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John Norris:
Well, hello again everybody. This is John Norris at Trading Perspectives. As always, we have our good friend, Sam Clements. Sam, say hello.
Sam Clement:
Hey, John.
I’m doing very well. Thank you for asking and I hope you’re doing well. It is a great day.
John Norris:
It is a great day. Every day’s a great day. You know, Sam, I’m going to get a little arcane, a little nerdy here this week if I’m not arcane and nerdy every week and tell you that I took a few days of vacation, celebrating my 30th wedding anniversary. Went to Boston, went to Maine, and while I’m in Boston, went to a couple of bookstores. I happen to like bookstores. I don’t like reading books on a tablet. I like the ceremony of a book, going to the bookstore, picking it out.
Sam Clement:
The smell of it, all that stuff.
John Norris:
Turning a page, airing pages, all that stuff.
I picked up this one book in Cambridge, Massachusetts called How Nations Fail, which I’d heard of previously. And it’s one of those books, like a lot of books in the business world… After about 75 pages, you get a pretty good idea how it’s usually just more examples of the same at that point.
And so now I’m on page 240, and this has only been a couple of days, and I’m just plowing through more examples. They hit the Roman Empire and numbers of reasons for it. But one of the things that they pointed out, and it did make a lot of sense to me, and in doing their work, and there’s a lot of work that’s been done for this book, How Nations Fail, what they noticed is that you don’t see people, countries, ultimately vaulting from the bottom to the top or from the top to the bottom.
It’s generally sort of a transition period. The top 10 richest countries 10 years ago are largely still the top 10. Top 10 poorest countries are still largely the poorest.
And then you have certain issues where they point out that people from the country of India seem to be successful everywhere they go… But India. And why is that? And why for so many decades the Chinese were so wonderfully successful every place they went, except for the People’s Republic of China. Then all of a sudden that changed.
But by and large, Africa is still desperately poor.
By and large, the G seven and Western Europe is still extremely rich. And so when I took a look at that and I thought about our nation as a whole and kind of the various states, Connecticut’s always on top, Mississippi’s always on the bottom, nothing ever changes.
Why is that? And why hasn’t there been any sort of change? And the people in the book would make the argument that the political institutions aren’t inclusive enough, and by inclusive, they’re not talking about making sure that you have a rainbow of different people in office, but that the various institutions promulgate enfranchisement into the system.
And when you take a look at countries around the world, you can make the argument that Sub-Saharan Africa falters because its leaders have not done a good job of doing that. They’ve taken what their previous colonial masters were and just essentially kicked out the old people and kept the same system. Just everyone looks a little bit different.
So I went to the Heritage Foundation’s Economic Freedom website – the Freedom Index. And what I found is that the richer countries generally have the freest economies, the poorest countries generally have the least open economies. But what I’m finding is that unfortunately, a lot of previously rich countries seem to be dipping in economic freedom. And I’m wondering what that means for countries like the United States and others: if their economic freedom dips at the same time that they’re facing geopolitical challenges. Sam, I have rambled on. Please interrupt me.
Sam Clement :
No, it’s kind of adding onto the headwinds that I think some larger, you mentioned it really, the G seven type countries are already having some issues and some is due to the globalization and other countries are having more opportunity or what. But as we start to tighten down on the things that we’ve said always lead to economic prosperity… it’s kind of bad timing for that is what I’m getting at.
John Norris:
Yes, without a doubt. One of the things that the Heritage Foundation will point out is when the government gets too large, too invasive and too fiscally… liberal?
Sam Clement :
Irresponsible?
John Norris:
Irresponsible. Thank you. That’s a much better adjective. I was plowing through them in my head without sounding vulgar. And when they get that way, generally that will start crowding out and slowing down economic growth. And that’s the reason why the United States has dropped pretty precipitously in this one particular index going from a “free” to “mostly free” to borderline “mostly unfree” thanks to just how bloated our government has gotten, how bloated our financial deficits are and countries like the UK have followed.
And so when I take a look at that and when I really think about the world as a whole, why is it that places like Alabama are persistently poor? Why is it that countries around the world, whether it be in Latin America, Sub-Saharan Africa or even Eastern Europe, why are they persistently poor and yet other countries somehow make that leap to not be poor any longer?
Sam Clement :
Well, I think part of it, and I’m not trying to make it too simplistic, but change is difficult for large groups of people. You mentioned it with some Sub-Saharan African countries, and it’s really happened globally, but where it’s just nothing really changes.
Just who is in power has changed.
John Norris:
Exactly.
Sam Clement:
That’s happened in a lot of states here. I think in the South, local and state governments have – at a lot of times – not been focused on inclusivity, this pro actual business, what have you. In the political parties, and it’s not just about the political Democrat versus Republican. There’s been swaps, but nothing really seems to change in that. It’s maybe inherently a flaw in humans, but they want to be on top. And if someone else has been taking advantage of you, you want to be on top after, and then things don’t really seem to change.
John Norris:
Have you read the book? This is almost exactly what the writers are saying.
Sam Clement :
I haven’t, but I think you could even think of it more simplistically, if you’re being bullied, all of a sudden you hit a growth spurt and get bigger than the bully, a lot of times you just bully them right back. You don’t learn from the mistakes. That seems to happen on local government levels, state government levels, countries. And so that I think is part of what makes it so difficult. Where you can see change, you need powerful people that are willing to change to flip that on its head.
John Norris:
And listen, you’re absolutely right on that. And very rare are those individuals because once they get into the power elite, generally they want to stay there as opposed to trying to dissipate or spread power amongst the many. Once you have that taste of it, man, it’s so hard.
Sam Clement :
And it’s also – even before you have the taste of it, it’s kind of like who are the people that want to have power? Typically, the people that want to maintain power, not to truly make things better. I mean, I’ve talked about that, typically the people that want to run for president…. You know, there’s almost something psychologically concerning about it.
John Norris:
I mean, certainly not to toot my own horn, but I’ll get in political discussions with family members and friends and they go, why don’t you ever run for office somewhere? You seem like you got your head screwed on straight. I go, why in the world would I want to do that?
Sam Clement :
And I think that’s a common and honestly normal response. So, the people that really strive for that, and we see it a lot here, and it’s not unique to the U.S., but people that stay in politics, we’ll call it, stay in politics their whole career, they’re career politicians. They’re a whole term for it.
John Norris:
They love the power.
Sam Clement :
There’s a term for it.
John Norris:
And the people who are in power end up making money.
Sam Clement :
And not off their salary. I mean, they don’t get paid.
John Norris:
For instance, I had a friend of mine and former employer sent me an email this morning talking about Janet Yellen. He’s not a Janet Yellen fan. I’m not particularly a Janet Yellen fan either. And he made some mention about how Janet Yellen has recently said that she didn’t think there was any serious inflation in the economy, but for the fact that someone went behind her and followed her and took a look at her favorite restaurant, which Yellen is known to go to and she has a favorite dish there that the restaurant knows three years ago that dish costs eight bucks, now it’s $13. But regardless of that, Carter pointed out to me that Yellen made over $2 million last year as U.S. Treasury Secretary, through speaking fees and the like. Why would she want to give that up?
Sam Clement :
Why would any of them want to give that up?
John Norris:
Yes – why would anyone want to give that up?
Sam Clement :
I mean, you see it time and time again, and I know this isn’t meant to just be a talk about U.S. politicians, but they’re by and large, all pretty wealthy. I’m not saying they get paid nothing. They make a good salary, but not the salaries that, if you’re making what a House of Representatives member was making and you fast forward 30 years, that’s not the same level of wealth.
John Norris:
Well, it’s the same thing with Barack Obama. Barack Obama went to Washington, a community organizer and now lives in a 14.5 million mansion in Martha’s Vineyard. He’s a public official. A community organizer. Book deals and what have you- but he wouldn’t have had the book deal, but for the power and all that stuff at all goes hand in hand. But before we delved into individual politicians too much, going back to: why do some cultures remain wealthy? Why do some states remain poor, and all that stuff? It goes back to what you said: people like to stay in power.
Now leading up, and you have to know a little something about U.S. history right now if you’re not listening in the United States, but leading up to the American Civil War, there were two distinct economies.
- One in the north, which was more based on lighter agriculture, but more getting into step with the Industrial Revolution, manufacturing, transportation, etc.
- One in the south, while not a complete backwater by a global standards, was more heavily focused on agricultural or more importantly, on what is now known as a Plantation Economy where outsiders, for all intents and purposes… the purpose of this economy is to extract natural resources and ship them abroad where there’s not truly a true creation of wealth because that has to be done in order to have effective extraction, you need to have a very powerful few and you need to have coercion in order to get people to go work in mines, to pick cotton and what have you.
And as everyone well knows in the U.S. South, slavery was the way that we did that. And it was unfair. And not inclusive. And not surprisingly, the income for the average Southerner was not as high as it was for the average Northerner, all those southern balance sheets were bloated by having human chattel as assets on there. But I’m not trying to go into that right now at all. After the Civil War, when slavery was abolished in the U.S., the southern economy, was in shambles because it was blown up or no longer had this “free” workforce, what did the Southern power people do?
Did they say, okay, they got us! Now let’s go figure out some way to get everyone involved lock arms and let’s grow this thing. Let’s beat them at their own game.
I think we all know the answer to that. They did the exact opposite. They said, well, we’re just going to go back to being what we were being. We’ll just have to create new laws.
Sam Clement :
And continue disenfranchisement.
John Norris:
John Morgan and what have you, ended up writing Jim Crow laws, which for all intents and purposes, took everything back to the way it was just people weren’t legally slaves any longer. And that sort of mentality has pushed through largely into the 20th century in certain sections of this country. Not necessarily that we still have the Jim Crow laws and all that type of stuff, but once you have longstanding institutions, it’s harder to wear those things down and to eliminate them than it is to just continually prop them up.
Sam Clement :
And to add to that, and you kind of hit on it, but to expand on it, there’s a term called the resource curse, where countries that are “rich in natural resources” but oftentimes have tons more economic instability and things are tougher because you focus just on the extraction, on the pure extraction and the sending out of your resources essentially.
John Norris:
I think the Democratic Republic of the Congo is a perfect example of that.
Sam Clement :
And so you see countries, there’s a lot of South American countries that you could put in the same boat, the U.S. South previously at times, but when you’re so focused on resource extraction, and a lot of times that money flows outside of the economy that it’s in, you’re just bleeding everything dry and focused on something that most of the time is non-renewable or slowly renewable… you know, lumber is probably a big one in some areas in the south.
John Norris:
I was going to get to that in just a second.
Sam Clement :
So that’s an additional problem. You can almost see countries get ahead by having less resources.
John Norris:
Well, I mean, I think Singapore’s a great example.
Sam Clement :
Japan’s probably a pretty good example.
John Norris:
Japan’s a great example. They’ve got some fiscal problems and some demographic, but long term they’ve done incredibly well for a country that does not have any natural resource. South Korea is another good one. Before the Korean War, South Korea was actually the economic backwater because North Korea was the more industrialized. That’s interesting history. Obviously things have changed there. You mentioned a little something about Timberland. If you were to take a look at our state, state of Alabama, take a look at a lot of other southern states…. Georgia is another good example. You can almost draw a line through the middle of the state about halfway through it, I think you and I talked about it yesterday. In Alabama, that line’s probably about 10 or 15 miles north of Clanton, Alabama.
A little bit south of Birmingham, a little bit north of Montgomery. If you were to do that and take the state, the state of Alabama on up there, per capita income, household income wouldn’t look dramatically different from a lot of other states throughout the country. Instead of being 48, 49 or what have you. That section of that state would be probably in the mid-thirties somewhere. I haven’t done all the math, but that’s probably about right. But when you take a look at the bottom half of the state, which is heavily, heavily forested…
Sam Clement :
Isn’t there more pine trees now than there was hundreds of years ago?
John Norris:
Oh, it’s not even close. I mean, you can drive through these deserted towns that are now just swallowed up by pine trees.
Sam Clement :
They grow fast.
John Norris:
8% per year. And so when you take a look at that, take a look at Southern Georgia where you have a lot of the same type of thing going on. There’s nothing wrong with this. It’s just two different economies. The economy in northern Alabama, and I would say probably pockets in Dothan and then also in Mobile and Baldwin County, you almost have to take them out. But the rest of our state down there is very extractive in nature. You have absentee landlords and people that own the land oftentimes live elsewhere. There’s no incentive for them to be civically minded. They cut down the trees and they own it for a purpose. They own it for a purpose, and the purpose benefits them and the same thing for any sort of extract.
John Norris:
That’s not inherently wrong, yet the economies need to have people that behave like that. But what that does do is really keep a lot of geographic location because a lot of people would get up and go get up and leave, but it keeps a lot of our geographic location sort of in a state that’s never going to grow significantly.
Sam Clement :
We’ve talked about it with brain drain before, just our country as a whole is tending to move towards bigger cities and people would get up and go, get up and go. It is kind of the same we’ve said, and it is very similar with the financial resources as well.
John Norris:
Without a doubt mean you take a look at places as I think as poorly run in my estimation as maybe California and, I mean there are a lot of laws on the books out there that are just puzzlements to me. But take a look at the massive amount of wealth that is still being generated in California almost in spite of what Sacramento does and the complete Bay area.
Sam Clement :
Yeah, it’s like a majority of the U.S. innovations coming out of there.
John Norris:
People were fleeing the downtown, but going out into the remainder of the Bay Area and creating all this enormous amount of wealth, and I would say the reason for that is because the technology sector, arguably more than maybe any other economic sector, is more inclusive in that it almost has to create destruction, something called creative destruction, and you need to have constant creative destruction in order to have new technologies that will fundamentally change our lives and how we conduct business.
So we have places like that where you have all that wealth being generated, and even places like Massachusetts I love Massachusetts. You have people just going there despite the higher taxes, and it’s for that same type reason. The economies are far more inclusive as opposed to extractive. And I would say that we’re seeing that really around the world.
I don’t think there’s any hope for Sub-Saharan Africa the way things are currently structured. I don’t think there’s a lot of hope for South America either, and I don’t think there’s a lot of hope for the state of Alabama or Mississippi or Arkansas, Louisiana, any of these places, given the way that things are currently run, given the way that the tax structures currently are, and without someone coming in and saying enough! And really probably revamp, you’re probably getting killed in the process street without someone coming in and doing that. These states are always going to be in the bottom 10, no matter the fact that I love living here. I mean south of town, Over the Mountain Birmingham is a real nice place to live, don’t get me wrong, but the estates as a whole, until we get more inclusive policies, and it’s not just about DEI, it’s about having economic institutions, tax policies, educational systems which foster that creative destruction, which foster the willingness to take risk and to be entrepreneurial.
Sam Clement :
You mentioned going back to Silicon Valley, and I think one of the quotes that’s always stuck out to me from people out there is: build fast and break things.
John Norris:
Well, that’s true.
Sam Clement :
So yeah, something has to change. Things don’t change until something changes.
John Norris:
Well, you’re right about that. So when you look around the state of the world, is there any sort of country territory or whatnot… Do you think they’re just all of a sudden, Hey, they’re on the cusp of something great, or is it just going to be same old, same old and 10 years from now, we’re still going to be looking at the top 10 poorest countries in the world. We’re still going to be looking at the top 10 poorest states in the US probably being in the southwest and the southeastern United States. Do you think anything’s going to change?
Sam Clement :
Look, the easy answer on a country level, I guess it’s the easy answer to me is India, and we’ve talked about the potential energy in this country, but it’s also the equivalent of, I don’t know, a tanker or a cruise ship that it’s such a massive country. It is hard, I would imagine, to turn the ship as quickly as they would like to, but it’s a country with tons and tons of potential energy and being this China plus one that we’ve talked about, they could be the biggest benefactor from it.
John Norris:
And there’s going to have to be an enormous amount of destruction of the current way of doing things. I might’ve told you that story that I made a presentation in Nashville back in April and met this guy from Chicago who was doing a bunch of business in India, and he said that the amount of bribes that you have to bribe the local bureaucrats in order to get things done is just part of doing business there.
Sam Clement :
And as long as that’s the case, you can’t change things.
John Norris:
When they came out of colonial rule, British colonial rule, unfortunately New Delhi left a lot of that infrastructure in place. Nothing really changed, but they decided that they wanted to be completely self sufficient, and as they did that they found that they couldn’t distribute resources correctly and the bureaucracy grew. So now you have a situation where you have guys like Modi that arguably are maybe trying to break down that a little bit, but I think now Modi’s more in the position of trying to increase the power of Modi. And so you have that situation. I do agree with you that India has the most potential of any major country or economy out there to grow rapidly from now over the next two to three decades… is going to require a fundamental change in how New Delhi and the bureaucracy in the subcontinent governs the country, in my estimation.
Sam Clement :
Yep. I agree.
John Norris:
How about locally? In your travels throughout the country, is there a state or a metropolitan area or some area you that you’re thinking, this place gets it. I understand why people are moving here and it’s going to be like that forever?
Sam Clement :
I mean, I feel like as a state, and this is, I’m kind of going with the easy answer. Florida has done a phenomenal job. Cities wise, I’d say Atlanta. While they still have a ways to go, I think has done such a good job of promoting and bringing in businesses.
John Norris:
It is truly an inclusive economy.
Sam Clement :
It’s a state to envy right nowIt’s not like I’m projecting something that isn’t already happening, but there is a lot to envy with what the state of Georgia has done.
John Norris:
I would agree with you on that, but however, I would make the caveat, I think there’s an enormous difference maybe from the remainder of Georgia and the massive Atlanta metropolitan area, but when you take a look now at the size of Atlanta Metro’s population relative to the remainder of the state, it’s unbelievable. I mean, 60, 70%, I mean, it’s some massive number I would add to that group as much as my friends in central Tennessee would agree. I think Nashville’s a very bright star out there. It’s a very dynamic, very increasingly inclusive economy. I understand why people want to want move there. The state that I really like a lot is North Carolina. I really do like North Carolina quite a bit because it’s not just sort of Nashville that just kind of stands out. Chattanooga’s having some nice growth, Knoxville’s, having some nice growth. Then you have western Tennessee with Memphis, which hadn’t changed terribly much. So it’s pockets of inclusivity, pockets of promise. However, wherever you go in the state of North Carolina, the business climate seems to be on fire. I mean, it’s not just Charlotte.
Sam Clement :
Really the Carolinas as a whole…
John Norris:
The Carolinas as a whole, but say particularly North Carolina, as much as my friends in Greenville and Spartanburg, I do have friends there. They would say, oh, come on, what about us? And I would say that section, yes, but the huge swabs of the state are getting left behind. Mainly like Alabama in that regard. Birmingham, Huntsville, Auburn, Tuscaloosa, Fairhope, and then everyone else. That’s a very broad brush strokes. However, in North Carolina, you have the Raleigh-Durham area, you have Charlotte, clearly, you have Winston-Salem, Greensboro, High Point. These are all major metropolitan areas which are continuing to grow. The triad where I went to college is growing nicely. It’d be envious compared to many other metro areas, but for the fact that they are being compared to Raleigh and Charlotte, even places like Asheville and Greenville and Jacksonville, all these places throughout the state, I think North Carolina is going to be on an upward trajectory for a while.
Sam Clement :
I agree.
John Norris:
Alright. Well guys, thank you all so much for listening. We always love to hear from you. Also, if you have any comments or questions, please by all means, let us know. You can always drop us a line at or you can leave us a review on the podcast outlet of your choice. As always, if you’re interested in reading more, or hearing more of what we have to say or what we think, you can always go to www.oakworth.com. Take a look underneath the Thought Leadership tab and find links to all kinds of exciting information, including links to previous Trading Perspectives Podcasts, links to our newsletter, Common Cents, as well as links to our quarterly analysis Macro & Market. With that being said, Sam, last chance, that’s all I got.
Sam Clement:
That’s all I’ve got today too.
Y’all take care.