The Past Speaks

AS: I’m reposting this announcement here because I think that this is a great opportunity for grad students. I went to the PCO conference in 2003. I learned quite a bit and would recommend the event to any grad student in the social sciences.

Public Choice Outreach Conference. The 2014 Conference will be held on June 6 – 8, 2014 at the Hyatt Arlington conveniently located close to the National Mall and Georgetown areas of Washington DC. Applications are now available and are due on Friday, April 11, 2014.

The Public Choice Outreach Conference is designed as a “crash course” in Public Choice for students planning careers in academia, journalism, law, or public policy. Graduate students and advanced undergraduates are eligible to apply. Many graduates of the Outreach seminar have gone on to notable careers in academia, law and business. Students majoring in economics, history, international studies, law, philosophy, political science, psychology, public administration, religious studies, and sociology have attended past conferences as have a few mayors and other politicians! Applicants unfamiliar with Public Choice and students from outside of George Mason University are especially encouraged.

A small stipend is available and meals and rooms will be provided by the conference (for non-locals). Space, however, is very limited.

To apply, download and fill out the Outreach Application, and return with one letter of recommendation and a personal statement of 500 words or less. The recommendation letter can be sent with the application or have it sent separately via mail or email. Please mail or email to the address below no later than April 11th, 2014.

George Washington is the pseudonym of a blogger over on Zerohedge. In a recent post, he correctly demolishes the oft-repeated claim that the Federal Reserve is completely apolitical. He points out that it is highly political and provides some great examples:

• The Fed offered to bail out Mexico, if it would agree to join the North American Free Trade Agreement (NAFTA). Free trade deals have nothing to do with the Fed’s mandate

• A study published in the Southern Economic Journal shows that Fed policy tends to create a better economy in the 3 years before presidential elections than right afterwards … to help the incumbent get re-elected

• The Fed is not independent … it is owned by the big banks

• The Fed’s main program for dealing with the financial crisis – quantitative easing – benefits the rich and hurt the little guy, as confirmed by former high-level Fed officials, the architect of Japan’s quantitative easing program and several academic economists

George Washington’s is correct. The Fed is far from apolitical. The thing is, the pattern he has observed is not unique to the United States. Every central bank is politicized, as is every existing financial and monetary system. Fiat money is itself as deeply political artefact. The politics is baked into it. Indeed, even if we could have a world without central banks, money would still be inherently political, as long as there were sovereigns capable of interfering with the issuance of currency by private banks. Indeed, there is some evidence to support the anthropologist David Graeber’s view that money was first created by sovereigns so as to control their subjects. (He makes this argument in Debt: the First 5,000 Years).
The real question is: what can we do to depoliticize money and/or ensure that the institutions that shape monetary policy are designed so as to benefit the majority of the population? Alas, George Washington doesn’t really give us any answers to these tough questions. Pointing out that the Fed is highly politicized is like shooting fish the barrel. I’m disappointed that George Washington didn’t propose, you know, actual solutions.

I’ve noticed a pattern in the blog posts by “George Washington.” He throws lots of mud, makes lots of attacks, but doesn’t ever propose concrete solutions. ZeroHedge can do better. So can George Washington.

From an article in Foreign Affairs:

According to 2012 estimates from Morgan Stanley, companies headquartered in Europe generated just over 30 percent of their revenue from emerging markets, but U.S. companies got less than ten percent of their revenue from them. Corporate goals and management structures, which are similar among European and American firms, do not explain the difference. In fact, trends suggest that much of the wide transatlantic gap is a product of history — and of colonialism in particular.

The authors of the piece are:

Bhaskar Chakravorti is Senior Associate Dean for International Business and Finance at the Fletcher School, Tufts University, and founding Executive Director of Fletcher’s Institute for Business in the Global Context. His co-authors are Jianwei Dong and Kate Fedosova, who are Research Associates at the Institute for Business in the Global Context and graduate students at the Fletcher School.

Let’s file this under  “history matters to international business”.

AS: On Friday, I gave a lecture on the international monetary and financial system to our undergraduate students. A student emailed me asking for some suggestions for future reading. I’ve pasted my reply below.

—-

Obviously there is plenty of journalistic material on these issues. For the basics of the proposed Eurozone banking union, see here.

Here are my suggestions for academic sources on this topic.

Two of the leading authorities in this area are Nick Crafts and Barry Eichengreen. Crafts teaches at Warwick University here in the UK.  Eichengreen teaches at UC Berkeley in California.

These authors have an approach for understanding the global monetary system that’s pretty similar to the one I used in Friday’s lecture: they stress the stability of any particular international monetary regime is ultimately connected to the domestic political economy in each of the participating countries. Democracies are less tolerant of certain monetary systems than non-democracies, since democracies give a voice to the people who suffer from particular monetary and fiscal policies.  In other words, a democracy is going to demand a different monetary policy than, say, an aristocracy such as England in the Gold Standard era or an authoritarian regime such as present-day China. The really interesting thing is when you have currencies issued by very different political systems circulating around in the same global monetary and financial system.

Crafts summarised some of his research in a recent working paper in which he compares and contrasts the problems in the Eurozone today with those that confronted advanced economies during the Great Depression. By some statistical measures, today’s problems are worse. Crafts was interviewed about the problems in the EZ in January 2014. He points out that the degree of fiscal pain as a percentage of GDP that Greece is experiencing as the price of remaining in the EZ is historically unprecedented for a democracy. Crafts’s research suggests that Greece will eventually either abandon austerity and the Eurozone or will give up on democratic governance structures.

Eichengreen coined the term “golden fetters,” which I used in my lecture. He is the author of Globalizing Capital: A History of the International Monetary System,  Global Imbalances and the Lessons of Bretton Woods (2006) and Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (2011).  He writes a column on global monetary issues that is a useful intellectual gateway into his academic publications. (This recent piece may be of interest). He also write a column for the Guardian. His most recent Guardian piece, which appeared last week, may be of interest.

Kris James Michener (Warwick) has also spoken about the need for a banking union in the EZ. You can listen to him talking about it here. In this lecture, he explicitly compares the histories of banking regulation in the USA and the Eurozone.

One masterpiece of research is This Time is Different: A Panoramic View of Eight Centuries of Financial Crises Carmen M. Reinhart and Kenneth S. Rogoff. Unfortunately, this book was published in 2009, so it doesn’t include information about the recent EZ banking crisis. However, it’s good for thinking about banking crises in general.

My current favourite book on banking regulation in different countries was published in the United States earlier this month. It’s Fragile by Design: The Political Origins of Banking Crises and Scarce Credit by Haber and  Calomiris (The Princeton Economic History of the Western World). Haber and Calomiris talk about the banking systems of different countries.   It’s a superb book: grounded in solid economic theory, informed by history, and containing up-to-date information about recent crises. The book isn’t yet in our library, but it should arrive soon. Various chapters of the book are available online as free PDFs. The authors recently presented their research to the International Monetary Fund in DC.  You can read a good review of the book here. Watch the authors talk about the book here on the book’s companion website.  

AS: As university lecturers worldwide will attest, Microsoft recently changed PowerPoint so as to make it somewhat more difficult to embed YouTube clips. In this handy video, Eugene O’Loughlin explains how to work around this rule.

P.S. O’Loughlin has made many similarly helpful instructional videos, so it is worth subscribing to his YouTube Channel. Thanks Eugene!

Prof. Robert Gordon, the economist who is the kingpin of the stagnationists, has published a revised paper in which he fights back against  the many critics of his thesis that we are entering a long period of scientific, technological, and economic stagnation.

The abstract of the paper is rather sobering:

The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group…

There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.

Gordon’s bottom line: people in the United States in, say, 1973, were far better off than their grandparents had been in 1890. They had cars, air conditioning, colour TV, antibiotics, plentiful food, high wages, the Salk polio vaccine, and a fairly robust social security system instead of horses, chopping lots of wood, family Bibles, scarce food, low wages, high infant mortality, and Gilded Age inequality.  From 1973 to the present, there have has been little technological progress outside of a few areas related to IT. Moreover, living standards for the median American family have, at best, remained unchanged.

Gordon says that we can expect post-1973 stagnation to continue. Perhaps he is right. However, I’m a bit more optimistic for the simple reason that an increasing percentage of the world’s population is now able to contribute to the technological progress than underpins economic growth. In the past, only a tiny proportion of the male population of a few advanced countries had even the opportunity to acquire the human capital needed to contribute to process and product innovation. That’s changed as more countries have become wealthier and more people around the university have gone to university. Childhood nutrition is improving around the world, so there should be even more people with high native intelligence in the future. The Flynn Effect if going global. Moreover, globalization and new forms of IT are making it easier for smart people around the world to share ideas about how to be more productive.