How much better off are we?

Tyler Cowan has an interesting post:

I say I prefer $100k today to $100k in 1964, that being a nominal rather than a real comparison. If you are not convinced, try comparing $1 million or $1 billion (nominal) today to 1964. For some income level, we have seen net deflation.
But here’s the catch: would you rather have net nominal 20k today or in 1964? I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall. (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal. Back then you might eat the world’s best piece of fish for that much.)
So for people in the 20k a year income range, there has been net inflation.
Think about it: significant net deflation for the millionaires, but significant net inflation for those earning 20k a year. In real terms income inequality has gone up much more than most of our numbers indicate.
(See more at: http://marginalrevolution.com/marginalrevolution/2014/12/comparing-living-standards-over-time.html#sthash.Lu1wmUlF.dpuf)

I am not so sure about this. My maternal great-grandfather was a judge and an member of the Prussian diet; I don't think his income in relative terms at the time was higher than mine (and my wife's) combined. But he owned a large villa in Potsdam, had a car with a driver, employed a cook, nanny, several servants, and a gardener. Yes, there was no penicillin nor netflix, but the real estate and services consumed are beyond those of even people with twice our family income... and since nobody else had a car, it took 20 minutes' driving to the center of Berlin. I think the idea that somehow the "rich" have done better is misguided; they consume more services than most, and it is not clear that these have become cheaper. 

Changes at Explorations in Economic History

Kris Mitchener and I are the editors of Explorations in Economic History. Over the last year, we have discussed how to strengthen the journal. Here is a summary of what we came up with:

What’s new at Explorations?

Content

Surveys and Speculations. As a periodic feature, we are reviving S+S. The idea is to combine the style of JEL articles with the more speculative ideas that one might put in a book – producing surveys that can help to guide future research. The emphasis can either be on the survey or the speculation part. The format is flexible, but we would typically expect a length of 4,000 to 8,000 words. If you are interested in contributing a Survey + Speculation article, please approach one of the editors with a one-page outline of what you have in mind.

Article formats. Explorations will publish research articles in two formats – main research articles (for major research advances) and shorter papers. While the length of submissions to all economics and economic history journals has grown, journal space has typically not kept pace. Almost all articles nowadays contain extensive literature surveys, many robustness checks, detailed  historical background descriptions, etc., which, while important, are not always essential for communicating the main point.

We therefore encourage authors to consider submitting short articles. Examples that potentially fit into this category include replication studies, negative results, new methods, and new data. Despite being at the heart of the scientific enterprise, replication studies are often frowned upon in economics and economic history. We believe this is in error. If you (or your students) have performed replication work, and in particular, if you find significant differences with published results or major fragility, this is the category of submission to consider. Negative results, when a well-defined hypothesis was tested in the data and no results were found, are often not published. Our aim is to counteract this tendency by providing an outlet for such studies. Often, the first application of major new research tool does not, in and of itself, constitute a breakthrough. If you are one of the first to use a new tool in economic history, we encourage you to submit a short summary and illustration to the “shorter papers” section. All shorter papers (just like main research articles) can contain additional material which will be published as an online appendix. While a new data source is often essential for publishing in top field journals, it is sometimes not enough. For projects that generated new data, but failed to shift the priors of the profession in a major way, EEH shorter papers provides an outlet. In this way, other scholars can use the dataset in their own work, and the people who have performed this service to the profession are rewarded with a publication – even if their risk-taking didn’t fully pay off.

Paper handling

New and Improved Submission Procedures. We continue to accept submissions in the normal format. In addition, we offer two new ways to submit your paper. First, if you have had your paper considered at another journal, and were rejected, you are free to send us the old reports, ideally with a covering note explaining what happened, in your view, and why you feel the paper still deserves a shot. Second, you can now propose potential reviewers in your covering letter (as well as a suggestions on who should not referee the paper – similar to the lists submitted for tenure cases). This is not a requirement, and the editors can and will make their own choices, either from the list submitted or drawing on other experts. The point is simply – as specialization increases – to use the authors’ own expertise for insight into the right group of scholars to assess a submission.

Desk rejections and revision rounds. These are not new policies at EEH, but we intend to use them more extensively going forward. We feel that is it fairer to the author(s) if papers that are unlikely to make it through the review process are rejected outright, instead of delaying the final outcome by several months. We also feel that multiple revision rounds should be a (rare) exception; if papers have a clear revision path to a publishable paper, we will say so in round 1, and if the paper has not converged after one revision, we are inclined to reject it instead of creating long drawn-out revision processes that may not converge.

Data replication

This is not new; a data replication policy has been in force since the start of the year. Replication is at the heart of the scientific enterprise. Every accepted paper at Explorations has to be accompanied by a full replication data file and computer instructions for producing the relevant statistical output (such as a STATA do-file). We do not expect authors to share all of their data; but the variables used for the tables in the paper have to be available so that results can be checked and alternatives tested.

We hope you will be encouraged to submit – in categories both old and new – at http://www.journals.elsevier.com/explorations-in-economic-history/

editing news

I have been an editor at Explorations in Economic History for a year and 9 months now, and was an editor at the European Review of Economic History beforehand. And then, the other day, I got an email asking me to join the Economic Journal as one of their editors. The EJ is one of the grand dames of the economics profession,  a journal I read religiously as a student, and of course the journal that JM Keynes edited... their citation impact scores are going up, and they have more submissions with a historical twist. Kris Mitchener and I have a lot of plans for EEH, and we will do what we can to implement them soon. Nonetheless, I decided to resign from Explorations some time next year, and to take up my duties at the EJ in mid-2015. 

US declaration of independence shelved

after UK courts declared the move unconstitutional. George Washington has now announced that there would be a voluntary, pseudo-declaration on the original date, with no real representation of the colonies or democratic safeguards in place... but there may be some other declaration later.

Well, that is pretty much what the current Catalan government has just done, declaring that they would not continue with plans to hold a referendum on independence. What did they think the Supreme Court would decide after the went for the November 9 referendum? It was clear they would try to block it. Surely, the only principled stand was to say "this is an inherent right of a people; no court can take it away." The only context in which the original decision made any sense was to go ahead with the vote regardless... but no. We'll get a vote organized by "volunteers" with no legal basis, etc. Congratulations to Snr. Mas and his merry gang for throwing away the single best chance of the Catalan people to become independent since 1714. 

Low rents

by government fiat. You don't have to be a genius to figure out that this one is a bad idea. At least, if you had a first college class in economics.

Turns out that in Germany, the easy stuff is still too hard for the political class. Having successfully destroyed the market in housing by freezing rents on old contracts, they are now extending this to new ones... because the new contracts are going up at something approaching the rate of inflation. You couldn't make it up. I can think of no rich, industrialized country in which quality housing is as cheap as in Germany - either to buy or to rent. What will the future bring? In a small piece for the FAZ, I look at the historical experience in Spain and the US.

An embarrassment of riches, doctoral student edition

This year, I have four Ph.D. candidates on the market... and they are terrific. Here are the abstracts of their job market papers:

Vicky Fouka: "Backlash: The Unintended Effects of Language Prohibition in US Schools after World War I"

Can forced assimilation policies successfully integrate immigrant groups? As cross-border migration surges, more countries must grapple with this question. A rich theoretical literature argues that forced integration can either succeed or create a powerful backlash, heightening the sense of cultural identity among the minority. This paper examines how a specific integration policy — namely language restrictions in elementary school — affects integration and identification with the host country later in life. I focus on the case of Germans in the United States during and after World War I. In the period 1917–1923, several US states barred foreign languages from their schools, often targeting German explicitly. Yet rather than facilitating the assimilation of immigrant children, that policy instigated a backlash. In particular, individuals who had two German parents and were affected by these language laws were less likely to volunteer in WWII; they were also more likely to marry within their ethnic group and to choose decidedly German names for their offspring. These observed effects were greater in locations where the initial sense of German identity, as proxied by Lutheran church influence, was stronger. These findings are compatible with a model of cultural transmission of identity, in which parental investment overcompensates for the direct effects of assimilation policies.

Felipe Valencia: The Mission: Economic Persistence, Human Capital Transmission and Culture in South America 

This article documents the positive long-term economic impact of the Jesuit Missions in South America, combining information from historical archives and municipal census data from Argentina, Brazil and Paraguay. Guarani Jesuit Missions (1609-1767) resulted in income levels that are 10% higher today. I stress human capital as the main channel of transmission, finding a 10-15% increase in educational attainment. Results are robust to the inclusion of geographic controls, the usage of placebos (abandoned and Franciscan missions) and instrumental variables estimation. Using historical censuses, human capital appears even higher closer to missionary districts during intermediate times. Such enduring educational differences are consistent with particular cultural mechanisms of occupational persistence—through labor specialization and changes in sectoral employment— and inter-generational knowledge transmission. Additional empirical tests suggest that migration, urbanization and tourism are not driving the results.

Andrea Matranga: Climate change and the Neolithic Revolution: Increased seasonality caused the multiple adoption of agriculture

The Neolithic Revolution saw seven different populations independently abandon nomadic hunting and gathering, in favor of settled agriculture. Plausible explanations exist for each of these parallel archaeological sequences, but none of the proposed theories is applicable across all of them. In this paper, I show that the Neolithic Revolution coincided with a large and global increase in climatic seasonality. I argue that hunter-gatherers in the most affected regions became sedentary in order to store food and smooth their consumption, and that this sedentary lifestyle eventually resulted in their development of cultivation techniques. I construct a model to generate empirical predictions, which I test against a global panel dataset of climatic conditions, and Neolithic adoption dates. I identify a causal link between higher seasonality and earlier adoption of agriculture, and find that this effect manifested itself both in increased probability of invention, and faster geographic spread. These global-scale results are confirmed by a site-level analysis of the domestication of cereals in the Middle East, and their subsequent spread into Europe. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.

 Jörg Stahl: Capital Gain - The Returns to Locating in the Capital City

In many countries, company headquarters are concentrated to an extraordinary degree in the capital city. Geographic proximity to a country's leading politicians may be beneficial for a number of reasons, including greater opportunities to influence policy makers. In this paper, I examine a unique event – the relocation of the German Federal Government from Bonn to Berlin in 1991. Following reunification, there was a free vote in the German parliament. Berlin won by a narrow margin, an event that could not be anticipated even days before. I then examine the value of being co-located with the government by examining stock returns. Using a Fama-French Multi-Factor framework, I find that firms with operational headquarters in Berlin experienced mean cumulative abnormal returns of about 3 percent within the two days following the relocation decision. These returns were even higher two weeks later, do not seem to be driven by industry composition, and are robust to different model specifications.

If Catalans were black...

people would be outraged about what is happening in Spain. You can hear an interview with me about this (in German) at Swiss Radio here.

Want to know why Catalans want to leave the loving embrace of Spain?

Well, there are many reasons. Good ones. Like not having your language recognized as an official language in which you can go to court; write to the authorities, etc. Having an education minister who runs around telling everyone that his government's aim is to hispanisize the Catalan people (imagine a German minister did that Schleswig-Holstein, speaking about the Danish minority). Etc.

People always think it is about money; all the money Catalans send to the rest of Spain since they are so much more productive. And yes, they don't like it. But the thing few people realize is that this is only one side of the equation; the other is the shameful failure on the side of Madrid to put any money into Catalonia. It's the economic powerhouse of a country with a pretty ramshackle economy overall; you'd think you would put some serious cash into infrastructure there.

What does it look like? Have a glance at the map. This is the investment per capita by the central government. Grey means - less than 150€ per head. The total comes to 9.5% of the overall spending on investment -- but Catalonia produces ~20% of output. Just ten years ago, the investment share was at least 16%, still too little, but not a joke. Now, Catalonia receives only half of its fair share.

Where does the money go? Galicia, and other delightful places like that. They receive 360€+ per head -- more than twice the Catalan number. No matter that there is nothing there except old-age pensioners and civil servants; let's build roads, railways, airports, universities, etc. [remember where Mr Rajoy is from? Right. And that his own Treasurer's secret books revealed he received €€€ from building companies? Never mind].

When the history of Catalonia's separation from Spain will be written in the future, look for a version of this graph to illustrate the high-handed folly and sheer bloody-mindedness of the nationalists in Madrid. What a way to drive people away.

Fear, Folly, Financial Crises

The UBS Center for Economics in Society at the University of Zurich has just published a small summary paper of mine on the history of financial crises. Here is the abstract:

those damned journals...

I am sure we have all been there. You go to a conference, and you have a beer or two with your friends. Someone starts to talk about journals. Turnaround times, in particular. If it isn't the QJE, everyone will soon start to lament just how damned slow they are. 5 months? 9 months? What's up with these guys? Well, there are some really, really bad cases. If you submit to a particular journal we all know, say, you often can forget about it for a few years. Literally. Something that has to do with the editors and the editorial office, surely. But for most journals, there is a second factor that very few people like to talk about -- because it is by and large about the same people who do the complaining: the reviewers, who as a group, are identical with the submitters.

As a journal editor of Explorations in Economic History, this is what I see all to often (see the chart): A paper comes in. It is assigned to 3 referees the next day. Within 2 days, 2/3 referees have said yes. But watch referee 3: no response on June 6. A reminder on June 16. Another reminder on June 23. Finally, on June 27 (22 days after the initial invitation, the reviewer has the kindness to decline with a one-liner "sorry overcommitted"). I am sure. It's a senior colleague. So senior, as a matter of fact, that he is retired... you get the picture. Incompetence? Sloppiness? Laziness? Indifference to the publications of junior scholars, given that this paper is RIGHT at the heart of his research interests? Who knows.

So next time you feel like moaning about the journals and turnaround times...don't ask what journals should do for you, ask what you have been doing for the journals. Perhaps ask yourself if you are doing all you can to keep things running smoothly (in this particular case, we'll probably be able to proceed with 2 referees, which is why I didn't assign an alternate by June 14, say - but this could have looked very different, especially since there aren't that many appropriate referees in many subfields).

a bit of untimely confusion (in eigener Sache)

... just because I (and students/colleagues etc.) got asked: The kindness that the Barcelona GSE has shown me in appointing me to a research professorship doesn't mean I am necessarily going to return from Zurich to UPF. I am currently on leave, as is often the case with senior faculty with a new appointment, and have to make up my mind eventually. The school leadership made sure that if I were to do so, conditions would be nicer (for which I am grateful).

Working hours

The Economist profiles some of my research on working hours in the past...

Highway to Hitler

Germans may remember conversations with their grandparents that ended with the words "at least he built the Autobahn..." It was mostly meant as an explanation for the singular popularity of the Nazi regime. An obvious question to ask is - is it actually true that building the German highway system boosted the regime's popularity?

Nico Voigtlaender and I have a new working paper, available over at SSRN and NBER. The abstract is:

Can infrastructure investment win “hearts and minds”? We analyze a famous case in the early stages of dictatorship – the building of the motorway network in Nazi Germany. The Autobahn was one of the most important projects of the Hitler government. It was intended to reduce unemployment, and was widely used for propaganda purposes. We examine its role in increasing support for the NS regime by analyzing new data on motorway construction and the 1934 plebiscite, which gave Hitler great powers as head of state. Our results suggest that road building was highly effective, reducing opposition to the nascent Nazi regime.

We have a non-technical write-up over at VOX. [coverage over at The Atlantic-Cityscape, Tages-Anzeiger]

Misfits...

I somehow missed this paper when it came out, by Ross Levine and Yona Rubinstein, which argues that misfits make better entrepreneurs. More precisely, they find that teenagers who get into trouble are much better at starting their own firms:

We disaggregate the self-employed into incorporated and unincorporated to separate
between “entrepreneurs” and other business owners. In contrast to much research, we find that
entrepreneurs earn much more per hour and work many more hours than their salaried and
unincorporated counterparts. Moreover, the incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits: besides tending to come from high-income families with well-educated mothers, the incorporated self-employed are highly educated themselves, and—as teenagers—scored higher on learning aptitude tests, exhibited greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of strong labor market skills and “break-the-rules” tendencies accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs.

Who else figured out that kids who get into trouble make great leaders? You guessed it - the German army in the interwar years. Desperate to find a solution to the problem of collapsing morale as evidenced by the 1918 mutinies, the German army ran a program to identify what makes great infantry leaders. Their result? Get guys who are smart, but have to repeat a class in school because of discipline issues. They don't just follow rules blindly; they will focus on getting the job done their way; and because they don't just follow the rules, they tend to earn the respect of their men (this is from one of the best reads in military history - "Fighting Power" by Martin van Creveld).

Anti-Semitism and the Stock Market

Just met two clever PhD students in Berkeley, where I am spending the week. They - Francesco D'Acunto and Michael Weber, together with co-author Marcel Prokopczuk -- are putting Nico Voigtländer's and my data to good use. The abstract is:

We propose historical anti-Jewish sentiment as a proxy for distrust in nancial
markets. Households in German counties where Jews were persecuted the most
as far back as in the Middle Ages are less likely to invest in stocks today. A
one-standard-deviation increase in historical anti-Jewish violence leads to a 7.5% to
12% drop in the average stock market participation. For identi cation, we exploit
the forced migrations of Ashkenazi Jews out of the Rhine Valley after the 11th
century. The distance of a county from the Rhine Valley serves as an instrument
for the existence of a Jewish community during the Black Death (1349) and hence
the early emergence of anti-Jewish sentiment. Results are similar when we use the
votes for the Nazi party as a proxy for anti-Jewish sentiment. The magnitude of
the e ect neither changes from 1984 until 2011 nor across cohorts.

The paper is here. They found some amazing data on Jewish presence in retail finance in the 19th century... I like and believe their result, but I am not quite sure how I should think about it as a causal story. 

The Economist covers "Beliefs and Leverage"

Peter Koudijs and I have a paper that shows how much people change their risk appetite if they almost lost money... and The Economist last week covers it here: 

To say fear alters investors’ and lenders’ behaviour seems self-evident. But the study’s attempt to isolate the effect of personal experience on financial decisions (a subject examined in more detail in our sister column, “Free exchange”, this week) is potentially relevant to those learning not only how markets work but how to apply rigour to financial decisions of other kinds. Clearly, it pays to understand the dynamics of the markets in which a business operates—and recognising the impact of factors not necessarily captured by number-crunching is a part of that. 

Bankia

Swiss Radio (Radio SRF) interviewed me about the recent bond issue of Bankia... bottom line, this is not a turning point. If you hand enough cash to a poorly-managed bank, it can eventually return to the capital markets...