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Monday, May 31, 2010
Culture Matters
This is one of my favourite Milton Friedman lines:
A Scandinavian economist once stated to Milton Friedman: "In Scandinavia we have no poverty." Milton Friedman replied, "That's interesting, because in America among Scandinavians, we have no poverty either."
It's a vital point often missed by free marketers. Culture matters. A whole hell of a lot. In our enthusiasm to convince people that markets work, and government generally doesn't, we miss that markets themselves are only a mechanism. While markets efficiently allocate resources, they don't describe the goals of production. That's something exogenous to the market, it can be termed consumer preference. What forms consumer preferences is culture. A half century ago the music industry was able to provide millions of American fans a seemingly endless stream of classic albums by Frank Sinatra, Tony Bennett, Dean Martin, Louis Armstrong and Miles Davis. Today the few record stores still around are flooded with atonal rubbish. Ditto with iTunes. The market is efficient at delivering gold and crap. Thus the very latest in HD television techno-wizardry is used to give us "Reality TV." Nothing like seeing people prove Hobbes right, with stunning visual precision and colour rendering.
Just as the goals of production are culturally determined, so to an extent are the methods of production, who does what and how. The large scale presence of married women in the modern workforce is the product of cultural change, not economic change. The relative success of certain ethnic groups, as alluded in the quote, is a perfect example. There is little in economic theory to explain the higher than average incomes of Scandinavians, Jews or people of Scottish descent. Yet it's not too hard to point out important cultural traits. An emphasis on practically minded education, thrift, hard-work and risk-taking. To an economist labour is just labour, and capital is just capital. So much of each will produce a good or service. That some individuals or groups are better at generating capital, or offering high-level skills, is an enigma. You can't measure cultural values in a test tube, and statistical analysis often says more about the drafters of the regression models than about the people being examined. It's something qualitative. An attitude or sense of life. Political and economic freedom can make the most out of that attitude, it can certainly encourage it, but it cannot create it from scratch.
Posted by Richard Anderson on May 31, 2010 | Permalink
Comments
Reminds me of this article, about the limits of government policy:
http://www.nytimes.com/2010/05/04/opinion/04brooks.html
Roughly a century ago, many Swedes immigrated to America. They’ve done very well here. Only about 6.7 percent of Swedish-Americans live in poverty. Also a century ago, many Swedes decided to remain in Sweden. They’ve done well there, too. When two economists calculated Swedish poverty rates according to the American standard, they found that 6.7 percent of the Swedes in Sweden were living in poverty.
In other words, you had two groups with similar historical backgrounds living in entirely different political systems, and the poverty outcomes were the same.
Posted by: Anonymouse | 2010-05-31 10:39:29 AM
This should be self-evident that it is culture and values that make the difference not the colour of one's skin.
Posted by: Alain | 2010-05-31 7:32:38 PM
Alain- I'd agree with you, if it weren't for the mountain of statistics, and 40 years of observation.
Posted by: dp | 2010-06-01 1:27:04 AM
dp, please provide some examples of people of different skin colour sharing the exact same values and culture who behave differently based on the colour of their skin. My many years of personal observation that confirm it is culture and values that make the difference. I am also aware that just because people live in a particular country and culture it does not mean they share the same values. The bottom line is that things such as a solid work ethic are not genetic but are learned.
Posted by: Alain | 2010-06-02 11:28:30 AM
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