• Recommendations for Further Reading
  • November 13, 2020

Cultural factors, Adam Smith, and climate policy

Pastor welcoming people for Sunday Service outside the Notre Dame Cathedral.



The Annals of the American Academy of Political and Social Science devoted its January 2020 issue to 14 articles on the theme of “Fatal Police Shootings: Patterns, Policy, and Prevention." In his essay “Police Killings as a Problem of Governance,” Franklin E. Zimring writes:

Police shoot and kill about a thousand civilians each year, and other types of conflict and custodial force add more than one hundred other lives lost to the annual total death toll. This is a death toll far in excess of any other fully developed nation, and the existing empirical evidence suggests that at least half and perhaps as many as 80 percent of these killings are not necessary to safeguard police or protect other citizens from life-threatening force. ... One reason why U.S. police kill so many civilians is that U.S. police themselves are vastly more likely than police in other rich nations to die from violent civilian attacks. In Great Britain or Germany, the number of police deaths from civilian attack most years is either one or zero. In the United States—four or five times larger—the death toll from civilian assaults is fifty times larger. And the reason for the larger danger to police is the proliferation of concealable handguns throughout the social spectrum. When police officers die from assault in Germany or England, the cause is usually a firearm, but firearms ownership is low, and concealed firearms are rare. There are, however, at least 60 million concealable handguns in the United States and the firearm is the cause of an officer’s death in 97.5 percent of intentional fatal assaults, an effective monopoly of life-threatening force even though more than 95 percent of all assaults against police and an even higher fraction of those said to cause injury are not gun related.

Zimring (2020)


The Spring 2020 issue of Future of Children includes nine papers on the theme "How Cultural Factors Shape Economics Outcomes."  For example, Ariel Kalil and Rebecca Ryan write about “Parenting Practices and Socioeconomic Gaps in Childhood Outcomes” (pp. 29–54):

Socioeconomic status is correlated across generations. In the United States, 43 percent of adults who were raised in the poorest fifth of the income distribution now have incomes in the poorest fifth, and 70 percent have incomes in the poorest half. Likewise, among adults raised in the richest fifth of the income distribution, 40 percent have incomes in the richest fifth and 53 percent have incomes in the richest half. Many factors influence this intergenerational correlation, but evidence suggests that parenting practices play a crucial role. These include doing enriching activities with children, getting involved in their schoolwork, providing educational materials, and exhibiting warmth and patience. Parental behavior interpreted in this way probably accounts for around half of the variance in adult economic outcomes, and therefore contributes significantly to a country’s intergenerational mobility.

Daniel Hungerman investigates “Religious Institutions and Economic Wellbeing” (pp. 9–28):

Religious groups discourage unhealthy behaviors and have played an important role in promoting educational attainment and economic wellbeing. Religious participation can increase a person’s tolerance of others, and in some circumstances can be particularly beneficial for human capital investments for women. Religion also appears to insure individuals against negative shocks. ... [R]ecent rigorous research suggests that the beneficial effects of religion are often causal, and some work... finds that the large association between beneficial outcomes and religion observed in the data may understate religion’s true effect.

Future of Children (2020)


Edward L. Glaeser and James M. Poterba have edited a collection of eight essays and comments in Economic Analysis and Infrastructure Investment (National Bureau of Economic Research). Gilles Duranton, Geetika Nagpal, and Matthew A. Turner contribute “Transportation Infrastructure in the US.”

On average, most US transportation infrastructure is not crumbling, except (probably) for our subways. Over the past generation, the condition of the interstate highway network improved consistently, its extent increased modestly, and traffic about doubled. Over about the same time period, the condition of bridges remained about the same, the number of bridges increased slowly, and bridge traffic increased modestly. The stock of public transit motor buses is younger than it was a generation ago and about 30 percent larger, although ridership has been about constant. The mean age of a subway car stayed about the same from 1992 to 2017, but at more than 20 years old, this average car is quite old. Subways carry about twice as many riders as they did a generation ago. Speed of travel by car, bus and subway, all declined between 1995 and 2017, most likely as a consequence of large increases in road traffic and subway ridership. Like public transit, the interstate system is largely organized around the provision of short trips in urban areas. ... Expenditure on transportation infrastructure is growing, and for the most part, allows maintenance to match or outpace depreciation. Moreover, the available empirical evidence does not allow for much confidence in the claim that capacity expansions will lead to economic growth or reduce congestion.

Duranton, Nagpal, and Turner (2020)


J. Steven Landefeld, Shaunda Villones, and Alyssa Holdren provide a view from the US Bureau of Economic Analysis on “GDP and Beyond: Priorities and Plans,” which also includes an introduction by Ernst Berndt and comments by Angus Deaton, Dale W. Jorgenson, Lisa M. Lynch, Paul Schreyer, Louise Sheiner, and Daniel E. Sichel. Landefeld, Villones, and Holdren write:

In the 1930s, Simon Kuznets, one of the architects of the U.S. national accounts, pointed to the limitations of emphasizing market aggregates, like GDP and national income, and excluding nonmarket activities that have productive value or that enhance economic and social welfare. This criticism is still applicable today. ... The Bureau of Economic Analysis (BEA) recently embarked on an initiative—“GDP and Beyond”—to identify ways to use its data resources and statistical knowledge to inform the discussion of well-being. ... In March 2020, the Bureau released a set of prototype measures of economic well-being and growth and prototype estimates of the distribution of personal income. BEA is continuously exploring ways to improve the core GDP accounts, both as a measure of market production and as an indicator of economic well-being and long-term growth, including researching the prices of high-tech goods and services. In addition, the Bureau is updating and expanding its integrated accounts of wealth, productivity, and industry-level production as well as its satellite accounts for sectors like arts and culture, outdoor recreation, health care, and household production. Looking to the future, BEA will turn its attention to longer term projects that require additional research and resources, including valuing “free” digital services, testing alternative aggregate welfare measures, and estimating human capital.

Landefeld, Villones, and Holdren (2020)



The Adam Smith statue in Edinburgh./Bigstock


William Easterly considers “Progress by consent: Adam Smith as development economist” (Review of Austrian Economics, published online September 10, 2019.

There is a curious notion in development economics that the field emerged out of nowhere right after World War II. I used to share that view... It took me embarrassingly long to acknowledge some obvious ancient history of development thinking, and some other development economists are apparently taking even longer. As long ago as 1776, Adam Smith wrote a book called the Wealth of Nations. It turns out, after many hours of careful reading, that the book is indeed about the Wealth of Nations. Far from ignoring the wider world, Smith cited 164 different historical or contemporary place names or names of ethnic groups. ... The omissions... are rare and reflect information availability. Only Australia and New Zealand are left out altogether. Specific place names in Africa are limited to some places on the coast, but there are very important discussions of the African continent as a whole. The rest of the world is well covered... Smith has abundant coverage of future Third World places such as Peru, Mexico, Chile, Egypt, India, Africa, Central Asia, and China. Smith’s First World success stories are England, lowland Scotland, British North America, and Holland. The future Second World is also covered in discussions of Russia and Eastern Europe. ... Smith used his widespread examples to test his preferred hypothesis to explain development.

Easterly (2020)


Gary Smith discusses “Data Mining Fool’s Gold” (Journal of Information Technology, September 2020, pp. 182–194).  

It  is tempting to believe that patterns are unusual and their discovery meaningful; in large data sets, patterns are inevitable and generally meaningless. . . . Data-mining algorithms—often operating under the label artificial intelligence—are now widely used to discover statistical patterns. However, in large data sets streaks, clusters, correlations, and other patterns are the norm, not the exception. While data mining might discover a useful relationship, the number of possible patterns that can be spotted relative to the number that are genuinely useful has grown exponentially—which means that the chances that a discovered pattern is useful is rapidly approaching zero. This is the paradox of big data: It would seem that having data for a large number of variables will help us find more reliable patterns; however, the more variables we consider, the less likely it is that what we find will
be useful.

Smith (2020)


Gavin Wright delivered the Tawney lecture at the Economic History Society meetings on the subject of “Slavery and Anglo‐American capitalism revisited”  (Economic History Review, May 2020, 73:2, pp. 353–83).

To be sure, US cotton did indeed rise ‘on the backs of slaves’, and no cliometric counterfactual can gainsay that brute fact of history. But it is doubtful that this brutal system served the long-run interests of textile producers in Lancashire and in New England, as many of them recognized at the time. As argued here, the slave South underperformed as a world cotton supplier for three distinct though related reasons: the region agreed in 1807 to close the slave trade and failed to recruit free labourers, making labour supply inelastic; slave owners neglected transportation infrastructure, leaving large sections of potential cotton land on the margins of commercial agriculture; and because of the fixed-cost character of slavery, even large plantations aimed at self-sufficiency in foodstuffs, limiting the region’s overall degree of market specialization. These shortcomings in cotton supply had larger ramifications for the course of US development. The slave South became increasingly isolated from the national mainstream, as manufacturers found their most inviting market opportunities in the expanding farm populations and cities of the free states. By the late antebellum period, the slave states emerged as a principal obstacle to the activist growth agenda supported by leading industrial and financial interests. ... Despite high returns to slave owners, the region underperformed as a cotton supplier, in comparison to a family-farm alternative. As events unfolded, the slave South was neither central nor essential to the mainstream of US economic development.

Wright (2020)


Joseph E. Aldy and Richard Zeckhauser offer “Three Prongs for Prudent Climate Policy” (Southern Economics Journal, July 2020, pp. 3–29).

We’ve been told, correctly, that the world is running out of time to curb its emission‐profligate ways. The world did little mitigation and ran out of the urgent time it was given. And matters have gotten worse, much worse. Emissions cutting, drastic emissions cutting, is still the recommended primary prong of our defense. Experience suggests, and economics reveals, that the magnitude of needed cutting will be almost impossible to achieve in the time available. Moreover, even if the prescribed level of mitigation is met, it may already be too late. A second prong of defense, adaptation, has received some discussion, but very little actual implementation. Adaptation would consist of such measures as building barriers to the ocean, restoring absorptive marshes, repositioning sensitive equipment from cellars to roofs, and preventing new construction in threatened areas. This analysis considers a third prong, amelioration through SRM [solar radiation management] to complement mitigation and adaptation. ... It would inject aerosols, most likely sulfur particles delivered by airplane, into the upper atmosphere to reflect back incoming solar energy.

Aldy and Zeckhauser (2020)


A forest fire in the mountains of California./Bigstock


The International Comparison Project at the World Bank has published its report “Purchasing Power Parities and the Size of World Economies: Results from the 2017 International Comparison Program."

In 2017, global output, when measured by purchasing power parities (PPPs), was $119,547 billion, compared with $79,715 billion, when measured by market exchange rates. ... In 2017 lower-middle-income economies contributed around 16 percent to PPP-based global GDP, while upper-middle-income economies contributed 34 percent. At the same time, high-income economies contributed 49 percent. In terms of market exchange rates, these shares were 8 percent, 28 percent, and 64 percent, respectively. 

The report notes:

ICP PPPs are designed specifically for international comparisons of GDP. They are not designed for comparisons of monetary flows or trade flows. International comparisons of flows—such as development aid, foreign direct investment, migrants’ remittances, or imports and exports of goods and services—should be made with market exchange rates, not with PPPs.

World Bank (2020)


Economics with a Moral Compass? Welfare Economics: Past, Present, and Future,” is an interview with Amartya Sen by Angus Deaton and Tim Besley (Annual Review of Economics, 2020, 12, pp. 1–21).

A super-easy target was the so-called compensation tests, which came, oddly enough, from two of the best economists of our time, Nicholas Kaldor and John Hicks. ... What did it say? To summarize rapidly, consider a change from which some people gain and others lose. If the gainers have gained so much that they can compensate the losers and still retain some gain, then it’s an improvement according to the compensation test. So you ask the question, Do they actually compensate the losers? No, they don’t have to do it—the losers stay losers (all we are checking is whether they could have been compensated). I mean, what kind of an improvement is that? The losers can rightly think this to be a con job.

Why do we need the compensation test at all then, which appears to be either completely unconvincing, or totally redundant? ... Note that the Bengal famine might have been a compensation test victory, because quite a lot of people gained a lot in 1943, and they could have compensated the new destitutes. They did not have to do it—and the destitutes mostly died—but was there a social improvement there? How could Kaldor, such a fine economist otherwise, propose this criterion? And how could Hicks ... support it? The answer probably is that both were trying to do welfare economics without having the real courage to go beyond the Pareto principle—without taking on the real problems of distribution, inequality, and poverty. This could not be done, then or now. Happily, both Kaldor and Hicks wrote many other things from which we learn a lot. And each let go of the compensation test, later on.

Annual Review of Economics (2020)


Melissa Dell on the Significance of Persistence” in an interview with Tyler Cowen.

I was presenting some work that I’d done on Mexico to a group of historians. And I think that historians have a very different approach than economists. They tend to focus in on a very narrow context. They might look at a specific village, and they want to explain a hundred percent of what was going on in that village in that time period. Whereas in this paper, I was looking at the impacts of the Mexican Revolution, which is a historical conflict in economic development. And this historian, who had studied it extensively and knows a ton, was saying, ‘Well, I kind of see what you’re saying, and that holds in this case, but what about this exception? And what about that exception?’ And my response was to say my partial R-squared, which is the percent of the variation that this regression explains, is 0.1, which means it’s explaining 10 percent of the variation in the data. And I think, you know, that’s pretty good because the world’s a complex place, so something that explains 10 percent of the variation is potentially a pretty big deal. But that means there’s still 90 percent of the variation that’s explained by other things.

I’ll say the same thing when I teach an undergrad class about economic growth in history. We talk about the various explanations you can have: geography, different types of institutions, cultural factors. Well, there’s places in sub-Saharan Africa that are 40 times poorer than the US. When you have that kind of income differential, there’s just a massive amount of variation to explain. ... So there’s plenty of room for everybody’s preferred theory of economic development to be important just because the differences are so huge.

Cowen (2020)

Discussion Starters

Peter Jaworski has written “Bloody Well Pay Them: The Case for Voluntary Remunerated Plasma Collections."

The United States is responsible for 70 percent of the global supply of plasma. Along with the other countries that permit a form of payment for plasma donations (including Germany, Austria, Hungary, and Czechia), they together account for nearly 90 percent of the total supply. ... The United States currently supplies approximately 70 percent of the global need, including about two-fifths of Europe’s needs, nearly all of the UK’s, over four-fifths of Canada’s, over half of Australia’s, and around 12 percent of New Zealand’s needs for plasma therapies. To put this into perspective, at present, 5 percent of the world’s population is responsible for more than half of all the plasma collected in the world. ... It is no longer reasonable, given the evidence, to continue to insist that non-remunerated plasma collections are able to meet domestic needs, never mind the global needs. Non-remunerated plasma collections have failed everywhere to secure a sufficient supply.

Jaworski (2020)


The Congressional Budget Office discusses “Trends in the Internal Revenue Service’s Funding and Enforcement."

The IRS’s appropriations have fallen by 20 percent in inflation-adjusted dollars since 2010, resulting in the elimination of 22 percent of its staff. The amount of funding and staff allocated to enforcement activities has declined by about 30 percent since 2010. ... Between 2010 and 2018, the share of individual income tax returns it examined fell by 46 percent, and the share of corporate income tax returns it examined fell by 37 percent. The disruptions stemming from the 2020 coronavirus pandemic will further reduce the ability of the IRS to enforce tax laws. ... CBO estimates that increasing the IRS’s funding for examinations and collections by $20 billion over 10 years would increase revenues by $61 billion and that increasing such funding by $40 billion over 10 years would increase revenues by $103 billion.

Congressional Budget Office (2020)


Theresa Levitt discusses “When Lighthouses became Public Goods: The Role of Technological Change."

The crucial technological change was in the illumination apparatus, with the introduction of mirrors in the 1780s and Fresnel lenses in the 1820s. This was not only a change in technical performance, as each development increased the brightness by more than an order of magnitude. It also brought about the sort of social and institutional transformations that historians of technology have identified as a technological system. As lighthouses became reliably visible at safe distances for sea-coast lighting the first time, their purpose and function changed, as well as their costs and financing. The lighthouse system of the seventeenth century discussed by [Ronald] Coase was fundamentally different from that of John Stuart Mill and Paul Samuelson, with different expectations, expenses, and implications for excludability. While a market could support the lights that existed before 1780, which were primarily effective at close range, it could not support the transformed system that emerged in the wake of improved illumination. Nor could the market provide for the technological improvements, with no private owners of lighthouses investing in Fresnel lenses, one of the key improvements. Only after England introduced greater state intervention did the lights improve.

Levitt (2020)