As the end of the year approaches, I again find myself in a reflective mode, thinking about my life and work. I remember a comment from Oscar Wilde (1854-1900), who wrote an 1891 essay, The Critic as Artist, in the form of a conversation between Gilbert and Ernest. At one point, Wilde writes:

GILBERT. Ernest, you are quite delightful, but your views are terribly unsound.  I am afraid that you have been listening to the conversation of some one older than yourself.  That is always a dangerous thing to do, and if you allow it to degenerate into a habit you will find it absolutely fatal to any intellectual development.  As for modern journalism, it is not my business to defend it.  It justifies its own existence by the great Darwinian principle of the survival of the vulgarest.  I have merely to do with literature.

ERNEST. But what is the difference between literature and journalism?

GILBERT. Oh! journalism is unreadable, and literature is not read.  That is all.

I do love the line about “the great Darwinian principle of the survival of the vulgarest.” Of course, as a sardonic comment, it has potentially a broader application than journalism, but also to culture and politics.

From the standpoint of my work life as Managing Editor of the Journal of Economic Perspectives, along with my Conversable Economist hobby, words like “unreadable” and “not read” make my shoulders tighten. “Unreadable” means it cannot be read, likely because of infelicitous style. “Not read” leaves open the possibility that it could be read, but few people see it. Part of what drives me in my work life is that I feel an inner drive or momentum to expand the possibilities of the economics that is actually readable or read.

When people try to think about the long-term future, by which I mean here looking a half-century or a century ahead, they often suffer a lack of imagination. As a common example, they take today’s problems and just multiply them by a factor of ten. Or they assume that improved central planning, in one form or another, will be how society addresses its ongoing issues involving production and allocation of scarce resources. William Nordhaus (Nobel ’18) offered some thoughts about such long-term projections in his essay “Looking Backward, Looking Forward” (Annual Review of Resource Economics, 2024, 16: 1–20). He wrote:

For anyone who undertakes long-term forecasting, I recommend an evening with Edward Bellamy’s futuristic 1878 novel, Looking Backward (Bellamy 1967). In the novel, Julian West wakes up 113 years later to survey Boston in 2000. He finds a socialist society, complete equality, no pollution, and nationally owned industry. The economy is managed much like an idealized version of Soviet central planning. Money has been replaced by cardboard credit cards that have punch holes like IBM cards. By 2000, the well-oiled machinery produces a cornucopia of … nineteenth-century products.

The economic fantasies in Looking Backward are basically all wrong. Bellamy’s vision did not foresee air travel, nuclear weapons, computers, the Internet, cyberwarfare, current artificial intelligence, or climate change. The vision of comprehensive central planning collapsed with the Berlin Wall in 1989. Even with modern supercomputers, the economy is too complex to be managed by the largest and most idealistic of hierarchies. Instead, countries have found the formula
for prosperity in the mixed economy: the rule of law and government support for basic science alongside profit-oriented production and innovation of the market. …

Looking Backward reminds us of the profound difficulty of predicting the structure of our societies far into the future. If we go to sleep today and wake up at century’s end, what will we find in 2100? Will it be a dystopian landscape of mass migrations and drowning cities? Will ocean crustaceans be a footnote in the cookbooks? … Maybe, but maybe not. The answers are not in the stars but in ourselves.

Economic inequality appears to have been rare and transient among humans during the Neolithic period (that is, from about 11,000 to 5,000 years ago). But in the following period, economic inequality became common and widespread. Why? Samuel Bowles and Mattia Fochesato tackle this question in “The Origins of Enduring Economic Inequality” (Journal of Economic Literature, December 2024, 62(4), pp. 1475–1537). From their abstract:

We survey archaeological evidence suggesting that among hunter- gatherers and farmers in Neolithic western Eurasia (11,700 to 5,300 years ago) elevated levels of wealth inequality occurred but were ephemeral and rare compared to the substantial enduring inequalities of the past five millennia. In response, we seek to understand not the de novo “creation of inequality” but instead the processes by which substantial wealth differences could persist over long periods and why this occurred only at the end of the Neolithic, at least four millennia after the agricultural revolution. Archaeological and anthropological evidence suggests that a culture of aggressive egalitarianism may have thwarted the emergence of enduring wealth inequality until the Late Neolithic, when new farming technologies raised the value of material wealth relative to labor and a concentration of elite power in early proto-states (and eventually the exploitation of enslaved labor) provided the political and economic conditions for heightened wealth inequalities to endure.

If you are like me, the first obvious question is what archeological evidence is available on this question. The authors write: “estimates are based on the size of dwellings, the size of storage areas (where these can be identified), land ownership, and the value of goods buried with the dead.” The author are quick to acknowledge the limitations of this data, but also quick to point out that the data is growing and expanding rapidly.

A key element in their question is a shift in agricultural technology, hoe-based agriculture to ox-drawn plows. They argue that the “agricultural revolution”–that is, the shift from hunter-gatherers to agricultural communities that remained geographically stable and raised crops–occurred at a time of hoe-based agriculture. The dynamics of production in these economies, as well as the social norms, were strongly egalitarian. But the arrival of the ox-drawn plow, shifted the dynamics. They write:

Recent research in paleobotany by Amy Bogaard and her colleagues … provides a key piece of our proposed resolution of the above puzzles: Developments in farming technology providing novel opportunities for accumulating wealth that differentially favored those with more initial wealth. These innovations— especially ox-drawn plows—raised the value of land, draft animals, and other forms of material wealth relative to labor, which in turn were associated with important demographic, cultural, and institutional changes. The ox-drawn plow transformed what had previously been a land-abundant and labor-limited economy to one in which material wealth was scarce relative to labor. The result was to generalize to any locale suitable for plow-based farming the previously rare and often ephemeral ecological conditions for the emergence of substantial wealth inequality. We then draw on recent ethnographic evidence to suggest that or proposed explanation extends beyond the plow- versus hoe-based farming distinction to any innovation—such as irrigation and the domestication of long lived animals—that enhances the value of land and other forms of material of wealth in their importance in securing a household’s livelihood.

While this technological shift generated conditions for greater inequality, it was then reinforced by political shifts, including slavery.

But the substantial wealth inequality that resulted from this process at a few Late Neolithic and Bronze Age sites might have been short lived (like their Early Neolithic antecedents) but for a subsequent process of political centralization that complemented the growing wealth inequalities, resulting in the emergence of what we will below define as the first archaic proto-states in Mesopotamia. Two subsequent institutional developments … brought enduring wealth inequalities up to and in some cases above modern levels. The first was the continuing process of state formation, by which a unified elite more effectively monopolized the use of coercion, the first examples in our dataset being observations from the Roman Empire in the first centuries of the Common Era. The second was the imposition of slavery, converting free labor to a form of material wealth that could be owned by wealthy households, accumulated, and transmitted over generations.

There is a lot to chew over here. Notice the claim several thousand years ago, “enduring wealth inequalities” were “up to and in some cases above modern levels.” Notice that these are inequalities of wealth, not income (although societies with a large proportion of slaves seem virtually certain to have high inequality of income, as well). Notice the role of technology: as Bowles has said in another context, “the ox-drawn plow was the robot of the late Neolithic early bronze age because it displaced labor and it made land scarce and it made labor abundant.” Notice how the question of whether labor is “scarce” or “abundant” changes over time. Notice how political and social institutions can serve to reinforce or higher wealth inequality, by affecting the ways in which wealth can be created and inherited (and in particular, whether humans can be turned into “wealth” via slavery).

The Neolithic era is sometimes called the “New Stone Age” or a time of “pre-history.” The Bronze Age which follows involves a separation between rural and urban, the development of cities, written records, and a rise in wealth inequality to modern levels. Even before the Iron Age starts roughly around 1,000 BCE, roots of modernity were being established.

There’s a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like “decrease the surplus population” and the sarcastic use of “a good man of business” would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And if Scrooge hadn’t saved money, would he have been able to save Tiny Tim?

It’s all a good “talker,” as they say about the topics that get kicked around on radio shows every day. As part of my own holiday break, I republish this essay each year near or on Christmas day.

I went looking for some other perspectives on how Charles Dickens perceived capitalism that were not embedded in a fictional setting. In particular, I checked the weekly journal Household Words, which Dickens edited from 1850 to 1859. Articles in Household Words do not have authors provided. However, Anne Lohrli went through the business and financial records of the publication, which identified the authors and showed who had been paid for each article. The internal records of the journal show that Dickens was the author of this piece from the issue of February 11, 1854, called “On Strike.” (Lohrli’s book is called Household Words: A Weekly Journal 1850-59, conducted by Charles Dickens, University of Toronto Press, 1973. Household Words is freely available on-line at a site hosted by the University of Buckingham, with support from the Leverhulme Trust and other donors.)

The article does not seem especially well-known today, but it is the source of a couple of the most common quotations from Charles Dickens about “political economy,” as the study of economics was usually called at the time. Early in the piece, Dickens wrote: “Political Economy was a great and useful science in its own way and its own place; but … I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods.” Later in the article, Dickens wrote: “[P]olitical economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it.”

But more broadly, the article is of interest because Dickens, telling the story in the first person, takes the position that in thinking about a strike taking place in the town of Preston, one need not take the side either of management or labor. Instead, Dickens writes, one may “be a friend to both,” and feel that the strike is “to be deplored on all accounts.” Of course, the problem with a middle-of-the-road position is that you can end up being hit by ideological traffic going in both directions. But the ability of Dickens to sympathize with people in a wide range of positions is surely part what gives his novels and his world-view such lasting power. The article goes into a fair amount of detail, and can be read on-line, so I will content myself here with a substantial excerpt.

Here’s a portion of the 1854 essay by Dickens:

“ON STRIKE”

Travelling down to Preston a week from this date, I chanced to sit opposite to a very acute, very determined, very emphatic personage, with a stout railway rug so drawn over his chest that he looked as if he were sitting up in bed with his great coat, hat, and gloves on, severely contemplating your humble servant from behind a large blue and grey checked counterpane. In calling him emphatic, I do
not mean that he was warm; he was coldly and bitingly emphatic as a frosty wind is.

“You are going through to Preston, sir?” says he, as soon as we were clear of the
CharPrimrose Hill tunnel.

The receipt of this question was like the receipt of a jerk of the nose; he was so short and sharp.

“Yes.”

“This Preston strike is a nice piece of business!” said the gentleman. “A pretty piece of business!”

“It is very much to be deplored,” said I, “on all accounts.”

“They want to be ground. That’s what they want to bring ’em to their senses,” said the gentleman; whom I had already began to call in my own mind Mr. Snapper, and whom I may as well call by that name here as by any other. *

I deferentially enquired, who wanted to be ground?

“The hands,” said Mr. Snapper. ” The hands on strike, and the hands who help ’em.”

I remarked that if that was all they wanted, they must be a very unreasonable people, for surely they had had a little grinding, one way and another, already. Mr. Snapper eyed me with sternness, and after opening and shutting his leathern-gloved hands several times outside his counterpane, asked me
abruptly, ” Was I a delegate?”

I set Mr. Snapper right on that point, and told him I was no delegate.

“I am glad to hear it,” said Mr. Snapper. “But a friend to the Strike, I believe?”

“Not at all,” said I.

“A friend to the Lock-out?” pursued Mr. Snapper.

“Not in the least,” said I,

Mr. Snapper’s rising opinion of me fell again, and he gave me to understand that a man must either be a friend to the Masters or a friend to the Hands.

“He may be a friend to both,” said I.

Mr. Snapper didn’t see that; there was no medium in the Political Economy of the subject. I retorted on Mr. Snapper, that Political Economy was a great and useful science in its own way and its own place; but that I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods. Mr. Snapper tucked himself up as if to keep me off, folded his arms on the top of his counterpane, leaned back and looked out of the window.

“Pray what would you have, sir,” enquire Mr. Snapper, suddenly withdrawing his eyes from the prospect to me, “in the relations between Capital and Labour, but Political Economy?”

I always avoid the stereotyped terms in these discussions as much as I can, for I have observed, in my little way, that they often supply the place of sense and moderation. I therefore took my gentleman up with the words employers and employed, in preference to Capital and Labour.

“I believe,” said I, “that into the relations between employers and employed, as into all the relations of this life, there must enter something of feeling and sentiment; something of mutual explanation, forbearance, and consideration; something which is not to be found in Mr. M’CulIoch’s dictionary, and is not exactly stateable in figures; otherwise those relations are wrong and rotten at the core and will never bear sound fruit.”

Mr. Snapper laughed at me. As I thought I had just as good reason to laugh at Mr. Snapper, I did so, and we were both contented. …

Mr. Snapper had no doubt, after this, that I thought the hands had a right to combine?

“Surely,” said I. ” A perfect right to combine in any lawful manner. The fact of their being able to combine and accustomed to combine may, I can easily conceive, be a protection to them. The blame even of this business is not all on one side. I think the associated Lock-out was a grave error. And
when you Preston masters—”

“I am not a Preston master,” interrupted Mr. Snapper.

“When the respectable combined body of Preston masters,” said I, ” in the beginning of this unhappy difference, laid down the principle that no man should be employed henceforth who belonged to any combination—such as their own—they attempted to carry with a high hand a partial and unfair impossibility, and were obliged to abandon it. This was an unwise proceeding, and the first defeat.”

Mr. Snapper had known, all along, that I was no friend to the masters.

“Pardon me,” said I; ” I am unfeignedly a friend to the masters, and have many friends among them.”

“Yet you think these hands in the right?” quoth Mr. Snapper.

“By no means,” said I; ” I fear they are at present engaged in an unreasonable struggle, wherein they began ill and cannot end well.”

Mr. Snapper, evidently regarding me as neither fish, flesh, nor fowl, begged to know after a pause if he might enquire whether I was going to Preston on business?

Indeed I was going there, in my unbusinesslike manner, I confessed, to look at the strike.

“To look at the strike!” echoed Mr. Snapper fixing his hat on firmly with both hands. “To look at it! Might I ask you now, with what object you are going to look at it?”

“Certainly,” said I. ” I read, even in liberal pages, the hardest Political Economy—of an extraordinary description too sometimes, and certainly not to be found in the books—as the only touchstone of this strike. I see, this very day in a to-morrow’s liberal paper, some astonishing novelties in the politico-economical way, showing how profits and wages have no connexion whatever; coupled with such references to these hands as might be made by a very irascible General to rebels and brigands in arms. Now, if it be the case that some of the highest virtues of the working people still shine through them brighter than ever in their conduct of this mistake of theirs, perhaps the fact may reasonably suggest to me—and to others besides me—that there is some little things wanting in the relations between them and their employers, which neither political economy nor Drum-head proclamation writing will altogether supply, and which we cannot too soon or too temperately unite in trying to
find out.”

Mr. Snapper, after again opening and shutting his gloved hands several times, drew the counterpane higher over his chest, and went to bed in disgust. He got up at Rugby, took himself and counterpane into another carriage, and left me to pursue my journey alone. …

In any aspect in which it can be viewed, this strike and lock-out is a deplorable calamity. In its waste of time, in its waste of a great people’s energy, in its waste of wages, in its waste of wealth that seeks to be employed, in its encroachment on the means of many thousands who are labouring from day to day, in the gulf of separation it hourly deepens between those whose interests must be understood to be identical or must be destroyed, it is a great national affliction. But, at this pass, anger is of no use, starving out is of no use—for what will that do, five years hence, but overshadow all the mills in England with the growth of a bitter remembrance? —political economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it. Gentlemen are found, in great manufacturing towns, ready enough to extol imbecile mediation with dangerous madmen abroad; can none of them be brought to think of authorised mediation and explanation at home? I do not suppose that such a knotted difficulty as this, is to be at all untangled by a morning-party in the Adelphi; but I would entreat both sides now so miserably opposed, to consider whether there are no men in England above suspicion, to whom they might refer the matters in dispute, with a perfect confidence above all things in the desire of those men to act justly, and in their sincere attachment to their countrymen of every rank and to their country.

Masters right, or men right; masters wrong, or men wrong; both right, or both wrong; there is certain ruin to both in the continuance or frequent revival of this breach. And from the ever-widening circle of their decay, what drop in the social ocean shall be free!

Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here’s a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It’s from the issue of January 26, 1856, with his first-person reporting on “A Nightly Scene in London.” Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas Day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls “the unreasonable disciples of a reasonable school.” In the following passage, Dickens writes: “I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity …” 

Here’s a fuller passage from Dickens:

A NIGHTLY SCENE IN LONDON

On the fifth of last November, I, the Conductor of this journal, accompanied by a friend well-known to the public, accidentally strayed into Whitechapel. It was a miserable evening; very dark, very muddy, and raining hard.

There are many woful sights in that part of London, and it has been well-known to me in most of its aspects for many years. We had forgotten the mud and rain in slowly walking along and looking about us, when we found ourselves, at eight o’clock, before the Workhouse.

Crouched against the wall of the Workhouse, in the dark street, on the muddy pavement-stones, with the rain raining upon them, were five bundles of rags. They were motionless, and had no resemblance to the human form. Five great beehives, covered with rags— five dead bodies taken out of graves, tied neck and heels, and covered with rags— would have looked like those five bundles upon which the rain rained down in the public street.

“What is this! ” said my companion. “What is this!”

“Some miserable people shut out of the Casual Ward, I think,” said I.

We had stopped before the five ragged mounds, and were quite rooted to the spot by their horrible appearance. Five awful Sphinxes by the wayside, crying to every passer-by, ” Stop and guess! What is to be the end of a state of society that leaves us here!”

As we stood looking at them, a decent working-man, having the appearance of a stone-mason, touched me on the shoulder.

“This is an awful sight, sir,” said he, “in a Christian country!”

“GOD knows it is, my friend,” said I.

“I have often seen it much worse than this, as I have been going home from my work. I have counted fifteen, twenty, five-and-twenty, many a time. It’s a shocking thing to see.”

“A shocking thing, indeed,” said I and my companion together. The man lingered near
us a little while, wished us good-night, and went on.

We should have felt it brutal in us who had a better chance of being heard than the working-man, to leave the thing as it was, so we knocked at the Workhouse Gate. I undertook to be spokesman. The moment the gate was opened by an old pauper, I went in, followed close by my companion. I lost no
time in passing the old porter, for I saw in his watery eye a disposition to shut us out.

“Be so good as to give that card to the master of the Workhouse, and say I shall be glad to speak to him for a moment.”

We were in a kind of covered gateway, and the old porter went across it with the card. Before he had got to a door on our left, a man in a cloak and hat bounced out of it very sharply, as if he were in the nightly habit of being bullied and of returning the compliment.

“Now, gentlemen,” said he in a loud voice, “what do you want here?”

“First,” said I, ” will you do me the favor to look at that card in your hand. Perhaps you may know my name.”

“Yes,” says he, looking at it. ” I know this name.”

“Good. I only want to ask you a plain question in a civil manner, and there is not the least occasion for either of us to be angry. It would be very foolish in me to blame you, and I don’t blame you. I may find fault with the system you administer, but pray understand that I know you are here to do a duty pointed out to you, and that I have no doubt you do it. Now, I hope you won’t object to tell me what I want to know.”

“No,” said he, quite mollified, and very reasonable, ” not at all. What is it?”

“Do you know that there are five wretched creatures outside?”

“I haven’t seen them, but I dare say there are.”

“Do you doubt that there are?”

“No, not at all. There might be many more.”

”Are they men? Or women?”

“Women, I suppose. Very likely one or two of them were there last night, and the night before last.”

“There all night, do you mean?”

“Very likely.”

My companion and I looked at one another, and the master of the Workhouse added quickly, “Why, Lord bless my soul, what am I to do? What can I do ? The place is full. The place is always full—every night. I must give the preference to women with children, mustn’t I? You wouldn’t have me not do that?”

“Surely not,” said I. “It is a very humane principle, and quite right; and I am glad to hear of it. Don’t forget that I don’t blame you.”

“Well!” said he. And subdued himself again. …

“Just so. I wanted to know no more. You have answered my question civilly and readily, and I am much obliged to you. I have nothing to say against you, but quite the contrary. Good night!”

“Good night, gentlemen!” And out we came again.

We went to the ragged bundle nearest to the Workhouse-door, and I touched it. No movement replying, I gently shook it. The rags began to be slowly stirred within, and by little and little a head was unshrouded. The head of a young woman of three or four and twenty, as I should judge; gaunt with want, and foul with dirt; but not naturally ugly.

“Tell us,” said I, stooping down. “Why are you lying here?”

“Because I can’t get into the Workhouse.”

She spoke in a faint dull way, and had no curiosity or interest left. She looked dreamily at the black sky and the falling rain, but never looked at me or my companion.

“Were you here last night?”

“Yes, All last night. And the night afore too.”

“Do you know any of these others?”

“I know her next but one. She was here last night, and she told me she come out of Essex. I don’t know no more of her.”

“You were here all last night, but you have not been here all day?”

“No. Not all day.”

“Where have you been all day?”

“About the streets.”

”What have you had to eat?”

“Nothing.”

“Come!” said I. “Think a little. You are tired and have been asleep, and don’t quite consider what you are saying to us. You have had something to eat to-day. Come! Think of it!”

“No I haven’t. Nothing but such bits as I could pick up about the market. Why, look at me!”

She bared her neck, and I covered it up again.

“If you had a shilling to get some supper and a lodging, should you know where to get it?”

“Yes. I could do that.”

“For GOD’S sake get it then!”

I put the money into her hand, and she feebly rose up and went away. She never thanked me, never looked at me— melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost.

One by one I spoke to all the five. In every one, interest and curiosity were as extinct as in the first. They were all dull and languid. No one made any sort of profession or complaint; no one cared to look at me; no one thanked me. When I came to the third, I suppose she saw that my companion and I glanced, with a new horror upon us, at the two last, who had dropped against each other in their sleep, and were lying like broken images. She said, she believed they were young sisters. These were the only words that were originated among the five.

And now let me close this terrible account with a redeeming and beautiful trait of the poorest of the poor. When we came out of the Workhouse, we had gone across the road to a public house, finding ourselves without silver, to get change for a sovereign. I held the money in my hand while I was speaking to the five apparitions. Our being so engaged, attracted the attention of many people of the very poor sort usual to that place; as we leaned over the mounds of rags, they eagerly leaned over us to see and hear; what I had in my hand, and what I said, and what I did, must have been plain to nearly all the concourse. When the last of the five had got up and faded away, the spectators opened to let us pass; and not one of them, by word, or look, or gesture, begged of us.

Many of the observant faces were quick enough to know that it would have been a relief to us to have got rid of the rest of the money with any hope of doing good with it. But, there was a feeling among them all, that their necessities were not to be placed by the side of such a spectacle; and they opened a way for us in profound silence, and let us go.

My companion wrote to me, next day, that the five ragged bundles had been upon his bed all night. I debated how to add our testimony to that of many other persons who from time to time are impelled to write to the newspapers, by having come upon some shameful and shocking sight of this description. I resolved to write in these pages an exact account of what we had seen, but to wait until after Christmas, in order that there might be no heat or haste. I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity; and I address people with a respect for the spirit of the New Testament, who do mind such things, and who think them infamous in our streets.

A “child allowance,” in the policy lingo, is a policy that provides a per-child payment to every family with children. The US has for some decades now has a “child tax credit,” which has reduced taxes and paid refunds to low-income families with children. But during the pandemic, this program was expanded temporarily in a way that nearly turned it into a full child benefit. The Annals of the American Academy of Political and Social Science has a 13-paper symposium in its November 2023 issue on effects of this expansion of the child tax credit.

(For reasons I don’t intend to figure out, the papers for this November 2023 issue were mainly published for the first time in September 2024.

Megan Curran, Hilary Hoynes, and Zachary Parolin write “The Consequences of the 2021 Child Tax Credit Expansion: An Introduction to the Volume.” From their abstract:

The American Rescue Plan Act of 2021 temporarily transformed the Child Tax Credit (CTC) into a more generous cash benefit that was more frequently distributed to families with children in the U.S. From July to December 2021, the families of more than 90 percent of U.S. children received monthly cash payments of up to $250 per child (or $300 per young child under six); and at tax time in 2022, families received lump-sum tax refunds of up to $1,500 per child (or $1,800 per young child). Many of these families had not previously had access to the full credit because their incomes were too low. The temporary expansion was not made permanent, and the CTC returned to its pre-expansion structure in 2022. 

What are some of the effects of the expansion?

Children seem better-off, especially in low-income families. Anna Aizer  Adriana Lleras-Muney, and Katherine Michelmore write in “The Effects of the 2021 Child Tax Credit on Child Developmental Outcomes:“

Child poverty fell to historic lows in 2021, in large part due to the temporary expansion of the Child Tax Credit (CTC). We consider the possible implications of this expansion on children’s short- and long-term development. To do so, we review the available short-run evidence from the 2021 expansion and the existing research evidence on the longer-run effects of similar income transfers in childhood on child health and human capital. We conclude that the CTC likely improved child health and well-being in the short and long run, with greater impacts for poor children and modest or nonexistent effects for nonpoor children. Moreover, the effects might be more substantial for younger children and for those in places with weaker safety nets.

Labor force participation was not broadly affected, although Diane Whitmore Schanzenbach and Michael R. Strain point out in “Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence”: “However, we see some evidence that employment was reduced among unmarried mothers with relatively low levels of education and young children—the demographic group that was most affected by the CTC expansion.

The general sense of the discussion is that a full child allowance across all income levels is relatively expensive, with relatively small gains for children in higher-income families. However, the 2021 experience (along with earlier evidence) makes a case for a substantial expansion of the existing child tax credit.

Elizabeth Ananat and Irwin Garfinkel describe some of earlier estimated of an expanded child tax credit in “The Potential Long-Run Impact of a Permanently Expanded Child Tax Credit.” They describe the design and potential effecs of a roughly $100 billion per year expansion of the child tax credit. They write:

We estimate that the net cost of the permanently expanded CTC [child tax credit] is $96.8 billion per year. Of this, $63.8 billion is predicted to go to families with incomes below $50,000, $23.1 billion to families with incomes between $50,000 and $100,000, and $9.8 billion to families with incomes above $100,000. …

Children’s future earnings in adulthood rise by a present discounted value of $202 billion, over twice the initial outlay. These increased earnings generate $57 billion in higher tax payments that benefit taxpayers. Even larger than the increased earnings are the health and longevity benefits, which represent a gain to society of $420 billion using conventional valuations. Improved health saves taxpayers an additional $13 billion in avoided health care costs (including more than $4 billion of reduced health insurance premiums). Taxpayers also save more than $300 billion due to reduced expenditures on police, courts, incarceration, and most important, victim costs of crime, along with $4 billion from avoided spending on child protective services. Children’s increased schooling costs society $70 billion. Children and their parents live longer, which increases Medicare and Social Security costs for taxpayers by $49 billion, a cost offset by benefits to recipients.

On net, the present discounted value of benefits for society is $929 billion, nearly 10 times the initial costs. Taxpayers net $243 billion above their initial $97 billion investment. This return is consistent with the large returns from other investments in children …

I haven’t studied the background calculations and assumptions behind their scenario, and as they acknowledge, there’s room for dispute here. But one thing about investing in children is that the stream of potential benefits can last for a very long time.

What does the existing research evidence say about how to reduce crime? Jennifer Doleac offers and over overview in “Why Crime Matters, and What to Do About It.” It appear as an essay in a book published by the Aspen Economic Strategy Group, Strengthening America’s Economic Dynamism, edited by Melissa Kearney and Luke Pardue. You can download individual chapters or the book as a whole.

Doleac emphasizes that the costs of crime are considerably higher than the direct effects on the victims, severe as those can be. She writes:

Crime affects community members even when they are not directly victimized. For example, fear of crime can affect foot traffic, property values, and school attendance (if parents think it’s not safe to walk to school, they might keep their children at home). In general, high levels of crime reduce residents’ quality of life and have detrimental effects on neighborhoods (Lacoe, Bostic, and Acolin 2018). Dustmann and Fasani (2016) found that crime causes “considerable mental distress for residents.” Effects are driven by property crime, are larger for women, and manifest mostly as depression and anxiety. They estimate that an increase in local crime causes two to four times as much mental distress as an equivalent decrease in local employment. Cornaglia, Feldman, and Leigh (2014) estimate that, in terms of effects on mental well-being, the “society-wide impact of increasing the crime rate by one victim is about 80 times more than the direct impact on the victim.” … Combining tangible and intangible costs, Anderson (2021) estimates that the aggregate cost of crime in the United States is $4.7–5.8 trillion each year …

What practical and cost-effective steps might be taken to reduce crime? I can’t do justice to the full range of Doleac’s essay, but here are some thoughts that caught my eye.

1. More Police.

The most traditional approach to increasing the probability that perpetrators are caught is to put more police on the street. Indeed, a long literature shows that hiring more police officers and increasing police presence in communities both have large deterrent effects on crime—especially violent crime like homicide. Based on the fiscal costs of police and the estimated crime-reduction benefits of additional police, most US cities are substantially under-policed …

2) Better use of technology could include surveillance cameras, DNA databases of known offenders, and requiring blood-alcohol monitors in cars for those previously convicted of drunk driving. Another step is electronic monitoring rather than incarceration for nonviolent first offenders, or as a substitute for pretrial detention in some cases, or as an intermediate condition for being released from incarceration:

Outside the US, electronic monitoring (EM) is widely used as an alternative to incarceration—either in place of short prison sentences or as a means of early release from prison. People placed on EM are typically confined to their homes with limited opportunities to leave only for court-approved purposes such as work, school, and medical appointments. A GPS monitor tracks their whereabouts. This kind of monitoring provides much of the public-safety benefit of incarceration (incapacitation), while minimizing incarceration’s negative effects (being locked up with other high-risk people, disrupting work or schooling).

3) A certain amount of crime involves young adults with nothing in particular to do. Thus, summer jobs or training programs can be a useful step.

4) Reducing air pollution and lead exposure have a variety of positive health effects, and also seem connected to reducing crime rates.

5) My own sense is that having fewer people locked up can pay for these programs. Electronic monitoring is a lot cheaper than incarceration. Sure, longer prison terms for violent and/or repeat offenders are probably needed. On the other side, many offenders “age out” of crime as they leave their 20s. Also, a shorter sentence that you are actually likely to serve is probably a bigger deterrent to crime than longer sentences that relatively few offenders end up serving. Doleac points out: “A primary takeaway from this literature is that increasing the probability that perpetrators are caught and face consequences has a much bigger deterrent effect on crime than does making the punishment longer or harsher …”

What are some programs that promise to reduce crime but don’t have much support in the research evidence? Among these, Doleac mentions: programs that offer a job to those just leaving prison, programs that offer “wraparound” services to those leaving prison, “truth-in-sentencing” rules that require an offender to serve almost their full term before being eligible for parole (because such rules reduce incentives for good behavior in prison), and widespread use of long prison sentences (because criminal behavior tends to peak for those in their 20s).

A simple-minded view of a business trying to innovate might go like this: You spend some money, hire some workers, give it a try–and if it fails to produce revenue, you take your losses, close the books, and shut it down. But what if the act of shutting something down imposes additional future costs? In that situation, a business may become reluctant to innovate, because of the higher costs for failure.

Yann Coatanlem and Oliver Coste argue that this dynamic can help to explain the lack of innovation among European technology firms in “Cost of Failure and Competitiveness in Disruptive Innovation” (Institute for Economic Policymaking at Bocconi University, Policy Brief, September 2024.

They write: “It is now widely understood that the R&D intensity gap of the European Union against the United States is driven by tech sectors: the United States private R&D in tech is now 6 time higher than in the EU.” They argue that Europe’s employment protection laws are a major factor driving this difference.

The details of employment protection laws vary across European countries, but in general, they make it harder to fire workers and often require that fired workers be paid for several months after firing. (OECD data comparing employment protection across countries is available here.) When a firm is faced with such laws, it reacts over time by finding ways to hire outside contract workers not covered by these laws, engaging in additional outsourcing and offshoring, and also investing in physical capital to reduce the need for future hiring.

If a firm is in a mature industry, where it is making money and its employment levels are not going to vary substantially over time, then employment protection laws may have only a moderate effect. But a new high-tech firm is a riskier proposition. It may involve hiring a substantial number of workers now, but given the uncertainty it faces, there is a realistic change that it will also need to fire those people. The authors note: “In a seminal paper, Gilles Saint-Paul has shown that high firing costs tend to direct R&D investment towards mature products rather than new ones. In an open economy, countries with high levels of employment protection tend to specialize in well established industries and leave innovation of new products to countries with less employment protection.”

How much higher are these firing costs in a country with substantial employment protection legislation? “Leveraging a combination of financial analysis, empirical observations, and limited existing literature, we estimate that restructuring costs (that include much more than severance packages) are approximately 10 times higher in countries with high labor protection, such as in Western Europe, than in countries with low labor protection such as in the United States.” It’s not just monetary costs, either: “In many European countries, such as Germany, France, Italy, the Netherlands, Sweden, and the UK, large companies must engage in extensive negotiations with trade unions and works councils. These discussions cover the scope, motivations, timing, team selection for redundancies, severance pay, and in some cases, employee retraining or support for finding new jobs.”

The resulting cost gaps show up in firm behavior.

The recent wave of tech layoffs illustrates key structural differences between the European and American models. For instance, in the U.S., Microsoft laid off 10,000 employees in January 2023, with severance costs totaling $800 million, or $80,000 per employee, equivalent to 5.9 months of median compensation. Similar figures were observed for Meta (4.2 months), 38 Google (7.5 months), and Twitter (3 months). What stands out in the American model is the agility of corporate decision-making. The rapid success of ChatGPT triggered immediate responses: Microsoft streamlined its workforce, invested $10 billion in OpenAI, and more in its own AI infrastructure. Meta paused its metaverse efforts, laid off 20,000 employees within months, and boosted its AI investments, spending a whopping $37 billion on
computing infrastructure in 2024. Similarly, Google, facing challenges in search, halted major projects, laid off 12,000 employees, and accelerated on AI by ramping up its R&D investments to $43bn in 2023, including hiring tens of thousands of engineers with AI background. In Europe, the three tech leaders – Nokia, SAP, and Ericsson – also announced restructuring plans. Nokia, the largest European tech investor, presented a headcount reduction of up to 14,000 employees. Despite a sharp 21% sales decline last year necessitating immediate action, regulatory constraints in Germany, France, and Finland mean it won’t complete the restructuring until 2026. Similarly, SAP, Europe’s software leader, announced 8,000 layoffs, provisioning over 18 months of compensation globally, with more than three years required in Europe. …

Might there be some ways for supporters of employment protection laws to support the general goals of such legislation, while reducing the costs? One simple possibility suggested by the authors is that the employment protection rules could only apply to the bottom 95% or 90% of worker by pay: that is, protect the average and above-average worker, but not the top of the wage distribution. Another possibility is that employees would put money into an account that could be drawn upon when fired. Yet another possibility, modelled after Denmark’s “flexicurity” approach, is that government take on the costs of supporting income and providing assistance with job search and retraining, while firms keep the flexibility to fire as they wish. The rules for European firms negotiating with unions and works councils could be clarified and simplified, as well.

There is a widespread belief that the US labor market has been undergoing a period of unprecedented change in the last decade or two. On one hand, David Deming, Christopher Ong, and Lawrence H. Summers cast doubt on this historical claim in their essay, ” Technological Disruption in the US Labor Market”–that is, they argue that historical shifts in US occupations have been much larger during various periods of the late 19th and 20th century than the more recent shifts. However, they also point to some signs that although the big shift in US labor markets may not have happened yet, it could be on its way. The essay appears as a chapter in a collection published by the Aspen Economic Strategy Group, Strengthening America’s Economic Dynamism, edited by Melissa Kearney and Luke Pardue. You can download individual chapters or the book as a whole.

For an historical perspective on shifts in US labor markets, consider the figure below. If you look back to the late 19th century, about 80% of all US jobs were either in farming or blue-collar production. But by 1960s, farming jobs were less than 10% of the US total and falling sharply. After about 1950 to 2000, the share of blue-collar production jobs falls from 40% of all jobs to 20%. On the other side, there are sharp rises in professional jobs, office and administrative jobs, and other “services” jobs.

In short, part of a dynamic US economy has always involved dramatic shifts in jobs. US jobs have been undergoing dramatic evolution for decades. At present, the share of office and administrative jobs has been falling since 1980, and jobs in retail sales are now showing a decline. But the shifts in US job categories in the last couple of decades certainly don’t stand out as extraordinary in the historical record.

But is the US economy now in a situation, with the rise of new artificial intelligence technologies, that could lead to truly dramatic shifts in US job markets? Maybe! It’s hard to know at this stage how the new technologies might be used and how jobs will be affected: history teaches that, when it comes to jobs, new technologies often both giveth and taketh away. Deming, Ong, and Summers point to four ongoing shifts.

Trend 1: Job polarization has been replaced by general skill upgrading

[E]mployment growth was highly polarized in the 2000–2010 period, with large gains at the bottom and the top of the wage distribution and declines in the middle. Polarization continued from 2010 to 2016, although to a much lesser degree than in the decade before. However, the labor market has stopped polarizing since 2016. Between 2016 and 2022, low-skilled and middle-skilled jobs both declined by about 2 percentage points, while employment in high-skilled occupations increased by slightly more than 4 percentage points. Thus, employment growth since 2016 looks more like the kind associated with skill upgrading than the kind indicating polarization. …

Trend 2: Flat or declining employment in low-paid service occupations.

A key explanation for employment polarization in the first decade of the 2000s was the rapid growth of service sector jobs, which replaced middle-skilled (often unionized) production jobs and offered lower wages and fewer employment protections … [T]he growth of service jobs stalled in the early 2010s and was flat for most of the rest of the decade. Employment in food service and personal-care occupations fell rapidly in 2020 as a result of the COVID-19 pandemic and had recovered only partly by 2024. With the lone exception of health support occupations, service sector employment is now similar to what it was twenty years ago, early in the first decade of the 2000s. Service occupations have given back nearly all of the rapid job growth they experienced during that decade. …

Trend 3: Rapid employment growth in STEM occupations

STEM (science, technology, engineering, and math) jobs shrank as a share of USemployment between 2000 and 2012, while employment in non-STEM professional occupations grew rapidly (Deming 2017). Deming (2017) documents this surprising fact and argues that the demand for social skills is rising because social interaction is required for complex work and is not easily automated by current technologies. … [W]hile the growth in social skill–intensive management, business, education, and healthcare jobs has continued, STEM employment is now also increasing rapidly after having declined in the first decade of the 2000s. The share of all employment in STEM grew from 6.5 percent in 2010 to nearly 10 percent in 2024. About 60 percent of this growth is concentrated in computer occupations like software developers and programmers, although employment has also grown across a wide range of science and engineering occupations as well.
STEM employment growth has accelerated especially quickly in the last five years. Moreover, the rapid employment growth in business and management jobs is concentrated in occupations like science and engineering managers, management analysts, and other business operations specialists. Increased employment in STEM occupations is also matched by increased capital investment in AI-related technologies. …

Trend 4: Declining employment in retail sales

Retail sales jobs held steady at around 7.5 percent of US employment between 2003 and 2013. Between 2013 and 2023, the US economy added more than 19 million jobs. Yet retail sales declined by 850,000 jobs over the same period, causing their share of employment to drop from 7.5 to 5.7 percent, a reduction of 25 percent in just a decade. The decline in retail sales jobs began before the pandemic but has accelerated in the last few years. …

Each of these four trends—the end of polarization, stalled growth of low-paid service jobs, rapidly increasing employment in STEM occupations, and employment declines in retail sales—suggests that the pace of labor market disruption has accelerated in recent years.

Patterns of US economic activity and job growth were shocked by the pandemic, and it’s not clear (at least to me) how the changes will shake out. Will work-from-home, shop-from-home, and online medicine continue to rise, or will they fall back over time? Perhaps the new disruption of US labor markets is not so much across the broad job categories used in the historical analysis above, but instead will involve a shift in the skills demanded from workers in their current job categories.

When those outside Argentina discuss Javier Milei, who took office as President of Argentina in December 2023, I sometimes feel as if they are actually saying how they would feel if Milei was elected in their own country. For example, Milei has in a year cut Argentina’s government spending by 30% in real terms. So US-based commenters have a tendency to evaluate him by whether they would favor a 30% cut in US government spending. They do not ask such a policy might make sense specifically in Argentina–or what facts in Argentina’s history might make a majority of voters willing to give such a policy a try.

To understand why Argentinians would turn to Milei, it’s useful to ask the question: What if growth in your country’s standard of living had been lagging for decades. Moreover, what if you had had some experience with reforms that seemed to work in the 1990s and early 2000s, but now it felt as if the country was back on the same old treadmill of very sluggish growth and high inflation? Tobias Martinez Gonzalez and Juan Pablo Nicolini provide context for Argentina’s economic experience in history in “Argentina at a Crossroads” (Quarterly Review: Federal Reserve Bank of Minneapolis, November 13, 2024). Both are affiliated with the Universidad Torcuato Di Tella in Buenos Aires, and thus have a close-up view of Argentina’s economy and the arrival of Milei as president. Their point is not to dissect the merits what Milei has done in his first year as president, but to convey the economic situation in Argentina to which Milei is the elected response.

Consider a few figures. The vertical axis is output per capita since 1950, adjusting for inflation, in the US, Canada, the UK, and Argentina. In particular, notice that Argentina was quite similar to the UK in 1950, but has now fallen dramatically behind.

But maybe it makes more sense to compare Argentina to slower-growing countries of southern Europe, some of whom have historically closer ties to Argentina? As of 1950, per capita output in Argentina was substantially above that of Spain, Portugal, and Italy. Since the 1980s, it has been substantially behind all three/

Or perhaps comparing Argentina to some other large economies in South America makes more sense? Argentina was well ahead of Chile, Uruguay, and Brazil in per capita output in 1950. But Chile has now caught up, Uruguay appears on its way to catching up, and Brazil is closing the gap as well.

The point here is that Argentina’s economic issues are recent a particular recent episode and not small. Gonzalez and Nicolini argue that, in the big picture, Argentina’s problems is overly large budget deficits. They write: “In this paper, we proposed a script of the economic tragedy of Argentina since the mid-1970s
that contains a single villain: chronic fiscal deficits. The villain has the ability to manifest himself in seemingly different identities: sometimes a hyperinflation, sometimes a default, in other occasions a balance of payments crises.”

The authors summarize Argentinian economic experience in the last half-century with a table and a figure. The table shows that when Argentina’s government was able to keep inflation under control, in the 1990s and for a time in the early 2000s, growth was strong. But when inflation climbed, growth dropped.

This figure shows the budget deficits in Argentina since 1960. Notice how they took off in the 1970s. (The horizontal line shows a 3% budget deficit for comparison.) When the deficits were brought under control in the late 1980s and into the early 1990s, growth blossomed. When the deficits again surged in the 1990s, Argentina had a financial and economic crisis in the early 2000s that “at some level resembled the Great Depression in the United States.” When the deficits were again brought under control, the growth years from 2003-2010 followed. But then deficits climbed again, along with inflation.

Javier Milei is not my style of politician, but regular readers will not be astonished to learn that “my style of politician” rarely wins elections. I can’t claim to follow Argentinian politics closely, I didn’t read about any other candidates saying that they would take a chainsaw to Argentina’s budget deficits. The Economist magazine recently described Milei’s challenge this way: “This resolve has guided a blast of reforms aimed at shaking Argentina out of decades of humiliating decline caused by rampant inflation, absurd handouts and thickets of regulation.” Given decades of “humiliating decline,” and then a glimpse of an alternative economic future in the 1990s and early 2000s, it doesn’t seem shocking to me that a majority of Argentinians were willing to vote for something very different.