Not just an economic slowdown, but actual, ongoing consistent negative economic growth.  In my latest NYT column at The Upshot, I argue for some economies it may happen that living standards fall over the course of a few decades:

In 1750, India accounted for one-quarter of the world’s manufacturing output, but by 1900 that was down to 2 percent. The West became more productive as a result of the Industrial Revolution, and India lost much of its leading export sector, textiles. While the data is fragmentary, the best estimates show that India’s living standards declined through the middle of the 19th century and that its economy retrogressed, even as it borrowed some technological improvements from the West. India just didn’t do enough to move toward production on a larger scale or with better machines.

This story of India’s loss to foreign competition is documented in “Deindustrialization in 18th and 19th Century India,” a paper by David Clingingsmith, an economics professor at Case Western Reserve University, and Jeffrey G. Williamson, an emeritus professor of economics at Harvard.

Economists are accustomed to emphasizing the benefits of international trade, and these arguments are largely correct. But in India, internal regulations and underdevelopment, combined with British colonial depredations, prevented Indian resources from being redeployed productively. The lesson is that a sufficiently large international trade shock can lead to decades of economic decline in a major economy, especially if that economy isn’t geared to mounting a flexible response.

As I explain in the piece, the most likely economies to undergo sustained negative growth today are Italy, France, Croatia, Greece, Portugal, and possibly Taiwan.  We should be more optimistic about the United States, but still a similar logic is applying to some parts of our middle class.

Here is my concluding paragraph:

India’s economy started to reindustrialize in the late 19th century, but growth remained subpar until the 1990s — a truly long recovery lag. This may sound strange to say, but when it comes to some parts of the Western world, the Great Depression may offer the cheerier analogy.

Read the whole thing.

From The Growth Economics Blog:

There’s a recent working paper by Alexandra de Pleijt and Jacob Weisdorf that looks at skill composition of the English workforce from 1550 through 1850. They do this by looking at the occupational titles recorded in English parish records over that period, and code each observed worker by the skill associated with their occupation. They use the standardized Dictionary of Occupational Titles to infer the skill level for any given occupation. For example, a wright is a high-skilled manual laborer, a tailor is medium-skilled, while a weaver is a low-skilled manual laborer.

The big upshot to their paper is that there was substantial de-skilling over this period, driven mainly by a shift in the composition of manual laborers. In 1550, only about 25% of all manual laborers are unskilled (think ditch-diggers), while 75% are either low- or medium-skilled (weavers or tailors). However, over time there is a distinct growth in the the unskilled as a fraction of manual laborers, reaching 45% by 1850, while the low- and medium-skilled fall to 55% in the same period. You can see in their figure 10 that this shift really starts to take place by 1650, while before the traditional start of the Industrial Revolution.

Looking at more refined measures, de Pleijt and Weisdorf find that the fraction of workers classified as “high-quality workmen” – carpenters, joiners, wrights, turners – rose only from 3.9% to 4.9% of the workforce between 1550 and 1850.

Adjustment to major technological shocks takes a long time…

In Beijing, I met Benjamin Liebman, a professor at Columbia Law School, who has published a study on “malpractice mobs” in China. He told me that protests consistently extract more money from hospitals than legal proceedings do. Family members can even hire professional protesters. One report in Shenzhen mentioned an average price of fifty yuan a day for the service of a protester. The radiologist in Shanghai told me, “If your mother dies in the hospital, there will be an agency that comes to you and says, ‘We can help you. We can have twenty guys who can come to the hospital, blackmail them, and share fifty per cent of the profits.’ They’re very professional.”

The article, by Christopher Beam in The New Yorker, is interesting throughout.

Here is a very good piece by Binyamin Appelbaum, focusing on the research of Davis and Haltiwanger, here is one excerpt:

Employment losses during the Great Recession may have had more to do with factors like the rise of Walmart than with the recession itself, two economists say in a new academic paper.

The paper, presented Friday morning at the annual gathering of economists and central bankers at Jackson Hole, Wyo., argues that the share of Americans with jobs has declined because the labor market has stagnated in recent decades — fewer people losing or leaving jobs, fewer people landing new ones. This dearth of creative destruction, the authors argue, is the result of long-term trends including a slowdown in small business creation and the rise of occupational licensing.

“These results,” wrote the economists Stephen J. Davis, of the University of Chicago, and John Haltiwanger, of the University of Maryland, “suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

Their findings contribute to the growing genre of papers that purport to show that the weakness of the American economy is caused largely by problems that predate the recession — and that the Federal Reserve can’t remedy them with low interest rates.

Read the whole thing.

*Gaza: A History*

by on August 22, 2014 at 12:27 pm in Books, History | Permalink

That is the new book by Jean-Pierre Filiu, Oxford University Press.  It would not have come right now unless I were supposed to read it on the plane, so I will.

Assorted links

by on August 22, 2014 at 11:30 am in Uncategorized | Permalink

1. Exit interview with Eric Crampton.

2. How to be polite (good piece)

3. Reihan Salam interviews Lane Kenworthy.

4. Are American housing problems structural?

5. SWAT teams have their own lobbying organization.

6. Moose sex corridor expands with land donation.

U.S.-based economist Arvind Subramanian is poised to be named as chief economic adviser to Prime Minister Narendra Modi’s government, two sources at the finance ministry said on Friday.

There is more here, via David Wessel.  Here are previous MR posts on Subramanian.

How much does poverty drive crime?

by on August 22, 2014 at 7:25 am in Economics, Education, Law | Permalink

Maybe less than you thought, at least after adjusting for other variables.  The Economist reports:

In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.

What did surprise him was that when he looked at families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.

The original research, by Amir Sariaslan, Henrik Larsson, Brian D’Onofrio, Niklas Långström and Paul Lichtenstein is here, here is how the authors report the conclusion:

There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.

I loved the Michael Hofmann review of Stephen Parker’s Bertolt Brecht: A Literary Life in the 15 August 2014 Times Literary Supplement.  Every paragraph of that review is a gem and Hofmann calls the book perhaps the greatest literary biography he has read.  I’ve ordered my copy.

Here is one part of that review, toward the end, which caught my eye:

I’m not really sure what the case against Brecht is.  That he treated women and co-workers badly?  That he played fast and loose with the intellectual property of others, but was litigiously possessive of his own?  That he wrote no more hit shows after The Threepenny Opera?  That he failed to crack America?  That he wouldn’t denounce the Soviet Union?  That he was drab and a killjoy?  That he had it cushy after settling back in East Germany in 1949?  That he was consumed with his own importance?

Perhaps the Parker book will change my mind, but for now file under “All of the Above.”

Addendum: Here is another superb Michael Hofmann review.

Finland fact of the day

by on August 21, 2014 at 2:19 pm in Economics, Education, Uncategorized | Permalink

Finnish students stay in college longer than in any other developed country save Austria, the Netherlands and Denmark, getting their first university degree on average at 29, according to a 2013 report by the Organization for Economic Cooperation and Development. That compares with 24 years for Britons, 26 for Germans and the OECD average of 27 years. Most Finns who graduate from college get a master’s degree.

There is more here.  Of course that undoes a lot of the benefits from their excellent primary education system.

Department of Uh-Oh

by on August 21, 2014 at 1:00 pm in Food and Drink, Law, Uncategorized | Permalink

When it opened in 1990, the McDonald’s on Moscow’s Pushkin Square was a symbol of thawing relations with the U.S., attracting long lines and later becoming the fast-food chain’s most visited outlet world-wide.

On Wednesday evening, it stood empty, closed by Russia’s consumer-safety regulator amid the Kremlin’s most-serious confrontation with the West since the Cold War. The agency cited sanitary violations as it said that it had closed four McDonald’s Corp.’s restaurants in Moscow.

Analysts said the move was more likely the latest shot by Russia in response to U.S. and European sanctions over Moscow’s role in the armed conflict with its former Soviet neighbor, Ukraine.

Food inspectors “have been instruments of Russian foreign policy for years,” said Stephen Sestanovich, a senior fellow at the Council on Foreign Relations. He cited earlier bans on Moldovan wine and U.S. chicken.

There is more here, there is some context here.

How does a stop for jaywalking turn into a homicide and how does that turn into an American town essentially coming under military control with snipers, tear gas, and a no-fly zone? We don’t yet know exactly what happened between the two individuals on the day in question but events like this don’t happen without a deeper context. Part of the context is the return of debtor’s prisons that I wrote about in 2012:

Debtor’s prisons are supposed to be illegal in the United States but today poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees….Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended can be further fined and imprisoned. Unpaid criminal justice debt also results in damaged credit reports and reduced housing and employment prospects. Furthermore, failure to pay fees can mean a violation of probation and parole terms which makes an individual ineligible for Federal programs such as food stamps, Temporary Assistance to Needy Family funds and Social Security Income for the elderly and disabled.

Ferguson1new report from Arch City Defenders, a non-profit legal defense organization, shows that the Ferguson municipal courts are a stunning example of these problems:

Ferguson is a city located in northern St. Louis County with 21,203 residents living in 8,192 households. The majority (67%) of
residents are African-American…22% of residents live below the poverty level.

…Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city, a total of $2,635,400. In 2013, the Ferguson Municipal Court disposed of 24,532 warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household.

You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.”

If you have money, for example, you can easily get a speeding ticket converted to a non-moving violation. But if you don’t have money it’s often the start of a downward spiral that is hard to pull out of:

For a simple speeding ticket, an attorney is paid $50-$100,
the municipality is paid $150-$200 in fines and court costs, and the
defendant avoids points on his or her license as well as a possible
increase in insurance costs. For simple cases, neither the attorney nor
the defendant must appear in court.

However, if you do not have the ability to hire an attorney or pay
fines, you do not get the benefit of the amendment, you are assessed
points, your license risks suspension and you still owe the municipality
money you cannot afford….If you cannot pay the amount in full, you must appear in court on that night to explain why. If you miss court, a warrant will likely be
issued for your arrest.

People who are arrested on a warrant for failure to appear in court
to pay the fines frequently sit in jail for an extended period. None of the
municipalities has court on a daily basis and some courts meet only
once per month. If you are arrested on a warrant in one of these
jurisdictions and are unable to pay the bond, you may spend as much as
three weeks in jail waiting to see a judge.

Of course, if you are arrested and jailed you will probably lose your job and perhaps also your apartment–all because of a speeding ticket.

As a final outrage, consider this story which ties together Ferguson, the courts, and the arrest of parents, often minority parents, for leaving their kids to play in parks (just as my parents did).

According to local judge Frank Vatterott, 37% of the courts responding to his survey unconstitutionally closed the courts to non-defendants. Defendants are then faced with
the choice of leaving their kids on the parking lot or going into court. As Antonio Morgan described after being denied entry to the court with his children, the decision to leave his kids with a friend resulted in a charge of child endangerment.

When do economists matter?

by on August 21, 2014 at 2:05 am in Economics, Political Science | Permalink

Christopher D. Johnston and Andrew Ballard have a new paper on this neglected topic, the abstract is this:

Given an increasing presence in the public sphere, what role do economic experts play in shaping public opinion on economic issues? In this paper, we examine the responsiveness of American public opinion on five economic policy issues to real information regarding the distribution of opinion on these issues among economists. We also examine the extent and role of trust in economists within the public. On average, we find meaningful changes in public opinion in the direction of expert consensus when citizens are given explicit information about expert opinion. However, we also find heterogeneity in citizen responsiveness across issues, such that aggregate opinion change is smaller on symbolic policy issues relative to technical ones. Further, on symbolic (but not technical) issues we find that citizens use judgments of the trustworthiness of economic experts in a motivated fashion, as a means of reinforcing prior opinions.

That is a little bloodless and the paper is also poorly written and organized but nonetheless it is important work.  Here is one very interesting bit:

…strongly left-leaning citizens are about 12 percentage points more trusting of economists than strongly right-leaning citizens.

This part of (sort of) encouraging:

…all three groups of respondents show greater trust than predicted after exposure to consensus information.  This pattern is consistent with the notion that exposure to highly technical, means-oriented issues makes one’s lack of knowledge salient, and perhaps engenders greater respect for experts…

The full paper is here, I would say start reading on p.16 and return to the beginning later on if you wish.

There is a new paper out by them:

Thomas Piketty’s recent book, Capital in the Twenty First Century, follows in the tradition of the great classical economists, Malthus, Ricardo and Marx, in formulating “general” laws to diagnose and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society. Using the economic and political histories of South Africa and Sweden, we illustrate not only that the focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality, but also that inequality dynamics are closely linked to institutional factors and their endogenous evolution, much more than the forces emphasized in Piketty’s book, such as the gap between the interest rate and the growth rate.

For the pointer I thank Nathaniel Bechhofer.

Here is an update from Leonid Bershidsky:

Among the 28 EU members, public spending reached 49 percent of gross domestic product in 2013, 3.5 percentage points more than in 2007.

There is more detail at the link, via Garett Jones, Humanist by way of Walt Whitman, Civilizationist by way of Jane Jacobs.