Inequality and Islamic Terrorism

This week's monstrous acts in France have left a lot of people wondering if there's something wrong with Islam that leads to Islamic terrorism.  I think this is a naive misunderstanding.  The acts stem from poverty and inequality in the Islamic world, both in the middle east and in Europe.

In the 8th through 12th centuries, the Islamic countries were the most advanced in the world.  A lot of this was the result of enlightened leadership, in the parts of the Abbasid and Umayyad dynasties and in no small part the wisdom and inspiration of prophet Muhammad himself.  These leaders were at once aggressively expansionist, and exceptionally tolerant of the groups that they incorporated; Jews and Christians of several sects were not just tolerated, but given extraordinary intellectual and commercial freedom.  Meanwhile China had entered an isolationist period, while Western Europe had effectively abandoned civilization in favor of religious extremism.

The Islamic enlightenment ended the same way the Greek/Roman one did: religious zealotry undermined the multicultural unity, opening the door for ruthless warlords to vandalize and steal the fruits of its intellectual advances, while reversing many of them and making it nearly impossible for new ideas to flourish.   Simultaneously, the Mongol invasions from the east and growing unification in the west in the form of Charlemagne's empire and the Crusades, further reduced range and influence of the once-advanced Islamic culture.

The Renaissance started in Islam's close neighbor and trading partner Italy, and was in no small part inspired by and benefited from the Islamic enlightenment, but left the Islamic world far behind.  When the period we call the Enlightenment and the Industrial Revolution came along, the Islamic countries were too far behind, and the gross inequities of what remained of their culture prevented the benefits from reaching them, in most cases opening them up to colonization.   The Ottoman Empire, for 600 years the great power in the region, collapsed in a morass of corruption, punctuated in the aftermath of World War I with the Sykes-Picot treaty drawing political boundaries that had no reference to national identities of the time, installing royalty which had no connection at all to the states that they were governing apart from a thin, albeit plausible family connection with the prophet Muhammad and assistance to the allies in World War I.  Except for in Arabia, the rich and powerful had no connection at all with the people they were governing.  Except in Jordan, these Hashemite kings were all deposed within 30 years of their installation and replaced with people who were even more vicious and money grabbing.

The bottom line is that the Islamic world has been almost completely left behind by the intellectual and technological developments of the last 300 years, and the resulting societies are desperately poor and badly educated.  The former colonizers are sympathetic, but at the same time they are still trying to extract what they can...so many of them have allowed large amounts of immigration from these impoverished places.  But they're post-enlightenment countries, so they don't feel they can impose their religions and ideas onto the new immigrants.  So the immigrants tend to develop enclaves where they are slightly better off than in the old country, but are still desperately poor and ignorant, still very much living in the pre-enlightenment world.

So they lash out.  The worst violence is committed not by the desperately poor, but by people who have an affiliation with them (through religion in this case) and are acting in sympathy with them.  The truly desperate don't have the resources to do even that.  This was how 19 middle class Saudi guys, with sponsorship from one of the richest people in the world, committed one of the most horrific acts of our time.   It's how a handful of reasonably comfortable Algerian/French guys (it's still not quite clear how many at this point) committed a horrific act in the name of their prophet which was in direct violation of his teaching.  And so on. 

The driving force behind Islamic terrorism, and most other kinds too, is inequality.  Certain Islamic peoples feel, with some justification, that they are trapped on the bottom rung of the ladder, and can't get up.  Immigration didn't work.  Oil wealth didn't work.  These things just heightened--and highlighted--the inequality.

The solution is to reduce inequality.   That's not the real target--the real target is the terrible desperation of the impoverished--but it's the best handle we have.  We need to give these peoples (and the Muslims are not the only ones) a hand up, out of poverty.  Meaningful universal education is the most effective.  So are programs which help people to live their lives more easily, such as small business loans, improved water supplies, more efficient cooking, secure places to live, universal medical care.  All of these things provide what economists call liquidity.  They make it easier to live, and to better yourself, even if you are desperately poor.

We need for it to be easier to live in poverty.   People who start successful businesses--be they a small farm or an industrial giant--are not worried about where their next meal is coming from.  The way to reduce the problems of inequality is to give people a comfortable floor which they can't fall below, no matter how bad things get, and to give them a hand up to the next level: Education and things like microlending.

Liquidity

Liquidity, in economics, is measure of people's willingness to spend for something.  If the thing seems expensive for them, they are unwilling to buy.  In barter economies, when there's a substantial price differential for something, there's inherently low liquidity.  For example if one person has a milk cow to trade and would like some dishes to eat from, some intermediate deal must be cooked up.  A milk cow can't be divided, so the only solution is to buy enough dishes to be a fair trade for the cow, and then try to find somebody else who wants your extra dishes.   Granular currency increases liquidity a great deal.  You can sell the cow for $500 and buy $100 worth of dishes.

There are other things that increase liquidity.  Having good roads makes the things transported by road cheaper.  Having policing, to keep you safe from bandits and fraudsters, does too.

Sometimes, something happens that changes the price of things.  The Arab oil embargo of the 1970s was such an event.  Saudi Arabia and a few others were angry at the unqualified US support for Israel during the Yom Kippur War of 1973, and punished the US by reducing our oil supply.  This caused the price of fuel to skyrocket and a series of recessions and inflation.

A recession is when there a broad reduction in liquidity for a lot of things.  Inflation is one way this can happen, but it's more often caused by some event that damages people's confidence. Keynes called this a change in "Liquidity Preference", meaning people prefer to save money rather than spend it on things.

The way out of recessions is to do what is necessary to create a broad based increase in liquidity.  When the problem is that the banks are scared--for example of unsound debts owed them--the bankers preference is to not lend.  This changes the liquidity of everything downward, so anything that presses liquidity upwards will help us out of the situation.   Since the bankers reticence results in making businesses afraid to a risk, the only remaining solution is for government to do it.  Government can do lots of things to increase liquidity.  Increasing the amount of money in circulation has an effect, but simply giving the banks more money to not lend is not especially helpful.  Buying up unsound loans would be much better: it reduces the thing the banks are scared of while putting money in bankers and homeowners hands.  Just doing stuff that gives people a paycheck is also very useful. Having money significantly increases their willingness to spend.  And if done wisely, so does things like build roads and educate people, which increases liquidity greatly downstream.