Category: History
Only joking
Nothing to see here, move on people…
Safaripark Beekse Bergen, near the Dutch town of Tilburg, boasts nine lions, 13 giraffes and a herd of almost 30 zebra. But this month the theme park reported sightings of an even more remarkable beast – a previously extinct specie, the Dutch guilder.
Thousands of guilders flooded into the park’s cash registers after it announced it would accept the former national currency for one weekend, in a promotion tied to the European Council summit earlier this month. At the ticket booth, thrifty locals dug into their coats to produce faded Fl 10 bills and jingling coins.
The guilder sale was a “comical stunt” to take advantage of the commotion around the euro, said a spokeswoman for the safari park’s parent company, Libema. But the promotion also tapped into the Dutch public’s widespread disillusionment with the euro and nostalgia for their old currency.
The FT link is here.
Anti Chain Store Policies in India and America
When we think of growth and innovation we often think first of high-tech sectors but in the United States during the roaring 1990s it was retail productivity growth, led by Walmart, that drove the country. Retail productivity is important because the retail sector is huge and because retail productivity extends backwards to manufacturing and service productivity. Today, growth in India is slowing in part because the Indian government is no longer pushing reform, and the most notable failure is the failure to modernize India’s retail sector.
The Guardian: The beleaguered Indian government has been forced to suspend its decision to allow international supermarkets to invest in India‘s £300bn retail market in the face of political opposition.
…Allies of the increasingly vulnerable administration of Manmohan Singh, now in its second term, had refused to back the measure. Critics said the move, which theoretically does not need parliamentary approval, would put millions of shopkeepers across India out of business and threaten the livelihood of farmers.
Supporters argued that it would mean improvements of infrastructure and lower prices for consumers.
Analysts said the delay to the move was due to “political not ideological factors. There are local elections coming up and no one wants to risk the commercial traders’ votes…. The failure to implement what would have been the first major economic reform since Singh’s second term began in 2009 will reinforce the sense of drift surrounding the Indian government, compounding anxiety at a time when growth has slowed, inflation remains high and the value of the Indian rupee is dropping fast.
Stock prices of Indian retailers plunged in response to the news.
The political constraints here are enormous. Here is Marc Levinson author of The Box and more recently The Great A&P and the Struggle for Small Business in America, on some of the crazy anti-chain story policies in the United States:
President Franklin D. Roosevelt, who portrayed himself as the consumer’s friend, turned restrictions on chains into national policy. Under the National Industrial Recovery Act of 1933, one of Roosevelt’s programs to revive the economy, federally mandated codes were instituted that limited store hours, and regulated wages and prices — but the restrictions applied only to chains and large stores, not to mom-and-pop merchants. When those codes were invalidated by the Supreme Court, Congress enacted another law, the Robinson-Patman Act of 1936, intended to make most volume discounts illegal so that small shopkeepers could buy their goods for the same prices as giant chains.
In 1946, the government won criminal convictions against executives of the largest chain of all, the Great Atlantic & Pacific Tea Company (A&P), on the bizarre charge that they were violating antitrust law by selling groceries too cheaply. As late as 1953, the government was trying to break A&P apart by claiming that baking its own bread and canning its own vegetables gave the company an unfair advantage.
*Why Nations Fail*
The authors are Daron Acemoglu and James Robinson and the subtitle is The Origins of Power, Prosperity, and Poverty. Could there be a better and more up to date book on the importance of economic institutions? Self-recommending! Excerpt:
[In Russia] Opposition to railways accompanied opposition to industry, exactly as in Austria-Hungary. Before 1842 there was only one railway in Russia. This was the Tsarskoe Selo railway, which ran seventeen miles from St. Petersburg to the imperial residencies of Tsarskoe Selo and Pavlovsk. Just as Kankrin opposed industry, he saw no reason to promote railways, which he argued would bring a socially dangerous mobility, noting that “Railways do not always result from natural necessity, but are more an object of artificial need or luxury. They encourage unnecessary travel from place to place, which is entirely typical of our time.”
This book has literally hundreds of good examples of how to apply institutional economics and property rights theory to economic history.
If I have a worry about the book, it is this. I do not disagree with the claims about institutions. But I am less sure that Acemoglu and Robinson dispose of the more “fundamentalist” theories, which might invoke say geography or other pre-institutional factors behind economic growth, political change, or for that matter levels of interpersonal trust. Where exactly do the institutional changes come from? They seem to come from other institutional changes (see p.209 for one example of many), elephants all the way down. I would have chosen the alternative subtitle: “Power, Prosperity, and Poverty, Everything but the Origins.” That’s still a lot.
The book is due out March 20.
Victorian street food
Victorian street food was a huge industry. In the north you would find tripe sellers; I remember the one in Dewsbury market that sold nine different varieties of tripe, including penis and udder (which is remarkably like pease pudding). Another popular street food was pea soup with, according to where you lived, either pig’s trotters or bits of ham chopped up into it. Peas boiled in the pod and served with butter were similarly popular. Stalls known in my youth as whelk stalls also sprang up, selling jellied eels, whelks, winkles and prawns, all by the pint or the half-pint. You could splash a bit of vinegar on them and eat them at the stall or take them home with you.
That is from the new and excellent A History of English Food, by Clarissa Dickson Wright. This book also offers up a good deal of confirming evidence for Paul Krugman’s prior hypotheses about English food.
Roman Empire More Equal than the United States
In The Size of the Economy and the Distribution of Income in the Roman Empire, a careful paper published in the Journal of Roman Studies in 2009, Walter Scheidel and Steven Friesen estimate the size and distribution of the Roman economy at its demographic peak around the middle of the 2nd century c.e.
We conclude that in the Roman Empire as a whole, a ‘middling’ sector of somewhere around 6 to 12 per cent
of the population, defined by a real income of between 2.4 and 10 times ‘bare bones’
subsistence or 1 to 4 times ‘respectable’ consumption levels, would have occupied a fairly
narrow middle ground between an élite segment of perhaps 1.5 per cent of the population and a vast majority close to subsistence level of around 90 per cent. In this system, some 1.5 per cent of households controlled 15 to 25 per cent of total income, while close to
10 per cent took in another 15 to 25 per cent, leaving not much more than half of all income for all remaining households.
Thus, in Rome the top 1.5% controlled 15-25% of income while in the United States around 2007 the top 1% controlled 23.5% of income thus suggesting slightly more inequality in the United States. Scheidel and Friesen calculate a Roman Empire gini coefficient of .42-.44 again perhaps slightly less than the U.S. coefficient of around .4-.45 depending on source.
Interestingly, the Roman State did not manage to collect that much:
Given a GDP of somewhere
around HS17–19bn, annual state expenditure of approximately HS900m would have
represented an effective tax rate of approximately 5 per cent of GDP, which is the same as
for France in 1700. This finding confirms Hopkins’s claim that the imperial government
did not capture more than 5 to 7 per cent of GDP and that Roman taxes were fairly low.
The overall public sector share of GDP was somewhat larger depending on the scale of
municipal spending, while the overall nominal tax rate had to be higher still in order to
accommodate taxpayer non-compliance, tax amnesties, and rent-seeking behaviour by
tax-collectors and other intermediaries. Moreover, we must not forget that Italy’s immunity from output and poll taxes required the public sector share in the provinces to exceed
the empire-wide average. These various adjustments allow us to reconcile our GDP estimate with reported nominal taxes of around 10 per cent of farm output on private land
reported in Roman Egypt and somewhat higher rates in less developed regions where
enforcement may have been more difficult.
(Thus, despite the aqueducts Rome may not have done that much for the people after all.)
Hat tip to Tim De Chant at Per Square Mile who has further discussion.
*Pricing the Future*
The author is George G. Szpiro and the subtitle is Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation, A Story of Genius and Discovery. Excerpt:
As the scion of a WASP family, [Fischer] Black headed straight to Harvard for his undergraduate studies. He didn’t even apply to any other college. Once there, he took a wide range of courses, including psychology, anthropology, sociology, mathematics, physics, logic, biology, and chemistry. Strangely missing in this eclectic selection was anything related to finance, although he mentioned to his parents that he was considering “even economics.” He also experimented with psychedelics and — ever the scientist — took notes about his mental state every half hour. Once Black got arrested by the Cambridge police for demonstrating…but not again bigotry, racism, or world hunger. He was jailed for demonstrating against Harvard’s decision to issue degrees in English rather than Latin. Behind bars, his bluster soon vanished and when a Harvard dean came to check on the detainee’s conditions, Black quickly accepted the opportunity to get out.
I can’t remember the last time I learned so much about the history of economic thought, and on an important matter at that. This book is a real contribution. It doesn’t have the fancy or seductive writing style that you find in many popular science books nowadays, but it rates high in terms of substance.
It’s already dead in the water
“Right now, there is not much more than a blank sheet of paper and even the name of the future treaty might still change,” said Petr Necas, the prime minister of the Czech Republic. “I think that it would be politically short-sighted to come out with strong statements that we should sign that piece of paper.”
There is so much more at the FT link, and from numerous countries. Of course on day one they were all going to say it is great and that they support it. Then the new equilibrium is revealed.
Rising in status: Timur Kuran’s theory of preference falsification, Buchanan and Tullock’s Calculus of Consent, Thomas Schelling’s Strategy of Conflict.
Falling in status: French rationalist constructivism, claiming that the failures of social democratic multinational collective governance stem mainly from a misguided belief in fiscal austerity.
Words of wisdom
Something to cheer up my British readers, as the press is bashing Britain for not blindly signing on to the failed Eurozone policies being promoted on the continent. Britain was bashed even more viciously in 1931, when they opted out of the failed international gold standard regime. History has vindicated that “obstructionism” and it will vindicate this obstructionism as well.
Are we stagnating aesthetically?
Some of you have been emailing, asking for my opinion of this recent Kurt Andersen Vanity Fair article. Here is the summary introductory paragraph:
For most of the last century, America’s cultural landscape—its fashion, art, music, design, entertainment—changed dramatically every 20 years or so. But these days, even as technological and scientific leaps have continued to revolutionize life, popular style has been stuck on repeat, consuming the past instead of creating the new.
There is plenty more at the link. A serious response would require a book or more, so let me offer a few conclusions, noting that it’s not possible in blog space to defend these judgments at any length. This is all about aesthetics, and it is distinct from the TGS technology argument, though one might believe that technical breakthroughs are needed to usher in aesthetic innovations, and that slowness in the one area would lead to slowness in the other. That’s not a claim I’ve ever made, but it’s worth considering even if it can’t be settled very easily. In any case, here’s my view of the evidence:
1. Movies: The Hollywood product has regressed, though one can cite advances in 3-D and CGI as innovations in the medium if not always the aesthetics. The foreign product is robust in quality, though European films are not nearly as innovative as during the 1960s and 70s. Still, I don’t see a slowdown in global cinema as a whole.
2. TV: We just finished a major upswing in quality for the best shows, though I fear it is over, as no-episode-stands-alone series no longer seem to be supported by the economics.
3. Books/fiction: It’s wrong to call graphic novels “new,” but they have seen lots of innovation. If we look at writing more broadly, the internet has led to plenty of innovation, including of course blogs. The traditional novel is doing well in terms of quality even if this is not a high innovation era comparable to say the 1920s (Mann, Kafka, Proust, others).
4. Computer and video games: This major area of innovation is usually completely overlooked by such discussions.
5. Music: Popular music has been in a Retromania sludge since the digital innovations of the early 90s, but classical contemporary music continues to show vitality and it is even establishing some foothold in the concert hall and in nightclubs too. Jazz has plenty of niche innovation, but it’s not moving forward with new, central ideas which command the attention of the field.
6. Painting and sculpture: Lots of good material, no breakthrough central movements comparable to Pop Art or Abstract Expressionism. Photography has seen lots of innovation.
7. Your personal stream: This is arguably the biggest innovation in recent times, and it is almost completely overlooked. It’s about how you use modern information technology to create your own running blend of sources, influences, distractions, and diversions, usually taken from a blend of the genres and fields mentioned above. It’s really fun and most of us find it extremely compelling. See chapter three of Create Your Own Economy/The Age of the Infovore.
8. Architecture: Slows down after 2008, but there were numerous innovative blockbuster buildings prior to the crash.
Today the areas of major breakthrough innovation are writing, computer games, television, photography (less restricted to the last decade exclusively) and the personal stream. Let’s hope TV can keep it up, and architecture counts partially. For one decade, namely the last decade, that’s quite a bit, though I can see how it might escape the attention of a more traditional survey. Some other areas, such as the novel, global cinema, and the visual arts are holding their own and producing plenty of small and mid-size innovations.
Although that is a relatively optimistic take on the aesthetics of the last decade, it nonetheless supports the view that aesthetic innovation relies on technological innovation. Most (not all) of the major areas of progress have relied on digitalization, and indeed that is the one field where the contemporary world has brought a lot of technological progress as well.
Predictions about the eurozone
Charles Calomiris wrote in 1999 that the euro is doomed (pdf). Milton Friedman had some pretty good predictions about the euro. Here are my 2004 predictions about the euro, and here is my bit from 2003 (“The three percent rule is effectively dead…The real question is what will happen when one of the smaller nations thumbs its nose at France and Germany…and then claims exemption from the relevant penalties.”) I have been worried about euro-like arrangements since the late 1980s. Here are Paul Krugman’s 1998 remarks, though I am not sure which are his predictions and which are the scenarios he is distancing himself from; in any case he has been critical of the euro on numerous occasions. In the German language there is Theresia Theurl, among others, and add to that list some number of millions of Brits and Swedes.
How about the course of the eurocrisis? Here is my piece, “Last Man Standing” (jstor), published in The Wilson Quarterly in early 2009, written in 2008:
It has become increasingly clear that the problems in European governance are severe – and I am referring to the wealthier nations, not Bosnia and Albania. The European nations are tied to each other through the European Union and the euro, but they don’t have a good method for making collective decisions in contentious times.
…Spain, Italy, and Greece, which have all lost their premier AAA credit rating, may require some form of financial aid. The Germans might look to spread this burden around Europe, but there are few places to turn. France and the Netherlands could chip in, but the hat cannot be passed very widely.
Part of the problem for Europe is that its biggest banks are very large relative to the economies of their host nations – in other words, its component national economies are too small…It’s not widely recognized that Europe because of its systemic weaknesses, already has required implicit bailouts from the United States.
…Ideally, the ECB should take on a stronger role as lender of last resort in Europe, but the EU does not make such decisions easily. Fundamental alterations would be needed in the bank’s charter, which was written precisely to make change very difficult, in part because Germany…insisted on biasing the ECB toward conservatism and inaction. Even if the bank’s charter were amended, the member nations would surely impede any action by bickering over who would pay the bills for new initiatives. If the ECB is going to run bailouts, decision making will have to become a lot more fluid, and that would require Germany to give up control and the bank to move away from price stability as its sole objective. Since the EU member states have not been able to agree on a reform of the Union constitution, it’s not obvious they will be able to agree on changing the bank’s charter. They’ve had time – and good reason – to do so, yet have taken no serious action.
Roubini predicted the course of the current Italian financial crisis in 2006. And so on.
It is sometimes asserted that the economics profession should lose some status because so few economists predicted the U.S. financial crisis. I’m not sure economists should be judged by their ability to predict asset price movements, but grant the point. The euro crisis is now here, and it seems our profession should win some of its status back.
Nicholas Wapshott’s *Keynes Hayek*
I very much enjoyed this book — which is detailed and entertaining and conceptual all at once — and I wrote a lengthy review of it for National Review (not on-line that I can find, issue of 11/28). It’s a model of how to write popular history of economic thought, and still teach professional economists at the same time. Excerpt from my review:
For all his brilliance, Hayek didn’t — at the critical time — have a good enough understanding of the dangers of deflation. He didn’t realize the extent of sticky wages and prices and, more deeply, he didn’t see that ongoing deflation would render the “calculation problem” of a market economy more difficult…
Hayek’s biggest [recent] intellectual victory probably has come in the aftermath of the Obama fiscal stimulus. A lot of the modern-day Hayekians, most notably Mario Rizzo of New York University, predicted that the stimulus would not provide lasting aid to the economy but rather would impose an artificial boom-bust structure on the economy. The early spending of money would boost measured national income, but eventually those jobs would prove unsustainable: the stimulus funding would run out, the jobs would disappear, and the economy would slow down once again. That is exactly what we saw in the spring and summer of 2011.
A Hayekian perspective leads one rather naturally to the view — now quite vindicated — that the aid to state and local governments would preserve some jobs but the spending projects would mostly fail, including when it comes to sustainable job creation. It’s often neglected that Hayek’s macro is a general perspective which goes well beyond the particular cyclical story involving the time structure of production.
In the review, loyal MoneyIllusion readers will enjoy my discussion of Scott Sumner and how he fits into these debates (“These days I cannot go anywhere in the world of economics, or blog readers, without hearing his name.”).
You can buy the book here.
Addendum: I quite agree with Alex’s take on Hayek, and had drafted a post of my own, saying much the same thing. Eighty or so years later, people are still taking potshots at Prices and Production, among Hayek’s other works. Eighty years into the future, how many current Nobel Laureates will be receiving comparable attention?
Hayek and Modern Macroeconomics
David Warsh and Paul Krugman try to write Hayek out of the history of macroeconomics. Krugman writes:
Friedrich Hayek is not an important figure in the history of macroeconomics.
These days, you constantly see articles that make it seem as if there was a great debate in the 1930s between Keynes and Hayek, and that this debate has continued through the generations. As Warsh says, nothing like this happened. Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion.
Warsh says much the same thing, adding, I am not making this up, a discussion of Hayek’s divorce. Neither Krugman nor Warsh attempt to argue for their positions, it’s all assertion. Both claim that Hayek is famous only because of the Road to Serfdom.
Let’s instead consider some of the reasons the Nobel committee awarded Hayek the Nobel:
Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929.
It is true that many of Hayek’s specific ideas about business cycles vanished from the mainstream discussion under the Keynesian juggernaut but what Krugman and Warsh miss is that Hayek’s vision of how to think about macroeconomics came back with a vengeance in the 1970s.
David Laidler exaggerated but he was much closer to the truth than Krugman or Warsh when he wrote in 1982 regarding new-classical macroeconomics:
… I prefer the adjective neo-Austrian… In their methodological individualism, their stress on the market mechanism as a device for disseminating information, and their insistence that the business-cycle is the central problem for macroeconomics, Robert E. Lucas Jr., Robert J. Barro, Thomas J. Sargent, and Neil Wallace, who are the most prominent contributors to this body of doctrine, place themselves firmly in the intellectual tradition pioneered by Ludwig von Mises and Friedrich von Hayek.
Thus, Hayek was an important inspiration in the modern program to build macroeconomics on microfoundations. The major connecting figure here is Lucas who cites Hayek in some of his key pieces and who long considered himself a kind of Austrian. (Indeed, to the great consternation of some of my colleagues, I once argued that Lucas was the greatest Austrian economist of the 20th century.)
One can also judge Krugman’s claim that “the Hayek thing is almost entirely about politics rather than economics” by looking at who other Nobel laureates in economics cite. Is Hayek ignored because he is just a political thinker? Not at all, in fact in an interesting exercise David Skarbek finds that Hayek is cited by other Nobel laureates in their Nobel talks more than any other Nobel laureate with the exception of Arrow. (The top six cite-getters are Arrow, Hayek, Samuelson and then tied in citations for fourth place are Friedman, Lucas and Phelps.)
Addendum: Here is Pete Boettke and Russ Roberts and David Henderson.
My eurozone podcast with Russ Roberts
You will find it here, I was happy with how it turned out.
Wolfgang Münchau has a nice update:
Contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids. The goal is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution. She also proposes automatic sanctions with a judicially administered regime of compliance. She rejects eurobonds on the grounds that they reduce pressure on fiscal discipline.
That is another absurd “solution” that has no chance of working, unless of course the critical countries simply recover on their own. (Why does it remind me of “Don’t mistreat the Abos! (if anybody’s watching)”? Don’t forget this:
Andrew Duff, a member of the European Parliament, last week provided a very useful guide to the distance the eurozone is from where it would have to be if it were a proper fiscal union. He drew up a list of all the changes in the European Treaties that would need to be amended to achieve that. It includes changes to 23 articles and five protocols.
And this is from MR comments, Ryan Cooper:
Thinking in the short term, obviously the solution involving the least collective misery for everyone is for Germany to bite the bullet and backstop the whole continent’s debt in one way or another. But just past the immediate crisis I don’t see any reason for optimism. If recession really does hit, how are the SPIIG crowd going to get out of the “debt -> austerity -> crap growth -> more debt (or at least not much extra money to pay down the principal) -> more austerity” cycle? It seems like a 1918-style suicide pact.
The SPIIG governments have to be weighing the costs of cutting their losses and getting out. (Right?) People seem to agree that would be another devastating financial crisis, and thinking selfishly that would be bad, but if I were Spain and it’s a choice between 2-3 years of total chaos and 20-30 years of grinding hopeless misery, I think I’d go with the first option.
Solve for the equilibrium…
Addendum: Ezra Klein offers observations from Germany; they focus on the real side of the economies!
That was then, this is now
German Economy Minister Rainer Brüderle reacted negatively against what he described as plans by the Spanish EU Presidency to “sanction” member states who do not comply with the European Union’s growth objectives.
…Spanish daily El País writes that little time had elapsed between the entry into force of the Lisbon Treaty and the beginning of the first conflict between federalists – who want a stronger Union – and eurosceptics. On the side of the federalists, El País lists rotating EU President Zapatero, EU Council President Herman Van Rompuy and Liberal group leader in the European Parliament Guy Verhofstadt, who have all spoken in favour of more economic power at EU level with sanctions against those who do not comply.
“This initiative has raised the alarm in Germany and in the UK…”
The link is here, I cannot tell exactly when it is from (you will recall that Germany was an early violator of the three percent rule), and the pointer is from @sisifa1.
Death to the Penny
Excellent.