(Roughly) Daily

Posts Tagged ‘global trade

“Poverty is the worst form of violence”*…

Two economic historians, Peter A. Coclanis and Louis M. Kyriakoudes, on why about 20% of counties in the U.S. South are marked by “persistent poverty”…

For a brief moment in the summer of 2023, the surprise No. 1 song “Rich Men North of Richmond” focused the country’s attention on a region that often gets overlooked in discussions of the U.S. economy. Although the U.S. media sometimes pays attention to the rural South — often concentrating on guns, religion and opioid overdoses — it has too often neglected the broad scope and root causes of the region’s current problems.

As economic historians based in North Carolina and Tennessee, we want a fuller version of the story to be told. Various parts of the rural South are struggling, but here we want to focus on the forlorn areas that the U.S. Department of Agriculture refers to as “rural manufacturing counties” — places where manufacturing is, or traditionally was, the main economic activity.

You can find such counties in every Southern state, although they were historically clustered in Alabama, Georgia, North and South Carolina, and Tennessee. And they are suffering terribly.

First, let’s back up. One might be tempted to ask: Are things really that bad? Hasn’t the Sun Belt been booming? But in fact, by a range of economic indicators — personal income per capita and the proportion of the population living in poverty, for starters – large parts of the South, and particularly the rural South, are struggling.

Gross domestic product per capita in the region has been stuck at about 90% of the national average for decades, with average income even lower in rural areas. About 1 in 5 counties in the South is marked by “persistent poverty” — a poverty rate that has stayed above 20% for three decades running. Indeed, fully 80% of all persistently poor counties in the U.S. are in the South.

Persistent poverty is, of course, linked to a host of other problems. The South’s rural counties are marked by low levels of educational attainment, measured both by high school and college graduation rates. Meanwhile, labor-force participation rates in the South are far lower than in the nation as a whole.

Unsurprisingly, these issues stifle economic growth.

Meanwhile, financial institutions have fled the region: The South as a whole lost 62% of its banks between 1980 and 2020, with the decline sharpest in rural areas. At the same time, local hospitals and medical facilities have been shuttering, while funding for everything from emergency services to wellness programs has been cut.

Relatedly, the rural South is ground zero for poor health in the U.S., with life expectancy far lower than the national average. So-called “deaths of despair” such as suicides and accidental overdoses are common, and rates of obesity, diabetes, hypertension, heart disease and stroke are high – much higher than in rural areas in other parts of the U.S. and in the U.S. as a whole

Although some people think that these areas have forever been in crisis, this isn’t the case. While the South’s agricultural sector had fallen into long-term decline in the decades following the Civil War — essentially collapsing by the Great Depression — the onset of World War II led to an impressive economic growth spurt.

War-related jobs opening up in urban areas pulled labor out of rural areas, leading to a long-delayed push to mechanize agriculture. Workers rendered redundant by such technology came to constitute a large pool of cheap labor that industrialists seized upon to deploy in low-wage processing and assembly operations, generally in rural areas and small towns.

Such operations surged between 1945 and the early 1980s, playing a huge role in the region’s economic rise. However humble they may have been, in the South — as in China since the late 1970s — the shift out of a backward agricultural sector into low-wage, low-skill manufacturing was an opportunity for significant productivity and efficiency gains.

This helped the South steadily catch up to national norms in terms of per-capita income: to 75% by 1950, 80% by the mid-1960s, over 85% by 1970, and to almost 90% by the early 1980s…

By the early 1980s, however, the gains made possible by the shift out of agriculture began to play themselves out. The growth of the rural manufacturing sector slowed, and the South’s convergence upon national per capita income norms stopped, remaining stuck at about 90% from then on.

Two factors were largely responsible: new technologies, which reduced the number of workers needed in manufacturing, and globalization, which greatly increased competition. This latter point became increasingly important, since the South, a low-cost manufacturing region in the U.S., is a high-cost manufacturing region when compared to, say, Mexico.

Like Mike Campbell’s bankruptcy in Hemingway’s “The Sun Also Rises,” the rural South’s collapse came gradually, then suddenly: gradually during the 1980s and 1990s, and suddenly after China’s entry into the World Trade Organization in December 2001…

A sobering read: “Poor men south of Richmond? Why much of the rural South is in economic crisis.”

* Mahatma Gandhi


As we dive into the dynamics of development, we might recall that it was on this date in 1718 that the famous pirate Edward Teach– better known as Blackbeard– was killed off the coast of North Carolina.

Edward Teach, also known as Blackbeard, is killed off North Carolina’s Outer Banks during a bloody battle with a British navy force sent from Virginia.

Believed to be a native of England, Edward Teach likely began his pirating career in 1713, when he became a crewman aboard a Caribbean sloop commanded by pirate Benjamin Hornigold. In 1717, after Hornigold accepted an offer of general amnesty by the British crown and retired as a pirate, Teach took over a captured 26-gun French merchantman, increased its armament to 40 guns, and renamed it the Queen Anne’s Revenge.

During the next six months, the Queen Anne’s Revenge served as the flagship of a pirate fleet featuring up to four vessels and more than 200 men. Teach became the most infamous pirate of his day, winning the popular name of Blackbeard for his long, dark beard, which he was said to light on fire during battles to intimidate his enemies. Blackbeard’s pirate forces terrorized the Caribbean and the southern coast of North America and were notorious for their cruelty.

In May 1718, the Queen Anne’s Revenge and another vessel were shipwrecked, forcing Blackbeard to desert a third ship and most of his men because of a lack of supplies. With the single remaining ship, Blackbeard sailed to Bath in North Carolina and met with Governor Charles Eden. Eden agreed to pardon Blackbeard in exchange for a share of his sizable booty.

At the request of North Carolina planters, Governor Alexander Spotswood of Virginia dispatched a British naval force under Lieutenant Robert Maynard to North Carolina to deal with Blackbeard. On November 22, Blackbeard’s forces were defeated and he was killed in a bloody battle of Ocracoke Island. Legend has it that Blackbeard, who captured more than 30 ships in his brief pirating career, received five musket-ball wounds and 20 sword lacerations before dying…

Blackbeard, as pictured in Charles Johnson‘s A General History of the Pyrates. (source)

“We hear all this talk about integrating the world economically, but there is an argument to be made for not integrating the world economically”*…

… and indeed, those arguments seem to be holding increasing sway. Tyler Cowan ponders the possible economic implications of a future in which global economic interdependence recedes– a future in which globe’s economies, freer of each other, don’t rise and fall with each other (as they largely have for decades) to the same extent…

Will we see less co-movement in global economic growth?

That is the question behind my latest Bloomberg column (soft pay wall).  China is now, and looking forward, less of a common growth driver around the world.  Oil price shocks may not be less important for humanitarian outcomes, but they matter less for many of the largest economies.  America is now an oil exporter, and the EU just made some major adjustments in response to the Russia shock.  More renewable energy is coming on-line, most of all solar.

The column closes with this:

In this new world, with these major common shocks neutered, a country’s prosperity will be more dependent on national policies than on global trends. Culture and social trust will matter more too, as will openness to innovation — and, as fertility rates remain low or decline, so will a country’s ability to handle immigration. A country that cannot repopulate itself with peaceful and productive immigrants is going to see its economy shrink in relative terms, and probably experience a lot of bumps on the way down.

At the same time, excuses for a lack of prosperity will be harder to come by. The world will not be deglobalized, but it will be somewhat de-risked.

Dare we hope that these new arrangements will produce better results than the old?

Or perhaps a more general rising tide was the only way many countries were going to make progress?

Marginal Revolution

Byrne Hobart reflects further…

When economies were tightly linked, growth in the US led to more demand for manufactured goods from China, which created more demand for raw materials from other parts of the developing world. But if that link is weaker, it’s entirely possible for there to be a boom in some places and a bust elsewhere. That probably increases the personal returns from global macro investing while decreasing its social return: when the world is closely-linked, there are massive positive externalities in predicting recessions, because there are so few places to hide. It’s comparatively less essential for the world to know that German is slowing down but growth in Indonesia is picking up, but it also means that macro questions are more tractable.

The Diff

* Arundhati Roy


As we think tectonically, we might recall that it was on this date in 1865 that the U.S. first issued Gold Certificates.

Americans began to move out west in the first half of the 19th century. Banks started printing their own money to fund land purchases, and that quickly led to two problems: loose money-printing had a volatile effect on prices, and it became increasingly hard to tell what was counterfeit from what wasn’t.

To tackle these problems, the government decreed in the 1830s that it would only accept transactions in gold and silver. But of course, lugging metals around is nobody’s idea of fun. So in 1863, Congress paved the way for the first “gold certificates” to be printed two years later, in November 1865.

A gold certificate was, in effect, a form of paper currency backed by gold – although not entirely. The Treasury was allowed to issue $120 in gold certificates for every $100-worth of gold it held in its vaults…

$5,000 Gold Certificate, Series 1865 (source)

“The almighty dollar, that great object of universal devotion”*…

The reigning global financial regime, at the center of which sits the U.S. Dollar, was first formalized at the 1944 Bretton Woods Conference. While the rules have evolved since then, the Dollar remains by far the world’s leading reserve currency and is routinely used to price/settle international transactions around the world.

While there are concerns in the U.S. that a strong dollar can hurt U.S. exports and costs jobs, high global demand for dollars allows the United States to borrow money at a lower cost and amplifies the power of its sanctions.

So recent talk of “the decline of the dollar” (c.f., e.g., here) has concerned many. Not to worry, Noah Smith suggests…

Saudi Arabia recently announced that it’s open to settling trade (i.e., oil sales) in currencies other than the U.S. dollar. This has provoked a fair amount of consternation about the potential end of dollar dominance. This fear has been intensified by all the Bitcoin people who are screaming that the banking system is going to collapse and that this is going to spell the end of the U.S. dollar.

In fact, people shouldn’t be concerned at all. I’ve written two posts — one last year and one this February — explaining why A) de-dollarization is extremely unlikely to happen anytime soon, and B) some degree of diversification away from the dollar would actually be good for the United States. Both posts were paywalled, but I decided to unpaywall them, so that everyone can enjoy the peace of mind of not having to worry about the death of the dollar…

Read them at “Unpaywalled: Two posts about de-dollarization,” from @Noahpinion.

Then contemplate this analysis (by economists at the Federal Reserve Bank of New York) of the consequences of that continuity…

The importance of the U.S. dollar in the context of the international monetary system has been examined and studied extensively. In this post, we argue that the dollar is not only the dominant global currency but also a key variable affecting global economic conditions. We describe the mechanism through which the dollar acts as a procyclical force, generating what we dub the “Dollar’s Imperial Circle,” where swings in the dollar govern global macro developments… 

Worth reading in full and pondering: “The Dollar’s Imperial Circle,” from @LibertyStEcon (a newsletter of @NewYorkFed).

* Washington Irving


As we contemplate currency, we might spare a thought for Leonid Kantorovich; he died on this date in 1986. An economist and mathematician best known for his theory and development of techniques for the optimal allocation of resources, he is regarded as the founder of linear programming— for which he received the Nobel Memorial Prize in Economic Sciences in 1975.


“The function of small corner shops in maintaining cities as viable social institutions does not appear in the Washington consensus. The possibility that corner shops may do better at safeguarding social cohesion than mass imprisonment is considered outlandish – if it is considered at all.”*…

For decades, globalist neoliberalism (and here) has driven the policies and practices and political, commercial, and financial leaders and institutions across the developed– and given development policy, the developing– world. Rana Foroohar argues that its time may be up; geography is retaking the upper hand…

For most of the last 40 years, U.S. policymakers acted as if the world were flat. Steeped in the dominant strain of neoliberal economic thinking, they assumed that capital, goods, and people would go wherever they would be the most productive for everyone. If companies created jobs overseas, where it was cheapest to do so, domestic employment losses would be outweighed by consumer benefits. And if governments lowered trade barriers and deregulated capital markets, money would flow where it was needed most. Policymakers didn’t have to take geography into account, since the invisible hand was at work everywhere. Place, in other words, didn’t matter.

U.S. administrations from both parties have until quite recently pursued policies based on these broad assumptions—deregulating global finance, striking trade deals such as the North American Free Trade Agreement, welcoming China into the World Trade Organization (WTO), and not only allowing but encouraging American manufacturers to move much of their production overseas. Free-market globalism was of course pushed in large part by the powerful multinational companies best positioned to exploit it (companies that, of course, donated equally to politicians from both major U.S. parties to ensure that they would see the virtues of neoliberalism). It became a kind of crusade to spread this new American creed around the globe, delivering the thrill of fast fashion and ever-cheaper electronic gadgets to consumers everywhere. American goods, in effect, would represent American goodness. They would advertise American philosophical values, the liberalism tucked inside neoliberalism. The idea was that other countries, delighted by the fruits of American-style capitalism, would be moved to become “free” like the United States.

By some measures, the results of these policies were tremendously beneficial: American consumers in particular enjoyed the fruits of cheap foreign manufacturing while billions of people were lifted out of poverty, especially in developing countries. As emerging markets joined the free-market system, global inequality declined, and a new global middle class was born. How free it was politically, of course, depended on the country.

But neoliberal policies also created immense inequalities within countries and led to sometimes destabilizing capital flows between them. Money can move much faster than goods or people, which invites risky financial speculation. (The number of financial crises has grown substantially since the 1980s.) What is more, neoliberal policies caused the global economy to become dangerously untethered from national politics. Through much of the 1990s, these tectonic shifts were partly obscured in the United States by falling prices, increased consumer debt, and low interest rates. By the year 2000, however, the regional inequalities wrought by neoliberalism had become impossible to ignore. While coastal U.S. cities prospered, many parts of the Midwest, the Northeast, and the South were experiencing catastrophic job losses. Average incomes among U.S. states began to diverge, having converged throughout the 1990s…

Since the beginning of the neoliberal era, a handful of economists had pushed back against the received wisdom of the field. Karl Polanyi, an Austro-Hungarian economic historian, critiqued classical economic views as early as 1944, arguing that totally free markets were a utopian myth. Scholars of the postwar period, including Joseph Stiglitz, Dani Rodrik, Raghuram Rajan, Simon Johnson, and Daron Acemoglu, also understood that place mattered. As Stiglitz, who grew up in the Rust Belt, once told me, “It was obvious if you were raised in a place like Gary, Indiana, that markets aren’t always efficient.” 

This view, that location plays a role in determining economic outcomes, is only just beginning to land in policy circles, but a growing body of research supports it. From the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman to that of Raj Chetty and Thomas Philippon, there is now a consensus among scholars that geographically specific factors such as the quality of public health, education, and drinking water have important economic implications. That might seem intuitive or even obvious to most people, but it has only recently gained broad acceptance among mainstream economists. As Peter Orszag, who served as President Barack Obama’s budget director, told me, “If you ask a normal human being, ‘Does it matter where you are?’ they would start from the presumption that ‘Yes, where you live and where you work and who you’re surrounded by matters a ton.’ It’s like Econ 101 has just gone off the path for the last 40 to 50 years, and we’re all little islands atomized into perfectly rational calculating machines. And policy has just drifted along with this thinking.” He added, “The Economics 101 approach, which is place-agnostic, has clearly failed.”

The importance of place has become even more evident since the start of the COVID-19 pandemic, the economic decoupling of the United States and China, and Russia’s war in Ukraine. Globalization has crested and begun to recede. In its place, a more regionalized and even localized world is taking shape. Faced with rising political discontent at home and geopolitical tensions abroad, governments and businesses alike are increasingly focused on resilience in addition to efficiency. In the coming post-neoliberal world, production and consumption will be more closely connected within countries and regions, labor will gain power relative to capital, and politics will have a greater impact on economic outcomes than it has for half a century. If all politics is local, the same could soon be true for economics…

All economics is local: “After Neoliberalism,” from @RanaForoohar in @ForeignAffairs. Eminently worth reading in full (and contemplating the consequences of this all-too-plausible shift for addressing global issues like change change and the migration it is sure to drive).

John Gray


As we re-scope, we might recall that it was on this date in 1975 that prescient objectors, the Sex Pistols, made their live debut at St Martin’s School Of Art in central London, supporting a band called Bazooka Joe, which included Stuart Goddard (the future Adam Ant).  The Pistols’ performance lasted 10 minutes.


Written by (Roughly) Daily

November 6, 2022 at 1:00 am

“The international situation is desperate, as usual”*…

… so desperate, an increasing number of pundits argue, that globalization– the “flat world” proclaimed by Tom Friedman– that was to totem of the turn of the century, is no longer possible. But as the estimable Martin Wolf argues, we shouldn’t be too hasty– nor too sweeping and blunt– in our judgements. Trade in goods may be slowing, but the potential for technology-enabled trade in services remains huge…

What is the future of globalisation? This is among the biggest questions of our time. In June, I argued that, contrary to increasingly widespread opinion, “Globalisation is not dead. It may not even be dying. But it is changing.” Among the most important ways in which it is changing is via the growth of services provided at a distance.

A crucial point is that the expansion of trade in such services has depended little on trade agreements. The regulation of service activities focuses on final services, not intermediate ones. There exist, for example, strict rules on selling accounting services in the US. Yet there are few rules on the qualifications of the workers that do the paperwork behind the provision of such services.

Thus, a “US accountant can employ pretty much anybody to tally up a client’s travel expenses and collate them with expense receipts”. Examples of occupations that provide intermediate as opposed to final services include book-keepers, forensic accountants, screeners of CVs, administrative assistants, online help staff, graphic designers, copy-editors, personal assistants, X-ray readers, IT security consultants, IT help staff, software engineers, lawyers who check contracts, financial analysts who write reports. The list goes on. As Baldwin argues in The Globotics Upheaval, the potential for this sort of technology-enabled trade is huge. It will also be highly disruptive: the white-collar workers who provide these services in high-income countries are an important part of the middle class. But it will be hard to protect them.

In all, the evidence suggests that natural economic forces have largely been responsible for past changes in the pattern of world trade. Growing concern over the security of supply chains will no doubt add to these changes, though whether the result will be “reshoring” or “friendshoring” is doubtful. More likely is a complex pattern of diversification. Meanwhile, technology is opening up new areas of growth in services…

Globalisation is not dying, it’s changing,” from @martinwolf_ in @FT.

* Tom Robbins, Even Cowgirls Get The Blues


As we contemplate commerce, we might send muckraking birthday greetings to Upton Sinclair; he was born on this date in 1878. A writer, activist, and politician, he is probably best remembered for his classic novel, The Jungle, which exposed labor and sanitary conditions in the U.S. meatpacking industry, causing a public uproar that contributed in part to the passage a few months later of the 1906 Pure Food and Drug Act and the Meat Inspection Act.

Many of his novels can be read as historical works. Writing during the Progressive Era, Sinclair describes the world of the industrialized United States from both the working man’s and the industrialist’s points of view. Novels such as King Coal (1917, covering John D. Rockefeller and the 1914 Ludlow Massacre in the coal fields of Colorado), Oil! (1927, the Teapot Dome Scandal), and The Flivver King (1937, Henry Ford– his “wage reform” and his company’s Sociological Department, to his decline into antisemitism) describe the working conditions of the coal, oil, and auto industries at the time.

Sinclair ran unsuccessfully for Congress as a nominee from the Socialist Party. Then he ran, as a Democrat, for Governor of California during the Great Depression, under the banner of the End Poverty in California campaign, but was defeated in the 1934 election.

He was awarded he Pulitzer Prize for Fiction in 1943 for Dragon’s Teeth, which portrayed the Nazi takeover of Germany during the 1930s.

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

Upton Sinclair, ruminating on his gubernatorial loss


Written by (Roughly) Daily

September 20, 2022 at 1:00 am

%d bloggers like this: