Tuesday, August 4, 2020

I Surpass Keynes: 33 Years Plus One

John Maynard Keynes served as Editor of the Economic Journal--the research journal of Britain's Royal Economic Society--for 33 years plus one issue. He was appointed to the position as a 28 year-old in 1911, and finished with the April 1945 issue. He did have joint or assistant editors for periods of time--Francis Edgeworth (1919-26), D .H. Macgregor ( 1926-34) and Austin Robinson ( 1934-45)--who must have played an especially important role when Keynes was off advising the government. But "for 33 years and one issue Keynes played the central role in the development of the Journal's character and reputation,"  as Donald Moggridge tells the story in "Keynes as Editor" (as chapter 7 in A Century of economics : 100 years of the Royal Economic Society and the Economic Journal, edited by John Denis Hey and Donald Winch, 1990, pp. 143-157). 

The timeline is meaningful to me because with the publication of the Summer 2020 issue of the Journal of Economic Perspectives, I have now been Managing Editor of JEP for 33 years and one issue. For the first and in all probability the last occasion in my professional life, I have surpassed Keynes.  As I crack open a cold Diet Coke from the mini-fridge in my office to celebrate, the Moggridge essay also offers an opportunity to think about how academic journals and the role of their editors has shifted over time. To the modern eye, perhaps the most surprising aspect of a prominent economics journal from the first half of the 20th century is the informality and flexibility of the editorial process, 

Most modern economics research journals have an editor (or group of editors) who send the paper to be evaluated by "referees," who in turn offer recommendations of reject, accept, or revise-and-resubmit. In theory, at least, the process is "double-blind": that is, the authors don't know who the referees are and he referees don't know who the authors are. Modern journals brag if their turnaround process for these referee comments is measured in "only" a few months. But the revisions requested are often nontrivial, and the author has other tasks (like figuring out how to teach online classes), so it may take a few months for the author to respond. At this point, the referees may get another crack at evaluating the paper, which can lead to an additional round of revisions. If and when a paper is accepted, it may then sit for additional months before it actually ends up being published in an issue. 

The editorial process at the EJ under Keynes was much quicker and simpler.  Moggidge writes: 
Ultimately, however, Keynes made the overwhelming majority of editorial decisions himself. He did not regard the job as onerous: indeed, by the 1930s it was one of those activities classed as 'non­work' and done after dinner (Kahn, 1984, 176). As in other areas of his life, he made decisions quickly. To take one example: Lionel Robbins submitted his 'Interpersonal Comparisons of Utility: A Comment' on 31 October 1938; Keynes accepted it on 3 November and the article appeared in the December issue. ...  In fact, in most cases a month was the maximum time between initial submission and final acceptance, and this was exceptional, unless the article was to be subjected to substantial revisions and the whole process then became dependent on the time available to the author. He did not keep a backlog of articles in reserve: at worst an author might see only one issue of the Journal appear between the acceptance and the appearance of his article.
Part of the reason for such quick turnarounds was that Keynes, with relatively few outside reviewers, was the judge of quality. 
As far as contributors other than himself were concerned, Keynes was generally sparing in his use of external referees. He did, of course, use them, particularly in cases where he had doubts about the submission. On several occasions, however, he sent the submission to the referee with a copy of his own draft letter of rejection -- or at the least a strong hint of his own views.
However, there are also numerous cases where Keynes provided extensive comments to authors. Moggridge cites one paper that involved 30 pages of correspondence, and many letters of five pages or more. Keynes also was willing to choose only one part of a much longer paper as deserving of publication, and would sometimes accept a paper but with suggestions that would cut the length by two-thirds. After Keynes retired from the EJ, his successors offered florid praise for the quality of his editorial feedback in the April 1945 issue, where they wrote: 
That editing has been far more than a nominal control of what was to be published. A whole generation of economists would testify to the influence which he exercised with his meticulous, but always constructive, criticism. None but the authors in the secrecy of their own hearts (and perhaps not even they) can know how much of what was ultimately printed was their own, and how much had sprung from the lively ingenuities of his mind. It was to the young and promising that he was particularly lavish with his help, and today (no longer so young) they remember that aid with gratitude.
In part, this may be the kind of fulsome praise lavished upon those as they leave a job, but it probably has some intermixture of honest feeling as well.  

Perhaps the best-known stories about Keynes as an editor have to do with his rather loose rules about publishing his own work. or publishing his comments on the work of others in same issue as the original paper, as well how he phrased some of his negative reactions. Moggridge writes:
Unlike some modern editors, Keynes himself had few inhibitions about placing his own articles in his own journal. While he was editor, his only publications in other English language professional journals, other than seven replies to critics of which only two were over a page in length, number two: his November 1914 invited contribution to the Quarterly Journal of Economics, 'The City of London and the Bank of England, August 1914' (JMK, XI, 278-98), and his 1936 Jevons centenary allocution to the Royal Statistical Society which appeared in that Society's Journal (JMK, X, 109-50). He was not even inhibited from using his position as editor to reply to articles by others in the same issue in which they appeared, going so far as to place his own comments immediately after the piece that had irked him. However, in later years he became slightly more restrained in this, informing one contributor with whom he was in dispute over some points prior to publication that: 'It is a mistake for an editor to quarrel with contributors.' As far as I can tell from the records, he submitted none of his own contributions to an external referee. Nor could he have done so in some cases, for the articles themselves were only finished at the last possible date. 
Perhaps the most famous Keynesian editorial put-down was in writing to a referee about a proposed article by Kalecki: 
I am inclined to return to the opinion that the article is pretentious, misleading, inconclusive and perhaps wrong. I would rather have cheese to a weight equal to the paper it would occupy in 5,000 copies of the Journal.
Or he once wrote to an author: 
[I]t seems to me clear that your article, in its present shape, is half-baked and not fit for publication. I have not been able to spare time to read it carefully enough to know whether there is anything in it at the bottom. But I find it a bit of a rigmarole, of which I fear the reader would make little or nothing. It is neither clear what you are driving at nor where you arrive. And behind all that lies my doubt as to whether the method you are employing is capable of helping much with this particular problem. Also do you not in many cases use symbols where words would do as well and be much clearer? Sorry to be so critical. But I felt I owed it to you to explain why it is I cannot take it for the Journal. 
Or in yet another case, he turned down an article partly for dullness, and partly because Americans should go publish in American journals: 
It strikes me as a competent academic exercise which any competent analytical economist could accomplish if he wanted to. I did not find it interesting or really relevant to anything that matters. I do not see any ground for an American econom­ist to occupy a large number of pages in the Journal with it. Why should he not publish it in America? I did not find myself making any criticisms, but felt, as I have said, that it is just an academic exercise.
Keynes also had the power to solicit articles, rather than just wait for submissions to come in, something he did throughout his editorial career. The Journal of Economic Perspectives, where I work as Managing Editor, is highly unusual among current economics journals in that we solicit the articles that we publish--but then we comment on and edit the articles extensively before publication. 

Overall, how good was Keynes as an editor? Moggridge writes: 
Contemporaries were generally satisfied. Even a critic such as Edwin Cannan could remark in a memorandum of 1 February 1934 to a committee looking for a successor to D.H. Macgregor as Joint Editor:
He may not be exactly the ideal editor, who is, I suppose, one who has no ideas of his own and a great respect for those of other people, but his most hostile critic cannot say that the Society has not prospered during his editorship.
In Keynes own estimation of his editorial performance, he apparently claimed that he "Never rejected what deserved publishing; have published much that wasn't." Moggridge also reports a comment from Keynes to Edwin Cannan on 5 January 1934: 
Of course, I print quite a number of articles which in my personal opinion are not up to much, but I have to compromise as best I can between those which I fancy myself on their merits and those which, on one ground or another, have some sort of claim to appear. I feel much clearer, however, about the de-merit of the articles I reject than I do about the merit of most of those which are included. I have always tried to find space for anything which seemed to have a claim of any substantial sort and the somewhat numerous articles which I reject would, I declare, make a shocking show on any standard, if they were to be assembled. 
As one might expect, what I do as Managing Editor of JEP is in many practical ways a quite different set of tasks from what Keynes did when he edited the EJ. After all, the EJ relied mostly on pickng and choosing among the submissions, while the JEP relies mostly on commenting and editing on solicited papers. But there are also basic differences in process. 

In particular, JEP was started in 1986 with the idea of taking advantage of this newfangled technology called a "floppy disk," where authors could actually send us a Federal Express package with the disk. Next, we would write up comments, which for me also included doing a hands-on edit of the paper for length and clarity. We would then Fed-Ex the floppy disk back to the author, who could revise further, before mailing the floppy disk back to us. We even sent floppy disks directly to the typesetter, rather than paper copies! In the long-ago days before cheap photocopying, there was often literally one copy of a given paper in circulation--with usually a carbon copy saved up by the author. That single copy then needed to be circulated to editor and reviewer, and was perhaps even marked up by hand before going back to the author for revisions. Back in 1986 when starting JEP, we definitely felt we were on the bleeding edge of technology. 

Summer 2020 Journal of Economic Perspectives Online

I am now in my 34th year as Managing Editor of the Journal of Economic Perspectives. The JEP is published by the American Economic Association, which decided about a decade ago--to my delight--that the journal would be freely available on-line, from the current issue all the way back to the first issue. You can download it various e-reader formats, too. Here, I'll start with the Table of Contents for the just-released Summer 2020 issue, which in the Taylor household is known as issue #133. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the next week or two, as well.
Symposium: Productivity Advantages of Cities

"The Economics of Urban Density," by Gilles Duranton and Diego Puga
Density boosts productivity and innovation, improves access to goods and services, reduces typical travel distances, encourages energy efficient construction and transport, and allows broader sharing of scarce urban amenities. However, density is also synonymous with crowding and makes living and moving in cities more costly. We explore the appropriate measurement of density and describe how it is both a cause and a consequence of the evolution of cities. We then discuss whether and how policy should target density and why, in practice, the tradeoff between its pros and cons is unhappily resolved by both market and political forces.
Full-Text Access | Supplementary Materials

"How Close Is Close? The Spatial Reach of Agglomeration Economies," by Stuart S. Rosenthal and William C. Strange
This paper considers the attenuation of agglomeration economies. Put another way: how close is close? The paper presents evidence of agglomeration effects operating at various levels of spatial aggregation, including the regional, metropolitan, and neighborhood scales. In fact, agglomeration effects also seem to operate below the neighborhood level, including within buildings and organizations. These effects attenuate, with nearby activity exerting the strongest effects. The attenuation of agglomeration economies has implications for urban spatial structure, the microfoundations of agglomeration economies, and commercial real estate. It also affects the ability of governments and businesses to internalize agglomeration economies.
Full-Text Access | Supplementary Materials

"Tech Clusters," by William R. Kerr and Frederic Robert-Nicoud
Tech clusters like Silicon Valley play a central role for modern innovation, business competitiveness, and economic performance. This paper reviews what constitutes a tech cluster, how they function internally, and the degree to which policy makers can purposefully foster them. We describe the growing influence of advanced technologies for businesses outside of traditional tech fields, the strains and backlash that tech clusters are experiencing, and emerging research questions for theory and empirical work.
Full-Text Access | Supplementary Materials

"Internal Mobility: The Greater Responsiveness of Foreign-Born to Economic Conditions," by Gaetano Basso and Giovanni Peri
In this article, we review the internal geographic mobility of immigrants and natives in the United States in the recent decades, with a focus on the period since 2000. We confirm a continuing secular decline in mobility already pointed out by the existing literature, and we show that it persisted in the post great recession period. We then focus on foreign-born and establish that, on average, they did not have total mobility rates higher than that of natives. However, their mobility response to local economic conditions was stronger than the response of natives in the period from 1980 to 2017. A review of recent research reveals that the higher elasticity of mobility of immigrants to economic conditions is a combination of lower sensitivity to local prices, higher propensity to move in the early years after immigration, and strong economic success of cities that were immigrant enclaves in the 1980s.
Full-Text Access | Supplementary Materials

Symposium on Place-Based Policies

"Using Place-Based Jobs Policies to Help Distressed Communities," by Timothy J. Bartik
Place-based jobs policies seek to create jobs in particular local labor markets. Such policies include business incentives provided by state and local governments, which cost almost 50 billion USD annually. The most persuasive rationale for these policies is that they can advance equity and efficiency by increasing long-term employment rates in distressed local labor markets. However, current incentives are not targeted at distressed areas. Furthermore, incentives have high costs per job created. Lower costs can be achieved by public services to business, such as manufacturing extension, customized job training, and infrastructure. Reforms to place-based jobs policies should focus on greater targeting of distressed areas and using more cost-effective policies. Such reforms could be achieved by state and local governments acting in their residents' interests or could be encouraged by federal interventions to cap incentives and provide aid to distressed areas.
Full-Text Access | Supplementary Materials

"Place-Based Policies and Spatial Disparities across European Cities," by Maximilian v. Ehrlich and Henry G. Overman
Spatial disparities in income levels and worklessness in the European Union are profound, persistent and may be widening. We describe disparities across metropolitan regions and discuss theories and empirical evidence that help us understand what causes these disparities. Increases in the productivity benefits of cities, the clustering of highly educated workers and increases in their wage premium all play a role. Europe has a long-standing tradition of using capital subsidies, enterprise zones, transport investments and other place-based policies to address these disparities. The evidence suggests these policies may have partially offset increasing disparities but are not sufficient to fully offset the economic forces at work.
Full-Text Access | Supplementary Materials

Symposium on Cities in Developing Countries

"Urbanization in the Developing World: Too Early or Too Slow?" by J. Vernon Henderson and Matthew A. Turner
We describe patterns of urbanization in the developing world and the extent to which they differ from the developed world. We consider the extent to which urbanization in the developing world can be explained by conventional models of spatial equilibrium. Despite their relative poverty, developing world cities are relatively highly productive and often provide good access to safe water, improved sanitation, schooling, and inoculations. In some parts of the world, they are home to a surprisingly small number of factory workers and a surprisingly large number of farmers. Developing world cities seem to do less well at protecting their residents from lifestyle diseases and crime, their female residents from domestic violence, and their children from illness. In thinking about these facts, we note that one strand of the literature focused on structural transformation has suggested that urbanization in the developing is occurring "too early," while another strand argues that urbanization is occurring "too slow" to be consistent with conventional models of spatial equilibrium. Despite many differences between developing and developed world cities, our new results combined with those in the literature suggest that models of spatial equilibrium can be adapted as a useful guide to understanding the urbanization process in the developing world.
Full-Text Access | Supplementary Materials

"Urban-Rural Gaps in the Developing World: Does Internal Migration Offer Opportunities?" by David Lagakos
This article provides an overview of the growing literature on urban-rural gaps in the developing world. I begin with recent evidence on the size of the gaps as measured by consumption, income, and wages, and argue that the gaps are real rather than just nominal. I then discuss the role of sorting more able workers into urban areas and review an array of recent evidence on outcomes from rural-urban migration. Overall, migrants do experience substantial gains on average, though smaller than suggested by the cross-sectional gaps. I conclude that future work should help further explore the frictions—in particular, information, financial, and in land markets—that hold back rural-urban migration and may help explain the persistence of urban-rural gaps.
Full-Text Access | Supplementary Materials


"How You Can Work to Increase the Presence and Improve the Experience of Black, Latinx, and Native American People in the Economics Profession," by Amanda Bayer, Gary A. Hoover and Ebonya Washington
Recently in economics there has been discussion of how to increase diversity in the profession and how to improve the work life of diverse peoples. We conducted surveys and interviews with Black, Latinx and Native American people. These groups have long been underrepresented in the economics profession. Participants were at various stages along the economics career trajectory, or on the trajectory no longer, and used their lived experience to reflect on what helps and hurts underrepresented minorities in economics. We heard a few consistent themes: bias, hostile climate, and the lack of information and good mentoring among them. Respondents' insights and experience point toward action steps that you can take today to increase the presence and improve the work life of underrepresented minorities in the economics profession.
Full-Text Access | Supplementary Materials

"Facts and Myths about Misperceptions," by Brendan Nyhan
Misperceptions threaten to warp mass opinion and public policy on controversial issues in politics, science, and health. What explains the prevalence and persistence of these false and unsupported beliefs, which seem to be genuinely held by many people? Though limits on cognitive resources and attention play an important role, many of the most destructive misperceptions arise in domains where individuals have weak incentives to hold accurate beliefs and strong directional motivations to endorse beliefs that are consistent with a group identity such as partisanship. These tendencies are often exploited by elites who frequently create and amplify misperceptions to influence elections and public policy. Though evidence is lacking for claims of a "post-truth" era, changes in the speed with which false information travels and the extent to which it can find receptive audiences require new approaches to counter misinformation. Reducing the propagation and influence of false claims will require further efforts to inoculate people in advance of exposure (for example, media literacy), debunk false claims that are already salient or widespread (for example, fact-checking), reduce the prevalence of low-quality information (for example, changing social media algorithms), and discourage elites from promoting false information (for example, strengthening reputational sanctions).
Full-Text Access | Supplementary Materials

"Venture Capital's Role in Financing Innovation: What We Know and How Much We Still Need to Learn," by Josh Lerner and Ramana Nanda
Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold and shape the direction of a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.
Full-Text Access | Supplementary Materials

"Recommendations for Further Reading," by Timothy Taylor
Full-Text Access | Supplementary Materials

Friday, July 31, 2020

The Pandemic Effect on World Trade: Some Early Data

The World Trade Statistical Review 2020 from the World Trade Organization is an annual report which is mainly focused on detailed data for trade patterns from the previous year. I find that it requires some mental effort to remember what the world economy looked like in 2019, but of course, trade tensions were already high. The value of global merchandise trade fell 3% in 2019--the first time it had fallen since the Great Recession years back in 2008-9--while the value of services trade rose 2.1%. However, this year's report also includes some preliminary data on how aspects of global trade have evolved since the COVID-19 pandemic hit earlier this year. For example: 

One early indicator of trade are based on data from purchasing managers and the new orders they have received for goods that will be exported. The sharp fall, and then the rebound, suggest that the level of these orders may have bottomed out in March or April, and that a recovery in actual exports may be perceptible in the June data. 
Here's a measure of the quantity of container shipping. Notice that the fall in the last few months is not (yet) as deep or severe as the decline during the Great Recession.
As one might expect, the number of commercial flights plummeted, falling by something like three-quarters in March 2020.
Tourism and travel is a major elements of international trade: for example, when a foreign traveler in the US spends money on US goods and services, it is treated in the trade statistics as an "export" of US production to a foreign consumer. The US typically runs a surplus in travel industry, with exports (blue line) well above imports (gray line), but both have dropped substantially in early 2020.  
Finally, here are a couple of figures comparing national-level data on exports in April 2020 and on imports in March 2020 to the monthly data for a year earlier. 

Those who believe that international trade is bad for the US economy should of course welcome the 2020 fall in trade as a silver lining in what is otherwise shaping up to be a dismal year for the economy. Or alternatively, they might reconsider the extent to which trade is the fundamental source of US economic problems or reducing trade is a useful solution to those problems.   

Thursday, July 30, 2020

Slavery and the History of US Economic Growth

Slavery was both a set of economic arrangements and also a raw authoritarian human rights violation. It's unsurprising that there has been long-standing controversy over the relationship: for example, did slavery in the United States boost to economic growth or hold it back? Gavin Wright revisits these issues in "Slavery and Anglo‐American capitalism revisited"  (Economic History Review, May 2020, 73:2, pp. 353-383, subscription required).  The paper was also the subject of the Tawney lecture at the Economic History Society meetings in 2019, and the one-hourlecture can be freely viewed here.

Wright frames his discussion around the "Williams thesis," based on the 1944 book Capitalism and Slavery, focused on the United Kingdom. Williams argued that while slavery played an important role in British capitalism in the 18th century--in particular, the brutalities of slave labor were central to production of sugar and thus to Britain's international trade--by early in the 19th century the British economy and exports had evolved toward manufacture of industrial products, in such a way that slave labor was no longer vital.  Wright argues that as the US economy of the 19th century evolved, slavery tended to hold back US economic growth. 

To set the stage, let's be clear that the economic activity of slavery was deeply entangled with capitalism. Wright offers an example that will resonate with those of us working in higher education:
The prominence of slave-based commerce for the Atlantic economy provides the background for the arresting connections reported by C. S. Wilder in his book Ebony and ivy, associating early American universities with slavery. The first five colleges in British America were major beneficiaries of the African slave trade and slavery. ‘Harvard became the first in a long line of North American schools to target wealthy planters as a source of enrollments and income’. The reason for what might seem an incongruous liaison is not hard to identify: ‘The American college was an extension of merchant wealth’. A wealthy merchant in colonial America was perforce engaged with the slave trade or slave-based commerce.
However, as numerous writers have pointed out over time, the coexistence of slavery with British and American capitalism of the 17th century does not prove that slavery was necessary or sufficient for an emerging capitalism. As many writers have pointed out, historical slavery across what we now call Latin America. At that time, Spain and Portugal (among others) were also active participants in the slave trade, yet their economies did not develop an industrial revolution like that of the UK. Countries all over Latin America were recipients of slaves, like the area that became the US, but those countries did not develop a US-style economy.  Clearly, drawing a straight line from slavery to capitalism of the Anglo-American variety would be wildly simplistic. 

Wright argues that slavery did seem essential to sugar plantations: "Sugar plantations required slave labour not because of any efficiency advantage associated with that organizational system, but because it was all but impossible to attract free labour to those locations and working conditions." But Wright argues that when it came to cotton (or tobacco or other crops), slavery did not have any particular advantage over free labor. Thus, US cotton plantations run by slave labor did not come into being because they had an economic advantage, but rather because slaveowners saw it as a way to benefit from owning slaves. 
The Atlantic economy of the eighteenth century was propelled by sugar, a quintessential slave crop. In contrast, cotton required no large investments of fixed capital and could be cultivated efficiently at any scale, in locations that would have been settled by free farmers in the absence of slavery. Early mainland cotton growers deployed slave labour, not because of its productivity or aptness for the new crop, but because they were already slave owners, searching for profitable alternatives to tobacco, indigo, and other declining crops. Slavery was, in effect, a ‘pre-existing condition’ for the nineteenth-century American South.
It's true that a lot of pro-slavery writers in the 1850s boasted that cotton was essential to the US economy, as a way of arguing that their own role as slave-owners was also essential. But slave-holders also argued that wage labor was exploitative and slavery represented true Christian morality and the Golden Rule. Rather than listening to the explanations of those trying to justify evil, it's more useful to look at what actually happened in history. If it was true that slave-produced cotton was essential to US economic growth,, then end of slavery should have wiped out US economic growth. But it didn't. Wright points to some research literature looking back at the US economy in the 1830s:  "Cotton production accounted for about 5 per cent of GDP at that time. Cotton dominated US exports after 1820, but exports never exceeded 7 per cent of GDP during the antebellum period. The chief sources of US growth were domestic. ...  [The] cotton staple growth theory has been overwhelmingly rejected by economic historians as an explanation for US growth in the antebellum era."

Similarly, if it was true that slave plantations were the  most efficient way of growing cotton, then the end of slavery should have caused the price of cotton to rise on world markets. But it didn't. 
The best evidence that slavery was not essential for cotton supply is what happened after slavery’s demise. The wartime and postwar years of ‘cotton famine’ were times of great hardship for Lancashire, only partially mitigated by high-cost imports from India, Egypt, and Brazil. After the war, however, merchants and railroads flooded into the south-east, enticing previously isolated farm areas into the cotton economy. Production in plantation areas gradually recovered, but the biggest source of new cotton came from white farmers in the Piedmont. When the dust settled in the 1880s, India, Egypt, and slave-using Brazil had retreated from world markets, and the price of cotton in Lancashire was back to its antebellum level ... 
Again, slave labor on US cotton plantations was for the benefit of the slaveholders, not the US economy as a whole. Indeed, as the 19th century evolved, the US South consistently underperformed as a cotton supplier. Wright points out three reasons. 

First, "[t]he region closed the African slave trade in 1807 and failed to recruit free labour,
making labour supply inelastic." Why were slaveowners against having more slaves? As Wright points out: "After voting for secession in 1861 by 84 to 14, the Mississippi convention voted down a re-opening resolution by 66 to 13. The reason for this ostensible contradiction is not difficult to identify: to
re-open the African trade was to threaten the wealth of thousands of slaveholders across the South." In short, bringing in more slaves would have reduce the price of existing slaves--so existing slaveowners were against it. In addition, immigrant to the US from, say, 1820 to 1880 overwhelmingly went to free states. Slave states in the southwest "displayed net white outmigration, even during cotton booms, at times when one might have expected a rush of immigration. One result was low population density and a level of cotton production well below potential."

Second, "[s]laveholders neglected infrastructure, so that large sections of the antebellum South were bypassed by the slave economy and left on the margins of commercial agriculture." The middle of the 19th century was a time when the US had a vast expansion of turnpikes, railroads, canals, and other infrastructure often built by state-charted corporations. However, almost all of this contruction occurred in the northern states. Not only were the southern states uninterested, they actively blocked national-level efforts along these lines: "Over time, however, the slave South increasingly assumed the role of obstructer to a national pro-growth agenda. ,,, [S]outhern presidents vetoed seven Rivers & Harbors bills between 1838 and 1860, frustrating the ambitions of entrepreneurs in the Great Lakes states."

Third, "the fixed-cost character of slavery meant that even large plantations aimed at self-sufficiency in foodstuffs, limiting the overall degree of market specialization." One main advantage of slavery in cotton production was that it guaranteed having sufficient labor available at the two key times of the year for cotton: planting and harvesting. But during the rest of the year, most cotton plantations grew other crops and raised livestock

The shortcomings of the South as a cotton producer during this time were clear to some contemporary observers. Wright says: "Particularly notable are the views of Thomas Ellison, long-time chronicler and statistician of cotton markets, who observed in 1858: `That the Southern regions of the United States are capable of producing a much larger quantity of Cotton than has yet been raised is very evident; in fact, their resources are, practically speaking, almost without limit’. What was it that restrained this
potential supply? Ellison had no doubt that the culprit was slavery ..." 

In short, the slave plantations of the American South were a success for the slaveowners, but not for the US economy. From a broader social perspective, slavery was a policy that scared off new immigrants, ignored infrastructure, and blocked the education and incentives of much of the workforce. These policies are not conducive to growth. As Wright puts it: ""Slavery was a source of regional impoverishment in nineteenth-century America, not a major contributor to national growth."

Wednesday, July 29, 2020

A Gentle Case for Paying Kidney Donors

Simon Haeder makes a gentle case, nudging the undecided to consider the possible of paying kidney donors, in "Thinking the Unthinkable: Buying and Selling Human Organs" (Milken Institute Review, Third Quarter 2020, pp. 44-52).
Today, 15 percent of Americans suffer from chronic kidney disease. Of these, roughly 800,000 have progressed to end-stage renal disease, where kidney function has been reduced to 10 to 15 percent of normal capacity. Most of them – half a million or so – require regular dialysis, and eventually a transplant, to survive.

Dialysis sustains life, yet it is far from a perfect substitute for normal kidney function. It is a time-consuming process that often leaves patients fatigued, with increased risks of infection and sepsis, and subject to a number of other ailments. What’s more, dialysis is very expensive, with an average annual cost of $90,000 that is largely underwritten by government. In 2018 alone, Medicare spent $114 billion on chronic kidney disease patients, with the end-stage renal disease population, which makes up a meager 1 percent of the total Medicare population, accounting for more than $35 billion. And this figure does not include spending by private insurers or patients’ out-of-pocket payments.

Kidney transplantation is superior to dialysis in every way. It not only increases the quality of life for patients, but also substantially decreases long-term costs of care for patients with ESRD [end-stage renal disease]. All told, a kidney transplant is worth on the order of a half-million dollars to kidney disease sufferers and those who share the cost of dialysis. Transplants are also head and shoulders above dialysis in terms of life expectancy. While the five-year survival rate for end-stage renal disease is 35 percent, it increases to 97 percent for those receiving transplants.

One unsurprising result of the explosion in end-stage renal disease is that kidney procurement has consistently failed to provide enough organs for transplants. The waiting list for kidneys has ranged from 76,000 to 87,000 over the past decade, as more than 20,000 individuals are added to the rolls each year. And with demand increasing at around 10 percent annually, a lot of those in need are just out of luck. On average, 13 people die each day waiting for kidneys (and another seven die waiting for other organs). It is highly unlikely that more effective appeals to the kindness of others will solve the shortage long term. It certainly hasn’t so far.
The arguments for and against paying kidney donors have become fairly well known over time. Haeder runs through them clear, and there's no need to belabor them here. But for example: 

Yes, it would be nice if there was a surge in voluntary donations. But it hasn't happened, in the US or anywhere. So people keep dying for lack of a kidney transplant. 

Yes, there are hard questions about the incentives involved with paying for kidney donations, but the hard questions cut in both directions. Haeder writes: 
The very idea of putting prices on body parts infuriates many by besmirching the ideal of altruistic donations. Of course, the altruism in the current transplantation process stops with the donor, the recipient and their families – everyone else is getting paid. Moreover, proponents rightfully point out that we already allow compensation to individuals for donations of blood plasma and for providing surrogate motherhood services, so the expansion to organs would be a change in degree only.
There are concerns that paying to donate a kidney would exploit the poor. But it does require a bit of fancy philosophical footwork to argue that you must deny someone an option to be paid a large sum of money so as to avoid "exploiting" them. Moreover, there are many aspects of society, like paying to take jobs that have greater risk of injury or death,  that "exploit" the poor in the same sense. Haeder notes: 
We have long been perfectly willing to exploit the poor by paying them to enroll in potentially dangerous prescription drug trials – and, most importantly, by encouraging them to put their lives on the line by joining the military.
Moreover, there are incentives for large and profitable private-sector companies that provide dialysis treatments to lobby against paying kidney donors--because a rise in kidney transplants would cut into their profits. If one chooses to be uncharitable in the motives we impute to the other side of this debate, one could point out that those who are against paying kidney donors are on the side of big for-profit dialysis companies and against making direct payments to individual kidney donors who may happen to be poor. 

For previous posts with relevance to the intersection of economics, incentives, and paying for kidney transplants, or paying for blood, plasma, bone marrow, and breast milk, see: 

Tuesday, July 28, 2020

Federal Reserve Assets Explode in Size (Again)

The Federal Reserve is reinventing itself in plain sight, again. Here's a figure from the Fed website, "Recent Balance Sheet Trends."  From the beginning of March through July 20, total assets held by the Fed rose $2.3 trillion, from $3.9 trillion to $6.2 trillion, as shown by the top blue line. (The vertical scale on the figure shows millions of millions--that is, trillions.)

The description of the pattern at the Fed website sounds like this: 
The size and composition of assets held by the Federal Reserve has evolved noticeably over the past decade. At the onset of the financial crisis [in 2008], the level of securities held outright declined as the Federal Reserve sold Treasury securities to accommodate the increase in credit extended through liquidity facilities. Though the various liquidity facilities wound down significantly over the course of 2009, the level of securities held outright expanded significantly between 2009 and late 2014 as the FOMC conducted a series of large-scale asset purchase programs to support the U.S. economy. Then, securities held outright declined as a result of the FOMC's balance sheet normalization program that took place between October 2017 and August 2019.
The orange line shows that most of the increase is due to increased holdings by the Federal Reserve of "Securities Held Outright." A more detailed breakdown of the Fed balance sheet as of July 23 shows that in the last year (and mostly in the last few months), Fed holdings of Treasury securities have risen $2.1 trillion, while holdings of mortgage-backed securities have risen more than $400 billion. By comparison, Fed holdings of corporate bonds and short-term commercial paper are relatively small.

The bump at the lower right-hand side of the figures shows "liquidity facilities," which are ways in which in the Fed makes short-term loans to key players in financial markets so that during a time of severe financial and economic stress, the markets don't lock up for lack of short-term funding. These loans were as high as $500 billion in April and May, but are now down to $150 billion and falling. 

In short, when people wonder about the source of the money for the enormous US budget deficits in recent months during the COVID-19 pandemic, one answer is that the US savings has nearly quadrupled in the last few months, as opportunities to spend contracted and as people worried about the size of their personal nest eggs. In one way or another (say, via a money market fund or bank account),  a chunk of this money was flowing into government borrowing. The other main part of the answer is that the Federal Reserve is buying federal debt, and in that way is financing the US government support of the economy.
At the worst of the Great Recession, in October and November 2008, the Fed increased the assets it was holding by about $1.2 trillion.  For comparison, during the three months from March to May 2020, the Fed increased the assets it was holding by $3 trillion--more than double what it did in the heart of the Great Recession.  

The Fed took one large step to transforming itself back in the Great Recession of 2007-2009, when it shifted to a sustained policy of long-term asset purchases, often known as "quantitative easing." In 2014, the Fed decided to slowly taper off from that policy, and so Fed assets decline modestly through late 2019.  The Fed is now transforming itself again.   

 The COVID-19 recession is an extraordinary economic shock, well beyond what even a prudent household or business would have planned for. It's difficult and a little unseemly to criticize an emergency response, and I won't do so. But even when emergency responses are justified, that doesn't make the costs go away. And by definition, an emergency response is not intended to be sustained for long periods of time.