Category: History
Free Money
Christopher Beam's piece on libertarianism had some amusing moments:
Say we started from scratch and created a society in which government covered
only the bare essentials of an army, police, and a
courts system. I’m a farmer, and I want to sell my crops. In Libertopia, I can sell them in exchange for money. Where does
the money come from? Easy, a private bank. Who prints the money? Well,for that we’d need a central bank–otherwise you’d have a thousand
banks with a thousand different types of currency.
A monetary system with thousands of banks issuing their own currency! Ho, ho, ho….those wacky libertarians where do they get their crrrrrazy ideas?
Images from Nick Szabo, the Minneapolis Fed, the San Francisco Fed, the Philadelphia Fed and Larry Schutts.
Addendum: Scott Sumner has other bones to pick.
Mexico fact of the day
Until the mid-1990s, Mexico spent just 0.008% of annual economic output on law enforcement, among the lowest rates in the world. The average officer earns $500 a month, or about half the average per-capita income in Mexico. Seven of 10 finished only primary school. More than 400 municipalities have no local police at all.
Here is much more, mostly on the battle with the drug cartels.
Women and alcohol
Is there a better blog post title? Here is the abstract of a new paper, "Women or Wine, Monogamy and Alcohol":
Intriguingly, across the world the main social groups which practice polygyny do not consume alcohol. We investigate whether there is a correlation between alcohol consumption and polygynous/monogamous arrangements, both over time and across cultures. Historically, we find a correlation between the shift from polygyny to monogamy and the growth of alcohol consumption. Cross-culturally we also find that monogamous societies consume more alcohol than polygynous societies in the preindustrial world. We provide a series of possible explanations to explain the positive correlation between monogamy and alcohol consumption over time and across societies.
That's by Mara Squicciarini and Jo Swinnen.
Books to crave: *A Great Leap Forward: 1930s Depression and U.S. Economic Growth*
From the ever-interesting Alexander Field:
This thoughtful re-examination of the history of U.S. economic growth is built around a novel claim, that potential output grew dramatically across the Depression years (1929-1941) and that this advance provided the foundation for the economic and military success of the United States during the Second World War as well as for the golden age (1948-1973) that followed. Alexander J. Field takes a fresh look at growth data and concludes that, behind a backdrop of double-digit unemployment, the 1930s actually experienced very high rates of technological and organizational innovation, fueled by the maturing of a privately funded research and development system and the government-funded build-out of the country's surface road infrastructure. This substantive new volume in the Yale Series in Economic and Financial History invites renewed discussions on productivity growth over the last century and a half and on our current prospects.
Paul Krugman’s predictions from 1998
David Henderson directs us to these. David is skeptical, and so is this source (and Megan), but I think Krugman was more right than wrong, at least if you allow him some slight rewordings. Here were his picks, noting that he offers more discussion and context at the first link:
* Productivity will drop sharply this year. Nineteen ninety-seven, which was a very good year for worker productivity, has led many pundits to conclude that the great technology-led boom has begun. They are wrong. Last year will prove to have been a blip, just like 1992.
* Inflation will be back. Wages are rising at almost 5 percent annually, and the underlying growth of productivity is probably only 1.5 percent or less. Sooner or later, companies will have to start raising prices. In 1999 inflation will probably be more than 3 percent; with only moderate bad luck–say, a drop in the dollar–it could easily top 4 percent. Sell bonds!
* Within two or three years, the current mood of American triumphalism–our belief that we have pulled economically and technologically ahead of the rest of the world–will evaporate. All it will take is a few technological setbacks or a mild recession here while Europe or Japan recovers a bit.
* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.
* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
* Sometime in the next 20 years, maybe sooner, there will be another '70s-style raw-material crunch: a disruption of oil supplies, a sharp run-up in agricultural prices, or both. And suddenly people will remember that we are still living in the material world and that natural resources matter.
I'll number them 1-6. On #1, Krugman should not have committed to the time frame of one year, but overall, in my view, productivity hasn't done well since he wrote. A lot of the measured per worker gains come from firing unproductive people, or overvaluing the contributions of the finance, health care, government consumption, and education sectors, not from much expanding the actual production possibilities frontier. I'll be writing more on this, and while it involves some complex issues, overall I side with Krugman.
On #2, Krugman was wrong about inflation returning, in part because he was overly optimistic about wage growth. #3 is debatable, and while one of the modal claims is wrong about Europe and Japan, he was not obviously wrong about the United States.
On #4, we may soon be reaching "peak internet." Parts of #4 and #5 may sound ridiculous, and Krugman did underestimate how much people have to say to each other, and the future of the information economy. Nonetheless, keep in mind the information technology sector has not contributed net job growth over the last decade. Smart, curious people consistently overestimate the economic impact of information technology, in part because it improves their own lives so much. #6 turned out to be true.
That's a mixed record, as anyone would have, but more insightful I think than the critics are granting.
Many of Krugman's current false (modal) predictions stem from his claims that if left-wing politicians would "get tough" and take their case directly to the public, good progressive results will follow. I view that claim as a move into a non-scientific mode of thought. While it is sometimes true, usually it is not, and there is plenty of political science literature on how hard it is to form a winning political strategy through rhetoric.
Without such a view, however, Krugman would have to entertain the possibility that moderate outcomes, or sometimes observed outcomes, are more likely second-, third-, or fourth-best efficient than he would like to admit. If you took away this one rather weak prop of his worldview, he could quite readily turn into a conservative, of course in the literal rather than the right-wing partisan sense.
Civil Society and the Iceberg Economy
I enjoyed this piece by Rebecca Solnit on what she calls the iceberg economy and the power of voluntarism:
Who wouldn’t agree that our society is capitalistic, based on competition and selfishness? As it happens, however, huge areas of our lives are also based on gift economies, barter, mutual aid, and giving without hope of return (principles that have little or nothing to do with competition, selfishness, or scarcity economics). Think of the relations between friends, between family members, the activities of volunteers or those who have chosen their vocation on principle rather than for profit.
…The shadow system provides soup kitchens, food pantries, and giveaways, takes in the unemployed, evicted, and foreclosed upon, defends the indigent, tutors the poorly schooled, comforts the neglected, provides loans, gifts, donations, and a thousand other forms of practical solidarity, as well as emotional support.
With much of this I wholeheartedly agree. But Solnit's piece is marred by an analytical framework that places cooperative charitable activities poles apart and in opposition to unprincipled, selfish capitalism. Charity and trade, however, are both species of voluntarism more closely aligned with one another than with the coercive apparatus of the state. Indeed, it is through markets that human beings achieve the most extensive cooperation. True, capitalist cooperation is not as deep as that of say the family but precisely because it is not as deep it is far wider in scope, encompassing the world. To propose the deep ties of the family as an alternative to capitalist cooperation is to understand neither and when implemented to be inimical to both.
In the introduction to The Voluntary City (note the title) Peter Gordon, David Beito and myself argued for a more inclusive framework.
The authors of this volume manifestly include non-profits in the market sector. The inclusion is important because by focusing on for-profit firms proponents of markets may have overstated the case for markets narrowly conceived. Yet by ignoring the role of non-profits, opponents of markets may have understated the case for markets broadly conceived. Alternatively put, what conventional economics refers to as market failure may actually be a limited set of problems associated with for-profit firms and markets. If the term "market" is broadened to include non-profit firms and other voluntary but not for-profit organizations, the scope of such failure may be diminished. Thus, rather than saying that the authors of this volume argue for a larger role for markets, it is more revealing to say that they argue for a larger role for civil society.
One virtue of the term civil society is that it is not wrapped up in the same baggage as the term markets; in particular, to favor civil society is not necessarily to regard self-interest as the sole or even most important motivator of human action. Unfortunately, the market/government debate has often proceeded as if it were a debate between self-interest and other-regardingness. Yet there is growing support for the view that our ancestors learned to forge connections and developed a social nature for the practical reason that such connections enhanced survival, just as did their capacity for self-interest (Ridley 1996; Wright 2000). Humans are neither purely self-interested nor purely other-regarding; humans are individuals who join groups and they possess all the skills appropriate to such a classification. It should come as no surprise then that other-regardingness is not absent from markets and self-interest is not absent from government.
Hat tip to my friends at The Browser.
Addendum: Andrew Gelman comments.
Papua New Guinea fact of the day
An analysis of this ancient DNA, published on Wednesday in Nature, reveals that the genomes of people from New Guinea contain 4.8 percent Denisovan DNA.
And who are they?
An international team of scientists has identified a previously shadowy human group known as the Denisovans as cousins to Neanderthals who lived in Asia from roughly 400,000 to 50,000 years ago…
Here is the article. It is suggested that the Denisovans are quite distant from both humans and Neanderthals. Here is the first cut take from Gene Expression. Here is more, from John Hawks. And more here. Ongoing updates here.
Where did game theory come from?
The best book to read on that topic is Robert Leonard's new and noteworthy Von Neumann, Morgenstern, and the Creation of Game Theory. Excerpt:
Von Neumann's seminal game paper was part of a rich contemporaneous discussion of the mathematics of chess and parlour games in the first three decades of the century, involving diverse contributors, from Lasker to Zermelo to Konig, Kalmár, and Borel. It was a multifaceted literature, embracing Lasker's philosophical probing of the place of struggle in business and war, Zermelo and the Hungarians' set-theoretic analyses of chess; and Borel's own attempt to create a novel form of social inquiry, blending probability and psychology.
Here is the book's home page, the non-cached copy is not available at the moment. Here are working papers by Robert Leonard, on the history of game theory.
Literary reputations
Somewhat on the way down:
Overall, in other searches also, I see a golden age for "high fiction" in the 1950-1970 period.
Holding steady:
Dwindling:
Up, but down since 2000
On the way up:
Other than very recent authors, these are harder to find than you might think.
Falling off a cliff:
Typing in "Arnold Bennett" is like shooting fish in a barrel.
*Apollo’s Angels: A History of Ballet*
That is the new book by Jennifer Homans and it is one of the very best non-fiction works of the year, impeccably written and researched. Here is the excerpt of greatest interest to most economists:
None of the Russian ballet's many admirers, however, would be more central to the future of British ballet than John Maynard Keynes. Keynes is usually remembered as the preeminent economist of the twentieth century, but he was also deeply involved with classical dance and a key player in creating a thriving British ballet…
For Keynes…classical ballet became an increasingly important symbol of the lost civilization of his youth…With Lydia at his side, Keynes plowed his talent and considerable material resources into theater, painting, and dance, even as he was also playing an ever more prominent role in political and economic affairs on the world stage.
The couple's Bloomsbury home became a meeting place for ballet luminaries (Lydia's friends) and a growing coterie of artists and intellectuals who saw ballet as a vital art…When Diaghilev died in 1929, many of them joined Keynes in establishing the Camargo Society, an influential if short-lived organization devoted to carrying Diaghilev's legacy forward — and to developing a native English ballet. Lydia was a founding member and performed in many of the society's productions…Keynes was its honorary treasurer.
In the mid-1930s, Keynes also built the Arts Theatre in Cambridge, funding it largely from his own pocket…As Britain sank into the Depression, Keynes's interest in the arts also took on an increasingly political edge: "With what we have spent on the dole in England since the war," he wrote in 1933, "we could have made our cities the greatest works of man in the world."
I did, by the way, very much enjoy Black Swan (the movie), despite its highly synthetic nature, a few disgusting scenes, and its occasional over-the-top mistakes. So far it's my movie of the year along with Winter's Bone, the Israeli movie Lebanon, and the gory but excellent Danish film, Valhalla Rising.
My favorite recording of Swan Lake (and my favorite classical CD of 2010) is conducted by Mikhail Pletnev (controversial but there is a good review here), who was recently cleared of child abuse charges in Thailand.
Google ngram: the word “liberty”
For the pointer I thank Kevin Edwards. The link here allows you to see the full graph. In contrast, here is "freedom."
Sentences to ponder
In 1902, European nations responded to a Venezuelan government debt default with military force. German, Italian and British gunboats blockaded ports, seized customs houses and bombarded a Venezuelan fort. Venezuela caved, agreeing to restructure and pay its debts.
These days, when European leaders see Greece and Ireland on the brink of default, they don't send gunboats–they send money.
That's from Kevin Hassett.
*The Big Ditch*
The authors are Noel Maurer and Carlos Yu and the subtitle of this excellent book is How American Took, Built, Ran, and Ultimately Gave Away the Panama Canal. In the old days they might have called this book The Panama Canal. Excerpt:
In 1920, when the Panama Canal first opened to commercial traffic, real freight rates between Britain (Liverpool) and the West Coast of the United States (Portland, Oregon) dropped 27 percent. In 1921, the canal's first year of operation, real shipping costs dropped another 35 percent…by 1922, shipping costs had fallen 31 percent below their prewar average.
Within a few years, oil prices in California and Texas had converged. The authors estimate a social rate of return of nine percent for the first two decades of the canal's existence and they do include the costs of defending it.
In my view, whether as tourists, economists, or historians, people do not spend enough time thinking about the Panama Canal. Here is the book's home page.
*Bourgeois Dignity*
The author is Deirdre McCloskey and the subtitle is Why Economics Can't Explain the Modern World. It is on the cultural and intellectual foundations of the Industrial Revolution and I am convinced by the major thesis. Here is one version of it:
My libertarian friends want liberty alone to suffice, but it seems to me that it has not. Changing laws is not enough (though it is a good start — and rotten laws can surely stop growth cold.) True, from 1600 on the new dignity and the new liberty normally reinforced each other, and such a reinforcement is one possible source of the economist's "non-linearities." Dignity and liberty are admittedly hard to disentangle. But dignity is a sociological factor, liberty an economic one.
Here is a very good interview with McCloskey about the new book.
*The Long Divergence*
The author is Timur Kuran and the subtitle is How Islamic Law Held Back the Middle East. My previous and longer discussion of Timur is here. Here is a short excerpt from the book:
…several institutions…blocked evolutionary paths in the direction of modern banking: the Islamic law of commercial partnerships, the Islamic inheritance system, the waqf system, and the individualism of Islamic law. All were introduced earlier as causes of the region's other handicaps. Like the region's previously discussed symptoms of underdevelopment, delayed financial modernization was an unintended consequence of institutional choices that served laudable objectves.
This book avoids and indeed remedies two major problems often found elsewhere. First, many books on Islam are weak on law and economics or simply ignore the topic altogether. Second, many books on "the New Institutional Economics" give generalities and taxonomy, rather than concrete, historically well-founded analysis.