Must-read: Chris Blattman: “Black Lives Matter, Economic History Edition”

Must-Read: Chris Blattman: Black Lives Matter, Economic History Edition: “‘I use the individual-level records from my own family…

…in rural Mississippi to estimate the agricultural productivity of African Americans in manual cotton picking nearly a century after Emancipation, 1952-1965.

That is from Trevon Logan’s Presidential address to the National Economics Association.

Partly he calculates the productivity of his sharecropping ancestors relative to slave holding estates a century before (a persistent question in American economic history). But mainly he makes an argument for doing more qualitative interviews, which seems like an obvious point, except that systematic qualitative work is the exception in economic history (as it is in development economics):

That richer, fuller picture reveals that the work behind the estimates came to define the way that the Logan children viewed racial relations, human capital, savings, investment, and nearly every aspect of their lives. We learn not only about the picking process itself, but that chopping cotton may have been the most physically taxing aspect of the work. Similarly, the sale of cotton seed during the picking season was an important source of revenue for the family, and yet this economic relationship with the landowner was outside of the formal sharecropping contract. We also learn that it is impossible to divorce the work from its social environment{ an era in which Jim Crow, segregation, and other elements of overt racial oppression were a fact of life. Although none of the children has picked cotton in more than forty years, this experience continues to govern their daily lives and the way they interact with the world around them. Rather than being an item of the past, the work recorded in the cotton picking books continues to be a salient factor in their current economic decision-making.

Must-read: Suresh Naidu and Noam Yuchtman: “Labor Market Institutions in the Gilded Age”

Must-Read: Suresh Naidu and Noam Yuchtman: Labor Market Institutions in the Gilded Age: “Although 19th century labor markets were unencumbered by regulatory legislation…

…there existed frictions and rents… [that] played an active role in determining labor market outcomes and the distribution of income…. When firms experienced positive output price shocks, their employees earned wage premia…. The existence of rents in the labor contract suggests a role for bargaining and conflict between employees and employers. Workers in the late 19th century
attempted to strike to increase their wages; we present data on the frequency of strikes in the 19th century as well as some evidence suggesting that strikes were correlated with workers’ wages. Employers were supported by institutions of their own: we describe the important role played by the U.S. government in limiting the efficacy of union strikes in the 19th century…. We present new evidence documenting the rise of judicial injunctions that ended strikes, pointing to the important role played by the judicial branch of the U.S. government in structuring (Northern) American labor market institutions prior to the rise of legislative regulation.

Memo to self: Monetary policy since 1985

FRED Graph FRED St Louis Fed

Major Federal Reserve Policy Moves since 1985:

The Federal Reserve overshoots and overtightens. But the effect on the economy is diminished because more-responsible fiscal policy leads to a fall in the term and risk premiums:

Preview of Pounding Nails in Nevada

The Federal Reserve eases monetary policy to fight the recession and jobless recovery caused by its previous overshoot:

Preview of Pounding Nails in Nevada

The Federal Reserve tightens to–successfully–try to keep inflation from rising; the first bond market “conundrum” as the endogenous duration of mortgage-backed securities produces a much tighter-than-expected gearing between the short-term safe nominal interest rate i and the long-term risky real interest rate r:

Preview of Pounding Nails in Nevada

The Federal Reserve loosens during the international financial crisis of 1998:

Preview of Pounding Nails in Nevada

The Federal Reserve tightens to try to prevent “overheating” in the late stages of the dot-com boom:

Preview of Pounding Nails in Nevada

The Federal Reserve loosens to fight the recession brought on by the collapse of the dot-com boom:

Preview of Pounding Nails in Nevada

The Federal Reserve keeps policy stimulative and delays its interest-rate tightening cycle given the weakness of the recovery; the bond market first does not and then does credit the Federal Reserve’s statements:

Preview of Pounding Nails in Nevada

The Federal Reserve eases as the magnitude of the subprime-driven financial crisis becomes apparent; but the collapse in financial market trust and the financial crisis come anyway:

Preview of Pounding Nails in Nevada

With the recovery inadequate, the Federal Reserve decides to extend the period of emergency stimulative extraordinary monetary policy–but the long-term risky real interest rate r sticks at 3%, and does not go any lower:

Preview of Pounding Nails in Nevada

With the unemployment rate now in the range associated with full employment, the Federal Reserve decides that it is time to “normalize” interest rates:

Preview of Pounding Nails in Nevada

Inflation Control:

The Federal Reserve has overdone it on inflation control–successfully kept inflation from getting “too high”, and in fact pushed inflation “too low”:

Graph Consumer Price Index for All Urban Consumers All Items Less Food and Energy FRED St Louis Fed

Full Employment:

Before 2008, macroeconomic stabilization performance on full employment was quite good. 2008-2010 was a disaster. How we evaluate what follows depends on whether we look at unemployment or employment:

Graph Consumer Price Index for All Urban Consumers All Items Less Food and Energy FRED St Louis Fed Graph Consumer Price Index for All Urban Consumers All Items Less Food and Energy FRED St Louis Fed

Structural Adjustment: “Pounding Nails in Nevada…”

Was a recession in 2009 any sense “needed” to move people out of construction employment as the housing boom collapsed? Was a rise in unemployment a necessary first step in rebalancing the late-2000s economy?

No: Look at the key components of aggregate demand:

FRED Graph FRED St Louis Fed

As of November 2008, when John Cochrane gave his “we should have a recession… people who spend their lives pounding nails in Nevada need something else to do…” keynote address to the 2008 CRSP Forum, residential investment had already fallen by 3.5%-points of GDP and was within 0.5%-points of what had been its nadir. The recession came after the move of labor out of construction had been all but completely finished:

FRED Graph FRED St Louis Fed

*If you were going to say “we should have a recession” on the grounds that a recession was a necessary part of the structural adjustment required to climb down from overinvetment in housing, the moment to have said that was 2005. And those who said that then were wrong: we did not read a recession in order to move those “pounding nails in Nevada” into other sectors while keeping them employed…

Must-read: Emanuele Felice: “The Challenges of Updating the Contours of the World Economy”

Must-Read: Emanuele Felice (2014): The Challenges of Updating the Contours of the World Economy: “Re-estimating Growth Before 1820 by Jutta Bolt… and Jan Luiten van Zanden (Utrecht University…

…provide[s] an inventory while also critically review the available research… classifying Maddison’s estimates in four groups: a) official estimates… b) historical estimates (that is, estimates produced by economic historians) which roughly follow the same method as the official ones and are based on a broad range of data and information; c) historical estimates based on indirect proxies… d) ‘guess estimates’….

The pre-industrial era (‘c’ kind estimates). For Europe, we now have a considerable amount of new work… from 1000 to 1800 AD, growth was probably more gradual than what proposed by Maddison; that is, European GDP was significantly higher in the Renaissance (above 1000 PPP 1990 dollars in 1500, against 771 proposed by Maddison); hence, growth was slower in the following three centuries (1500-1800), while faster in the late middle ages (1000-1500). For Asia, the new (and in some cases very detailed) estimates available for some regions of India (Bengal) and China (the Yangzi Delta), for Indonesia and Java, and for Japan, confirm Maddison’s view of the great divergence, against Pomeranz revisionist approach: in the late eighteenth and early nineteenth century, a significant gap between Europe and Asia was already present…. New long-run estimates are presented also for the Near East, as well as for the Roman world…. The authors also signal the presence of estimates for ancient Mesopotamia… a bit below that of the Roman empire (600 PPP 1990 dollars per year, versus 700), but they are not included in the dataset….

As pointed out by Gregory Clark, in his 2009 Review of Maddison’s famous Contours of the World Economy:

All the numbers Maddison estimates for the years before 1820 are fictions, as real as the relics peddled around Europe in the Middle Ages […] Just as in the Middle Ages, there was a ready market for holy relics to lend prestige to the cathedrals and shrines of Europe […], so among modern economists there is a hunger by the credulous for numbers, any numbers however dubious their provenance, to lend support to the model of the moment. Maddison supplies that market….

We are comparing economies of distant times under the assumption that differences in the cost of living remained unchanged over centuries, or even over millennia. This problem, not at all a minor neither a new one − e.g. Prados de la Escosura (2000) − is here practically ignored. One indeed may have the feeling that the authors (and Maddison before them) simply don’t care about the parities they use, de facto treating them as if they were at current prices…

Roman Empire GDP Per Capita Map Shows That Romans Were Poorer Than Any Country in 2015 Brilliant Maps

Must-read: Guenther Roth: “The Near-Death of Liberal Capitalism: Perceptions from the Weber to the Polanyi Brothers”

Must-Read: Guenther Roth: The Near-Death of Liberal Capitalism: Perceptions from the Weber to the Polanyi Brothers: “Karl Polanyi and Max Weber held radically different views of liberal capitalism…

…[Weber] poured most of his energies into… the “Sociological Categories of Economic Action” (chap. 2)… because with the war’s end radical political and economic changes were occurring or seemed possible…. He opposed… efforts to socialize key industries primarily because Germany needed to attract foreign capital and secondarily because nationalized industries could be more easily seized by the Allies. He wanted to see the war economy end quickly and the currency stabilized… [via] the reintroduction of a functioning gold standard. In Economy and Society Weber warned:

It is only with the greatest caution that the results and methods of the war economy can be used for the critique of the substantive rationality of other forms of economic organization. The war economy is in principle oriented to a single clear goal and can use powers that in peacetime are available only in the case of “state-run slavery.” Furthermore, it is an economy with an inherent attitude of “going for broke.”… Hence, however illuminating the wartime and immediate postwar experiences are for recognizing the range of economic possibilities, it is unwise to draw conclusions from wartime in-kind accounting for its suitability in a peacetime economy with its long-run concerns.

Weber and Schumpeter… had their famous falling-out in a Viennese coffeehouse in 1918. Weber, “who took nothing lightly,” and Schumpeter, who “took nothing hard,” recalled Somary who witnessed the scene, clashed over the Russian Revolution. Schumpeter welcomed it as a laboratory experiment… for Weber it was going to be “a laboratory heaped with human corpses.” When an enraged Weber stormed out, a smiling Schumpeter remarked: “How can someone carry on like that in a coffeehouse?”–the proper place for irony, never seriousness.

The Austro-Hungarian economists were, however, not primarily coffeehouse intellectuals. Most had business experience…. Gustav Stolper narrowly missed becoming Austrian deputy minister in the Empire’s final hours and Republican minister of finance in 1921. Schumpeter succeeded in 1919 but quickly failed…. Karl Polanyi’s call, still made in The Great Transformation, for taking land, labor, and money out of the market was at the time frequently heard from the left and right. But many liberal economists too recognized that massive state intervention was inevitable…. Stolper believed that the institution of soviets, of works councils, was here to stay. In… central and eastern Europe a new state, new tax system, new currency, and new economy had to be established under the most difficult of conditions, which proved frustrating to liberals and socialists alike….

In the early postwar period many emigrants and many of those who claimed to have been “spiritual migrants” (innere Emigranten) hoped for some mode of socialist reconstruction, Christian or secular, of western Europe between Soviet Communism and American capitalism…. Karl Mannheim, more social philosopher than economist, pleaded for… “planning freedom.” Alfred Weber… embraced “free socialism and democracy”…. Karl Polanyi could not but find himself disappointed about the resurrection of liberal capitalism…. It is true that Western Europe developed a range of mixed economies, but few contemporaries anticipated the restoration of a capitalist world economy on the scale that became visible from the sixties on…

Historical Nonfarm Unemployment Statistics

An updated graph that Claudia Goldin had me make two and a half decades ago. The nonfarm unemployment rate since 1890:

2016 04 05 Historical Nonfarm Unemployment Estimates numbers

Then it was 1890-1990, now it is 1869-2015, thanks to:

The assumption–debateable–is that “unemployment” is not a farm thing–that in the rural south or in the midwest or on the prairie you can always find a place of some sort as a hired hand, and that “unemployment” is a town- and city-based nonfarm phenomenon.

I confess I do not understand how anyone can look at this series and think that calculating stable and unchanging autocorrelations and innovation variances is a reasonable first-cut thing to do…

Must-read: Branko Milanovic and Suresh Naidu: Branko Milanovic’s New Approach to Global Inequality

Must-Read: Branko Milanovic and Suresh Naidu: Branko Milanovic’s New Approach to Global Inequality: “Convergence and Divergence Across Nations Reinforced or Damped by Kuznets Waves within Nations…

…Global inequality can be broken down into inequality between countries (btw US & Mexico) & within them (among US citizens). Within-country inequality is driven by “Kuznets waves” & between country by economic growth convergence. Real income growth has been quite strong for the global middle class (Vietnam, China, etc), but weak for 80th-90th percentile (US lower MC)…. Migration is the most powerful tool for the reduction of global poverty and inequality

Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3

I guess that is it: Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3:

Stephen S. Cohen, J. Bradford DeLong: Concrete Economics: The Hamilton Approach to Economic Growth and Policy] (Allston, MA: Harvard Business Review Press:1422189813) http://amzn.to/22ds5TK