History

Muhammad Ali Jinnah was nothing if not complicated. Jinnah, an alcohol-drinking, pork-eating, English-loving barrister, was the founder of  the Islamic Republic of Pakistan. Yesterday, his only child Dina Wadia died and that too is complicated.

Dina Wadia was the daughter of Jinnah and his Parsi wife Rattanbai Petit whom he proposed to at 16 and married at 18 when he was 42. Rattanbai was the daughter of one of Jinnah’s friends, who never forgave him. Jinnah and Petit’s daughter, Dina, was born in 1919 shortly after their marriage. Rattanbai died only ten years later.

Dina herself married young, to the Parsi Neville Wadia whose successful family-business went back to the days of the East India Company. But Jinnah was furious that she had married outside the faith telling her “There are millions of Muslim boys in India,” and she could marry any one of them she chose. Dina promptly replied, “Father, there were millions of Muslim girls in India. Why did you not marry one of them?” Jinnah did not attend the wedding.

When India’s partition came, Jinnah’s family was partitioned as well. Jinnah went to Pakistan and his daughter stayed in India, never to see him again. Her son, Nusli Wadia, became one of India’s richest men. Thus the descendants of the founder of the Islamic Republic of Pakistan are successful Indian Parsis. The last twist perhaps in Jinnah’s complicated tale.

In her later years, Dina Wadia moved to New York where she died yesterday.

This is an out-of-synch bonus episode, rushed out because I think their new, just-out book — The Captured Economy: How the Powerful Slow Down Growth, Enrich Themselves, and Increase Inequality — is so important.  You will find the podcast here, lots of rapid fire back and forth.

Everyone wanted me to interview them together, but I said no, I would instead interview them separately and ask about 2/3 the same questions to see how their answers might hang together, or not.  That is how co-authors should be treated!  I also asked each what the other has for breakfast, and by the end each had confessed to several crimes, to avoid a longer sentence of course.

Here is the smallest of bits:

COWEN: Are higher levels of executive compensation part of the problem?

TELES: There you probably would get a different answer between me and Lindsey.

COWEN: That’s why I asked

Recommended, again here is the podcast (no transcript, we wanted to get this out right away).

Here is a recent paper (PDF) by Leonard Kukić of LSE:

Beyond the recent past, and beyond the Soviet Union, we know little about the performance of Eastern European economies. This paper fills the knowledge void by analysing socialist Yugoslavia using a diagnostic tool that identifies the mechanisms that drive economic growth – business cycle accounting. The analysis provides novel findings. During the “Golden Age” of economic growth, total factor productivity became gradually more important in sustaining economic growth. Distorted labour incentives were a major constraint on growth since the mid-1960s, and explain the slowdown of the economy during the 1980s. Socialist growth was primarily handicapped by poor incentives to work, rather than by poor incentives to innovate or to imitate. In an attempt to liberalise the economy, economic power was delegated to the labour-managed firms. These firms were maximising income per worker, which hindered the ability of Yugoslavs to supply labour.

That is via the essential follow Pseudoerasmus.

There is a new edition out, edited and translated by Stuart Warner and Stéphane Douard.  This eighteenth century bestseller could hardly be more relevant today.  Is it possible to lead a philosophic life?  How do political leadership and wisdom intersect?  How do Christianity and Islam differ politically?  How does politics reflect gender relations in a society?  Is there a case for optimism in modernity?  I still am not sure we have improved on Montesquieu’s investigations, although I cannot claim he gives us final answers.  This is a volume of polyphony, with travel as a source of learning and liberation as a major theme throughout.

Harems play a role too, here are the final paragraphs from Roxane to her sultan master Usbek:

You were astonished not to find in me the ecstasies of love.  If you had known me well, you would have found in me all the violence of hatred.

But you have had for a long time the advantage of believing that a heart such as mine was submissive to you.  We were both happy you believed me deceived, and I was deceiving you.

This language, without doubt, appears new to you.  Could it be possible that after having overwhelmed you with grief, I could still force you to admire my courage?  But it is done: poison consumes me; my strength abandons me; the pen falls from my hand; I feel even my hatred weaken; I am dying.

The introduction and notes are outstanding, and also of interest for those of you who are piqued by Straussianism.  You will note that the book was first published anonymously.

“Jokes in a serious work are acceptable on the condition that they hide a profound sense beneath a trivial form. It is in this way that Montesquieu, in his novel, Persian Letters, has written one of the most philosophical books of the eighteenth century.” – Alexis de Tocqueville [link]

I am pleased, by the way, to have once had the chance to spend two days with co-editor Stuart Warner discussing Persian Letters and nothing but (thank you again Liberty Fund!).  I cannot think of any person more qualified to have undertaken this endeavor.

You can order the volume here.

This is the week of hearings on Facebook ads, as well as Twitter and Google promotion of pro-Putin or sometimes pro-Trump or disruptive ideas.  So far we know that Russia-linked ads on Facebook cost about $100,000, a laughably low number.  Maybe there is much more hidden, but so far I don’t see it.

$100,000 is exactly the amount the Comintern gave in the 1920s to organize a campaign against John L. Lewis leading the mine union.  No, I am not adjusting for inflation, so in real terms the sum in the 20s was much higher.  The Comintern also gave at least $35,000 to start the Daily Worker, again that is a nominal figure from the 1920s.  The American Communist Party received subsidies too.  Many other communist subsidies, media and otherwise, remain hidden or at least uncertain.

Furthermore, those earlier expenditures helped convert a large number of Americans and American intellectuals to actual belief in communism, or at least fellow traveler sympathies.  And consider this (NYT):

The C.P.U.S.A.’s vulnerability had a great deal to do with its dependence on Moscow. For much of its existence, the party could not have functioned without Moscow gold. One of its first leaders, the journalist John Reed, was given more than a million rubles’ worth of czarist jewels and diamonds to smuggle into America to support the fledgling American movement. In the 1920s, Armand Hammer, the future head of Occidental Petroleum, used money derived from Soviet concessions to underwrite The Daily Worker and fund communist operations in Europe. Without Soviet money, the C.P.U.S.A. would not have been able to hire the hundreds of full-time organizers and support an array of front groups and publications that enabled it to outspend and out-organize its left-wing rivals.

So I’m just not that “impressed” by the Facebook revelations to date.  If you want to worry about Facebook, the much bigger problems are abroad (NYT).

Written by Mike Wallace, and weighing in at almost 1200 pp., this is one of the best books of the year.  Every page has interesting material.  You could pull out just the bits on the origins of the subway, or the development of the arts and entertainment, or immigration, and still have one of the best books of the year.  From one Amazon review:

The narratives are well-honed and to the point. There is not one ounce of journalistic fluff. There are no fanciful digressions into fads and fashions of the day. There is no imaginary dialogue, unlike the situation found in some “history books” written by mere poseurs.

And:

Simply put this is another masterpiece deserving the highest accolades. Tremendously rich in anecdotes it is superbly written. If you grew-up in New York, particularly in the outer boroughs, the book will have a special meaning for you as you see the physical, cultural and human development of your neighborhood. My favorite sections were on the development of the ‘arteries and ligaments’ of the city; the radicals among the Jewish immigrants, and New York in World War I.

I have read only a few hundred pages of it, and may not read it all, but am likely to read more than half of it.  Strongly recommended, it’s also one of the best books on American history period.  You can order it here.

*The Second World Wars*

by on October 22, 2017 at 12:56 am in Books, History, Political Science | Permalink

The subtitle is How the First Global Conflict Was Fought and Won, and the author is Victor Davis Hanson.  I loved this book, even though before I started I felt I didn’t want to read yet another tract on WWII.  Most of the focus is on the logistics and management side:

By 1944, the U.S. Navy was larger than the combined fleets of all the other major powers.

At the start of the War, the United States accounted for about 55-60 percent of world oil output.

The U.S. soldier was treated for psychiatric disorders at a rate ten times that of German troops.  The average hospital stay for an American soldier was 117 days and 36 percent were not returned to the front.  Supplies for a typical American soldier exceeded 80 pounds per day.

The German army killed about 1.5 GIs for every German soldier lost.

The highest American fatality rate was in the Pacific, at 4 percent, still a remarkably low rate for the war as a whole.  America did so well because of high gdp and remarkably efficient supply lines and equipment and air and naval support.

Poland alone lost more citizens than all of the Western European nations, Britain, and the U.S. combined.

WWII took place in a strange technological window when weapons had advanced much more rapidly than protective body armor.  That is one reason why casualties from the fighting were so high.  The war is also unusual for having had so many battles and fronts where the victor gave up more lives than the loser, including of course the war as a whole.

Hanson considers the American submarine offensive against Japan as perhaps the most “cost-efficient” offensive from the war.

“No navy in military history had started a war so all-powerful as the Japanese and ended it so utterly ruined and in such a brief period of time…”

Strongly recommended, a shoo-in for the top tier of the year’s best non-fiction list, the writing is gripping too.

Here is a HistoryNet review: “utterly original.”  Here is Matthew Continetti at NR: “Masterful.”

That is the new Peter Leeson book, and it is just out.  Here is the Amazon summary:

This rollicking tour through a museum of the world’s weirdest practices is guaranteed to make you say, “WTF?!” Did you know that “preowned” wives were sold at auction in nineteenth-century England? That today, in Liberia, accused criminals sometimes drink poison to determine their fate? How about the fact that, for 250 years, Italy criminally prosecuted cockroaches and crickets? Do you wonder why? Then this tour is just for you!

Here are the book’s rather spectacular blurbs.  Here is a short Peter piece on medieval ordeals.  Here is a Reddit thread on whether medieval ordeals actually were an effective test of guilt.  And he has this piece on superstition and Friday the 13th in Newsweek.  I would like to see a media outlet excerpt his piece on the rationality of gypsy culture.

I would say that Peter has written a very effective book within the Beckerian tradition, namely trying to explain economic phenomena in terms of a neoclassical rational actor model.  Nonetheless I am much less of a Beckerian than Peter is, at least for the socially-oriented issues he is considering.  Here is a simple typology of approaches:

1. Beckerians and the rational actor model.  I slot Peter in here, along with many Chicago School economists, Marvin Harris, and much of public choice economics.  An explanation shows how a social outcome stems from the interaction of means-end maximizing individuals, translated into some aggregate result.

2. Behavioral economics.  By now this is old news, but these researchers find what I consider to be relatively small deviations from the rational actor model.  This is usually done by measurement, rather than through more complete models.

3. Cultural economics, anthropologists, and many sociologists.  Peer effects are paramount, and Frenchmen see the world differently than do Americans, not to mention Bantus or Pygmies.  This is due to a social contagion of perception that does not boil down to rationality in the sense that economists understand it (you can build a model in which social mimicry at young ages is rational, but that model won’t generate much insight into the particular phenomena we are trying to explain, nor does that model pick up the mimicry mechanism very well).  Historical study plus thick description plus economic rationality at various margins (but margins only) plus some statistics is the way to go.  Mostly we’re trying to understand how and why other groups of people see the world in fundamentally different terms.

The economists who can best grasp other points of view thus are the masters of explaining macro-phenomena (by which I mean something quite distinct from traditional macroeconomics).

I am much closer to #3 than are most economists.  Furthermore, I view economists as patting themselves excessively on the back for #2, when #3 is far more important.  Peter has written a very good book mostly in the tradition of #1, though due to his Austrian background with periodic forays into #3.  I once wrote to Peter: “Gypsy culture rational?  How about Episcopalian investment bankers in Connecticut being rational?”  Probably neither are.

*The Fate of Rome*

by on October 19, 2017 at 11:21 am in Books, History, Medicine, Science, Uncategorized | Permalink

That is the new and very important book by Kyle Harper, with the subtitle Climate, Disease, & the End of an Empire.  I am just reading through this now, but it appears to be an significant revision of our views on the decline of Rome.  p.21 offers a capsule summary, which I will summarize in turn:

1. During the reign of Marcus Aurelius, a pandemic “interrupted the economic and demographic expansion” of the empire.

2. In the middle of the third century, a mix of drought, pestilence, and political challenge “led to the sudden disintegration of the empire.”  The empire however was willfully rebuilt, with a new emperor, new system of government, and in due time a new religion.

3. The coherence of this new empire was broken in the late fourth and early fifth centuries.  “The entire weight of the Eurasian steppe seemed to lean, in new and unsustainable ways, against the edifice of Roman power…and…the western half of the empire buckled.”

4. In the east there was a resurgent Roman Empire, but this was “violently halted by one of the worst environmental catastrophes in recorded history — the double blow of bubonic plague and a little ice age.”

Here is a key passage from the book:

The centuries of later Roman history might be considered the age of pandemic disease.  Three times the empire was rocked by mortality events with stunning geographical reach.  In AD 165 an event known as the Antonine Plague, probably caused by smallpox, erupted.  In AD 249, an uncertain pathogen swept the territories of Roman rule.  And in AD 541, the first great pandemic of Yersinia pestis, the agent that causes bubonic plague, arrived and lingered for over two hundreds years.  the magnitude of these biological catastrophes is almost incomprehensible.

Here is the book on Amazon.  Here is Kyle Harper on Twitter.  Here is Harper on scholar.google.com; he is also Provost at the University of Oklahoma.

I do not feel I can assess the veracity of this thesis, but it does seem to be intelligently and reasonably argued.

The Mona Lisa is not the best artwork ever, and as a painter I am not sure Leonardo is much better than either Mantegna or Piero della Francesca, neither of whom is much known to the general public, much less Titian.  He has no work as stunning as Michelangelo’s David, and too many of his commissions he left unfinished or he never started them.  The Notebooks display a fertile imagination, but do not contain much real knowledge of use, except on the aortic valve, nor did they boost gdp, nor are they worth reading.  Much of his science is weak on theory, even relative to his time.  In Milan he was too content to serve as court impresario, and he seemed to have no idea of how to apply his own talents in accord with comparative advantage.

His ability to take an idea and turn it into a memorable sketch was his most remarkable ability, and in this he is without peer.

Plus he painted “woman as gorgon” very very well, but with a sweetness too.

I can recommend Walter Isaacson’s new book on Leonardo as a wonderful introduction, but it does not change my mind on these points.

Is Piketty’s Data Reliable?

by on October 18, 2017 at 7:25 am in Books, Economics, History | Permalink

When Thomas Piketty’s Capital in the Twenty-First Century first appeared many economists demurred on the theory but heaped praise on the empirical work. “Even if none of Piketty’s theories stands up,” Larry Summers argued, his “deeply grounded” and “painstaking empirical research” was “a Nobel Prize-worthy contribution”.

Theory is easier to evaluate than empirical work, however, and Phillip Magness and Robert Murphy were among the few authors to actually take a close look at Piketty’s data and they came to a different conclusion:

We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data.

Magness and Murphy, however, could be dismissed as economic history outsiders with an ax to grind. Moreover, their paper was published in an obscure libertarian-oriented journal. (Chris Giles and Ferdinando Giugliano writing in the FT also pointed to errors but they could be dismissed as journalists.) The Magness and Murphy conclusions, however, have now been verified (and then some) by a respected figure in economic history, Richard Sutch.

I have never read an abstract quite like the one to Sutch’s paper, The One-Percent across Two Centuries: A Replication of Thomas Piketty’s Data on the Distribution of Wealth for the United States (earlier wp version):

This exercise reproduces and assesses the historical time series on the top shares of the wealth distribution for the United States presented by Thomas Piketty in Capital in
the Twenty-First Century….Here I examine Piketty’s US data for the period 1810 to 2010 for the top 10 percent and the top 1 percent of the wealth distribution. I conclude that Piketty’s data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable.
The values he reported are manufactured from the observations for the top 1 percent inflated by a constant 36 percentage points. Piketty’s data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable. They are based
on a single mid-century observation that provides no guidance about the antebellum trend and only tenuous information about the trend in inequality during the Gilded Age. The values Piketty reported for the twentieth century (1910–2010) are based on more
solid ground, but have the disadvantage of muting the marked rise of inequality during the Roaring Twenties and the decline associated with the Great Depression. This article offers an alternative picture of the trend in inequality based on newly available data and a reanalysis of the 1870 Census of Wealth. This article does not question Piketty’s integrity.

You know it’s bad when a disclaimer like that is necessary. In the body, Sutch is even stronger. He concludes:

Very little of value can be salvaged from Piketty’s treatment of data from the nineteenth century. The user is provided with no reliable information on the antebellum trends in the wealth share and is even left uncertain about the trend for the top 10 percent during
the Gilded Age (1870–1916). This is noteworthy because Piketty spends the bulk of his attention devoted to America discussing the nineteenth-century trends (Piketty 2014: 347–50).

The heavily manipulated twentieth-century data for the top 1 percent share, the lack of empirical support for the top 10 percent share, the lack of clarity about the procedures used to harmonize and average the data, the insufficient documentation, and the spreadsheet errors are more than annoying. Together they create a misleading picture of the dynamics of wealth inequality. They obliterate the intradecade movements essential to an understanding of the impact of political and financial-market shocks on inequality. Piketty’s estimates offer no help to those who wish to understand the impact of inequality on “the way economic, social, and political actors view what is just and what is not” (Piketty 2014: 20).

One of the reasons Piketty’s book received such acclaim is that it fed into concerns about rising inequality and it’s important to note that Sutch is not claiming that inequality hasn’t risen. Indeed, in some cases, Sutch argues that it has risen more than Piketty claims. Sutch is rather a journeyman of economic history upset not about Piketty’s conclusions but about the methods Piketty used to reach those conclusions.

This excellent book is titled Hoover: An Extraordinary Life in Extraordinary Times.  Here is one good bit:

Knowing that he could not manage what he could not measure, Hooover made Commerce botha producer and a clearinghouse of relevant information on the U.S. economy.  Once again, he turned to like-minded experts, this time primarily in the academic community.  Hoover announced the Advisory Committee on Statistics and recruited to it such luminaries as Edwin Gay, the first dean of the new Harvard Business School; Edwin Seligman, the Columbia economist and a founder and past president of the American Economic Association; and Cornell’s Walter Willco, a past president of the American Statistical Association and a former co-director of the U.S. Census.  Another eminence, Julius Klein, the Harvard economist and historian, was recruited to head Hoover’s Bureau of Foreign and Domestic Commerce and allowed to increase its budget by a factor and six and its personnel by a factor of five.  In short time, these and other initiatives turned Commerce into a vast reservoir of information on every aspect of economic life from steel to motion pictures…

The scope of Hoover’s activities in Commerce was stupendous.  Singlehandedly doing enough work for an entire cabinet, he was said to be “Secretary of Commerce and Undersecretary of Everything Else.”

Recommended, note that Hoover was in fact one of the most qualified men ever to have become president.

During much of the 1982-2001 period, the Western world seemed to be moving in a very favorable direction, indeed most of Asia too.  Over time, Westerns intellectuals and commentators came to expect triumphant feelings and relatively low levels of stress.

9/11, the financial crisis, and now Brexit/Trump/populism/nationalism have upset this feeling.  The level of stress is now especially high in part because it was, not long ago, especially low.  The contrast is difficult for us to stomach, and comparisons with say Richard Nixon or Andrew Jackson help only a little.

In the postwar era, running up through the 1980s, the objective level of stress was much higher than today.  The risk of nuclear war was pretty high, overt racism was much more common, the safety net was much weaker, and it was far from clear that so much of the world would develop economically or become democratic.  Yet all this came right after the easily-remembered stress of World War II, and so it felt like a relief nonetheless.

As a kind of coincidence, memories of World War II wore off just as stress-relieving positive events were kicking into full gear.  That gave America an especially long period of low stress, unprecedented by historical standards.

We are not used to feeling as much stress as we do today.  Yet even in the optimistic scenarios in my predictions, the level of stress today is relatively low compared to what we can rationally expect for the next few decades.

The subtitle is A History of U.S. Federal Entitlement Programs, and the author of this new and excellent book is John F. Cogan of Stanford University and the Hoover Institution.  It is the single best history of what it covers, and thus one of the best books to read on the history of U.S. government or for that matter American economic history more generally.

How did the American entitlement state get built?  In multiple, discrete pieces:

The House and Senate overwhelmingly approved a modified version of President Truman’s Social Security proposals in June 1950.  The Social Security Amendments provided a mammoth across-the-board increase in monthly benefits.  The law’s sliding scale of benefits…averaged 77 percent per recipient…The 1950 Act also rewrote Social Security’s eligibility rules to enable hundreds of thousands of workers with little history of contributing payroll taxes to begin collecting benefits.

And:

…from 1969 to 1975, inflation-adjusted federal entitlements pending grew annually at a remarkable 10 percent, registering an 86 percent increase in six years…Total annual inflation-adjusted entitlement expenditures grew 20 percent faster under President Nixon than they had under President Johnson.

And:

The eligibility liberalizations from 1997 to 2008 produced sharp increases in the food stamp and Medicaid rolls.  From 1998 to 2008, the food stamp rolls increased to 28 million people from 20 million and the Medicaid rolls increased to 59 million from 40 million people.  The liberalizations enacted during the Great Recession have lasted well beyond the recession’s end in 2010.  In 2016, the number of food stamp recipients ballooned to 44 million, and the number of Medicaid recipients rose to 73 million in 2016.

Here is a good sentence:

In 2015, 41 percent of the nation’s nonelderly-headed households received entitlement benefits.

This book is well-written and has useful and important information on virtually every page.

I am not sure I trust any TFP measures (what if innovation is simply embodied in investment?), but this paper by Gerben Bakker, Nicholas Crafts, and Pieter Woltjer is worth a ponder:

We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better-measured labor quality, and find TFP-growth was lower than previously thought, broadly based across sectors, and strongly variant intertemporally. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four ‘great inventions’. Third, TFP-growth was not driven indirectly by spillovers from great inventions such as electricity. Instead, the creative-destruction -friendly American innovation system was the main productivity driver.

For the pointer I thank David Levey.