Autarky in the USA!

I am on record as saying COVID-19 is bigger than 9/11 and the 2008 financial crisis put together. It is probably the biggest thing that’s happened since the end of the Cold War. In terms of intensity and impulse, I think COVID-19 is a bigger compressed shock, as the “end of the Cold War” really occurred over five years or so.

So if I think COVID-19 is such a big deal, what has it made me change my mind about? I do believe that the free-trade globalization of the late 20th-century went too far. I am aware of comparative advantage, and the reality that trade makes us all richer in myriad ways. It is quite persuasive. But I think richer isn’t always the best because the gains in efficiency come at the expense of robustness.

In The Human Web McNeill and McNeill argue that the multipolarity of civilization allowed for there to be redundancy over time. While the late Bronze Age collapse was extended, and to some extent resulted in total cultural erasure (the Classical Greeks were unclear that their own ancestors had created the great cyclopean citadels of the Bronze Age), later civilizational regressions were not as catastrophic because “not all the lights went out.”

The problem in the current globalized era is that specialization has gone so far as to remove redundancies in the supply chain in a “just-in-time” world. Specialization and economies of scale in China mean that our inputs and materials are extremely cheap, allowing us to purchase other things, but if China’s “lights go out” as they did in early 2020 it cascades through the system, we experience a major “supply shock.” In some cases, it is really hard to find alternatives to China, as they’ve cornered the market in all the requisite skills.

Also, to be entirely frank I think we need to revisit the neoliberal idea that trade and engagement allow for liberalization over time. I still support engagement in particular, because I dislike war a great deal, but it seems quite clear that free trade works best between regimes which are ideological in sync on the fundamentals.

For the United States, a move toward more autarky won’t be that difficult. Most of our economy is “internal” already. Unlike small nations like the Netherlands, or, export-driven economies such as China’s, trade is not necessary, it is a bonus. I don’t think it’s a bonus we can afford anymore. When exogenous shocks hit us, nations can only rely on themselves. Ask Italy.

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28 thoughts on “Autarky in the USA!

  1. I agree with your observations about lack of redundancy leading to supply shocks. But isn’t there something perverse about China having cornered almost all of the lower-end outsourcing market, at least in the manufacturing space?

    The point is: other countries that can corner portions of that market, and offer alternatives (“redundancies”) have not put their affairs in order and taken advantage of globalization. (India for example.) But recently Vietnam has been stealing business from China. Bangladesh seems to be cornering the finished textile market (ironically, that’s what brought the East India Company to Calcutta many centuries ago).

    So if there’s enough demand and competition, I’d expect a globalized world to have existing redundancies and avoid supply shocks. China is locked down because of a virus? Well, Vietnam or Taiwan have factories ready to ship low- and high-end goods respectively.

    So personally, this pandemic has not soured me on globalization and free trade at all. Also, my support for these has been primarily inspired by the fact that there’s nothing else that can increase prosperity levels in poorer countries and allow them to catch up to richer countries. If rich countries refuse to trade with poor countries, they’ll remain poor and chaotic.

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  2. Hear hear!

    I want free trade and minimal federal government interference on commerce within the borders of the United States. I want more robust, targeted tariffs and well-designed non-tariff barriers in regards to imports from outside the national borders.

    While not perfect, the Japanese have a decent model.

    It should be obvious also that low-tariff trade relationships should be exclusively reserved for those countries with which the U.S. has bilateral or multilateral defense alliances. The rest – those countries that are neutral or are competitors – should pay a hefty premium to enter the U.S. market. Overtly hostile countries should be completely barred.

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  3. Trade is not “necessary” for the US to meet its basic needs — but the fun stuff (cheap gadgets, clothing, and other various consumer goods) is another question.

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  4. “free trade works best between regimes which are ideological in sync on the fundamentals”
    You seem to assume that there was free trade with China. There wasn’t. The PRC has been very careful about what was allowed to be imported at which price. While the West largely (at least some anti-dumping measures were kept) opened its markets to Chinese products, China had numerous tariffs to control imports.
    The commies were very keen on Western companies moving their production to China, sharing their IP with Chinese companies & essentially building the Chinese economy (& lifting those hundreds of millions out of property, which the CCP claims as their very own success).

    Free trade never existed.

    “When exogenous shocks hit us, nations can only rely on themselves. Ask Italy.”

    Meh. They get a lot of help from other European nations. Only that those don’t boast about it as much as China does about its “donations”.

    Isolationism is stupid, particularly if you are a country like Italy which simply doesn’t have the resources to only rely on itself.
    To outsource almost all of your production capabilities to a nation like China is just as stupid. But that is hard to control if you don’t have a command economy. Germany has done fairly well in that regard. The US, perhaps not so much.

    Free trade, or not, it’s definitely not a good idea to outsource the production of essential stuff like medical supplies to a mafia regime like in China, which uses its resources to blackmail others.
    Would be nice if the world would learn that lesson. Idiots like the PM of Serbia or the Five Star leader in Italy make me doubt that this will happen, though.

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  5. I’ve written my thoughts on COVID here. Anyway, I don’t believe for a second globalization went too far. If the U.S. were more economically nationalist, it would be less able (due to higher costs) to expand capacity than the rest of the world is now. It has made us more resilient, more robust, and more responsive to the crisis. I do think economic nationalism and restrictions on business went too far.

    later civilizational regressions were not as catastrophic because “not all the lights went out.”

    The post-Roman civilizational regression was substantially more catastrophic than anything that happened during the Late Bronze Collaspe.

    “Also, to be entirely frank I think we need to revisit the neoliberal idea that trade and engagement allow for liberalization over time.”

    On the contrary, that idea has held up very strongly over time. The less trade and engagement the U.S. has had with a country, the less it has liberalized.

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  6. This is a huge topic and one where time may make fools of us all, and we may all change our ideas again in ten years. That said, I’m broadly in inclined to think Razib is correct here (“robust polycentrism” against economic shocks ftw, that it usually turns out more industries are strategic to have at home in a crisis or political standoff than we might think, and that the “Golden Straightjacket” as a tool for political liberalisation is underrated and probably pretty wrong).

    I would add a couple things (not exactly cautionary notes, but things that strike me as relevant):

    – Bulk trade, in the sense of sheer size imports+exports relative to GDP, is probably overrated. At the same time, the capacity for trade to introduce new innovations that transfigure the internal market may be underrated.

    You can end up with a lot of bulk in trade between two countries, but it actually isn’t really that much more efficient or impactful on the economy because it’s just a familiar good made slightly cheaper (markets in bulk food, for instance). Stuff being schlepped back and forth across the border doesn’t really change life very much.

    However if another country invents a new product and introduces it, there are times when this can completely transfigure an economy. Personal desktop computers or the pocket computer (what we still call a “phone”, for some reason?), for instance, even though small as part of in bulk trade and often quickly import substituted, have massively transformed economies and society. And there are many older examples.

    So it might be pretty important to stay open to trade in those innovations. (Essentially: Smithian Division of Labour through International Trade, overrated and with significant downsides, trade as a means to introduce dramatic innovation, underrated.)

    – Being open to trade is often an alternative to your rivals forming larger internal markets themselves. Take the example of the Netherlands, if Europe is open for trade, they’re probably more likely to remain politically autonomous and just trade with other states, whereas if trade is closed to foreign states, that enhances the incentive for them to form a larger union with neighbours and create larger states. If we think a world with distributed government and lots of small countries is generally better, that’s a reason to be for openness in trade, as an alternative to encouraging political union.

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  7. Perhaps a simple tariff. Say, 10% on like-minded nations, and 25% on others? With some fudging of course for the third world. Actually, that pretty quickly can get not so simple. A straight 10% across the board might do the trick.

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  8. The post-Roman civilizational regression was substantially more catastrophic than anything that happened during the Late Bronze Collaspe.

    only in absolute terms. the bronze age collapse basically caused a total memory loss across muliple societies (the main exception here is china and perhaps parts of the near east; the mediterranean and india were totally amnesiac). the post-roman western world was attenuated in economic activitiy, but continuity with antiquity was maintained in areas that didn’t initially suffer collapse (e.g., eastern mediterranean was significantly delayed enough).

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  9. Numinous: Also, my support for these has been primarily inspired by the fact that there’s nothing else that can increase prosperity levels in poorer countries and allow them to catch up to richer countries. If rich countries refuse to trade with poor countries, they’ll remain poor and chaotic.

    To some extent I do find this view kind of a bit incomprehensible.

    Say you had the world’s smartest students of historical economics and developmental history in a poor country, and in a position to implement changes they wanted, and import whatever the could afford from advanced developed economies.

    They could do land reform. They could do educational reform. They could liberalize their markets. They could borrow large bodies of legal framework. They could implement tons of borrowed technology. They could pretty much take a country through the entirety of Western economic developmental history at a much fast pace, and take a bunch of shortcuts because the pace of scientific advancement allows them to. There’s loads of scope.

    What’s the point at which this suddenly doesn’t work just because they can’t take advantage of lower wages to build export to richer countries? I.e. I’m not sure I can see in principle why you’d need to export at *all* to “pull a Meiji”.

    It’s true that no poor countries have actually done this, but there doesn’t seem anything in principle stopping them. It just seems that in general, if anything, the lures of kleptocracy, weird economic theories (communism), landed interests, ethnic fractionalisation, etc, have stopped them doing so. That’s a set of political problems, and ones that could be solved if there were a will to solve it.

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  10. Got a friend who is a Chinese national. She said she always bought the Party line on what happened at Tianmen Square. She came here years ago for work and the truth slowly broke though her defenses. She still has family and connections in China so I suspect the truth is filtering back there.

    Just an anecdote but there are a lot of them. Speer wrote about how ignorant and untraveled he and his fellow middle class German intellectuals were of the rest of Europe, let alone the world, and how that played a role in their Nazi ideology.

    Plenty of setbacks to the liberal democracy-and-human-rights ideal, but I think international connections help foster the ideal. Abolitionism in the 1800s, women’s rights in the 1900s, #MeToo and LGBTQ rights in our century were all internationally-influenced movements. I think trade helps make this happen.

    EU may have screwed up with coronavirus and Italy, but it unquestionably has generally helped its poorer members, despite its numerous failings. Churchill’s quote about democracies being the worst except for all other forms of government still applies, although it’s a closer call in my opinion than it used to be.

    Aside – I had no idea India had a Bronze Age collapse. Maybe part of my own ignorance. Any good links?

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  11. “the bronze age collapse basically caused a total memory loss across muliple societies”

    That says a lot more about the lack of existence of the alphabet (and thus low literacy rate) and generally low state of political development (and thus low regional interconnection, greater chance a history would perish with the fall of one city) during the Late Bronze Age than about the degree of collapse (quite moderate relative to the Late Antiquity one). Britain in the post-Roman period and Greece in the early Iron Age both lost basically all cultural memory -but Britain lost the art of pottery-making for ~300 years; Greece continued to produce decently high quality pottery throughout the early iron age. The Franks were obviously more barbarous than the Philistines. Palestine saw fairly rapid population growth after the Egyptians left (though obviously the early Israelites were less civilizationally sophisticated than the very few Canaanites that existed during the Egyptian occupation). The Hittites moved southeast, but still more or less remembered themselves to be Hittites. Same with the Philistines. Egypt really didn’t lose much historical memory (cf., Manetho). Same with Assyria/Babylonia (cf., Sargon II). It’s not clear to what degree historical memory ever existed to any great degree among the city-states of Syria and Palestine (or western Anatolia or Cyprus).

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  12. “Aside – I had no idea India had a Bronze Age collapse.”

    It didn’t have a Late Bronze Age collapse; its collapse was in the early second millennium BC. Overall, the collapses during the late third/early second millennium BC were much worse than anything that happened during the rest of the second millennium BC. Shahr-i-Sokhta and Mundigak disappeared in the early 2nd millennium BC. Everything suggests Palestine c. 2100 BC was Mad Max.

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  13. I am not sure about everything Brian Schmidt says, but I have to agree with him that it’s too soon to junk the ‘a free economy leads to political liberalism’ hypothesis with regards to China. I think the Emperor Xi is kind of a retrogression of the sort that an illiberal regime will do when it sees the writing on the wall per it’s permanence and does something radical that will not work long term, but will put things off near term.

    Everyone is pointing out how much covid19 stinks if one is an American and how it might change America, but America isn’t the metaphorical powder keg, China is. Though from what Chinese nationals of my acquaintance generally tell me, that about 3/8 of Chinese trust their government, and that number is still relatively high, it might not happen today. If all this chops that down to 1/8, interesting times might ensue.

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  14. Relative to world norms, there has been no retrogression whatsoever in China. It has followed, not led, the footsteps of the West. Other than Korea, Iran, and Saudi Arabia (and maybe Sub-Saharan Africa?), the whole world has become less liberal in outlook over the past decade.

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  15. Hmm, per China, the Dengian system was that the Party definitely rules, but power was quite dispersed within the party. However, doing it this way led to mammoth amounts of Boss Tweed type in your face corruption. All this stealing with both hands made, or threatened to make, the CCP very unpopular. The only way to fix this was one guy, who wasn’t venally corrupt, or had gotten his already and didn’t need anymore, to tee things up so he could stomp any CCP members attempting to use their government positions to steal with both hands as before.

    It’s not that China hsa retrogressed if one isn’t in the CCP, but if one is in the CCP, a made man, the reins of power have definitely become centralized. Xi’s 3 big titles were always held by 3 men before XI held them all. I’d say this is a sign of the brittleness of the regime, not its strength.

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  16. Matt:

    They could do land reform. They could do educational reform. They could liberalize their markets. They could borrow large bodies of legal framework. They could implement tons of borrowed technology. They could pretty much take a country through the entirety of Western economic developmental history at a much fast pace, and take a bunch of shortcuts because the pace of scientific advancement allows them to. There’s loads of scope.

    I agree with all of this. Countries should be doing this and will benefit from doing this. But there’s a limit to what poor countries can do without outside investment flowing in AND without becoming an export-oriented economy (an alternative is sending out lots of emigrants who will then remit money to the homeland, where that money can be put to good use.) No amount of reforms will make a poor country prosper without an influx of wealth. At least that’s my belief; if you can disprove me, please do so.

    You talk about Western countries as if they just reformed internally and got prosperous, disregarding the mass emigrations of their people to resource-richer lands during the colonial era or adventurism of the kind practiced by the likes of East India Company merchants (lots of Indian loot ended up in Britain). The reforms of course helped, but they were both bolstered and spurred by extensive “links” to different parts of the planet that had been created by emigrants and adventurers.

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  17. As a manufacturer, you never want to be dependent on a single-source for anything, and clear much of our supply chain is way too dependent on China. However, autarky also represents a form of dependency on supply chain management as well.

    Obviously, redundant supply chains are necessary. The more suppliers as places you can buy from, both domestic and internationally, the more redundant your supply chain is.

    We must be leery of attempts to utilize this problem as anything more than an issue of redundancy.

    A redundant supply chain means more manufacturing and sourcing from your own country. It also means being able to buy from a multitude of other countries as well.

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  18. Ah. Yeah, I do generally take the view that it was pretty much all ideas – science and economic restructuring – and colonial loot was pretty unimportant. That is, in general, yes they did reform and change culturally and become prosperous and the economic periphery didn’t really matter and could have never existed for all it mattered (“The periphery was peripheral” as O’Brien’s famous phrase goes).

    I don’t think there’s too much to really support the view that colonial accumulation really mattered to modern economic growth, nor that poor countries would really need a “jump start” of capital from manufacturing exports to get going.

    I won’t waste your time hashing out an answer that spells out why this is the case – there’s just too much out there that says it better than I could that’s easy to find (and I tend to find that those that stick to “colonial loot explains it all” even despite all that, tend to *want* colonial loot to be the reason, not cultural innovations, and will stick to it despite everything). Start with googling the above reference if you’re interested, and then google Joel Mokyr as well. Thanks for bothering to reply anyway.

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  19. Excessive government regulation was one of the factors that drove the massive outsourcing wave in the first place. It does little good to push for “autarky” while not addressing the underlying issue of excessive government regulation.

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  20. Matt,

    Can you give an example of a country (in any era) that remained isolated from the outside world (i.e., little or no trade, few or no visitors, few or no emigrants or immigrants) and yet went from being poor to rich purely through the power of ideas and by getting its internal house in order?

    19th century US? Seems an autarky on the face of it, but it had a lot of “virgin” land (inhabited by people who didn’t matter) to exploit and it had a lot of immigration.

    Meiji Japan? I don’t know enough about it to make an assessment. Do you? But that era came about precisely after the US “opened it up” to Western traders, no?

    (I’m not trying to troll. Genuinely seeking an answer.)

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  21. @Bossel: “Free trade, or not, it’s definitely not a good idea to outsource the production of essential stuff like medical supplies to a mafia regime like in China, which uses its resources to blackmail others.”

    So, what’s the difference between China and the USA? The USA blackmail others economically and if that doesn’t suffice, they bomb too. Of course, once China would be the No. 1 superpower, it might do just the same, but that’s not issue of “mafia regimes” (which ones?), but power relations in general.

    You shouldn’t depend on any people or states which might be “unfriendly” to your goals and well being, simple as that. Its not about China per se, but the Neoliberal, transnational bubble created in the last decades as such.

    And no, Germany did not much better than the USA, actually most nations doing bad. To me globalisation reached new heights of absurdity when I read this about the medical glove production:
    “Malaysia is by far the world’s largest medical glove supplier, producing as many as three out of four gloves on market.”

    https://fortune.com/2020/03/24/coronavirus-healthcare-workers-medical-gloves/

    When the Malaysian government closed factories, the whole world got a problem with the supply chain for medical gloves!

    And one of the problems was that they rely on almost slave-workers from Nepal and Bangladesh too – so the whole world outsourced medical glove production to Malaysia, at the other end of our world for most, in which some profit from transporting exploited cheap labour forces from even poorer countries.

    Talking about energy saving, climate, humane and social standards, as well as security and a safe supply chain for such an essential product, this is bad from every possible perspective. But in the end just another perversion of the recent, unregulated Globalisation. Its not just China. The Chinese government was just better planned, more reasonable and used the recent economic trends better than most.
    Don’t blame them for acting more reasonable than others. Like in Corona crisis too – they made mistakes at the beginning, but did a better job than many Western countries so far, everything considered. Unless their numbers are completely faked, for which I haven’t seen any proof so far.

    The Chinese growth and rise to power might be a real problem for many people indeed, but don’t blame them for the own shortcomings. The Liberal system failed and needs to be analysed, just pointing fingers at the scapegoat is not enough and won’t help.

    But a real Tsunami is coming, because we might see first a hyperinflation, supply chain collapse and then an exploding currency (dollar) bubble. What’s then? Some will have plans, or making them right now. This whole crisis might just show the systemic weakness which was present since decades, because of a failed deregulation, globalisation and transnational financial economy.
    I’m quite pessimistic, because the virus is not under control, and it seems to need much more time to do so, we are just at the beginning, but the economic shock and consequences are already so huge, that they might be “the big shock” some expected for quite some time.
    Let’s hope “the elite” does something right this time, because we might look forward to grim times otherwise. The virus is just a catalyst, but a much to big one for being under control by anyone.

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  22. @Numinous, I think there’s a bit of a goalpost shift in your comment. You’ve gone from countries needing to become exporters to rich world to gain capital inflows to develop (your original post), to asking me to find your countries which didn’t have any visitors or any trade at all. Even Japan had visitors who were important in the transfer of knowledge, and even it imported technical innovations.

    I have no dispute with the idea that countries would certainly *need* to import ideas and technology – I don’t think isn’t much of another way anyone could read my comment “They could implement tons of borrowed technology. They could borrow large bodies of legal framework”?

    Overseas capital from trade was not really decisive on the development of any of today’s developed nations, certainly those that were developed before the late 20th century, and I’m not sure it was really even totally decisive for Japan. I can’t find you a country which had no trade because of course they all did, but in no cases were they dependent on foreign export revenues for developmental capital. The only country that might be viable for is South Korea, but even then I expect internal economic change and reform to be more important. Even in those cases where it did help, we’re not talking do or die.

    Becoming an exporter to a richer country surely might help, I don’t dispute, but my dispute here is “There’s nothing else that can increase prosperity levels in poorer countries and allow them to catch up to richer countries. If rich countries refuse to trade with poor countries, they’ll remain poor and chaotic.”. A way out of being poor is not dependent on being able to sell to rich countries, it is dependent on political stability, developing institutions and internal reform. Poor countries are not some kind of supplicants, doomed should there be barriers to trade between them and rich countries, and should rich countries protect their markets. The power to change their economies is within their own control, and where it is not achieved, people in those countries should look at who are the forces that are preventing that, domestically, because it is they who will be decisive.

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  23. @matt,

    You seem to suppose all countries are equally blessed with natural resources not to need trade.

    When all a country can offer is human capital rather than natural resources, it would have to trade it’s human “energy” to increase wealth.

    Strong institutions come from wealth and well-fed populations or sending out poor/trouble-maker people to “colonies” (other nations have achieved through killings too).

    I don’t know how strong institutions or political stability is expected to be achieved with starving, sick, population and elite highly insecure about their wealth and safety. Also, not to mention external threats once a country is on path to achieve just that.

    It sounds more utopian and “pull up through your bootstraps” kind of way rather than anything resembling reality.

    All the technology transfer is great but comes each time with higher energy demands. Be it coal in UK, oil in Texas, all “rich” countries have either have or got high density energy resources until they developed strong institutions.

    Maybe it isn’t as simplistic as it sounds to me. Perhaps you have something else more detailed to point to what you have in mind?

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  24. E Harding, I read Scott Sumner’s article and I believe the winning synthesis for America is not strictly pro-libertarian or anti-libertarian – instead some libertarian policies would be helpful – see the FDA screwups and ridiculous barriers to manufacturing more masks. But some libertarian policies are not helpful – like our unilateral free trade policies in PPE, especially masks. Germany, France, Taiwan & South Korea all banned mask exports while we still export in mass despite us having 25% of world COVID cases and our hospitals having quasi-3rd world PPE/mask levels (ie the US is a have-not world underdog with regards to PPE).

    For the future, inside our internal market we can have deregulation to increase supply and increase efficiency and bring the FDA to heel – Libertarianism in one country. That is 100% compatible with anti-libertarian long-term tariffs, strategic stockpiles and other incentives towards Autarchy for important items.

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  25. @Violet, sure there will be a limit imposed by need for energy imports and raw materials, for those countries that would lack them domestically. But how high is the cost of energy on world markets? Cheaper than they’ve ever been. I’m not convinced that they are that great a constraint. Do you really need that much energy input to reform agriculture? Is it impossible to pay for reform of agriculture until you develop some pocket of export oriented manufacturing to do so? (Presumably with with the capital fronted by national debt or a foreign multinational). Don’t buy it.

    I suppose I could partially walk back to countries that have no domestic natural resources in energy / metals may then need to have enough exports to pay for import of those from countries that do have them.

    But then how many poor countries are really like that? It seems like very few are in a resources trap like that, if you look at production of energy resources, or of vital raw materials (metals). So for practical purposes, I don’t think it poses much of a counterargument.

    I’m not proposing that countries immediately leap to strong institutions, and of course there is a feedback between wealth creating trust and allowing countries to enforce rules strengthening them. Just that countries are not at any stage “blocked” in the process of increasing institution quality and increasing wealth, by not being able to export to the developed world (except in perhaps a handful of cases and even then confined to trade for fairly basically need that can be met without getting heavily into manufacturing exports).

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  26. Even India can play this game:

    “India Bans All Exports of Virus Drug Often Touted by Trump” By Rajesh Kumar Singh on April 5, 2020
    https://www.bloomberg.com/news/articles/2020-04-05/india-bans-all-exports-of-trump-s-game-changer-virus-drug

    “India banned all exports of hydroxychloroquine, a malaria drug that President Donald Trump has repeatedly touted as a “game changer” in the fight against Covid-19.

    “Exports of the drug and its formulations are prohibited “without any exceptions” and with immediate effect, India’s Directorate General of Foreign Trade said in an April 4 order on its website. The trade regulator had last month restricted overseas shipments of the drug, allowing only limited exceptions such as on humanitarian grounds and for meeting prior commitments.

    “At a press conference on Saturday, Trump said he spoke to Indian Prime Minister Narendra Modi and appealed for the release of shipments U.S. has already ordered. India is giving his request “serious consideration,” he said.

    “Trump also said that the federal government was stockpiling millions of doses of the drug to make it available for coronavirus patients.”

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  27. i always think of the stupid “kanban” system and the kanbanification of our entire society that corporations (silent generation folk) have foisted upon us. as if there wouldn’t be consequences…

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