The modern world

The ongoing debate about Tyler Cowen’s stagnation thesis has gotten me thinking about what’s really at stake.  Here’s a few highly subjective thoughts:

Part 1  The Great Inflation:

I don’t mean price inflation, I mean inflation in the sense used by physicists explaining the early expansion of the universe.  In my admittedly subjective take on ordinary human life since 1500 BC, I see two periods (before and after), separated by one explosion of change; 1900-1960s.  In 1900 my grandmother (then 10 years old) lived in a little town in Wisconsin, without running water and indoor plumbing, without any sort of “health care” capable of doing more good than harm, without lights, phones, TVs, radio, cars, home appliances, central heating, etc.  Isn’t that pretty much how the Romans lived in 200 AD?  Yes, the outside world had trains and telegraphs and elevators by 1900, but I’m talking about daily life for the average person.  A Roman visiting her would have been surprised by some gadgets around the house, but not awestruck.  Go back another 1700 years to 1500 BC, and the Minoans had running water in their houses.  They would have been disgusted at how my grandmother’s generation had regressed in plumbing technology.

If at age 10 I could have been magically transported from the 1960s to 2011, I would have been very impressed by the internet.  But I might have also asked “Dude, where’s my flying car?”  I might have been surprised that people still flew in Boeing 7X7s that go about 575 miles an hour.  Where are those super-sonic jets?  I would have noticed changes, but nothing (except maybe the internet) would have blown me away.

In contrast a Roman or Minoan citizen would have been awestruck by the 1960s.  An average working man can blast down the highway at 80 mph?  You can watch TV shows?  Even electric lights (which modern people wrongly take for granted) would have astounded the ancients.  People have no idea what life was like when one’s entire world was quite dark and cold for 16 hours of the day.  Travelling alone at nighttime was frightening.  And here’s my claim, I think my grandmother would have been almost equally stupefied.  I wish I’d asked her, she died the month they landed on the moon.

Even in health care the big explosion was 1900 to the 1960s, when life expectancy rose from 47 (only modestly above Roman levels), to about 70 (only modestly below current levels.)  If you want to bring in the “big picture” and talk about how trains and the telegraph would have amazed the Romans, well then how about jumbo jets, rockets to the moon, nuclear power plants and nuclear bombs?  Ancient scientists might have been able to wrap their heads around Newtonian physics.  But general relativity and quantum mechanics?

Part 2:  I’ll take 1973

I’ve noticed that younger commenters like Morgan look back at the 1960s like I look back at the Dark Ages.  No high-speed internet connections!?!?!?  Here’s a challenge offered by Bryan Caplan, who’s also much younger than me:

Even stranger: I learned this thought experiment over a decade ago from none other than Tyler Cowen himself!  I think he called it the “deflationary century.”  His point: Most of us would rather have $1000 nominal dollars to spend on year 2000 goods than $1000 nominal dollars to spend on year 1900 goods. . . .

Of course, Tyler might say that his thought experiment works for 1900 versus 2000, but not 1973 versus 2010.  But none too convincingly.

None too convincingly?  I’m totally convinced.  I’d take 2011 over 1900 at the same nominal income, but I’d take 1973 over today in a heartbeat.  I’d cash out my high six figure Newton home and see what was available in the Hollywood hills for that price in 1973.  I’d take my low six figure income and live the life of a wealthy person in 1973.  Sure, I’d miss the internet.  But let’s face it, the internet is a sort of drug.  Unless you are Tyler Cowen, it crowds out more authentic pleasures like books, films, music, and jet travel to exotic spots (without T&A frisking at airports), all easily done in 1973 on the sort of nominal income that now makes me merely another faceless upper-middle class professional in today’s Boston metro area.

Yes, life expectancy was lower in 1973, but some of that was smoking, and I don’t smoke.  So where do I sign up for the time machine?

David Henderson points out that part of Tyler’s problem was that he titled his book “The Great Stagnation” which implies no progress.  In my previous post I agreed with Tyler’s view that progress slowed sharply after 1973.  But I see this as a return to normalcy.  Progress is still occurring, and compared to most periods of human history it is occurring at a rapid rate.  The real outlier was my grandma’s life.  That took us from an ordinary daily life not all that different from that of the ancient Romans, to a world (in the 1960s) not all that different from 2011.  Or at least that’s the highly subjective take of a grouchy, reactionary 55 year old.  But I suppose everyone thinks their youth was some sort of Golden Age.

Back in the 1960s people talked about “modern life” and “the modern world” as opposed to the old ways.  For me, the 1960s will always be the modern world.  And I don’t think I am the only one.  New York’s MOMA is full of art from the 1950s and the 1960s.

PS.  I don’t want any annoying historians lecturing me that America in 1900 was richer than Rome circa 200.  I know that.  Brad DeLong has a new post citing a study that says ancient Romans were at roughly the economic level of Vienna and Florence in 1875.  I don’t think they were even that high.  Sometimes I exaggerate for effect.

Putting history back into economic history

One of the many things that made me become disenchanted with economics was the way that economists relied more and more on purely technical approaches to complex real world problems.  It’s like studying biology with a physicist’s theoretical toolkit.  Yes, physics underlies biological processes, but there is so much more.

I was particularly disturbed when I saw economists just grab a data set from the Great Depression, and think that they could study the Depression without actually knowing what was going on.  “It’s all in the data.”  Actually it isn’t.  You have to know which data are appropriate, which are accurate, and which variables are exogenous.  Numerical data alone can never answer those questions.

I thought of these issues recently when I came across the following post by Bill Mitchell.  The entire last part of the post is devoted to demolishing a paper I did back in 1995 with Steve Silver.  Unfortunately the critique falls flat, because Professor Mitchell doesn’t seem to know the historical background of the data he uses.

There are three major problems with his analysis.  He uses annual data where monthly data is needed, he uses employment levels where output is needed, and when he does use monthly output data, he uses a measure of industrial production that is so flawed as to be worthless.

The easiest way to explain this issue is by focusing on the largest of FDR’s 5 wage shocks, the President’s re-employment agreement of late July 1933.  Here’s what happened in 1933:

Output was severely depressed in early 1933, as a gold panic occurred during the Presidential interregnum.  Between March and July real wages plummeted by about 14% as the WPI index rose by a roughly equal amount.  (This was caused by dollar depreciation against gold.)    Nominal wages were flat.  Industrial production soared by 57%, regaining half the ground lost in the previous 3 1/2 years.  We should have been out of the Depression by late 1934 or 1935.  Yet FDR couldn’t leave well enough alone.  He ordered industries to cartelize and firms were ordered (actually strongly pressured) to raise wages by 20% and cut hours by 20%.  Output immediately started to fall rapidly and didn’t reach July 1933 levels again for another two years.  This is the big wage shock that Mitchell claims helped the recovery.

Then in late 1933 the gold-buying program gradually started to push prices higher, and real wages fell a bit allowing the recovery to resume.  The same mistake was made in mid-1934, with the same results.  In late 1936 and 1937 wages also rose rapidly because of union drives associated with the Wagner Act and FDR’s big win.  This time prices were also rising fast so the collapse in output was delayed until later in 1937 when real wages soared.  The minimum wage increases of late 1938 and late 1939 also halted promising recoveries.

Mitchell somehow thinks the way to test the effect of the NIRA was to use employment, not output, even though the policy was designed to reduce hours worked by 20%, which would obviously affect output, not the number of jobs.  (Ironically, FDR’s program was designed to reduce hours and output.  So if Mitchell claims it did not, then he is claiming FDR’s program failed to achieve its announced goals.)

If you look at my description of 1933 (or any of the wage shocks) you will immediately see why annual data is almost worthless.  Often you would see sharp rises and falls in both real wages and output occur within a single calendar year.  You must use monthly data to see what is going on.  And you must use output data, not employment.

Unfortunately we don’t have monthly GDP data, but fortunately we do have monthly data for industrial production, which is far more cyclical that agriculture or services.  Although industrial production rises and falls more sharply than overall RGDP, the pattern is similar and industrial production is closely correlated with many other cyclical indicators.

To his credit, Mitchell did attempt to replicate my results with industrial production data.  Unfortunately he relied on the Miron/Romer data.  It pains me to say this, as I respect both economists greatly, but their IP series can only be described as extremely bizarre.  If you don’t know much about the Great Depression you will have to take this partly on faith, but I’ll try to sketch out a few reasons:

The Fed’s IP series shows a big boom in the first 7 months of 1929, and then a sharp depression late in the year.  And this correlates with everything we know about 1929, from industry data, from news reports about the economy in the NYT and WSJ, from other market indicators like commodity and stock prices, with everything.  Almost everyone believes there was one of the great booms in American history in the first 7 months of 1929.  Except Miron/Romer.  They show a near depression, with IP falling almost 20%.  Even worse, they show IP rising after August 1929 and into early 1930, when almost all the data we have from autos, steel, rail shipments, you name it, shows the economy plunging into a deep depression.

And it’s not just 1929, unfortunately this bizarre behavior continues all through the Depression.  They have IP flat in 1931, when both the Fed and all the contemporary account show a disastrous fall.  (Indeed on the graph in Mitchell’s post December 1931, a dreadful time, seems about the same as the cyclical preak of August 1929.)  They have IP nearly doubling in about 2 months during late 1934.  They have industrial production no higher in late 1936 and early 1937 than in some months in 1933 and 1934.  Much worse, they show industrial production flat in the last part of 1937, repeating the embarrassing mistake of late 1929.  And I could go on and on.  The series is full of sharp fluctuations that don’t seem to correlate with anything going on in the real world.  I have to assume that had a grad student do the data collection and manipulation.  No serious student of the Depression could take this IP series seriously.

Why does this matter?  In our paper the (negative) correlation between real wages and IP was so obvious when you look at the graph, that no amount of tweaking could change the result.  When Mitchell reversed the result with Miron/Romer data it should have been a red flag.

I’ll just answer a few more charges.  Mitchell accuses us of making some arbitrary decisions like using IP and using a 4 month window for the effects of wage shocks.  He also asks why I looked at only those 5 fluctuations in IP in my post, as there are many others.

1.  Even Mitchell agrees that there are lots of high frequency IP shocks.  So we needed monthly data, and IP data was the best cyclical indicator we could find.

2.  Given that many of the high frequency shocks occur within a calendar year (even in the graph he shows) it seemed reasonable to use a four month window for my blog post.  One month is obviously too short to avoid the ‘noise’ problem and 12 months would cover several cycles.  My post findings are not that sensitive to 4 months; 2, 3, 4, 5, 6, 7, 8 would all show a similar pattern, but the absolute changes would vary.

3.  I looked at those 5 IP shocks because I was examining the impact of nominal wage shocks in that post, and there were only 5 big nominal wage shocks in the New Deal.  Somehow he is thinking about the issue backward, he seems to think I was investigating IP shocks, and claiming they were all caused by wage shocks.  I’m not an RBC economist.  I have a whole book manuscript showing that most of the variation of IP during the Depression was caused by monetary shocks, not wage shocks.

I don’t mind people criticizing my work on the Depression; I don’t doubt that there are lots of flaws in it.  But you first need to familiarize yourself with the stylized facts, and the nature of the public policy shocks you are investigating.  You can’t just grab some data and run a bunch of regressions.  Unfortunately I think most of the profession disagrees with me on this issue.  In my view the entire field of macroeconomics should be thought of as a branch of economic history, and should be taught that way.  Try getting tenure in an elite program with that attitude.

HT:  Nicholas Blanchard

PS.   The last sentence doesn’t mean that there aren’t good macro historians at elite programs.


I started this on Christmas vacation but got distracted and only just finished it.  Nothing on money here, feel free to ignore.  As the blog title suggests, I may wander around a bit with this post.

Part 1.  Let’s celebrate Ringmann Day

Have you ever wondered who gave America its name?  Or who discovered America?  I have seen a variety of answers to each question, but I have never heard anyone give the same answer to both questions.  Thus I was quite surprised by this recent article in the Smithsonian, which suggested that the same person may have both discovered America, and named America.  Even more oddly, that person does not seem to have been either Columbus or Amerigo Vespucci.  Or anyone I had ever heard of.  At least that’s how I interpreted their story, I don’t know if they saw it that way.

According to the Smithsonian, in the late 1400s it wasn’t clear whether Columbus had found anything of importance.  Yes, he discovered some islands to the west of Europe, but what else is new?  Europeans had been gradually discovering islands such as the Canaries, the Azores, the Madeiras, etc, for quite some time.

In the early 1500s Amerigo Vespucci sailed down the east coast of what is now called ‘South America.’  It was clearly a sizable continent.  But what continent?  If Columbus had discovered the East Indies, then this long coast would have been roughly in the position of Australia’s long east coast.  Of course in 1500 no European knew of the existence of Australia.  So it wasn’t at all clear what had been discovered.

It now apprears that an obscure German named Matthias Ringmann, who lived near Strasbourg, was the first person to understand the implication of these voyages.  He published a book in 1511 that described a new continent which lay between Europe and Asia.  Accompanying this book was a large map produced in 1507—the first map to ever show the Americas having a west coast that bordered the Pacific Ocean (drawn by Martin Waldseemuller, but almost certainly reflecting Ringmann’s ideas.).  Of course this is 5 years before Balboa “discovered” the Pacific.  Pretty impressive for a young German scholar who never once sailed on a voyage of discovery.

So far I don’t seem to have answered either question in the opening paragraph.  Surely Ringmann didn’t “discover” America, and we all know that the name came from Amerigo Vespucci, not Ringmann.  Not so fast.  First of all; define “discover.”  Leif Erickson bumped into what is now called ‘Canada’ (actually Newfoundland), but very view people think he “discovered America.”  Ringmann seems to be the first person to discover the existence of America, discover that there were two large continents lying between Europe and Asia, and separated from both by large oceans.  That alone should give him great fame.  But that is not all.  The 1507 map in his book also named this new continent, and what name did Ringmann place on the map?  AMERICA.  So he discovered it, and he named it.  Not bad for a little known German who died before he reached the age of 30.

Was it luck?  Maybe, but the information provided by Columbus and the other early explorers was enough to deduce the existence of America as a separate continent.  The map is reasonably accurate in its portrayal of Europe and Africa, thanks to recent discoveries by Portuguese sailors who had rounded the Cape of Good Hope.  So Ringmann would have had some reason to believe Columbus’s estimate of the size of the Earth was far too low.  Recall that the distance from pole to pole is the same as half the circumference of the Earth at the equator (i.e. roughly 12,600 miles, or nearly twice Columbus’s estimate.}   The Earth shown in the map in Ringmann’s book was obviously much too big for Cuba to be in the East Indies.

But what about the name ‘America?’  Where did it come from?  Yes, it was a reference to Amerigo Vespucci, the first explorer to realize the extent of newly discovered land.  But that is not all:

The famous naming-of-America paragraph sounds a lot like Ringmann. He’s known, for example, to have spent time mulling over the use of feminine names for concepts and places. “Why are all the virtues, the intellectual qualities and the sciences always symbolized as if they belonged to the feminine sex?” he would write in a 1511 essay. “Where does this custom spring from: a usage common not only to the pagan writers but also to the scholars of the church? It originated from the belief that knowledge is destined to be fertile of good works….Even the three parts of the old world received the name of women.”

Ringmann reveals his hand in other ways. In both poetry and prose he regularly amused himself by making up words, by punning in different languages and by investing his writing with hidden meanings. The naming-of-America passage is rich in just this sort of wordplay, much of which requires a familiarity with Greek. The key to the whole passage, almost always overlooked, is the curious name Amerigen (which Ringmann quickly Latinizes and then feminizes to come up with America). To get Amerigen, Ringmann combined the name Amerigo with the Greek word gen, the accusative form of a word meaning “earth,” and by doing so coined a name that means””as he himself explains”””land of Amerigo.”

But the word yields other meanings. Gen can also mean “born” in Greek, and the word ameros can mean “new,” making it possible to read Amerigen as not only “land of Amerigo” but also “born new”””a double-entendre that would have delighted Ringmann, and one that very nicely complements the idea of fertility that he associated with female names. The name may also contain a play on meros, a Greek word sometimes translated as “place.” Here Amerigen becomes A-meri-gen, or “No-place-land”””not a bad way to describe a previously unnamed continent whose geography is still uncertain.

Copies of the Waldseemüller map began to appear at German universities in the decade after 1507; sketches of it and copies made by students and professors in Cologne, Tübingen, Leipzig and Vienna survive. The map clearly was getting around, as was the Introduction to Cosmography itself. The little book was reprinted several times and attracted acclaim across Europe, largely because of the long Vespucci letter.

So Vespucci gets all the credit, despite the fact that he shared Columbus’ belief that they had reached Asia.  The only thing Vespucci added was the information that “Asia” extended much further south than had been heretofore known.

Part 2.  Deirdre McCloskey and the Big Question

If you are an economist, you have had the unpleasant experience on sitting through 75 minute talks by job candidates, who rush through their paper so that they are able to “cover” all 17 regressions.  Even worse, you are given the paper beforehand and told to come prepared.  Which makes me wonder what the point of the seminar is.  McCloskey is not like that; she seems to think that a talk (or article?) should focus on one key idea.  When I visited GMU I was fortunate to be able to attend a talk by McCloskey on the same day.  She started off very slowly, spending a lot of time on the “hockey stick” graph of world income per head, which turns sharply higher after 1800.  Then she gradually dismissed all the previous explanations of this turning point.  This talk was related to a book she is working on, the second of a series of 6 books.  The first was 600 pages long, so she doesn’t think small.  Indeed she hopes to explain the origin of the modern world.  I would not be able to do justice to such a grand project, but I do recall her emphasizing the role of cultural change:

1.  The increasing dignity of the bourgeois.

2.  The increased respect shown to commercial, technical and scientific innovation.

She starts with the 17th century Dutch, but perhaps the key break occurred earlier.  In 1415 Prince Henry the Navigator of Portugal set up an institute on the far southwestern tip of Europe (a very symbolic location.)  Recall than in the 1400s Europeans (and perhaps even Asians) knew as much about the Southern Hemisphere as they did about the far side of the moon.  Unlike the far side of the moon, however, our Southern Hemisphere is much more dominated by “seas” than the heavily populated northern half of the planet.  It’s also further away than you think; Nigeria, indeed most of Africa, lies in the Northern hemisphere.  So does Venezuela.

[In the original post I referred to King Henry; I thank Luis Fonseca for the correction.]

Within just a few years the tiny nation of Portugal discovered and explored most of the Southern Hemisphere, allowing “world maps” for the first time.  (I’m counting Magellan as Portuguese, although he sailed under a Spanish flag.)  I don’t recall being taught about the importance of Portugal in school, but everyone should learn about these amazing feats.  If you ever go to Lisbon, don’t miss the wonderful maritime museum in Belem.

Why did this happen?  I suppose the politically correct answer is “greed.”  But does that really explain things?  Every country is greedy, why did the Portuguese make these discoveries?  We know the Chinese had the capability; they had voyaged to East Africa a few years earlier.  And other European powers surely had more resources than Portugal.

Here’s another problem with the “greed” explanation.  This project took many decades to implement.  Not only did Prince Henry die before they reached India in 1497, but so did his son and (I’d guess) his grandson.  Life expectancies were short in those days.  This is the sort of project you’d expect from Ming-era China, with its stable bureaucracy capable of far-sighted planning, not a tiny European kingdom.

Here is another view.  Consider the Prince to have been like a modern entrepreneur.  How often have you read a management article that says entrepreneurs are not driven by the desire to earn money, but rather by the drive to create something important.  Or that the odds of success are so low that a simple expected utility model can’t explain high risk ventures, unless you assume the entrepreneur gets “utility” out of the project itself, that entrepreneurship is a sort of grand adventure.  Maybe this was also true of Henry the Navigator.

Part 3.  How did Europeans come to dominate the world?

I used to have a lazy view of European dominance that was based on technological superiority.  I’m sure I don’t need to tell my readers (many of whom know much more about these things than I do) how silly that view is.  Our modern technological world did not really get underway until about 1800, but the Europeans had already been spreading all over the world for nearly 350 years.  Technology doesn’t explain how a handful of men were able to conquer Mexico and Peru, or how a few thousand European men in wooden sailboats (smaller than Chinese ships of the 1400s) were able to increasingly dominate trade with sophisticated Asian countries containing hundreds of millions of people.

Is it possible that the Europeans simply had more wanderlust?  I’m sure that explanation doesn’t appeal to economic historians, but I’m not the only one who thinks this way.   Here is Richard Bernstein:

Chiefly, Westerners went to Asia in pursuit of personal wealth and national glory.  They also went to convert the heathen to Christianity.  Yet one of the most ordinary and important of the further motivations was plain and simple curiosity.  The West was driven by the desire to know the East, while the East had very little interest in knowing the West.  Anthropology, archeology, comparative linguistics, and other disciplines were Western, not Eastern, inclinations.  The Chinese, the Indians, and the Malays showed no interest in, say, finding the source of the Danube, while to Englishmen of the nineteenth century, finding the source of the Nile was an obsession, the cause of fantastic expeditions and epic rivalries, comparable to the rivalry over being the first to send a man to the South Pole or, for that matter, to the moon.

The European urge to discover and innovate that became apparent in the early Renaissance seems to have affected almost every area of society:

1.  Obviously science and technology

2.  New governmental structures

3.  New commercial structures

4.  An explosion in artistic innovation

5.   A rapid increase in the number of Christian sects

6.  Voyages of discovery

The European expansion that began in 1415 wasn’t aimed at world domination.  Rather world domination, along with repugnant institutions like the slave trade, were by-products of a surge in innovation that increased the power of Europeans even faster than it increased their moral sensitivities. But even those changed fast.  Innovations in literature and religion probably helped trigger the British anti-slavery movement.

I once took one of those History of Philosophy courses on tape.  When they got to Francis Bacon I suddenly woke up.  Here was someone who went beyond stale theories of a timeless world deduced from even more sterile first principles.  He seemed to understand how we were rushing headlong into the modern world.  He understood how no single person was directing the enterprise.  I recall he used the example of the modern sailing ship to show how decentralized decisions of many unknown tinkerers created something that no central planner could conceive of.  Who does that sound like?

Where did this wanderlust come from?  I always like the evolutionary psych explanations.  Maybe ancient tribes that had wanderlust were more likely to move to new lands and greatly increase their numbers.  Or more likely to build better tools and weapons.  But why did it hit Europe so strongly after 1400?  I am skeptical of genetic explanations.  Note that the Bernstein quotation above starts by talking about “the West” but then switches over to Englishmen.  Albania and Moldova are a part of Europe, but not the Europe Bernstein has in mind.

Culture, not genetics, is the most likely reason for this wanderlust.  But of course saying “culture ” in history or poly sci is like saying “shifts in tastes and technology” in economics, or “bubbles” in macroeconomics and finance.  It’s just a fancy way of saying; “I haven’t a clue.”  But somehow in the period after 1400, and even more so after 1800, lots of crazy Europeans (“mad dogs and Englishmen”) developed a wanderlust that led to great feats of discovery in all sorts of areas.

Part 4.  World population trends.

Why do we celebrate Columbus Day?  (Or should I say why did we when it was still PC?)  Because 99% of Americans wouldn’t be here if America hadn’t been discovered.  And I don’t mean we’d be somewhere else, we wouldn’t exist at all.  But if that is the case, then shouldn’t Bangladesh have a “Portuguese Day?”  How many Bangladeshis would be alive if Prince Henry hadn’t set up that sailing institute, and set Europe on a course for world domination?

Evolutionary psych can explain one deep-seated human characteristic that relentlessly pushes us toward a larger population—lust.  But before European wanderlust that trait continually pushed against an equally implacable obstacle—the Malthusian limits to growth.

You might argue that the other continents would have developed on their own.  After all, the Polynesians were also engaging in voyages as impressive as the Portuguese, and at roughly the same time.  Furthermore, even if the Europeans hadn’t voyaged outward, their ideas and tools (such as guns) would have gradually dispersed across the Eurasian and North African regions, shaking up cultures.

But even the most optimistic Asiaphile would have to admit that change would have come more slowly without European contact.  Thailand and Japan were never colonized, but Japan’s industrial revolution occurred 100 years after the British, and Thailand’s occurred 200 years later.  Even if development had been delayed only 100 years, Asia and Africa would look much different today.  How many people did Bangladesh have 100 years ago?  I’d guess maybe a quarter as many as right now.  If Americans can say we are “here” (alive) because of Columbus, then most Bangladeshis are equally entitled to say they are “here” because of the Portuguese.  (Thank God Edward Said didn’t live to see this disgraceful paean to dead Portuguese white males.)

In an essay that mentions lust, wanderlust, America, and Newfoundland, how can I resist concluding with John Donne’s ode to his mistress’s body:

License my roving hands, and let them go,
Behind, before, above, between, below.
O my America! my new-found-land,
My kingdom, safeliest when with one man man’d,
My mine of precious stones: my emperie,
How blest am I in this discovering thee!
To enter in these bonds, is to be free;
Then where my hand is set, my seal shall be.

Is it that far-fetched to assume that utility is derived from the discovery process itself?

PS.  Attention PC cops:  I am not trying to argue European superiority here.  I find the Polynesian societies described by Melville to be far more appealing than anything Portugal had to offer at the time.  I don’t think the Europeans were superior, but rather different.  And different in a way that quintupled the world’s population.  That’s pretty important.

Will the experts save us from catastrophe?

This is from a touching story about the last two survivors from WWI:

In old age both men had an urgent message, so urgent that it almost exhausted their small supply of breath. “War’s stupid,” said Mr Allingham. “Nobody wins. You might as well talk first, you have to talk last anyway.””T’isn’t worth it,” said Mr Patch. “War isn’t worth one life.” They did the job they were asked to do”””for 18 pence a flippin’ day.” And they knew that the German enemy, too, were fighting under compulsion. From the first day, Mr Patch made a pact with his mates on the Lewis gun that they wouldn’t shoot to kill, only to wound. As far as he knew, he kept his pledge. Even the German who tried to bayonet him in no-man’s-land was only to be brought down with bullets in the leg. Similarly Mr Allingham, billeted with a German family after the Armistice, gave them the two precious oranges he received from Dorothy for Christmas. “We were all victims,” said Mr Patch.

At 110 Mr Allingham went to Germany to meet Robert Meier, aged 109. For his birthday, Mr Meier””who was to die three months after they met””had been photographed grinning broadly in the spiked helmet of a Dreckfresser, literally a mud-eater, a German infantryman. He had last worn that gear on the Western Front. Chicken soup and oatflakes, he said in his sprightly way, had kept him going since. Side by side, the two old men were wheeled to the local war memorial, where they laid a wreath and, for a long, gentle moment, shook hands.

Mr Patch, too, went abroad at 106 to meet Charles Kuentz, aged 107. He took a bottle of Somerset cider; Mr Kuentz, who was to die the next year, brought a tin of Alsatian biscuits. Mr Kuentz had fought at Passchendaele, some few hundred yards from the British lines. He had been conscripted at 19, straight from grammar school, and he too, until the age of 100, had refused to talk about the war. They went together to the German cemetery at Langemarck, where 44,000 Germans were buried, and Mr Patch laid a wreath. He had got better at doing that; on the first occasion he’d been asked to he had simply sat and cried. At Langemarck, on impulse, he picked up an acorn from the ground and gave it to his “enemy”. “Now we are friends,” said Mr Kuentz.

This got me thinking about the British, American, French, and German leaders who killed those millions of young men.  And the European intellectuals of 1914, virtually all of whom supported the war.  And how in the halls of government in 1914 anyone with my anti-war opinion would have been regarded as an idealistic fool, not worth listening to.

As I get older I am more and more inclined to think we put too much faith in the authorities.  Or perhaps I should just say that I do, as this blog has lots of commenters who are skeptics.  I must admit that while I have been advocating NGDP futures targeting since 1986, I assumed the Fed would be smart enough to prevent a decline in NGDP even with the sort of ad hoc quasi-inflation targeting regime in place since the 1980s.  In the last year my respect for authority, which was never very high, has fallen to a new low.  As I read each interview in the Big Think, it becomes more and more obvious that the experts don’t have a clue as to what went wrong, nor how to fix the problem.  Indeed they don’t even agree with each other, and none of them agree with me.  Here are two more, with nothing about the Fed letting NGDP fall at its fastest rate since 1938:

Every so often I read about the amazing progress in biotech, how the technology to do genetic engineering keeps getting cheaper and more powerful every year.  Or how we are close to the point where any scientist will be able to use low cost equipment to create a deadly virus that spreads as easily as the common cold.  Well, actually I don’t read that observation, it’s just the thought that goes through my mind when I read the other stuff.

And then there is that particle accelerator in Switzerland.  New and unheard of energy will be released as they smash particles together at ever higher speeds.  Of course only a lunatic would think that these experiments are opening a Pandora’s box; potentially creating a black hole that could swallow the Earth.  After all, the experts assure us that (according to the laws of physics circa 2000) the machine is perfectly safe.

I don’t doubt that the machine is perfectly safe according to the laws of physics circa 2000.  But that’s not what worries me.  The laws of physics circa 2000 are almost completely different from the laws of physics circa 1900.  Here is what I wonder; is there any chance that something could go wrong according to the laws of physics circa 2100?  And where do I go to get that question answered?

Does this have anything to do with monetary policy?  Well, moving from the 4% trend inflation of the 1980s to the 2% trend inflation of the 2000s does produce efficiency gains, but also slightly increases the chance that the economy will slip into a liquidity trap.  As of 2007, most experts thought that a liquidity trap was highly unlikely, even though it had already happened in Japan.  I also thought it unlikely.  So the small gains from slightly lower inflation were thought to outweigh the fact that 4% inflation would prevent liquidity traps, and the associated devastating fall in NGDP and high unemployment that is often associated with liquidity traps.  Of course we now know they were wrong.  Ex post there was 100% chance of a liquidity “trap” in this decade.

Let’s hope the experts in biotech and physics are better at doing cost/benefit analysis than the economists who run monetary policy.  In particular, let’s hope they do a better job of weighing small but certain gains against vast losses that are deemed highly unlikely.  Let’s hope they don’t suffer the cognitive bias of placing an excessively small subjective probability on “unknown unknowns.”

Oh, and don’t forget that 2012 is barely 2 years away.

PS.  Robin Hanson has a much better example here.

PPS.  I plan one more post (off topic), and then a vacation.