Sunday, March 25, 2018

The Annunciation by Henry Ossawa Tanner



If you are in Philadelphia you should go see it at the Philadelphia Museum of Art. Reproductions do not do it justice.

Monday, March 5, 2018

Quick Take on The Mystery of the Kibbutz


While the power was out this weekend, and I was free from electronic distractions, I had a chance to read Ran Abramitzky’s The Mystery of the Kibbutz: Egalitarian Principles in a Capitalist World. The book is a sort of economic history equivalent of good micro-history, or good business history. It tells a particular story in great detail but uses that story to shed light on broader issues. Being an economist, Abramitzky collects and analyses as much data on the kibbutzim (one of the things I learned is the plural of kibbutz) as he can to examine problems of free riding, adverse selection, and brain drain. But the book is built around a very personal story. His grandparents helped to found and fought to protect Kibbutz Negba; his mother grew up there, and he clearly has fond memories of visiting there while he was growing up. His aunt, uncle and brother still live in kibbutzim. He uses the story of the origins, successes, and recent struggles of this and other kibbutzim to address broad questions of equity versus efficiency, and of material versus non-material incentives. There is also an interesting chapter on the history of communes in the United States.

The book is a pleasure to read. And, although kibbutzim are unique, the economic issues that they have faced are not.



Tuesday, February 27, 2018

What Happened to The Standard of Living During the Gilded Age?


Richard White devotes a chapter of his new book on Reconstruction and the Gilded Age, The Republic for Which It Stands, to declining standards of living during the Gilded Age.

White writes that
“By the most basic standards—life span, infant death rate and bodily stature, which reflected childhood health and nutrition—American life grew worse over the course of the nineteenth century. Although economists have insisted that real wages were rising during most of the Gilded Age, a people who celebrated their progress were, fact, going backwards—growing shorter and dying earlier—until the 1890s.” (page 475)

“The average life expectancy of a white man dropped from the 1790s until the last decade of the nineteenth century. A slight uptick at midcentury proved fleeting, nor was it certain that the smaller rise in 1890 would be permanent.” “What this added up to was that an average white ten-year-old American boy in 1880, born at the beginning of the Gilded Age and living through it, could expect to die at age forty-eight. His height would be 5 feet, 5 inches. He would be shorter and have a briefer life than his Revolutionary forebears.” “Infant mortality worsened in many cities after 1880.” (page 479)
White also notes the difficulty of creating historical statistics but suggests that
“When these statistics all point in a similar direction, they are worth of some attention.”

In general, White bases his interpretation on excellent work done by economic historians. I do, however, want to argue that there is less consensus than he seems to suggest. In other words, the statistics do not all point in a similar direction when it comes to the Gilded Age.
I also want to point out there is a miscalculation in the statement about height. White relies on Costa (2015) for the evidence on height; he includes a version of the graph from Costa (see below) in which one can see that the series hits its lowest point in 1890 at 169.1 cm, which translates to 5 feet six and a half inches. I am sure that I would make many more grievous errors in a 940 page book, but I had already seen the number repeated once as if it were fact.
Nevertheless, the overall picture that White presents of material well being during the Gilded Age is consistent with picture in the graph. Clearly the most noteworthy feature of the graph is the decrease in average height and life expectancy during the nineteenth century. The average height and life expectancy fell relative to colonial ancestors before beginning to rise again in the late nineteenth century. The timing of the movements in the series seem to be consistent with each other.



Source: Costa, Dora L. "Health and the Economy in the United States from 1750 to the Present." Journal of economic literature 53, no. 3 (2015): 503-70.

I want to argue that the evidence of declining living standards in the Gilded Age is not as consistent as White suggests. Estimating life expectancy in the United States during the nineteenth century is extremely difficult and different approaches have produced different estimates. They all suggest that life expectancy fell during the nineteenth century, but they do not all estimate that life expectancy reached its lowest point in the late, as opposed to the mid, nineteenth century.  Estimating average heights is also difficult, and recent work suggests that the series reproduced by White may overestimate the extent of the decline and place the low point too late in the nineteenth century.


 The United States did not have a death registry for the entire country until 1933. Some states and localities registered deaths, but we are left with questions about how representative they are. One innovative approach to the problem has been to use genealogical records (see Fogel 1986).  Beginning in 1850 the Census began to ask about people that had died in the last year, which can then be used to calculate life expectancy. On the numerous shortcomings of both types of data see Hacker (2010).





Source: Hacker 2010

The above figure is from Hacker 2010 and presents four different series of estimates of life expectancy at age 20. Only the Haines series based on census data shows in the late nineteenth century. Both the Pope and Kunze series bottom out in the 1860s.  


  Hacker develops his own estimates based upon Pope and Kunze but adjusted using other sources. Hackers estimates (see below) also suggest that life expectancy reached its lowest point during the 1860s and then began to rise.









Source: Hacker 2010

The mortality rates for several large cities also do not seem consistent with worsening conditions during the Gilded Age. There is a reduced incidence of large spikes in mortality, though there also isn’t a clear trend toward declining mortality rates until late in the 19th century (See Haines 2001).





The nineteenth century height estimates are based, for the most part, upon a large sample of Union Army soldiers. I say for the most part because late nineteenth century estimates are based upon an extrapolation from Ohio National Guard data. The figure below from Costa and Steckel shows the part of the series that is inferred from the Ohio National Guard data.


Economic historians have long recognized that there are potential problems with these estimates. The problem is not just that they might be biased, but that the bias might change over time. On the other hand, if shorter than average people became more likely to join the army or the national guard then our estimates might suggest a decrease in average heights that did not occur.

Although the potential for selection bias was known, later research found similar patterns for the antebellum period in a variety of other populations, for instance Ohio prison inmates (Maloney and Carson 2008) and Pennsylvania prison inmates (Carson 2008).

Bodenhorn, Guinane and Mroz (2017) recently argued that sample selection bias is a significant problem in the height data. Ariell Zimran has attempted to match soldiers with their census records and use the information to adjust for selection bias. He concluded that, after adjusting for selection bias, there was still a decrease in average height of about .64 inches between 1832 and 1860.
Matthias Zehetmayer took a different approach. He developed a more comprehensive sample of soldiers. Because his observation extended into the late nineteenth century he did not have to rely on an extrapolation for the years after the Civil War. The graph below compares Zehetmayers estimates with previous estimates. His estimates follow the original until you get to the extrapolation from the Ohio national guard. Zehetmayer finds increases in the 1870s and 1880s rather than a steep decline.




There are a lot of evidence pointing to a decline in height, but there is no consensus that about when that decline began to reverse or even if it might be explained by selection bias. Zehetmayer's recent estimates do, however, seem to be consistent with the life expectancy estimates of Pope, Kunze, and Hacker, reaching a low point in the 1860s or 1870s rather than 1890.

I think White was right to emphasize the difficulties involved in creating historical statistics. Like other interpretations of history our knowledge of material well-being in the past has to be derived from the bits and pieces that were left behind, even if they are not ideally suited to the task. Although estimates are very consistent regarding a declining standard of living in the ante-bellum period, they are much less consistent about a decline during the Gilded Age. The most recent estimates of both height and life expectancy seem toward rising standards of living during the late nineteenth century.

Saturday, February 10, 2018

Three Revolutions in Economic History


 Here is a link to Gareth Austin’s Inaugural Lecture


This is his description of the lecture


The lecture discusses what I would describe as three 'revolutions' in the study of economic history since the era of Sir John Clapham, the first holder of the chair of economic history: (1) the cliometric revolution of the 1960s, which applied neoclassical theory and analytical statistics to the economic past; (2) the emergence in the 1950s-80s of the systematic and continuous study of the economic history of the non-Western word, what may be called 'The Other Economic History'; and (3) the attempt, essentially in the present century, reciprocally to integrate the economic history of the West and the Rest, using quantitative and other methods. The final part of the lecture will be devoted to the pitfalls and promise of this endeavour. In practical terms we have a lot still to do to achieve a genuinely global economic history, based on the principle of reciprocal comparison. In doing this, we need to combine the best insights from the cliometric and other traditions of economic history, respecting the different approaches which historians and economists take to determining causality. Economic History needs to re-affirm its position as the intersection set of the disciplines of History and Economics.


Tuesday, January 16, 2018

Follow up on Capitalism and History

I have seen some interesting responses on twitter to the new Capitalism and History journal that I mentioned yesterday. She is not alone, but I saw Vanessa Ogle’s response first.


I have to admit that I was surprised by the diversity in terms of disciplines and politics and did not notice the lack of diversity on other dimensions. This, however, is not the first time someone has noted that some of the most prominent participants in the New History of Capitalism seem to have problems with race and gender.

Monday, January 15, 2018

Some business history stuff

Here are two recent papers on culture and business history


Abstract
This paper draws on the literature of experimental economics to suggest a model of cultural change with applications to business history. The model is based on experiments involving the public goods game, in which players are given an initial endowment of money and told that they can keep it or contribute some or all of it to a common fund. The fund earns interest, and, at the conclusion of the game, the total is divided among all the players, regardless of the magnitude of their contributions. In most settings, players initially contribute a significant fraction of their endowment to the fund, but some choose to free ride on others’ investments. If the game is repeated for multiple periods, players observe this free riding and stop putting their money in the fund. If the rules are changed, however, so that free riders can be punished, players will start contributing again and the common fund will grow and provide general benefits. Although this game is typically used to study topics such as tax avoidance and the provision of schools, roads, hospitals, and other similar investments, I argue that cultural practices have many of the features of public goods and that insights from these experiments can be used to explore systematically the dynamics of cultural change.



Abstract
Culture is easy to study but difficult to specify. This essay attempts to pin down this illusive subject by linking it to entrepreneurship—that is to specific efforts to combine land, labor, capital, and knowledge in the creation of economic activity that has some aspect of novelty. Entrepreneurship is important because of its central role in capitalism. Culture is important because it influences the willingness of individuals to take the risk of exploring possibilities for entrepreneurial ventures even though the most of them will be unsuccessful in the long-run. In search of entrepreneurial culture in America around 1800, this paper examimes immigration, agriculture, commerce, and the beginnings of the Industrial Revolution in the US. These insights are then employed in an examination of the post-WWII efforts of the World Bank—most of which failed—to promote economic growth in nations that had not yet experienced “modernization.”



And here is the flyer for a new journal on Capitalism and History, coming out in 2019. I would love to see a meeting of this advisory board. Although I have been very critical of several people on the list, this looks like it could be a serious attempt to bring together historians and economists working on economic history.










Monday, December 25, 2017

Monday, December 18, 2017

The Mellon Tax Cuts of the 1920s

Opponents of tax cuts claim that the large income tax cuts in the 1920s caused increased inequality and the Great Depression. For instance, Robert S. McElvaine writes in “I’m a Depression historian. The GOP tax bill is straight out of 1929” Washington Post’s PostEverything Perspective that

The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007 (when trickle-down economics, tax cuts for the hyper-rich, and deregulation again resulted in another economic collapse).

In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression.

In that decade, the mass-production American economy became dependent on mass consumption. For it to work, the masses need a sufficient share of the national income to be able to consume what is being produced.
Republican policies in the ’20s instead pushed to concentrate more of the income at the top.

On the other hand, proponents of tax cuts have used the 1920s tax cuts (sometimes referred to as the Mellon after the Secretary of the Treasury Andrew Mellon) to illustrate how tax cuts can fuel so much economic growth that they generate increases in revenue. For instance, back in 2003, Veronique de Rugy argued that

The decade of the 1920s had started with very high tax rates and an economic recession. Tax rates were massively increased in 1917 at all income levels. Rates were increased again in 1918. Real GNP fell in 1919, 1920, and 1921 with a total three-year fall of 16 percent. (Deflation between 1920 and 1922 may also help explain the drop in tax revenues in those years, evident in Table 1).

As tax rates were cut in the mid-1920s, total tax revenues initially fell. But as the economy responded and began growing quickly, revenues soared as incomes rose. By 1928, revenues had surpassed the 1920 level even though tax rates had been dramatically cut.

She also notes that Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. 

I am not persuaded that either of these stories clearly establishes connections between cause (tax cuts) and effect (inequality, economic growth, Great Depression).

Both stories attribute a great deal of economic influence to a relatively small federal government. Prior to the Great Depression, the federal revenue typically accounted for less than 5% of GDP. 


Moreover, income taxes accounted for only about half of federal revenue (Statistical Abstract of the United States for 1926 Table No. 169) Neither opponents or proponents of tax cuts explain  how changes that are so small relative to the whole economy could have effects as large as they suggest.

In addition, many of the changes during the 1920s were part of a reversion to pre-War patterns.The federal government lowered income tax rates during the 1920s, but it lowered them from the rates that had been imposed during World War I. By the end of the 1920s the top marginal rates were still almost double what they had been before the War.

Source: http://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/



Likewise, the available evidence suggests that inequality of both income and wealth increased during the 1920s, but they were also moving back toward the rates that had existed before the war.


Source Piketty, Thomas, and Emmanuel Saez. "Income inequality in the United States, 1913–1998." The Quarterly journal of economics 118, no. 1 (2003): 1-41.


From a longer run perspective, the rapid decline of World War I and increase in the 1920s was a blip in a trend of decreasing inequality that was not isolated to the U.S.


Moreover, taxes were cut for all income groups and both the amount and the share of taxes paid by lower income groups decreased.

Source: de Rugy

Even if there is not a clear connection between tax cuts and inequality, inequality did increase. Could that increase in inequality have led to underconsumption as an important cause of the Great Depression? It seems unlikely.

Although inequality increased during the 1920s, it was not immiserating working class people. After the recession of the early 1920s, real wages generally increased until the Great Depression.

Source: http://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/

Dramatic decreases in consumption expenditures were certainly a cause of the severity of the Great Depresion, but they were not an initiating factor. Consumption fell after a tightening of monetary policy and the stock market crash. Consumption fell because of decreases in wealth and income, but also because of increases in uncertainty about the future (Romer 1990, Romer and Romer 2013) and because of the need to reduce current consumption to make installment payments and avoid repossession (Olney 1999). The initial problems were exacerbated by continued bank failures and decreases in the money supply. Economic historians continue to explore the extent to which the problems in money and banking were the result of Federal Reserve failures or problems with the international gold standard. Given the small initial size of the federal government it should perhaps not be surprising that economists tend to find the causes of the Great Depression in monetary rather than fiscal policy.


 What about the alternative argument that the Mellon tax cuts spurred economic growth. Higher income individuals did pay a larger share of income tax after tax rates decreased, but it is not clear that this was because tax cuts spurred rapid economic growth? Here too, I'm skeptical.

The 4.7 percent rate of growth from 1922 to 1929 that de Rugy mentions is very sensitive to beginning and end dates. Much of it comes from very high rates at the beginning and the end. The annualized growth rate from 1923 to 1928 was a much less spectacular 2.8%.




It seem likely that the lower rates simply meant it was no longer worthwhile for high income earners to incur the costs associated with tax avoidance. This was primary the reason that Mellon gave for the tax cuts. 

I'll try to keep an open mind, but I am not yet persuaded that the Mellon tax cuts were able to generate very large macroeconomic economic effects despite the relatively small role of the federal government generally and the federal income tax specifically prior to the Great Depression.