Cardiff de Alejo Garcia

How we spent our money

One last post on The Great Reset, which I recommend.  I've had this in the queue for a while and forgot to publish.  Richard Florida writes:

Over the past half century or so, the amount of money the average American family spends on housing and cars has skyrocketed.  From 1950 to the mid-1980s, the amount allotted for housing and cars doubled from 22 percent to 44 percent of its budget.  (At the same time, the amount of the average American family had to devote to health care rose threefold, from 5.2 percent in the late 1950s to 14.8 percent by the year 2000.)  A generation ago, all of life's basic necessities—housing, transportation, health insurance, education, and taxes—accounted for 54 percent of the average family's income; today, they account for 75 percent of it. ...

Still, with the basics sucking up so much of the family budget, the amount of money Americans spend on electronics, a reasonable proxy for high technology, increased from 1 percent in 1959 to just 1.6 percent by 2000, while the amount they spend on entertainment, a proxy for experiences, actually declined from 5.8 percent in 1950 to 3.9 percent in the year 2000.

It's ridiculous to label that second SUV in the garage a "basic necessity" just because it falls into the category of transportation.  Same thing with that summer home by the lake.  But the point is that although trade and technology made the basic necessities increasingly cheaper, Americans chose to spend a big chunk of their surplus savings on bigger and more expensive versions of those same basic necessities.  That's money that could have been spent more wisely on creative endeavors, entertainment, or even cool gadgets.

This isn't entirely regrettable---there's nothing wrong with having a nicer home, with nicer things inside it.  But we took it too far.  Florida thinks the tech boom of the 90s might have represented a chance for us to move away from this trend.  But the boom went bust, and in the aftermath we went right back to putting our money in housing.  (And actually, a lot of it was borrowed money, so not really ours at all.)

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My earlier post on The Great Reset and New York City is here.  An interview with Florida in this week's Newsweek is here.  Florida's blog is here.

Economists vs Historians

I’ve been under the impression that within the humanities the fiercest battle for public influence was between economists and psychologists, or perhaps between economists and a vague alliance of other explainers of human behavior (psychologists, sociologists, neuroscientists, anthropologists, etc..).

But Justin Fox wrote a good post this week saying that historians are also expressing academic envy, and want to know why economics has risen to such prominence in the last half-century while history has lost ground. 

Fox writes:

One answer I offered was that economists had managed a remarkable balancing act between making the guts of their work totally incomprehensible — and thus forbiddingly impressive — to the outside world while continuing to offer reasonably straightforward conclusions. The basic form of an academic economics paper is a couple of comprehensible paragraphs at the beginning and a couple of comprehensible paragraphs at the end, with a bunch of really-hard-to-follow math or statistical analysis in the middle. An academic history paper, on the other hand, is often an uninterrupted cascade of semi-comprehensible jargon that neither impresses a lay reader nor offers any clear conclusions.

The one economist in the audience had another suggestion. Most economic work was aimed at prediction, and the world is always hungry for predictions. He added that most macroeconomic predictions are worthless (he was a microeconomist), but that doesn't seem to have damped the demand for them.

After the conference, at dinner, I heard another explanation from the historians themselves. It's that, especially in the U.S., only the tiniest minority of academic historians concern themselves anymore with matters of economic policy (or diplomacy, or war, or politics in the big-picture sense). The discipline has moved mostly to the study of identity (gender, race, etc.) and culture, ceding territory to the economists and political scientists.

I'm neither economist nor historian, so you should feel free to interpret my thoughts as uninformed guesswork:

• This only applies to the last decade, but debates within economics have become more accessible because the discipline is so compatible with the blogosphere and other conversational media.  I can't think of a single history blog (not that I've been looking).

• Until the financial crisis, economists increasingly had been receiving credit for the global rise in living standards during the past three decades.  Milton Friedman and Friedrich Hayek were thought to have influenced, respectively, Reagan and Thatcher; Alan Greenspan became a star; Larry Summers and his team at Treasury in the 1990s were credited with helping to prevent emerging markets from collapsing into chaos from currency crises.  The reputation of economics was also bolstered by successful liberalizaton policies in China, India, and smaller countries in Latin America and East Asia.  Whether or not they deserved all the praise is now being reconsidered, but the perception helps explain the ascendancy of economists relative to other academics.

• Historians have always had the option of getting themselves read by the general pubic by writing straightforward biographies of famous figures and other books that avoid the academic gibberish of their research papers.  But ever since Gary Becker starting publishing research about the economics of discrimination in the 1950s and 1960s, and tackling other subjects previously left to the other disciplines, economists too have written books covering all kinds of issues that us regular folk find interesting.  (Examples of this genre include Armchair Economist, The Economics of Life, The Logic of Life, Discover Your Inner Economist, and, of course, Freakonomics.)

• It's true, as Fox mentions above, that economists have ventured into territory once dominated by other disciplines, but it seems to me they're also rather good at branding these hybrid projects as a subset of economics rather than a shared undertaking.  So rather than "choice and the brain", we have "neuroeconomics".  Instead of "psychology and incentives" we get "behavioral economics".

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Ezra Klein's thoughts on the subject are here.