Category: History
The expected rate of return from denuclearization has fallen
Right? That is just one piece of fallout from the current crisis. As an American, with little at stake in Ukraine per se, I am glad the country gave up its nuclear weapons, so as to limit the risk of broader conflict. But if I were a Ukrainian citizen, my view would be somewhat different.
Here is an interesting study by Robert Stephen Mathers (pdf) on the denuclearization of Ukraine. It appears to have been written as a term paper for Martin Felstein in 2003. Excerpt:
The back and forth negotiations about Ukraine’s nuclear status would finally end in Moscow in January 1994 with the signing of the Trilateral Statement by Presidents Clinton, Yeltsin and Kravchuk. The agreement held Ukraine to the promise of “the elimination of all nuclear weapons, including strategic offensive arms, located in its territory.” In exchange for these concessions, the U.S. and Russia agreed to preserve Ukraine’s territorial integrity (a primary concern for Ukraine) and ensured that no state would use or threaten to use military force or coercion against it…Ukraine’s main concerns were finally met.
It seems the value of a formal NATO guarantee is falling as well. Rapidly. Various Eastern European countries are asking for stronger or clarified U.S. guarantees. What are they thinking in Latvia? Taiwan? Japan? How about the Israelis negotiating with John Kerry?
For the pointer I thank Bill Badrick.
What I worry about
For Russia, matters in Ukraine are close to an existential crisis, as Ukraine is intimately tied up with Russia’s sense of itself as presiding over a mini-empire of sorts. Nor could an autocratic Russia tolerate a free and prosperous Ukraine, developing along the lines of Poland. America cares about Ukraine less, and cares more about Syria and Iran, or at least cares about saving face in those latter venues. Therefore there is a Coasean deal to be had between America and Russia, where Russia gets to partition part of Ukraine, create a buffer against Europeanization and democratization, keep the larger Ukraine unit weak, and also keep its Black Sea fleet. In turn Russia would do something less than totally sabotage all American plans for Syria and Iran. (Of course that is Coasean for the leaders, and not necessarily for the citizenries.)
The thing is…China. What kind of signal would such a Coasean deal of partition send to China?
That is what I worry about.
Bringing extinct species back to life
It will happen, in fact it has already happened and more than ten years ago:
Novak is tall, solemn, polite and stiff in conversation, until the conversation turns to passenger pigeons, which it always does. One of the few times I saw him laugh was when I asked whether de-extinction might turn out to be impossible. He reminded me that it has already happened. More than 10 years ago, a team that included Alberto Fernández-Arias (now a Revive & Restore adviser) resurrected a bucardo, a subspecies of mountain goat also known as the Pyrenean ibex, that went extinct in 2000. The last surviving bucardo was a 13-year-old female named Celia. Before she died — her skull was crushed by a falling tree — Fernández-Arias extracted skin scrapings from one of her ears and froze them in liquid nitrogen. Using the same cloning technology that created Dolly the sheep, the first cloned mammal, the team used Celia’s DNA to create embryos that were implanted in the wombs of 57 goats. One of the does successfully brought her egg to term on July 30, 2003. “To our knowledge,” wrote the scientists, “this is the first animal born from an extinct subspecies.” But it didn’t live long. After struggling to breathe for several minutes, the kid choked to death.
There is more here, interesting throughout. One risk is that these newly recreated animals may turn out to be efficient carriers of modern diseases. And the economic benefits of recreating extinct species are…? And here is a legal perspective:
In “How to Permit Your Mammoth,” published in The Stanford Environmental Law Journal, Norman F. Carlin asks whether revived species should be protected by the Endangered Species Act or regulated as a genetically modified organism. He concludes that revived species, “as products of human ingenuity,” should be eligible for patenting.
And are they really the same animals after all, given the imperfections in the process of cloning and recreation? The philosopher might say this:
“I would like to have an elephant that likes the cold weather,” he told me. “Whether you call it a ‘mammoth’ or not, I don’t care.”
I say we would be wise to exercise option value on this one, but of course the incentives of scientists are to do something first.
Catholics were much less likely to vote for the Nazis
A new paper was presented at the AEA meetings this January, “Religion, Economics, and the Rise of the Nazis,” by Philipp Tillman and Jörg Spenkuch, and the abstract for one version of the paper is this:
We investigate the role of religion in the electoral success of the Nazi Party in Weimar Germany. Among historians, it is a well known fact that Protestants were much more likely than Catholics to vote for Adolf Hitler. However, in spite of the historical importance of the Nazis’ rise to power, the question of whether this correlation reflects a causal effect of religion has so far remained unanswered. We use an instrumental variable approach by relying on geographic variation in religious beliefs dating back to a peace treaty in the sixteenth century. According to the principle “cuius regio, eius religio.” the Peace of Augsburg granted local rulers the right to determine the religion of their serfs. Using rulers’ choices in the aftermath of the peace as an instrumental variable for the religion of Germans living in the respective areas more than three hundred years later, we are able to document an economically large effect of Protestantism on Nazi vote shares— even after controlling for a wide range of region fixed effects and socioeconomic characteristics. Taken at face value, our estimates suggest that Catholics were about 50% less likely to vote for the Nazi Party than their Protestant counterparts. We are currently testing multiple hypotheses to explain this effect and are in the process of collecting additional data.
That is not a new claim but it is new to have serious econometrics to back it up and show the vote tallies were not caused by associated demographic factors. You will find a related copy of the paper at the first link here. Tillman’s home page is here. Spenkuch is here. Here is Spenkuch’s paper on immigration and crime. Immigration is connected to higher rates of theft crime, although by small amounts, and not positively related to violent crime.
Addendum: Here is the most current version of the paper (pdf), with notable additions.
*The Tyranny of Experts*
The author is William Easterly and the subtitle is Economists, Dictators, and the Forgotten Rights of the Poor.
This is Easterly’s most libertarian book, self-recommending. It is due out March 4.
When was money less important than we thought?
ModeledBehavior tweeted:
Name the period or event in economic history where we looked backed and said “hmm, money was less important than we thought at the time
I would nominate much of the 19th century. To be sure, distribution in those times really did matter, more so than today because overall levels of income and wealth were much lower. And monetary policy redistributes wealth. But the overall story of the century is one of European peace (mostly but not entirely), economic growth, and the unfolding of various industrial revolutions. Yet monetary policy was very much in the public eye, including in the United States. Monetary economics develops much more rapidly than does, say, law and economics or the economics of how to boost innovation. By the time you reach 1820, monetary economics in Great Britain is quite sophisticated, even though they lacked good data.
In the 1920s and 30s, monetary economics mattered an enormous amount — a world changing, World War-creating amount, I would say. That alone makes it worthy of very very serious study. But most important economic stories are about the long run, and if anything the human tendency is to fixate on the short run too much.
Monetary policy also did not matter so much for the East Asian economic revolutions of the postwar era. No one looks back and worries how often South Korea had double digit inflation, sometimes over twenty percent. And here is a recent inflation index for some emerging economies.
Yuriy Gorodnichenko on Ukraine
He is an economics professor at Berkeley and he recently gave a talk there on “Ukraine: A Battle for the Future of Europe?”
The slides are here (pdf)., Q&A is here, the slides are especially useful. Gorodnichenko’s home page is here.
The pointer is from @MatiasBusso.
“Why has Ukraine returned to economic growth?” (wheel of fortune)
Anders Åslund wrote an interesting piece on that question, published in 2002:
For ten years Ukraine was one of the sickest economies in the former Soviet Union. By 1999 most observers had decided that Ukraine displayed all the symptoms of economic malaise. It was hopelessly corrupt, market reforms were generally tardy and unfinished, the budget deficit was larger than the available financing, non-payments and arrears were rife. It is, therefore, all the more surprising that this country is currently experiencing an extraordinary economic surge, with industrial and agricultural production skyrocketing. Even if the present economic situation doesn’t last it is already remarkable and requires serious study. The purpose of this paper is to provide a quantitative analysis of Ukraine’s sudden economic growth and strong recovery. It begins by looking at common explanations of economic growth that have not proven relevant, discusses what concrete economic policy measures appear to have contributed to the generation of growth and ends by scrutinising how this was politically feasible. A proper understanding of Ukraine’s situation should help towards an understanding of post-Soviet transformation and offer clues about how to reform other countries.
For a more complete picture, I refer you also to his contrasting 2000 essay “Why has Ukraine Failed to Achieve Economic Growth?” Circa 2014, another piece or two could be penned on this topic.
Åslund has much more on Ukraine here, including this 2009 book. For a while now he has been predicting the end of Yanukovych, for instance in this piece. In any case he is the most prominent economist who writes regularly on Ukraine.
My review of Diane Coyle and Zachary Karabell
That is published in The Washington Post, and I can recommend both books. Coyle’s book is GDP: A Brief But Affectionate History and Karabell’s is The Leading Indicators: A Short History of the Numbers That Rule Our World. My opening sentences are this:
‘May my children grow up in a world where no one knows who the central banker is” is a wise saying. One also can hope for a world where arguments about measuring GDP (gross domestic product, the sum total of the goods and services produced within a nation) or the inflation rate are rare. In good economic times, we tend to take reported economic numbers for granted, but more recently, conspiracy theories have run wild.
On Coyle:
If you are going to read only one book on GDP, Diane Coyle’s “GDP: A Brief but Affectionate History” should be it. More important, you should read a book on GDP, as many of the political debates of our time revolve around this concept. Can we afford our current path of entitlement spending? Was the Obama fiscal stimulus worth it? When will China overtake the United States as the world’s largest economy?
The answers all depend on GDP. In 140 pages of snappy text, Coyle lays out what GDP numbers measure, what roles they play in economic policymaking and forecasting, and how GDP numbers can sometimes mislead us, albeit not in the way many current critics suggest.
With Karabell I have a quibble:
I do not agree with Karabell’s claim that “Bhutan is now routinely described as one of the happiest nations in the world.” The prime minister of Bhutan, Tshering Tobgay, has moved away from talk of “Gross National Happiness,” perhaps because he has realized that his country has relatively little of it. Most of the population is engaged in subsistence farming and has only a minimal chance of performing rewarding or creative labor. The prime minister instead wishes to focus on concrete goals such as “a motorized rototiller for every village and a utility vehicle for each district.” For all the talk of being content with less, external debt has soared to 90 percent of GDP. If anything, Bhutan may show that measures of GDP get at happiness more clearly than does focusing on happiness more directly. Just look at where immigrants wish to move — it is almost always wealthier countries.
Read the whole thing.
The Great American novel, Buell and MR redux
Here is Lawrence Buell on the hunt for the Great American Novel. Here is and my original 2006 post on that question, and its later follow up. My dark horse picks are here.
Why Argentina failed
Argentina had become rich by making a triple bet on agriculture, open markets and Britain, then the world’s pre-eminent power and its biggest trading partner. If that bet turned sour, it would require a severe adjustment. External shocks duly materialised, which leads to the second theory for Argentine decline: trade policy.
The first world war delivered the initial blow to trade. It also put a lasting dent in levels of investment. In a foreshadowing of the 2007-08 global financial crisis, foreign capital headed for home and local banks struggled to fill the gap. Next came the Depression, which crushed the open trading system on which Argentina depended; Argentina raised import tariffs from an average of 16.7% in 1930 to 28.7% in 1933. Reliance on Britain, another country in decline, backfired as Argentina’s favoured export market signed preferential deals with Commonwealth countries.
Indeed, one way to think about Argentina in the 20th century is as being out of sync with the rest of the world. It was the model for export-led growth when the open trading system collapsed. After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall.
Yes of course there was bad policy, but how did the country get into such a bad idea trap to begin with? The entire piece, from The Economist, is of interest.
Robert Gordon’s sequel paper on the great stagnation
You will find his NBER paper here, in which he responds to critics and outlines his core argument that U.S. growth is doomed to be slow and subpar for a long time to come. There is no point in summarizing this already-familiar debate, so let’s cut straight to the chase:
1. I agree with a great deal of this paper, to say the least, especially when it is compared to previous mainstream opinion on these topics. My favorite parts are his discussions of how multi-faceted were the waves of earlier progress starting in the 19th century, compared to some of the more recent and weaker tech revolutions. That said, in some key ways this piece falls short of meeting the standards of reasoned argumentation.
2. The single biggest question is how much the United States will be able to draw upon innovation from other countries, over the next say 40 years. Gordon doesn’t discuss this in a serious way. The rest of his paper simply lists a bunch of pessimistic factors (valid worries, I might add) and then declares he can’t think of anything else that might turn them around. Maybe that should shift your “p,” but one’s own failure to imagine shouldn’t imply a very firm conclusion about impossibilities.
3. There is a key passage on p.26: “My forecast of 1.3 percent annual total-economy productivity growth in the future does not require any foresight beyond suggesting that the past 40 years are a more relevant benchmark of feasible productivity growth than the 80 years of before 1972.” Fair enough, but how about looking at the last 120 years or last 120,000 years for that matter? The overall pattern is lots of pauses, followed by eventual new bursts of progress. That’s no proof of a future subsequent burst of progress, but so far history is not on the side of the long-term tech pessimists. It may be on the side of the short-term tech pessimists, at least for a while. Gordon, in 2003, wrote rather wisely: “But is it possible to be so sure which decades into the past are relevant for predictions…”
4. Gordon doesn’t know much about the literature on driverless vehicles and their potential, and yet he escalates his rhetoric to the point of giving the reader the impression that he approaches the entire question of tech progress with simple irritation: “This category of future progress is demoted to last place because it offers benefits that are so minor [compared to cars]…”
5. Advances in the biosciences are dismissed in two short paragraphs. For sure, I am myself somewhat in tune with the pessimistic perspective here. I think these advances were way over-promised and still may take longer than people think. Still, Gordon doesn’t offer any argument. His first sentence of that brief section says it all: “Future advances in medicine related to the genome have already proved to be disappointing.” This is a simple confusion of past and future tense.
7. Gordon still fails to credit the originators of the growth slowdown idea, as applied to contemporary times, namely Michael Mandel and Peter Thiel. The first sentence of his paper reads: “A controversy about the future of U.S. economic growth was ignited by my paper released in late summer 2012.” I would add, perhaps with a bit of peevishness, that a lot of the actual debate was kicked off by my own The Great Stagnation, published in January of 2011 and which was covered and commented on extensively. (And which by the way was dedicated to Mandel and Thiel, as well as citing them.) And if I did not credit Gordon more aggressively at that time, it is because I was all too well aware of his 2003 essay, “Exploding Productivity Growth,” the contents of which I do not need to relate any further but if you wish read at the link.
Gordon would do well to reflect a little more deeply on how and why he has changed his mind over the last ten years and what this implies for when a bit more agnosticism would be appropriate.
Addendum: I agree with Kevin Drum. Matt Yglesias comments too.
Headlines to warm an economist’s heart
Abba admit outrageous outfits were worn to avoid tax
Here is some explanation:
According to Abba: The Official Photo Book, published to mark 40 years since they won Eurovision with Waterloo, the band’s style was influenced in part by laws that allowed the cost of outfits to be deducted against tax – so long as the costumes were so outrageous they could not possibly be worn on the street.
In 2007 Ulvaeus was wrongly accused of failing to pay 85m kronor (£7.9m) in Swedish taxes between 1999 and 2005, and went on to successfully appeal against the decision.
“I am of course very happy that I have been informed in writing that I have always done the right thing concerning my taxes,” he said after the court victory.
The article is here, via Ted Gioia.
Practical gradualism vs. moral absolutism, for immigration and revolution
After reading Alex’s post I was a bit worried I would wake up this morning and find the blog retitled, maybe with a new subtitle too. Just a few quick points:
1. There is a clear utilitarian case against open borders, namely that it will — in some but not all cases — lower the quality of governance and destroy the goose that lays the golden eggs. The world’s poor would end up worse off too. I wonder if Alex will apply his absolutist idea on fully open borders to say Taiwan.
2. Alex’s examples don’t support his case as much as he suggests. The American Revolution compromised drastically on slavery, among other matters. (And does Alex even favor that revolution? Should he? Can you be a moral absolutist on both that revolution and on slavery?) American slavery ended through a brutal war, not through the persuasiveness of moral absolutists per se. The British abolished slavery for off-shore islands, but they were very slow to dismantle colonialism, and would have been slower yet if not for two World Wars and fiscal collapse. Should the British anti-slavery movement have insisted that all oppressive British colonialism be ended at the same time? You may argue this one as you wish, but the point is one of empirics, not that the morally absolutist position is generally better.
3. Gay marriage is like “open borders for Canadians.” I’m for both, but I don’t see many people succeeding with the “let’s privatize marriage” or “let’s allow any consensual marriage” arguments, no matter what their moral or practical merits may be. Gay marriage advocates were wise to stick with the more practical case, again choosing an interior solution. Often the crusades which succeed are those which feel morally absolute to their advocates and which also seem like practically-minded compromises to moderates and the undecided.
4. Large numbers of important changes have come quite gradually, including women’s rights, protection against child abuse, and environmentalism, among others. I don’t for instance think parents should ever hit their children, but trying to make further progress on children’s rights by stressing this principle is probably a big mistake and counterproductive.
5. The strength of tribalist intuitions suggests that the moral arguments for fully open borders will have a tough time succeeding or even gaining basic traction in a world where tribalist sentiments have very often been injected into the level of national politics and where, nationalism, at least in the wealthier countries, is perceived as working pretty well. The EU is by far the biggest pro-immigration step we’ve seen, which is great, but we’re seeing the limits of how far that can be pushed. My original post gave some good evidence that a number of countries — though not the United States — are pretty close to the point of backlash from further immigration. Rather than engaging such evidence, I see many open boarders supporters moving further away from it.
6. In the blogosphere, is moralizing really that which needs to be raised in relative status?
Addendum: Robin Hanson adds comment.
And: Alex responds in the comments:
Some good points but only point number #5 actually addresses my argument. I argued that strong, principled moral arguments are most likely to succeed. Point #5 rests on mood affiliation. I know because having a different mood I read the facts in that point in entirely the opposite way. Namely that it’s amazing that although our moral instincts were built on the tribe we have managed to expand the moral circle far beyond the tribe. Having come so far I see no reason why we can’t continue to expand the moral circle to include all human beings. The open borders of the EU is indeed a triumph. Let’s create the same thing with Canada and then lets join with the EU.
Do not make the mistake (as in point #2) of thinking that the moral argument only succeeds when we make fully moral choices. It also succeeds by pushing people to move in the right direction when other arguments would not do that at all.
*Fragile by Design*
That is the new banking book by Charles W. Calomiris and Stephen H. Haber and the subtitle is The Political Origins of Banking Crises & Scarce Credit. I went to review it, but came back to the thought that I liked Arnold Kling’s review better than what I was coming up with, here goes:
I am now reading Fragile by Design by Charles Calomiris and Stephen Haber. I posted a few months ago on an essay they wrote based on the book. I also attended yesterday an “econtalk live,” where Russ Roberts interviewed the authors in front of live audience for a forthcoming podcast. You might look forward to listening–the authors are very articulate and they speak colorfully, e.g. describing the United States as being “founded by troublemakers” who achieved independence through violence, as opposed to the more boring Canadians.
I think it is an outstanding book, although in my opinion it is marred by their focus on CRA lending as a cause of the recent financial crisis. This is a flaw because (a) they might be wrong and (b) even if they are right, they will turn off many potential readers who might otherwise find much to appreciate in the book. Everyone, regardless of ideology, should read the book. It offers a lot of food for thought.
I am only part-way through it. The story as far as I can tell is this:
1. There is a lot of overlap between government and banking. Governments, particularly as territories coalesced into nation states, needed to raise funds for speculative enterprises, such as wars and trading empires. Banks need to enforce contracts, e.g., by taking possession of collateral in the case of a defaulted loan. Government needs the banks, and the banks need government.
2. If the rulers are too powerful, they may not be able to credibly commit to leaving banks assets alone, so it may be hard for banks to form. But if the government is not powerful enough, it cannot credibly commit to enforcing debt contracts, so that it may be hard for banks to form.
3. Think of democracies as leaning either toward liberal or populist. By liberal, the authors mean Madisonian in design, to curb power in all forms. By populist, the authors mean responsive to the will of popular coalitions of what Madison called factions.
4. If you are lucky (as in Canada), your banking policies are grounded in a liberal version of democracy, meaning that the popular will is checked, and regulation serves to implement a stable banking system. If you are unlucky (as in the U.S.), your banking policies are grounded in the populist version of democracy. Banking policy reflects a combination of debtor-friendly interventionism and regulations that favor rent-seeking coalitions who shift burdens to taxpayers. The result is an unstable system.
I may not be stating point 4 in the most persuasive way. I am not yet persuaded by it. In fact, I think libertarians will be at least as troubled as progressives are by some of the theses that the authors promulgate.