Thursday, July 20, 2017

The Cycles of Cities

Cities evolve. Sometimes they boom, with strong growth in center-city areas. Sometimes the center city seems to hollow out, but economic activity in the metro area as a whole, including suburbs, remains fairly robust. Sometimes older neighborhoods with low property values experience as wave of new investment in residential housing, often called "gentrification." Sometimes both a downtown area and its surrounding metro area decline. In addition, these patterns seem to affect a number of cities at the same time. Santiago Pinto and Tim Sablik discuss one aspect of these cycles in "Understanding Urban Decline," an essay that appears in the 2016 Annual Report of the Federal Reserve Bank of Richmond.

As a dramatic opening, here's a picture of a house in Detroit's Brush Park neighborhood as it appears in 1881, and then when a photo was taken from the same perspective in 2011. The house in the middle is the one from the earlier picture. The houses on either side are long gone. Detroit is obviously an extreme example, given that its economic base was so closely tied to the auto industry. But it's far from the only example of an urban area that suffered a severe downturn.

The underlying economic theory of cities points out that they offer advantages of agglomeration: that is, it's a lot easier to carry out certain activities of production, hiring, marketing, entertainment, provision of infrastructure, and transportation, when people are bunched more closely together. Thus, urban areas are engines of economic growth. There are also negative aspects of agglomeration, in that traffic congestion, crime, noise, and other negatives are also easier to carry out when people are bunched together. So cities are in a constant struggle to build on the advantages of agglomeration while mitigating the disadvantages.

The preferences of people interact with the economics of cities, and in particular, how people trade off different aspects of location. For example, people will place different values on their location relative  to  their job and the length of their commute, the cost of a place to live,high quality local-schools, a quiet and low-crime neighborhood, a bustling urban neighborhood, mass transit, shopping, parks and libraries, culture/entertainment/sports, and neighbors with certain types of income levels or ethnic mixes. As is true in so many life decisions, you can't always get all of what you want. As people with different income levels and jobs and preferences make these choices, urban patterns will emerge.

Here's what Pinto and Sablik have to say about the patterns that have emerged in US metropolitan areas (footnotes omitted):
"In most U.S. cities, wealthier households tend to live farther away from the city center, though there are a few notable exceptions (such as Chicago, Philadelphia, and Washington, D.C.). One explanation for this is that wealthier households prefer to occupy more land and therefore are willing to live in the suburbs despite higher commuting costs because the price of housing per square foot is lower. On the other hand, when a household’s income becomes sufficiently large, it may choose to move back to the city center to reduce time spent commuting. This type of trade-off could explain, for instance, why both very poor and very wealthy households are found living in some downtowns. Cities such as Boston, New Orleans, Atlanta, and Philadelphia are examples of this type of spatial pattern. Additionally, public transportation can help explain why poorer households live in the city center. Although the cost of housing per unit of land is higher in the city, public transportation allows poor households that don’t have access to cars to economize on transportation costs.
"Transportation may further explain the trend of households moving from city centers to the suburbs, often called suburbanization. Several studies suggest that the development of the highway system contributes to “urban sprawl.” One study estimated that just one highway passing through a central city reduces its population by 18 percent. Cities that experience such a decline in commuting costs do still tend to attract population, but that inflow typically causes the city to expand geographically more than it increases the number of people living in the city center.
"Certain amenities, such as schools, also may explain neighborhood sorting by income or race. For instance, as wealthier households move to the suburbs, the quality of schools and other public services provided there will tend to rise. As this process unfolds, lower-income households are left behind in the city center with limited access to high-quality local public services. This has been observed in the suburbanization that has taken place in many large U.S. cities starting around the mid-twentieth century. ... 
"Cities undergo long cycles of development and decay. When a city is new, buildings near the CBD [central business district]  are the most desirable and tend to be occupied by a mix of firms and wealthier households. But as those buildings age and deteriorate, those households may move to newer developments surrounding the city, leaving behind lower-income households. This process can repeat multiple times, pushing the city border outward as higher-income households retreat to the newest ring of development. Eventually, deteriorated buildings in the city center are redeveloped, once again attracting higher-income households back to the city and starting the cycle anew. This has taken place, for instance, in cities such as Chicago and Philadelphia. This process, however, has raised some controversies since transforming a neighborhood from low- to high-income may displace the low-income households who live there, a process called gentrification. ...
"Because buildings are durable goods, it can take a long time for a city to move through its lifecycle. When a city’s population is growing, it is profitable to construct new housing because demand and prices for housing are rising, and the city expands rapidly. But when the population declines, existing housing stock doesn’t simply disappear. It can take decades before it is profitable to refurbish or replace a building. The surplus of housing depresses  house prices below the cost of construction, and the city stops growing. Moreover, falling rents may draw lower-skilled and lower-income households into the city, intensifying urban  sorting by income."
The underlying message here, as I hear it, is that areas of cities or cities as a whole can become locked into negative patterns. Say that the positive economic effects of agglomeration are not operating well, and so that part of the city has a lot of low-priced real estate which offers housing for a disproportionate number of low-income people. We know that this dynamic can remain in place for decades. Can anything be done about it?  Pinto and Sablik write:
"If policymakers decide that some intervention is warranted, there are a number of different approaches they could consider. One option is to focus on helping households by giving them the tools to improve their situation. This could involve removing barriers that prevent households from relocating to thriving parts of the city, providing housing vouchers to help them move, or improving transportation networks to reduce commuting costs. An alternative approach is to focus on revitalizing the city itself. This includes revitalizing residential or commercial buildings that have declined or offering incentives to employers to locate in the city and hire local people. Economists have labeled these different approaches people-based and place-based policies, respectively."
However, as Pinto and Sablik discuss, the evidence on the effectiveness of either people-based or place-based approaches is fairly weak. For example, people-based policies include idea like  "moving-to-opportunity" programs that subsidize people in depressed urban areas to relocate to other parts or the urban area. Such programs seem to help young children, but the effects on other age groups are minimal or even negative. Improving the quality of local education is a worthwhile goal, but hard to accomplish. place-based approaches like "enterprise zones" or "urban renewal projects" sometimes show an effect in the specific area that is targeted for the policy, but even when the effects seem positive for that area, a common finding is that economic activity was just relocated. from other nearby areas.

Every city has areas where incomes are lower and social problems are higher, and the geographic location of those areas often seems to remain the same for decades at a time. This experience suggests rather strongly that we don't have any magic-bullet policy tools that will target these areas with strong local economic activity and addressing issues like crime. I worry that some cities have a tendency to focus to much on a magic-bullet solution--the single big project or law that will address problems in part of a city. Instead, cities might be better off if they would focus on providing a decent level of public services to all areas of a city: safe public areas and parks, cleaning up garbage, street repair, well-functioning schools, enforcing the housing code,  libraries and post offices, and the like. Moreover, a city can play a big role by whether it encourages or discourages people and firms who want to upgrade the base of real estate in a certain area of a city, whether it's for business or residential uses.

Finally, readers interested in the evolution of urban areas might also want to look back at "Economics of Gentrification" (December 6, 2016).

Tuesday, July 18, 2017

Global Value Chains and Productivity

Production processes have become more likely to cross international borders, thus creating what are called "global value chains" or "global supply chains." Chiara Criscuolo and Jonathan Timmis discuss "The Relationship Between Global Value Chains and Productivity" in the Spring 2017 issue of International Productivity Monitor  (vol. 32, pp. 61-83). I'll start here with a few facts, and then lay out the linkages they discuss. They write: 
"Economies can participate in GVCs [global value chains] by using imported inputs in their exports (the so-called backward linkages in GVC) or by supplying intermediates to third country exports (forward linkages). The overall participation in GVCs which is the total of backward and forward participation differs substantially across countries. Overall participation measure (measured as the sum of backward and forward linkages) reflects the importance of GVCs for an economy, with GVCs accounting for between one-third and two-thirds of gross exports (of goods and services) for OECD economies in 2011 ..."


In the next figure, the blue bars showing the growth of global value chains across countries, while the red triangles show the growth rate of exports. The growth of global value chains is consistently faster than growth of exports, although you have to look closely at the figure to see this, because the blue bars are measured on the left-hand axis and the red triangles with the smaller numbers on tgghe right-hand axis. 
The bulk of these global value chains are regional: in particular, there is an east Asian cluster of value chains, a European cluster, and a North American cluster. There's some evidence that the growth of these global value chains may have slowed in the last few years, although this is a subject of ongoing research. One possible reason is that "there may also be changes in the structure of global production networks, such as China's domestic upgrading and the reorganization of East. Asian value chains, or the shortening of value chains to mitigate supply chain risks and rising labour costs in emerging economies."

How might global value chains affect productivity? Here's a taste of the details on these arguments (with citations omitted here for readability):
"Trade in goods, services and intangible inputs is at the heart of global value chains. The bulk of trade is comprised not of final goods or services, but of trade in intermediate parts and components and intermediate services. Among OECD economies , trade in intermediate inputs accounted for 56 per cent of total goods trade and 73 per cent of services trade over the period 1995-2005. ... GVCs present a new means to access international markets: economies need no longer build complete supply chains at home; instead, they can leverage foreign inputs in their production. The available variety and quality of foreign inputs (capital, labour and intermediates) can positively impact firm productivity. ... A large literature finds that productivity gains in firms that directly import these inputs. In addition, foreign competition in the domestic input market may also lead to price reductions or quality improvements for domestic suppliers, benefiting users of domestic inputs too.  ...
"GVCs are a well-established vehicle for productivity spillovers to local firms. A substantial part of GVC integration is mediated through FDI [foreign direct investment], and such multinational enterprises are typically at the global frontier of productivity, innovation and technology. Exposure to the global frontier can provide an opportunity for local firms to increase productivity through learning about advanced technologies or superior organizational and managerial practices. A large literature has investigated FDI spillovers and arrives at a broad consensus in favour of positive productivity spillovers to industries that supply multinationals through backward linkages, with little evidence through other linkages ... 
"Knowledge acquisition is an important motive for FDI, which may increase the scope for knowledge diffusion. Firms may relocate some activities, including innovation activities, to obtain access to so-called strategic assets - skilled workers, technological expertise, or the presence of competitors and suppliers - and learn from their experience . Firms locate in leading edge countries close to the technology frontier, in order to benefit from the diffusion of advanced technologies. In addition, MNE [multinational enterprise] acquisition of foreign firms can lead to a relocation of innovative activities to where they are most efficiently undertaken and increase knowledge diffusion to affiliates within the group. ...

"To participate directly in GVCs requires scale. For the largest, most productive firms that are able to export, access to new customers in foreign foreign markets can not only lead to increased learning and innovation but also incentivize complementary investments and the restructuring of internal processes to meet the additional demand. ... Upscaling may yield productivity gains. The cost of many productivity-enhancing investments, including those concerning GVC participation listed above, is largely fixed. Such investments are only viable for sufficiently large firms that can spread the fixed costs over high sales volumes. Firm upscaling may therefore contribute to productive investments."
One of the preeminent economic problems of our time is slow economic growth. Given that global value chains have expanded rapidly and seem to contribute to growth, would disrupt these production chains should face a high degree of skepticism.

Those who would like some additional  background on global value chains and productivity might want to look back at some earlier posts on the subject:

Monday, July 17, 2017

The Pricing Answer to Traffic Congestion

Traffic congestion present several tricky problems of analysis. One is that the amount of traffic on the road at a peak travel time is not fixed. As Anthony Downs in his mini-classic 1992 book, Stuck in Traffic. at least some of the travelers who are confronted by congestion will shift their patterns in one of three ways: they will shift the timing of their trip earlier or later, shift the route of their trip (say, from highways to surface roads), and shift the mode of their trip (say, from a single car to mass transit or a carpool). Conversely, when attempts are made to reduce traffic congestion by building more lanes of highway, one result will be that a certain number of those who had previously shifted their timing or route or mode of travel will now shift back to becoming drivers of single-passenger cars, and the gain in reducing congestion will be frustratingly smaller than might have been predicted.

There is certainly a role for a range of technical fixes to traffic problems: more highways, mass transit, coordinating traffic lights, signs warning of congestion, and maybe someday autonomous vehicles platooning in coordinated groups. But ultimately, putting a price on travel during peak-level congested times needs to be part of the answer, too. Brian D. Taylor (no relation) offers a short essay on the subject in "Traffic Congestion Is Counter-Intuitive, and Fixable," ACCESS Magazine, Spring 2017. He writes:
"There are five major views on how to best manage traffic congestion. One view focuses on adding road capacity: wider streets, new traffic lanes, left- and right-turn lanes, more parking, and even new freeways — all of which cost a lot of money. A second view favors putting roads on “diets” and adding capacity elsewhere: improved bus service, more bike lanes, increased building densities to encourage walking, and new rail transit lines — the last of which also costs a lot of money. A third and more cost-conscious view focuses on better management of our existing transportation systems: coordinated signal timing for cars, signal pre-emption for buses, remote coordination of bus and train operations, and freeway service patrols all aim to make our transportation systems operate more effectively. A fourth view is that technology will save the day: traffic-sensitive navigation systems, increasing use of services like Lyft and Uber, and, eventually, fully autonomous vehicles that reduce the need for parking and use road capacity more efficiently. The fifth view is perhaps most favored by transportation experts, but is also generally reviled by the traveling public and the officials they elect: using prices to balance the supply of and demand for travel. ...
[W]hen traffic is crawling along at rush hour, fewer vehicles are getting through than at other times, not more. A typical freeway lane can handle up to 2,000 vehicles per lane per hour, but in really bad traffic that throughput can be cut in half; just when we need the most out of our road system, it performs at its worst. So heavy traffic is not only irritating, it’s also really inefficient. ...
"Road pricing is expanding around the globe. In the US, Los Angeles, Orange County, San Diego, Houston, Minneapolis, and a growing list of other cities have high-occupancy toll (HOT) lanes. The prices on these lanes vary based on congestion levels in the parallel “free” lanes in order to keep traffic flowing smoothly in the toll lanes. The Orange County 91 Express Lanes celebrated their 20th anniversary in 2016, and over 600,000 travelers in Los Angeles have accounts to use the I-110 and I-10 ExpressLanes. The revenues generated have helped to pay for improved public transit service in the ExpressLanes corridors. ...
"Outside the US, London, Milan, Singapore, Stockholm, and several other cities now charge drivers who enter their congested central areas. Chronic bumper-to-bumper traffic disappeared virtually overnight after the charges were introduced in each of these places. Buses now travel much faster and more reliably, the streets are more pleasant for walking and biking, and those who want to pay to drive can do so with few delays. In Stockholm, public support for the central area (or cordon) pricing increased after people saw how well it worked."
The economics of traffic congestion is clear-cut. Those stuck in traffic naturally prefer to think of congestion as caused by everyone else, but everyone in the jam is part of the problem.When you are in a traffic jam, those in front of you in line are imposing costs of time delay on you, and in turn, you are imposing costs of time delay on all of those behind you in line. Those costs are a form of pollution, a "negative externality" as economists call it.   If drivers were required by road pricing to pay these peak-load costs that they impose on others when the roads are congested, many of them would find a way to shift the time or route or mode of their commute, or to telecommute at certain times.

Friday, July 14, 2017

Apprenticeships for Early Childhood Education?

Here's the dilemma: On one side, it seems important that those who do early childhood education are well-qualified for the job. After all, one justification for such programs is to help children who would otherwise have already been lagging behind in kindergarten and first grade to be school-ready. A National Academy of Science report in 2015 recommended that all lead teachers working with children from birth through age 8 should have at least a four-year bachelor's degree. On the other side, these jobs don't have high pay, and aren't likely to have high pay in the future. Thus, the dilemma is that it doesn't make economic sense to require someone to go through a lengthy and potentially costly training program to qualify for a job that doesn't have especially high pay.

Mary Alice McCarthy tackles this question in "Rethinking Credential Requirements in Early Education: Equity-based Strategies for Professionalizinga Vulnerable Workforce," written for the New America think tank (June 2017). Her proposal is that an expansion of paid apprenticeships may be a more functional way of getting high-quality teachers in place for early childhood education. She describes the underlying dilemma this way:
Few people question degree requirements for teachers in elementary schools, including in kindergarten and first grade. Advocates for degree requirements for early educators ask why we would expect anything less for the teachers of our youngest children. If a bachelor’s degree is required to teach a five-year-old, why not a four-year-old? Or a three-year-old? Teachers are teachers, according to this view, and all of them need professional training before they are ready for the classroom. ...
However, the argument that teachers in early childhood centers are the same as teachers in elementary schools and should be held to similar qualification requirements is deeply problematic. Both might be groups of teachers, but they do not represent a single workforce. Just as high school teachers and college faculty both educate, they do so in such different settings and under such distinct expectations that we do not generally think of them as a single workforce. Teachers in early childhood centers operate in a vastly different segment of the labor market than their elementary school peers. The majority work in private settings marked by rules, funding sources, and employer relationships distinct from those of public school teachers. Most importantly, they generally earn significantly lower wages and enjoy far fewer benefits than their counterparts in elementary schools. These two groups of workers are not even represented by the same unions. ...

Degree requirements might change who qualifies for a job as a lead teacher for young children, but they can’t change the underlying realities of the labor market—and that is the real problem with degree requirements in early childhood education and other low-wage occupations. The way the early education market is structured, the costs of any degree requirement will be borne almost entirely by workers who will see little, if any, increase in wages.  And college isn’t getting any cheaper. An average associate degree at a two-year public college costs around $9,500 a year. A bachelor’s degree from a
four-year public institution costs about $18,600 a year. That is a steep entry price for a profession where hourly wages average less than $10 an hour.
McCarthy suggests a structured and organized two-year apprenticeship program instead, which would lead to outside evaluations and a certificate of completion, and points to a pilot study in Philadelphia for evidence of workability. She makes a very strong case.

Requiring a college degree for early childhood education workers is not likely to raise wages for those workers. 
"The working conditions of early educators, meanwhile, are also unlikely to be affected by a degree requirement. The system of funding in the early education field—not the perception of its teachers—is what drives its fragmentation and decentralization. A degree requirement will not make state and local school systems expand the size and scope of their early childhood education centers, where working conditions and pay tend to be better. Nor will it change how federal and state programs channel their funding for early education through a decentralized system of public and private early education centers. Unless those funding sources, particularly the public programs, move toward more school-based provision of early education, there is little reason to expect a degree requirement will spark a recalibration of the early education market."
A college degree is an inefficient way to learn the specific jobs skills needed for a job working with very young children.
"A bachelor’s degree is a very time-consuming credential to earn. It is also a remarkably inefficient way to equip early educators with the knowledge, skills, and competencies outlined in the National Academies report and identified by key stakeholders like the Council for the Accreditation of Educator Preparation (CAEP) and NAEYC [the National Association for the Education of Young Children] ..."
Requiring a college degree for early childhood education would have the effect that those working in these positions are younger, whiter, and tend to come from families with higher income levels.
"In other words, we can expect that the workforce will become more stratified along race, income, and age. Early childhood educators holding degrees are more likely to be young and white, and educators without degrees more likely to be older and from communities of color. That is the case for our elementary teaching workforce, which is more than 80 percent white. A bachelor’s degree requirement has the potential to reduce the likelihood that children from low-income and racially diverse backgrounds will have teachers from their communities."
I agree with the broad direction of McCarthy's proposal, but the application of this insight extends well beyond workers in early childhood education. A substantial number of those who graduate from high school have no reason to view additional academic classwork with anticipation or enjoyment. Throughout their K-12 school careers, they have mostly been in the bottom half, or bottom quarter, of the academic distribution. If a job requires additional years of classroom study, it will appear to them as a heavy burden and a strong discouragement. For many of these students, a well-structured rigorous learning-on-the-job program will be a more attractive option. Our economy needs more alternative career pathways that don't require piling up academic degrees as a starting point.


Thursday, July 13, 2017

The Ingredients for a US Productivity Revival

It's easy to find gloomy predictions for continued slow growth of the US economy. Thus, Lee Branstetter and Daniel Sichel caught my eye with their essay, "The Case for an American Productivity Revival,"  written as a "Policy Brief" for the Peterson Institute of International Economics (June 2017, PB17-26). Here how they start:

Labor productivity performance in the United States has been dismal for more than a decade. But productivity slowdowns—even lengthy ones—are nothing new in US economic history. This Policy Brief makes the case that the current slowdown will come to an end as a new productivity revival takes hold.  
Why the optimism? Official price indexes indicate that innovation in the technology sector has slowed to a crawl, but better data indicate rapid progress. Standard measures, focused on physical capital, suggest that business investment is weak, but broader measures of investment that incorporate intellectual and organizational capital report much more robust investment. New technological opportunities in healthcare, robotics, education, and the technology of invention itself provide additional reasons for optimism. This Policy Brief gauges the potential productivity impact of these developments. The evidence points to a likely revival of US labor productivity growth from the 0.5 percent average rate registered since 2010 to a pace of 2 percent or more. A productivity revival of this magnitude would provide a solid foundation for steady increases in wages ... 

The essay spells out details behind these claims.  Here are a few of the comments that caught my eye.

Past methods for adjusting for the improved quality of microprocessors may not be working well at capturing changes in the last decade or so. 

Before the mid-
2000s, the posted prices of MPUs tended to fall as newer
models were introduced. This price trajectory allowed a
standard methodology used for semiconductors in the
producer price index (matched-model indexes) to capture
quality change through the rapid price declines of older
models. Since the mid-2000s, posted prices of Intel MPUs
have tended to remain stable, even after the introduction
of newer, more powerful models. Reflecting these relatively
flat price profiles, a matched-model index will indicate little
change in quality-adjusted prices even if the quality of each
newly introduced model is much greater than its predecessor.
The new price measure Byrne, Oliner, and Sichel
developed (an hedonic index) more fully captures ongoing
quality change and reveals rapid price declines after this
quality change is taken into account.
This evidence on faster price declines indicates that
innovation and multifactor productivity growth in semiconductors—
the general-purpose technology behind much
of the digital revolution—has been far more rapid than official
indexes suggest.

Although conventional tangible business investment is down as a share of GDP, intangible investment is on the rise.

In this figure, the light blue line shows tangible business investment, and the well-known pattern of overall decline (as a share of GDP) since the 1970s. The dark blue line shows the official US government statistical measure of "intangible investment," which includes "software, scientific R&D, mineral exploration, and the development of entertainment products." The dashed red line shows a broader version of intangible investment that includes both the official measures and also "nonscientific product development, brand equity, training, and organizational capital." As the authors write (footnotes and citations omitted):
In fact, the overall investment share of both tangible and all intangible capital has been relatively stable since the late 1970s. This conclusion is not surprising in an economy in which the newest technical capabilities and products rely at least as much on intangible capital as on tangible capital. This feature surely characterizes leading companies such as Google, Amazon, Facebook, and Microsoft. Even industrial companies like GE are increasingly investing in big data, predictive analytics, and machine learning.

In short, Branstetter and Sichel believe that the official statistics are understating both current productivity gains as well as the investments that firms are making for the future.  They then note: "Four developments have the potential to contribute to faster productivity growth in the United States: improvements in the healthcare system, increasing use of robots, a revolution in e-learning, and globalization of invention." They further argue that these changes can be supported by some mostly well-known policies: for example,
  • "robust federal investment in basic science"
  • "immigrant scientists and entrepreneurs play a disproportionate role in driving the technological advances that power productivity growth in the United States"
  • "globalization of invention presupposes the continuation of an open global trading and investment system supported by the United States"
  • "a public agency or public-private partnership that could certify the efficacy of new educational technologies in the same way the Food and Drug Administration (FDA) certifies the safety and efficacy of new drugs, by supervising rigorous, randomized control trials. Modest policy effort
  • in this direction could yield rich dividends in the form of much faster, more cost-effective human capital formation."
I would add that economic growth is by its nature a disruptive process, and part of embracing this disruption is to find ways for both its benefits and costs to be widely shared. The authors conclude: "A standard productivity growth accounting framework captures these factors to highlight how a significant revival of productivity growth could emerge, especially in the medium to long run. A pace of 2¼ percent a year is eminently plausible—and there are solid reasons to hope for
even more rapid productivity growth."

Wednesday, July 12, 2017

Tally Sticks and the Fundamentals of Money

Do you know the true story of how a careless clerk, while burning up some outdated money, caused the Great Fire of 1834 which destroyed both Houses of the British Parliament, along with large portions of the Palace of Westminster? Tim Harford tells the tale in "What tally sticks tell us about how money works" (BBC News, July 10, 2017).

In this case, the outdated money takes the form of "tally sticks." As Harford explains:
The artefacts in question were humble sticks of willow, about eight inches (20cm) long, called Exchequer tallies. The willow was harvested along the banks of the Thames, not far from the Palace of Westminster in central London. ... Tallies were a way of recording debts with a system that was sublimely simple and effective. The stick would contain a record of the debt, for example: "£9 4s 4d from Fulk Basset for the farm of Wycombe". Fulk Basset was a Bishop of London in the 13th Century. He owed his debt to King Henry III.
Now comes the elegant part. The stick would be split in half, down its length from one end to the other. The debtor would retain half, called the "foil". The creditor would retain the other half, called the "stock" - even today, British bankers use the word "stocks" to refer to debts of the British government. Because willow has a natural and distinctive grain, the two halves would match only each other.
Of course, the Treasury could simply have kept a record of these transactions in a ledger somewhere. But the tally stick system enabled something radical to occur. If you had a tally stock showing that Bishop Basset owed you £5, then unless you worried that he wasn't good for the money, the tally stock itself was worth close to £5 in its own right.
If you wanted to buy something, you might well find that the seller would be pleased to accept the tally stock as a safe and convenient form of payment. So the tally sticks themselves became a kind of money, a particular sort of debt that could be traded freely, circulating from person to person until it utterly separated from Bishop Basset and a farm in Wycombe.

Here are a few pictures of tally sticks: the first is from Harford's article, which shows accounts accounts of the bailiff of Ralph de Manton of Ufford Church in Northampton, circa 1299.The second is from a short article by Frank J. Swetz and Victor J. Katz, "Mathematical Treasures - English tally sticks," Convergence (January 2011). The inscription on that tally stick shows the name of William de Costello, who was Sheriff of London in 1296.


Medieval tally sticks. circa 1299



Largestick with name engraved

Of course, making marks on a stick or bone to keep a record of days or lunar cycles or livestock dates back millennia. The specific idea of tally sticks to keep track of debt dates back hundreds of years; in one telling, they were invented by King Henry the First, son of William the Conqueror, when he became King in 1100 AD.  Moreover, when a tally stick was split, it was divided into two different lengths, with the debtor literally receiving the short end of the stick.

Tally sticks were a highly successful monetary innovation, in the sense that they were used for centuries. They offer a demonstration of the idea that money, at its root, is something that can be stored and then accepted for purchases: as the textbooks say, money is a medium of exchange, a store of value, and a unit of account. They also demonstrate that money can be created by private actors, although textbooks typically emphasize the role of banks in creating money in the modern economy.

The punchline to the story of the tally sticks happens in 1834. Tally sticks had fallen out of use, and apparently there were no historians or museum curators nearby, so a decision was made to burn several large cartloads of remaining tally sticks. Thanks to a "senile Housekeeper and careless Clerk of Works," the fire got loose and roared through the Palace of Westminster, destroying the House of Commons and the House of Lords. It was the largest fire in London between the Great Fire of 1666 and the devastation of the Blitz during War II.

Tuesday, July 11, 2017

Arm's-Length International Trade

"Global value chains often involve numerous cross-border operations, conducted either `intra-firm,' that is, between firms related through ownership or control, or between unaffiliated firms at `arm’s-length.'" The World Bank explains this difference in "Arm’s-Length Trade: A Source of Post-Crisis Trade Weakness," which appears as a "Special Focus" chapter in Global Economic Prospects: A Fragile Recovery (June 2017). The chapter begins:
"Trade growth has slowed sharply since the global financial crisis. Based on U.S. trade data, arm’s-length trade—trade between unaffiliated firms—accounts disproportionately for the overall post-crisis trade slowdown. This is partly because arm’s-length trade depends more heavily than intra-firm trade on sectors with rapid pre-crisis growth that boosted arm’s length trade pre-crisis but that have languished post-crisis, and on emerging market and developing economies (EMDEs), where output growth has slowed sharply from elevated pre-crisis rates. Unaffiliated firms may also have been hindered more than multinational firms by constrained access to finance during the crisis, a greater sensitivity to adverse income and exchange rate movements, heightened policy uncertainty, and their typical firm-level characteristics."
Here's are the growth rates of US imports and exports for arm's-length and intra-firm trade in recent years. Detailed international data with a similar breakdown isn't available, although a similar pattern seems to hold in the research that has been done.


An extraordinarily high share of US trade happens through a relatively small number of firms. For example, Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott explained this point  10 years ago in "Firms in International Trade," in the Summer 2007 issue of the Journal of Economic Perspectives: "Yet engaging in international trade is an exceedingly rare activity: of the 5.5 million firms operating in the United States in 2000, just 4 percent were exporters. Among these exporting firms, the top 10 percent accounted for 96 percent of total U.S. exports."

These big players in international trade face a choice: import and export from affiliated firms, which often own pieces of each other, or import and export from unaffiliated firms on an arm's-length basis. The obvious advantage of the first approach is that when operating across national borders, there are likely to be conflicts and issues about  pricing, costs, timeliness, quality, transfers of technology and resources, and more. Addressing such issues on an ongoing basis with an affiliated firm may be more streamlined and easier than, say, trying to sue some other firm in the courts of its home country. The World Bank report notes (citations omitted):
"In practice, multinationals employ intra-firm and arm’s-length transactions to varying degrees. In 2015, intra-firm transactions are estimated to have accounted for about one-third of global exports. Vertically integrated multinational companies, such as Samsung Electronics, Nokia, and Intel, trade primarily intrafirm. Samsung, the world’s biggest communications equipment multinational, has 158 subsidiaries across the world, including 43 subsidiaries in Europe, 32 in China and 30 in North and South America. Other multinationals, such as Apple, Motorola, and Nike, rely mainly on outsourcing, and hence on arm’s-length trade with non-affiliated suppliers."
In a time when international trade faces a relatively high degree of suspicion, it's useful to be clear on just what is involved. When it comes to trading raw materials like energy or metals, or basic manufactured goods like textiles, or exporting to emerging markets, then arm's length trade is common. But a lot of the prominent, productive, and dynamic firms in the US and around the world are tied into international networks of intra-firm trade and global supply chains. If US policymakers put US firms at a disadvantage in accessing and using those global supply chains, those US firms will be at a disadvantage against their global competitors.

Monday, July 10, 2017

The Five Grandchildren Query

Members of the Religious Society of Friends (often known as the Quakers) use the word "query" in a specific sense, to refer to a question that is intended to facilitate reflection and spiritual growth. Here, I'd like to offer a secular query concerning attitudes about social and economic mobility across generations.

Imagine that you are a grandparent with five grandchildren. In a society with a high degree of social and economic mobility, grandparents should not have much or any effect on the social and economic position that children attain as adults. Thus, on average you should expect your five grandchildren to be evenly distributed across the socioeconomic spectrum. More specifically, if the levels of income are ranked and then divided into five groups with equal numbers of people, or quintiles, or educational attainment is divided up into five quintiles, you should expect that one of your five grand children will end up in each of the five quintiles--from top to bottom.

Some grandparents in America would be delighted beyond words if they had a reasonable expectation of this outcome: that is, they would be thrilled if three of their five grandchildren were in the middle quintile or above. Other grandparents in America would be appalled by this outcome: that is, they would be dismayed and even horrified if three of their five grandchildren were in the middle quintile or below.

With which group of grandparents do you identify?

Do you favor social mobility--which operates both up and down--for your own grandchildren?

If you believed that your grandchildren had an equal chance of ending up across the full range of the socioeconomic outcomes, does that alter how you think about policies that affect the rich, or the poor,  or the middle class?

Do you have a tendency to define "success" in grandparenting, parenting, or your own life, in terms of being in the top income or education group relative to others? Remember, it is true by definition that only one-fifth of people will be top fifth of a distribution, and true by definition that one-fifth of people will be in the bottom fifth of a distribution, so this definition of "success" carries with it an implicit or explicit judgement of "failure," too.

Does our society have meaningful alternative definitions of "success" where relative judgments play a much weaker role, and which allow for a possibility that a much larger share of the population--even more than a majority!--can meaningfully view itself as a success?

Thursday, July 6, 2017

Economic Theory: Limitations and Biases

Arnold Kling tackles the hardy perennial topic "How Effective is Economic Theory?" in the Summer 2017 issue of National Affairs. His overall approach is to focus on "five interlocking subjects in particular: mathematical modeling, homo economicus, objectivity, testing procedures, and the particular status of the sub-discipline of macroeconomics." He then compares and contrasts what economists were saying about those subjects in 1966 and 1980, compared with his views on current patterns. For details, read the essay! But here are few excerpts that caught my eye and may give some flavor of his discussion:
"Economists are not without knowledge. We know that restrictions on trade tend to help narrow interests at the expense of broader prosperity. We know that market prices are important for coordinating specialization and division of labor in a complex economy. We know that the profit incentive promotes the introduction of improved products and processes, and that our high level of well-being results from the cumulative effect of such improvements. We know that government control over prices and production, as in communist countries, leads to inefficiency and corruption. We know that the laws of supply and demand tend to frustrate efforts to make goods more "affordable" by subsidizing them or to lower "costs" by fixing prices.
"But policymakers have goals that go far beyond or run counter to such basic principles. They want to steer the economy using fiscal stimulus. They want to shape complex and important markets, including those of health insurance and home mortgages. It is doubtful that the effectiveness of economic theory is equal to such tasks.
"Most scholarly research in economics is ultimately motivated by the unrealistic goal of providing effective theory to implement such technocratic objectives. But the resulting economic theory cannot be applied with the same confidence as Newtonian physics. Even worse is the fact that economists, unlike physicists, are not clear about the limits of the effectiveness of their theories. In short, when it comes to effective theory, economists promise more than they can deliver. ..."


"There is a very real possibility that over the next 20 years academic economics will congeal into a discipline, like sociology today, which is definitively shaped by an ideologically driven point of view. Among highly educated people, ideological polarization is increasing. Economists have always had their biases about which sorts of theories seemed reasonable; some of these biases are idiosyncratic, as when one economist is inclined to believe that labor demand responds very little to a change in wage rates and another is inclined to believe that labor demand responds a great deal. But going forward, biases are likely to increasingly be driven by political viewpoints rather than by other considerations.
"This will be evident in beliefs of economists that are politically consistent but analytically contradictory. For example, it is politically consistent for someone on the left to believe that a rise in the minimum wage would not reduce hiring and also that more immigration would not depress wages. Analytically, however, these are opposite views. The minimum-wage increase will not reduce hiring if one treats labor demand as highly inelastic (so that a small change in hiring will be associated with a given change in wages). Increased immigration will not depress wages if one treats labor demand as highly elastic (so that a large change in hiring will be associated with a given change in wages). I think we are already starting to see economists opt for political consistency at the expense of analytical consistency.
"This more political profession is very likely to point toward the left. Economists are part of an academic community in which peer pressure and community values push left. It is inevitable that the social life of an academic is going to involve interacting with people from other disciplines who are overwhelmingly on the left. This makes it uncomfortable on campus to espouse the free-market views that one used to hear from conservatives like Milton Friedman. There are signs that the momentum within the profession is toward the left. ...

"Young economists who employ pluralistic methods to study problems are admired rather than marginalized, as they were in 1980. But economists who question the wisdom of interventionist economic policies seem headed toward the fringes of the profession.
In this respect, the barriers to effective theory in economics are different and perhaps more worrisome than was the case in 1980. The contemporary state of economic theory reflects a broader crisis in the social sciences and a deepening cleavage between the college campus and the rest of society."
It's wise to be skeptical about claims of economists. It's also wise to be skeptical about claims of noneconomists. It's true that economists are often not clear about the limits on the effectiveness of their theories. In my experience, noneconomists are typically even less clear about limits on the effectiveness of their theories--indeed, noneconomists are often loathe to acknowledge that their theories have any limitations at all.

As I try to piece together my own views on these topics, I'm reminded of some comments from Herbert Stein, who was an economist in many positions in Washington, DC for more than 50 years (from his 1995 collection of essays, On the Other Hand - Essays on Economics, Economists, and Politics). Here's his comment comparing the knowledge of economists and non-economists (p. 78)

"In the preface to a book of mine called Washington Bedtime Stories, I summed up two main lessons derived from more than fifty years in Washington as a civil servant, researcher, presidential adviser, observer, and commentator:
  • Economists do not know very much. 
  • Other people, including the politicians who make economic policy, know even less about economics than economists do.”
Stein also had some pungent comments on how people are affected by their preexisting political views (p. 248 of the same book):
"I think that most people—even those who read the editorial and op-ed pages—do not want to encounter opposing views. They want a good expression and confirmation of the views they have, or the views they would have if they thought about the subject. I can see that tendency in myself. I rarely read the columnists I know I am going to disagree with. Life is too short. ... Probably almost all readers of magazines with pronounced ideological or partisan slants share those slants. They want to be massaged, not informed.
"In all my years of writing opinion pieces, I don't think I have ever received a letter from a reader who said that I had changed his mind. I get some letters--a few--from readers who say they agree with me. Many of them say not only that they agree with me but that they had had the same thought ten years ago and had written a fifty-page essay about it that they would like my help in getting published. Some write to disagree with me, often violently. But I don't remember any saying that I had changed his mind. "
And here's one more shot of Stein (from pp. 1-2 of the same book):
"An old saying goes that whoever is not a Socialist when young has no heart and whoever is still a Socialist when old has no head. I would say that whoever is not a liberal when young has no heart, whoever is not a conservative when middle-aged has no head, and whoever is still either a liberal or a conservative at age seventy-eight has no sense of humor. Obviously, orthodox certainty on matters about which there can be so little certitude must eventually be seen as only amusing." 
For myself, I don't have much problem when politicians or actual real-world people choose to read economists with whom they basically agree. Choosing the experts who fit with your predispositions is a very human thing to do, and asking nonspecialists to arbitrate disputes between specialists is difficult. But here's the kicker: When you have chosen the experts with whom you basically agree, a basic degree of intellectual consistency means that you need to listen to all that they say--including possibly unwelcome warnings about limitations, problems of implementation, other implications, and so on. So choose your expert, by all means, but then also be predisposed to follow or at least to acknowledge both the welcome and unwelcome parts of what that expert has to say.

Wednesday, July 5, 2017

Notes on "Eternal Vigilance is the Price of Liberty"

Who said: "Eternal vigilance is the price of liberty?" Well, it wasn't Thomas Jefferson, at least not according to the official Jefferson Library. However, a few years ago a blogger named Anna Berkes at the Jefferson library website took a deep dive to search out the source of the quotation. Berkes found that "eternal vigilance" and "price of liberty" were used more than 700 times in close proximity in various newspapers and books during the first half of the 19th century.

For this post-Fourth-of-July ramble, I'll follow in Berkes's footsteps, but add a different kind of detail. Specifically, I'll take a look at five notable earlier appearances of this phrase. My focus will is on what specifically were the early users of the quotation suggesting that we liberty-loving people need to be eternally vigilant about?
  1.  The first time that we know the terms "eternal vigilance" and "price of liberty" were used in close proximity was by an Irishman named John Philpott Curran in 1790, discussing the rules for electing the Lord-Mayor of London.
  2. The first time we know that the the entire phrase was used together was during in an 1809 discussion of how James Jackson helped fight off the "Yazoo land grab" in western Georgia. 
  3. The first use by a US president, in Andrew Jackson's Farewell Address in 1837, was about the need to fight off the Bank of the United States.
  4. The first use by someone who would later be a  US president was when James Buchanan applied the phrase to discussing the merits of the presidential veto.
  5. The use of the term in its more modern meaning, as pushing back against encroachments on personal liberty, in the speeches and writings of Frederick Douglass starting in 1848 and continuing to the years after the Civil War. 
Example #1: John Philpott Curran and the rules for electing the Lord-Mayor of Dublin

John Philpott Curran (1750-1817) was a lawyer who is probably best-remembered today as an advocate for freedom in Ireland. At the time of the election of the Lord-Mayor of Dublin in 1790, Philpott gave a speech pointing that while the Lord Mayor had traditionally been elected, a situation had evolved in which Alderman of the city had both become the only ones eligible for the position of Lord Mayor, but also decided among themselves who would hold that position. Thiw quotation is from The speeches of the Right Honourable John Philpot Curran, published in 1865 (July 10, 1790, p. 105, italics added). 
"The Lord Mayor of this city hath, from time immemorial, been a magistrate, not appointed by the crown, but elected by his fellow citizens; from the history of the early periods of this corporation, and view of its charters and bye-laws, it appears that the Commons had from the earliest periods, participated in the important right of election to that high trust; and it was natural and just that the whole body of citizens, by themselves or their representatives, should have a share in electing those magistrates who were to govern them, as it was their birthright to be ruled only by laws which they had a share in enacting. The Aldermen, however, soon became jealous of this participation, encroached by degrees upon the Commons, and at length succeeded in engrossing to themselves the double privilege of eligibility and of election of being the only body out of which, and by which the Lord Mayor could be chosen. 
Nor is it strange that, in those times, a board consisting of so small a number as twenty-four members, with the advantages of a more united interest, and a longer continuance in office, should have prevailed, even contrary to so evident principles of natural justice and constitutional right, against the unsteady resistance of competitors so much less vigilant, so much more numerous, and, therefore, so much less united. It  is the common fate of the indolent to see their rights become a prey to the active. The condition upon which God hath given liberty to man is eternal vigilance, which condition if he break, servitude is at once the consequence of his crime, and the punishment of his guilt. 
In this state of abasement the Commons remained for a number of years; sometimes supinely acquiescing under their degradation; sometimes, what was worse, exasperating the fury, and alarming the caution of their oppressors, by ineffectual resistance. The slave that struggles, without breaking his chain, provokes the tyrant to double it; and gives him the plea of self-defence for extinguishing what, at first, he only intended to subdue.

Example #2: Thomas Charlton, James Jackson, and the Yazoo Land Fraud

The earliest use of the exact phrase, "eternal vigilance is the price of liberty," dates to an 1809 book called The Life of Major General James Jackson, by Thomas U.P. CharltonJames Jackson was a member of first Continental Congress and was in the US Senate in early 1790s. He became Governor of Georgia, and then later returned to the US Senate. The specific issue here is the "Yazoo land fraud," in which the Georgia legislature--some of whom had been bribed--sold large quantities of land in the western part of the state.  Jackson made a political issue of sale, was elected Governor, and overturned it, also using the opportunity to disgrace a number of his political opponents. Here is the sympathetic and florid passage from Charlton's book (pp. 84-87), which is only a portion of the surrounding paragraph (!). Notice that Charlton puts the phrase of interest in quotation marks (and I've put it in italics), which might either mean that the phrase was already well-known to his readers, or else that he is just setting off a phrase of his own invention for ease of reading.
"In 1793, 1794, and 1795, he [Jackson] was a senator in congress. Recalled by his fellow citizens, who (inflamed almost to madness, and discerning around them, in every quarter, their rights trampled upon by men of highest character) passed resolutions in their primary county meetings demanding his aid at home, he resigned his honorable station, and immediately embarked all the faculties of his mind, all the firmness of his nature, and all the reputation he had acquired, in indefatigable exertions to effect a repeal of the act by which Georgia had sold to companies of speculators millions of acres of her western territory. To recall the memory of her degradation, to assist in extending remembrance of her shame, can give no satisfaction to her sons. The biographer approaches the subject with loathing, impelled to it by the obligations he has assumed. His painful duty will be comparatively light, if he can convince himself that his succinct presentation of the speculation shall have the least effect in fastening upon the minds of the American people the belief, that "the price of liberty is eternal vigilance"; and in convincing them that, whilst a just confidence is given to their public servants, they should be watched with eyes that never sleep. A majority of the Georgia legislature had been bribed by promises of shares— some by certificates of shares, for which they were never to pay—others by expectations of slave property. The foulest treason had been perpetrated, under the guise of legislation. Citizens of the most exalted standing from several States, some of them high public functionaries: one a senator from Georgia, whose duty required him to have been at his post in Congress; others judges, generals, revolutionary characters, whose popularity and past services made them more dangerous, and served ultimately to heap degradation upon their heads, had attended at Augusta, in January, 1795, and executed their unhallowed purpose. Georgia had been robbed of her domain—her own law givers corrupted and consenting and an indelible stigma fixed upon her fame, her own children blackening her escutcheon. The full iniquity of this nefarious legislation—if usurpation can be denominated legislation—was exposed by General Jackson in a series of letters addressed to the people under the signature of "Sicilius." At the following session he was a member. The all-absorbing subject, with the petitions, remonstrances, memorials, and other proceedings of the people, was referred to a committee of which he was chairman. Testimony was taken upon oath, which established deep and incontrovertible guilt. The rescinding law was passed. It was drawn and reported by General Jackson, and adopted as it came from his pen. The merits of this latter act— its constitutionality—its consistency with republican principles—its necessity—its justice—have all been freely and ably discussed in our country, in private circles, in pamphlets, in the public gazettes, in the Congress of the Union, in the Supreme Court. The decision of the country, perhaps, has been against the power of the rescinding legislature, so far as innocent purchasers under the fraudulent grants were interested; but, whether constitutional or not, nothing is more certain than that the honest of every section of the United States; all who detest corruption, admire virtue, and regard an honest representation as the bulwark of the public liberties, have considered its action upon the Yazoo speculation as pure, and its motives patriotic. The citizens of Georgia, especially, have held in horror and detestation the authors and abettors of her humiliation; and have consecrated with their best affections the memories of those who were faithful to the State. The Yazoo act repealed, every vestige and memorial of its passage expunged from the public records, and burnt with all the ceremony and circumstance which popular indignation demanded, the popularity of General Jackson became unrivalled.  
Example #3: Andrew Jackson and Opposition to the Bank of the United States

In President Jackson's Farewell address on March 4, 1837, he took a few whacks at his old adversaries who favored the founding of a Bank of the United States. He said (italics added):
"The powers enumerated in that instrument do not confer on Congress the right to establish such a corporation as the Bank of the United States, and the evil consequences which followed may warn us of the danger of departing from the true rule of construction and of permitting temporary circumstances or the hope of better promoting the public welfare to influence in any degree our decisions upon the extent of the authority of the General Government. Let us abide by the Constitution as it is written, or amend it in the constitutional mode if it is found to be defective.
"The severe lessons of experience will, I doubt not, be sufficient to prevent Congress from again chartering such a monopoly, even if the Constitution did not present an insuperable objection to it. But you must remember, my fellow-citizens, that eternal vigilance by the people is the price of liberty, and that you must pay the price if you wish to secure the blessing. It behooves you, therefore, to be watchful in your States as well as in the Federal Government. The power which the moneyed interest can exercise, when concentrated under a single head and with our present system of currency, was sufficiently demonstrated in the struggle made by the Bank of the United States."

Example #4: James Buchanan and the Presidential Veto

In 1842, the US Senate was considering a bill that would alter the US Constitution to eliminate the presidential veto: that is, what Congress passes by majority vote becomes law. James Buchanan, who would later become president from 1857-1861, just before the Civil War, gave a speech "On the Veto Power" on February 2, 1842. This is from volume 5 of The Works of James Buchanan published from 1908-1911 (p. 130).  Buchanan said (italics added):
"This veto power was conferred upon the President to arrest unconstitutional, improvident, and hasty legislation. Its intention (if I may use a word not much according to my taste) was purely conservative. To adopt the language of the Federalist, " it establishes a salutary check upon the legislative body, calculated to guard the community against the effects of faction, precipitancy, or of any impulse unfriendly to the public good, which may happen to influence a majority of that body," [Congress.] Throughout the whole book, whenever the occasion offers, a feeling of dread is expressed, lest the legislative power might transcend the limits prescribed to it by the Constitution, and ultimately absorb the other powers of the Government. From first to last, this fear is manifested. We ought never to forget that the representatives of the people are not the people themselves. The practical neglect of this distinction has often led to the overthrow of Republican institutions. Eternal vigilance is the price of liberty; and the people should regard with a jealous eye, not only their Executive, but their legislative servants. The representative body, proceeding from the people, and clothed with their confidence, naturally lulls suspicion to sleep; and, when disposed to betray its trust, can execute its purpose almost before their constituents take the alarm." 
Example #5: Frederick Douglass and the Fight against Slavery and Racial Discrimination

Our proverb of interest was something of a favorite for Frederick Douglass. In Wolfgang Mieder's 2001 book, No Struggle, No Progress: Frederick Douglass and His Proverbial Struggle for Civil Rights, Mieder lists seven times when Douglass used the term spanning the years from 1848 to 1889, The first time was in an essay in Douglass's journal The North Star, on March 17, 1848 (the Library of Congress has a manuscript of the essay here). Douglass wrote (italics added):
"It is in strict accordance with all philosophical, as well as experimental knowledge, that those who unite with tyrants to oppress the weak and helpless, will sooner or later find the groundwork of their own liberties giving way. "The price of liberty is eternal vigilance." It can only be maintained by a sacred regard for the rights of all men. The people of the North have sought to attain and secure their rights, by a most flagrant infringement of the rights, liberty and happiness of others. They have consented to stand side by side with the tyrant; with their heels on the hearts of fettered millions, leaving them to perish under the weight of what they call "our glorious Union", and in doing so, have given the Southern slaveholder the most effective power to control and govern the North." 
Douglass's usage made the eternal vigilance a matter of universal civil rights and human rights, not just about rules for electing the Lord Mayor or being opposed to arguably ill-considered legislation. On the 26th anniversary of emancipation on April 16, 1888,  Douglass gave a speech in Washington, DC, now often titled, "I Denounce the So-Called Emancipation as a Stupendous Fraud." He focused on the dire situation of blacks in the South (where he had just returned from a visit),
"It is well said that "a people may lose its liberty in a day and not miss it in half a century," and that "the price of liberty is eternal vigilance." In my judgment, with my knowledge of what has already taken place in the South, these wise and wide-awake sentiments were never more apt and timely than now. ... 
"I have no taste for the role of an alarmist. If my wishes could be allowed to dictate my speech I would tell you something quite the reverse of what I now intend. I would tell you that everything is lovely with the Negro in the South; I would tell you that the rights of the Negro are respected, and that be has no wrongs to redress; I would tell you that he is honestly paid for his labor; that he is secure in his liberty; that he is tried by a jury of his peers when accused of crime; that he is no longer subject to lynch law; that he has freedom of speech; that the gates of knowledge are open to him; that he goes to the ballot box unmolested; that his vote is duly counted and given its proper weight in determining result; I would tell you that he is making splendid progress in the acquisition of knowledge, wealth and influence; I would tell you that his bitterest enemies have become his warmest friends; that the desire to make him a slave no longer exists anywhere in the South; that the Democratic party is a better friend to him than the Republican party, and that each party is competing with the other to see which can do the most to make his liberty a blessing to himself and to the country and the world. But in telling you all this I should be telling you what is absolutely false, and what you know to be false, and the only thing which would save such a story from being a lie would be its utter inability to deceive.
The first quotation from Douglass in this passage, about how "a people may lose its liberty in a day," is commonly attributed to Montesquieu, but I don't know the original source. (And I wouldn't dream of putting any faithful reader who has stuck with me this far through another search!)

Some Thoughts

1) I suppose that the economist in me likes the phrase "eternal vigilance is the price of liberty" because it is a prominent example of a nonmonetary price. But maybe that reason  doesn't resonate with everyone!

2) The word "vigilance" is powerful and interesting. Vigilance is about a heightened level of perception and responsibility, about being present not just physically, but also emotionally. For example, a sentry who is responsible for the safety of others may keep vigil, or there are vigils before certain religious events, or people might sit vigil near a with someone who is dying or already dead.

3) "Vigilance" leaves open the question of what political tactics are appropriate at a given point in time. Vigilance doesn't mean that you react on a hair-trigger, or that you react in a dramatic way--although sometimes those responses may be advisable. Vigilance is about awareness and sensitivity and noticing.

4) The idea that vigilance must be "eternal" is pleasing to me, because it suggests a hard-headed view both of political actors and of ordinary people. It suggests both that political actors and social groups will always and inevitably be trying to encroach upon liberty.

5) In a broad sense, this sentiment is not just political in its meaning. Back in 1956, in the previous to a CBS Radio adaptation of his novel Brave New World, Aldous Huxley said (January 27, 1956): 
"The price of liberty--and even of common humanity--is eternal vigilance." I suspect that Frederick Douglass would have agreed, although some of the earlier users of the term might have felt that Huxley was missing the point.

Tuesday, July 4, 2017

Why Not Taxation and Representation?

As a July 4 mental workout, consider an alternative version of history. At the end of the Seven Years War (also known as the French and Indian War) in 1763, Great Britain decides to annex its American colonies into Great Britain, and so it designates seats in the British Parliament for the colonists. In this alternative history, many of those who ended up in the actual course of history as signers of the Declaration of Independence instead become members of the British Parliament. (Honestly, you think Benjamin Franklin would have turned down a chance in 1765 or so to be in the British Parliament?) The battle cry of "No taxation without representation" loses its force, because the Americans do have representation. You can then write your own alternative history novel, extrapolating British, American, European, and world history from this point forward.

This option of representation for colonial America in Parliament was fairly well-known at the time: for example, it is discussed by Adam Smith in The Wealth of Nations, published in 1776, and was advocated by some opposition politicians in the British Parliament. The question of why it did not occur is also tackled directly by Sebastian Galiana and Gustavo Torrens in "Why Not Taxation and Representation?A Note on the American Revolution" (SSRN working paper, last updated June 2017).  They ask:

"To solve the puzzle posed by the American Revolution, we must answer two crucial questions. First, why did the North American colonies rebel? Second, why didn't the British authorities and the Americans elites reach a peaceful agreement for sharing the economic burden of defending the colonies in exchange for more political power for the American colonies? For example, why didn't the British agree to have American representation in the British Parliament and thus quickly placate the revolt? After all, the motto of the revolution was no taxation without representation, suggesting Americans would have been willing to accept taxation if the British Parliament would have granted them political representation and/or greater political autonomy."
Galiana and Torrens summarize earlier research in colonial history that substantiates the following points:
"1. The American colonies were prosperous. They were richer and had a more equal income distribution than Great Britain and other European nations. ...
2. British mercantilist policies and other economic regulations were not that burdensome for the colonies and membership in the British Empireís trade system was probably quite beneÖcial for the colonies. ...
3. The American colonies had relatively inclusive institutions. ...
4. The British Empire had shown its willingness to defend the American colonies and the colonies had shown their willingness to be part of the Empire, especially during the Seven Years War. ...
5. The amount that Great Britain was spending on the colonies was considerable, and the colonies did not generate sufficient revenue to make them an advantageous undertaking....
6. The American colonies paid little in taxes and the British Parliament had been ineffective in increasing their tax burden. ...
7. Although France and other British rivals provided military support, rebellion was nonetheless very costly for the colonies. ...
8. Rebellion was a very risky and dangerous enterprise for the American elites. ..."

Given this background, why did the American Revolution come to pass. Some of the reason, of course, is that the American colonists included a relatively high proportion of ornery tax-hating, liberty-lovers. But political matters on both shifting in the mid-1760s. 

The political coalitions in Britain were shifting, and the new powers wanted tighter control over the American colonies. Britain wanted funds to pay off the debts from the Seven Years War, and it seemed fair that the American should shoulder the burden. The American colonists kept pushing west, which made Britain fear that there would be additional costs of defense. Economic growth in the American colonies had established a group of wealthy and powerful colonial merchants, but after about 1745m British companies had been extending their direct operations into the colonies, which threatened to cut into the economic and political power of the colonial merchants.

But from a British point of view, the other main concern was that giving political representation to Americans challenged the political coalition that held power in the 1760s. Galiani and Torrens write: 
"After the Seven Years War, the core of the dominant political coalition in Great Britain was composed of the landed gentry, whose power rested on a political system based on land ownership. The leader of the coalition, Prime Minister Lord North, had the support of the king. His cabinet was composed of Bedfordite ministers and, when dealing with serious issues, Lord North could always count on the support of Parliament, which was dominated by landed gentry. The coalition also enjoyed the support of the High Anglican Church. The members of this coalition were all loyal to a political system based on land ownership, and they considered the members of the general public to be unfit to participate in politics and objected to the idea of making any concessions to the American colonies. ... The landed gentry, who controlled the incumbent government, feared that making concessions to the American colonies would intensify the pressure for democratic reforms, thus jeopardizing their economic and political position."
To me, the story of Great Britain when confronted with its American colonies is a little like the metaphor of the dog that chased a car every day--but then didn't know what do after actually catching it. The Britain of its time was chasing global economic power. The British were willing to bear high costs to defend and build the growing American empire. But when the British found itself faced with the reality of an American colonies rapidly growing in economic strength, population, and land, it didn't know how to react. Both holding on and letting go seemed equally impractical, and the US Revolutionary War imposing high costs on both sides was the result.

Readers interested in some further discussion of economics and colonial times, while also looking to escape from the obligatory family picnic and occupy the time before the July 4 fireworks display, might also want to check some earlier posts:

Monday, July 3, 2017

Carlton Hayes: Nationalism as a Religion

With the July 4 holiday near at hand, it's a time to reflect on love of country in all its forms, including variations on patriotism and nationalism. Earlier today I offered some thoughts from George Orwell on these topics. The once-prominent historian Carlton Hayes reflected on the topic of "Nationalism as a Religion" in a provocative 1926 essay, writing in the shadow cast by of World War I. He wrote:
“My country, right or wrong, my country!” Thus responds the faithful nationalist to the magisterial call of his religion, and thereby he intends nothing dubious or immoral. He is merely making a subtle distinction between governmental officials who may go wrong and a nation which, from the inherent nature of things, must ever be right. It would sound pedantic for him to say, “my nation, indicatively right or subjunctively wrong (contrary to fact), my nation!” Indeed, to the national state are now popularly ascribed infallibility and impeccability. We moderns are prepared to grant that all our fellow countrymen may individually err in conduct and judgement, but we are loath to admit that our nation as a whole can make mistakes. We are willing to assail the policies and even the characters of some of our politicians, but we are stopped by the faith that is in us from doubting the Providential guidance of our national state. This is the final mark of the religious nature of modern nationalism.
"The most impressive fact about the present age is the universality of the religious aspects of nationalism. Not only in the United States does the religious sense of the whole people find expression in nationalism, but also, in slightly different form but perhaps to an even greater degree, in France, England, Italy, Germany, Belgium, Holland, Russia, the Scandinavian and Baltic countries, Poland, Hungary, Czechoslovakia, Spain, Portugal, Ireland, the Balkans, Greece, and the Latin-American republics. Nor does the religion of nationalism thrive only on traditionally Christian soil; it now flourishes in Japan, Turkey, Egypt, India, Korea, and is rearing its altars in China. Nationalism has a large number of particularly quarrelsome sects, but as a whole it is the latest and nearest approach to a world-religion. ...
"I would not have anyone gather from what I have said that I condemn nationalism because it is an expression of man's “religious sense.” I am too convinced a believer in the inherently religious character of man to make light of religion; and to condemn nationalism because it depends on religious emotion would seem to me as futile as to condemn vegetation because it thrives on sunlight. I would suggest, however, that there are many, many ways in which man may express his religious sense, and that religious emotion, like any other instinctive emotion, is always susceptible and often needful of conscious direction and control. Some forms of religion are superior to others, and when we recognise the religious nature of modern nationalism we have still to ask ourselves whether it is the form or religion most conducive to human betterment.
"Most great religious systems of the past have been unifying, rather than disintegrating, forces in the history of the human race. ... Modern nationalism, while evolving customs and ceremonies which externally are very reminiscent of rites and practices of Christianity, has developed quite a different spirit, and set itself quite a different goal. Despite the universality of the general concept of nationalism, its cult is based on a tribal idea and is, therefore, in its practical manifestations, peculiar to circumscribed areas and to persons of the same language. The good at which it aims is a good for one's own nation only, not for all mankind. The desires which it inspires in an Englishman or a German or a Japanese are not the same as the desires which it inspires in a Frenchman, a Pole, or an American. ...
"Nationalism as a religion inculcates neither charity nor justice; it is proud, not humble; and it signally fails to universalise human aims. It repudiates the revolutionary message of St. Paul and proclaims anew the primitive doctrine that there shall be Jew and Greek, only that now there shall be Jew and Greek more quintessentially than ever. Nationalism's kingdom is frankly of this world, and its attainment involves tribal selfishness and vainglory, a particularly ignorant and tyrannical intolerance, - and war."

George Orwell: Patriotism vs. Nationalism

What's the difference between patriotism and nationalism? Here's some of what George Orwell had to say about the distinction in his 1945 essay, "Notes on Nationalism."
"Nationalism is not to be confused with patriotism. Both words are normally used in so vague a way that any definition is liable to be challenged, but one must draw a distinction between them, since two different and even opposing ideas are involved. By ‘patriotism’ I mean devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people. Patriotism is of its nature defensive, both militarily and culturally. Nationalism, on the other hand, is inseparable from the desire for power. The abiding purpose of every nationalist is to secure more power and more prestige, not for himself but for the nation or other unit in which he has chosen to sink his own individuality.
"So long as it is applied merely to the more notorious and identifiable nationalist movements in Germany, Japan, and other countries, all this is obvious enough. Confronted with a phenomenon like Nazism, which we can observe from the outside, nearly all of us would say much the same things about it. But here I must repeat what I said above, that I am only using the word ‘nationalism’ for lack of a better. Nationalism, in the extended sense in which I am using the word, includes such movements and tendencies as Communism, political Catholicism, Zionism, Antisemitism, Trotskyism and Pacifism. It does not necessarily mean loyalty to a government or a country, still less to one's own country, and it is not even strictly necessary that the units in which it deals should actually exist. To name a few obvious examples, Jewry, Islam, Christendom, the Proletariat and the White Race are all of them objects of passionate nationalistic feeling: but their existence can be seriously questioned, and there is no definition of any one of them that would be universally accepted.
"It is also worth emphasising once again that nationalist feeling can be purely negative. ... When one grasps the implications of this, the nature of what I mean by nationalism becomes a good deal clearer. A nationalist is one who thinks solely, or mainly, in terms of competitive prestige. He may be a positive or a negative nationalist — that is, he may use his mental energy either in boosting or in denigrating — but at any rate his thoughts always turn on victories, defeats, triumphs and humiliations. He sees history, especially contemporary history, as the endless rise and decline of great power units, and every event that happens seems to him a demonstration that his own side is on the upgrade and some hated rival is on the downgrade. But finally, it is important not to confuse nationalism with mere worship of success. The nationalist does not go on the principle of simply ganging up with the strongest side. On the contrary, having picked his side, he persuades himself that it is the strongest, and is able to stick to his belief even when the facts are overwhelmingly against him. Nationalism is power-hunger tempered by self-deception. Every nationalist is capable of the most flagrant dishonesty, but he is also — since he is conscious of serving something bigger than himself — unshakeably certain of being in the right. ...
"It can be plausibly argued, for instance — it is even possibly true — that patriotism is an inoculation against nationalism ..." 

Saturday, July 1, 2017

Melting Pot, Salad Bowl, Chocolate Fondue

Here's my attempt to resolve all the issues of shared American identity in under 1,000 words. It was published back in 2013 as an opinion piece in the (Minnesota) Star Tribune newspaper.


"Analogies for America: Beyond the Melting Pot"
Timothy Taylor


Melting pot or salad bowl? For decades now, these two contestants have been slugging it out in the contest for most appropriate metaphor for how the cultures and ethnicities of America fit together. But my preference is to think of America as chocolate fondue.

The popularization of “the melting pot” metaphor is usually traced to a soppy, sentimental and very popular play of that name by an immigrant named Israel Zangwill that opened in Washington in 1908. The melting pot metaphor is a way of expressing “E pluribus unum” — “Out of many, one” — the already old saying adopted in 1782 for the Great Seal of the United States (and which you can see on the back of the $1 bill). “E pluribus unum” has also been imprinted on U.S. coins since the 18th century.

The traditional criticism about the melting pot was that what is special about American culture isn’t its homogeneity, but rather its ability to absorb the elements of many cultures, then pass them around to everyone. For example, as John F. Kennedy wrote in his 1958 book, “A Nation of Immigrants”: “One writer has suggested that a ‘typical American menu’ might include some of the following dishes: ‘Irish stew, chop suey, goulash, chile con carne, ravioli, knockwurst mit sauerkraut, Yorkshire pudding, Welsh rarebit, borscht, gefilte fish, Spanish omelette, caviar, mayonnaise, antipasto, baumkuchen, English muffins, gruyère cheese, Danish pastry, Canadian bacon, hot tamales, wienerschnitzel, petit fours, spumoni, bouillabaisse, mate, scones, Turkish coffee, minestrone, filet mignon.’ ”

In our multicultural and individualist age, the common complaint is that the metaphor says that Americans should surrender our cultural and ethnic identities. This critique strikes me as overwrought. Yes, the culture of the country where you live is constraining. But what’s distinctive about modern America is the looseness of these constraints, and the array of available choices.

However, it does bother me that the melting pot metaphor is a relic of a bygone time, when melting different metals together was a common for many industrial workers. It also bothers me that melting different metals together produces a desired outcome only if you adhere to a formula. Bronze is copper and tin. Brass is copper and zinc. If you just dump different metals into a melting pot, what comes out is likely to be flawed and brittle, not strong or useful. When supporters of the melting pot metaphor start talking, it often turns out that they have a clear mental formula for what it means to be American — and it isn’t always my formula.

The notion of America as a salad bowl seems to have been popularized by the eminent historian Carl Degler. His book “Out of Our Past: The Forces that Shaped Modern America” was a commonly used textbook from the 1950s up through the 1980s. In the 1959 edition, he wrote: “[S]ome habits from the old country were not discarded; in those instances the children of immigrants even into the third and fourth generations retained their differences. In view of such failure to melt and fuse, the metaphor of the melting pot is unfortunate and misleading. A more accurate analogy would be a salad bowl, for, although the salad is an entity, the lettuce can still be distinguished from the chicory, the tomatoes from the cabbage.”

While the salad bowl metaphor has a healthy, crunchy “eat your vegetables” ring to it, it seems awkward to me as well. After all, who is the pale and crunchy iceberg lettuce? Who is arugula? Who are the artificial bacon bits? Who are anchovies? Salad ingredients are not all created equal.

Salad is always falling apart, and you can almost never get all of the ingredients, in just the right proportions, into your mouth at the same time. Imagine the oversized modern salad bar, with multiple kinds of lettuces and vegetables, but also seeds and nuts, tuna salad, slices of chicken or ham, bean salad, hard-boiled eggs, crackers and popcorn, along with choice of soup and dessert. It misses what is cohesive and distinctive about America to see the country as a long buffet of ingredients, which we all choose to exclude or include according to our transient appetites of day.

My own suggestion is that America is chocolate fondue. Our different cultural and ethnic backgrounds are the strawberries, pineapple, and cherries, the graham crackers and cookies, the pound cake and brownies, the rice crispy treats and marshmallows, the popcorn and the peppermint sticks. Then we are dipped in America. We swim in America. We are coated in America. Because Americans can and do come from all ethnicities and races, we all look like Americans.

Of course, chocolate doesn’t always deliver on its promise. It can become grainy, rancid, burnt and bitter. Some people have no taste for chocolate, or are even allergic to it. America has often not lived up to its promises and ideals. But when I think consider all the human beings who have ever lived, in all the different places and times around the world, I feel profoundly fortunate to be living in modern America.

There’s an old story about when heavyweight boxing champion Joe Louis decided to enlist in the U.S. Army in 1942. A friend of his objected, and said: “It’s a white man’s Army, Joe, not a black man’s Army.” But Joe Louis had observed the Nazi propaganda machine close up, as the result of his two epic fights against the German Max Schmeling (who was not a Nazi, but whom the Nazis attempted to exploit). So Louis told his friend: “Lots of things wrong with America, but Hitler ain’t going to fix them.”

In that spirit, I’d say lots of things are wrong with America, but often, the best answers for what’s wrong with America are a bigger dose of what’s right with America. On the Fourth of July, I choose to sit with family and friends, and to savor the textures and sweetness of our shared American experience.

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Timothy Taylor is managing editor of the Journal of Economic Perspectives, based at ­Macalester College in St. Paul. He blogs at http://conversableeconomist.blogspot.com.