Auch österreichische Pärchen und Studierende reagieren auf Anreize

Statistik Austria hat anlässlich des 100. Jubiläums der Republik Österreich eine Zusammenstellung von interessanten Statistiken veröffentlicht. Unter den Highlights:

Ehe

Man beachte die Ausreißer rund um Änderungen in der steuerlichen Behandlung von Ehepaaren in der Zeitreihe. Fazit: Österreichische Pärchen reagieren auf monetäre Anreize. Keine Überraschung für Ökonomen, aber immer wieder schön zu sehen.

Dasselbe gilt auch für Studierende:

Bildschirmfoto 2018-11-28 um 23.34.49

Man beachte den Knick nach unten bei Wiedereinführung der Studiengebühren 2001 und den Knick nach oben bei der (De-Facto-)Abschaffung derselben ein paar Jahre später.

Die ganze Präsentation ist äußerst lesenswert!

 

 

 

Debt crises in a monetary union: the case of Indiana

As Europeans we tend to think of America as new, young, and modern, whereas in Europe everything is old and traditional. At least that’s what I thought, until I noticed this while driving around in the American Midwest:

in_licenseplate

The license plate celebrates the 200th birthday of the State of Indiana in 2016. 200 years! This means, in a sense, Indiana is older than many of the states of the European Union. In 1816, Germany was still a patchwork of small territories, loosely connected through the German Confederation – of which Austria was a part. Italy was merely a geographical description – the process of Italian unification had not even begun. Greece was just a province of the Ottoman empire. Belgium, until 1815 known as „Austrian Netherlands“, was part of the United Kingdom of the Netherlands. France did exist as a nation then, however, while the people of Indiana lived for 200 years under the same political system and only once made marginal changes to their constitution (more about this below!), the French during the same time went from the post-Napoleonic Bourbon monarchy to the Second Republic to the Second Empire, then back to the Third Republic, then to totalitarian rule under the Nazis, and finally back to Fourth and now the Fifth Republic. As far as I am aware, there is no European country which has had the same constitution for the past 200 years without interruptions or major changes – the single exception I can think of is the United Kingdom which always had the same constitution: none.

There is another striking fact about the history of Indiana. Indiana has been in a monetary union with the rest of the United States for as long as it existed. And during its early history, it has had its own debt crisis which bears a striking resemblance to the recent history of the much younger European monetary union.

When Indiana became a State in 1816, it was mostly a wilderness at the margin of civilization. The only major road in the country was the Buffalo Trace – literally a trace created by migrating bison herds. Population was only 65,000 initially, but growing fast. The government of the young state decided to take the country’s infrastructure into the 19th century. And 19th century infrastructure, they figured, was going to be canals. So, they launched a giant public investment program, called the Mammoth Internal Improvement Act, spending 10 million dollars (equivalent to 260 million current dollars, roughly 100% of GDP at the time) on canals and toll roads. The heart of the project was the Wabash & Erie Canal connecting the Great Lakes with the Ohio River. „Crossroads of America“  was the official state motto of Indiana.

To finance these projects, the governor of Indiana, a certain Noah Noble, had a plan: some money was to be raised by selling public lands, some by raising taxes, and some by borrowing from the Bank of Indiana, which was partly state-owned. The Bank of Indiana refinanced itself by issuing bonds, backed by the state, at the London exchange.

Initially, the plan looked like a big success. The construction works employed many thousands of people and provided a stimulus for the economy. Borrowing costs were low and spirits were high. But soon, problems started to appear. It turned out that the government had greatly underestimated the costs of building the canals, mostly because they failed to take into account the damage done by muskrats who burrowed through the walls of the dams. Critical voices in the State Congress regarded the canals as a total waste of money. Railroads, they argued, were the future! Nobody seemed to listen.

And then, in 1837, a financial crisis broke out. The crisis was triggered by the Bank of England which, in an attempt to curb the outflow of gold and silver reserves, raised interest rates. This had a direct impact on Indiana whose borrowing costs skyrocketed. It also had an indirect effect: since the United States was on a gold and silver standard, American banks were forced to follow the Bank of England in raising interest rates, which led to a credit crunch and a nation-wide recession. (A classic example of a monetary policy spillover effect!)

The combination of stagnant tax revenues, exploding construction costs and rising interest rates meant that State of Indiana was effectively bankrupt at the end of 1841. So they sent the head of the Bank of Indiana to London to negotiate a restructuring of the debt. The creditors agreed to a haircut of 50% of the debt. In exchange, Indiana handed over control of most of the canals and roads, many of them still unfinished. The Wabash and Erie Canal was held in trust to pay off the remaining debt. It operated until the 1870s yielding a low profit, but was soon made obsolete by – the railroads which turned out to be the key infrastructure of the 19th century.

The conclusion Indiana drew from this was that the long-run costs of government borrowing far exceed the short-run benefits. Which is why in 1851, they adopted an amendment to their constitution, forbidding the State government to get into debt (except in cases of emergency).

I’d say there is a thing or two our modern European states can learn from this story.

Österreichs Wirtschaftsgeschichte in einer Grafik

Wenn es eine Grafik gibt, die die wirtschaftliche Geschichte Österreichs kompakt zusammenfassen kann, dann diese. Sie zeigt das reale Bruttoinlandsprodukt pro Einwohner für Österreich zwischen dem Jahr 1870 und heute, logarithmisch transformiert, sodass die Steigung der Kurve als prozentuelle Wachstumsrate gelesen werden kann. Die Daten stammen aus der großartigen Madison-Datenbank. Das BIP-pro-Kopf ist kein ideales Maß für gesellschaftlichen Wohlstand und die Madison-Daten sind nicht perfekt. Dennoch gibt diese Grafik einen eindrucksvollen Einblick in unsere Geschichte.

loggdppc_aut

Diese Grafik legen folgende Einteilung nahe:

1870-1914: Die Zeit der Doppelmonarchie, in der das BIP pro Kopf ziemlich kontinuierlich mit etwa 1,5% pro Jahr wuchs und sich so innerhalb einer Generation verdoppelte.

1914-1945: Die Zeit der Weltkriege, gekennzeichnet von den drei große Krisen, nämlich der Hyperinflation, der Großen Depression und der Katastrophe des Zweiten Weltkriegs. Am Ende dieser Periode war Österreich wirtschaftlich gesehen da, wo es 1870 gestanden hatte.

1945-1975: Die Wirtschaftswunderjahre, in denen das Pro-Kopf-Einkommen um sagenhafte 6% jährlich anstieg und sich innerhalb einer Generation mehr als verfünffachte.

1975-heute: Die Zeit der “neuen Normalität’’, in der Österreichs Pro-Kopf-Einkommen weiterhin wuchs, aber mit deutlich langsameren Tempo, etwa um 2% pro Jahr.

Insgesamt hat sich während dieser ganzen Periode Österreichs BIP pro Kopf von 1.800 Dollar auf 24.000 US-Dollar (in internationalen Geary-Khamis-Dollar von 1990) gesteigert, also circa verdreizehnfacht. Das heißt, was ein durchschnittlicher Österreicher im Jahr 1870 jährlich verdient hat, verdient er heute in weniger als einem Monat! Mit dem Durchschnittseinkommen des Jahres 1870 (ungefähr 2,800 heutige Euros) würde man heute weit unter der Armutsgrenze (13.000 Euro pro Jahr) leben. Umgekehrt wäre man mit dem Durchschnittseinkommen von heute höchstwahrscheinlich unter den 1% der reichsten Österreicher im Jahr 1870.

Ich finde es lohnt sich diese Fakten im Blick zu behalten.

Castro’s Economic Legacy

The former Cuban dictator Fidel Castro has died. During his long rule from 1959 to 2006, he turned Cuba into a communist country with Soviet-style central planning, a strict one-party rule, rigorous oppression of political opponents and cruel persecution of “social deviants” (prostitutes, homosexuals, etc.). Most comments I have read about his death focus on his extravagant personality and his crimes against human rights, but completely neglect to mention his economic legacy.

And that was quite disastrous. Look at this:

bildschirmfoto-2016-11-27-um-19-51-10

In 1959, Cuba’s GDP per capita was about 2000 US dollars (in 1990 purchasing power parities), while the average of Latin American countries was about 3000 dollars. Today, the Latin American average has roughly doubled to 6000 dollars. Cuba’s is still 2000 dollars. The paper from which this graph is taken estimates that Castro’s communist experiment has reduced Cuba’s real GDP per capita by 40 percent in 1974 compared to what would have happened without the 1959 revolution.

If cold numbers are not your cup of tea, see George Borjas’ memories of growing up in Castro’s regime.

How privatization saved the Pilgrim Fathers

This summer I visited the historic site of Plymouth Plantation, the famous first settlement of the Pilgrim Fathers in Massachusetts. I was interested to see how the early settlers lived, what their houses looked like, what clothes they wore, what food they ate, what their relationships with the Native Americans were and how they managed to survive the first years in the wilderness. Luckily one of the colonists, William Bradford, wrote a book about all this which I am now reading. Among the many fascinating details of Bradford’s account, I found this passage describing how the colonists managed to overcome the insufficient output of corn which had caused a dangerous shortage of food during the first year and left many of them in danger of starvation.

So they began to consider how to raise more corn, and obtain a better crop than they had done, so that they might not continue to endure the misery of want. At length after much debate, the Governor with the advice of the chief among them, allowed each man to plant corn for his own household, and to trust to themselves for that; in all other things to go on in the general way as before. So every family was assigned a parcel of land, according to the proportion of their number with that in view,—for present purposes only, and making no division for inheritance,—all boys and children being included under some family. This was very successful. It made all hands very industrious, so that much more corn was planted than otherwise would have been by any means the Governor or any other could devise, and saved him a great deal of trouble, and gave far better satisfaction. The women now went willingly into the field, and took their little ones with them to plant corn, while before they would allege weakness and inability; and to have compelled them would have been thought great tyranny and oppression.

The failure of this experiment of communal service, which was tried for several years, and by good and honest men proves the emptiness of the theory of Plato and other ancients, applauded by some of later times,—that the taking away of private property, and the possession of it in community, by a commonwealth, would make a state happy and flourishing; as if they were wiser than God. For in this instance, community of property (so far as it went) was found to breed much confusion and discontent, and retard much employment which would have been to the general benefit and comfort. For the young men who were most able and fit for service objected to being forced to spend their time and strength in working for other men’s wives and children, without any recompense. The strong man or the resourceful man had no more share of food, clothes, etc., than the weak man who was not able to do a quarter the other could. This was thought injustice. The aged and graver men, who were ranked and equalized in labour, food, clothes, etc., with the humbler and younger ones, thought it some indignity and disrespect to them. As for men’s wives who were obliged to do service for other men, such as cooking, washing their clothes, etc., they considered it a kind of slavery, and many husbands would not brook it. This feature of it would have been worse still, if they had been men of an inferior class. If (it was thought) all were to share alike, and all were to do alike, then all were on an equality throughout, and one was as good as another; and so, if it did not actually abolish those very relations which God himself has set among men, it did at least greatly diminish the mutual respect that is so important should be preserved amongst them. Let none argue that this is due to human failing, rather than to this communistic plan of life in itself. I answer, seeing that all men have this failing in them, that God in His wisdom saw that another plan of life was fitter for them.

Deflation, not socialist ideology, fueled trade unionism in Britain

This is what happens when my sister leaves history books lying about. In the “The Oxford History of Britain”, H.C.G. Mathew writes in the chapter on what he calls the Liberal Era (1851 – 1914) in Great Britain,

Trade union activity grew in a context which seems most curious to the post-1945 observer. The twenty years after 1874 were characterized by a sharp and substantial deflation – that is, prices (and, to a lesser extent, wages) fell. On the other hand, real wages … rose. But this was hard for trade unionists to come to terms with: a man will hardly believe that an employer who reduces his wages may still be leaving him better off. The new trade unionism was thus concerned to defend working-class wages: it was a reaction, as much as a positive force. It had little ideology except for the concept of solidarity. Some socialists played a part in the most publicized strikes of the period … But these were not typical strikes (indeed the London Dock Strike was not conducted by a union: the union was formed after the strike finished); nor should the role of the ‘socialists’ who led them, such as John Burns, be over-stressed. Even most of the trade union leadership was staunchly Gladstonian: Karl Marx and his works were virtually unknown, outside a small circle in the country where he had spent almost all his working life…