Category: History

What one thing could we do to best boost future economic growth?

by  Tyler Cowen in

In my article for a Cato Symposium I cite foreign policy:

It is possible that we are still living inside the biggest bubble of them all and that is called “the peace bubble.” I’ve also heard this described as the bubble of “Pax Americana,” although that is a more partisan take on the role of America in global peace. You might think the chance of this being a “peace bubble” is say only five or ten percent. Maybe so, but still in expected value terms that is still the most important issue to worry about. The breaking of that peace bubble on a larger scale could endanger all of the progress and accumulated well-being of the human race, including the United States.

Let’s not forget that over the next one hundred years, if the world remains relatively peaceful, it is unlikely that most global innovation will come from the United States. China in particular may assume a major role as a generator of new ideas, just as the United States supplied a wide variety of useful innovations to Great Britain starting in the mid to late 19th century. Even if a “Fortress America” could survive geopolitical turmoil in the broader world, it would be a much poorer place. We rely on the rest of the world for inspiration, for creation, for appreciation, for increasing market size and thus the spurring of American innovations, and of course we rely on the rest of the world for innovations more directly. A future America in a chaotic world is much, much poorer and riskier than a future America in a peaceful world.

I should note that I am indebted to John Nye and Garry Kasparov for this notion of Pax Americana as the biggest bubble of them all.  There are several other arguments in the piece, for instance:

When electing a President or a Congress, foreign policy should be by far our number one concern. That said, I don’t think there is any simple formula for getting foreign policy right. Unlike many libertarians, I do not adhere to a strictly non-interventionist stance on foreign policy. I believe in alliances among the world’s relatively free and (one hopes) peaceful nations. I believe that American intervention has at some critical times led to much greater freedom and prosperity. Without the current and past American security umbrella, for instance, I believe much of Asia would be a far less free place than it is today, starting but not ending with Taiwan and South Korea.

I am, however, also skeptical of conservative or hawkish claims that we simply need to get tough with the bad guys in the world. A market-oriented economist, as I view myself, should be well aware of the general arguments about the difficulty of government planning and the importance of unforeseen, unintended consequences from government action. Furthermore government policies, once they get underway, are often hijacked by special interest groups or by voters who are uninformed, misinformed, or who react emotionally rather than analytically. We should not be especially optimistic about the ability of our government to pull off successful foreign interventions.

Daniel Larison comments on me here (when I write “For better or worse,” that means I am not judging a possible Syria intervention, contra Larison.  Otherwise the popularity of drones is a good example of American squeamishness, another example being our early withdrawal from Iraq.)  The broader symposium is here, it has many quality contributors.  Here is Eli Dourado on incentive pay for Congress.

Addendum: Arnold Kling comments.

China political surgery markets in everything

by  Tyler Cowen in

This passage is from Gao Wenqian’s Zhou Enlai: The Last Perfect Revolutionary:

Doctors in China could not conduct major medical procedures on top leaders without the approval of the Politburo Standing Committee.  Such was the long-standing rule.  Thus, in 1975, Deng Ziaoping and Marshal Ye Jianying, leaders among the old CCP cadres who had generally despised the Cultural Revolution and had shown little enthusiasm for the political style of the mercurial Jiang Qing, now had to negotiate emergency surgery for Zhou Enlai with her allies Wang Hongwen and Zhang Chunqiao.  For once, these tough political adversaries managed to see eye-to-eye.  They all gave their consent to surgery and sent their decision to Mao, who always had the final say.

Zhou Enlai had four operations before dying of cancer.  For the last two operations, however, Mao instructed the doctors to tell Zhou that in fact he was being cured and the tumors were removed.  He ceased to believe that when the unbearable pain arrived.

The Great Autocrat Moderation, and when will it end?

by  Tyler Cowen in

We’ve now seen a good twenty-five years of autocrats backing down, ceding power, and refusing to escalate, starting  around 1989 if not earlier.  Arguably North Korea and Saddam Hussein have been partial exceptions, but even there North Korea has stayed in its shell and Saddam had in fact largely disarmed his WMD.  We also see many autocrats — most notably those of China — who pursue remarkably sophisticated courses of action.  Just think how much more deftly they handled Occupy Hong Kong than the Ferguson police dealt with their situation.  Even the Iranian leaders seem quite sophisticated, even though most of us do not share their goals or endorse their means.

I call it The Great Autocrat Moderation.

If we look back in history, are autocrats generally this rational and conciliatory?  I am struck reading the new Andrew Roberts biography of Napoleon how he grew drunk with success and overreached and of course eventually failed (twice).  Mussolini, Hitler, Stalin, and Mao are some additional obvious examples of autocrats who, in terms of procedural rationality, simply collapsed at some point and very dramatically overreached.

Of course these are tricky examples.  The most famous autocrats are arguably going to be more subject to overreach, which in part drives their fame (infamy), and so if we consult our historical memories we may be selecting for overreach.  Your typical earlier autocrat may have been more rational than this list of ambitious tyrants might imply.  Was the typical dictator of Paraguay, historically speaking, really so irrational?  Still, it does seem that autocrats have been relatively benign as of late.

So how about Putin?  Is he like the autocrats of the last twenty-five years, or he is more like Napoleon and Mussolini with regard to his long-term procedural rationality?

I do not myself expect The Great Autocrat Moderation to continue for much longer. Let us not forget that some autocratic “tournaments” select for overreach, namely the autocrat had to think he could, against long odds, rise to the top and stay there.

I am indebted to a conversation with John Nye about the topics of this blog post.

When will China reverse its carbon emissions?

by  Tyler Cowen in

No one knows for sure, you will find a brief survey of some estimates here.  Let’s start with a few simpler points, however.

First, China is notorious for making announcements about air pollution and then not implementing them.  This is only partially a matter of lying, in part the government literally does not have the ability to keep its word.  They have a great deal of coal capacity coming on-line and they can’t just turn that switch off.  They’re also driving more cars, too.

Second, China falsifies estimates of the current level of air pollution, so as to make it look like the problem is improving when it is not.  Worse yet, during the APEC summit the Chinese government blocked the more or less correct estimates coming from U.S. Embassy data, which are usually transmitted through an app.  A nice first step to the “deal” with the United States would have been to allow publication (through the app) of the correct numbers.  But they didn’t.  What does that say about what one might call…”the monitoring end”…of this new deal?

Third, a lot of the relevant Chinese regulatory apparatus is at the local not federal level (in fact it should be more centrally done, even if not fully federalized in every case).  There are plenty of current local laws against air pollution which are simply not enforced, often because of corruption, and often that pollution is emanating from locally well-connected, job-creating state-owned enterprises.  Often the pollution comes from one locality and victimizes another, especially in the north of the country.   Those are not good local regulatory incentives and it will take a long time to correct them.  Right now for instance Beijing imports a lot of its pollution from nearby, poorer regions which simply wish to keep churning the stuff out.  The Chinese also do not have anything close to a consistently well-staffed environmental bureaucracy.

Fourth, if you look at the history of air pollution, countries clean up the most visible and also the most domestically dangerous problems first, and often decades before solving the tougher issues.  For China that highly visible, deadly pollutant would be Total Particulate Matter, which kills people in a rather direct way, and in large numbers, and is also relatively easy to take care of.  (Mexico for instance has been getting that one under control for some time now.)  The Chinese people (and government) are much more worried about TPM than about carbon emissions, which is seen as something foreigners complain about.  Yet TPM is still getting worse in China, and if it is (possibly) flat-lining this year that is only because of the economic slowdown, not because of better policy.

When will China cap carbon emissions?  “Fix TPM and get back to me in twenty years” is still probably an underestimate.  Don’t forget that by best estimates CO2 emissions were up last year in China by more than four percent.  How many wealthier countries have made real progress on carbon emissions?  Even Denmark has simply flattened them out, not pulled them back.

The Chinese really are making a big and genuine effort when it comes to renewables, it is just that such an effort is dwarfed by the problems mentioned above.

The media coverage I have seen of the U.S.-China emissions “deal” has not been exactly forthcoming in presenting these rather basic points.  It’s almost as if no one studies the history of air pollution anymore.

I understand why a lot of reporters want to “clutch at straws” — it’s good for both clicks and the conscience — but a dose of realism is required as well.  The announced deal is little more than a well-timed, well-orchestrated press release.

Learning the Wealth of Nations

by  Tyler Cowen in

This paper I had neglected, now it is time to remedy that.  The authors are Francisco J. Buera, Alexander Monge-Narajo, and Giorgio E. Primiceri, and it was published in Econometrica 2011:

We study the evolution of market-oriented policies over time and across countries. We consider a model in which own and neighbors’ past experiences influence policy choices through their effect on policymakers’ beliefs. We estimate the model using a large panel of countries and find that it fits a large fraction of the policy choices observed in the postwar data, including the slow adoption of liberal policies. Our model also predicts that there would be reversals to state intervention if nowadays the world was hit by a shock of the size of the Great Depression.

I don’t find that abstract so informative, this paper has a few main results:

1. Policymakers have priors about how good the market economy is, and they revise those views — and thus revise policy — as they observe their own growth results and those of their neighbors.  Success for market economies tends to breed greater reliance on markets.

2. A simple learning model predicts about 97% of the policy choices observed in the data.  Perhaps more importantly, the model accounts for more than 77% of the observed policy switches over a three-year time window.

3. Evolving beliefs — and not just the fixed demographic characteristics of countries — are critical for understanding policy decisions.

4. It was probably the growth collapse of the late 1970s for interventionist countries which led to a greater reliance on markets.

5. Adjustment toward better-performing policies is often quite slow.  In part this is because policymakers attribute the superior performance of other countries to heterogeneity rather than policy per se.

6. A global Great Depression would lead to a significant switch back to state interventionism.

7. If I understand the model correctly (and I am making a bit of a leap in interpretation here), it implies a Chinese growth slowdown will lead to greater state intervention in China, not greater liberalization.

The pointer to this paper is from Luis Garicano.

Kansas apocalypse markets in everything

by  Tyler Cowen in

The best defense is sometimes…a good defense:

When Tyler Allen agreed to fork over $3 million in cash for a luxury condominium near Concordia, Kan., he wasn’t attracted by the indoor swimming pool, 17-seat movie theater, or hydroponic vegetable garden.

The real selling point of the 1,820-square-foot apartment: It will be buried 174 feet underground in a decommissioned missile silo sturdy enough to withstand a nuclear attack.

…The so-called Survival Condo complex boasts full and half-floor units that cost $1.5 million to $3 million each. The building can accommodate up to 75 people, and buyers include doctors, scientists and entrepreneurs, says developer Larry Hall.

The development is sold out.  I found this bit interesting:

…the complex has enough emergency food on hand to last for up to five years. There’s also a holding cell for unruly occupants.

The full story is here.

How love conquered (arranged) marriage

by  Tyler Cowen in

Gabriela Rubio of UC Merced has a very interesting paper (pdf) on this topic:

Using a large number of sources, this paper documents the sharp and continuous decline of arranged marriages (AM) around the world during the past century, and describes the factors associated with this transition. To understand these patterns, I construct and empirically test a model of marital choices that assumes that AM serve as a form of informal insurance for parents and children, whereas other forms of marriage do not. In this model, children accepting the AM will have access to insurance but might give up higher family income by constraining their geographic and social mobility. Children in love marriages (LM) are not geographically/socially constrained, so they can look for the partner with higher labor market returns, and they can have access to better remunerated occupations. The model predicts that arranged marriages disappear when the net benefits of the insurance arrangement decrease relative to the (unconstrained) returns outside of the social network. Using consumption and income panel data from the Indonesia Family Life Survey (IFLS), I show that consumption of AM households does not vary with household income (while consumption of LM households does), consistent with the model’s assumption that AM provides insurance. I then empirically test the main predictions of the model. I use the introduction of the Green Revolution (GR) in Indonesia as a quasi-experiment. First, I show that the GR increased the returns to schooling and lowered the variance of agricultural income. Then, I use a difference-in-difference identification strategy to show that cohorts exposed to the GR experienced a faster decline in AM as predicted by the theoretical framework. Second, I show the existence of increasing divorce rates among couples with AM as their insurance gains vanish. Finally, using the exogenous variation of the GR, I find that couples having an AM and exposed to the program were more likely to divorce, consistent with the hypothesis of declining relative gains of AM.

MR referenced this paper in an addendum some while ago, Michael Clemens on Twitter recently reminded me of its existence.  One question of course is to what extent the arranged marriage is the only marriage form which provides these insurance benefits.  In other words, the arranged marriage might go away, but without the love marriage triumphing.  Perhaps one key change is that the parents are no longer the best producers of those financial insurance benefits, but that is distinct from the triumph of love.

The economics of population imbalance

by  Tyler Cowen in

That is the topic of my latest column for The Upshot at The New York Times, here is an excerpt:

Unfortunately, regions with rapidly growing populations, like Africa and South Asia, often have lower living standards. In our likely global future, these regions will have more people than they can comfortably support, while many countries in the West and in East Asia will have too few young people for prosperous economies.

As an economist, I see an obvious solution: Relatively underpopulated and highly developed countries could profitably take in young Africans and South Asians — and both sides would gain. Yet it’s far from clear that all nations that could benefit from this policy would entertain it, partly because of persistent racial and cultural bias. There is also the legitimate question of how quickly immigrants can adjust to new environments, especially if they are arriving with weak educational backgrounds as the job market demands ever-stronger skills.

…If you’re not convinced that a declining population is a problem, consider Japan. In terms of real gross domestic product per hour worked, Japan has continued to have good performance, but it has a fundamental problem: The working-age population has been declining since about 1997. And Japan’s overall population has been growing older, so with fewer workers supporting so many retirees, national savings will dwindle and resources will be diverted from urgent tasks like revitalizing companies and otherwise invigorating the economy. Japan has already gone from being a miracle exporter to a country that runs steady trade deficits. Perhaps there is simply no narrowly economic recipe to keep its economy growing; Edward Hugh made this argument in his recent ebook, “The A B E of Economics.”

I am extremely pessimistic that we will manage to achieve any more than a small amount of workable population transfers.  Furthermore potential underpopulation is one of the most serious and underrated problems today, as Robin Hanson argued a few years ago.

There is also this bit, the first sentence of which may remind you of Steve Sailer:

France, Israel and Singapore are three countries where population issues are being discussed quite frankly; all have explicit public policies to encourage more births. And more countries will probably go down this route. Encouraging people to have more children, and generally bidding for human talent, may characterize the economic policies of the future, just as cities and states today bid for football stadiums and factories.

By the way, recent reports indicate that the relaxation of China’s one-child policy have led to many fewer births than were expected.  And this new paper (pdf) indicate that immigrant inflows raise the birth rates of native women by making child care more affordable.

Might this help explain Russia and Ukraine?

by  Tyler Cowen in

The excellent Akos Lada, a graduate student at Harvard, has a new paper on why countries sometimes invade their neighbors, it is called “The Dark Side of Attraction,” the abstract is here:

I argue that the diffusion of domestic political institutions is a source of wars. In the presence of an inspiring foreign regime, repressive elites fear that their citizens emulate the foreign example and revolt. As a result, a dictator starts a war against an attractive foreign regime, seeking to destroy this alternative model. Such wars are particularly likely when there are strong religious, ethnic or cultural ties between the dictator’s opposition and the inspiring country – connections that allow citizens to draw easy comparisons. My posited mechanism explains three case studies. The first describes the Russian invasion of Hungary in 1849. The second case study analyzes the origins of the First World War (1914-8), where Austria-Hungary invaded Serbia. The final case study discusses the Iran-Iraq War (1980-8). In all three cases, a dictator started a war in order to extinguish the foreign flame that fueled his domestic opposition.

Akos occasionally writes blog posts here.  Here is our previous coverage of Akos Lada — he stands a good chance of being one of the significant new “big picture” thinkers in economics.

Did seasonality drive the invention of agriculture?

by  Tyler Cowen in

Andrea Matranga has a job market paper (pdf) which is speculative but interesting:

During the Neolithic Revolution, seven populations independently invented agriculture. In this paper, I argue that this innovation was a response to a large increase in climactic seasonality. Hunter-gathers in the most affected regions became sedentary in order to store food and smooth their consumption. I present a model capturing the key incentives for adopting agriculture, and I test the resulting predictions against a global panel dataset of climate conditions and Neolithic adoption dates. I find that invention and adoption were both systematically more likely in places with higher seasonality. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.

Here is his home page.

Does union membership help cause marriage?

by  Tyler Cowen in

According to David Schneider and Adam Reich it does, their paper is called Marrying Ain’t Hard When You Got A Union Card? Labor Union Membership and First Marriage.   The abstract is this:

Over the past five decades, marriage has changed dramatically, as young people began marrying later or never getting married at all. Scholars have shown how this decline is less a result of changing cultural definitions of marriage, and more a result of men’s changing access to social and economic prerequisites for marriage. Specifically, men’s current economic standing and men’s future economic security have been shown to affect their marriageability. Traditionally, labor unions provided economic standing and security to male workers. Yet during the same period that marriage has declined among young people, membership in labor unions has declined precipitously, particularly for men. In this article, we examine the relationship between union membership and first marriage and discuss the possible mechanisms by which union membership might lead to first marriage. We draw on longitudinal data from the National Longitudinal Survey of Youth-79 to estimate discrete time event-history models of first marriage entry and find that, controlling for many factors, union membership is positively and significantly associated with marriage. We show then that this relationship is largely explained by the increased income, regularity and stability of employment, and fringe benefits that come with union membership.

That is via the excellent Kevin Lewis, who cites some other interesting papers at the link.

Building the Voluntary City: Lessons from Gurgaon and Jamshedpur

by  Alex Tabarrok in

The world’s urban population is growing very rapidly, especially in the developing world. The McKinsey Global Institute estimates that in India alone such an expansion will require the building of, in essence, a new Chicago every year for the next several decades. The problem with these numbers is not the expense. The problem is political and organizational. Many currently less-developed countries, including India, remain high in corruption and low in efficiency, especially in the administration of their towns and cities. It would be wonderful if foresighted and public-spirited government planners would provide India and other developing nations with wise urban planning but it seems unwise to rely on what has historically been rare for this massive transformation. Is there an alternative?

In Lessons from Gurgaon, India’s private city (working paper) found in a new book Cities and Private Planning  Shruti Rajagopolan and I explore this question. Gurgaon, which I have written about before, shows both the successes and failures of private development. On the surface, Gurgaon is a gleaming, modern city built nearly overnight on wasteland. Gurgaon was built, however, without benefit of planning and its failures–most notably poor and inefficient provision of  water, sewage, and electricity–are a warning. The failures all stem from high transaction costs, Gurgaon’s private developers have simply not managed to Coasean bargain and internalize externalities. It’s clear from Gurgaon that cities need advance planning–a reservation of rights of way for water, sewage and electricity at the very minimum–but does the planning have to be provided by government which is often incapable of such foresight?

The lessons of Jamshedpur, India, suggest another approach. Jamshedpur is a private township, planned from the beginning by visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, returned to India to found Tata Iron and Steel. Jamshedpur has been run by a single, integrated entity for over 100 years and as it is integrated it has internalized externalities. As a result, Jamshedpur, India’s other private city, has some of the best urban infrastructure in all of India.

Gurgaon shows the benefits of competition. Jamshedpur the benefits of integration. Can we get the best of both worlds?

If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.

As proprietary communities, the competitive cities would have every incentive to invest in and especially to plan for appropriate infrastructure. Moreover, with five to seven communities in the same region, competitive pressures would keep rents low and at efficient levels for maximizing net benefits (Buchanan and Goetz 1972, Sonstelie and Portney 1978). Within the larger city, subdivisions on the order of neighbourhoods and business districts could be sublet and run by competitive firms with the overarching city establishing rules to internalize externalities. Competitive private governments would also generate experimentation and innovation in new rules that would then spread through intercity learning (Romer 2010).

Thus, Rajagopolan and I conclude:

In the next five decades many entirely new cities with populations in the millions will be built in places where today there is little or no population or infrastructure. Most of the urban development will occur in the developing world where government resources are stretched thin and planning is in short supply. Gurgaon illustrates the scope and the limits of private sector provisioning when the state machinery fails to provide essential public goods. The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.