How the West Was Lost: Fifty Years of Economic Folly—and the Stark Choices Ahead Hardcover – Feb 14 2011
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"The sad saga of the recession gives legs to Dambisa Moyo's provocatively-entitled book, for it goes to the heart of the great economic issue of our times: how swiftly will power shift over this century?" (Hamish McRae The Independent 20110214)
"In her new book, How the West Was Lost, [Moyo] expands that critique [started in Dead Aid], treating the housing bubble at the root of the recent financial crisis as just one instance of what's been 50 years of misguided policy by the West, particularly the United States. While she doesn't say that all is lost, the Oxford educated economist...does believe the US will have to fight back very hard if it is to stay on top. That will require making difficult decisions, and thinking about the long term, in a democratic environment that rewards easy choices and short term thinking." (Canadian Business 20110226)
"Moyo is a serious economist with a serious message, one she doesn't dumb down to promote her book. Nor does she take any pleasure in the West's decline" (Toronto Star 20110301)
"While the reader requires something of an appetite for statistics and should be vaguely numerate, he or she need not be a student of economics to enjoy and digest the arguments that Moyo lays out with perceptiveness and often brutal honesty." (Steve Matthewson Business Live 20110603)
"Moyo's diagnosis of the recent disasters in financial markets is succinct and sophisticated...I applaud her brave alarm against our economic and social complacency: her core concerns are sufficiently close to painful truths to warrant our attention." (Paul Collier The Observer 20110116)
"We [in the West] have alienated trading partners and are colluding in the decline of our own prosperity, says Moyo, who sets out strategies for weighting the political seesaw back to our advantage." (Iain Finlayson The Times 20110117)
"This argument...can rarely have been made more concisely...Moyo is a very serious lady indeed." (Dominic Lawson The Times 20110109)
About the Author
Born and raised in Zambia, Dambisa Moyo received a Ph.D. in economics from Oxford University and a master's degree from Harvard University's John F. Kennedy School of Government. A former consultant for the World Bank and an investment banker specializing in emerging markets at Goldman Sachs, she is the author of the New York Times bestseller Dead Aid.See all Product Description
Top Customer Reviews
For example, in trying to prove her contention that the US is losing its technological superiority, Moyo cites the absolute numbers and percentages of engineering graduates in China and the US - a statistic not unfamiliar to readers of The Economist magazine or better newspapers, but insufficient in itself as the foundation of an argument given the length and scope afforded book authors. Moyo builds on the statistic with much opinion (several pages on American youth's propensity to worship celebrities and sports stars rather than scientists), and some anecdotal facts, including that one has to go back to Thomas Jefferson to find a US president with a science or engineering background. Irrelevant information for the former, and for the latter quite wrong; Jimmy Carter has a bachelor of science degree and did graduate work in nuclear physics, which came in quite handy during the Three Mile Island nuclear disaster. In another passage she asserts that, aside from Norway, all prosperous countries are net importers of energy, which will be news to Canadians. One expects more, much more, in a well written and well edited book.Read more ›
Moyo blames three primary reasons for the West`s troubles: military misadventures (read Iraq), the transfer of best practices to the Rest through globalization and flawed economic policies. Focussing on the latter in her book, Moyo cites how the West (and the US and UK, in particular) engineered a financial system that cultivated agency risk, misallocated capital to favour imprudent risk-taking and encouraged an unsustainable "indebtedness ethos". Interestingly, in contrast to the prevailing narrative which blames deregulation and Wall Street greed as being primarily responsible for the financial crisis, Moyo sees Western government policy of encouraging home ownership as a critical reason behind the collapse. Though well-intentioned, the direct consequence of subsidized home ownership engendered by these policies, Moyo claims, was the unsustainable leveraging of homes and the formation of a massive bubble.
Critical to the process of Western decline -- for which she uses the US as shorthand -- is the concept of `Chimerica`; a term first coined by British historian, Niall Ferguson.Read more ›
For me, the most valuable part of the book was the section "Not All Bubbles Are Created Equal", where Moyo details just why housing bubbles can be much more devastating to an economy than equity bubbles. Anyone who remembers the bursting of the dot-com bubble in 2000 and the bursting of the American housing bubble in 2006 must have suspected this was so: Moyo explains why.
Moyo gets way out of her depth when she launches a tirade against the adoption of inflation targeting (IT) by central banks as contributing to the Great Contraction of the nought decade. Tony Blair's Chancellor of the Exchequer, Gordon Brown, comes in for special criticism for taking financial regulation out of the hands of the Bank of England, as if this decision were somehow intrinsically related to IT, and not a completely unrelated call. Neither Blair nor Brown had anything to do with the Bank of England adopting IT. This happened under Thatcher, when John Major was her Chancellor of the Exchequer, in November 1992, four and a half years before Brown took office. Although the United Kingdom moved to IT just under two years after Canada, it wisely did not follow Canada's lead in its choice of inflation indicator. Canada adopted the CPI All-items, which included mortgage interest costs in its owned accommodation component. The counterpart British indicator was the Retail Price Index (RPI), but for its inflation indicator the UK instead went with the RPIX, i.e.Read more ›
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Capital has been misallocated as a result of government policies supporting subsidized home ownership, encouraging a culture of debt and diverting capital away from productive investment in business. Labour has been misallocated by failing to take account of future pension costs, failing to educate sufficient people in useful professions like engineering, and encouraging people into the wrong pursuits by grossly overpaying sports stars. Technology has been misallocated by giving it away to Chinese manufacturers in return for cheap goods, rather than protecting it.
If we stick with the status quo, then all is lost, according to the author. China could falter, but that is an unlikely scenario. The US and Europe could fight back, but at present America does not appear to have the mettle. The author's preferred approach seems to be for the US to default on its loans, reckoning that China will suffer more than America.
As was the case with her previous book, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, the author's diagnoses of the problems have some merit, although they are overly dramatic, but in my opinion her proposed solutions leave something to be desired. The book is an entertaining read, and the issues are presented in a way that will make the reader sit up and take notice.
'How the West Was Lost' reads uneasily, shifting from a mildly didactic tone to energetic advocacy to journalistic analysis. It combines sweeping generalizations, a somewhat confused and tendentious reading of what constitutes the economic and social challenges currently facing the United States, and a cherry-picking approach to conditions in other countries, both developed and developing. It runs through the usual list of economic, financial and social difficulties now facing the United States, asserting that 'radical solutions, many of them offered in this book' must be adopted quickly before it's 'too late' (p xiii) to save the west 'from oblivion' (p 181). The reader then has to wait patiently for these radical solutions, which are offered briefly in the last few pages of the book. They include ' a serious revaluation of the US's role as virtually the sole underwriter of global public goods', by which the writer seems to be alluding the size of the Pentagon's global operations and budget; accepting the likely benefits of economic protectionism; addressing growing income inequalities in the US, and growing US welfare costs; saving more and spending less; and investing in the US to create a more skilled labor force and new technologies. She also proposes that the US defaults on its external debt so as to break the 'stranglehold of debt and dependence' it is, she says, gripped in by China and others. To reinforce her disturbing protectionist message and her reductionist view of US-China relations the author remarks sweepingly that 'forging closer ties with the emerging economies and dismantling...trade barriers will not work.'
Few of the policy implications of these so-called radical solutions, none of them new, are properly analyzed or thought through, so that after being subjected to a 190-page account of the US's inadequacies, not to mention the bright prospects for China, the reader is left with little more than a few beguiling slogans.
Sourcing is also inadequate and often hard to make use of. To take just one example, selected more or less at random, on p 167 the author writes about 'the continuing face-off between India and China, propelled to a large extent by water shortages'. This is in itself a highly partial and inadequate description of the complex relationship between China and India. But that isn't the main point here. Dr Moyo then declares that 'China is thought to be considering rerouting the Brahmaputra River to its Yellow River, which would have devastating effects on the land and people of Bangladesh and India'. The source cited for this statement is a very long website address which cannot be accessed as given, but which evidently refers to an article by Brahma Chellaney in the 08.14.09 edition of the Israeli newspaper Haaretz. Chellaney (and why wasn't he sourced or interviewed directly? why was an op ed piece in an Israeli newspaper selected as the source for this?) is a respectable senior researcher at the Centre for Policy Research, New Delhi, but his assertions about this possible future use of the Brahmaputra are controversial and contradicted by various other commentators, including several Chinese sources, none of whom Dr Moyo mentions. This is, as I say, a random example (and I should add that I am in no way involved in China-India relations or water-related issues); there are many more like it.
There is a real need for a good book assessing in detail alternative policies and strategies for the west and for the US in particular in the light of the 2008 crash. Regrettably this is not that book.
The best points are about what the author calls misallocation of both labor and capital. What this really comes down to is bad incentives. I think Moyo's argument that the US puts way too much emphasis on real estate is dead on. Building homes or fancy commercial buildings does not really create much innovation as compared with investing in industry or technology. Yet, real estate has always been THE way to get rich, and the investment capital flows accordingly. The result is inflated home and property values instead of new job-creating industries.
Moyo makes a similar argument about labor. She emphasizes sports stars, but I think a better example is Wall Street attracting so many smart people that could otherwise do something more productive. And then there's real estate again. How many people have jobs in construction, real estate agents, loan agents, title companies and everything else? Now of course, a lot of those bubble jobs are gone. I live in the SF bay area and know at least one person with a PhD in engineering who left working in tech to become a real estate agent back in 2005 because she could make so much more money. That is true misallocation of talent.
One important issue is how the incentives for the people at the top help create these problems. As she says, the West is transferring critical technology to the Chinese, but this is happening mostly because the CEO can get a huge bonus by creating big profits in the short run by giving into the Chinese government's demands. The long run will be somebody else's problem.
The other point she doesn't get at all is the rate at which technology is changing and how it might completely shake things up in the future. I work as a developer in artificial intelligence, so I am very aware of this issue. For example, a lot of China's industry will probably become much more automated quite soon (as manufacturing in the US already is now). That will make it very hard for them to create enough jobs to keep the population satisfied, and that could be a game changer for our assumptions about China.
Now comes her next book, and I think her conclusions & suggestions are even more controversial, and will lead to even more debate. The author says that the West has become mired in complacency and that the classical drivers of economic growth- Capital & skill accumulation and technical/scientific innovation have stalled. Not only that, that there is no political leadership with the will to fix this. "Where labor is concerned, the OECD statistics show that the U.S. and other countries are dwindling downward in terms of education and other sectors," ..."China doesn't have the looming health care concerns that the U.S. does. And China has posted the largest gains in productivity."
She claims that the recent bailouts failed: "Debt claimants failed in their fiduciary duty to police the equity holders because they were hedged by public policy."
The author also notes that in the USA too many families support pipe dreams of their kids becoming sports stars or entertainers, rather than going to a two year vocational school or a hard science degree. Interesting.
Moyo thinks this will lead to a failure by the West : The west will lose out in the scramble for finite resources, and so as "the rest" rise "the west" will decline, not just relatively but absolutely.
So far, although her views are overly pessimistic and dystopian, she had me nodding in agreement at several points. She makes some convincing arguments that the West is in a economic mess. On the other hand, she does hold out some hope and encouragement: "Americans in particular are renowned for bouncing back. We've seen this time and time again and that is in part the purpose of my book--a call against complacency. Things are going to get much better" and "I'm talking about policy and intentions--we want people to have housing and pensions, but the way that they've been structured, such as the idea of providing housing for all, has led to a lot of debt."
She leads into her ideas for fixing all this with "I'm talking about policy and intentions--we want people to have housing and pensions, but the way that they've been structured, such as the idea of providing housing for all, has led to a lot of debt." . Sure. However, then comes her suggestions- that America default on it's debt and lapse back into trade protectionism. This is tantamount to a economic war with China, I think, and it's a far too drastic measure.
Still, even though I somewhat disagree with her conclusions, the book is riveting and well argued.
How the West Was Lost clearly shows that we cannot continue to do things the way we have and that we must not only change our actions, but our thinking as well. This would involve so much change in government policy that it seems an impossible task, but I refuse to accept that the outcome is inevitable, as the author seems to.
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