Wednesday, October 29, 2014

Inflation letter signer James Grant has a new book on the 1920-21 depression and he's talking about it AEI tomorrow


As some of you may recall, two of my first published articles are on the 1920-21 depression, so this is of some interest to me. Can't go tomorrow - I'm at home with a sick kid while mommy is away on business. The book isn't out yet so of course I haven't read it, but I found this claim of from the write up about the AEI event interesting:
"Grant considers 1920–21 to have been “the last governmentally untreated business depression in America,” yet “by late 1921, a powerful jobs-filled recovery was under way.” This history offers a sharp contrast to and skeptical look at the hyperactive central banking and regulation of our own time."
The Fed wasn't active? In fact the Fed was so active during this episode that Marvin Goodfriend (formerly Richmond Fed, now Carnegie Melon) said of the events that "It is no exaggeration to say that the Fed was traumatized by its first use of interest rate policy."

It is nice he doesn't ascribe the recovery to Harding's fiscal stimulus because (1.) that came on the tax side after the recovery was underway, and (2.)... on the spending side the fiscal story is even more confusing to entertain because Wilson reduced spending much more than Harding but the timing is all wrong for people that want to make this an "expansionary austerity" story. That doesn't stop people from talking up Harding of course. I've got nothing against Harding really, I just don't think he has all that much to do with it. It's really a Fed + natural bounce-back story as far as I can tell.


  1. Daniel Kuehn: The 1920-1921 contraction was also an incident in economic history more international in scope than the three authors who you criticised let on.

  2. In that case, doesn't the treated example of WWII prove the superiority?

  3. For Jim Grant, every problem is a nail, so all he needs is the same old hammer, over and over again...

  4. In case you're interested, it looks like AEI actually posted the video for the event.

    Run time is 1 hr 15 min.

    tl;dw! I'll just read your papers when I have time to do non-dissertation stuff.

    1. What's your diss on? Your research section on your website says "Coming soon".

    2. "I'll just read your papers when I have time to do non-dissertation stuff. "

      It is virtually a guarantee that you can find better things to do with your time than that :)

  5. Sorry for delay. Yah, I really need to update that website.

    My dissertation is a collection of essays on natural resource and agricultural economics.

    The first and most completed chapter is on measuring the impact of climate change on the size of wildfires. Most previous research on this topic has been conducted by natural scientists that estimate this impact by regressing wildfire size on exogenous variables like temperature and precipitation. These researchers find that warmer temperatures are typically associated with bigger fires. These researchers argue it is because the increased drying capacity of the air leads to more flammable biomass for a fire to burn.

    However, wildfire size is not only a function of environmental variables. It is also a function of human behavior, particularly wildfire suppression effort, which is also affected by warmer temperatures. For example, if temperatures get high enough, fire crews might be withdrawn for the safety of their members (to avoid heat stroke perhaps). So, it is also possible that warmer temperatures lead to bigger fires because less suppression effort is exerted. In other words, previous studies could simply be suffering from omitted variable bias. This concern is not originally to me (which I was sad to find out), but has also been raised by previous authors.

    My contribution is to estimate the relationship between climate and wildfire size, while controlling for suppression effort. So far, it looks like warmer temperatures do lead to larger wildfires, even after controlling for suppression effort. That could spell bad news for people managing forests as global warming continues.

    I prob need to put a draft of this up soon.

    1. Interesting stuff. In the literature that has proposed this previously, do they suggest the endogeneity goes the way you say it does? I would have guessed that is an issue but that it goes another way - fire suppression efforts intensify as conditions worsen so the standard regs underestimate it.

      We have a guy at AU working on emergency funding for natural disasters (mostly hurricanes I think?) that is working along much the same lines (aid goes to worst hit areas, so regressions of recovery on aid are biased). Might be something worth looking at.

    2. They do indeed mention that as a possibility. So one can't actually sign the omitted variable a priori, which I discuss in the actual paper. I just mention grounding fire crews in the "elevator summary" of my paper because it seems more obvious to me.

      I have looked into the work you mention on natural disasters, though. Thanks for the heads up. :)


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