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How an economic theory helped mire the United States in Vietnam

September 26, 2017

How an economic theory helped mire the United States in Vietnam

File 20170921 21037 1o4ru9z
Rostow, front right, visited Vietnam in 1961.
AP Photo/Fred Waters

Questions of how the U.S. got mired in the Vietnam War and whether it was ultimately winnable have fascinated historians for half a century – most recently in Ken Burns’ new 18-hour documentary.

A little-remembered aspect of the debacle is the important role played by a prominent economic historian named Walt Whitman Rostow, whose theories on economic development helped persuade Americans – and two presidents – that the fight in Vietnam was right and that we must prevail.

The Burns documentary, from what I have seen, does not dwell much on economics, my area of expertise. But this was an important part of why Americans were there.

Rostow’s rise

Rostow, left, looks over a map with Gen. Maxwell D. Taylor in 1961 ahead of their trip to Vietnam to observe and evaluate the political and military situation there and report back to President Kennedy. From his earliest days at the White House, Rostow urged more involvement in the Vietnam.   AP Photo/Bill Allen
Rostow came to prominence in the 1960s after his theories on economic development caught the eye of the Democratic Party and John F. Kennedy, who was campaigning for president.

In 1960, Rostow, then a professor at MIT, published an influential book called “The Stages of Economic Growth: A Non-Communist Manifesto.” The book describes how an economy transitions through five distinct stages of development, from basic (little use of technology, like much of central Africa and South Asia in the mid 20th century) to advanced (characterized by high levels of mass consumption, such as the U.S. or France).

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Can’t Argue With a Confident Man

December 12, 2015

CAN’T ARGUE WITH A CONFIDENT MAN

“I can say therefore with confidence – and without any complacency – that we will secure the return of inflation to 2% without undue delay, because we are currently deploying tools that we believe will achieve this, and because we can, in any case, deploy our tools further if that proves necessary.”

– Former Goldman Sachs employee and ECB President Mario Draghi, 4 December 2015.

“You have what degree of confidence in your ability to control this [inflation] ?”

“100%.”

– Ben Bernanke being interviewed on ’60 Minutes’, 5 December 2010.

“Do not arouse the wrath of the great and powerful Oz ! ..Pay no attention to that man behind the curtain.”

– The Wizard of Oz.

In economics, the fancy-sounding ‘general equilibrium theory’ holds that in a complex economy, a set of prices exists that will result in an overall (general) equilibrium. This theory was brought to you in large part by the economist and idiot Léon Walras, whose principles only exist in the first place because he stole them from the world of physics.

But ‘general equilibrium theory’ is not the only economic theory addressing order, or the lack of it, in markets. George Soros advocates an alternative which he terms ‘reflexivity’:

“..financial markets can create inaccurate expectations and then change reality to accord with them. This is the opposite of the process described in textbooks and built into economic models, which always assume that financial expectations adapt to reality, not the other way round.”

Walras spent his last years lonely, bitter and afflicted by dementia. George Soros is a billionaire. Draw your own conclusions as to which of these theories is more likely to be correct.

 

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How the Business Cycle Happens Part 1

October 22, 2015

federal reserve

How the Business Cycle Happens Part 1

[This excerpt from the first chapters of Murray Rothbard’s America’s Great Depression (1963)] Reprinted from Mises.org

Study of business cycles must be based upon a satisfactory cycle theory. Gazing at sheaves of statistics without “pre-judgment” is futile. A cycle takes place in the economic world, and therefore a usable cycle theory must be integrated with general economic theory. And yet, remarkably, such integration, even attempted integration, is the exception, not the rule. Economics, in the last two decades, has fissured badly into a host of airtight compartments — each sphere hardly related to the others. Only in the theories of Schumpeter and Mises has cycle theory been integrated into general economics.1

The bulk of cycle specialists, who spurn any systematic integration as impossibly deductive and overly simplified, are thereby (wittingly or unwittingly) rejecting economics itself. For if one may forge a theory of the cycle with little or no relation to general economics, then general economics must be incorrect, failing as it does to account for such a vital economic phenomenon. For institutionalists — the pure data collectors — if not for others, this is a welcome conclusion. Even institutionalists, however, must use theory sometimes, in analysis and recommendation; in fact, they end by using a concoction of ad hoc hunches, insights, etc., plucked unsystematically from various theoretical gardens. Few, if any, economists have realized that the Mises theory of the trade cycle is not just another theory: that, in fact, it meshes closely with a general theory of the economic system.2 The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.

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Overview of Our Energy Modeling Problem

April 23, 2015

Overview of Our Energy Modeling Problem

We live in a world with limits, yet our economy needs growth. How can we expect this scenario to play out? My view is that this problem will play out as a fairly near-term financial problem, with low oil prices leading to a fall in oil production. But not everyone comes to this conclusion. What were the views of early researchers? How do my views differ?

In my post today, I plan to discuss the first lecture I gave to a group of college students in Beijing. A PDF of it can be found here: 1. Overview of Energy Modeling Problem. A MP4 video is available as well on my Presentations/Podcasts Page.

Many Limits in a Finite World

We live in a world with limits. These limits are not just energy limits; they come in many different forms:

2 We are reaching limits in many ways

All these limits work together. We can work around these limits, but the workarounds are higher cost–for example, substituting less polluting energy resources for more polluting energy resources, or extracting lower grade ores instead of high-grade ores. When lower grade ores are used, we need to process more waste material, raising costs because of greater energy use. When population rises, we must change our agricultural approaches to increase food production per acre cultivated.

 

The problem we reach with any of these workarounds is diminishing returns. We can keep increasing output, but doing so requires disproportionately more inputs of many kinds (including human labor, mineral resources, fresh water, and energy products) to produce the same quantity of output. This creates higher costs, and can lead to financial problems. This phenomenon is one of the major things that a model of a finite world should reflect.

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