Book Review: The New Wealth of Nations

The New Wealth of Nations is a book about the decline of world poverty by Indian economist Surjit S. Bhalla. The book explores the role of education in bringing this about, the failures of current measures of inequality, and possible changes to government welfare programs to accommodate changing conditions.

The opening chapter considers the accelerated growth of the third world relative to advanced economies in recent decades. Bhalla posits greater equality in education as the cause, making the case through much of the rest of the book. His near-obsession with equality between the sexes and belief in its unalloyed goodness begins here and becomes tedious as the book goes on. His list of supposed benefits of the globalization demonstrate a thoroughly liberal worldview. Bhalla closes the chapter by introducing the topics that will be covered in most of the following chapters.

Chapter 2 deals with the impacts of the equalizing of education around the world. Bhalla cites data showing that since 1980, growth in developing countries has outpaced growth in the West. He notes that crediting globalization for all of the 700 percent growth in the incomes of poor people in China and India would be fallacious, but waits until the next chapter to deal with other explanations. He views Brexit and Trump as mostly a backlash against falling Western growth, partly racially motivated, and the latter partly due to Clinton’s incompetence as a candidate, which is more or less correct. Bhalla ends the chapter by framing globalization as good in Rawlsian terms, which also works against his case if one rejects Rawls’ conception of government policy ethics.

The third chapter examines economic history from 1500 to 2016, with projections to 2030. Bhalla relies heavily on the estimates of Angus Maddison, which are highly questionable even by Maddison’s own admission.[1,2] Bhalla outlines his methodology for the rest of the book, and problems here explain most of what is misguided going forward. He makes much of the Gini coefficient, which has its own set of faults. He contemplates why poor countries are poor, looking to industrialization, commodity trading, and colonialism, finally settling on lack of education. Never does the possibility of genetic differences in intelligence between ethnic groups cross Bhalla’s mind, as this would call into question his “natural experiment” of comparing Latin America to Africa and Asia in the 19th and early 20th centuries. The chapter finishes on a tangent about spread of democracy, which Bhalla treats as political freedom and an absolute good rather than a source of perverse incentives.

The advancement of China and India is the subject of the fourth chapter. Bhalla looks at the role of education in the rapid improvement of both countries in recent decades, as well as the relative lack of education during the previous five centuries. When discussing Chinese history, he presents as fact the 1421 hypothesis of Chinese discovery of the Americas, which is rejected as pseudohistory by historians.[3] He considers the similarities of China and India through the centuries, as well as their recent divergence, largely attributable to when each started economic reforms that freed their markets. At the end of the chapter are graphs showing the distribution of the middle class and of income throughout the world since 1950.

Chapter 5 deals with the connection between education and income more explicitly. While this explanation is tempting, Bhalla commits the glaring fallacy of equating education with years of schooling, neglecting self-education, on-the-job training, and the substitution of authentic learning with indoctrination. He notes the decline in fertility that accompanies increased education, but only considers this in r/K terms. Genetic quality of children in terms of age of the mother go unaddressed, as does the role of Enlightenment values. As for demographic shifts, Bhalla notices that in earlier times, the poorest and least-educated could not manage to migrate to the United States. That this is no longer the case is frequently overlooked by commentators, including Bhalla himself, who equates “open door” policies with “enlightenment”. Surprisingly, he mentions the higher average intelligence of Jews, attributing it to the need to be able to read the Torah and the fact that education is not left behind when fleeing persecution. This is contrasted with Hindu Brahmins, who did their best to keep their religious mysteries to themselves. The next chapter continues exploring income and education. Bhalla cites and critiques the findings of Oxfam and Credit Suisse on income inequality. He explains how the metric of Purchasing Power Parity functions. His great ambition for this chapter, that of estimating the wealth in education, suffers from the faults of equating education with schooling and using the Gini coefficient. He further assumes that the ultimate value of present schooling can be known in advance, and that PPP will reflect this.

The seventh chapter considers the implications of an expanding supply of skilled labor. Bhalla explains stagnant wages in the West in terms of an excess of college graduates, but fails to explain this as the government-created problem that it is. When discussing inflation, he points out that food and fuel are excluded from official measures of inflation and explains that this is because monetary policy cannot affect their prices as it affects other prices. He correctly criticizes the Keynesian Phillips Curve and several other schools of thought, as well as the blunders of US Fed Chairman Alan Greenspan, but makes no mention of the Austrian School or the role of the Nixon Shock in causing inflation. But rather than propose less state intervention, Bhalla proposes more by looking ahead to basic income guarantees (Chapter 10).

Chapter 8 explores the role of women in a changing economy. Bhalla asserts without evidence that “there is no reason to think that men and women have different average abilities for the same education level”, ignoring both contrary evidence from neuroscience and the role of standard deviation, which is larger for men.[4] This leads him to blame “misogyny” for the relative absence of women in corporate board positions. Returning to the fertility decline, he suggests that the threat of population explosion of third-worlders flooding Western countries is overblown, as their fertility should decline as education increases there. However, his prediction that populations will reproduce below replacement levels is still worrisome in terms of protecting genetic stock and ethnic integrity. His contention that hiring men at greater cost than hiring women is irrational presumes no values beyond economic efficiency, but he does correctly explain away the myth of the wage gap. Bhalla closes by predicting a social revolution as women are on track to become the major breadwinners, but presents this with unfounded excitement.

The ninth chapter expands on the theme of equality. Bhalla correctly faults the establishment concern over world income inequality, given that by their own measurements it is already decreasing. He explains the work of Simon Kuznets on wealth inequality over time, showing that his model failed because it did not account for growth in education. He then discusses inequality in the US, UK, and China, comparing them to the rest of the world. The final three pages show graphs of income distribution across the West, the rest of the world, and the entire world.

Chapter 10 considers the likely changes to state welfare programs. Bhalla notes the decades-long policy discussions about poverty, then correctly criticizes the poverty industry for the make-work scam for bureaucrats and intellectuals that it is. He relays a personal experience of his own work going unpublished because the reality he found does not fit the party line. He introduces the reader to the Human Development Index (HDI), an alternative to GDP per capita for measuring well-being, then shows the strong correlation between poverty and illiteracy. Bhalla uses the examples of China and India to demonstrate faults in the World Bank’s methodology concerning poverty measurement. He ends by discussing what Mencius Moldbug has termed the Dire Problem (Bhalla does not use the term); the emerging economy will produce large-scale unemployment as automation takes away old jobs and does not produce enough new jobs. Universal basic income and negative income taxes are discussed as options, with the former being criticized.

In the eleventh chapter, Bhalla makes the case that education drives the middle class, explaining its relative size in different places and times. He considers several historical definitions of the middle class, most of which ultimately refer to private property owners. He comes to the empirical results that the middle class starts with the poverty line in advanced economies and ends at ten times that amount, with the poor and the rich being outside of this range on each side. Bhalla’s description of class dynamics is mostly accurate, though like any liberal thinker, he views the growth of democracy that tends to follow growth of the middle class as an inevitable and positive mark of progress. This makes the table included in this chapter rather puzzling. Of countries that have experienced accelerated growth since 1960, the highest per capita incomes are found in Singapore and Chile, both of which had lengthy periods of non-democratic rule.

The changes that expanded education brings to the elite are the subject of Chapter 12. Bhalla correctly points out the survival ability of traditional elites, but neglects the damage done to them in communist and socialist uprisings such as the Russian Revolution. But his predictions for changes in the nature of the elite do not go far enough, though correctly tumultuous they are; a highly educated demos is likely to think more of localism and anarchism than of democracy or populism, as they will see no need for expert rulers above them.

The final chapter begins with a brief note about the Trump presidency, in which Bhalla argues that immigration restrictions cannot raise American wages. This is correct but irrelevant, as the motivation of many Trump supporters is to protect their sense of culture and ethnicity. He then looks to the people left behind; the Charlottesville marchers in the United States and the cow vigilantes in India. Bhalla misunderstands their plight, arguing that a basic income will cure their antisocial behavior, when a handout will do nothing for their sense of dignity or for their lack of investment in society. This plan also reeks of appeasement, which has an extremely poor track record of stopping hostile people. The book ends on an error that is present throughout: the equation of progress with Mother Nature, when Bhalla’s feminized Gnon frequently represents the unnatural aberrations of modernity.

Overall, the book presents an interesting set of arguments, but there are simply too many fallacies and gaps in Bhalla’s reasoning and empirics for one to regard the case as proven. That being said, the book is still valuable on a secondary level for correctly rebutting many establishment positions on economic issues.

Rating: 3/5

References:

  1. Datta, Saugato, ed. (2011) Economics: making sense of the Modern Economy. John Wiley & Sons.
  2. Maddison, Angus (2007). Contours of the world economy 1-2030 AD: Essays in macro-economic history. Oxford University Press.
  3. Fritze, Ronald H. (2011). Invented Knowledge: False History, Fake Science and Pseudo-religions (Reprint ed.). Reaktion Books. p. 12, 19.
  4. Wai, Jonathan; Cacchio, Megan; Putallaz, Martha; Makel, Matthew C. (2010). “Sex differences in the right tail of cognitive abilities: A 30year examination”. Intelligence. 38 (4): 412–423.
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