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Book review: The British Industrial Revolution in Global Perspective, by Robert C. Allen.

Here we have yet another explanation of the most important event in history, this time from an economic historian.

Allen mostly focuses on one key piece of the causal chain: British wages were high compared to the cost of energy.

Nearly everything he says seems correct, but I have some medium-sized complaints about what he neglects.

High Wages

British wages were higher than those of just about any other country, at least after 1575. That was an important component in Britain’s lead at producing technological innovation. The initial steps in many key technological advances were crude enough that they wouldn’t have made sense if they were competing with cheap labor.

It seems important to focus on what caused the high wages. Allen is a bit weak here.

He mentions British diets, mostly as evidence of high British wages. But he also hints that the high calorie, high protein diet enabled higher productivity, which may have perpetuated the high wages.

A low ratio of workers to land seems to be part of the story. Malthusian forces usually pushed societies away from this. The Black Death provided some respite from high population density. Allen mumbles something about the Black Death’s effects maybe still being important a couple of centuries later. But why was this more true of Britain than of neighboring countries?

Some urbanization was also important, as inventors needed other skilled craftsmen nearby as sources of ideas, tools, and parts. So maybe it took a good deal of luck for Britain to get just the right population density?

Cheap Energy

Before the 1700s, most countries used wood instead of coal, even when they had an ample supply of coal. Switching to coal required significant redesigns to most systems that burned wood.

Countries such as Britain didn’t recklessly exhaust their supply of wood. Demand for wood in Britain grew due to population growth, and the resulting rise in wood prices would have constrained London’s population growth if it weren’t for increased use of coal. But that was due at least as much to the high cost of transporting fuel over long distances as it was to the limited supply of wood.

Something was fairly unusual about Britain’s best coal mines. They produced unusually cheap coal. That helped Britain switch from wood to coal for heating and machinery, well before other countries did.

That didn’t mean that coal was much cheaper in London than in other major cities. High transportation costs made coal a mediocre option almost anywhere other than right at a mine.

China is a key country to look at when wondering where the industrial revolution could have started. How did China’s cheapest coal mines compare to Britain’s? Allen presents no data. Pomeranz seems to care about the quantity of coal reserves, not the cost of the lowest hanging fruit. Coal use in 1700 seems to have been too small relative to reserves for the quantity of reserves to matter much.

It’s unclear whether anyone knows whether China had locations where coal was as cheap as Britain’s cheapest coal mines.

If China didn’t have cheap coal, how much of that was due to natural conditions, and how much of it was due to less interest in developing cheap coal mines? I’m frustrated at how little I’ve found on this subject. The closest that I’ve found to an answer is this claim from Vries:

My thesis would be that China, in a way, also had its ‘coal’ and its colonies, but that government was a serious hindrance in making the most of them. When it comes to coal mining, the Qing often prohibited opening mines in the first place or wanted those already opened closed down. Initiatives by government itself to open mines or to ‘modernize’ them are absent.

Allen implies that cheap coal is obviously good. I see some tension between that and evidence from the past century concerning the effects of natural resources on economic development. There are enough examples of failing resource-rich countries that economists often refer to a curse of natural resources. The curse appears to mostly depend on large international commodity markets, which didn’t exist for coal until sometime after 1800. So it’s not a strong argument against Allen’s theory. It’s merely a warning that it’s easy to overestimate the benefits of natural resources.

Coal seems like a plausible guess as to why Britain developed key technologies before highly similar societies such as Denmark and the Netherlands. But there were numerous differences between Britain and China. I don’t see a clear argument that coal prices deserve to be treated as one of the top two relevant differences. I’ll guess that, in spite of the “Global” in the book’s title, Allen hasn’t studied China enough to have much insight about why it lagged behind Europe.

Steam Engines

Allen gives a detailed description of the development of steam power, as a clear example of where innovation depended on wages being high relative to energy costs. The first steam engines were inefficient enough that they were only worthwhile at coal mines, where they were used to pump water out of the mines. The inefficient use of fuel made it very sensitive to fuel costs.

It took decade of R&D for Newcomen to perfect this underwhelming machine. That much effort could only be repaid where there were many mines that were willing to buy such machines. Britain had far more coal mines than other European countries, partly because the low price of coal led Britain to heat more homes with coal. So Britain was able to afford more R&D.

It took nearly a century of refining steam engines before it made commercial sense for other countries to adopt steam engines.

Why was Britain’s early adoption of the steam engine important? It took a century or so to produce large benefits, at which time other countries copied it.

Was it because the technical knowledge enabled British innovators to be the first to develop better steam engines, and use them in a variety of applications such as railroads, ships, better factories, etc.? Or was the steam engine mainly a symptom of British innovation abilities?

Allen suggests that Britain’s cheap coal and first-mover advantages were more important than cultural or institutional features, at least up to WWI.

The steam engine and cheap iron were dependent on cheap coal, and had important influences on automating factories and transportation. That included a bit of recursive self-improvement: factory automation was used to mass-produce machines used to automate factories.

Why 1575?

To the limited extent that Allen identifies a start to the industrial revolution, it was around 1575, when British wages began to diverge from the Malthusian patterns seen in most of Europe and Asia (it took at least another century before British wages exceeded Amsterdam wages).

Allen says cheap coal was around well before then, and doesn’t suggest any other resource-based explanation of what changed in the 1500s to break northwestern Europe out of the Malthusian pattern.

Was it due to lingering effects of the Black Death? Wages certainly increased in the 1300s relative to natural resources, particularly land. That’s a potentially important contributor to high wages two or three centuries later.

But why was that effect stronger and more lasting in Britain than in other parts of Europe? Allen’s coal-related explanation is somewhat plausible from the early 1700s to about 1900. But why did wages stay somewhat above Malthusian levels in the 1600s in northwestern Europe? I’m unclear as to whether Allen thinks he has an answer. I think he attributes it to increased agricultural productivity, driven by growing cities. But I don’t see how those cities provided more of a force in Britain than in the rest of Europe and Asia.

It is now time to compare Allen’s ideas with those of my current favorite book on this topic: Henrich’s The WEIRDest People.

Culture

Henrich promotes a clear answer of why the 1500s were special: the rise of Protestant culture.

Allen downplays cultural explanations, enough that I got 90% of the way through the book before realizing that he admits culture played a nontrivial role in the industrial revolution.

Early in the book, he points to versions of cultural arguments that I agree are weak enough to be dismissed. Those versions were probably somewhat popular when the book was written (2009), but have been fading since then. Toward the end of the book, Allen more respectfully mentions several better ideas about cultural influences, mostly from Mokyr.

Here are some relevant cultural influences for which Allen provides some evidence, and which Henrich convinced me are more important than Allen admits:

Industrial Enlightenment

Allen describes Industrial Enlightenment as a process by which the Scientific Revolution influenced industry.

Allen shows that scientific knowledge contributed to some key inventions, such as the steam engine, via better knowledge of the principles by which those inventions worked. But he also argues that other important industries such as cotton advanced without much contribution from scientific knowledge.

The harder-to-evaluate impact of science involves indirect cultural effects. The social networks associated with science may have indirectly influenced innovation, e.g. by encouraging more experimentation in industry.

I’m reminded of this quote from Shut Out:

The evolution of capitalism has led to almost universal acceptance of middle-class values. Whereas the elite of most societies have sought control and leisure, these few modern open access societies have a citizenry that seeks to be productive, to cooperate, and to innovate. It is common to hear complaints that wealthy children today have an unfair advantage because they can access the best schools, get the best education, and therefore perpetuate inequality by working in the most lucrative careers. But everyone should appreciate how revolutionary this is. Elites of the past would scoff at the notion that this even describes elites. Elites don’t need to be productive. Elites have access and control.

Did this change in elite culture begin around 1500? It was certainly far from common for elites to involve themselves in business, but Allen says some important inventors came from elite backgrounds. How much did this differ from other parts of the world?

There are a variety of ways that elite interest in industry might have improved innovation: more spare time and resources to devote to investments that don’t provide quick payoffs, or maybe better cognitive abilities due to better nutrition and/or better genes.

Literacy, Numeracy

These certainly correlated with the changes that seeded the industrial revolution. Allen expresses doubts about the direction of causality.

Marital Rules / Habits

Protestant culture has some features which slow population growth. Europe, and especially northwestern Europe, had several cultural norms which prevented early marriage, and left a relatively large number of people unmarried.

Without something like that, it seems hard to explain why low population density persisted long enough after the Black Death for technology to sustain high wages.

Trade Secrets

Allen reports that innovators depended on learning from mentors. Many cultures have a distrust of strangers that limits such learning to a small circle of people who trust each other because they’ve lived together most of their life.

Protestant culture promoted trust among all Protestants, paving a path to the accumulation of a richer body of trade knowledge. I’m unsure whether Chinese culture had work-arounds which provided adequate substitutes for this source of trust.

Noncomformity

Allen notes that Luddites threatened innovation, particularly in the key cotton industry. Most cultures value conformity more than Protestant culture does. I can imagine that no other culture would have produced entrepreneurs who persevered in the face of that kind of opposition.

Historians versus Scientists

Henrich, and to a lesser extent Allen, have helped to illustrate the differences between historians and scientists.

Historians focus on building stories about particular, unique, events. Whereas scientists seek general theories whenever possible.

Was the industrial revolution a unique event, or was it a long pattern of related events that might be better explained by a broad theory? Historians seem biased toward the former, scientists toward the latter. Allen seems to be mostly a historian, but has enough economic training to be more neutral on this issue than most authors. Whereas Henrich is mostly trying to be a scientist, and not a historian.

To the extent to which it was a long pattern of events, I value the opinions of scientists who focus on theories about which features of 16th through 18th century Britain caused it to stand out. That would help me predict what countries will become more powerful. So I want to avoid erring in the direction that historians err, more than I want to avoid the opposite mistake.

Here are several considerations that lead me to give more weight to Henrich’s cultural model:

There are many markets today which English-speaking countries dominate in ways that are somewhat hard to explain by coal or high wages: the internet, universities, medicine, movies, etc. That seems to create some presumption in favor of explanations that focus on general-purpose abilities such as culture and institutions.

Allen’s perspective encourages us to imagine that a good deal of British success comes from a first-mover advantage that has been self-sustaining for a couple of centuries. That seems to be somewhat large compared to other historical examples of first-mover advantages or resource-based advantages.

What are the best such examples? Cities built around ports have smaller but longer-lasting advantages, due to natural resources (harbors). I guess that’s a good enough comparison that I can’t say that Allen’s perspective is too far-fetched.

Cultural models provide a clear explanation of the timing of the industrial revolution. I don’t see how resource-based models explain the timing.

Allen says that other countries adopted British technology when it became profitable to do so. Yet that only seems true for countries with cultures similar to Britain’s. Asian countries seem to have adopted it mainly after they imported parts of Western culture.

Conclusion

Allen’s account is the strongest analysis I’ve yet seen of the resource-related forces that contributed to the industrial revolution.

I see almost no conflict between Henrich’s account and Allen’s account about what happened after 1500, only some big disagreements about what was important. They disagree a good deal about what pre-1500 causes were relevant, and they both seem relatively weak there.

Allen emphasizes Britain’s geographic luck, and encourages us to imagine that key inventions were just barely useful enough to create a sustainable take-off. Whereas Henrich attributes northwestern Europe’s luck to cultural choices that were in place by 1520 at the latest, and wants us to believe that take-off was close to inevitable by then. The evidence is weak enough that we may never know which is closer to the truth.

Reading both Allen and Henrich will produce a better understanding than either one of them alone will produce. But if you only read one book, read Henrich’s.

Book review: The Money Illusion: Market Monetarism, the Great Recession, and the Future of Monetary Policy, by Scott Sumner.

This is the best book on macroeconomics that I’m aware of, with a focus on the causes of the 2008 recession.

Most of the book’s important points are based on ideas that economists respect in many contexts outside of macroeconomics, but which seem controversial in the context of macroeconomics.

It’s ironic that Sumner finished writing this book during one of the few recessions that could not have been prevented by better monetary policy.

Note that this review is primarily for people who already know something about monetary policy. It’s hard enough to do that well that I don’t want to attempt anything more ambitious.

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I’ve been pondering whether we’ll get any further warnings about when AI(s) will exceed human levels at general-purpose tasks, and that doing so would entail enough risk that AI researchers ought to take some precautions. I feel pretty uncertain about this.

I haven’t even been able to make useful progress at clarifying what I mean by that threshold of general intelligence.

As a weak substitute, I’ve brainstormed a bunch of scenarios describing not-obviously-wrong ways in which people might notice, or fail to notice, that AI is transforming the world.

I’ve given probabilities for each scenario, which I’ve pulled out of my ass and don’t plan to defend.

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Interest rates have declined from over 5% in the late 1960s to under 0.5% in 2020 (I’m using long-term treasury bond rates as an estimate of pure risk-free rates).

There’s clearly something unusual about savings rates, and it’s causing a semi-stable decline in interest rates.

In my review of Shut Out, I guessed that demographic effects of the boomer generation explain 25% the housing boom, via high savings rates and the resulting low interest rates. I’m now revising that estimate down to 10%.

I now see a similar but bigger effect from a different set of demographic changes. I changed my mind due to the paper by Mian, Straub, and Sufi titled What Explains the Decline in r*? Rising Income Inequality Versus Demographic Shifts (think or r* as an idealized version of interest rates).

Wealth affects savings rates more than age does.

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“Transitory Inflation”

Many pundits are arguing that this year’s inflation is due to temporary pandemic-related problems.

I expect that they’re half-right – we’ve got a one-time pandemic-related burst of inflation, but it’s likely to be bigger than pundits imagine, and the price changes are unlikely to be reversed much when the effects of the pandemic fade.

Also, the presence of one-time effects shouldn’t reassure us about the absence of longer-term pressures.

When evaluating inflation, I focus mainly on the supply of and demand for money. Supply chain problems may be important for many purposes, but they don’t explain a general pattern of dollars becoming less valuable.

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I was tempted to call this post a response to Scott Alexander’s Problems with Paywalls, but after carefully rereading that I can’t find any clear disagreements with him. I mainly want to push a slightly more pro-paywall tone.

Paywalls have well-known benefits, such as incentivizing good content, and aligning the interests of writers with the interests of readers, at least compared to ad-based business models.

I’m annoyed by how the news media storyteller industry uses paywalls, but I mostly hope that industry goes away for reasons which would remain valid even if they had nice paywalls.

I’ve sometimes been tempted to generalize my dislike of paywalls to something beyond “this industry does them poorly”, but I keep remembering that paywalls seem okay for books.

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Book review: Why Everyone (Else) Is a Hypocrite: Evolution and the Modular Mind, by Robert Kurzban.

Minds are Modular

Many people explain minds by positing that they’re composed of parts:

  • the id, ego, and super-ego
  • the left side and the right side of the brain
  • System 1 and System 2
  • the triune brain
  • Marvin Minsky’s Society of Mind

Minsky’s proposal is the only one of these that resembles Kurzban’s notion of modularity enough to earn Kurzban’s respect. The modules Kurzban talks about are much more numerous, and more specialized, than most people are willing to imagine.

Here’s Kurzban’s favorite Minsky quote:

The mind is a community of “agents.” Each has limited powers and can communicate only with certain others. The powers of mind emerge from their interactions for none of the Agents, by itself, has significant intelligence. […] Everyone knows what it feels like to be engaged in a conversation with oneself. In this book, we will develop the idea that these discussions really happen, and that the participants really “exist.” In our picture of the mind we will imagine many “sub-persons”, or “internal agents”, interacting with one another. Solving the simplest problem—seeing a picture—or remembering the experience of seeing it—might involve a dozen or more—perhaps very many more—of these agents playing different roles. Some of them bear useful knowledge, some of them bear strategies for dealing with other agents, some of them carry warnings or encouragements about how the work of others is proceeding. And some of them are concerned with discipline, prohibiting or “censoring” others from thinking forbidden thoughts.

Let’s take the US government as a metaphor. Instead of saying it’s composed of the legislative, executive, and judicial modules, Kurzban would describe it as being made up of modules such as a White House press secretary, Anthony Fauci, a Speaker of the House, more generals than I can name, even more park rangers, etc.

In What Is It Like to Be a Bat?, Nagel says “our own mental activity is the only unquestionable fact of our experience”. In contrast, Kurzban denies that we know more than a tiny fraction of our mental activity. We don’t ask “what is it like to be an edge detector?”, because there was no evolutionary pressure to enable us to answer that question. It could be most human experience is as mysterious to our conscious minds as bat experiences. Most of our introspection involves examining a mental model that we construct for propaganda purposes.

Is Self-Deception Mysterious?

There’s been a good deal of confusion about self-deception and self-control. Kurzban attributes the confusion to attempts at modeling the mind as a unitary agent. If there’s a single homunculus in charge of all of the mind’s decisions, then it’s genuinely hard to explain phenomena that look like conflicts between agents.

With a sufficiently modular model of minds, the confusion mostly vanishes.

A good deal of what gets called self-deception is better described as being strategically wrong.

For example, when President Trump had COVID, the White House press secretary had a strong incentive not to be aware of any evidence that Trump’s health was worse than expected, in order to reassure voters without being clearly dishonest. Whereas the White House doctor had some reason to err a bit on the side of overestimating Trump’s risk of dying. So it shouldn’t surprise us if they had rather different beliefs. I don’t describe that situation as “the US government is deceiving itself”, but I’d be confused as to whether to describe it that way if I could only imagine the government as a unitary agent.

Minds work much the same way. E.g. the cancer patient who buys space on a cruise that his doctor says he won’t live to enjoy (presumably to persuade allies that he’ll be around long enough to be worth allying with), while still following the doctor’s advice about how to treat the cancer. A modular model of the mind isn’t surprised that his mind holds inconsistent beliefs about how serious the cancer is. The patient’s press-secretary-like modules are pursuing a strategy of getting friends to make long-term plans to support the patient. They want accurate enough knowledge of the patient’s health to sound credible. Why would they want to be more accurate than that?

Self-Control

Kurzban sees less value in the concept of a self than do most Buddhists.

almost any time you come across a theory with the word “self” in it, you should check your wallet.

Self-control has problems that are similar to the problems with the concept of self-deception. It’s best thought of as conflicts between modules.

We should expect context-sensitive influences on which modules exert the most influence on decisions. E.g. we should expect a calorie-acquiring module to have more influence when a marshmallow is in view than if a path to curing cancer is in view. That makes it hard for a mind to have a stable preference about how to value eating a marshmallow or curing cancer.

If I think I see a path to curing cancer that is certain to succeed, my cancer-research modules ought to get more attention than my calorie-acquiring modules. I’m pretty sure that’s what would happen if I had good evidence that I’m about to cure cancer. But a more likely situation is that my press-secretary-like modules say I’ll succeed, and some less eloquent modules say I’ll fail. That will look like a self-control problem to those who want the press secretary to be in charge, and look more like politics to those who take Kurzban’s view.

I could identify some of my brain’s modules as part of my “self”, and say that self-control refers to those modules overcoming the influence of the non-self parts of my brain. But the more I think like Kurzban, the more arbitrary it seems to treat some modules as more privileged than others.

The Rest

Along the way, Kurzban makes fun of the literature on self-esteem, and of models that say self-control is a function of resources.

The book consists mostly of easy to read polemics for ideas that ought to be obvious, but which our culture resists.

Warning: you should skip the chapter titled Morality and Contradictions. Kurzban co-authored a great paper called A Solution to the Mysteries of Morality. But in this book, his controversial examples of hypocrisy will distract attention of most readers from the rather unremarkable wisdom that the examples illustrate.

Mancur Olson’s The Rise and Decline of Nations tells us that in stable times special interest groups tend to slowly create increasingly rigid agreements to cement their income streams. Major wars, and other cataclysms of that size, occasionally sweep away those rigidities, creating conditions under which faster economic growth is possible.

COVID has been much less cataclysmic than what Olson talks about. Yet I see hints that the recent pandemic has had effects that weakly resemble war. I see stronger evidence that the pandemic was a useful trigger for overcoming the effects status quo bias. I’m writing this post to help clarify my thoughts about how significant these effects will be, and how they’ll affect stock markets.

Is the stock market’s impressive performance partly due to expectations that the pandemic caused a lasting increase in profits?

I’ll guess that it explains one quarter of the stock market’s rise. A fair amount of that guess reflects my intuitions about how much can’t be explained by other factors. That approach is at least as error-prone as estimating individual pandemic effects. So please interpret this post as mostly groping around in the dark.

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Book review: Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy, by Kevin Erdmann.

Why did the US have an unusually bad recession in 2008, followed by years of disappointing growth?

Many influential people attribute it to the 2004-2006 housing bubble, and the ensuing subprime mortgage crisis, with an implication that people bought too many houses. Erdmann says: no, the main problems were due to obstacles which prevented the building and buying of houses.

He mainly argues against two competing narratives that are popular among economists:

  • increased availability of credit fueled a buying binge among people who had trouble affording homes.
  • there was a general and unusual increase in the demand for homes.

Reframing the Housing Bubble

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Book review: The Explanation of Ideology: Family Structure and Social Systems, by Emmanuel Todd.

What features distinguish countries that embraced communism from countries that resisted?

Why did Islam spread rapidly for a century and a half, then see relatively few changes in its boundaries for more than a millennium?

Todd’s answer is that the structure of the family is a good deal more stable than ideologies and religions, and different family structures create different constraints on what ideologies and religions will be accepted. Published in 1983, it still seems little-known.

Maybe this neglect is most pronounced in the English-speaking parts of the world, where one family structure is overwhelmingly popular, and alternatives are often dismissed as primitive relics. France seems more conducive to Todd’s insights, since France has four different family structures, each dominating in various regions.

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