Investment in the Great Depression
Brad DeLong shows a graph of how Gross Private Domestic Investment rises during the New Deal, except for the contractionary 1937-8 downturn. The pattern is striking.
A loyal MR reader emails me a citation to Robert Higgs’s book, which on Google (pp.6-7) claims that net investment was negative over the 1930-35 period. There is talk of a "capital consumption allowance" and that allowance accounts for the difference between the gross and the net terms. Only in 1941 did net investment exceed its 1929 level. Here’s a chart which seems consistent with these claims and which shows the difference between the net and the gross series for investment. The waves are very similar but at different absolute levels.
Can any readers explain what is going on In this time period, using this data, is net or gross investment a better indicator of recovery and economic conditions? Is the pro-New Deal claim that making net investment "less negative" (but still negative) counts as a success or rather that the gross investment series is what matters?
When I look at this data series — whether gross or net — I see a few monetary policy actions (initial reflation, breaking the old link to gold, increasing reserve requirements in 1936) as the dominant explanatory variables.
The Obama transition: science and the arts
President-elect Barack Obama continues to name members of his transition team.
Among the latest announcements are that the National Science Foundation
agency review will be led by Jim Kohlenberger – who was senior domestic
policy adviser to Vice President Al Gore, where he focused on science
and technology – and Henry M. Rivera, a lawyer. For the arts and
humanities transition team, Obama has selected Bill Ivey, director of
the Curb Center for Art, Enterprise, and Public Policy at Vanderbilt
University and former chairman of the National Endowment for the Arts;
Anne Luzzatto, who served in the Clinton administration as a special
assistant to the president and who has more recently been vice
president for meetings and outreach at the Council on Foreign
Relations; and Clement Price, the Board of Governors Distinguished
Service Professor of History and director of the Institute on
Ethnicity, Culture, and the Modern Experience at Rutgers University at
Newark.
Here is the link. Those names are not huge surprises and of course you will again see the imprint from the Clinton administration.
Assorted links
1. Is National Review finally collapsing?
2. The smartest man Pete Boettke ever met; he is high on my list too.
3. Markets in everything: 19th century vampire killing kit
Fighting the liquidity trap
If you don’t like public spending you could do it this way: Give every voter a federal debit card. And put the money in their accounts. Tell them if they don’t spend it this month, the government will take it back.
Some people will try to cheat and find ways to save the money, but probably not many.
Some people will use the money to pay down their credit cards. That’s good. The less they pay in interest each month the more they can spend.
That’s J Thomas from the MR comments and you can think of it as Silvio Gesell plus some modern technology. I’m not recommending this policy, just noting that in terms of stimulating aggregate demand it both vanquish a liquidity trap and it would outperform government spending or what I call "raising taxes in the future."
Meta-list of the “best of” books of the year
Not all the "best of" book lists are out, but I can issue a preliminary report, with possible updates to follow. This year opinion about best books seems unusually diverse. Not so many books have been intellectually central to the market. I have seen the following titles pop up repeatedly on "best of" lists:
Roberto Bolaño, 2666. Duh. After four hundred pages of reading, I see it as less perfect than The Savage Detectives but it has greater world-historic reach and even some sprawl. A clear first choice in almost any year.
Julian Barnes, Nothing to be Frightened Of. I like some of Barnes’s work, most of all Flaubert’s Parrot, but I am embarrassed that such a shallow book would receive any favorable notice at all.
The Forever War, Dexter Filkins. The quality of the journalism is high but for me it was insufficiently conceptual so I put it down after fifty pages or so.
The Story of Edgar Sawtelle: A Novel, By David Wroblewski. I liked the 150 or so pages I read but just didn’t have the time or the love to finish it. It reminds me of Stephen King’s better work.
I’ve drawn from the lists you will find here, among others.
During the year I saw many favorable reviews for Alexsandar Hemon’s The Lazarus Project (I liked it) and Amitav Ghosh’s Sea of Poppies (I haven’t read it yet), though neither seems to be popping up on so many "best of" lists. Perhaps Robin Hanson would view such lists as signaling rather than a honest statement of preferences.
Can one be a liquidity trap denialist?
Let’s say the central bank targets the (eventual) rate of price
inflation and not the price level itself. Then even a one-shot burst
of helicopter-drop money induces more consumer spending rather than more money demand. It was Meyer
Burstein who best explained Patinkin’s "real balance
effect" in terms of weakly dominant game-theoretic strategies. If you
wait to spend
your money, later prices will be higher, if only with some probability
(thus it matters that the central bank commits to a preferred rate of
forward-looking inflation, rather than restoring the previous price
level; the latter would mean deflationary expectations and
possibly take away the real balance effect). Nothing in the
Patinkin/Burstein logic requires any particular degree of optimism
about economic conditions. In fact very pessimistic consumers may be
the most likely to scramble after goods now, again putting the real
balance effect into play and pushing up prices. Nor is a strongly positive nominal interest rate required for the real balance effect. Don’t be fooled by
representative agent models which draw a single flat horizontal line
for the return to holding money curve; this is about game theory.
The greater a hoard of cash you are holding, the more likely that
the spending behavior of other consumers will inflict a negative
pecuniary externality on each consumer and thus again the more likely a
real balance effect, following a helicopter drop of money. Of course with
interdependent strategies there are usually multiple equilibria. You
can get a "liquidity trap equilibrium" by postulating an adjustment
cost to portfolio decisions, combined with just the right kind of a
trigger strategy equilibrium (everyone holds her new money cautiously, but poised to strike with quick new spending, if need be). In that sense I am not a pure liquidity trap
denialist although I think such an equilibrium is unlikely.
Here are my previous posts on the liquidity trap.
The wisdom of Bruce Bartlett
I think it would be a terrible mistake to simply write a check to the
auto industry without demanding major, major restructuring of its labor
contracts. Without that the money will simply go down a rat hole and
the automakers will just be back again in a year or two asking for more
money. Obama has a strong hand to play here and I hope he uses his
leverage. With bankruptcy as the only alternative to federal aid, he
can drive a very hard bargain with the auto workers. If he caves and
just writes a blank check, everyone will know he can be rolled and he
will pay a heavy political price for it. If Obama shows toughness on
this issue, I think it will pay enormous dividends for him down the
road.
Via Brad DeLong, Bruce is now blogging. And if you want some provocation, here is Kevin Drum on the idea of a GM bailout. And Felix Salmon has some interesting ideas.
Bill Easterly reviews Paul Collier
Self-recommending, as they say, and if I had my glasses nearby in this dark hotel room I could read it too. I thank Mark Thoma for the pointer.
Claims about Africa
The conversation confirmed an opinion that has crystallised over the
past few years: if, as a westerner, you are going to visit Africa, the
earlier in your life you do it, the better. By the time you are in your
twenties, your head is so stuffed with preconceived opinions, mostly of
the ethically self-flagellating variety, you can barely see, let alone
interpret, what is going on outside you.
Here is the link, courtesy of www.bookforum.com. I am interested in the claim that there is an optimal time in one’s life to travel. Many people do not get to travel much until their children leave the house. But when are the cognitive returns to travel the highest? I believe one must first know some theory before travelling — perhaps even some false theory — otherwise the travel does not come as a sufficient shock. In other words, the more you read and ponder social reality, the lower is your optimal cognitive age for travel.
Where has all the income gone?
-
The U.S. Census Bureau reports that median household
income stagnated from 1976 to 2006, growing by only 18 percent. In
contrast, data from the Bureau of Economic Analysis indicate that
income per person was up 80 percent. -
Three data issues adversely impact reported median household income gains: the choice of price index, a change in the mix of household types and the measure of income used.
-
After adjusting the Census data for these three issues, inflation-adjusted median household income for most household types is seen to have increased by 44 percent to 62 percent from 1976 to 2006.
That’s from Terry Fitzgerald at the Minneapolis Fed. I am not sure if he is asserting that his alternatives measures are just that — alternative measures — or if they are the true and correct measures in the sense of being better than the alternatives. In any case this is the latest look at a long-contentious issue. I thank Don Boudreaux for the pointer.
Father Time
Watching Star Wars today is like watching It’s a Wonderful Life (1946) in 1977.
Here are more such comparisons.
The economics of spam
"After 26 days, and almost 350 million email messages, only 28 sales resulted," says the research paper. Yet even with this apparently abysmal response rate of less than 0.00001 per cent, the researchers still estimate that the controllers of a network the size of Storm are still bringing in about $7,000 (£4,430) a day or $3.5m (£2.21m) over a year.
Here is more.
Markets in everything
Restaurants for dogs with Hall of Fame baseball players as waiters edition.
I thank John de Palma for the pointer (and the name of the edition).
Can libertarianism limit corporate statism?
Matt Yglesias opines (the piece is interesting throughout):
… the larger problem is that libertarianism, even at its very best, tends to suffer from an impoverished set of ideas about how
corporate domination of the public policy space might be prevented. The
political left has, by contrast, the tradition of community organizing,
a set of public interest advocacy organizations, allies in the trade
union movement, efforts to improve the quality and independence of the
civil service, and various notions about changing the methods by which
campaigns are financed in the United States. This is hardly a perfect
toolkit, and it can be enhanced in some ways by drawing on libertarian
insights, but it’s something. And libertarians tend to be either
indifferent or hostile to it, campaigning against public financing,
strong labor unions, and the civil service.In practice, libertarianism seems to have little to say about how to
bring about political change except to work hand-in-hand with business
lobbies when the interests of business and free markets are aligned, or
else when business interests are masquerading as libertarianism.
Here is Will’s response. In my view at the margin it would be better to have both less corporate privilege and less labor union privilege. Maybe we have no good theory (much less a strategy) for how to get there, but surely some marginal improvements are possible and who knows maybe more. Chile is much less corporatist than it used to be and the relatively free economy of New Zealand was never that corporatist in the first place.
"Libertarianism in practice" will be excessively pro-corporate but so are most ideologies. Rahm Emanuel, for instance, served on the board of Freddie Mac and earned $16 million in a two-year stint at an investment bank. Wall Street has been the single biggest backer of his political career. He won’t be pushing to destroy this sector but I don’t take those facts to be some great refutation of Obama as a President.
Sometimes the left-wing tactics, especially supporting labor unions, are exactly what lead to greater corporatism. Look at the forthcoming GM bailout. Or consider France, which has strong labor unions but arguably it is also more corporatist than is the United States.
But let’s say that turning America over to the labor unions would in fact limit corporate power. It’s still difficult to get the unions more anti-corporate power, just as limiting corporate statism is difficult. And these two tasks are difficult for more or less the same reasons. The bottom line is this: ultimately the "feasibility objection" may cut against very radical change, but it doesn’t cut against change in one particular direction more than the other.
Book medley
Burton Folsom, New Deal or Raw Deal?: How FDR’s Legacy has Damaged America; this book has a good compendium of free market critiques of Roosevelt, although I would not look here for a balanced review of the evidence. Senselessness, by Horacio Castellanos Moya; this is now my favorite novel from either Honduras or El Salvador, depending how you classify the nationality of the author. Alex Beam, A Great Idea at the Time: The Rise, Fall, and Curious Afterlife of the Great Books. A fun inside history of the Chicago Great Books series. Lily Tuck, Woman of Rome: A Life of Elsa Morante; I liked this book very much, without even being a previous devotee of Morante. Gilles Kepel, Beyond Terror and Martyrdom: The Future of the Middle East. Both Kepel and Belknap Press are wonderful, but there’s not much here. Paul Krugman, The Return of Depression Economics, with a new section on the 2008 crisis. Joseph Schumpeter, Capitalism, Socialism, and Democracy, a new edition. I wanted to read this again but in fact it is unreadable, I am sorry to report. After about forty pages I believe that 2666 is as good as the reviews, here is the latest survey of them.