There is a new paper (pdf) by Nicola Gennaioli and Hans-Joachim Voth, forthcoming in The Review of Economic Studies:

Powerful, centralized states controlling a large share of national income only begin to appear in Europe after 1500. We build a model that explains their emergence in response to the increasing importance of money for military success. When fiscal resources are not crucial for winning wars, the threat of external conflict stifles state building. As finance becomes critical, internally cohesive states invest in state capacity while divided states rationally drop out of the competition, causing divergence. We emphasize the role of the “Military Revolution”, a sequence of technological innovations that transformed armed conflict. Using data from 374 battles, we investigate empirically both the importance of money for military success and patterns of state building in early modern Europe. The evidence is consistent with the predictions of our model.

The pointer is from Mark Koyama.

That is the new Foreign Affairs piece by Andrei Shleifer and Daniel Treisman, and they argue that matters have gone strikingly well and are relatively normal.  Here is one excerpt:

Newspapers overflowed with accounts of soaring mortality amid the stress of transition. On average, however, life expectancy rose from 69 years in 1990 to 73 years in 2012. The speed of improvement was two thirds faster than in the communist 1980s. Russia’s life expectancy today, at 70.5, is higher than it has ever been. Infant mortality, already low, fell faster in percentage terms than in any other world region.

Eastern Europe is infamous for unhealthy binge drinking. However, average alcohol consumption fell between 1990 and 2010 from 7.9 to 7.6 liters of pure alcohol a year per resident aged over 14. There were exceptions — drinking rose in Russia and the Baltic states but even in Russia recorded consumption in 2010, 11.1 liters, was lower than that in Germany, France, Ireland, or Austria. (Of course, more drinking might escape the statisticians in the Slavic region.) Smoking among adult males was high – 42 percent on average but about the same as in Asia. In short almost all statistics suggest a dramatic improvement in the quality of life.

In short, almost all statistics suggest a dramatic improvement in the quality of life since 1989 for citizens of the average postcommunist country — an improvement that rivals and often exceeds those in other parts of the world.

You will note that the published version in Foreign Affairs has slightly different wording and organization.

Good sentences

by on October 29, 2014 at 3:25 pm in Economics, History, Science | Permalink

To develop an intuition for our main result, note that the equilibrium private saving behavior must be resistant to rare mutants.

That is from the new Robson and Szentes AER paper, “Biology and Social Discounting,” which argues that the nature of sexual reproduction causes private discount rates to rise above social ones.

The theme of a study by Melanie Manion is that China’s approach to fighting corruption hearkens back to Maoist campaigns of the 1950s, with the same undesirable effects: campaigns are too frequent, do not last long enough to enlist public confidence, and undermine the growth of long-term institutions of surveillance and enforcement…

That is from Alan Heston and Terry Sicular in this very useful 2008 book.  The Melanie Manion book is here.

Heilman, the expert in Hasidic succession, told me that one reason so many dynastic fights emerged in the past decade is that the grand rabbis are living longer, sometimes too long to have the vigor to conclusively determine whom their successors will be or so long that their increasingly entrenched institutional court refuses to cede power.  In Hasidic Europe before World War II, a contender to the throne unhappy with a chosen successor could set up his seat in a neighboring village, Heilman said.  But since the war, with the consolidation of Hasidim into relatively few sects, each sect’s brand name has been enshrined so that successors want to become, say, the Satmar Rebbe, not the Kiryas Joel Rebbe.

That is from the new Joseph Berger book, The Pious Ones: The World of Hasidim and Their Battles with America.

Michela Giorcelli and Petra Moser have a new paper, the abstract is this:

This paper exploits variation in the adoption of copyright laws within Italy – as a result of Napoleon’s military campaign – to examine the effects of copyrights on creativity. To measure variation in the quantity and quality of creative output, we have collected detailed data on 2,598 operas that premiered across eight states within Italy between 1770 and 1900. These data indicate that the adoption of copyrights led to a significant increase in the number of new operas premiered per state and year. Moreover, we find that the number of high-quality operas also increased – measured both by their contemporary popularity and by the longevity of operas. By comparison, evidence for a significant effect of copyright extensions is substantially more limited. Data on composers’ places of birth indicate that the adoption of copyrights triggered a shift in patterns of composers’ migration, and helped attract a large number of new composers to states that offered copyrights.

For the pointer I thank the excellent Kevin Lewis.

This is from Larry Summers and Lant Pritchett:

…knowing the current growth rate only modestly improves the prediction of future growth rates over just guessing it will be the (future realized) world average.  The R-squared of decade-ahead predictions of decade growth varies from 0.056 (for the most recent decade) to 0.13.  Past growth is just not that informative about future growth and its predictive ability is generally lower over longer horizons.

The main point of this paper is to argue that Chinese growth rates will become much lower, perhaps in the near future, here is a summary of that point from Quartz:

Summer and Pritchett’s calculations, using global historical trends, suggest China will grow an average of only 3.9% a year for the next two decades. And though it’s certainly possible China will defy historical trends, they argue that looming changes to its  authoritarian system increase the likelihood of an even sharper slowdown.

The piece, “Asiaphoria Meets Regression Toward the Mean,” is one of the best and most important economics papers I have seen all year.  There is an ungated version here (pdf).  I liked this sentence from the piece:

Table 5 shows that whether or not China and India will maintain their current growth or be subject to regression to the global mean growth rate is a $42 trillion dollar question.

And don’t forget this:

…nearly every country that experienced a large democratic transition after a period of above-average growth…experienced a sharp deceleration in growth in the 10 years following the democratizing transition.

As Arnold Kling would say, have a nice day.

Germany fact of the day

by on October 19, 2014 at 3:09 pm in History, Political Science | Permalink

A shocking example is the decrepit state of German military hardware. Of the Luftwaffe’s 254 fighter planes, 150 cannot fly.

That is from Wolfgang Münchau at the FT.

Germany fact of the day

by on October 18, 2014 at 3:03 am in Data Source, History, Uncategorized | Permalink

From 1973 to 1985 German inflation was most of the time over two percent a year, sometimes much over two percent.  In 1973 it hit eight percent and in the early eighties it exceeded six percent a year.  Source here (pdf), see p.6.

From 1951-1973, the Germans seemed happy with roughly the same inflation rate as what Americans had.  Source here (pdf), see p.9, and also p.13, passim.  In the early 1970s, the rate averaged almost seven percent a year for a few years (p.15).  It is fine to note the role of oil shocks here, and in the earlier period Bretton Woods, but still Germans tolerated the higher inflation rates.  They expected the alternatives would be worse and probably they were right.

The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious.  Rightly or wrongly, today’s Germans associate high rates of inflation with wealth transfers away from Germany and toward other nations.  More broadly, Germany is a more flexible country than outsiders often think, not always to the better of course.

This is a fascinating Scott Alexander take on tribalism and how political issues are framed, starting with Ebola.  As Robin Hanson would say, “politics isn’t about policy.”  Here is the segment on how climate change issues might be marketed to the Right:

Global warming has already gotten inextricably tied up in the Blue Tribe narrative: Global warming proves that unrestrained capitalism is destroying the planet. Global warming disproportionately affects poor countries and minorities. Global warming could have been prevented with multilateral action, but we were too dumb to participate because of stupid American cowboy diplomacy. Global warming is an important cause that activists and NGOs should be lauded for highlighting. Global warming shows that Republicans are science denialists and probably all creationists. Two lousy sentences on “patriotism” aren’t going to break through that.

If I were in charge of convincing the Red Tribe to line up behind fighting global warming, here’s what I’d say:

In the 1950s, brave American scientists shunned by the climate establishment of the day discovered that the Earth was warming as a result of greenhouse gas emissions, leading to potentially devastating natural disasters that could destroy American agriculture and flood American cities. As a result, the country mobilized against the threat. Strong government action by the Bush administration outlawed the worst of these gases, and brilliant entrepreneurs were able to discover and manufacture new cleaner energy sources. As a result of these brave decisions, our emissions stabilized and are currently declining.

Unfortunately, even as we do our part, the authoritarian governments of Russia and China continue to industralize and militarize rapidly as part of their bid to challenge American supremacy. As a result, Communist China is now by far the world’s largest greenhouse gas producer, with the Russians close behind. Many analysts believe Putin secretly welcomes global warming as a way to gain access to frozen Siberian resources and weaken the more temperate United States at the same time. These countries blow off huge disgusting globs of toxic gas, which effortlessly cross American borders and disrupt the climate of the United States. Although we have asked them to stop several times, they refuse, perhaps egged on by major oil producers like Iran and Venezuela who have the most to gain by keeping the world dependent on the fossil fuels they produce and sell to prop up their dictatorships.

We need to take immediate action. While we cannot rule out the threat of military force, we should start by using our diplomatic muscle to push for firm action at top-level summits like the Kyoto Protocol. Second, we should fight back against the liberals who are trying to hold up this important work, from big government bureaucrats trying to regulate clean energy to celebrities accusing people who believe in global warming of being ‘racist’. Third, we need to continue working with American industries to set an example for the world by decreasing our own emissions in order to protect ourselves and our allies. Finally, we need to punish people and institutions who, instead of cleaning up their own carbon, try to parasitize off the rest of us and expect the federal government to do it for them.

Please join our brave men and women in uniform in pushing for an end to climate change now.

The piece is interesting throughout, hat tip goes to MR commentator Macrojams.

He has a new paper (pdf) on this topic, with Jorda and Schularick, based on data from seventeen advanced economies since 1870.  In an email he summarizes the main results as follows:

1. Mortgage lending was 1/3 of bank balance sheets about 100 years ago, but in the postwar era mortgage lending has now risen to 2/3, and rapidly so in recent decades.

2. Credit buildup is predictive of financial crisis events, but in the postwar era it is mortgage lending that is the strongest predictor of this outcome.

3. Credit buildup in expansions is predictive of deeper recessions, but in the postwar era it is mortgage lending that is the strongest predictor of this outcome as well.

Here is VoxEU coverage of the work.  On a related topic, here is a new paper by Rognlie, Shleifer, and Simsek (pdf), on the hangover theory of investment, part of which is applied to real estate.  It has some Austrian overtones but the main argument is combined with the zero lower bound idea as well.

Neil Cummins has a new paper of interest, the abstract is this:

I analyze the age at death of 121,524 European nobles from 800 to 1800. Longevity began increasing long before 1800 and the Industrial Revolution, with marked increases around 1400 and again around 1650. Declines in violence contributed to some of this increase, but the majority must reflect other changes in individual behavior. The areas of North-West Europe which later witnessed the Industrial Revolution achieved greater longevity than the rest of Europe even by 1000 AD. The data suggest that the ‘Rise of the West’ originates before the Black Death.

For the pointer I thank the excellent Kevin Lewis.

*The End of Normal*

by on October 7, 2014 at 1:08 am in Books, Economics, History | Permalink

That is the new James K. Galbraith book, subtitled The Great Crisis and the Future of Growth.  It covers a lot of ground and everyone will find something to object to in here.  Still, I found it a good example of some fresh thinking, though it is not a tract which sees through its arguments with a lot of detail.  I am glad to have read it.

I especially enjoyed the integration of high resource costs with Keynesian economics, as Galbraith has become more of a pessimist about long-run growth and he now sees the energy price shocks as essential to the economic history of the last forty years.  The analysis of the Soviet Union as an economic regime with super-high fixed costs, heavily reliant on (supposed) economies of scale, was my favorite part of the book.  Here is one excerpt from that:

The Soviet economy was a deeply integrated system, with little redundancy, little internal competition, weak capacity for introducing new technologies, and vulnerable to breakdowns in transportation and distribution.  This did not matter all that much for bulk items such as oil or steel, but it was a serious problem for perishables like food.  Fresh produce usually did not survive the trip from farm to market, which is why Russia’s urbanites so prized their dachas…

One way to sum up the Soviet system is to say that it operated with very high fixed costs.  It had high overheads.  To produce anything at all  (or, for that matter, even to produce nothing), those fixed costs had to be paid.  And they had to be paid whether or not output reached the consumer, and whether or not the consumer wanted that output when it did.

Galbraith also makes the important point that stagnant or falling median incomes need not imply growing envy or growing class warfare or growing frustration and the like.  Very often wage profiles fall by having the new labor market entrants start at lower rates.  Individuals still make steady wage progress over the major part of their working lives and feel they are “getting somewhere.”  Furthermore the gap between them and their most noticeable peers — those right above them — may not be growing at all.  Other discussions of median wages often serve up a good deal of sloppiness on this point.

In case you had forgotten:

The degree of political participation in Hong Kong is actually at its highest in history. Before 1997, Hong Kong was a British colony for 155 years, during which it was ruled by 28 governors — all of them directly appointed by London. For Chris Patten, the last British governor of Hong Kong, to now brand himself as the champion of democracy is hypocrisy of the highest order.

Only after the return of sovereignty to China 17 years ago did Hong Kong gain real public participation in governance. Today, half of the legislature is directly elected by the public and the other half by what are called functional constituencies. The chief executive, a native Hong Konger, is selected by a committee of 1,200 other Hong Kongers.

Further, Beijing has now devised a plan for voters to elect the next chief executive directly, rather than by committee, in 2017 among candidates fielded by a nominating committee — also made up of Hong Kongers. The proximate cause for today’s upheaval is the protesters’ demand for direct public nomination of candidates, too.

That is from Eric X. Li, all good points.  Please note however that I disagree with the general argument of this piece about inequality and the general tone that everything is fine under Chinese rule.

[China] must adopt a planned economy and social legislation to secure the livelihood and survival of every citizen, and it is imperative that we eventually accomplish the objective of “transforming [all] capital into state capital [nationalization of capital], and transforming [all] enjoyment into enjoyment of the masses.”

The answer is here.

That is from Morris L. Bian, The Making of the State Enterprise System in Modern China: The Dynamics of Institutional Change, p.205.  This book is useful for showing early Chinese moves in the direction of state planning and state-owned enterprises.