Divergence and Convergence within Italy

05/28/201805/28/2018 Vincent Geloso Economics, History economic development, economic history, Economic History Review, Emanuele Felice, Italy, Regional Convergence

Two years, I wrote a post on this blog on the process of regional convergence in Italy. In that post, I made the observation that it seems that, economically, Italy was as fragmented at the time of the unification as it is today which made it an oddity in terms of regional convergence. To make that claim, I used this table of relatively sparsed out observations produced by Emanuele Felice: which was published in the Economic History Review:

As one can see, there is a pronounced “lack” of integration for the Italy in terms of living standards. This is reinforced by a more “continuous” set of estimates produced, again, by Emanuele Felice (this time, its a working paper of the Bank of Italy) that now include the 1870s and go to 2011 (as opposed to 2001). This is the result, which I find fascinating. The first graph shows GDP per capita – for which there is divergence to 1951 and then a mild convergence thereafter but still well above the levels at the time of unification. More fascinating is the fact that productivity is at its most integrated since unification (2nd figure) suggesting a divergence in levels of labor activity (3rd figure). In these three graphs, you have a neat summary of Italian labor markets since 1870.

Italian Convergence

The great global trend for the equality of well-being since 1900

05/26/201805/26/2018 Vincent Geloso Economics, History China, economic development, economic growth, economic history, GDP per capita, human development, India, Indur Goklany, inequality, Leandro Prados de la Escosura

Some years ago, I read The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet by Indur Goklany. It was my first exposition to the claim that, globally, there has been a long-trend in the equality of well-being. The observation made by Goklany which had a dramatic effect on me was that many countries who were, at the time of his writing, as rich (incomes per capita) as Britain in 1850 had life expectancy and infant mortality levels well superior to 1850 Britain. Ever since, I accumulated the statistics on that regard and I often tell my students that when comes the time to “dispell” myths regarding the improvement in living standards since circa 1800 (note: people are generally unable to properly grasp the actual improvement in living standards).

Some years after, I discovered the work of Leandro Prados de la Escosura who is a cliometrician who (I think I told him that when I met him) influenced me deeply in my work regarding the measurement of living standards and who wrote this paper which I will discuss here. His paper, and his work in general, shows that globally the inequality in incomes has faltered since the 1970s. That is largely the result of the economic rise of India and China (the world’s two largest antipoverty programs). Figure1Leandro

However, when extending his measurements to include life expectancy and schooling in order to capture “human development” (the idea that development is not only about incomes but the ability to exercise agency – i.e. the acquisition of positive liberty), the collapse in “human development” inequality (i.e. well-being) precedes by many decades the reduction in global income inequality. Indeed, the collapse started around 1900, not 1970!

In reading Leandro’s paper, I remembered the work of Goklany which had sowed the seeds of this idea in my idea. Nearly a decade after reading Goklany’s work well after I fully accepted this fact as valid, I remain stunned by its implications. You should too.

On the rift between economics and everything else

04/15/201804/15/2018 Vincent Geloso Economics, History, Law, Philosophy, Politics anthropology, economic history, economics, History, scientific collaboration, social science, Sociology

The line is often heard: economists are “scientific imperialists” (i.e. they seek to invade other fields of social science) jerks. All they try to do is “fit everything inside the model”. I have this derisive sneer at economists very often. I have also heard economists say “who cares, they’re a bunch of historians” (this is the one I hear most often given my particular field of research, but I have heard variations involving sociologists and anthropologists).

To be fair, I never noticed the size rift. For years now, I have been waltzing between economics and history (and tried my hand at journalism for some time) which meant that I was waltzing between economic theory and a lot of other fields. The department I was a part of at the London School of Economics was a rich set of quantitative and qualitative folks who mixed history of ideas, economics, economic history and social history. To top it all, I managed to find myself generally in the company of attorneys and legal scholars (don’t ask why, it still eludes me). It was hard to feel a big rift in that environment. I knew there was a rift. I just never realized how big it was until a year ago (more or less).

There is, however, something that annoys me: the contempt appears to be self-reinforcing. Elsewhere on this blog (here and here) (and in a forthcoming book chapter in a textbook on how to do economic history), I have explained that economists have often ventured into certain topics with a lack of care for details. True, there must be some abstraction of details (not all details are useful), but there is an optimal quantity of details. And our knowledge grows, the quantity of details necessary to answering each question (because the scientific margin is increasingly specialized) should grow. And so should the number (and depth) of nuances we make to answer a question. There is a tendency among economists to treat a question outside the usual realm of economics and ignore the existing literature (thus either rushing through an open door or stepping in a minefield without knowing it). The universe is collapsed into the model and, even when it yields valuable insights, other (non-econs) contributors are ignored. That’s when the non-econs counter that economists are arrogant and that they try to force everything into a mold rather than change the mold when it does not apply. However, the reply has often been to ignore the economists or criticize strawmen versions of their argument. Perceived as contemptuous, the economists feel that they can safely ignore all others.

The problem is that this is a reinforcing loop: a) the economists are arrogant; b) non-economists respond by dismissing the economists and ridiculing their assumptions; c) the economists get more arrogant. The cycle persists. I struggle to see how to break this cycle, but I see value in breaking it. Elsewhere, I have made such a case when I reviewed a book (towards which I was hostile) on Canadian economic history. Here is what I said for the sake of showcasing the value of breaking the vicious circle of ignoring both sides:

These scholars (those who have been ignored by non-economists) could have easily derived the same takeaways as Sweeny. Individuals can and do engage in rent-seeking, which economists define as the process through which unearned gains are obtained by manipulating the political and social environment. This could be observed in attempts to shape narratives in the public discourse. According primacy to the biases of sources is a recognition that there can be rent-seeking in the form of actors seeking to generate a narrative to reinforce a particular institutional arrangement and allow it to survive. This explanation is well in line with neoclassical economics.

This point is crucial. It shows a failing on both sides of the debate. Economists and historians favorable to “rational choice” have failed to engage scholars like Sweeny. Often, they have been openly contemptuous. The literature has evolved in separate circles where researchers only speak to their fellow circle members. This has resulted in an inability to identify the mutual gains of exchange. The insights and meticulous treatments of sources by scholars like Sweeny are informative for those economists who consider rational choice as if the choosers were humans, with all their flaws and limitations, rather than mechanistic utility-maximizing machines with perfect foresight (which is a strawman often employed to deride the use of economics in historical debates) . In reverse, the rich insights provided by rational choice theorists could guide historians in elucidating complex social interactions with a parsimony of assumptions. Without interaction, both groups loose and resolutions remain elusive.

See, as a guy who likes economics, I think that trade is pretty great. More importantly, I think that trade between heterogeneous groups (or different individuals) is even greater because it allows for specialization that increases the value (and quantity) of outputs. I see the benefits of trade here, so why is this “circle of contempt” perpetuating so relentlessly?

Can’t we just all pick the 100$ bill on the sidewalk?

Electricity in Quebec before Nationalization (1919 to 1939)

03/19/201803/19/2018 Vincent Geloso Economics, History Canada, economic history, Electricity, energy, nationalization, privatization, Quebec

A few weeks ago, I mentioned that I am generally skeptical of “accepted wisdom” on many topics. “Accepted wisdom” is a construction of a stylized fact by a party with intense preferences that is gradually able to remove nuances over time to solidify its preferred narrative. The example I gave a few weeks ago concerned antitrust laws. There are many more. One of those concerns a research agenda that I laid claim to in a recent article in Atlantic Economic Journal (co-authored with my dear friend Germain Belzile): the nationalization of electricity in Quebec.

My home province of Quebec is basically one giant network of rivers well-suited for the production of hydro-electricity – a potential that was noticed in the late 19th century and led to a rapid expansion of the network. Historians (and some economists) have depicted the early electrical industry in Quebec as a “trust” (a cartel) that gouged consumers and could only be resolved, as witnessed by the neighboring province of Ontario, by nationalization (which occurred in two waves – one in 1944 and one in 1962).

In the article I published with Belzile, I argue that this narration is largely incorrect. First, before nationalization prices in Quebec were falling and were low by North American standards (see figures below). Second, production was expanding rapidly. This is in spite of the fact that taxes imposed on the electrical industry grew rapidly over time from less than 10% of total expenditures to close to 30%. Moreover, we point out that looking at residential prices is bound to yield bad comparisons (if we can call those made above as “bad”) if there is price discrimination. The industry price discriminated and offered incredibly low prices for industrial customers (large power) than in Ontario or anywhere else in Canada (in spite of the taxes it was operating under and the fact that Ontario subsidized its own).

We also point out that there was a dynamics of interventionism problem. The neighboring province of Ontario (more populous and richer than Quebec) nationalized its industry and set prices well below the market level which is an implicit subsidy. However, at the subsidized rate, Ontario could not supply its own demand and had to buy at the market price in Quebec. Its over-equilibrium quantity of energy demanded was transferred on the freer Quebec market, thus increasing prices on that market.

We also argue that there was wide heterogeneity of rates in Quebec that relate to the structure of municipal regulation (the level at which electricity was regulated pre-1935). The price differences depended on the political games involving rent-seeking firms and politicians (best exemplified by the case of Quebec City). Cities with high prices were places where the electrical market was heavily politicized and franchises (i.e. the contracts fixing rate schedules over long periods of time to recoup capital investment) were short and subject to holdups.

This latter point is meant for us (me and Germain) to stake a claim on future research to document the nationalization and regulation process at the municipal level and see what the effects on prices and outputs were. In a certain way, I am trying to establish a research agenda extending the skepticism of “accepted wisdom” that has emerged with the economic history of antitrust in the United States to the case of electricity trusts in Quebec. This first article is, I believe, a promising start for such an inclusion.

Figure2Electricity

Figure4Electricity

Rosenbloom on the Colonial American Economy

03/18/201803/18/2018 Vincent Geloso Economics, History American Economic History, American Revolution, Colonial America, Colonial Economic History, economic development, economic growth, economic history, Fiscal Theory of the Price Level, Joshua Rosenbloom, Monetary History, Monetary Theory, Navigation Acts, Neil Wallace, Thomas Sargent

Joshua Rosenbloom is an economic historian worth following if you are interested in American economic history during the colonial era. He has recently published what appears to be an overview article of the topic (probably for a book or an invited symposium) which perfectly summarizes the current state of the research. I believe that this should be widely read by interested parties. Here are key excerpts for some of the topics he discusses. I provide some comments to enrich his contribution, but these should be understood as complements rather than substitutes to this excellent overview of the American economy during the colonial era.

On Economic Growth

Mancall and Weiss (…) concluded that likely rates of per capita GDP growth could not have been higher than 0.1 percent per year and were likely closer to zero. In subsequent work, Mancall, Rosenbloom and Weiss (2004) and Rosenbloom and Weiss (2014) have constructed similar estimates for the colonies and states of the Lower South and the Mid-Atlantic regions, respectively. Applying the method of controlled conjectures at a regional level allowed them to incorporate additional, region-specific, evidence about agricultural productivity and exports, and reinforced the finding that there was little if any growth in GDP per capita during the eighteenth century. Lindert and Williamson (2016b) have also attempted to backcast their estimates of colonial incomes. Their estimates rely in part on the regional estimates of Mancall, Rosenbloom and Weiss, but the independent evidence they present is consistent with the view that economic growth was quite slow during the eighteenth century.

This is still a contentious point (see notably this article by McCusker), but I believe that they are correct. In my own work, using both wages and incomes, I have found similar results for Canada and Leticia Arroyo Abad and Jan Luiten Van Zanden have found something roughly similar for the Latin American economies (Mexico and Peru).

It is also consistent with even simplistic accounts of the neoclassical growth model. The New World was an economy of abundant land input whose outputs (agricultural produce) were mostly meant for local consumption. If one wanted to increase his income, all he had to do was use more inputs at really low costs. There is very little in this situation to invest in increasing total factor productivity and incomes would only increase at the dis-aggregated level (following the same region over time) as we are capturing the extent of inputs included over time (e.g. the long-settled farmer has a high income because he has had the time to build his farm, but the short-settled farmer brings the average down because he is just starting that process).

On Monetary History and Monetary Puzzles

In lieu of specie, the colonists relied heavily on barter for local exchange. In the Chesapeake transactions were often denominated in weights of tobacco. However, tobacco was not used as a medium of exchange. Rather merchants might advance credit to planters for the purchase of imported items, to be repaid at harvest with the specified quantity of tobacco. Elsewhere book credit accounts helped to facilitate transactions and reduce the need for currency. The colonists regularly complained about the shortage of specie, but as Perkins (1988, p. 165) observed, the long run history of prices does not suggest any tendency of prices to fall, as would be expected if the money supply was too small. (…) With only a few exceptions the colonies issuance of these notes did not give rise to inflationary pressures. There is by now a large literature that has analyzed the relationship between note issuance and prices, and finds little evidence of any correlation between the series (Weiss 1970, 1974; Wicker 1985; Smith 1985; Grubb 2016. As Grubb (2016) has argued, this suggests that while the circulation of bills of credit may have facilitated exchange by substituting for book credit or other forms of barter, they did not assume the role of currency.

In this, Rosenbloom summarizes a puzzle which has been the subject of debates since the 1970s (starting with West in 1978 in this Economic Inquiry article). In many instances (like South Carolina and Pennsylvania), the large issues of paper money had no measurable effect on prices. This is a puzzle given the quantity theory of the price level. The proposition to solve the puzzle is that as the paper money printed by colonies tended to be backed by future assets, they were securities that could circulate as a medium of exchange. If properly backed and redeemed, people would form expectations that these injections were temporary injections and there would be no effect on the price level all else being equal. Inflation would only occur if redemption promises were not held or were believed to be humbug. This proposition has been heavily contested given the limited information we hold for the stock of other media of exchange and trade balances. I have my own take on this debate on which I weigh using a similar Canadian monetary experiment (see here), but this is a serious debate. Basically, it is a historical battleground between the proponents of the fiscal theory of the price level (see notably the classical Sargent and Wallace article) and the proponents of the quantity theory of the price level. Anyone interested in the wider macroeconomic debate should really focus on these colonial experiments because they really are the perfect testing grounds (which Rosenbloom summarizes efficiently).

On Mercantilism, the Navigation Acts and American Living Standards

The requirement that major colonial exports pass through England on their way to continental markets and that manufactures be imported from England was the equivalent of imposing a tax on this trade. The resulting price wedge reduced the volume of trade and shifted some of the producer and consumer surplus to the providers of shipping and merchant services. A number of cliometric studies have attempted to estimate the magnitude of these effects to determine whether they played a role in encouraging the movement for independence (Harper 1939; Thomas 1968; Ransom 1968; McClelland 1969). The major difference in these studies arises from different approaches to formulating a counterfactual estimate of how large trade would have been in the absence of the Navigation Acts. In general, the estimates suggest that the cost to the colonists was relatively modest, in the range of 1-3 percent of annual income. Moreover, this figure needs to be set against the benefits of membership in the empire, which included the protection the British Navy afforded colonial merchants and military protection from hostile natives and other European powers.

The Navigation Acts were often cited as a burden that the colonists despised, but many economic historians have gone over their impact and they appear to have been minimal. It does not mean that they were insignificant to political events (rent-seeking coalitions tend to include small parties with intense preferences). However, it does imply that the action lies elsewhere if someone wants to explain the root causes of the revolution or that one must consider distributional effects (see notably this article here).

These are the sections that I found the most interesting (as they relate to some of my research agendas), but the entire article provides an effective summary for anyone interested in initiating research on the topic of American economic history during the colonial era. I really recommend reading it even if all that you seek is an overview for general culture.

On demography and living standards in the colonial era

03/10/2018 Vincent Geloso Economics, History Canada, colonial period, demographics, demography, economic development, economic history, France, heights, infant mortality, Jeffrey Williamson, mortality, new England, Peter Lindert, Quebec, United States

This is a topic that has been bugging me. Very often, historians will (accurately) point out mortality statistics in the United States, Canada (Quebec) and the Latin America during the colonial era were better than in the comparable Old World (comparing French with French, British with British, Spanish with Spanish). However, they will argue that this is evidence that living standards were higher. This is where I wish to make an important nuance.

Settlement colonies (so, here there is a bigger focus on North America, but it applies to smaller extent to Latin America which I am more tempt to label as extractive – see here) are generally frontier economies. This means that they are small economies because of small populations. This means that labor and capital are scarce relative to land. All outputs that come from the relatively abundant factor will thus tend to be cheaper if there is little international trade for the goods that they are best at producing. The colonial period pretty much fits that bill. The American and Canadian colonies were basically agricultural colonies, but very few of those agricultural outputs actually crossed the Atlantic. As such, agricultural produces were cheap. This is akin to saying that nutrition was cheap.

This, by definition, will give settlement colonies an advantage in terms of biological living standards. As they are not international price takers, wheat is cheaper than in the old world. This is why James Lemon spoke of the New World as the “Best poor man’s country” (I love that expression) : it was easy to earn subsistence. However, beyond that it is very hard to go beyond. For example, in my dissertation (articles still in consideration at Cliometrica and Canadian Journal of Economics) I found that when wages were deflated by a subsistence basket containing very few services and manufactured goods and which relied heavily on untransformed foods, Canada was richer than the richest city of France. Once you shifted to a basket that marginally increased transformed goods and manufactured goods, the advantage was wiped away.

Yet, everything indicates that mortality rates were greater in Paris and France and than in Quebec City and Quebec as a whole (but not by a lot) (see images below). Similar gaps seem to exist for the United States relative to Britain, but the data is not as rich as for Quebec. However, the data that exists for New England suggests that death rates were lower than in England but the “bare bones” real incomes measured by Lindert and Williamson show that New England may have been poorer than Great Britain (not by much though).

Crude Death Rates

IMR

I am not saying that demographic and biological data is worthless. Quite the contrary (even I wanted to, I could not since I have a paper on the heights of French-Canadians from 1780 to 1830)! The point is that data matters in context. The world is full of small non-linearities between variables. While “good” demographic outcomes are generally tracking “good” economic outcomes, there are contexts where this may be a weaker relation (curvilinear relations between variables). I think that this is a good example of that point.

How poor was 18th century France? Steps towards testing the High-Wage Hypothesis (HWE)

03/08/201803/08/2018 Vincent Geloso History economic growth, economic history, France, French Economic History, Industrial Revolution, Journal of Interdisciplinary History, Judy Stephenson, labor markets, Robert Allen, wages

A few days ago, one of my articles came online at the Journal of Interdisciplinary History. It is a research note, but as far as notes go this one is (I think) an important step forwards with regards to the High-Wage Hypothesis (henceforth HWE for high-wage economy) of industrialization.

In the past, I explained my outlook on this theory which proposes that high wages relative to energy was a key driver of industrialization. As wages were high while energy was cheap, firms had incentives to innovate and develop labor-saving technologies. I argued that I was not convinced by the proposition because there were missing elements to properly test its validity. In that post I argued that to answer why the industrial revolution was British we had to ask why it was not French (a likely competitor). For the HWE to be a valid proposition, wages had to be higher in England than in France by a substantial margin. This is why I have been interested in living standards in France.

In his work, Robert Allen showed that Paris was the richest city in France (something confirmed by Phil Hoffman in his own work). It was also poorer than London (and other British cities). The other cities of France were far behind. In fact, by the 18th century, Allen’s work suggests that Strasbourg (the other city for which he had data) was one of the poorest in Europe.

In the process of assembling comparisons between Canada and France during the colonial era (from the late 17th to the mid-18th centuries), I went to the original sources that Allen used and found that the level of living standards is understated. First, I found out that the wages were not for Strasbourg per se. They applied to a semi-rural community roughly 70km away from Strasbourg. Urban wages and rural wages tend to differ massively and so they were bound to show lower living standards. Moreover, the prices Allen used for his basket applied to urban settings. This means that the wages used were not comparable to the other cities used. I also found out that the type of work that was reported in the sources may not have belonged to unskilled workers but rather to semi-skilled or even skilled workers and that the wages probably included substantial in-kind payments.

Unfortunately, I could not find a direct solution to correct the series proposed by Allen. However, there were two ways to circumvent the issue. The most convincing of those two methods relies on using the reported wages for agricultural workers. While this breaks with the convention established by Allen (a justifiable convention in my opinion) of using urban wages and prices, it is not a problem if we compare with similar types of wage work. We do have similar data to compare with in the form of Gregory Clark’s farm wages in England. The wage rates computed by Allen placed Strasbourg at 64% of the level of wages for agricultural workers in England between 1702 and 1775. In comparison, the lowest of the agricultural wage rates for the Alsatian region places the ratio at 74%. The other wage rates are much closer to wages in England. The less convincing methods relies on semi-skilled construction workers – which is not ideal. However, when these are compared to English wages, they are also substantially higher.

Overall, my research note attempts a modest contribution: properly measure the extent to which wages were lower in France than in Britain. I am not trying to solve the HWE debate with this. However, it does come one step closer to providing the information to do so. Now that we know that the rest of France was not as poor as believed (something which is confirmed by the recent works of Leonardo Ridolfi and Judy Stephenson), we can more readily assess if the gap was “big enough” to matter. If it was not big enough to matter, then we have to move to one of the other five channels that could confirm the HWE (at least that means I have more papers to write).

On Antitrust, the Sherman Act and Accepted Wisdom

02/23/201802/23/2018 Vincent Geloso Economics, History, Law antitrust, competition, economic history, John Sherman, Patrick Newman

I am generally skeptical of “accepted wisdom” on many policy debates. People involved in policy-making are generally politicians who carefully craft justifications (i.e. cover stories) where self-interest and common good cannot be disentangled easily. These justifications can easily become “accepted wisdom” even if incorrect. I am not saying that “accepted wisdom” is without value or that it is always wrong, but more often than not it is accepted at face value without question.

My favorite example is “antitrust”. In the United States, the Sherman Act (the antitrust bill) was first introduced in 1889 (passed in 1890). The justification often given is that it was meant to promote competition as proposed by economists. However, as often pointed out, the bill was passed well before the topic of competition in economics had been unified into a theoretical body. It was also rooted in protectionist motives. Moreover, the bill was passed after the industries most affected saw prices fall faster than the overall price level and output increase faster than the overall output level (see here here here here and here). Combined, these elements should give pause to anyone willing to cite the “accepted wisdom”.

More recently, economist Patrick Newman provided further reason for caution in an article in Public Choice. Interweaving political history and the biographical details about senator John Sherman (he of the Sherman Act), Newman tells a fascinating story about the self-interested reasons behind the introduction of the act.

In 1888, John Sherman failed to obtain the Republican presidential nomination – a failure which he blamed on the governor of Michigan, Russell Alger. Out of malice and a desire of vengeance, Sherman defended his proposal by citing Alger as the ringmaster of one of the “trusts”. Alger, himself a presidential hopeful for the 1892 cycle, was politically crippled by the attack (even if it appears that it was untrue). Obviously, this was not the sole reason for the Act (Newman highlights the nature of the Republican coalition which would have demanded such an act). However, once Alger was fatally wounded, Sherman appears to have lost interest in the Act and left others to push it through.

As such, the passage of the bill was partly motivated by political self-interest (thus illustrating the key point of behavioral symmetry that underlies public choice theory). Entangled in the “accepted wisdom” is a wicked tale of revenge between politicians. At such sight, it is hard not to be cautions with regards to “accepted wisdom”.

Prices in Canada since 1688

02/09/2018 Vincent Geloso Economics, History Canada, Canadian Journal of Economics, economic history, History, price history, Price Index, price theory

A few days ago, I received goods news that the Canadian Journal of Economics had accepted my paper that constructed a consumer price index for Canada between 1688 and 1850 from homogeneous sources (the account books of religious congregations). I have to format the article to the guidelines of the journal and attach all my data and it will be good to go (I am planning on doing this over the weekend). In the meanwhile, I thought I would share the finalized price index so that others can see it.

First, we have the price index that focuses on the period from 1688 to 1850. Most indexes that exist for pre-1850 Canada (or Quebec since I assume that Quebec is representative of pre-1850 Canadian price trends) are short-term, include mostly agricultural goods and have no expenditures weights to create a basket. Now, my index is the first that uses the same type of sources continuously over such a long period and it is also the first to use a large array of non-agricultural goods. It also has a weights scheme to create a basket.

PriceIndexCanada

The issue of adding non-agricultural goods was especially important because there were important differences in the evolution of different types of goods. Agricultural goods, see next image, saw their nominal prices continually increase between the 17th and 19th centuries. However, most other prices – imported goods, domestically produced manufactured goods etc. – either fall or remain stable. These are very pronounced changes in relative prices. It shows that reliance on agricultural goods price index will overstate the amount of “deflating” needed to arrive at real wages or incomes. The image below shows the nominal price evolution of groupings of goods as described above.

PriceIndexCanada2

And finally, the pièce de résistance! I link my own index to other existing post-1850 index so as to generate the evolution of prices in Canada since 1688. The figure below shows the evolution of the price index over … 328 years (I ended the series at 2015, but extra years forward can be added). In the years to come, I will probably try to extend this backwards as much as possible at least to 1665 (the first census in Canada) and will probably try to approach Statistics Canada to see if they would like to incorporate this contribution into their wide database of macroeconomic history of Canada.

PriceIndexCanada3

The best economic history papers of 2017

02/06/201802/07/2018 Vincent Geloso Economics, History Antebellum puzzle, best articles, book industry, economic development, economic history, Economics and Human Biology, European Review of Economic History, Explorations in Economic History, France, French history, governing the commons, innovation, Journal of Economic History, Malthusian pressures

As we are now solidly into 2018, I thought that it would be a good idea to underline the best articles in economic history that I read in 2017. Obviously, the “best” is subjective to my preferences. Nevertheless, it is a worthy exercise in order to expose some important pieces of research to a wider audience. I limited myself to five articles (I will do my top three books in a few weeks). However, if there is an interest in the present post I will publish a follow-up with another five articles.

O’Grady, Trevor, and Claudio Tagliapietra. “Biological welfare and the commons: A natural experiment in the Alps, 1765–1845.” Economics & Human Biology 27 (2017): 137-153.

This one is by far my favorite article of 2017. I stumbled upon it quite by accident. Had this article been published six or eight months earlier, I would never have been able to fully appreciate its contribution. Basically, the authors use the shocks induced by the wars of the late 18th century and early 19th century to study a shift from “self-governance” to “centralized governance” of common pool resources. When they speak of “commons” problems, they really mean “commons” as the communities they study were largely pastoral communities with area in commons. Using a difference-in-difference where the treatment is when a region became “centrally governed” (i.e. when organic local institutions were swept aside), they test the impact of these top-down changes to institutions on biological welfare (as proxied by infant mortality rates). They find that these replacements worsened outcomes.

Now, this paper is fascinating for two reasons. First, the authors offer a clear exposition of its methodology and approach. They give just the perfect amount of institutional details to assuage doubts. Second, this is a strong illustration of the points made by Elinor Ostrom and Vernon Smith. These two economists emphasize different aspects of the same thing. Smith highlights that “rationality” is “ecological” in the sense that it is an iterative process of information discovery to improve outcomes. This includes the generation of “rules of the game” which are meant to sustain exchanges. These rules need not be formal edifices. They can be norms, customs, mores and habits (generally supported by the discipline of continuous dealings and/or investments in social-distance mechanisms). On her part, Ostrom emphasized that the tragedy of the commons can be resolved through multiple mechanisms (what she calls polycentric governance) in ways that do not necessarily require a centralized approach (or even market-based approaches).

In the logic of these two authors, attempts at “imposing” a more “rational” order (from the perspective of the planner of this order) may backfire. This is why Smith often emphasizes the organic nature of things like property rights. It also shows that behind seemingly “dumb” peasants, there is often the weight of long periods of experimentation in order to adapt rules and norms in order to fit the constraints faced by the community. In this article, we can see those two things – the backfiring and, by logical implication, the strengths of the organic institutions that were swept away.

Fielding, David, and Shef Rogers. “Monopoly power in the eighteenth-century British book trade.” European Review of Economic History 21, no. 4 (2017): 393-413.

In this article, the authors use a legal change caused by the end of the legal privileges of the Stationers’ Company (which amounted to an easing of copyright laws). The market for books may appear to be “non-interesting” for mainstream economics. However, this would be a dramatic error. The “abundance” of books is really a recent development. Bear in mind that the most erudite monk of the late middle ages had less than fifty books from which to draw knowledge (this fact is a vague recollection of mine from Kenneth Clark’s art history documentary from the late 1960s which was aired by the BBC). Thus, the emergence of a wide market for books – which is dated within the period studied by the authors of this article – should not be ignored. It should be considered as one of the most important development in western history. This is best put by the authors when they say that “the reform of copyright law has been regarded as one of the driving forces behind the rise in book production during the Enlightenment, and therefore a key factor in the dissemination of the innovations that underpinned Britain’s Industrial Revolution”.

However, while they agree that the rising popularity of books in the 18th century is an important historical event, they contest the idea that liberalization had any effect. They find that the opening up of the market to competition had little effects on prices and book production. They also find that mark-ups fell but that this could not be attributed to liberalization. At first, I found these results surprising.

However, when I took the time to think about it I realized that there was no reason to be surprised. First, many changes have been heralded as crucial moments in history. More often than not, the importance of these changes has been overstated. A good example of an overstated change has been the abolition of the Corn Laws in England in the 1840s. The reduction in tariffs, it is argued, ushered Britain into an age of free trade and falling food prices.

In reality, as John Nye discusses, protectionist barriers did not fall as fast as many argued and there were reductions prior to the 1846 reform as Deirdre McCloskey pointed out. It also seems that the Corn Laws did not have substantial effects on consumption or the economy as a whole (see here and here). While their abolition probably helped increase living standards, it seems that the significance of the moment is overstated. The same thing is probably at play with the book market.

The changes discussed by Fielding and Rogers did not address the underlying roots of the level of market power enjoyed by industry players. In other words, it could be that the reform was too modest to have an effect. This is suggested by the work of Petra Moser. The reform studied by Fielding and and Rogers appears to have been short-lived as evidenced by changes to copyright laws in the early 19th century (see here and here). Moser’s results point to effects much larger (and positive for consumers) than those of Fielding and Rogers. Given the importance of the book market to stories of innovation in the industrial revolution, I really hope that this sparks a debate between Moser and Fielding and Rogers.

Johnson, Noel D., and Mark Koyama. “States and economic growth: Capacity and constraints.” Explorations in Economic History 64 (2017): 1-20.

I am biased as I am fond of most of the work of these two authors. Nevertheless, I think that their contribution to the state capacity debate is a much needed one. I am very skeptical of the theoretical value of the concept of state capacity. The question always lurking in my mind is the “capacity to do what?”.

A ruler who can develop and use a bureaucracy to provide the services of a “productive state” (as James Buchanan would put it) is also capable of acting like a predator. I actually emphasize this point in my work (revise and resubmit at Health Policy & Planning) on Cuban healthcare: the Cuban government has the capacity to allocate large quantities of resources to healthcare in amounts well above what is observed for other countries in the same income range. Why? Largely because they use health care for a) international reputation and b) actually supervising the local population. As such, members of the regime are able to sustain their role even if the high level of “capacity” comes at the expense of living standards in dimensions other than health (e.g. low incomes). Capacity is not the issue, its capacity interacting with constraints that is interesting.

And that is exactly what Koyama and Johnson say (not in the same words). They summarize a wide body of literature in a cogent manner that clarifies the concept of state capacity and its limitations. In doing so, they ended up proposing that the “deep roots” question that should interest economic historians is how “constraints” came to be efficient at generating “strong but limited” states.

In that regard, the one thing that surprised me from their article was the absence of Elinor Ostrom’s work. When I read about “polycentric governance” (Ostrom’s core concept), I imagine the overlap of different institutional structures that reinforce each other (note: these structures need not be formal ones). They are governance providers. If these “governance providers” have residual claimants (i.e. people with skin in the game), they have incentives to provide governance in ways that increased the returns to the realms they governed. Attempts to supersede these institutions (e.g. like the erection of a modern nation state) requires dealing with these providers. They are the main demanders of constraints which are necessary to protect their assets (what my friend Alex Salter calls “rights to the realm“). As Europe pre-1500 was a mosaic of such governance providers, there would have been great forces pushing for constraints (i.e. bargaining over constraints).

I think that this is where the literature on state capacity should orient itself. It is in that direction that it is the most likely to bear fruits. In fact, there have been some steps taken in that direction For example, my colleagues Andrew Young and Alex Salter have applied this “polycentric” narrative to explain the emergence of “strong but limited states” by focusing on late medieval institutions (see here and here). Their approach seems promising. Yet, the work of Koyama and Johnson have actually created the room for such contributions by efficiently summarizing a complex (and sometimes contradictory) literature.

Bodenhorn, Howard, Timothy W. Guinnane, and Thomas A. Mroz. “Sample-selection biases and the industrialization puzzle.” The Journal of Economic History 77, no. 1 (2017): 171-207.

Elsewhere, I have peripherally engaged discussants in the “antebellum puzzle” (see my article here in Economics & Human Biology on the heights of French-Canadians born between 1780 and 1830). The antebellum puzzle refers to the possibility that the biological standard of living (e.g. falling heights, worsening nutrition, increased mortality risks) fell while the material standard of living increased (e.g. higher wages, higher incomes, access to more services, access to a wider array of goods) during the decades leading to the American Civil War.

I am inclined to accept the idea of short-term paradoxes in living standards. The early 19th century witnessed a reversal in rural-urban concentration in the United States. The country had been “deurbanizing” since the colonial era (i.e. cities represented an increasingly smaller share of the population). As such, the reversal implied a shock in cities whose institutions were geared to deal with slowly increasing populations.

The influx of people in cities created problems of public health while the higher level of population density favored the propagation of infectious diseases at a time where our understanding of germ theory was nill. One good example of the problems posed by this rapid change has been provided by Gergely Baics in his work on the public markets of New York and their regulation (see his book here – a must read). In that situation, I am not surprised that there was a deterioration in the biological standard of living. What I see is that people chose to trade-off shorter wealthier lives against longer poorer lives. A pretty legitimate (albeit depressing) choice if you ask me.

However, Bodenhorn et al. (2017) will have none of it. In a convincing article that has shaken my priors, they argue that there is a selection bias in the heights data – the main measurement used in the antebellum puzzle debate. Most of the data on heights comes either from prisoners or enrolled volunteer soldiers (note: conscripts would not generate the problem they describe). The argument they make is that as incomes grow, the opportunity cost of committing a crime or of joining the army grows. This creates the selection bias whereby the sample is going to be increasingly composed of those with the lowest opportunity costs. In other words, we are speaking of the poorest in society who also tended to be shorter. Simultaneously, fewer tall individuals (i.e. rich individuals) committed crimes or joined the army because incomes grew. This logic is simple and elegant. In fact, this is the kind of data problem that every economist should care about when they design their tests.

Once they control for this problem (through a meta-analysis), the puzzle disappears. I am not convinced by the latter part of the claim. Nevertheless, it is very likely that the puzzle is much smaller than initially gleaned. In yet to be published work, Ariell Zimran (see here and here) argues that the antebellum puzzle is robust to the problem of selection bias but that it is indeed diminished. This concedes a large share of the argument to Bodenhorn et al. While there is much to resolve, this article should be read as it constitutes one of the most serious contributions to the field of economic history published in 2017.

Ridolfi, Leonardo. “The French economy in the longue durée: a study on real wages, working days and economic performance from Louis IX to the Revolution (1250–1789).” European Review of Economic History 21, no. 4 (2017): 437-438.

I discussed Leonardo’s work elsewhere on this blog before. However, I must do it again. The article mentioned here is the dissertation summary that resulted from Leonardo being a finalist to the best dissertation award granted by the EHES (full dissertation here). As such, it is not exactly the “best article” published in 2017. Nevertheless, it makes the list because of the possibilities that Leonardo’s work have unlocked.

When we discuss the origins of the British Industrial Revolution, the implicit question lurking not far away is “Why Did It Not Happen in France?”. The problem with that question is that the data available for France (see notably my forthcoming work in the Journal of Interdisciplinary History) is in no way comparable with what exists for Britain (which does not mean that the British data is of great quality as Judy Stephenson and Jane Humphries would point out). Most estimates of the French economy pre-1790 were either conjectural or required a wide array of theoretical considerations to arrive at a deductive portrait of the situation (see notably the excellent work of Phil Hoffman). As such, comparisons in order to tease out improvements to our understanding of the industrial revolution are hard to accomplish.

For me, the absence of rich data for France was particularly infuriating. One of my main argument is that the key to explaining divergence within the Americas (from the colonial period onwards) resides not in the British or Spanish Empires but in the variation that the French Empire and its colonies provide. After all, the French colony of Quebec had a lot in common geographically with New England but the institutional differences were nearly as wide as those between New England and the Spanish colonies in Latin America. As such, as I spent years assembling data for Canada to document living standards in order to eventually lay down the grounds to test the role of institutions, I was infuriated that I could do so little to compare with France. Little did I know that while I was doing my own work, Leonardo was plugging this massive hole in our knowledge.

Leonardo shows that while living standards in France increased from 1550 onward, the level was far below the ones found in other European countries. He also showed that real wages stagnated in France which means that the only reason behind increased incomes was a longer work year. This work has also unlocked numerous other possibilities. For example, it will be possible to extend to France the work of Nicolini and Crafts and Mills regarding the existence of Malthusian pressures. This is probably one of the greatest contribution of the decade to the field of economic history because it simply went through the dirty work of assembling data to plug what I think is the biggest hole in the field of economic history.

On the “tea saucer” of income inequality since 1917

02/06/201802/05/2018 Vincent Geloso Economics, History economic history, Emmanuel Saez, income inequality, inequality, John Moore, Phil Magness, Phil Schlosser, Thomas Piketty

I disagree often with the many details that underlie the arguments of Thomas Piketty and Emmanuel Saez. That being said, I am also a great fan of their work and of them in general. In fact, I think that both have made contributions to economics that I am envious to equal. To be fair, their U-curve of inequality is pretty much a well-confirmed fact by now: everyone agrees that the period from 1890-1929 was a high-point of inequality which leveled off until the 1970s and then picked up again.

Nevertheless, while I am convinced of the curvilinear aspect of the evolution of income inequality in the United State as depicted by Piketty and Saez, I am not convinced by the amplitudes. In their 2003 article, the U-curve of inequality really looks like a “U” (see image below). Since that article, many scholars have investigated the extent of the increase in inequality post-1980 (circa). Many have attenuated the increase, but they still find an increase (see here here here here here here here here here). The problem is that everyone has been considering the increase – i.e. the right side of the U-curve. Little attention has been devoted to the left side of the U-curve even though that is where data problems should be considered more carefully for the generation of a stylized fact. This is the contribution I have been coordinating and working on for the last few months alongside John Moore, Phil Magness and Phil Schlosser.

Blog Figure

To arrive at their proposed series of inequality, Piketty and Saez used the IRS Statistics of Income (SOI) to derive top income fractiles. However, the IRS SOI have many problems. The first is that between 1917 and 1943, there are many years where there are less than 10% of the potential tax population that files a tax return. This prohibits the use of a top 10% income share in many years unless an adjustment is made. The second is that prior to 1943, the IRS reports net income and reports adjusted gross income after 1943. As such, to link post-1943 with pre-1943, there needs to be an additional adjustment. Piketty and Saez made some seemingly reasonable assumptions, but they have never been put to the test regarding sensitivity and robustness. This is leaving aside issues of data quality (I am not convinced IRS data is very good as most of it was self-reported pre-1943 which is a period with wildly varying tax rates). The question here is “how good” are the assumptions?

What we did is verify each assumption to see their validity. The first one we tackle is the adjustment for the low number of returns. To make their adjustments, Piketty and Saez used the fact that single households and married households filed in different quantities relative to their total population. Their idea is that a year in which there was a large number of return was used, the ratio of single to married could be used to adjust the series. The year they used is 1942. This is problematic as 1942 is a war year with self-reporting when large quantities of young American males are abroad fighting. Using 1941, the last US peace year, instead shows dramatically different ratios. Using these ratios knocks off a few points from the top 10% income share. Why did they use 1942? Their argument was there was simply not enough data to make the correction in 1941. They point to a special tabulation in the 1941 IRS-SOI of 112,472 1040A forms from six states which was not deemed sufficient to make to make the corrections. However, later in the same document, there is a larger and sufficient sample of 516,000 returns from all 64 IRS collection districts (roughly 5% of all forms). By comparison, the 1942 sample Piketty and Saez used to correct only had 455,000 returns. Given the war year and the sample size, we believe that 1941 is a better year to make the adjustment.

Second, we also questioned the smoothing method to link net income-based series with adjusted-gross income based series (i.e. pre-1943 and post-1943 series). The reason for this is that the implied adjustment for deductions made by Piketty and Saez is actually larger than all the deductions claimed that were eligible under the definition of Adjusted Gross Income – which is a sign of overshot on their parts. Using the limited data available for deductions by income groups and making some assumptions (very conservative ones) to move further back in time, we found that adjusting for “actual deductions” yields a lower level of inequality. This is contrasted with the fixed multipliers which Piketty and Saez used pre-1943.

Third, we question their justification for not using the Kuznets income denominator. They argued that Kuznets’ series yielded an implausible figure because, in 1948, its use yielded a greater income for non-fillers than for fillers. However, this is not true of all years. In fact, it is only true after 1943. Before 1943, the income of non-fillers is equal in proportion to the one they use post-1944 to impute the income of non-fillers. This is largely the result of an accounting error definition. Incomes before 1943 were reported as net income and as gross incomes after that point. This is important because the stylized fact of a pronounced U-curve is heavily sensitive to the assumption made regarding the denominator.

These three adjustments are pretty important in terms of overall results (see image below). The pale blue line is that of Piketty of Saez as depicted in their 2003 paper in the Quarterly Journal of Economics. The other blue line just below it is the effect of deductions only (the adjustment for missing returns affects only the top 10% income share). All the other lines that mirror these two just below (with the exception of the darkest blue line which is the original Kuznets inequality estimates) compound our corrections with three potential corrections for the denominators. The U-curve still exists, but it is not as pronounced. When you look with the adjustments made by Mechling et al. (2017) and Auten and Splinter (2017) for the post-1960 period (green and red lines) and link them with ours, you can still see the curvilinear shape but it looks more like a “tea saucer” than a pronounced U-curve.

In a way, I see this as a simultaneous complement to the work of Richard Sutch and to the work of Piketty and Saez: the U-curve still exists, but the timing and pattern is slightly more representative of history. This was a long paper to write (and it is a dry read given the amount of methodological discussions), but it was worth it in order to improve upon the state of our knowledge.

FigureInequality

On Ronald Coase as an Economic Historian?

02/05/201802/05/2018 Vincent Geloso Economics, History economic history, Ronald Coase

Can we consider Ronald Coase as an economic historian? Most economists or social scientists that read this blog must appreciate Coase largely for his Nature of the Firm and the Problem of Social Cost. Personally, while I appreciate these works for their theoretical insights (well, isn’t that an understatement!), I appreciate Coase much more for articles that very few know about.

Generally, after these two articles, most economists do not know what Coase wrote about. Some might know about Coase’s proviso regarding durability and monopoly (a single firm producing a durable good cannot be a monopoly because it competes with its future self) or about his work on the Federal Communications Commission (which is an application of his two main papers).

Fewer people know about his piece about the lighthouse in economics. While it is not an unknown piece, it is mostly known within the subfield of public economics as it concerns the scope for the private provision of public goods. Generally, I found that those who know about the piece know the “takeaway” which was that lighthouses (which because of their low marginal costs and non-excludability have been deemed public goods ever since J.S. Mill) could be produced privately. While this was indeed Coase’s point, this summary (like that Stigler made of the Coase Theorem) misses the peripheral insights that matter. Coase did the economic history job of documenting the institutional details behind the provision of lighthouses which sparked debates in journals such as Journal of Legal Studies, Cambridge Journal of Economics, European Review of Economic History, Public Choice and Public Finance Review (they still go to this day and I am trying to contribute to that with this piece that me and Rosolino Candela have recently submitted). It seems unclear whether or not the lighthouse can even be considered a public good or if it was merely an instance of government failure rather than market failure (or the reverse). Regardless of the outcome, if you read the lighthouse paper by Coase, you will read an application of theory to history bringing a “boring” topic (i.e. that of maritime safety pre-1900) to life through theory. The lighthouse paper is an application of industrial organization through the Coasean lenses of transaction costs and joint provision. And it is a fine application if I might say!

But that is not his only piece! Has anyone ever read his article in the Journal of Law & Economics on Fisher Body and vertical integration? Or his piece on the British Post Office and private messengers in the same journal? In those articles, Coase brings theory to life by asking simple questions to history in ways that force us to question some common day conceptions like “vertical integration was the results of holdup problems” or “postal services need to be publicly provided”. In both of these articles and the lighthouse article, Coase basically applies simple theoretical tools to cut through a maze of details in order to answer questions of great relevance to economic theory and even policy (i.e. the post office example). And this is why, earlier in 2017, I mentioned that Coase should be considered in the league of the top economic historians.

On the popularity of economic history

02/03/201802/04/2018 Vincent Geloso Books, Culture, Economics Canada, Canadian History, colonialism, Daron Acemoglu, Deirdre McCloskey, Douglass North, economic development, economic history, History, Leah Boustan, Petra Moser, Robert Fogel

I recently engaged in a discussion (a twittercussion) with Leah Boustan of Princeton over the “popularity” of economic history within economics (depicted below). As one can see from the purple section, it is as popular as those hard candies that grandparents give out on Halloween (to be fair, I like those candies just like I do economic history). More importantly, the share seems to be smaller than at the peak of 1980s. It also seems like the Nobel prize going to Fogel and North had literally no effects on the subfield’s popularity. Yet, I keep hearing that “economic history is back”. After all, the Bates Clark medal went to Donaldson of Stanford this year which should confirm that economic history is a big deal. How can this be reconciled with the figure depicted below?

EconomicHIstoryData

As I explained in my twittercussion with Leah, I think that there is a popularity for using historical data. Economists have realized that if some time is spent in archives to collect historical data, great datasets can be assembled. However, they do not necessarily consider themselves “economic historians” and as such they do not use the JEL code associated with history. This is an improvement over a field where Arthur Burns (former Fed Chair) supposedly said during the 1970s that we needed to look at history to better shape monetary policy. And by history, he meant the 1950s. However, while there are advantages, there is an important danger which is left aside.

The creation of a good dataset has several advantages. The main one is that it increases time coverage. By increasing the time coverage, you can “tackle” the big questions and go for the “big answers” through the generation of stylized facts. Another advantage (and this is the one that summarizes my whole approach) is that historical episodes can provide neat testing grounds that give us a window to important economic issues. My favorite example of that is the work of Petra Moser at NYU-Stern. Without going into too much details (because her work was my big discovery of 2017), she used a few historical examples which she painstakingly detailed in order to analyze the effect of copyright laws. Her results have important ramifications to debates regarding “science as a public good” and “science as a contribution good” (see the debates between Paul David and Terence Kealey on this in Research Policy for this point).

But these two advantages must be weighted against an important disadvantage which Robert Margo has warned against in a recent piece in Cliometrica. When one studies economic history, one must keep in mind that two things must be accomplished simultaneously: to explain history through theory and bring theory to life through history (this is not my phrase, but rather that of Douglass North). To do so, one must study a painstaking amount of details to ascertain the quality of the sources used and their reliability. In considering so many details, one can easily get lost or even fall prey to his own prior (i.e. I expect to see one thing and upon seeing it I ask no question). To avoid this trap, there must be a “northern star” to act as a guide. That star, as I explained in an earlier piece, is a strong and general understanding of theory (or a strong intuition for economics). To create that star and give attention to details is an incredibly hard task and which is why I argued in the past that “great” economic historians (Douglass North, Deirdre McCloskey, Robert Fogel, Nathan Rosenberg, Joel Mokyr, Ronald Coase (because of the lighthouse piece), Stephen Broadberry, Gregory Clark etc.) take a longer time to mature. In other words, good economic historians are projects that have have a long “time to build problem” (sorry, bad economics joke). However, the downside is that when this is not the case, there are risks of ending up with invalid results that are costly and hard to contest.

Just think about the debate between Daron Acemoglu and David Albouy on the colonial origins of development. It took more than five years to Albouy to get his results that threw doubts on Acemoglu’s 1999 paper. Albouy clearly expended valuable resources to get the “details” behind the variables. There was miscoding of Niger and Nigeria, and misunderstandings of what type of mortalities were used. This was hard work and it was probably only deemed a valuable undertaking because Acemoglu’s paper was such a big deal (i.e. the net gains were pretty big if they paid off). Yet, to this day, many people are entirely unaware of the Albouy rebuttal. This can be very well seen in the image below regarding the number of cites of the Acemoglu-Johnson-Robinson paper on an annual basis. There seems to be no effect from the massive rebuttal (disclaimer: Albouy convinced me that he was right) from the Albouy piece.

AcemogluPaperCites

And it really does come down to small details like those underlined by Albouy. Let me give you another example taken from my work. Within Canada, the French minority is significantly poorer than the rest of Canada. From my cliometric work, we now know that there were poorer than the rest of Canada and North America as far as the colonial era. This is a stylized fact underlying a crucial question today (i.e. Why are French-Canadians relatively poor). That stylized fact requires an explanation. Obviously, institutions are a great place to look. One of the institution that is most interesting is seigneurial tenure which was basically a “lite” version of feudalism in North America that was present only in the French settled colonies. Some historians and economic historians argued that there were no effects of the institutions on variables like farm efficiency. However, some historians noticed that in censuses the French reported different units that the English settlers within the colony of Quebec. To correct for this metrological problem, historians made county-level corrections. With those corrections, the aforementioned has no statistically significant effect on yields or output per farm. However, as I note in this piece that got a revise and resubmit from Social Science Quarterly (revised version not yet online), county-level corrections mask the fact that the French were more willing to move to predominantly English areas than the English were willing to predominantly French areas. In short, there was a skewed distribution. However, once you correct the data on an ethnic composition basis rather than on the county-level (i.e. the same correction for the whole county), you end with a statistically significant negative effect on both output per farm and yields per acre. In short, we were “measuring away” the effect of institutions. All from a very small detail about distributions. Yet, that small detail has supported a stylized fact that the institution did not matter.

This is the risk that Margo speaks about illustrated in two examples. Economists who use history merely as a tool may end up making dramatic mistakes that will lead to incorrect conclusions. I take this “juicy” quote from Margo (which Pseudoerasmus) highlighted for me:

[EH] could become subsumed entirely into other fields… the demand for specialists in economic history might dry up, to the point where obscure but critical knowledge becomes difficult to access or is even lost. In this case, it becomes harder to ‘get the history right’

Indeed, unfortunately.

2017: Year in Review

12/31/2017 Brandon Christensen History, Links Brazil, Brexit, costs, economic history, editorial duties, free speech, legal theory, minimum wage, Ottoman Empire, populism, prices, Protestant Reformation, public choice theory, scientific method, secession, state-building, strategy, the Netherlands, Turkey, Vincent Geloso, warfare

Well folks, another year has come and gone. 2017 was Notes On Liberty‘s busiest year yet. Traffic came from all over the place, with the most visits coming from the US, the UK, Canada, Australia, and India. (In the past, India and Germany have vied for that coveted 5th place spot, but this year India blew Germany out of the water.)

NOL is a voluntary cooperative, and as such this year saw the introduction of 6 new Notewriters: Kevin Kallmes, Nicolás Cachanosky, Ash Navabi, Tridivesh Maini, Matthew Bonick and Trent MacDonald.

Michelangelo invited Kevin to join, Nicolás is an old grad school buddy of Rick‘s, I reached out to Tridivesh, and Ash and Matthew were invited on Vincent‘s initiative.

Speaking of Vincent, 2017 was his year. He had Tyler Cowen (MarginalRevolution), Mark Thoma (Economist’s View), Anthony Mills (RealClearPolicy), Barry Ritholtz (Bloomberg), Don Boudreaux (Cafe Hayek), John Tamny (RealClearMarkets) and Pseudoerasmus (a well-regarded economic historian) all link to his thoughts multiple times over the course of the year. His Top 10 list for best papers/books in recent economic history (Part 1 and Part 2) were legitimate viral sensations, dominating the top 2 spots on NOL‘s most-read list. Other huge posts included “Did the 30 Glorious Years Actually Exist? (#5),” “The Pox of Liberty – dixit the Political Economy of Public Health (#9),” “James Buchanan on racism,” “The GDP, real wages and working hours of France since the 13th century,” “Did 89% of American Millionaires Disappear During the Great Depression?,” and “A hidden cost of the war on drugs.” My personal favorite was his “Star Trek Did More For the Cultural Advancement of Women Than Government Policies.” Dr Geloso’s thoughts made up 40% of NOL‘s 10 most-read 2017 posts.

My favorite posts from Edwin this year were his analyses of Dutch politics – “Dutch politics, after the elections” and “North Korea at the North Sea?” – but the reading public seemed to enjoy his posts on Ayn Rand, especially her thought on international relations, and his summary of Mont Pelerin Europe more than anything else. Van de Haar’s day job is in the private sector, so his blogging is understandably light (especially given his incredible publishing output in academic journals). I look forward to what looms ahead in 2018.

Federico’s most recent post on artificial intelligence and the law got love from some major outlets, including FT‘s Alphaville blog and 3 Quarks Daily. His question “Does business success make a good statesmen?” and his report on a Latin American Liberty summit are worth reading again, but my personal favorites were his comments on other Notewriters’ thoughts: first jumping in to add some historical clarity to Bruno’s post on Latin American conservatism and then to add layers onto the debate between Mark and Bruno on the Protestant Reformation. Federico has been invaluable to NOL‘s welcoming, skeptical culture and I cannot wait to see what he comes up with in 2018.

Barry was generous enough recount the situation in Turkey after the coup earlier in the year, and fruits of this endeavor – Coup and Counter Coup in Turkey – can be found in six parts:

“First of a series of posts on Turkey since 15th July 2016 and background topics“
“Immediately after the coup and party politics“
“Gülenists and Kemalists“
“The Kurdish issue in Turkey“
“Jacobins and Grey Wolves in Turkey“
“Presidential Authoritarianism in Turkey“

Dr Stocker also began writing an appendix to his six-part series, which resulted in a first post on authoritarianism and electoral fixes. Barry is hard at work on a new book, and of course the situation in Turkey is less than ideal, so I can only hope he has a bit more time in 2018 for NOL.

Michelangelo had a banner year at NOL. His #microblogging has been fun, as were his post analyzing relevant data from his surveys: What libertarians think of climate change, for example, or urban planning in Oregon. Michelangelo also utilized NOL to play around with concepts like race, marriage markets, data, Spanish language services, affirmative action, and freeware, to name a few. My absolute favorite Michelangelo post this year was his excellent “Should we tax churches? A Georgist proposal.” Michelangelo is a PhD candidate right now, too, so if he ever gets some time to himself, watch out world!

Rick also had a banner year at NOL. His post arguing against Net Neutrality was one of the most-read articles of the year here (#4), and many of his wonkier thoughts have been picked up by the sharp eye of Anthony Mills (RealClearPolicy) and the excellent Chris Dillow (Stumbling and Mumbling). Rick is my favorite blogger. Posts on cycling in Amsterdam, subsidies, management and measurement, linguistics, more subsidies, and my personal favorite of his for the year, “Why do we teach girls that it’s cute to be scared,” always make me think and, more importantly, smile.

Bruno’s blogging was also amply rewarded this year. His thoughts on some of the problems with postmodernism brought in the most eyeballs, but thankfully he didn’t stop there: Articles introducing postmodernism and highlighting the origins of postmodernism also generated much interest. RealClearWorld picked up his post analyzing Brazil post-Rousseff (he had more analysis of Brazilian politics here and here), and his post delving into whether Nazism is of the left or the right provoked quite the dialogue. Dr Rosi was at his best, though, when prompted by Mark to further advance his argument that the Protestant Revolution played an integral role in the rise of the freedom of conscience. Times are tough in Brazil right now, so I can only hope that Bruno continues to play a vital role as a Notewriter in 2018.

Chhay Lin, now in the private sector, had his post about Bruce Lee’s application of Taoist philosophy head to the top of reddit’s philosophy sub, and his post on Catalonia and secession got love from RealClearWorld and Lew Rockwell (Political Theater). I hate to be *that* guy distracting a man from making his money, but I hope to see Chhay Lin pop in at NOL much more often in 2018!

Zak has been busy with a number of different projects, as well as attending Michigan-Ann Arbor full-time. He still managed to have one of his posts, on “libertarian” activist hypocrisy (#10), highlighted in the Guardian, the UK’s premier left-wing mouthpiece. His post on The Nancy MacLean Disgrace earned him plaudits from the online libertarian community and Don Boudreaux (Cafe Hayek), and his posts on open borders and income inequality show just how much of a bad ass he has become. I had a tough time trying to pick out my favorite Zak article of 2017, so I’m just gonna highlight all three of them:

They’ve all got great self-explanatory titles, so do yourself a favor and read ’em again! Hopefully Zak can continue to work NOL in to his many successful ventures in 2018.

Jacques continues to amaze me. He’s been retired from academia for – as far as I can tell – at least a decade and he’s still producing great material that’s able to reach all sorts of people and places. His post on the Ottoman Empire and libertarianism (#6), which was featured at RealClearWorld and much-shared in Ottomanist corners of Twitter – took aim at popular American libertarian understandings of decentralization and seems to have landed pretty squarely on target. My favorite post of Dr Delacroix’ this year was about French Africa (also featured at RealClearWorld), but his late-year book review on Christopher De Bellaigue’s 2017 book about Islam might end up being a classic.

Bill’s 2017 here at NOL was productive and he continues to impress. His “Speech in academic philosophy: Rebecca Tuvel on Rachel Dolezal” brought in thousands of readers, but it was not his ability to draw crowds that I found impressive. His ability to tackle tough concepts and tough issues came to the forefront this year: drug use, “vulvæ,” more drug use, party culture (my personal fave), schooling (another personal fave), more schooling, and music (personal fave). Bill’s ability to weave these trends together through the lens of individual freedom is so much fun to read and important for fostering a culture of tolerance and respect in today’s world. I can’t wait to see what 2018 has in store for him!

Nicolás came out firing on all cylinders this year. With excellent dialogues between himself and Vincent, as well as between himself and guest blogger Derrill Watson (who I hope will be back for more in 2018), Dr Cachanosky’s passion for teaching has shown through clearly and brightly. I hope 2018 – his first full year with NOL – is filled with much more hard-hitting but insightful blogging from Nicolás.

Ash brought the heat, too. Check out the subject matter of his first few posts here at NOL: “A Right is Not an Obligation,” “Physical Goods, Immaterial Goods, and Public Goods,” “The Economics of Hard Choices,” “Markets for Secrets?,” “A Tax is Not a Price,” and “A Radical Take on Science and Religion.” Like Nicolás, Ash’s first full year at NOL is coming up, and if 2017 is any indication, readers can look forward to an interesting and engaging 2018.

Mark’s first full year here at NOL was a definite barnburner. His debate with Bruno on the Protestant Reformation (#8) brought in a bunch of eyeballs, including from RealClearHistory, while his “The Return of Cyclical Theories of History” also brought in thousands of readers, thanks in large part to Robert Cottrell’s excellent website, the Browser. Dr Koyama’s review of Aldo Schiavone’s The End of the Past also caught Mr Cottrell’s eye and the attention of his readers. Mark’s post on geopolitics and Asia’s “little divergence” is well worth reading again, too. Like Zak and Bill’s posts, I couldn’t choose just one favorite, so I give you two:

“Political Decentralization and Innovation in early modern Europe“
“Some Thoughts on State Capacity” (an especially good criticism of American libertarian understandings of the “state capacity” literature)

We’re lucky to have Mark here at NOL.

Kevin, like Ash and Nicolás, brought the ruckus for his first few posts here at NOL. Kevin’s very first post at Notes On Liberty – “Rules of Warfare in Pre-Modern Societies” (#3) – ended up on the front page of RealClearHistory while his “Paradoxical geniuses…” earned a spot on the Browser‘s prestigious reading list. Not a bad start. Kevin will be finishing up the second half of his first year of law school (at Duke), so I doubt we’ll see much of him until June or July of 2018. My personal favorite, by the way, was Kevin’s “Auftragstaktik: Decentralization in military command.” His posts on taking over Syria – Roman style, the median voter theorem, and inventions that didn’t change the world also got lots of love from around the web.

Nick’s post on public choice and Nancy MacLean (#7) earned a nod from Arnold Kling (askblog), Don Boudreaux (Cafe Hayek), Chris Dillow (Stumbling and Mumbling), Mark Thoma (Economist’s View), and pretty much the entire online libertarian community, while his post analyzing the UK’s snap election earned a spot at RealClearWorld. Dr Cowen’s thoughts on school choice and robust political economy, as well as a sociological analysis of Trump/Brexit prompted by Vincent, all garnered love from libertarians and scholars around the world. My favorite Cowen post was his question “Is persecution the purpose?”

Overall, it was a hell of a year here at Notes On Liberty. I’m really looking forward to 2018. Here’s to a happy, healthy you. Oh, and my proudest piece this year was “North Korea, the status quo, and a more liberal world.” HAPPY NEW YEAR!

On Financial Repression and ♀ Labor Supply after 1945

09/20/201709/20/2017 Vincent Geloso Economics, History #2017EHA, #EHAAM2017, Barry Eichengreen, Carmen Reinhart, economic growth, economic history, economic theory, financial repression, Michael Bordo, women labor supply

I just came back from the Economic History Association meeting in San Jose. There are so many papers that are worth mentioning (and many have got my brains going, see notably the work of Nuno Palma on monetary neutrality after the “discovery” of the New World). However, the thing that really had me thinking was the panel on which one could find Barry Eichengreen and Carmen Reinhart (who was an early echo of the keynote speech by Michael Bordo).

Here’s why : Barry Eichengreen seemed uncomfortable with the current state of affairs regarding financial regulation and pointed out that the after-war period was marked by rapid growth and strong financial regulation. Then, Reinhart and Bordo emphasized the role of financial repression in depressing growth – notably in the period praised by Eichengreen. I have priors that make more favorable to the Reinhart-Bordo position, but I can’t really deny the point made by Eichengreen.

This had me thinking for some time during and after the talks. Both positions are hard to contest but they are mutually exclusive. True, it is possible that growth was strong in spite of financial repression, but some can argue that by creating some stability, regulations actually improved growth in a way that surpassed the negative effects caused by repression. But, could there be another explanation?

Elsewhere on this blog, I have pointed out that I am not convinced that the Thirty Glorious were that “Glorious”. In line with my Unified Growth Theory inclinations (don’t put me in that camp, but don’t exclude me either I am still cautious on this), I believe that we need to account for demographic factors that foil long-term comparisons. For example, in a paper on Canadian economic growth, I pointed out that growth from 1870 to today is much more modest once we divide output by household-size population rather than overall population (see blog post here that highlights my paper). Later, I pointed out the ideas behind another paper (which I am still writing and for which I need more data, notably to replicate something like this paper) regarding the role of the unmeasured household economy. There, I argued that the shift of women from the household to the market over-measures the actual increase in output. After all, to arrive at the net value of increased labor force participation, one must deduce the value of foregone outputs in the household – something we know little about in spite of the work of people like Valerie Ramey.

Both these factors suggest the need for corrections based on demographic changes to better reflect actual living standards. These demographic changes were most pronounced in the 1945-1975 era – that of the era of rapid growth highlighted by Eichengreen and of financial repression highlighted by Reinhart and Bordo. If these changes were most momentous in that period, it is fair to say that the measurement errors they induce are also largest in that era.

So, simply put, could it be that these were not years of rapid growth but of modest growth that were overestimated? If so, that would put the clash of ideas between Bordo-Reinhart and Eichengreen in a different light – albeit one more favorable to the former than the latter.

But heh, this is me speculating about where research could be oriented to guide some deeply relevant policy questions.

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