Hyperborea
Thinks s/he gets paid by the post
I promised that I'd write up something on The Birth of Plenty by William Bernstein after I got back from XMas. I've been pretty busy so this will have to do. I'll give the summary first that I think anybody planning to FIRE and be in such a state for 30 or more years (with the kind of asset allocation that implies) should definitely give the book a read. It covers a lot of the same ground though from a different viewpoint than Culture and Prosperity by Alan Kay (which I would also recommend). Interestingly, Kay's book is not mentioned (nor the original British edition with a different title) despite the similarities and coming out a number of years earlier. Bernstein's book is a "popular" version and summarization of the research literature.
The book is divided into three major sections: The Source of Growth; Nations; and Consequences. The first section (about half the book) is where he goes into his interpretation of the factors that have caused growth in the modern world. The four factors that he identifies are: property rights; reason / scientific method; capital markets; and speedy transport and communications. One can quibble with some of the weight given to the factors and whether they are all necessary. What's also not really given any coverage is whether these four factors are sufficient.
The second section looks at some countries in more depth in relation to the four factors. He looks at the "winners" (Great Britain and the Netherlands), the runners up (the rest of the 20 or so industrialized countries), and the others.
The third section is a look at some variations in the growths of the industrialized countries and some speculation on the future of economic growth. Many of the lines drawn in the charts must have some incredibly large error terms because the data often looks more like a cloud than any line.
Some interesting things in the charts/text:
- It appears that the growth rate of industrialized countries in general converges.
- Democracy up to a point increases productivity of an economy but after that point it decreases.
- The graph on pg 329 which looks whether doubling income will continue to produce doubled amounts of "happiness" (the utility of money) looks fishy to me. He has a straight line drawn through it but based on the data points shown in the graph it could just as easily be fit to a polynomial. What difference does that make? Well the data looks to be showing that there is "threshold" level to the utility of money. That is, more money beyond that required for a basic standard of living has less utility. The line that is drawn shows no such threshold.
- He claims that democratization more commonly follows increased economic capability in an economy rather than the other way around. This, if true, puts aside one of the doubts that people raise about China joining the group of industrialized nations.
- There are questions about whether growth is slowing for industrialized nations. It took a large leap to get from the pre-industrialized state but after that (perhaps 100 years or so?) it slows.
- Will equity investments continue to bring the returns they have in the past? At one time these were risky investments that were not well understood. Now that they are (or at least more so) will the returns fall?
- Commentary (made a few times and scattered throughout the text) about the rising levels of income inequality in the US. The last time it was this high the US was around the Great Depression. The precariousness of the government was higher than many people realize. Also similar in Britain - worth reading some of Orwell's works (e.g. Road to Wigan Pier or Homage to Catalonia) to get a close up view of that. The rise of communist and nazi sympathies within the working class and the capitalist class at the time probably a symptom of this.
Lots more that could be discussed. Well worth reading. It does remind me that I keep meaning to read Barbara Tuchman's book A Distant Mirror - he refers to the book a number of times. IIRC she FIREd sometime in the '70's or at least sort of FIREd to do work that she loved to do - historical research.
The book is divided into three major sections: The Source of Growth; Nations; and Consequences. The first section (about half the book) is where he goes into his interpretation of the factors that have caused growth in the modern world. The four factors that he identifies are: property rights; reason / scientific method; capital markets; and speedy transport and communications. One can quibble with some of the weight given to the factors and whether they are all necessary. What's also not really given any coverage is whether these four factors are sufficient.
The second section looks at some countries in more depth in relation to the four factors. He looks at the "winners" (Great Britain and the Netherlands), the runners up (the rest of the 20 or so industrialized countries), and the others.
The third section is a look at some variations in the growths of the industrialized countries and some speculation on the future of economic growth. Many of the lines drawn in the charts must have some incredibly large error terms because the data often looks more like a cloud than any line.
Some interesting things in the charts/text:
- It appears that the growth rate of industrialized countries in general converges.
- Democracy up to a point increases productivity of an economy but after that point it decreases.
- The graph on pg 329 which looks whether doubling income will continue to produce doubled amounts of "happiness" (the utility of money) looks fishy to me. He has a straight line drawn through it but based on the data points shown in the graph it could just as easily be fit to a polynomial. What difference does that make? Well the data looks to be showing that there is "threshold" level to the utility of money. That is, more money beyond that required for a basic standard of living has less utility. The line that is drawn shows no such threshold.
- He claims that democratization more commonly follows increased economic capability in an economy rather than the other way around. This, if true, puts aside one of the doubts that people raise about China joining the group of industrialized nations.
- There are questions about whether growth is slowing for industrialized nations. It took a large leap to get from the pre-industrialized state but after that (perhaps 100 years or so?) it slows.
- Will equity investments continue to bring the returns they have in the past? At one time these were risky investments that were not well understood. Now that they are (or at least more so) will the returns fall?
- Commentary (made a few times and scattered throughout the text) about the rising levels of income inequality in the US. The last time it was this high the US was around the Great Depression. The precariousness of the government was higher than many people realize. Also similar in Britain - worth reading some of Orwell's works (e.g. Road to Wigan Pier or Homage to Catalonia) to get a close up view of that. The rise of communist and nazi sympathies within the working class and the capitalist class at the time probably a symptom of this.
Lots more that could be discussed. Well worth reading. It does remind me that I keep meaning to read Barbara Tuchman's book A Distant Mirror - he refers to the book a number of times. IIRC she FIREd sometime in the '70's or at least sort of FIREd to do work that she loved to do - historical research.
