↳ Inflation

March 25th, 2020

↳ Inflation

Tilted Ark

PRODUCTION MAINLINE

Wartime economic planning

This week, reports swirled regarding President Trump's invocation of the Defense Production Act—a 1950 law passed to manage production in the context of the Korean War—to meet the coming demand of crucial medical supplies to treat people with COVID-19. Much of the ensuing commentary has elided necessary distinctions between the Cold War–era DPA and the more memorable interventions into the productive capacity of the US economy that defined the Second World War. (For a helpful disaggregation, see this essay by Tim Barker; for a rundown of the DPA's history, see this summary from the Congressional Research Service.)

In his book, Arsenal of World War II (the fourth in a five-volume series on the political economy of American warfare), PAUL KOISTINEN provides a uniquely comprehensive and detailed account of the often misunderstood economics and administration of America's World War II mobilization effort.

From the book's introduction:

"An ironic legacy of the New Deal was that it helped create the partnership between corporate and military America that was destructive to reform. In the defense and war years, New Dealers took the lead in preparing the nation for World War II. Once hostilities ensued, the same reformers were at the center of devising the structure and controls essential for successfully harnessing the economy for war under stable economic conditions. Many of those same New Dealers became victims of the industry-military alliance that their mobilization policies and methods had assisted in bringing into being.

Despite advancement in weaponry, massive output was the critical World War II development, and that depended on successful economic mobilization policies. The political economy of warfare involves the interrelations of political, economic, and military institutions in devising the means to mobilize resources for defense and to conduct war. In each war, the magnitude and the duration of the fighting have dictated what the nation had to do to harness its economic power, but prewar trends have largely determined how this mobilization took place."

Link to the book page.

  • Mark Wilson's 2016 book, Destructive Creation, also on the business-government relationships that defined the World War II mobilization effort. Link.
  • A few recent articles on medical supplies: on the ventilator shortage; on mask production in China; on Taiwan's response to the virus; on the EU's plans to airlift masks; on China's increasing medical supply delivery to Europe.
  • From Otto Neurath's 1919 "War Economy": "The main result of our investigation may be expressed as follows: war forces a nation to pay more attention to the amount of goods which are at its disposal, less to the available amounts of money than it usually does." Link to Neurath's collected writings on economics.
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November 18th, 2019

The Banquet

ADVANCE MECHANISM

The role of the state in economic development

Major accounts of the role of the state in economic development have held that the state is essential for ensuring private property rights—that democratic checks and balances encourage investment and therefore economic growth. Other schools of development stress the importance of promoting economies of scale and export oriented production. In these, the state takes on a far more active role in planning and coordinating investment.

In a remarkably comprehensive 2016 paper, PRANAB BARDHAN brings together disparate literatures to develop a more nuanced understanding of the state's role in economic development:

"Beyond being a 'nightwatchman' of property rights and markets, the state often needs to be a guide, coordinator, stimulator, and a catalytic agent for economic activities in situations where, for various historical and structural reasons, the development process has been atrophied and the path forward is darkened by all kinds of missing information and incomplete markets.

In general, different types of governance mechanisms are appropriate for different tasks. The state can provide leadership to stimulate individuals to interact cooperatively in situations where noncooperative interactions are inefficient. But the state officials may have neither the information nor the motivation to carry out this role. They may be inept or corrupt or simply truant, and the political accountability mechanisms are often much too weak to discipline them. We thus need a whole variety and intermixture of institutional arrangements to cope with the strengths and weaknesses of different coordination mechanisms, and the nature of optimal intermixture changes in the development process."

Link to the essay.

  • Acemoglu, Johnson, and Robinson's 2001 paper "The Colonial Origins of Comparative Development." Link. And Acemoglu, García-Jimeno, and Robinson's 2015 "State Capacity and Economic Development: A Network Approach." Link.
  • James Scott's 1999 Seeing Like a State examines failures of large-scale state development projects. Link.
  • In a paper from 1983, Bardhan draws on econometric evidence from cross-sectional data in rural India to challenge researchers in development economics to rethink the relationship between active labor markets and economic growth: "Contrary to its common characterization as a feudal relic and a symptom of economic stagnation tied-labor may actually be strengthened by capitalist agricultural development." Link.
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