conversableeconomist

Why High-Income Economies Need to Fight COVID Everywhere

High-income countries are pushing and squabbling as they seek to vaccinate their own populations from COVID-19, while many lower-income countries have been pushed to the sidelines and forced to watch. But it\’s not clear yet clear (because not enough time has passed) to know for how long the vaccine provides protection, or for that matter, how long having had COVID provides protection against getting it again. Moreover, there is clearly some danger that at least some of the new strains of COVID emerging around the world might need different vaccines. 

In short, vaccinating the populations of high-income countries is a useful step. But if COVID remains prevalent and mutating into new strains in the rest of the world, we may be running on a treadmill from a public health point of view. Moreover, because of the interconnectedness of the world economy, there is a basic cost-benefit argument the high-income countries of the world to work together in a way that can make COVID vaccination widespread around the world. 

Cem Çakmaklı, Selva Demiralp, Ṣebnem Kalemli-Özcan, Sevcan Yeşiltaş and Muhammed A. Yıldırım make this case in \”The Economic Case for Global Vaccinations: An Epidemiological Model With International Production Networks\” (January 2021, available with free registration from the International Chamber of Commerce, and also available as NBER Working Paper #28395). 

The authors offer a useful reminder of interconnections in the world economy. Exports of goods and services are about 30% of world GDP.  Of that trade, about 60% is \”intermediate products,\” meaning products that are part of the production process for final goods, rather than being final goods themselves. The pandemic recession makes it harder for low- and middle-income countries either to purchase exports from  high-income countries or to produce intermediate products used by producers in high-income countries. To illustrate the issues here, consider two figures the authors produce to illustrate the interconnectedness of the global economy. 

This figure includes 65 countries, and then a ROW or \”rest of the world\” box to combine the others. The sizes of the boxes are relative to the size of the GDP of each area. The darker the shade of blue, the higher the ratio of export and imports to GDP. The thickness of the lines shows the importance of trade relative to the GDP for the two countries. Small connections between countries are not shown at all. Countries with a black line around their names have access to vaccines right now: of the 65 countries, 41 have access.

   

One can also look at the interconnectedness of global world production by industry. Here, the size of each node shows the size of the industry. The arrows show flows of goods from one industry to another. The darker the color, the more heavily that node depends on imports from other countries. 

The authors write: \”We show that even if AEs [advanced economies] eliminate the domestic costs of the pandemic thanks to the vaccines, the costs they bear due to their international linkages would be in the range of 0.2 trillion USD and 2.6 trillion USD, depending on the strength of trade and production linkages. Overall, AEs can bear up to 49 percent of the global costs in 2021. These numbers are far larger than the 27.2 billion USD cost of manufacturing and distributing vaccines globally.\”

The exact numbers from this study are of course imprecise, representing a range of different assumptions. But the basic lesson, which has applied at many points in the pandemic experience, is clear enough: what might seem like fairly large up-front costs actually are a pretty cheap price to pay for the benefits. It\’s not really a surprise that high-income countries would put a  higher priority on on vaccine supplies for their own citizens first. But if the high-income countries think that protecting their own citizens will insulate them from economic costs, or from future public health risks, they are missing some basic insight about what it means to live in a world where goods and people cross national boundaries all the time. 

conversableeconomist

Why Have Other High-Income Countries Dropped Wealth Taxes?

Advocates of a wealth tax for the United States need to confront a basic question: Why have  other high-income countries decided to drop their own wealth taxes? Sarah Perret explores this issue in \”Why did other wealth taxes fail and is this time different? (Wealth and Policy Commission, Working Paper #6, 2020). Perret writes;  

In 1990, there were twelve OECD countries, all in Europe, that levied individual net wealth taxes. However, most of them repealed their wealth taxes in the 1990s and 2000s, including Austria (in 1994), Denmark and Germany (in 1997), the Netherlands (in 20012 ), Finland, Iceland, and Luxembourg (in 2006) and Sweden (in 2007). Iceland, which had abolished its wealth tax in 2006, reintroduced it as a temporary ‘emergency’ measure between 2010 and 2014. Spain, which had introduced a 100% wealth tax reduction in 2008, reinstated the wealth tax in 2011. The reinstatement of the wealth tax was initially planned to be temporary but has been maintained since. France was the last country to repeal its wealth tax in 2018, replacing it with a tax on high-value immovable property. In 2020, Norway, Spain and Switzerland were the only OECD countries that still levied individual net wealth taxes.

The basic story, as Perret tells is, is that countries which gave up on the wealth tax tax largely decides that it was possible to tax wealth in other ways; and that defining how to tax \”wealth\” was running into enough problems of exemptions and exceptions that it wasn\’t worth the relatively small amount of revenue being raised. 

There are a number of taxes that work in a way similar to a wealth tax. A property tax (like the French tax on \”high-value immovable property\” mentioned above) is a tax on one kind of wealth. An estate tax or a gift tax is a tax on wealth. A capital gains tax can be, on average, similar to a wealth tax as well. Parret writes:  

In some ways, a wealth tax is similar to a tax on capital income. For instance, if an individual taxpayer has a total net wealth of EUR 10 million that earns a rate of return of 4%, the tax liability will be the same whether the government levies a tax of 30% on the capital income of EUR 400,000 or a wealth tax of 1.2% on the capital stock of EUR 10 million. Both will end up raising EUR 120,000. A capital income tax of 30% is thus equivalent to a wealth tax of 1.2% where the rate of return is 4%.

However, as Parret also notes, the wealth tax applies every year, whether you have a capital gain that year or not, which means that the incentive effects of such taxes may be quite different. 

 One reason why Switzerland has a relatively large wealth tax is that it has no taxes on capital gains, and most cantons of Switzerland have no inheritance or gift taxes, either. Most countries use these other policy tools rather than a wealth tax; the  Swiss are using a wealth tax rather than these other policy tools,

For most of the countries that gave up on their wealth taxes were collecting about 0.2-0,3% of GDP with those taxes–in countries where government tax revenues were often 40% of GDP or more.  Part of the reason for what may seem like a low level of revenue is that wealth taxes are typically built chock-full of exemptions. 

The first and most obvious exemption is that wealth taxes typically only apply to those above a certain threshold level of wealth. Parret explains (citations omitted): .

In some countries, the wealth tax is (or was) levied only on the very wealthy (e.g. France and Spain). Before repealing its wealth tax, France had the highest tax exemption threshold, taxing individuals and households with net wealth equal to or above EUR 1.3 million which meant that only around 360,000 taxpayers were subject to it in 2017. In other countries, wealth taxes have applied to a broader range of taxpayers. In Norway, the tax exemption threshold is approximately EUR 150,000 per person. In Switzerland, despite variations across cantons, tax exemption thresholds are comparatively low: in 2018, they ranged from USD 55,000 in the canton of Jura to USD 250,000 in the canton of Schwyz (for married couples) (Scheuer and Slemrod, 2020). Thus, Swiss wealth taxes affect a large portion of the middle class. 

Then think of all the different ways that one might hold wealth, and how those with a lot of resources might switch between them. For example, most countries exempted from wealth taxation the wealth held in the form of an expected pension or in the form of a retirement a county. Many countries exempt the value of the house you live in.  Many countries exempted the value of a family-run business. They exempted investments in certain collectibles like paintings and jewelry. Some exempted life insurance policies, donations to charitable foundations, and trusts set up for future generations.  There are typically exceptions for the wealth embodied in intellectual property, like ownership of a patent or copyright, although such rights can be bought and sold All of these factors can be further complicated if one takes into account wealth that is built up in other countries. 

There is solid evidence that people with a lot of wealth and a lot of lawyers can be very flexible in shifting their wealth between these and other different forms. Sure, it\’s possible to send government lawyers and accountants off to due battle on these issues, but remember that we\’re talking here about a tax with relatively small total revenues, and if most of the money collected from the tax goes to enforcing the tax, it\’s not worth it.  

The evidence that wealthy people move around their money to different types of ownership is strong, but the evidence on how a wealth tax might affect incentives for savings, investment, and entrepreneurship is not especially strong in either direction. To understand the incentives of a wealth tax return to the point made earlier that a wealth tax applies every year, whether wealth rises or not 

Imagine that an annual wealth tax is 2% of wealth (for those above some threshold amount of wealth). Thus, if the value of your wealth increased by 5% in given year, and the wealth tax takes 2%, then the after-tax gain on your wealth would be 3%. If the value of your wealth fell by 10% in a given year (say, the stock market declines), then the wealth tax tax still takes 2% and your after-tax loss would be 12%. 

In this situation, imagine a person with wealth is invested in a low-risk, low-return activity (like government bonds). Especially in the current setting of low interest rates, that person could end up paying all of the return to the wealth tax. Do we want to give the wealthy a strong disincentive to choose low-risk, low-return investments? 

Conversely, imaging a person investing in a high-risk entrepreneurial activity that might have either high or low returns. Say that the entrepreneurial attempt fails, and the investment loses half its value. The wealth tax still applies! Do we want to tax failed entrepreneurs? Or imagine that the entrepreneurial attempt succeeds, and the entrepreneur wants to use the additional wealth to build and expand a company. Do we want to impose an additional tax, above existing income and capital gains taxes, on successful entrepreneurs? 

Again, the evidence on how real behavior is affected by a wealth tax isn\’t clear. But it was clear that some of the real incentives of a wealth tax could be undesirable. The more a country tried to write up a set of rules to specify exactly what wealth should be taxed, or not, the more opportunities there were to sidestep such a tax with lawyer-driven financial planning. 

Parret\’s paper was written as background reports for a UK Wealth Tax Commission. The final report of the commission, A Wealth Tax for the UK (December 2020, written by Arun Advani, Emma Chamberlain, and Andy Summers) proposes a one-time wealth tax to pay for some of the cost of the pandemic recession. The advantage of a one-time wealth tax is that if it is both unexpected and one-time, it\’s difficult for those with high wealth to rearrange their finances and property-ownership in ways that would limit the bite of the tax. Of course, if the wealth tax is either expected or seems likely to be extended over time, this advantage diminishes. 

The report itself is fairly UK-centric, but those interested in wealth taxes in general will find a treasure trove of working papers at the website, both on specific topics related to the wealth tax and on country-by-country European experiences with such a tax.

conversableeconomist

Interview with Benjamin Friedman on Religion, Economic Growth, and Much Else

Tyler Cowen has one of his \”Conversations\” with \”Benjamin Friedman on the Origins of Economic Belief\” (January 27, 2021, audio, video, and transcript at the link). It starts from Friedman\’s recent book, Religion and the Rise of Capitalism, but then expands to touch on many other topics.  Here are some snippets: 

On American belief in religion and markets

[C]ompared to other high-income countries, Americans are more inclined to say they believe in religious doctrines, and the Americans are much more likely to participate in religious activities — going to church, for example.

I think this is not at all unrelated to the fact that Americans have a deeper and more active commitment to the ideas of market competition. It goes back to the question that I was raising a minute ago of where do our ideas of market competition come from in the first place? What I suggest in my book is that we got those ideas 200, 300 years ago from what were then new and hotly contended ideas about religion, theology within the English-speaking Protestant world, in which people like Adam Smith and David Hume lived. …

[T]here’s a part of the story that you’re missing, and that has to do with the coming together at mid–20th century in America, of religious conservatism and economic conservatism. I think the catalyst that brought them together was the existential fear of world communism. … Communism, at least as advocated at that time, had a unique feature of being simultaneously the existential enemy of lots of things that we hold dear. It was the enemy of Western-style political democracy, but it was also the enemy of Western-style market capitalism, and importantly for purposes of this line of argument, it was the enemy of Western-style religion.

I think the religious conservatives and the economic conservatives realized that they had an enemy in common, and they took the threat seriously, and this led them to come together. The person I think who played the greatest role in bringing them together was Bill Buckley. … [U]nder the leadership of Buckley and also ministers — I think of Billy Graham as being very active in this process, but others too — religious conservatism and economic conservatism came together at mid–20th century America, and I think they’ve been together ever since.

On how economic growth nourishes democracy

The hypothesis that I offered in that book very importantly was about the rate-of-growth effect. It’s about people realizing that they are living better than their parents lived. It’s about people realizing that the opportunities for their children are better than the opportunities that they had. It’s very much a rate-of-growth effect. The reason I say that’s important …  is twofold.

One, it was a warning against our being complacent. It’s a warning that no matter how rich our society is, if we get into a situation in which large numbers of people feel that they no longer have a sense of forward progress in their material lives, and they don’t see that turning around anytime soon, and they don’t have optimism either that their children will face a better economic future, that’s the circumstance under which people turn away from these small-l liberal, small-d democratic values, like tolerance and respect for diversity, generosity, openness of opportunity, even respect for democratic political institutions. … 

Then, at the same time, the second implication of the fact that it’s a rate-of-growth argument is some optimism that countries around the world, where income levels are far below ours, don’t have to wait until they reach our level of income before they can develop into liberal democracies.

Why the US government should borrow at longer debt maturities

Now, if I can put in a plug for a policy idea, this is why I have been recommending to anybody who will listen that this is a great time for the United States Treasury to lengthen out the maturity of the US government’s outstanding debt. The average maturity of the outstanding debt is around six years, and we happened to have super-low interest rates, it would be lovely to think that they’re going to be here forever.

Some economists think they will be. I’m more cautious. I would use the current market environment as a way to lock in those interest rates because we know that we’re going to have a high government debt level for a very long period of time and much better it not be a burden.

Is it time to redesign the Federal Reserve? 

I don’t think anybody today would design the Federal Reserve in the way in which it was designed a hundred years ago, with a board of governors, and these 12 regional reserve banks, and these presidents of the regional reserve banks who are not confirmed by the Senate playing the key role in establishing monetary policy.

That said, I would leave it alone because my sense is that, with the current politics of our country, I am sorry to say, I think if we open that box, we are much more likely to come out with something that’s worse than what we have. So, while I don’t know anybody who would defend, in the abstract, the structure we’ve got, I wouldn’t change it, at least not now.

conversableeconomist

The Importance of Unimportant Inventions

 Here\’s a paradox: If your firm produces a good or service that is a large part of the overall value of a final product, you may have a hard time keeping your price high or raising it. After all, precisely because you are a large part of total costs, any attempt to raise the price will be noticeable when passed on to customers, and those using your product have a strong incentive to take a tough line when negotiating terms. On the other side, if your firm produces a good or service that is necessary to a final product, but only a small share of total costs, you may be much more successful in keeping your price high or raising it further. When the price of your input climbs, it makes a relatively small difference to total costs. Aggressive competition from others to supplant your market niche may be less likely. Thus, it may be important to be unimportant, and fortunes can be made from unimportant inventions.  

Edward Tenner offers a meditation on this topic in \”The Importance of Being Unimportant\” (Milken Institute Review, First Quarter 2021). Tenner\’s title is apparently lifted from a section in Sir Hubert Henderson’s short textbook, previously unknown to me,  Supply and Demand (1922).
(Side note: John Maynard Keynes wrote a brief \”Introduction\” to Henderson\’s book. Here are the opening two paragraphs: 

The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions. It is not difficult in the sense in which mathematical and scientific techniques are difficult; but the fact that its modes of expression are much less precise than these, renders decidedly difficult the task of conveying it correctly to the minds of learners.

Before Adam Smith this apparatus of thought scarcely existed. Between his time and this it has been steadily enlarged and improved. Nor is there any branch of knowledge in the formation of which Englishmen can claim a more predominant part. It is not complete yet, but important improvements in its elements are becoming rare. The main task of the professional economist now consists, either in obtaining a wide knowledge of relevant facts and exercising skill in the application of economic principles to them, or in expounding the elements of his method in a lucid, accurate and illuminating way, so that, through his instruction, the number of those who can think for themselves may be increased.

I have often quoted the opening two lines to those who want to know if economics systematically leads to liberal or convervative policy conclusions. But I also love the comment from Keynes in 1922–that is, well before he wrote the General Theory–saying that in the subject of economics, \”important improvements in its elements are becoming rare.\”)

Tenner offers some vivid example of important unimportant inventions. For example, the valve is quite important part of a tire, but a relatively small part of total cost. Back in the 1890s, August Schrader and his son George not only built a better valve, but also standardized the size of valves so that valves could connect with a variety of air pumps. It\’s why I can pump up either car tires or my bicycle tires with either a hand-pump in my garage or a mechanical pump at a gas station. 

Or Jack and Belle Linsky, the founders of Swingline Corp., who invented the modern stapler. This was really two inventions: one was the way of gluing together a set of staples in a row so that they could easily be handled; the other was the stapler with a spring in the top that could open easily, accept the row of staples, and then align them for use. Before this invention, staples were individual loose objects: Tenner writes: \”Virtually no manufactured object costs less than a staple. Yet this humble device so enriched the Linskys that they were able to compete successfully with the Queen of England in auctions for decorative arts.\”
One more example originally due to Henderson is sewing thread–that is, not the threads used in making textiles, but the thread used in sewing textiles together for their eventual use. Tenner points to a prominent 1977 study which argues that the social rate of return to industry-level investment in thread innovation was the highest of the sectors studied. Patrick and James Clark started the Clark Thread Company in Paisley, Scotland in the 1750s. Patrick is credited with inventing the idea that thread could be sold on a spool. Today, the \”multinational Coats Group Ltd. remains the world’s largest manufacturer of industrial sewing threads.\” Historical fortunes from Friedrich Engels to the Cartier-Bresson family were built in part on profits from superior threads.
It\’s interesting to think about the modern equivalents of these important unimportant inventions. I remember some years back reading about a highly successful Silicon Valley company (whose name escapes me) which focused on making items like the little flashing red and yellow and green lights that everyone else used in their equipment. 
This insight applies at the level of job choices as well. Henderson\’s book back in 1922 pointed out that there were a number of different jobs in the process of making steal, including coal miners and smelting workers. There were many, many more coal miners, but precisely because their salaries were such a large part of costs, they had to push very hard for pay increases. Meanwhile, the smelting worker found it much easier to gain higher wages. Thus, the career advice is to look for a job niche where you (and those with similar skills) are essential to the final product, but not the main driver of final costs. 
conversableeconomist

Could Environmentalists Just Buy What They Want?

Under a \”marketable permits\” approach to controlling pollution, firms have permits to emit a certain amount of pollution. If a firm has extra permits, it can sell them; if it needs additional permits, it can buy them. The idea is that firms that have lower-cost methods of reducing pollution now have an incentive to do so, because they can sell the permits. 

But here\’s a question that\’s obvious to economists: Could an environmental group purchase a bunch of these pollution permits and not use them or sell them, just for the purposes of reducing pollution? 

Similarly, what if government auctioned off a bunch of oil leases. Could an environmentalist group purchase them, and not drill? Or what if government auctions off leases for grazing cattle or cutting timber on federal lands. Could an environmentalist group bid on the leases but then not graze cattle or cut timber? Or what if the government gives out a limited number of permits for hunting a certain animal, perhaps by lottery. Can a bunch of environmentalists flood into the lottery, get some share of the permits, and then not hunt?  

Shawn Regan tackles this question in \”Why Don’t Environmentalists Just Buy What They Want to Protect?\” and gives an answer in the subtitle \”Because it’s often against the rules\” (PERC Reports, Winter 2020, pp. 15-23). He writes: 

Technically, any U.S. citizen can bid for and hold leases for energy, grazing, or timber resources on public lands. But legal requirements often preclude environmentalists from participating in such markets. Federal and state rules typically require leaseholders to harvest, extract, or otherwise develop the resources, effectively shutting those who want to conserve resources out of the bidding process. Energy leasing regulations, for example, require leaseholders to extract the resources beneath their parcels. If they don’t, the leases could be canceled.

Historically, there is some rationale for these rules. A local economy may depend on cattle grazing or timber or oil and gas extraction. Environmentalists can buy out private owners of land: say, buying buying oil and gas leases or grazing rights from private owners. But environmentalists are not allowed to buy rights on public lands. By setting up a lease program, the government has agreed that these are suitable uses for the land.

In the case of hunting permits, the number given out is often calculated based on what wildlife biologists think is useful for the long-run success of the species. In this case, environmentalists who try to gather up such permits to prevent hunting are opposing \”the science.\” Timber rights are often given out based partly on the notion that letting dead wood pile up can create a landscape that will at some point suffer a devastating fire. Appropriate land management is a controversial topic. 

Environmentalists are increasingly trying to purchase government leases. Regan points out: 

But increasingly, environmentalists are testing the strategy of bidding for the rights to natural resources instead. In recent years, activists have attempted to acquire oil and gas rights in Utah, buy out ranchers’ public grazing permits in New Mexico, purchase hunting tags in Wyoming to stop grizzly bears from being killed, and bid against logging companies in Montana to keep trees standing.

Behind the scenes, grazing and timber rights have been declining over time. Regan reports: \”Livestock grazing on federal lands has declined more than 50 percent since the 1950s, in part due to environmental regulations that have weakened ranchers’ grazing privileges and pitted them against environmentalists in zero-sum legal fights. Likewise, timber harvests on federal lands have fallen nearly 80 percent since the 1980s.\” In some cases, it may be more productive for environmentalists to focus on whether it might be possible to focus on whether leases will be granted at all, rather than engaging in a legal battle to purchase them. 

It\’s worth noting that use-it-or-lose-it property rights are not unheard-of in other contexts. For example, water rights in much of the western United States have traditionally operated under a use-it-or-lose it legal regime. As economists have been quick to point out, this approach is often not good for incentives to conserve water, because a farmer who finds a way to use less water simply loses their legal right to that water. But it also means that if an environmentalist purchased a western farm and did not use the water rights, the farm would lose those rights. Use-it-or-lose-it property rights are common in the workplace, too, in companies where if you don\’t use your vacation or your sick leave or other benefits in a given year, they disappear and do not carry over into the following years. 

As Regan writes: \”It’s clear that many people value conservation and are willing to spend their own money to get it. The only question is whether those resources will be channeled through zero-sum political means or through positive-sum market mechanisms. In any case, if competing groups cannot directly acquire or trade rights through markets, whether for use or non-use purposes, the only option is to fight it out in the political and legal arenas.\”

conversableeconomist

The Reproducibility Challenge with Economic Data

One basic standard of economic research is surely that someone else should be able to reproduce what you have done. They don\’t have to agree with what you\’ve done. They may think your data is terrible and your methodology is worse. But as a minimal standard, they should be able to reproduce your result, so that the follow-up research can then be in a position to think about what might have been done differently or better.  This standard may seem obvious, but during the last 30 years or so, the methods for reproducibility have been transformed. 

Lars Vilhuber describes the shift in \”Reproducibility and Replicability in Economics\” in the Harvard Data Science Review (Fall 2020 issue, published December 21, 2020). Vilhuber is the Data Editor for the journals published by the American Economic Association (including the Journal of Economic Perspectives where I work as Managing Editor). Thus, he heads the group which oversees posting of data and code for new empirical results in AEA journals–including making sure that an outsider can use the data and code to reproduce the actual results reported in the paper. 

To jump to the bottom line, Vilhuber writes: \”Still, after 30 years, the results of reproducibility studies consistently show problems with about a third of reproduction attempts, and the increasing share of restricted-access data in economic research requires new tools, procedures, and methods to enable greater visibility into the reproducibility of such studies.\”

It\’s worth noting that reproducibility has come a long way. Back in the 1980s and earlier, researchers who had completed a published empirical research paper. but then moved on to other topics, often did not keep their data or code–or if they did keep them, the data and code were often full of idiosyncratic formats and labelling that worked fine for the original researcher (or perhaps for the research assistants of the original researcher who did a lot of the spadework), but could be impenetrable to a would-be outside replicator.  By contrast, a fair share of modern economics research can post the actual data, computer code, documentation for what was done, and so on. In this situation, you may disagree with how the researcher chose to proceed, but you can at  least reproduce their result easily. 
However, here I want to emphasize that a lot of the difficulties with reproducibility arise because finding the actual data used in an economic study is not as easy as one might think. Non-economists often think of economic data in terms of publicly available data series like GDP, inflation, or unemployment, which anyone can look up on the internet. But economic research often goes well beyond these extremely well-known data sources. One big shift has been to the use of \”administrative\” data, which is a catch-all term to describe data that was not collected for research purposes, but instead developed for administrative reasons. Examples would include tax data from the Internal Revenue Service, data on earnings from the Social Security Administration, data on details of health care spending from Medicare and Medicaid, and education data on teachers and students collected by school districts. There is also private-sector administrative data about issues from financial markets to cell-phone data, credit card data, and \”scanner\” data generated by cash registers when you, say, buy groceries. 
Vilhuber writes: \”In 1960, 76% of empirical AER [American Economic Review- articles used public-use data. By 2010, 60% used administrative data, presumably none of which is public use …\”
You can\’t just write to, say, the Internal Revenue Service and ask to see all the detailed data from tax returns. Nor can you directly access detailed data from Social Security or Medicare or a school district, or from what people reported in the US Census. There are obvious privacy concerns here. 

Thus, one change in recent years is what are called \”restricted access data environments,\” where accredited researchers can get access to detailed data, but in ways that protect individual privacy. For example, there are now 30 Federal Statistical Data Research Centers around the country, mostly located close to big universities.  Vilhuber writes (citations omitted): 

It is worth pointing out the increase in the past 2 decades of formal restricted-access data environments (RADEs), sponsored or funded by national statistical offices and funding agencies. RADE networks, with formal, nondiscriminatory, albeit often lengthy access protocols, have been set up in the United States (FSRDC), France, and many other countries. Often, these networks have been initiated by economists, though widespread use is made by other social scientists and in some cases health researchers. RADE are less common for private-sector data, although several initiatives have made progress and are frequently used by researchers: Institute for Research on Innovation and Science, Health Care Cost Institute , Private Capital Research Institute (PCRI). When such nondiscriminatory agreements are implemented at scale, a significant number of researchers can obtain access to these data under strict security protocols. As of 2018, the FSRDC hosted more than 750 researchers on over 300 projects, of which 140 had started within the last 12 months. The IAB FDZ [a source of German employment data] lists over 500 projects active as of September 2019, most with multiple authors. In these and other networks, many researchers share access to the same data sets, and could potentially conduct reproducibility studies. Typically, access is via a network of secure rooms (FSRDC, Canada, Germany), but in some cases, remote access via ‘thin clients’ (France) or virtual desktop infrastructure (some Scandinavian countries, data from the Economic Research Service of the United States Department of Agriculture [USDA] via NORC) is allowed.

A common situation is that this kind of data often cannot be put into the public domain; instead, you would need to apply and to gain access to the \”restricted access data environment,\” and access the data in that way. 

Another issue is that in some of these data sources, researchers are not given access to all of the data; instead, to protect privacy, they are given an extract of the overall data. As a result, two researchers who go to the data center and make the same data request will not get the same data. The overall patterns in the data should be pretty close, if random samples are used, but they won\’t be the same. Vilhuber writes: 

Some widely used data sets are accessible by any researcher, but the license they are subject to prevents their redistribution and thus their inclusion as part of data deposits. This includes nonconfidential data sets from the Health and Retirement Study (HRS) and the Panel Study of Income Dynamics (PSID) at the University of Michigan and data provided by IPUMS at the Minnesota Population Center. All of these data can be freely downloaded, subject to agreement to a license. IPUMS lists 963 publications for 2015 alone that use one of its data sources. The typical user will create a custom extract of the PSID and IPUMS databases through a data query system, not download specific data sets. Thus, each extract is essentially unique. Yet that same extract cannot be redistributed, or deposited at a journal or any other archive.<span class="footnote" data-node-type="footnote" data-value="

For IPUMS, extracts from population samples (e.g., the 5% sample of the U.S. population census) rather than full population censuses (the 100% file) can be provided to journals for the purpose of replication.

\” date-structured-value=\”\” id=\”iurdxu11kb\”>undefined In 2018, the PSID, in collaboration with ICPSR, has addressed this issue with the PSID Repository, which allows researchers to deposit their custom extracts in full compliance with the PSID Conditions of Use.

Yet another issue arises with data from commercial sources, which often require a fee to access: 

Commercial (‘proprietary’) data is typically subject to licenses that also prohibit redistribution. Larger companies may have data provision as part of their service, but providing it to academic researchers is only a small part of the overall business. Dun and Bradstreet’s Compustat, Bureau van Dijk’s Orbis, Nielsen Scanner data via the Kilts Center at Chicago Booth (Kilts Center, n.d.), or Twitter data are all used frequently by economists and other social scientists. But providing robust and curated archives of data as used by clients over 5 or more years is typically not part of their service.

Research using social media data can pose particular problems for someone who wants to reproduce the study using the same data:

Difficulties when citing data are compounded when the data is either changing, or is a potentially ill-defined subset of a larger static or dynamic databases. ‘Big data’ have always posed challenges—see the earlier discussion of the 1950s–1960s demand for access to government databases. By nature, they most often fall into the ‘proprietary’ and ‘commercial’ category, with the problems that entails for reproducibility. However, beyond the (solvable) problem of providing replicators with authorized access and enough computing resources to replicate original research, even defining or acquiring the original data inputs may be hard. Big data may be ephemerous by nature, too big to retain for significant duration (sometimes referred to as ‘velocity’), temporally or cross-sectionally inconsistent (variable specifications change, sometimes referred to as ‘variety’). This may make computational reproducibility impossible. … For instance, a study that uses data from an ephemerous social media platform where posts last no more than 24 hours (‘velocity’) and where the data schema may mutate over time (‘variety’) may not be computationally reproducible, because the posts will have been deleted (and terms of use may prohibit redistribution of any scraped data). But the same data collection (scraping or data extraction) can be repeated, albeit with some complexity in reprogramming to address the variety problem, leading to a replication study.

Finally, there a problem of \”cleaning\” data. \”Raw\” data always has errors. Sometimes data isn\’t filled in. Other times it may show a nonsensical finding, like someone having a negative level of income in a year, or an entry where it looks as if several zeros were added to a number by accident. Thus, the data needs to be \”cleaned\” before it\’s used. For well-known data, there are archives of documentation for how data has been cleaned, and why. But for lots of data, the documentation for how it has been cleaned isn\’t available.  Vilhuber writes: 

While in theory, researchers are able to at least informally describe the data extraction and cleaning processes when run on third-party–controlled systems that are typical of big data, in practice, this does not happen. An informal analysis of various Twitter-related economics articles shows very little or no description of the data extraction and cleaning process. The problem, however, is not unique to big-data articles—most articles provide little if any input data cleaning code in reproducibility archives, in large part because provision of the code that manipulates the input data is only suggested, but not required by most data deposit policies.

As a final thought, I\’ll point out that academic researchers have mixed incentives when it comes to data. They always want access to new data, because new data is often a reliable pathway to published papers that can build a reputation and a paycheck. They often want access to the data used by rival researchers, to understand and to critique their results. But making access available to details of their own data doesn\’t necessarily help them much. 

For example, imagine that you write a prominent academic paper, and all the data is widely available. The chances are good that for years to come, your paper will become target practice for economics students and younger faculty members, who want to critique you and to justify all the choices you made in the research. However, you may have a reasonable dislike of spending large chunks of the rest of your career going over the same ground, again and again.

From this standpoint, it\’s perhaps not surprising that while many leading journals of economics now do require that authors publish their computer code and as much of their data as they are allowed to do, the number of papers that get \”exceptions\” for publishing their data is rising. Moreover, the requirement that an author supply data and computer code is not part of what is required for submitting a paper or making a decision about publishing the paper (although other professors refereeing the paper can make a request to see the data and code, if they wish). 

It\’s also maybe not a surprise that a study of one prominent journal looked at papers published from 2009 to 2013 and found that of the papers where data was not posted online, only about one-third of the papers had data where it was reasonably straightforward for others to obtain the data. 

And it\’s also maybe not a surprise that more and more papers are published with data that you have to be an official researcher to access, through a restricted access data center, which presents some hurdles to those not well-connected in the research community. 

Access to data and computer code behind economic research has improved, and improved a lot, since the pre-internet age. But in many cases, it\’s still far from easy. 

conversableeconomist

Interview with Valerie Ramey: Fiscal Policy, Time Use, and More

David A. Price serves as interlocutor in an \”Interview with Valerie Ramey On fiscal stimulus, technological lull, and the rug-rat race\” (Econ Focus: Federal Reserve Bank of Richmond, Fall 2020, pp. 20-24). Here are a couple of excepts: 

On looking at news records to measure historical effects of fiscal stimulus

I started looking at news records when I realized that changes in government spending are often announced at least several quarters before the government spending actually occurs. That\’s really important, because the empirical techniques that researchers were using previously to measure the effect of government spending implicitly assumed that any change in government spending was essentially unanticipated. But our models tell us that individuals and firms are forward-looking and therefore will react as soon as the news arrives about a future event. This means that the previously used techniques had the timing wrong and therefore couldn\’t accurately estimate the effects of government spending. …

One historical case was the start of World War II, when Germany invaded Poland in September 1939. Events happened over the subsequent months that kept changing expectations. Even though the United States was supposedly not going to enter the war, many businesses knew that they would be increasing their production of defense goods and people knew the military draft was coming because FDR was making many speeches on the importance of building up defenses. To assess the effects of spending, it was important to figure out the exact timing of when the news arrived about future increases in government spending rather than when the spending actually occurred.

You may wonder whether individuals and businesses really do change their behavior based on anticipations of future changes. A perfect example is the start of the Korean War in June 1950, when North Korea invaded South Korea. Consumers, who remembered the rationing of consumer durable goods during World War II, and firms, which remembered the price controls, reacted quickly: Consumers immediately went out and bought consumer durables like refrigerators and washing machines, and firms immediately started raising their prices. All of this happened before there were any changes in government spending or any policies on rationing or price controls.

On reasons for rising time spent on child care since the 1990s

[O]ne of the puzzling things I saw was that the amount of time that people, particularly women, spent on domestic work was going down in almost every category — cleaning their houses, cooking, and chores — except for child care. Time spent on child care had been falling in the 1970s and 1980s but then started rising in the 1990s. Trends in time spent on child care were a puzzle because they looked so different from other home production categories. … 

Since the 1980s, the propensity to go to college has risen, in large part because of the rise in wages of a college graduate relative to a high school graduate. However, the numbers of students applying to college didn\’t increase much from 1980 to the early 1990s because there had been a baby bust 18 years earlier. In the second half of the 1990s, the number of students applying to college rose significantly because of a previous baby boomlet. Thus, the demand for college slots rose in the mid-1990s.

The result was what John Bound and others have called cohort crowding. They found that the better the college, the less elastic the supply of slots to the size of the cohort trying to be admitted. For instance, Harvard and Yale barely change how many students they admit to their entering class. The flagship public universities are a little bit more elastic, but they\’re not elastic enough to keep up with the demand to get into those top colleges. …

Our hypothesis was that during earlier times when you didn\’t have this cohort crowding, most college-educated parents felt as though their kids could get into a good college. So they were pretty relaxed about it. But then as you started having the cohort crowding, the parents became more competitive and put more effort into polishing their children\’s resumes because they realized it was harder and harder to get into the top colleges.
conversableeconomist

How Cities Stopped Being Ladders of Opportunity

One of the archetypal stories of the American experience involves the person who moves from a rural area or a smaller metro area to a big city, and after starting off in a humble role and having some ups and downs, becomes a big success. But the role of cities as ladders of opportunity have changed dramatically in the last few decades. David Autor tells the story in \”The Faltering Escalator of Urban Opportunity\” (appearing as a chapter in Securing Our Economic Future, edited by Melissa S. Kearney and Amy Ganz, and published by the Aspen Institute Economic Strategy Group late last year). Autor begins: 
For much of modern U.S. history, workers were drawn to cities by opportunities for the more enriching work offered there and the higher pay that came with it. As the eminent urban economist Edward L. Glaeser observed, “…cities have been an escape route for the underemployed residents of rural areas, such as the African-Americans who fled north during the Great Migration” (Glaeser 2020). But an important aspect of this opportunity escalator has broken down in recent decades. The migration of less-educated and lower-income individuals and families toward high-wage cities has reversed course (Ganong and Shoag 2017): Since 1980, college-educated workers have been steadily moving into affluent cities while non-college workers have been moving out.

The theories about the reasons for this shift can be divided into \”push\” or \”pull\” categories. One set of theories is that those with less education are being  pushed from large cities–perhaps by very high housing costs. The other set of theories, which Autor emphasizes, is that the pull of labor market opportunities for lower-skilled workers has diminished sharply in big urban areas. 

In the initial decades following WWII, U.S. cities offered a distinctive skills and earnings escalator to less-educated workers. A likely reason why is that, in these decades, adults without college degrees performed higher-skilled, more specialized jobs in cities than their non-urban counterparts. Laboring in urban factories and offices, they staffed middle-skill, middle-pay production, clerical, and administrative roles, where they worked in close collaboration with highly educated professionals (e.g., engineers, executives, attorneys, actuaries, etc.). These collaborative working relationships often demanded specific skills and shared expertise, and likely contributed to the higher wages (and higher productivity) of urban non-college workers. These jobs were comparatively scarce in suburbs and rural areas, far away from the office towers and (at one time) bustling urban production centers. Urban labor markets accordingly provided an escalator of opportunity and upward mobility for immigrants, minorities, less-affluent, and less-educated workers.

In the decades since 1980, however, this distinctive feature of urban labor markets has diminished. As rising automation and international trade have encroached on employment in urban production, administrative support, and clerical work, the noncollege urban occupational skill gradient has diminished and ultimately disappeared. While urban residents are on average substantially more educated—and their jobs vastly more skill-intensive—than four decades ago, non-college workers in U.S. cities perform substantially less specialized and more skill-intensive work than they did decades earlier. Polarization thus reflects an unwinding of the distinctive structure of work for non-college adults in dense cities and metro areas relative to suburban and rural areas. And as this distinctive occupational structure has receded, so has the formerly robust urban wage premium paid to non-college workers.

Autor presents a body of detailed evidence on this shift, which I won\’t try to summarize here. But here\’s one figure, just showing how wage patterns by education level have shifted in urban vs non-urban areas in recent decades. For those with higher levels of education, urban wages have grown faster than wages in non-urban areas; for those with lower levels of education, urban wages have been growing more slowly than wages in non-urban areas.

The aftereffects of the pandemic are likely to strengthen this pattern. Autor writes:

The COVID-19 crisis may change this trajectory. It seems probable that employers will learn two durable lessons from the swift, disruptive, and yet surprisingly successful movement of knowledge work from in-person to online: a first is that online meetings are almost as good as—and much cheaper than—time-consuming, resource-intensive business trips; a second is that virtual workplaces can provide a productive, cost-effective alternative to expensive urban offices for a meaningful subset of workers. If these lessons take root, they will shift norms around business travel and remote work, with profound consequences for the structure of urban labor demand. Already, U.S. employers surveyed during the current pandemic project that the share of working days delivered from home will triple after the pandemic has passed (Altig et al. 2020). Most significantly, the demand for non-college workers in the urban hospitality sector (i.e., air travel, ground transportation, hotels, restaurants) and in urban business services (i.e., cleaning, security, maintenance, repair, and construction) will not likely recover to its previous trajectory.

When I think about the role of cities as ladders of opportunity, I find myself thinking about back-and-forth movements–that is, not just rural and smaller cities to big metro areas, but also the moves from big cities back to smaller ones. I can\’t point to systematic data to back this up, but my sense is that the economic role of US cities for many decades was that they were a hub for economic activity that reached out to smaller cities that were within perhaps 100-200 miles. Supply chains and also movements of people went back and forth along these urban hub-and-spoke connections. 

But in the last few decades, big cities seem to have lost some of their connectedness to the areas around them. Instead of having a manufacturing plant or a back-office operation in a location within a few hours drive from the city, that manufacturing plant or back-office operation may be in another country on another continent. For many economic purposes US cities now operate in global competition with other large cities around the world. It will be interesting to see if the post-pandemic shifts in urban labor markets include a shift of some high-skilled labor back to smaller cities and rural areas as well. 
conversableeconomist

The Broken Promises of the Freedman’s Savings Bank: 1865-1874

The Freedman’s Savings Bank lasted from 1865 to 1874. It was founded by the US government to provide financial services to former slaves: in particular, there was concern that if black veterans of the Union army did not have bank accounts, they would not be able to receive their pay. In terms of setting up branches and receiving deposits, the bank was a considerable success. However, the management of the bank ranged from uninvolved to corrupt, and together with the Panic of 1873, the combination proved lethal for the bank, and tens of thousands of depositors lost most of their money.
Luke C.D. Stein and Constantine Yannelis offer some recent research on lessons the grim experience in \”Financial Inclusion, Human Capital, and Wealth Accumulation: Evidence from the Freedman’s Savings Bank\” (Review of Financial Studies, 33:11, November 2020, pp. 5333–5377, subscription requiredhttps://academic.oup.com/rfs/article-abstract/33/11/5333/5732662). Also, Áine Doris offers a readable overview in the Chicago Booth Review (August 10, 2020).

Stein and Yanellis note:

The Freedman’s Savings Bank was an early government-sponsored private enterprise that was created by Congress to provide financial services to formerly enslaved African Americans. … The bank spread rapidly, and at one point had more interstate branches than any other U.S. financial institution, and approximately one in eight Blacks in the South lived in a family that held an account with the bank. … We obtain novel data on Freedman’s Savings Bank account holders from 27 branches with surviving bank records. These 107,197 account records include names of main account holders and their family members, totaling 483,082 non-unique individuals, roughly 12% of the 1870 Black population in the American South.

The main focus on the paper is that authors match the actual names of these depositors to data from the 1870 census, and then carry out a variety of calculations: for example, those who lived in the same county or within 50 miles of a branch of the bank, and those who did not. They can compare those who lived in areas where a branch was actually established, and those in similar areas where a branch was planned but never established. The result of these and other comparisons makes a persuasive case that access to a bank account had a clearly positive effect: \”We find that individuals in families that hold Freedman’s Savings Bank accounts are more likely to attend school, are more likely to be literate, are more likely to work, and have higher income and real estate wealth.\” For example, the freed slaves with access to banks and savings were more able to buy land, start businesses, and build and attend schools (at the time, many adult freed slaves immediately sought to become literate and numerate).
Stein and Yanellis also offer some suggestive evidence that the failure of the Freedman\’s Savings Bank had long-lasting intergenerational effects on black attitudes about banking. They write:

Historians, notably Osthaus (1976), have long noted that the collapse  of Freedman’s Savings Bank—which many African Americans thought was fully backed by the federal government—and loss of savings led to a lack of trust in financial institutions by African Americans, and at least in part explains persistent gaps in utilization of financial services. The FDIC National Survey of Unbanked and Underbanked Households concludes that African-American households are considerably more likely to be unbanked: 2015 survey results indicate that 18.2% of African-American households were unbanked, compared with 3.1% of white households. Almost one-third of households indicate a lack of trust in banks as the primary reason that they did not have bank accounts, with this explanation more common among African Americans. … [W]e show that African Americans in the present day who live in counties that once had a Freedman’s Savings Bank branch are more likely to list mistrust of financial institutions as a reason for being unbanked; this association is not present for Whites.

I dug back a little bit to get more information on what why the Freedman\’s Savings Bank collapsed. The US Office of the Comptroller of the Currency has a website with a smattering of details.  Although the OCC had been founded in 1863 to provide oversight to banks and limit risk-taking that would put deposits at risk, but the Freeman\’s Savings Bank was exempted from OCC oversight and instead was to be overseen by Congress. The result was a lesson in the potential for dysfunction of boards, with a takeover by the corrupt.

For those who would like heart-breaking and angry-making details of how the Freedman\’s Savings Bank was mismanaged, I found especially useful the account of historian Walter Fleming, \”The Freedmen\’s Savings Bank,\” published in the Yale Review, May 1906, pp. 40-76, and available via the magic of HathiTrust).
I should note that Fleming\’s essay has the curious trait of making occasional racist statements about black Americans, and then going on to provide evidence that the racist statements are not actually correct–without apparently noticing the contradiction. For example, Fleming states early in the paper: \”Before the close of the war several experiments in the way of savings banks had been made among the negro soldiers for the purpose of preventing them from squandering their pay and bounty money, as it is the nature of the race to do.\” But  a few pages later, Fleming is writing about how black Americans flocked to deposit money in the bank. He writes: \”The negroes, believing that their deposits would be secure in these banks, which they understood were supported by the government, eagerly availed themselves of the opportunity to lay up small sums for the future.\”
But even with his prejudices hanging out in the open, Fleming provides a useful step-by-step overview of what happened with the bank. The law did not specify that the bank was allowed to open branches, but several of those involved in passing the law clearly saw it as part of the mission. They travelled around the South together with officials of the Freedman\’s Bureau (which was not legally connected to the bank) talking to those who had run military savings banks, many of which became the basis for branches, as well as those in prominent black communities.  Those who deposited money in the bank had often been led to believe that the federal government stood behind the bank. Bank officials wore US uniforms. Depositors were given a passbook, which had pictures of Lincoln, Grant, the US flag on the cover. The version of the passbook used in New York City had printed on the cover: “The Government of the United States has made this bank perfectly safe.” In Fleming\’s words:

The negroes were given to understand that the bank was absolutely safe, being under the guarantee of Congress, and having the funds invested in United States securities, which were safe as long as the government should last, and that it was a benevolent scheme solely for the benefit of the blacks. The profits, they were told, would be returned to the depositors as interest, or would be expended for negro education.

Many of the early discussions of the banks at the time were quite positive. The bank branches offered a safe haven for funds, and education on savings and accumulation of interest. As Fleming writes:

In the branch banks and at Washington, after 1868, an efficient body of negro business men was being trained. There was a sentiment that, since the bank was for the benefit of the negroes, the latter should be its officers as much as possible, and about one-half the employees were colored. At nearly all of the branches, especially after 1870, when some of the branch banks were allowed to do a regular banking business, there was an advisory board, or board of directors, of responsible colored property holders. These men were very proud of the Freedmen\’s Bank and of their position in connection with it. They took a deep interest in all that pertained to the institution, advised in regard to loans and investments, and promoted in every way the habit of saving on the part of their people.

But the inner workings of the bank went badly. Some of it was incompetence, a lot of it was corruption, but the underlying issue was that far too many people viewed the money in the bank as a large pot of honey, just waiting for them to scoop up what they could. Fleming describes a range of problems. Expenses were high, including $260,000 for building a pricey new headquarters building in Washington, DC. State governments often disliked the bank because the deposits were flowing to US securities, and out of their influence. Many of the employees were deeply inexperienced,  and the financial accounts were a mess. There was one inspector who was supposed to cover all the branches.
Although the branches of the banks were not supposed to make loans before 1870, when a prominent community leader wanted to draw out more money than was in his account, the cashiers often found it hard to say \”no\”–and hard to get the money back later. Then the banks were allowed to make loans under supposedly strict conditions, but many of of them. After 1870, Fleming writes:
As soon as the authority was given to the cashiers to make loans, they were besieged by a dangerous class of borrowers, who would have received scant consideration at the ordinary bank. Often the law of 1870, requiring that loans be made only on property worth double the loan, was violated and the cashiers proceeded to make investments on their own responsibility. Some of them loaned funds on the worthless script issued by the carpet-bag State and local governments; others loaned on cotton; some even made loans on perishable crops. The Jacksonville branch put money on everything that offered, from saw-mills out in the woods to shadowy claims on property. … Most of the incompetent officials, it seems, were blacks; most of the corrupt ones were white. There was a belief, often expressed after the failure of the bank, that when a white cashier had stolen funds and involved the accounts of a branch, a negro official would be put in his place to serve as a scapegoat. The white clergymen who were cashiers proved to be quite unable to withstand the temptations offered by the presence of the cash in the vaults. One of the trustees (Purvis) afterwards said: “The cashiers at most of the branches were a set of scoundrels and thieves—and made no bones about it—but they were all pious men, and some of them were ministers.\”
Bt the real coup-de-grace for the bank was a result of what should have been criminal actions, even under the laws of the time, at the top levels of management.  As Fleming points out, the original bill named the 50 people who would be trustees of the institution. In his telling, the original 50 were (white) businessmen of good character. They were to meet at least once a month. However, it only needed nine members (one of whom had to be the president or vice president) to form a quorum, and a decision could be made with support of seven out of those nine. The trustees were to receive no compensation, and were not allowed to borrow funds from the bank. The original bill said that deposits would be invested in US securities only, except for an amount to be held as an \”available fund\” for withdrawals and current expenses. But then the headquarters of the bank moved from New York to Washington, DC, and the board turned over. Fleming tells the story in some detail of how the \”hoarded deposits of the Freedmen\’s Bank drew the attention of the speculators in Washington,\” and how the new trustees stripped the banks of assets, but here\’s a quick sense of the kind of thing that went on:
The places on the board [after the move to Washington DC] were somewhat difficult to fill, and it came about that most of those who were put in were incompetent persons elected simply to fill up the lists. They had little business capacity, no business connections, no property. The incapable ones were controlled by the few capables, who, after 1869-1870, were the District of Columbia members. These latter formed a kind of a “ring\” for their mutual benefit. They were involved in other schemes that made their connection with the bank of great use to them. They were at once officials of the bank, and officers of the Bureau or of the army or of the government of the District of Columbia. Howard, Balloch, Alvord, and Smith were bureau officials and were connected with Howard University, and extensive borrowers from the bank; Cooke and Huntington were officials in another bank that put its bad loans off on the Freedmen\’s Bank; Cooke, Eaton, Huntington, Balloch, and Richards were officials of the notorious District government; Howard, Alvord, Eaton, Stickney, Kilbourn, Latta, Clephane, Huntington, Cooke, and Richards were connected with firms that borrowed large sums from the bank, notwithstanding the fact that officials were prohibited by law from using the funds of the bank, directly or indirectly.
The trustees were under no penalties for the proper execution of their trust. They were not required to make any deposits in the bank. The law fixed as a quorum nine out of fifty trustees, and further required the affirmative vote of at least five on money matters. The trustees provided in the by-laws for a finance committee of five, of whom three should be a quorum. Thus three could and did habitually dispose of the financial business of the bank when the law required at least five. Often two trustees, or one, or even the actuary (cashier), negotiated important loans without reference to the trustees.
When this situation was followed by the Panic of 1873 and crash in real estate values, there wasn\’t much left.  Pretty much no one was prosecuted or held responsible. Fleming tells hard-to-read stories of working people who faithfully put money in the branches for years, only to find that it had all been taken. As Stein and Yannellis write: \”In June 1874, the Freedman’s Savings Bank was forced to suspend operations with only 50 cents to cover obligations per depositor. The failure of a bank catering to former slaves, and the loss of their savings, led to general public concern and sympathy for the fate of depositors. Following a congressional investigation, Congress created a program to reimburse up to 62% of savings, but many depositors were never compensated.\”
conversableeconomist

More on the Origins of "Pushing on a String"

Tie a string to an object. When you pull on a string, the object on the other end comes toward you. But when you push on a string, the object at the other end of the string is unaffected, because the string just crumples up. For economists, \”pushing on a string\” refers to the idea that monetary policy may (in certain circumstances) be more effective at reducing inflation even at the cost of a recession than it is at stimulating an economy. Back in 2015, I posted about an early use of the \”pushing on a string\” metaphor during Congressional hearings in March 1935. 

However, Samuel Demeulemeester has recently written to me with several example from the same time frame, but slightly earlier. Jeff Busby was at the time a Congressman from Mississippi. Willford King was a professor of economics at New York University, and a Fellow of the American Statistical Association. Irving Fisher is in the story, too. In short, the metaphor was not a one-off comment in 1935, but was demonstrably familiar to policy-makers and academics at this time.  What follows is from Demeulemeester, with his permission (for ease of reading, I have not inserted additional indenting or quotation marks to  his email):  
__________

I just came across your post of July 30, 2015, “Pushing on a String: An Origin Story”, in which you suggest that this metaphor might first have been used by Representative T. A. Goldsborough during hearings held on March 18, 1935.

Goldsborough actually seems to have gotten this metaphor from Willford King of New York University, who used it during hearings before a subcommittee (presided by Goldsborough) of the Committee on Banking and Currency, House of Representatives, on January 30, 1934. King had himself heard it from “somebody” else:

Mr. BUSBY. Therefore, I think it is more essential we go to the question of dealing with both the up and down amount of bank money that may be issued so as to control it.

Mr. KING. You can prevent overissuance of this bank-deposit currency, but it is very hard to prevent underissuance of the same thing. As somebody said, you can push on a string but it doesn’t produce very good results.

Mr. BUSBY. That is exactly what I have in mind, and I want to see some kind of scheme worked out where we are pushing on the string and you can see some effect on the other end of the string.

(See here, p. 71)

This Mr. Busby would himself use the metaphor in an exchange with Irving Fisher two days later, on February 1, 1934, before the same subcommittee:

Mr. BUSBY. As Dr. King said yesterday, you can pull on a string and feel the effect of it. Therefore, you can pull down the fixed media of exchange, but you can’t push it up, just as you can push on a string and feel no effect at the other end. So in adverse times when property prices are falling the only remedy I see to get efficiency out of the arrangement is for the Government to step in and supply where this by-product of the banks\’ activities is wiped out.

(Ibid., p. 85)

And Fisher himself would use a variation of the “pushing on a string” metaphor in the following passage of his book 100% Money (1935):

Such must often be our predicament so long as we have a system under which our circulating medium is a by-product of private debt. The time when nobody wants to go into debt is the very time when we most need money and so most hope that somebody will kindly accommodate us by going into debt. Few will do so, despite all the official urging and coaxing and despite the low rates of interest. It is a case of leading a horse to water without being able to make him drink. Or it is like “pushing on the lines” to make the horse go.

(1935, 1st ed., p. 94; [1935] 1936, 2nd ed., p. 105; this passage already appeared in a 1934 draft version of the book)

_______________________ 

As Demeulemeester points out in a follow-up email: `By the way, King\’s statement, as I re-read it, only says that he did not originate the phrase \”you can push on a string but it doesn\’t produce very good results\’. This leaves open the possibility that he was the first to apply this metaphor to monetary policy.\”