Category: History

Paul Volcker’s Latin American legacy

That is the topic of my latest Bloomberg column, the history with Latin America is also a big part of the Volcker story, here is one bit:

Global banks raised their interest rates for lending and shortened their repayment periods. In the mid-’70s real lending rates to Latin America hovered in the range of zero, but by the early ’80s they were between 8% and 10%. Liquidity was cut off, and the underlying growth potential of the region’s economies was not strong enough to sustain the debt. This affected other parts of the world as well and became known as “the third world debt crisis.”

The crisis came to a head in 1982, when Mexico announced it would no longer be able to service its debt, sparking a financial crisis and currency collapse. Ultimately, 16 Latin American countries also were forced to reschedule their debt payments. This created problems for the banks too, since by 1982 the nine largest U.S. money-center banks had Latin American debts equal to 176% of their capital, a figure which rose to 290% when lesser developed countries elsewhere in the world were included. Eventually the U.S. led a bailout and debt-reduction program, with the participation of the International Monetary Fund.

But for Latin America, things would never be the same. Governments had to cut spending, which in turn led to further adjustment problems, akin to the eurozone crisis of more recent times. Poverty rates rose sharply, and the general mood turned pessimistic. By the end of the 1980s, Latin American per capita GDP had fallen from 112% of the world’s average to 98%, a stunning plunge and by some measures the worst financial disaster the world had ever seen, albeit a regionalized one.

And this:

Repercussions in the U.S. were more modest. The potential insolvency of some major U.S. banks, such as Citibank, was ignored amid forbearance and hope about their return to profitability. They did, eventually, but in retrospect one has to wonder if allowing so much non-transparent bank accounting — with the blessing of regulators, including Volcker’s Fed — was such a good idea.

That all said, I do not think Volcker had much operative choice on most of these matters, and the excess Latin American borrowing certainly was not his fault.  Note: the inspiration for this column came from a tweet by Pseudoerasmus.

My debate with Žižek

It was quite something, the proceedings did not disappoint, here is the YouTube:

I can’t fully access video from this airport location, but I believe the actual debate starts at around 1:06.  After the debate proper, a particular highlight is the four video questions that were taped and sent in from humanities academics.

The Holberg people put on a great event.

*The Korean Mind: Understanding Contemporary Korean Culture*

This is a weird book, published primarily in Singapore, and somehow not fitting the canons of what people “are supposed to do” (NB: it is not at all racist, just bolder in its cultural generalizations than is currently in vogue).  Nonetheless I learned a great deal from the book, while taking some parts with a grain of salt.  Here is one interesting bit of many:

Since 1948 the government in North Korea has been dominated by people from North Hamkyong Province, where the late Il Sung Kim, founder of the North Korean regime, was active as a guerrilla leader during World War II.  Since that time people from the North Korean provinces of Hwanghae and Kangwon, which are the closest to South Korea, have been virtually banned from high government offices because they are considered untrustworthy and unfit.  In South Korea government has been controlled mostly by natives from North Kyongsang Province in the Youngnam (formerly Shilla) region.

…Ongoing competition and conflicts between people from Cholla and Kyongsang Provinces are said to be serious enough that they have significant negative impact on national politics, the economy, and life in general.

The author is Boye Lafayette de Mente, and he seems to know a lot about Korean bowing.  Do note the book is mainly about South Korea.  Reviewers, by the way, complain that there are significant mistakes in the Korean characters.  Recommended nonetheless, albeit with caveats, you can buy it here.

Principles for Amazon (and other?) censorship

That is the topic of my latest Bloomberg column, here is one excerpt:

Focus on whether the merchandise contributes to further understanding, one way or another, rather than whether it might embody evil.


This principle runs counter to how the world of social media works, I realize. “Cancel culture” tends to issue decisions based on the worst aspects of a product, writer or public figure, because that is what is endlessly circulated and condemned. But there is another way of thinking about the problem — namely, by focusing on the positive.

It is still possible, for example, to buy Adolf Hitler’s “Mein Kampf” on Amazon, either through third-party merchants or Amazon itself. That book is more offensive than an Auschwitz bottle opener, as it directly calls for the extermination of the Jews and the conquest of Europe, and it probably still inspires neo-Nazis today. Nonetheless, I hope “Mein Kampf” continues to be for sale.

For all of its evil, “Mein Kampf” is an essential document for understanding the rise of Nazism and Hitler. As such, it should be allowed in spite of its potential downside. There is both intrinsic and utilitarian value in maximizing public access to as much knowledge as possible.

In contrast, it is hard to argue that an Auschwitz-themed mouse pad has anything positive to offer, whether to our historical knowledge or otherwise. At best, it is an act of obnoxious trolling and thus it was appropriate for Amazon to take it down.

It is fine to watch Leni Riefenstahl and listen to Richard Strauss, for instance.  But most private platforms — if they can — should ban sheer trolls.

Claims about real rates of return

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been “stable”, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging “back to historical trend” – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of “nonhuman wealth” over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the “virtual stability” of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

That is from a new paper by Paul Schmelzing, via the excellent Kevin Lewis.

My Conversation with Daron Acemoglu

Self-recommending of course, most of all we talked about economic growth and development, and the history of liberty, with a bit on Turkey and Turkish culture (Turkish pizza!) as well.  Here is the audio and transcript.  Here is one excerpt, from the very opening:

COWEN: I have so many questions about economic growth. First, how much of the data on per capita income is explained just simply by one variable: distance from the equator? And how good a theory of the wealth of nations is that?

ACEMOGLU: I think it’s not a particularly good theory. If you look at the map of the world and color different countries according to their income per capita, you’ll see that a lot of low-income-per-capita countries are around the equator, and some of the richest countries are pretty far from the equator, in the temperate areas. So many people have jumped to conclusion that there must be a causal link.

But actually, I think geographic factors are not a great explanatory framework for understanding prosperity and poverty.

COWEN: But why does it have such a high R-squared? By one measure, the most antipodal 21 percent of the population produces 69 percent of the GDP, which is striking, right? Is that just an accident?

ACEMOGLU: Yeah, it’s a bit of an accident. Essentially, if you think of which are the countries around the equator that have such low income per capita, they are all former European colonies that have been colonized in a particular way.


COWEN: If we think about the USSR, which has terrible institutions for more than 70 years, an awful form of communism — it falls; there’s a bit of a collapse. Today, they seem to have a higher per capita income than you would expect a priori, if you, just as an economist, write about communism. Isn’t that mostly just because of what is now Russian, or Soviet, human capital?

ACEMOGLU: That’s an interesting question. I think the Russian story is complicated, and I think part of Russian income per capita today is because of natural resources. It’s always a problem for us to know exactly how natural resources should be handled because you can do a lot of things wrong and still get quite a lot of income per capita via natural resources.

COWEN: But if Russians come here, they almost immediately move into North American per capita income levels as immigrants, right? They’re not bringing any resources. They’re bringing their human capital. If people from Gabon come here, it takes them quite a while to get to the —

ACEMOGLU: No, absolutely, absolutely. There’s no doubt that Russians are bringing more human capital. If you look at the Russian educational system, especially during the Soviet time, there was a lot of emphasis on math and physics and some foundational areas.

And there’s a lot of selection among the Russians who come here…

The Conversation is Acemoglu throughout, you also get to hear me channeling Garett Jones.  Again, here is Daron’s new book The Narrow Corridor: States, Societies, and the Fate of Liberty.

*Towards an Economics of Natural Equals*

The authors are David M. Levy and Sandra J. Peart, and the subtitle is A Documentary History of the Early Virginia School.  This is the true history, told by people who know, and with extensive citations from correspondence and primary documentation.


Beginning quite early and throughout his long career, Buchanan studied, endorsed, and extended the Smithian economics of natural equals.

You will find the correspondence of Buchanan and Rawls, the dealings of Buchanan with a skeptical Ford Foundation, the real story behind the Buchanan and G. Warren Nutter “Universal Education” voucher plan, what actually happened in Buchanan’s Chile visit, Chicago vs. Virginia disputes, the anti-democratic views of Murray Rothbard, and the contested history of neoliberalism.  And much correspondence from Ronald Coase.


David Levy worked with Buchanan and Tullock from the late 1970s through their deaths, and he and Peart are extremely careful in their sourcing and quotation practices — get the picture?

Due out Februrary, leap year day, you can pre-order here.

Emmanuel Todd, *Lineages of Modernity*

Sadly I had to read this book on Kindle, so my usual method of saving passages and ideas by the folded page is failing me.  I can tell you this is one of the most interesting (but also flawed) books I read this year, with “family structure is sticky and it determines the fate of your nation” as the basic takeaway.

Todd suggests that the United States actually has a fairly “backward” and un-evolved family structure — exogamy and individualism — not too different from that of hunter-gatherer societies.  That makes us very flexible and also well-suited to handle the changing conditions of modernity.  Much of the Arab world, in contrast, has a highly complex and evolved and in some ways “more advanced” family structure, involving multiple alliances, overlapping networks, and often cousin marriages.  The mistake is to think of those structures as under-evolved outcomes that simply can advance a bit, “loosen up with prosperity,” and allow their respective countries to enter modernity.  Rather those structures are stuck in place, and they will interact with the more physical features of globalization and liberalization in interesting and not always pleasant ways.  Many of those societies will end up in untenable corners with no full liberalization anywhere in sight.  Much of Todd’s book works through what the various options are here, and how they might apply to different parts of the world.

To be clear, half of this book is unsupported, or sometimes just trivial.  There were several times I was tempted to just stop reading, but then it became interesting again.  Todd covers a great deal of ground (the subtitle is A History of Humanity from the Stone Age to Homo Americanus), not all of it convincingly.  But when he makes you think, you really feel he might be on to something.

Todd describes Germany as having a complex, multi-tiered, somewhat authoritarian family structure, and one that does not mesh well with the norms of feminism and individualism that have been entering the country.  That family structure is also part of why Germany was, relative to its size, militarily so strong in the earlier part of the twentieth century.  He also argues that the countries that stayed communist longer have some common features to their family structure, Cuba being the Latin American outlier in this regard.

Todd makes the strongest bullish case for Russia I have seen.  He reports that TFR is back up to 1.8 after an enormous post-communist plunge, migration into the country is strongly positive, and Russia is very good at producing strong, productive women (again due to family structure).  If you think human capital matters, the positives here are significant indeed.

Here is some related work by my colleagues Jonathan Schulz and Jonathan Beauchamp on cousin marriage.

You can order Todd’s book here.  Recommended, though with significant caveats, mainly for lack of evidence on some of the key propositions.

The First Words of Thanksgiving

When the Pilgrims landed at Plymouth rock in 1620 they were cold, hungry and frightened. Imagine their surprise when on March 16 as they unloaded cannon from the Mayflower in preparation for battle an Indian walked into their encampment and asked, “Anyone got a beer?” Seriously, that’s what happened. Samoset, the thirsty Indian, had learned English from occasional fishermen.

Even more fortunate for the Pilgrims was that Somoset was accompanied by Squanto. Squanto had been enslaved 7 years earlier and transported to Spain where he was sold.  He then somehow made his way to England and then, amazingly, back to his village in New England around 1619. It’s a horrific story, however, because during his absence Squanto’s entire village and much of the region had been wiped out by disease, almost certainly brought by the Europeans. Nevertheless, in 1621 Squanto was there when the Pilgrims landed and he hammered out an early peace deal and most importantly instructed the settlers how to fertilize their land with fish in order to grow corn.

Squanto instructed them in survival skills and acquainted them with their environment: “He directed them how to set their corn, where to take fish, and to procure other commodities, and was also their pilot to bring them to unknown places for their profit, and never left them till he died.”

Anyone got a beer?


An American Thanksgiving story without any heroes

That is the topic of my latest Bloomberg column, here is one excerpt:

But as Thanksgiving 2019 approaches, I am struck by another lesson: America’s need to come to terms with a history that, as it relates to the treatment of Native Americans, has remarkably few heroes on the side of the white settlers.


Nor is there any major American political ideology that can sit comfortably with the historical treatment of Native Americans, which has been multipartisan in its awfulness. Many libertarians fail to decry the government coercion involved, since they also wish to invoke the growth of the American republic as a major event in the history of freedom. Even if most libertarians are embarrassed by how much of America’s glory is rooted in land theft and massacres, they do not emphasize land reparations as a solution.


This lack of heroes should also make Americans more reluctant to judge their political opponents so harshly. All of us are part of a system built on longstanding historical crimes, and thus we have more in common with those opponents than we might like to think.


William Shatner on mortgages


I am once again reminded how expected returns is a critical concept in macroeconomics.  Circa 1985, you could expect to earn much higher returns putting money in a certificate of deposit, thus increasing the opportunity of buying a house back then.  No, you would not earn 12% on your money, but still we need to reckon with the higher opportunity cost of funds to calculate the true home purchase/mortgage cost at that time.

Wealth by Generation and Age

Kurt Andersen made the following arresting tweet

Fraction of all US wealth owned by Boomers & Gen-Xers when the average member of each was age 35:

Boomers, 1989 21%
GenX, 2008 8%
The average Millennial turns 35 in 2023. Right now they own 3%.

There will surely be political implications.

Definitions: Baby Boomer=born 1946-1964, Gen X=born 1965-1980, and Millennial=born 1981-1996.

You can’t take it with you, so this will change eventually but perhaps too late. Think of this as the Prince Charles effect. Prince Charles hasn’t offed his mother and led a revolution yet but in an earlier age he probably would have and surely he has thought about it. Similarly, perhaps the demand among some Gen-Xers and Millennials for wealth redistribution can be understood as a demand to get their share of the pot before they are old and tired.

The data, which are from the Federal Reserve are here.

My Conversation with Mark Zuckerberg and Patrick Collison

Facebook tweets:.

@patrickc, CEO of Stripe, and @tylercowen, economist at George Mason University, sit down with our CEO, Mark Zuckerberg to discuss how to accelerate progress.

Video, audio, and transcript here, part of Mark’s personal challenge for the year, an excellent event all around.  This will also end up as part of CWT.