That was then, this is now, concentration of notables edition
[John] Napier’s continental sojourn had embraced the years 1564 to 1571, the year of the Ridolfi Plot. During his absence Galileo, Shakespeare, Caravaggio and Kepler had been born, Michelangelo, Calvin, Nostradamus and Stifel had died, Pope Pius V had excommunicated Queen Elizabeth I, Mary, Queen of Scots, had been forced to abdicate and was under comfortable house arrest in England, her infant son, James VI, had been made king, Edinburgh had suffered a terrible plague, his father had remarried, and Scotland had been thrown into civil war, with Merchiston playing a pivotal role.
A lot happened in the 1770s as well. That above paragraph is from Julian Havil’s quite good John Napier: Life, Logarithms, and Legacy. Napier of course also was obsessed with the Book of Revelation, in addition to being one of the discoverers of logarithms.
Did the U.S. Really Grow Out of Its World War II Debt?
The fall in the U.S. public debt/GDP ratio from 106% in 1946 to 23% in 1974 is often attributed to high rates of economic growth. This paper examines the roles of three other factors: primary budget surpluses, surprise inflation, and pegged interest rates before the Fed-Treasury Accord of 1951. Our central result is a simulation of the path that the debt/GDP ratio would have followed with primary budget balance and without the distortions in real interest rates caused by surprise inflation and the pre-Accord peg. In this counterfactual, debt/GDP declines only to 74% in 1974, not 23% as in actual history. Moreover, the ratio starts rising again in 1980 and in 2022 it is 84%. These findings imply that, over the last 76 years, only a small amount of debt reduction has been achieved through growth rates that exceed undistorted interest rates.
That is from a new NBER working paper by Julien Acalin and Laurence M. Ball.
Thursday assorted links
1. Syllabus for a new class on the economics of ChatGPT.
2. NYC home for retired playground animals.
3. The natural world that is Lower Sayreville: “A fish dropped out of the sky by its bird captor caused a power outage for a section of homes in a New Jersey town, officials say.”
4. Ben Casnocha on twenty years of MR, CWT, and also India.
5. Sixteen scenarios for how the fertility fall might end.
6. What are your most underappreciated works? Call #2 for contributions…
MRU video on opportunity cost
Please note that this video is part of our free Intro to Economics unit plan.
The Mother Church of the Common Law
The Temple Church is a small church in London built in 1185 by the Knights Templar. It’s now hidden behind Fleet Street amid the Middle and Inner Temple, two of the four “Inns of Court”, the educational institutions and professional associations for common law barristers and judges. The Temple Church is known as the Mother Church of the Common Law both for its role in the creation of the Magna Carta and because of its location amid the Temple area.
King John used the Temple Church as his headquarters in 1214-1215 and it’s from here that he was forced to issue the first of the Magna Cartas. The real hero of the Magna Carta, however, was the knight William Marshal who negotiated the original agreement, reissued it again under his authority as regent to the boy King, Henry III, and then reissued it again–after, at the age of 70 personally leading troops into battle and defeating a French invasion–thereby cementing the Magna Carta and the rights it guarantees into British life.
William Marshall’s tomb can be found in the Temple Church.
Middle and Inner Temple were the heart of the common law for hundreds of years and the presence of the Temple Church meant that the idea of a bill of rights was always nearby. So much so that the Temple played a role in the American Revolution and not just as inspiration. Six members of the Inner or Middle Temple were signatories to the Declaration of Independence and seven were signatories to the US Constitution.
The Mother Church of the Common Law is well worth a visit if you are in London.
The Ramaswamy plan for a commodity-backed dollar
I am not convinced by it, here is one excerpt from my latest Bloomberg column:
Ramaswamy has called for the US Federal Reserve to stabilize the dollar in relation to the price of commodities, rather than to the consumer price index. That formula is unlikely to bring monetary stability (or tame business cycles) in part because commodity prices themselves are notoriously unstable.
Consider the five years leading up to 1994, when consumer prices increased more than 19% but most commodity prices fell. Or the years from 2004 to 2008, when commodity prices rose by about three times but US price inflation rates were roughly constant, in the range of 2%. In other time periods, the relationship between commodity prices and consumer inflation is murky…
I am reminded of economist Robert Hall’s 1982 “ANCAP” proposal to stabilize the dollar with a commodity basket. Hall argued that a bundle of ammonium nitrate, copper, aluminum and plywood (thus ANCAP) had proved stable in terms of the dollar in times past. He was right about that. But the rise of China and other nations brought an unprecedented commodity price boom. Had the US tried to stabilize the value of the dollar in terms of those commodities, the Fed would have had to apply significant deflationary pressure to stabilize the relevant commodity price index. Actual monetary policy would have been a disaster.
There is much more at the link.
State Capacity as an Organizational Problem
We study how the organization of the state evolves over the process of development of a nation, using a new dataset on the internal organization of the U.S. federal bureaucracy over 1817-1905. First, we show a series of facts, describing how the size of the state, its presence across the territory, and its key organizational features evolved over the nineteenth century. Second, exploiting the staggered expansion of the railroad and telegraph networks across space, we show that the ability of politicians to monitor state agents throughout the territory is an important driver of these facts: locations with lower transportation and communication costs with Washington DC have more state presence, are delegated more decision power, and have lower employee turnover. The results suggest that high monitoring costs are associated with small, personalistic state organizations based on networks of trust; technological shocks lowering monitoring costs facilitate the emergence of modern bureaucratic states.
That is from a new NBER working paper by Nicola Mastrorocco and Edoardo Teso.
Every now and then Bryan Caplan writes a short essay (and here), dumping on the idea of state capacity, suggesting instead the alternative of “state priorities,” but I don’t think his argument is coherent. I think of state priorities as the demand side, and state capacity as the supply side. Of course both matter. Sometimes, in a partial equilibrium setting, state priorities will seem to be the only thing that matters. For instance, when the I-95 bridge collapsed outside of Philadelphia, it was repaired very quickly, in part because the governor made repair a priority. Enough resources were at hand, including enough legal resources to manage the changes in procedure. Most systems have some amount of slack. But when America tries to upgrade its infrastructure more generally, it is limited by both the supply side and the demand side, or in other words state capacity really matters. It’s not just that we don’t have a Mars colony, we don’t have enough lawyers and bureaucrats to lawfully repeal a large number of regulations at once.
Wednesday assorted links
1. Lucidity.
2. The culture that is Washington, D.C.: Little League cheating allegations.
3. Human Challenge Trial for malaria?
5. Dan Klein on Big Brother and the digital dollar (WSJ).
6. Howard S. Becker, RIP (NYT).
Conversations with Tyler 20th year of MR anniversary episode
CWT producer Jeff Holmes is the moderator, the panel of guests is Tyler, Alex, Vitalik Buterin, and Ben Casnocha — self-recommending!
Here is the audio, video, and transcript. Topics include:
…the golden age of blogging in the mid-2000s, the decline of independent blogs and the rise of social media, why Tyler usually has a post at 1 AM, the consistent design of the site, the peak of the blogosphere in the Great Recession, the robust community — and even marriage — forged through MR, the site’s most underrated feature, Alex and Tyler’s favorite commenters, how MR catalyzed separate real-world pandemic responses by each of them, the cessation of book clubs, Alex and Tyler’s distinct writing style, iconic MR memes, what’s happened to Tyrone, whether the site’s popularity has tempted them into self-censoring, why it was Alex and Tyler who paired up amongst the other Mason econ bloggers, and more.
And here is one excerpt:
COWEN: There’s an MR marriage.
CASNOCHA: There is an MR marriage.
COWEN: Kathleen and Eric, who at the time lived in the state of Texas. I think they still do. It turns out it’s legal in Texas, that if you pledge marriage through a backtrack feature of blogging which goes back, that it counts as a legally binding pledge, and they literally legally married on Marginal Revolution…
BUTERIN: Wow, you guys are almost beating the blockchain here.
And this excerpt:
COWEN: We have no plans to change.
Tyrone seconds that claim.
Twenty Years of Marginal Revolution!
Who would have guessed that after twenty years Tyler and I would still be writing Marginal Revolution! Thanks especially to Tyler, we have had multiple new posts every single day for twenty years! Incredible.
We had some idea when starting Marginal Revolution that it would provide the foundation for our eventual textbook, Modern Principles of Economics, but we didn’t imagine that it would also become the foundation for our online platform for economics education, Marginal Revolution University and Conversations with Tyler, Emergent Ventures and various other projects of Tyler and myself.
We never imagined that Marginal Revolution would one day be archived by the Library of Congress or become one of the world’s nexus points for debating and understanding events like the Financial Crisis and the Covid Pandemic. It was a shock when the first undergrad told us that they had been reading MR since the age of 12. Today, there are multiple PhD economists who grew up reading Marginal Revolution.
In this conversation, with David Perell, we reflect on 20 years and talk about our process of writing and working together. Tyler is very funny. Tyrone makes an appearance or two, albeit never announced. (Apple podcast, Spotify).
We also thank our many readers and the commentators. You all make MR better (ok, most of you make MR better).
We are still excited to write about economics every day and we don’t think we have peaked! Let’s see what happens over the next 20 years. Thank you all.
*Landscape with Invisible Hand*
Despite its only middling at best reviews, I found this one of the most original and intriguing movies of the year. The formula “African-American family movie plus Only Fans for space aliens” isn’t exactly exhausted, or for that matter even plausible as the basis for anything. Yet the whole production comes off surprisingly well once you accept the absurdist premise, and it feels freshly cinematic. The movie also has a lot of economics, and self-consciously so, though not exactly in a free market direction. Here is the trailer.
Macro illusions — which ones are you suffering under?
Before Milton Friedman, a significant percentage of top macroeconomists in the United States were convinced the money supply does not matter very much.
Friedman, working with David Meiselman and Anna Schwartz, produced a lot of good evidence that the money supply matters a great deal. Many people were convinced, even if they did not become hard-core monetarists.
Monetarist ideas start fading as early as 1982, when money supply control techniques did not work out so wonderfully. Litterman and Weiss (1983) raised doubts about whether money matters at all.
During the 1990s, many people thought we were in a productivity boom.
During the 2011-2013 period, many people became convinced that we had been in a productivity slowdown.
During the Clinton years, it was believed that investment crowding out was a big problem, and that Clinton fiscal reforms had limited that problem. Later it was believed that crowding out is not much of a problem at all, as deficits rose and real interest rates remained low.
Throughout the 1990s, the evidence showed that the Fed can influence real interest rates only small amounts and with difficulty. Circa 2023, it is believed that the Fed has a great deal of influence over real interest rates.
Leading up to 2008, the idea of “the Great Moderation” was popular.
Post-2008, Minsky-like and bubble ideas became extremely popular. The notion of a Great Moderation was dead.
Post 2009, it was believed that “liquidity trap economics” were highly relevant.
Post 2009, it was argued that “structural imbalances” were very important, in part due to liquidity trap conditions. Today, Pettis and Krugman still promote the relevance of structural imbalances for the medium- and long-term, even though the liquidity trap conditions are long since gone.
“Secular stagnation” was a popular idea in macro until recently, but no longer, in part due to high inflation and in part due to the investment boom.
Very recently, the doctrine of immaculate disinflation is gaining in credibility, after a long period of disbelief in it.
To be clear, I am not saying all of these (or even most of these) are wrong. I am saying that various doctrines appeared to be “quite true” on a temporary basis, and yes I stress that word temporary. Then they are not true, or at least not obviously true any more.
So which are the macro delusions of our current time? I would nominate a clear winner for number one:
1. Enough government action on the demand side can fix macroeconomic problems and ensure full employment
Maybe sometimes that is true. But it is not always true, and I hope you all can be wiser than the people who got caught up in earlier macroeconomic illusions, or should I call them delusions?
Furthermore, all discussions of the Phillips curve — no matter what the point of view — should be conducted with this blog post in mind.
In which sector are the top performers stupidest?
One of my core views is that the most successful performers in most (not all) areas are extremely smart and talented. So if you are one of the (let’s say) top fifty global performers in an area, you are likely to be one sharp cookie, even if the form of your intelligence is quite different from that in say academia or the tech world.
You might that a sport such as basketball selects for height, and thus its top performers are not all that mentally impressive. But I’ve spent a lot of time consuming the words of Lebron James, Magic Johnson, Michael Jordan, and Kareem Abdul-Jabbar (including a podcast and a dinner with the latter), and I am firmly convinced they are all extremely intelligent. From what I’ve read about supermodels, they are also an extremely intelligent group at the very top. There are many good-looking women, but managing your career to get to the top in a non-self-destructive fashion still requires extreme talent.
In general, most forms of top achievement involve knowing how to practice and knowing how to manage your career, both of which are likely to select for both smarts and determination.
So what then is the area where top performers are just not that smart? Comments are open.
Tuesday assorted links
1. Has the Queen song “Fat Bottomed Girls” been cancelled?
3. By one measure, the countries with the most rapid diffusion of AI skills are (in order) Singapore, Finland, Ireland, India, and Canada.
4. The free merch tax system that is Japan.
YouTube does not polarize, yet further results in this direction
We find that while the [YouTube] algorithm pulls users away from political extremes, this pull is asymmetric, with users being pulled away from Far Right content stronger than from Far Left. Furthermore, we show that the recommendations made by the algorithm skew left even when the user does not have a watch history.
That is from a new research paper by Hazem Ibrahim, et.al. For further cites showing that YouTube does not polarize, see this CWT. Via Matt Grossman.