Category: History
Does mismeasured inflation overturn a relative stagnation thesis?
In the comments, Slocum writes:
My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not — I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.
The fundamental fact is that U.S. real median income has risen at a lower rate since 1973, not that progress has been absent. One might think that the CPI is skewed and there are reasonable arguments to be made in this direction. But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace or spreading to new regions. And that is (roughly) the 1870-1950 period, more than any other time. In other words, if you account for CPI bias, the slowdown in median income growth — the difference — is probably larger than the numbers make it appear, even though in absolute terms both growth rates will be higher than measured.
When some people hear the relative stagnation thesis, their minds shoot to various bogeymen: Paul Ehrlich, ridiculous 1907 proposals to close the patent office, predictions of mass starvation, and so on. The simplest version of the point is that technological progress is not uniform, and that is borne out by thousands of years of human history. This isn't Lake Wobegon, so some periods have to have lower than average growth in living standards than other periods. One of those periods happens to be now, since 1973, give or take. And from that flows many propositions of importance, for politics too.
You can buy the eBook here.
Tim Worstall gets it
There was somewhere between none and fuck all economic growth in the US (and many other economies) in the 1929-1945 period. But the production frontier continued to move outwards, indeed, the 30s are one of the all time great decades for both technology and productivity improvements. The 50s to the 80s were simply playing catch up, in the same way that China and India are now.
And:
For it’s…saying that the great Post WWII economic expansion was nothing to do with high unionisation rates, Bretton Woods, restrictions upon capital movements, high marginal tax rates, fixed exchange rates or any other of the “liberal” or “social democratic” (use one for the US, the second for Europe) theories that are so often advanced.
The full post is here.
China fact (book) of the day
When it comes to the overall death toll, for instance, researchers so far have had to extrapolate from official population statistics…Their estimates range from 15 to 32 million excess deaths. But the public security reports compiled at the time, as well as the voluminous secret reports collated by party committees in the last months of the Great Leap Forward, show how inadequate these calculations are, pointing instead at a catastrophe of a much greater magnitude: this book shows that at least 45 million people died unnecessarily between 1958 and 1962.
That is from Frank Dikötter's Mao's Great Famine: The History of China's Most Devastating Catastrophe, 1958-1962, which is one of the scariest books I have read. Here is another passage, I am not sure how well it is sourced:
Mao was delighted. As reports came in from all over the country about new records in cotton, rice, wheat or peanut production, he started wondering what to do with all the surplus food. On August 4 1958 in Xushui, flanked by Zhang Guozhong, surrounded by journalists, plodding through the fields in straw hat and cotton shoes, he beamed: "How are you going to eat so much grain? What are you going to do with the surplus?"
"We can exchange it for machinery," Zhang responded after a pause for thought.
[Showing a poor understanding of Say's Law] "But you are not the only one to have a surplus, others too have too much grain! Nobody will want your grain!" Mao shot back with a benevolent smile.
"We can make spirits of out of taro," suggested another cadre.
"But every county will make spirits! How many tonnes of spirits do we need? Mao mused. "With so much grain, in future you should plant less, work half time and spend the rest of your time on culture and leisurely pursuits, open schools and a university, don't you think?…You should eat more. Even five meals a day is fine!"
Here are some reviews of the book.
*The Great Stagnation*, excerpt
From my new eBook, here is one bit:
I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services. Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.
I do not hold the view that relative stagnation will last forever, only that it has lasted for thirty-seven years and that it will not end immediately. Oddly, it is the so-called "economic right" — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.
You can pre-order the eBook; the Amazon link is here, Barnes&Noble here, $4.00. I offer further information on the book here.
*Peddling Protectionism*
The author is the excellent Douglas A. Irwin and the subtitle is Smoot-Hawley and the Great Depression. The book's home page is here. Excerpt:
The popular perception is that the Smoot-Hawley tariff raised import duties to record levels and helped cause the Great Depression. In fact, the legislated tariff increase was much smaller than commonly imagined, although it still managed to erase 15 percent of America's imports of dutiable goods upon impact. For reasons that will be explained, it was the deflation of prices that accompanied the Great Depression that pushed the tariff to near record levels, restricting trade even more…most economic historians do not believe that the Smoot-Hawley tariff played a large role in the macroeconomic contraction experienced during the Great Depression.
It is well known that Doug is hard at work on what will prove to be "the modern Taussig," a history of international trade, and protection, in the context of the rise of the American economy; one assumes that this more focused book will be feeding into the larger whole.
Has school segregation gone down since MLK?
I received this very useful email from Ken Hirsch:
I looked into the basis for the statement I read on Marginal Revolution that "American schools are more segregated by race and class today than they were on the day Martin Luther King, Jr. was killed". The source that was given did not actually have statistics going back to the 1960s, but the author of the report, Gary Orfield, pointed me to an earlier report, "Brown at 50: King's Dream or Plessy's Nightmare" (http://tinyurl.com/BrownAt50), which did contain a time series for one measurement, "Percent of Black Students at Majority White Schools". There's a graph of this statistic for Southern black children on the cover of the report which I am attaching to this email.
This statistic is quite problematic. Most starkly, in "majority minority" states, such as Texas and California, this statistic measures the *opposite* of integration. The more evenly distributed that ethnic groups are in schools, the lower the the number. If all schools in California had exactly the same ethnic make-up, there would be no majority white schools, so 0% of black students would be in them! Indeed, in Table 11 from this report (p. 27), California is given as the most segregated state by this measure.
The other two measures that Dr. Orfield uses have similar problems. Most of the change in all three are probably caused by the increase in the percent of Hispanics and the decrease in the percent of non-Hispanic whites, not by segregation. By most mathematically sensible measures, segregation has decreased and integration has increased over the last 20 years. See "Measuring School Segregation" by David M. Frankel and Oscar Volij for details: http://www.econ.iastate.edu/research/working-papers/p11808
The original post was here.
*The Great Stagnation*
The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better.
That's the title and it's by me, the Amazon link is here, Barnes&Noble here. That's an eBook only, about 15,000 words, and it costs $4.00. If you wish, think of it as a "Kindle single."
Your copy will arrive on January 25 and loyal MR readers are receiving the very first chance to buy it. Very little of the content has already appeared on MR.
Many of you have read my article "The Inequality that Matters," but there I hardly touched on median income growth. That is because I was writing this eBook.
Has median household income really stagnated in the United States? If so, why? Are the causes political or something deeper? What are the important biases in how we are measuring national income and productivity and why do they matter for economic policy? Are we getting enough value for all the extra money we are spending on the health care and education sectors? What do some major right-wing and left-wing thinkers miss about this phenomenon?
How does all this relate to our recent financial crisis?
I dedicated this book to Michael Mandel and Peter Thiel, two major influences on some of the arguments.
Why did big government arise in the late 19th and early 20th centuries, what is its future, and why is science so important for macroeconomics? How can we fix the current mess we are in?
Read (and buy) the whole thing.
I wish to thank my publisher, Dutton, for accommodating this experiment in a new medium. I believe it will be one piece of our new publishing future and here is your chance, as a reader, to try it out.
*The Return*
The author is Daniel Treisman and the subtitle is Russia's Journey from Gorbachev to Medvedev. Is this the first non-fiction book to be making my "Best of 2011" list? Most of all, it argues persuasively that, rather than botching the transition away from communism, the Russians/Soviets did a remarkably good job, relative to what could have been expected. It's also the best all-round book-length treatment of what the subtitle indicates and it is readable as well. Excerpt:
But [under Putin] did the bureaucracy become more effective and the population safer? The state certainly grew. In Putin's eight years as president, about 363,000 additional bureaucrats were hired, mostly federal agents stationed in the regions. Law enforcement mushroomed. In the United States, there are two judges and prosecutorial employees per 10,000 residents. When Putin took over, Russia had eight; when he left, it had fourteen. Federal spending on law enforcement and national security rose from $4 billion in 1998 to $26 billion in 2007.
Despite this influx of resources, most indicators suggest the state became less, not more, effective. It built less housing, paved fewer roads, and laid fewer water mains and gas lines per year than under Yeltsin. The number of public schools and buses in service fell faster than before. Reforms of the education and health systems were repeatedly postponed…As for keeping citizens safe, few saw any improvement.
Here is a recent review of the book from the WSJ; I liked the book more than he did.
Road safety
Odds in New York City in 1900 of dying in a horse accident: 1 in 19,000
Odds today of dying there in an automobile accident: 1 in 26,000
That is from the February 2011 Harper's Index.
*Monocle* and high-altitude cities
Edition Alpino, for this month's issue. I had not known there was a periodical called Monocle and now I have a piece in it, next to the ads for fancy watches and articles geared toward the European elite. (Given the business model of this periodical, I believe the piece will never be on-line.) There is also an article "Radio: Four modern alternatives to Alpine horn blowing." And "Monocle goes on snow patrol with the Federal Republic's Gebirgsjägerbrigade, the traditional Alpine troops with a very modern mission."
My fun but not very scholarly bit asks why so many cities of the far north are so pleasant to travel to, the task the editors set me. Doing the piece got me thinking why cold, high altitude cities such as La Paz and Kathmandu do not always offer the same virtues.
In high altitude cities it is harder to raise large herds of pack animals, cultivate broad agricultural plains, establish critical mass in terms of size, or trade with heighbouring regions. There are also fewer sea connections. If we look in Europe, the largest Swiss cities are near the plain rather than tucked into the Alps.
This may be historical accident, but two of the more successful high altitude cultures came in the New World, namely the Incas and the Aztec alliance. Is that because domesticated animals were less important on this side of the Atlantic? That tomatoes and potatoes and corn can do well or better at high altitudes? In and near Tenochitlan of course, the Nahuas built their own extensive network of canals.
One further note on Foucault, concerning methodological individualism
In my previous post, I neglected one point. Reading Foucault is one useful path out of extreme positions of methodological individualism. By methodological individualism I mean the view that "method aimed at explaining and understanding broad society-wide developments as the aggregation of decisions by individuals," as Wikipedia puts it.
Foucault understood how actual historical explanation relies on the use of broad categories, classes, and exemplars, and in a manner which is not logically reducible to statements about individual beliefs and desires. The writer (theorist) has nothing close to a complete mental model of how the interacting categories reduce to component individual parts, and so some or most of the moving parts of the explanation retain their autonomy at a partially macro level. The Austrians will kick and scream on this one, but if you combine imperfect information and the sense/reference distinction, methodological individualism ends up as more of a slogan than anything else. There is a reflective equilibrium to the explanatory process, and micro relies on some macro foundations, not just vice versa, and individuals rely on the social for some of their cues. Atomistic reduction to the level of the individual in general will not succeed.
The denier of strict MI is not committed to extreme Hegelian views about the autonomous existence of collectivities and it is debatable how much even Hegel himself made that mistake.
I grant that Foucault takes his own method too far in the anti-individualist direction, as did Hegel.
Foucault is by no means the only or even the best path out of extreme methodological individualism. See this article by David Levy or late Wittgenstein or William James on pluralism, for instance, or more recently Geoffrey Hodgson, perhaps the best place to start. Here is a quick overview of some of the debates, though it does not cover the best criticisms. Neuroeconomics, and modular models of the mind, also can be read as critiques of MI, suggesting, as did Nozick, there is no particular reason to stop at the level of the individual in doing the explanation.
Oddly, for all their talk about methodological individualism, economists hardly ever engage in the medium for which it is most appropriate: biography.
A while ago I wrote a review essay on biography and economics. Here's a challenge: if economics is so powerful, and MI is so persuasive, try writing a biography of a person, using economic tools, and see how much of that person's life you can explain. It is a humbling and instructive experience and you can read my attempt here.
*FIxing the Sky: The Checkered History of Weather and Climate Control*
For centuries, farmers in Austria shot consecrated guns at storms in attempts to dispel them. Some guns were loaded with nails, ostensibly to kill the witches riding in the clouds; others were fired with powder alone through open empty barrels to make a great noise — perhaps, some said, to disrupt the electrical balance of the storm. In 1896, Albert Stiger, a vine rower in southeastern Austria and burgomaster of Windisch-Feistritz, revived the ancient tradition of hagelschiessen (hail shooting) — basically declaring "war on the clouds" by firing cannon when storms threatened. Faced with mounting losses from summer hailstorms that threatened his grapes, he attempted to disrupt, with mortar fire, the "calm before the storm," or what he observed as a strange stillness in the air moments before the onset of heavy summer precipitation.
That is from the new and quite good book by James Rodger Fleming. If you are wondering, Windisch-Feistritz is now in Slovenia and it is known as Slovenska Bistrica. It looks like this.
Economics and Michel Foucault
Joshua Miller, a loyal MR reader, asks:
Another cut on local knowledge: what is economics' relationship to Michel Foucault? Often I see folks like you and Hanson making points that the rest of the social sciences and humanities would call Foucauldian, about the role of disciplinary power in knowledge-production, but you don't seem to ever reference or perhaps even read him. Perhaps he is simply not considered very interesting? Given the fact that there is some history of economics in his "Les Mots and les choses," I'd think there'd be more of an attempt to discredit or claim him.
Foucault is interesting, but use him with caution. Most of his books have not held up very well as history, even if he succeeded in drawing people's attention to some neglected factors. On top of that, his theoretical framework is incoherent. Try reading The Archaeology of Knowledge. I find The Order of Things to be an insightful but skewed account of the seventeenth century; detailed objections aside, it goes astray by assuming, implicitly, explicitly or otherwise, that structural categories somehow interact with each other in the world of ideas. It's much more micro and disaggregated than he lets on, but still I am glad I read the book. This volume is a good, readable introduction to his work.
Perhaps Foucault is best on prisons and hospitals, though again caveat emptor on the history. His most valuable insight, both theoretically and historically, is that what appears to be "enlightenment" (or for that matter "Enlightenment") is often anything but.
Foucault is important, and he deserves to be read, but I am not sure he will be much read fifty years from now. I also view "engaging with him" as a much overdone and much overrated exercise, carried in large part by the less salubrious tendencies in Continental and U.S. humanities scholarly discourse. It is better to simply work on the topics he cared about, using his books as a reminder to consider some different angles.
Did you know that Foucault — at least the late Foucault — appreciated Mises, Hayek, and Friedman?
The 19th century was truly bad for Mexico and for Mexicans
From an international perspective, Mexicans' height in the mid-eighteenth century was "not too short"…The declining trend over the second half of the eighteenth century was nothin exceptional in international perspective either. The early nineteenth century, however, was a watershed as the trends diverged: height recovered or stagnated in France, Spain, and other countries, but it continued to decline in Mexico: by the 1830s, Mexicans had finally become "too short." …I have proposed that population growth, and more frequent El Niño events, and real grain prices reduced the availability of food and had a likely detrimental effect on living standards.
That is from an essay by AmÃlcar Challú, from the new and excellent book Living Standards in Latin American History: Height, Welfare, and Development, 1750-2000, edited by Ricardo D. Salvadore, John H. Coatsworth, and AmÃlcar Challú.
Should we subsidize or tax research into time travel?
Treat this as a balanced budget question, so it's not about fiscal policy. Alternatively, imagine yourself as a benevolent philanthropist: should you support this area of research if you can do so as a free lunch? Or should you try to hinder it?
I believe no one understands the underlying science much at all. But there is some chance that the old science fiction movies are correct and that by time-traveling you alter the course of history, thereby obliterating the universe we used to have. I'll count that as a net negative, while noting there is some chance we end up with a better universe.
On the plus side, the human race will die out anyway. Time travel seems to yield a fairly safe haven. As disaster approaches, keep going back in time a few days, or decades, and that asteroid will never hit you. This is especially appealing if you are transporting back a body (upload?) which is programmed to be more or less immortal and you can take the technology with you, so as to keep on going back as time progresses.
On one side: immortal life for many of the last humans and thus immortality for the human race. And with time they may learn how to thwart the asteriod. On the other side: some probability of swapping universes.
So should we subsidize or tax research into time travel?