Z **Archived** Economics 210a: Introduction to Economic History: U.C. Berkeley: Spring 2008

The Crisis of the "Mixed Economy"

Econ 210a: Introduction to Economic History: February 28 Class: The Crisis of the Mixed Economy

In the mid-1960s economists thought that they had it right. Bretton Woods. Keynesian domestic demand management. Progressive tax and transfer systems. And perhaps a bit of public ownership of the "commanding heights" and of "indicative planning." The problems of economic management seemed--to some at least, in the first world at least--to be broadly solved. And people were looking forward to future eras in which the "economic problem" would not be allocating scarce resources among various productive uses but allocating abundant products in the interest of human well-being. What is the economic problem in an era in which we have enough food not to be hungry, enough clothing not to be cold, enough shelter not to be wet, and certainly enough diversions not to be bored?

But as a result of the 1970s and 1980s, consideration of these problems was pushed into the far future, because it became clear that economists did not have it right:

Readings:

• J. Bradford DeLong (1997), "America's Peacetime Inflation: The 1970s," in Christina Romer and David Romer. eds., Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press) http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.
• William Nordhaus (2004), "A Retrospective on the 1970s Productivity Slowdown" http://mirror.nber.org/cgi-bin/sendWP.cgi/311459297/w10950.pdf.
• Olivier Blanchard "European Unemployment: The Evolution of Facts and Ideas," unpublished manuscript, MIT (October 2005), http://www.nber.org/papers/w11750
• Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011.
• J. Bradford DeLong and Barry J. Eichengreen (2001), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy" http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

The embarrassing question is: "What is this class doing in an economic history course?" I say: "Some ask 'why?' I say 'why not!'!"

Barry Eichengreen says that when he was on the job market, Zvi Griliches asked him: "You say you're an economic historian, and you study the 1920s and 1930s. How can that be? I lived through the 1920s and 1930s."

And after today (except for special fill-in and guest lectures, except for dissertation and thesis supervising, except for talking to students about their class papers and then grading them, except for seminars--but I don't have organizational responsibility for any this semester) I am off the teaching line...

Econ 210a: Introduction to Economic History: Spring 2007: Final Paper Due

The final paper will be due Friday March 23, 2007, at 5:00 PM...

Econ 210a: February 28: Question: The Inflation of the 1970s

Econ 210a: February 21: Question: The Inflation of the 1970s John Maynard Keynes said, near the end of his life, that the problem of controlling inflation while maintaining full employment was fundamentally a political and not an economic question. Did the 1970s in the developed world prove him right, or prove him wrong?

Econ 210a: February 21: Question: Why Isn't the Whole World Developed?

Econ 210a: February 21: Question: Why Isn't the Whole World Developed? The economic history of the world both in the post-WWII period 1945-1990 and, in broader perspective, over the past two centuries has been one in which the world has shrunken enormously in distance along every conceivable measurement, and yet in which income and productivity differences between societies have grown enormously. What, in your judgment, are the possible big-picture theories for explaining this phenomenon that are worth investigating?

Econ 210a: February 14: Question: Europe's Post-WWII Golden Age

A growing literature develops explanations for 'Europe's golden age' (the European economy's fast growth in the third quarter of the 20th century). Is this effort misguided? In other words, do we really need fancy explanations for a straightforward phenomenon that is easily explained in terms of convergence and delayed structural change?

Econ 210a: February 7: Memo Question: The "International View" of the Great Depression

According to Theo Balderston in The World Economy and National Economies in the Interwar Slump, the "international view" is the most important contribution to the literature on the Great Depression in the last 20 years. According to Anna Schwartz, it adds nothing to what was known before. With whom do you agree, and why?

Econ 210a: January 31: Memo Question: Friedman's "Monetary History"

When Milton Friedman passed away on November 16th, 2006 it was widely observed that his "Monetary History" (coauthored with Anna Schwartz) was the single most influential book in the general area of monetary- and macro-economics written in the 20th century. Why has this book been so influential?

Econ 210a: Jan. 24. The First Age of Globalization [Eichengreen DeLong]

I'm filling in for Barry Eichengreen: he has the flu.

Jan. 24. The First Age of Globalization [Eichengreen DeLong]

Albert Fishlow (1985), "Lessons from the Past: Capital Markets During the 19th Century and the Interwar Period," International Organization 39, pp. 383-439, http://www.jstor.org/view/00208183/dm980251/98p00792/0
Douglas Irwin (1998), "Did Late Nineteen Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry," NBER Working paper no. 6835 (December), http://www.nber.org/papers/w6835
Arthur Bloomfield (1959), Monetary Policy Under the International Gold Standard, New York: Federal Reserve Bank of New York, selections, on reserve at Haas.
Hugh Rockoff (1983), "Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices," in Michael Bordo and Anna Schwartz (eds), A Retrospective on the Classical Gold Standard, Chicago: University of Chicago Press, pp. 613-651, on reserve at Haas.

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Questions:

Textbooks say that the gold standard had internal mechanisms that worked automatically to maintain both price and balance-of-payments stability. On what grounds do Arthur Bloomfield and Hugh Rockoff challenge this textbook view? Are their points convincing?

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Thoughts:

• The infant-industry argument. Even John Stuart Mill admitted the power and force of the infant-industry argument. Doug Irwin takes it on. How convincing do you find his argument?

• Are there any truly important differences between late-nineteenth century capital markets and capital markets today. If so, what are the truly important differences?

• The classical gold standard in theory and history

  • Did it work?
  • How did it work in the core?
  • How did it work in the periphery?
  • The "rules of the game"--violated
  • What did central banks do?
    • Stabilized bond prices
    • Mirrored the Bank of England
    • What did the Bank of England do?
      • Avoided gold losses...
      • ???

Economics 210a: Memo Question for January 24

Textbooks say that the gold standard had internal mechanisms that worked automatically to maintain both price and balance-of-payments stability. On what grounds do Arthur Bloomfield and Hugh Rockoff challenge this textbook view? Are their points convincing?

Econ 210a: 2006-2007: Memo Question for December 6

What is Alexander Gerschenkron's view of the role of financial markets and institutions in economic development? How might he have modified it had he known about the four decades of development experience that now post-dates his article?