‚Income Gap Grows Wider and Faster‘

The growth in inequality has accelerated in recent years:

... One way to see the acceleration in inequality is to look at the ratio of average to median annual wages. From 2001 through 2008, during the George W. Bush administration, that ratio grew at 0.28 percentage point per year. From 2009 through 2011, the latest year for which the data is available, the ratio increased 1.14 percentage points annually, or roughly four times faster. ...

American Cotton and American Slavery: A Deleted Scene from My „Slouching Towards Utopia?: The Economic History of the Twentieth Century“ Ms.

Slavery cotton Google Search

The first half of the nineteenth century prefigured what was going to come over the 1870-1914 period with the creation of the first true global economy.

The first half of the nineteenth century saw the creation of a much more limited form of trans-oceanic economic integration--the growth to maturity of the trans-Atlantic trade in the first industrial staple: cotton. The ménage a trois between the United States’s African-American slaves, the rich river valley cotton-growing soils of the American south, and Eli Whitney’s cotton gin together produced a cheap material input to an important manufacturing industry. This time the industry was dynamic enough and the raw material important and cheap enough that the presence of the Americas did change the shape of the leading European economy, that of Britain.

The availability of cheap American slave-grown cotton, as opposed to more expensive and more distant Egyptian and Indian varieties, may have saved Britain as much as four percent of national product in the reduced prices it had to pay for raw material inputs in peak years in the first half of the nineteenth century, and saved perhaps two percent of national product in reduced foreign materials prices in average years.

If the pattern of consumption had been maintained in the absence of slavery in the U.S. south, then this reduction in real national product would have come entirely out of investment–and would have reduced the pace of growth of the pre-Civil War British economy by perhaps 0.3% per year (cumulating to perhaps 15% over fifty years). If the cut had come proportionately out of investment and consumption, the reduction in growth would have been only 1/4 as large (cumulating to perhaps 4% over fifty years).

In an era in which British standards of living and levels of productivity are grew at roughly 1/2 a percent per year, the availability of slavery in the U.S. cotton south could have been responsible for between 15 and 60 percent of British economic growth in output per capita and per worker before the midpoint of the nineteenth century.

Yet cotton was a uniquely important good. And British imports of cotton were a uniquely strategic pressure point to apply to a pre- or an early-industrial economy. No other commodity, or set of commodities, had the potential to affect the destiny of any European economy in the years before the late nineteenth century. Trade was simply too small relative to domestic production for it to have been the prime mover or the balance wheel of any of these economies.

Retail momentum stalls

Last week, I rhetorically asked the question (see Nearing an inflection point: Watch the USD!):
Can the American consumer carry the entire weight of the bullish hopes of equity investors on her shoulders, especially if we start to see signs of stress in emerging market bond and equity markets?
Despite the better than expected consumer confidence numbers, we are seeing signs that the momentum of the retailing stocks are stalling out. Here is the relative performance of XRT, the retailing ETF, against SPY. On a relative basis, XRT is making a rounded top against SPY, which is not a good sign for the group:

The relative performance of RTH, another retailer ETF, against SPY is showing a similar pattern of making a rounded top:

To be sure, the Consumer Discretionary sector remains in a relative uptrend against the broader market:

New deal democrat recently noted that Coincident indicators stalled in July and with housing stocks also stalling out in relative strength, these are warning signs that the US consumer is starting to struggle. If this last bastion of global economic strength start to wane, the bullish case for stocks would only get weaker.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.

Unofficial Problem Bank list declines to 707 Institutions

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for August 30, 2013.

Changes and comments from surferdude808:
This week, the FDIC finally released industry results for the second quarter and its enforcement actions through July. For the week, there were 11 removals and four additions. The changes leave the Unofficial Problem Bank List holding 707 institutions with assets of $250.6 billion. A year ago, the list held 891 institutions with assets of $331.5 billion. For the month, the list declined by a net 22 institutions and dropped $102 billion of assets. Monthly activity included six additions, one unassisted merger, four failures, and 23 action terminations, which was the most action terminations in a month since 25 cures in April 2012. With second quarter industry results, the FDIC said there are 559 institutions with assets of $192 billion on the Official Problem Bank List. The difference between the two lists dropped by one institution to 148. We had anticipated for the difference to narrow to about 135.

The FDIC terminated actions against Inland Bank and Trust, Oak Brook, IL ($1.0 billion); Highland Bank, Saint Michael, MN ($429 million); Community Bank of Oak Park River Forest, Oak Park, IL ($272 million); First Southwest Bank, Alamosa, CO ($237 million); Signature Bank, Bad Axe, MI ($224 million); The Union Bank, Marksville, LA ($219 million); Community Trust & Banking Company, Ooltewah, TN ($131 million); Metropolitan Bank, Oakland, CA ($128 million); Cambridge State Bank, Cambridge, MN ($69 million); Elysian Bank, Elysian, MN ($42 million); and Vermont State Bank, Vermont, IL ($17 million).

Additions this week include United International Bank, Flushing, NY ($177 million); State Bank of Taunton, Taunton, MN ($71 million); Allendale County Bank, Fairfax, SC ($59 million); and Citizens Bank of Chatsworth, Chatsworth, IL ($48 million).

Not much new to report on Capitol Bancorp Ltd. other than its outside counsel squawking at the FDIC labeling its actions "imprudent and counterproductive." Within an article published by SNL Securities - Capitol Bancorp legal rep slams FDIC's 'imprudent and counterproductive actions', Andrew Sandler, chairman of BuckleySandler LLP, said "The FDIC is operating with extraordinary powers and seems all too willing to ignore judges, experts and others in effecting closures."  Five banks controlled by Capital Bancorp have failed, which have cost the bank insurance fund an estimated 48 million. The FDIC could utilize the cross-guaranty provisions of FIRREA to assess the cost of the failures against the remaining banks controlled by Capitol Bancorp, which could lead to their failure. 
CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 707.

Stagnation and Poverty Outside the North Atlantic, 10000 BC-1870: A Deleted Scene from My „Slouching Towards Utopia?: The Economic History of the Twentieth Century“ Ms.

Wix com GrG created by biebostrom based on reg top menu 3

John Ball (1381):

When Adam delved and Eve span/Who was then the gentleman?

From the beginning all men by nature were created alike, and our bondage or servitude came in by the unjust oppression of naughty men. For if God would have had any bondmen from the beginning, he would have appointed who should be bond, and who free. And therefore I exhort you to consider that now the time is come, appointed to us by God, in which ye may (if ye will) cast off the yoke of bondage, and recover liberty…

5.1: Children

You need to understand three things to grasp the state of the world economy outside the North Atlantic in 1870:

  • that the drive to make love is one of the very strongest of all human drives,

  • that living standards were what we would regard as very low for the bulk of humanity in the long trek between the invention of agriculture in 1870, and

  • that the rate of global and even leading-nation technological progress up to 1870—even in the heat of the Industrial Revolution itself—was, by our standards, glacial.

Before the coming of abundant and relatively reliable means of artificial birth control at the end of the nineteenth century, making love is followed almost invariably if not immediately by children—over a lifetime, lots of children. And once humans have children that they survive and flourish becomes the most important thing for almost every parent for two reasons. The first reason is that you love them almost as much as and in some cases more than yourself. Recall Hektor’s prayer for his son Astyanax (a prayer that Hera and Athene worked very hard to make certain that Zeus did not grant):

Zeus, grant that this my child may be, like me, first among the Trojans. Let him be not less excellent in strength. Let him rule Ilius with his might. And may the people say of him as he comes home from battle: “He is far better than his father!”

The second reason is that if you survive into your old age you will need someone to take care of you, and the only people likely to be willing to take care of you are your descendants. With infant and child mortality rates of 50% and life expectancies of less than thirty years, lots of pregnancies is the only way to be reasonably sure that you will have a still-living child when you go blind and toothless.

Thus human populations--back before widespread female literacy enlarged the options open to women, back before the fall in infant mortality created the expectation that your children would survive to grow up, back before widespread artificial birth control allowed women to have the number of children they wanted and not more--tended to grow until something stopped them.

5.2: Pre-Industrial Living Standards

Living standards were what we would regard as very low for the bulk of humanity throughout the long trek between the invention of agriculture around 8000 B.C. and 1870.

5.2.1: Hunting and Gathering

Take Peabody and Sherman's WABAC machine back further than 1870, back to ten thousand years ago, to the eve of the invention of agriculture, to when hunter-gatherers inhabited the world.

Biomedically our hunter-gatherer ancestors appear to have been about as healthy as we in the modern world are through early middle age—if they survived to early middle age, that is. Life expectancy at birth was twenty-five on a generous estimate. The average adult height of mesolithic—-i.e., the period that ended 10,000 years ago—-hunter-gatherers appears to have been about 5’8” for men and 5’5” for women, perhaps a hair less than average adult height in the rich postindustrial economies today. Our hunter-gatherer ancestors were, plausibly, better-nourished than we are today: even in the richest countries today diets are tilted toward high-caloric density carbohydrates—-rice, wheat, corn, and potatoes—-relative to nutritional requirements.

As a hunter-gatherer you lived a well-nourished, physically-strenuous life that kept you fit, and was at least moderately interesting in the day-to-day puzzles that you had to solve. Hunter-gatherers avoided the mind-numbing boredom of doing the same thing over and over again to the next row of the same crop, what Karl Marx called the “idiocy of rural life.” But there was a downside. Hunter-gatherer nutritional standards were adequate and diets were varied in large part because population densities were low and foraging territories relatively large. Population densities were low because mortality was ferocious. You got to watch your friends die, your spouse die, your comrades die, worst of all a large fraction of your children die, and then you died at a relatively young age.

How ferocious was mortality? A pre-industrial nutritionally-unstressed human population with access to the technologies of settlement—building walls, roofs, and chimneys and weaving and sewing clothes—will roughly double in population every twenty-five years. That is what the British settlers in America did in the generations after they hit the coast from Georgia to Maine. But human hunter-gatherer populations before agriculture grew from perhaps a hundred thousand people fifty-thousand years ago to perhaps 5 million people ten-thousand years ago. That is a rate of increase of 0.01% per year: each generation sees not twice as many people as its parent generation, but rather only a quarter of a percent more—one extra person for each 400.

And even though life was not that of boring routinized repetitive labor, it was not what we would call comfortable: you spent a not-small part of your life hungry, cold (or too hot), or wet.

Now jump forward again to 1870. How did living standards in 1870 compare to those ten thousand years ago?

5.2.2: From 10000 B.C. to 1870

A reasonable view of what we think of as “material well-being” classifies basic human needs and desires as sixfold:

  • to watch your grandchildren (or your great-nieces and nephews or your protégés) grow up,

  • to have enough food that you are not too hungry,

  • to have enough clothing that you are not too cold,

  • to have enough shelter that you are not too wet,

  • to have enough conceptual puzzles and diversions that you are not too bored, and

  • to have enough status that you can gloat at the envy of others (at least in private).

By that yardstick we in the world economy’s core today rank ahead of our hunter-gatherer ancestors on five of these six dimensions. (The sixth-—relative status—-is, alas!, conserved: you cannot generate it from some without taking it away from others, and so there we are stuck at an equal average level.) But back in 1870 people (with the exception of the literate upper classes) by and large did not do so. The upper classes of 1870 were certainly more comfortable and probably led richer and more interesting lives than the Clan of the Cave Bear did. But the illiterate peasants of the world in 1870 probably did not do so

1870 saw no greater life expectancy than people in 8000 BC. Infant and adult mortality in agricultural and commercial societies is no lower than in hunter-gatherer ones. Mortality may well be higher for adults, because plagues and famines like dense human populations. Bacteria do not care (much) if their rapid growth kills their hosts as long as that happens only after they have found a new host to jump to. And denser populations terribly vulnerable to famine, either through blight or through weather—-too hot or too cold, too wet or too dry—-adverse to the growth of whatever the staple happens to be.

An agricultural cereal-heavy diet does not contain enough iron to avoid anemia. It does not contain enough calcium to avoid tooth loss and bone weakness. Rome’s legions were paid in bread and a little salt—that’s what “salary” means. Add to this whatever meat they could find and whatever greens and seasonings they could gather, and you had the diet of the legionaries, collectively at least the most powerful group of men of their age. They wear highly-skilled practitioners of violence. They were mean. They were also short. And they were, by what we would regard as early middle age, largely toothless.

Have we mentioned endemic hookworm, tapeworm, and other parasites yet? Or that agricultural and commercial labor likely involves heavy lifting-and-carrying labor that damages your spine? Or that the relatively high population densities create greater vulnerability to infectious diseases that debilitate even when they do not kill?

In 1870 agricultural and commercial societies people were short. Average adult male heights of 5’3” (and adult female heights averaging 4’11”) appear to have been the rule for humanity once we started to farm. This indicates extraordinary malnutrition by our standards. If my wife and I had fed our boy and girl a diet to produce adult heights of 5’3” and 4’11” respectively, Contra Costa Child and Protective Services would have long since came and taken my children away, and I would never have seen them again.

5.3: Real Wages to 1870

Robert Allen and his coauthors have compiled the scanty information we have on the wages of unskilled laborers across the big cities of Eurasia from 1350 to 1900. Their wages are real wages: a value of one means that an adult male laborer employed full time, full year could earn just enough to keep his family of six or so at biological subsistence—1940 calories per adult male per day, most of it on the cheapest carbohydrate sold in that city, with only tiny amounts spent on “luxuries” (rent, wood for burning, oil, and meat). Their workers of London and Amsterdam on these budgets are eating oatmeal two meals a day, the workers of Vienna are eating rye, the workers of Delhi are eating millet, the workers of Beijing are eating sorghum, and the workers of Florence are eating polenta over and over again.

There are three subtleties of interpretation. The first is that biological subsistence is not sociological subsistence. The workers of London in 1600 did not spend 1/3 of their income on “necessities” and have two-thirds left over for luxuries, for they did not want to eat oatmeal two meals a day and in fact did not eat oatmeal two meals a day. Oats were, as famously defined by Samuel Johnson:

a grain that in England is fed to horses and in Scotland is fed to men.

The Scots had a reply:

That is the reason that England breeds such fine horses, and Scotland breeds such fine men.

But an English laborer of 1600 would have been as humiliated to be forced by penury to eat like a Scotsman—-oatmeal and oatcakes a his principal—-as a Republican member of the U.S. House of Representatives in 2003 would have been as humiliated to be forced to subsist primarily on French fries.

The second is that these wage level calculations assume that you could have found work all the time, which seasonal labor requirement patterns and commercial and political disruptions made chancy at best.

The third is that these are the wages that were paid to urban workers hired for the day. These are the wages of those whose connections with their employers were overwhelmingly short-term cash-nexus connections. Such people are not in general representative of society as a whole even today, and were definitely not in general representative back in the past. In rapidly-growing cities like fourteenth-century Florence, fifteenth-century Vienna, sixteenth-century Amsterdam, seventeenth-century Delhi, or eighteenth-century London, the day laborers were people from the countryside pulled into the city by the chance to make extra bucks who sell their labor-power to employers who see opportunity and don’t have enough in the way of serfs or apprentices or liegemen to handle the workload. In cities like nineteenth-century Delhi, Beijing, or Florence, the urban day laborers were people who have been pushed out of the countryside by the lack of land or a place and have washed up on the shores of the city to live by their wits or starve. Italy in 1850 was not a country in which the average person subsisted on 1600 calories of polenta per adult male equivalent per day.

That said, the pattern that Allen et al. paint is clear and convincing. They pick up the story in the aftermath of the Black Death of the mid-fourteenth century—-the bubonic plague. With the population of Europe down by between a quarter and a half from its early fourteenth-century medieval high, larger farm sizes produced an agricultural bonanza for peasants who could (a) produce more and (b) bargain for lower feudal rents from an Earl of Pembroke desperate to have somebody working the land to pay something. Urban plague mortality had been highest. City employers were thus desperate to pay through the nose, and urban unskilled day laborers typically earned three times the biological “subsistence” family wage.

By 1600, however, Allen et al. find that urban unskilled day-laborer real wages are much lower. Italy and Austria have filled up with people, farm sizes are smaller, and the shift of trade from the Mediterranean to the Atlantic has advantage Amsterdam and London at the expense of Florence. Neither Florence nor Vienna was anymore a good place to be an unskilled day laborer and try to raise a family. Allen et al. do, however, pick up early-Moghul Delhi, which then looked a lot like London: a rapidly-growing capital city in a rich agricultural region that benefited from the global trade-war-and-conquest boom set off by the invention of the sea-going caravel and the voyages of Christopher Colombus and Vasco da Gama. And by the eighteenth century Delhi has joined Florence, Vienna—-and mid-Qing Beijing—-as places where the lot of a masterless man trying to raise a family was very bad indeed. And we think that this roughly tracks what was going on in the countryside as well: people were still on net moving from the countryside to Florence, Vienna, Delhi, and Beijing, which means that the lot of a youngest son or of someone whose lineage had lost out in a dispute over land ownership out in the countryside was even worse.

London and Amsterdam are the only cities in Allen et al.’s dataset that managed to avoid the dismal Malthusian fate. Their workers did not have to subsist on oatmeal year-in year-out (or millet, or sorghum, or polenta) but due to the commercial-revolution expansion of the world trading economy plus a little successful imperialism could eat bread instead of oatmeal, buy beef and beer on a regular basis, wear better clothes, purchase stimulants like sugar and tea, and even—after the Protestant Reformation which made literacy a duty because reading the Bible was storing up treasure in heaven—books.

5.4: Why then the Transition to Agriculture?

Comparing the lifestyle of hunter-gatherers ten thousand to that of illiterate peasant farmers a hundred and fifty years ago raises an obvious question: why would people ever become farmers?

Jared Diamond claims that we should—-even in the United States, even today—-envy our hunter-gatherer ancestors. I don’t buy this: I do not, or at least I think we should not, envy them. (He does not either: Full Professors of Physiology at UCLA and of Economics at U.C. Berkeley have chosen a life far, far removed from that of our ancestors.) But there is an important kernel here: almost all of our agricultural and commercial-era ancestors between 8000 BC and 1870 or later did have good reason to envy our common pre-industrial ancestors. We understand why the transition from hunting and gathering to pre-industrial agriculture is good for those at the top of the pyramid. But why do those not at the top of the socioeconomic pyramid go along?

5.4.1: The First Generations to Farm

Most important, is that the first generation to farm—-or to adopt any of the many subsequent agricultural productivity-multiplying innovations—-does live the life of Reilly, off the fat of the land. If you can figure out how to do it, it is good for you and your children and your children’s children to farm. But a well-fed and well-nourished population multiplies. So farming population densities explode far beyond hunter-gatherer densities.

Some human populations did not pursue the agricultural road. Some settled into a halfway role as nomadic or transhumant herders following their flocks on land that was, for the time and given the available biotechnology, marginal for settled agriculture. Some remained hunter-gatherers for a while. But, eventually, somebody nearby had become farmers. And the population density of the farmers grew. Hunter-gatherers rarely exceed population densities of one per square mile. Farmers on land that is good for their particular version of agricultural technology can easily support many more than a thousand in the same space. The old “forty acres and a mule” for a family of six translates into a population density of roughly 100 per square mile. When those nearby who had become farmers decided that they wanted the hunter-gatherers’ or the herdsmen’s land, they took it: numbers of 100-to-1 or 1000-to-1 are not easy to argue with.

The upshot is that—-unless you were part of the rich, literate upper classes—-per capita standards of living were not that much higher in 1870 as they had been back in 8000 BC. Population, however, was much greater: 1.1 billion in people in 1870, compared to 5 million or so back in 8000 BC.

5.5: An Accountant’s View of Long-Run Growth

Back before 1870 the rate of technological progress in the world was, by our standards, very slow.

Economists find that the broadest and most useful measure of a society’s technological prowess is its degree of total factor productivity—-TFP. TFP tells how much in the way of economically-useful output an economy produces per appropriately-weighted unit of input.

For a pre-industrial economy, the rule of thumb is that—if TFP remains the same—a one-percent increase in the labor force makes possible an 0.5 percent increase in production, a one-percent increase in the stock of produced capital makes possible an 0.2 percent increase in production, and a one-percent increase in the stock of available land and other natural resources makes possible an 0.3 percent increase in production. Any increase in production over that is due to growing TFP: to an increase in human capabilities to manipulate labor and to divide and organize work.

For the globe as a whole, the rate of growth r of natural resources is zero: individual civilizations can expand, but humanity as a whole cannot. And we make the rough approximation that the rate of growth of the stock of tools and buildings is the same as the growth of output as a whole.

Back 10000 years ago there were perhaps 5 million people alive on the earth. But 1800 there were 750 million. That is a growth rate of 0.05% per year—2.5% per generation, or 5% per century. We already assumed that the growth rate of per capita income y between 8000 BC and 1870 was effectively zero. Together, those tell us about the rate of TFP growth:

Fifteen-thousandths of a percent per year.

That was the rate of growth of human technological capabilities in the nearly ten thousand years between the invention of agriculture and 1870.

Today we expect to see a hundred times that much technological change in a single year. The pace of innovation and invention that today takes twelve months took, on average before 1870, a century.

5.6: In the Shadow of Malthus

Now that we have established that technological progress was glacial before 1870, and especially before 1800, we can turn that around and figure out why income levels, living standards, and labor productivity levels worldwide were so stagnant from 8000 BC to 1870.

On average in the pre-industrial post-hunter-gatherer world populations grew at 0.05% per year. That is five percent in a century: for an average generation, were 105 people for every 100 people who had lived in their great-great-grandmothers’ time. Yet normal human fertility with reasonable nutrition without artificial birth control will lead to roughly eight pregnancies per female. If each of their great-grandmothers had had four daughters, each of whom had four daughters, et cetera… then an average generation would not have 105 people but rather 25,600 people for every 100 alive in their great-great-grandmothers’ time. Even over a span as short as a century, in the agricultural age before 1870 99.59% of the people who could have been there simply weren’t. Farming population densities explode far beyond hunter-gatherer densities until something brings population growth to a halt.

5.6.1: Positive and Preventative Checks to Population

What limited population growth so much in the pre-1870 agricultural world?

A number of things can restrain population growth. Perhaps celibacy and abstention from reproduction is thought of as pleasing to God. Your prospective father-in-law may tell you that you may not marry his daughter until you have a farm of your own, and he may be able to make that stick. Your older brother may tell you that you cannot bring a wife into the lineage house until the lineage has bought an extra piece of land on which to grow food.

But most often and to the greatest extent that “something” is poverty: children become too malnourished to fight off normal childhood diseases, women become too skinny to ovulate, and populations become so dense as to become giant culture dishes for endemic debilitating diseases or periodic epidemic mortal plagues, and so population growth ceases. Generation-to-generation the population jumps up and down as the spread of agricultural techniques produces an edge in food and more children survive, as plagues and wars devastate provinces, and as bounceback takes place in the aftermath of plagues and famines that have left provinces depopulated but the survivors with large and fertile farms.

The fact that over the long run between the invention of agriculture 10000 years ago and 1800 human populations grew very slowly indeed carries the implication that at most times in most places agricultural society life was nasty and brutish and short. Technological progress would produce a few generations of relative plenty, a growth in population density to shrink the average size of farms. And then you were back on the Malthusian treadmill. The only exceptions were improvements in technology and organization that did not affect the rate of reproduction—either because the benefits were confined to the (numerically small) upper classes or because the changes came accompanied by social changes that increased mortality. Of course, social changes that increase mortality are hardly improvements in quality of life, are they?

5.6.2: Exceptions: Eras, Customs, and Classes

Now there were exceptions: exceptional eras, exceptional customs, and exceptional groups.

Exceptional eras come in two flavors. First, there are the years, the decades, and the centuries after key improvements in agriculture. The iron axe that allows for the clearing of temperate woodlands, the heavy plow that allows successful growth of grains in otherwise clayey wet soils, strains of wet rice that allow two or three crops of rice a year—-if you first invest in the public works needed to flood the rice paddies—-the caravel and the settlement of North America all produce times in which life for the average rural peasant, and thus for the average urban laborer as well, was relatively good. Second, there are the years after Azrael visits in the form of the Bubonic Plague or something similar has visited a region, the years in which populations are much smaller than they used to, farm sizes much larger, living standards higher—-and populations growing to make average farm sizes lower once again.

Exceptional customs are social arrangements that constrain human fertility and as a result keep populations from growing even when people are relatively well-fed and well-nourished. The most obvious is the European marriage pattern: the postponement of the median age of marriage for young women until their early or mid twenties, because fathers demanded that potential husbands have prospects—ownership of a farm, a workshop, a profession, a competence—before they would let their daughters out of the household. Remember Romeo and Juliet? Remember the exchange between Old Capulet and Count Paris at the start of Act 1, Scene 2:

CAPULET: But saying o'er what I have said before:
My child is yet a stranger in the world;
She hath not seen the change of fourteen years,
Let two more summers wither in their pride,
Ere we may think her ripe to be a bride.

PARIS: Younger than she are happy mothers made.

CAPULET: And too soon marred are those so early made.
The earth hath swallowed all my hopes but she,
She is the hopeful lady of my earth:
But woo her, gentle Paris, get her heart,
My will to her consent is but a part…

Lady Capulet has different ideas.

And so, soon thereafter in Shakespeare’s play, does Juliet.

But the drag exercised on female age of marriage by powerful patriarchal fathers who think they know better than their daughters what is good for them was (a) a social force making for older ages at marriage, (b) fewer pregnancies at a given state of nutrition and real income, (c) as a result a somewhat richer society, (d) much heartbreak among the young, and (e) most of great European literature and tragedy.

In Asia, you have a similar institution with the lineage family. If in Europe it was the father telling the suitor that “you cannot marry my daughter until you can support her in the style I want her to be accustomed to,” in Asia it was the older brother and lineage head telling his brothers, sons, and nephews that “you cannot bring a wife into this house until we have more resources.”

And, worldwide, there was the exposure of daughters unwanted by their father.

Exceptional groups are the upper and to a lesser extent the middle classes—and there are usually some upper classes since the invention of agriculture. As Jared Diamond points out, such privileged classes require agriculture:

Besides malnutrition, starvation, and epidemic diseases, farming helped bring another curse upon humanity: deep class divisions. Hunter-gatherers have little or no stored food, and no concentrated food sources, like an orchard or a herd of cows: they live off the wild plants and animals they obtain each day. Therefore, there can be no kings, no class of social parasites who grow fat on food seized from others. Only in a farming population could a healthy, non-producing élite set itself above the disease-ridden masses. Skeletons from Greek tombs at Mycenae c. 1500 B. C. suggest that royals enjoyed a better diet than commoners, since the royal skeletons were two or three inches taller and had better teeth (on the average, one instead of six cavities or missing teeth)…

Before the invention of agriculture you can use your status to pick the best of things, but the amount of things you have is limited to what you can personally carry. And if your exactions become too onerous the people can simply leave for the hills. But once a population becomes agricultural, people cannot leave for the hills. Agriculture opens a new career path: that of a specialist in systematic violence directed against other humans who makes threats to induce them to give you a third of their crop—or else.

A parasitic caste or class existing by virtue of their organized ability to threaten violence and then take a substantial share of the agricultural (and craftwork) producers’ crops becomes the rule soon after the coming of agriculture. Such castes and classes live better albeit more dangerously than the peasants. (If they didn’t live better, after all, why accept the extra danger?) They live more dangerously because, after all, if they do not their numbers grow until they, once again, are at the Malthusian margin—-and what good is being a noble if you have to live like a peasant? Whatever social system they evolve will break down unless it (a) keeps their numbers low enough to maintain an edge in standard-of-living, (b) keeps their lifestyle focused enough that they maintain their edge in violence, (c) keeps their numbers high enough that with their edge in violence they can maintain control, (d) keeps their numbers and their skills high enough to avoid being conquered by neighboring similar groups of thugs-with-spears, and (e) keeps their exactions low enough that they are not destroyed by revolting peasants with nothing to lose anyway. Upper-class social systems that accomplish those five goals tend to be terrifyingly stable in human history since the invention of agriculture. And whenever such a system does collapse another replacement almost invariably soon grows up in its place.

5.6.3: Understanding Growth in the Shadow of Malthus

We see the effects of technological progress over the millennia before 1870 in the numbers of humanity as a whole, but also in the standard of living of the upper classes. To be a slave of Marcus Tullius Cicero in 76 BC was probably a lot like being a slave of Thomas Jefferson in 1776. The heavy plow and the horse collar allowed Monticello to feed a greater population density than Tusculum. But Jefferson's life was not all that much like Cicero's. 1800 years of technological progress largely tuned to elite consumption made themselves felt: bigger and better horses, carriages with springs, more interesting intoxicants, superior furniture, better heating technologies, superior artificial lighting systems, et cetera. The only edge I can see is that Cicero had access to superior Roman bathing technologies that had been lost in the Dark Ages. And there are the two overwhelmingly important differences: printing (and the fact that Jefferson had an extra 1800 years' worth of people to read who had joined the human conversation), and coffee.

How important were these exceptions? How much should we value the fact that Thomas Jefferson lived better than Marcus Tullius Cicero given that their slaves lived about equally well? It probably depends—a lot—on whether you identify yourself with Jefferson and Cicero on the one hand or with their slaves on the other. And how much should we value sheer numbers—the fact that the human population early in the nineteenth century was probably some five times or so its 70 BC level? (That is an unresolved issue in utilitarian philosophy.)

Aristotle was one of those who had no doubt that it was the heights achieved by humanity rather than the average that mattered, and that steep inequality was both inevitable and desirable. After all it was, Aristotle wrote, impossible to have a society in which there were people with the leisure and education to love wisdom without also having many slaves. And that would be true unless we magically had instruments like “the robots of Daedalus, or the serving-carts of Hephaestus” such that “the shuttle would weave and the plectrum touch the lyre without a hand to guide them.” Then “chief workmen would not want servants, nor masters slaves.”

We today are in the utopian case that Aristotle dismissed as ridiculous. But back in 1870 the world was not. It was that era—-the poor, Malthusian era—-that was what began to come to an end in 1870.

But in 1870 it was still going strong.

5226 words.

A Carbon Tax That America Could Live With?

I expected Greg Mankiw's latest column to be about sales of his textbook. That's important news everyone should know about. But in a complete surprise, he talked about carbon taxes instead:

A Carbon Tax That America Could Live With: ... If the government charged a fee for each emission of carbon, that fee would be built into the prices of products and lifestyles. When making everyday decisions, people would naturally look at the prices they face and, in effect, take into account the global impact of their choices. In economics jargon, a price on carbon would induce people to “internalize the externality.”
A bill introduced this year by Representatives Henry A. Waxman and Earl Blumenauer and Senators Sheldon Whitehouse and Brian Schatz does exactly that. Their proposed carbon fee — or carbon tax, if you prefer — is more effective and less invasive than the regulatory approach that the federal government has traditionally pursued.
The four sponsors are all Democrats, which raises the question of whether such legislation could ever make its way through the Republican-controlled House of Representatives. The crucial point is what is done with the revenue raised by the carbon fee. If it’s used to finance larger government, Republicans would have every reason to balk. But if the Democratic sponsors conceded to using the new revenue to reduce personal and corporate income tax rates, a bipartisan compromise is possible to imagine. ...

Mankiw once said that economists shouldn't consider the political realities of policy, they should just recommend the best policy:

Politics aside: I have finally gotten around to reading the new Ebenstein biography of Milton Friedman. Here is a quotation from Milton that I particularly like:

“The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible’ and then to recommend it.”

So now, when I advocate raising gasoline taxes and cutting income taxes, and my conservative friends tell me that the plan is politically unrealistic, that the government will just keep the extra revenue instead of cutting income taxes, I can quote Milton....

I get that Mankiw really wants his personal taxes to be lowered, he seems to hate the idea of paying a fair share in taxes from what he makes from the textbook he hawks at every opportunity. But why, from an economic standpoint, is lowering his personal taxes (corporate taxes too) the best option (as opposed to simply trying to find something that is politically acceptable to the right)? Has he made that argument? The revenue could be used to help low income households that would be hurt by the tax, for deficit reduction without cutting programs, there are all sorts of ways the revenue could be used and it's not at all clear that his recommendation is, from an economic rather than a political view, the best way to use the revenue from a carbon tax.

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