J. Bradford DeLong's Blog, page 110

Sylvia Nasar (August 16, 1992): THE NATION: The Rich Get ...

Sylvia Nasar (August 16, 1992): THE NATION: The Rich Get Richer, But Never the Same Way Twice https://www.nytimes.com/1992/08/16/weekinreview/the-nation-the-rich-get-richer-but-never-the-same-way-twice.html?searchResultPosition=274: "IN the late 1970's, during the Carter Presidency, the super-rich commanded a smaller slice of America's wealth than at any time since the 1830's, when Alexis de Tocqueville was struck by 'the general equality of condition among the people' in the fledgling democracy. By the end of the 1980's, soon after Ronald Reagan left the White House, wealth in this country had become more concentrated than at any time since the Roaring Twenties. The share of net worth���assets minus debts���held by the top 1 percent of households jumped from below 20 percent in 1979 to more than 36 percent in 1989, according to a new historical data series compiled by the economic historians Claudia Goldin and Bradford De Long at Harvard University and the economist Edward Wolff at New York University.... If the pattern suggested by the data is accurate, the wealthy's share of the total wealth expanded as much during the Reagan boom as it did in the 100 years���roughly 1830 to 1929���in which America transformed itself from an egalitarian land of small farmers into the world's reigning industrial power...

...Each time the forces that led to greater or less concentration were different and at no time did politicians excercise anything like perfect control, notwithstanding redistributionist impulses on the part of the Democrats and Republican eagerness to disclaim all responsibility for growing inequality. The end of Jeffersonian democracy came slowly.... Industrialization was initially a slow process���flour mills, cloth mills, iron smelters���that served local markets and created local fortunes. The age of moguls, which began in the late 19th century and culminated in 1929 in a frenzy of euphoria about capitalism's future, saw not just the creation of corporations, huge industries like oil, steel and meat-packing, and the birth of the mass market, but the emergence of a stock exchange that enabled the owners of capital to cash out. The growth of wages, meanwhile, was held down by a tidal wave of immigration.

In some ways, the 1980's resembled the Gilded Age and the era of robber barons. The wealthiest 1 percent reaped more than half of the 2.5 trillion rise in total net worth in the period, according to Professor Wolff, in part by building great empires in media, computers and financial services. The stock and bond markets boomed. But history had not, in fact, repeated itself. Government had played a much bigger role in enriching the wealthy. The supply side tax cuts slashed the highest tax bracket from 70 percent to 30 percent, the high interest rates that accompanied the budget deficit and the Federal Reserve's determination to restore the value of money all swelled the value of capital. The biggest difference, it turns out, had more to do with what was happening at the bottom than at the top. While the pay of corporate presidents soared to 160 times that of the average worker, union membership sank, and pay and productivity, which had advanced handily in the early 20th century, stagnated.... 'John D. Rockefeller was a nasty bastard, but he built the oil industry', said Professor deLong. 'It's the combination of rapidly rising wealth for the Forbes 400 and slow productivity growth for the average American that's worrisome'.

In the 1930's, 1940's and during the balmy postwar years, wealth also got dispersed in very different ways. The great leveling started with the 1929 stock market crash and continued, with pauses, well into the 1970's. Black Monday, bank panics and, most of all, the Great Depression destroyed fortunes. The New Deal took from the monied and gave to the poor and middle class. Washington collected more income and inheritance taxes. More important, the New Deal saved the homes, farms and businesses of millions of ordinary Americans. Less well known is that World War II squeezed wealth into the hands of the working classes. With millions of men in uniform, wartime labor shortages pushed up wages while price controls held down profits. What is more, the National War Labor Board���heeding F.D.R.'s directive to raise substandard wages -- tended to approve raises for poorer workers while turning down raises for the better paid. The rich, meantime, had nowhere to invest except in war bonds whose value evaporated when the country inflated its way out of its huge wartime debt. It was in the mid-1970s, after Vietnam, the oil crisis and a bad recession shattered business confidence, that the wealthy's share hit a low point���in no small part because of a 1973-1975 stock market collapse that was worse than 1929-1933 when the inflation of the 1970's and the deflation of the 1930's are taken into account. "Prices doubled, but so did wages and home values," said Professor de Long, "but holders of financial assets got hammered." In between, the 1950's and 1960's was a golden age. ...

Looking ahead, it's not clear whether there are forces now at work that would repeat the American past and spread wealth and income more evenly again. A pickup in productivity growth could boost the wages of lower paid workers and let more join pension plans. On the other hand, the technological revolution could easily keep holding down the pay of the young and less skilled. But neither the moguls nor the multitudes are acting as if they expect much change. The stock market, a barometer of the hopes of the well-heeled, continues to dance near all-time highs.... Consumer confidence, which measures the expectations of wage earners, remains unusually depressed....

#noted #2019-10-07

Sylvia Nasar (July 20, 1992): The Rich Get Richer, but th...

Sylvia Nasar (July 20, 1992): The Rich Get Richer, but the Question Is by How Much https://www.nytimes.com/1992/07/20/business/the-rich-get-richer-but-the-question-is-by-how-much.html?searchResultPosition=239: "Trying to challenge the widespread impression that the rich got a wildly disproportionate share of the gains from the Reagan economic boom, the Treasury has been quietly circulating a 'primer' on income distribution to journalists and economists. The 24-page document, prepared by R. Glenn Hubbard, Deputy Assistant Secretary for Tax Analysis, asserts that the richest 1 percent of American taxpayers reaped only 11.3 percent of the income gains in the 1980's.... But experts in the field who reviewed the Treasury's calculation were highly critical, saying that the Treasury economist had fallen into a well-known statistical trap that all but guaranteed that the gains for the top group of income earners would appear modest. 'It's not a meaningful calculation', said Lawrence F. Katz, an economist at Harvard University.... Its calculation contrasts sharply with one by an economist at the Massachusetts Institute of Technology, Paul R. Krugman, that the richest 1 percent of American families reaped 70 percent of the growth in average family incomes from 1977 to 1988. Professor Krugman's data are now enshrined in Gov. Bill Clinton's economic program as the Democratic Presidential candidate and dismissed by the Treasury as a 'meaningless statistical artifact'...

...'It makes a big difference how you define the rich, whether you define them at the beginning or end of the period', said Isabel V. Sawhill, an economist at the Urban Institute, a research organization.... Sawhill calculated how the income of the top 20 percent of income earners changed between 1976 and 1986. 'If you define the top quintile as people who had high incomes in 1977 and follow them for the next decade, you find their incomes declined by 11 percent', she said. 'But if you define them as people who had high incomes in 1986, and compare them to where they were in 1977, you find their incomes went up by 65 percent'..... Those at the top in one year have only one place to go in subsequent years if they move out of the group: down.... 'I would ask Treasury to redo their calculation on the top 1 percent defined by 1988 income', said Joel B. Slemrod, an economist at the University of Michigan. 'I'm pretty sure the numbers would change quite a bit'. A reporter had, in fact, asked Mr. Hubbard several times to make such a calculation, but he refused on the ground that the results would be uninteresting....

'The gains of the 1980's were incredibly unevenly distributed', said Mark Condon, a researcher at the Urban Institute who was co-author with Ms. Sawhill of a recent study of income mobility. 'That's what the Treasury is trying to refute," he added, "and that's what the Krugman calculation gets across pretty well.'

#noted #2019-10-07

Sylvia Nasar (June 17, 1992): One Study's Riches, Another...

Sylvia Nasar (June 17, 1992): One Study's Riches, Another's Rags https://www.nytimes.com/1992/06/17/business/one-study-s-riches-another-s-rags.html?searchResultPosition=233: "Two teams of researchers asking the same politically sensitive question���both tracking individual households over the decade���have reached quite different conclusions. A Treasury study released earlier this month said it was relatively routine for someone who started out poor to end up affluent. But a study by the middle-of-the-road Urban Institute concludes that such Horatio Alger stories were, in fact, rare..... Both also confirm one of the best-known facts of modern economics: for rich and poor alike, earnings rise from the time individuals enter the work force through middle age���roughly doubling, on average���and fall after retirement.... Leading labor and tax economists said that the Treasury study did not shed much light on the matter of how much social mobility there is in America.... 'This isn't your classic income mobility', said Kevin Murphy, a labor economist at the University of Chicago. 'This is the guy who works in the college bookstore and has a real job by his early 30's'. The conflicting studies have appeared in the midst of a bareknuckled election-year debate over who won���and who lost���from Reaganomics. In a period of slow economic growth, income distribution has elbowed its way into the political arena...

..."While the poor can 'make it' in America and the wealthy can 'fall from grace,' these events are neither very common nor more likely to occur today than in the 1970's," wrote Ms. Sawhill and another Urban Institute researcher, Mark Condon. The Urban Institute study found that while rich and poor alike earn more as they go from youth to middle age, the odds of moving from the bottom 20 percent in income distribution to the top 40 percent are a fraction of the odds reported by the Treasury: 1 in 10, compared with 4 in 10.

As a group, the Urban Institute study found, the poor in 1988 were worse off than the poor in 1979. And the study found that averaged over 10 years, people's incomes became markedly more unequal in the late 1970's and 1980's. The income of the top fifth rose to five times that of the bottom fifth, compared with four times as much in the late 1960's and early 1970's....

'Doing it this way moves the results pretty strongly', said Professor Murphy at the University of Chicago. 'The way to do it, using this data, is to track everybody and compare them to others in their own age groups. Take 30-year-olds and see where they stand relative to each other when they are 40 years old'. He and other economists said that the type of income mobility the Treasury found was not the social mobility that most Americans have in mind when they think about rich and poor....

Ms. Sawhill said: "We need to get beyond the politics of this. The issue is what's really happening to the American people"...

#noted #2019-10-07

Sylvia Nasar (May 18, 1992): Rich and Poor Likely to Rema...

Sylvia Nasar (May 18, 1992): Rich and Poor Likely to Remain So https://www.nytimes.com/1992/05/18/business/rich-and-poor-likely-to-remain-so.html?searchResultPosition=305: "In the continuing debate over the distribution of wealth and income���the richest 1 percent of American families control more wealth than the bottom 90 percent���one school of thought says findings like this, however extreme, do not present a true picture.... Even if the raw numbers are accurate, these economists say, the portrait fails to capture the amazing fluidity and flux of American society, the hardscrabble beginnings of many a millionaire, from Bobby Bonilla to Ross Perot. And the richest person in America these days is not a Rockefeller or a du Pont but William Gates, founder of the Microsoft Corporation, the leading software company. But... rags-to-riches remains the economic exception, not the rule.... If anything, economists say, the climb out of poverty has become harder in the last decade or two...

...'Someone whose parents are poor has a lower expected income, on average, than someone whose parents are rich', said Gary Solon, a University of Michigan economist. 'It's not that you inherit the same position, but there's a substantial correlation'. A child whose father is in the bottom 5 percent of earners, for instance, has only 1 chance in 20 of making it into the top 20 percent of families, according to a coming article in The American Economic Review by Professor Solon.... 'All you have to do is look at L.A. to decide that there are lots of people who think their permanent prospects are pretty crummy', said David M. Cutler, an economist at Harvard University.... Apart from changes in income and wealth that reflect the normal lifetime pattern... most Americans do not move a great many rungs up or down....

Much of this short-term turnover may be illusory... a large fraction of year-to-year changes... reflects reporting error, timing of income like capital gains, episodes of illness or unemployment and other transitory effects... In the 1980's, it became easier for those in the middle class to become rich... harder for the rich to fall... harder to climb out of poverty...

#noted #2019-10-07

Giovanni Federico and Antonio Tena-Junguito: The World Tr...

Giovanni Federico and Antonio Tena-Junguito: The World Trade Historical Database https://voxeu.org/article/world-trade-historical-database: "Global trade data for periods prior to WWII are notoriously incomplete and unreliable. This column describes a new dataset of historical world trade that addresses many of these flaws. The��World Trade Historical Database comprises imports and exports for polities beginning in 1800, and also includes international prices for 190 products, freight rates, and exchange rates, where available. Though focused on aggregate trade, the data include information on the composition of trade from numerous sources...

#noted #2019-10-06

Richard Grabowski (2002): East Asia, Land Reform and Econ...

Richard Grabowski (2002): East Asia, Land Reform and Economic Development https://delong.typepad.com/land-reform.pdf: "In trying to explain the economic success of East Asia (Japan, South Korea, and Taiwan) reference is often made to the fact that all three of these countries had extensive land reforms. These land reforms are thought to haue significantly contributed to the rapid growth of the region by eliminating the landlord class and providing the basis for an equitable distribution of the benefits of growth...

...However, it is often argued that these land reforms were an exogenous event or experience in that it required an environment of upheaval in which an external force, the United States, played a key role in making the reform possible. This paper argues that land reform in all three countries was the result of the unfolding of similar internal historical and economic forces over an extended period of time. Thus it makes more sense to think of land reform as an endogenous event determined by internal factors...

Rather than following static comparative advantage, the state sought to foster the development of new export industries, thus creating new comparative advantages. This process involved subsidizing particular industries, and where the continued provision of these subsidies depended on performance, usually measured by exports (Wade 1990)...
Effective government is important for both schools of thought...
East Asia... became front line states in the Cold War... received significant amounts of aid from the United States... underwent significant land reforms... made possible by the support of the U.S. government...
It is hard for an economist using an economic perspective to understand why landlords or the landed elite would have an innate tendency to be an obstacle to long-run economic development...
Taiwan, Korea and Japan experienced similar rural development processes involving relatively rapid agricultural growth and commercialization.... Peasant unrest grew before World War II. However, this unrest was not of a radical nature... tenancy disputes.... Much of this conflict resulted in compromise.... By the late 1930s, the landlord-tenant system in all three regions had been altered in favor of farmer-tenants. The relative weakness of the landlord group provides the historical background for the land reforms that occurred in the postwar era...

#noted #2019-10-06

James D. Muhly: Sources of Tin and the Beginnings of Bron...

James D. Muhly: Sources of Tin and the Beginnings of Bronze Metallurgy https://ancient-world-project.nes.lsa.umich.edu/tltc/wp-content/uploads/2016/05/METAL_METALLURGY_Muhly-1985-AJA_Sources-of-Tin-and-the-Beginning-of-the-Bronze-Age.pdf: "The tin resources of the Mediterranean world... whether or not they were of any importance in antiquity.... In the mid-fifth century B.C. Herodotus...

...Of the extreme tracts of Europe towards the west, I cannot speak with any certainty; for I do not allow that there is any river to which the barbarians give the name of Eridanus, emptying itself into the northern sea, whence (as the tale goes) amber is procured; nor do I know of any islands called the Tin Islands, whence the tin comes which we use.

For in the first place the name Eridanus is manifestly not a barbarian word at all, but a Greek name, invented by some poet or other; and secondly, though I have taken great pains, I have never been able to get an eye-witness that there is any sea on the further side of Europe. Nevertheless, tin and amber do certainly come to us from the ends of the earth...

This passage... shows that Herodotus, who seems to have devoted some effort... was unable to learn anything regarding the sources of tin being consumed in Periclean Athens. The best he could come up with were vague stories regarding the mysterious Tin Islands (Kassiterides), about whose very existence Herodotus obviously had his doubts. The only certainty in the matter was the relationship between tin and amber, both said to come from the "ends of the earth"....

We are dealing here with a period of history-the fifth century B.C.-about which we know a great deal, far more than ever will be known about the Bronze Age world. Periclean Athens was importing large amounts of tin. The inscriptions relating to the casting of the Athena Promachos list single purchases of tin as large as 150 talents or almost 4,000 kg. We also learn from these texts that a talent of tin sold for 233 drachmas while the price of copper was just over 35 drachmas per talent....

We have, then, considerable evidence regarding trade in, price and use of tin in Classical Athens, but little evidence regarding the actual source of that tin. If Herodotus failed to get beyond the tall stories told by sailors, stories told perhaps more to confuse and to obfuscate than to instruct, we have little chance of doing better for the Bronze Age world...

#noted #2019-10-06

Gary Forsythe: A Critical History of Early Rome: "Perhaps...

Gary Forsythe: A Critical History of Early Rome: "Perhaps the single most intriguing site of the late and final Bronze Age in Italy (c. thirteenth to eleventh centuries B.C.) is that of Frattesina located in the eastern part of the Po Valley. By prehistoric standards it was quite large, 700 by 190 yards, an area of 27.5 acres, and its remains show that it was an industrial community that refined metal, fashioned deer antler into tools, and produced colored glass beads, making it the earliest known site in Italy to manufacture glass. Ivory, amber, and fragments of ostrich eggs have been uncovered there as well.... The progressive and innovative character of Bronze-Age northern Italy is further demonstrated by the fact that during the thirteenth century B.C. the spring safety pin was invented, probably in the area between Lake Garda and the Austrian Alps. Termed a 'fibula' by modern archaeologists from its Latin name, the pin was henceforth used throughout antiquity to fasten at the shoulder or chest a garment wrapped about the body. Fibulae are therefore often found in graves, and the changing decorative style of their catch-plates provides archaeologists with valuable information for dating and concerning possible artistic influence...

#noted #2019-10-06

Jeremy Bulow: How Stress Tests Fail https://voxeu.org/art...

Jeremy Bulow: How Stress Tests Fail https://voxeu.org/article/how-stress-tests-fail: "Bank stress tests in the US were an important tool for bailing out banks in the Great Recession. As this column points out, however, because the tests use regulatory rather than market measures of asset values and risk they have almost nothing to do with whether a bank will be economically solvent under test conditions. This column argues that the thousands of pages of post-crisis bank regulation have largely ignored perhaps the two most needed reforms: measuring asset values and risks in an economically realistic way. Reforming the stress tests is necessary for clearly and credibly placing responsibility for future banking losses in the private sector and for improving incentives for both managing old risks and for investing in new ones...

#noted 2019-10-06

Carl O'Donnell (2014): What Does It Take To Make The Forb...

Carl O'Donnell (2014): What Does It Take To Make The Forbes 400?: Increasingly More And More: "Every year, the Forbes 400 sets the bar higher. Just making it to the very bottom of this year���s list requires 1.55 billion���250 million more than in 2013. And that���s only a single year. To truly appreciate how quickly the hurdle is rising, Forbes took a look at how much the minimum cutoff increased every year since 1982, when the first Rich List was created. In so doing, Forbes also revisited the millionaires and billionaires who have had the honor of ranking last on the Forbes 400. The poorest person on the list in 1982 was Armas Clifford 'Mike' Markkula Jr., who was then the CEO of a hot tech startup called Apple Computer. He joined the firm in 1977, when Steve Jobs and Steve Wozniak approached him for funding. Markkula���s net worth in 1982: $91 million. Not bad, but only about one 17th of what he would need to ascend to the Forbes 400 today. Granted, the dollar had more purchasing power in 1982. So how much would 91 million be worth in today���s dollars? About 225 million, still less than a sixth of today���s cutoff....

#noted #2019-10-06