Posts Tagged ‘economics


European History Pt. 47 — Industrial Revolution

Finally, we’re past the French Revolution, having closed out the Napoleonic era by looking at the Congress of Vienna, which would provide the basis for roughly 100 years without a major great power conflict.

Now we’re going to switch gears and look at the economic revolution that was taking place in this same period, the industrial revolution. The book I’m reading notes that even though both the economic revolution in the industrial revolution and the political changes in the French revolution was surprisingly separate. Of course, there are interrelationships between the two — probably a huge number, the book merely makes the astute point that one did not entail the other because though England was not swept in the revolutionary fervor on the continent, it was the leader of the economic revolution that took place from roughly 1780-1830.

Industrial Revolution

The book starts by talking about how the industrial revolution marks one of the great epochs in human history, the first being started by agriculture. This bold statement is confirmed by reading of another book on population dynamics over human history. Up until the industrial revolution, power was mainly provided by humans and their domesticated animals, with some occasional help from wind and water. But the industrial revolution unleashed a different ORDER of power with steam, coal, oil, and then nuclear power. These massive increased in energy was accompanied by a lasting and large increase in world population.

The industrial revolution was caused mainly by an agricultural system that had been growing more and more sophisticated in the century following the glorious revolution (1688) and relied on a particular British conception of property and risk taking. Throughout this time, England was ruled by the “Gentleman of England” or the “squirearchy.” The advances in agriculture made food more plentiful, living more comfortable, and freed up labor for other tasks.

Where did this “other labor” go? It went largely to the production of cotton in a complicated dance of social and technological innovation lasting decades. In 1733, John Kay invented the fly shuttle cutting weaving labor in half. This increased the demand for yarn. In the 1760s, the spinning jenny was set up to respond to that demand. In 1769 and 1780s, Richard Arkwright patented the water frame, which could spin multiple threads, and his machine became steam powered in times. In the U.S. the demand for raw cotton stimulated the plantation system (damn) which increased outputs with technology like the cotton gin.

The steam engine was being refined at this same time. At first it was not efficient enough to be used outside of coal mines themselves (where their fuel was right there) — the engines pumped water out of the mines at first. Then they were refined, and by 1780, the firm of Watt and Boulton was a profitable steam-engine manufacturing business. 

By the 1830s, one phase of the industrial revolution was complete, that of textile automation. Next would come the railroad phase. The first locomotive was built in 1829.

Social Consequences

The industrialization of Britain brought women from the “putting out” system into factories. Children were employed. Skilled laborers were displaced by machines. Urban life began in tenements and factory cities, especially in new cities in the middle of England like Manchester.

Wages were high by the standards of the time, but sometimes unpredictable due to business cycles. Days were 14 hours long, which sounds brutal — and it was — but it must also be kept in mind that those who worked on a farm at this time easily worked such hours in the care of their land. Of course, one might wonder how those 14 hours FELT in a factory versus on one’s own plot of land.


European History Pt. 22 — Economic Changes

In the last section, we talk a brief break from the strict narrative of history to look at the wider cultural context that held sway over most of Europe. Now we’re going to take some time to look at the economic situation. The timeframe the book adopts for this synoptic section is the entire 18th century (1700s).

The book makes two things clear from the start.

1. “The economic system of the eighteenth century, while it contained within itself the seeds of later industrialism, represented the flowering of the older merchant capitalism, domestic industry, and mercantilist policies which had grown up since the sixteenth century.

2. “Thus, while it is true to say that most people still lived in the country, it would be false to say that their lives and labors were devoted to agriculture exclusively.” The book goes on to explain that the beginnings of industry were primarily began in the country.

The Dutch. As always, the dutch continued to be a key economic force. In the 18th century. They had gotten so rich in the previous 200 years that they just lent out their capital to other people. They were huge investors in the bank of England as it exploded in power and importance, especially after 1800.

Asia. Asia would only accept gold from Europe,l which led to a continuous scramble for more of the precious yellow metal. For instance, Europe’s exploitation of the gold coast was in part driven by the need to pay in gold for the spices and other goods that these countries badly wanted from India and China, etc.

Sugar.  The book makes the point that the economic value of sugar taken from slave plantations in the 1700s was enormous. It was more than the output from Asia, and more than the output from the rest of America. Here the book is referring to huge, slave-driven output of places like Barbados, St. Kitts, and others.

Slavery. Starting in 1650, slavery took place in the colonies in north america, but after 1700, it became extremely widespread. Remember, at this time, far more African made the trip to the Americas than people from Europe. The “Atlantic” migration was a black phenomenon.

Western Europe. A huge portion of western Europe’s amazing enrichment during this time was built off of slavery. The west in turn, with access to the Americas, was able to trade with Eastern europe including Poland and Russia. This brought further wealth to the western European powers and further “culture” in the form of tobacco and tea to the east.

Other random observations: One sees how power begets power in this stage of history. Remember, the landowning aristocracy in Europe started with power over labor in a feudal scenario. Labor was emancipated, but these elites, who were not all that rich (relative to their peasants they were of course very rich) were able to parley their political power into economic power as they enriched themselves through the slave and spice trade. The book writes, “the two forms of property, borgeois (capital, shipping, investment) and aristocratic (land), tended to merge.” Partly through marriage.

Next time will be Europe after the war of Spanish Succession.


unemployment numbers as a case study in the contradictions of american politics

I’ve been trying to learn enough about the employment numbers to get beyond the debate as I’ve seen it, which consists of one side showing one chart and then saying “see, no one’s employed,” or throwing out one chart and sneering “Obama has done better than Bush at creating jobs.”

It’s all more complex than anyone wants it to be though, and this post is what helped me open it all up.

One reason comparisons are tricky is that recessions don’t coincide neatly with presidential terms. Obama took office in the depths of a recession, but Bush was in office for a while before 9/11 happened (though the economy was soft before that). Another reason things are tricky is that one needs to distinguish between JOBS and PEOPLE EMPLOYED. The numbers are not the same. As quirk of the data, there are usually about 9M more people who are employed than their are jobs. This is a result of the methodology used in creating these numbers. Last, one needs to consider the category of employment being discussed. Seasonally adjusted or not, private sector or total jobs (private+public).

In short, one should consider:

1. timing

2. statistical methodology

3. statistical category

The post I cited above puts these together nicely.

The most interesting thing I learned is that Bush’s employment numbers were buoyed pretty significantly by public sector employment. For example, Obama created more JOBS than Bush had created by the same time in his presidency, but he has also created MANY MORE private sector JOBS.

I capitalized “jobs” in the preceding paragraph because things are different when one looks at “number of people employed.” Bush increased the NUMBER OF PEOPLE  EMPLOYED much more than Obama by this time in his term.

But again, comparing the same point in Obama and Bush’s first term isn’t that helpful. More instructive is to compare numbers from the same time after the “bottom” of the recession. Bush had created a good deal more JOBS 28 months after the worst of his recession hit. However, again, in keeping with the point about Bush’s reliance on public sector employment, he only created slightly more private sector jobs than Obama.

On the other hand, Obama has created slightly more EMPLOYED PERSONS in the 28 months since the big 2008 recession.

Now for a philosophical point. None of this matters as much as people says it does. People compare Bush and Obama as if it somehow settles an important political point. Obama supporters reason that if they can show that Obama has done better than Bush, than conservatives must “shut up” about the economy. But there is nothing that can be proven by these comparisons. The reason is that political choices are made in terms of comparisons. One might be happy with Bush’s performance due to believing that it’s better than Al Gore’s, and dissatisfied with Obama because of confidence that McCain would have been even better.

Or alternatively, a conservative who voted for Bush might think that Obama is doing better, but nonetheless believe that he’s doing badly in an absolute sense. This is not hypocritical. One’s preferences can change. One might have believed that Bush managing the economy well due to deception or just partisan fervor, but after seeing Obama do slightly better and still realizing that it’s not very good overall, reject both presidents as bad and vote for Mitt Romney.

What is actually important for voting in November is one’s relative confidence in Obama and Romney in the next four years. Unfortunately, this is exactly the sort of information that no voter has access to, mainly because we don’t really have any idea what either person will do if elected to the 2012-2016 presidential term. I mean, it’s shocking how little information is available to the average voter. Sure, one could look at Romney’s past policies, but how relevant are they to his presidency. And even Obama might try radically different policies depending on what Congress looks like.

The curse of American politics seems to be that voters are thrown irrelevant information because the information that would make a difference basically can’t be had.


Great writing on employment statistics

There is so much talk about employment numbers and there is SO MUCH deception and missed nuance. However, today I found this post and thought it was fantastically helpful. From other posts and comments you can tell this woman REALLY knows her stuff. Some flamer wrote a comment that was just partisan hackery, and she dropped the hammer. Was great to read.

(Philosophical aside: think of anything you do at a high level. How often to people get the details of your knowledge area right, even very informed lay people? In my experience, almost never, which leads me to believe that we all labor under significant deceptions for most of our lives, because its simply very hard to learn a body of knowledge or skill to the degree that one really can MANIPULATE and OWN the relevant complexities)


anchoring effects in the law

I’m working my way through Daniel Kahnemann’s book, Thinking, Fast and Slow, in which he sums up decades of his research on decision making. There are a bunch of examples in this book, and I like it because it has confirmed for me a division that I have always believed to exist, the division between deliberation and intuition. That is not, technically, the division that Kahnemann talks about, but it’s close enough. The point is that we have two ways of answering questions, one which is fast, effortless, and potentially very inaccurate, and a slower more effortful process that I think is fair to term “rational” because we are capable of entertaining deductive arguments within it.

I have to review the book before I can make any bigger points, but here is a smaller one.

Kahnemann notes that capping damage awards in certain types of lawsuits may have an anchoring effect. In other words, imposing a cap of $100,000  on damages may prevent people from imposing $120,000 in damages, but it may also move people closer to the anchored amount. In other words, the average juror has no idea how much damages will compensate for an acid spill of some magnitude or for damage to someone’s health in a botched surgery and so jurors will INVOLUNTARILY (confirmed in numerous experiments) latch on to the only number available — the anchor number and make damages closer to that number.

Absent a damage limitation amount, the jury may award $50,000 in damage, but if they are told the limit is $100,000 the same jury is much more likely to move to something higher and closer to the anchor, like $80,000.

Kahnemann goes on to make the smart point that big companies likely favor such caps for two reasons. First, it means that damages can’t get too onerous, but it also means that smaller competitors might face damages that are close to the damage limit and so threaten their survival.

What this suggests to me is that juries should not be told damage limitations up front. Rather, they should be allowed to pick a damage number. If the number is too high, they should be told that they must go lower. However, at no point should they be told the damage limitation number.

All of this course would be premised on the results of studies looking at whether the jury awards tend to over or undershoot the true economic cost of some damage (if it’s meaningful to measure “true” economic cost).


Medieval Economic History

I’ve been reading up on the history of Europe just for my own edification and it’s been pretty interesting. What’s always shocking to me personally is how important religion has been in shaping European identity even though in 2012, I feel like it plays almost no role in my life. Times change quick.

The other interesting thing that I’ve come across is the rise of merchants.

In the 1400s or so, merchants were people who hauled goods from one town to the next. Today, “merchants” do not exist, unless you count truck drivers. And therein lies an interesting question. Why was it that in old Europe, people who moved things around were an influential and elite social class, but today, the job of moving something from point A to point B is highly controlled and very ordinary as far as jobs go (not trying to take anything away from truck drivers, they’re a group of badasses and they help us all live more comfortable lives with their service)

The difference is that “things changed.” Of course they did, but how specifically?

The answer I think was communication technology. When merchants were important, information did move any fast than the people transporting goods. So merchants accumulated a huge amount of information that made their service very valuable. The book I’m reading (A History of the Modern World) makes this point. There was no way for a Persian rugmaker to contact nobles in Prussia and so they could the producers could not decide what to make and how much of it to make. So rugmakers relied on merchants from Prussia to say “O yea, so and so would definitely pay x for these 10 rugs.” Merchants moved at the speed of goods which also happened to be the speed of information. Lucky for them.

As communication technology improved (ships, telegraph, then phone and internet) though, merchants were slower than information. An English textile manufacturer could learn about the market in Italy without resorting to merchants and so change production accordingly. In today’s world, truck drivers don’t tell anyone about the price of anything. That has been worked out in advance. Correspondingly, their economic contribution is much less than it once was.

The trick though is that I’m still not exactly sure HOW merchants extracted more money from people due to their information. I guess they were able to arbitrage prices? They could take advantage of rising demand more quickly than producers themselves good. The rugmakers would never know about a rug shortage in Prussia so they would charge their usual price but the Merchants could turn around and command higher prices. If the rugmaker could deal with Prussian nobles directly and make a contract, they would be able to charge a higher price and reap the benefits themselves.


Happiness Factoids

Once again, I came across a study that I wish I had time to read intently. 

This review surveys the literature on what makes people happy, something that is critical to the evaluation of policy proposals, but something that has been, until the last 30 years, overlooked. 

The summary of some of the big findings are here, though I don’t know why the title has “economics” in it. It seems that social science more broadly gets to take credit for these findings. 

I found a lot of the results very interesting, and the most interesting thing to me was that people who are unemployed are very unhappy. I didn’t get a chance to look if this could be reverse causal — that being an unhappy person caused you to be unemployed (sounds kind of reasonable, though it seems that on average, unemployed people are not less cheery by disposition, but that being out of work MAKES them sad), but the point is a suggestive one. It’s made even more suggestive by the fact that part time workers are happier than unemployed people and that full time workers are even happier than part time employees. What this says to me is that in some attenuated way, people are happiest when they believe themselves to have a purpose in an immediate and practical way. People are happiest when they are engaged in a project that requires their work and attention. 

I can personally verify that this is true, because in the moments in my life when I have not had to work, I’m very happy for a few weeks, as I de-stress, but then slowly but surely, I become more listless and depressed. I want something to be working toward each day, otherwise the days move by in a haze and time feels wasted. What if, in the far future, technology erases the need for work. Would humans need to invent work to stay sane and happy? I’m not sure, but part of the reason that this topic interests me is that it seems to point to the broader idea that humans need pain, or at least difficulty, to feel that life is worth living. In some sense, having challenges to overcome — challenges that really are  challenging — is necessary to have a good life. 

The study also mentioned that long commutes (longer than 22 minutes) make people very unhappy (or are correlated with unhappiness, I’ll stop mentioning these statistical provisos). At first, I thought that this meant that density is the answer. We should make everything within close walking distance by building UP (possibly like NY, though I hate to admit that). But there are tradeoffs there too that might be hidden. For instance, I wonder how having SPACE affects happiness or also the proximity with which you have to live with other people. I honestly don’t know the answer, but for me, I need space to myself as well as alone time, but the more people I meet, the more I believe that most people are happier to the degree in which they are in close contact with other people. 

So, if commute time is killer, and density may come with its own costs, we can conjecture that really it is going to be transportation technology (hover skateboards probably) that will bring some serious happiness to people. 

The last radical suggestion I want to make is to wonder whether there is such a thing as happiness. When I think about this concept, I’m just at a loss. Sure, sometimes I feel happy, but that’s pretty rare and it’s usually a short-lived mood. Everything just seems right for a little bit. But at the same time, I’m not unhappy throughout most of my waking moments. I am in a sense, happy, but that happiness is nothing more than the fact that I’m working on a project that seems worthwhile with a set of skills and capacities that I thankfully have.