Category: History

Did the United States grow its way out of WWII debt?

by  Tyler Cowen in

Not as much as you might think:

ABSTRACT: The fall in the U.S. public debt/GDP ratio from 106% in 1946 to 23% in 1974 is often attributed to high rates of economic growth. This paper examines the roles of three other factors: primary budget surpluses, surprise inflation, and pegged interest rates before the Fed-Treasury Accord of 1951. Our central result is a simulation of the path that the debt/GDP ratio would have followed with primary budget balance and without the distortions in real interest rates caused by surprise inflation and the pre-Accord peg. In this counterfactual, debt/GDP declines only to 74% in 1974, not 23% as in actual history. Moreover, the ratio starts rising again in 1980 and in 2022 it is 84%. These findings imply that, over the last 76 years, only a small amount of debt reduction has been achieved through growth rates that exceed undistorted interest rates.

That is from a recent paper by Julien Acalin and Laurence Ball.  Via the excellent Samir Varma.

The history of American corporate nationalization

by  Tyler Cowen in

I wrote this passage some while ago, but never published the underlying project:

The American Constitution is hostile to nationalization at a fundamental level.  The Fifth Amendment prohibits government “takings” without just compensation to the owners, and that is sometimes called the “takings clause.”  Since the United States did not start off with a large number of state-owned enterprises, there is no simple and legal way for the country to get from here to there.  Government nationalization of private companies would prove expensive, most of all to the government itself.  More importantly, the strength of American corporate interests has taken away any possible pressures to eliminate or ignore this amendment.

The lack of interest in state-owned enterprises reflects some broader features of the United States, most of all a kind of messiness and pluralism of control.  An extreme federalism has bred a large number of regulators at federal, state, and local levels, often with overlapping jurisdictions.  Each level of government digs its claws into the regulatory morass, and not always for the better, but this preempts nationalization, which would centralize power and control in one level of government.  That is not the American way.

A tradition of strong state-level regulation was built up during the mid- to late 19th century, when the federal government did not have the resources, the reach, or the scope to do much nationalizing.  America developed some very large national commercial enterprises, such as the railroads, Bell (a phone company), and Western Union (a communications and wire service), which were quite large and far-ranging before the federal government itself had reached a mature size.  At that time local government accounted for about half of all government spending in the country and the federal government had few powers of regulation.  It wasn’t quite laissez-faire, but America could not rely on its federal government and this shaped the later evolution of the country.  To handle these booming corporate entities, America created more state-level regulation of business than was typical for the other industrializing Western countries.  That steered Americans away from nationalization as a means for distributing political benefits or disciplining corporations[1]

This policy decision to rely so much on multiple levels of federalistic regulation comes with a price.  American failures in physical infrastructure have been the other side of the coin of American successes in business.  A strong rule of law, combined with so many legal checks and balances and blocking points, has carved out a protected space for private American businesses.  They can operate with relatively secure property rights.  At the same time, those same laws and blocking points make it hard to get a lot of things built when a change in property rights is required, whether government or business or both are doing the building.  The law is used to obstruct growth and change, and for NIMBYism — “Not In My Backward,” and more generally for giving any litigation-ready interest group a voice in any decision it cares about.  Can you imagine a sentence like this being written about China?: “The [New York and New Jersey] Port Authority sent out letters inviting tribe representatives to join the environmental review project, inviting the Shawnee Tribe of Oklahoma and the Sand Hills Nation of Nebraska.”[2]

In America background patriotism sustains a rule by general national consensus, and so the American government doesn’t need extensive state-owned companies to build or maintain political support through the creation of so many privileged insiders.  The American paradox is this: the reliance on the law reflects a relatively strong and legitimate government, but the multiplication of that law renders government ineffective in a lot of practical matters, especially when it comes to the proverbial “getting things done,” a dimension where the Chinese government has been especially strong.

You should note that although the United States has not so many state-owned enterprises, the American government still has ways of expressing its will on business, or as the case may be, favoring one set of businesses over another.  In these latter cases it can be said that American business is expressing its will over government through forms of crony capitalism, a concept which is spreading in both America and China.

The United States has evolved a subtle brand of corporatism and industrial policy that is mostly decentralized and also – this is an important point — relatively stable across shifts of political power.  America uses its large country privileges to maintain access to world markets and to protect the property rights of its investors, usually without much regard for whether they are Democrats or Republicans.  For instance the State Department works hard to maintain open world markets for films and other cultural goods and services.  Toward this end America has used trade negotiations, diplomatic leverage, foreign aid, and also explicit arm-twisting, based on its military commitments to protect allied nations in Western Europe and East Asia.  America already had successful entertainment producers, it just wanted to make sure they could earn more money abroad, and that is why the American government usually insists on open access for audiovisual products when it negotiates free trade treaties.  Yet in these deals there is not much if any explicit favoritism for one movie or television studio over another, or for one political alliance over another.  Democrats are disproportionately overrepresented in Hollywood, but Republican administrations protect the interests of the American entertainment sector nonetheless.  It’s about the money and the jobs, not about shifting political coalitions.  You’ll note that the independence from particular political coalitions gives the American business environment a particular stability and predictability, to its advantage internationally and otherwise.

[1] See Millward (2013, chapter nine, and p.222 on chartering powers).

[2] That is from Howard (2014, p.10).

Contemporary TC again: Let us hope that I was at least partially correct…

Cass Sunstein on classical liberalism

by  Tyler Cowen in

Here’s what I want to emphasize. I like Hayek a lot less ambivalently than I once did, and von Mises, who once seemed to me a crude and irascible precursor of Hayek, now seems to me to be (mostly) a shining star (and sometimes fun, not least because of his crudeness and irascibility). The reason is simple: They were apostles of freedom. They believed in freedom from fear.

Back in the 1980s and 1990s, I did not see that clearly enough, because they seemed to me to be writing against a background that was sharp and visible to them, but that seemed murky and not so relevant to me — the background set by the 1930s and 1940s, for which Hitler and Stalin were defining. (After all, Hayek helped found the Mont Pelerin Society in 1947.)

Back in the 1980s and 1990s, socialist planning certainly did not seem like a good idea, not at all, but liberalism, as I saw it, had other and newer fish to fry. People like Rawls, Charles Larmore, Edna Ullmann-Margalit (in The Emergence of Norms), Jurgen Habermas (a past and present hero), Amartya Sen (also a past and present hero), Jon Elster (in Sour Grapes and Ulysses and the Sirens), and Susan Okin seemed (to me) to point the way.

I liked their forms of liberalism. Hayek and the Mont Pelerins (and Posner and Epstein) seemed to be fighting old battles, and in important ways to be wrong. With respect to authoritarianism and tyranny, and the power of the state, of course they were right; but still, those battles seemed old.

But those battles never were old. In important ways, Hayek and the Mont Pelerins (and Posner and Epstein, and Becker and Stigler) were right. Liberalism is a big tent. It’s much more than good to see them under it. It’s an honor to be there with them.

Here is the whole Substack, recommended.  I am very much in accord with his sentiments here, running in both directions, namely both classical and “more modern” liberalism.

Data on the effects of censorship in early modern England

by  Tyler Cowen in

We use a panel-data framework to study the effects of print censorship on early-modern England’s cultural production. Doing so requires distilling dispersed qualitative information into quantitative data. Integrating the historical record implicit in a large language model (LLM) with facts from secondary sources, we generate an annual index of print censorship. Applying a machine-learning (ML) algorithm to a major corpus, we construct document-level measures of the innovativeness (quality) and volume (quantity) of cultural production. We use pre-existing topic-model estimates to apportion each document among distinct cultural themes-three affected by censorship and five unaffected. We thereby assemble a yearly theme-level panel for 1525-1700. We use local projections to estimate censorship’s dynamic effects. Paradoxically, censorship raises the level of innovativeness in censorship-affected themes relative to non-affected themes. Censorship has a temporary chilling effect on the quantity of cultural production, with output recovering within a decade. Our findings are robust to the use of an instrumental-variable approach addressing the endogeneity of censorship. Our findings are unchanged when using three alternative LLMs to produce the censorship index. Using LLMs and ML to measure hard-to-quantify phenomena like censorship and cultural production, we provide new insights into the drivers of cultural evolution.

Here is the full paper by Peter Murrell and Peter Grajzl.  Via the excellent Kevin Lewis.

*Capitalism: A Global History*, by Sven Beckert

by  Tyler Cowen in

This 1103 pp. book reflects a great deal of learning, and it is often interesting to read.  It is well-written.  So virtually everyone can absorb interesting things from it.  In that sense I am happy to recommend it.

The book has two major problems however.

First, is “capitalism” the right way of centering a book topic across centuries and 1103 pages?  What exactly ties all the different discussions together?  And how many of them succeed in making original contributions to the areas they cover?  There is a kind of “replacement level” left-wing series of cliches running throughout the narrative, but what else is unifying this story?  I would rather read a book on any single one of the covered topics.  And in too many cases the coverage seems only OK.  For instance, the discussions of Pinochet’s Chile, and neoliberalism, in the book’s final chapter are not above the quality of basic media coverage, as you might find in the NYT.

Second, the author does not know what “capitalism” is.  I am not going to insist on my pet definition, but consider a simple example.

Birkerts (p.180) is keen to describe mid-17th century Barbados as capitalism, indeed as a kind of extreme or ideal capitalism.  Well, in some regards.  Yes there were markets.  But King Charles I gave all the land to the Earl of Carlisle to distribute, and of course land was a centrally important asset back then.  Might that be called…heaven forbid…statism?  There was slavery too, at various stages of development, depending which years one is looking at.  Is that really “an almost perfectly Smithian economy”?  Smith hated slavery, and also considered it economically inefficient.  The Navigation Act of 1651 limited trade with the Dutch, and could be considered a further deviation from Barbadian capitalism.  The whole system was mercantilism built on land theft and slavery, and none of that is synonymous with capitalism.  Nor are these distinctions clearly unpacked in the discussion.

Or look to the book’s epilogue.  Cambodia is held up as the embodiment of current capitalism.  Really?  Not Poland or Ireland or Singapore?  Or even the Dominican Republic?  Better yet, how about multiple contrasting examples to conclude the book?  Cambodia was ruled by vicious communists, suffered under a major murderous holocaust, still has an absolute dictator, ranks 98th in the Heritage index of economic freedom (“mostly unfree“), and lies in the thrall of Chinese domination, economic, political, and otherwise.  I do understand there is now more FDI there, but this is hardly the proper representation of contemporary capitalism or its future, as the title of the final chapter seems to indicate.

The main problem is that the author has very little sense of what he does not understand.  Above all else, it is an example of just how insular our institutions of elite higher education have become.

The Danger from Japan

by  Alex Tabarrok in

ImageAnswer: America won.

Every generation launches a new competitor to America and the people who don’t like capitalism and America’s individualist, free market economy trumpet that now the American way is being left in the dust. In the progressive era it was the Germans (how did that work out?), then it was the Russians (remember Sputnik?), then it was the Japanese (buying up Rockefeller center! the horror!), then it was the Chinese (look at those high speed rail lines!). My message to Americans is to double down on America. Double down on immigration, entrepreneurship, innovation, building for tomorrow, free markets, free speech and individualism and America will take all new competitors as it has taken all comers in the past. The world should be more like America not the other way around.

Hat tip: Mike Bird.

My entertaining Conversation with Annie Jacobsen

by  Tyler Cowen in

Here is the audio, video, and transcript.  Here is part of the episode summary:

Tyler and Annie explore whether we should be more afraid of nuclear weapons or if fear itself raises the risks, who should advise presidents during the six-minute decision window, whether moving toward disarmament makes us safer or more vulnerable, what Thomas Schelling really meant about nuclear war and rational actors, the probability that America would retaliate after a nuclear attack, the chances of intercepting a single incoming ICBM, why missile defense systems can’t replicate Israel’s Iron Dome success, how Pakistan-India nuclear tensions could escalate, why she’s surprised domestic drone attacks haven’t happened yet, her reporting on JFK assassination mysteries and deathbed phone calls, her views on UFOs and the dark human experiments at Area 51, what motivates intelligence community operators, her encounters with Uri Geller and CIA psychic research, what she’s working on next, and more.

Excerpt:

JACOBSEN: I quote him in the notes of my book, and this is perhaps the only regret I have in the entire book, that I put this quote from Schelling in the notes rather than in the text. Maybe it’s more interesting for your listeners if we drill down on this than the big platitudes of, “Do more nuclear weapons make us more safe?” It goes like this. This was Schelling in an interview with WGBH Radio in 1986 in Boston.

He says, “The problem with applying game theory to nuclear war is that nuclear war, by its very nature, does not involve rational men. It can’t. What sane person would be willing to kill hundreds of millions of people, ruin the earth, and end modern civilization in order to make somebody called the enemy doesn’t win first?”

COWEN: But Schelling did favor nuclear weapons. That was his dark sense of humor, I would say.

JACOBSEN: You think what I just read was his sense of humor?

COWEN: Absolutely.

JACOBSEN: I believe it was a man in his elder years coming to the conclusion that nuclear war is insane, which is the fundamental premise that I make in the book.

COWEN: You can hold both views. It is insane, but it might be the better insanity of the ones available to us.

JACOBSEN: Yes. From my take, he, like so many others that I have interviewed, because, for some reason — call it fate and circumstance — I have spent my career interviewing men in their 80s and 90s, who are defense officials who spent their entire life making war or preventing war. I watch them share with me their reflections in that third act of their life, which are decidedly different — in their own words — than those that they would have made as a younger man.

I find that fascinating, and that’s my takeaway from the Schelling quote, that he came to terms with the fact that intellectualizing game theory — like von Neumann, who never got to his old age — is madness.

COWEN: Let’s say that Russia or China, by mistake, did a full-scale launch toward the United States, and they couldn’t call the things back, and we’re in that six-minute window, or whatever it would be with hypersonics. What do you think is the probability that we would do a full-scale launch back?

…COWEN: The word madness doesn’t have much force with me. My life is a lot of different kinds of madness. I’ve heard people say marriage is madness. A lot of social conventions seem to me to be madness.

The question is getting the least harmful form of madness out there. Then, I’m not convinced that those who wish to disarm have really made their case. Certainly, saying nuclear war is madness doesn’t persuade me. If anything, if enough people think it’s madness, we won’t get it, and it’s fine to have the nuclear weapons.

A different and quite stimulating episode.

The Indian Wedding

by  Alex Tabarrok in

Another great piece by Samir Varma on Indian marriages—where deep traditions endure, even as subtle revolutions unfold around the edges.. It starts with this kicker:

When I told my mother I was marrying my girlfriend, an Italian Jew, she called all my friends in the US asking them to break us up.

When that failed, she faxed my future father-in-law threatening to disinherit me and never speak to me again. When that failed, she tried to get my PhD advisor to “tell us to break up.” (Luckily, he was relaxed enough to laugh about it with me, though it was embarrassing and deeply unpleasant.) Then she invited my girlfriend to India to “meet the family,” where my girlfriend paid a significant fraction of her yearly income as a starting engineer to fly over.

The pièce de résistance? My mother threw a party to “introduce her to everyone” — and spent the entire time complaining about her to all the guests. About 100 of those guests came to talk to me afterward, apologizing profusely, saying Indians aren’t like this and I should explain so she doesn’t think all Indians are nuts.

At my wedding, I had exactly zero relatives present. We didn’t speak for three years.

The economics of the U.S. auto industry, a brief history

by  Tyler Cowen in

From Adam Ozimek:

The economic value of the cars being made has climbed substantially through the years. As a result, real value added and industrial production — two different ways of measuring actual output — are now at all-time highs.

And this:

What about jobs? The auto industry today employs 1 million workers. Between 1950 and the signing of NAFTA in 1993, it averaged 1.1 million workers, just slightly higher.

And this:

The deindustrialization of Detroit is typically understood as a phenomenon of the 1970s and 1980s, and it is therefore blamed on the growth of trade during this period. But the fact is that auto investment and employment had started moving out of Detroit decades earlier.

I pieced together data from a variety of sources, which shows that auto manufacturing employment in the City of Detroit had already peaked in 1950, at just over 220,000 workers.

By 1970 the biggest declines had already occurred, with employment falling by more than half, to fewer than 100,000 jobs.

An important nuance is that many of these lost jobs migrated to other parts of Michigan, at least for a while. So while auto employment was collapsing in Detroit, the rest of Michigan managed to hold auto employment stable for another five decades until the 2000s, when it started falling everywhere in the state.

And:

Michigan now has about 280,000 fewer auto jobs than it did in the 1950s, a decline of roughly 60 percent.  For the United States as a whole, auto employment is only down 4.7 percent — further showing that the struggles of Detroit and Michigan are less about the decline of the American auto industry and more about its relocation elsewhere.

Another way of understanding the trend: If Michigan had simply maintained the same share of American auto jobs as it had in the 1950s, meaning it did not lose any production to other states, then it would only have lost 21,000 auto jobs since then, not the 280,000 it actually did lose.

An excellent piece, recommended.

Berthold and Emanuel Lasker

by  Tyler Cowen in

A fun rabbit hole!  Berthold was world chess champion Emanuel Lasker’s older brother, and also his first wife was Elsa Lasker-Schüler, the avant-garde German Jewish poet and playwright.

In the 1880s (!) he developed what later was called “Fischer Random” chess, Chess960, or now “freestyle chess,” as Magnus Carlsen has dubbed it.  The opening arrangement of the pieces is randomized on the back rank, to make the game more interesting and also avoid the risks of excessive opening preparation and too many draws.  He was prescient in this regard, though at the time chess was very far from having exhausted the possiblities for interesting openings that were not played out.

For a while he was one of the top ten chess players in the world, and he served as mentor to his brother Emanuel.  Emanuel, in due time, became world chess champion, was an avid and excellent bridge and go player, invented a variant of checkers called “Lasca,” made significant contributions to mathematics, and was known for his work in Kantian philosophy.

Of all world chess champions, he is perhaps the one whose peers failed to give him much of a serious challenge.  Until of course Capablanca beat him in 1921.