Category: History
“Why has Ukraine returned to economic growth?” (wheel of fortune)
Anders Åslund wrote an interesting piece on that question, published in 2002:
For ten years Ukraine was one of the sickest economies in the former Soviet Union. By 1999 most observers had decided that Ukraine displayed all the symptoms of economic malaise. It was hopelessly corrupt, market reforms were generally tardy and unfinished, the budget deficit was larger than the available financing, non-payments and arrears were rife. It is, therefore, all the more surprising that this country is currently experiencing an extraordinary economic surge, with industrial and agricultural production skyrocketing. Even if the present economic situation doesn’t last it is already remarkable and requires serious study. The purpose of this paper is to provide a quantitative analysis of Ukraine’s sudden economic growth and strong recovery. It begins by looking at common explanations of economic growth that have not proven relevant, discusses what concrete economic policy measures appear to have contributed to the generation of growth and ends by scrutinising how this was politically feasible. A proper understanding of Ukraine’s situation should help towards an understanding of post-Soviet transformation and offer clues about how to reform other countries.
For a more complete picture, I refer you also to his contrasting 2000 essay “Why has Ukraine Failed to Achieve Economic Growth?” Circa 2014, another piece or two could be penned on this topic.
Åslund has much more on Ukraine here, including this 2009 book. For a while now he has been predicting the end of Yanukovych, for instance in this piece. In any case he is the most prominent economist who writes regularly on Ukraine.
My review of Diane Coyle and Zachary Karabell
That is published in The Washington Post, and I can recommend both books. Coyle’s book is GDP: A Brief But Affectionate History and Karabell’s is The Leading Indicators: A Short History of the Numbers That Rule Our World. My opening sentences are this:
‘May my children grow up in a world where no one knows who the central banker is” is a wise saying. One also can hope for a world where arguments about measuring GDP (gross domestic product, the sum total of the goods and services produced within a nation) or the inflation rate are rare. In good economic times, we tend to take reported economic numbers for granted, but more recently, conspiracy theories have run wild.
On Coyle:
If you are going to read only one book on GDP, Diane Coyle’s “GDP: A Brief but Affectionate History” should be it. More important, you should read a book on GDP, as many of the political debates of our time revolve around this concept. Can we afford our current path of entitlement spending? Was the Obama fiscal stimulus worth it? When will China overtake the United States as the world’s largest economy?
The answers all depend on GDP. In 140 pages of snappy text, Coyle lays out what GDP numbers measure, what roles they play in economic policymaking and forecasting, and how GDP numbers can sometimes mislead us, albeit not in the way many current critics suggest.
With Karabell I have a quibble:
I do not agree with Karabell’s claim that “Bhutan is now routinely described as one of the happiest nations in the world.” The prime minister of Bhutan, Tshering Tobgay, has moved away from talk of “Gross National Happiness,” perhaps because he has realized that his country has relatively little of it. Most of the population is engaged in subsistence farming and has only a minimal chance of performing rewarding or creative labor. The prime minister instead wishes to focus on concrete goals such as “a motorized rototiller for every village and a utility vehicle for each district.” For all the talk of being content with less, external debt has soared to 90 percent of GDP. If anything, Bhutan may show that measures of GDP get at happiness more clearly than does focusing on happiness more directly. Just look at where immigrants wish to move — it is almost always wealthier countries.
Read the whole thing.
The Great American novel, Buell and MR redux
Here is Lawrence Buell on the hunt for the Great American Novel. Here is and my original 2006 post on that question, and its later follow up. My dark horse picks are here.
Why Argentina failed
Argentina had become rich by making a triple bet on agriculture, open markets and Britain, then the world’s pre-eminent power and its biggest trading partner. If that bet turned sour, it would require a severe adjustment. External shocks duly materialised, which leads to the second theory for Argentine decline: trade policy.
The first world war delivered the initial blow to trade. It also put a lasting dent in levels of investment. In a foreshadowing of the 2007-08 global financial crisis, foreign capital headed for home and local banks struggled to fill the gap. Next came the Depression, which crushed the open trading system on which Argentina depended; Argentina raised import tariffs from an average of 16.7% in 1930 to 28.7% in 1933. Reliance on Britain, another country in decline, backfired as Argentina’s favoured export market signed preferential deals with Commonwealth countries.
Indeed, one way to think about Argentina in the 20th century is as being out of sync with the rest of the world. It was the model for export-led growth when the open trading system collapsed. After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall.
Yes of course there was bad policy, but how did the country get into such a bad idea trap to begin with? The entire piece, from The Economist, is of interest.
Robert Gordon’s sequel paper on the great stagnation
You will find his NBER paper here, in which he responds to critics and outlines his core argument that U.S. growth is doomed to be slow and subpar for a long time to come. There is no point in summarizing this already-familiar debate, so let’s cut straight to the chase:
1. I agree with a great deal of this paper, to say the least, especially when it is compared to previous mainstream opinion on these topics. My favorite parts are his discussions of how multi-faceted were the waves of earlier progress starting in the 19th century, compared to some of the more recent and weaker tech revolutions. That said, in some key ways this piece falls short of meeting the standards of reasoned argumentation.
2. The single biggest question is how much the United States will be able to draw upon innovation from other countries, over the next say 40 years. Gordon doesn’t discuss this in a serious way. The rest of his paper simply lists a bunch of pessimistic factors (valid worries, I might add) and then declares he can’t think of anything else that might turn them around. Maybe that should shift your “p,” but one’s own failure to imagine shouldn’t imply a very firm conclusion about impossibilities.
3. There is a key passage on p.26: “My forecast of 1.3 percent annual total-economy productivity growth in the future does not require any foresight beyond suggesting that the past 40 years are a more relevant benchmark of feasible productivity growth than the 80 years of before 1972.” Fair enough, but how about looking at the last 120 years or last 120,000 years for that matter? The overall pattern is lots of pauses, followed by eventual new bursts of progress. That’s no proof of a future subsequent burst of progress, but so far history is not on the side of the long-term tech pessimists. It may be on the side of the short-term tech pessimists, at least for a while. Gordon, in 2003, wrote rather wisely: “But is it possible to be so sure which decades into the past are relevant for predictions…”
4. Gordon doesn’t know much about the literature on driverless vehicles and their potential, and yet he escalates his rhetoric to the point of giving the reader the impression that he approaches the entire question of tech progress with simple irritation: “This category of future progress is demoted to last place because it offers benefits that are so minor [compared to cars]…”
5. Advances in the biosciences are dismissed in two short paragraphs. For sure, I am myself somewhat in tune with the pessimistic perspective here. I think these advances were way over-promised and still may take longer than people think. Still, Gordon doesn’t offer any argument. His first sentence of that brief section says it all: “Future advances in medicine related to the genome have already proved to be disappointing.” This is a simple confusion of past and future tense.
7. Gordon still fails to credit the originators of the growth slowdown idea, as applied to contemporary times, namely Michael Mandel and Peter Thiel. The first sentence of his paper reads: “A controversy about the future of U.S. economic growth was ignited by my paper released in late summer 2012.” I would add, perhaps with a bit of peevishness, that a lot of the actual debate was kicked off by my own The Great Stagnation, published in January of 2011 and which was covered and commented on extensively. (And which by the way was dedicated to Mandel and Thiel, as well as citing them.) And if I did not credit Gordon more aggressively at that time, it is because I was all too well aware of his 2003 essay, “Exploding Productivity Growth,” the contents of which I do not need to relate any further but if you wish read at the link.
Gordon would do well to reflect a little more deeply on how and why he has changed his mind over the last ten years and what this implies for when a bit more agnosticism would be appropriate.
Addendum: I agree with Kevin Drum. Matt Yglesias comments too.
Headlines to warm an economist’s heart
Abba admit outrageous outfits were worn to avoid tax
Here is some explanation:
According to Abba: The Official Photo Book, published to mark 40 years since they won Eurovision with Waterloo, the band’s style was influenced in part by laws that allowed the cost of outfits to be deducted against tax – so long as the costumes were so outrageous they could not possibly be worn on the street.
In 2007 Ulvaeus was wrongly accused of failing to pay 85m kronor (£7.9m) in Swedish taxes between 1999 and 2005, and went on to successfully appeal against the decision.
“I am of course very happy that I have been informed in writing that I have always done the right thing concerning my taxes,” he said after the court victory.
The article is here, via Ted Gioia.
Practical gradualism vs. moral absolutism, for immigration and revolution
After reading Alex’s post I was a bit worried I would wake up this morning and find the blog retitled, maybe with a new subtitle too. Just a few quick points:
1. There is a clear utilitarian case against open borders, namely that it will — in some but not all cases — lower the quality of governance and destroy the goose that lays the golden eggs. The world’s poor would end up worse off too. I wonder if Alex will apply his absolutist idea on fully open borders to say Taiwan.
2. Alex’s examples don’t support his case as much as he suggests. The American Revolution compromised drastically on slavery, among other matters. (And does Alex even favor that revolution? Should he? Can you be a moral absolutist on both that revolution and on slavery?) American slavery ended through a brutal war, not through the persuasiveness of moral absolutists per se. The British abolished slavery for off-shore islands, but they were very slow to dismantle colonialism, and would have been slower yet if not for two World Wars and fiscal collapse. Should the British anti-slavery movement have insisted that all oppressive British colonialism be ended at the same time? You may argue this one as you wish, but the point is one of empirics, not that the morally absolutist position is generally better.
3. Gay marriage is like “open borders for Canadians.” I’m for both, but I don’t see many people succeeding with the “let’s privatize marriage” or “let’s allow any consensual marriage” arguments, no matter what their moral or practical merits may be. Gay marriage advocates were wise to stick with the more practical case, again choosing an interior solution. Often the crusades which succeed are those which feel morally absolute to their advocates and which also seem like practically-minded compromises to moderates and the undecided.
4. Large numbers of important changes have come quite gradually, including women’s rights, protection against child abuse, and environmentalism, among others. I don’t for instance think parents should ever hit their children, but trying to make further progress on children’s rights by stressing this principle is probably a big mistake and counterproductive.
5. The strength of tribalist intuitions suggests that the moral arguments for fully open borders will have a tough time succeeding or even gaining basic traction in a world where tribalist sentiments have very often been injected into the level of national politics and where, nationalism, at least in the wealthier countries, is perceived as working pretty well. The EU is by far the biggest pro-immigration step we’ve seen, which is great, but we’re seeing the limits of how far that can be pushed. My original post gave some good evidence that a number of countries — though not the United States — are pretty close to the point of backlash from further immigration. Rather than engaging such evidence, I see many open boarders supporters moving further away from it.
6. In the blogosphere, is moralizing really that which needs to be raised in relative status?
Addendum: Robin Hanson adds comment.
And: Alex responds in the comments:
Some good points but only point number #5 actually addresses my argument. I argued that strong, principled moral arguments are most likely to succeed. Point #5 rests on mood affiliation. I know because having a different mood I read the facts in that point in entirely the opposite way. Namely that it’s amazing that although our moral instincts were built on the tribe we have managed to expand the moral circle far beyond the tribe. Having come so far I see no reason why we can’t continue to expand the moral circle to include all human beings. The open borders of the EU is indeed a triumph. Let’s create the same thing with Canada and then lets join with the EU.
Do not make the mistake (as in point #2) of thinking that the moral argument only succeeds when we make fully moral choices. It also succeeds by pushing people to move in the right direction when other arguments would not do that at all.
*Fragile by Design*
That is the new banking book by Charles W. Calomiris and Stephen H. Haber and the subtitle is The Political Origins of Banking Crises & Scarce Credit. I went to review it, but came back to the thought that I liked Arnold Kling’s review better than what I was coming up with, here goes:
I am now reading Fragile by Design by Charles Calomiris and Stephen Haber. I posted a few months ago on an essay they wrote based on the book. I also attended yesterday an “econtalk live,” where Russ Roberts interviewed the authors in front of live audience for a forthcoming podcast. You might look forward to listening–the authors are very articulate and they speak colorfully, e.g. describing the United States as being “founded by troublemakers” who achieved independence through violence, as opposed to the more boring Canadians.
I think it is an outstanding book, although in my opinion it is marred by their focus on CRA lending as a cause of the recent financial crisis. This is a flaw because (a) they might be wrong and (b) even if they are right, they will turn off many potential readers who might otherwise find much to appreciate in the book. Everyone, regardless of ideology, should read the book. It offers a lot of food for thought.
I am only part-way through it. The story as far as I can tell is this:
1. There is a lot of overlap between government and banking. Governments, particularly as territories coalesced into nation states, needed to raise funds for speculative enterprises, such as wars and trading empires. Banks need to enforce contracts, e.g., by taking possession of collateral in the case of a defaulted loan. Government needs the banks, and the banks need government.
2. If the rulers are too powerful, they may not be able to credibly commit to leaving banks assets alone, so it may be hard for banks to form. But if the government is not powerful enough, it cannot credibly commit to enforcing debt contracts, so that it may be hard for banks to form.
3. Think of democracies as leaning either toward liberal or populist. By liberal, the authors mean Madisonian in design, to curb power in all forms. By populist, the authors mean responsive to the will of popular coalitions of what Madison called factions.
4. If you are lucky (as in Canada), your banking policies are grounded in a liberal version of democracy, meaning that the popular will is checked, and regulation serves to implement a stable banking system. If you are unlucky (as in the U.S.), your banking policies are grounded in the populist version of democracy. Banking policy reflects a combination of debtor-friendly interventionism and regulations that favor rent-seeking coalitions who shift burdens to taxpayers. The result is an unstable system.
I may not be stating point 4 in the most persuasive way. I am not yet persuaded by it. In fact, I think libertarians will be at least as troubled as progressives are by some of the theses that the authors promulgate.
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.