Joseph Lawler
  • Home
  • About
  • Contact
  • Notes
  • Disclosure

House of Debt, by Atif Mian and Amir Sufi

3/24/2014

0 Comments

 
This point of this book is that the role of the banking system in causing the recession has been overstated, while the part played by the housing collapse's toll on household budgets has been overlooked.
The key point is that aggregate spending decline (and the economy officially entered a recession) before the financial crisis happened. So there is a problem with the timeline if the financial crisis really caused the recession.
Mian and Sufi's story is that the decline in spending really came about because over-leveraged households had no choice but to drastically cut back on spending when home values declined, and that underwater homeowners and those facing foreclosures were most affected, a simple point that they illustrate with basic math.
This story is related to, but somewhat in tension with, the narrative favored by proponents of market monetarism, who would say that the recession and banking crisis were caused not by the housing crash forcing homeowners to cut spending, but more proximately by the Federal Reserve allowing nominal gross domestic product expectations to fall drastically, which in turn led consumers and businesses to pull back.
The Mian and Sufi analysis doesn't necessarily contradict that line of thinking, but it also places less emphasis on monetary policy than other accounts of business cycles. As I mentioned in the Washington Examiner, it instead highlights the importance of leverage both as an indicator of the business cycle and as a potential policy target. That is related to the work of
John Geanakoplos
0 Comments

The Son Also Rises, by Gregory Clark

3/24/2014

0 Comments

 
I wrote about the findings in this book and my conversation with Clark for the Washington Examiner:
In 1923 and 1924, thanks to a short-lived law allowing the publication of tax data, the New York Times reported the tax payments of more than 30,000 Americans.

Some of the names of wealthier taxpayers on that list were rare, meaning that their descendants can be identified by name today — names such as Vanderbilt, Roosevelt and Winthrop.

Generations later, in 2000, those same last names still signaled high status — they were overrepresented among physicians by a factor of nearly three.

That is one of many such findings discovered by Gregory Clark, a University of California, Davis, economist who undertook a wide-ranging study of surnames throughout history. His conclusion, which has enormous implications for politics, policy and social science, is that mobility is far lower than is commonly thought.

Clark's research on the persistence of surnames' status, published as a book titled The Son Also Rises, suggests that nothing -- not even the introduction of the welfare state in Europe or the the Cultural Revolution in China -- does much to change social mobility.

For example, the names of the Norman conquerers of England who were recorded as property owners in the Domesday Book of 1086 -- names such as Sinclair, De Arcis (modernized as D'Arcy) and De Mon Gomerie (Montgomery) -- were still about 25 percent overrepresented in the names of students enrolled at Cambridge and Oxford in 2012.

That means the Normans’ social advantage hadn’t totally washed out nearly a millennium later.

The same stickiness holds true for low-status people. Surnames associated with the poorest Hindu groups of India’s colonial era are “extremely rare” among physicians — a representative high-status group. Today, names widely adopted by emancipated U.S. slaves lacking last names after the Civil War, such as Washington and Merriweather, appeared among physicians at just one-third of their frequency in the general population in 2000.

The bottom line is Clark estimates that the persistence rate of social status is in the range of 0.75, meaning that about half a given person’s outcome is predicted by his ancestors, in every time and place.

That estimate is far higher than mainstream estimates of income or wealth mobility, which place the intergenerational elasticity of income or wealth in the United States at between 0.4 and 0.6., which works out to about a quarter or one-third of outcomes explained by inheritance. It is significantly lower in some Scandinavian countries.

But Clark explains that his estimates differ for a few reasons. One is that by analyzing surnames he’s not limited to comparing two generations, a constraint imposed on most researchers because of the lack of data.

Another is that he measures social status, as opposed to income. While a philosopher and a stockbroker might both be high-status, he explained, “their income is going to be different.”

And regression to the mean plays a large role. If an individual with high underlying social competence has a bad outcome, his descendants would nevertheless tend, slowly, back toward higher status....

I've had several conversations about this book with family and friends. Everyone who hears the basic message -- that elite surnames retain an association with high status for generations or even millennia -- finds it fascinating.
It will be interesting to see how other researchers receive this book. So far, as Clark noted to me, no one has proposed an alternative explanation to his data than the one he mentioned in his book (that social competence is highly inelastic between generations, that there is regression to the mean in terms of underlying social competence, etc.
After reading this book, I have a heightened sensitivity to the last names of people I meet, as well as an awareness that Irish- and non-Coptic Egyptian-Americans have two of the lowest rates of social mobility.
0 Comments

    Archives

    October 2020
    August 2020
    May 2020
    February 2020
    November 2019
    October 2019
    June 2019
    March 2019
    October 2018
    July 2018
    June 2018
    May 2018
    December 2017
    May 2017
    December 2016
    September 2016
    July 2016
    March 2016
    June 2015
    February 2015
    August 2014
    April 2014
    March 2014
    February 2014
    January 2014
    October 2013

Powered by Create your own unique website with customizable templates.