How much are auto workers paid in Mexico?

The Washington Post reports that “The Center for Automotive Research, a Michigan-based think tank, found that in salaries and benefits, car companies pay an average of $8 an hour for Mexican workers, while in the United States that figure would be four to seven times as high.” A few paragraphs later it reports on a walkout at a Mazda plant where the supervisor was abusive to the workers, stating that “For a job with 12-hour days, often including weekends, that paid about $75 a week — with $3 of that disappearing into union dues — some decided it was not worth it.” Forget about the weekends, $75 for twelve hour days five days a week would come out to $1.25 an hour. That is a lot less than $8. To reconcile the two either workers would have to get about $6.75 an hour in benefits or there would have to be a very high variance in wages. It is possible that both numbers are accurate. One number is an average while the other refers to a particular factory. The large discrepancy does, however, raise a lot of questions that the author and editors do not even seem to notice.

I really don't get Richard Thaler

I was listening to Here and Now yesterday and there was a discussion with Dan Gilbert and Richard Thaler about Thaler’s new book. In the discussion Thaler brought up the story of how he had told an audience of psychologists at Cornell about something like the life cycle theory of saving and how they had all laughed “hysterically.” He seemed to think it was another great example of how everyone else can see how getting a Ph.D. in economics subtracts “common sense” from economists. He probably hadn’t told them about the numerous empirical studies that found some degree of consumption smoothing. But haven’t they at least heard about the debt their students are taking on in the expectation that their future earnings will be higher. Haven’t they met anyone saving for the retirement they are looking forward to? Do they all really live as if there is no tomorrow? Really? Surely he can come up with a better example of the problem with economics than a theory that fits with common sense, casual empiricism and careful statistical analysis.

Thaler also said that the first sentence in every economics textbook is something like “People maximize utility.” Name one. It’s not in the versions of Mankiw, or Krugman and Wells, or Frank and Benanke, or Cowen and Tabarrok. I'm sorry. I really shouldn't keep letting the evidence get in the way of a clever story.

The Panic of 1907 and the Analysis of Financial Crises

I started to research the Panic of 1907 late in 2009. I came to the topic by a rather circuitous route. While working on my dissertation on the origins of the 1898 Bankruptcy Act, I also started to study the evolution of corporate reorganization, which wasn’t covered by the Act. That research ultimately appeared in Business History Review. Several important reorganization cases involved the Farmers’ Loan and Trust Company. The name was familiar to me from teaching American Economic History because of the income tax case, Pollock v. Farmers’ Loan and Trust Co., and two important railroad regulation cases, Reagan v. Farmers’ Loan and Trust Co. and Stone v. Farmers’ Loan and Trust Co.  I was curious what this company did that left its fingerprints all over nineteenth century legal and economic history. So I wrote a book about the Farmers’ Loan and Trust company and its influence on the law.

About the time that I finished the book there was increased attention to the Panic of 1907. The descriptions of New York City trust companies as novel, unregulated and reckless did not fit with what I had been reading and writing about trust companies like the Farmers’ Loan and Trust Co.  So I ended up writing a paper that argued that the panic was not the result of inadequate regulation of trust companies and that to understand the Panic one has to understand that not all trust companies were the same.

 What is really remarkable is that we know so much more about the panic of 1907 than when I started my work in 2009.

Rodgers and Payne have shown how gold shipments from France played a role in ending the Panic.

Hilt, Frydman and Zhou show how the Panic impacted the companies doing business with the trust companies that experienced runs.

Moen and Tallman, who were ahead of the curve in re-examining the Panic of 1907, have examined the transmission of the panic as well as  how the Clearing House Association helped to alleviate the Panic.

Most recently, Fohlin, Gehrig and Haas have shown the role that lack of transparency played in the panic in the stock market.

I believe that we have a much more about what happened in 1907 than we did just a few years ago, but these additions to our knowledge about financial crises in history should also promote caution. I like to think that my work will stand up to the test of time, but I’m sure previous authors did as well. It seems to me that the fact that we are still learning about the Panic of 1907 should cause economists to speak with some caution about the current economic events.

Stoller on Goffman and Ethnography

Paul Stoller examines the Goffman controversy and the future of ethnography. He recognizes that there are really two different sorts of issues involved. The first has to do with her interactions with her subjects. Stoller argues that emotional involvement with one’s subjects is likely to occur in ethnographic research and that ethical dilemmas can arise from getting close to one’s subjects.

“doing ethnography, like living life, involves love and hate, fidelity and betrayal, and courage and fear. Sometimes ethnographic experience brings us to face to face with issues of life and death--the real stuff of the human condition.”

 This seems reasonable, though, if in the process of research someone commits a crime, I think they should be prepared to accept the consequences.

 

Unfortunately, when he gets to the second issue, which has to do with methodology, I think he throws up a straw man. He asks

“But can we trust ethnographic accounts? Can ethnographers get "it" right? Given the infinite complexities of the social laboratory "the quest for certainty," as the philosopher John Dewey put it, is an illusion. If ethnographers cannot provide a perfect, scientifically verifiable representation of reality, how can anyone judge the contribution of an ethnographic work? This question, which has been raised by some of Goffman's critics, fails to fully appreciate the aim of ethnography.”

I believe we should try to get it right, but I think most of recognize that out understanding of the world is always incomplete, we can only have varying degrees of certainty depending on the degree to which the available evidence appears to support or contradict a particular belief.  I certainly do not want everyone to follow some supposed model of what is “scientific.” I don’t even know what “scientifically verifiable” means.

What I do ask is that a scholar’s attempts to persuade me involve more than saying “trust me.” What appears to be lacking in Goffman’s work is a means by which one can determine whether or not her interpretation is based upon empirical evidence, her observations, or on her imagination. This is particularly problematic because of the numerous inconsistencies within the story that she tells and the inability to find evidence consistent with some of her claims, described here and here and here and here.

In his own work on sorcerers, Stoller reported which villages he worked in. If I thought his stories of sorcery were a little far-fetched, I could visit Tillaberi and see if my observations of sorcerers resembled Stoller’s; I could even ask people if they had any recollection of Stoller. Anthropologists have done this and, occasionally, challenged the validity of earlier ethnographies: Mead on Somoa, and Chagnon on the Yanomami. It doesn’t seem to me that this sort of follow up is possible for Goffman’s study. Goffman writes about an anonymous group of people in an unidentified neighborhood in Philadelphia. Yes, I could go to Philadelphia, but if my experience was completely different than Goffman’s should could just say I got the wrong neighborhood. The problem is not that her work isn’t verifiable; the problem is that her work does not appear to be falsifiable. Any evidence that appears to contradict her work will be explained away.

I want to know how an impartial, or even critical, observer can evaluate her evidence. Michael LaCours and Michael Bellisales, just to name two, have shown that “just trust me” is not enough.

Mostly economic history

Geoffrey Jones on the role of history in business.

Did people in the U.S. actually get shorter during the Industrial Revolution? Maybe not Bodenhorn, Guinnane and Mroz and  Ariell Zimran. (HT @pseudoerasmus)

Pseudoerasmus on famines.

Business History Conference program

Economic History Association program

Special issue of Journal of Financial Stability on alternatives to the Fed. Lawrence White advocates a return to a commodity standardOn the other hand, the St. Louis Fed doesn’t think a return to gold would be such a good idea. . Also, here is George Selgin on 10 things economists should know about the gold standard. Selgin argues out that most of the problems that arose under the gold standard arose less from the gold standard itself than from attempts to interfere with it. I agree with a lot of what he has to say, but I wouldn’t go so far as to say “That U.S. financial crises during the gold standard era had more to do with U.S. financial regulations than with the workings of the gold standard itself is recognized by all competent financial historians.” I do think that U.S. financial regulations were largely responsible for financial crises, but I am not prepared to call anyone who disagrees with me incompetent. Hanes and Rhode, for instance make a case for a combination of  cotton crops and the gold standard.

But I assume if we had a gold standard again governments would interfere with it just like they did back then.  

While I do not regard all advocates of the gold standard as nuts, I am skeptical that it would be a good idea. First, there seemed to be a fair amount of manipulation of gold flows. Attempts by the Bank of England to prevent the outflow of gold played a role in several U.S. Panics, e.g. 1837 and 1907, and Irwin has made a case that France’s sterilization of gold inflows played a significant role in causing the Great Depression. Second, when push comes to shove, countries abandon the gold standard. In other words, it’s not obvious why a commitment to uphold a commodity standard should be more convincing than a commitment to strictly adhere to a rule to target money supply growth, inflation, NGDP, or something else.   

 

And here is another take on the Alice Goffman controversy.

What is a rational choice?

 Many people know that economists use models of rational choice. But what does that mean?

Ruth Marcus explains to her readers that, “Economically speaking, the decision to have children is not utility-maximizing. And yet, most of us — intentionally, passionately, joyfully — make this least rational of choices. More than once.”

The economist Richard Thaler makes similar statements in the New York Times, as well as in his new book

“Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant.”

Thaler goes on to explain that

 “An Econ would not expect a gift on the day of the year in which she happened to get married, or be born. What difference do these arbitrary dates make? In fact, Econs would be perplexed by the idea of gifts. An Econ would know that cash is the best possible gift; it allows the recipient to buy whatever is optimal. But unless you are married to an economist, I don’t advise giving cash on your next anniversary. Come to think of it, even if your spouse is an economist, this is not a great idea.”

The problem is that all this is a bunch of nonsense. Utility simply means satisfaction. If you are doing something “intentionally, passionately, joyfully” it seems fair to assume you are getting a great deal of utility from it. How are people “totally lacking in emotions” going to get satisfaction from anything?

What do economists actually mean by rational choice? I’ll let Gary Becker explain:

“What is meant by rational behavior? Consider first what is not meant. Certainly not that people are necessarily selfish, “economic men” solely concerned with their own well being. That would rule out charity and love for children, spouses, relatives or anyone else, and a model of rational behavior could not be so grossly inconsistent with actual behavior and still be useful. A viable definition of rationality must not exclude charity and love: indeed consistent family behavior probably requires love between family members.

                Also, rationality should not imply that each household’s decisions are necessarily independent of those made by others. Different households are linked ultimately by a common cultural inheritance and background, and they may also be linked in a more proximate way. If household j increases its consumption of X, household I might be led to change its consumption of X. Such interdependencies commonly occur, and should be consistent with our model of rational behavior.

                The essence of the model of rational behavior is contained in just two assumptions: each consumer has an ordered sort of preferences, and he chooses the most preferred position available to him.” Becker Economic Theory pages 25 and 26)

Preferences can, and often are, driven by emotions. Preferences are also influenced by the culture we live in and the people we live with.

The one thing that the rational choice approach does not do is to say what people should want. This, of course, makes the traditional economic approach very different from a behavioral economic approach that seeks to “nudge” people to do what Richard Thaler thinks they should do.   

On The Run and Social Science Research Methods

There has been a lot more about Alice Goffman’s On the Run the last few days.

Lubet’s review

Goffman’s response to Lubet

Lubet’s response to the response

The Volokh Conspiracy

The anonymous 40 page critique of Goffman’s work

Philip Cohen

 

Although, much of the attention has been focused on the issue of her possible criminal conduct, it is the methodology of her project that really concerns me. I have not yet read the book. I have, however, read her paper in the American Sociological Review that was based upon the same research. She claims to have spent six years studying the residents of a neighborhood in Philadelphia. The name of the neighborhood is a pseudonym as are the names of all the individuals. Consequently, it is not possible to verify any of her claims. It is not even possible to check her account against her own field notes. She claims to have destroyed them. All of this is ostensibly to protect the people who are described in the book.

Her entire methodology is so alien to my view of research in the social sciences I find it hard to comprehend. It is not her immersion in the culture of the people she was studying that concerns me. It seems like a legitimate method of qualitiative research. Whether you use qualitative or quantitative methods should be determined by the question you are trying to answer. What puzzles me is the complete lack of accountability. One of the essential elements of good historical research is to be clear about the relationship between your conclusions and the sources that you use. Anyone should be able to follow your trail of sources to see if it leads to your conclusions. Is anyone going to believe you if you say that you use evidence from a secret notebook at an undisclosed archive? Could you write a history dissertation at Princeton based upon a secret diary that you say you destroyed to protect the author’s privacy?  In economics you are generally expected to be ready to present you data to other researchers or have a very good reason why you cannot. The American Economic Review, for instance, expects authors to make their data available. Reinhart and Rogoff got in trouble a while back for a spreadsheet error, but we should not forget that when a graduate student asked for the data they gave it to him. Goffman’s entire body of research appears to depend on “Just trust me.”

I am not saying that she lied. There are troubling inconsistencies within her accounts and between her accounts and other evidence. And her response to Lubet’s suggestion that she had committed a crime only adds another inconsistency. Her account in the book is completely different than the account in her response. Even if there were not inconsistencies, I would be concerned about a methodology that places so much weight trusting the author. The rewards in the social sciences for coming up with results that are deemed interesting and important are considerable. Goffman got a Ph. D. from Princeton, a best dissertation award, a book contract, a publication in the American Sociological Review, a TED talk, and a job at the University of Wisconsin. The temptations to give people what they want are too great to rely upon a methodology that provides no means for subsequent researchers to evaluate the evidence.

 

Note about the anonymous critique: Some might wonder why I am willing to link to an anonymous critique when I have such a problem with the anonymity in Goffman’s work. I have seen discussion on the web suggesting that because this critique is anonymous it should be completely disregarded. I don’t know why the author prefers to remain anonymous. As long as their argument is not based upon their authority I do not really care. The Federalist papers were published under a pseudonym. Gosset’s work on the t distribution was published under a pseudonym. I do not regard anonymity itself as a problem. The anonymous author of the critique does not at any point ask me to just trust them. There is nothing in their argument that hinges on their identity rather than the evidence.

   

Hobbes and GameTheory

In Hobbled by Hobbes Christopher Ryan argues that the anthropological and archeological evidence is inconsistent with Steven Pinker’s interpretation of long term trends in violence. I don’t yet have a firm opinion about that issue, but Ryan also refers to Pinker and others as neo-Hobbesian. He explains that

“For reasons having nothing to do with scientific accuracy, Hobbes’ dire sloganeering about the misery of pre-civilized human life echoes down the centuries. Who among us, three and a half centuries later, has not heard that our ancestors’ lives were “solitary, poor, nasty, brutish and short”? This demonization of human existence in pre-state societies is essential to preserving the legitimacy of God and country—both of which run a protection racket promising to guard us against our own demonic inner nature. Hobbes’ infectious meme is certainly among the most famous phrases ever penned in the English language, and it shows no sign of fading. Indeed, his dismal view of human nature is still being enthusiastically spread by neo-Hobbesian presidents, pundits and professors.”

I have thought for some time that Hobbes view of human nature has been somewhat misinterpreted. In Chapter 11 of Leviathan he describes his view of human nature:

“So that in the first place, I put for a general inclination of all mankind, a perpetual and restless desire of power after power that ceaseth only in death.”

 That does sound like a pretty dismal view of human nature, but then he explains:

“And the cause of this is, is not always that a man hopes for a more intensive delight than he has already attained to; or that he cannot be content with a moderate amount of power; but because he cannot assure the power and means to live well, which he hath at present without the acquisition of more.”

In Hobbes view the problem was less our demonic human nature than that people are essentially a prisoners’ dilemma type game, a multi-person arms race.

Just make it up

I have written several times about how Edward Baptist just makes up numbers for his estimate of the importance of slavery to American economic development. It turns out that he is on to something. Just making things up seems to be very popular in the social sciences now. Here is some recent just making things up in sociology, and here is some recent just making things up in political science. All of these examples share three things in common:

1.       They just made stuff up.

2.       It wasn’t that hard to see that they just made things up.

3.       The all got glowing reviews or awards because their conclusions confirmed the beliefs of the reviewers.

Of course, this isn’t really new

Anthropology

Psychology

More history

Sort of related to economic history

We just spent the weekend driving from Fredericksburg to St. Louis and back (for Mary's parents 60th anniversary). We stayed a night in Louisville because we wanted to eat at 610 Magnolia. The meal was very good, but we wished that there had been more Smoke and Pickles. We stayed a few blocks away from the restaurant at the Culbertson Mansion on 3^rd Street, one of the many amazing homes built along that street in the 1880s and 1890s. Our brief stay made me curious about the economic history of Louisville, particularly the Southern Exposition.

In St. Louis, we discovered the Urban Chestnut Brewing Company. While living in München  in the summer of 1997 I discovered that I had a taste for weissbier, and Urban Chestnut makes a very good one, though Schneider Weisse is still my favorite. If you are in St. Louis, the food at their Bierhall is also quite good.

Some big picture economic history

Robin Grier talks with Marshall Poe about The Long Process of Development: Building Markets and States in Pre Industrial England, Spain and the Colonies her new book with Jerry Hough at the New Books Network. She argues that state capability is an essential (though hard to develop) ingredient for economic growth.

Jeremy Adelman considers “What Caused Capitalism?” as he reviews some recent books.

Education, Economics and History

Here is a nice essay on the benefits of higher education from the New York Times.

 

Also from the New York Times is Mankiw on the economics of trade and the politics of trade.

 

Here is more from Pseudoerasmus on cotton and economic growth, highlighting McCloskey’s argument about the role of cotton in the Industrial Revolution.

 

Speaking of cotton and economic growth, The Half Has Never Been Told won two awards last week. I feel like the boy who said the emperor has no clothes, except I keep saying the Baptist has no evidence.

 

It is not a great work of history; it is not good work of history, and it should be obvious to any historian who reads the book.

 

1.       Baptist misrepresents the historiography of slavery and his references are often missing or misleading.  See also an earlier post of mine and the recent post by Pseudoerasmus

 

2.       Baptist makes glaring factual errors.

 

3.       Baptist does not make a pretense of using evidence to support some of his conclusions. To me the most obvious problem, one that even non-historians should be able to see, is the way that he makes up an estimate of the economic importance of slavery. Many people have suggested that the book shows how slavery was central to the development of the American economy. That argument hinges on this calculation, and the numbers in that calculation are clearly just made up. To me, this tendency to just make things up is the most damning of the problems with the book. Although it can’t be proven, I suspect that every book on history contains some error. We all make mistakes. Consequently, problems with historiography, facts and citation are matters of degree. It is difficult to say at what point such mistakes start to raise doubts about the book as a whole. On the other hand, making up numbers is not a mistake. It is not like misremembering a date, or name, or citation. It demonstrates a fundamental disregard for the role of evidence in historical argument.

What Is Capitalism?

S-USIH.org has the fourth of James Livingston’s essays on What is Called History at the End of Modernity. among other tings, Livingston is interested in recent assertions that slavery was capitalist. Like many of the people who have commented on the essay, I was reminded of the debate between Brenner and Wallerstein in the 1970s, but I also thought of this from Beckert’s Empire of Cotton

 

“In 1980 the Soviet Union produced nearly 6 billion pounds of cotton, making it the world’s largest producer after China. These stratospheric gains—production increased by about 70 percent between 1950 and 1966 alone—were only possible because of massive state investments in irrigation, fertilizers and machinery.

                Such recourse to the state in postcolonial and postcapitalist societies was not a return to the war capitalism of the eighteenth and early nineteenth centuries, but a sharpening of the tools and enhancing of the methods of industrial capitalism.” (Empire of Cotton pages 435-36)

Maybe I am reading this the wrong way, but it seems to say that the rapid growth of cotton production in the USSR and China was “a sharpening of the tools and enhancing of the methods of industrial capitalism.” It is not just slavery that is capitalist, communism is capitalist. If communism is capitalism, is capitalism a useful category for the analysis of economies?

Clearly, there is a place for the study of capitalism.  If nothing else, we need to try to understand how people have used the term in different places and times. What is not clear is how useful it is as a tool to analyze economic history.

In economics it seems to me that capitalism has largely gone out of fashion as a useful category for analysis. Economists used to write about capitalism on a regular basis (for example, Schumpeter’s Capitalism, Socialism and Democracy; Friedman’s Capitalism and Freedom; and Williamson’s Economic Institutions of Capitalism).  Many departments of economics offered courses in Comparative Economic Systems that examined the differences between capitalism, communism and socialism. Comparative economic systems courses went out of fashion with the decline of communism. More generally, it wasn’t clear that traditional notions of what capitalism were useful for understanding big questions like growth and distribution.  New institutional economists generally seem to regard the old categories used in comparative economic systems as inadequate.

 

Standards of Accuracy in Historical Scholarship

At H-SHEAR Daniel Feller writes about Standards of Accuracy in Historical Scholarship in recent works by Johnson and Baptist and starts an interesting discussion.

 

Another Rant on Cotton and Growth

This is one of the reasons why books like Empire of Cotton and The Half has Never Been Told irritate me so much. People like Harold Myerson start spreading their misinformation in newspapers like the Washington Post. Myerson writes that

“For much of the 20th century, the prevailing view of the North-South conflict was that it had pitted the increasingly advanced capitalist economy of the North against the pre-modern, quasi-feudal economy of the South. In recent years, however, a spate of new histories has placed the antebellum cotton economy of the South at the very center of 19th-century capitalism. Works such as “Empire of Cotton,” by Harvard historian Sven Beckert, and “The Half Has Never Been Told,” by Cornell University historian Edward E. Baptist, have documented how slave-produced cotton was the largest and most lucrative industry in America’s antebellum economy, the source of the fortunes of New York-based traders and investors and of British manufacturers. The rise in profitability, Baptist shows, resulted in large part from the increased brutalization of the slave work force.”

Was the prevailing view that the South was quasi-feudal? No. Anyone who had read any economic history in the last 60 years knew better.

Was slave produced cotton the largest and most lucrative industry? No. Cotton was the largest export, but not the largest product; both wheat and corn exceeded cotton in the value of crops produced (based on estimates from De Bows Statistical View). Cotton production amounted to about 4 % of GDP.

 

Have they documented how slave produced cotton was the source of the fortunes of New York based traders and investors? No. I think this will be rather difficult for them to do. According to Albion’s Rise of New York Port, in 1860 only $12.4 million worth of cotton was exported from New York, while more than $96 million was exported from New Orleans, smaller southern ports like Charleston and Savanah also exported more cotton than New York. Cotton accounted for a small share of the more than $120 million in exports from New York. Moreover the $233 million in imports that came through New York dwarfed the value of exports from the port. In other words, cotton accounted for a relatively small share of the shipping activity in New York. In addition, while some New York investors no doubt profited from slavery, at least some others saw slavery as a liability in financial markets. When Lewis Curtis of the Farmers Loan and Trust Company wrote to the Rothschilds in June 1838, trying to interest them in bonds to finance railroad construction in Michigan, he underlined that “it is a Free State and Slavery is prohibited.”  I do not know that the Rothschilds cared, but Curtis clearly thought they might. The bottom line is that we do not yet know the extent to which fortunes of New York traders and investors were built on cotton. So far, it has only been asserted; it has not been established with evidence.

Maybe I am wrong, but at least I will tell you what evidence I am basing my conclusions on.

Cheap as Chips

An essay on open access from the blog of the Omohundro Institute.

" Debates about Open Access often take place at a level of abstraction that privileges not simply clichés about technology (“Information wants to be free”) and statements of moral principle (“Impeding the circulation of knowledge hinders human progress”) but also assertions about out-of-control costs.  The comparator in these conversations, in short, is never an order of french fries.  Instead, it’s the thousands upon thousands of dollars charged by commercial publishers for access to STEM journals.  And fair enough.  There are discussions that need to be had about access to scholarship and the transfer of resources from educational institutions to private companies.  (For Karin’s recent contribution to those discussions, see her guest post on the Scholarly Kitchen blog.)  But those conversations must also recognize that there are other realities out there."