Marginal Revolution

What are the lessons from the New Deal?

This week they put my Sunday column on the web on Friday; I was alerted by the ever-vigilant Mark Thoma.  The intro is this:

The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention; the truth is that Roosevelt changed course from year to year, trying a mix of policies, some good and some bad. It’s worth sorting through this grab bag now, to evaluate whether any of these policies might be helpful.

If I were preparing a “New Deal crib sheet,”  I would start with the following lessons...

The conclusion is this:

In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

Read the whole thing.  For critical responses, perhaps you can try the comments section at Mark Thoma's.  For reasons of space, it was not possible to specify that I was praising the proposed Obama middle-class tax cut.  I do not, however, think it will do much (if anything) to end the current recession, although tax hikes could make things worse.

Markets in everything?

The new claim is that a woolly mammoth could be regenerated for as little as $10 million.  The basic technique, as I understand it, is reconstructing the genome of the mammoth and modifying the DNA in the egg of a modern elephant and bringing the final-stage egg to term in an elephant mother.  It is noted that the same will be possible with Neanderthals, as it is expected that their genome will be recovered and sequenced shortly.

Didn't I read as recently as ten years ago that "Jurassic Park" scenarios were more or less impossible?  I don't expect Neanderthal man to reappear soon, but assuming the world stays (relatively) peaceful and wealthy, what is the chance of seeing one or more such beings within the next two hundred years?  Yes I know all about the law, eventual demographics, and the fear of planet-wide interspecies war, but at $10 million and over one hundred countries in the world, is not private philanthropy robust?

As one commentator asks, if we humans killed them off in the first place, does that mean we have any obligation to revive them now?

Investment in the Great Depression

Brad DeLong shows a graph of how Gross Private Domestic Investment rises during the New Deal, except for the contractionary 1937-8 downturn.  The pattern is striking.

A loyal MR reader emails me a citation to Robert Higgs's book, which on Google (pp.6-7) claims that net investment was negative over the 1930-35 period.  There is talk of a "capital consumption allowance" and that allowance accounts for the difference between the gross and the net terms.  Only in 1941 did net investment exceed its 1929 level.  Here's a chart which seems consistent with these claims and which shows the difference between the net and the gross series for investment.  The waves are very similar but at different absolute levels.

Can any readers explain what is going on  In this time period, using this data, is net or gross investment a better indicator of recovery and economic conditions?  Is the pro-New Deal claim that making net investment "less negative" (but still negative) counts as a success or rather that the gross investment series is what matters? 

When I look at this data series -- whether gross or net -- I see a few monetary policy actions (initial reflation, breaking the old link to gold, increasing reserve requirements in 1936) as the dominant explanatory variables. 

Father Time

Watching Star Wars today is like watching It's a Wonderful Life (1946) in 1977.

Here are more such comparisons.

Sentences to ponder

The scientific method & capitalism are similarly inhuman systems. They also happen to be the primary sources of our progress.

That is Kebko, from the MR comments section.

Now is the Time for the Buffalo Commons

The Federal Government owns more than half of Oregon, Utah, Nevada, Idaho and Alaska and it owns nearly half of California, Arizona, New Mexico and Wyoming.  See the map for more.  It is time for a sale.  Selling even some western land could raise hundreds of billions of dollars - perhaps trillions of dollars - for the Federal government at a time when the funds are badly needed and no one want to raise taxes.  At the same time, a sale of western land would improve the efficiency of land allocation.

Does a sale of western lands mean reducing national parkland?  No, first much of the land isn't parkland.  Second, I propose a deal.  The government should sell some of its most valuable land in the west and use some of the proceeds to buy low-price land in the Great Plains. 

The western Great Plains are emptying of people.  Some 322 of the 443 Plains counties have lost population since 1930 and a majority have lost population since 1990. 

Now is the time for the Federal government to sell high-priced land in the West, use some of the proceeds to deal with current problems and use some of the proceeds to buy low-priced land in the Plains creating the world's largest nature park, The Buffalo Commons.

Hat tip to Carl Close for the pointer to the map.

What ended the Great Depression?

There has been recent circulation of the older view that it is World War II, as a kind of giant public works project, which ended the Great Depression.  This claim is not consistent with our best knowledge of the subject.  To survey the cutting edge of the literature briefly:

Christina Romer writes:

This paper examines the role of aggregate demand stimulus in ending the Great Depression. A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. The finding that monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.

Here is another interesting paper on the topic; it focuses on productivity issues and mean reversion.  Here is from a paper by Cullen and Fishback:

We examine whether local economies that were the centers of federal spending on military mobilization experienced more rapid growth in consumer economic activity than other areas.  We have combined information from a wide variety of sources into a data set that allows us to estimate a reduced-form relationship between retail sales per capita growth (1939-1948, 1939-1954, 1939-1958) and federal war spending per capita from 1940 through 1945.  The results show that the World War II spending had virtually no effect on the growth rates in consumption that we examined.

Further debunking of the WWII idea can be found in this paper by Robert Higgs, who stresses the difference between standard gdp measures and actual economic welfare.

I also find the experience of the Latin American economies convincing.  The economic recovery of Argentina, for instance, clearly was due to monetary policy, not fiscal policy, which remained tight throughout the period of recovery.  Mexico recovered from the Great Depression relatively quickly and this history also does not fit the fiscal policy view.  Later on, most of the Latin economies experienced commodity booms because of wartime demands and again this was not fiscal policy and of course they were not fighting the war themselves.  The two countries where fiscal policy played a significant role in recovery are, not surprisingly, Germany and Japan and here I am referring to their prewar spending.

Ben Bernanke on the New Deal

I've been rereading some of the essays in Ben Bernanke's Essays on the Great Depression, which of course is self-recommending.  I thought this passage summed up some relevant truths:

Our [with Martin Parkinson] own view is that the New Deal is better characterized as having "cleared the way" for a natural recovery (for example, by ending deflation and rehabilitating the financial system), rather than as being the engine of recovery itself.

Bernanke notes that there were "remarkably strong" productivity gains throughout much of the 1930s, even though there was no capital deepening.  This is a central puzzle which any account of the New Deal, or New Deal recovery, must incorporate.  These gains seem to span more sectors than could be accounted for by New Deal policy alone, and note that most government interventions, even good ones, don't bring productivity gains over such a short time horizon and in such a regular and sustained fashion. 

Bernanke does suggest that some of the gains came from forced unionization and "efficiency wage" effects and yes that would credit the New Deal.  But I doubt that is the best hypothesis and of course it contradicts the traditional account of profit-seeking behavior from businesses (why weren't they paying the higher wages in the first place?).  Rick Szostak's work suggests that the New Deal saw lots of labor-saving, process innovations, which meant both high productivity gains and pressure on labor markets at the same time.  In my view most of these gains were simply the result of working through the implications of the earlier fundamental breakthroughs of the preceding twenty years.

Whatever is the case (and we genuinely don't know), these productivity gains are central to the story of New Deal recovery.  Roosevelt may deserve credit for some of them, or for allowing them to proceed, but don't assume that the New Deal caused such gains just because you see them in the gross data. 

You can find different drafts of the relevant Bernanke-Parkinson paper here, with various forms of gating.

Heroes and Cowards, part II

The single most important determinant of camp survival was the number of men in POW camps.  If everyone had been in a camp holding 7,500 men, survival probabilities would have been less than 60 percent instead of more than 80 percent.  With greater camp populations survival probabilities would have been even lower.  Another important determinant of camp survival was age.  Had all men been of Thomas Withington's age (47), only 70 percent of them would have survived.  The next most important determinants of camp survivial were the number of friends, rank, and height.  Men who were not either commissioned or noncommissioned officers fared poorly, as did those with no friends and those of Hnery Haven's height.

Of course that is from the Civil War and it is from the new book by Dora Costa and Matthew Kahn.  Here is my previous post about the book, see also the links suggested by Matt in the comments.  You can buy the book here.

Unemployment During the Great Depression

Regarding unemployment during the Great Depression, Andrew Wilson writing at the WSJ recently said:

As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed.

Historian Eric Rauchway says this is a lie, a lie spread by conservatives to besmirch the sainted FDR.  Nonsense.  In 1938 the unemployment rate was 19.1%, i.e. almost one out of five workers was unemployed, this is from the official Bureau of Census/Bureau of Labor Statistics data series for the 1930s. You can find the series in Historical Statistics of the United States here (big PDF) or a graph from Rauchway here.  Rauchway knows this but wants to measure unemployment using an alternative series which shows a lower unemployment rate in 1938 (12.5%).  Nothing wrong with that but there's no reason to call people who use the official series liars.

So why are there multiple series on unemployment for the 1930s?  The reason is that the current sampling method of estimation was not developed until 1940, thus unemployment rates prior to this time have to be estimated and this leads to some judgment calls.  The primary judgment call is what do about people on work relief.  The official series counts these people as unemployed.

Rauchway thinks that counting people on work-relief as unemployed is a right-wing plot.  If so, it is a right-wing plot that exists to this day because people who are on workfare, the modern version of work relief, are also counted as unemployed.  Now if Rauchway wants to lower all estimates of unemployment, including those under say George W. Bush, then at least that would be even-handed but lowering unemployment rates just under the Presidents you like hardly seems like fair play.

Moreover, it's quite reasonable to count people on work-relief as unemployed.  Notice that if we counted people on work-relief as employed then eliminating unemployment would be very easy - just require everyone on any kind of unemployment relief to lick stamps.  Of course if we made this change, politicians would immediately conspire to hide as much unemployment as possible behind the fig leaf of workfare/work-relief.

There is a second reason we may not want to count people on work-relief as employed and that is if we are interested in the effect of the New Deal on the private economy.  In other words, did the fiscal stimulus work to restore the economy and get people back to work?  Well, we can't answer that question using unemployment statistics if we count people on work-relief as employed.  Notice that this was precisely the context of the WSJ quote. 

One final thing that one could do is count people on work-relief as neither employed nor unemployed, i.e. not part of the labor force which is what we do for people in the military.  Rauchway has data on this and it shows almost the same thing, nearly one in five unemployed, as the original series.  (In this case, however, Rauchway counts nearly one in five unemployed as a win for the New Deal because the same series also shows higher unemployment earlier in the Great Depression.)

Any way you slice it there is no right-wing plot to raise unemployment rates during the New Deal and a historian should not go around calling people liars just because their judgment offends his wish-conclusions.

Hat tip to Mark Thoma.

Heroes and Cowards: The Social Face of War

Company socioeconomic and demographic diversity was the single most important predictor of desertion [in the Civil War].

Age and occupational diversity were especially important.  For all-black regiments, former slave status (or not) and plantation of origin are important diversity measures for predicting desertion.

That is from the forthcoming book by Dora L. Costa and Matthew E. Kahn.  I have not yet finished it but I believe this book will make a big splash.  Here is the book's home page.  Here is a blog post by Matt Kahn on the book.  Here is Matt Kahn on holding hands.

Europe Between the Oceans

Can you say longue durée?  If so (or if not), here's the new book by Barry Cunliffe, with the subtitle 9000 B.C.-AD 1000 indicating a coverage of murky yet critical millennia.

It's a history of Europe which blends economic geography and economic archaeology.  The underlying question is how Europe became so innovative and the answer has much to do with trade and migration.  Imagine a more balanced and grounded Braudel.  The explanation of the "Neolithic package" and its spread across Europe is stunning.  I loved it when the author broke away from a passage about Phoenician trade routes to explain some odd lines in Homer.  If you are wondering, Cunliffe is a moderate neo-migrationist.  The photography and the color plates of the art are lovely.  You can learn how to view the Roman Empire as an "interlude" and as a break from the major story and how to understand 800-1000 A.D. as a period of rebalancing.  And you get passages like this:

...the actual return in calorific value for the effort expended in collecting [shellfish] is comparatively small.  A single red deer would be worth fifty thousand oysters!  That said, the value of shellfish is that they are always available and can be substituted when other food sources run short.

If you enjoy early economic history, this is a must, noting that it does not have the titillating feel of a popular science book.  It is my pick for best non-fiction book of the year so far.

Here is the book's home page.  Here is one short review.  Here is a Times review.  You can buy an excellent long review (LRB) here.

Buy the book here (at $26 the per page price is low) to learn why economic archaeology should win a Nobel Prize someday.

The Rise of Mutual Funds

Investors preferred closed-end funds to mutual funds because closed-end funds offered the possibility of greater returns due to their use of leverage and the history of their shares trading at premiums.

That's about the 1920s.  It is from Matthew P. Fink's quite interesting and useful The Rise of Mutual Funds: An Insider's View.

Capitalism with Chinese Characteristics

That's the title of the new book by Yasheng Huang.  This very serious work reexamines the role of the state in the Chinese economy.  It suggests that the Chinese private sector has been more productive than claimed, China fits the traditional theory of property rights and incentives more than is often realized, the Chinese economy is not necessarily getting freer, market ideas are strongest in rural China, rural China was reregulated in an undesirable way starting in the early 1990s, the "Shanghai miracle" is overrated, when you calculate the size of the private sector in China it matters a great deal whether you use input or output measures, and China may collapse into crony capitalism rather than following the previous lead of Korea and Japan.

The dissection of Joseph Stiglitz on China, starting on p.68, is remarkable.

I do not have the detailed knowledge to evaluate all of these claims but in each case the author offers serious evidence and arguments.  This book does not make for light reading (though it is clearly written), but it is quite possibly the most important economics so far this year.  Here is a good review from The Economist.

The Big Necessity

I can't decide if that is a very good or a very bad title.  Nonetheless the book itself is excellent.  The author, Rose George, stresses:

To be uninterested in the public toilet is to be uninterested in life.

You also learn that toilets may have saved more lives than any other human invention, public toilets are disappearing in London and many other cities, and that many Kenyans have "helicopter toilets," which start with the use of a plastic bag.  My favorite moment in the book is this:

After five hours of my questions, Mr. Tanaka shyly offers two of his own: "Why don't English people want high-function toilet?  Why is Japan so unique?"

Definitely recommended and yes it is a serious book too.

The Partnership

For the proud Sachs family, the failure of Goldman Sachs Trading Corporation became a very public humiliation.  In 1932, Eddie Cantor, the popular comedian and one of forty-two thousand investors in Goldman Sachs trading Corporation, sued Goldman Sachs for one hundred million dollars while regularly including in his vaudeville routine bitter jokes about the firm.  One: "They told me to buy the stock for my old age...and it worked perfectly...Within six months, I felt like a very old man!"

That is from the new Charles D. Ellis book The Partnership: The Making of Goldman Sachs.  So far this book is a very good history and it has more economic and historic substance than The Snowball.

Sentences to ponder

Call it the biggest carry trade in history.

Here is more.

In case you had forgotten

SOX [Sarbanes-Oxley] was sold as the way to prevent future market bubbles and crashes.

That's Larry Ribstein reminding us.  And here is Arnold Kling reminding us:

A Central Banker should stand up to fear-mongering.  Even when it comes from a Treasury Secretary.

And here is Robin Hanson reminding us of his favorite lessons:

Medicine isn't about Health
Consulting isn't about Advice
School isn't about Learning
Research isn't about Progress
Politics isn't about Policy

How big was the Nazi premium?

Every now and then I like to post about history:

Firms connected with the Nazi party outperformed unaffiliated firms massively. Their share prices rose by 7.2% between January and March 1933 (43% annualised), compared to 0.2% (1.2% annualised) for unaffiliated firms. The politically induced change was equivalent to 5.8% of total market capitalisation. This is a high number by international standards. Johnson and Mitton (2003) estimate that revaluation of political connections in Malaysia during the East Asian crisis wiped 5.8% of share values. While comparable in magnitude, it took 12 months for this change to occur.

Here is more, interesting throughout.

Glass Steagall: The Real History

Many wise people are now recognizing that the repeal of Glass-Steagall was one of the few saving graces of the current crisis.  Let's thank President Clinton (and Phil Gramm) for that wise bit of deregulation.  The following potted history of the law, however, is all too typical:

Glass-Steagall was one of the many necessary measures taken by Franklin Delano Roosevelt and the Democratic Congress to deal with the Great Depression. Crudely speaking, in the 1920s commercial banks (the types that took deposits, made construction loans, etc.) recklessly plunged into the bull market, making margin loans, underwriting new issues and investment pools, and trading stocks. When the bubble popped in 1929, exposure to Wall Street helped drag down the commercial banks....The policy response was to erect a wall between investment banking and commercial banking.

Given a history like this people wonder how repealing the law could have been a good thing.  But a significant academic literature has investigated these claims and rejected them.  Eugene White, for example, found that national banks with security affiliates were much less likely to fail than banks without affiliates.  Randall Kroszner (now at the Fed.) and Raghuram Rajan found that (jstor) securities issued by unified banks were (ex-post) of higher quality that those issued by investment banks.  A powerful book by George Benston went through the entire Pecora hearings which supposedly revealed the problems with unified banking and found them to be a complete sham.  My colleague, Carlos Ramirez later showed that the separation of commercial and investment banking increased the cost of external finance (jstor).  Finally, my own work (pdf) unearthed the real reasons for the separation in a titanic battle between the Morgans and Rockefellers.

Thus, the history of banking before Glass-Steagall and now our recent experience after is consistent, generally speaking unified banking is safer and repeal was a good idea.

Did the Gramm-Leach-Bliley Act cause the housing bubble?

No.  That is one common myth among the progressive left.  Because it involves financial deregulation and the unpopular Phil Gramm, the Act is vilified and assumed to be part of a broader chain of evil events.  Here are some of the articles which promulgate the myth that the Act caused or helped cause the housing bubble.  One version of the claim originates with Robert Kuttner, but if you read his article (and the others) you'll see there's not much to the charge.  Kuttner doesn't do more than paint the Act as part of the general trend of allowing financial conflicts of interest. 

Most of all, the Act enabled financial diversification and thus it paved the way for a number of mergers.  Citigroup became what it is today, for instance, because of the Act.  Add Shearson and Primerica to the list.  So far in the crisis times the diversification has done considerably more good than harm.  Most importantly, GLB made it possible for JP Morgan to buy Bear Stearns and for Bank of America to buy Merrill Lynch.  It's why Wachovia can consider a bid for Morgan Stanley.  Wince all you want, but the reality is that we all owe a big thanks to Phil Gramm and others for pushing this legislation.  Brad DeLong recognizes this and hail to him.  Megan McArdle also exonerates the repeal of Glass-Steagall. 

Here is a good critique of GLB, on the grounds that it may extend "too big to fail" to too many institutions.  That may yet happen but not so far.   

The Act had other provisions concerning financial privacy.

Maybe you can blame some conflict of interest problems at Citigroup and Smith Barney on the Act.  But again that's not the mortgage crisis or the housing bubble and furthermore those problems have been minor in scale.  Ex-worker has a very sensible comment.  The most irresponsible financial firms were not, in general, owned by commercial banks.  Here's lots of informed detail on GLB and the bank failure process.  Here is another good article on how GLB didn't actually change Glass-Steagall that much.

Here's a Paul Krugman post on GLB; he attacks Phil Gramm but he doesn't explain the mechanism by which GLB did so much harm.  The linked article has no punch on this score either, although you will learn that Barack Obama has scapegoated GLB, again without a good story much less a true story. 

I may soon cover the Commodity Futures Modernization Act as well.

...are doomed to repeat it

Systemic risk can render drastic action necessary.  But what about the prospects for the long term?  Will they truly look up?  David Leonhardt writes:

The Chrysler bailout may have saved the company, but it did nothing, after all, to stop Detroit’s long, sad decline.

Barry Ritholtz — who runs an equity research firm in New York and writes The Big Picture, one of the best-read economics blogs — is going to publish a book soon making the case that the bailout actually helped cause the decline. The book is called, “Bailout Nation.” In it, Mr. Ritholtz sketches out an intriguing alternative history of Chrysler and Detroit.

If Chrysler had collapsed, he argues, vulture investors might have swooped in and reconstituted the company as a smaller automaker less tied to the failed strategies of Detroit’s Big Three and their unions.

...Speaking of which, Detroit’s Big Three have come back to Capitol Hill lately, lobbying for billions of dollars in handouts. This time, their executives insist, they’ll use the money to solve their problems.

Alaskan state politics, circa 1976

"You were against statehood?"

"Oh, sure.  Oh, sure.  Before then, three-quarters of the people here weren't here.  Eight or nine hundred people ran the Territory.  Ten thousand now run the state.  Where it used to take one person to investigate you, it now takes two to four.  The state spends too much.  If a tree blows down, two guys from the state come with a chain saw.  The state has sold the state out.  To the unions.  To the oil companies.  The oil companies have more power than the legislature.  The capital move [away from Juneau] is a lot of talk.  That's all it is, a lot of talk.  What we need is not a new capital but better legislators than we have.  I'd say leave the capital where it's at.  The state can't afford it.  There is no economy.  They're dreaming about all this oil money.

That is from John McPhee's excellent Coming into the Country, a study of Alaska recommended to me by several MR readers.  Here is a short 2002 piece on switching the capital of Alaska and the oddity of putting it in Juneau.  Here is a useful map.  Here is a picture of Juneau and from the air.  Googling "Juneau traffic report" does not in fact bring up any traffic reports.

Good Money

At the dawn of the industrial revolution as workers left the fields and moved to industrial employment the demand for a means of payment increased dramatically.  Workers, once paid in kind, needed to be paid in a medium they could use to buy the necessities of life.  Small-tender bank notes, however, were illegal and in Great Britain the production of coin was monopolized by the Royal Mint which failed to provide enough high quality coin to meet the demands of workers and business.  Silver coin, despite the efforts of Sir Isaac Newton, was overvalued and fled the country.  Gold was too expensive to make coins suitable for workingmen and the Mint could not or would not produce high-quality copper coins.

Good Money is George Selgin's explanation of how enterprising button makers solved what Sargent and Velde called The Big Problem of Small Change thereby making the industrial revolution possible.  Selgin is a monetary theorist so you might expect a dry account of monetary history but the mint-battle between Matthew Boulton, whom Wired once named the ultimate CEO, and copper-king Thomas Williams propels the story forward. If you can imagine, Good Money is something of a cross between Friedman and Schwartz's A Monetary History of the United States (although not as broad in scope) and a business epic like Barbarians at the Gate.   I also liked how Selgin draws on newspapers, novels, limericks and tavern songs to illustrate the problems and events of the time.  This bard was both a good economist (he has Gresham's Law!) and public choice scholar.

'Tis Gold buys Votes, or they'd have swarmed ere now,
Copper serves only for the meaner Sort of People
Copper never goes at Court
And since on Shilling can full Twelve Pence weight,
Silver is better in Germany
'Tis true the Vulgar seek it, What of that?
They are not Statesmen,-let the Vulgar wait.

The money problem influenced and was influenced by all of the major events of the day so Good Money is also an economic and political history of the industrial revolution.  Here's an interesting tidbit. Company stores were not so much a way for firms to rip off employees (why not just pay them less?) but were rather a means of economizing on coin.  Selgin shows how the shortage of coin sheds light on a number of other otherwise peculiar business practices. 

What lessons can be drawn from the history of private coinage?  Private money circulated only if it was voluntarily accepted as a means payment.  Thus the primary problem faced by private firms was how to create trust and credibility.  To encourage circulation, for example, issuers promised to redeem their tokens in gold (which the Royal Mint did not).  In turn, the promise to redeem gave producers an incentive to make their coins difficult to counterfeit, which they did by making the coins beautiful - numismatists will appreciate the full-color illustrations of the private coinage produced by Boulton and his rivals - as well as technologically advanced. 

Today, the big problem of small change is no longer such a big problem, although shortages of wanted coin continue to occur sporadically around the world (e.g. here and here) as well as surpluses of unwanted coin.  Nevertheless, the basic problems of private coinage were trust and credibility.  Modern issuers of digital cash face the same problems and thus Selgin's history is a valuable reminder about the scope and potential of alternative monetary institutions.

Full Disclosure: I was enthusiastic about Good Money when I read it in manuscript which is why it is published by the University of Michigan Press and co-published by the Independent Institute where I am director of research (n.b. you can buy Good Money at the previous link at a small discount to the Amazon price).

Why are some countries free and others not?

I am to speak on this topic in Buenos Aires (details here) and I was considering the following threads:

1. The Catholic capitalism of the Italian Renaissance and to what extent does it refute Max Weber?

2. Facundo and Martin Fierro, or where Domingo Sarmiento and Steve Sailer go wrong.

3. Why didn't either the gauchos or the conquest of Siberia lead to the Turner thesis?

4. Why the old buildings in Oamaru, New Zealand remind me of Chile and what that means for the current Latin economic pecking order.

5. What does the pre-war Japanese growth miracle tell us about the postwar Japanese growth miracle?

6. "Betting on refrigerated transport" as a theme in Argentine history.

Or maybe I'll do something else altogether.

They tell me that dress for the event is "elegant casual."  Yikes!  This, of course, leads to classic cycling in the sense outlined by William Riker.  Since I cannot be elegant (certainly not by B.A. standards), I cannot be casual either.

The talk should eventually show up in print, although possibly only in Spanish in Argentina.  I'll get you a link if there ever is one.

Who first predicted the mortgage crisis?

The Mortgager and Mortgagee differ the one from the other not more in length of purse, than the Jester and Jestee do in that of memory.  But in this the comparison between runs, as the scholiasts call it, upon all four; which, by the bye, is upon one or two legs more than some of the best of Homer's can pretend to; -- namely, That the one raises a sum and the other a laugh at your expense, and think no more about it.  Interest, however, still runs on in both cases; -- the periodical or accidental payments of it just serving to keep the memory of the affair alive; till, at length, in some evil hour, -- pop comes the creditor upon each, and by demanding principal upon the spot, together with full interest to the very day, makes them both feel the full extent of their obligations.

That is Laurence Sterne, from Tristram Shandy, chapter XII.

Sebastian Flyte rules

Re XII  ‘there is a groupie for every male endeavour’

THIS IS SO MONEY. It is one of the great triumphs of modern capitalism: let a thousand status hierarchies bloom! Unlike in hunter gatherer days, there isn’t one status hierarchy to climb and that’s that, there are endless hierarchies to climb, endless things to specialise in. Roissy’s good buddy, the economist Tyler Cowen, has been pushing this idea for a while now, and the effect this has on human happiness and potential is mind-boggling. Guys can rise to the top of whatever work/hobby hierarchies there are, or at least portray to women that yes, he is in THE PROCESS of climbing to the top. There are obvious caveats: females aren’t impressed by computer game related status, even though leading 30 guys from around the globe in World of Warcraft to quickly and efficiently take down an enemy is actually an impressive accomplishment - I think this will change in the future. But for now, I’ll bet the college ultimate frisbee champ gets some pretty good action.

Here is Sebastian's blog.

The Liberal Hour

The authors are G. Calvin Mackenzie and Robert Weisbrot and the subtitle is Washington and the Politics of Change in the 1960s.  Everyone interested in social change, or for that matter American political history, should read this book.  It doesn't unearth new material but it is a good summary of what is known.  The jacket flap sums it up:

For a brief period in the 1960s, more progressive legislation was passed in Congress than in almost any other era in American history.  Demands that had lingered for decades on the political agenda finally entered the realm of possibility.  Reform has seldom come with such speed, such sweep, and such consequence.  What drove this political sea change?...[the authors] argue that the primary force behind it was not the counterculture, but those in the traditional seats of power.

If you study the history portrayed in this book, you are more likely to believe that an Obama victory would not bring radical change to American economic policy.  It's hard to find the comparable "shock troops" in Washington right now.

Medieval cities: Europe vs. the Arabic world

Cities in the Arab world were on average much larger than those in Europe, and the size of the “primate” city – the megapolis such as Baghdad, Damascus, Cairo or Istanbul – was much bigger; a fact that is indicative of a predatory state and low trade openness. Europe, on the other hand, developed a very dense urban system, with relatively small principle cities. Big cities in Europe were quite often located near the sea, being able to optimally profit from long-distance trade, whereas the largest cities in the Arab world were almost all inland.

The sociologist Max Weber introduced a distinction between ‘consumer cities’ and ‘producer cities’. Using this classification, Arab cities were – much more than their European counterparts – consumer cities.

The classical consumer city is a centre of government and military protection or occupation, which supplies services – administration, protection – in return for taxes, land rent and non-market transactions. Such cities are intimately linked to the state in which they are embedded. The flowering of the state and the expansion of its territory and population tend to produce urban growth, in particular that of the capital city.

In Europe cities are instead much closer to being producer cities. The primary basis of the producer city is the production and exchange of goods and commercial services with the city’s hinterland and other cities. The links that such cities have with the state are typically much weaker since the cities have their own economic bases. It is this aspect that accounts for the fact that Arab cities suffered heavily with the breakdown of the Abbasid Empire, while European cities continued to flourish despite political turmoil.

Between 1000 and 1300 Europe acquired an urban system dominated by typical producer cities, which prospered in spite of Europe’s political fragmentation. In fact, this fragmentation was strongly enhanced by the rise of independent communes – city-states, or cities with a large degree of local authority – which form the core of the political system of Europe’s urban belt stretching from Northern Italy to the Low Countries. Indeed, we still find this pattern in the so-called ‘Hot Banana’ – the industrial agglomeration that stretches from the southern UK to the Netherlands, through Germany and down to northern Italy.

Here is the full article.

The history of America since 1980

Brad DeLong spells it out:

1. The end of the Cold War
2. Other winner-take-all factors that have, in combination with education, pushed American income polarization back to Gilded Age levels.
3. The failure of American taxpayers to support their state and local governments in expanding funding for public education--and the impact of reduced public education effort in sharpening the distinction between rich and poor.
4. The computer revolution in productivity growth.
5. The rise of China (and soon, we hope, India) as industrial powers.
6. The extraordinary social liberalization of America--if you had told any Republican in 1980 that 2008 would see (a) a Negro with an Arabic-Swahili name beating a veteran fighter pilot in the presidential polls and (b) gay marriage as the big cultural issue of the day, said Republican would have blown several gaskets. And if you had said that this would have been the result of an "Age of Reagan" said Republican would have melted down completely.

I'm mostly on board (and read the broader post) but, in addition to mentioning Latinos, I'll suggest two revisions.  First, on #3 I doubt if the stagnation of American lower education is the result of insufficient dollars.  It is notoriously difficult to find a convincing link between educational expenditures and educational quality and I don't think that is econometric problems.  On #6 I never saw most of the Reagan Republicans as especially prudish or socially conservative; that was just a lie told to one of the interest groups attending the party.  Revolution in the Head -- which is oddly enough a social history of the Beatles -- is especially good on the connection between 1960s morals and the Reagan Revolution.

Mongol

Matt Yglesias offers a good review of this excellent movie, which chronicles the early life of Genghis Khan, or one vision thereof.  There are at least two increasing returns to scale mechanisms in this movie.  First, leadership is focal, which tends to bind groups together and make concentrated rule possible.  Winning battles makes you focal and winning larger battles makes you focal across larger groups.  Second, if you walk or ride alone in the countryside, you will be snatched or plundered.  That causes people to live in settlements and also larger cities.  Put those mechanisms together, solve for equilibrium, and eventually one guy rules a very large kingdom and you get some semblance of free trade.  Sooner or later, that is.  The movie brings you only part of the way there and I believe a sequel is in the works.

The War with Mexico

The Mexicans made strong appeals to U.S. troops to switch sides, targeting immigrants and Catholics in particular.  Their broadsides emphasized the injustice of the invaders' cause in the eyes of "civilized people" and stressed what North American Catholics had in common with Mexican Catholics.  Alluding to well-known riots by U.S. Protestant nativist mobs, a Mexican pamphlet asked, "Can you fight by the side of those who put fire to your temples in Boston and Philadelphia?"  Mexico also offered land grants to opposing soldiers who would desert and claim them: two hundred acres for a private, five hundred for a sergeant.  Together, the inducements and propaganda had an effect.  The first shots in the war were fired on April 4, 1846, not between Mexican and U.S. troops, but by American sentries at an immigrant deserters swimming across the Rio Grande to the Mexican side...Among three hundred U.S. deserters, the great majority of them Catholics and/or immigrants, joined the Mexican army.

That is from the excellent What Hath God Wrought: The Transformation of America, 1815-1848, by Daniel Walker Howe.  The rate of desertion in the Mexican-American War was the highest in American history and twice that of Vietnam.

Chris Scoggins, marginalist

Concerning my previous post, he sends me this email:

So if the typical person today couldn't hack it in 1000 AD (I agree that we probably can't) What is the furthest back someone from today could go and have a fighting chance to make ends meet?

I like the idea of walking into an LSE seminar in 1932 and making some nice points. 

If we try going back further, I don't think 1700 would be so much easier for me than 1000.  Even if I fell into London, patronage would be hard to come by and I would expect that I would end up earning the subsistence wage.  Sorry guys, but I just don't know much useful: blogging starts around 2001.  In most eras I would expect the subsistence wage, but after the late 1800s I could teach and write for greater pay and better working conditions.  As for the start date for effective insider trading, maybe that is the late 19th century as well.  You need some start-up capital: does anyone know the minimum market investment circa 1815 and could you sell short? 

In most eras my best bet is to be a shyster of some kind.

I don't, by the way, think I would die in 1000, at least assuming I could avoid the plague and a few other maladies.  Temporary aid is the natural human tendency, among the poor too, and it is unlikely I would be killed for being a witch.  I would end up doing hard physical labor, just like most other people at the time.  The economic lesson here is that complementarity really matters.

Time travel back to 1000 A.D.: Survival tips

Londenio, a loyal MR reader, asks:

I wanted to ask for survival tips in case I am unexpectedly transported to a random location in Europe (say for instance current France/Benelux/Germany) in the year 1000 AD (plus or minus 200 years). I assume that such transportation would leave me with what I am wearing, what I know, and nothing else. Any advice would help.

I hope you have an expensive gold wedding band but otherwise start off by keeping your mouth shut.  Find someone who will take care of you for a few days or weeks and then look for employment in the local church.  Your marginal product is quite low, even once you have learned the local language.  You might think that knowing economics, or perhaps quantum mechanics, will do you some good but in reality people won't even think your jokes are funny.  Even if you can prove Euler's Theorem from memory no one will understand your notation.  I hope you have a strong back and an up to date smallpox vaccination.

Readers, do you have any other tips?  Is there any way that Londenio can leverage his knowledge of modernity (he is, by the way, a marketing professor) into socially valuable outputs?  Would prattling on about sanitation and communicable diseases do him any good?

Why did they build expensive medieval churches?

Bryan Caplan asks (the rest of the post is interesting on other matters):

Seeing a bunch of French cathedrals makes me even more skeptical of the claim (made by Larry Iannaccone and others) that people weren't more religious in earlier centuries. If people weren't far more religious in the Middle Ages, why did they pour such a high fraction of their surplus wealth into century-long religious architectural projects? You could say "It was primarily rulers, not donors, who allocated the funds," but that just pushes the question back a step. Were rulers vastly more religious than the masses? That's hard to believe. Were rulers trying to impress the masses by building churches? Well, why would churches impress the masses unless they were highly religious?

His answer:

Religious architecture and art were to medieval feudalism what advertising and commercialism are to modern capitalism: A rather effective way to build support for the status quo using aesthetics instead of argument. My claim, in short, is that Notre Dame played the same role during the Middle Ages that fashion magazines play today. Notre Dame was not an argument for feudalism, and Elle is not an argument for capitalism.  But both are powerful ways to make regular people buy into the system.

I would add that churches were a form of fiscal policy and the associated spending was a way to hand out goodies to political allies.  (This is especially important if the finished project takes decades or centuries to materialize.)  In a time of political decentralization it wasn't easy to construct or maintain a long distance road.  So you had to put a lot of expense in one easy-to-guard place and in a politically correct way.  Churches were the obvious choice.  Churches may have been an efficient means to store wealth for other reasons as well.  If someone is going to plunder you on the run, they can wreck a church but they can't dissemble and carry away its value very easily.

Robin Hanson might argue that beautiful churches also signaled the status of the elites who built them. 

Who should be bounced from The Great Books series?

Before leaving for Japan, I'd been pawing through these volumes lately -- you know, the U. Chicago fat tomes with two columns on each page?  The obvious question is which books belong and which do not; overall I'm surprised at how well the 1952 picks have held up and yes that is tribute to the University of Chicago or at least its influence.

I'm sad that Hume doesn't get his own volume, including many of his shorter essays.  Plus I'd like to add Dickens's Bleak House and at least the first two books of Proust.  And who to bounce?  I nominate Plotinus as the obvious choice, noting that he has only about 24,000 cites on scholar.google.com, not even as many as Joseph Stiglitz.

In 1990 they dropped four books: Apollonius' On Conic Sections, Laurence Sterne's Tristram Shandy, Henry Fielding's Tom Jones, and Joseph Fourier's Analytical Theory of Heat.  The loss of Sterne is regretted but the others we can do without.  You'll find a list of the added books in 1990 at the first link, about halfway down and yes they did include Swann's Way.  Little Dorrit is not the best or even the second best Dickens selection.  Most are good picks though I would have left the Bergson, the Dewey (unreadable), and tossed out some of the shorter works in favor of Ulysses.  More William James is never a bad idea; how about The Varieties of Religious Experience?  None of the science books will age well.  And how about a wee bit of Mises and Hayek to reflect the failures of socialism?  Absalom, Absalom would help cover race and maybe Mill on The Subjection of Women should be there too.

Markets in everything

Pearl Harbor playing cards.  You can find them in the gift shop in the um...Japanese military memorial museum (the discussion of Nanjing is interesting), which is right next to the um...shrine for General Tojo (and others).

"As a child, Peter Leeson was pirate-obsessed."

That's the first sentence of the article, read more, from The Boston Globe.

Division of labor in the Babylonian Talmud

This reminds me of Leonard Read's "I, Pencil," but of course it came much earlier:

Ben Zoma once saw a crowd on one of the steps of the Temple Mount. He said, Blessed is He that discerneth secrets, and blessed is He who has created all these to serve me. [For] he used to say: What labours Adam had to carry out before he obtained bread to eat! He ploughed, he sowed, he reaped, he bound [the sheaves], he threshed and winnowed and selected the ears, he ground [them], and sifted [the flour], he kneaded and baked, and then at last he ate; whereas I get up, and find all these things done for me.

And how many labours Adam had to carry out before he obtained a garment to wear! He had to shear, wash [the wool], comb it, spin it, and weave it, and then at last he obtained a garment to wear; whereas I get up and find all these things done for me. All kinds of craftsmen come early to the door of my house, and I rise in the morning and find all these before me.

Credit goes to Stephen Dubner.

The Man Who Loved China

That's the new Simon Winchester book and it concerns Joseph Needham, who wrote the famous series on the history of science in China and focused the attention of the scholarly world on the question: why no capitalism in China?  This books offers a love story, a story of a quest, a story of science, a tale of politics, and did you know that Needham (unwittingly) was the guy who taught the Unabomber to use explosives?

Here is one short bit from the book:

In 1989, more than half a century after they first met, Needham and Lu Gwei-djen were married in Cambridge.  She died two years later, whereupon Needham invited three other women to marry him.  All politely declined.

Definitely recommended.  The subtitle is "The Fantastic Story of the Eccentric Scientist Who Unlocked the Mysteries of the Middle Kingdom."  Here is one review.

A Public Choice theory of Chinese food

Seth Roberts, citing Jennifer 8 Lee, writes:

Why did Chinese immigrants to America start so many restaurants? Because Chinese cuisine is glorious, right? Well, no. Chinese immigrants started a lot of laundries, too, and there is nothing wonderful about Chinese ways of washing clothes. As Jennifer Lee explains in this excellent talk, the first Chinese immigrants were laborers. They were taking jobs away from American men, and this caused problems. Restaurants and laundries were much safer immigrant jobs because cooking and cleaning were women’s work.

By the way, here is some work on immigrant complementarity with native labor.  George Borjas rebuts.

The Horse the Wheel and Language

The tribes Europeans encountered in their colonial ventures in Africa, South Asia, the Pacific, and the Americas were at first assumed to have existed for a long time.  They often claimed antiquity for themselves.  But many tribes are now believed to have been transient political communities of the historical moment.  Like the Ojibwa, some might have crystallized only after contact with European agents who wanted to deal with bounded groups to facilitate the negotiation of territorial treaties.  And the same critical attitude toward bounded tribal territories is applied to European history.  Ancient European tribal identities -- Celt, Scythians, Cimbri, Teoton, and Pict -- are now frequently seen as convenient names for chamelon-like political alliances that had no true ethnic identity, or as brief ethnic phenomena that were unable to persist for any length of time, or even as entirely imaginary later inventions.

That is from David W. Anthony's The Horse The Wheel and Language: How Bronze-Age Riders from the Eurasian Steppe Shaped the Modern World.  In particular this book focuses on the origin of the Indo-European language group and the relationship between archeology and linguistics.  He is also skeptical of Jared Diamond's well-known thesis that early Europe had much diffusion of innovation in the East-West direction.  Recommended.

Black Los Angeles in Jim Crow America

That's the subtitle, the title is Bound for Freedom and it is by Douglas Flamming.  This book is a good antidote to libertarians who assign too much blame to state governments, and not enough blame to voluntary norms, when it comes to Southern segregation and Jim Crow.  Early in the twentieth century, Los Angeles was devoid of the oppressive Jim Crow laws that were so common in the South.  In fact California had some (unenforced) laws prohibiting discrimination according to race.  Yet according to one survey only three of two hundred saloons would serve blacks.  Most hotels did not accept blacks either and that was in direct contradiction to state law.  Both Hollywood and the petroleum industry for the most part refused to hire blacks, even for jobs of unskilled labor.  On the positive side, many of the businesses along Central Avenue were fully integrated, serving Latino and Japanese customers as well.  Blacks did have, overall, a much better existence in LA than in the South but this volume shows that Jim Crow cannot simply be blamed on oppressive government regulations.

Here is my earlier post on Jim Crow in sports.

Antiquity was richer than we think

George Grantham writes:

In recent decades the conventional dating of the origins of Western Europe’s economic ascendancy to the tenth and eleventh centuries AD has been called in question by archaeological findings and reinterpretations of the early medieval texts indicating significantly higher levels of material prosperity in Antiquity than conventional accounts consider plausible. On the basis of that evidence it appears likely that at its peak the classical economy was almost as large as that of Western Europe on the eve of the Industrial Revolution.

Here is sixty pages more, noting that every single page of this paper has interesting material, a remarkable achievement.  Here is one bit:

Between 1300 and 900 BC three innovations turned out to be crucial for the eventual integration of Europe’s economic space. The earliest was the improvement in ship construction and sailing technique. As will be discussed in more detail below, the decisive changes in rigging and hull construction that permitted larger and more robust ships were achieved before the Aegean collapse in response to the growing bulk trade in timber and agricultural produce. The perfection of ferrous metallurgy by Cypriot and Aegean smiths was the second decisive innovation. Unlike the changes in naval architecture, the metallurgical innovations of the Aegean Dark Age were an unexpected by-product of economic collapse. The third major development affecting the later expansion of trading networks was the transformation of Proto-Canaanite syllabaries into a true alphabet consisting of approximately two dozen phonetic signs. The triumph of the alphabet was also a consequence of the Aegean collapse, which destroyed the earlier and slightly more cumbersome cuneiform script employed to document administrative and commercial transactions outside Egypt.

The pointer is from Razib.  Here is Grantham on the agricultural revolution.

Why is monogamy associated with economic development?

Eric Gould, Omer Moav and Avi Simhon offer a new answer in the March 2008 American Economic Review: female inequality.  Economic growth means that some women have higher human capital than others and thus they are better suited at producing and rearing high quality children.  Wealthy men with lots of human capital will start to bid for these women and they will have to offer them exclusive status; these men also wish to invest in a smaller number of higher quality children.

In other words, male inequality encourages polygamy while female inequality discourages it.  Apparently female inequality has been winning that race.

The hypothesis also helps explain why polygamy unravels so decisively at some point.  Since monogamy itself encourages children (including daughters) with higher human capital, initial tendencies toward monogamy are self-reinforcing.

Here is an earlier ungated version of the paper.  Or buy the new version here for $7.50.  Here are previous MR posts on polygamy.

Why economics was late in starting

I've already posed the question, I'd like to add two points.  First, sustained economic growth in the Western world starts in 17th century England, as shown by Greg Clark.  Interest in economic reasoning then comes rapidly, first from the mercantilists, then in Adam Smith and some earlier free trade thinkers, such as Dudley North and Nicholas Barbon.

Second, the idea of "private vices, publick virtues" was central for eighteenth century economic thought and for social science more generally.  This came from Bernard Mandeville (drawing upon the French Jansenists) in 1720.  It's no accident that Mandeville lived in the Dutch Republic, which had very little censorship.  No, I am not a Straussian but the merits of that viewpoint are often overlooked.

The School of Salamanca had an excellent marginal utility theory in 17th century Spain, the framework simply did not go anywhere.  For that matter we can look later and see that Samuel Bailey, Mountifort Longfield (1834), and others had critical components of Marshall.  But no one really cared because they could not yet see how important those contributions would turn out to be.  This is a central theme in why the growth of economic thought took so long.

It also suggests that today we might have some very important ideas amongst us, we simply cannot yet see how fruitful they will be.  Their own proponents may not even know it.

Was Avner Greif right about the Maghribi traders?

Jeremy Edwards and Sheilagh Oglivie write:

Economists draw important lessons for modern development from the medieval Maghribi traders who, according to Greif, enforced contracts multilaterally through a closed, private-order 'coalition'. We show that this view is  untenable. The Maghribis used formal legal mechanisms and entered business associations with non-Maghribis. Not a single empirical example adduced by Greif shows that any 'coalition' actually existed. The Maghribis cannot be used  to argue that the social capital of exclusive networks will facilitate exchange in developing economies. Nor do they provide any support for the cultural theories of economic development and institutional change for which they have been mobilised.

Here is the paper, which if it is correct amounts to a stunning refutation of what was once a seminal contribution to economic history and the theory of social norms.  Thanks to a loyal MR reader for the pointer.

Adverse selection of slaves

I find the expected quality of a slave who was sold was just 61 percent of the quality of his unsold cousin.

Here is much more, thanks to Eric Crampton for the pointer.

Retribution, by Max Hastings

In the course of the war, Germany lost 781 submarines, Japan 128.  By contrast, the Japanese navy sank only 41 American submarines, 18 percent of those which saw combat duty.  Six more were lost accidentally on Pacific patrols.  Even these relatively modest casualties meant that 22 percent of all American sailors who experienced submarine operations perished -- 375 officers and 3,131 enlisted men -- the highest loss of any branch of the wartime U.S. armed forces.

The subtitle of this book is The Battle for Japan, 1944-45.  Have you ever wondered what kind of peace the Japanese expected (before losing), how the battle for the Philippines unfolded, why the Japanese treated their POWs so badly, or what it is like to be in a submarine surrounded by falling depth charges?

Every year there are five or six books that just wow me.  This is one of them.  It is as gripping as a first-rate novel and I learned something on almost every page.  Here is one review.  You can buy it here.

The Cone of Silence

Jason Kottke quotes from Arsenals of Folly, the new Richard Rhodes book about the nuclear arms race.  The scene is the 1986 meeting between Gorbachev and Reagan in Reykjavik, Iceland.

Back at the American Embassy, Shultz assembled Donald Regan, John Poindexter, Paul Nitze, Richard Perle, Max Kampelman, Kenneth Adelman, and Poindexter's military assistant, Robert Linhard, inside what Adelman calls "the smallest bubble ever built" -- the Plexiglas security chamber, specially coated to repel electromagnetic radiation and mounted on blocks to limit acoustic transmissions, that is a feature of every U.S. Embassy in the world. Since the State Department had seen no need for extensive security arrangements for negotiating U.S. relations with little Iceland, the Reykjavik Embassy bubble was designed to hold only eight people. When Reagan arrived, the air-lock-like door swooshed and everyone stood up, bumping into each other and knocking over chairs in the confusion. Reagan put people at ease with a joke. "We could fill this thing up with water," he said, gesturing, "and use it as a fish tank." Adelman gave up his chair to the president and sat on the floor leaning against the tailored presidential legs, a compass rose of shoes touching his at the center of the circle.

The permanent tax revolt

...the fractional assessment of homes was easily the largest single government housing subsidy in the postwar era, and it was among the largest categories of social expenditure of any kind, direct or indirect.  Fractional assessment of residential property provided a subsidy that was forty times greater than federal spending for public housing.  It was ten times greater than the home mortgage interest deduction.  It was five times as costly as more controversial "welfare" programs like Aid to Families with Dependent Children.  Although fractional assessment did not show up on official government budgets, on the eve of the tax revolt it was providing more benefits than any other social policy in America except for the twin blockbusters of the federal budget, Social Security and Medicare.

That is from the new book The Permanent Tax Revolt: How the Property Tax Transformed American Politics, by Isaac Martin.  The main thesis of this book is overstated, namely that the professionalization of property tax assessments is the root cause of American exceptionalism on tax politics; nonetheless I found this a very informative and stimulating read.

Good books on trade policies

Jason, a loyal MR reader, asks me in an email:

What is a good economic history of commerce and trade?  I'm looking for a book, preferably recent, with lots of historical examples of what trade policies can do.  It would be a bonus if it integrated theory in with the examples, but that isn't necessary.  I'd also prefer a book written by an economist rather than a historian, since historians tend to get their theory wrong.  Rosenberg's How the West Grew Rich comes to mind, but I wonder about other examples.

I say "Ask and ye shall receive."  You could try William J. Bernstein's new A Splendid Exchange: How Trade Shaped the World.  Readers, do you have other suggestions?

Mad Men

Thomas Schelling showed that it could sometimes pay to be irrational, or at least to appear to be irrational.  If they think you're crazy then in a game of chicken it's your opponent who will backdown.

It's known that Nixon understood the theory but in an frightening article in Wired we learn the insane extent to which the theory was practiced.

Frustrated at