The author is Barry Eichengreen and the subtitle is The Great Depression, The Great Recession, and the Uses — and Misuses — of History. My copy has now arrived.
The author is Barry Eichengreen and the subtitle is The Great Depression, The Great Recession, and the Uses — and Misuses — of History. My copy has now arrived.
Kevin Drum offers some commentary on my take on the uncertainties of 2015. But keep in mind, by focusing on uncertainties the inquiry has an intrinsic pessimistic bias. Lots of good things will happen in 2015 too, it’s just that they aren’t very uncertain. Catch-up growth will continue in most nations, even if at slower rates in many cases. Medical progress will lumber along. Poverty will diminish. Poems will be read and utils will sparkle in people’s brains. A number of good books will be produced and you will be able to read about some of them right here on MR. Washington, D.C. will continue to become an interesting city. More and more people will experience the joys of parenthood. Indeed there is quite a good chance 2015 will be one of the best years the world ever has seen!
But again, the uncertainties of 2015…those are mostly going to be negative.
Throughout the debate, no one (not even Marat or Robespierre) took the truly revolutionary position of suggesting venal offices might be illegitimate privileges that could be cancelled without payment.
This book is interesting throughout for its treatment of fiscal and monetary issues during the time of the French Revolution. It is not geared toward current macroeconomic debates, but arguably that liberates it to be more interesting on the historical side. The author is Rebecca L. Spang, of The Invention of the Restaurant fame.
I’m not one of those who thinks Cuba is the next Singapore or even the next Puerto Rico. Why not?
I’m willing to assume that the end of the American embargo will mean some kind of economic liberalization over the next ten years. But how much good will that bring?
We could start by looking for relevant comparisons. We could ask how well have non-British-ruled, non-Dutch-ruled, non-American-ruled Spanish-speaking Caribbean islands done? There is a fairly clear example of such a country with some ethnic, cultural, historic, and linguistic similarities to Cuba, namely the Dominican Republic. For non-PPP-adjusted gdp per capita, the D.R. clocks in at about $5800 per year. And that is about where I think Cuba will end up, after a good bit of turmoil.
Now various official sources put Cuban per capita gdp (again, non-PPP-adjusted) at about that same level. That is highly misleading, and yes I have been to both countries. (Other countries at that level don’t have so many hungry people or so many women selling their bodies to tourists.) In any case I expect Cuban reforms, along with a good bit of additional deindustrialization from U.S. competition, to bring a short-run gdp dip, with an eventual climb into a D.R.-like economy, albeit with big bumps along the way.
Here are a few additional points:
1. The Caribbean in general has done very poorly since the economic crisis of 2008. Most of it does not show signs of bouncing back.
2. The short-run trends for foodstuffs are not so great. The major agricultural exports are sugar, citrus, fish, cigars, and coffee. Sugar is by far the most important of those, and right now the sugar price is well below half of its 2011 level.
3. Cuban industrial production is below half of its 1989 level (pdf, p.8).
4. National savings and investment rates are at about ten percent, well below Latin American averages (pdf, p.8).
5. I don’t in general buy “brain drain” arguments, but they do sometimes apply to islands and for historical reasons they are especially likely to apply to Cuba. Many of the most talented Cubans were encouraged to leave, or managed to leave, and staying in Miami will be better than going back for a long time to come.
6. Cuba has some of the best beaches in the Caribbean, but I expect most of those returns to accrue to land and capital, not labor.
7. Cuba already imports 30% of its food from America. Note that sum has been falling lately, as Cuba seeks cheaper alternatives, such as food from Vietnam. Post-liberalization, trade with America will go up a good deal but we are not starting from zero under the status quo.
8. Cuba is inheriting some very serious problems with institutions, and that is assuming they manage to move away from communism. In my admittedly limited experience, a fair number of Cubans still believe in communism, while also thinking the revolution somehow went astray. Emmanuel Todd has argued that Cuban family structures make the country susceptible to authoritarian rule. I consider that speculative, but still communism has had a long shelf life there, well past the fall of the Soviet Union, so let’s not dismiss it out of hand. The country also had a notable history of instability well before the Castro revolution. It is hard to be optimistic on this front.
9. Cuba seems to depend a good deal upon…Venezuela. Is that an asset you wish to hold in your portfolio?
10. Foreign investors can hire Cuban labor only through a state employment agency, and no this has not led to a form of efficient offsetting power, rather it has kept productivity low. More generally, this long Brookings study of FDI in Cuba (pdf) shows how difficult the environment is for foreign capital.
11. Costa Rica has far, far better institutions than Cuba and still it is relying on agriculture and tourism.
On the bright side:
12. The island has significant reserves of nickel and cobalt, top five in the world for nickel by many estimates.
13. Literacy is high, probably higher than in the United States, and there is a functioning social health infrastructure which reaches a high percentage of Cubans.
14. Circa 1959, the book value of U.S. capital in Cuba was three times higher than in the rest of Latin America combined (pdf).
15. The Cuban diaspora may nonetheless kick in as a source of talent and investment.
I’m not a super pessimist on Cuba, I just think they will need a long time to get to the point the Dominican Republic is at today. Being “the next Costa Rica” seems for them impossibly far off.
“Digital preservation is really just an oxymoron at this point,” says Jan-Christopher Horak, director of the UCLA Film and Television Archive. “It’s really just putting plus and minus electronic charges on plastic — and that plastic has an extremely short half-life. So that most digital media, even if you take it and store it correctly, is probably not going to last more than eight or ten, maybe 15 years.” By contrast, with 35mm film, “we just need to put it into a cold, dark, dry place, pay the electricity bill, and it will last for 500 to a thousand years.”
In one of the most famous examples of the perils of digital preservation, when the makers of Toy Story attempted to put their film out on DVD a few years after its release, they discovered that much of the original digital files of the film — as much as a fifth — had been corrupted. They wound up having to use a film print for the DVD.
From Bilge Ebiri, there is more here.
On the topic of pallets, Jacob Hodes writes:
There are approximately two billion wooden shipping pallets in the United States. They are in the holds of tractor-trailers, transporting Honey Nut Cheerios and oysters and penicillin and just about any other product you can think of: sweaters, copper wire, lab mice, and so on. They are piled up behind supermarkets, out back, near the loading dock. They are at construction sites, on sidewalks, in the trash, in your neighbor’s basement. They are stacked in warehouses and coursing their way through the bowels of factories.
The magic of these pallets is the magic of abstraction. Take any object you like, pile it onto a pallet, and it becomes, simply, a “unit load”—standardized, cubical, and ideally suited to being scooped up by the tines of a forklift. This allows your Cheerios and your oysters to be whisked through the supply chain with great efficiency; the gains are so impressive, in fact, that many experts consider the pallet to be the most important materials-handling innovation of the twentieth century.
And there is this:
Not all pallets belong to the world of whitewood. The most important other category—and whitewood’s chief antagonist—is the blue pallet. These blues are not just a different color; they are also built differently, and play by different rules, and for the past twenty-five years, the conflict between blue and white has been the central theme in the political economy of American pallets.
This cracks me up:
The illustrations on the banknotes show generic examples of architectural styles such as renaissance and baroque rather than real bridges from a particular member state, which could have aroused envy among other countries. “The European Bank didn’t want to use real bridges so I thought it would be funny to claim the bridges and make them real,” Stam told Dezeen.
The article headline is “Fictional bridges on Euro banknotes constructed in the Netherlands.” Perhaps this will prove a broader and subtle metaphor for making the eurozone actually work…
For the pointer I thank Joel Cazares.
There is a new article by Seitz, Tarasov, and and Zakharenko:
This paper develops a quantitative model of trade, military conflicts, and defense spending. Lowering trade costs between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.
There are ungated versions here, and for the pointer I thank the excellent Kevin Lewis. Kevin also directs our attention to this paper: “…these results provide evidence for a relationship between feelings of disgust and the endorsement of equality-promoting political attitudes.”
Those are the topics of a new paper by Güell, Mora, and Telmer, which is interesting on multiple levels. The abstract is here:
We propose a new methodology for measuring intergenerational mobility in economic well-being. Our method is based on the joint distribution of surnames and economic outcomes. It circumvents the need for intergenerational panel data, a long-standing stumbling block for understanding mobility. It does so by using cross-sectional data alongside a calibrated structural model in order to recover the traditional intergenerational elasticity measures. Our main idea is simple. If ‘inheritance’ is important for economic outcomes, then rare surnames should predict economic outcomes in the cross-section. This is because rare surnames are indicative of familial linkages. If the number of rare surnames is small this approach will not work. However, rare surnames are abundant in the highly-skewed nature of surname distributions from most Western societies. We develop a model that articulates this idea and shows that the more important is inheritance, the more informative will be surnames. This result is robust to a variety of different assumptions about fertility and mating. We apply our method using the 2001 census from Catalonia, a large region of Spain. We use educational attainment as a proxy for overall economic well-being. A calibration exercise results in an estimate of the intergenerational correlation of educational attainment of 0.60. We also find evidence suggesting that mobility has decreased among the different generations of the 20th century. A complementary analysis based on sibling correlations confirms our results and provides a robustness check on our method. Our model and our data allow us to examine one possible explanation for the observed decrease in mobility. We find that the degree of assortative mating has increased over time. Overall, we argue that our method has promise because it can tap the vast mines of census data that are available in a heretofore unexploited manner.
“Something out there is killing everything, and you’re probably next.”
You can view the talk here. It is called “The Great Filter.”
Collecting, [Howard] Hodgkin insists, is a form of shopping. But it also takes on its own life. Once the ‘design’ of the collection has formed in the collector’s mind, according to Hodgkin, then things have to be bought out of ‘necessity as well as passion.’ That, he believes, is the most dangerous, but also the most creative, phase of collecting, involving the head as well as the heart and other ‘lower organs.”
That is from the new and notable Rendez-Vous with Art, by Philippe de Montebello and Martin Gayford. The book is an ongoing dialogue between the two men about classical, Renaissance, and 17th century art, centered around specific pictures they are viewing together, recommended, in this genre it is difficult to execute such a book well but they pull it off.
Scott Sumner writes:
Here’s one thought experiment. Get a department store catalog from today, and compare it to a catalog from 1964. (I recently saw Don Boudreaux do something similar at a conference.) Almost any millennial would rather shop out of the modern catalog, even with the same nominal amount of money to spend. Of course that’s just goods; there is also services, which have risen much faster in price. OK, so ask a millennial whether they’d rather live today on $100,000/year, or back in 1964 with the same nominal income. Recall the rotary phones and bulky cameras. The cars that rusted out frequently. Cars that you couldn’t count on to start on a cold morning. I recall getting cavities filled in 1964, without Novocaine. Not fun. No internet. Crappy TVs, where you have to constantly move the rabbit ears on top to get a decent picture. Lame black and white sitcoms, with 3 channels to choose from. Shorter life expectancy, even for the affluent. No Thai restaurants, sushi places or Starbucks. It’s steak and potatoes. Now against all that is the fact that someone making $100,000/year in 1964 was pretty rich, so your social standing was much higher than that income today. So it’s a close call, maybe living standards have risen for people making $100,000/year, maybe not. Zero inflation in the past 50 years may not be right, but it’s a reasonable estimate for a millennial, grounding in utility theory. In which period does $100,000 buy more happiness? We don’t know.
I say I prefer $100k today to $100k in 1964, that being a nominal rather than a real comparison. If you are not convinced, try comparing $1 million or $1 billion (nominal) today to 1964. For some income level, we have seen net deflation.
But here’s the catch: would you rather have net nominal 20k today or in 1964? I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall. (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal. Back then you might eat the world’s best piece of fish for that much.)
So for people in the 20k a year income range, there has been net inflation.
Think about it: significant net deflation for the millionaires, but significant net inflation for those earning 20k a year. In real terms income inequality has gone up much more than most of our numbers indicate.
This is from Wojciech Kopczuk in his recent NBER paper:
The methods that rely on direct measurement of wealth — that is, those based on the Survey of Consumer Finance and on the estate tax — show at best a small increase in the share of wealth held by the top 1 percent, while the capitalization methods show a steep increase.
These methods start diverging in their estimates in the 1980s, and the paper has a very useful discussion of their strengths and weaknesses. This is a notable paragraph:
The most striking feature of the estimates for 2000s is a huge run-up of fixed income-generating wealth in the capitalization series. In fact, this run-up accounts for virtually all of the increase in the share of the top 0.1% between 2000 and 2012 and most of the increase since 2003. The underlying change in taxable capital income (reported by Saez and Zucman, 2014, in their Figure 3) is nowhere as dramatic. The fixed income actually falls in relative terms, as would be expected when yields fall. Instead, the (almost) tripling of the fixed income component on Figure 3 (from 3.3% of total wealth in 2000 to 9.5% in 2012) is driven by an increase in the underlying capitalization factor from 24 to 96.6. This is precisely what the method is intended to do: as yields have declined, the capitalization method should weight the remaining income much more heavily. This increase – if real – would correspond to enormous re-balancing of the underlying portfolios of the wealthy throughout the 2000s. An alternative possibility is simply that the capitalization factors are difficult to estimate during periods of very low rates of return resulting in a systematic bias.
Overall Kopczuk does not favor the capitalization method and thus there seems to be a very real possibility that U.S. wealth inequality has gone up by only a modest amount.
For the pointer I thank Allison Schraeger.