Thanks for this review, Noah. I have to say, I find your explanation of this phenomenon - that it has to do with different "levels" of economic development - more convincing than Dan's engineer-versus-lawyer one. This is not to say that his observation itself is wrong: I think he makes a very good case for it, and it's almost self-evidently correct.
I'd disagree with his point about the impact, however, for two of the reasons you highlighted:
(1) The US has pretty much always been run by lawyers. Most western countries have been since they adopted constitutional governments. But they have been much better at building before than now, so what gives?
(2) The causality of the engineer-lawyer split, inasmuch as it exists, might run the other way: the can-do government selects for engineers, rather than the reverse.
The development argument makes more inherent sense, I think. When people don't have access to secure food, housing, and transport, this is what they prioritise. That means building the infrastructure to provide that. Once you do, your concerns move on to other things - especially all the noise, disruption, and possible environmental damage that building that infrastructure comes with.
I had a couple of additional thoughts too:
(1) Maybe an alternative thesis is that when, say, the US and UK industrialised, academic disciplines were less specialised, and it was more common to find well-educated people with interests in diverse fields. The west might have been run by lawyers, but the relative prevalence of polymaths meant those lawyers were more engineer-ey, and less lawyerly than now. Building a ton with 19th and early 20th century lawyers was maybe possible, in a way that it wasn't with late-20th century and 21st century ones.
(2) If the development thesis is right, is it possible for a country to go in the opposite direction? I.e. for the stasis in building stuff to cause such severe shortages of basic public goods that political support swings back towards can-do. This might be happening to a limited extent in the UK, but I'm not super convinced.
Interesting arguments, I wonder if the shift towards this hyper specialization is actually a side effect of some form of state capture by academics/ educated elites rather than an actual need for this hyper specialization to effectively manage the government. In technology for example, we have had many founders and executives build huge businesses in industries where they had no previous experience since the 70s while in other fields it would seem we have gone down the rabbit hole of complexity. Maybe we need a „return of the generalist“ in key public institutions.
To your point 1, I think it has more to do with the overall level of democratic control over decision making in a society and lawyers are just incidental here as they are the tool used to exercise that power. My theory is that most people are fundamentally luddites and conservatives (in the traditional meaning of opposing change to the status quo) and that the people 100 years ago whose neighborhoods were developed to build apartments and factories were not one bit happier about it than the most diehard NIMBYs are today. The difference is that back then they didn't have the agency to stop it, but now they are able to file lawsuits against it.
Agreed that lots of people weren't happy about it. But also important to put into context that development projects in the early and mid 20th century were way more top-down and draconian than they are now. In the UK, for instance, slum clearance projects from the 1930s through to the end of the 1960s displaced more than three and a half million people. Those people were moved out of their neighbourhoods, which were demolished, and into better-quality housing, whether they liked it or not.
A lot of what would morph into contemporary Nimbyism started as a reaction to the heavy-handedness of these initiatives in particular. Jane Jacobs in the US stands out as an example, coming to prominence in part for opposing slum clearances. Virtually no mainstream politician in any western country today would support anything like these kinds of policies today. Even the Yimby ones who say there are too many lawyers.
I also think that, aside from people being able to sue more, a lot of it was also just the diminishing returns of these kinds of initiatives. Coming back to British slum clearances, one of the main reasons the whole thing lost steam was that by the end of the 1960s, the "slums" that were on the block were way less bad than the first ones the government knocked down. The social, economic and political costs of getting rid of and replacing these buildings just wasn't worth it in the same way anymore.
Yes I think it was clearly a mistake to let people sue to block projects like this. The solution should be at the ballot box, not lawyers plus judges controlling basically everything.
I'm looking forward to reading this book. My initial reaction on reading some of the initial reviews is to try and avoid thinking of engineering-led as "better" than lawyer-led or vice versa. Americas legal principles, individual and property rights, and rule of law have been undoubtedly tremendous in ensuring its greatness; I'm sure we can all think of engineering cultures that ignore these things for the sake of "getting things built" as delivering some pretty terrible outcomes - not least of all in China itself, as well as closer to home more recently perhaps with the event of social media.
What an amazing outcome it would be if we could see a strong, visionary, innovative engineering discipline and culture develop again, combined with respect for the rule of law enshrined with a robust set of legal rights and judiciary to back them up. Now thats an America we could all respect again (signed, a non-American).
> Americas legal principles, individual and property rights, and rule of law have been undoubtedly tremendous in ensuring its greatness;
I'm not really buying it that these general philosophical principles have much to do with lawyers vs engineers. Yes, lawyers in the US operate under a legal system that was based on them, but then so do Chinese lawyers operate under the legal system they are given.
But how much power do the lawyers actually have? That's what generates power and income and motivates people to move into those fields. In a society where the party can override the law in favor of engineering-focused chosen policies, you're much more powerful being the leaders or the engineers than the lawyers.
So if you have political ambitions you go into engineering if you were born in China, or into law school if you were born in the US. In either case the country isn't really ruled by lawyers or engineers, but by people with political ambitions who chose their path accordingly. In either case it's not skill as an engineer or lawyer that lets you advance politically. In China it isn't the best engineers who make it to the politburo and it isn't the best lawyers that make it to Congress.
I do not see is that there is any evidence of some connection that private property rights are any more of a "lawyerly" concept either. Just that the lawyers here know they have to operate in a system where private property rights are highly protected by the law. It seems like the lawyers that run the US are quite happy to ignore them when it is convenient anyway e.g. civil asset forfeiture.
I don't think this is entirely about what kind of person gets elected (or appointed) into the actual government. In the US, the overwhelming majority of day-to-day policy decisions aren't actually made by government officials, they're made by judges and lawyers operating within the legal system. Even very basic questions like "should that company be punished for defrauding its customers" often get handled by lawsuits in the courts, rather than by government agents themselves.
That's why being a lawyer in the US is so prestigious. We built a system where 95% of all decisions are made by the legal system, and mostly the government just sets parameters and operates around the edge of that machine. So naturally our officials come from the machine itself, but that's a side-effect not the cause. I don't know how things work in China, but I assume a much more active and vigorous state, with fewer policy decisions outsourced to the courts. To me this would help explain why government officials are less likely to be drawn from the legal profession.
The correlation here is that, to have a society that outsources most policy to the legal profession, you need to have a very clearly designed set of legal rules and a willingness to tightly bind yourself to them. That society is highly-rules based and the lawyer is king. If you're more interested in having a government that retains decisionmaking capability, you won't build a society like that; the profession of lawyer won't be as prestigious and property rights can also be a lot more flexible.
I worked in the US robotics and automation industry in the 80s and early 90s calling on both German and Japanese automotive firms. At times, we discussed the declining state of US manufacturing when compared to the national engine that supplied the Allies in WW2. It appeared that their 'A' students sought roles in product development and manufacturing (culturally valued) where our 'A' students pursued careers in law, finance and medicine (culturally valued). Ditto for careers in education. Ultimately, talent wins out?!
As an engineer who has studied a lot of the law connected to robotics and autonomous vehicles, there is actually not that big of a difference between the two professions. The legal system is just the "software" which runs the "operating system" for society. In many ways, going from engineer to lawyer is the natural progression....since the legal system has to deal with more abstract concepts.
One big difference is that engineers have to be result oriented (ie. It’s all for nothing if that dam you just built does not work).
Many lawyers are about process. If the rules are followed and process is met, they considered it done (which would be true in a trial or drafting a corporate contract), but nothing gets build.
Well... there are vast aspects of engineering which are focused on processes... say Software Quality and there are vast aspects of the legal world focused on results ...say business deals. As I mentioned, both require similar skills and thinking processes.
I would rephrase the problem with the USA. It is not a surplus of lawyers with an anti-growth mentality that is the prime problem (although it is a problem). I think it is more a surplus of bureaucrats in the private and public sector who intentionally establish legalistic rules that gradually undermine the foundations of economic growth. The bureaucracy does far more damage than the lawyers.
Bureaucrats may have not been empowered by the constitution, but they are in fact making the rules. Every single government regulation was written by a bureaucrat and Congress, the Presidency and the courts have done little to role those back (really until this year).
And as the Abundance literature shows, the biggest constraints on bureaucrats are the rules set up by other bureaucrats (typically in other departments).
Yes, lawyers can sue, but they tend not to win unless there is a regulation (written by bureaucrats) that can be interpreted in their favor. It is not the law that is the problem so much as the interpretation of the law made by bureaucrats. Laws passed by Congress give the bureaucracy much latitude in the specifics and bureaucrats inject their ideological bias into their decisions.
Same problem in the private sector, though not as extreme.
What you see now is the result of bureaucracy being empowered.
Another factor is that US, UK and Ireland all hae a comon law system which facilitates legal power and hence the ability of layers to block projects. Other countries such as China have an underdeveoped legal system so lawyers have less power, so law less attractive as a profession, and in contrast engineering more attractive.
As an engineer myself with additional management and accountancy qualifiactions, I think a nuance was missed in teh explanation.
So Lawyers are concerned with the allocation of wealth, whereas engineers are concerned with the creation of wealth.
It is not that Lawyers are concened with blocking things per se, just that in pursuing the pur e allocation of wealth in what may be a zero sum ganme, what they block one party form doing creates a better allocation of wealth to another party, although the overall wealth in society may decrease. If I prevent say extra housing in an area I will raise the value of existing housing but perhaps prevent a new industry from being exstablished. Overall wealth will not increase as it could have otherwise, but of the remianing wealth a greater proportion will remain with householders rather than house builders, with a loss of overall potential wealth to society.
The reason why Lawyers tend to take over the governing of society is that at a certain stage in development there is more wealth to be gained from being involved with developing rules for allocating wealth than from it's creation. So people will tend to opt for law rather than engineering, as gains are better.
As more take up law, where networks of lawyers are important for progression, lawyers wil tend to have familial traits where families have a lot of connections to judges and other lawyers and those associated with the legal progression. Hence if not in this milieu very hard to break in.
For engineering you need brains to develop somethg that works - it depends on what you know rather than who you know, so much easier if you have brains to go for engineering and develop from there. Engineering leads to a meritocracy as success is pretty transparent.
Branching later from engineering into finance or economics is relatively straightforward as the maths associated with economics and finance has already been covered in the engineering degree.
Another country where engineering has been predominant is Singapore, where at one starge (from memory) a degree in engineering was a requirement for being in Governnment, and Singapore has been pretty successful.
Overall, a balance is required for long term success, as over-specialisation leads to sub-optimisation, so best to have a balance of talent in Govt.
MMM - perhaps the legal profiling you do works kinda for administrative and social law fields in America but it's a gross over-extension I think generally (not a lawyer myself, a financial economist -
As for engineering transfering to finance and economics.... well... in my experience the engineers who do that tend to do fine in certain very specific areas of finance that are most process and mechanical (like quant oriented public trading) where flexiblity and change is less needed than yes, math. And are often rather crap at dealing with less math, more subjective and changeable entrepreneurial investment areas (as like what I do in more venture oriented financing where one is working with large subjective and large unknowns - and Excel jockeying can easily become pure self-deception as GIGO).
Math is important but not always the key in finance.... And equally the right kind of lawyer - those that have transactions background is a value add different than engineering trained entrepreneur who has frequently a very overly rigid (in a build a bridge by X rules) understanding of business and market/legal structures one can use.
I think the main driver is the financialization of the US economy and the focus on shareholder returns.
A lot of early stage industrial economies (especially mercantilist ones) focus on building/making things (often copying things initially) and then tweaking the manufacturing process. They often have government and banking activity oriented toward fixed capital investment and infrastructure. Most of the above was true of Japan and S Korea as well as China.
The US (as Noah noted) also was manufacturing focused for a good while.
Then US companies learned that financial returns don’t necessarily flow from continual product improvement but rather by improving financial returns (margins, ROE) and reducing volatility of earnings.
In the financially-oriented US economy amidst of world of global capital excess (and globalization of production), American companies learned that investors don’t like high fixed costs and capital requirements and cyclical manufacturing exposure.
Companies are paid more for IP than output. The primary focus has been on cost reduction and shedding high cost or low margin assets/processes. Outsourcing transfers those risks to the contract manufacturers and suppliers.
That is what shareholders want and pay high multiples for. The fact that large successful companies and entire industries become dependent on unreliable enemy states for their inputs and production is neither here nor there. For whatever reason, shareholders didn’t view this as a risk when applying multiples and the government is happy when US companies (and donors) are making money and the stock market is going up.
Obviously easy money and loose fiscal and monetary policy has helped shift the focus to asset prices and high margins as well.
While China has also been reckless with credit- the credit pipeline is mostly government directed toward property, infrastructure and manufacturing.
In contrast, a decent portion of the money sloshing around in the US (in part fed by trade deficits/capital account surpluses) has gone toward increasing multiples on existing assets rather than building new assets. Higher multiples/prices of course drives new investment, too, but usually in the flavors of the moment rather than things hard to build (houses).
The lawyer thing he raises is an interesting part, but this is an outgrowth of the regulatory state and tort laws and wealth rather than lawyers really running the economy. The financial sector runs the economy.
I don't believe for a second that the owners of companies back then were any more focused on building things over making a profit or were one bit less aware that increasing margins can be just as effective (or more) as building a better product.
And you have it perfectly reversed what shareholders pay high multiples for. Growth rules all. It doesn't matter how much cash you are burning today, if you can show a high rate of growth investors will pay up. Companies that are focused on cost cutting tend to be low growth companies that trade at low multiples.
1)Every company is focused on cost cutting at every stage and at all times. Continual optimization of the cost structure had been a feature of American business for decades and globalization had opened up more possibilities
2) shareholders like high margins and low volatility/less cyclicality- not just growth. The Mag7 is not the US economy, let alone the manufacturing sector. And where do NVDA and AAPL manufacture - not in that the US, and using contract manufacturers- getting the lower margin/high fixed cost operations off their books. Exactly my point.
3) I worked for an old school manufacturing company in the late 80s. Our internal IRR for new projects was 15 percent - this is when interest rates were more like 7-8 percent
Fast forward into the QE/ZIRP era of near zero rates, and the companies I worked for wouldn’t get out of bed for less than a 20 percent IRR/NPV. This makes zero sense (even from a CAPM basis). Basically, keeping your high margins and retuning cash to shareholders rather than taking bets on re-investing profits was the pathway to higher stock prices and CEO wealth,
CEOs haven’t completely abandoned new product development or product improvement - they just know that financial optimization pays immediate dividends and if they don’t do it they look bad bs the competition. New capital investments and products, on the other hand, are seen as risky and companies allocate only a small portion of profits for reinvestment and have a very high bar for approving new spend. This is less true for MAG7 (think of the money Google has squandered over the decades), but they aren’t representative of US industry.
Anyone who has worked at a senior level in manufacturing, pharma, finance, etc knows all of the above.
And I would add use that high multiple/stock price to buy (acquire) the things you need to sustain growth. A side benefit is you buy-in potential future competition. Growth juggernauts from Cisco to Microsoft to Google to … have done this to successfully dominate their niche.
Yeah- that’s one of the consequences, but I think financialization is the “why”. The capital is there and the returns are there, and you do what you must.
I do think that financial innovation is a problem. Finance is important to the proper functioning of an economy. But the fact that finance as a percent of GDP is about double what it was since 1970 is IMHO, not good.
Most financial innovation is just coming up with clever ways to hide risk or cheat others. Bring back boring old finance. Banks should have high capital requirements and keep most of the risk on their books.
All that being said, our bigger problem is letting people sue over every little thing they don't like. Courts exploded NEPA and other environmental laws WAY past what they were supposed to mean, and they were a big mistake.
We should empower the government to make decisions, if we don't like those decisions, then vote the bums out. But giving every citizen with a lawyer a VETO point is madness and why we can't build shit anymore
Finance is about intermediating capital and with easy money and deficits there is plenty of money sloshing around. I don’t think the primary purpose is cheating people (but of course it happens-in China more than in the US).
Almost everybody loves easy money - politicians, borrowers, investors, entrepreneurs, anyone wealthy with assets.
Who doesn’t like it are people earning salaries who need to buy a house but asset prices are too high.
Agree on tort policy, NEPA, etc. Basically politicians figure out that legal and regulatory friction gives them power and leverage, and one party in particular has leveraged this with their donors and activists. Also, who doesn’t love windfalls paid from someone else’s deep pockets (they shouldn’t, of course).
Regular finance is good. People that have money they aren't using loan it to people that need money (ideally for investment not consumption). And both parties are made better off.
But financial innovation (think collateralized debt obligations) seems like clever ways to hide risk while making extra profits before the whole thing collapses (and the tax payer is left holding the bag)
So think of an entity that owns a pool of loans (and we don’t really know what they are, but some regulator sort of looks at them) and the entity finances the loans by issuing equity plus tiers of debt. There will be subordinated debt and preferred stock, senior debt and even “AAA” short term borrowings they use to finance their pool of loans.
Sounds a lot like a CDO, no? Tiers of debt obligations backed by a portfolio of loans.
Indeed - although I'd say 90% of everyone have only some very sketchy magical ideas on how commercial banks work
CDO structuring itself wasn't contra the pretense of the Big Short something totally new, what was more new was degree to which new risk models (making amusing ref to another comment claiming engineers translate well into finance: engineers playing with finance with math to build quite sophisticated models on risk where the unexamined assumptions included that the risk behavior of the components were permanent things like specified steel and concrete types going into a bridge construction, rather than potentially mutable as they turned out to be).
Of course me having been involved in financial regulation in 08 (as non-staff risk cmte) - from inside while I would not deny the bungling of the Wall Street big banks and the allowance of self-dealing on outside credit analysis which were no longer really what they were doing 10 yrs before, the mega mega mega contaminating flow of Bad Loans into the system that then polluted the portfolios that were semi-niavely treated as 'well-regulated inputs' was via from the de-facto unregulated credit brokering occuring in the Sun-Belt Southern states - a not-federally regulated input point as well as the utterly crap state-level lenders (under state or the permanently shitty Thrifts [and whatever subsequent rebrand] regulator)
Stories like Big Short because of the author loved to focus on Wall Street but a more useul Expose would have been how shitty state level non-reg allowed total scams and fraud to flow into the system
(how one can allow in a now fully national-level financial system a continuation of State level regulation of credit institutions... nothing screams more for Federal only reg than this (and also for simplification - it's Fing crazy that US just keeps adding more regulators rather than elminating duplication and steamlinging for effectiveness)
Yeah- mortgage fraud was definitely a thing, but it wasn’t really the sun belt state regulators specifically. In fact the two biggest GFC black holes were Wamu and World Savings (Wachovia bought them and their portfolio of “pick a pay” mortgages and that took Wachovia down), which were both West coast.
And people lying on their mortgage applications to defraud lenders is still in the news, even this week!
Almost as if the pols that write the regs, appoint the regulators and back the GSEs want consumer credit to be easy to get and easy to walk away from 😊.
I don’t know that federalization is the answer under those conditions. Look at the job the SF Fed did supervising Biden’s bundlers over at SVB.
I am more on the Mervyn King camp- less leverage and more capital rather than more rules, but that means less credit, which voters and pols will never go for.
You would need to define what you mean by "Regular Finance" which is nothing more than a slogan.
since you mention CDO I am presuming you're drawing your conclusions from the polemical views of The Big Short. Which is and was polemical and thus partial. Having been in (nonUSA) financial regulation back in the crisis the onging simplism is modestly irritating. Crap shit state-level US regulation on loan origination via brokers (in the Sunbelt states) are the real fundmantal source although issues in overly naive and Greenspan-naive believe in self-correction of market were there.
Naive and superficial view on the financial (as well as lack of undertanding on risk mitigation as characterised by cheating...)
Old Boring Banks = Banks reducing financing.
The problem for me is rather more nuanced; it is short-term return incentivisation and a whole US regulatory and tax rule structure that by its definitions allow Short Term holding periods be treated as Long Term - there is too little attention to perverse incentives to short-termism and not enough to investment in truly long-term - as in the holding periods needed for heavy asset investment. Too much of US thinking since the 90s has been aligned to kind of IT - Applications - the Uber mode as it were - no to low asset investment and allowing that to capture. and just taking the heavy infra - as like power generation, power transmission, for granted (my enormous frustratoin when I have seen Americans go to say Africa and start immediately with "let's do an App to enable X" ... dudes there's no Fing power lines or road. Infra.
However agreed, the NEPA complex generally has been extremely paralysing and I think the Lawyer focus is in fact an analytical error as some other commentator touched on pre 60s/70s lawyers were more enabling: giving a veto to everyone is recipe to doing nothing.
As always, what you walk away with is the word balance. When countries become unbalanced, they stop working.
America is unbalanced. As has been nauseatingly receptive is the Abundance message and industrial planning message Noah has been slipping into most of what he has been writing. China plans, and China has planned many manufacturing facilities, but the Chart shows that it is failing to halt the decline.
Americans asked lawyers to plan our environmental protection. We got laws, too many laws and that is why NEPA prevents us from building anything, including that ridiculous money pit high-speed rail project that is hopelessly lost.
I don’t oppose industrial planning as a light touch for preferences. What I oppose is that the government can manage markets, especially consumer markets. Can manage social policy.
We are floundering, attempting to increase our birth rate.
Trump was stymied in his trade war with China due to concerns over national security. We need a vast amount of rare earth metals, including rare earth magnets, for our missiles and planes. China is the only place you can get them.
You would think a Warp Speed or Manhattan type project would have been started by Trump, by Biden....That somebody would be proposing a crash program to get US-made processed rare earth metals. Crickets.
I suspect that Trump, in his negotiations with China, is selling out Taiwan; it is the only explanation for why we are doing nothing about this critical and deadly exposure. The problem with industrial planning is politics. Noah doesn’t have a solution to the idiocy of our political class.
I bought pink sheet company that supposedly has a new way to mine rare earths. It is the processing that is the issue. I couldn’t open the link, I am not a WSJ subscriber,
You go to share article and pull a copy link or pdf...Thanks for sharing, however.
There is more than just one rare earth miner, at least I believe I have read that, it may not be as large as this mine, plus there are many different rare earths.
The issue is not the raw stuff; the issue is processed, which China is the only country doing it massively.
In fact, the last processing mine for rare earths was in CA. It’s been long closed. They are an environmental nightmare. An F-35 needs 50lbs of a particular rare earth. Which state is going to want an extremely dirty processing? I believe I read they need water, so the middle of Nevada won’t work. NEPA wil cause a number of lawsuits as well as NIMBY.
We needed a radioactive dump site, we built one and Nevada has been successful in blocking the use of it. Trump is screwed. We have plenty of raw rare earth rocks, it is the processing that is the issue.
you thinking 5 years or 10 years? NEPA lawsuits run about 7 years average, for something this dirty I suspect the state suing.....I’m guessing 10 years unless Congress changes the law.
My initial response (having grown up in Michigan) is to recommend everyone who can to spend a day visiting the Henry Ford museum and Greenfield Village in Dearborn, Michigan. You will experience striking dissonance about how America has changed (and not changed) over time with respect to building things. A timely topic with counterintuitive insights into the similarities between the US and China.
Interesting reflection. It is worth noting that a possible point of excess simplifiction re Engineers vs Lawyers is particularly relative to Anglo but especialy American legal culture more than say Civil Code legal culture, the American which is much more weighted to the entrepreneurial-adversarial (i.e. lawyer advocate driven versus judge). Pros and cons there but post-70s orientation for US I think heavily incentivizes legal action that is very much blocking (and 'entreprenurial' speculative gaming) - although Anglo legal code overall more flexible and yes-possible. Curing the 1970s progressives backed Stop Them legal routes would probably heavily mitigate the negative downside of lawyer driven.
Engineering culture on other hand has a tendency to rigidity - which if you're building bridges, turbines within tight tolerances is spot on. But not so great for policy design perhaps. On other hand policy execution may be something quite different (less lawyers at policy appliction more engineers.... separating design and execution).
But I think re the comment about the perverse incentives - I have to say that is more something us Financial Economists catch than lawyers....
Yeah, it's lost in the USA vs. China framing, but this situation is quite different in Continental Europe, where you have a higher percentage of manufacturing in the economy, must faster and more successful infrastructure build-out and maintinence, and an obvious engineering influence on policy.
The Swedes and the Spaniards have a very different "Abundance" approach to both China's and the US.
Yes! And interestingly the European political class is more lawyer than engineer, but with a third group who exist much more here than in the US - the functionnaire, or bureaucrats who specialise just in bureaucracy. In France or the UK, it would make just as much, if not more sense, to go to ENA or do PPE if you plan to go into politics than it would to sit a Bar exam. Or at least it would have before they basically rebranded ENA.
I think that collapsing Engineering vs Lawyer is partially an error if one is extrapolating to global - if one is looking at the very specific American version of Anglo common law it is valid but if one starts to apply the idea willy nilly runs into issues a Civil Code and other legal cultures are materially different. Not to say better on all fronts, but extrapolating US on them is a structural error.
Other hand engineering culture is I think more transversal.
One theory I have heard is that corporate and government malpractice in the 70s and 80s encouraged Ralph Nader style lawsuits shifting the government away from encouraging development to blocking it.
The first graph shows China having 3x more engineering students, but it also shows it having 1.5x as many law students and 5x as many history students.
It seems like this graph is mainly showing that there are more Chinese students studying everything?
So sounds like the real answer per Noah Smith is the rise of the Jane Jacobs/ Naderite regulatory wing of the Democratic Party that created an infrastructure that has been difficult to unwind.
Another piece of random thought, just so happens that I'm currently reading a book on the history of common law. We shouldn't overlook the fact that the Anglosphere/common law jurisdictions is always the outlier, the odd one out, in terms of how the law interacts with society at large. So maybe, just maybe, it is common law (instead of being lawyer-ly) that give the US history its shape? Also we should keep in mind that all of these socio-economic developments are highly nonlinear and path dependent.
It's outside of the scope of this book, obviously, but I think it's helpful to also bring in some case-studies from other engineering-dominated regimes, including those that ran the USSR, the Arab Nationalist movements, and a lot of the African post-colonial regimes which all produced a lot of White Elephants that are (rightly) seen as a poor development approach. Included among this sad history is... China itself, under Mao! He was building all sorts of stuff, too, and it didn't work out very well.
So maybe the better framing is: why has China (post-Mao) been so unusually successful with a risky and often-unsuccessful "just-build-it" approach?
Why is China's impressive high-speed rail build-out not just another "railroad to nowhere" of the kind that plagued post-colonial Africa even up through today with the investment (ironically) of the Chinese Belt-and-Road? Why hasn't China's (arguably disastrous) housing investment upended its economy (or maybe we should add a qualifier... "yet")? What is it about China that prevents the potentially devastating effects of having local governments run pyramid schemes of infant industry protection and real estate investment from boiling over?
Thanks for this review, Noah. I have to say, I find your explanation of this phenomenon - that it has to do with different "levels" of economic development - more convincing than Dan's engineer-versus-lawyer one. This is not to say that his observation itself is wrong: I think he makes a very good case for it, and it's almost self-evidently correct.
I'd disagree with his point about the impact, however, for two of the reasons you highlighted:
(1) The US has pretty much always been run by lawyers. Most western countries have been since they adopted constitutional governments. But they have been much better at building before than now, so what gives?
(2) The causality of the engineer-lawyer split, inasmuch as it exists, might run the other way: the can-do government selects for engineers, rather than the reverse.
The development argument makes more inherent sense, I think. When people don't have access to secure food, housing, and transport, this is what they prioritise. That means building the infrastructure to provide that. Once you do, your concerns move on to other things - especially all the noise, disruption, and possible environmental damage that building that infrastructure comes with.
I had a couple of additional thoughts too:
(1) Maybe an alternative thesis is that when, say, the US and UK industrialised, academic disciplines were less specialised, and it was more common to find well-educated people with interests in diverse fields. The west might have been run by lawyers, but the relative prevalence of polymaths meant those lawyers were more engineer-ey, and less lawyerly than now. Building a ton with 19th and early 20th century lawyers was maybe possible, in a way that it wasn't with late-20th century and 21st century ones.
(2) If the development thesis is right, is it possible for a country to go in the opposite direction? I.e. for the stasis in building stuff to cause such severe shortages of basic public goods that political support swings back towards can-do. This might be happening to a limited extent in the UK, but I'm not super convinced.
Interesting arguments, I wonder if the shift towards this hyper specialization is actually a side effect of some form of state capture by academics/ educated elites rather than an actual need for this hyper specialization to effectively manage the government. In technology for example, we have had many founders and executives build huge businesses in industries where they had no previous experience since the 70s while in other fields it would seem we have gone down the rabbit hole of complexity. Maybe we need a „return of the generalist“ in key public institutions.
To your point 1, I think it has more to do with the overall level of democratic control over decision making in a society and lawyers are just incidental here as they are the tool used to exercise that power. My theory is that most people are fundamentally luddites and conservatives (in the traditional meaning of opposing change to the status quo) and that the people 100 years ago whose neighborhoods were developed to build apartments and factories were not one bit happier about it than the most diehard NIMBYs are today. The difference is that back then they didn't have the agency to stop it, but now they are able to file lawsuits against it.
To paraphrase Robert Conquest, "everyone is a conservative about what they know best".
Agreed that lots of people weren't happy about it. But also important to put into context that development projects in the early and mid 20th century were way more top-down and draconian than they are now. In the UK, for instance, slum clearance projects from the 1930s through to the end of the 1960s displaced more than three and a half million people. Those people were moved out of their neighbourhoods, which were demolished, and into better-quality housing, whether they liked it or not.
A lot of what would morph into contemporary Nimbyism started as a reaction to the heavy-handedness of these initiatives in particular. Jane Jacobs in the US stands out as an example, coming to prominence in part for opposing slum clearances. Virtually no mainstream politician in any western country today would support anything like these kinds of policies today. Even the Yimby ones who say there are too many lawyers.
I also think that, aside from people being able to sue more, a lot of it was also just the diminishing returns of these kinds of initiatives. Coming back to British slum clearances, one of the main reasons the whole thing lost steam was that by the end of the 1960s, the "slums" that were on the block were way less bad than the first ones the government knocked down. The social, economic and political costs of getting rid of and replacing these buildings just wasn't worth it in the same way anymore.
Yes I think it was clearly a mistake to let people sue to block projects like this. The solution should be at the ballot box, not lawyers plus judges controlling basically everything.
I'm looking forward to reading this book. My initial reaction on reading some of the initial reviews is to try and avoid thinking of engineering-led as "better" than lawyer-led or vice versa. Americas legal principles, individual and property rights, and rule of law have been undoubtedly tremendous in ensuring its greatness; I'm sure we can all think of engineering cultures that ignore these things for the sake of "getting things built" as delivering some pretty terrible outcomes - not least of all in China itself, as well as closer to home more recently perhaps with the event of social media.
What an amazing outcome it would be if we could see a strong, visionary, innovative engineering discipline and culture develop again, combined with respect for the rule of law enshrined with a robust set of legal rights and judiciary to back them up. Now thats an America we could all respect again (signed, a non-American).
> Americas legal principles, individual and property rights, and rule of law have been undoubtedly tremendous in ensuring its greatness;
I'm not really buying it that these general philosophical principles have much to do with lawyers vs engineers. Yes, lawyers in the US operate under a legal system that was based on them, but then so do Chinese lawyers operate under the legal system they are given.
But how much power do the lawyers actually have? That's what generates power and income and motivates people to move into those fields. In a society where the party can override the law in favor of engineering-focused chosen policies, you're much more powerful being the leaders or the engineers than the lawyers.
So if you have political ambitions you go into engineering if you were born in China, or into law school if you were born in the US. In either case the country isn't really ruled by lawyers or engineers, but by people with political ambitions who chose their path accordingly. In either case it's not skill as an engineer or lawyer that lets you advance politically. In China it isn't the best engineers who make it to the politburo and it isn't the best lawyers that make it to Congress.
I do not see is that there is any evidence of some connection that private property rights are any more of a "lawyerly" concept either. Just that the lawyers here know they have to operate in a system where private property rights are highly protected by the law. It seems like the lawyers that run the US are quite happy to ignore them when it is convenient anyway e.g. civil asset forfeiture.
I don't think this is entirely about what kind of person gets elected (or appointed) into the actual government. In the US, the overwhelming majority of day-to-day policy decisions aren't actually made by government officials, they're made by judges and lawyers operating within the legal system. Even very basic questions like "should that company be punished for defrauding its customers" often get handled by lawsuits in the courts, rather than by government agents themselves.
That's why being a lawyer in the US is so prestigious. We built a system where 95% of all decisions are made by the legal system, and mostly the government just sets parameters and operates around the edge of that machine. So naturally our officials come from the machine itself, but that's a side-effect not the cause. I don't know how things work in China, but I assume a much more active and vigorous state, with fewer policy decisions outsourced to the courts. To me this would help explain why government officials are less likely to be drawn from the legal profession.
The correlation here is that, to have a society that outsources most policy to the legal profession, you need to have a very clearly designed set of legal rules and a willingness to tightly bind yourself to them. That society is highly-rules based and the lawyer is king. If you're more interested in having a government that retains decisionmaking capability, you won't build a society like that; the profession of lawyer won't be as prestigious and property rights can also be a lot more flexible.
I worked in the US robotics and automation industry in the 80s and early 90s calling on both German and Japanese automotive firms. At times, we discussed the declining state of US manufacturing when compared to the national engine that supplied the Allies in WW2. It appeared that their 'A' students sought roles in product development and manufacturing (culturally valued) where our 'A' students pursued careers in law, finance and medicine (culturally valued). Ditto for careers in education. Ultimately, talent wins out?!
As an engineer who has studied a lot of the law connected to robotics and autonomous vehicles, there is actually not that big of a difference between the two professions. The legal system is just the "software" which runs the "operating system" for society. In many ways, going from engineer to lawyer is the natural progression....since the legal system has to deal with more abstract concepts.
One big difference is that engineers have to be result oriented (ie. It’s all for nothing if that dam you just built does not work).
Many lawyers are about process. If the rules are followed and process is met, they considered it done (which would be true in a trial or drafting a corporate contract), but nothing gets build.
Well... there are vast aspects of engineering which are focused on processes... say Software Quality and there are vast aspects of the legal world focused on results ...say business deals. As I mentioned, both require similar skills and thinking processes.
Depends on what kind of law.
Administrative law yes perhaps.
Transaction law, different, there is real motivation for end-results.
So one shouldn't over extrapolate.
I would rephrase the problem with the USA. It is not a surplus of lawyers with an anti-growth mentality that is the prime problem (although it is a problem). I think it is more a surplus of bureaucrats in the private and public sector who intentionally establish legalistic rules that gradually undermine the foundations of economic growth. The bureaucracy does far more damage than the lawyers.
But the bureaucrats are not empowered to make decisions, and anybody and everybody can sue about any decision that they dislike.
Empower the bureaucrats to make decisions. Empower the politicians to fire people that don't do their job.
Voters then get to throw the bums out if they don't like the results.
But get rid of the laws that allow people to sue to block everything. Fight it out at the ballot box.
I agree with some of what you said, but…
Bureaucrats may have not been empowered by the constitution, but they are in fact making the rules. Every single government regulation was written by a bureaucrat and Congress, the Presidency and the courts have done little to role those back (really until this year).
And as the Abundance literature shows, the biggest constraints on bureaucrats are the rules set up by other bureaucrats (typically in other departments).
Yes, lawyers can sue, but they tend not to win unless there is a regulation (written by bureaucrats) that can be interpreted in their favor. It is not the law that is the problem so much as the interpretation of the law made by bureaucrats. Laws passed by Congress give the bureaucracy much latitude in the specifics and bureaucrats inject their ideological bias into their decisions.
Same problem in the private sector, though not as extreme.
What you see now is the result of bureaucracy being empowered.
Another factor is that US, UK and Ireland all hae a comon law system which facilitates legal power and hence the ability of layers to block projects. Other countries such as China have an underdeveoped legal system so lawyers have less power, so law less attractive as a profession, and in contrast engineering more attractive.
Interesting article!
As an engineer myself with additional management and accountancy qualifiactions, I think a nuance was missed in teh explanation.
So Lawyers are concerned with the allocation of wealth, whereas engineers are concerned with the creation of wealth.
It is not that Lawyers are concened with blocking things per se, just that in pursuing the pur e allocation of wealth in what may be a zero sum ganme, what they block one party form doing creates a better allocation of wealth to another party, although the overall wealth in society may decrease. If I prevent say extra housing in an area I will raise the value of existing housing but perhaps prevent a new industry from being exstablished. Overall wealth will not increase as it could have otherwise, but of the remianing wealth a greater proportion will remain with householders rather than house builders, with a loss of overall potential wealth to society.
The reason why Lawyers tend to take over the governing of society is that at a certain stage in development there is more wealth to be gained from being involved with developing rules for allocating wealth than from it's creation. So people will tend to opt for law rather than engineering, as gains are better.
As more take up law, where networks of lawyers are important for progression, lawyers wil tend to have familial traits where families have a lot of connections to judges and other lawyers and those associated with the legal progression. Hence if not in this milieu very hard to break in.
For engineering you need brains to develop somethg that works - it depends on what you know rather than who you know, so much easier if you have brains to go for engineering and develop from there. Engineering leads to a meritocracy as success is pretty transparent.
Branching later from engineering into finance or economics is relatively straightforward as the maths associated with economics and finance has already been covered in the engineering degree.
Another country where engineering has been predominant is Singapore, where at one starge (from memory) a degree in engineering was a requirement for being in Governnment, and Singapore has been pretty successful.
Overall, a balance is required for long term success, as over-specialisation leads to sub-optimisation, so best to have a balance of talent in Govt.
MMM - perhaps the legal profiling you do works kinda for administrative and social law fields in America but it's a gross over-extension I think generally (not a lawyer myself, a financial economist -
As for engineering transfering to finance and economics.... well... in my experience the engineers who do that tend to do fine in certain very specific areas of finance that are most process and mechanical (like quant oriented public trading) where flexiblity and change is less needed than yes, math. And are often rather crap at dealing with less math, more subjective and changeable entrepreneurial investment areas (as like what I do in more venture oriented financing where one is working with large subjective and large unknowns - and Excel jockeying can easily become pure self-deception as GIGO).
Math is important but not always the key in finance.... And equally the right kind of lawyer - those that have transactions background is a value add different than engineering trained entrepreneur who has frequently a very overly rigid (in a build a bridge by X rules) understanding of business and market/legal structures one can use.
"what they block one party form doing creates a better allocation of wealth to another party, although the overall wealth in society may decrease"
this
The solution is not to people to sue over so much, or government to regulate as much
Good well-balanced review.
I think the main driver is the financialization of the US economy and the focus on shareholder returns.
A lot of early stage industrial economies (especially mercantilist ones) focus on building/making things (often copying things initially) and then tweaking the manufacturing process. They often have government and banking activity oriented toward fixed capital investment and infrastructure. Most of the above was true of Japan and S Korea as well as China.
The US (as Noah noted) also was manufacturing focused for a good while.
Then US companies learned that financial returns don’t necessarily flow from continual product improvement but rather by improving financial returns (margins, ROE) and reducing volatility of earnings.
In the financially-oriented US economy amidst of world of global capital excess (and globalization of production), American companies learned that investors don’t like high fixed costs and capital requirements and cyclical manufacturing exposure.
Companies are paid more for IP than output. The primary focus has been on cost reduction and shedding high cost or low margin assets/processes. Outsourcing transfers those risks to the contract manufacturers and suppliers.
That is what shareholders want and pay high multiples for. The fact that large successful companies and entire industries become dependent on unreliable enemy states for their inputs and production is neither here nor there. For whatever reason, shareholders didn’t view this as a risk when applying multiples and the government is happy when US companies (and donors) are making money and the stock market is going up.
Obviously easy money and loose fiscal and monetary policy has helped shift the focus to asset prices and high margins as well.
While China has also been reckless with credit- the credit pipeline is mostly government directed toward property, infrastructure and manufacturing.
In contrast, a decent portion of the money sloshing around in the US (in part fed by trade deficits/capital account surpluses) has gone toward increasing multiples on existing assets rather than building new assets. Higher multiples/prices of course drives new investment, too, but usually in the flavors of the moment rather than things hard to build (houses).
The lawyer thing he raises is an interesting part, but this is an outgrowth of the regulatory state and tort laws and wealth rather than lawyers really running the economy. The financial sector runs the economy.
I don't believe for a second that the owners of companies back then were any more focused on building things over making a profit or were one bit less aware that increasing margins can be just as effective (or more) as building a better product.
And you have it perfectly reversed what shareholders pay high multiples for. Growth rules all. It doesn't matter how much cash you are burning today, if you can show a high rate of growth investors will pay up. Companies that are focused on cost cutting tend to be low growth companies that trade at low multiples.
1)Every company is focused on cost cutting at every stage and at all times. Continual optimization of the cost structure had been a feature of American business for decades and globalization had opened up more possibilities
2) shareholders like high margins and low volatility/less cyclicality- not just growth. The Mag7 is not the US economy, let alone the manufacturing sector. And where do NVDA and AAPL manufacture - not in that the US, and using contract manufacturers- getting the lower margin/high fixed cost operations off their books. Exactly my point.
3) I worked for an old school manufacturing company in the late 80s. Our internal IRR for new projects was 15 percent - this is when interest rates were more like 7-8 percent
Fast forward into the QE/ZIRP era of near zero rates, and the companies I worked for wouldn’t get out of bed for less than a 20 percent IRR/NPV. This makes zero sense (even from a CAPM basis). Basically, keeping your high margins and retuning cash to shareholders rather than taking bets on re-investing profits was the pathway to higher stock prices and CEO wealth,
CEOs haven’t completely abandoned new product development or product improvement - they just know that financial optimization pays immediate dividends and if they don’t do it they look bad bs the competition. New capital investments and products, on the other hand, are seen as risky and companies allocate only a small portion of profits for reinvestment and have a very high bar for approving new spend. This is less true for MAG7 (think of the money Google has squandered over the decades), but they aren’t representative of US industry.
Anyone who has worked at a senior level in manufacturing, pharma, finance, etc knows all of the above.
And I would add use that high multiple/stock price to buy (acquire) the things you need to sustain growth. A side benefit is you buy-in potential future competition. Growth juggernauts from Cisco to Microsoft to Google to … have done this to successfully dominate their niche.
What's called here financialisation I think is more properly the short-term quarter-to-quarter mode.
Yeah- that’s one of the consequences, but I think financialization is the “why”. The capital is there and the returns are there, and you do what you must.
I do think that financial innovation is a problem. Finance is important to the proper functioning of an economy. But the fact that finance as a percent of GDP is about double what it was since 1970 is IMHO, not good.
Most financial innovation is just coming up with clever ways to hide risk or cheat others. Bring back boring old finance. Banks should have high capital requirements and keep most of the risk on their books.
All that being said, our bigger problem is letting people sue over every little thing they don't like. Courts exploded NEPA and other environmental laws WAY past what they were supposed to mean, and they were a big mistake.
We should empower the government to make decisions, if we don't like those decisions, then vote the bums out. But giving every citizen with a lawyer a VETO point is madness and why we can't build shit anymore
Finance is about intermediating capital and with easy money and deficits there is plenty of money sloshing around. I don’t think the primary purpose is cheating people (but of course it happens-in China more than in the US).
Almost everybody loves easy money - politicians, borrowers, investors, entrepreneurs, anyone wealthy with assets.
Who doesn’t like it are people earning salaries who need to buy a house but asset prices are too high.
Agree on tort policy, NEPA, etc. Basically politicians figure out that legal and regulatory friction gives them power and leverage, and one party in particular has leveraged this with their donors and activists. Also, who doesn’t love windfalls paid from someone else’s deep pockets (they shouldn’t, of course).
Note I said "financial innovation" not finance.
Regular finance is good. People that have money they aren't using loan it to people that need money (ideally for investment not consumption). And both parties are made better off.
But financial innovation (think collateralized debt obligations) seems like clever ways to hide risk while making extra profits before the whole thing collapses (and the tax payer is left holding the bag)
So think of an entity that owns a pool of loans (and we don’t really know what they are, but some regulator sort of looks at them) and the entity finances the loans by issuing equity plus tiers of debt. There will be subordinated debt and preferred stock, senior debt and even “AAA” short term borrowings they use to finance their pool of loans.
Sounds a lot like a CDO, no? Tiers of debt obligations backed by a portfolio of loans.
It is also known as a commercial bank. 😊
Indeed - although I'd say 90% of everyone have only some very sketchy magical ideas on how commercial banks work
CDO structuring itself wasn't contra the pretense of the Big Short something totally new, what was more new was degree to which new risk models (making amusing ref to another comment claiming engineers translate well into finance: engineers playing with finance with math to build quite sophisticated models on risk where the unexamined assumptions included that the risk behavior of the components were permanent things like specified steel and concrete types going into a bridge construction, rather than potentially mutable as they turned out to be).
Of course me having been involved in financial regulation in 08 (as non-staff risk cmte) - from inside while I would not deny the bungling of the Wall Street big banks and the allowance of self-dealing on outside credit analysis which were no longer really what they were doing 10 yrs before, the mega mega mega contaminating flow of Bad Loans into the system that then polluted the portfolios that were semi-niavely treated as 'well-regulated inputs' was via from the de-facto unregulated credit brokering occuring in the Sun-Belt Southern states - a not-federally regulated input point as well as the utterly crap state-level lenders (under state or the permanently shitty Thrifts [and whatever subsequent rebrand] regulator)
Stories like Big Short because of the author loved to focus on Wall Street but a more useul Expose would have been how shitty state level non-reg allowed total scams and fraud to flow into the system
(how one can allow in a now fully national-level financial system a continuation of State level regulation of credit institutions... nothing screams more for Federal only reg than this (and also for simplification - it's Fing crazy that US just keeps adding more regulators rather than elminating duplication and steamlinging for effectiveness)
Yeah- mortgage fraud was definitely a thing, but it wasn’t really the sun belt state regulators specifically. In fact the two biggest GFC black holes were Wamu and World Savings (Wachovia bought them and their portfolio of “pick a pay” mortgages and that took Wachovia down), which were both West coast.
And people lying on their mortgage applications to defraud lenders is still in the news, even this week!
Almost as if the pols that write the regs, appoint the regulators and back the GSEs want consumer credit to be easy to get and easy to walk away from 😊.
I don’t know that federalization is the answer under those conditions. Look at the job the SF Fed did supervising Biden’s bundlers over at SVB.
I am more on the Mervyn King camp- less leverage and more capital rather than more rules, but that means less credit, which voters and pols will never go for.
You would need to define what you mean by "Regular Finance" which is nothing more than a slogan.
since you mention CDO I am presuming you're drawing your conclusions from the polemical views of The Big Short. Which is and was polemical and thus partial. Having been in (nonUSA) financial regulation back in the crisis the onging simplism is modestly irritating. Crap shit state-level US regulation on loan origination via brokers (in the Sunbelt states) are the real fundmantal source although issues in overly naive and Greenspan-naive believe in self-correction of market were there.
Naive and superficial view on the financial (as well as lack of undertanding on risk mitigation as characterised by cheating...)
Old Boring Banks = Banks reducing financing.
The problem for me is rather more nuanced; it is short-term return incentivisation and a whole US regulatory and tax rule structure that by its definitions allow Short Term holding periods be treated as Long Term - there is too little attention to perverse incentives to short-termism and not enough to investment in truly long-term - as in the holding periods needed for heavy asset investment. Too much of US thinking since the 90s has been aligned to kind of IT - Applications - the Uber mode as it were - no to low asset investment and allowing that to capture. and just taking the heavy infra - as like power generation, power transmission, for granted (my enormous frustratoin when I have seen Americans go to say Africa and start immediately with "let's do an App to enable X" ... dudes there's no Fing power lines or road. Infra.
However agreed, the NEPA complex generally has been extremely paralysing and I think the Lawyer focus is in fact an analytical error as some other commentator touched on pre 60s/70s lawyers were more enabling: giving a veto to everyone is recipe to doing nothing.
Shakespeare was right. Kill all the Lawyers
As always, what you walk away with is the word balance. When countries become unbalanced, they stop working.
America is unbalanced. As has been nauseatingly receptive is the Abundance message and industrial planning message Noah has been slipping into most of what he has been writing. China plans, and China has planned many manufacturing facilities, but the Chart shows that it is failing to halt the decline.
Americans asked lawyers to plan our environmental protection. We got laws, too many laws and that is why NEPA prevents us from building anything, including that ridiculous money pit high-speed rail project that is hopelessly lost.
I don’t oppose industrial planning as a light touch for preferences. What I oppose is that the government can manage markets, especially consumer markets. Can manage social policy.
We are floundering, attempting to increase our birth rate.
Trump was stymied in his trade war with China due to concerns over national security. We need a vast amount of rare earth metals, including rare earth magnets, for our missiles and planes. China is the only place you can get them.
You would think a Warp Speed or Manhattan type project would have been started by Trump, by Biden....That somebody would be proposing a crash program to get US-made processed rare earth metals. Crickets.
I suspect that Trump, in his negotiations with China, is selling out Taiwan; it is the only explanation for why we are doing nothing about this critical and deadly exposure. The problem with industrial planning is politics. Noah doesn’t have a solution to the idiocy of our political class.
Overall agreed but there has been some movement towards US rare earth development
https://www.wsj.com/business/us-rare-earth-producer-texas-58796240?st=foBBpY&reflink=desktopwebshare_permalink
https://www.wsj.com/business/usa-rare-earth-sees-surge-in-customer-interest-db73d548?st=LtMKGh&reflink=desktopwebshare_permalink
I bought pink sheet company that supposedly has a new way to mine rare earths. It is the processing that is the issue. I couldn’t open the link, I am not a WSJ subscriber,
You go to share article and pull a copy link or pdf...Thanks for sharing, however.
Sorry those should be gift articles, not sure why they aren't working
Here's a different one
https://fortune.com/2025/08/12/rare-earths-magnets-mp-materials-stock-surge-landmark-deals-trump-apple/
There is more than just one rare earth miner, at least I believe I have read that, it may not be as large as this mine, plus there are many different rare earths.
The issue is not the raw stuff; the issue is processed, which China is the only country doing it massively.
In fact, the last processing mine for rare earths was in CA. It’s been long closed. They are an environmental nightmare. An F-35 needs 50lbs of a particular rare earth. Which state is going to want an extremely dirty processing? I believe I read they need water, so the middle of Nevada won’t work. NEPA wil cause a number of lawsuits as well as NIMBY.
We needed a radioactive dump site, we built one and Nevada has been successful in blocking the use of it. Trump is screwed. We have plenty of raw rare earth rocks, it is the processing that is the issue.
This rare earth's minor is setting up processing in the united states as well
And the department of defense is supporting them
you thinking 5 years or 10 years? NEPA lawsuits run about 7 years average, for something this dirty I suspect the state suing.....I’m guessing 10 years unless Congress changes the law.
My initial response (having grown up in Michigan) is to recommend everyone who can to spend a day visiting the Henry Ford museum and Greenfield Village in Dearborn, Michigan. You will experience striking dissonance about how America has changed (and not changed) over time with respect to building things. A timely topic with counterintuitive insights into the similarities between the US and China.
Interesting reflection. It is worth noting that a possible point of excess simplifiction re Engineers vs Lawyers is particularly relative to Anglo but especialy American legal culture more than say Civil Code legal culture, the American which is much more weighted to the entrepreneurial-adversarial (i.e. lawyer advocate driven versus judge). Pros and cons there but post-70s orientation for US I think heavily incentivizes legal action that is very much blocking (and 'entreprenurial' speculative gaming) - although Anglo legal code overall more flexible and yes-possible. Curing the 1970s progressives backed Stop Them legal routes would probably heavily mitigate the negative downside of lawyer driven.
Engineering culture on other hand has a tendency to rigidity - which if you're building bridges, turbines within tight tolerances is spot on. But not so great for policy design perhaps. On other hand policy execution may be something quite different (less lawyers at policy appliction more engineers.... separating design and execution).
But I think re the comment about the perverse incentives - I have to say that is more something us Financial Economists catch than lawyers....
Yeah, it's lost in the USA vs. China framing, but this situation is quite different in Continental Europe, where you have a higher percentage of manufacturing in the economy, must faster and more successful infrastructure build-out and maintinence, and an obvious engineering influence on policy.
The Swedes and the Spaniards have a very different "Abundance" approach to both China's and the US.
Yes! And interestingly the European political class is more lawyer than engineer, but with a third group who exist much more here than in the US - the functionnaire, or bureaucrats who specialise just in bureaucracy. In France or the UK, it would make just as much, if not more sense, to go to ENA or do PPE if you plan to go into politics than it would to sit a Bar exam. Or at least it would have before they basically rebranded ENA.
I think that collapsing Engineering vs Lawyer is partially an error if one is extrapolating to global - if one is looking at the very specific American version of Anglo common law it is valid but if one starts to apply the idea willy nilly runs into issues a Civil Code and other legal cultures are materially different. Not to say better on all fronts, but extrapolating US on them is a structural error.
Other hand engineering culture is I think more transversal.
One theory I have heard is that corporate and government malpractice in the 70s and 80s encouraged Ralph Nader style lawsuits shifting the government away from encouraging development to blocking it.
The first graph shows China having 3x more engineering students, but it also shows it having 1.5x as many law students and 5x as many history students.
It seems like this graph is mainly showing that there are more Chinese students studying everything?
So sounds like the real answer per Noah Smith is the rise of the Jane Jacobs/ Naderite regulatory wing of the Democratic Party that created an infrastructure that has been difficult to unwind.
Another piece of random thought, just so happens that I'm currently reading a book on the history of common law. We shouldn't overlook the fact that the Anglosphere/common law jurisdictions is always the outlier, the odd one out, in terms of how the law interacts with society at large. So maybe, just maybe, it is common law (instead of being lawyer-ly) that give the US history its shape? Also we should keep in mind that all of these socio-economic developments are highly nonlinear and path dependent.
It's outside of the scope of this book, obviously, but I think it's helpful to also bring in some case-studies from other engineering-dominated regimes, including those that ran the USSR, the Arab Nationalist movements, and a lot of the African post-colonial regimes which all produced a lot of White Elephants that are (rightly) seen as a poor development approach. Included among this sad history is... China itself, under Mao! He was building all sorts of stuff, too, and it didn't work out very well.
So maybe the better framing is: why has China (post-Mao) been so unusually successful with a risky and often-unsuccessful "just-build-it" approach?
Why is China's impressive high-speed rail build-out not just another "railroad to nowhere" of the kind that plagued post-colonial Africa even up through today with the investment (ironically) of the Chinese Belt-and-Road? Why hasn't China's (arguably disastrous) housing investment upended its economy (or maybe we should add a qualifier... "yet")? What is it about China that prevents the potentially devastating effects of having local governments run pyramid schemes of infant industry protection and real estate investment from boiling over?