An excellent account of the interaction between political and monetary debates throughout American history.
The dominant economic story of the last fouAn excellent account of the interaction between political and monetary debates throughout American history.
The dominant economic story of the last four years has been the rise and fall of inflation. This isn't the first time inflation has dominated national conversation or shaped politics. Carola Binder, an economics professor at Haverford, presents a history of inflation and monetary institutions in the United States, examining how they have affected politics, reshaped economic institutions, and upended economic theories. Her motivation extends beyond the conventional menu and shoe leather costs discussed in economics textbooks. As she writes, "high inflation also erodes confidence in policy makers, institutions, and democracy itself: people look to their policy makers for assurance and solutions, and instead they find finger-pointing and false promises."
The book explores several themes: inflation and disinflation have distributional effects, helping some groups while hurting others; unexpected changes in purchasing power and debt values affect contracting and due process; inflation crises expand the role of government; and modern inflation targeting has deep historical roots.
One fascinating concept is "technopopulism," which argues that technocrats and populists share something in common: both channel the will of the people without mediation by democratic institutions. In this light, transparency becomes a means of increasing accountability to "the people" rather than just to the delegated decisions of elected representatives.
The book leaves unaddressed one nagging question about the politics of inflation (which I haven't seen addressed elsewhere): why don't we see different coalitions of winners and losers battling over current inflation? In the historical episodes Binder chronicles, farmers knew they gained from inflation reducing their real debt repayment, so they lobbied for more of it. Modern inflation also has clear winners and losers (alongside second-order net losses), yet the winners don't seem to recognize their advantage or advocate for more inflation. Despite "greedflation" claims (and possible markup increases during the inflationary period), businesses largely opposed recent inflation rather than seeing it as cover for price increases. Similarly, despite the "hot economy benefits workers" thesis (in many ways the opposite of "greedflation"), workers didn't welcome inflation or inflationary institutions. Even people with large mortgage debt, whose repayment burden was reduced more in real terms than their wages, didn't advocate for inflation. Why has this distributional politics of inflation disappeared when it was once so salient?
While I was already very familiar with some of the ground covered (and read those parts more quickly), overall I learned a great deal. The book made connections and offered creative interpretations I had missed. Readers less familiar with U.S. monetary history stand to learn even more....more
Claudia Goldin's blurb pretty much nails it, "If you read just one book about economics, make it Andrew Leigh's clear, insightful, and remarkable workClaudia Goldin's blurb pretty much nails it, "If you read just one book about economics, make it Andrew Leigh's clear, insightful, and remarkable work."
Leigh's book sets out to "tell the story about how capitalism and the market system emerged; discuss the key ideas and people who shaped the discipline of economics; and outline how economic forces have affected world history" and succeeds at all three.
It is relatively short and easy reading, proceeding chronologically from the advent of agriculture to the present day. Underlying it is an immense wealth of scholarship and economic ideas about economic history, the process of growth, and economic concepts like opportunity cost and thinking on the margin that are almost invisibly woven into the fabric throughout the book.
The overarching theme is enthusiasm for the enormous progress we have made economically, the importance of economics in helping foster that progress, but also enthusiasm for a more robust social safety and appreciation of the role of government in addressing myriad market failures.
Most economists would benefit a little from the links it makes between different topics (and could read it quickly) but it is mostly written for--and I would guess enjoyable for--non specialists....more
I had not read this book when it came out under the assumption that I knew most of it already. Recently I was asked to recommend five books on economiI had not read this book when it came out under the assumption that I knew most of it already. Recently I was asked to recommend five books on economic policy issues for the New York Times book review and I was missing a primer on mainstream macro issues. A colleague recommended I looked at this and thought it was perfect as a primer--and I personally learned some good ways to explain and link macro concepts as well.
Below is my short write up of this book for the NYT, check the review for the other four books. ---------------- The best way to understand things like the causes of recessions and inflation and the consequences of public debt is to take an introductory economics course and do all the problem sets. The second-best way? Read “The Little Book of Economics.” Don’t be fooled by its compact form and breezy writing: This book, by the Wall Street Journal chief economics commentator Greg Ip, manages to pack in just about everything you wanted to know but were afraid to ask about the gross domestic product.
Ip is not trying to sell you policy recommendations; instead, he is just trying to teach you the mainstream economic perspective. Suddenly you will know why the Federal Reserve chair Jerome Powell looks a little nervous when he tells the press that the neutral rate of interest might have gone up.
The book does contain one obvious misstatement. It should be “The Little Book of Macroeconomics.” For more of the rich diversity of what economic studies has to offer at other scales you might want to also consider what’s below....more
In this excellent book Ragu Rajan and Rohit Lamba argue that India should and can grow faster than it has recently, envisioning a future in higher valIn this excellent book Ragu Rajan and Rohit Lamba argue that India should and can grow faster than it has recently, envisioning a future in higher value-added services for domestic consumption and export (including services bundled with manufacturing goods). Their prescription has many parts but the ones they emphasize most are political tolerance and openness (needed for creativity and ideas to fuel this type of economy), more political decentralization (so the state can be more responsive), and investments in people (especially education and health).
On the "what not to do" side is industrial policy which they are on the (quietly and politely) scathing side, offering the example of a $2b subsidy to offset 70% of the cost of a Micron that will support 5,000 jobs--at a cost of $400,000 per job. Moreover they point out it is still a foreign plant, India does not have big national security vulnerabilities around chips (and even it did getting part of the supply chain wouldn't help much), and this type of near-commodity manufacturing is at the lowest end of the value chain.
I would feel more confident about Rajan and Lamba's vision for the future of India if they could point to other examples. But there aren't any--thus the title Breaking the Mold. In addition, I'm worried that service sector productivity growth has generally been lower than manufacturing productivity growth around the world--another obstacle to the vision. Also India already has done a lot in services exports (from call centers to back-office legal work) but it has yet to be transformational in aggregate).
All that said, they do have a compelling set of reasons to be skeptical about industrialization as a future for India because there is too much low-wage competition globally, the type of manufacturing they would do is low value added (at the bottom of Richard Baldwin's "smile curve"), the existence of technological and other change that has led to premature deindustrialization (country's manufacturing employment share peaks at lower incomes), and the West is unlikely to tolerate another China-like shock. These arguments are compelling, thus the importance of offering another vision. And to be clear, I'm not saying I'm confident their vision is wrong, just nervous.
Fortunately, you don't need to be convinced by their vision to be convinced by their prescription for the future. They are NOT saying the service sector should be targeted and subsidized because they can confidently predict winners and losers--which basically is what much of the industrialization policy vision is based on. Instead they are talking about the types of preconditions for greater innovation, investment, entrepreneurship, participation in the workforce, etc., that would help advance just about any path--including industrialization if they end up having been too pessimistic about that.
And one more note: the book has a nice discussion of why China grew and India did not. Rajan and Lamba list a lot of causes but emphasize the following (some of which I've read elsewhere but worked nicely as a compare/contrast to their interpretation of India): (1) China had more primary education/literacy which was originally to train people to follow Communism but then when they liberalized enabled them to start small businesses and have higher productivity (this reminds me of some of the arguments that both Jews and Protestants have done well economically at various times because the reading they developed for another reason became useful economically when circumstances changes), (2) competition between localities in China made it more business friendly and growth oriented than India's highly nationalist system and (3) China could use wage suppression, financial suppression, devalued exchange rate and general lack of democracy to push through large scale infrastructure and industrialization in a way a democracy could not do....more
How the World Became Rich is a terrific and balanced synthesis of the explosion of really exciting research that has helped us better understand the mHow the World Became Rich is a terrific and balanced synthesis of the explosion of really exciting research that has helped us better understand the massive economic transition into sustained per capita GDP growth that started about 200 years ago in Great Britain and has since spread to much of the world. For better or worse, this is not a monocausal explanation but instead the first part is a discussion of the strengths and weaknesses of the main perspectives (geography, institutions, culture, demography and colonialism) and the second part integrates all of these into a research-informed narrative account of the origins and shifting location of growth.
The traditional economic approach to growth was to view it through the lens of the Solow Model, but this at best gets at the proximate causes of growth (physical and human capital) and has nothing to say about the most fundamental determinant of growth even in this simple model (the rate of technological change is exogenous). When I was in grad school in the 1990s there was growing excitement about endogenous growth theory that attempted to explain the rate of technological change—something Paul Romer got a Nobel Prize for. But that too did not really explain in any fundamental way the rate of technological change or the myriad questions like why India and Great Britain had similar incomes 500 years ago, very different incomes 100 years ago, and are converging again today (although the process will likely take a long, long time given how far apart they are).
This left a lot of economic history to people not working in the discipline of economics, like Fernand Braudel or other big historians. They had a lot of important insights and exciting detail but no method to really test all of it.
In the last twenty or so years economists have been using empiricism (not theory) but directed at a broader and more fundamental set of issues than just the proximate sources of growth. Clever natural experiments like using historical variation in what parts of central and Eastern Europe were under Hapsburg control or what colonies were susceptible to malaria have helped elucidate mechanisms that play out on the time scale of centuries.
Each one of these papers, however, generally can only get at one aspect. You also don't want to think of growth as fully pre-determined because national positions reverse and change—and much depends on chance (e.g., reforms in China in the 1980s that unleashed growth might not have happened).
That is why How the World Became Rich has so much to offer because it synthesizes the different perspectives, discusses their interrelationships (e.g., the way culture shapes institutions), and integrates them into more of a causal-research informed narrative synthesis.
I won't try to describe all of it but would briefly list some of the advantages and disadvantages of the different perspectives (many of which I cover in the growth lecture in my introductory course):
Geography: African economic development likely, in part, a function of the many land-locked countries, malaria and sleeping sickness. BUT, have seen many countries without great geography become prosperous and vice versa, plus reversals suggest geography not indelible.
Institutions: Like the modern research, places a lot of weight on these, especially inclusive and limits on sovereigns imposed by nobles and parliaments. But still, many confounding issues (e.g., some institutional models might predict more growth in India than China).
Culture: Moves more slowly, can become maladapted. Interesting discussion of the Protestant Ethic (less contributed to growth for Weber-type reasons and more because it encouraged literacy and by not providing a source of legitimacy for rule led to parliaments etc.) and Islam (was well adapted for growth in the first millennium CE but then some of what had been strengths became weaknesses, much the same way that Italian city states were good at certain types of commerce but did not transition).
Demography: Interesting discussion of the "European Marriage Pattern" of delaying marriages leading to fewer births and more investment.
Colonization: Does a terrific job of a difficult topic, places more weight on the ways colonization hurt the countries that were victimized than helped the ones that colonized—for example, Spain and Portugal may have been hurt because their overseas empires strengthened autocratic governments that were bad for growth.
P.S. Shortly after writing and posting this review I attended a seminar on a paper that provides statistical evidence to support the thesis that the codification of technical terms was critical to the spread of industrialization—specifically Japan’s enormous 19th century effort to develop dictionaries and Japanese words for technical terms from British industrial manuals. Just another sign of how exciting and fruitful this area of research has been—and how it is continuing to evolve....more
The Great Divergence is a monumental historical argument for why European economies diverged from Asian Economies in the 18th and 19th centuries, achiThe Great Divergence is a monumental historical argument for why European economies diverged from Asian Economies in the 18th and 19th centuries, achieving the first large-scale sustained growth in GDP per capita the world had ever known. It was first published in 2000 and has generated substantial debate since then, I am not expert enough to have a view on the overall debate but this book certainly shifted my thinking—and the accretion of argument and detail is much, much more than the thumbnail summary I had been familiar with before reading the book or that you will be if you read the rest of this review.
The summary of Kenneth Pomeranz’s argument: Around 1800 living standards were similar in the Yangzi delta area of China and England/the Netherlands (the book shifts the reference points back and forth from these particulars to Europe more broadly vs. Asia more broadly, sometimes even including Japan and India). If anything China was closer to market capitalism with more freely alienable land, rental contracts, market sales of produce, and fewer state monopolies and guilds to interfere with the, say, rural textile production. Other supposed advantages of the European system were non-existent or small including double-entry bookkeeping (not widely used in Europe plus China sophisticated accounting), the capitalist spirit of Weber, focus on luxury goods/consumption, joint stock companies (weren’t important until railroads), better patent system (didn’t matter much because technology did not play much role until later in the takeoff), etc.
But for two developments: (1) the European conquest of the Americas and importation of large-scale slavery and (2) the fortunate location of English coal deposits, both Europe and Asia were reaching ecological limits where land technology was not getting better, timber prices were rising, less land for raising cattle/sheep, reduced manure and fertilizers, etc. This ecological constraint would have capped both of their growth.
The Americas, however, relieved the ecological constraint by allowing large-scale imports of sugar, cotton, timber and much more—enough to replace more than all of the available English land. The Americas also exported silver and some gold which went to Asia to purchase manufactured goods, especially from India. At the same time, English coal also relieved the ecological constraint, created a massive energy supply that overcame the Chinese advantage in energy efficiency, and was critical for industries like iron, glass, beer etc. China had coal too but it was unfortunately located in the North which had been depleted by Mongol invasions, plagues, floods, etc.
The alternative to the Pomeranz argument is the idea the the European industrial revolution was less inflection point than something that was growing slowly over many centuries and so another cause or set of causes was already present and it was not these two key features that differentiated them from Asia. Pomeranz brings an enormous amount of detail to bear in arguing against every aspect of this thesis but at times one worries that he is simply collecting data to support his case. He also makes simpler arguments like if the differences were centuries in the making why not much divergence as late as 1800.
As I said, this summary does not do justice to the book. It is filled with enormous amount of detail. Which system was closer to markets, for example, is addressed in man, many ways like looking at wage disparities between rural laborers in agriculture and textiles or looking at interest rate differentials.
The modern approach to economic history is to focus on statistical analysis of well identified deep historical questions, something that was summarized and advanced well in The Journey of Humanity: The Origins of Wealth and Inequality. This book is a reminder that deep historical comparative scholarship criss-crossing across many, many areas can both help better understand the rise of the West and the complex interactions of the global economy at a critical period of divergence.
P.S. Would welcome people’s thoughts on this book or recommendations on alternative histories of the great divergence....more
A reliable history of the global economy focusing on three periods: pre-WW I globalization, interwar delinkage, and globalization/hyperglobalization aA reliable history of the global economy focusing on three periods: pre-WW I globalization, interwar delinkage, and globalization/hyperglobalization after World War II. It is well grounded in the economic literature and considers trade, capital and immigration flows. Also readable but no particular attempt at a unique or original thesis. Is generally pro-globalization with some nuanced and downsides--but ultimately it argues, "globalization is nothing more than the urge to trade and improve the quality of life. These goals are a significant part of our shared humanity. In this view, globalization over the long run has been rising and will continue to rise in the future."...more
It is tempting to say that American Default is shockingly readable for a book written by an economist. But it is probably more fair to say that it is It is tempting to say that American Default is shockingly readable for a book written by an economist. But it is probably more fair to say that it is shockingly readable period. It is a history of the banking crisis around the onset of the Great Depression, the role that devaluing gold played in reversing deflation and reducing the value of debts, and the subsequent legal battle over the abrogation of “gold clauses” in those same debt contracts. It reads like a history but also has a substantial legal element while having insightful and always accurate economics woven throughout.
Sebastian Edwards is an excellent international macroeconomist who has spent most of his career writing about emerging markets, particularly economic disasters in Latin America. Which makes him well prepared to take on the United States’ emerging-market like crisis, the Great Depression.
The story starts with a cascading series of bank failures, the efforts of the outgoing Hoover to address them, and how Roosevelt and his incoming team reacted.
At the same time he traces the attitudes towards the gold standard and macroeconomic policy from a sleeper issue into Congress basically forcing the President’s hand to reinflate, which ultimately required revaluing gold at a higher value per dollar--a step that followed the UK. It is fascinating to read about how much Roosevelt was focused on and even targeting particular commodity prices and how quickly they all moved in proportion to the price of gold—just like the quantity theory of money would say. It is also fascinating to read about how the U.S. dollar behaved vis-a-vis the British pound (which was off the gold standard) and the French franc (which was still on it).
A big part of the economic boost caused by the devaluation was due to reducing the real value of debts, basically borrowers could repay them in cheaper money (or, equivalently, had to sell less cotton or whatever to get the dollars to pay them). But this was the rub: debt contracts had a “gold clause” that they were payable in dollars or gold, much for the same reason that emerging markets borrow in dollars—because it increases the certainty and security of lenders thus enabling borrowers to borrow for longer periods at lower interest rates.
The creditors sued and the case ended up in court litigating government bonds, private borrowing, and other aspects as well. Edwards tells an interesting legal drama of whether the Supreme Court would uphold the gold clause, which would have required debtors to repay about 67 percent more dollars—potentially causing an economic calamity. (In fact, an interesting part of the history is government officials debating whether or not to scare markets so they would go down while the Supreme Court was deliberating in an attempt to scare the Court into ruling against the gold clauses. Another interesting part, which I found personally resonant, was all the discussion of contingency planning for all of the possible outcomes of the case.)
Ultimately the Supreme Court ruled that the government had broken the law by retroactively breaking the gold clauses but that there were no damages because the inflation simply reversed the previous inflation so creditors ended up getting what they would have expected, in real terms, when they first made the loans.
Edwards is not completely convincing when he tries to defend the Roosevelt decision and court upholding it as a one-time necessity for the sake of the economy while simultaneously condemning Argentina for taking similar types of actions (in its case dollar clauses instead of gold clauses). There are more parallels than he admits. He is also not completely convincing in his attempt to make the case relevant to issues today. But ultimately this does not matter, what does is just how interesting this book is—and how much I learned about an aspect of going off the gold standard that I had never known about before....more
A useful summary and exposition of modern the modern macro-financial approach to crises which are a combination of financial crisis and macroeconomic A useful summary and exposition of modern the modern macro-financial approach to crises which are a combination of financial crisis and macroeconomic recession.
The book is organized around ten ideas about how fragilities grow (e.g., modern banks), how they get triggered and spread (e.g., amplification and contagion), and the macroeconomic policy response (exchange rate, monetary and fiscal). For each idea it sketches the main points—often with the help of a simple graphical model—and then provides two case studies to illustrate the idea mostly drawing on events in the last quarter century (East Asian crisis, euro zone, financial crisis in the United States, Greece, etc.) but a few older ones sprinkled in (Germany in the 1930s and the Great Depression).
Useful for classes that cover these topics or for people that regularly engage in macro-financial issues but want to add a little more rigor and linkages to the standard news discussions....more
The word “important” is overused in describing books. Part of why overusing it is a problem is that it diminishes the power it carries when it is trulThe word “important” is overused in describing books. Part of why overusing it is a problem is that it diminishes the power it carries when it is truly merited. And Melissa Kearney’s The Two-Parent Privilege truly deserves to be called important.
Economists' discussions of poverty have largely shied away from “cultural” issues like marriage because of the fear of falling into cultural judgments, the belief that they are entirely a consequence of economic outcomes not a cause of them, and a worry that we do not have any solutions to them. All three of these have some truth to them. Nevertheless I have always been a bit guilty that my own writing, reading, and policy work has been on conventional poverty issues like tax-and-transfer programs and ways to facilitate and encourage work while avoiding culture entirely.
Enter Kearney with a thoughtful, non-judgmental account of the undesirable consequences of the decline in children’t being raised by married couples—much of it based on her previous scholarly research as well as the research of others (including a number of sociologists, which is nice to see in a book by an economist). She documents this trend which is particularly pronounced for lower-income families, rebuts a number of ways of explaining it away (e.g., there is not much cohabitation without marriage and the little there is tends to be relatively unstable), establishes its importance for outcomes for children and the channels by which it is important, and discusses a number of the causes as well. For good measure there is also a discussion of declining birthrates. And woven throughout is a set of policy conclusions from specific programs (e.g., fatherhood programs and what they need to do to improve) to a broader plea that we should all be taking marriage more seriously.
The story is a complicated one because the decline in marriage is partly caused by economic developments (most notably the decline in earnings for men) but also causes them. Moreover her earlier research found that when men got more opportunities from fracking it did not lead to more marriage so the economic relationships may not work in reverse and there may be persistence in a new set of norms. Moreover the programs that deal with these issues are complicated too, with mixed success and nothing particularly huge. The result is not a magic bullet solution to the problem Kearney so ably documents so much as a plea for all of us to care more about it—a process that holds out the hope of developing more solutions in the future....more
Tyler Cowen’s writes what he calls a “love letter to an American anti-hero”. But it is more honest and balanced than most love letters. This is embodiTyler Cowen’s writes what he calls a “love letter to an American anti-hero”. But it is more honest and balanced than most love letters. This is embodied by his discussion of a book Bad Pharma: How Drug Companies Mislead Doctors and Harm Patients. Cowen says he agrees with just about everything the book documents about, for example, kickbacks to doctors, overprescribing, and keeping trial results secret. His cheeky objection, however, was that the book was titled Not Nearly as Good as It Could Be Pharma: How Corruption Is Diminishing One of Our Great Benefactors and did not include all the good that prescription drugs have done for us.
Similarly his chapter on competition has a lot in common with Thomas Philippon’s book The Great Reversal: How America Gave Up on Free Markets, which was an argument about the problems stemming from increased concentration in the US economy. He identifies much the same areas where competition is insufficient and consumers are hurt, including health care, cellular and cable. But he also spends much more space on the parts of the economy where competition has increased, especially retail, and the many ways in which we have more choices and better ability to compare than ever before.
Other topics get similar treatment: Cowen documents the evidence that larger corporations tend to be more honest because they have reputations at stake while also discussing cases of dishonesty as well as industries built on it and he describes the wonders of the tech industry while expressing substantial concerns about privacy (some of which go well beyond my own personal tastes for privacy0. He is much more unqualified in his defense of CEO pay (it is linked to firm size and the scarce pool of talent) and finance (critical not just for economic development but also global power).
Cowen’s most creative but perhaps least convincing chapter was his speculation that the reason people hate businesses is that they anthropomorphize them. This has the advantage of making them more relatable but the disadvantage that we judge them by the same standards we judge people, something they can never live up to because they are not in fact our cuddly friends.
At the root of some of the book is an alternative theory of the firm to the Coase-Williamson minimize transaction costs view, instead it is businesses as social capital bundling trust, relationships and culture. This leads him to criticize Milton Friedman’s view that corporations should just maximize profits and instead argue that they need to imbue their workers with a sense of mission and purpose that goes beyond profit maximization.
Overall I found myself largely in agreement with the book. It is a good reminder that the average contribution of corporations is enormously beneficial—they make the goods and services we rely on and love (including the Kindle I read the book on and the MacBook I’m typing this review on) and they also employ most of us (not me, I work for a nonprofit and previously worked for the government). The book does not shy away from the many negative marginal contributions corporations make, and in fact endorses holding them to account and making them better, it just does include them to the exclusion of everything else....more
I was very familiar with most of the ideas in Nudge from reading many of the underlying papers that Cass Sunstein and Dick Thaler draw on and that theI was very familiar with most of the ideas in Nudge from reading many of the underlying papers that Cass Sunstein and Dick Thaler draw on and that they themselves wrote plus from working in public policy and lots of conversations. But I had never read the actual book and thought I should finally get around to it.
I can see why it was such a hit. It is a true joy to read. The authors enthusiasm, humor, good intentions, and personalities show through, including the many anecdotes about both of them that are used to illustrate their points. It also does a delightful job of wearing its erudition lightly while breezily covering a wide range of behavioral economics, public policy and deeper dives into a few discrete public policy areas (including retirement savings, organ donations and climate change). Aficionados of this area will not learn a huge amount new but that is partly because of the success of the authors in conveying the ideas in so many ways.
As a matter of public policy or company behavior there is little downside to the Nudge approach. The authors are very clear that Nudges can and are used both for good and for bad, they’re not automatically good. Sure libertarians worry about a slippery slope to something more like a shove while liberals worry that it will turn into a substitute for times when shoving is truly necessary. But choice architecture is unavoidable, it should be done intentionally.
The bigger issue is how large the upside is. The authors are very enthusiastic about the upside and cite specific research and examples to back that up. I remain somewhat less convinced. The only truly large intervention in the economic space is automatic enrollment (and sometimes escalation and investment) in 401(k)s. Of the major economic policy developments in the last decades, including the Affordable Care Act, various fiscal plans, evolution in antitrust, etc. etc., Nudging takes a backseat to mandates, subsidies, and taxes. This is not a criticism of the approach, see the previous paragraph, just a sizing of its consequences.
Finally, I wished the book did more to explore some of the difficult cases and delineate where nudges are appropriate and where other remedies are needed. Some of this comes through, particularly in the very subtle, thoughtful and persuasive discussion of organ donation (they’re in favor of “prompted choice” that encourages and makes it easy for people to opt in rather than “presumed consent” that people can opt out of) and climate change. But it never systematically enunciates the principles that tell policymakers when to use what tool. And it only addresses issues where the behavioral mistake people are making is consistent with social goals (e.g., people eat more than they want to, nudging them can help save them money while helping society) but does not address the harder cases where they are not aligned (e.g., how to do automatic enrollment in health plans for young healthy people when they might want to select a plan that is good for them but society would rather they default into pooling with sicker people).
The book is labelled “Final Edition,” which the authors describe as a commitment device to avoid doing another edition. But whether or not they do they both have many, many more contribution in lots of other forms—so maybe we’ll even get more medium- and large-sized interventions. Until then it is well worth being intentional about getting even the smaller ones right....more
I have learned more about health economics from Amy Finkelstein than from anyone else in my generation (or younger). I learned some more from this booI have learned more about health economics from Amy Finkelstein than from anyone else in my generation (or younger). I learned some more from this book--and a lot of what I thought I knew was challenged as well. Overall, this was a very enjoyable read that is written in a broadly accessible and even chatty and informal style which is not burdened by all the learning underlying it.
Both Liran Einav and Finkelstein have largely confined themselves to research and not policy, which makes it exciting that they are drawing on their own work and their command of the literature to ask why we have health insurance and what that means about how we design it.
Any such undertaking is necessarily normative, being grounded in our values. They argue that in the case of health insurance that relatively minimal and widely shared values can be the basis for designing policy, specifically the idea that people should get treatment regardless of their ability to afford it. If someone is extremely ill hospitals are required to treat them whether or not they have insurance--and the recourse to collecting medical debt is considerably less onerous than, say, student debt or taxes.
Using this as their normative staring point they diagnosis the problems in the current system, many of which afflict the insured as much as the uninsured. Thus they argue that health reform should be about everyone not just filling in the gaps for the uninsured. (I agree with their normative frame and am impressed by how far it takes them, but also have a hard time separating my own views that health reform should be used as a way to achieve what I view as a more fair distribution of resources.)
For insurance to work on the terms they describe it needs to be automatic (because we automatically cover everyone in some way regardless). It can't be automatic without being free. And finally, for this to be affordable they argue it should be basic.
They do not define the "basic" and this is where I'm most worried in practice. "Basic" could easily end up being just about everything plus dental and vision--which would end up being extremely expensive. Absent a mechanism to link people's choices about what health insurance should cover to their own costs it is hard to understand how "basic" would be limited.
A way to partially do that is more cost sharing. The evidence (much of it from Finkelstein and co-authors) is that copays, deductibles and coinsurance can reduce spending and not necessarily worsen health outcomes. The authors argue that having thought about it more, and looked at the experience in other countries, that cost sharing is not viable when not everyone can afford it. They have a lot of compelling arguments but I'm also nervous that this interacts with the "basic" issue, that if you could really do basic you could avoid cost sharing but if not then you might need it. Also, it is hard to understand how a system is optimal that has cost sharing of either 0% or 100% (the later for everything not covered by the basic insurance) instead of intermediate values.
Finally, the book is really radical. It does not start from where we are now but instead tears down the entire system to rebuild a new one. That, of course, would make it harder to do in practice given all the vested interests. But it also increases the risks that what works on paper may not work in practice when compared to the many ways our system has evolved to address issues. As such, the book is not about next week's health debates but instead a marker for a longer-term debate and discussion. And that is a very productive and needed thing given the sorry state of much of American health insurance....more
An indispensable guide to China's economy: the reforms that made it what it is today, the challenges it still faces, and defenses against the many criAn indispensable guide to China's economy: the reforms that made it what it is today, the challenges it still faces, and defenses against the many criticisms the Chinese economy has gotten from abroad. Keyu Jin writes with one foot in two worlds. She is Chinese but educated as a visiting student in the United States and currently divides her time between London where she teaches at the London School of Economics and Beijing. These two worlds, plus a deep grounding in economic research, help convey her enthusiasm and sympathy of the Chinese economy in a way that is maximally designed to be understood and convey the sympathy to a Western audience. Jin has lots of criticisms of the economic model--mostly in the "more reform needed" mode--but on some fundamental issues proximate to politics you get the sense that she would not deviate from the party line, so to speak.
The first part of the book is a good summary of how China emerged as a global power. Jin gives some credit to China pre-1978 which greatly expanded literacy and reduced child mortality. But the story is really about a series of reforms that were based on the notion of gradualism (Deng's phrase, "crossing the river by groping for the stepping stones."), going from agriculture to Special Economic Zones (SEZs) to increasing competition and accountability for State Owned Enterprises and finally opening up to trade. Later in the book she describes the current set of reforms, including greater openness to capital.
Jin argues that the heavy role of the state worked well in China because, "it purposefully seeks to offset the rigidities of a central authority and its institutional deficiencies by giving tremendous economic authority and autonomy to local governments." So competition by local governments with leaders measured by GDP (and broader criteria now) and promoted accordingly helped ensure that national strategies were being effectively implemented.
Jin has a lengthy and interesting discussion of the financial system, including the puzzle of the very low return and high volatility to Chinese-listed equities, the underdevelopment of capital markets and financial institutions, and the concerning rise of shadow banking, including Wealth Management Products and Local Government Financing Vehicles. All of this built atop a system in which property is a disproportionately large share of GDP, source of revenue for local government, and a potential bubble, at least in first tier cities. Although she is relatively critical and points to the need for reforms, she also is defensive (likely rightly so) about the government's assets and capacity to defend against a financial crisis.
The technological discussion is interesting too and also at times critical, including of the share of Chinese going to college, the overemphasis on rote memorization and quantity over quality, and the lack of openness--all of which is getting in the way of progress.
In one of the places where I query whether was are getting the full story she presents the Chinese attack on big tech as entirely principled, "After numerous cases of data abuse, the government made a dramatic move in 2021 by introducing new restrictions on certain big tech, education, and gaming companies. These include fines for the most well-known internet companies in China: the e-commerce giant Alibaba, delivery and shopping platform Meituan, and ride-sharing company Didi."
Finally, Jin's conclusion is optimistic but tempered by some concern, "does China have the soft power—the transparency, predictable policies and reliable mechanisms, and trust from the international system?"
Overall, would strongly recommend this book both to better understand the Chinese economy (and to a lesser extent Chinese society, particularly the more affluents parts of it in the major cities) and also to understand China's perspective on what it is doing both internally and globally. I particularly appreciated the ways in which it was grounded in a combination of personal experience and rigorous economic research, all conveyed in a highly accessible and engaging manner....more
In the introduction to Limitless Jeanna Smialek writes, “I should offer a word of warning before you get started. Many people who write about the Fed In the introduction to Limitless Jeanna Smialek writes, “I should offer a word of warning before you get started. Many people who write about the Fed (a) suggest that its officials have saved the world, (b) suggest that they have ruined the world, or (c) suggest that they’re some sort of secret cult trying to take over the world. If that is what you’re looking for, this is not the book for you.”
She is too modest to add: “If you want a deeply reported book that combines history, economics and colorful stories about colorful personalities into a compulsively readable argument that the Fed’s power’s have greatly expanded over time, that this may have been necessary for the sake of the economy, but that it also necessitates greater transparency and scrutiny, then this is the book for you.”
If you are new to these issues you will learn a lot about the origins of the Fed, how its role evolved over time, and a spotlight especially on its response to COVID and the inflation that followed. Smialek is also focused on the way that the Fed has navigated the changing political and cultural context, including issues of race that rose to national prominence with the murder of George Floyd, climate change, and broadened notions of the employment mandate—all of which led to a situation in which “Fed officials often talk about ‘staying in their lane,’ but that lane has been expanding into an avenue.”
I’m not new to these issues but still learned a lot, both about the history, the present, some of the people that have made these changes, as well as a dilemmas and challenges of balancing a powerful and technocratic agency with desire for democratic oversight while avoiding politicization.
Of course the book is coming out while the story is still unfinished. The Fed has not brought down inflation. It has also still not had to grapple seriously with tensions in its mandate—the unemployment rate is still low while inflation is high and many still hold out hope for a soft landing that would obviate the need to choose between inflation and unemployment. We will have to see if any of this brings new limits back to way the Fed conducts itself or the mandate that Congress assigns to it.
For now, read Smialek’s excellent book—while we all anxiously await the sequel.
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Disclosure: I read and provided comments on much of an earlier draft of the book and after it was released I read/re-read the opening and closing chapters....more
An extraordinary work of scholarship combining economic modeling with primary documents and an enormous synthesis, The Chosen Few seeks to explain JewAn extraordinary work of scholarship combining economic modeling with primary documents and an enormous synthesis, The Chosen Few seeks to explain Jewish economic and demographic history from 70 to 1492. Specifically it attempts to explain several facts including: (1) the decline in Jewish population through about 700, (2) the huge shift of Jews into urban living and trades, ultimately moneylending, from 700 to 1200, (3) the stabilization of population over that period, (4) the spread of Jews to Europe and their dispersion across a wide range of cities, and (5) the decline of the Jewish population from about 1250 through at least 1492.
The authors persuasively demolish a few popular theses including the Jews were banned from agriculture so moved to cities, that Christians were banned from moneylending so Jews filled the vacuum, that Jews were not permitted in guilds and that Jews were afraid of being forced to move so they invested in human capital instead of physical capital. The problem with all of these arguments is that many of the restrictions that they are premised on were instituted well after Jews became a highly urban population. Moreover they were only instituted in some places but Jews became urbanized everywhere. The thesis has lots of other problems, including the majority of moneylending was still Christians and moneylenders worked better if they were rooted in a place so knew all the people.
Instead the authors argue that a cultural development was central and it interacted with global events. Specifically, the destruction of the temple in the year 70 resulted in the primacy of the Jewish sects centering around reading and learning Torah for oneself rather than centralized worship through ritual sacrifices. Universal male literacy with universal primary school started early. Initially this did not confer any economic advantages for Jews because they were still farmers. As a result the population fell as families converted rather than bear the "useless" cost of all the learning to no economic aim. But with Arab conquests an urban world centered around trade emerged and the "random mutation" of literacy all of a sudden became economically favored. The result was a rapid shift of Jews away from agriculture and towards urban occupations.
This eventually evolved into moneylending because literacy/numeracy combined with other cultural/institutional factors including access to capital, networks and institutions to enforce contracts.
As for some of the other facts, the Jewish population started to decline after the Mongol invasion was a setback for urbanization and reduced the benefits of the education that Jews invested in. And Jewish populations were dispersed because they were highly specialized so hard to have too many in one area--and benefits of spreading out.
The book ends in 1492 and I am curious about how some of the explanations fit the next 500 years, particularly the large concentration of Jews in Eastern Europe--a group that was not especially prosperous. Was literacy more widespread so the returns to it fell? Or discrimination/exclusion took an economic toll? Something else? And does this "out of sample" test of their hypotheses fail and if so what does that mean of their explanations in sample?
Overall, the book has enormous erudition, going deeply into cultural, institutional, religious and economic developments across a wide range of territory and time, at times going very deep (e.g., into moneylending in Italy). This can make for exciting reading at times, but in other places it can be repetitive and have the feel of stapling together different papers into a book rather than something that was conceived as a single work. That said, is never boring and highly persuasive....more
The Journey of Humanity by economist Oded Galor is a relatively short book covering the broad sweep of human economic history (it is also very readablThe Journey of Humanity by economist Oded Galor is a relatively short book covering the broad sweep of human economic history (it is also very readable and does not require any economics background). It seeks to explain two huge mysteries: (1) the mystery of growth whereby for ten thousand years following the invention of agriculture innovation led to larger populations but not higher per capita incomes—until growth took off exponentially in the Industrial Revolution and (2) the mystery of inequality whereby massive differences emerged between countries (he barely addresses inequality within countries, which is a smaller factor in global inequality).
Galor tells this big story while drawing on a range of recent academic research, much of it is his own but also Daron Acemoglu, Melissa Dell, and many other economists who are using modern empirical methods to exploit quasi natural experiments to study how (possibly) random differences in the past cast a shadow centuries or even millennia later. This thorough grounding in research sets it apart from some other more speculative big think books—although some of the research ends up confirming, or at least corroborating, various speculations.
For example, Thomas Malthus had a big idea in 1798 when he argued that innovation would increase the population but not per capita incomes because population would adjust up or down to keep people at subsistence. Galor, in this case drawing on his own peer-reviewed research, looks at quasi natural experiments like the correlation between millennia old “technology” (defined as the timing of the neolithic revolution or natural variety of crops) and data for 1500 (it’s highly correlated with population density but not at all correlated with per capita incomes, which themselves barely vary across places).
The explanation of the takeoff into sustained growth is a little bit less satisfying, but that’s partly what happens when you only have one first sustained takeoff—and it happens at a time when the world is globally connected so you don’t have the (somewhat) independent data points you have for studying other issues. Galor argues was a situation where small changes can lead to a large change—which he analogizes to “bifurcation theory” in mathematics.
An important part of Galor’s story for the takeoff is human capital. Child labor became less valuable because of machines and was abolished. Women’s labor became more valuable and they were paid more. All of this created more of an incentive to invest in children which ultimately led to a Demographic Transition where birth rates plummeted. (This section too has a lot of quasi natural experiments, like using distance from the village where the steam engine was invented to measure technology and its impact on subsequent demand for education.)
The second half of the book is about the rise of inequality between countries. He eschews any discussion of the growth theory of Solow, Lucas, Romer and the like and goes—which he briefly dismisses as “proximate”—and instead instead goes to the deeper, underlying theories: (1) institutions, (2) culture, (3) geography, and (4) population diversity.
The institutional discussion largely draws on work by Daron Acemoglu and co-authors on the importance of “inclusive” institutions instead of “extractive” institutions (describing their quasi natural experiment around settler mortality, leading to different types of colonization, different institutions, and income levels today.
The cultural discussion, together with Joseph Henrich’s excellent The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous, has made me take culture more seriously. He presents some quasi natural experimental evidence for the Max Weber’s thesis in the Protestant Ethic (including things like distance from Wittenberg as a random treatment for Protestantism) and an argument that better agricultural land has led people to have lower discount rates (again, similar types of evidence).
Geography tells the familiar story of the tsetse fly leading to no livestock in much of Africa, malaria degrading work, and the difference in native crops in Eurasia (possibly because of its East-West orientation) and the Americas (because of its North-South orientation). He also has some interesting links between culture and geography, for example linking societal views on gender equity to the type of soil they have which determined whether they used plows (handled by strong men) or hoes (handled by men or women).
Finally, the fourth underlying story is the one that Galor’s own research has advanced and the idea that is the most intriguing but frankly also feels the most speculative to me. Specifically he points out that migratory distance from Africa is closely related to population diversity—which is very high in Ethiopia but very low in Bolivia because of the “serial founder effect”. He argues that diversity has a plus (lots of ideas from combining different perspectives) and a minus (clashing) and that this leads to an inverted U-shaped relationship between population diversity and various economic outcomes like per capita income.
In many ways the evidence the book presents, drawing on a lot of peer-reviewed research, is much better than what we had even twenty years ago in thinking about economic growth. In other ways, however, a lot of the relationships between ancient variables and present ones (e.g., when was maize first introduced in Chinese areas and what was there economic status much later) could easily have alternative explanations or miss big points.
A book of this nature relies on fortuitous reversals that might make sense ex post but how sure are we? For example, Europe’s geography led to many competition states and China’s to a single unified state, the later was better for the economy through 1500 but the former was better after. Yes, there’s a decent story. But am I sure? Of course not.
Moreover there is a lot that it does not explain, that probably depends on the more mundane issues covered by more proximate theories of growth and some of the standard economic policy issues like the importance of avoiding and resolving crises. For example, why is the United States so much richer than Argentina? Or why did China take off when it did but Brazil did not? Or even just variations in income within regions.
Galor concludes with a short and relatively superficial discussion of the public policy implications of these ideas. From my perspective the fact that the book does not explain issues like the United States vs. Argentina also is related to its overly facile dismissal of the “Washington consensus”. Of course it ignored culture, institutions, population diversity and geography—but by the way most of those are not changeable and there is enormous variation within regions that are similar in those regards. Nothing about the deep roots of incomes is a reason why a country, for example, should run large budget deficits financed with short-term foreign borrowing or have a budget devoted to subsidies while neglecting primary education or have weak property rights.
Galor’s policy argument instead is that “As the great cogs that have governed the journey of humanity continue to turn, measures that enhance future orientation, education and innovation, along with gender equality, pluralism and respect for difference, hold the key for universal prosperity.” It’s hard to argue with this—and most of these are good in their own right even if they’re not key to growth. Moreover most of them are actually emphasized by international institutions like the World Bank and International Monetary Fund (at least today).
Ultimately, however, what I liked about the book is the way that it draws on a rich set of research that is attempting to turn history into social science. And in the process coming up with some surprising and interesting answers that even if they do not help us change the world can help us understand some of the most fascinating economic developments humanity has faced....more
A superb example of original social science and its translation for a broader audience. In recent years Ran Abramitzky and Leah Boustan have produced A superb example of original social science and its translation for a broader audience. In recent years Ran Abramitzky and Leah Boustan have produced path-breaking research on immigration by linking large datasets including Ancestry.com, the Census, tax records and more to understand the ways in which immigration patterns have changed--and more often stayed the same--over the last century and a half. In this book they put that research in a broader context in several respects: a history of immigration, how they came to do their research, how it fits in with other research, and most importantly lots and lots of stories (including bits of their own) that make the patterns in their data more vivid and resonant.
The three most important set of findings they convey are: (1) the myth of rags-to-riches and how both in earlier generations and today immigrants themselves generally did not climb the ladder particularly quickly; (2) the mobility of immigrant children which is also similar across generations and remarkable--if your parents are at the 25th percentile you tend to rise to the 40th to 65th percentile depending on where you come from; and (3) how the pattern of assimilation today and in the past is relatively similar, as measures by adopting American names, moving out of ethnic enclaves, and marrying out of one's ethnic group.
There is a lot more nuance in all of those accounts, including some differences over time, in terms of where you came from and the like. Also some interesting findings like a big part of why immigrant children are upwardly mobile is not education but instead that they tend to move to areas with high mobility as opposed to Americans who tend to stay in the same place. Also, of course, immigrant parents "underperform" economically, like the doctors who can't practice in the United States, something that goes away with their children.
Abramitzky and Boustan also review the evidence on the effect of immigrants on native born Americans, arguing that a range of evidence from historical (looking what happened when immigration was dramatically restricted starting in the 1920s) to a variety of other episodes (Bracero ending in 1964, the border wall, the Mariel Boatlift, etc.) to argue that there is little effect on wages of Americans. I've generally found this evidence reasonably compelling but I am still not 100% convinced by it. I wish the authors had discussed a little bit more of macroeconomic research and theory on how immigration can increase productivity growth, the labor force, help reduce fiscal strains, and more--much of which might actually matter more for wages in the long-run than any of the shorter-run effects the studies they cite are covering.
The authors enthusiasm for immigration--which I share--leads them to a blind spot about how to advance it politically. Their last chapter proposes "A Second Grand Bargain" which argues that Americans generally support immigration and that to get more of it politicians just need to do a better job describing its benefits, particularly its benefits over the longer term. Having worked on these issues (and put out reports from the Obama White House making many of the points this book makes about how great immigration is for the economy) I'm skeptical that this is remotely close to sufficient.
The authors also overstate public support for *expanding* immigration. They cite a Gallup poll that 75 percent of Americans agree that "on the whole" immigration is "a good thing." This, however, is probably not the relevant question--Gallup also asks "should immigration be kept at its present level, increased, or decreased" and a plurality of Americans have answered decreased in every survey from 1965 to the present. The fact that Democratic politicians nationally and regionally often take steps to limit immigration and get politically skittish around the issue should also tell you something, either about the views of the public as a whole or the intensity by some parts of the public.
Ultimately to politically advance immigration we will need more books and arguments like this--to win over minds--but also a better understanding of what people don't like about immigration, some of which is probably not merely confusion but different values, a higher discount rate, etc.--and figure out a grand bargain that addresses or assuages those concerns....more
It is no surprise that Jacob Goldstein, one of the minds behind Planet Money, produced an entertaining and enlightening guide to money from (nearly) iIt is no surprise that Jacob Goldstein, one of the minds behind Planet Money, produced an entertaining and enlightening guide to money from (nearly) its very beginning up through cryptocurrency. It is a combination of excellent stories with a lot of economic insights. Ultimately, Goldstein argues that money is whatever people think it is—and that most of the previous innovations in money have been less about the deliberate design of a new money and more backing into it, often when the government comes to the rescue in a crisis establishing the principle that whatever it was was indeed money.
It begins with the origins of metallic money and then shifts to China which invented paper money but then basically stopped using it (coincident with it stopping a lot of elements of its economic development). The story then shifts to goldsmiths in England who had what were essentially claim checks on gold that themselves became money. The story expands out beyond money narrowly defined to the origins of finance, including joint stock companies, banks and lending, public debt, life insurance, money market funds and much more. It has nice capsule biographies of John Law, the early history of crypto and much more. At times the book stretches the definition of “money” to fit subject that Goldstein seemingly wanted to include, but at times innovations themselves stretched the boundaries of what is money.
In all of this developments and innovations in money result from a combination of technological change (e.g., ability to make paper), political change (e.g., the sovereign of France needs money for wars), social changes (e.g., the empowering of the mercantile class), and is both a cause and a consequence of economic changes (e.g., greater divisions of labor).
Near the conclusion Goldstein has a nice version of this history of money and how crypto has, so far, been the exact opposite: “The history of money is largely the history of stuff becoming money without people really realizing it. Banknotes and then bank deposits started out as a record of a debt and sort of crept their way into being full-blown money. Shadow banking grew for decades before anybody thought to call it shadow banking. It was only in moments of crisis—the moment when the thing suddenly threatened to become not-money—that everyone looked around and said, well, I guess banknotes and bank deposits and money-market mutual funds are money now. The history of electronic money is exactly the opposite. Someone—David Chaum, Satoshi Nakamoto—has a very clever technological breakthrough. Then they climb up to the mountaintop and proclaim to the world: ‘Here is a new kind of money!’ And then it doesn’t really become money. Or at least it hasn’t yet.”
Highly recommended, I got a lot out of it even though I knew many of the ideas already, and if you do not do not worry—Goldstein is an excellent guide....more