Good Poors and Bad Poors

By Graham Peterson

In cultural arguments about economic growth and poverty authors allege that there are good poors and bad poors, so it is perfectly clear to me why such arguments have been abandoned: they’re empirically incorrect, and insulting.

The old cultural hypothesis about economic growth dates to long before Weber’s Protestant Ethic and the Spirit of Capitalism, but the book is a nice exposition of the ideal type.  Weber began his investigation by falling for a Simpson’s Paradox, where one observes a trend in subgroups running one direction, but when one zooms out to the next level of aggregation, the trend disappears or runs in the opposite direction.  The thesis never recovers from that mistake.

Weber started by noting the way German Protestants were getting richer than German Catholics in the 19th century.  From that he concluded that the spread of values for thrift, temperance, and hard work, and the instantiation of these values into progressively more calculative social systems made some nations rich and others poor.  But this is like looking for the origins of economic growth by comparing the relative variation between the cultures in rural and urban Afghanistan.  Germany was in the 19th century an economic laggard, barely adopting the technologies spilling out of England and Holland.

If there are cultural differences to be found that explain economic growth and concomitant modernization, they will be found in comparative differences between England and Holland and their neighbors, or indeed between them and other regions and cultures in history.

Regardless, Weber and his grand theory of increasingly disciplined and prudential bureaucracies remains popular.  Weber himself constantly admits the massive proliferation of bureaucracies down through history since settled agriculture — he resolves this contradiction by claiming there is something just ever so slightly different about modern bureaucracies, if not in kind, in degree.

But there is very little to recommend a difference of kind in his extensive discussion of Calvin-inspired discipline and systemization.  And explaining the change as a difference of degree would be to explain nothing at all — myriad politicians and merchant classes had turned up the volume on bureacratic systems and control many times in history with no Industrial Revolution resulting.

Moreover, the academic left long ago pointed out the nasty things that Weber’s line of reasoning implies about those who are not rich: that they are profligate, intemperate, imprudent, disorganized, imprecise, and lazy.

Those who hope to rescue Weber must wrestle with the very good theory and empirics of 20th century macroeconomic growth measurement.  We now know that increases in the economic productivity of labor come from working smarter, not harder.  Merely expending more calories by swinging a hammer faster cannot create exponential increases in economic productivity.  The returns to more calories diminish.  Savings and investment cannot of themselves create growth either.  The returns to such investment diminish as well.  It has been shown empirically by macroeconomists over and over again, and is now an uncontroversial central tenet of modern economic theory.

You simply cannot get exponential growth in productivity from impressing workers with a spiritual calling to work harder and organize more systematically, and to reinvest held over gains into production of accumulating capital.  So even though Protestants may have appeared and even been slightly more enterprising than Catholics in 19th century Germany, these group differences do not explain macroeconomic productivity.

What needs to be explained is where technological innovation comes from, where the good ideas that combine capital and labor resources together in new ways, come from.  And I do believe that the explanation will be in large part cultural and sociological.  But if we are going to invite conversation on culture and economic outcomes, the old Hard Work, Thrift, Systemization, and Discipline hypothesis has to go.

We do not start arguments about global warming by comparing today’s weather with yesterday’s and we cannot similarly start to argue about economic productivity by looking at tiny group differences in countries that are otherwise economic laggards.

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