Category: History

Brad DeLong defines “the long run”

Empirical reality has told us that–at least when inflation is very low, as it is at present–the short-run is not less than five years but (shudder) can be as long as fifteen.

The full post, which offers more, is here.

That is exactly the kind of direct response I have been looking for, though I might get greedy and ask what makes inflation “very low.”  Core inflation has now reached two percent and I can’t quite regard the non-core, which is higher at 3.8 percent, as totally irrelevant.  (Why is it I hear Scott Sumner in my ear, and can you guess which four-letter abbreviation he is screaming out?)

In my view, supply-side factors are the main reason why the employment-to-population ratio has been so dismal since 2000, demand-side factors are the main reason why so many bad things have happened since 2007-2009, and supply-side factors and mismatched expectations are the fundamental reason why demand-side factors went south in 2007-2009.

It also seems to me that the long run comes more quickly when TFP is relatively high, which again brings us back, at least partially, to the supply side.  This view is supported by theory.  When the economy has a lot of broad-based technological innovation, at least somewhat evenly distributed, job creation is easier, income effects are more likely to positively cumulate, and monetary and fiscal policy are more likely to gain traction.

Part of me is willing to accept a linguistic bargain, something like the following: “I will admit that the short run can last for fifteen years, if we agree that TFP helps determine that horizon.”  Another part of me then realizes that if the long run helps determine the relevance of the “short run,” the long run is always mattering.  At which point I go back to believing that the traditional “old Keynesian” distinction between the long run and the short run is sometimes more confusing than illuminating.

Pen and pencil myths

There’s a popular myth that NASA spent “millions” of dollars developing a pen for astronauts to use in the weightless environment of a space ship — while their sensible Russian counterparts were happy to use the low-tech pencil.  Alas, for all its appeal and plausibility, this is not true.  Initially, astronauts and cosmonauts were both equipped with pencils, but there were problems: if a piece of lead broke off, for example, it could float into someone’s eye or nose.  A pen was needed, one that would defy gravity, write in extreme heat or cold, and be leak proof: blobs of ink floating around the cabin would be more perilous than a stray pencil lead.  A long-time pen maker named Paul C. Fisher patented the “space pen” in 1965 (which he had developed at the cost of a million dollars, at the request of but not under the auspices of NASA.)  NASA bought four hundred of them at $6 each, and, after a couple of years of testing, the pens were put into space.

That is from Kitty Burns Florey, Script & Scribble: The Rise and Fall of Handwriting.

Douglas Irwin on the 1937-38 contraction

If we are to avoid the mistakes of the past, it is important to have an accurate assessment of what those past mistakes were. The severity of the Recession of 1937-38 was not due to contractionary fiscal policy or higher reserve requirements. By contrast, the policy tightening associated with gold sterilisation was not modest – it did not simply reduce the growth of the monetary base by a few percentage points, it stopped its growth altogether. While the Federal Reserve is often blamed for its poor policy choices during the Great Depression, the Treasury Department was responsible for this particular policy error.

Here is more, and the paper is here.  This should be considered the new default view.

Who invented interchangeable parts?

This I had not known, but apparently it is old news:

The symbolic kingpin of interchangeable parts production fell in 1960 when Robert S. Woodbury published his essay “The Legend of Eli Whitney and Interchangeable Parts”…Woodbury convincingly argued that the parts of Whitney’s guns were not in fact constructed with interchangeable parts…

With Eli Whitney reinterpreted as a promoter rather than as a pioneer of machine-made interchangeable parts manufacture, it remained for Merritt Roe Smith to identify conclusively the personnel and the circumstances of this fundamental step in the development of mass production.  Smith demonstrated that the United States Ordnance Department was the prime mover in bringing about machine-made interchangeable parts production of small arms.  The national armory at Springfield, Massachusetts, played a major role in this process, especially in its efforts to coordinate its operations with those of the Harpers Ferry Armory and John Hall’s experimental rifle factory, also at Harpers Ferry.

That is from David A. Hounshell’s excellent From the American System to Mass Production, 1800-1932.  Here is a related article, possibly gated, here is another.

Samuelson and the Birth of the Index Fund

John Bogle has a nice piece in the WSJ on Paul Samuelson and the history of the index fund, a great example of how theory has contributed to practice.

[Samuelson’s] article “Challenge to Judgment” caught me at the perfect moment. Published in the inaugural edition of the Journal of Portfolio Management in the autumn of 1974, it pleaded “that some large foundation set up an in-house portfolio that tracks the S&P 500 Index—if only for the purpose of setting up a naïve model against which their in-house gunslingers can measure their prowess.”

Presented with that challenge, I couldn’t resist….

Bogle launched the First Index Investment Trust but the project was almost stillborn because the initial underwriting was a huge failure. Only $11.3 million was raised, a 93% shortfall from the goal, and not enough to buy [100 shares of ?] all 500 stocks in the S&P 500. The underwriters urged Bogle to cancel but Bogle persevered despite catcalls from Wall Street about “Bogle’s Folly.”

The most enthusiastic media comments about the coming underwriting of the index fund came from Samuelson himself. Writing in his Newsweek column in August 1976, he expressed delight that there had finally been a response to his earlier challenge: “Sooner than I dared expect,” he wrote, “my explicit prayer has been answered. There is coming to market, I see from a crisp new prospectus, something called the First Index Investment Trust,” an index fund available for investors of modest means, “that apes the whole market (S&P 500 Index), requires no load, and keeps commissions, turnover and management fees to the feasible minimum, and . . . best of all, gives the broadest diversification needed to maximize mean return with minimum portfolio variance and volatility.”

…Today, the assets of the Vanguard funds modeled on the S&P 500 Index total $200 billion, together constituting the largest equity fund in the world. (The second largest, at $180 billion, are the Vanguard Total Stock Market Index funds.) Investors have voted for index funds with their wallets, and they continue to do so.

*Deng Xiaoping and the Transformation of China*

That is the new book by Ezra F. Vogel, excerpt:

Deng in 1978 had an equally dramatic effect on the Japanese people.  In the 2,200 years of contact between China and its island neighbor, Deng was the first Chinese leader to set foot in Japan.  He was also the first to meet the Emperor of Japan.

So far the main lesson I am drawing from this book is how provincial the Chinese leaders were circa 1978, but also how willing they were to absorb evidence and change their minds, especially following visits to Western Europe and Singapore, both of which had significant impacts on them.  I am also learning that the 1979 war with Vietnam was a more significant event than I had thought.

The publication date of the book is listed as 26 September, but Amazon shipped my copy earlier this week.

Eating in besieged wartime Leningrad

One of the surest survival techniques was to get employment in food processing or distribution.  Leningraders with these sorts of jobs, unsurprisingly, seldom died of starvation.  All 713 employees of the Krupskaya sweet factory survived; so did all those at the no.4 bakery and at a margarine manufacturer.  At the Baltika bakery, only twenty-seven out of what grew from 276 to 334 workers died, all of the victims being men.  Canteen waitresses and bread-shop sales girls were notoriously “fat,” as were orphanage staff — a friend of Ostroumova-Lebedeva’s, spotting “Rubenesque” young women in a newly reopened public bathhouse in the spring, automatically assumed that they worked in bakeries, soup kitchens or children’s homes.  Menstruation having ceased for most during the winter, women who gave birth in 1942 were also assumed to have worked in a food plant or dining hall.  (The only two pregnant women Chekrizov saw during the whole of the siege were both waitresses in his shipyard’s cafeteria.)

That is from Leningrad: The Epic Siege of World War II, by Anna Reid.  Here is my previous post on the book.

*Leningrad: The Epic Siege of World War II*, by Anna Reid

The point at which an entire family was doomed was when its last mobile member became too weak to queue for rations.  Heads of households — usually mothers — were thus faced with a heartbreaking dilemma: whether to eat more food themselves, so as to stay on their feet, or whether to give more to the family’s sickest member — usually a grandparent or child — and risk the lives of all.  That many or most prioritised their children is indicated by the large numbers of orphans they left behind.  The lucky ones were put into children’s homes; the unlucky had their cards stolen by neighbours, took to thieving on the streets or simply died alone.

And:

The Russian language makes the morally vital distinction between trupoyedstvo — ‘corpse-eating’ — and lyudoyedstvo — ‘person-eating’, or murder for cannibalism.

This is an excellent book, you can order it here.  You can find reviews here.

Was there ever a Chinese tea party?

…best estimates are that during the second half of the 18th century imperial taxes captured only 5 percent of the gross national product in China, compared to 12-15 percent in Russia, 9-13 percent of national commodity production in France, and 16-24 percent of national commodity production in Britain.  During the 18th century in Russia, moreover, corvees and military service were far more onerous than in China, where most labor services had been commuted.  If we consider that under the Northern Song in 1080, imperial revenue averaged about 13 percent of national income, and under the Ming in 1550 6-8 percent, we find some support for Skinner’s thesis that percentage of the surplus captured in imperial taxes shrank steadily relative to the share retained by local systems.

Victor Lieberman presents “philosophical commitment to low taxes” as a major reason for this pattern.  Further explanations are a lack of foreign threats and that the Chinese state did not always have the capacity to collect much more.

Those points can be found in Lieberman’s quite interesting Strange Parallels, Southeast Asia in Global Context, c.800-1830, volume 2, Mainland Mirrors: Europe, Japan, China, South Asia, and the Islands.  The book is even longer than that title, clocking in at 947 pp. and that is only the second part of the whole.

Who will receive the next national holiday?

Adam Burns, a loyal MR reader, asks:

Who do you think will be the next person to receive a national holiday in the US?

Or, if they are currently unknown, what characteristics/achievements will this person have to earn themselves that recognition?

Someone Latino sounds about right, since there is a growing number of Latino voters.  Yet who exactly should that be?  It’s been a long time since Cesar Chavez and in any case his cause is no longer fashionable.  Picking “an invisible Latino” won’t quite do the trick either.  American Latinos seem to have less mainstream canonicity, at least qua Latino.  There is no equivalent of Martin Luther King.  Nor are we about to dedicate a day to all the people who run across the border, no matter how persuasive Michael Clemens may be.

How about a day named after a generic old person?  They vote too, and this could be done while limiting the “doc fix” to trick them into submission before preparing the ice floes.  But how to make it polite?  “Oldies Day” won’t cut it, even if they can get away with a version of that in baseball or on the radio.

Most likely is that a naming opportunity will be sold to the highest bidder, in the midst of our forthcoming fiscal crisis, 侯逸凡 Day anyone?

*The Institutional Revolution*

The author is Douglas W. Allen and the subtitle is Measurement & the Economic Emergence of the Modern World.  I thoroughly enjoyed this excellent book, here is a summary paragraph:

Having consistent weights and measures, like knowing the precise time, allowed for — almost by definition — more accurate and less costly monitoring.  The lowered transaction costs of measurement meant that institutions which relied on measurement could be used more effectively.  Productivity could be measured in terms of output per unit of time, speeds could be accurately recorded and tracked, commerce could flourish without confusion and error, land and buildings could be surveyed accurately, and fraud could be mitigated.  Today, these matters are dealt with easily and to a much tighter standard.  Without the ease of measurement, the variability of life would be drastically higher; we would be uncertain about what we were getting and giving in most exchanges.

Allen (p.177) argues that private lighthouses worked well when ships had to hug the coast, but less well when sail power improved and ship routes became more distant and more variable and less tied to port proximity and coast hugging.  Also good was the discussion of how Industrial Revolution factories were located in isolated areas to minimize theft costs (pp.214-215), and how this later changed.

The book is due out in December.

Sentences to ponder

Already, hundreds more American troops have been killed in Afghanistan during the less than three years of the Obama administration than during the eight years of the George W. Bush administration.

Here is more.  I don’t think that “# of Americans killed” is a good final standard for right and wrong, still I believe many Americans would be shocked to see this comparison.

Since the 1980s, spending cuts no longer cause riots

Interestingly, though, since the late 80s, this relationship has broken up and vanished. According to the results, in modern, industrial societies, there is no longer any palpable link between spending cuts and rioting.

In fact there is a correlation in the opposite direction, though it is not statistically significant.  Here is much more, about the study which everyone is citing.  It doesn’t show what people are saying it shows, unless they see today as like 1926.  Arguably the democratization of Eastern Europe is a key factor in changing the results.

Here is a new (short) Ed Glaeser piece on riots.