History

That is my new Bloomberg View column, here are some excerpts:

Enter Richard von Glahn’s “The Economic History of China: From Antiquity to the Nineteenth Century,” a book likely to go down as one of the year’s best. Over the last 15 years, the economics profession has gone from a poor understanding of China’s economic history to knowing quite a bit. Von Glahn’s exhaustive but readable book is the best guide to this rapidly growing body of knowledge.

…a lot of autocratic Chinese regimes in history have proven stable even in periods of fairly slow economic growth. It can take them centuries to fall and be replaced, and even then a foreign invasion, like ones by the Mongols or Manchus, may be required.

From today’s media, one sometimes receives the impression that a Chinese growth rate below 4 or 6 percent could mean radical instability and a rapid fall of the government, but Chinese history does not show this pattern. That is hardly proof of how things will run in the future, but it should shift our expectations in the direction of greater Chinese political stability.

Other times, Chinese regimes can fall for what might at first appear to be relatively arbitrary reasons.  And the key point is this:

If there is a single common theme running through the many centuries covered by this book, it is the never-fully-successful quest of the Chinese state for revenue and fiscal stability. One reason China fell behind Western Europe in the 18th century is simply that the Chinese state spent less on creating valuable public goods and infrastructure.

In 1993, 15 years after it began making market-oriented reforms, the Chinese central government’s direct revenue was only 3 percent  of gross domestic product, with the usual caveat that no Chinese numbers should be taken as exact measures. Only in the last 10 years has that revenue share exceeded 10 percent of GDP; by comparison, in the U.S. in normal times that number sits in the range of 17 to 18 percent. For all the images Americans might have of China’s government as a communist behemoth, the country’s political order is better understood as still somewhat immature.

Do read the whole thing.  You can order Glahn’s book here, it is one of my favorites of the year so far.

That is my next book, now finished, due out February 2017 from St. Martin’s Press.  You can pre-order it from Amazon or Barnes&Noble.  Recommended!

Very little of the content of this book has appeared on Marginal Revolution.  It contains my thoughts on the death of American restlessness, what is happening with segregation by race and income, how we have become a nation of “matchers,” why crime rates will move up, the ultimate sociological roots of the economic great stagnation, why Steven Pinker is probably wrong about world peace, what we can learn from the riots and violence of the 1960s, why the bureaucratization of protest matters, marijuana vs. cocaine vs. heroin, in which significant way gdp statistics really do under-measure productivity, the importance of cyclical theories of history, and what Tocqueville got right and wrong about America.

And much more!  Most of all it is about why the future will be a scary place.

I also am making a special offer for those who pre-order the work.  Just send me an email to tcowen@gmu.edu (or my gmail), and tell me you have pre-ordered The Complacent Class, and I’ll send you a free copy of another work by me — about 45,000 words — on the foundations of a free society.

I have been revising this second one for over fifteen years, and it is called Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.  It is finally ready.

You will receive links to an on-line version with images, a pdf with images, and a plain vanilla pdf for Kindle.

In that work, I outline a true and objectively valid case for a free and prosperous society, and consider the importance of economic growth for political philosophy, how and why the political spectrum should be reconfigured, how we should think about existential risk, what is right and wrong in Parfit and Nozick and Singer and effective altruism, how to get around the Arrow Impossibility Theorem, to what extent individual rights can be absolute, how much to discount the future, when redistribution is justified, whether we must be agnostic about the distant future, and most of all why we need to “think big.”

These are my final thoughts on those topics.  And to be fair, this is likely to come out someday as a more traditional book, but that will not happen soon as I have not shopped it around to any publisher.  So if you pre-order The Complacent Class, you’ll get what is an advance and also free copy of Stubborn Attachments.

Are you feeling down because of the political conventions?  Or maybe you’re feeling down because of me?  This is exactly the bracing and optimistic tonic you need.  These two works, taken as a whole, cover where we are at and also where we need to go.

Addendum: If you are a member of the media and would like to receive a review copy of THE COMPLACENT CLASS (St. Martin’s Press; On-sale: February 28, 2017), please contact Gabrielle Gantz: gabrielle.gantz@stmartins.com; or 646-307-5698.

Three new books on Europe

by on July 24, 2016 at 9:32 pm in Books, Economics, History | Permalink

Markus K. Brunnermeier, Harold James, and Jean-Pierre Landau, The Euro and the Battle of Ideas.

Larry Elliott and Dan Atkinson, Europe Isn’t Working.

Philipp Ther, Europe Since 1989.

All three appear to be useful…

Is education overrated?  Or did the real industrial revolution not come until the latter part of the nineteenth century?  Or maybe a bit of both?  Here is new research by B. Zorina Khan (pdf):

Endogenous growth models raise fundamental questions about the nature of human creativity, and the sorts of resources, skills, and knowledge inputs that shift the frontier of technology and production possibilities. Many argue that the nature of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to British industrialization, by assessing the backgrounds, education and inventive activity of the major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the British great inventors, and their contributions remained unspecialized until very late in the nineteenth century. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for prevailing domestic conditions.

For the pointer I thank David Levey.

Matthew Gentzkow, Jesse Shapiro, and Matt Taddy have a new NBER paper Measuring Polarization in High-Dimensional Data: Method and Application to Congressional Speech.

We study trends in the partisanship of Congressional speech from 1873 to 2009. We define partisanship to be the ease with which an observer could infer a congressperson’s party from a fixed amount of speech, and we estimate it using a structural choice model and methods from machine learning. The estimates reveal that partisanship is far greater today than at any point in the past. Partisanship was low and roughly constant from 1873 to the early 1990s, then increased dramatically in subsequent years. Evidence suggests innovation in political persuasion beginning with the Contract with America, possibly reinforced by changes in the media environment, as a likely cause. Naive estimates of partisanship are subject to a severe finite-sample bias and imply substantially different conclusions.

It seems this move toward polarization starts around the time of Newt Gingrich and the Contract with America, and it starts with the Republican Party.  It remains an open question, however, how much this corresponds to greater polarization in more concrete terms.  To some extent symbolic polarization may substitute for the ever-diminishing ability of politicians to disagree about how to allocate discretionary spending.  Let them eat ideology!

It seems Millennarian cults really mean it, at least in the experimental context:

We model religious faith as a “demand for beliefs,” following the logic of the Pascalian wager. We show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs. We implemented this approach with members of a group that expected the “End of the World” to occur on May 21, 2011 by varying monetary prizes payable before and after May 21st. To our knowledge, this is the first incentivized elicitation of religious beliefs ever conducted. The results suggest that the members held extreme, sincere beliefs that were unresponsive to experimental manipulations in price.

That is from Ned Augenblick, et.al., forthcoming in the Journal of Public Economics.  Here are ungated copies.

The original pointer was from Robin Hanson.

Here is my next column from Bloomberg View, here is one excerpt:

The broader and more disturbing implication is that the entire global economy may be more vulnerable to mood swings. Our peers influence our moods, but today’s peers are more global than ever because of social media and the spread of satellite and cable television. That could make a given mood swing in one nation or region more potent and further-reaching than before.

Insofar as pessimistic moods spread across borders more readily, the notion of safe havens will weaken. There is a longstanding result in financial research that in bad times national stock markets move together more closely, and in ways that may not be justified fully by fundamentals. It is now common for some cross-country stock indices to have correlations as high as 0.8, which was unprecedented several decades ago. In the 1970s those same correlations might have been 0.4 or lower yet.

Unfortunately, contagion may be more dangerous than in the past, because right now the world is not in such an ideal place…

As for finance and investment, higher contagion rates will mean that many assets have higher systemic risk and lower diversification value, because they are not well insulated from the travails of the global economy. “Decoupling” is now recognized to be largely a myth. That may be one reason why negative nominal yield securities are so popular and seem to be sustainable, contrary to expectations but a few years ago.

The growing contagion of mood swings also may be a factor behind the slowdown in economic globalization. Why go to the trouble of investing abroad, for instance, if those assets do not yield much risk protection compared to one’s home market?

The most disturbing possibility may be that in today’s world, bad moods spread across borders more readily than good moods. The most nefarious sign of this is the apparent effectiveness of social media in radicalizing some people at a distance and turning them into violent perpetrators.

Do read the whole thing.

Here is my first column for Bloomberg View (more on that transition soon), on the research of Erik Myersson:

In autocracies, successful coups often improve economic performance, perhaps by replacing an incompetent or malevolent leader. In democratic countries, however, a successful coup is associated with lower per capita growth rates by an average of 1 to 1.3 percentage points per year over the following decade. On average, these coups reverse beneficial economic reforms, especially for the financial sector.

When a coup does overthrow a democratically elected government, it tends to bring a military leader and significant changes in policy, and not usually for the better. There are long-run correlations of such successful coups against democracies with lower investment, lower schooling and higher infant mortality.

…for failed coups in democracies the more general historical results are quite different. In fact, they are difficult to distinguish from no economic growth effects at all. Given the various imprecisions of statistics, this does not prove that failed coups will have no growth effects, but it can be said that the numbers give us no clear reason to be worried, at least not over the 10-year time horizon chosen by Meyersson. This may be one reason why asset markets do not seem to be panicking over the failed Turkish coup attempt.

To be sure, there are some possible or even likely short run effects of the recent turmoil, such as declines in tourism or foreign investment. Still, the data as a whole are showing that the long-run fundamentals of democracies with failed coups tend to reassert themselves within the 10-year time horizon, and those short-run disruptions end up mattering less than we might think.

Do read the whole thing.  You will note that shares of the Turkish closed end mutual fund are still up about thirteen percent for the year (FT link), though down 2.5 percent at Friday’s close.

Now if Turkey had left the European Union, that would be a different matter altogether…

In other words, last night was an outlier.  Here is Jonathan M. Powell and Clayton L. Thyne in the Journal of Peace Research:

We also see some interesting trends in the frequency of coup attempts over time. As shown in Figure 2, there is a fairly clear decline in the total frequency of coup attempts over time. The high point for coup attempts came in the mid-1960s, followed by two more bubbles in the mid-1970s and the early 1990s. The number of successful coups has likewise decreased over time. We saw 12 successful coups in both 1963 and 1966. The mid- to late-1970s also saw a brief burst of successful coups (ranging from 3 to 9 for each year). An interesting trend emerges when we look at the percentage of coup attempts that resulted in successful regime changes, which we plot on the right side of the Y-axis. The mean success rate is 48% during the entire time span. This rate saw early peaks around 1970 and 1980, and then a decline until the turn of the century. However, we see another spike in the success rate starting in 2003. Twelve of the 18 (67%) coup attempts since then have been successful, and only one of the most recent four coup attempts has failed. While coups have certainly waned over time, the recent success of coup plotters suggests that coups remain a key element of governmental instability.

I cannot readily pull out Figure 2 from the pdf, but it is on p.7 of the document.  Note that their data run up through 2010, and thus do not cover the Arab Spring.

Here is Naunihal Singh, writing at Monkey Cage a few years ago:

More fundamentally problematic, however, is the assumption that popular opinion has an impact on coups. Although this claim is common in political science, there is no evidence to support it. Over the course of writing my book, “Seizing Power: The Strategic Logic of Military Coups,” I spent 300 hours talking with participants in 10 coup attempts in Ghana and statistically analyzed the determinants of every coup attempt and outcome in the world from 1950 to 2000. Based on this evidence, I argue that there is no reason to believe that military factions hesitate to attempt coups when popular opinion is against them, or that coup attempts are more likely to fail when the populace is opposed.

Over the course of this research, I observed that conspirators devoted very little consideration during coup plotting to the question of how the population would react. Coup makers are largely convinced that their cause is just (even when the coup comes from a partisan or personal interest), and that they will have widespread popular support for their actions, with perhaps limited opposition coming from entrenched special interests.

…there is no relationship between economic growth rates and the likelihood of a coup. Similarly, there is no relationship between regime type and coup attempts. Even though democracies are presumed to have higher levels of legitimacy than other kinds of political regimes, they were no more or less likely to experience coup attempts. Lastly, coup attempts were actually more likely to occur during presidential election years, which suggests that conspirators were acting to thwart the popular will rather than being constrained by it.

…The bottom line is that the dynamics of a coup attempt are almost entirely internal to the military.

Read the whole thing.  Nam Kyu Kim dissents from some of those propositions.  Note that since early 2015, Turkish growth rates have been in the four to six percent range, hardly miserable.

Go to this link, and click on “Coup-proofing in Turkey.”  (Or try here.)  It is a recent 2006 account of what the Turkish government has tried to do to make the country coup-proof, by Gokhan Bacik and Sammas Salur.  They tried many institutional changes toward that end.  Here is one paragraph:

In terms of coup-proofing, the first issue is the military aspect. Gül is now the commander of the armed forces. First of all, any high level military appointment requires his consent. All major military appointments and promotions also require his official endorsement. Yet, the traditional alliance between the president and the army against the government was dissolved. In the past, the corridor between the army and the president worked so far as an instrument of influence over the political elites. The formula “army plus the president”, to remind six of the former presidents were generals, put the government into a restricted zone. Thus, by the fall of presidency, the officers lost a very important historical corridor that kept them legally in the political game. Now, putting aside a third costly option they should either obey the president or stop. Ironically, as a result of this situation, weekly meetings are scheduled between the prime minister and chief of staff as no routine tête-à-tête meeting ever took place before. The lack of such a regular meeting in the past was basically the army’s autonomous position. Gül’s presidency, a man out of the traditional Kemalist quota, weaken the traditional role of army vis a vis political elites.

It doesn’t seem it worked!  The paper nonetheless makes for interesting reading.  It talks about increasing power for the courts, changes to the intelligence services, increasing reliance on the police, and other attempted coup-proofing strategies in Turkey.  Note that in the past Turkish military coups have been relatively bloodless and swift; we’ll see if that is still the case.  If things do turn violent, which seems at least possible given what I am right now seeing on my TV screen, that suggests in some cases “coup-proofing” may be overrated.

This excellent book by June Teufel Dreyer has the subtitle Sino-Japanese Relations, Past and Present.  Here is one short bit:

Moreover, the Chinese distinction between themselves as civilized and all others as barbarians was, they [the Japanese nativists] argued, absurd, given the reality that barbarians had several times conquered China and the barbarian leader was the anointed as the son of heaven.  Who, then, should be considered barbarian?  To nativists, the logical conclusion was the Japan had become the true Middle Kingdom.  While one might reverse China’s past accomplishments, China had declined into an entity that was no longer worthy of emulation.

The book is substantive and readable throughout, essential for our time as well.

A Timbro study by Alexander Fritz Englund showed that E.U. membership for the 28 countries resulted in a statistically significant increase in economic freedom in all of the sub-categories in The Economic Freedom of the World index. The biggest improvement comes in the year of membership, but it increases afterwards as well.

That is from Reason, here is the Swedish-language study.

Though demographers have long anticipated the transformation Japan is now facing, the country only now seems to be sobering up to the epic metamorphosis at hand.

Police and firefighters are grappling with the safety hazards of a growing number of vacant buildings. Transportation authorities are discussing which roads and bus lines are worth maintaining and cutting those they can no longer justify. Aging small-business owners and farmers are having trouble finding successors to take over their enterprises. Each year, the nation is shuttering 500 schools.

“Now, in every area — land planning, urban planning, economic planning — every branch of government is trying to do what they can,” said Reiko Hayashi, a researcher at the National Institute of Population and Social Security Research.

And how bad is it likely to be?

Now, the country has begun a white-knuckle ride in which it will shed about one-third of its population — 40 million people — by 2060, experts predict. In 30 years, 39% of Japan’s population will be 65 or older.

If the United States experienced a similar population contraction, it would be like losing every single inhabitant of California, New York, Texas and Florida — more than 100 million people.

The country may become more like a Miyazaki movie:

A bigger issue now is wildlife: The village’s population has become so sparse that wild bears, boars and deer are roaming the streets with increasing frequency.

Here is the Julie Makinen story, via Jake Seliger.  Alternatively, here is a Shanu Athiparambath article on the crowdedness of Mumbai.

I have found that discussions of Brexit would be improved by considering the British productivity gap.  Often I hear talk that a Britain set free from EU strictures can pull ahead and overtake those countries, at least in terms of economics.  Yet a look at the historical record is sobering.

If you compare British productivity per labor hour, it is about thirty percent below the levels of France, Germany, and Ireland.  It is subpar before North Sea oil, during North Sea oil, and after North Sea oil.  It is well below par even when Germany is at or near full employment, so this is not mainly a composition effect resulting from Britain putting to work more lower-quality laborers and thus lowering their average.  It also tends to hold on a sector-by-sector basis, though of course not for finance.

In terms of productivity, Britain ranks below even Italy by these metrics, pre-crash too.  Don’t bother to ask about the Nordics.  The UK, however, does beat Japan.

You will note that this phenomenon is quite distinct from the recent, post-crash UK productivity stagnation, as it is a story about initial levels.  Before 1973, when Britain joined the then-EEC, the productivity gap was slightly larger than it is today.  In other words during its EU membership the country closed the productivity gap somewhat, though of course this may not be due to EU membership in any direct way.

There are various explanations for the British productivity gap, some of them involving education, or management, but I wonder whether these are explanations or mere restatements of the basic facts.

I’ll never forget the first time I visited the Netherlands in 1985.  I was in Dordrecht and reading through the comments of a guest book for a modest hotel.  The writer was British, and apparently was visiting the Continent for the first time.  He/she expressed shock at seeing that virtually everywhere in the Netherlands was a nice place, compared to the home country, much of which was not so clean and not so nice.  He/she lamented and apologized for this feature of Great Britain, and that is yet another way of expressing the productivity gap.

At least in some sectors, there are reasons to believe that the productivity gap dates at least as far back as the late nineteenth century, when Britain lost a good deal of ground to Germany.  The debate is murky, but it is wrong to think of this as a recent problem, try here and here.

As of late, the United Kingdom has punched far above its weight by (re)creating London as a service center and financial capital of most of Europe.  Post-Brexit, London indeed might keep this role, albeit in a probably diminished capacity, and there is some risk of London losing it altogether.  While there is a “Dutch disease” problem (sterling appreciation hurts other British exports), on net the success of London really does help pay the bills elsewhere.

In the meantime, it is not obvious that productivity miracles will be blossoming elsewhere in the British economy.

gap

It is indeed a sobering thought — most of all for the Leave case — to contemplate the British productivity gap.