sunday morning economic history links

Robert Shiller, Yale research economist perhaps best known for his work on investment theory (more recently, his writings on the causes of the financial crisis), writes about historical inspirations for new jobs programs here. (Link thanks to Tyler Cowen MarginalRevolution.) In commenting on the article, Cowen references the Davis-Bacon Act: passed in 1931, Davis-Bacon ensured that government jobs programs use the prevailing market wage when establishing jobs projects in communities.

One particular quote I liked, the old "government can internalize externalities" argument:

Consider one of the most applauded of Roosevelt’s programs, the Civilian Conservation Corps, from 1933 to 1942. The program was open to young men, initially those 18 to 25, a group that was quite vulnerable economically. The C.C.C. emphasized labor-intensive projects like planting trees.

The public appreciated the tree planting because the projects addressed big problems that had been ignored. Major dust storms in and around Oklahoma raged from 1930 to 1936, denuding whole regions of agricultural land. The storms were vivid evidence of an externality that environmentalists had warned about for years, to little avail. Unregulated farming and lumbering had allowed pervasive soil erosion.

Aside from the environmental benefits, the C.C.C. encouraged a sense of camaraderie, taught young men new skills and gave its workers a sense of participation in something historic.

I don't know why jobs programs aren't simply passed right now. I don't know why, for instance, we just use tax credits for employers to hire. As Shiller suggests, the capital is certainly there, slowly rusting away. Job openings are apparently up. I guess we should remind ourselves that there were more "important" things to take care of -- bailing out the financial system (both with direct channeling of public funds as well as taking over the bad assets) being the most important. And now with midterm elections approaching, it's not likely anything will be passed for a while . In a recent speech, Christina Romer (Chair of the CEA) urged Congress to act on the "several" jobs bills currently floating around -- but it's not likely anyone is going to budge.

Moving toward a more relaxing (only because it's almost purely academic) issue, the Boston Globe Ideas blog discusses Michael Valeri's views on the historical origins of American capitalism. (This article is thanks to 3 Quarks Daily.)

Valeri is a church historian who studied how religious groups shifted toward a more positive view of the market in the late seventeenth century England as a means of maintaining community. I thought the quotes at the end are particularly relevant for economists. I'll end with them. Enjoy!

IDEAS: Your book comes out at an interesting moment for America’s relationship with free-market economics--to a lot of people, it looks like everyone in the financial markets has been behaving in defiance of the broader interests of the society.

VALERI: I asked a hedge fund manager I know if he had said to the traders described in [Michael Lewis’s] ”The Big Short,” ”What you’re doing will result in huge financial calamity, unemployment, people losing their homes--isn’t that socially irresponsible?”, what would they have said? He said, ”Their response would be, ’that doesn’t matter, that’s not my concern. My job is to make as much money as I possibly can.’”

My book shows the people who built the capitalist system did not think like that. The people who built the market economy had a whole cluster of deep collective loyalties and moral convictions.

IDEAS: How do economists react to your ideas?

VALERI: They basically say, ”Well that can’t be. People are motivated by rational interests.” My message to them is you’re lacking historical consciousness. You’re not being honest with the way the whole market was envisioned and created and put in place. You’re making a lot of false assumptions that the market is a natural order, when it is a cultural creation. Which explains why economic reality confounds economic theory.