Category: History
Two things that really matter
When analyzing the macro situations of countries or regions, I place more stress than many people do on the following two factors:
1. Human capital: How much active, ambitious talent is there? And how high are the averages and medians?
2. Matching market demands: Are you geared up to produce what the market really wants, export markets or otherwise?
Those may sound trivial, but in relative terms they remain undervalued. They are, for instance, the biggest reasons why I do not buy “the housing theory of everything.”
They are also, in my view, the biggest reasons why the UK currently is in economic trouble. Both #1 (brain drain) and #2 have taken a hit in recent times. The UK continues to deindustrialize, business consulting is not the future, and London as a financial centre was hurt by 2008, Brexit, and superior innovations elsewhere. More and more smart Brits are leaving for the US or Dubai.
You also will notice that #1 and #2, when they are in trouble, are not always easily fixed. That is why reforms, while often a good idea, are by no means an easy or automatic way out of trouble.
These two factors also are consistent with the stylized fact that growth rates from the previous decade are not so predictive of growth rates for the next decades. Human capital often drives levels more than growth rates. And matching market demands often has to do with luck, or with shifting patterns of demand that the supplying country simply cannot match. Once people abandon Toyotas for Chinese electric cars, Japan does not have an easy pivot to make up the loss.
Most other theories of growth rates, for instance those that assign a predominant weight to institutions, predict much more serial correlation of growth rates than we find in the data. That said, institutions do indeed matter, and in addition to their usual effects they will shape both #1 and #2 over the longer run.
Overall, I believe conclusions would be less pat and economic understandings would be more effective if people paid greater attention to these factors #1 and #2. Not putting enough weight on #1 and #2 is one of the biggest mistakes I see smart people — and indeed very smart people — making.
Addendum: You will note the contributions of Fischer Black here. Apart from his contributions to options pricing theory, which are widely known, he remains one of the most underrated modern economists.
Political pressure on the Fed
From a forthcoming paper by Thomas Drechsel:
This paper combines new data and a narrative approach to identify variation in political pressure on the Federal Reserve. From archival records, I build a data set of personal interactions between U.S. Presidents and Fed officials between 1933 and 2016. Since personal interactions do not necessarily reflect political pressure, I develop a narrative identification strategy based on President Nixon’s pressure on Fed Chair Burns. I exploit this narrative through restrictions on a structural vector autoregression that includes the President-Fed interaction data. I find that political pressure to ease monetary policy (i) increases the price level strongly and persistently, (ii) does not lead to positive effects on real economic activity, (iii) contributed to inflationary episodes outside of the Nixon era, and (iv) transmits differently from a typical monetary policy easing, by having a stronger effect on inflation expectations. Quantitatively, increasing political pressure by half as much as Nixon, for six months, raises the price level by about 7% over the following decade.
That is not entirely a positive omen for the current day.
My Conversation with the excellent Dan Wang
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Dan debate whether American infrastructure is actually broken or just differently optimized, why health care spending should reach 35% of GDP, how lawyerly influences shaped East Asian development differently than China, China’s lack of a liberal tradition and why it won’t democratize like South Korea or Taiwan did, its economic dysfunction despite its manufacturing superstars, Chinese pragmatism and bureaucratic incentives, a 10-day itinerary for Yunnan, James C. Scott’s work on Zomia, whether Beijing or Shanghai is the better city, Liu Cixin and why volume one of The Three-Body Problem is the best, why contemporary Chinese music and film have declined under Xi, Chinese marriage markets and what it’s like to be elderly in China, the Dan Wang production function, why Stendhal is his favorite novelist and Rossini’s Comte Ory moves him, what Dan wants to learn next, whether LLMs will make Tyler’s hyper-specific podcast questions obsolete, what flavor of drama their conversation turned out to be, and more.
Excerpt:
COWEN: When will Chinese suburbs be really attractive?
WANG: What are Chinese suburbs? You use this term, Tyler, and I’m not sure what exactly they mean.
COWEN: You have a yard and a dog and a car, right?
WANG: Yes.
COWEN: You control your school district with the other parents. That’s a suburb.
WANG: How about never? I’m not expecting that China will have American-style suburbs anytime soon, in part because of the social engineering projects that are pretty extensive in China. I think there is a sense in which Chinese cities are not especially dense. Indian cities are much, much more dense. I think that Chinese cities, the streets are not necessarily terribly full of people all the time. They just sprawl quite extensively.
They sprawl in ways that I think the edges of the city still look somewhat like the center of the city, which there’s too many high-rises. There’s probably fewer parks. There’s probably fewer restaurants. Almost nobody has a yard and a dog in their home. That’s in part because the Communist Party has organized most people to live in apartment compounds in which it is much easier to control them.
We saw this really extensively in the pandemic, in which people were unable to leave their Shanghai apartment compounds for anything other than getting their noses and mouths swabbed. I write a little bit about how, if you take the rail outside of major cities like Beijing and Shanghai, you hit farmland really, really quickly. That is in part because the Communist Party assesses governors as well as mayors on their degree of food self-sufficiency.
Cities like Shanghai and Beijing have to produce a lot of their own crops, both grains as well as vegetables, as well as fruits, as well as livestock, within a certain radius so that in case there’s ever a major devastating war, they don’t have to rely on strawberries from Mexico or strawberries from Cambodia, or Thailand. There’s a lot of farmland allocated outside of major cities. I think that will prevent suburban sprawl. You can’t control people if they all have a yard as well as a dog. I think the Communist Party will not allow it.
COWEN: Whether the variable of engineers matters, I went and I looked at the history of other East Asian economies, which have done very well in manufacturing, built out generally excellent infrastructure. None of these problems with the Second Avenue line in New York. Taiwan, like the presidents, at least if we believe GPT-5, three of them were lawyers and none of them were engineers. South Korea, you have actually some economists, a lot of bureaucrats.
WANG: Wow. Imagine that. Economists in charge, Tyler.
COWEN: I wouldn’t think it could work. A few lawyers, one engineer. Singapore, Lee Kuan Yew, he’s a lawyer. He thinks in a very lawyerly manner. Singapore has arguably done the best of all those countries. Much richer than China, inspired China. Why should I think engineers rather than just East Asia, and a bunch of other accompanying facts about these places are what matter?
WANG: Japan, a lot of lawyers in the top leadership. What exactly was the leadership of Hong Kong? A bunch of British civil servants.
COWEN: Some of whom are probably lawyers or legal-type minds, right? Not in general engineers.
WANG: PPE grads. I think that we can understand the engineering variable mostly because of how much more China has done relative to Japan and South Korea and Taiwan.
COWEN: It’s much, much poorer. Per capita manufacturing output is gone much better in these other countries.
And:
WANG: Tyler, what does it say about us that you and I have generally a lot of similar interests in terms of, let’s call it books, music, all sorts of things, but when it comes to particular categories of things, we oppose each other diametrically. I much prefer Anna Karenina to War and Peace. I prefer Buddenbrooks to Magic Mountain. Here again, you oppose me. What’s the deal?
COWEN: I don’t think the differences are that big. For instance, if we ask ourselves, what’s the relative ranking of Chengdu plus Chongqing compared to the rest of the world? We’re 98.5% in agreement compared to almost anyone else. When you get to the micro level, the so-called narcissism of petty differences, obviously, you’re born in China. I grew up in New Jersey. It’s going to shape our perspectives.
Anything in China, you have been there in a much more full-time way, and you speak and read Chinese, and none of that applies to me. I’m popping in and out as a tourist. Then, I think the differences make much more sense. It’s possible I would prefer to live in Shanghai for essentially the reasons you mentioned. If I’m somewhere for a week, I’m definitely going to pick Beijing. I’ll go around to the galleries. The things that are terrible about the city just don’t bother me that much, because I know I’ll be gone.
WANG: 98.5% agreement. I’ll take that, Tyler. It’s you and me against the rest of the world, but then we’ll save our best disagreements for each other.
COWEN: Let’s see if you can pass an intellectual Turing test. Why is it that I think Yunnan is the single best place in the world to visit? Just flat out the best if you had to pick one region. Not why you think it is, but why I think it is.
Strongly recommended, Dan and I had so much fun we kept going for about an hour and forty minutes. And of course you should buy and read Dan’s bestselling book Breakneck: China’s Quest to Engineer the Future.
*Liberal Worlds: James Bryce and the Democratic Intellect*
By H.S. Jones, an excellent book. For all the resurgence of interest in government and its problems, Bryce has received remarkably little attention. But his theory of low-quality, careerist politcians, combined with imperfectly informed voters, seems highly relevant to our current day. Public opinion is slow, and largely reactive, but potent once mobilized. Leadership can truly matter, and he stresses national character and civic education. In other words, Bryce’s The American Commonwealth is a book still worth reading.
I had not known that Bryce was born in Belfast, or that he was so opposed to women’s suffrage. Or that he was so interested in Armenia, climbed Mount Ararat, and was fascinated by the inevitability of interracial marriage and its consequences (no, not in the usual racist way). He was an expert on Roman law.
Recommended, and also very well written.
*FDR: A New Political Life*
From historian David T. Beito, here is one excerpt:
FDR gave unquestioning support to President Wilson’s crackdown on free speech during World War I, including his enforcement of the Sedition and Espionage Acts. According to Kenneth S. Davis, Roosevelt “went along with prevailing trends in the realm of the national spirit, uninhibited by any strong ideological commitment to the Bill of Rights.” After reading about the conviction of the publisher of an antiwar socialist pamphlet, for example, he sent a congratulatory letter to the federal prosecutor…
There is much more here than just the standard market-oriented “Roosevelt had bad economic policies” line, and the more left-leaning critique of Roosevelt on segregation and the southern coalition. For instance, Roosevelt supported policies that required the telegram companies to keep copies of all telegrams sent, and he used the FCC licensing process to help keep radio in his corner politically.
There is more. It can be said that this book offers a very negative view of FDR.
*Policing on Drugs*
The author is Aileen Teague, and the subtitle is The United States, Mexico, and the Origins of the Modern Drug War, 1969-2000. I had been wanting to read a book on this topic, and this manuscript covered exactly the ground I was hoping for. Excerpt:
…in 1965, only 4.8 percent of college students in the Northeast had ever tried marijuana. By 1970, that figure jmped to 48 percent of college students from Northeast schools having used marijuana within the last year.
Jim Buchanan was right? Blame the Beatles? Remember when so much of the drug trade was a Turkish-French thing?
If you are wondering, the Mexican drug cartels emerged during the 1970s. Perhaps the author blames more of this on U.S. policy than I think is correct? If Nixon had never cracked down and militarized the issue, I suspect the evolution of the matter would not be so different from current status quo? Unless of course you wish to go the Walmart route.
In any case a good book on a topic of vital importance.
Thanksgiving and the Lessons of Political Economy
Time to re-up my 2004 post on thanksgiving and the lessons of political economy. Here it is with no indent:
It’s one of the ironies of American history that when the Pilgrims first arrived at Plymouth rock they promptly set about creating a communist society. Of course, they were soon starving to death.
Fortunately, “after much debate of things,” Governor William Bradford ended corn collectivism, decreeing that each family should keep the corn that it produced. In one of the most insightful statements of political economy ever penned, Bradford described the results of the new and old systems.
[Ending corn collectivism] had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression.
The experience that was had in this common course and condition, tried sundry years and that amongst godly and sober men, may well evince the vanity of that conceit of Plato’s and other ancients applauded by some of later times; that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. For the young men, that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. The strong, or man of parts, had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labours and victuals, clothes, etc., with the meaner and younger sort, thought it some indignity and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it. Upon the point all being to have alike, and all to do alike, they thought themselves in the like condition, and one as good as another; and so, if it did not cut off those relations that God hath set amongst men, yet it did at least much diminish and take off the mutual respects that should be preserved amongst them. And would have been worse if they had been men of another condition. Let none object this is men’s corruption, and nothing to the course itself. I answer, seeing all men have this corruption in them, God in His wisdom saw another course fitter for them.
Among Bradford’s many insights it’s amazing that he saw so clearly how collectivism failed not only as an economic system but that even among godly men “it did at least much diminish and take off the mutual respects that should be preserved amongst them.” And it shocks me to my core when he writes that to make the collectivist system work would have required “great tyranny and oppression.” Can you imagine how much pain the twentieth century could have avoided if Bradford’s insights been more widely recognized?
Addendum: Today (2025) I would add only that the twenty-first century could avoid a lot of pain if Bradford’s insights were more widely recognized.
Why are Mormons so Libertarian?
Connor Hansen has a very good essay on Why Are Latter-day Saints So Libertarian? It serves both as an introduction to LDS theology and as an explanation for why that theology resonates with classical liberal ideas. I’ll summarize, with the caveat that I may get a few theological details wrong.
LDS metaphysics posits a universe governed by eternal law. God works with and within the laws of the universe–the same laws that humans can discover with reason and science.
This puts Latter-day Saint cosmology in conversation with the Enlightenment conviction that nature operates predictably and can be studied systematically. A theology where God organizes matter according to eternal law opens space for both scientific inquiry and mystical experience—the careful observation of natural law and the direct encounter with divine love operating through that law.
LDS epistemology is strikingly pro-reason. Even Ayn Rand would approve:
Latter-day Saint theology holds that human beings possess eternal “intelligence”—a term meaning something like personhood, consciousness, or rational capacity—that exists independent of creation. This intelligence is inherent, not granted, and it survives death.
Paired with this is the doctrine of agency: humans are genuinely free moral agents, not puppets or broken remnants after a fall. We’re capable of reason, judgment, and meaningful choice.
This creates an unusually optimistic anthropology. Human reason isn’t fundamentally corrupted or unreliable. It’s a divine gift and a core feature of identity. That lines up neatly with the Enlightenment belief that people can use reason to understand the world, improve their lives, and govern themselves effectively.
In ethics, agency is arguably the most libertarian strand in LDS theology. Free to choose is literally at the center of both divine nature and moral responsibility.
According to Latter-day Saint belief, God proposed a plan for human existence in which individuals would receive genuine agency—the ability to choose, make mistakes, learn, change, and ultimately progress toward becoming like God.
One figure, identified as Satan, rejected that plan and proposed an alternative: eliminate agency, guarantee universal salvation through compulsion, and claim God’s glory in the process.
The disagreement escalated into conflict. In Latter-day Saint scripture, Satan and those who followed him were cast out. The ones who chose agency—who chose freedom with its attendant risks—became mortal humans.
This matters politically because it means that in Latter-day Saint theology, coercion is not merely misguided policy or poor governance. It is literally Satanic. The negation of agency, forced conformity, compulsory salvation—these align with the devil’s rebellion against God’s plan.
Now add to this a 19th century belief in progress and abundance amped up by theology:
Humanity isn’t hopelessly corrupt. Instead, individuals are expected to learn, improve, innovate, and help build better societies.
But here’s where it gets radical: Latter-day Saints believe in the doctrine of eternal progression—the teaching that human beings can, over infinite time and through divine grace, become as God is. Not metaphorically. Actually.
If you believe humans possess infinite potential to rise, become, and progress eternally—literally without bound—then political systems that constrain, manage, or limit human aspiration start to feel spiritually suspect.
Finally, the actually history of the LDS church–expulsions from Missouri and Illinois, Joseph Smith’s violent death, the migration to the Great Basin, the creation of a quasi-independent society–is one of resistance to centralized government power. Limited government and local autonomy come to feel like lessons learned through lived experience. Likewise, the modern LDS welfare system is a working demonstration of how voluntary, covenant-based mutual aid can deliver real social support without coercion. This real-world model strengthens the intuition that social goods need not rely on compulsory state systems, and that voluntary institutions can often be more humane and effective.
To which I say, amen brother! Read the whole essay for more.
See also the book, , with an introduction by the excellent Mark Skousen.
Hat tip: Gale.
Enlightenment ideas and the belief in progress leading up to the Industrial Revolution
Using textual analysis of 173,031 works printed in England between 1500 and 1900, we test whether British culture evolved to manifest a heightened belief in progress associated with science and industry. Our analysis yields three main findings. First, there was a separation in the language of science and religion beginning in the 17th century. Second, scientific volumes became more progress-oriented during the Enlightenment. Third, industrial works—especially those at the science-political economy nexus—were more progress-oriented beginning in the 17th century. It was therefore the more pragmatic, industrial works which reflected the cultural values cited as important for Britain’s takeoff.
That is from a paper by Ali Almelhem, Murat Iyigun, Austin Kennedy, and Jared Rubin. Now forthcoming at the QJE.
The spatial construction of Incan monies?
Money can be many things, but this to me is a new one. Or is it?
Stretching for 1.5km and consisting of approximately 5200 precisely aligned holes, Monte Sierpe in southern Peru is a remarkable construction that likely dates to at least the Late Intermediate Period (AD 1000–1400) and saw continued use by the Inca (AD 1400–1532). Yet its function remains uncertain. Here, the authors report on new analyses of drone imagery and sediment samples that reveal numerical patterns in layout, potential parallels with Inca knotted-string records and the presence of crops and wild plants. All this, the authors argue, suggests that Monte Sierpe functioned as a local, Indigenous system of accounting and exchange.
That is newly published research from Jacob L. Bongers, et.al. Via the excellent Kevin Lewis.
Markets in everything?
Wealthy foreign gun enthusiasts paid Bosnian Serb forces for the chance to shoot residents of Sarajevo during the siege of the city during the 1990s, according to claims being investigated by Italian magistrates.
The investigation was prompted by new evidence that “weekend snipers” paid handsomely to line the hills around Sarajevo and join in the Bosnian Serb siege, which killed more than 11,500 people between 1992 and 1996 during the Balkan Wars.
The investigation into the alleged “human safari” in Sarajevo has been opened after years of research by the Italian writer Ezio Gavazzeni, who said a key source was a former Bosnian intelligence officer.
“What I learnt is that Bosnian intelligence warned the local office of the Italian secret service … about the presence of at least five Italians who were taken to the hills above Sarajevo to shoot civilians,” he told the Italian daily La Repubblica.
Here is more from the Times of London.
European Stagnation
Excellent piece by Luis Garicano, Bengt Holmström & Nicolas Petit.
The continent faces two options. By the middle of this century, it could follow the path of Argentina: its enormous prosperity a distant memory; its welfare states bankrupt and its pensions unpayable; its politics stuck between extremes that mortgage the future to save themselves in the present; and its brightest gone for opportunities elsewhere. In fact, it would have an even worse hand than Argentina, as it has enemies keen to carve it up by force and a population that would be older than Argentina’s is today.
Or it could return to the dynamics of the trente glorieuses. Rather than aspire to be a museum-cum-retirement home, happy to leave the technological frontier to other countries, Europe could be the engine of a new industrial revolution. Europe was at the cutting edge of innovation in the lifetime of most Europeans alive today. It could again be a continent of builders, traders and inventors who seek opportunity in the world’s second largest market.
The European Union does not need a new treaty or powers. It just needs a single-minded focus on one goal: economic prosperity.
I’ve quoted the call to arms but there is much more substantive and deep analysis. Naturally, I approve of this theme “If a product is safe enough to be sold in Lisbon, it should be safe enough for Berlin.” Not the usual fare, read the whole thing.
In defense of Schumpeter
Factories of Ideas? Big Business and the Golden Age of American Innovation (Job Market Paper) [PDF]
This paper studies the Great Merger Wave (GMW) of 1895-1904—the largest consolidation event in U.S. history—to identify how Big Business affected American innovation. Between 1880 and 1940, the U.S. experienced a golden age of breakthrough discoveries in chemistry, electronics, and telecommunications that established its technological leadership. Using newly constructed data linking firms, patents, and inventors, I show that consolidation substantially increased innovation. Among firms already innovating before the GMW, consolidation led to an increase of 6 patents and 0.6 breakthroughs per year—roughly four-fold and six-fold increases, respectively. Firms with no prior patents were more likely to begin innovating. The establishment of corporate R\&D laboratories served as a key mechanism driving these gains. Building a matched inventor–firm panel, I show that lab-owning firms enjoyed a productivity premium not due to inventor sorting, robust within size and technology classes. To assess whether firm-level effects translated into broader technological progress, I examine total patenting within technological domains. Overall, the GMW increased breakthroughs by 13% between 1905 and 1940, with the largest gains in science-based fields (30% increase).
That is the job market paper of Pier Paolo Creanza, who is on the market this year from Princeton.
The first human arrivals in the New World may have sailed from northeast Asia
The first people to migrate to North America may have sailed from north-east Asia around 20,000 years ago. Experts have argued that prehistoric people in Hokkaido, Japan, used similar stone tools to those later found in North America, and suggest that seafarers may have travelled to the continent during the last ice age, bringing this stone technology with them. This adds weight to the theory that the first Americans arrived much earlier than previously thought.
And:
“By [around 30,000 years ago], Upper Palaeolithic seafarers were using sea-going vessels to access some of the outer islands in the Japanese archipelago … and were capable of negotiating the Kuroshio Current, one of the fastest in the world,” Davis and his colleagues write in their paper, published in October in the journal Science Advances. “This suggests that such experienced seafarers may also have been capable of handling adverse Pacific coastal currents.”
Nonetheless, the team also suggest that the journey could have happened at a much slower pace. In this reconstruction, the prehistoric seafarers gradually followed a route along the Pacific coast.
Here is the full story. I have long wondered why, every now and then, in Japan I see a person who looks a great deal like a “Native American.”
Notes on Maputo (Mozambique)
An excellent piece by Joseph Levine, do read the whole thing, here is one excerpt:
Yango is the local ride-hailing app and makes life really easy. It’s a Dubai-based company, split off from Russian Yandex in 2024. Today it’s available as a ride-hailing app in 30+ African countries. Yango rides are really cheap, cheaper than taxis in Freetown or Kanifing, and quality was much higher. A 15 minute ride from my house to my office cost $0.23 on a motorbike, $0.58 in a tuk-tuk, $1.05 in a car, and $1.20 in the equivalent of an Uber Black car. I usually ended up taking the cheaper car option, because you can’t easily sit next to or talk to the driver of a tuk-tuk.
Yango eliminates the ability of taxi drivers to price discriminate. When I walked out of the airport, the taxi drivers wanted ~$20 for the drive to my flat, and I talked them down to $10. On Yango, the drive is $3. My general model of digital marketplaces is that they enable price discrimination (e.g., Uber surge pricing), but in Mozambique it’s the opposite.
Drivers are often professionals working a full-time job, or graduate students. I met a dentist, an engineer working at the new Total plant, several accountants. They also made up the majority of the Muslim Mozambicans whom I met. Most Muslims in Maputo are first- or second-generation immigrants from the northern provinces. One driver, Ismael, grew up on Mozambique Island, about 1,000km north of Maputo; it has a population of 10,000, but most of the young people move to Maputo. He came down to study engineering and now works at a terminal exporting natural gas.
Because I wasn’t on the local mobile money system, I paid for each Yango ride in cash. The car drivers rarely had change (tuk-tuk drivers always did). Alongside rating the driver in the Yango app out of 5 stars, you have to reply yes/no to the question “Did the driver ask for extra cash?” This led to the drivers being very reluctant whenever I told them to keep the change, even when I showed them I had already selected “no”. So we often went around to fruit sellers asking if they would break a twenty.
And:
Mozambique shares a timezone with all the other Southern African countries. As the easternmost country in the timezone, this feels really weird! When I arrived, sunrise was at 5:20am, and sunset about 12 hours later. The early sunsets move business and social events earlier throughout the day. I’m a morning person, but it would usually be considered rude to suggest a 7am in-person meeting. Not here!
The Kalashnikov is a prominent national symbol in Mozambique; it’s on the flag. In particularly touristy areas, hawkers would try to sell me flags, jerseys, banners, scarves with ever-larger AK-47s on them.
Recommended, there should be more travel writing like this.