Category: History
Hayek’s liberaltarian essay “”Free” Enterprise and Competitive Order”
I’ve been preparing a class on Hayek for MRUniversity.com, and I was struck by my reread of this essay, which was presented at the Mont Pelerin Society meeting of 1947 (it was later published in Individualism and Economic Order, pdf of the book here).
In this piece Hayek argues the following:
1. It is not enough for classical liberals to seek to limit the state, they also must outline what governments could and should do better.
2. Monetary policy should be used to limit unemployment, albeit in a rules-based framework.
3. Eminent domain is an essential function of government, especially in urban cities, and it needs to be thought through more carefully.
4. Many of the biggest dangers of monopoly stem from patent law and intellectual property protection, rather than from monopoly of the traditional “sole seller” sort. On this issue Hayek sounds like Alex or Larry Lessig.
5. It is not enough to defend “freedom of contract” in the abstract, rather the details of the law really matter.
6. Hayek questions whether limited liability for corporations is always the right way to proceed.
7. Finally, although inheritance taxes have in the past sometimes been abused, “…inheritance taxes could, of course, be made an instrument toward greater social mobility and greater dispersion of property and, consequently, may have to be regarded as important tools of a truly liberal policy…”
You will recall that in other settings Hayek endorsed the idea of a social welfare state and also the taxation of pollution.
The Ideological Migration of the Economics Laureates
That work fills up the latest issue of Econ Journal Watch.
This issue of Econ Journal Watch (download, .pdf) is given over to a special project that considers such changes as may have occurred among the 71 individuals who, through 2012, won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Ideological profiles of all 71 laureates make up the bulk of the issue. The 71 profiles are bundled in a single large document that is equipped with handy links for internal navigation.
Ideological change is interpreted in terms of either growing more classical liberal or growing less classical liberal. Daniel Klein leads the project. In his overview essay he explains the investigation, its many limitations, and the findings.
…David Colander served as overseeing referee, and he reports on the project.
Twelve of the laureates replied to a questionnaire requesting that they discuss their ideological outlooks at different times in their lives. The twelve who replied are Kenneth Arrow, Ronald Coase, Peter Diamond, Eric Maskin, James Mirrlees, Roger Myerson, Edward Prescott, Thomas Schelling, William Sharpe, Vernon Smith, Robert Solow, and Michael Spence. Their responses are included in their profiles, and they are also collected in a standalone appendix.
This is path-breaking work in intellectual history, the best contribution to the history of modern economics in recent memory, fascinating as intellectual biography and autobiography, and it should be snapped up immediately by some enterprising publisher.
Bubonic Plague
BBC: Madagascar faces a bubonic plague epidemic unless it slows the spread of the disease, experts have warned. The Red Cross and Pasteur Institute say inmates in the island’s rat-infested jails are particularly at risk.
…Madagascar had 256 plague cases and 60 deaths last year, the world’s highest recorded number.
Bubonic plague, known as the Black Death when it killed an estimated 25 million people in Europe during the Middle Ages, is now rare.
“If the plague gets into prisons there could be a sort of atomic explosion of plague within the town. The prison walls will never prevent the plague from getting out and invading the rest of the town,” said the institute’s Christophe Rogier.
Have a nice day.
Brink Lindsey predicts a slowdown of economic growth, even if we innovate more
Brink’s new paper is here, here is one excerpt:
Consider the four constituent elements of economic growth tracked by conventional growth accounting: (1) growth in labor participation, or annual hours worked per capita; (2) growth in labor quality, or the skill level of the workforce; (3) growth in capital deepening, or the amount of physical capital invested per worker; and (4) growth in so-called total factor productivity, or output per unit of quality-adjusted labor and capital. Over the course of the 20th century, these various components fluctuated in their contributions to overall growth. The fluctuations, however, tended to offset each other, so that weakness in one element was compensated for by strength in another. In the 21st century, this pattern of offsetting fluctuations has come to a halt as all growth components have fallen off simultaneously.
The simultaneous weakening of all the components of economic growth does not mean that slow growth is inevitable from here on out. The trends for one or more of them could reverse direction tomorrow. Nevertheless, it is difficult to resist the conclusion that the conditions for growth are less favorable than they used to be. In other words, growth is getting harder.
Brink offers further remarks here. On October 29, at noon, I’ll be doing a Cato Forum with Brink on this paper.
Cohorts born in the late 1930s and 40s did especially well
Via @ClaudiaSahm, there is a new paper (pdf) from Emmons and Noeth at the St. Louis Fed, the abstract is here:
The global financial crisis and ensuing Great Recession reduced the income and wealth of many families, but older families generally fared better than young and middle-aged families. The Federal Reserve’s Survey of Consumer Finances reveals that being young was a significant risk factor during the downturn, regardless of a family’s race, ethnicity, or education level. Among older families, those headed by someone 70 or over fared slightly better than those headed by someone between 62 and 69. Income and wealth also increased most strongly among older families during the two decades preceding the crisis. Part of the explanation for favorable income and wealth trends among currently living older Americans is a positive birth-year cohort effect. After controlling for a host of factors related to income and wealth, we find that cohorts born in the late 1930s and 1940s have experienced more favorable income and wealth trajectories over their life courses than earlier- or later-born cohorts. While it is too soon to know how cohorts born in recent decades will fare over their lifetimes, it appears that the median Baby Boomer (born in the 1950s and early 1960s) and median member of Generation X (born in the late 1960s and 1970s) are on track for lower income and wealth in older age than those born in the 1930s and 1940s, holding constant many factors other than when a person was born.
One driving force seems to be that the older generation was simply more motivated to save. And here is a dramatic sentence:
Among young and middle-aged families, the median levels of net worth were 30.5 percent and 24.1 percent lower in 2010 than in 1989, respectively.
The paper presents many interesting facts, but I would start with pp.9-10.
From The Guardian, here is an argument that middle class youth in Great Britain today will end up faring worse than did their parents.
Dani Rodrik on premature deindustrialization
Consider Brazil and India, two emerging economies that have done comparatively well in the last decade or so. In Brazil, manufacturing’s share of employment barely budged from 1950 to 1980, rising from 12% to 15%. Since the late 1980’s, Brazil has begun to deindustrialize, a process which recent growth has done little to stop or reverse. India presents an even more striking case: Manufacturing employment there peaked at a meager 13% in 2002, and has since trended down.
It is not clear why developing countries are deindustrializing so early in their growth trajectories. One obvious culprit may be globalization and economic openness, which have made it difficult for countries like Brazil and India to compete with East Asia’s manufacturing superstars. But global competition cannot be the main story. Indeed, what is striking is that even East Asian countries are subject to early-onset deindustrialization.
China is a very large country, of course, with much of its workforce still in rural areas. But most migrant workers now find jobs in services rather than in factories. Similarly, it is extremely unlikely that the new crop of manufacturing exporters, such as Vietnam and Cambodia, will ever reach the levels of industrialization attained by the early industrializers, such as Britain and Germany.
An immediate consequence is that developing countries are turning into service economies at substantially lower levels of income. When the US, Britain, Germany, and Sweden began to deindustrialize, their per capita incomes had reached $9,000-11,000 (at 1990 prices). In developing countries, by contrast, manufacturing has begun to shrink while per capita incomes have been a fraction of that level: Brazil’s deindustrialization began at $5,000, China’s at $3,000, and India’s at $2,000.
There is more here.
The culture that is England
England is the only country in the developed world where the generation approaching retirement is more literate and numerate than the youngest adults, according to the first skills survey by the Organisation for Economic Co-operation and Development.
In a stark assessment of the success and failure of the 720-million-strong adult workforce across the wealthier economies, the economic thinktank warns that in England, adults aged 55 to 65 perform better than 16- to 24-year-olds at foundation levels of literacy and numeracy. The survey did not include people from Scotland or Wales.
The OECD study also finds that a quarter of adults in England have the maths skills of a 10-year-old. About 8.5 million adults, 24.1% of the population, have such basic levels of numeracy that they can manage only one-step tasks in arithmetic, sorting numbers or reading graphs. This is worse than the average in the developed world, where an average of 19% of people were found to have a similarly poor skill base.
When the results within age groups are compared across participating countries, older adults in England score higher in literacy and numeracy than the average among their peers, while younger adults show some of the lowest scores for their age group.
Here is further information, via Annie Lowrey.
*David and Goliath*
Quite possibly it is Gladwell’s best book. His writing is better yet and also more consistently philosophical. For all the talk of “cherry picking,” the main thesis is that many qualities which usually appear positive are in fact non-monotonic in value and can sometimes turn negative. If you consider Gladwell’s specific citations of non-monotonicities to be cherry-picking, you’re not understanding the hypothesis being tested. Take the book’s central message to be “here’s how to think more deeply about what you are seeing.” To be sure, this is not a book for econometricians, but it so unambiguously improves the quality of the usual public debates, in addition to entertaining and inspiring and informing us, I am very happy to recommend it to anyone who might be tempted. It also shows Gladwell’s side as a regional thinker like never before. And the moral lesson of the work — don’t write people off — is very important indeed and we are far from having fully absorbed it. The same can be said for the second moral lesson of the book which is don’t overrate your power.
*The Tragedy of Liberation*
That is the new book by Frank Dikötter, the subtitle is A History of the Chinese Revolution 1945-1957, and it is a prequel to his earlier Mao’s Great Famine. His books are superb documents of the tyrannical age he studies. Here is one excerpt:
In an orgy of false accusations and arbitrary denunciations, few escaped with their reputations intact. By February no more than 10,000 of a total 50,000 ‘capitalists’ in Beijing were considered honest. Similar figures came from other parts of the country. To punish all would wreck the economy. Mao had a solution to this conundrum. He came up with a quota, ordering that a few should be killed to set the tone, while exemplary punishment should focus on 5 per cent of the most ‘reactionary’ suspects. Across most cities, by a rough rule of thumb, about 1 per cent of the accused were shot, a further 1 per cent sent to labour camps for life, and 2 to 3 per cent imprisoned for terms of ten years or more.
This is not easy material to read about, but Dikötter’s books are landmark achievements of their time.
And as I am wont to say, China’s prospects and fundamentals look pretty good if you scrutinize the country’s history over the last 30 or also the last 3000 years. It’s the time frame of the last 300 years that doesn’t look so good.
*Vodka Politics*
The author is Mark Lawrence Schrad and the subtitle is Alcohol, Autocracy, and the Secret History of the Russian State. This is a gripping and original book, even if it overstates its conclusions sometimes. Here is one bit:
Shcherbakov — Stalin’s today drunkard — died from a heart attack two days after the Nazi surrender…at the ripe old age of 44. While Stalin valorized him, Khrushchev and the rest of the circle “knew that he died from drinking too much in an effort to please Stalin and not because of any insatiable urge of his own.” Likewise, Andrei Zhdanov — once thought of as Stalin’s heir apparent — died less than three years later at 52, to the end ignoring his doctors’ frequent warnings to stop drinking. It was clear to all that this situation was disastrous both for their work and their physical health. “People were literally becoming drunkards, and the more a person became a drunkard, the more pleasure Stalin got from it.”
…the use and abuse of alcohol is crucial to understanding the dynamics of autocratic rule in Russia.
What else do you learn from this book? It seems that Raymond Llull, still an underrated figure, is the one who spread vodka-making techniques to much of Europe (he also discovered an early version of social choice theory in the 13th century, not to mention he advanced the theory of computation).
I liked this bit:
The financial needs of the early Russian state dictated pushing the more potent and more profitable distilled vodka over less lucrative beers and meads. To maximize its revenue, the state not only benefited from its subjects’ alcoholism, but actively encouraged it.
As late as 1927, the state’s vodka monopoly accounted for ten percent of government revenue.
Gorbachev, by the way, was known as “Mineral Water Secretary,” because he did not drink like the others did. Here is a joke from the book:
Q: What is Soviet business?
A: Soviet business is when you steal a wagonload of vodka, sell it, and spend the money on vodka.
From the Yeltsin years to the Putin years, the average Russian boy lost a measured eighteen percent of his muscle mass.
Recommended, and you can pre-order the book here. Here is my earlier post, “The culture of guns, the culture of alcohol.”
Along America’s barbecue belt (sentences to ponder)
…nuclear weapons became increasingly more lethal as they became smaller and more numerous. Their growing numbers meant more near-accidents and system failures, too, as when in 1961 a B-52 crashed and burned as it neared Johnson Air Force Base outside Goldsboro, N.C., dropping a nuclear warhead that buried itself deep into the ground near the intersection of two state highways without exploding. As far as anyone knows, it’s still there.
That is from Arthur Herman, reviewing Eric Schlosser’s Command and Control.
Russian shot in quarrel over Kant’s philosophy
An argument in southern Russia over philosopher Immanuel Kant, the author of “Critique of Pure Reason,” devolved into pure mayhem when one debater shot the other.
A police spokeswoman in Rostov-on Don, Viktoria Safarova, said two men in their 20s were discussing Kant as they stood in line to buy beer at a small store on Sunday. The discussion deteriorated into a fistfight and one participant pulled out a small nonlethal pistol and fired repeatedly.
The victim was hospitalized with injuries that were not life-threatening. Neither person was identified.
It was not clear which of Kant’s ideas may have triggered the violence.
The link is here, and for the pointer I thank Michael Rosenwald.
A simple theory of recent American intellectual history
Throughout the 1970s and most of the 1980s, the so-called “right wing” was right about virtually everything on the economic front. Most of all communism, but also inflation, taxes, (most of) deregulation, labor unions, and much more, noting that a big chunk of the right wing blew it on race and some other social issues. The Friedmanite wing of the right nailed it on floating exchange rates.
Arguably the “rightness of the right” peaks around 1989, with the collapse of communism. After that, the right wing starts to lose its way.
Up through that time, market-oriented economists have more interesting research, more innovative journals, and much else to their credit, culminating in the persona and career of Milton Friedman.
I’ve never heard tales of Paul Samuelson’s MIT colleagues mocking him for his pronouncements on Soviet economic growth. I suspect they didn’t.
Starting in the early 1990s, the left wing is better equipped, more scholarly, and also more fun to read. (What exactly turned them around?) In the 1990s, the Quarterly Journal of Economics is suddenly more interesting and ultimately more influential than the Journal of Political Economy, even though the latter retained a higher academic ranking. The right loses track of what its issues ought to be. There is no real heir to the legacy of Milton Friedman.
The relative rise of the Left peaks in 2009, with the passage of Obamacare and the stimulus. From that point on, the left wing, for better or worse, is a fundamentally conservative force in the intellectual arena. It becomes reactive and loses some of its previous creativity.
Over those years, right wing thought, on the whole, became worse and more predictable and also less interesting. But excess predictability now has infected the left wing also. Attacking stupid ideas put forward by Republicans, whether or not you think that is desirable or necessary, has become their lazy man’s way forward and it is sapping their faculties.
Yet I am not pessimistic about discourse. Our time is a wonderful era for independent thinkers, and many of them are bloggers, too. It’s as if we have created a new political spectrum in a very small sliver of the world, a perhaps inconsequential eddy in a much larger and often unpleasant vortex.
The Political Legacy of American Slavery
That is a new paper (pdf) by Avidit Acharya, Matthew Blackwell, and Maya Sen, here is the abstract:
We show that contemporary differences in political attitudes across counties in the American South trace their origins back to the influence of slavery’sprevalence more than 150 years ago. Whites who currently live in Southern counties that had high shares of slaves population in 1860 are less likely to identify as Democrat, more likely to oppose affirmative action policies, and more likely to express racial resentment toward blacks. These results are robust to accounting for a variety of attributes, including contemporary shares of black population, urban-rural differences, and Civil War destruction. Moreover, the results strengthen when we instrument for the prevalence of slavery using measures of the agricultural suitability to grow cotton. To explain our results, we offer a theory in which political and racial attitudes were shaped historically by the incentives of Southern whites to propagate racist institutions and norms in areas like the “Black Belt” that had high shares of recently emancipated slaves in the decades after 1865. We argue that these attitudes have, to some degree, been passed down locally from one generation to the next.
The Japanese food transition
1. Peak “buckwheat noodle” came in 1914.
2. Peak horse meat came in the 1960s.
3. Peak whale meat came in 2005-2006, although some of that supply was frozen and has not yet been consumed.
4. The consumption of vegetables has been broadly constant for decades.
5. Yearly per capita pork consumption has risen from 1.1 kg in 1960 to 11.7 kg in 2008. During the 1960s, the consumption of chicken meat nearly quintupled.
6. In 1876, per capita sake consumption was 17 liters per capita, which was very high for Japanese income at the time. You can compare that to America’s 7 liters of ethanol per drinking age person in 1870.
7. Land area under cultivation peaked in 1921. The United States and China, however, cultivated more land in 2000 than they did in 1900.
8. Japan’s paddy fields peaked in 1969.
9. In 2006 Japanese meat consumption edged out fish consumption for the first time.
All of those estimates are from a very interesting book by Vaclav Smil and Kazuhiko Kobayashi, Japan’s Dietary Transition and Its Impacts.