Category Archives: Academia

In Search of Economic Narratives

A few years ago, I joined an organization of economic historians. Having written several books on economic history, I thought my involvement in the organization might help me broaden my horizons. But the main debates I heard at the group’s annual meeting concerned whether an equation used the correct variables or an author had adequately accounted for heteroskedasticity. Economic history, as practiced in academia, seemed to be mainly an exercise in regression analysis. Only the most senior professors, free from the demands of tenure committees, dared look beyond their spreadsheets and consider the meaning and implications of their historical research. I let my membership lapse.

I recalled that meeting as I read a recent Washington Post article about the need for economists to tell stories. According to the author, Heather Long, central bank governors from countries such as Australia and Sweden used the annual Federal Reserve conference at Jackson Hole, Wyoming, this past August to discuss the role of narrative in explaining economic policy to the public. A new book by Yale University economist Robert Shiller, Narrative Economics, emphasizes that economic outcomes often depend on public beliefs, and those beliefs are shaped by the stories people hear and remember. “Economists can best advance their science by developing and incorporating into it the art of narrative economics,” he writes.

Unfortunately, these ideas haven’t sunk very deeply into the economics profession, and certainly not into the historical branch of it. Economic historians are few and far between in university history departments; by and large, they’ve relegated themselves to economics departments where their advanced quantitative techniques are appreciated.

Traditional history departments, moreover, seem happy for the economic historians to stay away. There even seems to be a line between business historians, who typically are less addicted to econometrics and are usually housed in history departments, and economic historians, who mainly crunch numbers. I recently met an economic historian teaching at an influential business school who told me that he’s never met the business historians teaching at the same school. He didn’t seem to find that unusual.

The artificial separation of economic history from history has left students in history classes studying political or cultural or social or gender history with little attention to the economic background. Similarly, the public’s knowledge of history often comes from books or television shows in which economic factors are an afterthought. If economists were better at telling stories, their views might get more air time, and the public might have a broader understanding of history. Shiller is right about that.

But telling better stories requires having stories to tell. Economic historians, I would assert, tend to shortchange non-quantitative sources of information — including oral histories and news articles as well as work by historians — in favor of data that can be subjected to the quantitative tools that define academic economics. If economic historians want to offer better narratives, they have to understand that stories should be not only an output, but also an input.

A New Survey Finds….

When it’s a slow day out in medialand, you can always count on a survey to provide “news” to fill empty space. It’s well known that much so-called public opinion research is bogus, using non-random samples and asking questions that are designed to elicit particular responses. But even honest attempts to measure public opinion in a neutral way can founder on unanticipated problems. One of these recently caught my eye.

The subject, in the case, was financial literacy. Surveyors working for the central bank of the Netherlands wanted to know how much average households understand about basic financial matters. As part of a longer survey, half the participants were asked the following question:

*Buying a company stock usually provides a safer return than stock mutual fund. True or false?

The other half were given the question this way:

*Buying a stock mutual fund usually provides a safer return than a company stock. True or false?

It may seem to you that the second question was nothing more than the contrary of the first. yet the share of people answering correctly was twice as great when the question was asked the first way as when it was asked the second way. How could this have been? The answer, the researchers speculate, is that a large number of respondents may have been unfamiliar with words in the question. When the subject of the question was “company stock,” enough people apparently were sufficiently familiar with the concept not to find it “safer” than the alternative. When the subject was “stock mutual fund,” however, they did not know enough to make a judgment about its safety–even though they were comparing stock mutual funds to individual company stocks in both questions.

This finding is a good warning for those of us who consume media–-and for those who produce it. Surveys, even when well designed and carefully conducted, may not tell us what they claim to tell us. Skepticism is always in order, because we never know how the people surveyed understood the questions they were asked.

The survey I mention above is cited in Annemaria Lusardi and Olivia Mitchell, “The Economic Importance of Financial Literacy,” Journal of Economic Literature 52 (March 2014).

Making Archives Customer-Friendly

If you want to get historians upset, just mention NARA. NARA is short for the National Archives and Records Administration, and its main job is running the National Archives. The Archives is a treasure trove of papers, films, photographs, and digital materials documenting the work of the U.S. government. It is also a difficult place to do research. Although NARA has made strides putting certain types of records online, particularly military records–a very large proportion of Archives users want information related to their own or a relative’s military service–the vast bulk of NARA’s holdings is stored in acid-free boxes on the shelves of the main Archives at College Park, Maryland, or at other facilities around the country. Locating a needle in the vast haystack that is College Park requires access to hundreds of looseleaf binders, known as finding aids, which for some reason NARA has never been willing to post online.

Using the Archives as a researcher, it is fair to say, is not a customer-friendly experience. Say a researcher thinks the records of the U.S. Maritime Administration might be helpful. NARA’s website reveals only that College Park houses 357.2 Headquarters Records of the Maritime Administration 1947-69. The researcher must now buy a plane ticket, reserve a hotel room, and come to College Park. There, the finding aids in the textual records room might include a binder or two for the Maritime Administration, with listings such as “Office files of Joe Smith, deputy assistant administrator for shipbuilding, 1951-53.” By the time the researcher has received a few boxes of Joe Smith’s records, he or she has lost several hours of precious research time in College Park. The boxes may not even have records that relate to the topic, meaning that the researcher will have to order more boxes and wait again. And it’s highly possible that someone has determined that the material is security-sensitive, meaning that the researcher must file a Freedom of Information Act request and wait for months to see whether the records will be opened. (The obsession with “security” can go to ridiculous extremes; when I was researching my book The Great A&P, I found that boxes of records relating to a 1940s court case were under seal in College Park, even though everything in the boxes had originally been introduced in open court–and even though many of the same records were available, unsealed, at the National Archives branch in Chicago.)

I recently encountered a very different approach to customer service at the Bundesarchiv, the German Federal Archives in Koblenz. A few weeks ahead, I’d sent an email outlining the research I was doing and the types of records I wanted to see. An archivist wrote me back, attaching a list of records he thought might be relevant. I selected a few, which were waiting for me when I arrived. Fifteen minutes after I walked in the door, I was taking notes.

Instead of finding aids in looseleaf notebooks, the Bundesarchiv has a computerized catalog for use on-site. On the left side of the screen is a schematic of the archive’s holdings that opens into greater and greater detail, so the researcher can specify a search across the entire government’s records or those of a particular subagency. The right side is a search engine that enables the researcher to look by author or keyword, within a desired time period, within whatever records group has been specified on the left. A few seconds later, the system, known as Invenio, spits out a list of relevant records. The researcher can then immediately order the records through Invenio. There are none of the paper call slips required by NARA, which occasionally have errors that lead to the wrong materials being delivered.

I don’t know whether a system such as Invenio is practical at the National Archives. I do know that the system makes it easy to do historical research. Perhaps NARA has something to learn.

Is the Age of Innovation Over?

For all their bushels of data and their powerful econometric tools, economists still know precious little about what makes economies grow. Yes, in general it seems that having a central bank that keeps inflation under control is helpful, and it’s probably good when entrepreneurs and investors aren’t living in constant fear their assets will be confiscated. But for every theory about the sources of growth one can find counterexamples. There have been fast-growing countries with high taxes and with low taxes, with relatively equal income distributions and with income controlled by a powerful few. Some people insist on the importance of the rule of law, yet China continues to boom despite a legal system that inspires little confidence. Others emphasize democracy, but Korea grew at a rip-roaring pace for a quarter-century before its military rulers surrendered power in 1987. Still others emphasize capital formation–but if that were the key, Jordan would be growing much faster than Israel, and Vanuatu would be outpacing both.

The famed economist Edmund Phelps recently waded into this debate with a book called Mass Flourishing, which I review in the current issue of the business journal Strategy+Business. Phelps believes the key to economic growth lies in innovation. Openness to innovation explains the 19th-century growth surge in Western Europe and the United States, Phelps claims, and the United States’ openness to innovation made it wealthy. Now, a decline in the pace of innovation threatens prosperity, in the United States and other countries as well. The culprit, he asserts, is corporatism—the inclination of interest groups to use the government to block economic change. This problem has been worse in Europe, but even in the United States,  he contends, “the waning of innovation was largely behind the increased joblessness and downward pressure on wages that have been endemic to the post-1972 period.”

The claim that innovation is on the wane is an interesting one. But how does one prove it? Phelps attempts to do so, in part, by measuring the market capitalization of a country’s enterprises compared to the value of the companies’ physical capital; the gap between the two, he contends, reflects investors’ view of the value of unexploited ideas for making better use of that physical capital. It’s a clever idea, but very America-centric; Phelps’s measure will make companies in other countries, notably Germany, appear less innovative than American companies simply because they make less use of stock markets to raise capital.

Another way to measure innovation is to count patents. Many patents, however, are granted for “discoveries” that are hardly innovative, and many highly innovative ideas are not patented. Some scholars have looked at R&D spending as a share of output, but what of the many innovations that never saw the inside of a laboratory? My own work on A&P, for example, has shown the economic importance of innovative methods of retailing, but the company’s rapid shift from neighborhood stores to supermarkets relied on a merchant’s well-honed senses, not on scientists or engineers.

Others who have looked at this issue, like the Northwestern University economist Robert Gordon, end up arguing that some innovations are just more important than others. The period of what he calls the Second Industrial Revolution, roughly from 1870 to 1900, brought such innovations as the telephone, the motor car, and electric generation. These technologies, Gordon says, took decades to refine, leading to an extended period of rapid economic growth. By contrast, the computer-related technologies of the Third Industrial Revolution, he says, have had a comparatively small effect in improving productivity. Gordon thinks this and other factors will lead to slower economic growth in the future.

This is an important debate. Phelps insists that the formula for growth is for government to spend more on public goods, such as infrastructure and education, while attacking regulatory barriers, business conspiracies, and labor rules that slow the pace of innovation. Gordon, by contrast, seems less optimistic about the ability of government to foster growth and drive the economy faster. His message is not a hopeful one. But the sheer number of innovations I see around us makes it hard for me to believe that the age of innovation lies in the past.

History and the economists

This weekend I attended the annual meeting of the American Historical Association. Most of the historians at the meeting were academics, and people like myself, unaffiliated with a university, got the opportunity to hear interesting papers and catch up on the latest trends sweeping academia. This year, the most noteworthy fashion was lesbian, gay, bisexual, and transgender history, which filled no fewer than eleven sessions during the three-day meeting. There also seemed to be a lot of attention given to Latin American, Asian, and African history, as many of the openings in history departments involve teaching those subjects.

Much as I enjoy the diversity of approaches to studying history, it saddens me to see how business and economic history have been marginalized within the history profession. The AHA doesn’t have much use for them, and historians who work in those fields have long since gone off to form separate organizations. As a result, many academic historians — even those who consider themselves scholars of political economy — have little or no economic training, and their presentations at forums such as the AHA meeting are entirely devoid of economic perspectives. For example, at the meeting I heard papers on the Nixon Administration’s support of black capitalism that made no mention of the economic forces buffeting the new black capitalists in the early 1970s, and I heard papers on flood control that assumed that water was the main thing on the minds of members of Congress, rather than, say, employment in their districts. I’m not arguing that every paper should contain econometric analysis, but I think the history profession as a whole has lost out by pushing business and economics aside.