Land speculation was a natural and common preoccupation among the Founders. For some it became an economic affliction. “Hardly a prominent man of the period failed to secure large tracts of real estate, which could be had at absurdly low prices, and to hold the lands for the natural advance which increased population would bring,” wrote Albert J. Beveridge.27 For many, such speculation would prove a hazardous preoccupation. Virginia’s Henry Lee and Pennsylvania’s Robert Morris and James Wilson ended up in jail because of their debts from speculation. Washington biographer James Thomas Flexner noted that land speculation was “a fundamental aspect of American economic life, but it had become in the last few years an extremely tricky one. General [Henry] Knox was above the knees in financial trouble because of the new settlements he had started in Maine.”28 Speculation in land became particularly rampant in the early 1790s when the stability of the new republic seemed assured. Describing the process of speculation, historian Forrest McDonald wrote: “One worked or connived to obtain a stake, then worked or connived to obtain legal title to a tract of wilderness, then sold the wilderness by the acre to the hordes of immigrants, and thereby lived and died a wealthy man. Appropriately, the most successful practitioner of this craft was George Washington, who had acquired several hundred thousand acres and was reckoned by many as the wealthiest man in America.”


Washington’s land holdings clearly affected his political outlook – first regarding England, and later regarding the United States. Washington thought big and thought about the implications of thinking big. Glenn A. Phelps wrote that Washington’s “extensive land-holdings in the West, as well as his frequent surveying expeditions to the frontier, had placed him within a circle of Virginia politicians with somewhat more enterprising, expansionist, westward-looking interests than their tidewater brethren.”59 Increasingly after the Revolutionary War, Washington’s land-holdings affected his preoccupation with the development of the Potomac River and a canal through the area where it was not navigable. Washington wrote a friend in 1785 that “unless we can connect the new States which are rising to our view in those regions, with those on the Atlantic by interest (the only binding cement, and not otherwise to be effected by opening such communications as will make it easier and cheaper for them to bring the product of their labour our markets, instead of going to the Spaniards southerly, or the British northerly), they will be quite a distinct people; and ultimately may be very troublesome neighbors to us.”


Washington foresaw America’s great westward migration and he foresaw potential wealth for himself. Historian Edmund S. Morgan wrote: “Washington believed that as a private citizen pursuing his own interests he could still be working for the good of the nation. He engaged without a qualm in a scheme that would benefit him financially, while it bolstered American independence in a way that he thought was crucial…

Washington also supported infrastructure projects that would increase the value of his landholdings.  Here is the source, with the tip via MR commentator g. ruqt.

Here is my earlier post on Inconvenient Questions.


Ever since busloads of Chinese tourists began arriving in this sleepy, nondescript English village this summer, the 13,723 residents of Kidlington, about five miles north of Oxford, have been variously baffled, annoyed and delighted.

The sudden influx of Chinese has also grabbed headlines and spawned a national mystery.

Why, for example, do the Chinese tourists ignore the village’s handsome 13th-century church and its thatched-roof cottages, preferring instead to peer through windows, film parked cars and traipse on the lawns of Benmead Road, a humdrum and modern residential street? One tourist asked a stunned resident if he could help mow her lawn. (She politely declined.) Another jumped joyously on a child’s trampoline in the front yard.

No one seems to know why, read more by Dan Bilefsky at the NYT.

Addendum: See this possible “limits to arbitrage” explanation.

I don’t want to give you spoilers, so I’ll put key points behind links — read them at your peril.  The ending of last night’s finale reminded me of this historical episode in 1804.  Bernard reminds me of this Haitian figure, this fellow too.  Anthony Hopkins is an updated version of the impresario from this 1932 movieAs for the Hosts:

Haitian slaves believed that dying would release them back to lan guinée, literally Guinea, or Africa in general, a kind of afterlife where they could be free. Though suicide was common among slaves, those who took their own lives wouldn’t be allowed to return to lan guinée. Instead, they’d be condemned to skulk the Hispaniola plantations for eternity, an undead slave at once denied their own bodies and yet trapped inside them—a soulless zombie.

Zombies can change their “status” through a number of means.  Don’t show them the ocean!


And that symbol everyone is always asking about and trying to discern the meaning of?  That is a vevé, obviously.

And to frame the whole thing, here is Hegel on the master-slave dialectic.

I think this is one of the best videos that we have ever done at MRUniversity–it combines history, technology and economics with a great story that links it all together. It’s the final video in the section of our Principles of Macroeconomics class covering unemployment and labor force participation. As always, the videos are free to use and they pair exquisitely well with the best principles textbook, Modern Principles.

Addendum: The video is based on some great papers, here are links: The Power of the Pill by Claudia Goldin and Lawrence Katz and Martha Bailey’s papers “Momma’s Got the Pill”: How Anthony Comstock and Griswold v. Connecticut Shaped US Childbearing and More Power to the Pill.

Asians in America faced heavy discrimination and animus in the early twentieth century. Yet, after institutional restrictions were lifted in the late 1940s, Asian incomes quickly converged to white incomes. Why? In the politically incorrect paper of the year (ungated) Nathaniel Hilger argues that convergence was due to market forces subverting discrimination. First, a reminder about the history and strength of discrimination against Asians:

Foreign-born Asians were barred from naturalization by the Naturalization Act of 1790. This Act excluded Asians from citizenship and voting except by birth, and created the important new legal category of “aliens ineligible for citizenship”…Asians experienced mob violence including lynchings and over 200 “roundups” from 1849-1906 (Pfaelzer, 2008), and hostility from anti-Asian clubs much like the Ku Klux Klan (e.g., the Asiatic Exclusion League, Chinese Exclusion League, Workingmen’s Party of CA), to an extent that does not appear to have any counterpart for blacks in CA history. Both Asians and blacks in CA could not testify against a white witness in court from 1853-73 (People v. Hall, 1853, see McClain, 1984), limiting Asians’ legal defense against white aggression. The Chinese Exclusion Act of 1882 and the “Gentlemen’s Agreement” in 1907 barred further immigration of all “laborers” from China and Japan.

…Asians have also faced intense economic discrimination. Many cities and states levied discriminatory taxes and fees on Asians (1852 Foreign Miner’s Tax, 1852 Commutation Tax, 1860 Fishing License, 1862 Police Tax, 1870 “queue” ordinance, 1870 sidewalk ordinance, and many others). Many professional schools and associations in CA excluded Asians (e.g., State Bar of CA), as did most labor unions (e.g., Knights of Labor, American Federation of Labor), and many employers declined to hire Asians well into the 20th century (e.g., Mears, 1928, p. 194-204). From 1913-23, virtually all western states passed increasingly strict Alien Land Acts that prohibited foreign-born Asians from owning land or leasing land for extended periods. Asians also faced laws against marriage to whites (1905 amendment to Section 60 of the CA Civil Code) and U.S. citizens (Expatriation Act 1907, Cable Act 1922). From 1942-46, the US forcibly relocated over 100,000 mainland Japanese Americans (unlike other Axis nationalities, e.g. German or Italian Americans) to military detention camps, in practice destroying a large share of Japanese American wealth. In contrast, blacks in CA were eligible for citizenship and suffrage, were officially (though often not de facto) included in CA professional associations and labor unions that excluded Asians, were not covered by the Alien Land Acts, and were not confined or expropriated during WWII.

Despite this intense discrimination, Asian (primarily Japanese and Chinese) incomes converged to white incomes as early as 1960 and certainly by 1980. One argument is that Asians invested so heavily in education that convergence has been overstated but Hilger shows that convergence occurred conditional on education. Similarly, convergence was not a matter of immigration or changing demographics. Instead, Hilger argues that once institutional discrimination was eased in the 1940s, market forces enforced convergence. As I wrote earlier, profit maximization subverts discrimination by employers:

If the wages of X-type workers are 25% lower than those of Y-type workers, for example, then a greedy capitalist can increase profits by hiring more X workers. If Y workers cost $15 per hour and X workers cost $11.25 per hour then a firm with 100 workers could make an extra $750,000 a year. In fact, a greedy capitalist could earn more than this by pricing just below the discriminating firms, taking over the market, and driving the discriminating firms under.

If that theory is true, however, then why haven’t black incomes converged? And here is where the paper gets into the politically incorrect:

Modern empirical work has indicated that cognitive test scores—interpreted as measures of productivity not captured by educational attainment—can account for a large share of black-white wage and earnings gaps (Neal and Johnson, 1996; Johnson and Neal, 1998; Fryer, 2010; Carruthers and Wanamaker, 2016). This literature documents large black-white test score gaps that emerge early in childhood (Fryer and Levitt, 2013), persist into adulthood, and appear to reflect genuine skills related to labor market productivity rather than racial bias in the testing instrument (Neal and Johnson, 1996). While these modern score gaps test-scoreshave not been fully accounted for by measured background characteristics (Neal, 2006; Fryer and Levitt, 2006; Fryer, 2010), they likely relate to suppressed black skill acquisition during slavery and subsequent educational discrimination against blacks spanning multiple generations (Margo, 2016).

…A basic requirement of this hypothesis is that Asians in 1940 possessed greater skills than blacks, conditional on education. In fact, previous research on Japanese Americans in CA support this theory. Evidence from a variety of cognitive tests given to students in CA in the early 20th century suggest test score parity of Japanese Americans with local whites after accounting for linguistic and cultural discrepancies, and superiority of Japanese Americans in academic performance in grades 7-12 (Ichihashi, 1932; Bell, 1935).

Hilger supplements these earlier findings with a small dataset from the Army General Classification Test:

…these groups’ cognitive test performance can be studied using AGCT scores in WWII enlistment records from 1943. Remarkably, these data are large enough to compare Chinese, blacks and whites living in CA for these earlier cohorts. In addition, this sample contains enough young men past their early 20s to compare test scores conditional on final educational attainment, which can help to shed light on mechanisms underlying the conditional earnings gap documented above.

Figure XII plots the distribution of normalized test score residuals by race from an OLS regression of test z-scores on dummies for education and age. Chinese Americans and whites have strikingly similar conditional skill distributions, while the black skill distribution lags behind by nearly a full standard deviation. Table VIII shows that this pattern holds separately within broad educational categories. These high test scores of Chinese Americans provide strong evidence that the AGCT was not hopelessly biased against non-whites, as Neal and Johnson (1996) also find for the AFQT (the successor to the AGCT) in more recent cohorts.

From Hilger’s conclusion:

Using a large and broadly representative sample of WWII enlistee test scores from 1943 both on their own and matched to the 1940 census, I document the striking fact that these test scores can account for a large share of the black, but not Asian, conditional earnings gap in 1940. This result suggests that Asians earnings gaps in 1940 stemmed primarily from taste-based or some other non-statistical discrimination, in sharp contrast with the black earnings gap which largely reflected statistical discrimination based on skill gaps inherited from centuries of slavery and educational exclusion. The rapid divergence of conditional earnings between CA-born Asians and blacks after 1940—once CA abandoned its most severe discriminatory laws and practices—provides the first direct empirical evidence in support of the hypothesis of Arrow (1972) and others that competitive labor markets tend to eliminate earnings gaps based purely on taste-based but not statistical discrimination.

Hilger’s other research is here.

Buy Richard E. Feinberg, Open for Business: Building the New Cuban Economy.  It also will make my best non-fiction books of the year list.  See also his Miami Herald interview, and his long Brookings paper on FDI in Cuba.

Not so much:

The role of high tariffs in the emergence of the U.S. as a leading industrial nation in the late 19th century is still hotly debated. Despite its symbolic signifi- cance in the arguments of Free Trade, the quantitative implications of the tariffs on key features of the development are still unknown. In this paper I ask: Could the U.S. have grown as it did without the high tariffs imposed on its manufacturing imports in the late 19th century? To see this clearly, my analysis is quantitative and counterfactual in nature, effectively isolating the effects of the tariffs from other important forces. To do this, I construct a three-region general equilibrium model. The model is calibrated to match the key data during this period. Then, I disentangle the effects of the tariffs under two different assumptions. First, I assume that manufacturing productivity is exogenous to the tariffs. Then I assume that there exists learning-by-doing in U.S. manufacturing so that the tariffs positively affect productivity. Contrary to popular beliefs, I find that the effects of high manufacturing tariffs are quantitatively small. Even with learning-by-doing, tariffs only contributes about 4 percent to the growth of the manufacturing output, and a little more than 1 percentage point to its share in world manufacturing from 1870 to 1913. I then ask what the key driving forces for development are. I find that the large increase in labour force is the single most important factor behind the development of the U.S. economy.

That is from a 2013 job market paper by Yeo Jooon Yoon (pdf), emphasis added by me.  See also this earlier Doug Irwin paper, all hat tips go to PseudoErasmus.

Whether you admit it or not, you have much to be thankful for.  For one thing, agricultural productivity is higher today than ever before…


These protests are also counterproductive. There will be plenty of reasons to complain during the Trump presidency, when really awful decisions are made. Why complain now, when no decision has been made? It delegitimizes the future protests and exposes the bias of the opposition.

Here is his full NYT piece, which has many other points of interest.  Here is my earlier Conversation with Luigi, in which we discussed many things, including Trump.

That is the topic of my latest Bloomberg column.  Here is part of the optimistic case:

There is historical evidence that racist propaganda is most effective when communicated to young people and propagated through schooling. There isn’t such a danger in the U.S. now, when surveys show less prejudice among the young and schools promote multiculturalism. The cultural impact of millennials will increase as they age and more of the elderly die. Nor does American big business show interest in jumping on the pro-prejudice bandwagon — quite the contrary.

It’s worth remembering that attacks targeted at minorities are hardly new. In 2014, 59 percent of religiously connected hate crimes were directed at Jews. That’s no excuse for the current wave of anti-Semitic oratory, but maybe we’re just noticing it more because of the election. Smartphones, viral videos and social media will bring the worst events to our attention.

The broader historical data suggest that discrimination can persist across many generations, and of course the U.S. has a long history of prejudice toward many groups. The real lesson might be, “We’ve been worse all along,” rather than, “Things are getting worse again.” That’s not comforting, but it might imply greater sustainability for what we cherish in current American institutions. The 200-plus reported incidents in election week (an annual rate of about 10,400) have to be compared with the 293,900 hate crimes reported for 2012 (note that the two numbers do not use exactly the same counting metric).

Yet I don’t quite buy it, all things considered:

Overall, I find the pessimistic scenario to be more convincing.

Do read the whole thing to see why.

Here is the link to video, podcast, and transcript.  The Q&A segment was led by guests Ezra Klein, Megan McArdle, Mark Miller (Coyote Cafe), and Eva Summer.  Fuchsia speaks in perfect British sentences and she always had an answer ready, with charm and extreme intelligence.  Here is one excerpt:

COWEN: Three dishes one absolutely has to try are what?

DUNLOP: In Shanghai?

COWEN: In Shanghai. The city, not the region.

DUNLOP: I think you should have hong shao rou, red braised pork. Real home cooking. Delicious combination of soy sauce, rice wine, and sugar, and one of the favorite dishes.

I would recommend some Shanghainese wontons in soup stuffed with shepherd’s purse, which is a wild variety of the brassicas, and pork, just to show you the lighter, gentler side of Shanghainese cooking.

Then, perhaps, if we’re talking Shanghai, you might one to have one of these dishes that says something about Shanghai as being a mixing pot of different cultures.

There’s a very nice crab meat and potato and tomato soup served in some of my favorite Shanghainese restaurants. Which seems a little bit of a fusion with some European influences, the way they use potato and tomato in that soup with local seafood.

COWEN: As you know, the Michelin Guide recently has covered Shanghai, given some restaurants three, two, one star. There’s cheap places you can go. Conceptually, do they understand the food of Shanghai? To the extent they don’t, what are they missing?

DUNLOP: If you look at the restaurants they’ve selected, there’s a bit of a Cantonese bias. They do have some Shanghainese restaurants, but one thing that’s very conspicuous, there are some notable, some of the best Shanghainese local restaurants, which are missing from that list, in my opinion.

The reason is, I think, the methodology of Western food inspectors, which is they tend to go as individuals or small groups. Of course in many Chinese restaurants where you eat family style, to make the most of the restaurant, you have to eat as we’re doing now with a large group and a table full of dishes.

We cover much more, including her favorite parts of China, whether offal is an inferior good, whether one can acquire a taste for sea cucumber, what she thinks of Leonard Cohen, Dream of the Red Chamber, how newbies should approach Chinese food, what top Sichuan chefs thought of their trip to French Laundry, whether milk is overrated, whether Americans have done anything worthwhile with Chinese food, and her favorite Chinese movie.

Here is a short video excerpt from the Sichuan peppercorn tasting segment, namely what makes the very best peppercorns so good compared to the lesser peppercorns.


Here you can order Fuchsia’s new and excellent book The Land of Fish and Rice.

There are many types of diversity.  Diversity of occupation, diversity of musical taste, diversity of outlook, diversity of residence, and of course varying kinds of racial and ethnic diversity.  You could list thousands of kinds of diversity.

The original thinking behind the Electoral College was that geographic diversity was important.  The Founding Fathers were not majoritarian, but rather they believed in placing special weight on diversity of this kind.  The prevailing view was “if too many (geographically) diverse voices veto you, you can’t get elected, not even with a majority of the votes.”  That view was a strange and perhaps unlikely precursor of today’s veto rights/PC approach on campus, but there you go.

Democrats now control at least one legislative house in only 17 states, and the reach of the party is shrinking dramatically.  So by the 18th century standards of diversity, emphasizing geography, the Democratic coalition is remarkably non-diverse.  You can see how much of Hillary Clinton’s majority came from the two states of New York and California.  That also means the Republicans are not just a “Southern rump party,” as some commentators used to suggest.

If you think of education as serving a smoothing function, the less educated are in some ways considerably more diverse than the educated.

The Democratic Party today is more likely to stress the relevance of ethnic and racial diversity, if the talk is about diversity.  (Gender diversity too, but that requires its own post, maybe later to come.)  Non-Democrats are more likely to count other forms of diversity for more than the Democrats do.  I see Democrats as somewhat concentrated in particular cities and also in particular occupations, more than Republicans are.  There is nothing wrong with that, but it is another way in which Democrats are less diverse.

When it comes to views about the relevant forms of diversity, the views of non-Democrats are more diverse than the views of Democrats, I would hazard to guess.  A non-Democrat is more likely to focus on something other than racial and ethnic diversity, compared to a Democrat.

Correctly or not, many Americans do not think racial and ethnic diversity is the diversity that should command so much attention.  That is one place to start for understanding why so many 2012 Obama voters switched to Trump this time around, or maybe just stayed home.

A few days ago I saw figures that 29 percent of Latinos voted for Trump (possibly that number has been revised).  I suspect many of those voters do not see Latino vs. non-Latino as the diversity line that interests them most strongly.

I haven’t offered any criticism of the Democratic point of view on diversity, even though you may feel that my description of it is trying to lower its status.  (You are right, noting I don’t wish to defend the R. point of view, but the R view does not need as much status-lowering either.)  It may well be correct to have a less diverse view of diversity.  If you were to start with an argument for that view, you could cite the long history of American slavery and segregation, plus continuing racial wealth inequality, as reasons for focusing so much on one kind of diversity rather than others.

Still, when I speak with Democrats, and with Progressives in particular, they view themselves, as a kind of assumption, as the people concerned with diversity.  That is a significant cognitive mistake.

When Donald Trump was elected President of the United States, it was the forces of diversity — some diversities, many diversities — that won.

It was the people less concerned with diversity overall that lost.  Again noting that some important notions of diversity do cut the other way, most of all racial diversity.  And I do wish to stress that the presumptive argument for “diversity” simply isn’t there, although that conclusion is hard to swallow that if you have imbibed too much contemporary political rhetoric.

In fact, I view the amazing diversity of the election and the electorate as having gotten the better of us.  It is an example of how diversity can go wrong.

I believe that until Democrats and Progressives can grasp their lack of diversity intuitively, they will struggle to make their way forward in the new political climate of the United States.  They will not understand how anyone could view them as divisive, since they automatically think of diversity as being on their side, rather than something they oppose.

7.18-16 7.18-16

That is the topic of a new and fascinating paper by Gillian Brunet, who is on the job market this year from UC Berkeley.  Here goes:

“Stimulus on the Home Front: The State-Level Effects of WWII Spending” (job market paper) 

World War II is often viewed as a quintessential example of government spending stimulating the economy.  In this paper I use war production spending to quantify the idiosyncratic factors affecting estimates of the fiscal multiplier during World War II.  Newly digitized war supply contract data allow me to construct state-level panel data on U.S. defense spending for 1940-45 and examine state-level outcomes.  Using within-state variation I estimate a multiplier of 0.25 to 0.3, depending on the estimation approach.  This implies an aggregate multiplier of roughly 0.3 to 0.4 given wartime economic conditions.  I also find small employment effects: an additional job-year is associated with $165,000 – $255,000 of spending (in 2015 dollars).  I find evidence that the effects of stimulus were systematically larger in states that had lower employment levels pre-war.  To explain why the stimulative effects of war spending were so small, I look for guidance from the historical narrative.  I show that unique features of the wartime economy significantly reduced the stimulative impact of wartime spending.  Conversion from civilian manufacturing to war production reduced the initial stimulus from war production.  At least 75 percent of the income generated by war spending went into increased saving and income taxes, implying that the add-on effects from increased consumption were minimal in the short run.

This seems exactly right to me.  When an economy is rationing-constrained and doing supply-side switching at such a rapid pace, I don’t think it is very easy to simply pull unemployed resources out of nowhere into new production.  This raises the bigger question, however, of what exactly did drive economic recovery.  I say don’t be fooled by wartime gdp figures, there was not a true wartime recovery in terms of consumption, quite the contrary.  But come the postwar era, so many of the right pieces seemed to be in place.  Dare I mention “increased saving”?  I know that is anathema to the usual Keynesian approach, at the very least this remains a mystery and the simple stories would seem to fail.

Or if you wish to put the point in the language of financial economics, the possibility of cyclical patterns in history is right now the single biggest source of systemic, undiversifiable risk.

You can pre-order the book here.  The subtitle is “The Self-Defeating Quest for the American Dream.”


The 18th Brumaire of Donald Trump.

Is it really possible that today is the 18th of Brumaire in the French Republican calendar? (Apparently yes!) That’s a little on the nose. The date gives its name to Napoleon’s coup of 18 Brumaire, in which he seized power and ended the French Revolution. It also gives its name to Marx’s essay “The Eighteenth Brumaire of Louis Napoleon,” which famously opens: “Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.” Hegel of course usually worked in threes, and if tragedy is the thesis and farce the antithesis, then surely the synthesis is Trump, who is at every point a perfect superposition of tragedy and farce. Anyway! It will all be over soon, maybe.

Here is the link, the pointer is from @PEG.