Category: History

Regulation and Distrust

In an interesting paper, Aghion, Algan, Cahuc and Shleifer show that regulation is greater in societies where people do not trust one another.  The graph below, for example, shows that societies with a greater level of distrust have stronger minimum wage laws.  Note that the result is not that distrust in markets is associated with stronger minimum wages but that distrust in general is associated with greater regulation of all kinds.  Distrust in government, for example, is positively correlated with regulation of business.  Or to put it the other way, trust in government (as well as other institutions) is associated with less regulation.

minwagedistrustrespectdistrustAghion et al. argue that the causality flows both ways on the regulation-distrust nexus. Distrust makes people turn to government but in a society with a lot of distrust government is often corrupt and this makes people distrust even more.  Crucially, when people distrust others they invest not in the highest return projects but in human and physical capital that is complementary to distrust–for example, they invest in human capital that helps them bond with their group/tribe/family rather than in human capital that helps them to bond with “outsiders” and they invest in physical capital that is more difficult to expropriate rather than in easier to expropriate capital, even though in both cases the latter investments may be the all-else-equal higher return investments.  Such distrust traps are quite similar to Bryan Caplan’s idea traps.

Thus, societies with a lot of distrust generate regulation and corruption and citizens who don’t have the skills or preferences to break out of the distrust equilibrium.  Consider, for example, that in societies with a lot of distrust parents are less likely to consider it important to teach their children about tolerance and respect for others.

Eduardo Barreiros and the Recovery of Spain

That's the new and interesting Hugh Thomas book about the leading Spanish businessman of the 20th century, Eduardo Barreiros.  Barreiros entered into car manufacturing, but with the Cuban government as his business partner:

Luis Morente, more subtly, thought that the Cuban government wanted to use Eduardo to see whether Communism could collaborate with capitalism as it has done in recent years in China.  Businesses that were half-private, half-state-controlled (empresas mixtas) followed.  But there were innumerable difficulties: first, the government would select personnel to work with Eduardo according to their political position; second, the "second-rank executives" often found themselves being analysed by their subordinates; absenteeism was not denounced and indeed not considered as such; in Pinar del Rio, workers had to be allowed off to work in the tobacco harvest; incentives and productivity played no part.  The party, the Bank of Cuba, the unions, the provincial government were always intervening; energy supplies were irregular; parts were delivered very slowly; no one cared if supplies deteriorated before delivery; and in 1988, after a hurricane, the factory was flooded.  All these things needed Eduardo's continual attention.

It should be noted that, relative to the standards of the Cuban economy, the venture was a success.

Languages in everything

Wikipedia remains impressive and it outlasts its critics:

The Basque-Icelandic pidgin was a pidgin spoken in Iceland in the 17th century. It developed due to the contact that Basque traders had with the Icelandic locals,[1][2] probably in Vestfirðir.[3] The vocabulary was heavily based upon the Labourdin Basque language, but also in an Atlantic pidgin with Romance and English influences.

It is documented in two glossaries found around 1905 by Jón Helgason in the Arnamagnæan Collection of the University of Copenhagen:[3][4] Vocabula gallica ("French words") and Vocabula biŠ¿caïca ("Biscayne words"). Helgason brought them to the attention of Christianus Cornelius Uhlenbeck, a versatile linguist from the University of Leyden
with an expertise in Basque. His post-graduate student, N.G.H. Deen,
traveled in 1927 to the Basque Country to collaborate with Julio de
Urquijo on the research that Deen published as his doctorate thesis in
1937. The manuscripts were sent back to Iceland in 1986, but one of
them was lost.

I thank darling Yana for the pointer.  It almost sounds like something from a Borges story…

The new Gabriel García Márquez biography

One day [Alvaro] Mutis climbed the seven flights of stairs, carried two books into the apartment without saying hello, slapped them down on the table, and roared: "Stop fucking about and read that vaina, so you'll learn how to write!"  Whether all García Márquez's friends really swore all the time during these years we will never know — but in his anecdotes they do.  The two slim books were a novel entitled Pedro Páramo, which had been published in 1955, and a collection of stories entitled The Burning Plain (El llano en llamas), published in 1953.  The writer was the Mexican Juan Rulfo.  García Márquez read Pedro Páramo twice the first day, and The Burning Plain the next day.  He claims that he had never been so impressed by anything since he had first read Kafka; that he learned Pedro Páramo, literally, by heart; and that he read nothing else for the rest of the year because everything else seemed so inferior.

That is from the new and noteworthy Gerald Martin biography of García Márquez.  This very impressive (and enjoyable) book was seventeen years in the making.  It's also not a bad way to learn about the political and economic history of northern Colombia.  This should make any short list of either the best non-fiction books this year or the best literary biographies.  The reader also learns the probable origins of the famed spat with Mario Vargas Llosa (p.375); it had to do with a woman, namely Vargas Llosa's wife.

China kiln fact of the day

At around the time of the Industrial Revolution:

Pottery, for instance, was manufactured in both England and China. The
design of the kilns differed greatly, however. English kilns were cheap
to build but very fuel inefficient; much of the energy from the burning
fuel was lost through the vent hole on the top (Figure 4). The typical
Chinese kiln, on the other hand, was more expensive to construct and,
indeed, required more labour to operate. Figure 5 shows how heat was
drawn into the chamber on the left and then forced out a hole at floor
level into a second chamber. The process continued through many
chambers until the air, by then denuded of most of its heat, finally
exited up a chimney. In England, it was not worth spending a lot of
money to build a thermally efficient kiln since energy was so cheap. In
China, however, where energy was expensive, it was cost effective to
build thermally efficient kilns. The technologies that were used
reflected the relative prices of capital, labour, and energy. Since it
was costly to invent technology, invention also responded to the same
incentives.

Check out the accompanying sketch, from a short essay by Robert C. Allen, drawn from his new book The British Industrial Revolution in Global Perspective.  The bottom line seems to be this:

Success in international trade created Britain’s high wage, cheap
energy economy, and it was the spring board for the Industrial
Revolution.

Here is what WolframAlpha gives you for "Industrial Revolution."

How much should we worry about pandemics?

Brett Stephens isn't that worried:

In other words, despite all the processes of globalization that are
said to be leading us toward nature's great comeuppance, trend lines
indicate we are better equipped than ever to minimize the effects of a
pandemic.

Why? Because wealthier people tend to be healthier people, and
because wealthier societies have more to invest in medicine and
research, and because a higher standard of living tends to correlate
with more personal space. Also, because globalization means information
sharing across boundaries, and rapid adoption of best practices, and
greater transparency.

I say think probabilistically, a concept not prominent in his piece.  A one percent chance of one hundred million deaths is, in expected value terms, one million deaths and that is a big deal.  Probably the United States is less vulnerable than it was in 1918, but how many people would die in China, India and many other locales?  How much disruption to trade, travel, and the world economy would take place?  Even in the United States, our public health systems would break down quickly and render many modern medical advances useless (e.g., when would the Tamiflu run out?).  Having lots of living space is wonderful, but it pays off only if people stay home from work and that means dealing with massive absenteeism.  Not pretty.  Better safe than sorry.

Oddly Stephens never mentions that we are living in a raging epidemic now, namely AIDS, which has run for several decades.  For all the virtues of retrovirals, the modern world was quite slow in combating or even checking the disease and still many people, including U.S. citizens, engage in very risky behavior.  Our collective response was not terribly impressive.  Greater wealth does help, but greater wealth also means we should spend more to limit the problem.

Going back to the flu, I was struck by this passage:

In each of the four major pandemics since 1889, a spring wave of
relatively mild illness was followed by a second wave, a few months
later, of a much more virulent disease. This was true in 1889, 1957,
1968 and in the catastrophic flu outbreak of 1918, which sickened an
estimated third of the world's population and killed, conservatively,
50 million people.

I should add that we're not yet "out of the woods" on this wave, since there is a reasonable probability of sustained human-to-human transmission starting in at least one country.  And a virus which lives in many people is a virus which can mutate.

The main thing we should do — invest in public health infrastructure — is in any case a good idea with many possible payoffs, whether a pandemic comes or not.  It is a better investment of money than pursuing the ideal of universal health insurance coverage.  I might add that one of the better arguments for universal coverage is simply that it could lead to better monitoring of some public health issues.

Interview with Robert Barro, on the New Deal and Great Depression

From The Browser, here is one bit:

It’s clear that a lot of the policies that were put into place were
negative, but as to sorting out how important they were, that’s a much
more challenging question.  And I think Roosevelt at the time
recognized ex-post that some of the things he tried were failures and
then his attitude was “OK, it’s a failure I’ll stop doing it.” Which is
actually pretty positive. For example, some of the things he did was
try to organize labor unions and also businesses essentially promoting
monopoly – I don’t think that was a plus.  He was trying really hard to
keep wages and prices from falling with direct influence and that was a
negative. The effect of the expenditure programs is less clear. In the
mid-1930s with the New Deal there was an unusual amount of
infrastructure-type of expenditures. But it’s not actually big enough
to sort out in a statistical sense — to figure out how much it
mattered in terms of the recovery after the trough in 1932-33. I don’t
think we know that that was a mistake, but it’s not clear that it was
all that important.

Barro also offers a reading list on the topic.

Sentences to ponder

Cities that instituted quarantine, school closings, bans on public
gatherings and other such procedures early in the epidemic had peak
death rates 30 percent to 50 percent lower than those that did not.

That is from a study of the pandemic of 1918-1919 and here is more, from 2007.  The best place to follow what is going on in Mexico — where such restrictions are now common — is ElUniversal.  People in Mexico are dying of the flu every day; what is the chance that only the benign version of the virus crosses the border?

Why does the music from Cape Verde sound so sad?

Might one reason be recurring famine?:

Despite its name, Cape Verde is an arid landmass with minimal agricultural potential.  The excess mortality associated with its major famines in unparalleled in relative terms.  A famine in 1773-76 is said to have removed 44 percent of the population; a second in 1830-33 is claimed to have killed 42 percent of the population of seventy thousand or so; and a third in 1854-56 to have killed 25 percent.  In 1860 the population was ninety thousand; 40 percent of Cape Verdeans were reported to have died of famine in 1863-67.  Despite a population loss of thirty thousand, the population was put at eighty thousand in 1870.  Twentieth-century famines in Cape Verde were less deadly, but still extreme relative to most contemporaneous ones elsewhere: 15 percent of the population (or twenty thousand) in 1900-1903; 16 percent (twenty-five thousand) in 1920-22; 15 percent (twenty thousand) in 1940-43; and 18 percent (thirty thousand) in 1946-48…

…such death tolls imply extraordinary noncrisis population growth.  For instance, if the population estimates for 1830 and 1860 are credited, making good the damage inflicted by the famine of 1830-33 would have required an annual population growth rate of about 4 percent between 1833 and 1860 — despite the loss of a quarter or so of the population in 1854-56.

That is all from the new and noteworthy Famine: A Short History, by Cormac O Grada.  Here is the book's home page.

Here are the author's working papers on famine.

False Economy, by Alan Beattie

I enjoyed the book, most of all the chapter comparing Argentina and the United States.  I was struck by this bit:

New York is the only one out of the sixteen largest cities in the northeastern or midwestern states whose population is larger than it was fifty years ago.

Over that same time period our national population has roughly doubled. The subtitle of the book is A Surprising Economic History of the World.

Economists and Societies

That's by Marion Fourcade and the subtitle is Discipline and Profession in the United States, Britain & France, 1890s to 1990s.

I very much liked this book and I might call it one of my favorite history of economic thought books, period.  It skips textual exegesis and looks at what the economics profession actually did — in the comparative sense — in the United States, England, and France.

On France, I liked the data on p.6.  Circa 1981, only 52 percent of French economists thought that rent control reduced the quantity and quality of the housing stock.  Only 49 percent of French economists thought that flexible exchange rates were "effective," compared to 94 percent in the United States and 92 percent in West Germany.  Remember Alex's blog posts on this topic, here and here?

The extent of hierarchy in the profession in England shocked even me:

Joan Robinson, for instance, did not become a professor until the ripe age of sixty-two.  And such a well-respected economist as Roy Harrod never rose higher than a readership at Nuffield College.

Definitely recommended.  Here is the book's home page.