>> how countries became rich and some became poor. the book is comparing the poverty of some countries with the prosperity of others or how we emerged out of what we would

now consider poverty 200 years ago to the prosperity that we have today. so that's the first question. and that question -- those questions in a way have been in the news a lot recently because of the aftermath of the earthquake in haiti. and that really dramatizes how poor a country that is and what that means. and people can ask, you know, how does a country remain that poor? and we don't have a specific discussion of haiti in the book but we do discuss poor countries in general. and based on that i think i can safely make three remarks about the situation in haiti. first of all, poor countries again tend to suffer from a government that's predatory and, of course, you have the duvallier regime and a culture towards learning. and they tend to be syndromes in poor countries.

and the -- most research in the last 50 years stresses the role of property rights and the ability of ordinary citizens to establish and maintain control over businesses and over property. in order for there to be wealth-creation. so one of the interesting findings that we mention in the book is that in poor countries, it tends to take months or even years to get a business license. whereas, in rich countries we're used to that being a process of days or at least a couple of weeks. that's an indication of sort of the institutional failures that are often at work in poor countries. second observation i'd make about haiti is that in spite of the fact that we would -- we think that there are governance

issues and cultural issues involved in poverty, you know, in countries being poor, we would not suggest going in and trying to govern the country ourselves or to change the culture from the top down. you know, cultural institutions and government institutions are deeply embedded. and they also function to some extent. so even in this desperate relief situation, probably the more successful aid programs are working with local institutions and local culture rather than trying to work against them. and the third observation i'd make is that -- we notice a number of countries in which side-by-side you have one country where the productivity level of workers is very low. and a neighboring country productivity is very high. and in those situations we've observed a faster increase in productivity for the low productivity workers if they

move to the high productivity country than if they wait for the institutions of the high productivity country to take root in their country. so that would suggest perhaps that we ought to be relatively lenient in terms of allowing refugees or immigration from haiti. all right. let me switch gears then to talk about this issue of how we think about market effectiveness and market failure. the standard economics 1.0 approach is what we call static efficiency. and we instead take the approach that douglas north calls adaptive efficiency. so static efficiency takes the state of knowledge that's given and says, how well does the market do at allocating resources efficiently? and if it allocates them optimally, and it's statically

efficient. and from that perspective it's very unlikely that markets are going to be efficient. because the conditions that are required are much too stringent. when you take a freshman course you hear about the problem that externalities can cause, you know, pollution can mess up market allocations. but there are other things that are even more prevalent. other issuing. -- issues. there's information gaps where people -- consumers don't necessarily understand everything about what they're buying. those cause problems. there are differentiated products which means you can't have the kind of perfect competition that supposedly is needed for static efficiency. and then you have upfront costs or fixed costs which make it impossible to have enough competition that you'll have perfect static efficiency. so just last week apple announced a product called the ipad.

and that illustrates kind of all these problems. first of all information gaps. it's very hard to figure out what it does, what it should do, or how well it works. i think most people who buy it will buy it not knowing exactly how well it will work or do anything useful for them. it's clearly a differentiated product. it's not a commodity. and a lot of the costs involved were up front development costs and research and that's why, you know, other entrance will not come up with a similar product very quickly. so that's sort of a classic example of a modern, you know, economic product or service that clearly is not going to satisfy the conditions for static efficiency. so if you're inclined to evaluate markets in terms of static efficiency, you're going to think that just about everywhere there are opportunities for government to step in and allocate resources more effectively.

instead, we look at adaptive efficiency. we don't say how is the market working today? we say over time how is the market improving? how effective is it at incorporating better, cheaper products and services over time. and so that's a question of dynamic efficiency. let me illustrate that with sort of what's happened since the worldwide web was introduced about 15 years ago. in the stock brokerage industry, there's been a great deal of disruption with a lot of newer, cheaper and better services introduced in stock brokerage. so that would be an indication of a dynamically effective market. and an adaptively effectively market. real estate brokerage on the other hand has hardly changed at all. if you asked me 15 years ago i

would have been shocked if you would have told me that today we would still see real estate agents sitting in houses collecting standard commissions. so that industry has not been disrupted which suggest perhaps an adaptive market failure. another contrast would be music publishing versus academic publishing. the music publishing industry has been disrupted quite a bit. we have very different models now. itunes and so on. and my guess is we're going to see more disruption in music publishing which suggests there's a reasonable amount of adaptive efficiency in that market. by that i don't necessarily mean they have adapted but the overall market has produced adaptive efficiency. on academic publishing there's been little change. since tim berner lee founded the worldwide web not to find a platform for facebook or amazon but for academic journals and

they pretty much look the same as 15 years ago which indicates to me an adaptive market failure. so adaptive market efficiency means that upstarts can come in. try new products and services. have the inferior efforts be weeded out. but have the successful efforts, the better, cheaper products work their way into the market and force incumbents either to adapt or to go out of business. so that's what we mean by adaptive efficiency. and that's our criterion for looking at market effectiveness versus market failure. and the concern as nick mentioned is that government is going to tend to side with the incumbents. incumbents are completely salient upstarts or not. so whereas the static efficiency criterion says if you -- everywhere you look you see

opportunities for government to make things better, when we look at adaptive efficiency, everywhere you look we see government as a threat to make things worse. by protecting incumbents and holding back upstarts. so those are the -- again, the three differences i wanted to highlight today between economics 2.0 and economics 1.0. first we ask the question about from poverty to prosperity, the title of the book. you know, how did we get to be so rich as a country and yet how do other countries remain so poor. we focus on intangible factors. the ideas, innovation and entrepreneurship on the plus side, predatory government. and cultural resistance toward learning on the minus shied and finally we have a different way of looking at market effectiveness versus market failure. and again i think those ideas are very important.

i believe that they belong in the standard economics curriculum. i think that they ought to be incorporated but in business and financial journalism and economic journalism. and i hope that some day they become part of the overall public consciousness. thanks. [applause] >> we have tim kaine who's a senior fellow at the kauffman foundation. he's also the cocreator and co-author of the economics blog growthology.org, which is well worth your time. that reminds me -- i forgot to mention amongst arnold writing products he's the coeditor of another fine economics blog, econtalk which you should check out and read regularly. when tim was also -- before being at kauffman, an editor --

lead editor of 2007 index economics freedom. and tim is also a successful entrepreneur having founded multiple software firms. and in addition, was a veteran air force officer so he has been on the upstart side and levithen as well. please welcome tim kaine. [applause] >> when i was in the air force i remember people used to talk about big blue as an example of a bureaucratic organization that was slow-moving and i thought they were saying about the air force and you're absolutely right. what has been an interesting perspective. this book is fantastic. let me start with that. i've known the two authors for a while. but i was blown away. and i've been involved in the policy debates like folks here at cato have. and i'd like to say also i'm remiss in thanking cato for having me here and holding this event.

cato has carried the torch here for liberty here in washington, d.c., for a long time. and it's an honor to be here. if i were to point to one thing for someone to think about or read to push forward the idea of human progress, that it's happened, that it's been successful, it would be chapter 2 of the book that we're talking about today. it's really a tour de force. and, in fact, they have a series of charts and numbers from a to z. actually it's from a to ab because you guys ran out of 26 points. each of them is impressive from the acceleration of growth rates over time to food intake, calories. i mean, just a fantastic cedars of charts. that i would highly recommend and, in fact, if i were teaching economics i would have that chapter be part of reading for whatever course i was teaching, whether it was micro, macro,

graduate growth. here's the important thing to understand, you can disagree everything they write and everything they opine and all the fantastic economists that are interviewed in this book. and their theories, but you can't disagree with the facts that they lay out. -- in charts a to charts ab. it's really astounding when you think about not just that growth has happened and had our impact on our lives and arnold pointed out the new apple tablet as sort of a paradigm of thinking how government might get involved. so i have with me turned off an iphone. and i've never had technolust. and i remember when i didn't have one for a while and i hate to adopt things early but i get this. i remember 20 years ago when i was at the air force academy that we were the first class to

have computers. it was a blast from the past but you can imagine going through basic training, right? and you're the first class is computers and the class above you didn't get them. so they're thinking all right. we're the neanderthal macho guys and we're going to take it out on you guys in . in there. nobody would think we would carry things around that had more power than what was on that desktop. it challenges you to think not the world we live in now and how wonderful it is and human progress is a reality but that 20 years forward what will this technology look like? or what will have it incorporated? because if tim kane of 2010 were to talk to tim kane of 1990 and say not only lohave a computer your pocket but you'll have a mapping program in it and you'll be able to talk instantaneously

on this phone/computer to someone in japan. that's such a profound change in the way we live and to think we live in 20 years understand those forces you can draw a lot of that out of this book. that's certainly what i got out of it. here's what i think is still missing and i want to challenge the authors to address in q & a. let me back up and say at the kauffman foundation i started this blog called growthology. and i actually was mentored by the two authors who have blogs on their own. and i realized there's these amazing individuals opinions. these economic bloggers. and no one has tried to collect them all together and survey them and get a consensus, sort of do a wikinomics. just this week we led a survey and one of the questions there -- these were all questions bloggers came up with. one of the questions that i wanted to ask was, if you could

come up with a growth model for busy policymakers, what would it look like? what would be the three things it would include. if you could come up with a growth model even a congressman can understand but my editor says that was a little bit rough. so we changed it. busy policymaker. because there's a model for the other side, for the static side. and that model is, i think, even the keynesian model y equals c plus g plus nx, right? and it's very easy. when c goes down and aggregate consumption goes down you can inflate g. when you talk to bright republicans and democrats you can understand that doesn't describe the world we live in. we're still stuck with it. the fallback mentality is, if the stimulus bill passed by bush wasn't big enough let's do a big one with obama and double the

size and try again. why do we have a competing model. i have to say i was disappointed with the results i got back. i think the three things that were highest were human capital, which is fantastic. innovation. again, great to see that included. and economic freedom. and as the former editor of the index of economic freedom, i thought that was all right,, too. but i put in the word "scale" and i think if i could get every congressman to understand the idea that if we could increase the scale of our economy, that's where we get specialization. that's where we get a lot of innovation from. and it was the lowest choice of haul so i wanted to challenge you guys on that. is that the right model? is that the the right approach that we should have a very simplified model? it doesn't describe everything. one of their core ideas being there's the hardware view of the world which is the classic model of output equals the imposition of physical capital, physical

labor, physical land. and the new model, which we implicitly describe as software. david brooks when he reviewed this book in the "new york times" very favorably called it the protocol economy. michael mandel likes to talk about innovation economics. a lot of people get this but we know it's a software thing. but how can we put it in a simple equation that even a busy policymaker can understand? that's sort of a conversation i'd like to have with you all. the other thing i want to point out -- i saw a number of authors in this book not just talk about growth but about the acceleration of growth. and, in fact, one of the authors not included but who's worth following is brad delong who's cited in the book. he's not interviewed but he's cited. and, in fact, delong pointed out some benchmarks of how income per capita has risen over time.

if you imagine that the growth rate hasn't just been a flat sort of 2% per year but it's been accelerating say 1800, that boils down to abo percentage of growth rate in a decade saying at 70 years we'll be 3% there. and a decade after 3.1%. what are the implications on that? the implications to is this is that we're not going to have a world where the development gap that's discussed between, say, haiti, and the united states is filled in but the poor cousins won't converged. that was something i looked at since my dissertation in economics. i thought i would be able to find evidence that there was indirect convergence over the long term. and instead what you see is the wealthy country, especially the lead economy diverging, getting wealthier and wealthier and you look at places like haiti and they're stagnant. i normally agree with almost

everything here but this is my -- i was trying to think of a way to disagree or stir up the pot. let's talk about haiti. is arnold's second point right that we can't do much and be a beacon of light and show how liberty works in this country and hopefully they'll follow? because it seems to me they're in some sort of trap. and i would agree sending in the marines and taking over the country whole hog imperialism, circa 1800, is not going to work. but isn't there some middle ground that we could -- that we could find and doesn't even paul romer suggest this with some of his thinking? so that's a conversation to have about those countries catching up. the second challenge is, is the u.s. really going to be that lead economy 100 years from now that's diverging away? i'd like to think so. but a few of the writers talk about china. and that china seems to maybe have a better sense of economics 2.0 than we do here in washington, d.c. so again, fantastic book.

highly recommended. as much as i love all the interviews, i can't again overemphasize how much i enjoyed chapter 2. thank you. [applause] >> we'll open it up to q & a but first i just wondered if either arnold or nick wanted to respond at all to the challenges that tim raised. first, just about the poverty trap. is that real? and is there any way in your research or your survey of research that looks like a generally promising exit strategy from a poverty trap? and then secondly just handicapping looking forward whether the u.s. is going to maintain its position as a leading innovative economy or whether it's falling off the pace? >> well, the first words out of

my mouth when you ask, you know, what are the -- tim i-first issue of, you know, what model would you give to policymakers, the first words out of my mouth are trial and error. that's been, i think, a theme of my thinking for a long time. so you have to be careful and maybe very biased about it. i wrote it about it in every book that i've written including "crisis of abundance" saying that, you know, we need trial and error solutions in healthcare. and i think that would be my solution in the poverty trap. that there's trial and error starting from the situations where they are. i'm tempted to just outsource my views on haiti to bill easterly who's one of the people i interviewed in the book and who has a blog called aidwatch.org. and i guess my views are just so similar to his and his have so

much are more well-informed that i would take his views been i think a trial and error. he uses the term "searchers" rather than "planners" rather than a grand plan that will get your way out of poverty. for the future i think we speculate a little bit -- my view of the future is informed a bit by what i call kurzweil economics. ray kurzweil's view of ever accelerating change led by moors law. i think there's some skepticism there but i am actually skeptical about a lot of kurzweil's views but i think the potential forever accelerating growth is there. one of the people that we interview in our book would i think -- i could be mangling his name -- he would dismiss any

concern that china will displace us because if china does come up with new inventions, his analytical framework says we will adopt them much more quickly. he talks about the role of venturism consumers in producing growth. that you shouldn't just think of the lone heroic entrepreneur, steve jobs, as being the promoter of growth. it's the fact that there's so many fools out here who are willing to try anything steve jobs puts out and try to make something useful out of it. that, in fact, make us is faster growing country and from that point of view any innovation that a comes from china is not a threat but an opportunity. >> yeah, just a couple of -- to re-enforce a couple of those points. yeah if there's a model it's trial and error.

and i'd extend that to point out if you want to introduce us to a policymaker and congressman to explain trial and error. you have to couple that with a realistic assessment of how politics actually works. and it has to do with the error side of trial and error. the political tolerance for error is so low from government failure that what you have is when you have government failure in the policy arena, you have either a temptation among policymakers to point their finger at something that must be the problem or to say like the case with the stimulus, well, we didn't do enough so we need to do more of the same and let's double down our bets on that. one of the -- you need to contrast that with how markets work, trial and error markets

work and error is punished. new firms can come in and advance technologies or products that work and that he is that don't can't and they don't get support and that's how progress continues over time. whether or not you can get a policymaker to adopt the trial and error model which means basically letting the market work, failures and warts and all, is an open question. because it's not really in the dna of politicians who want to start monkey why go with things. -- monkeying with things. how to try to close the development gap. paul romer who we interviewed in this book has an interesting idea with charter cities where he basically looks at the success that china has had where china has had success in the coastal regions and elsewhere. where there were basically where they changed the institutional

mix of laws and permitting market activity and you had enormous growth there. so if you can adopt this model, say, in haiti, if you could turn port-au-prince into a charter city where you change the institutional makeup there, there might be hope for real rapid change. now, he also says -- i think he's probably right about this. you can't -- you need to be invited in to do this. and i think what he's trying to do is set up an architecture where he or people like de soto or others can be brought in and try to set up an institutional mix that will work with your cultural norms that already exist. and so there might be some hope there so i'm not totally pessimistic about the future. otherwise, you know, more immigration. which i know is not politically pleasant for a lot of people but certainly the case of haiti with refugees we should be bringing as many as we can here. in the final point about china, i'm actually -- there are some people we interview in the book

who are very bullish about china. and i have, i think, sort of -- i'm a little agnostic on it. i would say what you've seen with the dust-up with google and other things recently suggests that china's place at the technological frontier is going to be limited. they're happy permitting free -- free enterprise in areas that don't really challenge state control. but in frontier technologies of information technology, communications that threaten the regime there, they don't like it. and, you know, what? innovators aren't going to go there and work there for a long period of time. they'll go to other countries where they can. they'll come to the united states. they'll go to i understand. -- india and they'll go to other places. it's quickly how china opens it and innovates the frontier. the demand side for innovation

and technological change is a totally overlooked aspect of the discourse on this. we have the entrepreneur creates something that's the end of the story. well, no, it's not. you have to have a culture where you have consumers who are habituated to trying things out. and that's very much the case here in the united states. people will run out and buy the ipad even though they have no idea what it will do. and maybe it will be a bust. steve jobs have had a number of busts. the icube or whatever it was and a -- he's had a lot of failures. he operates in a market that's very open to taking risks and trying even on the consumer side. and that leads me tomorrow morning that the united states is actually pretty well positioned, you know, for the next 50 or 100 years. >> let me add my 2 cents. i'm all for behind the spirit of trial and error mantra. it needs something more than that because washington has got trial and error down pat.

the problem is the feedback that's connected to the trial and error process. in the market we have good ideas leading to profits and bad ideas leading to losses. and we have rather the opposite dynamic often in washington where bad ideas attract more money. with that let's open it up to questions. please give your name and make it a question. make it a quick question so we can fit in lots. right here. our microphone will be coming to you. >> i can't help but take the opportunity to say -- when you say we got to study how politics work, you meant how politics -- we have to learn how politics does work. but anyway, it's question. -- it's quick. my question is, how are you different than what the austrian say? i mean, certainly they have always been emphasizing entrepreneurship.

and the fact that, you know, there's countless intangible factors to consider and analysis. how would you say what you're saying differs from what the austrian economists say? >> i wouldn't -- i'd be willing to plead guilty to there being a big austrian antecedient to what we write. i think it's just informed by some more recent research that tends to support that point of view. but you can see plenty around. >> pundits have speculated just to accommodate population growth the u.s. economy will have to

grow 3% a year, which means after 24 years the gdp will double from $14 trillion to $28 trillion which is probably bigger than the combined economies of the world today. sort of it would seem that in a very short time we will go from scarcity to depletion. we'll probably use up all the resources of the world in a very short time. so should we be talking about growth or talking about fundamental changes which needs to be stabilized to prevent a total market failure? >> will we have depletion of resources. let me give answer which would be a paul romer answer. in physics we learn about the law of conservation of matter. we don't learn that matter gets depleted. so what economic activity

consists of -- to the extent that it's physical activity at all, and, of course, a lot of it is becoming again intangible activity communications and so on. but to the extent it's physical activity, it's making some molecules and transforming them to other molecules. so in that sense there is no depletion. we're coming up with new recipes for transforming molecules. if you were to read the interview with paul romer in our book, you'd get a perspective that says that we really don't face an issue of depletion of resources. that that's really not the way the economy works. and, you know -- and i think some of the facts that we mention in the book include fact -- like, for instance, the weight per dollar of gdp is of falling. so the physical components of gdp are falling. relative to the mental components. >> yeah, and i'd also add -- i mean, that's -- there's a long

history of worrying about that exact question, limits to growth. none of the predictions seem to bear out in front dynamic economies. and free economies so i think as long as the economy remains relatively open and free, it's not something that i'm particularly worried about. >> thanks. i'm a former entrepreneur. so i have a lot of questions. and i'll just try to ask two quick ones. one is do you think that uncertainty in the sense of unquitefies is inherent to innovation and, therefore, we will never have a mathematical understanding of its structure? or do you think it's plausible that we got there? and second, if you take trial and error and say as you did

that, gee, part of letting failures fail, i think that will -- that creates natural conflicts that the losers in the process have an understandable material interest in slowing down neovation. -- innovation and does that create a democratic capitalism and if you do, do you have a way with how to deal with it. >> okay. the first question, you know, is it -- does it make it essentially impossible to come up with a mathematical model of entrepreneurship. i think i'll ties one of the people that we talk about in the book who talks about exactly that. that innovation -- that economic growth is unpredictable precisely because of that. because, you know, no one knows which innovations are going to work or where they're going to come from there's this unpredictability that's inherent

in that. i'm in that camp. so your next question is sort of innovation creates losers as well as winners. and what kind of political dynamic does that create? in our society? well, i mean, we see the type of dynamic it creates. it creates a dynamic where the government takes over general motors because, you know, it can't think of -- it can't conceive of general motors going out of business. and then you ask well, what to do about that. i guess try to come up with better ideas instead of taking over general motors. i don't think the standard mantra of retraining workers really works. i think the way employment dynamics work in this country is that old workers retire early sometimes when their industries decline.

and young workers come in with new skills. so i think -- i guess i don't have a great answer for that. i think there's certainly a case for trying to develop a sound and compassionate safety net that -- that is more oriented toward being a safety net than toward being this kind of political mish mash. the accidental welfare state that we've kind of developed. but i think that's -- that's difficult politically. but i think my political solution probably come more in the other book where i have wilder ideas about competitive government and a brief point. there's nothing -- i don't think

there are scale economies in government that justify a 300 million-person polity. you know, if you needed to have so many things decided for 300 million people out of washington, d.c., then switzerland could not possibly work. denmark could not possibly work. singapore could not possibly work. the fact that those much smalle polities have decent welfare states and decent governments suggests to me that we could have a much more competitive governmental system where a lot more of these even welfare state functions took place at much lower levels of government. but that's into the other book. >> yeah. i agree with arnold on uncertainty. and your second question is one that for me personally in working on this book i wrestled with the most and don't have i

would say any sort of satisfactory answer. it's a question we asked a lot of the -- of the interviewees of the book. it's very clear that they don't have satisfactory answers in terms of some closed set that you can say well, here's what we can do and this solves the problem of creation of losers in a dynamic economy. interestingly ned phelps who was one of the economists that we interviewed in the book has been thinking a lot about this question in the context of political philosophy and is doing extremely philosophical work right now on this. and i think it's in part because he takes very seriously the wanting to maintain the gains and advantages that we get from a dynamic economy but also taking seriously the critique about what happens when you have losers in a market economy. but he turns it around a little bit and he says well, you also have to understand if you're going to have an expansive view

of human potential, the limits that you're going to put on entrepreneurs and innovators need to be taken into that calculus which is not something he ever did. and i think that's a useful original way of trying to enlarge the discussion about it. it's power politics involved. it doesn't really solve that. it begins it off change the discussion in a different way. it's not going to be that satisfactory to you. >> jim is going to answer that in his own book. >> yeah. >> just to comment on the issue of scale of government which i think ties in very well to the trial and error point. you get a lot more trial and error going on if you've got a more decentralized government structure and the contrast between the u.s. and switzerland is even more stark than it first might appear because that's a very decentralized system where

a lot goes on at the canton level so they have a universal healthcare level but it's done differently but contrast that with obama-care when one-seventh of the economy in one fail swoop. right there. the lady. >> i'm a columnist and one of the questions that i absolutely -- or responses from readers that i hate is when they tell me why did i write this column as opposed to some other column but i'm going to commit the same sin and ask you the following question, which is as i understand it the premise of your book -- the question of your book is why are some countries poor and some countries is rich? and one of the answers that you give is predatory government. well, that's not exactly new. essentially that means governments that -- societies

that don't have good rule of law and a comparable government, which is an institutional issue. so wouldn't it have been better to begin with the with all the rule of law and accountable government and with why some don't rather than starting the question why are some poor and why are some rich? >> i'll go first on that one. it's a perfectly good question. one thing i would say is that the book is about certainly wealth disparities between and among countries but it's a lot more than that. what's unique about the book is that it draws together several different strands of research in different areas. and that have not been brought together and what we're trying to show is similarities in research and economic history,

technology-development, business in firm foundation and a lot of areas where scholars have been working and not thinking -- say i'm working on the origin of new businesses. i'm not necessarily thinking about the despaisparities betwe countries but there's a lot of research on new firm foundation that's on this. and i'll leave it to arnold after that. i can't capture everything that's in it but i'll leave the rest to arnold? >> i'd say one clearly unresolved issue in the book might be phrased very crudely is it institutions or is it culture? or is it government or is it culture? and we have people on both sides of that. i mean, on the one hand, you have paul romer who clearly says, oh, look at hong kong. you know, that's the same culture that you can find in other places in asia and china. and look at how much better it did than other places?

so clearly institutions. and then you have people like douglas north and probably in the background, hayek, you know, it's kind of hard to change a culture. so i think that's somewhat of an unsolved issue. in my own mind i guess i'm a mostly cultural determinist with a view that institutions can change things over long periods or when they're heavy-handed. you know, communist institutions by being so heavy-handed and so brutal could actually overcome cultures. and so you see the difference between north and south korea showing up. >> and i'd also add, this is the area where -- this is kind of a coppout for an author to say this where a lot more needs to be done and the people we talk in the book that's clearly the case. doug north, you know, is the leader of the new institutional economics school, which he would prefer to change at this point to new institutional social science. he's taken a much more expansive

view of what needs to be studied to understand this question of how cultures change, how societies change and so a lot of the work is history and a lot of social science needs to be done for different small communities or at the national or regional level. so a lot of that is where it needs to happen. >> in want to make a comment. thanks for inviting me in on. when you think why countries are stuck and how they change over time, usually there are a lot of revolutions that happen including how the united states sort of got on this path. and to sort of tie this in with their common earlier trial and error. i think that's the right answer and i think it's an unsatisfying issue because i don't think it will be politically persuasive. so if i were to ask a lot of thinkers around this town who i think get this concept and get this book, their solution would be the federal government needs to be more involved in giving tax credits for r & d so that we can have innovation. a very centralized response.

so there are people that sort of get everything that's being said and they don't get the underpinning of how does real change happen. it happens with competitive units. that's the worry i have. i'm an optimist in this u.s. versus china debate. but i'm still not fully bought into the optimism because i see the u.s. creeping towards less federalism. more central control. and in a political structure that itself is entrepreneurial. you have two parties that don't want to open up to entrepreneurial ideas. they want to maintain their lock. are they going to tolerate an entrepreneurial economy? i wonder can we get to a trial and error politics again? >> just to add from my own thinking and researching about this of the precise puzzle of why some poor countries adopt the institutions and policies that make them very rich and others don't. i'm afraid that a radical element in some countries are lucky.

if you look at poor countries that got rich over the past half century or so, countries like taiwan, south korea, singapore, chile, they were all au-tok sis. generally that's bad for growth. they had communist left wing insurgencies to deal with. so it was this strange kind of correlation of forces where on the one hand not being democratically accountable they had distance from the kind of special interests that otherwise might have choked growth in the crib. on the other hand they had to worry about popular discontent and do something to buy it off by providing broader-based growth. and that kind of sweet spot seemed to produce progrowth policies in those jurisdictions. how you recreate that somewhere else, who knows. right back there.

>> i had a comment and a question. let me ask the question first. can anybody -- would anybody like to comment on the future of innovation but of creating the organization for innovation management? as we've been talking about, there's a creeping -- that more difficult in the united states? i don't see any other competing economy where that seems to be done any better. so i just wondering if you guys would like to talk about not where we are but where you think things might develop and just to make another comment. people don't often think of this. but another very successful country that succeeded under imperialism is puerto rico.

it's the highest gdp capital of all the latin america countries. and i would not make that an example. but i'm saying there are other places where the culture is the same. puerto ricans is the same as everybody else but it seemed to have worked out for them but they're not happy about it, by the way. [laughter] >> but they're not so unhappy to vote for full independence either. >> i think the question of future for entrepreneurship is too difficult to throw off in a two-minute answer. my one comment on puerto rico is that there's another example where you see a lot of migration. between puerto rico and the mainland and the husband and so you have to kind of control for that factor in sort of seeing

what -- how that exception played out. >> yeah, i'm with you in not seeing other countries right now as being ready to sort of take the mantle of technology frontier away from the united states. i don't like the -- certainly most of the political trends at work as it relates to that in this country. i know this is something jim is working on right now. it's an open question. and there are a lot of obviously spillover benefits that go to other countries because the united states is of the technology frontier. that's part of the conversation that's largely absent from our political discourse in a really unhealthy way because it just reinforces what i think are erroneous assumptions about where new technology and innovation actually comes from

and how it can be sustained over the long haul. but where that will be in the future i think is still pretty much an open question. >> i think we'll take one more question. this lady right here. >> deborah from democracy work. there hasn't been in academia and in law and an economy. the push to make money equal political power or legal power. there hasn't been that discussion and desire. in the united states the development of corporations. how do you or have you looked at the issue of legal liability when you're talking about expansion. when you're talking about designed inflation.

and the effects of genocide volatility, narcotics terrorism and this high end enterprise that you're talking about in a very side -- what do you call it? a la carte way? do you address the issue of legal liability towards genocide for the conditions within the third world countries and creating poverty with inflation? designed inflation? well, that's not really in the scope of the book. the book is really about -- well, it doesn't touch on that. >> well, i think with that stumper, we'll -- we'll call it a day. the conversation can continue around sandwiches for lunch. there are books available for sale. please feel free to purchase more than one. your friends will love them and

the authors will be happy to sign them. >> they make great gifts. [applause] >> thank you all for coming. >> arnold kling served on the staff of the board of governors on the federal reserve from 1980 to 1986 and a senior economist at freddie mac from 1986 to 1994. nick schulz is a fellow at the american enterprise institute. the cato institute in washington hosted this event. to find out more visit cato.org.

>> did you know you could view book tv programs online? go to booktv.org. type the name of the author, book or subject into the search area in the upper left-hand corner of the page. select the watch link. now you can view the entire program. you might also explore the recently on book tv box or the featured programs box to find and view recent and featured programs. >> we're talking with dr. aaron sheehan-dean about "concise historicalal atlas of the u.s. civil war." your book tells the story of the civil war through a collection of maps and you created these maps if i'm not mistaken? >> ultimately. >> great. why did you use maps to tell this extremely expansive story? >> well, that's a good question.

there's a lot of atlases on the civil war. there aren't many atlases that are user-friendly so i was trying to do this in as concise way. 50 images and 50 pages of text. there's, of course, rising concern about geographical illiteracy in our students. i'm not convinced that necessarily our students are any more illiterate than their parents were when they were kids. i think maps can be particularly maps that we can create using digital technologies. maps present a really effective way of communicating and i think particularly for a war it's essential that students understand the geography of the conflict. >> and right in the title it says it's a concise analysis. how did you in 150 maps -- how did you exactly choose what to concentrate on in the war? >> yeah, it's actually 50 maps and 50 pages of text. so my focus was on the campaigns. there are a lot of good battle maps out. almost all the historical atlases of the civil war are battles.

and my concern was sort of showing the students the grand strategy of the war. where are they moving and campaigns occupy months at a time several states and in order to understand the full sequence of the war students need to see the ebb and flow but half the atlas is data maps. i have maps on slaveholding and antebellum period and voting alignments in both the confederate and the u.s. congresses during the war on elements of politics after the war. so i wanted to get students thinking about the spatial distribution of historical information. and i basically took the most important issues, things like enlistment, voting on habeas corpus suspension and then applied spatial analysis to show students there are spatial influences. >> so as far as the political developments what types of patterns did you find emerging? >> well, we've known for a long time in 1862 the war is going badly for the north. the union has suffered a lot of setbacks and the result was the

democrats have a resurgence in congress and they take back a lot of seats. in an instance those are all the lower north. there's a clear split between the upper north and the lower north. kentucky, southern indiana, illinois, ohio, southern pennsylvania. these are regions that are very democratic and although they vote for lincoln in 1861 they are quite skeptical about the war and as soon as there's this opportunity they're expressing this opposition to a war that's not going well. you see the same thing in the post-war period. this clear geographic split between an upper north and a lower north and that's something that textual analysts talk about. but we haven't seen there's a clear geographic division as well. >> so you were mentioning that your book also captures post-war, post-civil war trends. what did you decide to examine there and what types of findings did you come up with? >> well, i'm looking principally at reconstruction. and at the politics of

reconstruction which redivided confederate -- former confederate and military districts in order to have those states reapply readmission to the union. i looked at things like sharecropping and the growth of industrial workers. the north has a huge industrial boom during the civil war and this is a remarkable accomplishment. the scale so that i've got a full map showing industrial workers after the war. and one of the things that you need to look at carefully on the map is the fact that the scale is different ways northern counties with 10,000 or 20,000 industrial workers and southern counties with 100 or 200 so that there's this enormous divergence as a result of the war. and then i look at things like voting on the civil rights act of a 1866 to see the distribution of votes in the north which is a way of understanding the political shifts that are going on. reconstruction is this enormous complicated topic that we winnow down to the last week of the last survey