The Invisible Hand, Mk 2

Ron Bailey lays down some interesting facts and figures courtesy of the World Bank. It turns out that the accumulated institutional and other intangible capital of the US as a society amounts to something on the order of $400,000 a person.

Every immigrant who makes it across the border automatically gains access to over $500,000 of capital. What? That's right. The clever economists at the World Bank have figured out how to measure natural, produced and intangible capital. It turns out that natural capital (forests, minerals, oil) and produced capital (buildings, roads, and factories) while important pale in comparison to intangible capital for producing income and wealth. In fact, 80 percent of the capital of rich countries is intangible. Intangible capital encompasses raw labor; human capital, which includes the sum of the knowledge, skills, and know-how possessed by population; as well as the level of trust in a society and the quality of its formal and informal social institutions including an honest bureaucracy, a free press, the rule of law and so forth.

By World Bank measurements, Americans enjoy access to $513,000 worth of capital, the vast majority of it embodied in intangibles such as the rule of law, strong property rights, democratic governance, and high levels of education. This accumulated capital yields an average per capita GDP of about $38,000 per year.

Contrast this to Mexico, whose per capita capital amounts to $62,000 and yields a per capita GDP of $9,000 per year. Or Guatemala, whose per capita wealth is just $30,000 produces a GDP per capita of $4,000 yearly, and El Salvador, where per capita wealth is $36,000 yielding an annual GDP of $4,800.

This suggests a few things to me. First, that now more than ever we can say that simply pouring money/physical capital into the undeveloped places of the world is almost certainly going to disappoint in terms of delivering the goods- the multiplier, or at least the lion's share of Western economies' productivity and wealth production is due to the institutions, which are much harder to set up than a hydro plant here or a road there. Second, it reminds me of a Will Wilkinson post about how the world is spiky, not flat, which I will shamelessly almost completely reproduce:

Here is one of these pictures’ 1000 stories. American institutions confer a fantastically huge positive externality, in terms of knowledge, to the rest of the world. Science is a root cause of economic growth. New knowledge enables new technologies, which enable increases in the productivity of capital, which enable growth. And good institutions are the root cause of science. If the U.S. produces most of the world’s knowledge and Asia produces most of the world’s technology, then the institutions that underpin epistemic and technical advance are chiefly responsible for growth in states that have different institutions, but which are able to import knowledge. Which is why it is nonsense to compare, say, American and French GDP growth, as if those growth rates were a function of American and French institutions in isolation from one another. Because institutions are not isolated. [emph add. -ed]

The interesting question is: what would French GDP growth have looked like if the U.S. had produced, say, only 10% of its actual scientific output? If the Japanese had made only a 10% of their technological advances? My sense is that French growth would not have looked good. (NB: I have picked the French because they are very good in science and tech, but even so, the point is, others are much better.)

And there’s the point. French institutions are good enough to take advantage of American science and Asian technology, and so can remain stable because they are plugged into others’ comparative advantages, and can power their system (literally: the French did not think up the nuclear reactor) on the uninternalizable positive externalities of other systems of institutions. The flip side, though, is that it would be a tragedy for the French, and the world, if American institutions produced less science. It is not just that the U.S. would be worse off if its institutions were more like France. France would be worse off if U.S. institutions were more like France.

Thirdly, it seems to me that concerns about maintaining the integrity of US culture (the important aspects such as the rule of law, etc) should not be so blithely waved aside by cultural libertarians; I suspect that the je ne sais quoi of American culture, the 3-log bulk of it transmitted in English, is responsible for a maintaining and undergirding the intangible capital we and the rest of the world benefit from so much.

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Unfortunately it isn't the

Unfortunately it isn't the RULE OF LAW, but the APPLICATION OF UNJUST LAW that I find so distasteful about those that seek to "maintain the integrity of US culture".

Dain, As always its the


As always its the application that's the issue, and the devil is in the details. I mean, after all, I don't oppose the *idea* of a world or end state where everyone is in peace and harmony and works together for a common good, I just don't agree with Social Democrats' suggested means on how to get to that world (for example).

Likewise I don't think that bizarre and ultimately unenforceable anti-immigration laws will help maintain US culture at all, but that doesn't mean that some of the distasteful people across the aisle don't ultimately have a point.

Dain, If you find certain


If you find certain laws unjust, then you should work to change them. Do you think everyone should be allowed to pick and choose, and to follow only those laws that they personally consider tasteful? Or do you think that only people who agree with you should get this privilege?

Ann, that is what he was

Ann, that is what he was trying to do. He merely said he found the laws distasteful, not that he was going to go out and break them.

$513k/person x ~290 million

$513k/person x ~290 million people = $148.77 trillion worth of assets
GDP =~ $10 trillion return on those assets

That's a return of ~6.7%. Not bad.

Ann, One of the best ways


One of the best ways to change a law is to flout it. Make it difficult to enforce.
The only laws anyone ought to have the "privelege" of disobeying are those that proscribe victimless interactions. There is nothing elitist or holier-than-thou in my efforts to help immigrants cross the border in the middle of the night, for instance, and it is no more a privelege of mine than is your playing a friendly game of basketball with some strangers.

Unfortunately it isn’t the

Unfortunately it isn’t the RULE OF LAW, but the APPLICATION OF UNJUST LAW that I find so distasteful about those that seek to “maintain the integrity of US culture".

I think you might be missing the point of the post and linked articles. Yes, every nation has unjust laws. But why do Mexicans want to come here if our laws are unjust? Even when they know there's a Drug War, high taxation, public school monopoly, etc?

One answer is that they benefit from the generous welfare state. True, true.

But another, more overlooked answer, is that they benefit from the factors that underlie American wealth and prosperity, among them the rule of law. Yes, as above, the laws are not all just, but the relative equal application of the law relative to other countries is something that poor immigrants benefit from. As with the relative ease of starting a new business, getting loans, trust in doing business with others, not getting sent to jail if you make fun of the President from 10 feet away on national TV, etc. I'm not much for econometrics, but the value of these sorts of institutions was estimated in the study mentioned above to be $513K compared with $62,000. In other words, just by the mere fact of crossing the border, Mexicans are "richer" by nearly a half-million dollars.

Bad laws exist in every nation, but good institutions don't. There's a reason for American wealth and prosperity.

Ok, I agree with your

Ok, I agree with your statements Jonathan. So, a question for Brian would be: How does concern for "maintaining the integrity of US culture" manifest itself in your mind? And is it, more often than not, a good thing or a bad thing?

I suppose I'm seperating the question of culture from that of institutions. (Rule of Law I consider to be part of the latter.) Of course the dichotomy is to some degree a false one, but too often concern for maintaining US culture - like porn, damned difficult to define - becomes an excuse for limiting individual freedom.

Ann: Do you think everyone

Ann: Do you think everyone should be allowed to pick and choose, and to follow only those laws that they personally consider tasteful?

No, everyone should be allowed to pick and choose, and to follow only those laws that are, in fact, just. Forcing people to comply with unjust laws is tyranny, and doing so in the name of "the rule of law" is just tyranny with a powdered wig on.

You express a great deal of anxiety over our willingness to break laws. This is certainly a legitimate concern. ... One may well ask: "How can you advocate breaking some laws and obeying others?" The answer is found in the fact that there are two types of laws: There are just and there are unjust laws. I would be the first to advocate obeying just laws. One has not only a legal but a moral responsibility to obey just laws. Conversely, one has a moral responsibility to disobey unjust laws. I would agree with Saint Augustine that "An unjust law is no law at all."

--Dr. Martin Luther King Jr., "Letter from Birmingham Jail." Emphasis added.