Outstanding Book, Standout Price
By Arnold Kling
Randall E. Parker’s The Economics of the Great Depression costs $125.
The contents of the book are outstanding–more on that further on in this post. But the price stands out even more.
I believe that one can construct an economic model in which we observe very wide dispersion of list prices for new hardback books, based on some dimension of quality. For example, try this: the main cost to me of buying a book is the opportunity cost of the time it takes for me to read it. So, if I will pay $25 for a book where I think that the probability that it is worth my time is 0.2, then maybe I pay $125 for a book that I am sure is worth my time.
Perhaps not a convincing model, but my guess is that you can up with one.
Anyway, I don’t think that is what the publisher is doing here. I think that the $125 price says, “Regardless of what Arnold Kling might say about the book, we don’t think his readers are going to buy it. We think that the market for this book is limited to libraries and academic specialists. Their demand will be inelastic up to a really high price, so let’s go for a big number.”
On to the contents of the book.In a previous book, Reflections on the Great Depression, Parker interviewed the elite greybeard economists who lived through the Depression. I found many of the interviews fascinating. I recommend the book highly.
Parker’s new book is even better. Again, he uses an interview format, but most of the economists are too young to remember the Depression. They all have strong opinions about it, based on research. And some of them, notably James Butkiewicz, are so steeped in history that they “remember” certain aspects of the Depression better than the greybeards.
In addition to analysis of the Great Depression, you can take away a good sense of how economists sift through evidence and debate competing hypotheses. For example, James Hamilton skewers Paul Krugman (without naming him, p. 83).
the talk of a liquidity trap is something I have never had too much sympathy for. For example, in Japan it has come up again with all kinds of papers arguing that is what is going on there. One of the reasons I have such a problem with it is I don’t see why the central bank has to buy only the shortest term government security. There are all kinds of other assets out there…And you can’t tell me the prices of all those assets are totally unresponsive to what you do with the money supply. [If you believe in the liquidity trap, then you believe ] that Japan could have bought up the stock exchanges of all the world and nothing would have happened to the value of the yen.
Lee Ohanian offers his outlier views (p. 104).
Productivity fell substantially between 1929 and 1933…returns to trend by 1936 and remains on trend or is above trend after that.
But Robert Lucas says (p. 96)
I’d hate to have to rewrite the Friedman and Schwartz book where the role Friedman and Schwartz assigned to monetary collapses is assigned instead to productivity shocks. Where is the productivity shock that cuts output in half in that period? Is it a flood or a hurricane? If it really happened, shouldn’t we be able to see it in the data?
On the other hand, Ohanian may be on firmer ground in ascribing the poor performance between 1935 and 1939 to high real wages resulting from New Deal policies. He says (p. 105-106)
we obtained monthly data on prices and wages, and we show that relative prices and real wages across many industries jumped when the policies were adopted…You observe an industry wage and its relative price jumping 30 percent after a code of fair competition is adopted…anthracite coal mining never formed a code, and there is about a 40 percent difference between bituminous coal wages and anthracite coal wages…I think it was James Heckman who said during the seminar “everybody knows these policies were over in 1935.” …we showed how Roosevelt was able to continue his policies after the NRA was declared unconstitutional.
Once government encourages the formation of cartels, my guess is that it does not take much to keep them going.
Much of Parker’s book is focused on a view that has emerged in the past 25 years or so, that the gold standard played a big role in creating and amplifying the monetary shock. However, Allan Meltzer says (p. 231),
the real bills doctrine was vastly more important. The reason I say that is that gold flowed into the United States from 1929 to 1931 and it didn’t lead to an expansion. They sterilized the gold inflow, so it wasn’t the gold standard itself because they were violating the gold standard rules…the real bills doctrine told them that they could only expand credit on the basis of borrowing by commercial banks.
Here is another interesting comment from Lucas (p. 93)
Hugh Johnson, who ran the NRA, his background was in the corporatist management that Woodrow Wilson adopted…the way in which the U.S. government ran World War I…We got union leaders, corporations, all the big shots in the economy together and they agreed on what we wanted to produce and how we wanted to produce it…Well, we won the War and a lot of people came away with warm memories of that period…So when Roosevent was elected he…thought back to World War I and said “let’s get the team back together…and let’s plan the economy from Washington.”
This is really worth chewing over. Did World War I fundamentally end free-market economics, except for the 1920’s?
In fact, every interview is worth chewing over, and I expect to benefit from reading The Economics of the Great Depression more than once. But, still… $125?