The fiscal economics of Nazi Germany, part II

by  Tyler Cowen in

I am a big fan of the columns of David Leonhardt but I do not quite agree with his latest interpretation of fiscal policy in Nazi Germany.  David writes:

More than any other country, Germany – Nazi Germany – then set out
on a serious stimulus program. The government built up the military,
expanded the autobahn, put up stadiums for the 1936 Berlin Olympics and
built monuments to the Nazi Party across Munich and Berlin.

The
economic benefits of this vast works program never flowed to most
workers, because fascism doesn’t look kindly on collective bargaining.
But Germany did escape the Great Depression
faster than other countries. Corporate profits boomed, and unemployment
sank (and not because of slave labor, which didn’t become widespread
until later). Harold James, an economic historian, says that the young liberal economists studying under John Maynard Keynes in the 1930s began to debate whether Hitler had solved unemployment.

If I am reading this correctly, the implication is that fiscal policy worked but the German economy had a bad and worsening distribution of wealth.  I would sooner say that fiscal policy did not work and the German economy had a bad and worsening distribution of wealth. 

In 1933 military spending was 2 percent of German national income; by 1940 it was 44 percent, with a steady rise along the way.  The contemporaneous boost in measured gdp was almost completely an illusion in terms of human welfare (breaking the Versailles commitments did help Germany) and that includes corporations and their owners.  It is not that labor could not grab its fair share of the pie but rather that fiscal policy did not increase the size of the true (non-militaristic) pie.  If you want to see gnp figures for that period turn to p.25 of this paper by Albrecht Ritschl (and the discussions starting on p.4 on how to properly measure gnp during this time).  Ritschl offers a pessimistic account of the net contribution of fiscal policy and the abstract of his related paper sums it up well:

This
paper examines the effects of deficits spending and work-creation on
the Nazi recovery. Although deficits were substantial and full
employment was reached within four years, archival data on public
deficits suggest that their fiscal impulse was too small to account for
the speed of recovery. VAR forecasts of output using fiscal and
monetary policy instruments also suggest only a minor role for active
policy during the recovery. Nazi policies deliberately crowded out
private demand to ensure high rates of rearmament. Military spending
dominated civilian work-creation already in 1934. Investment in
autobahn construction was minimal during the recovery and gained
momentum only in 1936 when full employment was approaching. Continued
fiscal and monetary expansion after that date may have prevented the
economy from sliding back into recession. We find some effects of the
Four Years Plan of late 1936, which boosted government spending further
and tightened public control over the economy.

McDonough indicates that economic growth in the Nazi 1930s was due primarily to arms spending, or again it was not real economic growth at all.  This piece has much useful detail on private German consumption during the era and again the conclusions are pessimistic.  Of course employment rose dramatically but it does not seem that real (non-militaristic) consumption and output did very well.  There was militaristic make-work, based on transfers from one group to another, but with few accompanying economic benefits.

On the corporate side, there is this:

It is interesting to note that German productivity only grew 1.3% per
year from 1929 to 1938, roughly half the growth rate of Britain in the
same period.

Productivity statistics can mean a number of things but again this does not make the German corporate sector sound totally healthy or sustainable. 

It could be argued that the Nazi policies did not work because they
stifled private consumption and in that regard they were not Keynesian in the modern
sense.  Maybe so, but we're still back at the Nazi policies not having worked.  I don't consider this research, in sum, "knock down" evidence, but still my view of Nazi fiscal policy is more negative than in Leonhardt's.

Here is my previous post on the fiscal economics of Nazi Germany.

Ho-hum

by  Tyler Cowen in

Another day, a few more headlines:

The Obama administration will play a key role in reshaping General Motors' board of directors over the next six months, potentially giving it even
greater control in the management of the storied American manufacturer.

The president's auto task force plans to consult with the company as it
replaces a majority of its board, a White House official said. The
board today largely consists of the current and former chiefs of major
U.S. corporations such as Coca-Cola, Ernst & Young, Pfizer and Eastman Kodak. It is not known which of the 12 board members will leave.

The president said Monday that "the United States government has no interest in running GM."

Here is the full story.  I am sure that die-hard Republicans will have every chance at equal representation on the new board.  

That this story has attracted so little notice is another sign of how numb we have become.

Levitt and Mankiw to Join Obama Team!

by  Alex Tabarrok in

Steve Levitt and Greg Mankiw will join the Obama team.  Here is a key paragraph from the blog that broke this important story:

Colleagues at the University of Chicago economics department are cheering the move. “I could not think of a better choice than Steve Levitt to move to Washington and help the Obama team” says Nobel Laureate James Heckman, adding that he expects the job to occupy Levitt for two full Obama administration terms. “We will miss him, but he has an important job to do.”

The Case Against Breast Feeding

by  Alex Tabarrok in

Hanna Rosin's article on breastfeeding in the latest Atlantic is excellent and would make a topical and accessible introduction to causality studies in an econometrics or statistics class. (And lest that sound damning it's also a great read.)

The general point will be familiar to the audience at Marginal Revolution. The studies that show breastfeeding leads to lower weight, fewer ear infections, less allergies, less stomach illnesses and so forth are almost all observational studies.

An ideal study would randomly divide a group of mothers, tell one half to breast-feed and the other not to, and then measure the outcomes. But researchers cannot ethically tell mothers what to feed their babies. Instead they have to settle for “observational” studies. These simply look for differences in two populations, one breast-fed and one not. The problem is, breast-fed infants are typically brought up in very different families from those raised on the bottle. In the U.S., breast-feeding is on the rise–69 percent of mothers initiate the practice at the hospital, and 17 percent nurse exclusively for at least six months. But the numbers are much higher among women who are white, older, and educated; a woman who attended college, for instance, is roughly twice as likely to nurse for six months.

Moreover, the better we control for other factors that might account for differences in child outcomes between mothers who breastfeed and those who do not, the less evidence there is for breastfeeding's benefits.  Even looking at children within the same family (still far from the gold standard of randomization), shows many fewer benefits from breastfeeding than studies that look across families.  Some modest evidence suggests a gain in IQ and better evidence suggests minor improvements in avoiding some diarrhea.  Rosin does not discount these benefits (so the title of her piece is unnecessarily sensationalistic) but she very appropriately does point to opportunity cost.   

The debate about breast-feeding takes place without any reference to its actual context in women’s lives. Breast-feeding exclusively is not like taking a prenatal vitamin. It is a serious time commitment that pretty much guarantees that you will not work in any meaningful way. Let’s say a baby feeds seven times a day and then a couple more times at night. That’s nine times for about a half hour each, which adds up to more than half of a working day, every day, for at least six months. This is why, when people say that breast-feeding is “free,” I want to hit them with a two-by-four. It’s only free if a woman’s time is worth nothing.

One final point, Rosin's article is also usefully read as a study in propaganda and social psychology.

How agreeable are econ bloggers?

by  Tyler Cowen in

Leigh Caldwell offers up some data:

Surprisingly (at least to me), economics bloggers are more
agreeable than not. "Agree" articles (category 3) showed up more than
twice as often as "disagree" (category 4). When measured by titles, the
trend is not so clear, with a majority "agree" articles (category 1)
when measured over the last two months but more "disagree" (category 2)
when taking the last 7 days alone.

So far, so good and indeed Leigh is a smart fellow to see the truth of that.  There is, however, a villain in the piece and dear reader it is you:

However, blog readers are
not so magnanimous. On the content measure, the mean number of comments
on an "is right" article (category 3) is 3.66, while there are an
average of 6 comments on an "is wrong" article (category 4).

When
the title filter is used, the difference is even greater: there are no
comments at all on the category 1 ("genius") articles, and an average
of 21.6 on category 2 ("idiot")!

Are bloggers simply nicer people than readers?  (Or should I say "all you idiots"?)  How would blog comments change if they were attached to your real name like glue and came up any time someone googled the commentator?  Which of us is the real human, the blog reader or the blog writer?

Ben Casnocha theorizes as to which is the most natural "you."

Words of wisdom

by  Tyler Cowen in

From Matt Yglesias:

The question here is what would Adam Posen have done if he had Tim
Geithner’s job? And based on Posen’s analysis, I think the only
conclusion you can reach is that he’d have done more-or-less the same
thing. Talking about a different issue last week, I heard Tyler Cowen
forcefully make the point that you have to think of the political
constraints as a real policy consideration. Suppose Geithner had asked Congress to appropriate $1 trillion to implement a program of bank
nationalization, asset writedowns, and loan guarantees–what would that
have accomplished? It certainly wouldn’t have gotten Congress to
appropriate $1 trillion to implement a program of bank nationalization,
asset writedowns, and loan guarantees. It might have derailed the
budget and thrown the political momentum on the Hill to proponents of a
neo-Hooverite spending freeze program. It might have caused panic. And
it certainly would have undermined the credibility of the inevitable
effort by Geithner to do the most he can with the authority he already
has.

One thing I like about Bryan Caplan's book is an interpretation which he will probably hate.  The truly decisive actors are people directly in the political process.  Maybe the "libertarians" who are or have been in politics are not just "sell outs."  Rather they are implementing the net-liberty-enhancing policies that a real libertarian would favor if he or she were truly a decisive agent.

Which new mothers are most likely to abandon their old jobs?

by  Tyler Cowen in

Jane Leber Herr tells us:

Looking at these women 15 years after graduation, when they are approximately 37 years old, we find the same pattern seen elsewhere; among mothers with a graduate degree, MDs are the most likely to be working (94%), and MBAs are the least likely (72%)…Among PhDs, 86% are working, among lawyers (JDs), 79%, among women with non-MBA masters, 74%, and among those with no graduate degree, 69%.

These basic differences across professions seem to hold up once other measurable factors are controlled for.  Most of the short essay focuses on causality; the family-friendliness of the job environment may be one important factor.

The Genial Gene

by  Tyler Cowen in

That's the new book by Joan Roughgarden and the subtitle is Deconstructing Darwinian Selfishness.  I'm not sure how true this book is, but if you're looking for a new popular book on evolutionary biology which is engaging, this is the first one in some time.

The book rejects the "Red Queen" hypothesis for why there is sex (e.g., outracing parasites by frequently rolling the genetic dice) and presents a "portfolio diversification" view:

The explanation for why asexual species keep popping up and quickly dying compared with sexual species would seem to be completely explained by thinking of asexual species as genetic versions of get-rich-schemes and of sexual populations as genetic versions of long-term mutual funds, without any need to invoke cost-of-meiosis considerations.

In other words, sex brings a genetic diversity which protects against rapidly changing environmental conditions and thus favors parental genes.

The author also argues against signaling theories of the peacock's tail and against sexual selection more generally (especially on that latter topic I was not convinced but the discussion of sexual dimorphism and why it doesn't always hold is nonetheless interesting).  She presents "social selection" as an alternative and if you turn to pp.237-8 you will see an excellent page-and-a-half summary of what the book is about.  Male promiscuity, for instance, is viewed as a genetic "tactic of last resort."

Recommended, but with caution.  It is a must for anyone who reads about evolutionary biology and by the end of the book I was less skeptical than when I started it.

Here is a summary of Roughgarden's previous book.

Spanish bank shares plunge

by  Tyler Cowen in

Have you seen that Spanish banking is in trouble?  Less than one year ago this country was touted as a model of banking regulation, in part because it did not allow full securitization of bank assets.

One lesson is that securitization is not necessarily the villain it has been made out to be.

Second, Spanish unemployment is already over fifteen percent (and rising) and this was the case even before Spanish banks started reporting their recent troubles.  There is so much talk about how banks amplify risk but don't toss out the classical model altogether.  Banks also share in risk.  If your banks are less risky, often something else is more risky, and vice versa.  Today many countries are learning this lesson.

Choose a theory

by  Tyler Cowen in

Theory 1: President Obama replaced Wagoner with Fritz Henderson as CEO of General Motors because he is convinced that Henderson will be a better corporate leader.

Theory 2: President Obama replaced Wagoner with Fritz Henderson as CEO because the A.I.G. public relations debacle taught him not to appear "soft" with corporate leaders receiving government money.

Which theory do you vote for?  Which principles do you think should be governing the disposition of leadership in major U.S. corporations?

The People’s Pottage

by  Tyler Cowen in

I don't much blog the auto industry because it is so depressing. But this passage, from Francis Cianfrocca, today caught my eye:

Today, the President of the United States is expected to make
significant announcements about GM’s warranty policy. No, that’s not a
typo, and yes, it’s remarkable. I didn’t say the President of General
Motors, I said of the United States.

This bit was interesting too:

Many of GM’s dealers will receive lavish buyouts as an inducement to
close their doors, for a total cost in the billions of dollars. That’s
disgusting, but it’s required both by GM’s contracts with them and by
the welter of state laws that protect the dealers. (If you want to know
who the political power brokers are in any given city or town, look for
the car dealers.)

This is going to be kept scrupulously out of the news, because car
dealers contribute huge sums to every last man and woman in Congress
and the Senate. The public was ready to torch the private residences of
AIG executives, but they won’t make a peep about paying billions of
their own hard-earned dollars to provide a cushy retirement for
thousands of already-rich auto dealers.

The post is interesting throughout.

Assorted links

by  Tyler Cowen in

1. Discussion of money illusion in economics journals: a graph (over time) and discussion.

2. The crisis: who wrote the software?

3. Top young economists?  I can think of a few who are missing…but here is the working papers page for the ranked #1, Marc Melitz.  The world has some funny disconnects when he doesn't have his own Wikipedia page (TC: he has one now!  Try doing the rest of the list.).

4. Expected vs. unexpected uncertainty.

5. How European newspapers are making do.

6. Profile of Ezekiel Emanuel, new health care advisor to the Obama administration.