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.

There’s no gain-saying that a substantial share of politicians and the public believe international trade is harmful to the US economy, and accordingly, also believe that enacting high tariffs or other barriers to trade will benefit the US economy. The argument has been ongoing for centuries, and I have no illusions of resolving it here. But I can provide some facts bearing on two of the more outrageous claims.

For example, back in 2018, then-President Donald Trump tweeted: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

President Trump used executive orders to enact higher tariffs and other barriers to trade, and on trade policy, President Biden has largely followed in the same footsteps. So has this trade war in fact been easy to win? The upper figure shows patterns of US imports (blue line) and exports (red line) since 1980, measured as a share of GDP. The lower level shows “net exports,” which is the gap between the two lines, which can be used as a measure of the US trade deficit.

Anyone with a morsel of curiosity might wonder: “We’ve had much higher tariffs with 2018 or so, in particular with China but with other parts of the world as well. But the trade balance hasn’t changed–if anything, it’s a little worse than it was How can it be (one might wonder), that trade wars apparently aren’t so easy to win?

One obvious answer is that trade has many pathways through the world economy. Limits on direct trade with China can easily lead to China instead exporting to third countries (say, Vietnam), which then export to the US.

But the less obvious and more fundamental answer, taught in pretty much every intro econ class, is that a country’s balance of trade is not about whether other countries trade “fairly” or not. Looking at the trade deficit graph above, there’s no evidence that the up and down movements of the trade deficit track patterns of trade “fairness” by other countries. When the trade deficit getting smaller in the second half of the 1980s or from 2005-2010, you didn’t see major headlines about “global fairness in trade improving.” That’s because trade balances are about big macroeconomic factors.

If the trade balance is zero, then the value of foreign currencies earned by US exporters is equal to the value of US dollars earned by those who sell imports to the US economy. If a country has a trade deficit, like the US, then the value of foreign currencies earned by US exporters must be less than the value of US dollars earned by those who sell imports to the US economy. If a country has a trade surplus, like China, then the value of value of foreign currencies earned by China’s exporters–including the US dollars they earn–must be greater than the value paid in renminbi yuan by China’s importers.

How is this imbalance possible? To put it another way, countries like China around the world are earning US dollars as the US economy imports goods and services from them. We know that these economies are not using all of those US dollars to purchase US exports–if they did, the US would not have a trade deficit. So what are they doing with those US dollars? The answer is that they are investing the US dollars in financial assets, including US Treasury debt.

The US Bureau of Economic Analysis keeps track of total US holdings of foreign assets, and total foreign holdings of US assets. Because of the trade deficit, the gap between these two, the “net international investment position” for the US economy, is steadily dropping (as shown in the figure).

Is it possible for the “net” line between US liabilities to foreign investors and the assets of US investors in foreign liabilities to keep declining? There’s some controversy here, but the answer seems to be “yes.” The reason is that foreign investors in the US economy tend to buy bonds, which on average pays a lower interest rate, while US investors in foreign economies tend to buy ownership of a company, which on average pays a higher interest rate. As a result, US investors who hold foreign assets, as a group, earn more than foreign investors who hold US assets, as a group (for detail on these arguments, see this post from 2021).

I fear for some readers that what I just wrote is a blur of words, and didn’t carry sufficient clarity. It’s easier to explain in about the sixth lecture of an intro macro course, when I’ve had a chance to lay some groundwork! But the bottom line is that trade deficits are a macroeconomic outcome, based on whether a nation consumes more than it produces, or not, and on the types of financial investments that happen in different economies around the world. Broadly speaking, the US has a trade deficit because runs its macroeconomy in such a way that it consumes more than it produces (for example, with large budget deficits), while China has a trade surplus because it produces more than it consumes (for example, by pressuring household to have extremely high rates of saving).

But set aside the question of whether it’s easy to use tariffs to “win” a trade war (as opposed to just starting a trade war). It turns out that Trump was “burying the lede” back in 2018, as the news-people say. According to Trump, higher tariffs can also allow the US to get rid of the US income tax! Perhaps this potential benefit of tariffs might have been mentioned back in 2018? But for this proposal, both the arithmetic and the economics are a mess.

The basic arithmetic is that personal income in the United States was about $23 trillion in 2023. The US income tax collected $2.2 trillion. This is roughly half of US federal revenue: the other half is mainly payroll taxes to support Social Security and Medicare and the corporate income tax, along with smaller sources like the federal excise taxes on gas, alcohol and tobacco, the estate tax, and others. Imports of goods and services in 2023 (the number behind what’s in the chart above) was $3.8 trillion.

A simple-minded calculation would suggest that if you tax $3.8 trillion at a tax rate of around 60%, you could raise the $2.2 trillion. But of course, imposing a tariff of 60% would lead to dramatically fewer imports, and so you would need to tax the remaining imports at a higher rate to collect that $2.2 trillion. Thus, this idea of using tariffs to offset the US income tax would surely require a tariff rate approaching 100%, or more.

Proponents of tariffs seem to think of them a way of taxing foreign companies, without consequences for US households, but that belief is of course incorrect. Tariffs are essentially a form of a sales tax–a sales tax on imports. It would be possible to use revenue from a national sales tax (or a value-added tax) to replace the US income tax, but very few middle-income or low-income households would see that as a win, because they know that a higher sales tax leads to a higher purchase price at the cash register. Similarly, a 100% tariff on all imported oil, for example, would lead to a parallel increase in the price of gasoline.

Moreover, other countries would surely use higher US tariffs on their exports as an reason for imposing countervailing tariffs on US exports. In this scenario, firms and workers in US industries that depend heavily on the $3 trillion in US exports in 2023 (everything from farmers to pharmaceuticals) would see their global sales crater. The disruption to the US economy in this tit-for-tat tariff scenario would be dramatic at best, and depression-inducing at worst.

Again, I cannot hope to make the broader case for the benefits of international trade in a short post. But if you are left with grave doubts that tariffs are a useful way of reducing trade deficits and that tariffs can be a painless tool for eliminating the US income tax, my work for today is done.

The “Great Resignation” refers to a rise in the rate at which people were quitting their jobs starting in late 2021. It may look like much on a graph. This graph shows the monthly rate at which workers quit jobs voluntarily (thus, not counting retirements, health issues, or being laid off). You can see the blue line peaking at 3% per month, which if you work out the arithmetic, would me that over a 12-month period, a number of workers equal to 40% of the entire workforce would have quit their job. You can also see a gradually rising “quit rate” from the end of the Great Recession in 2009.

Ryan Michaels lays out three possible explanations in “What Explains the Great Resignation?” (Economic Insights: Federal Reserve Bank of Philadelphia, 2024: Q2, pp. 10-18).

In the graph above, the blue line is a “quit rate” calculated from the Job Openings and Labor Turnover (JOLTS) Survey, which is a survey of 21,000 establishments. The red line is data from the Longitudinal Employer and Household Dynamics (LEHD) data set, which includes nearly all workers and firms, but only comes out quarterly rather than monthly. An advantage of the LEHD is that you can track whether someone switches directly from one employer to another: a disadvantage is that you don’t know in the LEHD data if the worker quit voluntarily to take another job, or was laid-off and just found another job very quickly.

Michaels suggests three reasons why the quit rate may have risen:

According to the fast-growth narrative, the rise in quits was a byproduct of the fast economic recovery in 2021–2022. According to the telework narrative, quits rose because more workers transitioned to remote-work occupations. And according to the wealth narrative, the sharp increase in household savings during the pandemic enabled workers to spend more time away from paid work, and thereby induced quits.

After breaking down the labor market movements by industry and demographic groups, Michaels concludes:

Higher quit rates were observed for all industries and demographic groups, but the rise in quits was particularly sharp for younger, female, nonwhite, and non-college-educated workers. Many of these workers transitioned directly to another employer, but a majority left the workforce altogether. This suggests that changes in both the supply of labor (as illustrated by the wealth narrative) and the demand (as illustrated by the fast-growth narrative) contributed to the rise in quits. … The rise in quits was fueled by both stronger labor demand and weaker labor supply—a combination that should put upward pressure on wages. The acceleration in wage inflation appears to have in turn fed into higher price inflation.

US federal debt (that is, the accumulation of annual budget deficits) has been rising sharply. Here, I’ll sidestep the big-picture arguments about how this contributes to a slowdown in US growth rates and the risks of sustained inflation, and raises the longer-term risk of more dire financial crises. Instead, let’s just spell out some facts.

This figure shows the “gross” debt-to-GDP ratio, and the “held by the public” debt-to-GDP ratio. The distinction is that the federal government holds a lot of federal debt itself–especially in the trust funds for Social Security and Medicare, which are legally required to hold US Treasury debt. It’s often more useful to focus on debt held by the public, because this represents what the US government is drawing from capital markets outside the government itself.

As you can see, federal debt held by the public rose in the 1980s, with a combination of high Reagan-era budget deficits and interest rates. But it sagged back in the late 1990s. Federal debt held by the public was around 35% of GDP as recently as 2008. Now it’s up around 95% of GDP–a rise of about 60% of the ginormous US GDP in less than two decades.

Who is the “public” that is holding federal debt? Here’s a breakdown from the Peterson Foundation, based on the underlying US Treasury data. As you can see, about two-third of the debt held by the public is held by those in the US. Some of these holders are who you would expect: mutual funds, banks, pension funds, insurance companies, other investors. US Treasury debt is sometimes called the “safe asset,” so it will be a natural part of an investment portfolio for many institutions.

However, one substantial change in recent decades is the rising amount of US debt held by the Federal Reserve system. This figure shows federal debt held by the Fed, as part of its “quantitative easing” program. As you can see, the usual pattern of the last half-century was for the Fed to hold US federal debt equal to about 5% of GDP–an amount used for the Fed’s day-to-day financial duties. But from 2008 to about 2014, when the overall debt-to-GDP ratio rose by about 30 percentage points, the Fed ended up holding about one-third of that debt.

The Fed started to phase down its holdings of federal debt as a share of GDP, but then the pandemic hit, and the Fed stepped in once more, holding even more federal debt. Now, the Fed is again trying to phase down its federal debt holding–the Fed’s appetite for federal debt is not limitless–but it’s still far above the 5% of GDP baseline level that prevailed for the half-century or so before 2008.

Another big change is the amount of US debt held by foreign investors. The holdings of US federal debt as a share of GDP had been rising over time for a few decades. This isn’t a surprise: again, US debt is the world’s “safe asset,” so it’s a natural part of the portfolio for central banks and private investors in a globalizing world economy. You can also see that when the US debt-to-GDP ratio takes off around 2008, the holdings of foreign investors rise sharply–from about 15% of GDP to 35% of GDP, before sagging a little since then. T In what seemed like an increasingly risky world economy after 2008, investors around the world wanted to hold more of the “safe asset.” In that sense, paradoxically, the financial crises of 2008 made it easier for the US government to borrow. To put it another way, US debt held by the public rose about 30 percentage points of GDP from 2008 to 2014, and about two-thirds of that was accounted for by increased foreign holdings of federal debt.

However, since then, and even taking into account the additional rise in the US debt/GDP ratio associated with the pandemic, foreign holdings of US debt as a share of GDP have fallen. The appetite of foreign investors for US debt is not limitless.

There was an argument back in the 1970s, when I was first delving into economics, that the US didn’t need to worry overmuch about federal borrowing, because “we owed it to ourselves.” Well, the rise in foreign holdings of US government debt mean that we now owe about one-third of that federal debt–and the associated interest payments–to others outside the US economy.

The interest payments owed by the federal government (again, shown as a share of GDP) were relatively low for most of the time since 2000, because of the low interest rates. But with federal debt rising higher and interest rates rising as well, interest payments are spiking. The Congressional Budget Office says that in 2024, federal interest payments will exceed defense spending; by 2025, federal interest payment will exceed Medicare.

Back in 1628, Ambrose Acroyd published a book called Tables of Leasses and Interest. Acroyd was an administrator at Trinity College from 1615-1625, including a role as senior bursar–the modern equivalent might be “chief financial officer”–for several years. The first table of his book focused on a specific situation:

Acroyd’s unusual Table i envisions a very specific situation: one party owns an annuity with a full term of twenty-one years, several of those years have already expired, and the annuity owner wishes to pay to extend that annuity’s term back to a full twenty-one-years. Imagine someone possessing an annuity paying £1 annually for twenty-one years and fourteen years had already expired, leaving seven remaining. Acroyd’s first table states how much should be paid to “fill up” that annuity back to twenty-one years: in this case, £3 5s.11d., found on row “14” in the table.

This is an example of a “net present value” or “present discounted value” calculation: that is, how much does one have to pay in the present to receive a stream of income for some years into the future? Acroyd’s book is just one of several printed in England in the first few decades of the 17th century that included these kinds of formulas. These authors did not invent the formulas for translating a stream of future payments into a present value: the mathematics goes back at least to the Leonardo of Pisa (called “Fibonacci”) several centuries before. But why does this calculation become important at this place and time? Indeed, authors were still using his book and asking “who was Acroyd, anyway?” a century and more later.

William Deringer tells the story in “Mr. Aecroid’s Tables: Economic Calculations and Social Customs in the Early Modern Countryside,” Journal of Modern History, March 2024, 96:1). Peter Dizikes offers a readable short overview in MIT News (June 6, 2024).

The social problem came up as a result of a surge of price inflation. As Deringer writes:

Compared to prices in the decade 1501–10, average prices for foodstuffs in England were 3.0 times greater in 1551–60, 5.0 times greater in 1601–10, and 6.5 times greater in 1651–60. This constituted a radical break from prior experience, when prices had generally been stable, even falling slightly in the period from 1400 to 1500.

Thus, rents paid by tenant farmers had been essentially stable for a century or more. Raising those rents would have been viewed as an act of social aggression, and tenants could and did push back against it with protests and through the courts. But as price inflation arrived, the nominal rental payments became smaller and smaller. The landowners, including the Church of England and church institutions like Trinity College, were squeezed. Again, raising the nominal rents seemed socially and politically impossible. So the landowners reacted by raising the fee for entering or renewing a lease, called a “fine.” The size of these one-time “fines” was linked to the profitability of the land over the number of years of the lease, which in turn was determined by some combination of past experience and land surveys.

As Deringer emphasizes, 17th century England is a time and place when the logic of supply and demand and market outcome was not even in the social discussion. Instead, this was a time when payments were judged in terms of fairness, given the social roles and obligations of the parties. In this setting, the books of net present value formulas became the solution to a social bargaining problem faced by landowners and tenants after inflation had dramatically disrupted their earlier fixed-nominal-rent annual payments. Acroyd’s 1628 book was almost all tables, with very little text, but apparently, a number of the surviving copies had a Latin epigraph written into the beginning of many copies. them. Deringer explains:

The poem, comprising four elegiac couplets, does not appear to stem from any earlier source. A fairly literal translation would be:

Deviant fraud often afflicts us, but the forthright rule of the law of arithmetic teaches [us] what is useful and just. Nature taught mortals to cheat; perhaps it will be for art to prevent the treachery of frauds. Let the crowd of tricksters, the quarrelsome people cry out in protest [against this book]. Buyers, sellers, consult [it]! You will be prudent [to do so]. Those who promote fair exchange among people, if they wish to avoid praise for doing so, should be able to avoid ill-will for it as well.

This epigraph frames Acroyd’s book as an instrument for combating fraud and promoting just exchange. This tool is presented as accommodating buyers and sellers, landlords and tenants—whoever sought fair, prudent, and honest commerce. In leasing conflicts, both landlords and tenants might be guilty of certain frauds and deceits (fraus): landlords, by demanding exorbitant fines or deploying coercive tactics like selling reversionary leases; tenants, by concealing the value of their property or denying landlords their fair share by unreasonable appeals to custom. Arithmetical calculation could advance justice and harmony by enabling reasonable economic practices and curtailing fraudulent ones.

To put it differently, those of us in the modern age tend to think of formulas for net present value as part of financial decision-making, which it is. When an investor thinks about buying a stock, the investor needs to think about what present payment would be equal to the returns expected from owning that stock over time. When a bank lends money, it is calculating how much of a present payment (to you) would be equal to the amount you will repay over time. When you buy a home, you are thinking about whether the price you are paying can be justified by the stream of benefits you expect to receive while owning the home, along with an expected resale price in the figure. When government considers a program for building infrastructure or improving child nutrition or reducing pollution, part of the analysis is to compare the amount spent in the present to the value received over time. Deringer quotes a 2016 book by financial historian William N. Goetzmann to the effect that “the method of ‘net present value’ is the most important tool in modern finance.”

But back in the 17th century, the net present value formula served a different social function: most people didn’t understand the details of the math, but they understood enough of the basic idea to believe that the math represented a rule that placed limits on opportunistic behavior by both parties.

But as Deringer points out, this interpretation is both true and incomplete. The specific interest rates used by Acroyd to determine the present value payments made by “fines” were pretty high–in the range of 11-13%. When relatively high interest rates are used to discount future benefits, the present value of those payments will be relatively small. Thus, it turned out that well-to-do people and political favorites were often able to lease land from the Church of England at these preferential rates, while the less powerful who were trying to lease land in the marketplace were less protected. Deringer draws a trenchant parallel between the use of “net present value” in the 1600s and the use of algorithms to make decisions today. He writes:

Yet there is also something strikingly modern about how “Mr. Aecroid’s Tables” encoded economic equity in abstruse calculations. Particularly remarkable is how those recondite pages of figures were empowered to make judgments about what was fair and equitable on behalf of people with no understanding of how the mathematics worked. … We can assume that the vast majority of church tenants found those cryptic tables largely inscrutable. Based on evidence … so too did some of the church officials tasked with using them. If, from one direction, we might see Acroyd’s Tables as the evolution of medieval conceptions of just price, from another perspective we might see their adoption as an important early chapter in what Rodrigo Ochigame recently called “the long history of algorithmic fairness.”

Today, the use of opaque computational procedures, “black box algorithms,” to make socially contentious decisions is a familiar phenomenon. Across many fields, complicated questions about what is fair—a fair interest rate, a fair use of public resources or distribution of public benefits, a fair punishment—are delegated to algorithms, bolstered by a belief that they are less susceptible to human bias and error. …

From one perspective, those calculative techniques did succeed in creating a mutually acceptable, sustainable solution to the problem of dividing agricultural revenues on church lands. They provided landlords a way to increase their revenues over time to accommodate inflation, while protecting tenants against arbitrariness and exploitation. Ossified in institutional routines, Acroyd’s Tables came to function like a synthetic custom.

At the same time, the adoption of discounting on church lands was a component of other profound transformations in landlord-tenant relations, most notably the shift from a system in which tenants paid based on fixed “ancient” rents to one based on the surveyed profitability of the land. This seismic transformation was unquestionably to tenants’ detriment. The institutionalization of discounting tables on church lands shielded tenants on church lands from the worst consequences of this change. At the same time, though, we can reasonably speculate that the church’s policies served to legitimate this shift and exacerbated the erosion of customary protections for tenants on nonchurch estates. Insofar as many of those who benefited from favorable church leases were comparatively wealthy and well connected, the institutionalization of Acroyd’s algorithm might actually have served to harden preexisting disparities—a recurrent pattern in the subsequent history of algorithmic judgment. To put it another way: calculated fairness was a form of collusion, a bargain struck between a subset of interested parties without the input—and often to the detriment—of many others who never got to be part of the equation.