The author is Julian Gewirtz and the subtitle is Chinese Reformers, Western Economists, and the Making of Global China.  I loved this book.  It is a tour de force on China, the theory of policy advising, and the history of economic thought, all rolled into one.  Here is one bit:

The Chinese side, meanwhile, had learned the hard way about Friedman’s dual persona and that his expertise on inflation could not be separated from his ideological intensity [TC: circa 1980]…Yang Peixin remembered Friedman as “extraordinarily stubborn,” someone who “thinks the world socialist experiment has failed,” and “would not speak politely no matter how high your position.”

It turns out that Wlodzimierz Brus and Ota Šik were two of the most important economists of the twentieth century, mostly because of their influence on China.  Both came from Eastern Europe and centrally planned economies, but urged China to find a workable mixed model.  Šik was a proponent of the ideas of Oskar Lange.

From this book you also will learn about the significant roles of Gregory Chow, James Tobin, and Janos Kornai, all explained with intelligence and lucidity.  I enjoyed this bit:

To the Chinese participants [in the seminar], Tobin’s presentation had an almost theatrical power — after all, they had never before seen an economist in action in this way.  One participant recalled that Tobin’s seemingly magical ability to make policy recommendations from quickly looking at a set of high-level data astonished him and his peers.

At one point during Tobin’s talk, the interpreter burst into tears.  The more influential Kornai instead said this:

“I had in a sense two different faces, one face for Hungary and one face for China.”

More concretely, he was recommending shock therapy for Hungary but not for China.  Friedman, by the way, had more influence when he returned to China for a Cato conference in 1988.  But still the Chinese thought Friedman did not sufficiently understand the special characteristics of the Chinese economy.

Strongly recommended, due out early next year.  Gewirtz, by the way, is a Rhodes Scholar and still has not finished his Ph.d.  I eagerly await his next work.  You can follow him on Twitter here.  He is also well-known as a poet.

I’ll be interviewing Mark soon, at a private venue, no public event, but for eventual release in the Conversations with Tyler series.  Here is a short bio of Mark.  He is credited as being the founder of modern Southwestern cuisine, and he was the driving force behind Coyote Cafe in Santa Fe and Red Sage in Washington, D.C.  He has written numerous books on food, including the very best books on chilies.  He is a supertaster, and more generally one of the world’s great food minds and a truly curious and generous soul.  He also has a background in anthropology, cooked for Chez Panisse in its early days, and is one of the best-traveled people I know.  Do you want to know what is/was special about chiles in Syria, or how many varieties of soy sauce you can find in one part of Hokkaido?  Mark is the guy to ask.

So what should I ask him?

…the most important technological change for the transportation of heavy goods in nineteenth-century India was not the arrival of the quick, expensive railway: it was the move from pack animals to carts pulled by two or four beasts in the first half of the century.  This was the process historian Amalendu Guha calls ‘the bullock cart revolution’.  Throughout the 1860s and 1870s railways found it impossible to compete not only with bullock carts, but also with human-powered river transport.  Rowing boats along the Ganges and Jamuna won a price war with the railways over the cost of transporting heavy goods.  Vessels powered by human beings were able to undercut steam vessels elsewhere.

That is from Jon Wilson, The Chaos of Empire: The British Raj and the Conquest of India, a new and excellent book that stresses how much British rule of India was rooted in chaos and violence, rather than the smooth operation of a colonial elite.

Philippine President Rodrigo Duterte announced his “separation” from the United States on Thursday, declaring that it had “lost” and he had realigned with China as the two agreed to resolve their South China Sea dispute through talks.

Duterte made his comments in China, where he is visiting with at least 200 business people to pave the way for what he calls a new commercial alliance as relations with longtime ally the United States deteriorate.

His trade secretary, Ramon Lopez, said $13.5 billion in deals would be signed

Duterte’s efforts to engage China, months after a tribunal ruling in the Hague over South China Sea disputes in favor of the Philippines, marks a reversal in foreign policy since the 71-year-old former mayor took office on June 30.

“America has lost now,” Duterte told Chinese and Philippine business people at a forum in the Great Hall of the People, attended by Chinese Vice Premier Zhang Gaoli.

“I’ve realigned myself in your ideological flow and maybe I will also go to Russia to talk to (President Vladimir) Putin and tell him that there are three of us against the world – China, Philippines and Russia. It’s the only way,” he added.

“With that, in this venue, your honors, in this venue, I announce my separation from the United States,” Duterte said to applause. “I have separated from them. So I will be dependent on you for all time. But do not worry. We will also help as you help us.”

Here is the Reuters story.

It is tempting, among those of us who would be appalled by a Trump victory, to try to sway undecided voters by equating voting for Trump with racism full-stop. That’s a bad idea. If it becomes the mainstream view that Trump voters are simply racists, it leaves those who are already committed, those who are unwilling to abandon Trump or to stomach Clinton, little choice but to own what they’ve been accused of. Racist is the new queer. The same daring, transgressional psychology that, for gay people, converted an insult into a durable token of identity may persuade a mass of people who otherwise would not have challenged the social taboo surrounding racism to accept the epithet with defiant equanimity or even to embrace it. The assertion that Trump’s supporters are all racists has, I think, become partially self-fulfilling. In and of itself, that will make America’s already deeply ugly racial politics uglier. It will help justify the further pathologization of the emerging white underclass while doing nothing at all to help communities of color except, conveniently for some, to set the groups at one another’s throats so they cannot make common cause. It will become yet another excuse for beneficiaries of economic stratification to blame its victims. Things were bad before this election. They are worse now, and we should be very careful about how we carry this experience forward. These are frightening times.

Here is more, interesting throughout.

Sebastian Galiana and Gustavo Torrens have a new NBER paper on this underappreciated question:

Why did the most prosperous colonies in the British Empire mount a rebellion? Even more puzzling, why didn’t the British agree to have American representation in Parliament and quickly settle the dispute peacefully? At first glance, it would appear that a deal could have been reached to share the costs of the global public goods provided by the Empire in exchange for political power and representation for the colonies. (At least, this was the view of men of the time such as Lord Chapman, Thomas Pownall and Adam Smith.) We argue, however, that the incumbent government in Great Britain, controlled by the landed gentry, feared that allowing Americans to be represented in Parliament would undermine the position of the dominant coalition, strengthen the incipient democratic movement, and intensify social pressures for the reform of a political system based on land ownership. Since American elites could not credibly commit to refuse to form a coalition with the British opposition, the only realistic options were to maintain the original colonial status or fight a full-scale war of independence.

You may recall that Adam Smith wanted to see a continuing empire, but with North America as essentially the more powerful partner, though he did not quite use those words.

Haven’t you been wondering that lately?  Tridimas has a paper (link here scroll down) on that question, here is one empirical observation:

During the period 1957-2006, out of a total of 43 integration referenda, 23 were not constitutionally required but were called at the discretion of the incumbent government; 18 of these 23 resulted in a pro-integration vote as the incumbent government had sought. France has held three EU-related non-required referenda, all initiated by the President of the Republic. The UK approved EEC membership in 1975 in a non-required referendum, the only national UK referendum thus far. In 2003, seven of the nine referenda held by the new entrants to approve membership were not required. Again, none of the four referenda held in 2005 by Spain, France, the Netherlands, and Luxembourg to ratify the EU Constitutional Treaty were constitutionally mandated.

And the theory?:

In politics, some issues cause deep intra-party splits between the elected representatives of the same party rather than inter-party divisions among different parties. Constitutional issues, which concern questions of governance and national sovereignty of a state, are a prime example. It is then unlikely that the standard system of parliamentary politics will be able to resolve all those issues. On the contrary, it is more likely that the leader of the party in office will call a referendum to decide them. Ratifying changes to constitutional arrangements in a referendum confers legitimacy to their adoption (or rejection) by taking the decision away from parochial parliamentary majorities and putting it into the hands of the citizenry.

Ah, but there is risk!  Still, it is not crazy to call the referendum, even though you might rationally prefer that the whole issue disappear.

I would add a further point to that model.  Let’s say you think the core issue won’t go away of its own accord, arguably the case with both Brexit and the failed Colombian peace agreement.  The choice is not “referendum vs. no referendum,” but rather “referendum today vs. giving my successors an option on future referenda.”  And since a referendum can strengthen an incumbent, you realize that some future government might call one for self-interested reasons.  In which case you might consider risking disaster now, responding to a kind of collective action problem through time.  You may even fear that one of your successors will be irrational.  And so some moment will feel like an optimal trigger point, though of course that will involve risk and probably more risk than is socially optimal.  But is there not a preferred time to make your leap from the burning building?  The pain of landing on your arm rather than your butt is not per se an argument for nixing the choice altogether.

Alternatively, consider the Italian referendum on reforming the Senate, due in December.  The incumbent government may well lose the vote, but precisely because this is not a fundamental issue I predict they can simply continue in power, noting they didn’t have a strong mandate for change in the first place.

Here is Carlos Closa on when to call referenda.

That is the next Conversation with Tyler, October 24th, at George Mason in Arlington, you can register here.

What should I ask him?  I thank you all in advance.

The very beginning is a little slow, but I thought Ezra was one of the very best guests.  The topics include the nature and future of media, including virtual reality, the nature of leadership (including Ezra’s own), how running a project shapes your political views, a wee bit on health care, what he thinks are the Obama and Clinton models of the world, Robert Putnam’s research on the costs of diversity, the proper role of shame in society, animal welfare, and of course Ezra’s underrated and overrated, with takes on Bob Dylan, The Matrix, William F. Buckley, Joe Biden, and more.  There is no video but here is the podcast and transcript.  Here is one excerpt:

COWEN: …Now Putman, let me ask you about Putnam, and how Putnam relates to Donald Trump. As you know, Robert Putnam at Harvard, he has some work showing that when ethnic diversity goes up that there’s less trust, less cooperation, less social capital.

If you think of yourself in the role of an editor, so you have an American society, diversity has gone up, and a lot of people have reacted to this I would say rather badly — and I think you would agree with me they’ve reacted rather badly — but there’s still a way in which the issue could be framed that while diversity is actually a problem, we can’t handle diversity.

Putnam almost says as such, and do you think there’s currently a language in the media where you have readers who are themselves diverse, where it’s possible not to just be blaming the bigots, but to actually present the positive view, “Look, people are imperfect. A society can only handle so much diversity, and we need to learn this.” What’s your take on that?

KLEIN: I strongly agree. We do not have a language for demographic anxiety that is not a language that is about racism. And we need one. I really believe this, and I believe it’s been a problem, particularly this year. It is clear, the evidence is clear. Donald Trump is not about “economic anxiety.”

COWEN: A bit, but not mainly, I agree.

KLEIN: That said, I think that the way it’s presented is a choice between economic anxiety and racism. And one I don’t think that’s quite right, and two I don’t think that’s a productive way of having that conversation.

COWEN: Why don’t we have that language? Where did it go, or did we ever have it?


COWEN: You see this with Medicaid. A lot of people don’t sign up. They don’t have addresses. You can’t even get them, whatever.

KLEIN: They don’t like doctors. They’re afraid of doctors.

COWEN: This is me.

KLEIN: You’re afraid of doctors?

COWEN: “Afraid” isn’t the word.

KLEIN: Averse. [laughs]

COWEN: Maybe dislike. Averse. [laughs] They should be afraid of me, perhaps.

Definitely recommended.  The same dialogue, with a different introduction, is included in The Ezra Klein Show podcast.

Lee Drutman at Vox reports:

If Maine Question 5 passes, Mainers will get to select up to five candidates in order of preference. If there is no majority in the initial tally of voting, and their first choice finishes last in the initial tally, their vote will be transferred to their second choice in the next tally. (In each tally, the last-place finisher gets eliminated). And if there is still no majority, and their second choice ranks last in the second tally, their vote will be transferred to their third choice, and so on, until one candidate has a majority.

Or, put another way: If one candidate wins a majority in the initial tally, there is no runoff. If no candidate wins a majority, candidates are eliminated from the bottom-up, with each eliminated candidate’s supporters going to their next-ranked choice for the following round, until one candidate has more than half of the votes. (For a video explanation of how this works, I recommend this short explainer.)

Versions of the Single Transferable Vote (STV) have been used in Ireland, Northern Ireland, Malta, Tasmania, and NYC City Council from 1937-1947

STV systems tend to make candidates more civil to each other, and less likely to attack each other’s character and ideology.  More generally, it induces politicians to cater more frequently to constituency whims and preferences, at the expense of drawing sharp contrasts across ideologies.  You don’t want the voters from the opposing ideology to rank you very low, so you’ll ease up on the insults and try to appear like a very useful centrist.  The resulting emphasis on constituency service has historically been the case in Ireland (most but not all of the time).  Similar tendencies have been observed in Tasmania and Malta, and the parties evolve to become less ideological.

Traditionally, I have not been a huge fan of STV systems, but this year they sound a bit better than usual.

You can start here on the literature on STV.

Not that much, or so it seems from the latest study of California, just published by Arik Levinson in the AER.  This seems to be the bottom line:

1. In 1978 California started to enact some of the world’s most ambitious residential building energy codes.  These building codes have been updated 13 times since.

2. The promise was for 80% savings for new buildings constructed after 1990.  These assumptions assumed everything would go according to plan and there would be no behavioral adjustments.

3. The actual results?: “For electricity, post-1978 houses in California may be using up to 15 percent less than pre-1978 houses, but do not use less per degree-day when the weather gets hot, and do not use relatively less than similar post-1978 houses in other states with less strict building codes.”  For natural gas there is a 25% savings, noting that this trend and the electricity trend both predate the 1978 legislation.

4. Levinson conjectures that most of the savings are coming from natural turnover in the housing stock disfavoring the least energy efficient units.

Here are earlier versions of the paper.   Of course most regulations never receive a study anything near this thorough.

Here are two notable excerpts:

The windows were usually clamped shut and the blinds were often drawn; one of Rand’s cats had jumped to an untimely death, condemning visitors thereafter to endure the stuffy air in her apartment.

Are cats that stupid?  (Did not Aristotle describe the cat as the rational animal?)  And:

…the fact that Greenspan was following the ways of Washington was precisely the point.  Half a year into his tenure, Greenspan had completed his journey from Ayn Rand’s outsider salon to the inner circle of power; he might still condemn the status quo from time to time, but in truth he was now part of it.  In voting against Greenspan’s confirmation, Senator Proxmire had misjudged the man.  Ideas were not what drove him after all; his courteous, clubbable, and nonconfrontational manner proved to be a better predictor of his conduct in office than his libertarian ideology.  However disarmingly Greenspan might portray himself as a sideman, he was only human, after all.  He wanted to be at the center.

I’m on p.194, more reports to follow.  You can buy the book here, it is one of the best of the year even from just the first 193 pp.

Sean Illing in particular, here is one excerpt:


Nate Silver

Underrated. Nate Silver is famous, and he writes on topics where everyone has their own view. When you do that, people think you’re always wrong, and when you are actually, as he was on Trump, people don’t give you a break for it. So he has designed his life to be the kind of person who is condemned by others, so that means he almost has to be underrated.

Karl Marx

Right now he’s probably underrated, but for almost all of history he’s been overrated. He makes very basic errors in economics. People put Marxism into practice and everywhere it has failed, and it failed in very dramatic, sometimes violent ways. But that said, he’s a brilliant and deep thinker. He understood the 19th century in capitalism better than almost anyone.

Kanye West

Underrated. I think Kanye is the musical mind of our time. Every one of his albums is different, original, takes chances. My favorite is the 808 album and then Yeezus.

Do read the whole thing.

Arrived in my pile

by on September 27, 2016 at 2:21 pm in Books, Economics, History | Permalink

Sebastian Mallaby, The Man Who Knew: The Life and Times of Alan Greenspan.

Self-recommending, I will start it as soon as possible.

From Brinca, Chari, Kehoe, and McGrattan, there is a new NBER paper “Accounting for Business Cycles“:

First with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge.  Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland.  Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, Belgium, and New Zealand.  Finally, in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

You don’t have to agree with each and every claim there to see that a simple AS-AD model won’t give you enough structure to seriously address such questions.  And:

The first misconception is that efficiency wedges in a prototype model can only come from technology shocks…In our judgment, by far the least interesting interpretation of efficiency wedges is as narrowly interpreted shocks to the blueprints governing individual firm production functions.

As a good first-order approximation, everything you read about “real business cycle theory” from its non-practitioners in the popular realm is wrong.  Except the very phrase “real business cycle theory” isn’t even the correct term here.  Better would be “contemporary macroeconomics,” although then the sense-reference distinction is going to play havoc with the first sentence of this paragraph.