Transforming Hatred

Vox just published a new piece by Nico Voigtländer and me on anti-Semitism in Germany:

Hatred Transformed: How Germans Changed Their Minds about Jews, 1890-2006

The persecution of Jews during WWII is one of the darkest and most puzzling chapters of recent history. This column asks how economics can help our understanding, particularly of how people’s attitudes to Jews have changed over time. It argues that ‘cultural economics’ shows that there is more to understanding how people behave than looking at their incentives. How and when do people change their minds? For example, watching a popular television series like AMC’s Mad Men seems to transport us straight to another planet. It shows the lives of advertising executives on Madison Avenue in the 1960s who spend their days drinking heavily (from 9am), chain-smoking, and fornicating. While not necessarily an accurate portrayal of corporate life in the middle of the 20th century, it reminds us how deeply cultures can be transformed in a relatively short space of time. In the Western world today, attitudes towards homosexuals, pre-marital sex, and women working outside the home are radically different from what they were a generation ago (Fernandez-Villaverde et al. 2011). At the same time, culture seems to persist over long periods of time. Italian towns that were self-governing in the middle ages are still more prosperous, citizens give more blood, and are more trusting (Guido et al. 2008). Areas of Africa affected by the slave trade continue to show lower levels of interpersonal trust (Nunn and Watchekon 2011). What accounts for the two-faced nature of culture? Why does it change so radically some of the time, while remaining unaltered over long periods? Anti-Semitism as an indicator In the past, canaries were used in coal mining to detect the presence of toxic fumes. Anti-Semitism serves a similar function in our study. As an attitude, it is arguably puzzling – it is extreme, clearly-defined, and dysfunctional. Germany has not been home to Jews in any significant numbers since 1945 (despite some minor inflows after the 1990s). In recent research, we look at the persistence of Jew-hatred in Germany (see Voigtländer and Voth 2012). In earlier work, we show that towns that saw pogroms in 1350, at the time of the Black Death, were still more anti-Semitic in the 1920s and 1930s (Voigtländer and Voth 2011). In this column, we examine how much of the past still matters for the present. Specifically, we ask how much of the anti-Semitism we see based on data from 1996 and 2006 reflects attitudes in the same location as far back as the late 19th century. We also examine the conditions under which hatred of this kind can be accentuated or reduced. Germans today are on average probably not much more anti-Semitic than other Europeans (Bergmann and Erb 1997). At the regional level, however, there are considerable differences. We use data from the German Social Survey (ALLBUS) to examine attitudes towards Jews. The survey asks a battery of questions, such as “Do you think that Jews partly brought persecution in the 20th century on themselves?” Answers range from 1 (strongly disagree) to 7 (strongly agree). Figure 1 shows regional differences (at the district level) for answers to this question, based on the proportion of the population giving a score of 5, 6, or 7. Figure 1. Distribution of extreme anti-Semitic views you can read the rest here. If you want to read the article on which the VOX piece is based, look here. This research follows on from earlier work we did on the medieval origins of Jew-hatred in the 1920s and 1930s in Germany (now forthcoming in the QJE).

tea leaves reading hour

How much economics can you get out of a single graph? Here's is my entry: The Economist has a chart for salary expectations of graduates. Not many surprises there - Swiss grads expect more than those in Poland. More surprising - women expect less than men, but hey, they do earn less. They are just realistic. Then my eye wandered to the entries for two countries close to my heart - Germany and Spain. First of all, the Spanish graduates all expected starting salaries LOWER than the national average salary. Pretty much everywhere else, that's not the case. Note that educational attainment has risen quite quickly in Spain in recent decades, from a low base. That means that the average university graduate is comparing himself with a salary paid to people whose educational attainment is really quite low -- and they still think (and probably will) earn much less. The college premium? None in Spain. Truth be told, much of the university education here has consisted in handing out pieces of paper to people who sat in overcrowded lecture theatres long enough to lower the reported unemployment rate. There they were often taught by people with a degree from the university where they are now teaching [no, that's not UPF economics - we never hire our own doctoral students, and class sizes here are small]. So education mostly doesn't pay. That mainly because it's lousy on average, and the selectivity of higher education is so low that there is no premium in Spain.

Then I looked at the national wage rates for Germany and Spain -- the difference is factor 2! Now, Germans are more productive per head (and much more productive per hour - working hours in Spain are pretty long). But the ratio is off. A quick check confirms what I remembered: Spain is about 3/4 as productive per head as Germany, and not 1/2. That's another way of saying that, per unit of output, Spaniards earn less. How come? Normally, you would think that having low wages relative to output would be great for growth - profits should be high, and growth should take off. But not so fast.

The reason why the pay difference is large probably reflects two things: First of all, there are lots of side payments in small-and-medium firms that are not reported ("the envelope" with black money). This is a major source of inefficiency. The big firms can't and won't engage in this practice, which means that their wage costs are higher -- to get workers, they have to fork out more. The uneven tax cheating is driving employment into the inefficient small firms. Second, if the ratio of wages to output is lower than in, say, Germany, then someone must be getting the rest. Normally, that would be profits. Part of it is, I am sure, just payments to fixed factors of production, like rent... those silly prices for land, again. Finally, returns to entrepreneurs and the self-employed may be higher, but possibly not for the reasons we might like. Entry regulation etc has something to do with it. Spain is not exactly home to a large number of small + medium, world-beating companies. Most produce for the home or regional market. The reason why they are in business at all is that they know how to navigate the local forest of regulation and connections - and not higher efficiency. The political cast conspires to keep competition out, from the national level down. The country has one of Europe's most uncompetitive phone- and internet-markets (all those well-connected board members at Telefonica); there is a blatant breaking of EU competition rules when it comes to takeovers (remember EON's attempt to buy a utility in Spain?), etc. All of this shows up as profits somewhere, but it isn't exactly good for the economic performance of the country. This also suggests that "pay restraint" isn't the first thing to think about when it comes to restoring the country's economic vigor.

Investment bankers discover solution to the Euro debt problems

The solutions spells M-O-N-E-Y. German money. Lots of it.

The American journalist H.L. Mencken once joked that for every difficult problem, there was a solution that was simple, elegant, and wrong. That is what I was reminded of reading the increasingly hysterical comments being issued by various people in the I-banking community. Euro area debt problems? The end is nigh? Let's get a bailout. We have had three years of effective "blackmail" by the markets, where governments have caved in every single time, making bondholders whole at the expense of the public. The German government some weeks ago felt that enough was enough. Now the rise in bond yields is creating a crescendo of voices arguing that a "fiscal union" in the EU will solve this problem. Bloomberg ran a full story composed of nothing but London-based investment bankers sagely advising that this was the only solution. Among the more bizarre suggestions, the idea that some 350 billion of Greek, Portuguese and Irish debt gets transferred to the core countries to bring debt burdens down... I think these people are based in the wrong place.

Anyone with any knowledge of German politics will tell you that a gigantic bailout - much as our underpaid friends in the City would love it - will not happen. The whole Euro experiment was sold to the German public via a million holy oaths that this could not happen; the already weak consensus behind the euro will crumble before we see a fiscal transfer union or massive debt shifts. Some commentators are always advising that the Germans and French are just bailing out their own banks. True, in part. But that used to favor bailouts in the past; it is now becoming much harder as a political sell. Yet more money for bankers? Not the message you want to send as a politician. And don't forget -- Germany's export performance is largely built on selling to the rest of the world. While most of the EU mostly trades with the rest of the EU, Germany does sell in significant amounts to the US, Brazil, China, and the rest of Asia. Compared to that, exports to Portugal, Ireland, and Greece are miniscule. Germany needs Europe much less today than it did 20 years ago. The second mistake that people make when thinking about incentives for a bailout is to say that Germany is benefiting hugely from other EU countries not being able to devalue against a Deutschmark. True, but the point of Germany's export surpluses is to accumulate foreign assets for the day when the population is dominated by pensioners. A stronger Mark will facilitate buying up assets elsewhere, from factories and stocks to holiday homes in the sun. Bottom line - much of the current chatter about Germany having to step up to the plate for sure is, in my view, a bunch of I-bankers whistling in the dark, hoping that their trades will finally turn around...