Lest we fool ourselves into thinking that excessive lending on assets with inflated values is something new, here’s Allan Bogue on the western land boom of the 1880s:
During 1886 and 1887 the flow of eastern and foreign capital into the western mortgage business was at its flood. Companies competed strenuously for agents. Greater powers of discretion were placed in the hands of these men than ever before. Greater opportunities for lending unhealthily large sums of money on inadequate security were also present. Although the mortgage companies had inspectors who checked the work of these local agents, it was impossible for them to examine the seucrity behind every loan.
If the traveling inspectors were too strict, the local representative could easily find other companies with funds to loan, and the original sponsor would see its flow of applications diminish. That Stanton and Sprankle [of the JB Watkins Company] endeavored to keep their agents in line is undoubted; that they unconsciously were stampeded into some of the excesses of their competitors is probable. Sprankle argued in February 1888, “One year ago sub-agents and borrowers run [sic] the loaning business in this state to suit themselves.”
Among other things, it might get you a job! From an interview with Diane Coyle, editor of the recent volume, “What’s the Use of Economics?”
Employers, including people in investment banking, were saying: “We don’t find that we can get the kind of graduates that we need in economics. We find that people have too narrow a perspective, and in particular at that time they were saying that young economists don’t have any understanding that there had been a depression in the 1930s, that there had been recessions before, because all their experience had been that very long boom that we had. We had a 13- or 15-year expansion, which was historically unprecedented, so people who’d been trained during that period just had no experience of things going wrong.
One of the strong themes to emerge from the book, and one of the triggers for arranging the conference, was this lack of appreciation of history, of the way in which context changes the way you think about economics.
Via Marginal Revolution,
Following a long period of cooperation in the field of Economics, the Universities of Florence, Pisa and Siena announce a new joint regional PhD program, with 10 three years scholarships, supported by Regione Toscana.
The Doctorate courses will provide students the knowledge, analytical skills and capabilities to conduct their research at the frontier of economics. Our programme gives emphasis to economic history and the history of economic thought, and recognizes the importance of exposing students to different theoretical perspectives.
More info is here.
Matt Yglesias has a nice summary of the economics of taxing investment versus labor income.
The reasoning is basically this. You imagine two prosperous but not outrageously so working people living somewhere—two doctors, say, living in nearby small towns. They’re both pulling in incomes in the low six figures. One doctor chooses to spend basically 100 percent of his income on expensive non-durables. He goes on annual vacations to expensive cities and eats in a lot of fancy restaurants. The other doctor is much more frugal, not traveling much and eating modestly. Instead, he spends a lot of his money on hiring people to build buildings around town. Those buildings become houses, offices, retail stores, factories, etc. In other words, they’re capital. And capital earns a return, so over time the second doctor comes to have a much higher income than the first doctor.
So then there are too different scenarios:
— In the world where investment income isn’t taxed, the second doctor says to the first doctor “all those fancy vacations may be fun, but I’m being much more prudent. By saving for the future, I’ll be comfortable when it comes time to retire and will have plenty left over to give to my kids.”
— In the world where investment income is taxed like labor income, the first doctor says to the second “man you’re a sucker—not only are you deferring enjoyment of the fruits of your labor (boring) but when the money you’ve saved comes back to you, it gets taxed all over again. Live in the now.”
And the thinking is that world number one where people with valuable skills take a large share of their labor income and transform it into capital goods is ultimately a richer world than the world in which such people just go out to a lot of fancy dinners.
Have you ever wanted to know how much olive oil would have cost you had you lived in Pisa in 1695? Of course you have…and here’s how you can find the answer.
I met Richard Unger at the recent Economic History Association conference and, while I don’t work in the area of medieval history, he and Robert Allen have a fascinating set of global commodity price data available online here.
Oh, and that olive oil would have set you back 19.56 lira per barrel.