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).