Stephen Smith tells the story of how he lived in a walk-up building in New York City–that is, no elevator–which seemed like a good idea until he developed a health problem that made walking up stairs difficult. For awhile, he viewed it as just one of those inescapable problems. But then he visited relatives Romania, and talked to a friend in Rome, and saw that small apartment buildings in other countries poorer than the United States often had one or more elevators. What was going on? Smith started a Center for Building in North America, and how has a report out on “Elevators” (Center for Building in North America, May 2024). I found out about the report from an short overview essay he wrote for the New York Times (“The American Elevator Explains Why Housing Costs Have Skyrocketed,” July 8, 2024).

In case you don’t feel like reading 100+ page of international comparisons of elevators, here are a few high points. Consider elevators per capita, as shown by the bars in this figure (the narrow lines show total elevators for each country):

One might hypothesize that the US has fewer elevators because it has more single-family homes, but this doesn’t come close to explaining the size of the differences. Smith writes:

Single-family houses aside, the United States has over 32 million apartments, while Spain has fewer than 13 million apartments but about the same number of elevators. The U.S. has 40 percent fewer elevators per capita than the Netherlands, despite 30 percent of the American housing stock being in multifamily dwellings (and 19 percent in buildings with at least 10 units), compared to a total multifamily housing share of just 21 percent in the Netherlands. New York City has roughly the same population as Switzerland and even more New Yorkers live in apartment buildings than Swiss residents do, but New York only has half the number of passenger elevators. No matter how you slice the numbers, America has fallen behind on elevators.

Why is that? Well, at the most basic level, elevators cost a lot more in the United States. Smith’s estimate is that it costs about “three times as much to install an elevator as developers in high-income peer countries in Europe and Asia.” This difference can be broken down into differences in the amount of labor needed and the cost of the components:

Labor is the major cost in installing and maintaining elevators, and basic rules of thumb suggest that it takes roughly twice as long to install an elevator in a new building in the United States as in Europe. In the U.S., the variable length portion of an installation requires around one week per floor of labor from a full-time, two-person crew, plus perhaps some extra time for fixed components that don’t vary according to height. In Western Europe, typically elevators are installed by the same crews at a rate of at least two stops per week.

In turn, the higher labor costs are driven by other factors. Elevators in smaller and mid-sized buildings other high-income countries commonly have smaller cabins, enough to hold someone with a wheelchair and another person pushing them, but not necessarily enough to roll a hospital gurney in and out.

Smith also emphasizes that the building code rule governing elevators vary across states, and across cities within states, making it hard for economies of scale in production to develop. In addition, competition among companies in the elevator industry is harder, because the best company to deal with a specialized elevator installed earlier is the company that installed it originally–and switching to another competitor would have high costs.

In addition: “The International Union of Elevator Constructors is one of the most powerful construction unions in North America, and it resists trends like preassembly and prefabrication, creating more work and causing further tightening in the labor market.” In contrast, many high-income countries across Europe have government-sponsored schools of technical education that provide a steady supply of elevator construction workers. Smith writes:

Contrary to stereotypes about organized labor in the United States as compared to Europe, the elevator sector in the U.S. is heavily unionized, and organized labor exerts much greater power over the process of installing and maintaining elevators. The binational International Union of Elevator Constructors (IUEC) represents most workers in the field in the United States and Canada. The union handles recruitment into the industry, makes a strong and successful effort to limit entry into the field, and limits the ability of firms to use new technology and factory production to streamline the installation and maintenance of elevators in North America. The result is higher compensation, more work for citizens and little opportunity for immigrants, and less efficient work overall, contributing to high final costs. The labor shortage is, paradoxically, somewhat of a self-reinforcing mechanism, strengthening the hand of the IUEC at the bargaining table to create more work through prohibitions on efficiencies in the installation process in particular.

In short, the Big Four elevator companies (Otis, Schindler, Thyssenkrupp, and KONE) have no reason to advocate for big changes in the market, nor does the dominant union. Instead, they have incentives to advocate for additional layers of building rules to be added at the state and city level.

The global trend in elevator regulation has been for countries outside of Europe to adopt European elevator safety norms – a trend which North America has so far resisted. There are not significant differences between the European and North American elevator safety rules (and in fact as far back as the 1980s, before a lot of global harmonization had occurred, more than three-quarters of the rules in national standards were already the same), but the mere existence of separate codes and standards, which are not interchangeable when it comes to manufacturer certification, drives up costs. The cost consequences of these variations in codes and standards come in two forms: costs driven by different certification processes and separate markets for parts, and costs driven by actual differences in products. In the first category, divergences in North America from global, European-based norms lead to a much smaller North American market for parts. This small North American elevator component market can be very profitable for those who manage to enter it, but entry is difficult for small- and mid-sized foreign firms given the greatly increased cost of and headaches involved in certifying parts to a unique set of rules that only apply to the United States and Canada, which make up a small share of the global elevator market. … Beyond the differences between North American and global standards, there is an unusual amount of intra-country variation in technical rules in the United States compared to nations abroad. This variation between U.S. states can lead to requirements and complexity that drive costs up even further.

There’s some irony in America’s elevator problem. Because of the Americans with Disabilities Act passed back in 1990, the US has far more ramps, automatic door openers, and accessibility in public buildings than is common in many other countries. But when it comes to medium-sized apartments, up to five and even six stories, buildings without elevators are common and accessibility concerns apparently go out the window in favor of rules set by Big Elevator and its union. After Smith’s dissection of the elevator market, one wonders what other elements of the high price of housing in the United States might be accounted for by rules and regulations operating unseen and unevaluated.

Thinking back over the half-century or so that I have been paying attention to the US economy, I can’t offhand remember a time when most people believed that the quality of American jobs was high and/or rising. Here’s how Adam Ozimek, John Lettieri, and Benjamin Glasner describe the common complaints in their report, “The American Worker: Toward a New Consensus” (Economic Innovation Institute, June 2024).

Consider a common narrative one hears about todayʼs economy. It goes something like this: Workers are experiencing an age of unprecedented disruption. The rise of e-commerce and automation, increasing foreign competition, and the proliferation of gig platforms have upended the typical employer-employee relationship and the stability that workers used to enjoy. As a result, more workers are taking on side gigs or cobbling together multiple part-time jobs just to get by. Not only that, but even good jobs are more precarious than in previous eras. Back when manufacturing ruled the U.S. economy, workers could expect a job for life. Today, they are forced to switch jobs more often than ever before.

However, when Ozimek, Lettieri, and Glasner then consider the actual statistical evidence behind these fears, often with comparisons back to 1980 or the 1990s, they don’t evidence in support. For example, they write:

Not only has it long been uncommon for workers to hold more than one job at once, Americans today are even less likely to have multiple jobs than they were in the past. Multiple jobholders have trended down from 5.9 percent of workers in 1994 to just 5.0 percent today. … If not through multiple jobs, perhaps workers are responding to increased disruption or precarity by working longer hours? Just the opposite. In the early 1960s, production and nonsupervisory employees—workers who do not manage other workers—averaged close to a 40-hour workweek. By 1980, that had fallen to just over 35 hours per week. Today, itʼs under 34 hours per week—close to a historical low during non-recessionary periods.

What about part-time work? Are Americans being forced to settle for part-time jobs when they would rather have the security of full-time employment? Here again, the answer is clearly no. In total, roughly 19.3 percent of the labor force works part-time, lower than in 1980. Only 2.6 percent of the labor force does so out of economic necessity—close to a historical low. The vast majority of those who work part-time do so by choice and the vast majority of those who want full-time work can find it.

We also find zero evidence for the idea that workers are switching jobs more frequently than before. The share of workers changing jobs in a given year has fallen significantly, from 16.9 percent in 1980 to 11.1 percent today. Over the same period, the median length of time someone works for a given employer has gone up from 3.2 years to 4.1 years. In fact, there is good reason to believe that the low levels of job turnover are a cause for concern. Job switching tends to meaningfully boost a workerʼs lifetime earnings, and it also helps knowledge and productivity gains to spread throughout the economy.

Their roll-call of evidence about how wages and work conditions are not in fact declining, but are better than a few decades ago, goes on and on. Here, let me mention what people actually say about their jobs in response to surveys. The General Social Survey has since 1972 been conducted by an opinion research center based at the University of Chicago, with funding from the National Science Foundation. When Americans are asked about their job satisfaction, here’s what they say:

Yes, there’s some fluctuation, like a drop in job satisfaction during the pandemic. But between 80-90% of Americans have been either “very” or “moderately” satisfied with their job going back to 1972.

That’s just one survey, right? Well, the Gallup poll does a job satisfaction survey, too, asking: “How satisfied or dissatisfied are you with your job? Would you say you are — completely satisfied, somewhat satisfied, somewhat dissatisfied or completely dissatisfied with your job?” In 2023, the answer was 50% completely satisfied and 41% somewhat satisfied. The highest level of satisfaction was down a bit from the pre-pandemic answers of 2020, when 56% reported being completely satisfied and 33% were somewhat satisfied.

That’s just two surveys, right? Well, the Conference Board also does a survey of job satisfaction: “The Conference Boardʼs multi-decade survey of U.S. workers recently found that job satisfaction has improved for thirteen consecutive years, resulting in the highest levels recorded since the surveyʼs inception in 1987.”

Sure, there are plenty of issues with the labor market and the economy as a whole. But as one example, concerns about high prices for housing, or health insurance, or a college degree, or inflation in general are not actually complaints about the jobs that people have. The desired for salaries and wages with higher buying power and jobs with better career prospects aren’t quite the same as hating your current job, either. There’s a kind of fake profundity that delights in solemnly announcing how the world is going to hell. Almost two centuries ago, John Stuart Mill was writing disapprovingly about how “the man who despairs when others hope… is admired as a sage”–as if pessimism was necessarily synonymous with hard-earned wisdom, rather just emotional dyspepsia.

Janet Bush of the McKinsey Global Institute interviews Chad Syverson in “Unpacking the Mysteries of the Global Economy” (July 2, 2024, audio and text available).

Does productivity growth just mean lost jobs?

Janet Bush: There’s a perception that productivity means efficiency and lost jobs. I remember somebody said to me, “Oh, productivity—you’re fired.” Unpack that for us.

Chad Syverson: That is an example of the fallacy of reasoning causality from an accounting identity. There are many specific ways to measure productivity, but they’re all basically ratios of output to input, how much comes out of a production process divided by how many inputs go into it.

And the notion that you’re describing with that person’s comment comes from looking at that definition and thinking, “Oh, that’s how you causally affect productivity. So OK, I want productivity to be higher. It’s outputs over inputs, so if I make inputs smaller, productivity will go up.”

Well, the problem with that is—and this is true whenever you reason from an accounting identity—it’s not just inputs that are changing when you decide to cut inputs. You know, those inputs are doing something, presumably, and you’re going to affect what they’re doing if you try to cut those inputs, like, say, workers or worker hours.

And that might be useful stuff that makes output. And it’s quite possible you could actually reduce output even more than you reduce input, so therefore, your productivity actually has gone down.

It’s kind of interesting. You know, I totally understand sort of the sentiment behind what that person said. I hear it a lot, but it’s usually in that direction, the messing up the identity for causality. Because if someone said, “Oh, I need productivity to go up, I know what I’ll do, I’ll just make more output”—if you said that to someone, they’d say, “OK, what magic wand do you have that lets you wave and get more output for nothing?”

Because everyone recognizes, well, if you want more output, you need more inputs, too, et cetera. But somehow that doesn’t quite always become as obvious when someone does the inverse, which is, “Well, I’ll just cut inputs, and of course productivity will go up.” But as I said, that’s not the only thing that’s going to change when you do that.

On the enormous potential of artificial intelligence for productivity gains:

I will say, I think it’s the best candidate for a new general-purpose technology we’ve had in decades. And it’s made me more optimistic that we will end the productivity growth slowdown than anything else that’s happened since I started looking deeply at the slowdown ten years ago. So, yeah, I’m on the optimistic side.

I think it has amazing potential. As you say, it hasn’t diffused that widely yet, but the early returns, so to speak, I think are quite optimistic. … But one lesson of general-purpose technologies is, their full effect comes when they’re put together with complementary investments, often intangible.

It’s not usually the direct replacement effect that drives the productivity gains. It’s these complementary things. What that means is, you wouldn’t look at AI and say, “Oh, what does AI do?” “Well, it predicts text, so I’m going to go look and see where text prediction would be the biggest thing.” OK, if you’re a lawyer and you’re writing briefs, you’re not going to do that anymore. That all may happen. I’m not denying that’s going to be part of what AI does. But I think the biggest things and the broadest things that AI could do, we haven’t really fully grasped yet, because it needs to be put together with other stuff that’s currently being invented and created.

My guess is, the biggest, the most affected sectors, we don’t really know yet. And we might be surprised actually by quite a few of them.  … Something I’ve written about lately is that there can also be a period when new technologies arise where you actually get slow measured productivity growth. And so, the technology can be present. It can be being placed into service by businesses, but you don’t actually see it in the productivity numbers. …

This is work I did on what’s called the productivity J-curve. You get this period of initial undermeasurement of the true productivity effects of new technology, and then, later, overmeasurement.

This is work I did with Erik Brynjolfsson and Daniel Rock. We did some calculations treating existing technologies, kind of going back in time and supposing, “Oh, here comes this new technology. We’re going to pretend like it’s got this AI sort of effect going, where you’re not going to fully see it early and to compute exactly what you ask.” Like, how long does this stuff take for it to work through this measurement issue? And the answer is, we looked at computer hardware, computer software, and R&D spending in general. In each of those cases, the answer is decades. You can have a period of undermeasurement that’s ten to 20 years long. And then, of course, the overmeasurement period on the back end can last just as long. The size of this undermeasurement varies over that period. So it might be five to ten years before you hit bottom of the undermeasurement, and then you start coming back in the other direction. But the point is, you can go pretty long periods of time where the technology’s out there, it’s being installed, it’s starting to be used, but you’re still not seeing its full effect reflected in the productivity statistics.

On a possible resurgence of dynamism in the US economy

[T]here’s been a long-running decline in measures of dynamism in the economy, especially in the US, but throughout much of the OECD. What do I mean? Total labor turnover, people leaving jobs and getting new jobs, for example. Business formation. How many new businesses are being created every year? Those things have been on a long-run decline, and when I say long run, I mean, back to the ʼ80s at least. OK, so there have been 30, 40 years of slowdowns in measures of dynamism. And some people were saying, “Well, maybe this is tied to the productivity growth slowdown.” Like, these chickens are coming home to roost.

Well, what’s happened since COVID, as we’ve emerged from COVID, those things have turned around. After decades of decline, labor market dynamism accelerated again. Business formation in the US is up one-third. One-third more businesses are being formed per month now than were in 2019. This isn’t just folks who are tired of the office life starting a consulting company in their spare bedroom. If you look specifically at what are called high-propensity businesses, or businesses that at foundation have features that we know predict hiring and growth for those businesses in the future, those are also up a third.

So it really does look like there’s a reinjection of whatever the secret sauce is that creates a dynamic economy in the last several years. And I think that that’s what makes me encouraged that the last three quarters of pretty fast productivity growth might continue. We might actually accelerate through that return to trend, rather than just stop at the trend.

Here’s my attempt to resolve all the issues of shared American identity in under 1,000 words. It was published back in 2013 as an opinion piece in the (Minnesota) Star Tribune newspaper.

“Analogies for America: Beyond the Melting Pot”
Timothy Taylor

Melting pot or salad bowl? For decades now, these two contestants have been slugging it out in the contest for most appropriate metaphor for how the cultures and ethnicities of America fit together. But my preference is to think of America as chocolate fondue.

The popularization of “the melting pot” metaphor is usually traced to a soppy, sentimental and very popular play of that name by an immigrant named Israel Zangwill that opened in Washington in 1908. The melting pot metaphor is a way of expressing “E pluribus unum” — “Out of many, one” — the already old saying adopted in 1782 for the Great Seal of the United States (and which you can see on the back of the $1 bill). “E pluribus unum” has also been imprinted on U.S. coins since the 18th century.

The traditional criticism about the melting pot was that what is special about American culture isn’t its homogeneity, but rather its ability to absorb the elements of many cultures, then pass them around to everyone. For example, as John F. Kennedy wrote in his 1958 book, “A Nation of Immigrants”: “One writer has suggested that a ‘typical American menu’ might include some of the following dishes: ‘Irish stew, chop suey, goulash, chile con carne, ravioli, knockwurst mit sauerkraut, Yorkshire pudding, Welsh rarebit, borscht, gefilte fish, Spanish omelette, caviar, mayonnaise, antipasto, baumkuchen, English muffins, gruyère cheese, Danish pastry, Canadian bacon, hot tamales, wienerschnitzel, petit fours, spumoni, bouillabaisse, mate, scones, Turkish coffee, minestrone, filet mignon.’ ”

In our multicultural and individualist age, the common complaint is that the metaphor says that Americans should surrender our cultural and ethnic identities. This critique strikes me as overwrought. Yes, the culture of the country where you live is constraining. But what’s distinctive about modern America is the looseness of these constraints, and the array of available choices.

However, it does bother me that the melting pot metaphor is a relic of a bygone time, when melting different metals together was a common for many industrial workers. It also bothers me that melting different metals together produces a desired outcome only if you adhere to a formula. Bronze is copper and tin. Brass is copper and zinc. If you just dump different metals into a melting pot, what comes out is likely to be flawed and brittle, not strong or useful. When supporters of the melting pot metaphor start talking, it often turns out that they have a clear mental formula for what it means to be American — and it isn’t always my formula.

The notion of America as a salad bowl seems to have been popularized by the eminent historian Carl Degler. His book “Out of Our Past: The Forces that Shaped Modern America” was a commonly used textbook from the 1950s up through the 1980s. In the 1959 edition, he wrote: “[S]ome habits from the old country were not discarded; in those instances the children of immigrants even into the third and fourth generations retained their differences. In view of such failure to melt and fuse, the metaphor of the melting pot is unfortunate and misleading. A more accurate analogy would be a salad bowl, for, although the salad is an entity, the lettuce can still be distinguished from the chicory, the tomatoes from the cabbage.”

While the salad bowl metaphor has a healthy, crunchy “eat your vegetables” ring to it, it seems awkward to me as well. After all, who is the pale and crunchy iceberg lettuce? Who is arugula? Who are the artificial bacon bits? Who are anchovies? Salad ingredients are not all created equal.

Salad is always falling apart, and you can almost never get all of the ingredients, in just the right proportions, into your mouth at the same time. Imagine the oversized modern salad bar, with multiple kinds of lettuces and vegetables, but also seeds and nuts, tuna salad, slices of chicken or ham, bean salad, hard-boiled eggs, crackers and popcorn, along with choice of soup and dessert. It misses what is cohesive and distinctive about America to see the country as a long buffet of ingredients, which we all choose to exclude or include according to our transient appetites of day.

My own suggestion is that America is chocolate fondue. Our different cultural and ethnic backgrounds are the strawberries, pineapple, and cherries, the graham crackers and cookies, the pound cake and brownies, the rice crispy treats and marshmallows, the popcorn and the peppermint sticks. Then we are dipped in America. We swim in America. We are coated in America. Because Americans can and do come from all ethnicities and races, we all look like Americans.

Of course, chocolate doesn’t always deliver on its promise. It can become grainy, rancid, burnt and bitter. Some people have no taste for chocolate, or are even allergic to it. America has often not lived up to its promises and ideals. But when I think consider all the human beings who have ever lived, in all the different places and times around the world, I feel profoundly fortunate to be living in modern America.

There’s an old story about when heavyweight boxing champion Joe Louis decided to enlist in the U.S. Army in 1942. A friend of his objected, and said: “It’s a white man’s Army, Joe, not a black man’s Army.” But Joe Louis had observed the Nazi propaganda machine close up, as the result of his two epic fights against the German Max Schmeling (who was not a Nazi, but whom the Nazis attempted to exploit). So Louis told his friend: “Lots of things wrong with America, but Hitler ain’t going to fix them.”

In that spirit, I’d say lots of things are wrong with America, but often, the best answers for what’s wrong with America are a bigger dose of what’s right with America. On the Fourth of July, I choose to sit with family and friends, and to savor the textures and sweetness of our shared American experience.

————

Timothy Taylor is managing editor of the Journal of Economic Perspectives, based at ­Macalester College in St. Paul.

I published this essay in the (Minnesota) Star Tribune newspaper two years ago in 2022.

76 Theses on American patriotism

It might be time for a reminder on what makes a patriot. 

By Timothy Taylor

1. Patriotism is love for one’s country.

2. To describe patriotism, one can adapt St. Paul’s comments about “love” in 1 Corinthians: “Patriotism is patient, patriotism is kind. Patriotism is not jealous, it is not pompous, it is not inflated, it is not rude, it does not seek its own interests, it is not quick-tempered, it does not brood over injury … .”

3. A good person can certainly be a patriot. But that doesn’t imply that all good people are patriots, or that the better the person, the more patriotic — or that all patriots are good people.

4. It’s quite possible for a bad person to be a patriot. But that doesn’t imply that all bad people are patriots, or that a lousier person is more patriotic, or that all patriots are bad people.

5. Patriotism is analog, not binary. Some Americans will be 100% patriots, while others will be mid-level or mild patriots, or not patriotic at all. And that’s just fine.

6. Patriotism has multiple dimensions, including feelings about the central political understandings and shared history of a country, the physical landscape of the country, and fellow-citizens of the country.

7. For Americans, patriotism includes allegiance to the bedrock principles of freedom and equality as embodied in the Declaration of Independence and the U.S. Constitution.

8. American patriots can be glad that the Constitution has been amended in the past, and can also hope to see it amended in the future.

9. If you support a fundamentally different system of government than described in the U.S. Constitution, you are not an American patriot.

10. Patriotism includes love of the physical country. When American patriots picture “from the redwood forest, to the Gulf Stream waters,” their hearts are moved.

11. Patriots like to visit other parts of their country, if circumstances allow. If you have no desire to engage outside your city or state or region, you are not patriotic.

12. Patriotism means loving the entire country. A generalized dislike of certain areas — say, southern states, the Boston-D.C. corridor, California, inner cities or rural areas — is unpatriotic.

13. Patriots experience a twang of emotion when crossing their national border. Sir Walter Scott wrote: “Breathes there the man, with soul so dead,/ Who never to himself hath said,/ This is my own, my native land!/ Whose heart hath ne’er within him burn’d,/ As home his footsteps he hath turn’d/ From wandering on a foreign strand!”

14. If you become a citizen of another country, or even seriously consider it, you are not an American patriot.

15. Expressing a desire to leave the country if your preferred candidate does not win an election is not patriotic.

16. Wishing that your state or region would secede from the rest of the country, or that the United States should be divided into multiple countries, is not patriotic.

17. Sometimes patriots will be so exasperated with their country that they say or do things that do not reflect their deeper feelings. If rare and regretted, such outbursts should be readily forgiven.

18. American patriots believe in civil liberties and constitutional protections for all residents, not just for the patriotic.

19. American patriotism includes a general affection for other Americans. An affection that excludes groups as defined by religion, race/ethnicity, or geography is unpatriotic.

20. Patriots will respect and even cherish dissent from other patriots, knowing that it arises within a shared love of country.

21. Still, dissent is not the highest form of patriotism, any more than criticizing your spouse is the highest expression of a loving marriage.

22. When patriots communicate with others outside their country, they will feel some internal pressure to counter even justified criticisms of their country.

23. American patriotism includes a respect for religious belief, although patriots need not be religious.

24. A patriot loves the actual and existing United States. A love that depends on the beloved being without flaw is no love at all.

25. Patriotism doesn’t spare one’s own country from criticism, but it also doesn’t single it out for exceptional criticism.

26. Patriots from different countries respect each other’s loyalties.

27. If you view yourself as a “citizen of the world,” you are not an American patriot.

28. Patriots have some interest in U.S. history. When you love something, you also like knowing its back story.

29. Patriotism need not proclaim itself at every moment. But patriotism will not hide, nor be ashamed.

30. Those who are perpetually unwilling to express affection for their country are not acting patriotically.

31. Patriotism trumps political partisanship. Indeed, American patriotism rejoices in a range of opposing views.

32. Challenging the patriotism of others based on routine political disagreements is unpatriotic.

33. Patriotic symbols can be overemphasized: We all know couples for whom the wedding ceremony seemed more important than the marriage.

34. Patriots often find it suspicious when others speak boastfully in affirmation of their patriotism.

35. A patriot can deeply disagree with American political leadership; most patriots sometimes will.

36. A claim of patriotism can be a cover for iniquity. George Washington warned in his 1796 Farewell Address “to guard against the impostures of pretended patriotism.”

37. A claim of patriotism can be a cover for misbehaviors and crimes. Thomas Boswell famously quoted Samuel Johnson as saying: “Patriotism is the last refuge of the scoundrel.” For some scoundrels, it’s a first refuge.

38. “Nationalism is not to be confused with patriotism,” as George Orwell wrote: “By ‘patriotism’ I mean devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people. Patriotism is of its nature defensive, both militarily and culturally. Nationalism, on the other hand, is inseparable from the desire for power. The abiding purpose of every nationalist is to secure more power and more prestige, not for himself but for the nation or other unit in which he has chosen to sink his own individuality.”

39. A claim of patriotism has been used as an excuse for in-groups to denigrate others.

40. A claim of patriotism can sometimes be little more than a cloying and bathetic sentimentality.

41. Some are queasy about being identified as patriotic because they fear being grouped with those who make misguided claims of patriotism. This reaction cedes the name of patriotism to those who do not deserve it.

42. Patriotism cannot reasonably be blamed for all the actions taken in its name, any more than love, democracy, equality or freedom can be blamed for all the actions taken in their names.

43. Despite the ways in which patriotism can be misused, those who sneer at patriotism are acting unpatriotically.

44. Carl Schurz was an emigrant from Germany who became a Union general during the Civil War, a senator from Missouri and a secretary of the interior. He was once challenged for criticizing his adopted country. He replied, “My country, right or wrong: if right, to be kept right; if wrong, to be set right.”

45. Some people will react to grave injustice by losing their patriotism. For patriots, this outcome is sad, but can be understandable. But there is no reverse jujitsu by which those who lose their patriotism should be judged as extra-patriotic.

46. People who have been mistreated by their country often still display a deep patriotism. When the boxer Joe Louis was asked how he could volunteer for the U.S. Army during World War II as a Black man who had experienced racial prejudice, he replied: “Might be a lot wrong with America but nothing Hitler can fix.”

47. Deploying patriotic symbols doesn’t prove one is a patriot.

48. Refusing to display or acknowledge patriotic symbols doesn’t prove that one is not a patriot. But an open discomfort with the symbols of patriotism will raise reasonable doubts about patriotism.

49. Those who deface patriotic symbols like the American flag may have a righteous cause, but they act unpatriotically in doing so.

50. Patriots at many times throughout history have been social, economic and political critics.

51. It is logically incoherent to believe that a patriot must be either unaware of the flaws in one’s society or else must be a supporter of those flaws.

52. Mark Twain wrote: “[T]he true patriotism, the only rational patriotism, is loyalty to the Nation ALL the time, loyalty to the Government when it deserves it.”

53. Political liberals can be patriotic even when they believe that the government has failed millions of citizens — for example, with a lack of economic security and low quality education and health care.

54. Political conservatives can be patriotic even when they believe that social and political values of deep importance are eroding and government is overstepping its bounds.

55. Libertarians can be patriotic even when they believe that many laws (say, drug prohibitions) are fundamentally unjust.

56. Anti-tax protesters can be patriotic even when they believe that the government practices theft by taking their money.

57. Pro-lifers can be patriotic even though they believe unborn children have been murdered through legal abortion. Pro-choicers can be patriotic even though they believe America offers insufficient support for the rights of women to control their own bodies.

58. Some patriots oppose all wars for reasons of conscience. Such patriots will not hesitate to serve their country in other ways during times of war and peace.

59. Patriots will wince at E.M. Forster’s famous comment: “If I had to choose between betraying my country and betraying my friend, I hope I should have the guts to betray my country.” A patriot may question whether treason must be morally preferable to breaking faith with a friend. But when two great loves come into conflict, it can be the stuff of tragedy.

60. It’s possible to hope that your country withdraws from a war being fought abroad, and still to be a patriot. U.S. patriots were not obliged to support the wars in Vietnam or Iraq.

61. An American patriot who opposes an American war will nonetheless not give aid and comfort to the enemy, nor rejoice in military defeats.

62. Those who damn their country most loudly, or who spell America with a swastika or as AmeriKKKa, are not those who love it the most.

63. When voting, it’s legitimate to give some preference to a political candidate who reveals a deeper sense of patriotism.

64. There is no reason to believe that politicians or those who work for a government paycheck are more patriotic than non-politicians and those who do not work for the government.

65. Those who view the ideal human being as detached from emotional ties to places, people, or institutions are not patriotic.

66. Patriotism is not jealous of other loyalties, but reinforces ties to family, culture, religion, hometowns and regions.

67. Patriotism includes a belief in the uniqueness and exceptional character of the United States: You can’t love something without feeling it is distinct.

68. If you love something, you also believe that it contains the seeds of good.

69. Patriots will find it hard to comprehend those who deny any patriotic attachment. David Hume wrote: “When a man denies the sincerity of all public spirit or affection to a country and community, I am at a loss what to think of him. … Your children are loved only because they are yours: Your friend for a like reason: And your country engages you only so far as it has a connection with yourself … .”

70. Patriots have a visceral feeling of relationship with other patriots, living and dead, extending to those who are just becoming U.S. citizens.

71. Some people fear that patriotism means surrendering their individual judgment, either to political authorities or to national loyalties. This is a misapprehension of American patriotism.

72. A patriot will respond to those who mock patriotism with clear disagreement and cold dismissal, flavored with sadness. But those who mock deeply held beliefs like family, religion or patriotism have little reason for surprise if the response is more energetic.

73. American patriots will not prefer a one-size-fits all centralized model of governance. They appreciate that fellow-citizens in other localities and states should have some flexibility in their self-governance.

74. Patriotism is a social glue. Political scientist William Galston wrote, “If the human species best organizes and governs itself in multiple communities, and if each community requires devoted citizens to survive and thrive, then patriotism is … a permanent requirement … .”

75. The Declaration of Independence declares that governments derive their just powers “from the consent of the governed.” A broadly shared patriotism is a form of ongoing consent that makes democratic governance possible in a sprawling and diverse country.

76. My wife and I note each anniversary of our first date — although our shift from friendship to dating was not clear-cut at the time. Similarly, the Continental Congress declared independence on July 2, 1776; the delegates didn’t actually sign the Declaration of Independence until a formal copy was made in August; and the U.S. Constitution was not ratified until June 21, 1788.

But in matters of close affection, annual commemoration matters more than historical details. In that spirit, patriots will feel the tremors of their endearment every July 4.

Timothy Taylor is managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul.

When thinking about global energy consumption, and the closely related risks of climate change, it’s useful to have some grounding in the basic facts. Here, I pass along a few figures from the annual Statistical Review of World Energy (June 2024). At a global level, the shift to non-carbon energy sources is more limited than many people seem to believe. In addition, carbon emissions and coal production are becoming more concentrated outside the United States and Europe, as other parts of the world economy develop. For all the controversy over US- and EU-based policies to encourage non-carbon energy, the outcome of carbon emissions for the world as a whole is going to be determined elsewhere.

As a starting point, here are the sources of “primary” energy in 2023 (that is, combining electricity generation, transportation, industrial uses, everything) for the world as a whole. Out of global primary energy of 620 exajoules in 2023, 81% is fossil fuels (coal, oil, natural gas). Noncarbon sources are the remaining 19%. If you focus on the “other renewables,” leaving out nuclear and solar, that’s 8% of total output. If the goal is to replace fossil fuels without (much) expanding nuclear and hydro, the “other renewables” would need to multiply more-or-less tenfold to cover existing energy demand. Of course, a ten-fold increase wouldn’t be enough, because the billions of people living in lower- and middle-income countries badly want to consume more energy, not just replace existing fossil fuel use.

It’s already true that over 60% of global energy consumption is happening outside the higher-income OECD countries. Here’s a breakdown by region. Notice also that the growth rate of energy consumption over the past decade is near-zero in the United States and negative in western Europe, but rising in Africa, India, and China.

Here’s a similar table, but describing per capita energy consumption, not total energy consumption. As you see, the average person in the world consumes 77 gigajoules of energy. The average American consumes 277 gigajoules, or more than triple the global average. However, the average person Africa consumes 21 gigajoules, the average person in India 39 gigajoules, and the average person in Central and South America 58 gigajoules. It seems plausible that developing countries may find ways for the standard of living to improve without consuming US levels of energy, but it seems impossible that the they can do so without some quite substantial rises in per capita energy consumption.

The report offers a breakdown of different sources of primary energy, and I’ll just note that, globally speaking, coal has been on the rise.

A more detailed breakdown is that China is 51.8% of total global coal output, India is 11.1% and Indonesia is 8.5%. Coal output is rising in all three countries. Meanwhile, the United States is 5.8% of global coal output and western Europe is 4.8%–and in both the US and Europe, coal production has been falling about 5% per year for the last decade. Indeed, news reports are suggesting that whatever China’s announced goals for clean energy, its expansion of coal is ongoing.

Given this background, it’s perhaps not shocking that global carbon emissions reached an all-time high in 2023.

If you break down this total,, 31.9% of these global carbon emissions were from China in 2023, and another 8% of global emissions were from India. The Asia-Pacific region as a whole–adding in Japan, Australia, Indonesia, South Korea, and others–already accounts for 53.7% of global carbon emissions, and total carbon emissions in this region have been rising 2% per year in the last decade. Meanwhile, the US accounts for 13.2% of global carbon emissions in 2023 (with the total declining an average of 1.2% per year in the last decade) and western Europe accounted for 10.1% of global carbon emissions in 2023 (with the total falling an average of 2.2% per year in the last decade).

At about this point, it’s common to note that historically, carbon emissions from today’s high-income countries have been much larger. This is true, but looking ahead at efforts to reduce global carbon emissions, it’s also not especially relevant. If global efforts to reduce carbon emissions don’t focus heavily on the biggest current emitters, as well as offering a cost-effective path to higher energy use and a higher standard of living for lower-income people across the world, the effort will not succeed.

Tyler Cowen interviews Joseph Stiglitz (Nobel ’01) on his “Conversations with Tyler” podcast: “Joseph Stiglitz on Pioneering Economic Theories, Policy Challenges, and His Intellectual Legacy” (June 26, 2024). It’s impossible to go over Joe’s monumental professional legacy research in a one-hour interview. As Tyler mentions, Joe’s CV now runs to 153 pages, which “is neither complete nor really has any chaff.” But here are a few of the high spots that caught my eye.

(I should note that I am eternally in Joe’s debt, because when he was chosen to be the first editor of the Journal of Economic Perspectives back in 1986, he hired me as the Managing Editor. Joe rotated off as editor after six or seven years and went on to other adventures, but I’ve been very pleased to hold the job ever since. Joe has extraordinary breadth across fields of economics, and I learned an enormous amount from talking about JEP-related papers and ideas, and economics in general. On a personal level, Joe always treated me with openness, friendliness, and fundamental decency.)

How looking at sharecropping practices in Nigeria led to a formalization of principal-agent theory:

[O]ne of the issues that, of course, as public finance economists, we worried about was the adverse incentive effect on taxation. If a government takes 50 percent of your product, we all say, “Oh, that’s a terrible system. It discourages work.” General sense in the United States is that even the top rate shouldn’t be higher than 40 percent. I think that’s wrong, but that was certainly a sentiment, a very strong sentiment.

Well, here you had sharecropping — not only in Kenya but many other countries around the world — where one-half to two-thirds of the produce was taken by the landlord. That was equivalent to a tax of 50 percent to 67 percent, and yet this was a prevalent form of tenancy, the arrangement that people had with a landlord.

One had to ask, why was that? How could this seemingly inefficient system persist for thousands of years? That was what motivated one of my most influential papers. That was the idea that there was a risk-incentive tradeoff, that in the absence of perfect information and the presence of a lot of risk, farmers couldn’t bear the risk of land ownership. If they owned the land, or rented the land more accurately, they’d have to absorb all the residual, the fluctuations in the weather, and all the other fluctuations, disease, that they would confront.

With sharecropping, they divided that risk, and a lot of the risk was borne by the landlord. That was a model of what came to be called the principal-agent problem, and it’s part of the incentive model that now is really fundamental. It was a first formalization of that basic incentive model that is now basic to modern economics.

On the impossibility of informationally efficient markets, a paper written with Sandy Grossman back in 1980:

The title of that paper was “On the Impossibility of Informationally Efficient Markets.” It was an argument against the view that was held by people like Eugene Fama that markets were informationally efficient, that they transmitted efficiently all the information from the informed to the uninformed.

We made the obvious observation that if that were the case, there would be no incentive for anybody to gather information. So the market might be transmitting information, but it would be all free information. It would be information that nobody had done any work to collect.

That idea, actually, in another context worries me very much today, that with Google and AI scraping so much information off of our newspapers, off of our podcasts, off of everything they can get a hold of, they’re trying to appropriate the value of the knowledge that’s been created by other people without paying for it. If they succeed in doing that, of course, that will decrease the incentives for others to produce information of high quality and of value. It’s that kind of interaction that was at the heart of our 1980 paper, and the themes that we talked about there are still the critical themes that we’re talking about today.

On how well the economy allocates credit–or not.

The issue here was that we weren’t very good at credit allocation and that we thought, let the market rip. We lowered interest rates. We deregulated, so we didn’t look at where the credit was going. The bank supervisors the Federal Reserve is supposed to oversee — and there are actually several other supervisors that are supposed to oversee the riskiness of the lending — that’s where the fault came.

Now, one of the things that, when I was at the World Bank and since then, I’ve emphasized very heavily: One of the signs that there’s a problem in the credit allocation is when you see a very rapid increase in the credit in one particular area. It’s a sign that, probably, people aren’t paying enough attention. Particularly, when we saw the increase in credit to housing, we should have been worried.

As it turned out, the banks weren’t doing the kind of diligence that they should have done. They were passing these mortgages on to investors, effectively lying, committing fraud. There have been a lot of cases of this, where they said, “Well, we’ve been very careful. We’ve inspected. These are mortgages originating in owner-occupied homes, people with this income.” They hadn’t done any of that, and all of that contributed to the financial crisis of 2008. So, the issue isn’t the amount of credit. It was the allocation of credit. If they had used that credit for productive uses, how much better our economy would have been.

Joe has left a different legacy in his hometown of Gary, Indiana, which is also the hometown of Paul Samuelson and the Jackson 5. Joe notes:

It was impressive, you might say an impressive trio in the library in Gary, Indiana. There’s a mural that they made recently. I went back to Gary just a few years ago, and they were very proud to show me the mural in which the Jackson 5, Paul Samuelson, and I are all on that mural.

The mural is 50 feet long and includes 22 people and places associated with Gary, Indiana, but here’s Joe standing in front of the part where his image appears behind him.

Claudia Goldin’s Nobel prize lecture, “An Evolving Economic Force,” has now been published in the June 2024 issue of the American Economic Review. Or if you prefer, you can watch the watch the lecture (with more numerous slides!) from the link at the Nobel website. She writes:

Women are now at the center of the world’s economies. Employment rates for women are at historic highs across the globe. Of the 165 nations … almost 60 percent have female employment rates (for those 25 to 54 years old) that exceed 0.70, and 80 percent exceed 0.50. For comparison, in the United States one-half of the women in that age group worked in 1970 and around three-quarters have done so ever since the early 1990s. … Women are at the center of the world’s economies not just because they are engaged in paid employment to a significant degree. They are rapidly becoming the better-educated gender, constituting the majority of college students in every one of the 38 OECD nations. Women do the vast amount of care-work across the world. And they largely determine the birth rate.

Regular readers of this blog will recognize these themes from earlier posts that have discussed Goldin’s work (for example, here, here, here, and here). For example, there is the well-known pattern that women’s work in the paid labor force first diminishes with economic growth, and then expands. This figure, taken from the Nobel lecture, shows the pattern of married US women who worked outside the home over time:

But here, I want to focus on a more recent pattern: the pay gap between men and women over the last 60 years or so. As the figure shows, the ratio of female-to-male earnings doesn’t move much from 1960 to 1980. At that point, there is a rapid rise in the ration, although not up to 1. Also, the earnings ratio for college-educated women levels off around 1995. So what is going on here?

The common economic story about the lack of change in the ratio during the 1960s and 1970s was that this was a time when entry of women into the paid labor force was especially high. Many of these women were older and lacked substantial paid work experience. Thus, the labor market entry of this group tended to hold down wages for women. As Goldin writes about this period:

The persistence of the gender gap in earnings was, in large part, due to the increase in women’s labor market participation, not despite it. As participation rates increased, women, whose job experiences were somewhat distant and brief, were pulled into the labor force. That put downward pressure on the earnings of the average working woman relative to the average working man. The stability of the gender gap in earnings given the increase in female labor force rates was a source of great frustration to those in the resurgent US women’s movement in the late 1960s and early 1970s. Banners at rallies decried the fact that women were working more, yet not being paid more relative to men. Most who interpreted the aggregate statistics as revealing a discriminatory process did not realize that the average job experience of working women was being depressed by the entry of less experienced and generally older women.

But by around 1980, this earlier process had run its course. A larger share women in the labor market had higher levels of education and paid job experience, and the wage ratio begins rising.

The current question is what explains the remaining wage gap–and in particular, the higher wage gap for college-educated women? As Goldin poses the question: “The question is particularly puzzling because today, many of the determinants of earnings are nearly the same between men and women and some, in fact, favor women. If earnings in competitive labor markets are determined by pre- labor market characteristics (such as education and training) as well as those pre-job (such as experience in previous positions), and if these characteristics have become nearly identical by sex and some favor women, what remains?”

Goldin brings some additional evidence to bear on this question. One fact is that the average ratio of female-to-male earning declines with age: “Earnings of women relative to those of men begin closer to parity (almost at 0.95 for the youngest age group in the most recent birth cohort), but that ratio decreases with age and thus with a host of other life cycle transitions. By their late thirties, the ratio for the most recent cohort shown is 0.8. The widening of the gender earnings ratio by years since college or professional school graduation is even steeper among higher income occupations, such as those in the corporate and financial sectors …

A substantial reason for the decline is that having children is for women associated with a substantial decline in hours worked and earnings. Goldin writes: “[T]he weight of the evidence is that the earnings of women plummet with the event of a birth and do not recover. Furthermore, most of the change comes from a reduction in hours of work or in participation, rather than from a reduction in earnings per hour, although that factor contributes somewhat.”

A final fact-based clue is that the difference in the female-to-male earnings ratio is more related to differences within occupations, rather than to men and women ending up in different occupations: “It is important to realize that the majority of earnings differences by occupation are within rather than across occupations (given around 500 occupations and a sufficiently large dataset).”

The last few decades in the US economy have been a time of growing inequality of incomes at the very top of the distribution. These jobs at the very top of the income distribution often involve extraordinary commitments of time, and the people holding these jobs not only work more hours, but their total salaries represent a much higher hourly wage rate, as well. To put it another way, there is a “part-time earnings penalty,” in which those who work part-time not only have fewer hours, but also earn less per hour. As an example, consider a man and woman who attend the same law school and perform equally well. For a few years, they earn very similar pay. But when the woman has children, her hours drop substantially, and she is no longer on the track to be one of the heavy-hour and top-paid partners.

The part-time earnings penalty does not apply across all jobs. Goldin writes:

How can the gender earnings gap be reduced? One part of a solution is to lower the cost of flexibility. The simplest way is to create virtual substitutes between workers. That has been done in various occupations that use IT to effectively pass information and hand off clients. Teams of substitutes could be created, as they have been in pediatrics, anesthesiology, veterinary medicine, personal banking, many tech jobs, primary care medicine, and pharmacy.

The case of pharmacy is instructive. The occupation of pharmacist in the United States today has almost no part time earnings penalty and the earnings gap between male and female pharmacists is small. But that was not always the case. In the 1970s a substantial fraction of male pharmacists owned a pharmacy and many hired female pharmacists. The gender earnings gap was substantial. Several changes occurred in pharmacy that greatly narrowed the gender gap in pay but that had nothing to do with gender issues. Technological changes enhanced substitutability among pharmacists, pharmacy employment in retail chains and hospitals increased, and independent pharmacies declined (Goldin and Katz 2016). Change in other occupations, such as pediatrics, did emanate from the demands of professionals who wanted to spend more time with their own children and formed group practices that facilitated substitutability.

The remaining female-to-male earnings gap, at least in the United States, seems linked to this mixture of motherhood penalty and part-time earnings penalty. Changing the motherhood penalty involves redesigning family interactions, which seems hard, while changing the part-time earnings penalty seems perhaps tricky, but also do-able.

When did the first recognizably modern markets for insurance emerge? Maristella Botticini delivered the 2023 Presidential Address to the European Economic Association. Drawing on a research paper written with Pietro Buri, Massimo Marinacci, she argues that insurance markets were born in 14th-century Italian maritime trading (“Presidential Address 2023: The Beauty of Uncertainty: The Rise of Insurance Contracts and Markets in Medieval Europe,” Journal of the European Economic Association, 21: 6, December 2023, 2287–2326; video of the lecture is available here). From the abstract:

Maritime insurance developed in medieval Europe is the ancestor of all forms of insurance that appeared subsequently. … [W]e show that medieval merchants had to bear more frequently natural risks (they traveled longer distances) and new human risks with unknown probabilities (they faced unpredictable attacks by corsairs due to increased political fragmentation and commercial competition in Europe). The increased demand for protection in medieval seaborne trade met the supply of protection by a small group of wealthy merchants with a broad information network who could pool risks and profit from selling protection through a novel business device: the insurance contract. A new market—the market for insurance—was then born. Next, analyzing more than 7,000 insurance contracts redacted by notaries and about 100 court proceedings housed in the archives of Barcelona, Florence, Genoa, Palermo, Prato, and Venice, we study the main features of medieval trade, the type of risks faced by merchants, and the characteristics of insurance contracts and markets from 1340 to 1500.

An insurance policy requires the ability to estimate risks of bad outcomes. It requires a group ready to pay premiums so that if the bad outcome occurs, they are protected. It also requires a group that expects to make a profit from selling this insurance over time, but has sufficient resources to pay the claims if and when a series of bad outcomes occurs.

The authors emphasize a number of factors that came together at the start of the insurance industry. The authors write:

First, thanks to major progresses in nautical technologies and techniques that punctuated the Commercial Revolution, maritime commerce took place over longer distances and all year round, whereas trade in the Mediterranean during ancient times typically occurred along the coasts and during the safer summer season. Traveling longer distances and all year round entailed having to cope more frequently with natural risks (e.g., thunderstorms). Second, starting from the late 13th and early 14th centuries, corsairs began disrupting trade routes in the Mediterranean, especially the ones along the Italian and Spanish coasts. Unlike pirates who disrupted seaborne trade since antiquity, corsairs were private citizens hired by governments and states to damage commercial competitors. Their presence and the way they conducted their business created previously unknown and much unpredictable risks to merchants who had to cope with a new type of uncertainty.

Using their data on these original insurance contracts, they can show that the price of the insurance premiums reflected the risks of the trip. Longer trips were exposed to more risks of bad weather. Certain routes were exposed to a greater risk of corsairs. Those who had better information about these risks were able to price insurance more effectively.

First, risks related to human activities (e.g., attacks by corsairs, warfare) seem to have had a relatively greater impact on insurance premia compared to natural risks (proxied by seasonal risks). Second, distance mattered but the route seems to have had a greater impact on insurance premia. Longer routes potentially increased the probability of losses from natural risks; however, these risks were mostly avoidable by choosing longer but safer routes. In contrast, regardless of distance, specific routes (e.g., in the Tyrrhenian and the western Mediterranean) were more plagued by human risks (e.g., attacks by corsairs) which were harder to avoid for the majority of sedentary merchants; these merchants did not have a broad information network compared to the few wealthy merchants, who became the key players in pooling risks and selling insurance in the early stages of the development of insurance markets.

Finally, I’ll add that new products can often face social disapproval for a time. For example, in the 19th century there was a time when life insurance was faced with moral disapproval, because it was gambling with God. It took a full-scale marketing campaign by life-insurance companies over several decades, often employing people identified with churches, to argue that actually life insurance was a responsibility that a good person owed to their family. In this case, a question of the time was whether “insurance” was actually a way of making a loan at a high interest rate, in violation of the laws against usury. For a time, some fancy footwork was needed to avoid such a charge.

In Genoa, insurance contracts were first disguised as a way to avoid charges of usury. Initially, an insurance contract was drawn up as mutuum, a fictitious sea loan resembling the foenus nauticum used in ancient times—a loan to be repaid only in the case of safe arrival of the shipment. Then, during the 14th century, the insurance contract took the form of a fictitious sale contract, and only in the 15th century became openly written as an insurance contract. Meanwhile, insurance contracts developed in Florence during the mid-14th century without the need of disguising them under fictitious sale contracts.

Anne Krueger has a remarkable resume, including Chief Economist at the World Bank from 1982-86 (where she is widely credited with substantially upgrading the quality of published research) and First Deputy Managing Director of IMF from 2001-2007. She converses with Shruti Rajagopalan for about an hour about a wide array of topics in “Anne Krueger Reflects on 50 Years of Rent-Seeking, Trade, and Economic Development” (Mercatus Original Podcasts, June 20, 2024).

I can’t do justice to the sweep of the conversation here, but some it focuses on the lead-up to a prominent 1974 paper by Krueger called “The Political Economy of Rent-seeking” (American Economic Review, June 1974). At the time the paper was gestating, in the late 1960s and early 1970s, Krueger was on the faculty at the University of Minnesota. But in the summers, often as part of US AID projects, she found opportunities to travel in places like Turkey, South Korea, and India. She talked with actual business people along the supply chain. For example, in one study she talked with Hindustan Motors in India and 50-60 of its suppliers. This process of gathering background information is wildly different than how most economists conduct research today. For example, she found that “each of these parts businesses have three sets of books: one for the tax man, one for the public and one for themselves to actually understand what was going on.”

Perhaps the key conclusion in the 1974 paper was that corruption wasn’t just a set of transfers or bribes from one group to another. Instead, “competitive rent-seeking” meant that firms were devoting considerable resources to finding ways to beat the government’s prohibitions and licenses and rules. As a result, the costs of those rules were more substantial than had been previously believed. As Krueger says:

At first it seemed amazing, but then after you realize, these guys are smuggling parts or these guys are importing in false pricing or whatever it is they’re doing, you figure out, there’s that. But then after a while when there’s so much of it, you realize this is not just simply a matter of me taking money out of your pocket, that you are indeed making your living doing that when you could be doing something productive instead. That was the fundamental thing, is not realizing it was there, which I think everybody knew. 

I remember a day or two on corruption in graduate school. I think what we were taught was that, when there’s corruption, it doesn’t much matter because it’s simply a transfer from one person to another. That would be true if it were one or two little isolated events, I suppose. Once everybody realizes that if they do this, that or the other thing, they’ll get more, then everybody competes for it. By that time they’re spending time and resources on it. By that time it is more costly.

A common justification for rules and regulations, and blocking imports, was that it was a necessary price to pay to give domestic industries some space to grow and develop. But Krueger argued that those in business didn’t really believed this justification. They just wanted less competition. Here’s an exchange from the interview.

RAJAGOPALAN: Even before 1965, the general consensus in the ’50s and ’60s was that free trade was really for the developed world, the Western world in the post-war period, and developing countries were doing the right thing by being protectionist, by having infant industry protection, import substitution, import licensing—you know the list better than I do. Did you ever buy into that orthodoxy, or were you always skeptical of it? If you did buy into it, what made you change your mind?

KRUEGER: I don’t know as I bought in. I think I recall someone at graduate school saying, “Yes, there might be an industry where you had high cost of startup, but if you then set it up, you would recoup your money and you would be able to take off the protection and be able to produce for world markets and stuff.” What I understood about India and about Turkey, was that they were not doing any part of that. Not only were the ones that were protected not thriving, they wanted more protection, and they were not at all thinking about the international market. They knew they couldn’t compete. There was some dissonance that way. I’m not so sure that the consensus, at least as I perceived it, was quite as strongly pro-import substitution and all that, as you are saying.

Krueger tells a nice story about her attempts to argue for open trade and macroeconomic stability in India at this time, and how her arguments were received.

At some point, I was coming back to India, and one of the secretaries and one of the important economic ministries said, “You’ve been selling this for years, but you’ve never heard the counterarguments. Come give a talk on a Saturday morning at our ministry. I’ll invite in the other chief secretaries and so on, and we’ll have a discussion.”

I went and had the discussion on the Saturday morning and made my pitch, which by that time was a little bit smoother than it was earlier on. And I knew India well enough, so I could apply it to India, no problem there. I was reasonably content with it as it finished up. The first question came from my host, and the first question was, “Now, madam, surely you know that India is a poor country. Surely you know that there are two kinds of goods: There are luxuries and there are necessities. Now, surely it would be criminal for a poor country to produce luxuries, and how could we possibly export necessities?” The discussion did not change very much from that level.

There’s the case for strict government control over the economy (“criminal .. to produce luxuries”) and zero exports (” how could we possibly export necessities?”) in a soundbite. India did not start its patterns of more rapid growth until that kind of thinking changed.