If there were a collapse of civilization, could people go back to hunting for survival?

I talk about some of history’s horrible famines in my economic development classes and the difficulty of getting enough food in Malthusian societies. Sometimes, some of my students ask why people starved rather than going out to hunt for food. The reason is that there are a lot more people than there are wild animals by mass. Vox did an interesting graphic comparing the mass of all living things on the planet. Here is the mass of humans:

In comparison, humans have almost twice as much mass in livestock on our farms:

Everyone cannot survive by hunting because there are a lot fewer wild mammals and birds than people and livestock. Even if they were all hunted to extinction, most humans would starve and that is why hunting has never been able to reduce the problems with famine.

During hunter-gatherer civilizations, population density averaged less than one person per square kilometer and there were a lot more wild animals compared with the mass of humans. Today every sovereign country in the world has a population density greater than that. Even countries in relatively inhospitable places like Western Sahara and Mongolia have twice the population density that hunter-gatherer societies had even in abundant ecosystems.

Posted in Development

The economics of residential density

Most Americans are used to low-density towns and suburbs and like them a lot. Many Americans have experienced unpleasant high-population-density places in America. In fact most of the high-density urban areas in the US were relatively unpleasant in recent US history due to the pollution boom in the 1960s and 1970s. For example, the city of Cleveland looked like this photo in 1970 before the passage of the first federal regulations on air pollution.

Pollution used to be much worse in high density areas than in rural areas because more people meant more dirty power generation for electricity and heating and especially more cars which were one of the worst offenders before regulations required catalytic converters. Plus factories preferred to locate in population centers because of easy access to labor and infrastructure. Thus, more people meant more pollution which meant that dense areas were unpleasant. It is hard to imagine how bad things were. For example, to pick on Cleveland again, Cleveland’s main river, the Cuyahoga, was so polluted that it regularly caught on fire and sometimes the fire departments could not put it out for days. It was covered with a thick layer of oily factory refuse for decades and there were thirteen major Cuyahoga River fires. Although local residents in Cleveland were used to the river catching fire, in 1969 a Time Magazine article about that last burn captured the imagination of the rest of the nation and fueled outrage which helped inspire the Clean Water Act of 1972 and there were no more river fires. In fact, the Cuyahoga is now so clean that it has fish in it again and the fish can even be eaten by humans although I would have a hard time eating anything that lived in the Cuyahoga after knowing its history.

Even worse than the aesthetic effects of pollution were its direct effects upon the brains of people who lived in dense urban areas. Lead pollution, primarily from automobile exhaust, was a potent neurotoxin that created a crime wave by warping the brains of people exposed to it. Lead exposure during infancy makes people stupid and violent and reduces impulse control which causes all sorts of problems when kids grow up. Lead was worst in densely populated urban areas, so the crime wave was worst in those areas. When lead emissions were banned, the crime rate fell the most in urban areas too. The reduction in pollution has led to an urban renaissance in cities across America as urban areas have become desirable again. Here is a graph of the correlation between blood lead levels and violent crimes from Kevin Drum at Mother Jones. The violent crime rate increased by about 380% from 1960 to its peak in the 1990s.

There is a common urban legend about the flight from American cities that blames racism for causing it, but there is no evidence that racism got worse in the era of urban flight and even if it did, racism didn’t cause whites to flee the cities into the suburbs rather than chasing the nonwhites into the suburbs. In other times and parts of the world without urban pollution, the rich people often claimed the urban centers and pushed the poor out into the suburbs. The main premodern exception were cities with bad sanitation which were polluted by human refuse that spread disease. Again, this was a form of pollution which the rich people fled to live in their aristocratic rural manor homes.

Fortunately, due to the anti-pollution regulations of the 1970s and 1980s, American cities have become cleaner than they have been in over a century and that has caused crime rates to plummet. This has made American cities extremely desirable places to live again. Unfortunately, during the last 50 years, other changes to American society have prevented Americans from being able to move back into the kind of densely populated neighborhoods that were popular during the first half of the 20th century. For one thing, Americans became a lot richer and decided that they want about double the average area per person in each home than in the 1970s. That means that only half as many Americans can fit into the homes that were built before 1970, so there is less existing real estate to go around with people hogging more floor space. New homes could be built that could house more people, and that has been happening in suburban areas, but there have been decades of steadily increasing regulations that make it illegal to build the kind of dense housing developments that many Americans want to live in. Many of the kind of homes that people built before World War II are simply illegal to build in most of America.

During the flight from urban pollution to the suburbs, local governments developed an ideology of subsidizing sprawl by building expensively infrastructure for developers to build houses. Each house is connected by millions of dollars of streets, sewers, and utilities. Each family is protected by fire stations and police offices and spread out housing requires more of them to provide the same level of security and all services become more expensive from postal delivery to bus transportation for school children. Sprawling neighborhoods are terribly inefficient, but if people want to pay more to live in them, that is fine, but not when everyone else has to pay extra taxes to subsidize the extra infrastructure that makes them possible. And even worse than the socialism that underpins suburban-style developments are the land-use regulations that make it illegal for private landowners to build anything but spread-out developments. There are minimum lot size rules, and setback rules and maximum building height and maximum residents and even mandatory amounts of parking area.

So big local government has not only been taking away taxpayer money to subsidize sprawl, governments have also restricted the freedom of landowners to build anything but sprawl. This means that whenever any place becomes an attractive place to live, and more people naturally want to live there, the price of living there can only go up because it is illegal to build more housing to accommodate more people even though more people would mean more local tax revenues to pay for more amenities and the average cost of city services would fall because the infrastructure would be used more efficiently.

Brent Toderian is an urban planner who was in charge of Vancouver, British Columbia, one of the world’s most livable cities, from 2006 to 2012. Most people don’t think much about urban planning and tend to just want to keep the status quo, but Toderian helped convince the voters of Vancouver that higher density would help make Vancouver more livable. He says that the best way to sell a skeptical public on the benefits of allowing more density is to show how cost effective it is rather than talking about aesthetics. As I mentioned before, North Americans’ have had experience with urban density where it was hellish and many are deeply skeptical that the beautiful dense urban areas that they visit on vacations are a new normal rather than just a temporary phase. Toderian says that city officials immediately get the efficiency argument as he explains in this interview with David Roberts at Vox:

…low-density developments become a drain on regional budgets — the infrastructure and service costs exceed the tax revenue — city officials are listening… The way you change the conversation about car dependency and sprawl is by not making it an ideological argument… We have to make it a conversation about cost and consequences. Sprawl is extremely subsidized, and the chickens are coming home to roost on that. Cities and regions are starting to see pseudo-bankrupt conditions. The tax generation doesn’t match the cost. Not even close. I’m not going to tell you your choice is fundamentally wrong. I’m going to point out that your choice is being subsidized by me, who’s paying more taxes and using less infrastructure. …The argument is not ideological, it’s mathematical.

Toderian argues that small towns and suburban areas can also achieve densification by simply allowing private landowners to build two additional housing units on existing lots:

So our minimum density allows three units on a lot: the primary house, the secondary suite [known in America as an “accessory dwelling unit,” or ADU], and a detached laneway house in the back yard, where the parking pad or garage would normally be. The most important decision we made in bringing laneway housing in was, we reduced the parking standard from one space per unit to one space per lot. One space per unit would’ve killed the idea; you physically can’t fit three parking spaces on these lots.

Most people do not want to give up some of their yard to create more housing, but some do and they should have the freedom to do it since it generates more tax revenues than it costs in additional infrastructure. And more people create more economic benefits for local business too. That is why towns and cities exist at all.

In another interview urbanist Brent Toderian explains how to create density that works for existing residents so neighbors don’t regret it:

Density done well has three components.

One, it has to be of a very high design quality. I don’t just mean aesthetics, although that can be part of it, but it’s about profound relationships being addressed through smart design.

The second piece is that it has to be multimodal. In fact, it has to have active transport priority: walking, biking, and transit have to be emphasized. If you try to design density around cars, it’s a recipe for failure. You have to make walking, biking, and transit not just available, but delightful.

The third piece is amenities and a diversity of housing types, to make density not just compact, but livable and lovable. It’s the difference between cramming people in and creating great neighborhoods. So, amenities such as parks and green spaces, public and people places, heritage preservation and integration, community and cultural facilities, civic facilities, even things like incubator space for artists. Amenities are the things that give communities heart and vibrancy. It also includes housing diversity: rental housing and public housing.

Unless you are planning in a magical city where you have infinite resources — and I haven’t seen that city yet — you are struggling to pay for those kinds of amenities, or achieve that kind of housing diversity. In many cases, you can’t mandate it from developers, because that’s beyond your power. So tools like density bonusing are critically important to delivering that piece of the puzzle.

…[that is where a developer] can increase to a higher density by negotiating amenities that make that higher density more livable. The key is to make sure that you’re spending the value on things that make density successful.

I help cities set up these systems all over the world. It makes the conversation about density with developers different. It gives them a higher level of certainty within the political process, which they like.

And it gives the community a sense that the additional density is translating into something that’s going to support quality of life. They can see a connection between the additional density and amenities their community needs, but probably won’t be able to afford.

And that’s key: It should always pay for things the community couldn’t realistically afford without the density. It doesn’t replace the obligation to pay for the basics. But most cities are struggling to pay for things that go beyond the basics.

Vancouver has the most robust density bonusing system in the world. It’s not even close. And it’s one of the keys to our livability. It’s entirely changed the politics…This is going to sound overly simplistic, but the truth is, [densification] starts with a better city-wide conversation. In Vancouver, you can’t swing a stick without hitting an event talking about cities. Its constant, it’s unrelenting. It wasn’t always that way, but it’s certainly that way now.

One of the modern demographic patterns in urban areas is that they are extremely popular with young adults, but if or when those people have children, they tend to flee to the suburbs. Surprisingly, one of the main reasons is economics. Family-sized housing simply isn’t as profitable for urban developers. Brent Toderian again:

If your homes can’t fit families, you don’t get families, period. That generally comes down to the number of bedrooms, though it can also be about the size of the apartment or home. For decades, Vancouver has been requiring that 25 percent of units in all major projects have two bedrooms or more. And there’s been a debate for decades about whether that requirement should include three bedrooms. Thankfully, Vancouver has recently moved in that direction, requiring 10 percent of units to be 3 bedroom, on top of the 25 percent 2 bedrooms. [developers have to be pushed hard to build a multi-bedroom unit] because it’s not as profitable, per square foot, as a small unit. Developers will cater to the more profitable market segment, even if there is a strong market interest for two- and three-bedroom units. But it’s not the job of planning to maximize the profit of developers. It’s the job of planning to determine the vision for the city and the downtown, set clear expectations, and let those expectations help clarify land value for developers. Developers will argue that two- and three-bedroom units are not viable, but it’s false. Economic analysis shows that two- and three-bedroom units can be less profitable than one-bedrooms or studios, but that’s not the same as saying that they aren’t viable.

Vancouver, unlike most North American cities, has lots of families living downtown because Vancouver’s officials have forced developers to build housing that fits families. This is a kind of subsidy for families, and it might seem strange at first, but governments always subsidize families and most other kinds of subsidies for families are much more expensive. The US has lots of tax breaks for families and extra programs to help children including what was the most expensive government social program for well over a century: free, compulsory public education. So simply requiring developers to build a few units with multiple bedrooms that they sell at a profit is a way to provide a lot of benefit to families at extremely low cost.

Posted in Public Finance

88 years of unemployment data

Unfortunately FRED has four different somewhat-overlapping data series that must be combined to get the full, long-run picture of the unemployment rate from 1929 to the present. The first data series in light green is undoubtably the least accurate of the four series, but it is probably the best that is available for the important years of the Great Depression.

Posted in Labor, Macro

Finding data about places to live, study, and work

Data USA is a great place to access data for people who are thinking about where to go to college, what kind of major/career to investigate, and where to live after graduation. For example, my boys have been most interested in attending the three following Mennonite colleges and it is obvious by the numbers of majors that Bluffton University has the biggest emphasis in business, sport management, education, and social work:

Eastern Mennonite University emphasizes nursing with 46% of total degrees. Plus, EMU has a relative emphasis in liberal arts, and peace studies. All of their most popular majors are dominated by female students, so the overall female to male ratio was 2.5 to one.

Goshen College emphasizes biology, music & art, communication & journalism, and environmental science. Although Goshen’s two biggest majors are nursing and business, Goshen’s nursing program is much less dominant than at EMU and its business program is much less dominant than at Bluffton University.

Although my boys haven’t been particularly interested in Bethel College in Kansas because it is so far away, that is the fourth 4-year Mennonite college in the USA, so here are the majors of its 2016 graduates to round out the comparison:

Posted in Labor

Why are doctors willing to publish displays of ignorance of basic health economics?

In the Atlantic magazine, Rena Xu recently published an essay arguing that “electronic medical records and demanding regulations [are] contributing to a historic doctor shortage.” Although there are some grains of truth in the article, it completely misses the main reasons why there is a doctor shortage in the US. It would be like writing an article to investigate whether the overuse of Band-Aids is causing a historic high medical expenditures. It is both true and so irrelevant as to be extremely misleading. Similarly, doctors often want to blame high healthcare costs on malpractice insurance which is only slightly less trivial than Band-Aids.

First of all, Xu doesn’t quantify the shortage of doctors in the US and if she did, she would see that it predated the regulations and electronic medical records that her anecdotes focus on. The US doctor shortage has been steadily getting better according to World Bank Data as the number of doctors per 1000 people has been rising:

Despite this slight improvement over time, the US is one of the worst countries at producing doctors of any rich nation. Here is the most recent data comparing the US with the OECD:

Xu suggests that the problem is that regulations are causing doctors to leave the profession and she cites a study published by the Mayo Clinic, which reported that one in 50 doctors planned to leave medicine altogether in the next two years. That statistic shows the opposite of what she thinks. It is a very low rate of quitting, not a sign of burnout. Most doctors do not quit until they reach retirement age and they retire at a later age than in most professions. if only one in 50 doctors are thinking about quitting, then the average doctor might not be retiring until they are nearly eighty years old! Fortunately, some are retiring earlier than that, but the bigger problem is probably that doctors are not retiring early enough and there is poor quality control over doctors who continue to practice despite deteriorated skills. Xu also claims that “one in five planned to reduce clinical hours over the next year,” but that isn’t surprising either. Physicians work a lot more hours than most professions and it would be healthy if the average doctor worked fewer hours.

The problem is that the US has been extremely bad a producing doctors, not that they are quitting. Mark J. Perry produced this graph of the number of new doctors per capita in the US:

Pathetic. The reason the US is so bad at producing doctors is because of interest-group politics. We get the number of doctors that the American Medical Association wants us to have. As Mark J. Perry says:

The “Council on Medical Education and Hospitals” of the AMA approves both medical schools and hospitals. By restricting the number of approved medical schools and the number of applicants to those schools, the AMA effectively limits the supply of physicians, which increases their wages, and raises the overall cost of medical care.

The doctor shortage isn’t caused by doctors quitting, it is caused by the doctor union (the AMA) which restricts the supply more severely than in any other rich nation. That is why doctor salaries are higher than in any other nation on earth. Doctors complain that their pay is too low, but it is a lot lower everywhere else in the world and there is an enormous surplus of smart American students who want to get into medical school but cannot because the AMA only approves very few seats in medical school. Even Cuba is MUCH better at producing doctors than the US is and Cuba is communist, so their government undoubtedly imposes more regulations on doctors than in America.

Despite this, Cuban doctors probably have fewer overall regulations to deal than American doctors because regulations come from the power of the purse and American doctors must deal with regulations from not only the government but also regulations from each of their various insurers. The US government has two major insurance programs, Medicare and Medicaid which impose the biggest bureaucratic work for doctors, but then every private insurer has their own paperwork requirements too, so doctors must manage vast office staff to help them with billing. American hospitals usually have more people working in billing than they have doctors! That isn’t true in countries like Canada where the government pays for everything. Billing is much less bureaucratic there because it is much simpler.

So if American doctors want to practice medicine in a place with fewer regulations, I’d suggest that rather than quitting as Xu claims they are doing, that they try what one of my doctor friends did and emigrate to Canada. Salaries may be a bit lower there, but Canadian doctors are still very highly compensated and they can focus more on just practicing medicine rather than on paperwork, and there is universal health insurance, so practicing medicine is much more pleasant because there isn’t the awkward problem of having to limit care to people just because they cannot afford it.

Posted in Health

New Monetarism as a third way beyond Hayek vs. Keynes?

David Glasner is a conservative economist who greatly admires Hayek and even thinks that Hayek’s macroeconomic theories have some merit even if they are weaker than many other theories.  He is part of a small band of conservative economists that is now calling themselves the “New Monetarists” who promote NGDP targeting.  I’d be happy if this would be the direction where a new macroeconomic consensus might be heading.  Monetarism in all its incarnations is completely consistent with Keynesianism and liberals also support it.  The big political difference in macroeconomic preferences of professional economists is that conservative economists tend to put more faith in monetary policy and tax cuts whereas liberals also see that government spending can be effective, particularly during a liquidity-trap recession such as in 2008.  A liquidity trap is when monetary policy becomes relatively ineffective because interest rates approach zero and cannot go lower.  The thing that surprised me the most during the 2008 recession is how conservative economists did very little to promote tax cuts as a fiscal stimulus like they did during the 2001 and 1990 recessions.  About 1/3 of Obama’s stimulus was tax cuts, but few conservatives lauded that historic tax cut even though it was much larger than what Trump later proposed.  (Trump repeatedly lied that his tax cut proposal was “the biggest ever in the history of this country” even though it was considerably smaller than what Obama had just passed.)
Glasner begins by lamenting the recent obsession for treating Keyens and Hayek as the two main macroeconomic schools:

First, it was the Keynes v. Hayek rap video, and then came the even more vulgar and tasteless Keynes v. Hayek sequel video reducing the two hyperintellectuals to prize fighters.  …Then came a debate broadcast by the BBC at the London School of Economics, and then another sponsored by Reuters with a Nobel Prize winning economist on the program arguing for the Hayek side. Now comes a new book by Nicholas Wapshott Keynes Hayek, offering an extended account of the fraught relationship…

…all this Keynes versus Hayek hype creates the terribly misleading impression that the truth must lie with only one side or the other, that one side represents truth and enlightenment and the other represents falsehood and darkness, …All this attention on Keynes and Hayek, two charismatic personalities who have become figureheads or totems for ideological movements that they might not have endorsed at all — and certainly not endorsed unconditionally — encourages an increasingly polarized discussion in which people choose sides based on pre-existing ideological commitments rather than on a reasoned assessment of the arguments and the evidence…

The amazing thing about the original Keynes-Hayek debate is not only that both misunderstood the sources of the Great Depression for which they were confidently offering policy advice, but that Ralph Hawtrey and Gustav Cassel had explained what was happening ten years before the downturn started… Both Hawtrey and Cassel understood that restoring the gold standard after the demonetization of gold that took place during World War I would have hugely deflationary implications if, when the gold standard was reinstated, the world’s monetary demand for gold would increase back to the pre-World War I level (as a result of restoring gold coinage and the replenishment of the gold reserves held in central bank coffers).

The problem is that when there is economic growth, people want more money as a store of value and for making more transactions and if the supply of money (gold) is limited, then its price will go up when the money demand goes up.  That means deflation.  Normally since the Great Depression, the price (value) of money has gone down relative to the value of goods (inflation), but periodic deflation is common under a gold standard.

in 1928, French demand for gold started to increase rapidly just as the Federal Reserve began tightening monetary policy in a tragically misguided effort to squelch a supposed stock-price bubble on Wall Street, causing an inflow of gold into the US

‘Tightening monetary policy’ means that the Fed raised interest rates in the US and that gave foreigners more incentive to buy dollars so they could get the higher interest rates by lending in the US.  Under the gold standard, they had to bring gold to the US to buy dollars, so this increased the gold supply in the US which reduced the gold supply in the rest of the world.  Glasner again:

…other countries rejoining the gold standard were increasing their gold holdings as well, though with a less fanatical determination than the French. The Great Depression was therefore entirely the product of monetary causes, a world-wide increase in gold demand causing its value to increase, an increase manifesting itself, under the gold standard, in deflation.
Hayek, along with his mentor Ludwig von Mises, [claimed] to have predicted the 1929 downturn, having criticized the Fed in 1927, …for reducing interest rates to 3.5%, by historical standards far from a dangerously expansionary rate, as Hawtrey demonstrated in his exhaustive book on the subject A Century of Bank Rate. But it has never been even remotely plausible that a 3.5% discount rate at the Fed for a little over a year was the trigger for the worst economic catastrophe since the Black Death of the 14thcentury.
[Similarly Keynes could not] offer a persuasive explanation for why the world suddenly went into a catastrophic downward spiral in late 1929. References to animal spirits and the inherent instability of entrepreneurial expectations are all well and good, but they provide not so much an explanation of the downturn as a way of talking about it or describing it. Beyond that, the Hawtrey-Cassel account of the Great Depression also accounts for the relative severity of the Depression and for the sequence of recovery in different counties, there being an almost exact correlation between the severity of the Depression in a country and the existence and duration of the gold standard in the country. In no country did recovery start until after the gold standard was abandoned, and in no country was there a substantial lag between leaving the gold standard and the start of the recovery.
So not only did Hawtrey and Cassel predict the Great Depression, specifying in advance the conditions that would, and did, bring it about, they identified the unerring prescription – something provided by no other explanation — for a country to start recovering from the Great Depression. Hayek, on the other hand, …not only advocated precisely the wrong policy, namely, tightening money, …he accepted, if not welcomed, deflation as the necessary price for maintaining the gold standard. (This by the way is what explains the puzzle …of Hayek’s failure to follow his own criterion for a neutral monetary policy, stated explicitly in chapter 4 of Prices and Production: stabilization of nominal expenditure (NGDP).

Note that stabilization of nominal expenditure (NGDP) is precisely the policy that the author (Glasner) and other New Monetarists promote. Keynes, Friedman, and many others have had similar ideas, but they did not promote them as monomaniacally as the New Monetarists do.  Keynes mostly ignored his own earlier monetary theories when he wrote about the Great Depression and Hayek was principally a gold bug:

…Faced with a conflict between maintaining the gold standard and following his own criterion for neutral money, Hayek, along with his friend and colleague Lionel Robbins in his patently Austrian book The Great Depression, both opted for maintaining the gold standard.
Not only did Hayek make the wrong call about the gold standard, he actually defended the insane French policy of gold accumulation in his lament for the gold standard after Britain wisely disregarded his advice and left the gold standard in 1931. In his paper “The Fate of the Gold Standard”  Hayek mourned the impending demise of the gold standard…
So what do we learn from this …tale? Hawtrey and Cassel did everything right. They identified the danger to the world economy a decade in advance. They specified exactly the correct policy for avoiding the danger. ….Within a year and a half, both Hawtrey and Cassel concluded that recovery was no longer possible under the gold standard. And as countries, one by one, abandoned the gold standard, they began to recover just as Hawtrey and Cassel predicted. So one would have thought that Hawtrey and Cassel would have been acclaimed and celebrated far and wide as the most insightful, the most farsighted, the wisest, economists in the world. Yep, that’s what one would have thought.
Did it happen? Not a chance. Instead, it was Keynes who was credited with figuring out how to end the Great Depression, even though there was almost nothing in the General Theory about the gold standard and 30% deflation as the cause of the Great Depression.  [Keynes should have known better as he] vilified Churchill in 1925 for rejoining the gold standard at the prewar parity when that decision was expected to cause a mere 10% deflation.
But amazingly enough, even when economists began looking for alternative ways to Keynesianism of thinking about macroeconomics, Austrian economics still being considered too toxic to handle, almost no one bothered to go back to revisit what Hawtrey and Cassel had said about the Great Depression.
This makes it appear that Glasner thinks that Hawtrey and Cassel were toxic Austrians, but Ralph Hawtrey was a colleague and close friend of Keynes who was greatly influential in the development of Keynesian economics and Gustav Cassel was a Swede who was also greatly influential on Keynes.  Back to Glasner:
So Milton Friedman was considered to have been daring and original for suggesting a monetary explanation for the Great Depression and finding historical and statistical support for that explanation. Yet, on the key elements of the historical explanation, Hawtrey and Cassel either anticipated Friedman, or on the numerous issues on which Friedman did not follow Hawtrey and Cassel — in particular the international gold market as the transmitter of deflation and depression across all countries on the gold standard, the key role of the Bank of France (which Friedman denied in the Monetary History and for years afterwards only to concede the point in the mid to late 1990s), the absence of an explanation for the 1929 downturn, the misplaced emphasis on the contraction of the US money stock and the role of U.S. bank failures as a critical factor in explaining the severity of the Great Depression — Hawtrey and Cassel got it right and Friedman got it wrong.
So what matters in the success in the marketplace of ideas seems to be not just the quality or the truth of a theory, but also (or instead) the publicity machine that can be deployed in support of a theory to generate interest in it and to attract followers who can expect to advance their own careers in the process of developing, testing, or otherwise propagating, the theory. Keynes, Friedman, and eventually Hayek, all had powerful ideologically driven publicity machines working on their behalf. And guess what? It’s the theories that attract the support of a hard core of ideologically motivated followers that tend to outperform those without a cadre of ideological followers.
That’s why it was very interesting, important, and encouraging that Scott Sumner has shifted the debate over the past two years away from the tired old Keynes vs. Hayek routine. …Scott is reviving the Hawtrey-Cassel pre-Monetarist tradition, of which Friedman’s is a decidedly inferior, and obsolete, version. It just goes to show that one person sometimes really can make a difference, even without an ideologically driven publicity machine working on his behalf. Just imagine what Hawtrey and Cassel could have accomplished if they had been bloggers.
I agree with Glasner that Hayek’s macroeconomics is mostly useless, and the Hawtrey-Cassel tradition has a lot of merit, but it is very much a part of the Keynesian tradition in both the development of Keynes’ thoughts and in the modern incarnation so it is misleading to suggest that it is somehow the diametric opposite of Keynesianism.  Although Keynes didn’t focus upon the gold standard and monetary policy in his General Theory of Employment, Interest and Money in 1936, that is because the countries he was writing for had already left the gold standard and monetary policy loses its effectiveness in a liquidity trap like the world faced in 1936.  Keynes had focused on monetary policy in his earlier works like A Treatise on Money which he published in 1930.  I agree with Glasner except that I don’t have a problem with using fiscal policy for stimulating the economy, particularly during a liquidity trap.
Similarly, Brad Delong thinks Glasner should be more open to fiscal policy, particularly during a liquidity trap:
  1. The Federal Reserve and the ECB and the Bank of England …flooded the North Atlantic economy with liquidity [for over] four years. Yet it [was not] enough to produce a healthy recovery. Cassel and Hawtrey took it for granted that enough monetary ease–buying enough short-term bonds for gold or other forms of rock-solid cash–would do the job. But today it looks as though balance-sheet depressions are more stubborn beasts, that simple liquidity-provision by the government is not enough, and that proper handling may require banking and fiscal policy …as well.
  2. Related to [the above], I think that Cassel and Hawtrey are not enough. I think that their exclusive focus on monetary liquidity misses large aspects of the picture. You need to think along Bagehot-Minsky-Kindleberger lines about safety and risk and along Wicksellian lines about the savings-investment balance as well. And, historically, the traditional road from the quantity theory of money to those concerns has been the Keynes-Hicks-Tobin road.
Posted in Macro

The biggest health achievement in the United States in the last half century?

Angry Upset Pout Face Dissatisfied Facial
Let’s break for a quiz: What was the biggest health care breakthrough in the last 40 years in the United States? Heart bypasses? CAT scans and M.R.I.’s? New cancer treatments?

No, it was the cigarette tax. Every 10 percent price increase on cigarettes reduced sales by about 3 percent over all, and 7 percent among teenagers, according to the 2005 book “Prescription for a Healthy Nation.” Just the 1983 increase in the federal tax on cigarettes saved 40,000 lives per year.

Do you know anyone who has saved millions of people’s lives?  Surely such a person would be a hero in the history books.  One of the biggest heroes of the last century is someone you probably never heard of.  Ernst Wynder noticed an amazingly strong correlation between smoking and lung cancer and reported it in 1953.  He confirmed the correlation in a lab study by capturing cigarette smoke and painting the resulting goo on lab rats’ skin.  They died of cancer too.  Wynder saved millions of lives by convincing people to stop smoking, but he won no big prizes nor fame.  Unknown public health workers like this have saved more lives than the most heroic doctors, but because they do it through prevention, they get very little recognition.  There is no drama when you do not see a heart-wrenching life-threatening illness because it was prevented in the first place.

Many of our public health accomplishments have been extremely cheap per life saved. Small changes can have big effects.  For example, Mark Kleiman calculates that:

[T]he relationship between the price of alcohol and the rate of assault, including spousal assault, is well-documented in the literature. Doubling the tax on beer (from a dime to twenty cents a can) would reduce the assault rate by at least 5%, and maybe as much as 20%…

Preventing assault in this way is much cheaper than paying the criminal justice system to try and incarcerate perpetrators after the fact.

Posted in Health, Millionaire Superheroes

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