EconVue Spotlight - January 2021

In 1921, exactly one hundred years ago, economist Thorstein Veblen (The Theory of the Leisure Class) wrote about the possibility of revolution in the United States. The Bolshevik victory just a few years earlier cast a shadow over countries who feared a similar forced redistribution of wealth. In a series of articles in the Dial, Veblen explored the idea of a ruling council of engineers and technicians--not capitalists or bureaucrats--taking control of the United States government.

In the end Veblen dismissed the idea of a "Soviet of Engineers" as highly unlikely, citing the lackluster personalities of technicians and their lack of labor organization.  In 2021 however, we have arrived at a completely different place. Engineers have become capitalists and industry titans, and some are fabulously wealthy and influential. 

I think that a distinction should be made between companies such as Facebook or Ant led by social engineers, and those led by hard tech engineers at firms such as Apple and Huawei. All companies in any industry are dependent on technology, but outside of Amazon, the FANG's are really media/content firms supported by advertising and subscription revenues. The two countries that matter in this arena, China and the US, have seen governments push back against social engineers such as Mark Zuckerberg and Jack Ma; we can likely expect more of this in the future. "Hard" technology firms however are strongly backed by the US and Chinese governments, including Tesla which is supported by both. Xi Jinping knows that manufacturing rules. 

Several articles have guided my thinking about this competition, and all touch upon institutions, institutionalism, and institutional capture. Diane Coyle's review of the new biography of Thorstein Veblen, an article about Bitcoin that is a deep dive into the economic value of status and trust, and an excellent discussion of what is really going on with China's institutions by Dan Wang.  Are China's centralized institutions better suited to counter external threats than say federalism in the US? Is Bitcoin becoming more dominant because of a lack of trust in monetary policy, or our financial institutions? Or is it something else?

As of December 16th, 2020, banks remain one of the most trusted institutions in the US:

So it's not just trust, in economics it is also about growth and incentives. Douglass North, a successor to Veblen and father of the New Institutionalism  wrote:

History in consequence is largely a story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline. 

North says it is the adaptive nature of institutions that is the key to growth. After 2008, banks were subject to stress tests before trust was reestablished. After COVID-19 perhaps we need to test institutional resiliency far more widely. We are accustomed to looking at global competition from the point of view of nation states, and more recently, technology writ large. But the real battleground is between our institutions, and understanding whether or not they can change as quickly as technology dictates or allows. Harking back to Veblen, Eli Dourado writes that technology per se is not the issue; the human quest for status creates inevitable roadblocks. Perhaps we should align incentives so that US governors, like their counterparts in China, are rewarded for GDP, employment and other improvements. 

As North understood, history is foundational to economics. I have added a transcript of an interview I did in March with master historian Ezra Vogel, who passed away last month.  A giant in his field, and a guiding light for someone who has tried to straddle interests in both Japan and China, I highly recommend his final book on the relationship between the rapidly evolving modern institutions in those two countries, and the US. A personal note: during our podcast which also included MOFA's Noriyuki Shikata, at the age of nearly ninety Prof. Vogel put us all to shame with his ability to easily manage the technology of my first socially-distanced podcast.  A wonderful, erudite, modest, and gentle man. 

Finally, we are entering the 2021 conference season. Starting this weekend I am looking forward to taking part in the annual meeting of the American Economics Association.  Following on in February is the American Association for the Advancement of Science, and then in March, the Association for Asian Studies. It seems that every year I have had to miss at least one, but this year I will be able to attend all three virtually. A banquet for new ideas, and these are terrific organizations worthy of your support in 2021.

Hale Podcast Episode 8 with Ezra Vogel & Noriyuki Shikata March 13, 2020 (with transcript)

HALE Podcast Episode 9 with Robert J Gordon - The Knowns and Unknowns of the COVID Economy December 2, 2020

Dec. 23 2020 / AEI
Top 10 podcasts of 2020: ‘Political Economy’ with James Pethokoukis

If you have time for some wide-ranging podcasts about economics this week, this list has something for everyone.

Research from EconVue Friends & Experts

December 16, 2020 CSIS
The Latin America That Will Engage the New Administration
R. Evan Ellis

The region—which most directly affects U.S. security and prosperity through ties of geography, commerce, and family—is in the early stages of potentially transformational economic, social, and political convulsions. They will affect the United States through heightened immigration, transnational criminal threats, and newly energized social movements and governments hostile to the United States.

December 26, 2020 
Forecasting Asia's Future in an Era Marked with Many Known Unknowns
Eleanor Shiori Otsuka Hughes

On December 17th, The Brookings Institution’s Center for East Asia Policy Studies (CEAP)  hosted a very enriching 90-minute webinar on the prospects of Asia’s future as Washington undergoes a change in government on January 20th. All of the panelists are research fellows affiliated with Brookings: Dr. Richard Bush, Dr. Rush Doshi, Lindsey Ford, Ryan Haas, Dr. Jonathan Stromseth, and Dr. Mireya Solís as the moderator. Eleanor's takeaways in this report.

November 27, 2020 
The Future of Clinical Trials: Decentralized, Diversified, Efficient and Fast
David W. Johnson

With COVID, necessity has become the mother of invention, accelerating the evolution of more efficient and effective clinical trial processes at a time of great urgency.

Dec.11, 2020 
Sustainability Stars: SASB Founder Jean Rogers Profiled in Callaway Climate Insights
Posted by Marsha Vande Berg

The mind behind the founding of the Sustainability Accounting Standards Board, Dr. Rogers now works as an adviser at the one-of-a-kind Long Term Stock Exchange — where the intention is to tilt the playing field to help long-haul-minded startups get support and access to capital.

December, 2020 
G7 2020: The Virtual Year
G7 Research Group; Lyric Hughes Hale

My contribution is on page 86, about a forced restart to international trade due to COVID. I recommend that G7 leaders turn their focus from mediating disputes to creating the underlying conditions to facilitate healthy trade and life itself-in other words, trust in institutions. 

Links

Dec 21, 2020 / Twitter Thread
A unique perspective on Prof. Ezra Vogel
Shinju Fujihira

This is a lovely thread that explains so well why so many mourn Ezra Vogel.

November 16, 2019 /  Quilette
Thorstein Veblen's Theory of the Leisure Class-A Status Update
Rob Henderson

One of Veblen's key tenets was that people crave status. A switch from status goods, now not rare enough, to status conferred by ideas. Luxury beliefs are ideas and opinions that confer status on the rich at very little cost, while taking a toll on the lower class.

December 31, 2021 / elidourado.com
Notes on Technology in the 2020's
Eli Dourado

Shot: Will we exceed 2% TFP in the 2020's? The underlying science is there. The engineers are willing. Even the funding is available in most cases. But, as a society, how much urgency do we feel? Our culture does not prioritize progress—it fights, destructively, for status.
Chaser:  My podcast with Robert J Gordon above.

Dec 21, 2020 / university of Chicago
Outlook for Democracy and Democratic Institutions
Roger B. Myerson

I disagree with Roger Myerson that there should be requirements for elected officials to serve a certain amount of time in public service before advancing further, in effect creating a new Mandarin class. Instead we need leaders who understand technology, economics, and the private sector, and IMHO, term limits. 

Dec. 8, 2020 / Foreign Affairs
Does the World Need a New Global Health Organization?

A survey of experts. Most disagree.

Dec. 28 2020 / aljazeera
How did the pandemic begin? WHO team to seek answers in China
Erin Hale

DNA-based testing is far more reliable than antibody testing as a basis for determining the origin of COVID-19.

Jan/Feb 2021 / Foreign Affairs
To Stop a Pandemic - A Better Approach to Global Health Security
Jennifer Nuzzo

As challenging as COVID-19 has been, there are even worse scenarios out there. The very same scientific advances necessary to develop new therapies and vaccines also raise the possibility of an accidental or deliberate release of a deadly novel pathogen—

Dec. 10, 2020 / thinkGlobalHealth
Why Mass Vaccination in the West Could be Bad News for Chinese Leaders
Yanzhong Huang

Perversely, the country’s rapid containment of the outbreak means few Chinese people have been exposed to the virus, so a significant share will remain vulnerable to the disease, even as people in the West acquire immunity through vaccines or infections.

December 28 2020 /  Pekingnology
Detailed breakdown of PBoC deputy governor's Q&A on Ant Group - too technical to be persecution
Zichen Wang

Not a refutation of private enterprise, just an adjustment to China's platform economy?

November 2020 / NBER Working Paper
Rethinking 2020: What’s Overlooked and What’s Overhyped
Damien Ma and Houze Song

#2: Decoupling from China was everywhere except in reality. Four overlooked China trends.

Dec. 26, 2020 / South China Morning Post
China’s central bank wants a say in fintech’s future as it grants new personal credit ratings license to state venture with internet firms
Zhang Shidong

Post-Ant, de rigueur public-partnerships in retail finance.

Dec. 26, 2020 / South China Morning Post
American Funding of China is Becoming Dangerous
Derek Scissors

The US has invested a trillion dollars in China. “Investment anywhere near this magnitude undermines the view that the U.S. is confronting China economically.”

Dec. 16, 2020 / South China Morning Post
As Covid-19 thrusts China into the driver’s seat on managing sovereign debt defaults, can it navigate wisely?
Anders Åslund and Djoomart Otorbaev

As Covid-19 thrusts China into the driver’s seat on managing sovereign debt defaults, should the US buy up these bonds? Would not cost more than $500B and could be a great investment in global soft power. While the presses are running anyway.

Dec. 12, 2020 / The Diplomat
China’s Policy Banks Are Lending Differently, Not Less
Tristan Kenderdine and Niva Yau

China’s policy lending in Eurasian Belt and Road economies is facing a raft of debt relief requests and a slowdown in bilateral government-to-government loans. However data analytics that focus solely on policy bank lending through bilateral agreements miss the wider geoeconomic picture.

Dec. 22, 2020 / the Heritage Foundation
Avoiding an Early Blunder: Why the U.S. Must Not Abandon the Indo-Pacific
Jeff M. Smith

Will this be India’s decade?

Dec. 13, 2019 / Department of Homeland Security
Mitigate SolarWinds Orion Code Compromise

499 of Fortune 500 companies are customers of Solar Winds according to the company’s website. An easy prediction to make is that cyberattacks will increase in 2021, and anyone who is not backing up essential data to an external device is not seeing the Gray Rhino before us. 

Dec 7, 2020 / AEI
Congress Overwhelmed: The Decline in Congressional Capacity and Prospects for Reform
University of Chicago Press

So much focus on the Executive branch, while Congress has not invested enough to meet 21st century challenges in its own infrastructure and information architecture. 

Dec. 13, 2020 / Wirepoints
Same old bad news in new 2020 Illinois pension report belies far worse reality  
Mark Glennon and Ted Dabrowski

A bigger economic problem for Illinois in the long run than COVID19--no recovery, no reform in sight for pension funds.

I hope that the holiday will give you a bit of extra time to listen to some of the podcasts I've listed, such as my interview with Northwestern University professor Robert J Gordon last month on productivity and the COVID economy. As always, we welcome your comments and suggestions, and hope you will follow us on Twitter and support us on Patreon. 

With all best wishes for the New Year!