Tag: Economic History

Must-read: Justin Fox: “The U.S. Could Use a New Economic Strategy”

Posted on by Brad DeLong

Must-Read: Justin Fox: The U.S. Could Use a New Economic Strategy: “In his four-plus years as the country’s first treasury secretary…

…Alexander Hamilton crafted an economic strategy that helped the U.S. rise from agrarian former colony to global economic power… [write] Stephen S. Cohen and J. Bradford DeLong write in their brand-new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy…. No U.S. leader since has articulated and then put in place an all-encompassing economic plan in quite the way Hamilton did. But the country has always followed some sort of economic strategy, even if it has seldom been clearly defined… a succession of strategies–culled from Cohen and DeLong’s book, but given titles by me–that went something like this: The era of free stuff…. The era of intervention…. The era of investment…. The era of financialization…. It is at least possible that this last era has come to an end, with the beginning of financial re-regulation in the U.S. and a halt to the long upward trend in global trade that accompanied the rise of the East Asian export economies. It’s not at all clear, though, what’s going to replace it.

DeLong… and Cohen… don’t offer a plan. They simply recommend that discussion of economic policy focus on the concrete–what works–rather than theory and ideology. How’s that been going lately? Donald Trump’s economic platform, however muddled and unrealistic, is at least a break from the narrow ideological orthodoxy on economics that has held the national Republican Party in thrall for the past couple decades. On the Democratic side, Bernie Sanders and Elizabeth Warren have offered a challenge to the financial-sector-friendly approach that the party’s mainstream settled on in the 1990s. Some in that mainstream have been reconsidering their stance as well…. The economics profession’s turn away from theory and toward empirical work, which I wrote about in January, will presumably offer pragmatically inclined policy makers more material to work with in the coming years.

Still, it’s not easy to figure out what the U.S. should do next. Nations playing catch-up… have concrete examples…. But the U.S. of 2016 is the biggest economy on the planet…. In the latest World Economic Forum global competitiveness rankings, for example, it trailed only Switzerland and Singapore. There is surely much we can learn… but… the U.S. remains largely sui generis.

I’m almost certain that more infrastructure investment would be a smart part of any new U.S. economic strategy. But I’m not so sure what should be built and where, or what else…. Got any suggestions?…

For an explanation of this, I recommend ‘Cabinet Battle #1’ from the musical ‘Hamilton.’

Must-read: Rob Johnson: “The China Delusion”

Posted on by Brad DeLong

Must-Read: The extremely sharp Rob Johnson is in the camp of those who think that China’s principal short-run problems of problems of macroeconomic management–that investors are not confident that their investments in China will remain profitable–rather than the more-fundamental problems of political economy: the fear by investors that their investments in China are insecure. There’s a return-problems camp. There’s a risk-problems camp. Rob Johnson is in the first:

Rob Johnson: The China Delusion: “China’s transition from an export-led growth strategy to one propelled by domestic consumption…

…is proceeding far less smoothly than hoped. For some people, visions of the wonders of capitalism with Chinese characteristics remain undiminished…. The optimists’ unreality is rivalled by that of supply-siders, who would apply shock therapy to China’s slumping state sector and immediately integrate the country’s underdeveloped capital markets into today’s turbulent global financial system. That is a profoundly dangerous prescription. The power of the market to transform China will not be unleashed in a stagnant economy, where such measures would aggravate deflationary forces and produce a calamity.

The persistent downward pressure on the renminbi reflects a growing fear that Chinese policymakers have no coherent solution to the dilemmas they face. Floating the renminbi, for example, is a dangerous option. After all, with the Chinese economy undergoing wholesale economic transformation, estimating a long-term equilibrium exchange rate that will anchor speculation is virtually impossible, particularly given persistent doubts about data quality, disclosure, and opaque policymaking processes.

But if the current exchange-rate peg to a basket of currencies fails to anchor the renminbi and prevent sharp depreciation, the deflationary consequences for the world economy will be profound. Moreover, they will feed back on the Chinese export sector, thus dampening the stimulative impact of a weakened currency.

The key to stabilising the exchange rate lies in creating a credible development policy. Only then will the pressure on the renminbi, and on China’s foreign-exchange reserves, subside, because investors will see a clear way forward.

Establishing policy credibility will require diminishing the muddled microeconomic incentives of state control and guarantees. It will also require reinvigorating aggregate demand by targeting fiscal policy to support the emerging economic sectors that will underpin the new growth model…

Today’s economic history: John Law in Venice

Posted on by Brad DeLong

Economista Dentata: John Law in Venice: “John Law, like all the best people…

…spent some time in Venice (he actually died there in 1729). Being John Law, of course he ended up playing with money… (and not just in the Ridotto):

He would sit behind a table, at his elbow a pile of coins worth 10,000 gold pistoles. Law knew that many tourists, especially from France or England, would not be able to resist the temptation to gamble with him, so that they could boast of this fact when they returned home. He extended an open invitation to all-comers: for an outlay of one gold pistole, he was willing to gamble his entire 10,000, if his opponent could roll six dice and get each one to come up a six.

Well worth a bet, they thought, even at odds of 10,000:1–and one by one the extra gold pistoles came rolling in.  (Law was well aware that the real odds were in fact an even more unlikely 46,656:1).

From ‘The Spirit of Venice’ by Paul Strathern p. 306

Must-read: Branko Milanovic: “Global Inequality: A New Approach for the Age of Globalization”

Posted on by Brad DeLong

Must-Read: This moves to the very top of the “to-read” pile this morning:

Branko Milanovic (2016): Global Inequality: A New Approach for the Age of Globalization (Cambridge: Belknap Press: 067473713X) http://amzn.to/1PMGNIG: “Global Inequality takes us back hundreds of years…

…and as far around the world as data allow, to show that inequality moves in cycles, fueled by war and disease, technological disruption, access to education, and redistribution. The recent surge of inequality in the West has been driven by the revolution in technology, just as the Industrial Revolution drove inequality 150 years ago. But even as inequality has soared within nations, it has fallen dramatically among nations, as middle-class incomes in China and India have drawn closer to the stagnating incomes of the middle classes in the developed world. A more open migration policy would reduce global inequality even further. Both American and Chinese inequality seems well entrenched and self-reproducing…

Glosses on Jo Walton’s Plato Fanfic and Robots: A Brief Pickup Platonic Dialogue: Today’s Economic History

Posted on by Brad DeLong

Jo Walton (2015): The Just City (New York: Tor Books: 9780765332660) http://amzn.to/1WQi0cn

John Holbo: Walton’s Republic: What is Athene’s motive in dragging all those robots from the future to help build this thing?…

Brad DeLong: Re: ‘What is Athene’s motive in dragging all those robots from the future to help build this thing?’ Aristoteles son of Nikomakhos of Stagira:

Aristoteles: Let us first speak of master and slave, looking to the needs of practical life…. [Some] affirm that the rule of a master over slaves is contrary to nature…. Property is a part of the household… no man can live well, or indeed live at all, unless he be provided with necessaries…. [T]he workers must have their own proper instruments… of various sorts; some are living, others lifeless; in the rudder, the pilot of a ship has a lifeless, in the look-out man, a living instrument….

If every instrument could accomplish its own work, obeying or anticipating the will of others, like the [automated] statues of Daedalus, or the [self-propelled catering carts] of Hephaestus, which, says the poet, ‘of their own accord entered the assembly of the Gods’; if, in like manner, the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants, nor masters slaves…

But is there any one thus intended by nature to be a slave, and for whom such a condition is expedient and right?… There is no difficulty in answering this question… that some should rule and others be ruled is a thing not only necessary, but expedient; from the hour of their birth, some are marked out for subjection, others for rule…

Neville Morley: @Brad De Long #1: yes, I was wondering about that passage, via Marx’s sarcastic gloss on it (someone else will surely remember the precise quote, but it’s words to the effect of:

Who’d have imagined that we’d get self-acting spindles not to shorten the working day but to lengthen it so that a few people can become most eminent shoe-black manufacturers’

but didn’t feel that it got developed in the novel as much as it might have been–and then by the second book most of the robots have simply gone.

Brad DeLong: Karl Marx (1867): Capital vol. I, ch 15, §3B ‘The Prolongation of the Working Day’ https://www.marxists.org/archive/marx/works/1867-c1/ch15.htm:

Karl Marx: ’If,’ dreamed Aristotle, the greatest thinker of antiquity:

If every tool, when summoned, or even of its own accord, could do the work that befits it, just as the creations of Daedalus moved of themselves, or the tripods of Hephaestos went of their own accord to their sacred work, if the weavers’ shuttles were to weave of themselves, then there would be no need either of apprentices for the master workers, or of slaves for the lords.

And Antipatros, a Greek poet of the time of Cicero, hailed the invention of the water-wheel for grinding corn, an invention that is the elementary form of all machinery, as the giver of freedom to female slaves, and the bringer back of the golden age.

Oh! those heathens! They understood, as the learned Bastiat, and before him the still wiser MacCulloch have discovered, nothing of Political Economy and Christianity. They did not, for example, comprehend that machinery is the surest means of lengthening the working-day. They perhaps excused the slavery of one on the ground that it was a means to the full development of another. But to preach slavery of the masses, in order that a few crude and half-educated parvenus, might become ‘eminent spinners,’ ‘extensive sausage-makers,’ and ‘influential shoe-black dealers,’ to do this, they lacked the bump of Christianity.

Today’s economic history: Richard J. Evans reviews ‘Karl Marx’ by Jonathan Sperber

Posted on by Brad DeLong

Myself, I would translate ‘Alles Ständische und Stehende verdampft’ as “All the established estates and orders of society are steamed away”…

Richard J. Evans (2013): Review of ‘Karl Marx’ by Jonathan Sperber: “Marx v. The Rest…. Previous accounts of Marx’s life have gone one of two ways…

…Either he is seen as a prophet… or… a misguided and misguiding ideologue…. This book aims to scrape away the patina of retrospective polemic to reveal Marx in the context of his own times…. Sperber provides a new translation of the much discussed sentence in the Manifesto, ‘Alles Ständische und Stehende verdampft’: ‘All that is solid melts into air’ in the standard English version but rendered by Sperber as ‘Everything that firmly exists and all the elements of the society of orders evaporate.’ What Marx had in mind was not some mystical process of transformation, but the dissolution of hierarchical Prussian society by the steam-power of industry. Political revolution leading to a communist regime… would be achieved on the lines of the French Revolution’s… Jacobin phase, from 1792 to 1794….

The problem for Marx was that his anti-Prussian campaign required the co-operation of left-wing liberals and democrats, while his championing of the class struggle meant turning against them. While Marx vacillated, the workers lost interest in the former campaign and the democrats were alienated by the latter….

The exiles meanwhile accused each other of hypocrisy and embezzlement, taking each other to court and resorting to fisticuffs; two of them even fought a duel. Although this dire situation has often been blamed on Marx, he had previously been quite capable of working amicably with his associates, including the democrats of Cologne, and Sperber is more inclined to blame Engels, whose tactless and bullying personality he repeatedly criticises. The situation was made worse by scurrilous rumours spread by German and Austrian police spies, who swarmed around them like flies around a corpse….

Marx withdrew from politics and devoted himself to forging a new career as a journalist, writing articles for the New York Tribune, commissioned by an American working on the paper who had met him in Cologne. He published 487 articles in all, about a quarter of them ghostwritten by Engels when Marx was ill. They amounted to more, in sheer volume, than the sum total of everything else Marx published in his lifetime, and while many biographers pass over them silently, Sperber does a good job of analysing their content, particularly Marx’s extensive commentaries on the Crimean War. The fiasco of the British conduct of the war convinced him that the prime minister, Lord Palmerston, was a paid agent of the Russians, whom Marx had long loathed as ‘the gendarme of Europe’…. The money he got for his journalism, together with subsidies from the prosperous Engels, enabled his family to rent a house in Kentish Town, in North London, to buy their own furniture for it, and to afford modest luxuries like picnics on Hampstead Heath….

Marx’s Herr Vogt is usually ignored as a ‘non-canonical’ work, but Sperber shows that it was more influential and more widely read at the time than the subsequently canonical Eighteenth Brumaire. The charge that Vogt was a client of French imperialist designs on the Rhineland was vindicated when Napoleon III fell in 1870…. At the time, Vogt won the argument, but the dispute brought Marx new political allies, notably the revolutionary socialist Ferdinand Lassalle…. Marx and Engels did not entirely trust the flamboyant Lassalle, and they peppered their letters about him with anti-semitic invective, painting him as a vulgar, pushy parvenu, ‘Isidor Berlin Blue Dye’, ‘the little Yid Braun’. Lassalle invited Marx to Berlin, where he threw dinner parties for him and took him to the opera, cheekily finding him a seat next to the royal box. Marx visited old friends in Cologne and family in Trier, where his mother graciously cancelled his debts to her….

It was Marx’s ‘passionately irreconcilable, uncompromising and intransigent nature’ that had ‘the deepest and most resonant appeal, and has generated the sharpest rebukes and opposition, down to the present day’, Sperber writes, while downplaying the legacy of his ideas. He has given us a Marx for the post-Marxist age, a superb 21st-century biography that sets its subject firmly in his 19th-century context but also explains why his legacy continues to be fought over.

The forthcoming-behavioral-economics of abundance: Project Syndicate

Posted on by Brad DeLong

Over at Project Syndicate: Economics in the Age of Abundance: 250 years ago in the richest society that was then or ever had been–Imperial Augustan-Age Britain–the adolescents sent to sea by the Marine Society to be officers’ servants were half a foot–15 cm–shorter than their counterpart gentry’s sons whose heights were recorded as they entered the army as officers. 150 years ago the working class of the United States–the richest working class that was then or ever had been–was still spending roughly 2/5 of extra income at the margin simply on more calories. Pre-Industrial Agrarian-Age human populations, even Mid-Industrial populations, and a third of the world today were and are under what nutritionists and public-health experts see as severe and damaging nutritional biomedical stress. READ MOAR

Must-read: John Plender: “Capitalists Excel at Giving Themselves a Bad Name”

Posted on by Brad DeLong

Must-Read: (1) Cecil Rhodes stole a lot of stuff. (2) Cecil Rhodes got a lot of people dead. (3) Cecil Rhodes built a lot of stuff. (4) Cecil Rhodes tried hard to spend his money to create a peaceful, united, trading world in which people of different countries understood each other–and (5) understood that people of British culture and British race were boss.

It’s fine to celebrate (4). And it’s good to actually spend the pile of money that derives from Cecil Rhodes on (4). But if you want to have a big statue of Rhodes hanging around, shouldn’t it be part of an exhibit that also notes his role in (1), (2), (3), and (5), and puts it all in its proper place?

Monticello these days, I think, does that, and does that properly. Can Oriel College say that it does that? Does Plender have any constructive ideas as to how to do that? And is he willing to head up a fund-raising campaign?

John Plender: Capitalists Excel at Giving Themselves a Bad Name: “Oxford’s dilemma is indicative of how the system can create wealth but often in ways that offend…

…Cecil Rhodes, alas. Or so the governing body of Oriel College, Oxford, must feel as it confronts demands from the student-led Rhodes Must Fall movement…. Rhodes was, of course, a rampant colonialist, unprincipled mining entrepreneur and conspicuous racist. He also happened to establish the Rhodes scholarships to facilitate the celebrated international study programme at Oxford…. Back then I took for granted that the kind of people who endowed Oxbridge colleges were likely to be rich but noxious. Today I rationalise it less casually. Rhodes epitomises the paradoxical nature of capitalism. The genius of the system is that it has an extraordinary capacity for creating wealth and raising living standards. Yet it often does so in ways that many find morally offensive. The difficulty concerns the centrality of the money motive — greed, in a word — in driving economic growth….

There is, in the moral economy of entrepreneurship, a spectrum. At one extreme are those like the robber barons of the American gilded age, such as John D Rockefeller, JP Morgan and Henry Clay Frick…. These were exceptionally nasty men. Their career model consisted of a no holds barred, preferably monopolistic, money grab until old age when they atoned for their misdeeds through spectacular philanthropic largesse…. At the other end of the spectrum were such high-minded model employers as Matthew Boulton, the nonconformist steam entrepreneur who, among other things, pioneered workers’ insurance at the start of the industrial revolution…. The distinctive feature of the assault on Rhodes is that the outrage is retrospective. The question is where such retrospection leads. Should we now spurn the sculptures of Periclean Athens on the basis that its democracy was supported by slavery? And what to do about statues of Thomas Jefferson, owner of numerous slaves?…

Today’s economic history: William McChesney Martin’s “Punchbowl Speech”

Posted on by Brad DeLong

William McChesney Martin (1955): Punchbowl Speech (October 19, 1955): “In framing the Federal Reserve Act great care was taken to safeguard…

…this money management from improper interference by either private or political interests. That is why we talk about the overriding importance of maintaining our independence. Hence we have our system of regional banks headed up by a coordinating Board in Washington intended to have only that degree of centralized authority required to discharge effectively a national policy. This constitutes, as those of you in this audience recognize, a blending of public interest and private enterprise uniquely American in character. Too few of us adequately recognize or adequately salute the genius of the framers of our central banking system in providing this organizational bulwark…

Must-read: Tim Worstall: “The Average American Today Is 90 Times Richer Than The Average Historical Human Being”

Posted on by Brad DeLong

Must-Read: Tim Worstall: The Average American Today Is 90 Times Richer Than The Average Historical Human Being: “I have regularly tried to get over the idea that there is just no such thing as real poverty in the United States today…

…Absent those entirely outside our society through addiction or mental health problems there is just no one at all who suffers from what has been the usual human description of poverty. Actually, there’s no one at all in the US who has anything even close to what the human experience has been of poverty. By any historical, and by standards of all too large a part of the world today, all Americans are simply hugely, gargantuanly, richer than any but the fewest, most privileged, of our forefathers….

What should really leap out at you is how poor the past actually was. England in 1600 AD was at $1,000 a year. So, a little over 1.5 times what it is like to be in the poorest country in the world right now, that CAR. China was at this level in 1978: just goes to show you what an idiocy Maoist economics was. But note that this runs the other way too: the American living standard of today is about 50 times what it was in 1600 England, or 1978 China…. Real poverty is that $600 a year of the CAR or most of humanity for most of history, or the $1.90 a day that the World Bank today identifies as absolute poverty. America simply doesn’t have any of this. It just doesn’t exist and it hasn’t for at least half a century and was rare even a century ago.