Category: History
How much structural unemployment was there during the Great Depression?
A few times recently Paul Krugman has raised the issue of structural unemployment in the Great Depression, so I thought I would offer a look at what has been written on the topic. Here is Richard J. Jensen, from a survey article:
Economists agree that Keynesian stimuli would not have helped structural or hard-core unemployment, only cyclical unemployment. As Table 1 suggests, about half of the unemployment was cyclical from 1931 through 1933; it was then that stimulus was needed and might have worked. By 1933, the appearance of a large, new, structural/hard-core element raised the natural level of unemployment from the 5 to 6 percent range to 12 to 15 percent. If a Keynesian stimulus had been tried and it had eliminated cyclical unemployment, the remaining unemployment still would have been io to 15 percent. Further fiscal or monetary stimuli would have resulted in inflation.
Later he moves directly to the key question:
…we need to discover how the war cured hard-core unemployment permanently. On the supply side, the growth of high schools and colleges, the postwar draft, and Social Security retirements removed young and old from the labor force. Wartime training and experience, in industry and in the military, made workers more productive, and upgraded skills so that the supply of unskilled labor was much smaller. In terms of efficiency wages, employers reshaped jobs to suit the skills and increase the productivity of available workers. They had to use men (and women) whom they would not have dreamed of hiring a few years before.
Personnel management became even more important. The number of industrial-relations staff rose from 2.5 per 1ooo employees in 1937 to 8.o in 1948. They were charged with improving productivity despite the extraordinary shortage of manpower, the high quit rates, the government-imposed wage freeze, and the new strength of labor unions. They dropped categorical restrictions against the poorly educated, the unemployed, women, the old, the handicapped, and sometimes, in spite of intense resistance, blacks. Recruitment of new workers became an art form, with sound trucks blaring in the streets beseeching people to come to work and earn big money. Jobs were restructured so that fewer skills were needed. Intensive in-shop and in-school training programs reached millions. Anyone with a modicum of skill was rapidly promoted, even to the status of foreman or instructor. The results further justified the use of efficiency-wage procedures, but this time efforts were made to find the right niches for workers who had been “hopelessly unemployable” in the 1930s.
In other words, the path out of high unemployment involved much more than a mere reflation of nominal values. (By the way, when it comes to terminology I might not use the phrase “structural unemployment,” but it also is not “simple cyclical unemployment.” I would say that in some circumstances the traditional distinction between cyclical and structural unemployment breaks down, but note that in terms of its parent literature this piece is using the terms properly, even if they sound somewhat off in a 2012 blogosphere context.)
In any case, history suggests that stimulus policy has to take some very specific forms to reach those “called cyclically unemployed by some, structurally unemployed by others” unemployed workers and that is the practical upshot.
Another practical upshot is that you still can believe in labor market hysteresis, as presented by DeLong and Summers. Without some analysis like the above, the DeLong/Summers claims are otherwise contradicted by American post-Depression productivity once joblessness lifted. Where were the long-term scars? Well, they were fixed but it wasn’t easy. So the relevance of hysteresis can be saved, but we still are left with proper stimulus being very difficult to do, unemployment being quite sticky, and proper policy requiring lots of structural attention. The Great Depression is evidence for all of those views, not against them.
Here is one more bit, with a sad sting at the end:
The war, by removing millions of prime men from the labor market, by restructuring the work process, by subsidizing wages, and by massive retraining, finally gave the private sector the methods and the incentives to rehire the hard-core. Never since has hardcore unemployment affected more than one worker in a hundred.
Michael A. Bernstein’s book, The Great Depression: Delayed Recovery and Economic Change in America, 1929-1939, also considers the significant role of structural unemployment (don’t forget my taxonomic caveat) in the Great Depression.
It is important to learn from this literature rather than dismiss it.
My favorite things Romania
1. Schubert pianist: Radu Lupu.
2. Conductor: Sergiu Celibadache. A high variance obsessive, Amazon doesn’t seem to carry his important recordings. At his peak he is one of the best conductors ever and can force a total rethink of the music upon you. He demanded so much rehearsal time, and so much perfection, that he was often impossible to work with. There is a short YouTube bit here.
3. Painter: I can’t name one, sorry. I have seen some nice folk art icon paintings on glass, see the image at the bottom of this post.
4. Sculptor: Constantin Brâncuşi, with a preference for Bird in Space.
5. Chopin pianist: Dinu Lipatti, especially the Waltzes.
6. Producer of maxims: Emil Cioran. I have enjoyed all of his books.
7. Poet: Paul Celan. I am surprised he is not more widely read in the United States. At his peaks I don’t think any 20th century poet is better or more important.
8. Novelist: Herta Müller, better in German than English, both linguistically and culturally.
9. Violinist: Georges Enescu, of course he was a composer too.
10. Mozart pianist: Clara Haskil.
11. Movie: I’ve tried a bunch of the famous recent ones, but I can’t get through them and this is from a man who gladly watched the entire 7 hour, 12 minute Sátántangó .
12. Former NBA basketball center: G. Muresan.
13. Economist: Nicholas Georgescu-Roegen.
The bottom line: There is some real beauty here, and aesthetic romance, but I don’t have a good theory for why novels and painting are not stronger.
NPR interview with Ronald Coase
It is here, at age 101. Excerpt:
China’s rapid emergence as a global economic power — one of the most important developments of the past generation — took him completely by surprise.
“I thought it would take 100 years, if not more,” Coase said.
It seemed striking that an economic legend could be so wrong about such an important subject. I asked Coase what he made of this.
“I’ve been wrong so often I don’t find it extraordinary at all,” he said.
For the pointer I thank Daniel Klein.
The Growth of Justice
Justice is a key ingredient for economic growth. People will not invest if they fear that their life, liberty and property may be subject to arbitrary seizure and destruction. The rule of law and limited government provide a sphere of liberty within which individuals can make decisions with confidence that the fruits of their labor will not taken by the more powerful.
Justice is not just about legislation, however. Public and private discrimination diminish a person’s ability to individuate and develop, an ability that drives innovation and growth in the artistic, economic and scientific realms. In India the caste system binds many people to the lives of their ancestors regardless of desire, talent or will. In parts of the world half the population is subjugated and bound to a limited vision of their life, a vision which is not of their own making. Similar if less extreme forces have limited women and blacks in the United States.
In a pathbreaking paper, The Allocation of Talent and U.S. Economic Growth, Jones, Hsieh, Hurst, and Klenow connect a micro allocation model to a macro growth model to estimate that the lifting of much discrimination in the United States since 1960 has had a large effect on economic growth:
In 1960, 94 percent of doctors were white men, as were 96 percent of lawyers and 86 percent of managers. By 2008, these numbers had fallen to 63, 61, and 57 percent, respectively. Given that innate talent for these professions is unlikely to differ between men and women or between blacks and whites, the allocation of talent in 1960 suggests that a substantial pool of innately talented black men, black women, and white women were not pursuing their comparative advantage. This paper estimates the contribution to U.S. economic growth from the changing occupational allocation of white women, black men, and black women between 1960 and 2008. We find that the contribution is significant: 17 to 20 percent of growth over this period might be explained simply by the improved allocation of talent within the United States.
In other words, the United States has benefited greatly from the growth of justice.
Bertrand Russell’s 10 Commandments for Teachers
- Do not feel absolutely certain of anything.
- Do not think it worth while to proceed by concealing evidence, for the evidence is sure to come to light.
Never try to discourage thinking for you are sure to succeed.
- When you meet with opposition, even if it should be from your husband or your children, endeavour to overcome it by argument and not by authority, for a victory dependent upon authority is unreal and illusory.
- Have no respect for the authority of others, for there are always contrary authorities to be found.
- Do not use power to suppress opinions you think pernicious, for if you do the opinions will suppress you.
- Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.
- Find more pleasure in intelligent dissent that in passive agreement, for, if you value intelligence as you should, the former implies a deeper agreement than the latter.
- Be scrupulously truthful, even if the truth is inconvenient, for it is more inconvenient when you try to conceal it.
- Do not feel envious of the happiness of those who live in a fool’s paradise, for only a fool will think that it is happiness.
Hat tip: Brainpickings.
*The Great Inversion and the Future of the American City*
The author is the excellent Alan Ehrenhalt, here is one bit:
Walking the streets of the Financial District today, one can’t help but think that it is, indeed, a throwback to an earlier version of the city’s life. But not to the Wall Street of a century ago: That was an economically segregated one-use neighborhood, with offices and virtually nothing else, no residents, hardly a place to shop, only a handful of restaurants to cater to the financial workforce.
But look back farther than that, and you begin to see a resemblance. In some ways, lower Manhattan in the early twenty-first century has come to resemble lower Manhattan in the late eighteenth and early nineteenth: brokers, investors, and insurance agents who live in the neighborhood and walk to work; a social life that does not disappear at quitting time, the way it did twenty years ago; a modest but growing number of families with young children. Ron Chernow offers a picture of this early lower Manhattan in his biography of Alexander Hamilton, who lived there both as a college student and as a young lawyer.
Recommended, you can buy it here.
The African cake that cries when you eat it
The Boston Globe on Cowen on food
Cowen’s book offers more than ethnic-dining tips, however; it situates them in a broad historical context. Many of today’s mainstream foodies, Cowen argues, have the history of American food all backwards. They assume that American food is so terrible and unhealthy because of agribusiness: We eat terribly, the thinking goes, because our food is frozen, packaged, and trucked over vast distances before we eat it. Cowen has an entirely different explanation for the mediocrity of American food. As he sees it, American food was ruined by a series of entirely contingent historical events — Prohibition, the Great Depression, the Second World War, and the rise of TV — which effectively ruined the restaurant industry. Those events were especially damaging, he argues, because immigration was so severely restricted during much of the 20th century. Immigrants were the people who can do the most interesting things with the cheap food on offer in the United States; without them, American food became boring and bland.
Now that immigration is on the rise again, America is a food paradise: the extended food supply chain created by American agribusiness means that food is plentiful and cheap, while our vibrant immigrant communities take that cheap food and make it awesome in a million different ways. (Barbecue is an example of a home-grown food culture which acts, in many respects, like an immigrant one.) The essence of American food, Cowen argues, is that it’s inexpensive, innovative, and various. To eat well in America, you have to embrace its unique history, and start from the fact that “the United States is a country where the human beings are extremely creative but the tomatoes are not extraordinarily fresh.” If you’re obsessed with the farmer’s market, you’ve got American food wrong; instead, think of America as a hotbed of “food innovation,” where the best food is getting made at strip malls and in food trucks. It’s an alternate vision of food in America.
That is Josh Rothman, there is more here. Here is a Q&A with me on food, and what is always in my cupboard: “Goya beans, cumin seed, dried ancho chilies.”
*Land of Promise*
The author is Michael Lind and the subtitle is An Economic History of the United States. I am just beginning to browse my copy, here is one bit:
In 1947, twice as many Americans worked in industrial-research centers as in 1940. Among the breakthroughs that resulted from wartime research, in addition to nuclear energy, were jet engines, radar, computers, synthetic rubber, and a range of new drugs: penicillin, synthetic quinine, and sulfa drugs.
A massive government R&D and production effort was devoted to penicillin. in 1928, Alexander Fleming had discovered that penicillin could kill bacteria. During World War II, the US government coordinated efforts by universities, the Department of Agriculture, and nearly two dozen pharmaceutical companies to devise technologies for the mass production of the drug.
*Bad Religion*
The author is Ross Douthat and the subtitle is How We Became a Nation of Heretics. It is a very good and very serious book arguing that America needs better religious thinking and practice, excerpt:
The entire media-entertainment complex, meanwhile, was almost shamelessly pro-Catholic. If a stranger to American life had only the movies, television, and popular journalism from which to draw inferences, he probably would have concluded that midcentury America was a Catholic-majority country — its military populated by the sturdy Irishmen of The Fighting 69th (1948) and The Fighting Sullivans (1944); its children educated and its orphans rescued by the heroic priests and nuns celebrated in Boys Town (1938), The Bells of Saint Mary’s (1945), and Fighting Father Dunne (1948); its civic life dominated by urban potentates like Francis Cardinal Spellman of New York and Denis Dougherty of Philadelphia; its everyday life infused with Catholic kitsch, from the 1950s hit single “Our Lady of Fatima” to the “win one for the Gipper” cult of Notre Dame football.
My main question is what could have become of most organized religion in an era of newly found television penetration — a competing source of ideas about right and wrong — and the birth control pill and sexual liberation of women? Not to mention gay rights. The recent evolution of American religion may not be optimal, but it is endogenous to some fairly fundamental forces. Non-religious thinking seems to offer especially high returns to successful people these days, and while American religion certainly has survived that impact (unlike in the UK?), what is left will seem quite alienating to much of the intelligentsia, Ross included.
For most mainstream religions, for most urban and suburban intellectuals circa 2012, it is hard to live a religiously observant life during the ages of say 17-25. American religion is left with late convert intellectuals and proponents of various enthusiasms, all filtered through the lens of America’s rural-tinged mass culture. Where is the indigenous and recent highbrow Christian culture of the United States?
Ross’s close comes off as voluntarist (“That quest begins with a single step…”), but in an economic model which change might nudge the United States back toward a more intellectual Christianity? Your suggestions are welcome.
Debtor’s Prison for Failure to Pay for Your Own Trial
Debtor’s prisons are supposed to be illegal in the United States but today poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees. In Pennsylvania, for example, the criminal court charges for police transport, sheriff costs, state court costs, postage, and “judgment.” Many of these charges are not for any direct costs imposed by the criminal but have been added as revenue enhancers. A $5 fee, for example, supports the County Probation Officers’ Firearms Training Fund, an $8 fee supports the Judicial Computer Project, a $250 fee goes to the DNA Detection Fund. Convicted criminals may face dozens of fees (not including fines and restitution) totaling a substantial burden for people of limited means. Fees do not end outside the courtroom. Jailed criminals can be charged for room and board and for telephone use, haircuts, drug tests, transportation, booking, and medical co-pays. In Arizona, visitors to a prison are now charged a $25 maintenance fee. In PA in order to get parole there is a mandatory charge of $60. While on parole, defendants may be further assessed counseling, testing and other fees. Interest builds unpaid fees larger and larger. In Washington state unpaid legal debt accrues at an interest rate of 12%. As a result, the median person convicted in WA sees their criminal justice debt grow larger over time.
Many states are now even charging the accused to apply for and use a public defender! As a result, some defendants are discouraged from exercising their rights to an attorney.
Most outrageously, in some states public defender, pre-trial jail and other court fees can be assessed on individuals even when they are not convicted of any crime. Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended can be further fined and imprisoned. Unpaid criminal justice debt also results in damaged credit reports and reduced housing and employment prospects. Furthermore, failure to pay fees can mean a violation of probation and parole terms which makes an individual ineligible for Federal programs such as food stamps, Temporary Assistance to Needy Family funds and Social Security Income for the elderly and disabled.
It’s difficult to argue against criminal justice fees for those who can pay, but for those who cannot– and most criminal defendants are poor–such fees can be a personal and public policy disaster. Criminal justice debt drags people further away from reintegration with civil society. A person’s life can spiral out of their control when interest, late fees, revocation of a driver’s license and ineligibility for public assistance, mean that unpaid criminal justice debt snowballs. You can’t get blood from a stone but if you try, you can break the stone.
Optimal punishment is swift and sure but also has a defined endpoint. As with bankruptcy, punishment must end, leaving both hope and opportunity. We used to release criminals without a nickel or a nail but with an understanding that their debt to society had been paid. Today, we release criminals with a ball of debt that chains them to the criminal justice system and which can pull them back into prison long after their sentences have been served. Releasing people with little hope or opportunity for reintegration with civil society is good for neither the releasees nor society.
The economics of Robert Caro
The two Bobs, Gottlieb and Caro, have an odd editorial relationship, almost as contentious as it is mutually admiring. They still debate, for example, or pretend to, how many words Gottlieb cut from “The Power Broker.” It was 350,000 — or the equivalent of two or three full-size books — and Caro still regrets nearly every one. “There were things cut out of ‘The Power Broker’ that should not have been cut out,” he said to me sadly one day, showing me his personal copy of the book, dog-eared and broken-backed, filled with underlining and corrections written in between the lines. Caro is a little like Balzac, who kept fussing over his books even after they were published.
Can they not publish a “Director’s Cut” eBook? The Power Broker, by the way, is in my view one of the best non-fiction books ever, so read it if you don’t already know it.
The article, from the NYT Sunday Magazine, is interesting throughout. Note I have provided the “Single Page” link, I believe this helps you get through your quota of ten clicks at less expense.
China estimate of the day
Another study, by Andrew Batson and Janet Zhang at GK Dragonomics, a Beijing-based research firm, finds that China still has less than one-quarter as much capital per person as America had achieved in 1930, when it was at roughly the same level of development as China today.
Here is more, and I thank David Levey for the pointer. The post as a whole considers whether China is overinvesting and concludes maybe not. Here are further debates on how China is doing.
Mysteries of growth
Matt writes:
To me the most pointed contrast is between the Soviet Bloc and pre-reform China. Why was East Germany so much poorer than West Germany? That’s easy—Communism! And that’s why North Korea is poorer than South Korea. It’s also why Taiwan is richer than China. But Communism hardly explains why the Soviet Union was always much richer than China. But it was a lot richer despite broadly similar political systems and ideological commitments, and the human suffering involved in the PRC’s failure to implement Communism as successfully as the USSR was enormous.
I would say this: Stalin favored industrialization (albeit of a strange sort) more than did the Chinese communists, China had a more damaging heritage of conquest and civil war, Russia was far more urbanized, Russia had greater access to European ideas (some of them bad of course), and the Russian experience of nation-building was mostly behind them, whereas China is still going through this process. For Russia/Soviet Union, the major structures of 20th century European growth were largely in place, though “liberal institutions” were rejected. Russia had an advanced European educational system in place, albeit not for everyone. If you look at the economic history of the more Asiatic “Stans,” which of course were part of the Soviet Union communist experience, the importance of already-industrializing and European connections looks all the more stronger. The relative prosperity of Estonia also bears out this thesis, though it would be interesting to ponder Kaliningrad/Königsberg in this regard.