Category: History
When have countries refused to take back land?
Matt Yglesias writes that the Jordanians don't want the West Bank back, at least not in anything resembling its current state. The Palestinians would be regarded as destabilizing by the Jordanian government. How many historical examples can you find of countries refusing to take back territory that was once, in some form or another, theirs? Spain probably wouldn't take back Ecuador but the offer will not come because the Ecuadorean government values the land. So when is the political shadow value of land negative for both governments? (Of course it's not negative for the Palestinians.) The West Bank aside, I can't think of examples where there is both a possible offer and a refusal to take the land back.
Could Puerto Rico be an example? Maybe the U.S. would gladly "give it back" (that is debatable, however) but it seems that Puerto Rican voters don't want full, unencumbered title.
“Pleonasms are abundant.”
Pleonasms are abundant. "I done done it" (have done it or did do it). "Durin' the while." "In this day and time." "I thought it would surely, undoubtedly turn cold." "A small, little bitty hole." "Jane's a tol'able big, large, fleshy woman." "I ginerally, usually take a dram mornin's." "These ridges is might' nigh straight up and down, and, as the feller said, perpendic'lar."
Everywhere in the mountains we hear of biscuit-bread, ham-meat, rifle-gun, rock-clift, ridin'-critter, cow-brute, man-person, women-folks, preacher-man, granny-woman and neighbor-people. In this category belong the famous double-barreled pronouns: we-all and you-all in Kentucky and you-uns and we-uns in Carolina and Tennessee. (I have even heard such locution as this: "Let's we-uns all go over to youerunses house.")
That is from the often quite interesting Our Southern Highlanders: A Narrative of Adventure in the Southern Appalachians and a Study of Life Among the Mountaineers, by Horace Kephart, recommended to me by a loyal MR reader.
To think that "cow-brute" is a pleonasm is truly very excellent. I might add that the discussion of the triple and quadruple and indeed quintuple negative is of interest: "I ain't never seen no men-folks of no kind do no washin'."
Economists v. Historians on the New Deal and the Great Depression
Writing at The Beacon Jonathan Bean nicely reminds us of Robert Whaples survey of economists and historians on questions in economic history. Among the questions that Whaples asked members of the Economic History Association to express agreement or disagreement on was the following:
Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression.
About half of the economists agreed (or agreed with some provisos) that the New Deal lengthened and deepened the Great Depression. Thus this point of view among economic historians is basically mainstream. Among historians there was much less agreement with the statement, although a significant minority, 27%, agreed, mostly with some provisos.
What will change *everything*?
Via Arnold Kling, here is a long symposium (a good time waster), from all the names you would expect to contribute to such a symposium, plus Eric Fischl and Brian Eno. Here is Anton Zeitlinger’s offering:
Some day all semiconductors will break down and therefore all
computers as, besides historic instruments no computers exist today
which are nor based on semiconductor technology. The breakdown will be
caused by a giant electromagnetic pulse (EMP) created by a nucler
explosion outside Earth’s athmosphere. It will cover large areas on
Earth up to the size of a continent. Where it will happen is
unpredictable. But it will happen since it is extremely unlikely that
we will be able to get rid of all nuclear weapons and the probability
for it to happen at any given time will never be zero.The
implications of such an event will be enormous. If it happens to one of
our technology based societies literally everything will break down.
You will realize that none your phones does work. There is no way to
find out via the internet what happened. Your car will not start
anymore as it is also controlled by computer chips, unless you are
lucky to own an antique car. Your local supermarket is unable to get
new supplies.There will be no trucks operating anymore, no trains, no
elctricity, no water supplies Society will completely break down.
I worry about that too. A lot of the answers consider nuclear bombs exploding, reengineering the human body, and nanotechnology.
Nazi privatization
This paper was news to me:
The Great Depression spurred State ownership in Western capitalist countries. Germany was no exception; the last governments of the Weimar Republic took over firms in diverse sectors. Later, the Nazi regime transferred public ownership and public services to the private sector. In doing so, they went against the mainstream trends in the Western capitalist countries, none of which systematically reprivatized firms during the 1930s. Privatization in Nazi Germany was also unique in transferring to private hands the delivery of public services previously provided by government. The firms and the services transferred to private ownership belonged to diverse sectors. Privatization was part of an intentional policy with multiple objectives and was not ideologically driven. As in many recent privatizations, particularly within the European Union, strong financial restrictions were a central motivation. In addition, privatization was used as a political tool to enhance support for the government and for the Nazi Party.
I thought this sentence (p.13, see the graph on p.14) was interesting:
Overall, the relative dimension of privatization proceeds in 1934-37 Germany is close to the ratio for the EU-15 in 1997-2000, at 1.79 per cent.
Here is some earlier discussion from Mark Thoma. Again, history holds a lot of surprises.
The Guardian Trust Company of Detroit — the good ol’ days
It was, however, the run on the Guardian Trust Company of Detroit, a bank controlled by Edsel Ford, scion of the Ford motor family, that transformed the new crisis into a national one. The Guardian Trust had done well during the 1920s financing consumer purchases of Ford cars. When auto sales dried up in the early 1930s, the bank found itself in serious trouble and had been forced to borrow from the RFC. In early 1933, the RFC balked at providing more money unless the sponsors, who were, after all, the second richest family in the country after the Rockefellers, put in more capital. Patriarch Henry Ford, now in his seventies and increasingly autocratic and unreasonable, refused to bail out his son. He had a long-standing antipathy to bankers and could not quite grasp why banks should be allowed to use the money he deposited for making risky loans — "It’s just as if I put my car in a garage and when I came to get it, I found somebody else had borrowed it and run it into a tree," was the way he saw it. Faced with a statewide run on its banking system, on February 14, the governor of Michigan issued a proclamation closing all 500 banks in the state for eight days. The residents of Michigan woke up on Saint Valentine’s Day to find that all that they could draw upon was the cash in their pockets.
That is from pp.442-3 of Liaquat Ahamed’s Lords of Finance: The Bankers Who Broke the World, a truly timely book.
As for the GTC, here is their Detroit Art Deco building, still standing. Here is the lobby ceiling. The splendid building is a National Historic Landmark.
Bagehot: Beware the busy banker
As Walter Bagehot, the great nineteenth-century editor of the Economist who reveled in the quaint paradoxes of English life, described them, members of the Court [TC: they governed the Bank of England] were generally "quiet serious men…(who) have a good deal of leisure." Indeed, he felt it an ominous sign for a private banker to be fully employed. "If such a man is very busy, it is a sign of something wrong. Either he is working at detail, which subordinates would do better and which he had better leave alone or he is engaged in too many speculations…and so may be ruined."
That is from Liaquat Ahamed’s Lords of Finance: The Bankers Who Broke the World, which I am still enjoying. Here is my previous post on the book.
Lords of Finance
The author is Liaquat Ahamed and the subtitle is The Bankers who Broke the World but no it’s not about today it’s about the 1920s:
This book traces the efforts of these central bankers to reconstruct the system of international finance after the First World War. It describes how, for a brief period in the mid-1920s, they appeared to succeed; the world’s currencies were stabilized, capital began flowing freely across the globe, and economic growth resumed again. But beneath the veneer of boomtown prosperity, cracks began to appear…The final chapters of the book describe the frantic and eventually futile attempts of central bankers as they struggled to prevent the whole world economy from plunging into the downward spiral of the Great Depression.
The 1920s were an era, like today’s, when central bankers were invested with unusual power and extraordinary prestige. Four men in particular dominate this story: at the Bank of England was the neurotic and enigmatic Montagu Norman; at the Banque of France, Emile Moreau, xenophobic and suspicious; at the Reichsbank, the rigid and arrogant but also brilliant and cunning Hjalmar Schacht; and finally, at the Federal Reserve Bank of New York, Benjamin Strong…
I am enjoying this book very much, though it terrifies me as well. I hadn’t known that Norman, later in his life, thought he could walk through walls. Nor did I know that in the 1920s one-third of the population of the state of Colorado lived there as a (supposed) respite from tuberculosis. You can buy it here.
Japanese fiscal policy in the 1990s
Paul Krugman recommends this chapter by Adam Posen, which gives a good overview of the history. The piece argues at length that the Japanese didn’t try much expansionary fiscal policy during their downturn of the 1990s. On p.49 comes the evidence that fiscal policy works, at least as it was tried in 1995:
In the end, the September 1995 stimulus package did add significantly to economic growth in 1996. Not only was the actual real GDP growth of 3.6 significantly higher than the 0.9 percent recorded in 1995, it was at least 0.9 percent higher than the growth forecasted for 1996 by all of the major international institutions and the financial consensus…This stimulative effect can largely be attributed to the fiscal package, although the decline in the yen also stemmed the decline in net exports (by -1 percent of GDP in 1995 and by -0.4 percent in 1996)…There was actually no other source of positive impetus to the Japanese economy in late 1995 and early 1996 that can be identified except discretionary fiscal policy.
A few observations:
1. This is a piece of evidence in favor of fiscal stimulus and so we should take it seriously.
2. It is, quite literally, only a single data point.
3. In November 1994 there was a big cut in personal income taxes and that may be responsible for some of the increase in economic growth in 1995-6. (There was also reconstruction from the 1995 Kobe earthquake, as one reader notes in the comments.)
4. Japan was much weaker automatic stabilizers than does the United States. Some of the fiscal policy boost was to strengthen those economic stabilizers. The case for doing that is indeed much stronger than the case for initiating new government expenditures in the form of specific projects.
5. The history is fully consistent with an alternative interpretation, as I have discussed in my post on the fetishization of measured gdp. Namely, the Japanese spent more money putting unemployed resources to work on construction projects. Measured gdp went up, but the Japanese didn’t get much of value for their money. (Japanese construction projects from this era are notoriously ugly, wasteful, and unpopular.) The spending also didn’t set off any kind of lasting recovery. It was the proverbial ditch digging without much in the way of later-order benefits or multipliers. In these circumstances a boost in measured, temporary GDP is very different from an economic recovery.
6. There is a deeper question of why governments so often back away from aggressive fiscal stimulus, if that policy indeed will bring so much recovery and thus bring in so many votes and so much revenue. Posen in his chaper suggests that ideology is at fault but I am not convinced. After all Japan is not ruled by Grover Norquist. The alternative null hypothesis is simply that governments see the fiscal stimulus is not working.
Anyway, that is the evidence we are being asked to spend $600-700 billion on — or $2 trillion for some –so I thought you should see it.
Addendum: Here are very good comments from Greg Mankiw’s blog.
The weirdest sentence that John de Palma read today
"Mice may be responsible for a blaze that killed nearly 100 cats at an animal shelter near the Canadian city of Toronto, officials say(…)"
Perhaps I should have titled this post "Policing Nature, part III." Here is the link; it’s Friday afternoon and the mood is giddy. By the way, if you’re suspecting conspiracy, one official noted:
"Unfortunately, the mice probably perished in the fire as well," he added.
How did Nazi fiscal policy work?
Please do not think I am trying to call anyone, or any advocate of active fiscal policy, a Nazi. The point is that Nazi fiscal policy did drive a recovery in measured gdp, so it is worth knowing how and why. Robert J. Gordon has some answers (NBER; I don’t see an ungated copy):
Tooze confirms previous findings that relatively little of the
expansion in public expenditures took the form of public works like the
autobahns, while over 80 percent consisted of spending for rearmament.
Abelshauser (1998, p. 169) calls this “military Keynesianism on a large
scale.”
Furthermore real wages were falling not rising:
The previous literature has emphasized the Nazi policy of holding down real wages as a contribution to the rapid expansion of employment, the opposite of the perverse wage†increasing policies of Roosevelt’s NRA. Indeed, Barkai shows that the share of German wage income in national product declined from 64 to 59 percent between 1932 and 1936, while the increase in profits was “quite spectacular” (p. 196). Likewise, Abelshauser (p. 148) reports that the income share of the bottom half of the income distribution fell from 25 to 18 percent between 1928 and 1936.
In other words, Nazi fiscal policy boosted measured gdp rather than driving a recovery with higher real standards of living. Even putting the brutality of the Nazi regime aside, this should not count as an example of successful fiscal policy. I’ll look at some other historical examples soon but — at the risk of sounding like a broken record — I wish to stress my conclusion that the evidence in favor of government spending as effective fiscal policy is weak.
Addendum: On fiscal policy more generally, Mark Thoma has many comments.
Good paragraph, bad paragraph
The best riposte to Bill Kristol comes from Hayek. He pointed out years ago–sorry, don’t have time to track down the citation–that the idea of small government was vital even if there was no prospect of its ever being achieved. So powerful and varied was the pressure in and on government for every kind of new spending that an automatic barrier was necessary to prevent the fiscal river sweeping all before it. A general prejudice against higher spending and taxes served as such a barrier. It might not prevent all or even most spending, but it would stop some. It would compel the government to think through its spending priorities and to confine them all within or nearly within taxable capacity. And though the government would probably grow anyway, it might grow less because of the prejudice that it should not grow at all.
If we were lucky, a barrier might even gain a quasi religious status over time, as the Gold Standard did in England until the first world war, and instill in voters the fear that tampering with it would be an impious act or even simply impossible. This worked for quite a while. When the Tories floated the pound in 1931, a former Labour minister, Lord Passfield (aka Sidney of Sidney and Beatrice Webb) said: "They never told us we could do that."
That is from John O’Sullivan. The question is whether the worrying paragraph undoes the goodness of the good paragraph. England, of course, would have done better to go off the gold standard much earlier than it did, or if it had not revalued the pound at an artificially high rate after the first World War.
The Capital Strike
Roosevelt went on in later weeks to speculate that the slowdown in investment was not economically explicable but was, rather, part of a political conspiracy against him, a "capital strike" designed to dislodge him from office and destroy the New Deal…In a reprise of his tactics in the "wealth tax" battle of 1935 and the electoral campaign of 1936, Roosevelt loosed Assistant Attorney General Robert Jackson, along with Ickes, to give a series of blistering speeches in December 1937. Ickes inveighed against Henry Ford, Tom Girdler and the "Sixty Families,"…Left unchecked, Ickes thundered, they would create "big-business Fascist America – an enslaved America." For his part, Jackson decried the slump in private investment as "a general strike – the first general strike in America – a strike against the government – a strike to coerce political action." Roosevelt even ordered an FBI investigation of possible criminal conspiracy in the alleged capitalist strike, but it revealed nothing of substance.
(From David M. Kennedy’s Freedom from Fear (p. 352) in The Oxford History of the United States.)
A group of capitalists go on strike to protest a government that is confiscating their wealth. The government vows to force them back to work and sets agents on their trail. Hmmm…..seems like there could be a novel in that.
Changes in money wages
And what Keynes had to say then is as valid as ever: under
depression-type conditions, with short-term interest rates near zero,
there’s no reason to think that lower wages for all workers – as opposed to lower wages for a particular group of workers – would lead to higher employment.
Suppose that wages across the US economy had been, say, 20 percent
lower than they actually were. You might be tempted to say that this
would make hiring workers more attractive. But to a first
approximation, prices would also have been 20 percent lower – so the
real wage would not have been reduced. So how would lower wages lead to
higher demand for labor?
Well, the real money supply would have been larger – but the normal
channel through which this might increase demand, lower interest rates,
was blocked by the zero lower bound. Yes, there would have been a
slight Pigou effect: real private sector wealth would have been higher,
because cash under the mattress (or wherever) was worth more. But on
the other hand, real debt burdens would also have been higher, probably
exerting a contractionary effect. Overall, there’s no good reason to
think that lower wages would have helped raise employment.
That is Paul Krugman and also here. That is correct but note the argument requires lower wages for all workers, exactly as Krugman states. He does not go through a change in wages for only some workers and indeed that scenario is very different and not necessarily Keynesian. When unemployment is present, lower wages for some workers can stimulate renewed employment and — depending on elasticities — possibly greater purchasing power as well or at least not proportionally diminished purchasing power. (Each worker earns less but there are more workers employed.) There won't in general be much of a deflation. The hiring of some workers can also lead to an upward spiral in production, employment, and again purchasing power, as outlined by W.H. Hutt in his books on Keynes.
Krugman and others wish to argue that the New Deal years were ones of recovery; that is fine but it increases the chance that the Hutt scenario and not the Keynes scenario would apply at that time.
The simplest version of the Keynesian argument on money wages also relies on labor as the primary source of marginal cost (true in many but not all sectors) and lack of market power for retail prices, among other assumptions about market structure. Yet another scenario is that some nominal wages fall and entrepreneurs (with some market power) invest more in response and hold retail prices relatively steady.
I believe Keynes's "falling nominal wages-falling prices-constant real wages-constant unemployment" scenario does hold for some of the 1929-1932 period and indeed I have argued as such in print. But once we get into the Roosevelt era, we have government propping up some wages above market-clearing levels and thus higher than necessary unemployment. Note that the Roosevelt policies applied only to some workers and by no means to all or even most workers, which again suggests the Hutt analysis is more relevant than the Krugman/Keynes analysis.
Krugman asks why Keynes's point, presented in 1936, is not more widely recognized today. But the limitations of Keynes's argument — including its reliance upon particular assumptions about cost and market structure — were pointed out by Jacob Viner in…1937 (see pp.161-162 JSTOR).
Viner, I might add, was hardly a laissez-faire denialist. He favored an active government response to the depression, and he admits Keynes's results can hold but needn't hold. He is the one who stakes out the sophisticated middle ground, not Keynes. So we're still trying to catch up to 1937, not 1936.
Addendum: It turns out I am blogging chapter 19 of the General Theory; I am looking forward to our forthcoming book club too much!
Fiscal policy poll
What are the times in history — whether in the U.S. or elsewhere — when a large-scale application of expansionary fiscal policy has been effective in raising a country out of a recession or depression?
I’ve already discussed World War II and the United States, so whether or not you agree with me there is no need to mention that episode again. I’m not (yet) looking for a debate rather I am conducting an opinion poll. Over the next few weeks or months I hope to investigate some of the cases you mention and see what is the verdict of history.