The Unassuming Economist

From Conversable Economist:

“The pandemic recession from March to April 2020 was a different creature from the previous post World-War II recessions: different in cause, length, depth, and the kinds of social and economic changes that happened. The appropriate economic policy response was also different. Instead of the standard anti-recession policy of stimulating the entire economy, it is more useful to think of pandemic recession policy as a form of social insurance. One key question is whether this social insurance should operated primarily by supporting the unemployed or by supporting jobs.

Lest this distinction sound like a word game, consider this real world difference. In the pandemic, most European countries responded with programs of “short-time work.” The idea the employer doesn’t need to fire or lay-off workers. Instead, it cuts their hours substantially, and the government makes up the difference. It’s a kind of partial unemployment, except that when the worst of short, sharp pandemic hit to the economy passed by, the workers were still employed at their previous jobs and employers could ramp up their hours again. In contrast, the US approach emphasized larger and longer unemployment payment aimed at those who were without jobs. US employers (with the exception of some small state-level programs) did not have option of switching to short-time work.

Giulia Giupponi, Camille Landais, and Alice Lapeyre discuss the tradeoffs between tehse two approaches in “Should We Insure Workers or Jobs during Recessions?” (Spring 2022, Journal of Economic Perspectives, 36:2, 29-54). Here’s one of their figures. The solid lines show the share of population receiving unemployment insurance, with the blue line showing the US and the red line showing a weighted average for Germany, France, Italy, and the United Kingdom. Notice that the share of workers getting unemployment insurance in the pandemic spikes up in the US (solid blue line) but barely budges in the European countries (solid red line). Conversely, the share of workers on short-time work spikes up in the European countries (dashed red line) but barely budgets in the US (dashed blue line).”

From Economic History Association:

“Mark Koyama and Jared Rubin. How the World Became Rich: The Historical Origins of Economic Growth. Cambridge, UK: Polity Press. x + 259 pp. $24.95 (paperback), ISBN 978-1509540235.

Reviewed for EH.Net by Joel Mokyr, Departments of Economics and History, Northwestern University.

Any scholar teaching economic history and wishing for an up-to-date survey of a large and important literature will find it useful to read this book to bone up on the recent research listed in the long and encompassing list of references. Furthermore, they should seriously consider having their students read it for their class. The book is a wide-ranging yet remarkably complete and accessible survey of the Great Enrichment, the emergence of modern and prosperous economies that provide us with a material standard of living that our ancestors could not have dreamed of. How and why modern economic growth occurred when and where it did, and how economists have tried to understand this phenomenon, is the theme of this book. It is written by two of the finest young senior scholars in our field, both with important contributions to the subject matter of this book.

Many of the issues this book raises are highly contentious in our profession, and for good reason: these are hard questions on which learned scholars can disagree and interpret the evidence in different ways. How much did institutions really matter? What was the role of culture in economic growth? Was geography destiny? What was the role of craft guilds in the economic development of early modern Europe? How to think about the role of imperialism and slavery in the Industrial Revolution and the subsequent growth of industrial powers? Were high wages good or bad for technological progress? Was war a positive factor in economic growth? Was the European Marriage Pattern a positive factor in the economic development of the Continent?

The ecumenical and balanced approach the authors take to these questions is much like the Rabbi in a famous Jewish story. According to the legend, a rabbi is holding court in front of a large audience of his pupils. A husband and wife appear before the rabbi, to discuss their troubled domestic life. First the husband gets to lay out his case, and he lists all the sins and vices of his wife. The Rabbi listens carefully and pronounces his verdict: the husband is in the right. Then his pupils appeal to him: you should hear the wife’s case as well. The Rabbi consents and listens to the woman lays out her powerful case against her lazy and violent husband. He then announces his second verdict: the wife is in the right. His best pupil protests: but Rabbi, how can they both be in the right? The Rabbi listens and pronounces: the pupil is right too.

Rubin and Koyama present balanced and fair surveys of made in the literature, but they are reluctant to take strong positions. Such an ecumenical approach sets them apart from Clark’s Farewell to Alms and McCloskey’s Bourgeois Dignity, where the authors take up similar issues but in a much stronger opinionated mode. That thoughtful and measured approach of the survey, its elegant and crystal-clear style, and the authors’ impressive knowledge of a large and complex literature make this book nothing short of ideal for teaching advanced courses on global economic history to economics students.

It is especially refreshing to see a book such as this that pays explicit attention to institutions and culture, two themes that until not so long ago were taboo in our field but now seem to play increasingly central roles. The book contains full chapters on each, and while the discussion is naturally far from exhaustive, the authors do an excellent job summarizing some of the best work in these areas. What remains, of course, unsolved is why different nations develop different institutions and how and why such institutions change over time and how exactly cultural beliefs help determine the institutions that society ends up with.”

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From Conversable Economist:

“When I get the quarterly announcements for what my retirement account is now worth, and a drop in the stock market has caused the total in the account to decline, I find myself looking at some of the long-run patterns in stock market prices.

To set the stage, here’s the historical pattern of the S&P stock index since back in the 19th century. In interpreting the figure, notice that the vertical axis is a logarithmic axis showing proportional changes; for example, the tripling from 10 to 30 is the same size as the tripling from 100 to 300 and the same as the tripling from 1000 to 3000. (Without using a log scale, all the smaller values–like the stock market crash of 1929, would just be a little squiggle what would look like a nearly flat line on the far left of the figure.) You can see some of the well-known changes in the stock market over time: the run-up of the 1920s, the crash of 1929, the run-up of the 1960s, the comparatively flat market of the 1970s, a big jump in the dot-com market of the 1990s, the run-up since 2009, and the recent decline. Of course, whenever you consider the possibility that the

For a slightly different view, here is the same set of data, this time adjusted for inflation. Again, the vertical axis shows proportional change. Again, the main well-known changes are pretty visible, but they don’t all look the same. For example, after adjusting for inflation, the Black Tuesday stock market decline in the 1920s looks even more striking, and during the high-inflation 1970s, the real value of the S&P 500 index is falling.

Of course, stock market values should be affected by expectations of corporate earnings. Thus, the standard price-earnings measure of the stock market looks at stock prices divided by corporate earnings over the previous 12 months. Notice that the logarithmic scales have now gone away. Corporate earnings will rise over the long run both because of inflation and along with overall growth in the economy. Thus, one might expect to see the P/E ratio be roughly the same over time, of course with some fluctuations as economic events and market trends interact. Indeed, when you try to find the 1929 stock market crash in this data, it’s barely apparent: after all, if both stock prices and corporate earnings collapse at about the same time, then the ratio of the two may not move in an especially dramatic way.”

From Noah Smith:

“This is the fifth and final post in my series of posts about Japan. In the first post, I lamented Japan’s low-ish living standards and called for a cash-based welfare policy. In the second, I suggested some industrial policies that Japan might use to boost growth. In the third, I discussed Japan’s stagnant corporate culture and how to fix it. And in the fourth, I reviewed two books on Japanese pop culture and how it conquered the world even as the country’s economy languished.

I’ve been coming to Japan pretty regularly for 20 years now. But only this time did it really hit me how different this country feels from the place I first visited back in 2002. Not just all the shops and buildings — in fact, the building boom in big cities, though real, might be the least of the changes. Nor is it just the residue of the pandemic. Attitudes and lifestyles and culture are all different.

When I thought carefully about it, I realized that the changes mostly boiled down to three big things: The expansion of the labor force, the rise of immigration and diversity, and the country’s willingness to assert itself in the international security sphere. And although big changes like these are never the work of just one person, all of them can be traced directly to policy shifts under Japan’s longest-serving postwar Prime Minister, Abe Shinzo.

When Abe took over as PM in late 2012 (his second and much more consequential stint in that job), he inherited a country in deep trouble. It had been over two decades since the bursting of the famous land and stock bubbles, and although the country’s growth revived a bit in the 00s, it didn’t recover to previous levels. A rapidly aging and shrinking population, stagnant productivity growth, and the loss of global market share by many of Japan’s flagship companies all weighed heavily. And then in 2011, disaster struck — a massive tsunami that killed around 16,000 people and destroyed a nuclear plant, irradiating a city and leading to a popular backlash against nuclear electricity.

Abe set himself the task of turning this ship around, with a bold economic reform package called “Abenomics”, as well as some stealthier measures that may ultimately prove even more consequential. But on top of that, Abe set himself another task — the task of shedding Japan’s post-WW2 pacifism and turning it back into a “normal country” with a place in the global security framework.

To many in Japan’s expat press (which far too many Americans rely on for their news about the country), this latter goal immediately pegged Abe as a fascist. But in fact, Abe is a civic nationalist — a guy who wants to make his country stronger in any way he can. And the things Abe did to make Japan stronger — encouraging the hiring of more women, opening the country up to more immigration — often made it more liberal in the process.”

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From Conversable Economist:

“Economic development typically involves a group of transitions, like the shift from agriculture to manufacturing to services. The Winter 2022 issue of the Journal of Economic Perspectives (where I work as Managing Editor) includes five papers on aspects of development-related transitions in the nations of Africa. Here are some of the big questions:

Does Africa have a manufacturing path to economic development?

In “Labor Productivity Growth and Industrialization in Africa,” Margaret McMillan and Albert Zeufack investigate Africa’s manufacturing sector. As they point out, a shift from agriculture to low-skilled manufacturing to high-skilled manufacturing to services has been a standard pattern of economic development for countries around the world. However, there are concerns that this path may not work well in the 21st century, because automated production keeps getting cheaper and thus reducing the opportunities for low-skilled jobs.

Some of the signs for industrialization in Africa are encouraging. The most comprehensive information about manufacturing employment in Africa only covers 18 countries, but based on those data, manufacturing employment in Africa’s lowand middle-income countries increased from 6 million to more than 20 million from 2000 to 2018, raising the share of employment in manufacturing from 7.2 percent to 8.4 percent (Kruse et al. 2021). In comparison, the 1990s saw zero growth in Africa’s manufacturing employment. Manufacturing exports from African nations have also grown at an annual average of 9.5 percent per year (Signé 2018). However, while employment and value-added shares of manufacturing in Africa are rising, both remain very low in comparison to the rest of the world …

But when the authors dig into the data, they find that the growth in manufacturing employment in nations of Africa has been primarily happening in small firms with less than 10 employees. Conversely, the growth in productivity in manufacturing in Africa is primarily in large firms, which aren’t adding many jobs. Many of Africa’s large manufacturing firms are in one way or another involves in processing of natural resources, which has been becoming an ever-more automation-intensive process.

Thus, the broad challenge for Africa’s manufacturing sector is for the larger firms to build linkages backward and forward into other African-based manufacturing firms, and for at least some of the small firms to make productivity gains and grow in size, so that they can become an “in-between” sector of manufacturing. One promising change is the African Continental Free Trade Area, started in 2018, which may offer possibilities for African-based manufacturing firms to sell and compete within a larger and more unified market. In addition, there are still some industries like certain kinds of textile manufacturing where low-wage labor can offer a comparative advantage in global production.”

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