Category Archives: Economic History

Why Do Jews Succeed?

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Jerry Muller and Noah Smith ask the question. Muller writes,

Jews had a religious culture that promoted universal adult literacy – at least for men – and a culture that respected book learning. Those attitudes and dispositions were transferred from religious texts to secular forms of education. As a result, Jews were highly oriented toward education, and willing to defer current pleasures and income to obtain more of it.

Maristella Botticini and Zvi Eckstein in The Chosen Few say that the literacy requirement had huge selection impact. Jewish farmers were unable to comply with the requirement, and so they exited the religion. People who remained Jews tended to be more urban in their outlook and of course with greater aptitude for literacy.

To Ponder

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From Enrico Spolaore and Romain Wocziarg

one may erroneously infer a major role for specific national institutions in Africa, even though, as shown by Michalopoulos and Papaioannou (2010), national institutions have little effect when looking at the economic performance of homogeneous ethnic groups divided by national borders.

The survey article focuses on very long persistence in differences in productivity across different ethnic groups. Pointer from Jason Collins.

James C. Bennett vs. Deirdre McCloskey

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Bennett writes,

Very briefly, and simplistically, the Industrial Revolution happened when it did because the English (and their available capital) were occupied gathering the plentiful low-hanging fruit available with pre-industrial (or what Mumford would call “eotechnic”) technology. Iain [Murray]’s ancestors had all the coal they could profitably dig and transport by human, animal, and wind power for a century or so before they needed steam pumps to be able to exploit deeper mines, and steam locomotives to pull coal from mines further from the Tyne, than they had before. Crude steam engines had been around for a while; suddenly it became profitable to build and use them. The Industrial Revolution happened when financing it became the best available use of capital. The middle class had had plenty of honor and dignity for centuries before that — due to the legacy of Anglo-Saxon culture that held that there was no such thing as “noble blood” — even if your father held a title, you were legally a commoner unless and until your father died and you inherited the title, unlike on the Continent.

From a Facebook thread discussing this post.

Deirdre McCloskey Spoke

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at this event. Here are my reactions to a few things.

1. She suggested that we should replace the term “capitalism” with “market-tested innovation and supply.” I like the term market-tested innovation. I can understand why she wants to add “and supply,” but that phrase may not in fact help so much. But innovation contrasts nicely with stasis or suppression of innovation. And market-tested contrasts nicely with government as an institution.

2. She suggested that starting in about 1848, four bad ideas grew: nationalism, socialism, imperialism, and eugenics. Obviously, this is a neat way to explain the disasters of the first half of the 20th century. But what (if anything) is holding us back today? After all, nationalism, imperialism, and eugenics are all unpopular with elites, and socialism has a lot of baggage with it. Are we beset by new bad ideas? If so, what are they?

3. Her story for the Industrial Revolution is that England became exceptional by bestowing dignity on all men, most notably merchants. She used the example of the word “honest.” In the 16th century, this was a term that might be applied only to someone of an elite class, such as an aristocrat or warrior. It meant someone who lived up to the expectations of that class. By the late 18th century, anyone could be described as “honest.” It meant, as it does today, someone who keeps their commitments and whose word can be trusted.

I have just finished America 3.0, by James Bennett and Michael Lotus. Their view is that Anglo-Saxon exceptionalism goes back 1000 years, and that it consists of the elevation of the nuclear family structure. This might explain why the Industrial Revolution took place where it did. It does not explain the timing.

McCloskey would explain the timing in terms of the English adopting a more small-d democratic outlook. I guess I will have to read more of her work to get the story of how and why this adoption took place.

4. An issue that came up is why it is that so few economists take the view that ideas matter in explaining differences in living standards. Cultures that encourage innovation do well, and other cultures do not. Instead, economists have an easier time focusing on endowments, meaning available resources, which turn out to explain very little. The next fallback for economists is institutions, which McCloskey thinks are over-rated as explanatory variables. She said that trying to pour better institutions into bad economies is as futile as trying to pour in dams and other capital projects.

This is, of course, a very lively debate. The institutionalists will focus on poster-child comparisons, like North Korea vs. South Korea, or Hong Kong and Singapore vs. other Asian countries. Those who belittle institutions will point to the failed attempt to “nation-build” Iraq. Don’t look for this to be settled any time soon.

In any event, I think it is fair to say that economists are caught up in the project to do social science, meaning looking at material and quantifiable factors as explanatory variables. Also, I am starting to think that there are positive feedback loops between certain professions and politicians. In journalism and economics, the selection pressures may work against those of us whose ideas lead to skepticismm toward political power.

At another event, Art Carden introduced her.

Robin Hanson on Clans

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He writes,

In most farmer-era cultures extended families, or clans, were the main unit of social organization, for production, marriage, politics, war, law, and insurance. People trusted their clans, but not outsiders, and felt little obligation to treat outsiders fairly. Our industrial economy, in contrast, relies on our trusting and playing fair in new kinds of organizations: firms, cities, and nations, and on our changing our activities and locations to support them.

Read the whole post.

Sentences to Ponder

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From Brad DeLong:

the twentieth century is unique in that its wars, purges, massacres, and executions have been largely the result of economic ideologies. Before the twentieth century people slaughtered each other for the other reasons. People slaughtered each other over theology: eternal paradise or damnation. People slaughtered each other over power: who gets to be top dog, and to command the material resources of society. But only in the twentieth century have people killed each other on a large scale in disputes over the economic organization of society.

Pointer from Mark Thoma.

I will be seeing Brad and Mark on April 11-12 at this event. It is not a public event, but I will have a bit of time off from the conference. If you are in the Kansas City area and want to try to arrange to meet at some point, leave a comment.

A Book I Will Not Review

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Because I contributed a chapter. The book is the Routledge Handbook of Major Events in Economic History, edited by Randall E. Parker and Robert Whaples. The handbook tends to be U.S.-centric, with some surprising exceptions, such as a brief, fascinating chapter on World War I. The chapters are predominantly about events in the twentieth century. The book is priced out of your range, unless you are a library.

My chapter is called The 1970’s: The decade the Phillips Curve died. My main point is that except for the 1970’s, the Phillips Curve has performed really well. However, because of the 1970’s, macroeconomics went through great contortions from which it has not recovered.

This is not to say that we should go back to the macroeconomic consensus as it existed in 1970 (although that is where I see Paul Krugman coming out). But I do not think that the macroeconomic consensus as it existed in 2007 was any better. Hence PSST.

There is another chapter on the 1970’s by Robert Hetzel, which covers much of the same ground as my chapter. And he got to use graphs, which makes me jealous (my chapter would have worked better with graphs).

He and I would differ in our interpretation of the 1980-1983 period. Hetzel writes,

The Volcker-Greenspan FOMCs succeeded in controlling inflation without the need to engineer periodic bouts of high unemployment.

But we had the highest spike in the unemployment rate since the Great Depression–higher than the peak unemployment rate in 2009.

What I’m Reading

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Building Home, a biography of savings and loan mogul H.F. Ahmanson, who flourished from the 1930s until his death in 1968. I had low expectations for this book, but I’m actually getting much more out of it than I did the widely-praised Hirschman bio, even though the latter is the product of prodigious skill and effort. Eric John Abrahamson, the author of Building Home, does a really good job of capturing the post-WWII political economy zeitgeist. On p. 115,

Thus the relationship that developed between regulator and regulated by the early 1950s was often collaborative and mutually supportive. Regulators believed that a major part of their job was to protect the health of the industry as well as the consumer or depositor. When changes needed to be made to the law, industry officials often drafted the new legislation, and legislators in Sacramento and Washington often accepted their recommendations with little other public input. When influential regulators retired, they often became owners, managers, or consultants to savings and loans. Meanwhile, many legislators owned shares or served on the boards of local savings and loans.

The conventional wisdom after World War II was that industry and government had collaborated to win the war, and that similar partnerships could address social needs, such as housing. Public trust in government and industry was high. Supposedly, we now live in an era in which there is much more polarization concerning the free market vs. regulation, and there is much less public trust in government and in corporate behavior. But re-reading the excerpted paragraph, how much has really changed in the last 50 years about the way financial regulation operates?

The business-regulatory collaboration extended to mortgage redlining. On p. 107,

In the 1930s, the Home Owners Loan Corporation (HOLC) had institutionalized the practice of racial and economic segregation in housing development and residential lending…Social segregation continued to permeate public policy during and after the war, and the FHA explicitly perpetuated racial discrimination in mortgage lending. When the Community Homes cooperative in Reseda sought FHA approval to finance 280 single-family homes in 1947, for example, it was turned down by the government because the cooperative refused to adopt racial restrictions.

The History of American Education

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Kevin Carrie-Knight reviews The American Model of State and School, by Charles Glenn.

At root, The American Model of State and School tells the story of a gradual centralization of many local models of schooling in America into an increasingly uniform system with increasing government involvement. Before the Whig reformers of the 1830’s and 1840’s succeeded in ushering in common schools, “the state role in schooling – apart from the rhetoric of state constitutions – was long a matter of financial bookkeeping than of determining how education would be provided and for what purposes” (p. 125). Using a wide array of primary and secondary sources, Glenn shows how reformers (with the best of intentions) evolved a school system that became more centralized and standardized and less responsive to American diversity and parental input.

Some random thoughts:

1. Goldin and Katz describe the expansion of schooling in America from the early 1800s through 1950 as a highly decentralized process.

2. I do not know if Glenn gets into this, but the consolidation of school districts since the 1940’s has played a major role in making schools more centralized and less responsive to parental input. It is doubtful that school district consolidation resulted from the sort of grass-roots reform movements that drove earlier efforts to standardize education.

3. When I saw this:

American public education should be “disestablished,” just as state churches were in the decades after the revolution.

I thought of Ivan Illich, who used the same term and made the same plea in 1971. It appears (based on a search at Google books) that Glenn mentions Illich, but only once and not in the section of the book quoted in the review.

4. Lately, I have been puzzling over the relationship between coercion and education. Do we not often act as if we believe that education must involve coercion? If left to themselves, young people would not learn what “we” think they should? If left to themselves, parents would not educate their children? If left to themselves, teachers would not teach the “right” curriculum? If left to themselves, local school principals would not promote quality education? It seems to me that beliefs like this implicitly underly the American education system today.

Russ Roberts and Edward Leamer

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I love this video, but that is because I agree so much with Leamer.

One thing I would point out about his charts is that he uses trend lines and implies that mean reversion is the norm. That is, for most of the postwar period, if you had a recession that took GDP below trend, you would then have above-trend growth. An alternative hypothesis is that real GDP follows a random walk with drift. That would mean that it always tends to grow at 3 percent, regardless of its recent behavior. The last three recession seem to follow such a model.

In the late 1980s, some folks, notably Charles Nelson and Charles Plosser, argued strenuously against mean reversion and in favor of the random walk with drift. Note that this is back when Leamer describes output and employment as mean-reverting. I wonder if what happens as data get revised over long periods of time is that random walks get turned into mean-reverting trends.

Note Tyler Cowen’s comment on the latest employment report:

we are recovering OK from the AD crisis, but the structural problems in the labor market are getting worse. It’s becoming increasingly clear those structural problems were there all along and also that they are a big part of the real story. On the AD side, mean-reversion really is taking hold, as it should and as is predicted by most of the best neo-Keynesian models.