Category: History
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.
Yana guest post on Singapore
This is from Yana and by Yana, and she passed it along to me just after returning from India, though she wrote it in Singapore:
So I’m in Singapore this week and it’s always been my dream to come here. I love their health care system. I love their food. I love that it came out of left field (here is Singapore 50 years ago, and here’s Singapore today). But the underlying question I love is “why?”
Many people point out that there’s plenty not to love about Singapore, like their mandatory military service and capital punishment for drug users. But these critiques rely on the assumption that democracy and negative liberty are necessary conditions for economic flourishing. Once you’re Singapore everything gets a lot fuzzier. While complaining about Singapore’s autocratic management and lack of freedoms, nobody is asking whether Singapore might be a place we want. Namely, an apolitical society by design, great to live in by global standards but emerging due to strong, and sometimes strong-handed, public policy.
People run in circles discussing whether Singapore is replicable based on its public and economic policies. It seems to me that a third set of institutions running in parallel is what actually makes Singapore so unique and probably impossible (or at least very difficult) to replicate: the Peranakan culture and its predilection for commerce and trade.
Peranakan culture is a pan-Asian blend of descendants of merchants and traders from China, Malaysia, Indonesia and India. It is the culture both of Lee Kwan Yew’s family as well as that of a sizeable percentage of Singaporeans. This culture is a very powerful conduit for passing down a relatively rare trait: a positive view of commercial activity as the machine of wealth creation and basis of improving one’s life. We see this in a rare few historical settings, including the Industrial Revolution in Scotland as well as the American founding. It comes through in Singapore’s public policy, casual discussions with cab drivers (one volunteered to me that “Singapore is the best managed city in Asia”), in the museums, and in daily interaction with a wide variety of merchants. Young Singoporeans love to complain that Singapore is too boring, too orderly, and too strict on personal freedoms, but I’ve yet to hear any complaints about commercial society.
So when Peranakan culture was combined with the British Enlightenment model of governance in the 19th century, the result was truly unique. A set of cultural institutions characterized by positive attitudes towards commerce, innovation and globalization was combined with robust political economy in the form of strong rule of law, property rights and free trade.
Yet unlike so many other former colonies (my current home of India comes to mind), Singapore did not reject these values during its transition to independence. Most other colonies reacted intellectually, if not downright violently, against many of the values promoted by the British. But in Singapore, the continuity of broadly liberal attitudes toward trade and commercial society following independence was supported by continuity in liberal economic policy and enforced by deep-seated cultural attitudes.
To put it bluntly: Singaporeans more or less went along with the policies laid before them. Today that means a thriving economy in Asia with population growth of over 200% since the 1960s, the world’s second largest port, and a significantly more human flourishing than for many people in surrounding countries that didn’t take this leap. I just hope it can last.
If your parents died early, will you die early too?
But in fact the correlation of longevity between individual parents and children is very low. For the people dying in England in the period 1858-2012 with the rare surnames used in chapter 4, we can measure the correlation of longevity between fathers and sons for more than four thousand sons surviving until at least age 21. That correlation is only 0.13. If we take the average of both parents’ ages at death, that correlation increases to 0.26. But it is still low. In reality, your age at death is not strongly predictable from your parents’ age at death. All those saving more for retirement simply because both parents are fit, healthy, and in their nineties should stop immediately. Your expected additional longevity relative to the average is only three years.
That is from Greg Clark’s new and noteworthy The Son Also Rises: Surnames and the History of Social Mobility. Here is Kevin Drum on the book.
John Roemer changes his mind on a bunch of things, including socialism
He has a new published paper, in Analyse & Kritik, entitled “Thoughts on Arrangements of Property Rights in Productive Assets,” here is the abstract:
State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held. I argue that worker ownership is not wise in economies with high capital-labor rations, for it forces the worker to concentrate all her assets in one firm. I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth. Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms. It would, however, be possible to tax such salaries at high rates, because the labor-supply response would be small. The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms. Whether such a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe — thus engendering the post-war movement toward social insurance — is an open question.
There are some probably gated versions here. He also explains later in the paper that socialism cannot work because a generally solidaristic social ethos will be undermined by a selfish minority, driven by greed, which will turn social institutions to their favor and evolve into a new ruling class. In other words, Hayek’s The Road to Serfdom is not yet obsolete and still holds the power to sway men’s minds.
For the pointer I thank Kevin Vallier.
The history of political economy workshop at Duke
Bruce Caldwell emails me:
The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this coming June. The program is designed for students in graduate programs in economics. Students will be competitively selected and successful applicants will receive a $2000 stipend for attending, plus free housing and reading materials. The deadline for applying is March 3. More information on the Summer Institute is available at our website,
http://hope.econ.duke.edu/I am writing to ask you if you would again promote our program on the Marginal Revolution blog. The 2012 institute, which was also aimed at grad students (the 2013 one was for faculty), attracted applicants from a host of universities, and we want to keep the momentum going. When we did follow up with previous participants to see how they had found out about the institute, a significant majority of them said that it was from reading about it on a blog.
*The Son Also Rises* and social mobility in India
That is the new Greg Clark book and yes it is an event and yes you should buy it. Here is one passage I found of interest:
There are surprisingly few studies of social mobility in India. Thus the two recent international surveys of social mobility…do not include India. However, a recent study estimated the Indian intergeneration income correlation to be 0.58, making social mobility rates in India among the world’s lowest.
The estimated persistence rate for income in India of 0.58, however, is not much higher than those for the United Kingdom (0.5) or the United States (0.47). The share of income variance in the next generation attributable to inheritance from parents in India is still only (0.58)squared, or 0.34. This suggests that even in India, an individual’s position in the income ranks is not primarily derived from inheritance. Thus, by conventional estimates, modern India has become a society of rapid social mobility, where three to four generations might see the elimination of all traces of millennia-old patterns of inequality.
You can buy the book here. Here is a previous MR post on the book, there will be more to come.
Who are the most overrated economists?
I was asked that question over lunch while visiting the PPE program at UNC, and my answer was this.
In general the market in ideas and reputations of economists works fairly well, at least in the United States. Nonetheless at any point in time, the most overrated economists are the most highly rated young empirical economists at the top schools.
Think of it this way. The half-life of a good empirical result is getting progressively shorter. Good empirical papers no longer stand as definitive accounts for fifteen years and sometimes not even for fifteen months. The science is getting better, but the individual economist is becoming less important, as we might expect from a growing division of labor. That is healthy, but it has implications for the distribution of reputation.
The total amount of repute and renown accorded to individual top young economists does not decline at the same rate that individual contributions become less important. That total amount of repute and renown at say Harvard, available to be doled out to the latest hot young economist, is fixed in the short run or may even be rising, due to the high returns on the school’s endowment.
So those economists end up individually overrated, even though as a whole they become more impressive over time.
Working backwards, one might be inclined to think old theorists and economists who have invented or fleshed out general methods are the most underrated.
What was the scope for British Keynesian policies in the 1930s?
There is a new paper by Nicholas Crafts & Terence Mills in the December 2013 Journal of Economic History, entitled Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s’ Britain. The abstract is here:
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and “defense news.” We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending.
You will note that previous estimates of the multiplier for this period are much higher, but this conclusion is based on a new quarterly gdp series for the UK and also on identified “defense shocks,” drawn from The Economist magazine. At this time, by the way, Great Britain was very close to the zero lower bound and had significant unemployed resources. I am not sure I would push this as “the correct answer,” but rather as a more general lesson about the fragility of our knowledge in this area.
The published (gated) version of the paper is here. There are ungated versions here.
How much does social mobility ever change?
Here is Dylan Matthews interviewing Gregory Clark about his new book The Son also Rises:
Another remarkable feature of the surname data is how seemingly impervious social mobility rates are to government interventions. In all societies, what seems to matter is just who your parents are. At the extreme, we see in modern Sweden an extensive system of public education and social support. Yet underlying mobility rates are no higher in modern Sweden than in pre-industrial Sweden or medieval England.
There was one case where government interventions did seem to promote mobility, which was in Bengal, in India. There the strict quota system in educational institutions had benefited significantly people with surnames associated with the Scheduled Castes.
But the bizarre element here is that these quotas did not help those truly at the bottom of the social ladder. Instead, the benefits went to families of average social status whom the British had mistakenly classified as Scheduled Caste. These families have now become a new elite. The truly disadvantaged, such as the large Muslim community, have been correspondingly further burdened by being excluded from these quotas.
Interestingly, in China, the extreme social intervention represented by the Communist Revolution of 1949, which included executing large numbers of members of the old upper class, has not resulted in much of an increase in social mobility. Surnames of high status in the Imperial and Republican era continue to be overrepresented among modern elites, including Communist Party officials.
The families that have high social competence, whatever the social system is, typically find their way to the top of the social ladder.
The interview is interesting throughout. And you will of course note the new Chetty results — created with entirely different methods and data — showing economic mobility has not much changed in the United States for decades.
For the initial pointer I thank Samir Varma.
Please explain this new white rock to me, #Mars, #SmallSteps
The link is here, and for the pointer I thank Gordon. At least it’s not a watch.
The new Ezra Klein venture at Vox
You can find Ezra’s words here. Do read the whole thing, here is one excerpt:
Today, we are better than ever at telling people what’s happening, but not nearly good enough at giving them the crucial contextual information necessary to understand what’s happened. We treat the emphasis on the newness of information as an important virtue rather than a painful compromise.
The news business, however, is just a subset of the informing-our-audience business — and that’s the business we aim to be in. Our mission is to create a site that’s as good at explaining the world as it is at reporting on it.
Matt Yglesias, Dylan Matthews, and Melissa Bell (and others to follow) will be coming along. Here is David Carr on the venture.
Addendum: The jobs ad is quite useful:
Project X (working title) is a user’s guide to the news produced by the beat reporters and subject area experts who know it best.
We’ll have regular coverage of everything from tax policy to True Detective, but instead of letting that reporting gather dust in an archive, we’ll use it to build and continuously update a comprehensive set of explainers of the topics we cover. We want to create the single best resources for news consumers anywhere.
We’ll need writers who are obsessively knowledgeable about their subjects to do that reporting and write those explainers — as well as ambitious feature pieces. We’ll need D3 hackers and other data viz geniuses who can explain the news in ways words can’t. We’ll need video producers who can make a two-minute cartoon that summarizes the Volcker rule perfectly. We’ll need coders and designers who can build the world’s first hybrid news site/encyclopedia. And we’ll need people who want to join Vox’s great creative team because they believe in making ads so beautiful that our readers actually come back for them too.
Sound like you? Then apply now.
And Ezra explains more here.
*Duty: Memoirs of a Secretary at War*
That is the new Robert M. Gates book, which of course has been widely reviewed. I was very impressed with this work. I read it as a meditation on the question of what kinds of martial virtue (or lack thereof) are possible in our contemporary age, updating Herodotus, Thucydides, and Plutarch through the medium of the reigns and rules of the two Bushes, Cheney, Rice, Obama (most of all), Hillary, Biden, and of course Gates himself with a bit of Petraeus tossed in.
Here is one excerpt:
I was put off by the way the president closed the meeting. To his very closest advisers, he said, “For the record, and for those of you writing your memoirs, I am not making any decisions about Israel or Iran, Joe [Biden], you be my witness.” I was offended by his suspicion that any of us would ever write about such sensitive matters.
And this:
As is usual when the president makes a momentous decision, the White House wanted key cabinet members blanketing the Sunday talk shows…As I was flying back to Washington on March 25, the White House communications gurus proposed I go on all three network shows the next Sunday to defend the president’s decision on Libya. Exhausted by the trip, I agreed to do two of the three. then I took a call from Bill Daley, who pushed me hard to do the third show. I told Daley I’d make him a deal — I would do the third show if he’s agree to get funding for the Libya operation included in the Overseas Contingency Operations (OCO) appropriation (the war supplemental). I said, “I’ll do Jake Tapper if you’ll do OMB.” Daley whined, “I thought it would cost me a bottle of vodka.” I shot back, “Bullshit. It’s going to cost you $1 billion.” Daley had the last laugh. The president and OMB director Jack Lew refused to approve moving the Libya funding into the OCO. The Defense Department had to eat the entire cost of the Libya operation.
And finally, this:
As I had told President Bush and Condi Rice early in 2007, the challenge of the early twenty-first century is that crises don’t come and go — they seem to come and stay.
The book has come under a good deal of criticism for its revelations about a sitting president and commander-in-chief and for its communication of inside discussions, which presumably at the time were considered to be confidential. I am not sufficiently informed about the appropriate norms to make a final judgment here, but I can readily imagine that Gates is in this regard quite in the wrong. Good books are not always based on good behavior. Furthermore, the overall portrait of Obama is, in my view, quite a favorable one and indeed I would say a profound one (the same cannot be said for Biden or for Congress).