Some Thoughts on the 1619 Project

I’m not sure how much of an impact the 1619 Project will have on the public, but it has certainly gotten a lot of academic historians wound up. Historians at the American Institute for Economic Research and the World Socialist Web Site have both criticized the Project. Talk about politics making strange bedfellows. Peter Coclanis is the latest to criticize it. And, of course, everyone with a Twitter account has an opinion. More than a few seem to be of the opinion that the entire project is tainted by bias and invalid. Others are certain that the biases of the critics are the problem.

I’m not an opponent of the project. I agree with Beckert and Rothman that “American slavery is necessarily imprinted on the DNA of American capitalism,” And there is a lot of recent and ongoing research that demonstrates the fruitfulness of this research program. For a small sample of recent work related to economics and politics see Acharya, Blackwell and Sen;  Yeonha Jung,; and Jhacova Williams. And some of the quibbling about things like whether or not the people transported against their will from Africa and sold in Virginia were "slaves" just does not make sense to me.

That said, I do think there are some significant errors in the Desmond essay and the shorter essays that were incorporated into it. These are the essays most closely related to American economic history, my own field of research and teaching. What I mean by errors are claims that are not supported by the available evidence. There are other things I could argue with. For instance, Desmond talks a lot about capitalism, but doesn’t tell us what capitalism is. This is a problem because there are a lot of different definitions of capitalism and people disagree strongly about them. Personally, I think this renders it more of a distraction than a useful category of analysis. But that is something people can argue about. What I mean by error here are specific claims that are not supported by evidence.

Quoted material is in bold.
 

Describing the Panic of 1837, Desmond writes that “When the price of cotton tumbled, it pulled down the value of enslaved workers and land along with it. People bought for $2,000 were now selling for $60. Today, we would say the planters’ debt was “toxic.”

The figure below shows the price of slaves during the antebellum period (Historical Statistics of the United States Millennium Edition Series (series Bb211 and Bb212).  It has both the average and the price for prime field hands. There is a large decrease in prices after the Panic of 1837, but nothing on the order of what Desmond suggests. The high figure that Desmond cites is well above the highest price for prime age field hands, and the lowest price is well below the lowest average. It may be that Desmond has evidence that would support this claim, but there is nothing indicating what the claim is based on. 

Mehrsa Baradaran writes that “At the start of the Civil War, only states could charter banks. It wasn’t until the National Currency Act of 1863 and the National Bank Act of 1864 passed at the height of the Civil War that banks operated in this country on a national scale, with federal oversight.”

The federal government could charter banks before the Civil War. It had chartered banks: the Bank of the United States and the Second Bank of the United States (and I think a couple of banks in D.C.). The two Banks of the United States operated on a national scale (they had branches in multiple states), but the national banks chartered under this new legislation did not operate on a national scale. Like most state banks, national banks did not have branches.

Desmond suggests that “When an accountant depreciates an asset to save on taxes or when a midlevel manager spends an afternoon filling in rows and columns on an Excel spreadsheet, they are repeating business procedures whose roots twist back to slave-labor camps. And yet, despite this, “slavery plays almost no role in histories of management,” notes the historian Caitlin Rosenthal in her book “Accounting for Slavery.” Since the 1977 publication of Alfred Chandler’s classic study, “The Visible Hand,” historians have tended to connect the development of modern business practices to the 19th-century railroad industry, viewing plantation slavery as precapitalistic, even primitive. It’s a more comforting origin story, one that protects the idea that America’s economic ascendancy developed not because of, but in spite of, millions of black people toiling on plantations. But management techniques used by 19th-century corporations were implemented during the previous century by plantation owners. It was rational, capitalistic, all part of the plantation’s design.

This is drawn from the work of Caitlin Rosenthal. I really like Rosenthal’s book, but she is very explicit that she is not telling an origin story. She demonstrates how slave owners developed management practices to increase their profits and how those ideas spread. But she states that she does not claim that they were the source for modern management practices.

Desmond also claims that “A majority of credit powering the American slave economy came from the London money market.

 

I don’t think we know this. We know that some English credit went toward financing the shipment of cotton, as well as the purchase of land and slaves, but, to the best of my knowledge, no one knows what proportion of credit originated in England. It may be true that most of the money came from London, but we do not know. If Desmond actually has evidence to support this I hope that he publishes it.

Regarding the Industrial Revolution Desmond claims that “The large-scale cultivation of cotton hastened the invention of the factory, an institution that propelled the Industrial Revolution and changed the course of history.”

This statement reverses the chronology. Cotton mills mechanized and powered by water or steam preceded the large scale cultivation of cotton in the United States by decades. It would be more accurate to say that the factory hastened the large scale cultivation of cotton by enslaved people in the United States.

Writing about New York City, Tiya Miles states that “As the historian David Quigley has demonstrated, New York City’s phenomenal economic consolidation came as a result of its dominance in the Southern cotton trade, facilitated by the construction of the Erie Canal. It was in this moment — the early decades of the 1800s — that New York City gained its status as a financial behemoth through shipping raw cotton to Europe and bankrolling the boom industry that slavery made.”

First, it is not clear how the Erie Canal facilitated New York’s dominance of the cotton trade. Second, does Quigley provide evidence to demonstrate that New York’s economic consolidation came as a result of its dominance of the cotton trade. 

Quigley argued for the importance of the South to New York’s economic development in “Southern Slavery in a Free City: Economy, Politics and Culture,” in Slavery in New York, edited by Ira Berlin and Leslie Harris, The New Press, 2005 (companion volume to major exhibition at the New-York Historical Society, 2005-2007). In this essay, he does make strong claims about the role of slave produced cotton in the economic evolution of New York City. For instance, he writes:

“Slavery and slave produced goods helped propel the city’s prosperity throughout the early nineteenth century. The records of the city’s cotton exchange and individual trading houses illuminate the centrality of the Southern trade to New York’s booming antebellum economy. Alongside the opening of the Erie Canal in the 1820s, local merchants’ success in establishing and maintaining long term business ties to the Southern planter class fueled New York’s financial ascendancy. The city’s merchants came to dominate the export market for cotton and served as critical middlemen for the domestic cotton trade, and metropolitan tradesmen disproportionately benefited from Southern consumerism by mid-century” (page 266).

Quigley’s interpretation differs from Miles. In Quigley, the Erie Canal is not presented as a means of garnering the Southern trade. The Southern trade is presented as adding to the effects of the opening of the canal. Consequently, the Southern trade is not “the” cause of New York’s rise to economic prominence. But does Quigley’s evidence support even these milder claims? 

Guigley relies mostly upon other secondary sources, particularly the work of Richard Albion and an essay by Lampard (Lampard, Eric E. "The New York metropolis in transformation: history and prospect. A study in historical particularity." The Future of the Metropolis. Berlin: Walter de Gruyter, Inc (1986): 27-110). But these citations do not provide evidence that would support the conclusion that New York’s dominance of the cotton trade propelled its economic ascendancy. In fact, it is difficult to make a case that New York dominated the cotton trade.

Consider the following graphs. The first shows the number of bales exported from leading ports (Donnell, Ezekiel J. Chronological and statistical history of cotton. 1872.). The second shows the exports and imports of New York and New Orleans in millions of dollars (Albion Rise of New York Port Appendices II and III). Most cotton was exported from New Orleans. And its share was growing over the antebellum period. The trade that New York dominated was imports (and immigration). Imports, not exports, were what made New York the largest port in the United States.

Some people will argue that the South needed to use New York, ships, banks, and insurance companies? But the size of these connections have been asserted rather than established with evidence. Again, this is one of the areas in which we know there were connections, but to the best of my knowledge no one has estimated the extent of these connections or their relative importance to the New York economy. It should, however, be noted that the South was not entirely dependent on the North, let alone New York. Much recent research has noted the role of significance of financial development in the South. As Desmond noted in his essay, New Orleans was one of the most banked cities in the country. Richard Kilbourne concluded that much of the finance for slave purchases in Louisiana came from local sources. Sharon Anne Murphy and Karen Ryder found that insurance companies in the South took a leading role in the sale of policies to insure enslaved people. People and corporations in New York were involved in the cotton trade (and tobacco, rice and sugar) but we don’t have good estimates of the size of this involvement. Given margin of imports over exports and the fact that most cotton left through New Orleans it is hard to support a claim that New York’s economic rise was du to its dominance of the cotton trade.

Finally, I do have to say that I think that presenting Edward Baptist as reliable authority on the history of slavery in America is also  an error because it is not supported by the available evidence. See here for details.

Bankrupt in America

Bankrupt in America: A History of Debtors, Their Creditors and the Law in the Twentieth Century will be published by The University of Chicago Press in January 2020.

In the meantime, here are the review quotes:

Lee J. Alston, Indiana University

“Bankrupt in America is a tour de force analysis of bankruptcy legislation and its impact over the twentieth century. It shows the interplay among state and federal legislation, economic conditions, social stigma, and the role of certain individuals in accounting for changes over time and across states. The authors offer an institutional and cliometric account that deftly draws on economics, history, law and political science. It will become the resource for many scholars, and I hope legislators.”

Hugh Rockoff, Rutgers University

“Mary and Bradley Hansen have presented us with a superb economic history of personal bankruptcy laws in the United States in the twentieth century. They have collected large quantitative databases and subjected them to careful statistical analysis—cliometricians will applaud—but they have also analyzed the interest-group politics that shaped the bankruptcy laws, and provided us with numerous stories of individuals coping with debt and bankruptcy which make the economic analysis come alive. Bankrupt in America will become a classic—the book that generations of economic historians will cite as the authoritative source. But the book is also timely, as we have come to realize that the social safety net, of which the bankruptcy laws form an important part, has become increasingly frayed.”

David Skeel, University of Pennsylvania

“Bankrupt in America is a wonderful combination of history, institutional analysis, and empirical economics, all in the same book. The book is full of important new insights into twentieth and early twenty-first century American consumer bankruptcy, including the authors’ remarkable discovery that the principal determinants of consumer bankruptcy have often been the supply of consumer credit and the stringency of state garnishment laws, rather than changes in bankruptcy law itself. Bankrupt in America is destined to become an empirically rigorous companion to classics of American consumer finance such as Lendol Calder’s Financing the American Dream.”

A Description of the Problems with Edward Baptist's "The Half Has Never Been Told" for Non-Economists

I’m writing this because Nikole Hannah Jones said on Twitter that she was trying to understand the argument that economic historians have against the work of Edward Baptist but had a problem with some of the terminology used by economists. I usually try to avoid economic jargon, but today I have tried even harder. If there are terms that are unclear please let me know. I'm also writing this because Ben Schneider suggested I give it a try.

I can write this without reference to economic terminology because, although I could point to problems related to economics, the fundamental flaws in the book arise from Baptist’s historical methods, not his economics. In The Half Has Never Been Told, Baptist misrepresents previous scholarship on slavery, misrepresents the content of primary sources, and fabricates evidence to support his claims. Ultimately, economic historians object to the inclusion of Baptist as a source for the 1619 Project because doing so lends credence to his position as an expert on slavery and economic development that is not warranted by his book.

These fundamental flaws can be illustrated in key elements of the book:

Baptist claims that most economists and historians accepted the view that slavery was inefficient and, in some sense, pre-capitalist. Consequently, he claims to overturn this traditional view.

Baptist does not just claim that slavery was an important part of American economic development, he makes specific claims about economic impact of slave produced cotton and its spillover effects.

Baptist claims that the increases in productivity were driven by continuing increases in violence, what he claims enslaved people called the pushing system, and what he sometimes calls “the whipping machine.”

Claims about the history of slavery in the United States

Baptist misrepresents the work of earlier economists and historians. On page 129 Baptist writes that “during the late antebellum years, northern travelers insisted that slave labor was less efficient than free labor, a point of dogma that most historians and economists have accepted.” The footnote for this statement does not provide any evidence to support it, which is not surprising since you would be hard pressed to find an economic historian who does accept it. It has been more than a half century since In 1958, Conrad and Meyer argued that investment in slaves had a return comparable to other potential investments Conrad, Alfred H., and John R. Meyer. "The economics of slavery in the ante bellum South." Journal of Political Economy 66, no. 2 (1958): 95-130). In the 1970s, Fogel and Engerman argued that slave agriculture was as dynamic a version of capitalism as existed anywhere in the United States. In awarding the Nobel Prize to Fogel in 1993, the Nobel committee stated that “Fogel showed that the established opinion that slavery was an ineffective, unprofitable and pre-capitalist organization was incorrect. The institution did not fall to pieces due to its economic weakness but collapsed because of political decisions. He showed that the system, in spite of its inhumanity, had been economically efficient.” In other words, Fogel won the Nobel Prize, in part, for overturning the view that Baptist claims he is overturning.

Research on the economics of slavery was one of the core elements in the development of economic history during the 1960s and 1970s, illustrating how economic theory and statistics could be used to address historical questions. Consequently, it is not surprising that when Robert Whaples surveyed a sample of both economists and historians who worked on economic history about slavery the answers were nearly unanimous. He asked them whether they generally agreed, agreed with provisos, or generally disagreed with a series of statements. For the statement “Slavery was a system irrationally kept in existence by plantation owners who failed to perceive or were indifferent to their best economic interests,” ninety-three percent of economists and ninety percent of historians disagreed with the statement. For the statement “The slave system was economically moribund on the eve of the Civil War,” ninety-eight percent of economists and ninety-five percent of historians disagreed. (Whaples, Robert. "Where is there consensus among American economic historians? The results of a survey on forty propositions." The Journal of Economic History 55, no. 1 (1995): 139-154.) Economists do not disagree with the argument that slavery in the United States was dynamic, innovative and profit focused because economists have been collecting evidence to support those claims for more than a half century. It is difficult to imagine the circumstances under which someone studying the research on slavery could have come to the conclusion that economic historians believed that slavery was inefficient.

Similarly, Peter James Hudson and H. Reuben Neptune both argue that Baptist and other historians of capitalism and slavery neglect the work on slavery and capitalism by Black scholars (Hudson, Peter James. "The racist dawn of capitalism." Boston Review 14 (2016), and Neptune, H. Reuben. "Throwin'Scholarly Shade: Eric Williams in the New Histories of Capitalism and Slavery." Journal of the Early Republic 39.2 (2019): 299-326.)

Claims about the importance of slavery to economic development

Economists and economic historians generally agree that slavery was a very important part of American economic development. Some of the best economic historians have devoted much of their lives to understanding slavery. Baptist, however, makes specific claims about the importance of slavery that are not supported by the available evidence. Baptist provides a back of the envelope accounting of the impact of slave produced cotton

Consider Baptist’s claim that nearly half of all economic activity derived from slavery derived from production of cotton by enslaved people. He writes in The Half has Never Been Told (page 321-2)

“But here’s a back- of- the –envelope accounting of cotton’s role in the US economy in the era of slavery expansion. In 1836, the total amount of economic activity―the value of all the goods and services produced―in the United States was about $1.5 billion. Of this, the value of the cotton crop itself, total pounds multiplied by average price per pound―$77 million―was about 5 percent of that entire gross domestic product. This percentage might seem small, but after subsistence agriculture, cotton sales were the largest single source of value in the American economy. Even this number, however, barely begins to measure the goods and services directly generated by cotton production. The freight of cotton to Liverpool by sea, insurance and interest paid on commercial credit―all would bring the total to more than $100 million (see Table 4.1).

                Next come the second- order effects that comprised the goods and services necessary to produce cotton. There was the purchase of slaves―perhaps $40 million in 1836 alone, a year that made many memories of long marches forced on stolen people. Then there was the purchase of land, the cost of credit for such purchases, the pork and the corn bought at the river landings, the axes that the slaves used to clear land and the cloth they wore, even the luxury goods and other spending by the slaveholding families. All of that probably added up to about $100 million more.

                Third order effects, the hardest to calculate, included the money spent by millworkers and Illinois hog farmers, the wages paid to steamboat workers, and the revenues yielded by investments made with the profits of the merchants, manufacturers, and slave traders who derived some or all of their income either directly or indirectly from the southwestern fields. These third order effects would also include the dollars spent and spent again in communities where cotton related trades made a significant impact another category of these effects is the value of foreign goods imported on credit sustained the opposite flow of cotton. All these goods and services might have added up to $200 million. Given the short term of most commercial credit in 1836, each dollar “imported” for cotton would be turned over about twice a year: $400 million. All told more than $600 million, or almost half of the economic activity in the United States in 1836, derived directly or indirectly from cotton produced by the million odd slaves― 6 percent of the total US population―who in that year toiled in labor camps on slavery’s frontier.”

There are problems here in terms of a misunderstanding of economic concepts. Not all purchases are counted as part of GDP. Only the final value of newly produced goods and services are counted in GDP.  Comparing his calculation of economic activity related to cotton to GDP is meaningless. There is, however, an even deeper problem with the historical scholarship. There are no sources for the numbers that he puts into his calculation and even the language he uses conveys the sense that he is just making them up:

“perhaps $40 million”

“probably added up to about $100 million”

“might have added up to $200 million”

The only reference provided is to Table 4.1. Table 4.1 does not provide, as one might assume, information about shipping and insurance. It does not even have any information at all for the year 1836. Even if Baptist had understood how GDP is calculated his efforts would have been meaningless if he just made up the numbers that he plugged in. He can claim that it is just an estimate, but estimates need to be grounded in some evidence or else they are just guesstimates.

                Baptist makes other dramatic claims about the role of slavery in economic development but does not provide evidence. In this case, where he does appear to present evidence, there is in fact nothing there.

Claims about productivity growth

Again Baptist suggests that he has discovered something new: an increase in productivity (the amount of cotton produced by each enslaved person) that has largely been overlooked. Yet the increasing productivity in cotton production had long been known to economic historians. In Time on the Cross, Fogel and Engerman noted that the “The basic cause of this long run decline [in cotton prices] was the steady increase in productivity” (page 93). In 1978, Gavin Wright stated that “It is certainly true that cotton output per capita or per slave rose markedly over the last forty to sixty years before the Civil War, as several writers have noted in connection with the profitability of slavery issue.” (Wright, Gavin. The political economy of the cotton South: households, markets, and wealth in the nineteenth century. New York: Norton, 1978. Page 102) Olmstead and Rhode undertook the monumental task of collecting data from as many picking books as they could obtain in order to study the increase in productivity. For Rhode and Olmstead productivity is a function of several things: the quality of the soil, the quality of the plants, weather, and the ability to use violence to force maximum effort from the slaves picking the cotton. Baptist argues that the increases in productivity were driven by innovation in torture, leading to innovations in picking. Enslaved people were tortured to produce as much as they could but meeting one quota was just followed by a higher quota, as overseers continuously ratcheted up demands.

Baptist has suggested that Olmstead and Rhode failed to consider the possibility that slaves were picking faster and that “uncritically” used the claims of people interested in selling new seeds to support their claim. But the first claim makes no sense increase productivity means that at least in some sense they were picking faster. As for the second claim, they used a variety of sources, including planter’s diaries that recorded experiments with seeds. None of them uncritically. Their papers make clear that they considered the use of violence an essential aspect of slavery. Consider the following excerpt from their 2008 paper in the Journal of Economic History (Olmstead, Alan L., and Paul W. Rhode. "Biological innovation and productivity growth in the antebellum cotton economy." The Journal of Economic History 68, no. 4 (2008): 1123-1171.):

“Failing to meet picking standards had severe consequences. In 1834 S. A. Townes of Marion, Alabama threatened to "make those bitches go at least 100 [pounds] or whip them like the devil.” In the 1830s Dr. J. W. Monett of Mississippi asserted that after weighing an individual's daily picking, masters would whip slaves for light or trashy picking. On several occasions, Louisiana planter Bennet Barrow ordered a whipping for all hands because the output was too low. As yet another example, John Edwin Fripp of South Carolina recorded "popping" and "switching" his slaves for light picking. On the Mississippi plantation of John Quitman and Henry Turner, a number of slaves ran away rather than face punishment for light or trashy picking.”

Clearly, Olmstead and Rhode knew that picking rates and brutality were essential parts of the overseer’s recipe for productivity. Their argument is that overseers pushed enslaved people to obtain their maximum effort, and that the introduction of new breeds of cotton plants made it possible for maximum level of effort to produce more cotton.

Baptist’s argument, on the other hand, requires that overseers in the early 19^th century were not pushing slaves to their maximum, but that over time they came up with innovations that enabled them to make enslaved people work harder. Baptist, however, fails to provide the necessary evidence to support of his own claim, and, most troubling, resorts to misrepresenting the content of slave narratives to support his claim.

He provides plenty of evidence that slaves were whipped, as well as tortured in other ways, for not meeting production quotas. Baptist does not present the evidence of continuous of innovation in torture and in picking. He speculates that this innovation must have taken place but does not provide evidence of it. He presents the evidence developed by Olmstead and Rhode that slaveowners kept records of daily picking and whipped slaves for failing to meet quotas, and he suggests that the bullwhip was an innovation in torture. But neither of these things provides evidence of continuous innovation over decades. Picking books existed from at least the first decade of the nineteenth century. That is how it possible to document an increase in productivity. Moreover, Olmstead and Rhode argue that the evidence in picking books is not consistent with Baptist’s argument of constantly ratcheting up quotas (Olmstead, Alan L., and Paul W. Rhode. "Cotton, slavery, and the new history of capitalism." Explorations in Economic History 67 (2018): 1-17). Whipping was common well before cotton became the primary crop in the South and while earlier slaveholders may not have had bullwhips, they were perfectly capable of doing plenty of damage with what they did have. Ads for escaped slaves in eighteenth century Virginia have descriptions of “well scarred” or with “many whelks” or “used to the whip.” 

The second type of innovation that Baptist needs to demonstrate is a continuing process of innovation in picking techniques. Again, keep in mind that we are not talking about one person increasing their productivity as they become more experienced, we are talking about increases in productivity that take place decade after decade. Baptist’s argument is not about particular people increasing their picking rates with practice. His argument requires improvements in technique that can be passed on from one generation to another. He does not provide any evidence of this passing on of techniques.

Ironically, his argument for the importance of slave narratives as a source conflicts with his claim that innovation in coercion produced innovation in picking. Not only does he not provide examples of narratives describing these innovations in picking technique, many of the most well-known accounts, such as Charles Ball and Solomon Northrup, suggest that picking productivity was largely a matter of practice and innate dexterity. 

And here is where the most troubling problem emerges. Baptist claims that enslaved people used the phrase “pushing system.” There is, however, no evidence that this is true. Olmstead and Rhode searched digitized slave narratives that they used and found no instance of it. I ran a search on the Library of Congress digitized slave narratives and got no results.  Baptist misrepresents what formerly enslaved people said about their lives in order to support his argument. He cites extensively from Charles Ball to support his claims about a “pushing system” of “whipping machine.” At one point he notes that after much effort Ball was able to meet his quota, “And it brought him nothing but an unwhipped back for one more day.” But what did Charles Ball say? Ball explained that “On Monday morning of the second week, the overseer told us that he fixed a day’s work at fifty pounds; and that all who picked more would be paid a cent a pound for the surplus.” Women and children were assigned separate quotas. Ball goes on to note that “At the end of the month I was able to return every evening a few pounds over the daily rate, for which I received my pay.” But that would not have provided support for Baptist’s thesis.

                 Here is a link to a blogpost that I wrote earlier describing what Baptist did to Henry Clay’s story about the whipping machine. Other examples of this sort of re-writing of slave narratives can be found in Olmstead and Rhode.

                There are other problems in the book, but, in my opinion, none are as fundamental as the inability to rely upon the author to accurately represent either the primary or secondary sources.

The claims that these problems in Baptist’s work are about economic versus historical methodology or that they are driven by ideology are also not supported by the available evidence. In addition to economists, the book has been criticized by historians and at least one sociologist, several of whom are, I believe, comfortable being referred to as Marxist or radical

Burnard, Trevor. "‘The Righteous Will Shine Like the Sun’: Writing an Evocative History of Antebellum American Slavery." Slavery & Abolition 36, no. 1 (2015): 180-185.

Coclanis, Peter A. "Slavery, Capitalism, and the Problem of Misprision." Journal of American Studies 52, no. 3 (2018).

Hudson, Peter James. "The racist dawn of capitalism." Boston Review 14 (2016).

Neptune, H. Reuben. "Throwin'Scholarly Shade: Eric Williams in the New Histories of Capitalism and Slavery." Journal of the Early Republic 39.2 (2019): 299-326.

Oakes, James. "Capitalism and slavery and the civil war." International Labor and Working-Class History 89 (2016): 195-220.

and

Clegg, John J. "Capitalism and slavery." Critical Historical Studies 2, no. 2 (2015): 281-304.

That many people on Amazon find it a fine book only illustrates the problem. People assume that historians are telling them the truth. Non-historians see all the references to historical sources and think that it is a carefully researched and compelling piece of scholarship. More historians must be willing step forward and tell people when this is not the case.

Economics needs better critics: Jared Bernstein edition

A couple of weeks ago Vox.com published and essay by Jared Bernstein titled “What economists have gotten wrong for decades: Four economic ideas disproven by reality.” I was unaware of it until a discussion emerged on twitter last week, in which people were offering explanations for why economists were not only wrong but wrong in ways that harmed lower income people disproportionately. The discussion was irritating because it was premised on the assumption that Bernstein’s essay was a accurate, when nothing could be further from the truth. The four economic ideas are not economic ideas at all. 

Bernstein begins by describing Alexandria Ocasio-Cortez questioning Jerome Powell, the Chair of the Federal Reserve, about the natural rate of unemployment:

“The topic was the so-called natural rate of unemployment: the idea, believed by many economists and policymakers, that there is a rate at which unemployment could get so low that it could trigger ever-rising inflation.”

He then went on to argue that the natural rate is one of a number of things that economists have gotten wrong and that have hurt low income individuals:

“The natural rate of unemployment that AOC questioned is one such idea (more on that below). There are three others worth singling out:

• that globalization is a win-win proposition for all, an idea that has deservedly taken a battering in recent years;
• that federal budget deficits “crowd out” private investments; and
• that the minimum wage will only have negative effects on jobs and workers.

Economists and policymakers have gotten these ideas wrong for decades, at great cost to the public. Especially hard hit have been the most economically vulnerable, and these mistakes can certainly be blamed for the rise of inequality. It’s time we moved on from them.”

This is pretty much all wrong. The statements about globalization and the minimum wage are flat out false. They are not consistent with basic economic theory. You will not find them in any textbook that I know of. They are not consistent with any economic research that I know of. The other two statements contain a grain of truth, but are poorly explained by Bernstein.

The Natural Rate of Unemployment

Is there a rate of unemployment below which inflation will start to accelerate? I would answer “Yes.” And I think most economists would agree with me. What is that rate? I would answer “Damned if I know.” And I think most economists would agree with me. The problem is that the rate at which inflation will start to accelerate does not appear to be constant. In addition, as Betsey Stevenson pointed out in a recent article in the Washington Post the Fed’s actions have made it more difficult to identify the relationship.

In order to completely deny the idea of a rate of unemployment below which inflation will accelerate you would have to claim that the unemployment rate could go down almost to zero without causing prices to increase. Certainly, our experience during WWII when government demand drove the unemployment rate down well below normal levels does not support this conclusion. Price increases eventually led to government price controls and rationing.

Globalization

Next Bernstein turns to the economic theory suggesting that globalization is win-win for all. But half-way through his discussion of globalization he throws this in:

“But the theory never said expanded trade would be win-win for all. Instead, it (and its more contemporary extensions) explicitly said that expanded trade generates winners and losers, and that the latter would be our blue-collar production workers exposed to international competition. True, the theory maintained (correctly in my view) that the benefits to the winners were large enough to offset the costs to the losers and still come out ahead. But as trade between nations expanded, policymakers quickly forgot about the need to compensate for the losses.”

That’s right Bernstein just said that economic theory never said it was a win-win for all, it always said there were winners and losers. This wrong idea of economists was never even an idea of economists.

Crowding Out

Like the natural rate of unemployment there is a kernel of truth here. Other things equal, an increase in government borrowing can raise interest rates and discourage private investment, but economists do not all believe that any government borrowing will necessarily crowd out private investment. Many economists would argue that it depends on the circumstances. Many textbooks also include the possibility of an accelerator effect, or crowding in. If the economy has a lot of unemployed resources, government borrowing resulting from deficits may have little effect on interest rates, and if the deficit spending increases aggregate demand it could encourage private investment. The results for a model depend on the assumptions you make. The result, in reality, is an empirical question, and there is no reason to believe that the answer is always going to be the same.

The Minimum Wage

Bernstein claims that “The theory is that free markets set an “equilibrium” wage that perfectly matches supply and demand given employers needs and workers’ capabilities. Force that equilibrium wage up and rampant unemployment will result.

When I was coming up in the profession, our textbooks argued that believing minimum wages could help low-wage workers was akin to believing that water flowed uphill. Their message was particularly comforting to conservative politicians who wanted to protect the profits of employers of low-wage workers.”

The phrase “Force that equilibrium wage up and rampant unemployment will result,” should make any economists cringe. If one of your students said it, you would feel a deep sense of sadness at your failure to convey the basics of supply and demand.

This is the classical textbook model of the minimum wage.

The minimum wage only affects the market to the extent that it increases the wage above the equilibrium, not the extent to which it raises the equilibrium. The positive effect for employees is the increase in the wage. The negative effect is the decrease in demand for labor. Those who still have jobs gain those who are unable to get work lose. Bernstein knows that textbook models of the minimum wage do not claim that everyone will be worse off. How do I know that? Because the graph is from jaredbernsteinblog.com where he refers to it as the classic textbook model.

By the way, the blogpost also has a pretty good description of the way that variations in the model (What if the higher wages increase demand? What if employers do not respond very much to increases in wages? What if labor markets are not competitive?) Unfortunately, the fact that Bernstein appears to understand the economics of minimum wage increases makes his Vox.com piece even more irritating. What they do point out is that it is possible to create models that produce very different outcomes. And these differences do not arise from making completely ridiculous assumptions. Whether the higher minimum wage creates an increase in demand is an empirical question. Whether labor markets are competitive is an empirical question. The same goes for how much demand for labor responds to a higher wage. By the way, occasional I run in to people who seem to think it will be completely unresponsive to an increase in the wage. If you truly believe this then you should not be willing to settle for an increase to $15. Why not $50, or better yet $1,500?

So, economic theory suggests that the effect of the minimum wage is an empirical question. My reading of this research is that small increase in the minimum wage tend to have small negative effects on employment.

Economics should be criticized for actual flaws. There are plenty of them. Women and African Americans are significantly under-represented in economics. Economists don’t study enough history. How can you really understand how people respond to changes in constraints if you don’t know anything about how constraints change over time? Economists tend to take a good thing and go too far. Math is good, but does everyone who wants to be an economist need to master real analysis and get a perfect score on the quant section of the GRE? Identifying causality is a good thing, but should we only studying things where we see a clear path to doing this? The list could go on. We don’t need to make up imaginary flaws.