If all else fails just make it up

In the Washington Post today Jim Tankersley reports on the negative influence of finance on the economy. He reports that “In perhaps the starkest illustration, economists from Harvard University and the University of Chicago wrote in a recent paper that every dollar a worker earns in a research field spills over to make the economy $5 better off. Every dollar a similar worker earns in finance comes with a drain, making the economy 60 cents worse off.” I clicked on the link to the paper (Lockwood BB, Nathanson CG, Weyl GE. Taxation and the Allocation of Talent). As best I can tell it says no such thing. It seems to me that the authors are quite explicit that they do not have such estimates of the spillover effects of different occupations. They use a variety of guesses about what they might be to examine the implications of their model.

More new "history" of capitalism

Sven Beckert has an essay in the Chronicle Review, markting his new book.

 

 

Historians “observe, quite rightly, that the world we live in cannot be understood without coming to terms with the long history of capitalism—a process that has arguably unfolded over more than half a millennium. They are further encouraged by the all-too-frequent failings of economists, who have tended to naturalize particular economic arrangements by defining the "laws" of their development with mathematical precision and preferring short-term over long-term perspectives.”

The need to offer some vague critique of economics in everything they write is one of the most tiresome features of the new historians of capitalism. I suggest that he take a look at some of the work by economists that examines the influence of differences in institutions and endowments on long term economic performance: North, Sokolof and Engerman, and Nunn would be good places to start.

“What distinguishes today’s historians of capitalism is that they insist on its contingent nature, tracing how it has changed over time as it has revolutionized societies, technologies, states, and many if not all facets of life.”

Who does this distinguish them from? Business historians have frequently made such distinctions, writing about proprietary capitalism and managerial capitalism, or just varieties of capitalism. Or, consider the work on the evolution of monopoly capitalism by Marxist scholars. Most of the work by new institutional economic historians is about how capitalist economies have differed from place to place and eveolved over time.

 

“For too long, many historians saw no problem in the opposition between capitalism and slavery. They depicted the history of American capitalism without slavery, and slavery as quintessentially noncapitalist. Instead of analyzing it as the modern institution that it was, they described it as premodern.

Some scholars have always disagree with such accounts. In the 1930s and 1940s, C.L.R. James and Eric Williams argued for the centrality of slavery to capitalism, though their findings were largely ignored. Nearly half a century later, two American economists, Stanley L. Engerman and Robert William Fogel, observed in their controversial book Time on the Cross (Little, Brown, 1974) the modernity and profitability of slavery in the United States. Now a flurry of books and conferences are building on those often unacknowledged foundations.”

Why don’t the people doing the new history of capitalism start acknowledging these foundations?

 

Special Issue on Piketty's Capital

The British Journal of Sociology has a special issue on Piketty's Capital. All the articles are available free of charge.

Happy Birthday to The Junto

The Junto is celebrating its second birthday. I am not an early Americanist, but The Junto is one of my favorite blogs. The contributors are thoughtful and passionate about what they do. Anyone interested in American history, doing history, or teaching history should read what they have to say.

The Depression of 1921?

The “Depression of 1921” has been receiving a lot of attention recently (Krugman, Selgin, Murphy, and Sumner)  mostly in response to James Grant’s The Forgotten Depression:1921: The Crash That Cured Itself. The argument of the book is that the economy recovered more quickly because neither the federal government nor the Federal Reserve attempted to pursue activist policies. I am skeptical that 1921 is a useful case to generalize from.

It was a post war recession, much like the one after World War II. Most business cycle movements have been associated with busts after periods of credit expansion (see the recent work of Alan Taylor et al). In those cases it was households and businesses that borrowed and spent during the boom. Consequently, when the bust comes, businesses and consumers struggle to repay their debts. Businesses fail and consumers default. Even consumers who do not go bankrupt reduce their current spending to avoid default (see Martha Olney). As businesses and households default the value of bank assets fall and banks fail. The bank failures result in decreases in the money supply (Friedman and Schwartz) and disintermediation (Bernanke). In other words, it creates a real mess when people take on excessive amounts of debt, especially when they use that debt to bid up the prices of assets like stocks or real estate.

In terms of increases in output and prices, war time booms look similar to credit fueled booms, but the government is the one borrowing and spending. The end of the boom does not necessarily lead to a financial crisis or reductions in consumption and investment. Granted government borrowing can also create a mess, particulalry if people begin to doubt its willingness or ability to pay, but that hasn't really been an issue for the U.S. 

I also have a problem with calling this a depression. I know that there is no universally accepted definition of the term depression. And I know that Grant is not the first to refer to this episode as a depression. But we completely lose any distinction between a recession and a depression if this was a depression. Neither the length nor the severity of the decline in real GDP warrant the term depression.

Business History Conference

The Business History Conference launched its new website yesterday. In addition to the usual stuff about meetings it has an extensive list of links for research in business history and syllabi and other resources for teaching business history and business history related courses.

Claudia Goldin in Saudi Arabia

The New York Times reports on how the economic historian Claudia Goldin tries to help Saudi women enter the labor force while following the prime directive (see paragraph 5).