic dynamism.

One possibility here is a happy outcome. Selassie writes:

Fast-forward to 2081. The demographic boom currently unfolding in most sub-Saharan African countries will likely have transformed many of the region’s economies into the largest and most dynamic in the world. Wishful thinking? Perhaps. But 30 to 40 years ago, not many would have thought that possible of China, India, Indonesia, or Turkey. Three factors will have an influential role in making this vision materialize:

• The demographic transition that is underway: By 2050, many sub-Saharan African countries will be among the few with a rising working-age population. Much investment and consumption demand will follow factors which are certain to entice considerable innovation.

• The ongoing digital revolution—which offers much scope for the diffusion of know-how, new business opportunities, and more efficient service delivery.

• How effectively the region’s economies deal with the transition to a low-carbon economy and the adverse consequences that climate change is set to unleash.

Of course, there are no guarantees here. One possibility is that a main consequence of Africa’s high population growth and low levels of economic opportunity will be an extraordinary wave of emigration from Africa to the the European Union and the rest of the world. The chances of a rising standard of living for most of sub-Saharan Africa are linked to the ability of these countries to make the necessary investments in education, health, and infrastructure to provide the basis for future growth.

Ken Opalo discusses these issues in Democratizing Africa’s Public Finance Management: Governments that fail to overhaul taxing, spending, and borrowing could face electoral backlash. Opalo describes the situation this way:

Weak public finance management systems are a significant impediment to economic growth and development in African states. On the revenue side, many African countries underperform on tax collection. In 2018, the average tax collection as a share of gross domestic production in Africa was 16.5 percent–varying from 6.3 percent in Nigeria to 32.4 percent in the Seychelles. On the spending side, weak legislative oversight means that budget appropriation, implementation, and oversight often reflect the priorities of the executive branch. The result: only some of the revenue collected in African states actually reaches the public in the form of public goods and services. Much gets lost to spending on poorly planned “white elephant” projects, corruption, and general waste. As for borrowing, recent increases in public debt in a number of African countries have raised concerns about a lack of transparency and accountability.

Opalo suggests that there is a need to build linkages from additional government revenues to publicly demonstrable spending outcomes. This step will also require additional power for public participation in tax and spending decisions via legislatures, rather than leaving most major decisions up the executive branch. I found this figure to be striking. Opalo emphasizes that most people in most countries think the president should be monitored by parliament. But look at how many African countries where 1/5 or 1/4 or 1/3 or more of the people think the president should just act, unmonitored by parliament!

Other papers in this symposium include:

• “Growing Together: The IMF and African Low-Income Countries: The role of the IMF has evolved to help the countries most in need,” by Atish Rex Ghosh and Anna PostelnyakB
• “Boosting Climate Responsiveness in Sub-Saharan Africa:Investment in quality infrastructure will be critical for the region to adapt to and mitigate climate change,” by Pritha Mitra and Ha Vu
• “Africa’s Hard-won Market Access: African countries access to global capital markets should be celebrated, but the road is bumpy and a more robust vehicle is needed,” by Gregory Smith
• “Unleashing Women and Girls’ Human Capital: A comprehensive effort could unlock the region’s potential and spur recovery, by Hana Brixi, Laura Rawlings, and Elizabeth Koechlein

When it comes down to discussions of whether the United States needs an activist industrial policy to power future economic growth, maybe the most common argument I hear is that other countries like China are doing it, so the US needs to do it as well. “US companies can’t compete against foreign governments” is a common line. Just to be clear, I’m talking here about the kind of industrial policy that goes beyond general policies like supporting competition, education/job training, and and research and development, and instead focuses on government support for certain industries or companies (perhaps with financial subsidies or trade protection).

The modern version of this argument typically focuses on how the US needs to subsidize key industries as a counterbalance to China. But for economists, there’s some history here. I remember in the 1970s when the argument for US industrial policy was the need for competing against the USSR (because “US companies can’t compete against foreign governments”) and then in the 1980s and 1990s when the argument for US industrial policy was the need for competing against Japan (because “US companies can’t compete against foreign government”). Now, it seems pretty obvious that Soviet industrial policy didn’t work too well. In Japan, by far the biggest government subsidies always went to the agriculture industry, suggesting that once government industrial policy is run through the political system often more about propping up existing money-losing firms, than turbo-charging potential new firms that will take market share from incumbents.

But more broadly, the idea that the great economic success stories of the 20th century were driven by focused and specific industrial policies, rather than by policies that were broadly supportive of economic growth, doesn’t seem to be borne out by the evidence.  Gary Clyde Hufbauer and Euijin Jung discuss “Scoring 50 Years of US Industrial Policy, 1970–2020″ (Peterson Institute of International Affairs, November 2021). I discussed the findings of the report last week. Here, I want to focus on their brief summary of the evidence about how fundamentals like sound macroeconomic policy and expanded education were far more important for economic development in Japan and East Asia than targeted industrial policy. They write:

The World Bank’s acclaimed volume, East Asian Miracle: Economic Growth and Public Policy (Birdsall et al. 1993), while acknowledging industrial policies, emphasized sound macroeconomic policies (later labeled the “Washington Consensus”), together with superior education and land reform, as drivers of remarkable growth in Hong Kong, Japan, South Korea, Singapore, and Taiwan. A decade earlier, Chalmers Johnson (1982) had published MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, giving outsized credit for Japan’s spectacular postwar economic growth to government support for specific firms and industries. These two volumes set the stage for prolonged
debate, still underway, on the role of industrial policy in East Asian economic prosperity. Numerous academic articles and books have dissected contributing factors. This brief section merely skims the surface of a substantial literature.

Three key facts … set the stage. Between 1950 and 1990 in the East Asian stars, real exports generally grew, real GDP soared, and per capita income dramatically closed the gap with US levels. Industrial policy protagonists saw cause and effect between government intervention—trade protection, easy credit, assorted subsidies, cartels—and these indisputable outcomes. … Japan, South Korea, and Taiwan were the clear
exemplars of industrial policy.

In 2003 Marcus Noland and Howard Pack authored Industrial Policy in an Era of Globalization: Lessons from Asia, first summarizing the literature, and then contrasting macro forces with industrial policy in the postwar recovery and subsequent growth of the three exemplars. Their analysis relied heavily on quantitative measures rather than accounts of targeted government policies or the rise of specific firms such as Mitsubishi, Toyota, POSCO, Samsung, China Steel, or Taiwan Semiconductor Manufacturing Corporation (TSMC). Analyzing sector growth, value added, capital accumulation, and total factor productivity in Japan and Korea, Noland and Pack (2003) found little or no
correlation between the quantitative outcomes and various industrial policy indicators such as tariffs, tax rates, and government loans … On the other hand, they found that the growth of physical capital per worker, education per worker, and total factor productivity fully explained the remarkable growth of output per worker in South Korea and Taiwan …

These contributing factors were much weaker in Latin America and South Asia, two regions that heavily favored industrial policy and fared poorly during the era of the East Asian miracle. The differing fates of East Asia and the other two regions owe to the political and economic stability and superior macroeconomic and education policies of East Asia: few coups, relatively low inflation, high savings rates, modest budget deficits, and high secondary and tertiary education rates. The authors conclude (p. 93) that, “on balance, the weight of the evidence derived from both econometric and input-output studies of these economies … indicates that industrial policy made a minor contribution to growth in Asia.” … The relevant lesson for our report is straightforward. If extensive industrial
policies made only a minor contribution to East Asia, far less extensive industrial
policies—minuscule by comparison—cannot be expected to shape the economic
destiny of the United States.

The ingredients for economic growth are fairly straightforward: people with more education and training, investment in physical capital and research, and an economy with flexible incentives to reward efficiency, quality, and innovation. If economic success were as simple as politically-directed and -focused industrial policy, then every country would just enact the requisite laws and succeed. Clearly, it’s not that easy.

I’ll close by saying that the extraordinary economic growth of China since the early 1980s is obviously not from China’s government carefully directing the development of its economy. China’s government has of course contributed with general policies like macroeconomic stability, dramatically rising educational achievement, opening up its internal markets, involvement in international trade, and support for science and technology. The growth and energy has all come from private firms, often in unexpected ways, while China’s state-owned firms have lagged behind. Moreover, the current push in China to strengthen its industrial policy of additional state control over its private firm seems much more likely to end up like the old-style Soviet industrial policy, rather than to set off a new wave of economic growth.

The use of economic sanctions by the United States has increased tenfold in the last 20 years. Is this because sanctions are working so well as a foreign policy tool? Or is it because imposing economic sanctions feels like a cost-free non-military response when there is a demand to “do something”? The Treasury 2021 Sanctions Review (October 2021) doesn’t seek to answer the big picture questions, but it provide some useful background on the current status of US economic sanctions and what steps could help to make them more effective.

Here’s a figure showing the rise in US use of economic sanctions since 2000 as tallied by the US Treasury’s Office of Foreign Assets Control (OFAC)’s List of Specially Designated Nationals and Blocked Persons:

Here’s a figure showing how the countries affected by sanctions have shifted over time.

The total count here is 37 existing sanctions programs administered and enforced by the Office of Foreign Assets Controls (OFAC). The 9,421 total sanctions at present includes over 12,000 OFAC designations and nearly 3,000 OFAC delistings, As the report explains, being listed means that “their property and interests in property are blocked.
When property is blocked (or `frozen’), title to the blocked property remains with the owner of the property and any funds constituting or arising from blocked property must be placed into a blocked, interest-bearing account at a U.S. financial institution. Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind with
regard to the property.”

In other words, if you are under these sanctions you still own your assets (at least for the present), but you can’t do anything with them

The Treasury report describes what it views as some success stories of economic sanctions: freezing and seizing billions of dollars from front companies controlled by the Cali drug cartel, which contributed to breaking the organization up in 2014; preventing tens of billions of dollars from being taken by local officials in Libya after the fall of the Qaddafi regime in 2011; and the designations of over 1,600 terrorist entities and individuals, which have impaired their ability to raise money through front groups. But as the number of economic sanctions has proliferated, it’s natural to wonder if they are working.

There’s a skeptical case to be made here. A 2019 report from the Government Accounting Office found that the government rarely does any asssessment of whether sanctions have worked. Daniel Drezner estimates that when studies are done of economic sanctions, they seem to work less than half the time. He writes that the US has imposed “decades-long sanctions on Belarus, Cuba, Russia, Syria, and Zimbabwe with little to show in the way of tangible results.” The US Treasury report is not in the business of criticizing past US applications of economic sanctions, but it does quote former Treasury Secretary Jack Lew: “We must guard against the impulse to reach for sanctions too lightly or in situations where they have negligible impact.”

Instead, the Treasury report suggests some guidelines to follow for applications of economic sanctions in the future. As you read them, they may seem obvious. But remember that the reason for the guidelines is that these steps have not been happening in any systematic way.

Treasury will adopt the use of a structured policy framework in order to inform its recommendations on the use of sanctions. This framework should reflect key policy considerations and ask whether a sanctions action:

a) Supports a clear policy objective within a broader U.S. government strategy …
b) Has been assessed to be the right tool for the circumstances …
c) Incorporates anticipated economic and political implications for the sanctions target(s), U.S. economy, allies, and third parties and has been calibrated to mitigate unintended impacts …
d) Includes a multilateral coordination and engagement strategy …
e) Will be easily understood, enforceable, and, where possible, reversible …

Without this kind of process, economic sanctions will work in some cases, but much of the time will end up as just an exercise in unproductive political flexing.