Why Nations Fail

From the New York Times Magazine, a piece on a book by two economists, Daron Acemoglu and James Robinson

According to Acemoglu’s thesis, when a nation’s institutions prevent the poor from profiting from their work, no amount of disease eradication, good economic advice or foreign aid seems to help. I observed this firsthand when I visited a group of Haitian mango farmers a few years ago. Each farmer had no more than one or two mango trees, even though their land lay along a river that could irrigate their fields and support hundreds of trees. So why didn’t they install irrigation pipes? …. But these farmers also knew that nobody in their village had clear title to the land they farmed. If they suddenly grew a few hundred mango trees, it was likely that a well-connected member of the elite would show up and claim their land and its spoils. What was the point?

If national institutions give even their poorest and least educated citizens some shot at improving their own lives — through property rights, a reliable judicial system or access to markets — those citizens will do what it takes to make themselves and their country richer.

Read the whole thing--it is worth the time.

The book that prompted the article is Why Nations Fail: The Origins of Power, Prosperity, and Poverty.

The book seems to agree with Hernando de Soto, who made a similar argument about economic development in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. I suspect that their arguments about economic decline share a lot with Mancur Olson's The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities.

(Also on the topic of property rights, I see a lot of buzz for the movie The Lorax. I doubt if more than one person in a thousand who reads the original book or watches the movie will think, "The problems here is poorly defined property-rights. If someone owned the trees, that person would speak for the trees." To understand the problem, one must know a bit about economics, a type of knowledge that is rare.)

Update: William Easterly reviews the book for the Wall Street Journal here.

 Update 2: Francis Fukuyama eviews it here He likes it, but has reservations. A couple quotes:

If growth is a byproduct not just of good policies like trade liberalization, which can in theory be turned on like a light switch, but rather of basic institutions, then the prospects of foreign aid look dim. ... Bad institutions exist because it is in the interests of powerful political forces within the poor country itself to keep things this way.

More Greece

"Those officials in Brussels have no idea what they are unleashing."

Regime uncertainty

Donald Boudreaux contrasts two theories of depression, the Keynesian and one from Robert Higgs:

Perhaps ironically, one of the most powerful challenges to any Keynesian diagnosis of economic ailments also focuses on inadequate investment spending, but from a wholly different perspective. That challenge is today most closely associated with the economist Robert Higgs.

Higgs' careful look at the data on the Great Depression and World War II convinced him that (1) a U.S. economy producing genuine prosperity wasn't restored until 1946, and (2) investors hunkered down, especially from 1935-40, because New Deal regulations -- along with President Franklin Roosevelt's increasingly vocal hostility to enterprise and successful risk-takers -- created too much uncertainty about how government would treat profits and wealth accumulation.

The "regime uncertainty" -- described by Higgs as "a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns" -- unleashed by actual and threatened New Deal interventions made private innovation and entrepreneurial effort simply too unattractive. So private investment spending largely ground to a halt during FDR's reign.

Read more: Regime uncertainty - Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudreaux/s_757981.html#ixzz1Z4O9XdPA

Higg's view is shared by Amity Shlaes in her The Forgotten Man: A New History of the Great Depression.

Both are essentially arguing that the focus should not be on the demand side, as both Keynesians and monetarists have argued, but on the supply side. To understand the reason that recovery was so slow in the Great Depression, and by extension the reason we see so little recovery now, look not to the theories of macroeconomics, but to some of the literature on economic growth and development that argues that secure property rights and an impartial legal system are keys to economic growth.

Another youtube video of Hayek and Keynes

Found on Division of Labor:

Wind rights

I learned of a new kind of property right recently, wind rights. They are involved in a tiny wind farm that the city of New Ulm wants to build. Here is an explanation from wind-watch.org

Acquiring wind rights for a wind energy project is necessary to ensure that winds have unimpeded flow to turbines.
“Wind rights place limitations relating to the height of obstructing structures,” Nierengarten said.
A landowner who sells wind rights agrees to refrain from building wind-obstructing structures within defined setback requirements.
As a practical matter in rural areas, this would mean that landowners selling wind rights couldn’t erect their own towering wind turbines within a certain distance of a city-operated turbine on an adjacent property.

The issue has caught the attention of TheVolokh Conspriacy, which is interested in the eminent-domain aspect of the project.