Tag Archives: history

Remembrancing the national debt

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My husband teased me for saying The National Debt: A Short History by Martin Slater was a rattling good read, but it is. Published in late May, it puts the ‘austerity’ debate in illuminating context.

This is the UK’s national debt we’re talking about, and the book starts in the Middle Ages and ends at the financial crisis. For government debt is about high politics, from the needs of feudal monarchs to fund armies increasingly consisting of mercenaries to the long battles – in the Civil War, literal battles – over the respective powers of monarch and Parliament, to the effective private sector default in 2008 that led to banks being bailed out with the government borrowing to purchase bank equity of uncertain future value.

The history is delivered with a light touch and nice anecdotes. For instance, income tax was so hated than both times it was scrapped after its early, temporary introduction – all the records were destroyed, by immersion in water in 1802 and by burning in 1815. It turned out, however, that there was an official called the Remembrancer whose job was to keep a copy of all government financial records. This post was so obscure, that nobody had noticed and the copies were found many years later. (Created in 1154, the post still exists. What a great job title.)

There are boxes on famous economists’ views of the National Debt – including Karl Marx, who like all the others frowned on public indebtedness. He noted that most institutions in Britain were ‘Royal’ but the debt was ‘National’: another way working people had to support, through taxes to pay the interest, the rentier classes.

I learned that the founding President of the Royal Economic Society (no, not ‘National’) was an economist I’ve never heard of: George, Viscount Goschen, whom Slater describes as “perhaps one of the most economically literate Chancellors of the Exchequer to hold office before the late 20th century.” He wrote text books, encouraged the expansion of the universities, and was also President of the Royal Statistical Society.

The book ends with a (painlessly) theoretical section setting out a very clear explanation of debt sustainability. It does involve two equations, but even the most algebra-averse reader will be able to cope. The history behind the upward-ratchet of the net debt to GDP ratio makes it all too apparent that usually governments treat their purchases of assets (such as bridges or nationalised corporations) as capital expenditure but their sales of assets as current revenue, available to be spent on political priorities. For sustainablility, the government’s primary surplus of tax revenue less current spending, relative to the size of the economy, needs to be at least as big as the debt to GDP ratio, multiplied by the gap between the interest rate and growth rate (remember Piketty‘s famous r>g inequality). A higher growth rate is always the deus ex machina hoped for by governments struggling with high debt and interest payments. Currently, the UK’s national debt would start to decline (relative to GDP) with a modest 0.9% of GDP primary surplus, but that is quite a turnaround from the present deficit.

As Slater says, however, it is not straightforward to decide what the optimal level of the debt ratio would be; there is probably no better option than waiting for growth to do the job. The book concludes with a plea for a more comprehensive accounting for the government’s finances; the experimental whole of government accounts go a long way toward including other obligations that will fall on future taxpayers. Even these do not include non-legally binding future payments – such as state pensions or the NHS – while future PFI obligations are included as notes but are not in the figures. The politics of national debt are not going to get any easier.

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Euro-vision

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Benn Steil’s The Marshall Plan: Dawn of the Cold War reminded me at times of the movie 13 Days (about the scary 1961-62 confrontation between the US and USSR over Soviet missiles heading for Cuba): you know how the story ends, but even so the dramatic tension of men in suits talking in a room is almost unbearable. The dawn of the Cold War – particularly the status of Berlin and the airlift – was one of those extraordinary turning points too. Steil is also a terrific writer. For example, here he describes Kennan: “George Kennan would make a career out of repeatedly testing his powers of persuasion and then recoiling from the consequences.”

It’s also particularly poignant to read this book in Brexit Britain, for it makes clear the Marshall Plan’s bold vision of political cooperation and growing economic links between all of the western European nations, and the achievement of American politicians and diplomats in enabling this in a continent devastated by the war and not surprisingly beset by mutual suspicion. Prosperity and security for the whole were inextricably linked – hence the biggest challenge in launching the plan was to overcome the Europeans’ pursuit of individual national aims when the whole could be so much bigger than the sum of the parts. This went for making steel more efficiently and also for collective defence. It was difficult for the French in particular to see the (west) Germans and the Ruhr in this light. Kennan and others were clear that outside a new intergrated western Europe, “Britain would appear to have no future.” It depresses me utterly that we are turning our back on the vision that kept western Europe at peace and prospering since 1945 – this time without the Americans to set us straight.

The Marshall vision, however, also in a way sowed some Cold War seeds, for the Soviets were just as keen as the French to ensure German industry could not recover to its own benefit, but only to the extent that its outputs could be shipped to the USSR as reparations. The main issue was still Stalin’s desire to extend Soviet control as far as possible, including encouraging the Communist parties in France and Italy to engage in economic sabotage; but it’s fascinating to see how often questions of politics and influence were played out in seemingly dry economic issues such as the right to print currency, and whose versions of different currencies circulating in Berlin could be used to purchase which goods.

The essence of the Marshall Plan, Steil writes, was that the US taxpayers would sustain a minimum standard of living in the beneficiary countries in return for economic liberalization and integration to kick start the war-devastated economies and the momentum for continuing growth. “In essence the State Department was tendering the largest foreign aid program in history as a social shock absorber for the largest structural adjustment program in history.” The book covers the American political debate in detail, revealing new (to me) heroes, notably Arthur Vandenburg, the Republican senator who ensured President Truman got Congressional approval for the deal. And new villains: we all know Philby, Burgess and Maclean spied for the Soviets but they’ve been too sanitised by literature.

There are loads of nice details in the book too – for instance, when Molotov visited London on 1942 to negotiate an Anglo-Soviet treaty, he distrusted his hosts so much he slept with a revolver next to his bed. (If he were visiting London now, of course, he’d be having to distrust his compatriots more.)

A highly recommended read (and given the appendices and footnotes, not as daunting as its size suggests!)

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Urbanites, farmers and barbarians

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One of my all-time favourite books is James Scott’s (1998) Seeing Like A State, because of its sheer capacity to be thought provoking. So I eagerly ordered his new book, Against the Grain: A Deep History of the Earliest States. It is equally well written and enjoyable, ranges across disciplinary boundaries in a most refreshing way, and again compels you to stop and think. But … it just isn’t as persuasive in its big picture perspective on society.

Against the Grain sets up a received wisdom, more or less Whig interpretation, version of early human history as a process of agrarian settlement, urbanisation and progress toward civilisation. There were setbacks and collapses of course, all kinds of bad stuff happened. Still, the contrast between a marginal life as a hunter gatherer and a more prosperous settled existence as a farmer, and the progression to bigger towns, cities and civilisations, has been the narrative.

Scott argues that this narrative is ‘in tatters’ and offers his alternative: that ecological pressures undermined the viability of the happy hunter gatherer life, forcing agrarian settlement in which people were worse off nutritionally. The adoption of crops (wheat & barley) which could be stored, and divided easily, made the settlements attractive booty. So the agriculturalists were not only less prosperous than when fishing or gathering, they also were more likely to become victims of raids by nearby mini-states for both food and prisoners – either to do hard work in mines or fields, or in the case of women to serve as breeding stock or work on textiles.

For sure the conventional account seems to have its anomalies, and it’s easy to accept there are all kinds of unexplained historical developments. But Scott’s alternative narrative has its holes too. For one, he doesn’t explain how the earliest smash-and-grab states came about – what made them become more than their neighbouring impoverished but passive communities.

He also brings to bear an antipathy to state power structures – the same emotion that makes Seeing Like A State, about 20th century state-created disasters, so compelling. Take this example:
“I am tempted to see the late Neolithic Revolution, for all its contribution to large scale societies, as something of a deskilling. Adam Smith’s iconic example of the productivity chains achievable through the division of labor was the pin factory, where each minute step of pin making was broken down into a task carried out by a different worker. Alexis de Tocqueville read The Wealth of Nations sympathetically but asked, ‘What can be expected of a man who has spent 20 years of his life putting heads on pins?’

“If this is too bleak a view of a breakthrough credited with making civilisation possible, let us at least say that it represented a contraction of our species’ attention to and practical knowledge of the natural world, a contraction of diet, a contraction of space, and perhaps a contraction as well in the breadth of ritual life.”

It might be personal taste that makes me shudder with horror at the romantic vision of barbarians roaming the steppes, in harmony with nature, with a rich shamanistic appreciation of the world. But the vision also stumbles against – as far as I know from my amateur reading – good evidence that the slow progress of urbanisation in early history was accompanied by increases in longevity and health, and an economic surplus that enabled some (a slowly growing minority eventually trickling down to the majority) to acquire decorative clothing, jewellry and artefacts. There is also the constant steady flow over the centuries of people from countryside to cities, even though cities are evidently difficult and unhealthy places, even now. There is something very many people find compelling in urban variety and pockets of opportunity. Scott convinces me only this was not a linear Whig-like progression, at least in the ancient earliest eras of which he writes.

Still, this is a book well worth reading, gripping and full of interesting stuff. Not surprisingly, the sections on agriculture are great. “The key to the nexus between grains and states lies, I believe, in the fact that only the cereal grains can serve as a basis for taxation: visible, divisible, assessable, storable, transportable, and ‘rationable’.” No other crops have all these features, he argues. Wheat has a harvest while lentils can be picked at any time. Cassava is left in the ground until needed and can sit there for a couple of years. What is 10% of such a crop? I enjoyed also the section on writing – for accounts – as a key signifier of statehood.

As I finished reading Against the Grain, a couple of very interesting reviews were published. Here is Walter Scheidel in the Financial Times and Samuel Moyn in The Nation.

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Economics for a moral end

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I’ve read Pigou’s Economics of Welfare, and I talk to students about Pigouvian taxes and subsidies, but never known anything about the man. So I enjoyed The First Serious Optimist by Ian Kumekawa. The author is a Harvard PhD history student (so kudos to him for having a book published so early in his career!), and this is definitely a historical biography rather than an economics book.

As an economist, and one getting specifically interested in welfare economics, I’d have preferred more about the economic ideas. But for less nerdy readers, there is plenty here on the intellectual trends. And the wider intellectual and political context of Edwardian England, the terrible decades of war, depression and war in the early 20th century, and the post-war swing to Labour and the welfare state, is portrayed very well.

At the end of the book, I decided Pigou the man was still a bit of an enigma, but perhaps someone from a privileged Edwardian milieu, who spent his entire adult life at Cambridge, is just a bit too alien. But the arc of his thinking from classical liberalism to active sympathy for the Labour government of 1945 is fascinating. And the tale is quite sad in the end, Pigou seen as a surly recluse, his star not only waning but utterly shot out of the sky by Keynesianism (and, as so often, Keynes comes across here as a brilliant but not very nice man).

(One is also left wondering how scholars of the future will ever write biographies now we don’t write letters to each other any more? Email exchanges, with their more telegraphic form, or skype conversations – these are how we discuss ideas with colleagues. I suppose conferences are recorded so the video of those formal occasions will be available. That, and the Twitter record? )

I like very much the way the book ends: ” His justification for his career, maybe for his very existence, was to serve a moral end. Perhaps it is this part of Pigou’s systematic framework – its self-conscious motivation – that present-day economists would do best to revisit.. …. It would mean accepting what Pigou had declared in 1908 that, ‘Ethics and economics are mutually dependent’ and that ‘Economics cannot stand alone’.”

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The big picture – and it isn’t pretty

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It’s no easy task to write a reasonably concise (about 200 pp), highly readable, well-informed synopsis of the big trends in global economic history, along with an assessment of how these are likely to play out in the near future. Stephen King, HSBC’s Senior Economic Adviser, has given us such a book in Grave New World: The End of Globalization and the Return of History. As the title indicates, it isn’t an optimistic book. But more of that in a moment.

The book starts with an extract from a speech by Joseph Chamberlain as Secretary of State for the Colonies in 1897. It was an ‘end of history’ speech: in ruling the Empire, he sdai, “[W]e are fulfilling what I believe to be our national mission, and we are finding scope for the exercise of those faculties and qualities which have made us a great governing race….” The Introduction segues into the inevitability that empires that rise subsequently fall. The Whig interpretation of history is still wrong.

The remainder of the book is similarly ambitious and wide-ranging, although consequently covering vast events in a page or two; this can inevitably feel breathless. But this is a worthwhile price to pay for the breadth of reference. For instance, few books by financial market economists about global trends manage to include reference to the work of development economist Arthur Lewis (although I’d like to mildly complain that he’s referred to here as the first black academic at the LSE; he was the first black professor appointed in the UK, and that was by the University of Manchester, where my office is in the Arthur Lewis Building).

The other merit of a wide-ranging book of course is that you learn some things you didn’t know. For me, it was the detail about China’s extension of its economic and political reach in Asia and beyond. For all that China’s path will be turbulent (see Martin Wolf in the FT today), there can be no doubt about where the centre of gravity of the world economy is moving.

The final part of Grave New World is titled ‘Globalization in Crisis’. It describes the multiple weaknesses of existing global institutions but concludes there’s nothing better around than sticking with, and improving, the WTO, the EU, NATO etc. I think one has to forgive the un-stirring conclusion – I certainly have no better ideas, although in glum moments (there are may, watching the news) I rather fear that events in the near future will destroy the existing institutional landscape leaving no option but to go back to the drawing board.

The book ends even more pessimistically than me, however, with an imagined Ivanka Trump Inauguration speech in 2044. Oh my, history is definitely baaack.71coBmyck4L