Tyler Cowen on the Chinese Tea Party

1 09 2011

In a recent post on the Marginal Revolution blog, economist Tyler Cowen made an interesting historical parallel comparing anti-tax sentiment in the present-day United States with that in the Qing, the last of China’s dynasties. The Qing dynasty lasted from 1844 until 1911. The Tea Party in the United States thinks that it would be unacceptable to raise any taxes on anyone at any point in the future and that dealing with the deficit must be met 100% by spending cuts, regardless of their impact on the social programmes, military capability, or infrastructure of the United States.

Tea Party Rally

In 1712, the Kangxi Emperor permanently froze the land tax, the major source of the state’s revenue. This decree bound his descendants to keep this tax low. According to historian William T. Rowe, this decision had the long-term effect of weakening the Chinese state. Future emperors had less money to spend on maintaining infrastructure (e.g., canals), paying civil servants, or fighting off foreigners (e.g., British merchants selling opium).

Cowen’s post was inspired by something he read in Strange Parallels: Volume 2, Mainland Mirrors: Europe, Japan, China, South Asia, and the Islands: Southeast Asia in Global Context, c.800-1830 (Studies in Comparative World History) (9780521530361):

I’m going to reproduce Cowen’s post below in italics, putting Cowen’s original quote from Lieberman in red font. Then I’ll discuss it.

…best estimates are that during the second half of the 18th century imperial taxes captured only 5 percent of the gross national product in China, compared to 12-15 percent in Russia, 9-13 percent of national commodity production in France, and 16-24 percent of national commodity production in Britain.  During the 18th century in Russia, moreover, corvees and military service were far more onerous than in China, where most labor services had been commuted.  If we consider that under the Northern Song in 1080, imperial revenue averaged about 13 percent of national income, and under the Ming in 1550 6-8 percent, we find some support for Skinner’s thesis that percentage of the surplus captured in imperial taxes shrank steadily relative to the share retained by local systems.

Victor Lieberman presents “philosophical commitment to low taxes” as a major reason for this pattern.  Further explanations are a lack of foreign threats and that the Chinese state did not always have the capacity to collect much more.

I was intrigued by Cowen`s post for several reasons.

First, I teach a lecture class on global history and one of our central themes is the role of institutions in the Great Divergence. The Great Divergence is one of the central research questions in global history and the debate about it boils down to this: 500 years ago, Western civilization was at roughly the same economic and technological level as the other great civilizations of Eurasia. In fact, there is evidence that Chinese civilization was somewhat more advanced that that of Europe in terms of technology and economic development. So why did the Industrial Revolution take place in Western Europe and not some other part of the world, such as China? Why did Western Europeans and their descendants dominate the world in the 19th and 20th centuries? Why did they have the advanced technology? Why were the British able to set up a colony in Hong Kong? Why wasn’t it the other way around? Why didn’t the Chinese set up a colony on, say, the Isle of Wight?  Taxes may be a big part of the explanation. We’ve long known that the greater willingness of upper-class Britons to pay taxes was one of reasons why Britain was able to defeat France is the great conflicts of the 18th and early 19th centuries. It appears that this pattern was replicated on a somewhat grander, civilizational level.

Second, there is some literature on the history of laissez-faire ideology in China. The present-day libertarian mantra that small government is good and taxes are bad has parallels in ancient Chinese economic thought. Moreover, as Christian Gerlach of LSE has argued, the Chinese doctrine of laissez-faire was imported by European philosophers in the 17th and 18th centuries when all things Chinese were fashionable in Europe.





The Changing Justification for Tax Cuts: From Efficiency to Fairness

24 04 2011

The Changing Justification for Tax Cuts: From Efficiency to Fairness

Matt Yglesias has posted something interesting about the ongoing debate in the US about tax cuts for the wealthy. He notes that people on the right of the political spectrum traditionally defended tax cuts for the wealthy on the grounds that they would spur economic growth. In effect, they were asking voters to trade the principle of economic equality away for higher economic growth. The famous trickle-down metaphor said that the best way to help the poor was to invigorate the economy with a bit more inequality.

There is more and more empirical evidence that the Reaganite formula for economic growth (cut taxes and regulation) doesn’t actually work. Much of this evidence, I am proud to say, has come from the discipline of economic history. There is a great deal of evidence of the suggest that there isn’t necessarily at trade-off between growth and equity. For most of human history, massive inequality was a fact of life: there was a huge gap between the peasants and the wealthy in Elizabethan England, but this sure didn’t produce modern economic growth. Even during the British Industrial Revolution, the rate of economic growth in Britian was pretty slow by today’s standard, less than 1% per year. Really rapid economic growth only became common in the Western world at roughly the time these countries were starting to create welfare states. In the 30 years after 1945, when there was consensus in favour of fairly generous welfare states in the United States and other Western countries, economic growth was rapid. Income tax rates for the wealthy were sky high in 1950s America, but this didn’t keep the US from enjoying tremendous prosperity. Presumably there was enough inequality in Eisenhower’s America to encourage the Don Drapers of the world to work hard.  The period since the late 1970s, which saw the erosion of the redistributive state in most Western countries (as represented by Reaganite tax cuts, Thatcher, Prop 13, etc.), also saw a slow-down in economic growth and technological progress.

So now that the economic argument in favour of cutting taxes for the rich has been shot to hell, the right’s justification for tax cuts has shifted from economic efficiency to equity: the right is now arguing in favour of tax cuts for the wealthy on the grounds of fairness.

Yglesias summarizing the new argument coming from right-wing figures such as Arthur Brooks, Yglesias writes:

It’s not that higher taxes on our Galtian Overlords would backfire and make us worse off. It’s just that it would be immoral of us to ask them to pay more taxes even if doing so would, in fact, improve overall human welfare.

Two days ago, the Center for American Progress in DC in hosted a public forum with leading economists and policy experts to discuss the proposition that a focus on equity and economic inclusion is necessary to grow the U.S. economy. In the companion framing paper titled “Is Equity the Superior Growth Model?” authors Sarah Treuhaft from PolicyLink and David Madland from American Progress discuss how economic growth has been slower and less broadly shared over the past several decades, leaving more and more families, even entire communities, behind with diminishing prospects for catching up. Let me quote from their excellent paper at length:

Economists have long considered the relationship between equity and economic growth. Early economic thinking was heavily shaped by Simon Kuznets, a Nobel Prizewinning economist, who argued that economic inequality increases while a country is developing, and then after a certain average income is attained, inequality begins to decrease. His explanation for this pattern was that shifting from agriculture to industry caused inequality to rise but further growth led to increased economic opportunities as well as equalizing government policies.

Kuznets Curve

Kuznets Curve


This argument and its graphical representation—the inverted U-shaped Kuznets curve—suggested that inequity was good for economic growth, at least at the early stages of development. Alas, overwhelming evidence has accumulated that development does not quite work like Kuznets predicted.

Many countries have not become first less and then more equal as they develop. Instead, there have been a wide variety of development patterns, with some countries growing relatively equally at all points in their development and others growing unequally at all points in their development, and still others vacillating between relatively equal and unequal. South Korea, for example, has seen relatively equitable economic growth throughout the past 60 years as it developed from a relatively poor country to a middle-upper-income country. Brazil, historically one of the most inequitable countries, has in very recent years begun to grow more equally. And in the United States, from the 1940s to the 1970s, economic growth went with increased equality, but since the 1970s, additional growth has reduced equity.

The real world has not conformed to the Kuznets curve. Still, the idea that there is a tradeoff between growth and equity did not just go away. Instead, it remained influential, even for advanced countries, though the hypothesis was largely untested.

Read more here.

Update: Krugman has commented on Yglesias’s post. See here also.





The Tea Party and Libya

1 04 2011

What does rise of the Tea Party movement mean for U.S. foreign policy?

Mead

Walter Russell Mead, who is one of the leading experts on US foreign policy and a member of the Council on Foreign Relations, shares some thoughts on this issue in the current issue of Foreign Affairs.  In my opinion, this essay should be read by every historian of the US. Mead shows that the Tea Party’s ideas about Foreign Policy did not emerge out of nothing and are part of a long tradition in American foreign policy that extends back to the earliest days of the republic. Mead argues that American views on foreign policy can be grouped into four basic camps:  Jacksonian, Jeffersonian, Hamiltonian, and Wilsonian-Internationalist. Proponents of these four different views of the world can be found in most periods of American history, according to Mead.

The Tea Party people definitely aren’t Wilsonian internationalists. They aren’t really Hamiltonian mercantilists.  It remains to be seen whether they are Jeffersonian war-avoiders or Jacksonian hyper-nationalists or a mixture of the two.

Reactions to Read’s article can be found here, here, and here.

 

March 21, 2011 A Harrier jet aircraft assigned to the 26th Marine Expeditionary Unit (26th MEU) returns to the amphibious assault ship USS Kearsarge (LHD 3) for fuel and ammunition resupply while conducting air strikes against Libya and in enforcement of United Nations Security Council Resolution (UNSCR) 1973. U.S. Marine Corps photo by Lance Cpl. Michael S. Lockett

Mead’s piece, which was written at least a month ago, is very interesting in light of the division of the Tea Party movement over the American intervention in Libya. Some Tea Party people assert a militarist and aggressive nationalism that involves lots of flag waving and sabre-rattling and saluting the troops. These people were 100% supportive of the wars in Iraq and Afghanistan and their big problem with Obama is that is he isn’t militarist enough.

There are, however, Tea Partiers such as Rand Paul who are opposed to overseas military missions and want to dramatically shrink the size of the US military, along with other branches of the US government. (You can see this much about Rand Paul– he is consistent). This branch of the Tea Party has condemned Obama’s intervention in Libya as unconstitutional and war-mongering. See here, here, here, and here.





Wood-Lepore Controversy, or Shooting Fish in Barrel

19 01 2011

In the last few days, a controversy has raged in the US historical blogosphere about a recent book on the place of the American Revolution in American social memory by Harvard historian Jill Lepore. Lepore examines how political movements of both the left and the right have appropriated the memory of the American Revolution in recent decades. In the early 1970s, antiwar protestors and other left-wing groups associated themselves with the Boston Tea Party and the other acts of civil disobedience on the eve of the Revolution. More recently, the Tea Party, a right-wing force, has tried to lay claim to being the true heirs of the revolution. Lepore decries such attempts to harness the past to present-day political ends as fundamentally ahistorical.

Commenting on Lepore’s book in the New York Review of Books, historian Gordon S. Wood was extremely critical. He wrote:

America’s Founding Fathers have a special significance for the American public. People want to know what Thomas Jefferson would think of affirmative action, or how George Washington would regard the invasion of Iraq. No other major nation honors its historical characters in quite the way we do. The British don’t have to check in periodically with, say, either of the two William Pitts to find out what a historical figure of two centuries ago might think of David Cameron’s government in the way we seem to have to check in with Jefferson or Washington about our current policies and predicaments. Americans seem to have a special need for these authentic historical figures in the here and now.

It is very easy for academic historians to mock this special need, and Harvard historian Jill Lepore, as a staff writer for The New Yorker, is an expert at mocking. Her new book, which mingles discussions of the present-day Tea Party movement with scattershot accounts of the Revolution, makes fun of the Tea Party people who are trying to use the history of the Revolution to promote their political cause.

Wood’s basic message is that instead of mocking the errors of historical interpretation made by Tea Party political activists, Lepore should have tried to figure out why Americans continue to connect present-day political controversies to the values of the “Founding Fathers”.

I’m inclined to agree with Wood on this point. For an academic historian like Lepore to point out all the errors made by Tea Party members, none of whom are historians by trade, is like shooting fish in a barrel, which is apparently an activity some people actually do (see picture).

Wood’s rebuke of Lepore has generated many blog posts by academic historians (see here, here, and here) reports in the commercial media (see here) and a Facebook page.





Moore on the Silence of the Academy

9 07 2010

Christopher Moore has a very interesting post on the Wellington/Macdonald controversy. Let me quote from it:

“What’s most striking about the tempest in a teapot over the possible renaming of Ottawa’s Wellington Street “Macdonald Avenue” — is how much the discussion relies on non-academic historians… it also reflects what we might call “the silence of the academy” these days. Among the army of Canadianists in our university history departments, there are many busy, dedicated and hardworking scholars, but vanishingly few, it seems, who are writing big books or otherwise disseminating ideas that resonate with broader ideas about Canadian history.  I try to cover the waterfront, looking for big, serious, important contributions about the history of this country… and some days the gleanings seem pretty thin, compared to the historical resources we have.”Tea

Moore is touching on a rather important point here. The phenomenon he is describing is not confined to Canada.

In a recent article in the New Yorker, Harvard historian Jill Lepore observed that the Tea Party’s appropriation of the memory of the American Revolution was a travesty of historical interpretation. She argues that Tea Party activists have been able to get away with calling themselves the true descendants of the American Revolutionaries in part because academic historians have given up writing accessible books aimed at the general public. The history professors who actually know about the American Revolution have decided to specialize in writing books with tiny readerships that largely consist of other academics. The result is that many average citizens now get their information about the American Revolution from journalists such as Glen Beck.

She writes: “The American historical profession defines itself by its dedication to the proposition that looking to the past to explain the present falls outside the realm of serious historical study. That stuff is for amateurs and cranks. [Professor Richard] Hofstadter disagreed. He recognized the perils of presentism—seeing the past as nothing more than a prologue to the present introduces evidentiary and analytical distortions and risks reducing humanistic inquiry to shabby self-justification—but he believed that scholars with something to say about the relationship between the past and the present had an obligation to say it, as carefully as possible, by writing with method, perspective, and authority. Hofstadter died in 1970. He was one of the last university professors of American history to reach readers outside the academy with sweeping interpretations of his own time.”

I think that Lepore and Moore are overstating the degree to which academic historians have withdrawn from the task of writing books that are both scholarly and accessible to a wider audience. Professor Gordon S. Wood continues to publish books on the Revolutionary and early national periods that are read by many no academics. Professor Alan Taylor, who also specializes in the same period of US history, also writes a regular column in the New Republic magazine. Professor David Cannadine is often heard on the BBC.





The Gladstone Box, Japanese Highways, and the Yankee Tea Parties

23 06 2010

Yesterday, George Osborne, Britain’s Chancellor of the Exchequer (in Canadian parlance, finance minister), presented his budget. The media have, quite rightly, focused on the substance of this budget, which involves spending cuts and tax increases to deal with the deficit.  However, they have also mentioned some of the rituals surrounding the presentation of the budget to parliament. See here.

George Osborne With Budget in Box

British Chancellors have traditionally brought a copy of the budget to parliament in an iconic red budget box, first used by William Gladstone in the early 1860s. This box, which is supervised by the British National Archives in Kew, will be officially retired after this week’s budget because it is in a state of disrepair. Made for William Gladstone around 1860, it has been used by every chancellor since, with the exception of James Callaghan and Gordon Brown. The box will now be kept on display at the Cabinet War Rooms in Whitehall, which you can visit.

The retirement of this box is a good time to think about financial history and differences in national political culture.

For more about the Gladstone box, see here. You can also see a cool video on the history of British public finance here.  I’ve included a video about the history of the box.

The story of the box is interesting to me because of what it represents. First, in the course of researching my PhD thesis, which dealt with an attempt by Canadian politicians to get money out of the British government in the 1860s, I had to do a fair bit of reading on Gladstone and his financial policies. There is a sizeable literature on Gladstonian finance and the reforms he implemented as Chancellor in the 1860s and later as Prime Minister. These reforms included placing all government funds in a single consolidated fund, which was a step towards transparency. Previously, the British government’s annual expenditure had been divided among a vast array of special envelopes, with revenue from a particular source being hypothecated to a particular class of expenditure. This system was complex, made oversight more difficult, and resulted in “feast or famine” budgets in particular government departments.

Gladstone

After the achievement of Responsible Government, Canadians adopted the British practice of preparing the budget in secret and then announcing the entire budget in parliament. This practice was designed to cut down on last-minute lobbying by rent-seekers, which was once common in Westminster-style democracies and is still a prominent feature of the preparation of the budget in the U.S. Congress. In the U.S. Congress and in state legislatures, representatives will agree to vote for the budget in return for goodies for their home districts, the result being the misdirection of trillions of dollars into “bridges to nowhere”, obsolete military subsidies, and subsidies to farmers.

The existing literature shows that the British financial reforms of mid-19th century reduced the role of special-interest politics in the making of British government budgets and thus helped to increase the average taxpayers’ trust in the state. These reforms reduced anti-statist or anti-government sentiment in Britain, which had been rampant in the days of Old Corruption, and paved the way for the rise of the welfare state. If people in Britain, Canada, and other Commonwealth countries have  a more positive view of “Big Government” than their American cousions, it is likely a result of the reforms undertaken by Gladstone. Of course, this is highly ironic, since Gladstone was a small-government classical liberal. The US never enacted these reforms, which helps to explain why there is a deep suspicion of Big Government in that country, as is evident in the Tea Party movement.

I’m not saying I agree with the Tea Party movement. All of the energies the Americans are putting into the Tea Party movement should be devoted to Transparency International. However, I understand where they are coming from. If I had to live under corrupt U.S. politicians (let’s face it, pretty much every US President from Nixon on would be in jail in a Commonwealth country), I would probably want to reduce the amount of money at their disposal. After all, the US government budget seems to be chiefly devoted to obscene subsidies for farmers and paying for wars the US people don’t believe in rather than paying for service the public might actually value. In fact, if I were a pacifist living in the United States, I might even support the Tea Party movement, since that movement is probably the most effective means of bringing the US war machine to its knees.  Personally, I kinda hope that the Tea Party Revolt and the tax evasion it is encouraging forces the US to pull out of Afghanistan sooner than expected.

Tea Party in Philadelphia

Similarly, if I lived in Japan, I might also become an anti-tax crusader, since so much of that country’s budget is devoted to propping up the construction industry through useless infrastructure spending (e.g., multilane highways in remote parts of Japan). The corrupt gerontocracy that runs that country has spent billions on laughable infrastructure projects that aren’t needed when they should be putting money into encouraging Japanese women to have babies.  At the current rate, there will soon be more bullet trains than children in the land of the rising setting sun.

Half Completed Highway in Japan, Doubtless Built to Please Some Liberal Democrat Crony

Anyway, I digress. You can find an excellent survey of the scholarly debate on Gladstonian finance in historian Martin Daunton’s financial history of 19th century Britain, Trusting Leviathan. see excerpt here.

I’m particularly interested in the ways in which Canadian politicians in the 1860s and 1870s selectively copied some of the reforms that had been undertaken by Britain in the mid-19th century. Luther Holton, who has Canada’s Finance Minister in 1862-4, was an admirer of Gladstone, as were other Canadian politicians of the Liberal stamp.

Luther Holton, Canadian Classical Liberal

Canadians were rather selective in the ways they embrace Gladstonian finance. Like Britain, Canada decided to create a single consolidated fund and begin preparing budgets in secret. Canada also created the office of Auditor-General, to make sure that taxpayer funds were being spent wisely. However, Canada did not imitate Britain in the crucial matter of the tariffs. In the 1840s, the British government of Robert Peel shifted from indirect to direct taxes, cutting customs duties but making up for the shortfall by imposing an income tax on the top 2% of the population. This was a bold and selfless act on the part of the parliament that voted for this shift, since it was a parliament elected by the properties classes.  For better or worse, Canada did not follow suit until the 20th century, although some Canadian classical liberals proposed the introduction of income tax in 1860s. In fact, the failure of Canadian politicians to introduce income tax in the 1860s is one of the reasons I have so little respect for the Fathers of Confederation.  For decades after Confederation, Canada’s government got most of its revenue for the tariff, a rather regressive form of taxation. Needless to say, the tariff-protected industries that had grown up under this form of taxation were among the most vigorous opponents of the introduction of income tax into Canada. Canadians only began paying for income tax during the First World War.

You can read more about Luther Holton here.

There are some great images from recent Canadian budget history here.