What is normal?

 

This week the Washington Post ran an article declaring High interest rates, rising inflation: The economy still isn’t normal. 

But what is normal?

This is 30 year mortgage rates since the 1970s

Here is the inflation rate since the 1950s

Here is the unemployment rate since the 1950s

At 3.8 percent the unemployment rate is at levels that we had not seen since the late 1960s. The rate of inflation of 3.5% is also low in comparison to much of recent economic history. 

When I first began to study economics in the 1980s the combination would have been regarded as miraculous. Even after people believed the Volcker had beaten the inflationary expectations out of people, no one was predicting a such a low combination of unemployment and inflation. 

Even interest rates, which have increased in recent years in response to Federal Reserve policies, look relatively low compared to the late 20th century.

I have to admit it does appear that current economic conditions are not normal. Perhaps we should be grateful.

 

Updates on UMW Econ Alumni: Christine Exley

 Christine Exley graduated from UMW in 2009. She went on to earn a Ph. D. in economics from Stanford University. She taught for several years at Harvard Business School and is currently associate professor in the Department of Economics at the University of Michigan.

Christine has published extensively in the top journals in economics.

Examples of recent work include

The Gender Gap in Confidence: Expected But Not Accounted For

and 

Nonprofits in Good Times and Bad

Updates on UMW Econ Alumni: Sierra Latham

 Sierra Latham graduated from UMW in 2009. Since then she has earned masters degrees as Georgetown University and University of Chicago, worked at the Urban Institute and for the City of Alexandria. She is currently a Senior Research Analyst at the Federal Reserve Bank of Richmond.

Here is some recent work she has done on 

Measuring Poverty 

and

Regional Housing Supply

Updates on UMW Econ Alumni: Alli Baranski

 Alli graduated in 2018 and is currently an assistant manager at the Federal Reserve Bank in Kansas City. 

Here is a recent article she coauthored on small business lending.

What fraction of output was produced by enslaved people?

 

Paul Rhode has an important new paper in the January issue of Explorations in Economic History ("What fraction of antebellum US national product did the enslaved produce?." 2024. Explorations in Economic History 91). Rhode frames the argument against Ed Baptist’s claim that “almost half of the economic activity in the United States in 1836, derived directly or indirectly from cotton produced by the million-odd slaves…”, which has been not just repeated but exaggerated by others. It was easy to show that Baptist’s claim had no foundation in either theory or evidence and was purely a creation of Baptist’s imagination (see here), but the question of how large a fraction of output was produced by enslaved labor remained unanswered.

 

I have for years suggested that the place to begin an answer to this question is the labor supply. Begin with the percentage of the labor supply accounted for by enslaved people and then ask why the percentage of output would be either higher or lower than the percentage of labor (see for instance here in my thoughts on Stelzner and Beckert’s attempt to answer the question). I was too lazy to do the work, but fortunately for us Paul Rhode was not.

He estimates that the percentage of output was probably about the same as the percentage of the population, around 12 percent. He also does a series of robustness checks using alternative assumptions that raise or lower the estimate a little bit. As with all such estimates people will be able to quibble, but I think he makes a pretty strong case that it is difficult to produce an estimate that is much larger than the percentage of the population.

Rhode’s conclusion is not just important because he debunks Baptist. The flaws in Baptist’s work were so obvious that only people so enamored with his conclusions that they were willing to completely disregard all evidence continued to support his work. Rhode’s estimate is important because, like recent work by economists Hornbeck and Logan and the economic historian Joe Francis, it lays waste to a tradition rooted in the work of Fogel and Engerman. In Fogel and Engerman, slavery, although morally repugnant, was not just profitable it was efficient and highly productive. Later economists, including Engerman and Sokolof, would argue that despite its productivity slavery had negative long run consequences (see here for instance). But this recent work says that slavery did not just have negative long -term consequences, it was a massively inefficient misallocation of resources while it was taking place. Rhode’s conclusion that the fraction of output produced by enslaved labor was about the same as the fraction of the population accounted for by enslaved people means that the fraction was much less than the percentage of the labor force accounted for by enslaved people, about 22 percent in 1860.

Emancipation and Aggregate Economic Gains

 

 I recently listened to Rick Hornbeck on the Chicago Booth Review Podcast in the episode

An Economist Debunks Gone With the Wind

Its kind of  a silly name for the episode, but Hornbeck does a great job of describing important research by himself and and Trevon Logan. The paper calls for a significant reconceptualization of the economics of slavery. Hornbeck and Logan present slavery as a giant externality in which the labor of enslaved people was dramatically misallocated because slave holders did not have to take into consideration the full cost of their decisions. Consequently, although studies of emancipation have traditionally focused on the negative effect on production in the South, Hornbeck and Logan portray it as the biggest increase in productivity in American economic history.

You can access the working paper One Giant Leap: Emancipation and Aggregate Economic Gains  through the Becker Friedman Institute for Economics

Word on Fire/ Pants on Fire

 

I got an email notification last week for a new episode of Bishop Barron’s Word on Fire podcast  asking  Is There a Catholic Antidote to the Crisis in Higher Education

“According to Fortune magazine, overall undergraduate enrollment experienced the steepest rate of decline on record from 2019 to 2022, and it has only worsened since then.

There are several explanations, but one cause is entirely self-imposed: most universities and colleges have now replaced education with ideology, subverting the search for truth with political indoctrination.

In this episode of The Word on Fire Show, Bishop Barron and Matthew Petrusek, Senior Director of the Word on Fire Institute, discuss the ideological takeover of higher education and how the Catholic conception of the university can help provide an antidote.”

I’m afraid that before providing an antidote they should put some more work into their diagnosis. The episode does not provide any evidence that “most universities and colleges have now replaced education with ideology, subverting the truth with political indoctrination.” 

What it does provide are some references to the recent congressional testimony of some Ivy League presidents and some vague allusions to wokeness. Given the argument that students are not attending college because faculty are pressing a certain ideology and the Bishop’s example of the prevalence of this ideolog at Ivy League schools they must be at the forefront of the decline in enrollment. Anyone who knows anything about higher education knows that nothing is further from the truth. Ivy League schools are seeing record numbers of applications, leading to record low acceptance rates. They are doing just fine.

The schools that are seeing declining enrollments are less prestigious schools, especially smaller regional schools. The students who aren’t going don't express concerns about ideology; they are concerned about stress and mental health, the rate of return on their investment (which evidence still indicates is high), and their ability to pay. See, for instance, Exploring the Exodus from Higher Education

People will always be able to find anecdotes about some college course that they don’t like or some statement by an administrator that sounds preposterous, but as someone who has taught in colleges for more than 30 years, I just don’t see the world that Bishop Barron and other purveyors of the wokeness boogeyman want people to believe in. The most popular major in the United States is business, accounting for around 1 in 5 undergrads. Some of the other top majors are engineering, computer science, and nursing.  Are we seriously to believe that these schools are not in fact preparing people to be managers, accountants, engineers, computer programmers, data scientists, nurses, teachers, etc. but are instead just indoctrinating them in a political ideology?

 

If Bishop Barron really wants to play a positive role in higher education he should try to do better than this.

Planet Money on the political economy of rum in the U.S.

 

Planet Money has a nice story about rum production (The billion dollar war behind U.S. rum) in Puerto Rico and the Virgin Islands, particularly the consequences of Virgin Islands deal to lure Captain Morgan away from Puerto Rico.

It should be of interest to anyone paying attention to Youngkin’s attempts to lure the Capitals and Wizards away from D.C.

It is also a nice example of a real world prisoners dilemma type game.