With President Obama visiting Mexico today, I thought I would remind you all that the excellent Robin Grier is teaching this course over at MRUniversity.com. It is called Mexico’s Economy: Current Prospects and History.
History
Mother Jones has a fun piece on apple hunters, people who track down long-forgotten apple varieties, sometimes to a single, ancient tree which they then clone in order to resurrect its unique apples. It’s a fun, human-interest story but Mother Jones also repeats a number of errors about apple diversity. Most notably:
In the mid-1800s, there were thousands of unique varieties of apples in the United States, some of the most astounding diversity ever developed in a food crop. Then industrial agriculture crushed that world. The apple industry settled on a handful of varieties to promote worldwide, and the rest were forgotten. They became commercially extinct—but not quite biologically extinct.
Mother Jones is tame compared to The New Internationalist which really ramps up the imagery:
Lincoln was assassinated. So were Washington and Jefferson. In fact all three Lincolns were wiped out. In the end it wasn’t so much an assassination as a massacre, with 6,121 of the 7,098 American apple varieties that blossomed last century now extinct….In less than a century, market pressures for uniformity have slaughtered crop diversity.
All of this is highly misleading at best. The innovative Paul Heald and co-author Sussanah Chapman show that the diversity of the commercial apple has increased over time not decreased (pdf). It is true, that in 1905 W.H. Ragan published a catalog of apples with some 7000 varieties. Varieties of apples come and go, however, like rose varieties or fashions and Ragan’s catalog listed any apple that had ever been grown during the entire 19th century. (Moreover, most varieties are neither especially good nor especially unique). At the time Ragan wrote, Heald and Chapman estimate that the commercially available stock was not 7000 but around 420 varieties. What about today?
The Fruit, Berry and Nut Inventory for 2000 lists 1469 different varieties of apples, a massive gain in terms of what growers can easily find for sale. The Plant Genetic Resources Unit of the USDA, in Geneva, New York, maintains orchards containing an additional 980 apple varieties that are not currently being offered in commercial catalogs. Scions from these trees are typically available to anyone who wishes to propagate their variety. The USDA numbers bring the total varieties of apples available to 2450.
In fact, there are more than 500 varieties of apples from the 19th century commercially available today–thus there are more 19th century apples available today than probably at any time in the 19th century!
It is true, of course, that when you go to a typical supermarket there aren’t hundreds of varieties of apples for sale but neither were there hundreds of varieties for sale in the past. In fact, I strongly suspect that the average consumer today has more choices of apple than ever before. I stopped in at Whole Foods last night and counted seven varieties of apple for sale, that’s amazing. Over the year, Whole Foods probably sells 15 varieties. Moreover, I likely also consume other varieties in pies, juice and cider. A few more varieties are available a short drive from my home. Indeed, with all these choices it’s a wonder that Barry Schartz isn’t complaining about information overload and choice exhaustion.(Isn’t it interesting how critics of markets always find something to complain about? Either the market is overloading us with choices or tyrannizing us with too few choices.)
It is true that in a large and diverse country such as the United States there were probably more apple varieties grown in significant numbers in the 19th century but that confuses geographic diversity with what we actually care about which is consumption diversity or option availability. I explained this idea in my post, What is New Trade Theory? on Paul Krugman’s Nobel prize.
Consider the simplest model (based on Krugman 1979). In this model there are two countries. In each country (or region), consumers have a preference for variety but there is a tradeoff between variety and cost, consumers want variety but since there are economies of scale – a firm’s unit costs fall as it produces more – more variety means higher prices. Preferences for variety push in the direction of more variety, economies of scale push in the direction of less. So suppose that without trade country 1 produces varieties A,B,C and country two produces varieties X,Y,Z. In every other respect the countries are identical so there are no traditional comparative advantage reasons for trade.
Nevertheless, if trade is possible it is welfare enhancing. With trade the scale of production can increase which reduces costs and prices. Notice, however, that something interesting happens. The number of world varieties will decrease even as the number of varieties available to each consumer increases. That is, with trade production will concentrate in say A,B,X,Y so each consumer has increased choice even as world variety declines.
Increasing variety for individuals even as world variety declines is a fundamental fact of globalization. In the context of culture, Tyler explains this very well in his book, Creative Destruction; when people in Beijing can eat at McDonald’s and people in America can eat at great Chinese restaurants the world looks increasingly similar even as each world resident experiences an increase in variety.
Thus it may well be the case that more apples varieties were grown in large quantities in the 19th century but there are both more varieties commercially available today (our stock of genetic diversity is higher) and individual consumers have low-cost access to more apple varieties than ever before.
In the United States consanguineous marriage (marriage between close relatives, often cousins) is frowned upon and in many states banned but it is common elsewhere in the world. Approximately 0.2% of all marriages are consanguineous in the United States but in India 26.6% marriages are consanguineous, in Saudi Arabia the figure is 38.4% and in Niger, Pakistan and Sudan a majority of marriages are consanguineous. Cousin marriage used 
to be more common in the West and was particularly common among royal families which gives some hints as to why it may sometimes be useful. Among families with titles or estates, cousin marriage will tend to keep the wealth intact–literally within the family–whereas wealth becomes more dilute more quickly with outside marriage. Cousin marriage may also increase cooperation within the extended family and help to fight off parasites.
A recent paper finds that consangunuity is strongly negatively correlated with democracy:
How might consanguinity affect democracy? Cousin marriages create extended families that
are much more closely related than is the case where such marriages are not practiced. To illustrate,
if a man’s daughter marries his brother’s son, the latter is then not only his nephew but also
his son-in-law, and any children born of that union are more genetically similar to the two grandfathers
than would be the case with non-consanguineous marriages. Following the principles of
kin selection (Hamilton, 1964) and genetic similarity theory (Rushton, 1989, 2005), the high
level of genetic similarity creates extended families with exceptionally close bonds. Kurtz succinctly
illustrates this idea in his description of Middle Eastern educational practices:If, for example, a child shows a special aptitude in school, his siblings might willingly
sacrifice their personal chances for advancement simply to support his education. Yet once
that child becomes a professional, his income will help to support his siblings, while his
prestige will enhance their marriage prospects. (Kurtz, 2002, p. 37).Such kin groupings may be extremely nepotistic and distrusting of non-family members in the
larger society. In this context, non-democratic regimes emerge as a consequence of individuals turning to reliable kinship groupings for support rather than to the state or the free market. It has
been found, for example, that societies having high levels of familism tend to have low levels of
generalized trust and civic engagement (Realo, Allik, & Greenfield, 2008), two important correlates
of democracy. Moreover, to people in closely related kin groups, individualism and the
recognition of individual rights, which are part of the cultural idiom of democracy, are perceived
as strange and counterintuitive ideological abstractions (Sailer, 2004).
By the way, cousin marriage results in an elevated risk of birth defects but on the same order as a 40 year old woman having children as opposed to a 30 year old. In other words, the risks are small relative to other accepted risks. Results do get worse when cousin marriage is prevalent over many generations.
Hat tip to Chris Blattman and Joshua Keating. FYI, Steve Sailer wrote an interesting piece on this issue.
From Dylan Matthews. Here is an excerpt:
The tipping point, Wolff says, was the denial of tenure for Michael Best, a popular, left-leaning junior professor. “He had a lot of student support, and because it was the 1960s students were given to protest,” Wolff recalls. That, and unrelated personality tensions with the administration, inspired the mainstreamers to start leaving.
That created openings, which, in 1973, the administration started to fill in an extremely unorthodox way. They decided to hire a “radical package” of five professors: Wolff (then at the City College of New York), his frequent co-author and City College colleague Stephen Resnick, Harvard professor Samuel Bowles (who’d just been denied tenure at Harvard), Bowles’s Harvard colleague and frequent co-author Herbert Gintis, and Richard Edwards, a collaborator of Bowles and Gintis’s at Harvard and a newly minted PhD. All but Edwards got tenure on the spot.
…Under those five’s guidance, the department came to specialize in both Marxist economics and post-Keynesian economics, the latter of which presents itself as a truer successor to Keynes’s actual writings than mainstream Keynesians like Paul Samuelson. “When I got there, the department basically had three poles,” said Gerald Epstein, who arrived as a professor in 1987. “There was the postmodern Marxian group, which was Steve Resnick and Richard Wolff, and then there was a general radical economics group of Sam Bowles and Herb Gintis, and then a Keynesian/Marxian group. Jim Crotty was the leader of that group.” Suffice it to say, most mainstream departments have zero Marxists, period, let alone Keynesian/Marxist hybrids or postmodern Marxists.
Martin Wolf writes:
In 1816, the net public debt of the UK reached 240 per cent of gross domestic product. This was the fiscal legacy of 125 years of war against France. What economic disaster followed this crushing burden of debt? The industrial revolution.
There is more here, gated by the FT. This is an excellent point but I will ask whether this is an argument for or against fiscal consolidation (without meaning to suggest that the British should raise taxes further or borrow less right now). The industrial revolution is a tough act to pull off again. By the way Martin reports:
Between 1815 and 1855, for example, debt interest accounted for close to half of all UK public spending.
The broader numbers are interesting too. During the 19th century British consols generally yielded three to four percent. By Wolf’s account British growth was about two percent for the first half of the 19th century. So there was in fact some fiscal consolidation, because at those differential numbers growing out of the debt will not work. Note for instance that during the 19th century Britain introduced or expanded some fundamentally new methods of taxation, such as the income tax. In this sense the scope for “do it on the path toward larger government” fiscal consolidation was unprecedented and could not be replicated today.
What actually pulled Britain out of its debt problem was the Victorian growth spurt in the third quarter of the 19th century, which I consider part of the most revolutionary period of technological progress in all of human history. Again, that may be hard to replicate.
There is good evidence that the British experienced crowding out of capital investment during their period of peak debt (pdf) and in that sense the burden was paid all along. That situation is different today.
Your mileage on this one may differ, but in the 19th century Britain ran a regular balance of payments surplus.
There is also this (pdf):
Britain managed its huge national debt by relying on debt instruments (“consols” and similar bonds) that were perpetual yet callable. That meant that sudden spikes in interest rates, associated with wars or financial crashes, had limited impact on government solvency. Compare this to the danger that Italy and other European countries are facing, with the need to refinance over the next few months large fractions of their (much smaller) national debts. There was certainly a cost in terms of higher interest rates to British financial policy. But in retrospect one can argue that British authorities were wise to take that course, and that in general they were smarter than ours not to be deluded by the promises of liquid and rational markets, and were prepared for upheavals. For all the sophistication of our economic theory, our ancestors may have been more sophisticated than we are in truly understanding how the world works.
Very long-term debt is perhaps not such a bad idea today.
I do very much oppose the tax increases which have been chosen recently by the United Kingdom, and the switch in the content of public expenditure away from investment, and in that sense I agree fully with Wolf. And of course today’s British debt/gdp ratio is not near 250%. Nonetheless, when it comes to drawing conclusions about fiscal policy over the next ten to twenty years, the historical example of the 19th century can cut either way.
Here is Robert Gordon’s talk “The death of innovation, the end of growth.”
He stakes out the untenable position that economic growth is over (please do note that my TGS is relatively optimistic about the future). To make one quick point in rebuttal, Gordon considers only national demographics. Ask yourself a different question: circa 2013, are there more young global geniuses with a chance to make a difference, as compared say to 1969 or for that matter 1995? People sometimes caricature my views as suggesting we have run out of new discoveries (the subtitle of my book should belie that), but that description actually seems to fit Gordon.
Erik Brynjolfsson has a contrasting talk, “The key to growth: The race with the machines.” I mostly agree with Erik about the future (though not about the last forty or so years), but I worry about how he conflates “restructuring productivity” with the actual creation of new ideas as we attempt to measure them through total factor productivity. I also don’t think that free goods much overturn the measured wage stagnation of recent times, infovores aside of course.
In any case both talks are very much worth a view, self-recommending as they say.
I am not sure this paper (pdf) is sound, and it is hardly in publishable form. Still, it probably qualifies as the most interesting paper I have read this year to date. It is by Lemin Wu, graduate student in economics at UC Berkeley, who appears to have links to Brad DeLong and Peter Lindert. The title is “Millennia of Poverty: If Not Malthusian, Then Why?” and here is the abstract:
Living standards were constant for thousands of years before the industrial revolution. Malthus explained it this way: population grows faster when living standards rise; therefore, changes in technology alter the density of population but not the average welfare. This paper challenges Malthus’s explanation of the constancy and replaces it with the theory of group selection.
Malthusian theory is inadequate because it misses the fact that a dollar’s worth of diamonds contributes less to survival and reproduction than a dollar’s worth of grain. Grain is a subsistence commodity and a diamond is a surplus commodity. The Malthusian force anchors the average level of subsistence, but not that of surplus. If the surplus sector had grown faster than the subsistence sector, then living standards could have grown steadily before the industrial revolution, but they did not. The constancy of living standards thus implies that growth was balanced between subsistence and surplus, something Malthus did not explain.
To explain the balanced growth, I propose the theory of group selection. Selection of group characteristics, including culture and technology, goes on by migration and conquests. Since living standards rise with the ratio of surplus to subsistence, migrants and invaders usually move from places relatively rich in subsistence to those relatively rich in surplus. They spread the culture and technology of their subsistence-rich origin to the surplus-rich destination – the bias of migration favors the spread of subsistence over that of surplus. Even if surplus cultures and technologies would develop faster than subsistence ones in a local environment, the o setting biased migration balances the two sectors on a global scale. This explains the constancy of living standards.
My new theory reinterprets why living standards declined after the Agricultural Revolution and stagnated afterwards, how the Industrial Revolution happened and where the prosperity of Roman Empire and Song Dynasty came from.
I expect to hear more from Lemin Wu.
The paper is here (pdf), the slides to the paper are here, more pdf and 100 pp. at that. I first saw this cited by @mattyglesias.
Karl Smith reports:
Are we so sure there is a better way?
Real interest have famously been on the decline for thirty years. A rougher historical record suggests that English real interest rates may have been in decline since at least 1600.
The standard explanation here is better governance and lower systemic risk.
Yet, lets imagine a simple model where we have two sources of risk. There is background you cannot avoid. And, there is personal risk that you create by through your own choices.
Policy makers have since Thomas Hobbes been attempting to drive down background risk. They have larger been successful. As a result our lives are getting more and more stable.
As that happens, however, folks are going to tend to take on more personal risk. There is a tradeoff between risk and reward. As you face less background risk, for which you not rewarded it makes sense to go for more personal risk for which you are rewarded.
When I take on more personal risk, however, it bleeds over slightly into everyone else’s background risk. People depend on me. If I take risks and lose so big that I debilitate myself then my family and my friends will surely suffer. But, so will my employer, my creditor and the businesses who count on me as a regular. When I go down, they go down.
So, putting it all back together and we come up with something of a risk floor, if you will.
Policy makers drive down systemic background risk. This makes everyone safer. In response, each individual takes on a little more personal risk and contributes slightly to the general background risk.
Eventually we will reach a point where policy makers have driven out so much systemic background risk that any marginal decrease systemic background risk will simply induce individuals to take on more personal risk until they raise the total risk level back up to where it was before.
Safer policy then has little net effect.
Said another way, attempts to prevent bubbles from forming will only make folks more complacent about bubbles. Eventually, a bubble will slip through the cracks. However, folks will deny it’s a bubble, because don’t you know, bubbles are a thing of the past. Even as it grows to massive proportions the smartest minds will argue that it only looks like a bubble. If it were a real bubble, surely the Fed would have popped it by know.
And, so it grows larger and larger and larger. When it pops the downdraft is so great that policy makers don’t have the tools to deal with it. Perhaps, in a technical sense they do. They could stand firm on an NGDP target or pass the mother of all stimulus bills.
However, emotionally they are at a loss. They have never seen anything like this and until recently thought it was impossible. Now, they are being asked to approve policies that no one has used since the dark ages, while in the middle of a crisis no living person understands.
This is a task few people have the nerve to handle. And, so they don’t handle it and the downdraft smashes the entire global economy to bits.
Such, is often the problem of “over-solving” the problems of the past.
By Ugo Panizza and Andrea Filippo Presbitero, I have not had a chance to read through this paper but thought I should pass it along:
This paper surveys the recent literature on the links between public debt and economic growth in advanced economies. We find that theoretical models yield ambiguous results. Whether high levels of public debt have a negative effect on long-run growth is thus an empirical question. While many papers have found a negative correlation between debt and growth, our reading of the empirical literature is that there is no paper that can make a strong case for a causal relationship going from debt to economic growth. We also find that the presence of thresholds and, more in general, of a non-monotone relationship between debt and growth is not robust to small changes in data coverage and empirical techniques. We conclude with a discussion of the challenges involved in measuring and defining public debt and some suggestions for future research which, in our view, should emphasize cross-country heterogeneity.
On your 2010 R&R post: Your point about 90% being neither sacred nor stable shows how badly many people misinterpreted the paper.
You also said we don’t know how much higher than 90% we can go. I’m not sure exactly what you meant, but I’ve suggested that the threshold we should be most concerned about is the point beyond which you can be sure you’ll never get back to safe debt levels, because you’ll be faced with the Catch-22 of both austerity and “not-austerity” pushing debt higher for different reasons. This threshold is much lower than the point at which large countries will actually experience a fiscal crisis and probably lower than most people think. A reasonable estimate is only 150% debt-to-GDP, based on the observation that there are no historical episodes of countries recovering from 150%+ that are at all relevant to the U.S. or U.K. today (yes, I used the R&R data among other sources to test this).
The risk that the U.S. sails through such a threshold is becoming very real at current debt levels.
If you (or anyone) are interested, my paper reviewing all historical episodes of debt >150% of GDP (from the R&R database) was posted last month on Seeking Alpha and on http://www.cyniconomics.com and it’s called “Answering the Single Most Important Question in Today’s Economy.” And if the U. Mass. trio are interested, I’ll even offer my calculations.
My previous post presented this:
Rortybomb summarizes it here, Matt Yglesias here, and the original paper is here (pdf), by Thomas Herndon, Michael Ash, and Robert Pollin. I will read the paper soon.
I’ve now had some time to look at the paper, and here are a few observations:
1. I am of course open to publishing a rebuttal from R&R, but on a first read the authors make a strong case for their claim that the core Reinhart-Rogoff result — concerning the growth slowdown at debt at 90% of gdp — is based on a coding error and some data exclusion issues. Please reread my earlier post on “the smell test.”
2. That said, as Ray Lopez mentions, including in the data the postwar bouncebacks of some Anglo countries (NZ, Australia, and Canada), as recommended by the critics, is not obviously going to improve the quality of the answer. For instance the Kiwis have postwar growth rates of 7.7, 11.9, -9.9, and 10.8 percent, across the late 1940s. Are those numbers — which were combined with high postwar levels of debt — relevant to current fiscal policy issues? I say no, while admitting this may lead us to throw out other data points as well. I don’t know what is the non-cherry-pick answer here or if there even is one.
3. It is perhaps unfortunate in this age of the internet that rebuttals must be presented so quickly, but so be it. It will be interesting to hear from R&R.
4. Not too long ago I reread R&R to ascertain whether they actually present the 90% level as an emergency cliff of sorts. I concluded they did not, although there were some sentences that a reader could take out of context toward confirming such an interpretation.
5. In the paper by the critics, the pp.7-9 discussion of “weighting by country” vs. “weighting by country-year” is very interesting, but the fact that it matters as much as it does makes me more skeptical about the entire enterprise. Whether you should weight by population is important too.
6. I am seeing a large number of tweets which both misrepresent R&R or misrepresent their influence on current policies of “austerity.”
7. My own view, as you can read in The Great Stagnation, is that the primary mechanism is slow growth causing high debt/gdp ratios, not vice versa. In any case this is by far the most important issue, whether or not you agree with my take on it.
8. The “case for austerity” didn’t rest much on R&R in the first place, rather on the notion that the bills have to be paid, dawdling on adjustment is not always so easy, and the feasible sum of international redistribution is quite low. For this reason the UK should be relatively uninterested in immediate austerity and many nations in the eurozone periphery more interested.
9. In the blogosphere, the ratio of blog posts “attacking austerity” to “proposing constructive alternatives to austerity” is at least ten to one. That too tells you something. Many of the alternatives proposed would indeed pass a Benthamite cost-benefit test, at least if implemented as desired, but they are simply inconsistent with incentives and the relatively selfish nature of individual behavior.
10. The most interesting question to me is a rather squirrelly and subjective one: how should this episode change the relative ratios of what I read? Should I in fact read fewer quantitative economics papers, instead (at the margin, of course) preferring more narrative history? This is not the first time that an extremely influential major empirical result has been overturned or at least thrown into serious doubt.
Addendum: FT Alphaville weighs in. And Annie Lowrey is tweeting some responses from R&R.
Rortybomb summarizes it here, Matt Yglesias here, and the original paper is here (pdf), by Thomas Herndon, Michael Ash, and Robert Pollin. I will read the paper soon.
I’ve been meaning to link to this NBER paper by Claude B. Erb and Campbell R. Harvey:
While gold objects have existed for thousands of years, gold’s role in diversified portfolios is not well understood. We critically examine popular stories such as ‘gold is an inflation hedge’. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. We also explore valuation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average consistent with mean reversion. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. In the end, investors face a golden dilemma: 1) embrace a view that ‘those who cannot remember the past are condemned to repeat it’ and the purchasing power of gold is likely to revert to its mean or 2) embrace a view that the emergence of new markets represent a structural change and ‘this time is different’.
There is a non-gated version of the paper here.
Much of it concerns the origins and application of violence, but this blog post on Randall Collins and his theory of ritual, by Xavier Marquez, is interesting throughout. Here is one excerpt:
The (relative) insignificance of ideology. Taken in its strongest terms, Collins’ theory seems to suggest that ideology is generally unimportant. Whether a symbol acquires socially motivating value depends much less on its “generalized” meaning than on its place within chains of interaction rituals; we are not generally the dupes of rhetorical framings and persuasive strategies except in the context of successful ritual situations. (Collins notes, for example, that most advertisement seems to be unsuccessful at actually persuading people to buy products, and is mostly intended to preserve attention space against competitors). From this perspective, the decline of labor movements worldwide, for example, may owe less to any ideological changes (“persuasion” and “manipulation” taken in a very broad sense) than to (intentional or unintentional) changes in the conditions for the ritual production of solidarity. Chris Bertram recently mused on the occasion of Margaret Thatcher’s death that UK society used to be socially more class-differentiated (there were strong institutions where class solidarities and roles were produced) but is now less so (since these institutions have vanished), despite very low levels of economic mobility and higher levels of economic inequality; many people now “feel” that there is more equality. From the interaction ritual perspective, these changes are not the result of the working class becoming simply convinced of lies due to clever persuasive strategies by elites, but of the less central place of rituals and symbols reinforcing class solidarity in their lives. This is in turn due to any number of causes: laws that made labor unions more difficult to organize, structural changes in employment patterns, the decay of rituals of deference, the emergence of rituals focused on celebrities that cut across social class, etc.
Collins is one of the most important social scientists in the world today, though in many circles he remains underdiscussed. You will find previous MR coverage of him here. The pointer is from @HenryFarrell.
It’s called The Three Languages of Politics. It’s an extended take on the three-axis model. Get it! Write a charitable review! Use this post to give me your comments!
