Bryan Caplan  

FP2P: The Book Hayek Should Have Written

Brad Said It... Dude, Who Will Shovel My Snow?...
I zoomed through Kling-Schulz's From Poverty to Prosperity.  The honest truth: It is the best book I've read all year, and the best book of interviews with economists ever written.  If you're tempted to discount my recommendation because Arnold's my co-blogger, please recall the many times I've publicly attacked my dearest friends.  I don't do nepotism.

What's so great about FP2P?  Quick version: It's the book that Hayek should have written to convince critics and fence-sitters of the dynamic virtues of capitalism.  Kling and Schulz elegantly weave together their original observations with truly awesome interviews.  What amazed me the most: There were several incredible interviews with people I've either ignored or never heard of - especially William Lewis.  My eyes bugged out of my head when I read this:
AK & NS: One finding that might surprise some people is that the education level of the labor force isn't nearly as important for the overall economic performance of a nation as commonly thought... How did you reach that conclusion?

WL: ... [W]e got the first hint of this when we were studying Japan back in the early 1990s...  There were many disparaging comments made in the U.S., and maybe even stronger ones made abroad (especially in Japan), about how the U.S. labor force was getting what it deserved because it was lazy, uneducated, and maybe even dumb.  But of course, the Japanese - the capable, competent Japanese manufacturing companies - showed that this notion was wrong by coming here, building their own factories, managing American labor, and taking a lot of other local inputs and coming within five percent of reproducing their home country productivity.


The great bulk of the evidence about education came from competent multinational corporations of any nationality, who showed that they could go virtually anywhere in the world and take the local workforce and train it to come close to home country productivity.  The clinching evidence [came when] we looked at some other industries.  We compared the construction industry in the U.S. with construction in Brazil and found that in Houston, the U.S. industry was using Mexican agriculture workers who were illiterate and didn't speak English.  They were not any different than the agricultural workers who were building similar high rises in Sao Paolo, say.  And yet they were working at four times the productivity.

...Uneducated people can be trained on the job to accomplish quite high skill levels and quite high levels of productivity.  And that's good news, because if the World Bank and everybody else had to wait until we revamped the educational institutions of all of the poor countries and then put a cohort or two of workers through it, we are talking about another fifty years before anything happens.  That's not acceptable and it's not necessary, thank God.
The book is packed with gems like this.  I'm going to be blogging the highlights for quite a while.  But don't cheat yourself.  If you're going to read one nonfiction book of 2009 from cover to cover, it should be FP2P.

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COMMENTS (7 to date)

You have my attention. Methinks thou doth protest too much (misquote from truly great literature). Or: Come off it mate (quote from lesser literature).

The title of this post makes me think you have taken leave of your senses. Before, you were comparing oranges, grapefruits, and lemons (e.g. Hayek, Strauss, Rothbard). Now, you’re comparing mangoes with apples.

When you choose your nonfiction book of 2010 perhaps you should have two separate categories: (1) zoom-zoom book (this is your current category). And, (2) immortal soak-in book.

There are books you can zoom through and boom about, and there are books you can’t. Both serve their purpose, but the purposes are different. With some books you may know by page 4 that you will breeze through them. With other books you know you will never feel breezy. There are books that *distil* conventional wisdom in some shape or form, and there are books that *brew* anew.

On a different but not unrelated tack, there's the issue of social science. In a comment this morning at David Henderson’s post ‘Hayek on Knowledge’ I talked of styles of writing. Complicated ideas might require complicated writing that tries one’s patience.

It occurs to me now that the ‘complicated’ writers I mentioned (Hayek, Weber, Parsons, Schumpeter, and James M. Buchanan) have something else in common. All of them skillfully cross the borders between economics and sociology (Parsons and Weber taught economics).

Some economists are too lackadaisical about sociology. They are rigorous and sure of their footing in their areas of expertise, but think that topics of sociology, politics, ideology, institutional difference, and culture are satisfactorily (or necessarily) dealt with by recourse to sensory ‘intuition’. Hayek never took that heavy theoretical stuff for granted.

Marcus writes:

I don't see what the title of this post has to do with the content of the post. Especially when you consider the possibility that if Hayek had never written his books that Arnold may not have written this one.

To the content of the post...

"And yet they were working at four times the productivity."

I'd like to know how this is calculated.

Specifically, is it the case that if the same exact building was built in the same exact amount of time in both places that the building in the U.S. would have 4 times the value and thus leave us with the impression that the workers in America were 4 times as productive?

Or, is it the case that it takes the workers in Brazil 4 times longer to build the same building?

Or, something else?

icr writes:

One of the ubiquitous cliches of all the world's major militaries: "There no bad troops, only bad officers." Even the much maligned Italians fought well in North Africa when led by capable German officers. Political and family connections played
too prominent a role in appointments to the Italian Army's oversized officer corps.

Mencius Moldbug writes:

The great bulk of the evidence about education came from competent multinational corporations of any nationality, who showed that they could go virtually anywhere in the world and take the local workforce and train it to come close to home country productivity.

This must be some new meaning of the word "gem," with which I was not previously familiar.

Reality bites...

dlr writes:

I'm not at all surprised. Very little of what is taught in school is of any help on the job.

Chris Bolts Sr. writes:

I have been saying for years that the most important thing for a person to have to be successful in life is experience, not education. Of course, I couldn't prove it empirically, but only anecdotally. I am glad that Arnold Kling and his co-author was able to prove it empirically. Maybe now we can begin to get off of our fetish that we educate our populace with large government programs and forcing young adults to choose to get a worthless degree at some lib school as opposed to entering the workforce.

Chalk up another econ book for me to read.

Don Lloyd writes:

From chapter 4 :

"Another telling phenomenon is the immigration of workers from Latin America to the United States. Crossing the border appears to make the productivity of a low-skilled worker ten to twenty times higher, based on the wage differential for low-skilled workers in Mexico or Central America and the United States".

It is easy to show that attempting to compare productivity levels based on relative wages is utterly invalid, even in the best case.

Let's replace Latin America with an EXACT duplicate of the United States and call it US2.

It would be reasonable to expect that an equivalent low-skilled worker who immigrates from US2 to US1 would both demonstrate the same productivity and earn the same wage rate in the common currency, US dollars, in both places.

However, all that we need to do to increase the US1 immigrant wage rate (and the supposed productivity) by an order of magnitude is to hypothesize that the supply of money (US dollars) in US1 is an order of magnitude greater than in US2. This also implies, of course, a tendency for much higher prices in US1 and accordingly, higher marginal revenue products for workers and higher wages.

Of course, given the possibility of trade, the price differences will tend to erode over time amd distort both economies, but this is one of the problems of a common currency, an artificial comparative advantage if per capita money supply is not comparable.

Regards, Don

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