It is tempting to say that American Default is shockingly readable for a book written by an economist. But it is probably more fair to say that it is It is tempting to say that American Default is shockingly readable for a book written by an economist. But it is probably more fair to say that it is shockingly readable period. It is a history of the banking crisis around the onset of the Great Depression, the role that devaluing gold played in reversing deflation and reducing the value of debts, and the subsequent legal battle over the abrogation of “gold clauses” in those same debt contracts. It reads like a history but also has a substantial legal element while having insightful and always accurate economics woven throughout.
Sebastian Edwards is an excellent international macroeconomist who has spent most of his career writing about emerging markets, particularly economic disasters in Latin America. Which makes him well prepared to take on the United States’ emerging-market like crisis, the Great Depression.
The story starts with a cascading series of bank failures, the efforts of the outgoing Hoover to address them, and how Roosevelt and his incoming team reacted.
At the same time he traces the attitudes towards the gold standard and macroeconomic policy from a sleeper issue into Congress basically forcing the President’s hand to reinflate, which ultimately required revaluing gold at a higher value per dollar--a step that followed the UK. It is fascinating to read about how much Roosevelt was focused on and even targeting particular commodity prices and how quickly they all moved in proportion to the price of gold—just like the quantity theory of money would say. It is also fascinating to read about how the U.S. dollar behaved vis-a-vis the British pound (which was off the gold standard) and the French franc (which was still on it).
A big part of the economic boost caused by the devaluation was due to reducing the real value of debts, basically borrowers could repay them in cheaper money (or, equivalently, had to sell less cotton or whatever to get the dollars to pay them). But this was the rub: debt contracts had a “gold clause” that they were payable in dollars or gold, much for the same reason that emerging markets borrow in dollars—because it increases the certainty and security of lenders thus enabling borrowers to borrow for longer periods at lower interest rates.
The creditors sued and the case ended up in court litigating government bonds, private borrowing, and other aspects as well. Edwards tells an interesting legal drama of whether the Supreme Court would uphold the gold clause, which would have required debtors to repay about 67 percent more dollars—potentially causing an economic calamity. (In fact, an interesting part of the history is government officials debating whether or not to scare markets so they would go down while the Supreme Court was deliberating in an attempt to scare the Court into ruling against the gold clauses. Another interesting part, which I found personally resonant, was all the discussion of contingency planning for all of the possible outcomes of the case.)
Ultimately the Supreme Court ruled that the government had broken the law by retroactively breaking the gold clauses but that there were no damages because the inflation simply reversed the previous inflation so creditors ended up getting what they would have expected, in real terms, when they first made the loans.
Edwards is not completely convincing when he tries to defend the Roosevelt decision and court upholding it as a one-time necessity for the sake of the economy while simultaneously condemning Argentina for taking similar types of actions (in its case dollar clauses instead of gold clauses). There are more parallels than he admits. He is also not completely convincing in his attempt to make the case relevant to issues today. But ultimately this does not matter, what does is just how interesting this book is—and how much I learned about an aspect of going off the gold standard that I had never known about before....more
An extraordinary work of scholarship combining economic modeling with primary documents and an enormous synthesis, The Chosen Few seeks to explain JewAn extraordinary work of scholarship combining economic modeling with primary documents and an enormous synthesis, The Chosen Few seeks to explain Jewish economic and demographic history from 70 to 1492. Specifically it attempts to explain several facts including: (1) the decline in Jewish population through about 700, (2) the huge shift of Jews into urban living and trades, ultimately moneylending, from 700 to 1200, (3) the stabilization of population over that period, (4) the spread of Jews to Europe and their dispersion across a wide range of cities, and (5) the decline of the Jewish population from about 1250 through at least 1492.
The authors persuasively demolish a few popular theses including the Jews were banned from agriculture so moved to cities, that Christians were banned from moneylending so Jews filled the vacuum, that Jews were not permitted in guilds and that Jews were afraid of being forced to move so they invested in human capital instead of physical capital. The problem with all of these arguments is that many of the restrictions that they are premised on were instituted well after Jews became a highly urban population. Moreover they were only instituted in some places but Jews became urbanized everywhere. The thesis has lots of other problems, including the majority of moneylending was still Christians and moneylenders worked better if they were rooted in a place so knew all the people.
Instead the authors argue that a cultural development was central and it interacted with global events. Specifically, the destruction of the temple in the year 70 resulted in the primacy of the Jewish sects centering around reading and learning Torah for oneself rather than centralized worship through ritual sacrifices. Universal male literacy with universal primary school started early. Initially this did not confer any economic advantages for Jews because they were still farmers. As a result the population fell as families converted rather than bear the "useless" cost of all the learning to no economic aim. But with Arab conquests an urban world centered around trade emerged and the "random mutation" of literacy all of a sudden became economically favored. The result was a rapid shift of Jews away from agriculture and towards urban occupations.
This eventually evolved into moneylending because literacy/numeracy combined with other cultural/institutional factors including access to capital, networks and institutions to enforce contracts.
As for some of the other facts, the Jewish population started to decline after the Mongol invasion was a setback for urbanization and reduced the benefits of the education that Jews invested in. And Jewish populations were dispersed because they were highly specialized so hard to have too many in one area--and benefits of spreading out.
The book ends in 1492 and I am curious about how some of the explanations fit the next 500 years, particularly the large concentration of Jews in Eastern Europe--a group that was not especially prosperous. Was literacy more widespread so the returns to it fell? Or discrimination/exclusion took an economic toll? Something else? And does this "out of sample" test of their hypotheses fail and if so what does that mean of their explanations in sample?
Overall, the book has enormous erudition, going deeply into cultural, institutional, religious and economic developments across a wide range of territory and time, at times going very deep (e.g., into moneylending in Italy). This can make for exciting reading at times, but in other places it can be repetitive and have the feel of stapling together different papers into a book rather than something that was conceived as a single work. That said, is never boring and highly persuasive....more
The Journey of Humanity by economist Oded Galor is a relatively short book covering the broad sweep of human economic history (it is also very readablThe Journey of Humanity by economist Oded Galor is a relatively short book covering the broad sweep of human economic history (it is also very readable and does not require any economics background). It seeks to explain two huge mysteries: (1) the mystery of growth whereby for ten thousand years following the invention of agriculture innovation led to larger populations but not higher per capita incomes—until growth took off exponentially in the Industrial Revolution and (2) the mystery of inequality whereby massive differences emerged between countries (he barely addresses inequality within countries, which is a smaller factor in global inequality).
Galor tells this big story while drawing on a range of recent academic research, much of it is his own but also Daron Acemoglu, Melissa Dell, and many other economists who are using modern empirical methods to exploit quasi natural experiments to study how (possibly) random differences in the past cast a shadow centuries or even millennia later. This thorough grounding in research sets it apart from some other more speculative big think books—although some of the research ends up confirming, or at least corroborating, various speculations.
For example, Thomas Malthus had a big idea in 1798 when he argued that innovation would increase the population but not per capita incomes because population would adjust up or down to keep people at subsistence. Galor, in this case drawing on his own peer-reviewed research, looks at quasi natural experiments like the correlation between millennia old “technology” (defined as the timing of the neolithic revolution or natural variety of crops) and data for 1500 (it’s highly correlated with population density but not at all correlated with per capita incomes, which themselves barely vary across places).
The explanation of the takeoff into sustained growth is a little bit less satisfying, but that’s partly what happens when you only have one first sustained takeoff—and it happens at a time when the world is globally connected so you don’t have the (somewhat) independent data points you have for studying other issues. Galor argues was a situation where small changes can lead to a large change—which he analogizes to “bifurcation theory” in mathematics.
An important part of Galor’s story for the takeoff is human capital. Child labor became less valuable because of machines and was abolished. Women’s labor became more valuable and they were paid more. All of this created more of an incentive to invest in children which ultimately led to a Demographic Transition where birth rates plummeted. (This section too has a lot of quasi natural experiments, like using distance from the village where the steam engine was invented to measure technology and its impact on subsequent demand for education.)
The second half of the book is about the rise of inequality between countries. He eschews any discussion of the growth theory of Solow, Lucas, Romer and the like and goes—which he briefly dismisses as “proximate”—and instead instead goes to the deeper, underlying theories: (1) institutions, (2) culture, (3) geography, and (4) population diversity.
The institutional discussion largely draws on work by Daron Acemoglu and co-authors on the importance of “inclusive” institutions instead of “extractive” institutions (describing their quasi natural experiment around settler mortality, leading to different types of colonization, different institutions, and income levels today.
The cultural discussion, together with Joseph Henrich’s excellent The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous, has made me take culture more seriously. He presents some quasi natural experimental evidence for the Max Weber’s thesis in the Protestant Ethic (including things like distance from Wittenberg as a random treatment for Protestantism) and an argument that better agricultural land has led people to have lower discount rates (again, similar types of evidence).
Geography tells the familiar story of the tsetse fly leading to no livestock in much of Africa, malaria degrading work, and the difference in native crops in Eurasia (possibly because of its East-West orientation) and the Americas (because of its North-South orientation). He also has some interesting links between culture and geography, for example linking societal views on gender equity to the type of soil they have which determined whether they used plows (handled by strong men) or hoes (handled by men or women).
Finally, the fourth underlying story is the one that Galor’s own research has advanced and the idea that is the most intriguing but frankly also feels the most speculative to me. Specifically he points out that migratory distance from Africa is closely related to population diversity—which is very high in Ethiopia but very low in Bolivia because of the “serial founder effect”. He argues that diversity has a plus (lots of ideas from combining different perspectives) and a minus (clashing) and that this leads to an inverted U-shaped relationship between population diversity and various economic outcomes like per capita income.
In many ways the evidence the book presents, drawing on a lot of peer-reviewed research, is much better than what we had even twenty years ago in thinking about economic growth. In other ways, however, a lot of the relationships between ancient variables and present ones (e.g., when was maize first introduced in Chinese areas and what was there economic status much later) could easily have alternative explanations or miss big points.
A book of this nature relies on fortuitous reversals that might make sense ex post but how sure are we? For example, Europe’s geography led to many competition states and China’s to a single unified state, the later was better for the economy through 1500 but the former was better after. Yes, there’s a decent story. But am I sure? Of course not.
Moreover there is a lot that it does not explain, that probably depends on the more mundane issues covered by more proximate theories of growth and some of the standard economic policy issues like the importance of avoiding and resolving crises. For example, why is the United States so much richer than Argentina? Or why did China take off when it did but Brazil did not? Or even just variations in income within regions.
Galor concludes with a short and relatively superficial discussion of the public policy implications of these ideas. From my perspective the fact that the book does not explain issues like the United States vs. Argentina also is related to its overly facile dismissal of the “Washington consensus”. Of course it ignored culture, institutions, population diversity and geography—but by the way most of those are not changeable and there is enormous variation within regions that are similar in those regards. Nothing about the deep roots of incomes is a reason why a country, for example, should run large budget deficits financed with short-term foreign borrowing or have a budget devoted to subsidies while neglecting primary education or have weak property rights.
Galor’s policy argument instead is that “As the great cogs that have governed the journey of humanity continue to turn, measures that enhance future orientation, education and innovation, along with gender equality, pluralism and respect for difference, hold the key for universal prosperity.” It’s hard to argue with this—and most of these are good in their own right even if they’re not key to growth. Moreover most of them are actually emphasized by international institutions like the World Bank and International Monetary Fund (at least today).
Ultimately, however, what I liked about the book is the way that it draws on a rich set of research that is attempting to turn history into social science. And in the process coming up with some surprising and interesting answers that even if they do not help us change the world can help us understand some of the most fascinating economic developments humanity has faced....more
A superb example of original social science and its translation for a broader audience. In recent years Ran Abramitzky and Leah Boustan have produced A superb example of original social science and its translation for a broader audience. In recent years Ran Abramitzky and Leah Boustan have produced path-breaking research on immigration by linking large datasets including Ancestry.com, the Census, tax records and more to understand the ways in which immigration patterns have changed--and more often stayed the same--over the last century and a half. In this book they put that research in a broader context in several respects: a history of immigration, how they came to do their research, how it fits in with other research, and most importantly lots and lots of stories (including bits of their own) that make the patterns in their data more vivid and resonant.
The three most important set of findings they convey are: (1) the myth of rags-to-riches and how both in earlier generations and today immigrants themselves generally did not climb the ladder particularly quickly; (2) the mobility of immigrant children which is also similar across generations and remarkable--if your parents are at the 25th percentile you tend to rise to the 40th to 65th percentile depending on where you come from; and (3) how the pattern of assimilation today and in the past is relatively similar, as measures by adopting American names, moving out of ethnic enclaves, and marrying out of one's ethnic group.
There is a lot more nuance in all of those accounts, including some differences over time, in terms of where you came from and the like. Also some interesting findings like a big part of why immigrant children are upwardly mobile is not education but instead that they tend to move to areas with high mobility as opposed to Americans who tend to stay in the same place. Also, of course, immigrant parents "underperform" economically, like the doctors who can't practice in the United States, something that goes away with their children.
Abramitzky and Boustan also review the evidence on the effect of immigrants on native born Americans, arguing that a range of evidence from historical (looking what happened when immigration was dramatically restricted starting in the 1920s) to a variety of other episodes (Bracero ending in 1964, the border wall, the Mariel Boatlift, etc.) to argue that there is little effect on wages of Americans. I've generally found this evidence reasonably compelling but I am still not 100% convinced by it. I wish the authors had discussed a little bit more of macroeconomic research and theory on how immigration can increase productivity growth, the labor force, help reduce fiscal strains, and more--much of which might actually matter more for wages in the long-run than any of the shorter-run effects the studies they cite are covering.
The authors enthusiasm for immigration--which I share--leads them to a blind spot about how to advance it politically. Their last chapter proposes "A Second Grand Bargain" which argues that Americans generally support immigration and that to get more of it politicians just need to do a better job describing its benefits, particularly its benefits over the longer term. Having worked on these issues (and put out reports from the Obama White House making many of the points this book makes about how great immigration is for the economy) I'm skeptical that this is remotely close to sufficient.
The authors also overstate public support for *expanding* immigration. They cite a Gallup poll that 75 percent of Americans agree that "on the whole" immigration is "a good thing." This, however, is probably not the relevant question--Gallup also asks "should immigration be kept at its present level, increased, or decreased" and a plurality of Americans have answered decreased in every survey from 1965 to the present. The fact that Democratic politicians nationally and regionally often take steps to limit immigration and get politically skittish around the issue should also tell you something, either about the views of the public as a whole or the intensity by some parts of the public.
Ultimately to politically advance immigration we will need more books and arguments like this--to win over minds--but also a better understanding of what people don't like about immigration, some of which is probably not merely confusion but different values, a higher discount rate, etc.--and figure out a grand bargain that addresses or assuages those concerns....more
It is no surprise that Jacob Goldstein, one of the minds behind Planet Money, produced an entertaining and enlightening guide to money from (nearly) iIt is no surprise that Jacob Goldstein, one of the minds behind Planet Money, produced an entertaining and enlightening guide to money from (nearly) its very beginning up through cryptocurrency. It is a combination of excellent stories with a lot of economic insights. Ultimately, Goldstein argues that money is whatever people think it is—and that most of the previous innovations in money have been less about the deliberate design of a new money and more backing into it, often when the government comes to the rescue in a crisis establishing the principle that whatever it was was indeed money.
It begins with the origins of metallic money and then shifts to China which invented paper money but then basically stopped using it (coincident with it stopping a lot of elements of its economic development). The story then shifts to goldsmiths in England who had what were essentially claim checks on gold that themselves became money. The story expands out beyond money narrowly defined to the origins of finance, including joint stock companies, banks and lending, public debt, life insurance, money market funds and much more. It has nice capsule biographies of John Law, the early history of crypto and much more. At times the book stretches the definition of “money” to fit subject that Goldstein seemingly wanted to include, but at times innovations themselves stretched the boundaries of what is money.
In all of this developments and innovations in money result from a combination of technological change (e.g., ability to make paper), political change (e.g., the sovereign of France needs money for wars), social changes (e.g., the empowering of the mercantile class), and is both a cause and a consequence of economic changes (e.g., greater divisions of labor).
Near the conclusion Goldstein has a nice version of this history of money and how crypto has, so far, been the exact opposite: “The history of money is largely the history of stuff becoming money without people really realizing it. Banknotes and then bank deposits started out as a record of a debt and sort of crept their way into being full-blown money. Shadow banking grew for decades before anybody thought to call it shadow banking. It was only in moments of crisis—the moment when the thing suddenly threatened to become not-money—that everyone looked around and said, well, I guess banknotes and bank deposits and money-market mutual funds are money now. The history of electronic money is exactly the opposite. Someone—David Chaum, Satoshi Nakamoto—has a very clever technological breakthrough. Then they climb up to the mountaintop and proclaim to the world: ‘Here is a new kind of money!’ And then it doesn’t really become money. Or at least it hasn’t yet.”
Highly recommended, I got a lot out of it even though I knew many of the ideas already, and if you do not do not worry—Goldstein is an excellent guide....more
I listened to this as an audiobook which is about the right way to read it—if you read it at all. There was a lot that was interesting but even more tI listened to this as an audiobook which is about the right way to read it—if you read it at all. There was a lot that was interesting but even more that did not work for me and may not work for anyone. I liked Nicholas Wapshott’s Keynes Hayek: The Clash that Defined Modern Economics somewhat more but that book also had shortcomings.
This book uses the dueling Newsweek columns by Paul Samuelson and Milton Friedman to shape a narrative about their debate over the free market. It begins with short biographies of the beginnings of their careers, their similarities and differences, and the ways they crossed paths at Chicago that was mostly new and interesting to me. It then described their debates primarily over macroeconomic issues, particularly the role of fiscal policy, monetarism, the causes and solutions to inflation, most of which is not actually about the “free market” which is more of a microeconomic issue.
The pairing provided some narrative interest and it was nice to read (or, in my case, hear) some of the kind letters that Paul Samuelson wrote to Friedman and his wife Rose over the years, picturing a 70-year long friendship, debate, respect, and irritation.
But the pairing is an imperfect way to tell the story. For starters the book is primarily about the two economists’ impact on the public debate not their academic work. As such, Friedman looms much larger than Samuelson who devoted a larger fraction of his career to a much more impressive and lasting set of academic contributions. The book does not pretend to be an intellectual history but it is somewhat problematic that it writes out just about everyone else (James Tobin?) who was part of developing the ideas and participating in the debate.
The last third of the book is borderline dreadful, a potted history of economic events in the 1990s, 2000s, the financial crisis and COVID that neither Samuelson nor Friedman had much to directly to do with, most of which were presented in a relatively conventional and shallow manner in service of Wapshott’s thesis which he makes clear in the concluding chapter where he writes, that Friedman “ Laid the foundations for the election of President Trump. Could there have been a President Trump without Friedman? Perhaps. But Friedman’s long libertarian march helped pave the way.”
That argument conveniently blames Friedman for everything Wapshott does not like. But what if part of the 2016 election was voters frustrated by immigration, whatever Friedman’s views they were not influential on that topic. Or if 2016 was in part a reaction to the unpopularity of the Affordable Care Act, which could sort of be blamed on Samuelson (at least if you had to pick one of the two men to credit for it).
More generally, Wapshott appears to miss all the ways Friedman was vindicated, to name just one the idea of floating exchange rates untethered to anything was a kooky one in the 1950s and now is not even remarkable for advanced economies and the trend in policy advice to emerging economies too. Other ideas like occupational licensing were echoed by the Obama and Biden administrations. Or now the fully refundable child tax credit which is basically like Friedman’s negative income tax.
Moreover, Wapshott’s superficial potted history acts as if Friedman’s small government ideas won the day and have been strangling government ever since. While we do not have the government (or level of taxes) that I want, it is the case that the government keeps increasing its role in healthcare, mostly increasing it in anti-poverty programs, college financing, and a range of other areas—including regulations. If anything the trend seems to be against Friedman.
The above was all quite negative but half of the book is reasonably good, the half the sticks closer to the two men, their lives, their direct impact, and humanizes them and their interactions, providing the political and intellectual context for their ideas. It is just a shame that it came bundled with everything else it did that you could get anywhere and did not particularly need the framing of these two intellectual giants....more
An outstanding account of international monetary policy during the 1930s that rescues the 1936 Tripartite Agreement from obscurity and uses it both asAn outstanding account of international monetary policy during the 1930s that rescues the 1936 Tripartite Agreement from obscurity and uses it both as an issue of interest in its own right and as a way to shed light on current debates about exchange rates and international monetary policy coordination.
Max Harris's research is exhaustive and authoritative turning over just about every primary source, recollection, memo or record that might shed light on the issue but the because itself is anything but exhausting--Harris writes about monetary war and peace with (almost) as much excitement that a military historian might bring to actual war and peace with thumbnail sketches of the personages (some of them major, like US Treasury Secretary Morgenthau, and others likely to have been lost to history but for this book, like Harry Siepmann, a consequential UK Treasury official).
The period is truly an exciting one for international monetary issues. All of the world's major economies were back on the gold standard by the time to the Great Depression hit. The UK effectively went off it with a large devaluation in 1931, helping its economy but raising concerns that it was hurting other countries with a competitive devaluation that would reduce imports from their countries. The United States followed in 1933, also with a large devaluation. By 1936 pressures were mounting on France which had kept its link to gold and was suffering both from its strong exchange rate and also the perception that it might not hold (and associated outflow of gold). What might have been a chaotic process was instead handled with a "Tripartite Agreement" between the UK, the United States and France all of which issued similarly worded statements simultaneously to manage and coordinate around France's change. Other economies like Belgium, the Netherlands and Switzerland followed quickly.
Critically, Harris spends as much time narrating the "peace" that followed this agreement. Some of it is a fascinating historical curiosity, like the operation of the "daily gold standard" by which the central banks managed balanced of payments and exchange rates daily. Harris goes into great and interesting detail on this (I'm not sure it has been done elsewhere) but ultimately the specifics are not very relevant to today. What is more relevant to today, however, is the different tools for managing exchange rates, providing transparency (or lack thereof) around them, and taking into account the impact on other countries.
The statement underlying the Tripartite Agreement included the language "no country will attempt to obtain an unreasonable competitive advantage" from its monetary/exchange rate policy, language that is now part of the commitment by all IMF member countries and also stronger versions of which have been agreed by the G20 and even stronger by the G7. Harris argues that the Tripartite Agreement was at the root of the modern arrangements and was an important model that simultaneous informal statements instead of a formal agreement could be sufficient, especially if backed up by strong relationships and transparency. Of course, it was easier for France, the UK and the United States to cooperate in 1936 with Hitler rising just over the border than it is for, say, the United States and China to today. But still, this timely reminder of the importance of international monetary spillovers and the different ways they can be handled is a fascinating slice of history and a great way to have broader perspective on the present as well....more
Illiberal Reformers was very interesting presenting what was (to me) a combination of new evidence and interoperation about the founding of American pIlliberal Reformers was very interesting presenting what was (to me) a combination of new evidence and interoperation about the founding of American professional economics in the late nineteenth century, the establishment and growth of the administrative state over the period and into the early twentieth century, and their relationship to the widespread enthusiasm for eugenics and other racist, sexist, anti-Semitic, and otherwise exclusionary thought. The flaw of the book, however, is that while it is very carefully researched it also often lapses into the overly polemical, one-sided, and simplified that mar the telling of an interesting history and perspective.
Thomas Leonard’s history argues that in the late nineteenth American economics, influenced by German economics, became oriented towards making itself of use to the state in employing “science” in the service of “progress,” where progress was measured in collective terms, mostly that of the nation. America set up various expert panels, many run by or staffed by economists, to study social problems and then often created agencies, again run by or staffed by economists, to solve them. This shift of the economy away from laissez faire or state and local control to federal control and administrative agencies happened simultaneously with the rise of the prestige of science in general and economics in particular.
The dark side of this, Leonard argues, is that these progressive economists all embraced eugenics. He argues that this was related to their belief in scientific social control and a moral worldview that privileged the collective over the individuals. He is semi-successful in making that link, but it is weakened considerably by (in his own admission) the widespread support for eugenics, racism, anti-immigrant sentiment, etc., across the political and ideological spectrum at the time.
As an intellectual history, Leonard is fascinating and I’m glad I now know more about this slice of time. But he does not live up to some of his own claims. For example, he writes that “Ideology is a useful tool of taxonomy, but when it is reduced to one dimension, it is the enemy of nuance” but then most of the discussion in his book replaces the traditional one dimension (progressive vs. conservative) with a different one dimension (liberal vs. illiberal, the later seemingly expanded to cover everything from supporters of a flat tax to supporters of a wealth tax. I was particularly surprised when in the conclusion he wrote “Progressivism is too important to be left to hagiography and obloquy” when the book itself was mostly obloquy.
Ultimately the most interesting question is “so what” and I’m not sure I know the answer to this. Leonard shows that one hundred years ago some people argued that it was a good thing that it would increase unemployment for Blacks and immigrants. This may be the intellectual history of the minimum wage, but for today’s purpose the relevant question is the empirical one of whether the minimum wage, for example, raises the wages of Black people or causes large increases in Black unemployment. Moreover, Leonard’s book is dripping with disdain for all sorts of things like antitrust, basic labor rules, and the income tax, all of which are widely accepted today and clearly compatible with a range of political philosophies.
That said, understanding how widespread scientific fallacies were at the time should give us some pause about our understanding today and without any breaks in the form of taking individual liberty and spontaneous order seriously we could recreate some of the problems caused by the hubris of eugenicists one hundred years ago. In that sense, the dictum that those that do not understand history are doomed to repeat it may be relevant for economic thought as well....more
I've read a number of the papers that this book is based on but was thrilled to finally read it from beginning to end, Claudia Goldin and Larry Katz'sI've read a number of the papers that this book is based on but was thrilled to finally read it from beginning to end, Claudia Goldin and Larry Katz's book is truly a tour de force that has aged reasonably well since its publication twelve years ago, albeit it has aged some.
The core argument is that wage inequality over the last century and a half is the result of a tug of war between education and technology. The technological part is skill-biased technological change which they view as a largely constant, monotonic process of new technologies increasing the demand for more skilled workers (e.g., advanced manufacturing processes a century ago and computers in recent decades). By itself this would be a force that should always drive up inequality. The other half of the equation is the supply of skilled workers, which they argue was increasing rapidly in the first three quarters of the twentieth century because of the High School movement, the GI bill and more but then slowed. When the supply of skilled workers outpaced the demand for them inequality rose, and vice versa when it failed to keep pace.
In their view this incredibly parsimonious explanation with basically one measured variable (education, actually is three groups), one assumed time trend (skill-biased technological change), and one outcome (relative wages), measured through only a few data points in the beginning of the century and annually since then, can explain almost everything about wage inequality in the 20th century and beginning of the 21st century. In their view it is "almost everything" because they also accord a role for institutions which explain the more-rapid-than-predicted decline in inequality in the 1940s and 1970s. But in their telling institutions only get a few paragraphs and only explain some of the timing, the overall beginning to end pattern is not affected by these institutions.
Goldin and Katz are never explicit that they are trying to explain the wages of the bottom ~95 or ~99 percent, they make it sound like it is inequality as a whole but their work does not have anything to say about the top end, changes in the labor share of income, or changes in capital income inequality. They do not claim otherwise and I suspect with the increased attention to tax-based measures of overall inequality these days a current version of the book would be more explicit about what they do and do not explain--and their model does attempt to explain a lot. They also only briefly discuss how much inequality is driven by the education premiums they study and how the fraction of inequality explained by those premiums has changed over time, and in particular might have been fallen. Finally, assuming a constant exogenous rate of skill-biased technological change somewhat begs the question, and maybe the pace has decreased as productivity slows.
All of these questions, and more, might take away some of the nearly complete explanatory power of their story which is grounded in a competitive model of labor markets, but would still leave a lot of explanatory power for it. The residuals in that explanation would then be filled, in part, by institutional explanations which place more weight on factors like the falling value of the minimum wage, decline in labor unions, and reduced bargaining power overall--all of which get only brief cameos in the book, a ratio that might be different if written today.
The above concentrates on the core argument. But about half of the book is a fascinating history of education in the United States with a lot of contrast to education in Europe. Much more of this was new to me and really interesting reading. The core argument is that from its founding the United States had a more egalitarian educational system that was grounded in six virtues: (1) public provision; (2) numerous independent districts; (3) public funding/free education; (4) nonsectarian; (5) gender neutrality; and (6) open and forgiving. The result was many more Americans getting much more education than Europeans in the 19th century and first half of the twentieth century. In fact, many Europeans preferred their more efficient tracked systems and looked down on the wastefulness of America spending money on education for the masses who did not need it and did not have to meet high standards to get it. This worked out well not just for inequality (as discussed above) but also growth because even manufacturing line workers benefited a lot from an education as they were better able to take advantage of and implement technologies that increasingly relied on flexible skills. Of course, all of this changed as Europe caught up with and in many cases surpassed the United States.
Goldin and Katz talk about bringing back / living up to the American virtues in education with more financing, equalization, support for college, etc. In keeping with the focus of their book, and their explanation of the rise in wage inequality, their policy recommendations dwell less on the minimum wage, labor unions and a more progressive fiscal system, but that is mostly because of the scope of the book, partly because of what they view as the causes of inequality, and possibly also a bit of a lag because the real value of the minimum wage, for example, has declined substantially since it was published. Overall we would be a better country if we did everything they say without any updating at all....more
The WEIRDest People in the World is among the best books I have read in the last five to ten years. In his earlier book, The Secret of Our Success: HoThe WEIRDest People in the World is among the best books I have read in the last five to ten years. In his earlier book, The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter (also an outstanding book), Joseph Henrich chronicled the success of the human species, grounding it in our ability to learn from each other and the co-evolution of culture and genes, a story that takes place over hundreds of thousands of years. The WEIRDest People in the World is effectively a sequel (but you need not read The Secret of Our Success first as the ideas are repeated/summarized in the new book) that zooms in on the last roughly 1,500 years to understand why the West was so successful in its rapid growth and conquest of much of the rest of the world. Henrich’s explanation over-simplified: the Catholic Church banned cousin marriage which broke up kinship networks, then Protestant churches emphasized reading and individual interpretation. The combination led to a new “WEIRD (i.e., Western Educated Industrialized Rich Democratic)” psychology that helped lay the foundation for individual rights, democracy, markets, innovation, and the success the West enjoys today. Aspects of this have been imitated elsewhere helping to spread prosperity.
Some big think grand explanations for everything books take wild and creative stabs backed up by intuition but not much evidence. This book is creative (although maybe not “wild”) but is grounded in meticulous research, much of it done by Henrich and his team but also drawing on a wide range of other research by economists, psychologists, anthropologists, evolutionary biologists, and others. Henrich can do page after page after page of evidence, scatterplots, descriptions of natural experiments and regressions, etc. It also has both fox-like qualities (summarizing everything around a single theory) but also hedgehog-like qualities (lots of causal arrows pointing every which way and bringing a lot of different explanations together). It also draws on such a wide range of material, criss-crosses so many places, that it shows Henrich as an impressive polymath, but not one who is out to impress but to prove, often with a list of eight arguments to make his proof.
The core point and the one that I found completely persuasive in the book is that psychology varies across cultures and that for years Western psychologists made the mistake of studying WEIRD university students and thinking their psychology was universal. Instead, Henrich argues that there are lots of psychologies but broadly speaking they can be grouped into two sets of characteristics. WEIRD people are individualistic, self-obsessed, analytical, and see ourselves as unique beings that try to stick to impartial rules that are enforced by an internal feeling of guilt. In contrast, in many other cultures people are more focused on the group (often a kinship group), do not focus on their self realization, and try to do right by the people around them—a feeling enforced by shame in front of others more than internal guilt. Many other traits vary across these two types including patience, timeliness, whether morality is judged by intentions or outcomes, and much more.
Henrich advances a wide range of evidence for this core point including laboratory experiments played across countries, within countries, and with different immigrant groups within countries, data on actual behavior like parking tickets and blood donations, observational studies, and more. Any given study by itself might not be completely persuasive but the large mass of them, many extremely careful, leaves relatively little doubt in my mind about this argument.
Next comes Henrich’s explanation of the rise of WEIRD psychology as the consequence of the breakup of kin networks by the Catholic Church and the rise of protestantism and reading. I found this very plausible but far from a certainty, which is not Henrich’s fault but the difficulty of being completely certain about any aspects of historic causation, especially when everything moves together and causes everything else. Henrich, however, is not just making an assertion, he has a lot of evidence in the form of the history of banning cousin marriages, the correlation between the degree of cousin marriage and various psychological traits, and a number of different natural experiments that involve comparing areas that historically were under different religious rules.
Finally, Henrich links all of this to the rise of western Democratic and market institutions, something I found highly plausible—and was completely persuaded that we over-emphasize the individual thinkers we credit with the modern world (Locke, Hume, Smith, Montesquieu) and underemphasize the deeper and more slowly evolving cultural and psychological roots of these institutions.
I do have my worries about the argument. Psychological explanations of differences in growth have a long and sorry history, often fitting an explanation after-the-fact that was invalidated subsequently (e.g., the idea that Korean culture is incapable of generating growth which was dramatically disproven after 1950). Some of the “natural experiments” are so remote it is hard to know what to make about them, like some Swiss lord that died around 1,200 and then differences centuries later. This raises another issue with the timing of the psychological changes, which are sometimes portrayed as very deep and the result of factors centuries before and in other cases seem to change very quickly (see, again Korea). Some of the functionalist explanations for why different cultures/institutions evolved beg the question of why in some places but not others and the role of contingency. All that said, these are all sources of my uneasiness with unqualifiedly embracing the argument in the book and none of them really find fault with any of the empirical evidence or claims--all of which moved me a lot in Henrich's direction.
The WEIRDest People in the World is definitely a long book. But it is really worthwhile. It does not just provide a new and compelling explanation of the rise of the West, it also makes one think about how many aspects of psychology that seem universal are really contingent and how these can change and adapt over time. Ultimately, the book left me with a profound awe for the human species that can understand so much about itself both by working collaboratively with a wide variety of intellectual tools and also by single individuals with enormous creativity and ability to synthesize evidence....more
An outstanding, short, insightful capsule history of antitrust and antitrust through from the establishment of the Clayton Act in 1890 through the latAn outstanding, short, insightful capsule history of antitrust and antitrust through from the establishment of the Clayton Act in 1890 through the latest issues with the tech giants. All of it written very much for a general reader with little or no law or economics. In many places I would have liked to see much more, but you can find more in Wu’s papers—this book was for a different purpose. Underlying Wu’s version of history is an argument in favor of Louis Brandeis’ approach to antitrust, which focused as much on the political as the economic—specifically the risks of both concentrated economic power and concentrated political power.
Wu discusses the establishment of antitrust, its first major use with Standard Oil, and its growth through the Microsoft breakup pushed by Joel Klein during the Clinton administration. As antitrust actions are growing, the Chicago School was growing in importance as well with its emphasis on a much narrower concept of consumer welfare as determined by economic experts primarily with regard to whether a given merger will raise or lower prices. Ultimately Wu credits (or discredits) the “Harvard School” with taking the rough edges of the Chicago School and making it possible for the legal system to use it.
Wu faults the Chicago school’s narrow focus on economics while also faulting their economics. On the later, he is sympathetic to their limiting predatory pricing claims but thinks they way overshot the mark with their lack of concern about virtual all vertical mergers, many monopolies, and abuses of dominance.
At the same time Wu documents the benefits of antitrust enforcement, arguing the breakup of AT&T and the cases against Microsoft and IBM unlocked vast new economic terrains and were part of why the United States has outpaced countries like Japan which kept their monopoly telecoms in place. Some of this is widely accepted but Wu make a particularly compelling reinterpretation of the IBM case—often used as an argument against antitrust enforcement because it dragged on for over a decade—as central the separation of hardware and software and the rise of the PC.
Overall the book did not fully persuade me of the overarching “ne0-Brandesian” theory that Wu is seeking to revive for three reasons. First, I’m not sure how much link there is between corporate concentration and political power. It is the case that the wealthy have much more political power, but antitrust won’t do anything about hedge funds and private equity and I’m not sure that political power is much stronger with four airlines than six airlines. Second, much of Brandeis’s “big is bad” celebration of small businesses seems to be stronger on nostalgia than evidence. While too much corporate concentration can tilt bargaining power in a problematic way, it is not like small businesses are ideal places to work and in fact tend to have less workplace protection, benefits, training and room for advancement.
Finally, and most importantly, Wu shows that you don’t need to buy his broader political arguments to believe that antitrust needs to be more vigorous and specifically more vigorous in many of the ways he recommends (e.g., greater merger control, more reliance on structural remedies like breakups instead of conduct remedies about how companies are supposed to behave). Ultimately, Wu’s own arguments convincingly show that just appealing to economics—but expanding the focus to include innovation, quality, choice and other issues that are increasingly being considered in antitrust enforcement—is sufficient to get policy most or all of the way to where he would (rightfully in many cases) want it to go....more
A short book that is an economic history--mostly of the United States but also a brief discussion of the rapid growth of Japan and China--in the serviA short book that is an economic history--mostly of the United States but also a brief discussion of the rapid growth of Japan and China--in the service of an argument for "concrete economics" (which has meant different things at different times, but seems to largely be about the government viewing itself as having a key role in economics) instead of "theoretical economics" (which seems to mean laissez faire). Cohen and DeLong argue that Alexander Hamilton's Report on Manufacturers is more important for development strategies than Adam Smith's Wealth of Nations, something they argue is for the better....more
An often outstanding collection of biographical sketches by John Maynard Keynes, almost all of them of people he knew and worked with. The first set aAn often outstanding collection of biographical sketches by John Maynard Keynes, almost all of them of people he knew and worked with. The first set are shorter "Sketches of Politicians", including Churchill but also people I did not know like Bonar Law and Lord Oxford. These are interesting, occasionally particularly insightful, but also somewhat dated. But then the somewhat longer portraits of Malthus, Marshall and Edgeworth--plus some shorter pieces on Ramsey--are superlative mini biographies that give a flavor of the person's life, the substance and influence of their economics, and the role they played in creating the economics profession. In the case of Malthus, Keynes focuses on his debate with Ricardo on whether the economy is always in long-run equilibrium with fully utilized resources, one that Keynes judges Ricardo to have won for a century--to the detriment of economics. On Marshall, he focuses on his teaching, how that related to his writing, and his major contributions to economics. With Edgeworth, particularly notable was the role he played in establishing the Economic Journal and editing it for several decades until the day of this death. And Ramsey, unfortunately, does not get the full biographical treatment but his genius fully shines through in Keynes' appreciation of aspects of his work.
Any of this can be read individually the economics biographies, especially, repay reading as a group and a sustained narrative of economics in England, and particularly in Cambridge....more
A generally balanced, thorough, and readable survey of the literature on global development, poverty, inequality and health. It charts "The Great EscaA generally balanced, thorough, and readable survey of the literature on global development, poverty, inequality and health. It charts "The Great Escape" as country's go into self-sustaining growth, mortality greatly improves, and living standards rise. But it also discusses the many way those links can get broken, how income does not always translate into health and how inequality can break some of the link between growth and the typical family. The book is largely data based and contains thoughtful discussions of some of the complexities in, for example, global poverty comparisons or PPP comparisons.
The place where the book takes the strongest stance is against foreign aid. Angus Deaton grounds his argument more in Peter Bauer than his modern successors like Bill Easterly, but overall thinks the empirical connection between aid and growth is non-existent and that politically aid is distributed poorly, props up corrupt regimes, and gets in the way of growth. Overall he subscribes to the view that if you have all the materials for growth then you can attract capital and grow without aid. Instead he prescribes policies that include research into tropical diseases/agriculture and fewer distortions from the West--so more free trade, less agriculture subsidies, etc.
Overall, the book did not have a lot of breakthrough new ideas or original insights but overall was a worthwhile read....more
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