Thomas Friedman Is Wrong

by Roger Koppl

Thomas Friedman defends “one-party autocracy” as represented by China. Presumably, his defense is a sardonic. He is trying to smack down the Republican Party in the US for “standing, arms folded and saying ‘no.’” Sardonic tone notwithstanding, he says something revealing. “It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.”

He favorably quotes Joe Romm saying, “China is going to eat our lunch and take our jobs on clean energy . . . and they are going to do it with a managed economy.” For Friedman, the way forward is “from the top down.”

I guess that sort of thing is vision and big think in his mind. It is also complete rubbish. Top down doesn’t work. It seemed as if we all pretty much figured as much in 1989 when the old Soviet system collapsed. Twenty years later, however, we seem to have forgotten. People should remember first that it “capitalism” is the only system that really delivers the good.  And they should remember that the crazy wealth created by “capitalism” is correlated to all sorts of good things like longevity, health, education, and freedom as Peter Leeson argues brilliantly. It reduces violence too, as Steven Pinker suggests. Decentralized decision making makes things better. Dictating “from the top down” makes things worse. The evidence is in and it is unambiguous as Leeson, Steve Horwitz, and others have noted.  Why can’t someone like Thomas Friedman see it? I suppose it’s what Herbert Spencer said in the introduction to (I think) Social Statics: it takes constant iteration to force alien conceptions on unwilling minds.

Thomas Friedman talks a good game.  He speaks as if he is sure he has identified the growth industries of the century, but has he put his money where his mouth is? If he is so certainly right, has he mortgaged his house(s) and invested accordingly? I’d bet he has not.

7 thoughts on “Thomas Friedman Is Wrong

  1. I think this is a case of an economist missing the point of a political science article. Top down IS working politically in China and they’ve proven much more flexible and nimble. It’s also why they’ve mixed capitalism into their system. Comparisons with the Soviet Union are inaccurate and misguided.

    And what’s with economists continuously saying you have to bet on something to make it a valid point?

  2. “And what’s with economists continuously saying you have to bet on something to make it a valid point?”

    They are highlighting the fact that profit motives would be enough incentive for people to invest. The market knows that alternative energy is a bad investment (it suffers a loss when unsubsidized.) Therefore, the only way to make it viable is for government to confiscate (tax) and redistribute (subsidize) public monies to alternative energies.

  3. Boy, Thomas Freidman has discovered a Green Energy gap between China an the US. This sounds much like the perceived missile gap between the US and USSR. The only way for us to catch up to China and reduce the Green Energy gap is to cut off our right hand by legislating higher energy prices. I say let the Chinese win this race.

    Oh, and I love this quote from Friedman, “The G.O.P. used to be the party of business. Well, to compete and win in a globalized world, no one needs the burden of health insurance shifted from business to government more than American business.”

    Labor cost are alot greater to business than are just health care costs. Why not just “shift” the burden of labor costs from business to government. We will just have the government pick up the tab of all the costs of labor! That will make American businesses extremely competitive.

  4. I’d argue that Friedman comes to the right conclusion, even though his reasoning is incorrect.

    Chinese jobs have much lower opportunity costs than US labor. If the jobs don’t meet the market test — and can’t support themselves without subsidy — it’s far cheaper to have inexpensive Chinese labor misallocated to them than to have more expensive US labor misallocated to them. If you’re trying to MISallocate resources, top-down planning is vastly superior to decentralization.

    That said, the price of solar panels has recently fallen by 40% (due to a HUGE mistake by Chinese businesses, who ramped up capacity in the face of a recession). These jobs may not be quite as uneconomical as we think. At that point, China’s policy looks like sheer genius (again reaching the right outcome for the wrong reasons.) If the jobs are just barely uneconomical for US workers, they are practically paradise for Chinese workers, and the Chinese government’s labor policy will get bailed out by the mistakes of the Chinese manufacturing sector.

  5. The majority of the worlds crude oil supply is due to state owned enterprise.
    The vast majority of the worlds coal-fired and nuclear power stations are state owned and operated.
    Most of the worlds paved roads are provided by a non-user pays or partial-user pays system of financing – they are heavily tax-payer subsidized.
    All the above are the main sources of air pollution, including greenhouse gases.

    Most of the solar, wind, tidal and other renewable sources of energy supply are due to private enterprise – and the market share of these sources is rising rapidly, due to the superior dynamics of competition and the profit & loss motives, as compared to public monopolies.

    It is the bottom-up, distributed, self-organizing system of private enterprise and free markets that is “flexible and nimble”, and it is the dinosaurs of state run industry and centralized bureaucratic control that are holding the world back.

  6. «People should remember first that it “capitalism” is the only system that really delivers the good.»

    Dozens if not hundreds of years of experience show that the system of ownership or even the political system do not matter that much, as long as they are not too bad.

    What delivers the goods is the industrial system and bankruptcy. Capitalist systems that are not industrial and don’t let companies fail are pretty inefficient and don’t deliver.

    Top down works well too if the top is flexible and learns to cut their losses, and in some cases it is necessary.

    Unfortunately bottom up on itself is never sufficient in any non trivial economies, because of the problem of local minima; the “simulated” annealing of lots of small agents does not work well in complex optimization landscapes.

    Someone at the top, in a company or in a country, must have a vision or direction; if it is right everybody wins, if it is wrong everybody loses.

    The “wisdom of the crowds” only leads to pursuing small time local maxima. To escape them there must be some bet-the-farm leadership.

    The industrial policy of the USA Republicans (and large sections of the Democrats) decided 20-30 years ago was (and is) to bet the farm on offshoring, immigration, imports, and doubling the size of the finance and healthcare sectors, which they protected and subsidized (and continue to protect and subsidize) massively. The chinese (Zhao and Deng) bet the farm on exports and inshoring, first in light industry and then higher tech, and so far they have been right.

    Below both leadership levels many smaller actors operated within those directions and sought their local maxima. But the big direction was set from the top down in both cases.

    There is no recipe that delivers the best in every case, the market and capitalism are not omniscient gods; they are very limited, local maxima oriented, partial (excluding externalities) optimization strategies.

    What matters overall is that when things don’t work they be stopped and there be a change of course; as FDR said, “experiment boldly”.

  7. “Thomas Friedman talks a good game. He speaks as if he is sure he has identified the growth industries of the century, but has he put his money where his mouth is? If he is so certainly right, has he mortgaged his house(s) and invested accordingly? I’d bet he has not.”

    No, probably not. The Friedman family wealth omes from his wife’s inheritance. In malls across America actually, a business which has a good chance of going bust in this recession.

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