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Bloodless Instability

July 1, 2009

(this is a guest post by Will Chamberlain for Wednesday: Secession vs. Revolution of Secession Week)

Your average politician will often rail against “political instability” and advocate policies to keep things “stable,” such as subsidies, bailouts, quotas, and other forms of protectionism.  But while stability certainly sounds like something positive for the economy, Joseph Schumpeter argued very persuasively that it was the “creative destruction” of capitalism that facilitated innovation, and further down the line, economic growth.  Simply reframe the “stability vs. instability” dilemma as “scleroticism vs. dynamism,” and Schumpeter’s logic becomes all the more easy to grasp.

But what of government?  While dynamism in the economy is something to be desired, dynamism in sovereignty has some obvious drawbacks.  One is that transitions between sovereigns are rarely bloodless, and dead bodies littered all over the streets are hardly a boon to commerce.  Another is that in the process of any conflict, capital is bound to be destroyed, so the economy will be handicapped massively.

But on this last point, the data simply doesn’t work out the way you might think.  Even with the Marshall Plan, the German Economy and the Japanese economy were expected to be in tatters for decades – indeed, there were plans drawn up in the United States to feed those populations for years on end.  Yet, within roughly fifty years, these economies had caught up to the likes of Britain and the United States, who had the luxury of not having major cities turned into giant parking lots.

Why?  Because of the power of resets.  In the Rise and Decline of Nations, Mancur Olson argues compellingly that one of the primary inhibitors of economic growth is the power of  “distributional coalitions,” or what we would call special interests.  Olson argues that these coalitions take significant time to form because forming them is a public good – while a group of workers would stand to benefit from forming a union, each individual laborer has little incentive to do the work to make it happen, because they would bear all of the costs while receiving only a percentage of the benefit.  These coalitions do emerge over time, however, and when they do emerge they are a major inhibitor to economic growth, because of their increased capacity for rent-seeking.

Applying this logic to the comparison of Germany/Japan v. US/Britain, the reason that Germany and Japan grew so quickly in the aftermath of World War II is that the massive instability, the reset, that those countries had gone through had functionally wiped out the various entrenched interests that were turning the economy into mush.  Meanwhile, the US and Britain were not so “lucky” and thus suffered through lower economic growth.

This would seem to be something of a double bind for those interested in both participating in a growing economy and not having their house turned into rubble.  If your country is peaceful enough to be stable, then your economy is doomed to be sclerotic.  If your country is dynamic enough to wipe out the special interests, there’s a significant risk that your country might decide to wipe out an entire race, because those things that create instability (war, totalitarianism, revolution, etc.) also create bodies.

But, as always, there is hope.  Both secession and seasteading could create a framework for bloodless instability.  A world of dynamic geography facilitated by seasteading is a world where jurisdictions are constantly shifting and rearranging themselves, a world continuously resetting.  And, at least in the case of seasteading, bodies are a lot less likely outcome, because rather than depriving existing states of land, land would be created out of thin air.

Sure beats following down the path of the GDR.

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  13. Jessi permalink
    July 2, 2009 5:06 pm

    So did these policies set in place in WWII era affect the current state of the US and UK economies? I mean could our problems be traced back to that time in the sense that we were doomed from the beginning? I’m aware that the economy goes in cycles but could a recession of this size have been prevented?
    The UK is in bad shape and could be bankrupt by 2012 it’s been said. How do you feel about this?

    • July 4, 2009 2:53 pm

      It angers me. I’m twenty one years old. I’ve never voted for a Labour government, along with well over 30% of this country, and yet I’ll be paying the price of their fuck-up for (probably) most of the rest of my life.

      I love this country — I’m proud of the British people and most of British history, but as soon as I can afford it I’m emigrating.

      Certainly WWI and II did it for the old Liberal party (the closest to a mainstream Libertarian party this country’s ever had) and saw the growth of the Labour movement, but I’m not sure you can trace a line of ideological suceession from then until now, because the abject statism was slightly interrupted by the infamous Thatcher in the 80s — breaking the Unions, privatising the rail network and lowering taxes for everyone.

      The rail network isn’t perfect thanks to muddled and misguided regulation, but there are those who hail the halcyon days when the rail network was nationalised… What short memories they have

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  14. July 1, 2009 11:25 pm

    In the UK, pre WWI and post WWII there were intentional political movements towards statism. Ironically David Lloyd George’s “People’s Budget” which created the British State Pension was passed only with the votes of the Irish Secessionists.

    The khaki election after the Second World War rejected the Tory Churchill, in favour of Labour’s Clement Atlee who created the National Health Service and nationalised the transport network and the utilities.


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