The Importance of the City for Human Progress

I remember Stigler in his history of economic thought class, waxing eloquent about the wondrous idyllic life of the countryside, and then ending with a Stiglerian zinger; something like: ‘and where there is no idea to be found for miles and miles.’ (I believe, in his memoirs, that Stigler mentions that it is good for a great university to be located in a great city.)
Rosenberg and Birdzell attribute even greater importance to urban life:

(p. 78) The merchants were consigned to the towns, and the towns themselves were nonfeudal islands in a feudal world.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

Prices of Education and Medical Care Increase Dramatically Over Decade

InflationGraphic.jpg

Source of the graphic: online version of the NYT article cited below.

The most interesting part of a recent David Leonhardt column, was not what he wrote, but the graphs that were included with the article, especially the one at the top of this entry. Notice that the price of education and medical care have increased much more dramatically than other categories of consumer spending. (And remember how heavily government is involved in those two sectors, both directly through government run institutions, and indirectly through regulations and subsidies.)

For the full commentary, see:
DAVID LEONHARDT. “ECONOMIC SCENE; Seeing Inflation Only in the Prices That Go Up.” The New York Times (Weds., May 7, 2008): C1 and C11.

ConsumerSpendingGraphic.jpgSource of the graphic: online version of the NYT article cited above.

Voting with Your Feet in the Middle Ages

An application of the ‘voting with your feet’ technique for comparing consumption bundles is made by Rosenberg and Birdzell to compare life on the medieval manor with life in the medieval town:

(p. 51) The path of escape was from manor to town, not from town to manor. Stadluft macht frei, as the German proverb went.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.
(Note: italics in original.)

Candy Competition

CandyIndustryGraphic.gif Source of graphic: online version of the WSJ article quoted and cited below.

In class, we discuss how consumers pay higher prices for candy and soft drinks because the U.S. government limits on how much foregin sugar we can import. Sometimes a student will claim that candy companies would not lower prices if the price of sugar declined. And sometimes that issue leads to a discussion of whether the candy industry is competitive.
The graphic above, and the quotation below, provide some relevant evidence.

(p. B1) The global confectionary industry has long lacked a dominant player. The top 10 manufacturers controlled just 47% of the $141 billion market as of 2006, the most recent available data. . . .
. . .
If the Wrigley acquisition is successful, Mars will become the world’s largest confectionary company with about 14.4% of the market, overtaking Cadbury’s 10.1%, based on 2006 figures, the latest available, from Euromonitor International.

For the full story, see:
JULIE JARGON and AARON O. PATRICK. “More Sweet Deals in the Candy Aisle?; Cadbury and Hershey in the Spotlight in the Wake of Mars-Wrigley Linkup.” The Wall Street Journal (Tues., April 29, 2008): B1-B2.
(Note: ellipses added.)

Great Example of Stigler-Kolko Capture Theory of Regulatory Agencies

George Stigler and Gabriel Kolko are associated with the theory that eventually, govenment regulatory agencies come to be captured by the industry that the agency is charged with regulating.
At the time of the exchange documented below, Wendell Willkie was the head of an electric utility, and Lilienthal was one of the heads of the TVA, which was in the process of taking customers away from Willkie’s utility. Willkie’s argument to Lilienthal is consistent with the capture theory. (But that Lilienthal pushed ahead with his plans, might be seen as inconsistent with the theory.)

(p. 182) Lilienthal set up a meeting in early October 1933 at the Cosmos Club in Washington, the club being, in Lilienthal’s words, “about as neutral a ground as we could think of.”
. . .
(p. 183) Willkie tried yet another tack. No one, he argued to Lilienthal, went into government without the intention of going into the private sector later. The private sector, after all, was where the business lived. If Lilienthal was too nasty, then he was not likely to find work at private utilities companies. Lilienthal was, by his own admission, “pretty badly scared” by the time he left the Cosmos.

Source:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

“How the West Grew Rich” is an Elegant and Wonderful Book

HowTheWestGrewRickBK.jpg

Source of book image:
http://images.barnesandnoble.com/images/22600000/22606300.jpg

For many years I have wanted to carefully read Rosenberg and Birdzell’s How the West Grew Rich. I am glad I have finally done it, and wish I had done it sooner. It is a tour de force of careful scholarly synthesis of a wide range of issues related to a fundamental question with many implications for policy.
The authors operate within a broadly Schumpeterian perspective, in that they see innovation as the key driver of human progress. One underlying theme is that societies that give more play to experimentation in institutions, are more likely to allow, encourage, and widely adopt, innovations.
Although written over two decades ago, the book only rarely seems dated. (The only instance I can think of is the occasional attention that the authors give to Marxist claims, that are seldom taken as seriously now as they sometimes still were in 1986.)
The writing style is not easy to read, but is rewarding. They write with elegance, and subtlety, and dry wit.

The reference to the book:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

Stigler on Berle and Means

I remember George Stigler in class making some reference to a book by Berle and Means, and asking if any of us had ever heard of them. None of us had. My memory is that he looked sort of sadly amused.
At least one of Stigler’s important papers had taken on, and refuted, some of the important claims of the Berle and Means book.
Now, decades later, I recently read a wonderful book on the Great Depression called The Forgotten Man. It turns out that Berle was very important in the growth of government in FDR’s New Deal.
I now realize what I did not realize when I took Stigler’s class—that Stigler had done something significant in refuting errors that supported misguided policies that hurt the economy.
It is a sad fact of life that future generations will not remember, or appreciate, the triumphs of the ‘good guys’ because they do not appreciate the impact of the good guys’ adversaries.
Stigler had beaten Berle so fully that the younger generation did not even recognize Berle’s name. And in not recognizing Berle’s name, or his significance, they could not appreciate the value of what Stigler had accomplished.

Book reference:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.