Category: History
How good was Paul Samuelson’s macroeconomics?
Reading the new Nicholas Wapshott book and also Krugman’s review (NYT) of it, it all seemed a little too rosy to me. So I went back and took a look at Paul Samuelson the macroeconomist. I regret that I cannot report any good news, in fact Samuelson was downright poor — you might say awful — as a macroeconomist.
For instance, during the early 1970s there was a debate about President Nixon’s 1971 wage and price controls. There is some disagreement about the actual stance of Samuelson, as Wapshott (p.152) claims Samuelson opposed Nixon’s wage and price controls, but that doesn’t seem to be true. The Los Angeles Times for instance reported Samuelson opining as follows: “With the wage and price controls, he [Nixon] assured a more rapid short-term economic recovery, and made it absolutely certain he would be the overwhelming victor in the 1972 election.” Maybe that is not quite a full endorsement, but consider Samuelson’s remarks on the August 17, 1971 ABC Evening News: “I don’t think that a ninety-day freeze is going to solve the problem of inflation. But it’s a first move toward some kind of an incomes policy. Benign neglect did not work. It’s time the president used his leadership…We’re better off this Monday morning than we were last Friday. Friday was an untenable situation.”[1]
Really?
For Samuelson and many other Keynesians of his era, it was mostly about wage-push inflation. Do you know what my take would have been?: “The wage and price controls are neither good microeconomic nor good macroeconomic policy.” Samuelson did not come anywhere near to uttering such words. In October 1971, Samuelson argued that Nixon’s NEP [New Economic Policy], which included both severing the tie of the dollar to gold and wage and price controls, was “necessary,” and that the wage and price controls were working better than might have been expected.[2]
In October 1971, Samuelson also argued that the Fed should continue to let the money supply grow, to stave off the risk of a liquidity crisis occasioned by America’s lingering involvement in the Vietnam War (what??…if this is fear of a Bretton Woods collapse, print fewer dollars, besides Samuelson wanted to end Bretton Woods). He said he favored presidential “guideposts” to lower the rate of price inflation from four to three percent, but didn’t favor explicit wage and price controls because it wasn’t enough of an “emergency” situation. That is the extent of his opposition to wage and price controls – lukewarm at best, not objecting in principle, contradicting his earlier stances, and showing a poor understanding of monetary economics more broadly. You don’t have to be a hardcore monetarist to realize that continued money supply growth, in an expansionary period, combined with presidential “guideposts” to lower rates of price inflation, was simply an incorrect view.
In a 1974 piece, Samuelson continued to insist, as he had argued in the past, that the inflation of that era was cost-push inflation, and not driven by the money supply. He also asserted (without evidence) that full employment and price stability were incompatible. In one 1971 piece he made the remarkable and totally false assertion that: “…with our population and productivity growing, it takes more than a 4 per cent rate of real growth just to hold unemployment constant at a high level.”[3]
Really?
In other words, his basic model was just flat out wrong. More generally, the Samuelson Newsweek columns of that era make repeated, dogmatic, and arbitrary stabs at forecasting macroeconomic variables without much humility or soundness in the underlying model.
Milton Friedman did have an overly simplified view of the money supply, as many of his critics have alleged and as Scott Sumner would confirm. But as a macroeconomist he was far, far ahead of Paul Samuelson.
Don’t forget how bad macro was before Friedman came along.
[1] For The Los Angeles Times, see Hiltzi (1994), and also see “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971. For the ABC News remarks, see Nelson (2020, volume 2, p.267).
[2] See “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971.
[3] See Paul Samuelson, “Coping with Stagflation” Newsweek, August 19, 1974, and for the 1971 remarks see “How the Slump Looks to Three Experts” Newsweek, Oct.18, 1971. On the four percent claim, see Paul A. Samuelson, “Nixon Economics,” Newsweek, August 2, 1971.
That was then, this is now, climate change edition the median voter theorem remains underrated
“Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery. The price of crude oil has been higher than it was at the end of 2019, before the onset of the pandemic. While Opec+ recently agreed to production increases, these increases will not fully offset previous production cuts that Opec+ imposed during the pandemic until well into 2022. At a critical moment in the global recovery, this is simply not enough. President Biden has made clear that he wants Americans to have access to affordable and reliable energy, including at the pump. Although we are not a party to Opec, the United States will always speak to international partners regarding issues of significance that affect our national economic and security affairs, in public and private.”
That is, um…not from the Trump administration, rather…
Pigou Club getting smaller!
My Conversation with Andrew Sullivan
Here is the audio, video, and transcript. Here is part of the overview:
Andrew joined Tyler to discuss the role of the AIDs epidemic in achieving marriage equality, the difficulty of devoutness in everyday life, why public intellectuals often lack courage, how being a gay man helps him access perspectives he otherwise wouldn’t, how drugs influence his ideas, the reasons why he’s a passionate defender of SATs and IQ tests, what Niall Ferguson and Boris Johnson were like as fellow undergraduates, what Americans get wrong about British politics, why so few people share his admiration for Margaret Thatcher, why Bowie was so special, why Airplane! is his favorite movie, what Oakeshottian conservatism offers us today, whether wokeism has a positive influence globally, why he someday hopes to glower at the sea from in the west of Ireland, and more.
And here is one excerpt:
SULLIVAN: Well, and so you get used to real conversations about people, and you don’t mistake credentials for intelligence. You realize that people outside of the system may be more perceptive about what’s going wrong with it than people buried within it. I honestly find life more interesting the more variety of people you get to know and meet. And that means from all sorts of different ways of life.
The good thing about being gay, I will tell you, is that that happens more often than if you’re straight — because it’s a great equalizer. You are more likely to come across someone who really is from a totally different socioeconomic group than you are through sexual and romantic attraction, and indeed the existence of this subterranean world that is taken from every other particular class and structure, than you would if you just grew up in a straight world where you didn’t have to question these things and where your social life was bound up with your work or with your professional peers.
The idea for me of dating someone in my office would be absolutely bizarre, for example. I can’t believe all these straight people that just look around them and say, “Oh, let’s get married.” Whereas gay people have this immense social system that can throw up anybody from any way of life into your social circle.
Interesting throughout. And again, here is Andrew’s new book Out on a Limb: Selected Writing, 1989-2021.
That was then…
Here is an excerpt from Arthur Moeller van den Bruck, the guy who coined the term “The Third Reich” (hint: he wasn’t against it):
The Left has reason. The Right has wisdom…Masculinity is the essence of wisdom. It takes character not to succumb to self-delusion. The conservative man possesses this character as well as the physical prowess and moral determination to act in accordance with this character…He has the innate ability to pass judgement, and to make deductions, to recognize reality…Conservatism is based on an understanding of human nature.
That is from the new and excellent book Nazis and Nobles: The History of a Misalliance, by Stephan Malinowski. This book builds on themes from Arno Mayer’s old and excellent The Persistence of the Old Regime.
It is an interesting question why these sentiments — some of which are cliched rather than offensive per se — are as correlated with fascism as they are. In my oversimplified model, feminization is the key variable. Van den Bruck saw the feminization of society coming, and opposed it, but I believe he was more interested in Nazism and fascism per se. Many current commentators also oppose that feminization virulently, and that leads them to take up with strange and rather unfortunate bedfellows, namely fascists, as fascists do in fact have modes of discourse for opposing or criticizing feminization. Often fascism per se is not the main interest of today’s right-wing thinkers, and if you started lecturing them on Speer’s building plans for Berlin, or earlier German cartel policy, their eyes would glaze over. They are more interested in the current cultural wars, but they don’t always have the intellectual equipment to fight them, and so they look to fascists, a badly mistaken choice.
I say feminization is here to stay, we need to find workable versions of that — how’s that for a challenging intellectual project? Those of us looking backwards to “the nasty people” are going to find themselves staring down a dead end, intellectually and otherwise. Hungary and Salazar are not the future, people. You should be jumping on better bandwagons, or if need be building them yourselves.
“My favorite things Hungary” — my revisionist take
Way back in 2011, when I was visiting Hungary, I did a post in typical MR style: My Favorite Things Hungary. I had no particular political point in mind, and indeed the current disputes over Hungary did not quite exist back then. Nonetheless, if you survey the list, just about every one of my favorites listed ended up leaving Hungary. The one exception, as far as I can tell, is film director Béla Tarr, but he is a critic of both nationalism and Orban.
All the rest left Hungary.
And while I cannot give you exact numbers, a large number of them were Jews or half-Jewish, hardly examples of Christian nationalism.
You should note that Hungary has a longstanding tradition of flirting with fascism and indeed going beyond mere flirting, for instance as exemplified by the Horthy government of the interwar years.
Once you get past all the polemics and name calling (not to mention the reality), here is the lesson I draw from the current debate over how parts of the Right are embracing Hungary. It is genuinely the case that liberal societies often draw upon less liberal societies for a good deal of their cultural vitality, most notably the United States recruiting various creators from Central Europe — including Hungary — during the 20th century. (Or the blues drawing some of its depth from the history of slavery.) That point should be appreciated, even though we all should recognize it is not worth Hungary’s history, including its feudal and conquered past, for being able to say your country produced Bartok and Solti.
The current Hungary, sadly, has nothing remotely like the Hungarian cultural blossoming that ran from Liszt through Ligeti. Instead it is giving us an empty huff and puff of rhetoric, “owning the Libs,” having “the right enemies,” gender role polemics, and so on. It is not producing great buildings like the Budapest of times past, and it is not developing a significant Christian tradition of the sort that might have marked the 19th century Hungarian Church (however you might feel about that, I can tell you it is not my thing, though I can appreciate the liberal elements in it).
These days we have a U.S. television show host visiting Hungary and serving up thin polemics which are then debated on Twitter. There is only a thin veneer of culture behind the whole thing, and a lot of unearned borrowing against earlier Hungarian creative traditions.
Don’t fall for it. If you wish to respect Hungarian culture, listen to Bartok’s “Out of Doors” [Im Freien], or Liszt’s Transcendental Etudes. What is there now is the straggling remnant of a cultural destruction led by both fascists and communists. Current commentators can spin the current situation all they want, but it hasn’t worked out for the better, and Hungary is lucky to be in the EU at all.
Even American cultural borrowing from Central European traditions peaked some time ago. George Szell brought Beethoven to the Cleveland Orchestra in 1946, and it was adored and financially supported by conservative Midwestern businessmen, as it should have been. Szell passed away in 1970. Ligeti himself stretches improbably late into Hungary’s cultural golden run.
If you think the current right-wing Hungary fandom is going to restore or revitalize either Hungarian or American culture, there is a bridge I would like to sell you, the Széchenyi Chain Bridge in fact…
The Political-Economic Causes of the Soviet Great Famine, 1932–33
This study constructs a large new dataset to investigate whether state policy led to ethnic Ukrainians experiencing higher mortality during the 1932–33 Soviet Great Famine. All else equal, famine (excess) mortality rates were positively associated with ethnic Ukrainian population share across provinces, as well as across districts within provinces. Ukrainian ethnicity, rather than the administrative boundaries of the Ukrainian republic, mattered for famine mortality. These and many additional results provide strong evidence that higher Ukrainian famine mortality was an outcome of policy, and suggestive evidence on the political-economic drivers of repression. A back-of-the-envelope calculation suggests that bias against Ukrainians explains up to 77% of famine deaths in the three republics of Russia, Ukraine and Belarus and up to 92% in Ukraine.
That is a new NBER working paper by Andrei Markevich, Natalya Naumenko (my colleague at GMU), and Nancy Qian. The paper represents a significant advance in terms of basic data, and the core hypothesis of ethnic favoritism is strongly validated.
Within one hundred years the future is going to get very weird
That is the theme of my latest Bloomberg column, here is one excerpt:
The notion that the future will be weirder than we think, and come sooner, is a possibility raised by Holden Karnofsky, the co-chief executive officer of Open Philanthropy. It’s an intriguing and provocative idea.
I consider genetic engineering, longevity research, finding signs of life on other planets, neural engineering, and AI as possible developments, plus a bit more.
…these changes are far more radical than those that occurred between 1921 and today. Compared to 1921, we are much wealthier and more secure — but a lot of basic structures of the world remain broadly the same. I don’t think that much of what we can do now would strike our 1921 predecessors as magical, though the speed and power of our computers might surprise them. Nor would visitors from 1921 think of us as somehow not human.
Of course none of these developments are inevitable. Another very weird future is entirely possible: that we humans use our creative energies for destruction, causing civilization to take some major and enduring steps backwards.
Either way, the future is not just more and nicer suburbs, better pay and new forms of social media. All those are likely to happen, but they won’t be the biggest changes. When it comes to the future of the human race, we — and our children, for those of us who have any — may turn out to be especially important generations. I very much hope we are up to this moment.
Recommended.
What should I ask Claudia Goldin?
I will be doing a Conversation with her, so what should I ask?
Here is part of her Wikipedia page, which perhaps ought to have emphasized economic history more?:
Claudia Goldin…is the Henry Lee Professor of Economics at Harvard University and director of the Development of the American Economy program at the National Bureau of Economic Research. Goldin was the president of the American Economic Association in the 2013–14 academic year. In 1990, she became the first woman to be tenured at the Harvard economics department. Her research includes topics such as female labor force, income inequality, education, and the economic gender gap.
Here are her pieces on scholar.google.com. And I will take this chance to plug her new, forthcoming book Career and Family: Women’s Century-Long Journey Toward Equity.
*Home in the World: A Memoir*
That is the new Amartya Sen autobiography, and it is well…a biography. You learn that he loves Sichuan duck and “hilsha fish” (if done properly with the mustard), his thoughts of enduring military service, Sen’s study of Sanskrit, his self-description as a hypochondriac, his bout with mouth cancer at a young age, and that Calcutta (!) is a great walking city, at least when Sen lived there in the 1950s, among other matters. The readers definitely gets his or her “biography money’s worth.”
But should you care?
The name “Tagore” appears so many times in the text that it takes up 3/4 of a page in the index. This is very much a Bengali memoir.
I learned that Sen’s family lived for a few years with him in Burma, he is sympathetic to Buddhism, he was ten at the time of the Great Famine and it had a major impact on his thinking, and that Sen was greatly influenced by Maurice Dobb and thought Marx was unjustly excluded from the economics curriculum. Piero Sraffa was his Director of Studies at Cambridge, and introduced Sen to the wonders of ristretto. Sen also stresses the import of Sraffa for converting the early Wittgenstein into the later Wittgenstein. He has great praise for P.T. Bauer, both as a thinker and as an instructor. He describes Buchanan as a “…very agreeable but rather conservative economist” who got him thinking about whether the notion of collective preference made sense at all.
This doesn’t have enough coherence to be a great book, but there is enough in here of interest to satisfy anyone curious about Sen.
You can pre-order here, I got my copy from the UK.
My excellent Conversation with Niall Ferguson
Here is the audio, video, and transcript. Here is part of the CWT summary:
Niall joined Tyler to discuss the difference between English and Scottish pessimism, his surprise encounter with Sean Connery, what James Bond and Doctor Who have in common, how religion fosters the cultural imagination to produce doomsday scenarios, which side of the Glorious Revolution he would have been on, the extraordinary historical trajectory of Scotland from the 17th century through the 18th century, why historians seem to have an excessive occupation with leadership, what he learned from R.G. Collingwood and A.J.P. Taylor, why American bands could never quite get punk music right, Tocqueville’s insights on liberalism, the unfortunate iconoclasm of John Maynard Keynes, the dystopian novel he finds most plausible, what he learned about right and left populism on his latest trip to Latin America, the importance of intellectual succession and building institutions, what he’ll do next, and more.
Here is one excerpt:
COWEN: If you had been alive at the time and the Glorious Revolution were going on, which side would you have been rooting for and why? Speaking of counterfactuals.
FERGUSON: I think everybody should ask themselves that question each morning. Whig or Tory? Are you a Jacobite?
COWEN: Do you want Dutch people coming over to run your country? That’s another part of it, right? I would have been quite worried. Nothing against Dutch people, but you might think, “Well, they don’t have a stable ruling coalition, so they’re going to be all the more tyrannical.”
FERGUSON: Yes. I wrote about the Dutch takeover in Empire. It’s bizarre that the British Isles just get taken over by a Dutch monarch at the behest of a faction mainly motivated by religious prejudice and hostility to Roman Catholicism. At the time, I would have been a Whig on religious grounds. I’m from the ardently Protestant Lowlands of Scotland. I’m like all people from that part of the world, drawn to the romanticism of the Jacobites but also repelled by what it would have been like in practice.
If you want to understand all this, by the way, you have to read Walter Scott, which I hadn’t done for years and years. I’d never really read Scott because I was told he was boring. Then during the pandemic, I started reading the Waverley novels, and it’s all there: all the fundamental dilemmas that were raised, not just by the Glorious Revolution, but prior to that by the Civil War of the 17th century, and that were raised again in the 1745 Jacobite rising.
Scott’s brilliant at explaining something that I don’t think is properly understood, and that is that Scotland had the most extraordinary historical trajectory. It went from being Afghanistan in the 17th century — it was basically Afghanistan. You had violent warring clans in the north, in the mountainous parts of the country, and a theocracy of extreme Calvinist zealots in the Lowlands. This was a deeply dysfunctional, very violent place with much higher levels of homicide than England. Really, it was a barbaric place.
And something very strange happened. That was that in the course of — beginning really from the late 17th century — in the course of the 18th century, Scotland became the most dynamic tiger economy in the world. Also, it became the cradle of the enlightenment, had really all the best ideas of Western civilization, all at once in a really short space of time with a really small number of people, all sitting around in Glasgow and Edinburgh.
I still don’t think a book has been written that properly explains that. You certainly wouldn’t have put a bet on Scotland behaving that way by the late 18th century, if all you knew about it was Scotland in the mid-17th century. If you look at it that way, then you kind of have to be a Whig. You have to recognize that the institutions that came from England, including the Dutch institutions that were imported in the Glorious Revolution, really helped Scotland get out of its Afghan predicament.
Recommended, interesting throughout. And again, here is Niall’s new book Doom: The Politics of Catastrophe.
The Farrago of International Travel Restrictions
International travel restrictions are a farrago built on fear, statistical confusion, and out-dated information. The US, for example, is still requiring a virus test to enter the US but not proof of vaccination. In other words, a fully vaccinated citizen can now fly to Canada (with Canadian requirements) but if they want back in they need to have had a virus test. Ridiculous.
Even more ridiculous, Chinese, European and British citizens are still not allowed into the United States. Why? China, for example, has almost no COVID cases–thus there is no reason to restrict Chinese citizens from traveling to the United States. Indeed, President Trump rescinded these restrictions at the end of his term but Biden reinstated them immediately. Why? Travel is now banned from many countries with low COVID and high vaccination rates while allowed from many countries with high COVID rates and low vaccination rates. There is no rhyme or reason to the travel bans and restrictions.
I propose we eliminate the farrago with a simple rule. Anyone vaccinated with a full dose of any WHO approved vaccine should be allowed to visit the United States without restriction. People on twitter responded “but even a vaccinated person could still be a carrier!” No kidding. So what? We cannot eliminate all risk. The logic of allowing vaccinated travelers into the United States is simple–a fully vaccinated visitor is safer than the average US citizen. Thus, allowing more vaccinated people into the United States is not especially risky and is having beneficial effects on the economy.
“Vaccine passports” became politically charged but what we have now is a bizarre combination of “testing passports” and “no passports.” In contrast, a vaccination requirement for travel is simpler, cheaper, more convenient and more effective than a test and it creates greater freedom than no passport at all. A vaccine requirement is no more difficult to enforce than a testing requirement. Indeed, the United States has in the past required vaccination prior to arrival so this would hardly be unprecedented. For special cases, a test could be allowed in lieu of a vaccine, especially if it was followed up with an airport vaccination but vaccination should be the primary requirement.
To recap: Anyone vaccinated with a full dose of any WHO approved vaccine should be allowed to visit the United States without restriction.
Addendum: A mix and match from any two WHO approved vaccines counts as a full dose!
The 1991 Project
In 1991 on the verge of bankruptcy, India abandoned the License-Raj and freed its economy from many socialist shackles. Prime Minister Narasimha Rao announced to the nation:
We believe that a bulk of government regulations and controls on economic activity have outlived their utility. They are stifling the creativity and innovativeness of our people. Excessive controls have also bred corruption. Indeed, they have come in the way of achieving our objectives of expanding employment opportunities, reducing rural-urban disparities and ensuring greater social justice.
And he was serious–in the plan, tariffs and controls were lifted, thousands of licenses eliminated, entire departments undone. A No Confidence motion was mounted in parliament but the opponents made a tactical error and walked out, leaving just enough votes for Rao’s government to survive and the plan to pass. The result was an economic revolution. Economic growth increased and millions were lifted out of poverty. Yet, the 1991 Project was incomplete and many young Indian’s today have little appreciation of the gains that have been made or why they happened.
The 1991 Project is about understanding the history of economic liberalization in order to better chart the future. It begins with a superb essay by Shruti Rajagopalan on living under India’s socialist system. Did you know that under the License-Raj you needed a government permit to own a bicycle in some parts of the country?
Bicycles saw increasing demand as urban populations increased. Steel was government controlled and, given the heavy demand from the construction industry, only limited allotments were made to bicycle manufacturers. To increase their allotment of steel and meet the increasing demand for bicycles, they needed an expansion permit, which was rarely approved by the government given the shortage of steel.
The license and permit system for steel also created a shortage in bicycles, which was followed by the inevitable price controls. To ensure that demand was legitimate and all available bicycles were used, owning and riding a bicycle required a government-issued token in some parts of the country. Inspectors thrived on the bribes paid when they caught anyone riding without the requisite permit.
The middle class didn’t escape the problem, either. Through a collaboration with Vespa, Bajaj manufactured scooters in India, and they became popular with the middle-class. Denied permission to expand to meet the rising demand, the waitlist for a Bajaj scooter was ten years by the late 1970s.
Even though dowry is not just illegal but is a crime in India, the entrenched dowry culture in the arranged marriage system enables grooms to make outrageous demands of the bride’s family. A Bajaj scooter became a top dowry ask. Given the decade-long waiting period, parents took to purchasing them on the black market, and by the late 1970s the price of a secondhand/used Bajaj scooter available immediately was much higher than that of a brand-new vehicle with a 5- to 10-year waiting period.
It got so bad that when a girl child was born, well-wishers would – only half in jest – suggest to the parents that they should immediately book a scooter so it would arrive in time for the wedding. This was reminiscent of the old Soviet Union joke about a man paying for an automobile. The clerk tells him it will be delivered in ten years. The man asks, “Morning or afternoon?” “What difference does it make?” responds the clerk. “Well, the plumber is coming in the morning.”
Check out The 1991 Project and Rajagopalan’s essay.
Photo Credit: Manmohan Singh with PM Narasimha Rao in 1994. Photo: Sanjay Sharma/Hindustan Times
Why humans will perish rather than become grabby aliens
It turns out that Homo Sapiens is not all that different from other, early proto-human species, such as Neanderthals. They are the “closest things to us.” Denisovans, etc. We killed them off. (We also are likely to mostly kill off chimpanzees, zoos and research labs excluded.) Therefore the best prediction is that we kill us off too. The other species like us died through mass violence at the hands of humans. We don’t have many data points, but they all seem to end the same way.
You might think a) “we are really good at killing off other species,” rather than b) “we are really good at killing things off.” Therein lies some hope. Signs of cross-national solidarity thus should make you much more optimistic about the future.
How’s that African vaccine distribution program coming?
Why the post-1960 divergence for Haiti and the Dominican Republic?
Here is a very good post from Noah Smith on that topic, opening excerpt:
As recently as 1960, the two countries had similar standards of living. Today, the D.R., by some measures, is eight times as rich as Haiti, while Haiti’s standard of living hasn’t advanced at all since 1950.
The D.R. has already surpassed Brazil and Colombia; if Covid doesn’t knock it off its growth trend, it’ll soon pass Mexico and Argentina.
A forensic exercise then follows, for instance:
When Haiti won its independence from France, France sent warships to demand reparations for Haitian expropriation of French property (i.e. slaves and land). Haiti agreed to pay a considerable sum, and to give France cheap exports as well. Some people blame this monumental act of extortion for Haiti’s poverty. It makes a simple, intuitive sort of sense — if someone takes your money, it’s hard to get rich right?
But there are some big problems with this thesis. First of all, Haiti finished paying back this debt (which France reduced) in 1947. That’s at least a decade before Haiti and the D.R. started to diverge economically, and four decades before the divergence became pronounced. Furthermore, Haiti’s total external debt in 2019 was only about 15% of GDP, while the D.R.’s was about 40%! The D.R. is far more indebted to foreign countries now than Haiti is.
I agree with the points made by Noah in the longer post, and would add a few factors. First, Haiti’s moments of extreme political weakness happened to coincide with a major increase in drug trafficking in the region. Second, the DR has done an especially good job of mobilizing Special Economic Zones to support its economic growth, at least relative to Haiti. That in turn had broader feedback effects on subsequent political economy and thus economic growth. Haiti, in contrast, ended driving out its MNEs — Disney manufacturing was once in the country, baseball production was once significant, and so on, but none of those gains have compounded and mostly they went away, due to bad governance and infrastructure. (And the massive corruption at Haiti’s main port is a striking contrast with DR export procedures through the SEZs.) Third, and this one may be as much symptom as cause, but the DR managed to decentralize its power structures somewhat through economic growth on its peripheries, through both tourism and SEZs. In Haiti, the second- and third-tier cities have not developed, and have turned into backwaters, while centralization in Port-au-Prince has continued unabated, thereby intensifying the logic of Haitian rent-seeking.
Why did Portugal decline?
Davis Kedrosky and Nuno Palma blame Brazil:
As late as 1750, Portugal had an output per head considerably higher than those of France or Spain. Yet just a century later, Portugal was Western Europe’s poorest country. In this paper we show that the discovery of massive quantities of gold in Brazil over the eighteenth century played a key role for the long-run development of Portugal’s economy. We focus on the economic resource curse: the loss of competitiveness of the tradables sector manifested in the rise of the price of non-traded goods relative to traded imports. Using original price data from archives for four Portuguese regions between 1650 and 1800, we show that a real exchange rate appreciation of about 30 percent occurred during the eighteenth century, which led to a loss of the competitiveness of national industry from which the country did not recover until considerably later.
Via Ilya Novak. Oh Thiago!