Friday, March 22, 2019

What Did Gutenberg's Printing Press Actually Change?

There's an old slogan for journalists: "If your mother says she loves you, check it out." The point is not to be  too quick to accept what you think you already know.

In a similar spirit, I of course know that the introduction of a printing press with moveable type by to Europe in 1439 by Johannes Gutenberg is often called one of the most important inventions in world history. However, I'm grateful that Jeremiah Dittmar and Skipper Seabold have been checking it out. They have written "Gutenberg’s moving type propelled Europe towards the scientific revolution," for the LSE Business Review (March 19, 2019). It's a nice accessible version of the main findings from their  research paper, "New Media and Competition: Printing and Europe'sTransformation after Gutenberg" (Centre for Economic Perfomance Discussion Paper No 1600 January 2019). They write:

"Printing was not only a new technology: it also introduced new forms of competition into European society. Most directly, printing was one of the first industries in which production was organised by for-profit capitalist firms. These firms incurred large fixed costs and competed in highly concentrated local markets. Equally fundamentally – and reflecting this industrial organisation – printing transformed competition in the ‘market for ideas’. Famously, printing was at the heart of the Protestant Reformation, which breached the religious monopoly of the Catholic Church. But printing’s influence on competition among ideas and producers of ideas also propelled Europe towards the scientific revolution.While Gutenberg’s press is widely believed to be one of the most important technologies in history, there is very little evidence on how printing influenced the price of books, labour markets and the production of knowledge – and no research has considered how the economics of printing influenced the use of the technology."


Dittmar and Seabold aim to provide some of this evidence. For example, here's their data on how the price of 200 pages changed over time, measured in terms of daily wages. (Notice that the left-hand axis is a logarithmic graph.) The price of a book went from weeks of daily wages to much less than one day of daily wages. 



They write: "Following the introduction of printing, book prices fell steadily. The raw price of books fell by 2.4 per cent a year for over a hundred years after Gutenberg. Taking account of differences in content and the physical characteristics of books, such as formatting, illustrations and the use of multiple ink colours, prices fell by 1.7 per cent a year. ... [I]n places where there was an increase in competition among printers, prices fell swiftly and dramatically. We find that when an additional printing firm entered a given city market, book prices there fell by 25%. The price declines associated with shifting from monopoly to having multiple firms in a market was even larger. Price competition drove printers to compete on non-price dimensions, notably on product differentiation. This had implications for the spread of ideas."

Another part of this change was that books were produced for ordinary people in the language they spoke, not just in Latin. Another part was that wages for professors at universities rose relative to the average worker, and the curriculum of universities shifted toward the scientific subjects of the time like "anatomy, astronomy, medicine and natural philosophy," rather than theology and law.
The ability to print books affected religious debates as well, like the spread of Protestant ideas after Martin Luther circulated his 95 theses criticizing the Catholic Church in 1517.

Printing also affected the spread of technology and business.
Previous economic research has studied the extensive margin of technology diffusion, comparing the development of cities that did and did not have printing in the late 1400s ...  Printing provided a new channel for the diffusion of knowledge about business practices. The first mathematics texts printed in Europe were ‘commercial arithmetics’, which provided instruction for merchants. With printing, a business education literature emerged that lowered the costs of knowledge for merchants. The key innovations involved applied mathematics, accounting techniques and cashless payments systems.
The evidence on printing suggests that, indeed, these ideas were associated with significant differences in local economic dynamism and reflected the industrial structure of printing itself. Where competition in the specialist business education press increased, these books became suddenly more widely available and in the historical record, we observe more people making notable achievements in broadly bourgeois careers.
It is impossible to avoid wondering if economic historians in 50 or 100 years will be looking back on the spread of internet technology, and how it affected patterns of technology diffusion, human capital, and social beliefs--and how differing levels of competition in the market may affect these outcomes. 

Thursday, March 21, 2019

The Remarkable Renaissance in US Fossil Fuel Production

M. King Hubbert was a big-name geologist who worked much of his career for Shell oil. Back in the 1970s, when OPEC taught the US that the price of oil was set in global markets, discussions of US energy production often began with the "Hubbert curve," based on a 1956 paper in which Hubbert predicted with considerable accuracy that US oil production would peak around 1970. The  2019 Economic Report of the President devotes a chapter to energy policy, and offers a reminder what happened with Hubbert's curve.

The red line shows Hubbert's predicted oil production curve from 1956. The blue line shows actual US oil production in the lower 48 states. At the time of Hubbert's death in 1989, his forecast looked spot-on. Even by around 2010, his forecast looked pretty good. But for those of us who had built up a habit since the 1970s of looking at US oil production relative to Hubbert's prediction, the last decade has been a dramatic shock. .

Indeed, domestic US oil production now outstrips that of the previous world leaders: Saudi Arabia and Russia.

The surge in US fossil fuel production is about natural gas as well as oil. Here's a figure which combines output of all US fossil fuel production, measured by its energy content. You can see that it's (very) roughly constant from the 1980s up through about 2010, and then everything changes.



Many Americans are ambivalent about fossil fuel production. We demonstrate our affection for it by driving cars, riding in airplanes, and consuming products that are shipped over US transportation networks and produced with fossil fuels (for many of us, including electricity). People who live in  parts of the country that are active in fossil fuel production often like the jobs and the positive effects on the local economy. On the other side, many of us worry both about environmental costs of energy production and use, and how they might be reduced.

Big picture, the US economy has been using less energy to produce each $1 of GDP over time, as have other high-income economies like those of western Europe.
My guess is that the higher energy consumption per unit of output in the US economy is partly because the US is a big and sprawling country, so transportation costs are higher, but also that many European countries impose considerably higher taxes on energy use than the US, which tends to hold down consumption.

The US could certainly set a better example for other countries in making efforts to reduce carbon emissions. But that said, it's also worth noting that US emissions of carbon dioxide have been essentially flat for the last quarter-century. More broadly, North America is 18% of global carbon emissions, Europe is 12%, and the Asia-Pacific region is 48%.  Attempts to address global carbon emissions that don't have a heavy emphasis on the Asia Pacific region are missing the bulk of the problem.

Overall, it seems to me that the sudden growth  of the US energy sector has been a positive force. No, it doesn't mean that the US is exempt from global price movements in energy prices. As the US economy has started to ramp up energy exports, it will continue to be clear that energy prices are set in global markets. But the sharp drop in energy imports has helped to keep the US trade deficit lower than it would otherwise have been. The growing energy sector has been a source of US jobs and output. The shift from coal to natural gas as a source of energy has helped to hold down US carbon dioxide emissions. Moreover, domestically-produced US energy is happening in a country which has, by world standards, relatively tight environmental rules on such activities.

Wednesday, March 20, 2019

Wealth, Consumption, and Income: Patterns Since 1950

Many of us who watch the economy are slaves to what's changing in the relatively short-term, but it can be useful to anchor oneself in patterns over longer periods. Here's a graph from the 2019 Economic Report of the President which relates wealth and consumption to levels of disposable income over time.
The red line shows that total wealth has typically equal to about six years of total personal income in the US economy: a little lower in the 1970s, and  a little higher in recent years at the peak of the dot-com boom in the late 1990s, the housing boom around 2006, and the present.

The blue line shows that total consumption is typically equal to about .9 of total personal income, although it was up to about .95 before the Great Recession, and still looks a shade higher than was typical from the 1950s through the 1980s.

Total stock market wealth and total housing wealth were each typically roughly equal to disposable income from the 1950s up through the mid-1990s, although stock market wealth was higher in the 1960s and housing wealth was higher in the 1980s. Housing wealth is now at about that same long-run average, roughly equal to disposable income. However, stock market wealth has been nudging up toward being twice as high as total disposable income in the late 1990s, round 2007, and at present .

A figure like this one runs some danger of exaggerating the stability of the economy. Even small  movements in these lines over a year or a few years represent big changes for many households.

What jumps out at me is the rise in long-term stock market wealth relative to income since the late 1990s. That's what is driving total wealth above its long-run average. And it's probably part of what what is causing consumption levels relative to income to be higher as well. That relatively higher level of stock market wealth is propping up a lot of retirement accounts for both current and future retirees--including my own.

Reentry from Out of the Labor Market

Each year, the White House Council of Economic Advisers published the Economic Report of the President, which can be thought of as a loyalist's view of the current economic situation. For example, if you are interested in a rock-ribbed defense of the Tax Cuts and Jobs Act passed in December 2017 or of the deregulatory policies of the Trump administration looks like, then Chapters 1 and 2 of the 2019 report are for you. Of course, some people will read these chapters with the intention of citing the evidence in support of the Trump administration, while others will be planning to use the chapters for intellectual target practice. The report will prove useful for both purposes.

Here, I'll focus on some pieces of the 2019 Economic Report of the President that focus more on underlying economic patterns, rather than on policy advocacy.  For example, some interesting patterns have emerged in what it means to be "out of the labor market."

Economists have an ongoing problem when looking at unemployment. Some people don't have a job and are actively looking for one. They are counted as "unemployed." Some people don't have a job and aren't looking for one. They are not included in the officially "unemployed," but instead are "out of the labor force." In some cases, those who are not looking for a job are really not looking--like someone who has firmly entered retirement. But in other cases, some of those not looking for a job might still take one, if a job was on offer.

This issue came up a lot in the years after the Great Recession. The official unemployment rate topped out in October 2009 at 10%. But as the unemployment rate gradually declined, the "labor force participation" rate also fell--which means that the share of Americans who were out of the labor force and not looking for a job was rising.You can see this pattern in the blue line below.
There were some natural reasons for the labor force participation rate to start declining after about 2010. In particular, the leading edge of the "baby boom" generation, which started in 1945, turned 65 in 2010, so it had long been expected that labor force participation rates would start falling with their retirements.

Notice that the fall in labor force participation rates levelled off late in 2013. Lower unemployment rates since that time cannot be due to declining labor force participation. Or an alternative way to look at the labor market is to focus on employment-to-population--that is, just ignore the issue of whether those who lack jobs are looking for work (and thus "in the labor force") or not looking for work (and thus "out of the labor force"). At about the same time in 2013 when the drop in the labor force participation rate leveled out, the red line shows that the employment-to-population ratio started rising.

What especially interesting is that many of those taking jobs in the last few years were not being counted as among the "unemployed." Instead, they were in that category of "out of the labor force"--that is, without a job but not looking for work. However, as jobs became more available, they have proved willing to take jobs. Here's a graph showing the share of adults starting work who were previously "out of the labor force" rather than officially "unemployed."
A couple of things are striking about this figure.

1) Going back more than 25 years, it's consistently true that more than half of those starting work were not counted as "unemployed," but instead were "out of the labor force." In other words, the number of officially "unemployed" is not a great measure of the number of people actually willing to work, if a suitable job is available.

2) The ratio is at its  highest level since the start of this data in 1990. Presumably this is because when the official unemployment rate is so low (4% or less since March 2018), firms that want to hire are needing to go after those who the official labor market statistics treated as "not in the labor force."

Tuesday, March 19, 2019

Alternatives to the Four-Year College Track for Everyone Else

As the US goes through one of its periodic paroxysms over how the small minority of high school graduates who attend a selective four-year undergraduate college is chosen, it's worth taking a moment to remember everyone else.  US high schools graduate about 3.6 million students each year. That's a big group, with a wide array of abilities, preparation, and interests. For a substantial number of them, high school was not an especially rewarding academic experience, and no matter what they are told by their college-educated teachers and college-educated counselors, the idea of signing up for a few more years of academic courses is not very enticing.

Oren Cass has written a short essay about this group, "How the Other Half Learns: Reorienting an Education System That Fails Most Students" (Manhattan Institute, August 2018). Here are a couple  of points that caught my eye. 

One study looked back at the students who graduated from high school in 2003, and how the education system had treated them six years later. The data is obviously a few years old, but the overall patterns don't seem to have changed much. For example, about 70% of high school grads enrolled in college in 2003, and about 70% did so in 2016, too.  

Of the 70% who started off to college in 2003, about two-thirds went to a four-year school and one-third to a two years school. Six years later, by 2009, fewer than half of those who started off to college in 2003 had a degree. 

Cass calculates the proportions this way: 
Consider a cohort of 100 students arriving in the ninth grade:
  • Of the 100, 18 of them won’t graduate on time from high school 
  • Of the 82 who do graduate, 25 won’t enroll in higher education
  • Of the 57 who do enroll, 29 won’t earn even an associate’s degree after six years
  • Of the 28 who do graduate, 12 will land in jobs that do not require a degree 
  • Only 16 will successfully navigate the high school to college to career pipeline—the current aim of the education system.
Of course, these problems are fairly well-known. I've written here about "The Problem of College Completion Rates" (June 29, 2018), and about "Some Proposals for Improving Work, Wages and Skills for Americans" (February 19, 2019) like a dramatic expansion of community colleges. But my sense is that the issue here runs deeper. Cass offers one way of thinking about alternatives. 

Of course, this alternative track does require students to make some choices in about 11th grade, but frankly, that doesn't worry me too much. By 10th grade, a lot of students have a fairly good grip on where they stand academically. And if a student chooses a career and technical education track, but decides after a couple of years to give college a try, that's of course just fine. 

The bigger hurdle, it seems to me, is that the alternative vision requires a group of employers who are willing to restructure their organizations in a way that will enable a steady stream of 18-20 year-olds to enter a subsidized work program every year. Moreover, these employers need to treat these young workers not just as an unskilled pair of hands, but to think about what kinds of training and certification these young workers should be attaining during this time. Most US employers are not used to thinking of themselves in these roles. 

But it seems to me that a substantial share of the 3.6 million high school graduates each year might prefer something like Cass's "alternative pathway" to a four-year college degree. As the figure illustrates, society would not be investing less in these young adults--it would just be investing differently. Like a lot of people who ended up working in academia, I went off to college eager and enthusiastic about doing things like reading Adam Smith and Plato, and writing papers about topics like the international law ramifications of the UK-Icelandic cod fishery disputes of the 1970s. But I have noticed over time that not everyone shares my enthusiasms. The US needs alternative paths to good jobs at good wages that don't just involve telling all of the 3.6 million high school graduates  they need to keep going to school.  

Monday, March 18, 2019

Paul Cheshire: "Cities are the Most Welfare Enhancing Human Innovation In History"

Hites Ahir interviews Paul Cheshire in the March 2019 issue of his Housing Watch Newsletter (interview here, full newsletter here). Here are a few of Cheshire's comments that caught my eye:

The Economic Gains from Cities
"There are many types of agglomeration economies in consumption and we really know very little about them still but my assessment is that cities are the most welfare enhancing human innovation in history: they empowered the division of labour, the invention of money, trade and technical inventions like the wheel – let alone government, the arts or culture."
Why Land is Regaining Importance in Economic Analysis
"Classical economists devoted far more effort to trying to understand the returns to land than they did to labour or capital: it was both the most important asset and the most important factor of production. When Adam Smith was writing only about 12 percent of Europe’s population lived in cities and even in the most industrialised country, Britain, the value of agricultural land was about 3 times that of annual GDP. But as the value of other assets increased, interest in land diminished so that by about 1970 really only agricultural economists and a few urban economists were interested in it: and they did not talk to each other. But by 2010 residential property, mostly the land on which houses sat, was worth three times as much as British GDP. By the end of 2013 houses accounted for 61 percent of the UK’s net worth: up from 49 percent 20 years ago. Land, now urban land, is valuable, so there is renewed interest."
Urban Policy Often Misses the Problems of the Modern City
"Luckily cities are so resilient because urban policy is generally so bad! ... Policy has been dominated by physical and design ways of thinking: great for building those fantastic innovations of the 19th Century – sewers or water supply. But not useful for facilitating urban growth and offsetting for the costs of city size. We know cities keep on getting more productive the bigger they are but some costs – the price of space, congestion, for example – also increase with city size. So urban policy should offset for those costs. Instead it mainly increases them. Popular policies of densification and containment restrict the supply of space, increasing its price as cities grow so we forego socially valuable agglomeration economies. Another popular policy – height restrictions – reduces gains from ‘vertical’ agglomeration economies."

Friday, March 15, 2019

Some Peculiarities of Labor Markets: Is Antitrust an Answer?

Labor markets are in some ways fundamentally different from markets for goods and services. A job is a relationship, but in general, the worker needs the relationship to begin and to last more than the employer does/ John Bates Clark , probably the most eminent American economist of his time, put it this way in his 1907 book, Essentials of Economic Theory
"In the making of the wages contract the individual laborer is at a disadvantage. He has something which he must sell and which his employer is not obliged to take, since he [that is, the employer] can reject single men with impunity. ... A period of idleness may increase this disability to any extent. The vender of anything which must be sold at once is like a starving man pawning his coat—he must take whatever is offered."
In the last few years, an idea has emerged that the same government agencies that are supposed to be concerned about monopoly power--that is, when dominant firms in an industry can take advantage of the lack of competition to raise the prices paid by consumers--should also be concerned about "monopsony" power--that is, when dominant firms in an industry can take advantage of the lack of competition to reduce the wages paid to workers. Eric A. Posner, Glen Weyl and Suresh Naidu offer a useful overview of this line of thought in "Antitrust Remedies for Labor Market Power," published in the Harvard Law Review. (132 Harv. L. Rev. 536, December 2018). My own sense is that their discussion of the power imbalance in labor markets is fully persuasive, but it also seems to me that antitrust is at most a very partial and incomplete way of addressing these issues. 

Here's a nice explanation from Posner, Weyl, and Naidu of why workers have reason to feel vulnerable to the monopsony power of employers in labor markets (footnotes omitted):

But there is reason to believe that labor markets are more vulnerable to monopsony than products markets are to monopoly, thanks to a different literature in economics. This literature, for which Professors Lloyd Shapley and Alvin Roth were awarded the Nobel Prize, emphasizes the importance of matching for labor markets.The key point is that in labor markets, unlike in product markets, the preferences of both sides of the market affect whether a transaction is desirable. 
Compare buying a car in the product market and searching for a job. Both are important, high-stakes choices that are taken with care. However, there is a crucial difference. In a car sale, only the buyer cares about the identity, nature, and features of the product in question — the car. The seller cares nothing about the buyer or (in most cases) what the buyer plans do with the car. In employment, the employer cares about the identity and characteristics of the employee and the employee cares about the identity and characteristics of the employer. Complexity runs in both directions rather than in one. Employers search for employees who are not just qualified, but also who possess skills and personality that are a good match to the culture and needs of that employer. At the same time, employees are looking for an employer with a workplace and working conditions that are a good match for their needs, preferences, and family situation. Only when these two sets of preferences and requirements “match” will a hire be made. 
This two-sided differentiation is why low-skill workers may be as or even more vulnerable to monopsony than high-skill workers, despite possibly being less differentiated for employers. Low-skill workers may have less access to transportation, well-situated housing markets, child care options, and job information, and be more dependent on local, informal networks, all of which make jobs less substitutable and employers more differentiated. 
This dual set of relevant preferences means that labor markets are doubly differentiated by the idiosyncratic preferences of both employers and workers. In some sense this dual set of preferences “squares” the differentiation that exists in product markets, naturally making labor markets thinner than product markets. This relative thinness means that the cost of entering a transaction — in relation to the gains from trade — is on average greater in employment markets than in product markets because people are not as interchangeable as goods. 
These matching frictions both cause and reinforce the typically long-term nature of employment relationships compared to most product purchases, leading to significant lock-in within employment relationships. They are also reinforced by the more geographically constrained nature of labor markets. In our increasingly digital and globalized world, products are easily shipped around the country and world; people are not. While traveling is easier than in the past, and telecommuting has become more common, labor markets remain extremely local while most product markets are regional, national, or even global.Most jobs still require physical proximity to the employer, greatly narrowing the geographic scope of most labor markets, given that many workers are not willing to move away from family to take a job. Two-income families further complicate these issues because each spouse must find a job in the area in which the other can, further narrowing labor markets. Together these factors naturally make labor markets highly vulnerable to monopsony power, much more vulnerable than most product markets are to monopoly power.
To what extent might antitrust be a remedy for these kinds of issues? There are certainly situations where it seems appropriate. For example,  the authors discuss "the revelation that high-profile Silicon Valley tech firms, including Apple and Google, entered nopoaching agreements, in which they agreed not to hire each other’s employees. This type of horizontal agreement is a clear violation of the
Sherman Act. The firms settled with the government [in 2018], but the casual way in which such major firms, with sophisticated legal staffs, engaged in such a blatant violation of the law appears to have alarmed antitrust authorities. The government subsequently issued guidelines to human resources offices warning them that even implicit agreements not to poach competitors’ employees are illegal." 

Another set of examples involve the growth of "non-compete" agreements, in which a worker is required to sign an agreement to not to work for a competing firm for some period of time (for additional discussion, see "The Economics of Noncompete Agreements," April 19, 2016). It's also true that about 25% of the US workforce is now in jobs that require a government license, and these licenses often appear to be at least as much about limiting competition in a certain area of the labor market--for example, blocking movement across state lines-- as ensuring quality and information for consumers
One can also imagine that standard merger investigations might take labor market effects into account. For example, say that three hospitals in a local area propose a merger. The standard analysis would look at the reduction in competition that is likely to occur, along with the possibility of higher prices for consumers, and then balance that against whether the merger is likely to produce efficiency gains or synergies that would benefit consumers. This analysis might also take into account not just effects on consumers, but whether the monopsony power of the merged hospitals might push down labor wages in that local market.

But at least for me, it's not clear that there are a lot of standard merger cases, focused on product market competition and effects on consumers, where including the labor market effects would alter the outcome. Perhaps more to the point, conventional antitrust doesn't seem likely to do much at all about the deeper pecularities of labor markets, like the issues pointed out above of two-sided differentiation, moving costs, two-earner couples looking for a job in the same place, and so on.

Perhaps one answer is to expand our notion of how the competition authorities might address the issue of labor market power of large employers. The authors write in a somewhat speculative tone:
Our present business landscape exhibits a number of extremely powerful employers as a result of the neglect of mergers and other anticompetitive behavior in labor markets. While a more detailed examination would be needed to draw any firm conclusions, antitrust investigations into massive employers (such as Compass Group, Accenture, Amazon, Uber, and Walmart), as well as platform-based firms that receive vast flows of valuable data services without any compensation (such as Facebook and Google), seem warranted. It may be that some of these firms have achieved such powerful monopsonies that they should be broken up.
Again, the argument here is not that consumers would benefits from breaking up these firms, but that it should be considered on behalf of workers, with the belief that if these firms operated with more competitors, they would need to pay higher wages. I'm open to more evidence on this point, but I'm unpersuaded by the existing evidence. It seems to me that the more direct approach to addressing the generalized power imbalance against workers is to pursue various "active labor market policies" that provide assistance with job search, relocation, and retraining, as well as doing whatever we can to run a "high pressure" economy where unemployment rates are low, so that workers are both in demand and have some plausible alternative options if they want or need to switch employers.

Postscript: For a discussion of how an economist and a classics scholar came up with teh terminology of "monopsony" back in 1933, see Thornton, Robert, J. 2004. "Retrospectives: How Joan Robinson and B. L. Hallward Named Monopsony." Journal of Economic Perspectives, 18 (2): 257-261.)

Thursday, March 14, 2019

Greg Mankiw on Textbooks, and Some Reactions

Greg Mankiw is the author of two leading undergraduate economics textbooks: one for the introductory principles of economics course and the other for intermediate macro. At his blog, he linked an essay he has just written, "Reflections of a Textbook Author" (March 6, 2019).  Those teaching or taking either principles or intermediate macro will find it of interest, as well as those who have contemplated writing a textbook of their own.

I've had experiences to build up some views about intro economics pedagogy over the years. I've been involved in several introductory textbooks: first as a commenter and editor for the first edition of the introductory Economics textbook by Joseph Stiglitz published in 1993, and more recently as the authors of my own Principles of Economics textbook (first edition published in 2008, and of course I commend the most recent high-quality and affordable edition to your attention), which was used in a  revised, shortened, and reorganized form as the backbone for the freely downloadable Principles of Economics book available through OpenStax. I've taught intro econ at Stanford and the University of Minnesota. I've also done some non-textbook, non-classroom introductions to economics. For example, back in the mid-1990s I recorded the first edition of an Economics course, explaining terminology and trends without graphs, for the Teaching Company back in 1995--the most recent edition is here. Those lectures became the basis for my 2012 book The Instant Economist. Last year, I did a series of 90 podcasts, 15 minutes each, for the Chinese company Ximalaya, explaining intro economics terms in a nontechnical way with examples and context from China's economy.

Here, I'll pass along a few thoughts from Mankiw's essay that caught my eye, with some reactions of my own, but Greg is a lovely and insightful writer, so there's lots more at the essay itself.

Principles Instructor as Ambassador
"Just as ambassadors are supposed to faithfully represent the perspective of their nations, the instructor in an introductory course (and intermediate courses as well) should faithfully represent the views shared by the majority of professional economists. ... This perspective of instructor as ambassador raises the question of what instructors should do if they hold views far from the mainstream of the economics profession. If you are an Austrian or Marxist economist, for example, what should you do if asked to teach an introductory course? In my view, there are only two responsible courses of action. One is to sublimate your own views and spend most of the course teaching what the mainstream believes, even if you disagree with it. Because many introductory students will take only one or two courses in economics throughout their educations, it would be pedagogical malpractice, in my judgment, to focus on an idiosyncratic minority viewpoint. The other responsible course of action is to avoid teaching introductory (and even intermediate) courses entirely." 
I very much agree with this sentiment. But I'd also add that there should be some room, at least at larger universities, for some nonstandard overviews of economics. For example, many schools have  freshman seminars taught by regular faculty that focus on writing, but with content specific to the professor. Or departments could offer some intro-level courses, without prerequisites, that aren't the standard course. One would probably need to specify that these alternative courses would not be a good preparation for intermediate micro and intermediate macro to follow. But carving out and preserving some room for experimentation at the intro level seems potentially useful.

From Supply and Demand to Consumer and Producer Surplus
"Haven’t supply and demand always been at the center of the introductory course? Surprisingly, no. The first edition of Paul Samuelson's great text, published in 1948 and 608 pages long, did not introduce supply and demand curves until page 447. That is in part because Samuelson, writing in the shadow of the Great Depression, began his book by emphasizing Keynesian macroeconomics. As the book was revised over many editions, standard microeconomic tools became more prominent. But even today, many introductory courses do not develop the framework of supply and demand as fully as they should. In particular, welfare economics is sometimes not given sufficient coverage. The basic tools of welfare economics are consumer surplus and producer surplus, which are natural extensions of supply and demand."
Pretty much all modern intro textbooks are the intellectual children of Samuelson's 1948 text, just revised and updated in various ways. My understanding is that if you go back before that textbook, it was common for intro economics courses to have almost no graphs at all--whether supply-and-demand or otherwise. Following Samuelson, it was also standard to do macro before micro, which seemed based on the assumption that macro had more of a connection to current events and would be an easier way to hook intro students into the subject.

I confess that I'm more dubious than Mankiw when it comes to bringing consumer and producer surplus into the intro class. In my experience, triangular areas under curves are hard for a lot of intro students, and I'm not sure the payoff is very high for the intro student--which is most of them--who aren't ever going to take another econ class. In the great struggle over what to include and what to leave out, I'd put less emphasis on on this topic than Mankiw--and I wouldn't quarrel with an instructor who decided just to leave it out.

Including Too Much?
"For many years, Otto Eckstein ran the introductory course at Harvard. Unfortunately, I never met him as he passed away just before I joined the faculty. But I have heard one of his aphorisms. Apparently, Otto often told section leaders, `The less you teach them, the more they learn.' What I believe he meant by this is that instructors should avoid overwhelming introductory students with too much information all at once. ... As economists, we teach our students about scarcity. As instructors and textbook authors, we should remember that student time is a scarce resource. We must avoid making our courses encyclopedic. That means taking out all of the easily ignored details and stressing the big ideas. The main goal of the introductory course is not to produce future economists but to produce well-informed citizens. Any topic that a person does not need to understand to intelligently follow the news is a plausible candidate for omission. One risk when simplifying matters for students is oversimplification, losing too much of the nuance that economists bring to an issue. But given the difficulty some students have learning basic economics, it is a bigger risk to overcomplicate the analysis early in the course."
In writing a book, there are ongoing pressures to add more. Every reader has a pet topic, or a pet example, or a pet caveat, that would only take another page. A standard response is to write a textbook with the idea that certain chapters will be "core," while other instructors can be dropped by professors if they prefer. In my own textbook, for example, there is a chapter on imperfect information and insurance, and another chapter on financial markets, which can be dropped. In one of the macro chapters, I include the Keynesian cross diagram for teaching about macro in the short-run, but I place it as the second half of a chapter so that it can be smoothly omitted if a professor desires.

While the individual choices about what to include are usually defensible, it  seems fair to me to ask whether the current intro model--whether Mankiw's book or my own--is actually aimed at producing well-informed citizens rather than prepping students for the intermediate micro and macro courses that typically follow in the undergrad econ major. As someone who took intro econ awhile back about their memory of the course, and you're likely to get a wry smile and a memory of how there were a bunch of graphical exercises to solve. It's not obvious to me that someone who has taken the standard intro class would have been in a substantially improved position "to intelligently follow the news" about, say, the causes of the Great Recession, or what happens when the policy interest rate targetted by the Federal Reserve went to near-zero, or the arguments about the Patient Protection and Affordable Care Act and the Dodd-Frank bill passed in 2010, or the current arguments over China's economic growth or the Tax Cuts and Jobs Act passed in 2017. It's not clear to me that the standard intro class empowers students to know where and how to look up data and mainstream argument on these subjects and others, either.

Everyone has worried for a long time about the intro course including too much, but at the end of the day, we keep ramming stuff into it.  I'm not sure the current balance is right.

Free textbooks?
"One possibility is to have the fixed costs of production paid by a foundation grant (I am looking at you, Bill Gates) and then make the digital book freely available. This is similar to the common suggestion that newspapers like The New York Times should move from for-profit to non-profit status and then be supported by charitable donors, much like National Public Radio. Yet I am skeptical that this reform would improve on the status quo of the textbook market. After all, the current for-profit educational publishers are not that profitable, and there is no reason to think that a non-profit entity would find cost savings that have eluded existing publishers. I am afraid that the only way to substantially cut costs would be to reduce quality, which would not be in the students’ interests."
OpenStax is an organization that makes digital books freely available for a wide range of college courses, including the Economics book in which I played a role. It is indeed  partly funded by the Gates Foundation.  Mankiw suggests that "free" books may have an undesirable quality tradeoff.

Quality is often in the eye (and the wallet) of the beholder. But the idea behind OpenStax is that a lot of intro books across a lot of subjects are pretty similar: say, think about the likely similarities between intro textbooks in algebra, statistics, accounting, chemistry, and physics.  If instructors for intro econ should be ambassadors representing the common wisdom, books which do this will have a lot of overlap, too. Personally, I prefer my textbook from Textbook Media to the revised, reworked, reorganized, and shortened version that became the OpenStax book. But other instructors may disagree, or may just feel that "free" is worth it.

The bigger quality tradeoff with free books is about the ancillary materials that accompany a book: banks of multiple choice questions that can be organized into quizzes and tests, with machine-scoring; problem sets; slides and videos for the classroom; animated graphics; text-to-audio for those who learn better by listening; structured economic markets and exercises that can be "played" by students, and then mined for underlying lessons; and more. Some ancillaries have been created for the OpenStax free books, but for-profit publishers invest a lot into these ancillaries, and into making sure they function together in a coordinated way. I suspect that that the quality tradeoffs between free and priced textbooks are mild, compared to the quality tradeoffs between ancillary materials for the books.

How Much Do You Like the Act of Writing and Revising?
"If you are thinking about writing a textbook, the most important question to ask yourself is: Do you enjoy the process of writing and revising (and revising and revising and…)? Not just tolerate it, but really enjoy it? ... I actually enjoy the triennial revisions of my textbooks, not only because they allow me to update my texts for the ever-changing world but also because they give me the chance to go through the manuscript and tinker some more. I can change `the curve is upward sloping' to “`he curve slopes upward,' saving one word and two syllables! If that edit does not strike you as a life-affirming victory, you are not a writer at heart."
This comment reminded me of a couple of others. One was from an economist friend of mine who had serious talks with a publisher about writing a textbook and walked right up to the edge of a sizeable advance payment--before deciding not to go through with it. He told me that in looking the reality of a textbook project in the face: "I discovered that there's a big difference between wanting to write a book and wanting to have written a book."

The other is to emphasize that for most of us, good expository writing involves a lot of rewriting. When someone says that the explanations in my textbook are smooth and fluent and easy-to-follow, I always think: "Well, after about the 6th or 10th revision, it became a lot more clear." I remember the advice of "John Kenneth Galbraith on Writing, Inspiration, and Simplicity" (August 25, 2015). Galbraith, who was one of the truly fine prose stylists in economics, wrote: 
"The best place to write is by yourself, because writing becomes an escape from the terrible boredom of your own personality. It's the reason that for years I've favored Switzerland, where I look at the telephone and yearn to hear it ring. ... There may be inspired writers for whom the first draft is just right. But anyone who is not certifiably a Milton had better assume that the first draft is a very primitive thing. The reason is simple: Writing is difficult work. Ralph Paine, who managed Fortune in my time, used to say that anyone who said writing was easy was either a bad writer or an unregenerate liar. Thinking, as Voltaire avowed, is also a very tedious thing which men—or women—will do anything to avoid. So all first drafts are deeply flawed by the need to combine composition with thought. Each later draft is less demanding in this regard. Hence the writing can be better."

Wednesday, March 13, 2019

The Story of William Lee and His Knitting Machine

The story of William Lee and his knitting machine pops up now and again. For example, the 2019 World Development Report from the World Bank has a mention near the start of Chapter 1: "In 1589, Queen Elizabeth I of England was alarmed when clergyman William Lee applied for a royal patent for a knitting machine: `Consider thou what the invention would do to my poor subjects,' she pointed out. `It would assuredly bring them to ruin by depriving them of employment.'”As someone who is inherently dubious about direct quotations from conversations held in 1589, I went to the footnote, which sent me to Richard Alexander McKinley, ed. 1958. The City of Leicester. Vol. 4 of A History of the County of Leicester.  But I was unable to find the quotation in the online version of this volume.

The William Lee story is also told as the start of Chapter 7 of the 2012 book Why Nations Fail, by Daron Acemoglu and James Robinson. But the citation there is to a website for Calverton Village, where Lee grew up back in the 16th century. The webpage includes sentences like, "Those of you who live in the 20th century are aware of the bare facts of my life."  As someone who is inherently suspicious of first-person internet essays written by people who lived in the 16th century, I continued to hunt for something closer to an original source.

I won't tell you the full story of my journeys through libraries and archives, but instead will just jump to the destination.  The underlying source seems to be in an 1831 book, History of the Framework Knitters, written by Gravenor Henson. The book was then republished in a 1970 edition. It's available through the magic of Google Books: the relevant story about William Lee's experience runs from pp. 38-52. 

Henson was an important British trade union leader in the early 19th century. As Stanley D. Chapman notes in his "Introduction" about Henson's purpose in writing the book: "His main theme was that hosiery, lace and all other industries should be regulated by the government so as to maintain a decent living standard for the workers and fair conditions of trade. British industries must be protected from direct foreign competition and, more particularly, from industrial espionage, migration of skilled workmen to other countries, and export of machinery." 

Henson is writing in 1831, and thus has seen the opening decades of the Industrial Revolution. But in his judgement, William Lee's invention of a machine for knitting stockings more than two centuries earlier was "the greatest triumph of mechanical genius then, or or many ages known." At a time when technology in the textile industry meant spinning wheels and hand looms, Lee invented a machine that could knit stockings. For an detailed description of its workings, a useful starting point is "William Lee and His Knitting Machine," by R. L. Hills,  in the Journal of The Textile Institute
(1989, 80:2, pp. 169-184). 

Those who want the entire passage from Henson's history can go to Google Books. Here, I'll focus how Henson tells five elements of the story: 

  • The origin of the Lee's invention in a disappointed romance
  • The source of the story
  • The encounter with Queen Victoria
  • The excessive monopolies of that time
  • Taking the technology to France
Origins of the Invention in a Disappointed Romance
"The invention of the knitting machine, (since better known by the name of the stocking frame and the workmen as framework-knitters,)  owed its origin, as is universally agreed, to a singular circumstance the disappointed love of the inventor the Rev. William Lee, curate of Calverton, in the county of Nottingham. This gentleman, it is said, paid his addresses to a young woman in his neighbourhood, to whom, from some cause, his attentions were not agreeable; or, as with more probability it has been conjectured, she affected to treat him with negligence, to ascertain her power over his affections. Whenever he paid his visits, she always took care to be busily employed in knitting, and would pay no attention to his addresses; this conduct she pursued to such a harsh extent, and for so long a period, that the lover became disgusted, and he vowed to devote his future leisure, instead of dancing attendance on a capricious woman, who treated his attention with cold neglect, in devising an invention that should effectually supersede her favorite employment of knitting, So sedulous was Mr Lee in his new occupation, that he neglected every thing to accomplish this new object of his attentions; even his sacerdotal duties were neglected; In vain did his sweetheart endeavour to reclaim him; she found,too late, that she had carried her humour too far, all interests, all avocations, all affections were absorbed in his new pursuit, from which he imagined he should realize an immense fortune. His curacy was despised, and at length abandoned, as beneath the notice of a person who had formed in his imagination such gigantic prospects." 
As Henson tells the story, Lee came up with the idea for the framework knitter after hours upon hours of watching the fingers of his romantic interest.  As Henson describes in extensive, delightful, and (to me) impenetrable detail, it involved a complex array of  hooks, needles, grooves, combs, springs, trucks, lead sinkers, the slur cock, jacks, and other parts attached to a wooden board. 

The Source of the Story!
"The greater part of this information was obtained from Mr, Hardy, Twister's-alley, Bunhill-row, London, who was apprenticed in London, in 1711, and died, aged 90, in 1790--from Mr Woods, Godalming--and from an ancient stocking maker who died in Collin's Hospital, Nottingham, aged 92, and who was apprenticed in Nottingham in the reign of Queen Anne, and all of them gave a similar account. This is in some measure confirmed by the arms of the London Company of Framework-knitters which consist of a stocking frame without the woodwork, with a clergyman on one hand and a woman on the other as supporters."
Going to See the Queen
Having now discovered the method of knitting by machinery, his next effort was directed to obtain the golden harvest which had flattered his imagination. He removed his invention to London for the purpose presenting it to the Queen, in the fond hope of receiving her congratulations, and those of her whole court. ...  Such a discovery as the art of making so complicated a fabric as knitting by machinery was considered almost miraculous; Elizabeth was excited by curiosity (in company with Lord Hunsdon and his son) to inspect the frame incognito. Lee now imagined himself certain of a handsome remuneration, but his hopes proved delusive. It is said that nothing could exceed her disappointment, when she perceived that Mr. Lee was not making silk but woollen stockings, and that his machine was not capable, without great improvement, of making the articles in which she took so much pride of being the first wearer. ...
Though supported by the powerful intercession of Lord Hunsdon, and his son Sir Wm Cary, equally a favorite with Elizabeth, she refused to make either a grant of money or secure him a monopoly or patent. Her answer is said to have been to the following purport: -- My Lord, I have too much love to my poor people, who obtain their bread by the employment of knitting, to give my money to forward an invention which will tend to their ruin, by depriving them of employment, and thus make them beggars. Had Mr. Lee made a machine that would have made silk stockings, I should, I think, have been somewhat justified in granting him a patent for that monopoly, which would have affected only a small number of my subjects. but to enjoy the exclusive privilege of making stockings for the whole of my subjects is too important to grant to any individual."
The Excessive Monopolies of that Time

Apparently Lee ran into a different problem: Queen Elizabeth has been granting lots of monopolies to court favorites, and there was a widespread sense that it had gotten out of hand. Thus, the granting of unwarranted monopolies became a reason to deny Lee a monopoly as well. Henson writes:
The time which Mr. Lee had chosen to make an application to the government, though to his sanguine mind very propitious for remuneration. was in reality the reverse; the treasury of Elizabeth was extremely low, owing to the enormous expenses which she had incurred in preparations to meet the Spanish armada in the preceding year. Already had the Parliament begun to express their decided umbrage at the grant of the privileges of patents for monopolies; which, as they were then conducted, were justly considered national evils, and the most odious means of rewarding court favorites, by an excessively tyrannical mode of private taxation. Nearly all the nobles enjoyed a patent for the most useful and general articles of consumption, such as iron, lead, saltpetre, salt, oil, glasses, &c. &c., to the amount of more than one hundred articles, which were sold, imported, or exported by virtue of letters patent. These patent rights, were sold to persons who farmed the profits, and thus demanded what prices they thought prudent for their commodities. When the general list was read over in the House of Commons in 1601, a member, indignant at the the extortions, exclaimed, " Is bread amongst the number?" "Bread?" cried the house, with astonishment, "Yes I assure you," he sarcastically replied, "if we go on at this rate, we shall have a monopoly of bread before next Parliament." 
Going to France

William Lee persevered, encouraged by the thought that if he could build a knitting machine for silk stockings, he might yet receive a patent or other financial support from Queen Elizabeth. Henson reports that by 1596-97, after 7-8 years more work, he succeeded. Henson refers to this invention as "the most wonderful act of a single genius ever displayed, even in these mechanical ages." Henson reports that although there were some rumors that Lee received a patent, the "London and Godalming men, unitedly say that he had no patent." He was then enticed to relocate to France, but his political support in France disintegrated after the assassination of Henry the Great, and Lee died soon thereafter. Henson writes:
His [Lee's] apprentices and workmen were principally composed of his relatives, who thought it so high a honor to belong to the new craft, that they wore their working-needles, having ornamental silver shafts, suspended from a silver chain, at their breasts; and this mark of distinction was preserved so late as the reign of Queen Anne. After the death of Elizabeth, Mr. Lee, who was now past the meridian of life, became in some measure melancholic, for he found that her successor James, who retained Elizabeth's minister Cecil, followed the same course in refusing him remuneration. ...
About this time, the Marquis de Rosni, better known as the Duke of Sully, first minister and favorite of Henry IV. one of the ablest men Europe has produced in modern times, arrived in London, as ambassador, for the purpose of negotiating an alliance between France, England, Holland, Venice, and the northern powers, against Philip III., Emperor of Germany, King of Spain, Portugal, Naples, and Sicily. The policy of this truly great man, who had revived to an extent before unknown the manufactures of France, speedily induced him to take advantage of the neglect of Cecil. He applied to Mr. Lee, and made him very splendid offers, provided he would remove himself and his machinery to France. ...

Though he declined acceding to Sully's wishes, he gave him reason to hope that, provided his own government still neglected him, he might yet be induced to emigrate. - - Some years after this, having lost his great patron and apprentice Lord Hunsdon, he was,induced to close with the proposals of the Duke of Sully, and to remove with the whole of his men, excepting one who (returned to Nottingham), to Rouen, in Normandy. Having established his frames, and commenced his manufactory, he went to Paris, where he was introduced by the Duke to his Sovereign, Henry the Great, who gave him a gracious reception. This benevolent Monarch, who was then, and is now, the darling of the French nation, particularly of the working classes, was meditating the humbling of the ascendancy of the house of Austria, and was preparing for the opening of a campaign the most brilliant that had taken place in that age, when the desperate assassin, Francis Ravaillac, as he passed through the streets of Paris, during a momentary stop of his carriage, got upon its wheels, and at two blows deprived Henry of life, and poor William Lee of all his brilliant expectations. He was then in Paris, expecting, after the hurry of the departure of Henry, that his minister, Sully, would have leisure to arrange with him the establishing of his manufacture upon an extended scale. So dreadful a misfortune acted as a thunder bolt upon the unfortunate ingenious man, and when, on waiting upon Sully, he found that that great minister had resigned the whole of his appointments into the hands of Mary de Medicis, the Queen Regent, and that he was preparing in disgust to retire to his estate, leaving the government in the hands of Italians, his fortitude forsook him, and he gave way to the melancholy which had attacked him in London; he thought himself the most unfortunate of men; alone, unprotected, in a foreign country, after twenty-two years’ struggles;" he sickened at the thought, and sent for his brother James, from Rouen, but before he arrived, the inventor of the stocking frame died of a broken heart, in the midst of strangers. This happened in the year 1610.
The technology of Lee's knitting machine was at this point known, and gradually adapted and adopted. By the 1620s it has become established as a method of production.

Who knows what Queen Elizabeth actually said, more than 250 years before Henson published his history in 1831? But quoting her concerns about the workers, together with concern about her own silk stockings, is probably as well-justified as many other long-ago historical examples. At least if you (or I) tell the story in the future, there is a bit more context about monopoly powers of that time, and how technology that cannot flourish in one country may head to another.

Tuesday, March 12, 2019

Sources of US Greenhouse Gas Emissions

Each year the Environmental Protection Agency produces an Inventory of U.S. Greenhouse Gas Emissions and Sinks. The draft version of the report for 1990-2017 was published in February 2019. 

Here's a figure showing gross emissions of greenhouse gases in the US. Emissions that are not carbon dioxide have been converted to its "equivalent."
Several themes jump out from the figure. One is that the overwhelming share of emissions are plain old carbon dioxide, rather than methane or other gases. Another is that the total emissions have been dropping in the last few years, and are more-or-less back to 1990 levels, which one can interpret either through the lens of "could be worse" or "should be better," as you are so inclined.

Given the predominance of carbon dioxide emissions, let's dig into those a little deeper. Most of the carbon dioxide emissions come from burning fossil fuels. This table shows the breakdown into a few main sectors.
Total US emissions of greenhouse gases in 2017 were 6472 million metric tons of carbon dioxide-equivalent.  Thus, transportation and the electric power sector combined account for more than half of all emissions. It seems to me both appropriate to focus on reducing emissions in those sectors, but also to remember that, combined, they are only about half of the problem. Emissions from industrial, residential, and commercial activities are also pretty significant.

Moreover, methane emissions landfill, leakages in natural gas systems, and the digestive tracts of livestock make up the equivalent of 449 million metric tons of carbon dioxide emissions in 2017. Agricultural soil management released nitrogen oxides that are the equivalent of 266 million metric tons of carbon dioxide in 2017, roughly equivalent to fossil fuel-related carbon emissions from the residential or the commercial sector. Hydrofluorocarbons that are being used to to replace ozone-depleting substances account for another 152 million metric tons of CO2-equivalent emissions.

This EPA report is a tabulation of greenhouse gas emissions. It isn't about questions of how emissions of greenhouse gases might affect climate, or estimating economics costs from changes in climate, or about what methods of addressing greenhouse gas emissions are likely to be more or less cost-effective. For discussions of these points, I recommend a three-paper "Symposium on Climate Change" in the Fall 2018 issue of the Journal of Economic Perspectives. (Full disclosure: My actual paid job, as opposed to my blogging avocation, is Managing Editor of the JEP.) The papers are:

Monday, March 11, 2019

US Imposes Tariffs, and the 2018 Trade Deficit Rises: Lessons?

Early in 2018, President Trump began instituting a series of tariffs on international trade. As he tweeted in March 2018: "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!"

Last week, the US Department of Commerce announced the US trade figures for year-end 2018. After a year of President Trump's tariffs, the US trade deficit is larger in 2018 than it was in 2017. The bilateral US trade deficit with China is up, too. The government report notes:
For 2018, the goods and services deficit was $621.0 billion, up $68.8 billion from $552.3 billion in 2017. Exports were $2,500.0 billion in 2018, up $148.9 billion from 2017. Imports were $3,121.0 billion, up $217.7 billion from 2017. The 2018 increase in the goods and services deficit reflected an increase in the goods deficit of $83.8 billion, or 10.4 percent, to $891.3 billion and an increase in the services surplus of $15.0 billion, or 5.9 percent, to $270.2 billion. As a percentage of U.S. gross domestic product, the goods and services deficit was 3.0 percent in 2018, up from 2.8 percent in 2017. ... The deficit with China increased $43.6 billion to $419.2 billion in 2018. Exports decreased $9.6 billion to $120.3 billion and imports increased $34.0 billion to $539.5 billion.
Thus, a fairly common situation arises. A politicians claims that a certain Problem has a certain Solution. But when the politician is elected and the Solution is tried, the Problem is either the same or worse. It is rare for any politician in this situation to reconsider their Solution. Instead, the usual approaches are to argue that an even bigger and longer dose of the Solution is needed, or that the Solution was somehow sabotaged by poor implementation and political opposition.  

It will be interesting to see if President Trump acknowledges at some point that using tariffs to reduce the US trade deficit failed in 2018. My expectation is that any such acknowledgement would be followed by a claim that his tariff Solution was somehow undercut and thus only needs to be redoubled in the future. 

But for those with eyes to see, it should be apparent that trade deficits and surpluses rise and fall as a a result of large-scale macroeconomic factors, not because of fluctuation in "unfairness" that can be fine-tuned and adjusted with tariffs. I've tried to explain this point in more detail a few times: for example, see "Misconceptions about Trade Deficits" (March 30, 2018), "Some Facts about Current Global Account Balances" (August 7, 2018), and "US Not the Source of China's Growth; China Not the Source of America's Problems" (December 4, 2018). Here, I'll just focus on events of 2018. 

The US economy had solid economic growth in 2018, driven in part by the short-term effects of the tax cuts signed into law in December 2017. When an economy grows briskly,  consumption tends to rise, including its consumption of imported products. This pattern is standard. For example, the US trade deficit fell sharply during the Great Recession, because consumption of all kinds--including imports--fell as well. Meanwhile, China has been experiencing a slowdown in its rate of growth, so there has been less of a rise in consumption and imported products than would have been expected.

The health of the US economy has led the Federal Reserve to raise interest rates several times in the last few years. As a result, global investment funds have flowed back to the US economy, and the additional demand for US dollars in foreign exchange markets has pushed up the foreign exchange value of the US dollar. This makes US exports more expensive overseas, and also makes it cheaper for US consumers to buy imported products. 

It's also a completely standard dynamic that if the US imposes tariffs, other countries will respond with tariffs on US products. In my home state of Minnesota, for example, Trump's tariffs have tended to raise prices and help iron ore producers in the northern part of the state, but China's countertariffs on soybeans have hurt farmers in the central and southern part of the state. 

The idea that exports and imports are the outcome of of macro variables like levels and shifts between consumption and savings across different econmies, which are also affected by exchange rates, is completely standard intro-level economics. News stories on the Department of Commerce announcement made these points. 

The US and other  high-income countries have legitimate concerns about how China's government and firms treat intellectual property. That's a real Problem, and it's worth working to actual  Solutions--like having high-income countries form a united front against these Chinese practices through organizations like the the World Trade Organization and the World Intellectual Property Organization. If internationally-coordinated tariffs targeted on the main Chinese offenders emerged from that process, I suspect that even a lot of economists with free-trade leanings would see a case for such a step. But broad overall trade deficits are not the Problem to be chasing, and even if it was the right Problem,  the year 218 has shown that Trump's tariffs are not the Solution.

Saturday, March 9, 2019

Benjamin Franklin and the Origins of Daylight Savings Time

Daylight savings time starts this weekend. Here's a post from two years ago on its intellectual origins.
___________

The idea that adjusting the time of day can result in energy savings traces back to a whimsical essay written by Benjamin Franklin back in 1784. Franklin claims in the essay that while living in Paris and attending parties every night, he is habitually going to bed "three or four hours after midnight," and rising at noon. However, he is astonished to find one morning that the sun is rising and casting light at 6:00 am. He claims as his own personal discovery that while the ancients knew when the sun rose--after all, the time is in the almanac!--they did not know that the sun "gave light as soon as he rose. This is what I claim as my discovery. If the ancients knew it, it might have been long since forgotten; for it certainly was unknown to the moderns, at least to the Parisians ..." Franklin suggests that if everyone rose with the sun and went to bed with the sun during the summertime, there would be a vast savings of candle wax. The saved candle-wax could then be used during the shorter days of winter.

For the economists among us, there is a charm in how Franklin jibes at the "lovers of economy," and writes in what seems to me a jesting fashion: "I was pleased to see this general concern for economy, for I love economy exceedingly." Here's Franklin's letter:

To THE AUTHORS of
The Journal of Paris
1784
MESSIEURS,
You often entertain us with accounts of new discoveries. Permit me to communicate to the public, through your paper, one that has lately been made by myself, and which I conceive may be of great utility.
I was the other evening in a grand company, where the new lamp of Messrs. Quinquet and Lange was introduced, and much admired for its splendour; but a general inquiry was made, whether the oil it consumed was not in proportion to the light it afforded, in which case there would be no saving in the use of it. No one present could satisfy us in that point, which all agreed ought to be known, it being a very desirable thing to lessen, if possible, the expense of lighting our apartments, when every other article of family expense was so much augmented.
I was pleased to see this general concern for economy, for I love economy exceedingly.
I went home, and to bed, three or four hours after midnight, with my head full of the subject. An accidental sudden noise waked me about six in the morning, when I was surprised to find my room filled with light; and I imagined at first, that a number of those lamps had been brought into it; but, rubbing my eyes, I perceived the light came in at the windows. I got up and looked out to see what might be the occasion of it, when I saw the sun just rising above the horizon, from whence he poured his rays plentifully into my chamber, my domestic having negligently omitted, the preceding evening, to close the shutters.
I looked at my watch, which goes very well, and found that it was but six o'clock; and still thinking it something extraordinary that the sun should rise so early, I looked into the almanac, where I found it to be the hour given for his rising on that day. I looked forward, too, and found he was to rise still earlier every day till towards the end of June; and that at no time in the year he retarded his rising so long as till eight o'clock. Your readers, who with me have never seen any signs of sunshine before noon, and seldom regard the astronomical part of the almanac, will be as much astonished as I was, when they hear of his rising so early; and especially when I assure them, that he gives light as soon as he rises. I am convinced of this. I am certain of my fact. One cannot be more certain of any fact. I saw it with my own eyes. And, having repeated this observation the three following mornings, I found always precisely the same result.
Yet it so happens, that when I speak of this discovery to others, I can easily perceive by their countenances, though they forbear expressing it in words, that they do not quite believe me. One, indeed, who is a learned natural philosopher, has assured me that I must certainly be mistaken as to the circumstance of the light coming into my room; for it being well known, as he says, that there could be no light abroad at that hour, it follows that none could enter from without; and that of consequence, my windows being accidentally left open, instead of letting in the light, had only served to let out the darkness; and he used many ingenious arguments to show me how I might, by that means, have been deceived. I owned that he puzzled me a little, but he did not satisfy me; and the subsequent observations I made, as above mentioned, confirmed me in my first opinion.
This event has given rise in my mind to several serious and important reflections. I considered that, if I had not been awakened so early in the morning, I should have slept six hours longer by the light of the sun, and in exchange have lived six hours the following night by candle-light; and, the latter being a much more expensive light than the former, my love of economy induced me to muster up what little arithmetic I was master of, and to make some calculations, which I shall give you, after observing that utility is, in my opinion the test of value in matters of invention, and that a discovery which can be applied to no use, or is not good for something, is good for nothing.
I took for the basis of my calculation the supposition that there are one hundred thousand families in Paris, and that these families consume in the night half a pound of bougies, or candles, per hour. I think this is a moderate allowance, taking one family with another; for though I believe some consume less, I know that many consume a great deal more. Then estimating seven hours per day as the medium quantity between the time of the sun's rising and ours, he rising during the six following months from six to eight hours before noon, and there being seven hours of course per night in which we burn candles, the account will stand thus;--
In the six months between the 20th of March and the 20th of September, there are
Nights 183
Hours of each night in which we burn candles 7
Multiplication gives for the total number of hours 1,281
These 1,281 hours multiplied by 100,000, the number of inhabitants, give 128,100,000
One hundred twenty-eight millions and one hundred thousand hours, spent at Paris by candle-light, which, at half a pound of wax and tallow per hour, gives the weight of 64,050,000
Sixty-four millions and fifty thousand of pounds, which, estimating the whole at-the medium price of thirty sols the pound, makes the sum of ninety-six millions and seventy-five thousand livres tournois 96,075,000

An immense sum! that the city of Paris might save every year, by the economy of using sunshine instead of candles. If it should be said, that people are apt to be obstinately attached to old customs, and that it will be difficult to induce them to rise before noon, consequently my discovery can be of little use; I answer, Nil desperandum. I believe all who have common sense, as soon as they have learnt from this paper that it is daylight when the sun rises, will contrive to rise with him; and, to compel the rest, I would propose the following regulations; First. Let a tax be laid of a louis per window, on every window that is provided with shutters to keep out the light of the sun.
Second. Let the same salutary operation of police be made use of, to prevent our burning candles, that inclined us last winter to be more economical in burning wood; that is, let guards be placed in the shops of the wax and tallow chandlers, and no family be permitted to be supplied with more than one pound of candles per week.
Third. Let guards also be posted to stop all the coaches, &c. that would pass the streets after sunset, except those of physicians, surgeons, and midwives.
Fourth. Every morning, as soon as the sun rises, let all the bells in every church be set ringing; and if that is not sufficient?, let cannon be fired in every street, to wake the sluggards effectually, and make them open their eyes to see their true interest.
All the difficulty will be in the first two or three days; after which the reformation will be as natural and easy as the present irregularity; for, ce n'est que le premier pas qui coĆ»te. Oblige a man to rise at four in the morning, and it is more than probable he will go willingly to bed at eight in the evening; and, having had eight hours sleep, he will rise more willingly at four in the morning following. But this sum of ninety-six millions and seventy-five thousand livres is not the whole of what may be saved by my economical project. You may observe, that I have calculated upon only one half of the year, and much may be saved in the other, though the days are shorter. Besides, the immense stock of wax and tallow left unconsumed during the summer, will probably make candles much cheaper for the ensuing winter, and continue them cheaper as long as the proposed reformation shall be supported.
For the great benefit of this discovery, thus freely communicated and bestowed by me on the public, I demand neither place, pension, exclusive privilege, nor any other reward whatever. I expect only to have the honour of it. And yet I know there are little, envious minds, who will, as usual, deny me this and say, that my invention was known to the ancients, and perhaps they may bring passages out of the old books in proof of it. I will not dispute with these people, that the ancients knew not the sun would rise at certain hours; they possibly had, as we have, almanacs that predicted it; but it does not follow thence, that they knew he gave light as soon as he rose. This is what I claim as my discovery. If the ancients knew it, it might have been long since forgotten; for it certainly was unknown to the moderns, at least to the Parisians, which to prove, I need use but one plain simple argument. They are as well instructed judicious, and prudent a people as exist anywhere in the world all professing, like myself, to be lovers of economy; and,from the many heavy taxes required from them by the necessitities of the state, have surely an abundant reason to be economical. I say it is impossible that so sensible a people, under such circumstances, should have lived so long by the smoky, unwholesome, and enormously expensive light of candles, if they had really known, that they might have had as much pure light of the sun for nothing. I am, &c.

A SUBSCRIBER
P.S. The concept of Daylight Savings Time is sometimes attributed to George Hudson, a New Zealand etymologist, who proposed the concept in an 1895 meeting, as reported in the Transactions and Proceedings of the Royal Society of New Zealand 1868-1961and  then followed up with a fuller discussion in an 1898 paper in the same publication outlet.  Franklin's earlier discussion was already known at the time; for example, a critical discussant in the 1895 meeting "said that the only practical part of Mr. Hudson's paper had long since been anticipated by Benjamin Franklin." However, Hudson certainly deserves credit for working out details in a more systematic way than Franklin's more whimsical letter.

P.P.S. For those not yet sated on this subject, here's a post on "The Economics of Daylight Savings Time" (March 31, 2016).


Economics of Daylight Savings Time

With the shift to Daylight Savings Time taking place this weekend, it seemed appropriate to rerun this post from a three years ago on the subject:

Where I live in Minnesota, the short days of December have less than 9 hours of daylight, with sunrise around 7:50 am and sunset around 4:40 pm. In contrast, the long days of June have about 15 1/2 hours of daylight, with sunrise around 5:30 am and sunset around 9:00 pm. But of course, those summer times for sunrise and sunset use Daylight Savings Time. If we didn't spring the clocks forward in March, the summertime in Minnesota would feature a 4:30 am sunrise and an 8:00 sundown.

If I was a stronger and more flexible person, there would be no need for Daylight Savings Time. I would just rise with the summertime sun at 4:30 and take advantage of those extra daytime hours. But I don't synchronize my day to the sunlight. Instead, like most people, I have daily schedules that involve getting up at roughly same time most days. For me, this is the strongest case for Daylight Savings Time: it shifts an hour of daylight that would otherwise occur when I'm asleep to a time of day at a time of year when I can enjoy it. For those who live closer to the equator, where the seasonal variation in length of day is less, I presume that Daylight Savings Time matters less. But for those of us in northern climates, long summer evenings are a nice counterbalance to those dismal winter days when you drive to work before sunrise and drive home from work after sunset.

However, discussions about the merits of Daylight Savings Time aren't usually focused on sweet summertime evenings. For example, the US Department of Transportation website lists three practical reasons for Daylight Savings time and the longer summer evenings: saves energy, reduces traffic deaths, and reduces crime. Austin C. Smith reviews the evidence on these claims before presenting his own research in "Spring Forward at Your Own Risk: Daylight Saving Time and Fatal Vehicle Crashes," which appears in the April 2016 issue of the American Economic Journal: Applied Economics 8:2, 65–91). (The AEJ: Applied isn't freely available on-line, but many readers will have access through library subscriptions. Full disclosure: This journal is published by the American Economic Association, which also publishes the Journal of Economic Perspectives where I work as Managing Editor.)

It's long been argued that  Daylight Savings Time provides modest but real energy savings, but Smith cites some recent evidence that leans the other way. A standard method in empirical economics in recent years is to look for "natural experiments," which are situations where Daylight Saving Time was or was not imposed in a way that offers a chance for some comparisons. Thus, Smith writes:
"Kellogg and Wolff (2008) use a natural experiment in Australia where DST was extended in some states to accommodate the Sydney Olympics. They find that while DST reduce energy demand in the evening, it increases demand in the morning with no significant net effect. Kotchen and Grant (2011) make use of a quasi-experiment in Indiana where some Southern Indiana counties did not practice DST until 2006. Their work suggests that DST could actually increase residential energy use, as increased heating and cooling use more than offset the savings from reduced lighting use."
(For those who would like specific citations for these papers:
  • Kellogg, Ryan, and Hendrik Wolff. 2008. “Daylight time and energy: Evidence from an Australian experiment.” Journal of Environmental Economics and Management 56 (3): 207–20. 
  • Kotchen, Matthew J., and Laura E. Grant. 2011. “Does daylight saving time save energy? Evidence from a natural experiment in Indiana.” Review of Economics and Statistics 93 (4): 1172–85.) 
Smith's main focus is on how Daylight Savings Time affects traffic fatalities.  Smith looks at the data on all US vehicle crashes that involve a fatality from 2002-2011. He uses two main comparisons: 1) he looks at days around the shift from Standard Time to DST each year, looking for a "discontinuity" or a jump in the rate of fatalities when the change happens; and 2) he compares dates that were covered by DST in some years but not in other years--because the exact date of the shift varies from year to year. He argues that sleep disruption in the spring transition to DST imposes significant costs:
"DST impacts practicing populations through two primary mechanisms. First, it creates a short-term disruption in sleeping patterns following the spring transition. Using the American Time Use Survey, Barnes and Wagner (2009) find that Americans sleep 40 minutes less on the night of the spring transition, but they do not sleep a significant amount more on the night of the fall transition despite the extra hour. Second, DST creates darker mornings and lighter evenings than would be observed under Standard Time. ... In both specifications I find a 5–6.5 percent increase in fatal crashes immediately following the spring transition. Conversely, I find no impact following the fall transition when no significant shock to sleep quantity occurs. ...This suggests that the spring transition into DST is responsible for over 30 deaths annually ...The total costs of DST due to sleep deprivation could be orders of magnitude larger when worker productivity is considered ..." 
In passing, Smith also mentions a recent studies about effects of Daylight Savings Time on crime. The December 2015 issue of the Review of Economics and Statistics includes "Under the Cover of Darkness: How Ambient Light Influences Criminal Activity," by Jennifer L. Doleac
and Nicholas J. Sanders (97: 5, pp. 1093-1103). They find that cases of robbery drop by 7% in the weeks right after Daylight Savings Time begins.

Smith's article is also full of "did-you-know" tidbits about Daylight Savings Time:

Did you know that about 1.5 billion people around the world practice some form of Daylight Savings Time? Of course, this means that about 5.5 billion people around the world, presumably those who live closer to the equator, don't use it.

Did you know that farmers tend to oppose Daylight Savings Time? "DST is often mistakenly believed to be an agricultural policy. In reality, farmers are generally against the practice of DST because it requires them to work for an extra hour in the morning, partially in darkness, to coordinate with the timing of markets ..."

Did you know that the specific idea for Daylight Savings Time dates back to 1895, when "the formal procedure was proposed by George Vernon Hudson, an entomologist who wanted more light in the evenings to pursue his passion of collecting insects ..."

I'm a sleep-lover, and I disruption to sleep patterns is something I feel in the center of my being. My personal experience with evening insects is pretty much limited to catching lightning bugs and slapping mosquitoes. But I'm with George Vernon Hudson in liking long summer evenings.