Secular stagnation and the global surge in house prices

by Julius Probst

The decline in global real interest rates

Back in 2013, Larry Summers started to believe that most advanced economies have entered a new macroeconomic regime, a prolonged period of lower economic growth as a result of insufficient aggregate demand. In a recent piece, I argued that Summers' revival of the secular stagnation hypothesis has been the most important contribution to modern macroeconomics (Probst, 2019a). According to the secular stagnation theory, a combination of macroeconomic factors have pushed down real interest rates on a global level. These forces include adverse demographics, falling productivity growth, and rising inequality. With the decline in interest rates, Central Banks increasingly struggle to keep the economy at full employment because they cannot reduce interest rates substantially below zero. Therefore, many countries will also have a higher risk of experiencing recessions and might suffer from prolonged negative output gaps when interest rates remain constrained by the so-called effective lower bound (Summers, 2015; 2016).

The chart below displays the secular downward trend of real interest rates for the Japan, the US, the UK, and the Eurozone. Most other rich economies have suffered the same fate since the 1980s. A lot of economic research has shown that global interest rates have declined significantly and that they are nowadays at record-low levels across advanced economies since the late 19^th century (Probst, 2019c, Schmelzing, 2017). Some economists have even suggested that current interest rates have never been that low throughout human history since the early Antiquity (Haldane, 2015). The decline in interest rates also had the unintended side-effect of pushing up the price of financial assets around the world, both stock markets and real estate.

Figure 1: Real Interest rates

CB policy rates minus CPI, 1 year MA

Source: Macrobond

The global surge in real estate prices

The second figure below shows that inflation-adjusted house prices have almost tripled across many advanced economies since the end of Bretton Woods in the early 1970s. This has especially been the case for Anglo-Saxon economies, but the social-democratic economies of Scandinavia have been severely affected as well. While increasing financialization and the globalization of capital flows probably also played their part in pushing up local real estate prices in global cities like London, New York, and Paris, etc., researchers at the Bank of England have argued that a significant part of the increase is due to the decline in global real interest rates. The reason is simple. The value of any financial asset is simply the net present value of all its future cash flows discounted at the rate of interest. As interest rates decline, future cash flows become more valuable and therefore the fundamental value of the financial asset increases.

Figure 2: Real house prices, Dallas Fed Price Index

Source: Macrobond

A standard way of pricing financial assets is by using the dividend discount model, according to which the net present value (NPV) of a financial asset is given by the sum of all future cash flows (R) discounted by the rate of interest (i):

While the formula is usually applied to stock prices, it is equally valid to use it for housing or other investments. As inflation-adjusted interest rates have declined significantly across the world in recent decades (and the same is true for nominal interest rates), the price of real estate and other financial assets increases as future cash flows are now discounted at a lower rate of interest. Halving the rate of interest would roughly correspond to a doubling of financial asset prices. It therefore stands to reason that the secular downward trend of interest rates has indeed contributed to a large extent to the spectacular surge in house prices across advanced economies.

Germany and Japan are the outliers

However, the researchers from the Bank of England might have gone one step too far in attributing almost the entirety of the increase in house prices to falling interest rates. Dwellings are after all not only a financial asset, but they also provide us with one of the most important services in life, namely housing. The demand for housing in large metropolitan areas has increased significantly in recent decades as most jobs high-income jobs have been created in the large agglomerations. The forces of economic geography have increasingly favored big cities since the 1990s while more rural regions have largely lost out (Florida, 2016). This has been the case in the US, but also in most European countries like Germany, the UK, and Sweden. Consequently, house prices have performed extremely different across regions within countries. Furthermore, there also seem to be vast differences internationally. While some countries have seen their house prices explode in recent decades, mostly a combination of stronger population growth and restricted supply, other countries have experienced a very different trend. Most noticeably, real house prices in Germany and Japan have stayed relatively flat for a longer time period (see below). Japan has seen stagnating house prices for more than 2 decades since the explosion of its asset price bubble in the early 1990s while Germany’s house prices have only started to catch up to the international trend very recently. This suggests that supply-side factors are also extremely important in determining house prices. According to the following statistic, the metropolitan area of Tokyo added more individual housing units in 2014 than the entire country of England. Consequently, house prices in Tokyo have experienced a very different trend than most other metropolitan areas around the world where supply has been much more constrained.

Figure 3: Real house prices, Dallas Fed Price Index. Germany and Japan

Source: Macrobond

Conclusion

Summing up, the evidence for secular stagnation seems to be increasing as advanced economies continue to suffer from even lower interest rates and economic growth rates than what was widely expected just a few years ago (Probst, 2019a; 2019b). Moreover, this does not seem to reverse any time soon as financial markets have priced in low interest rates for the foreseeable future. Secular stagnation also had the undesirable side-effect of bidding up house prices around the world as a result of low interest rates. However, the financial blog by the Bank of England might have somewhat overstated its case. Dwellings are not only a financial asset, but also a real commodity. While the entire advanced world has suffered from low interest rates during the last decade, supply-side constraints can explain why San Francisco or New York have experienced exploding house prices whereas this has not been the case in Tokyo, for example.

References:

·         Florida, R. (2016). Winner-take-all urbanism: Geographic divisions in the modern era. Brown J. World Aff., 23, 103.

·         Gordon, M. J. (1962). The investment, financing, and valuation of the corporation. Homewood, IL: RD Irwin.

·         Haldane, A. (2015). Stuck. Bank of England Speeches.

·         Probst, J. (2019a). Lawrence Summers Deserves a Nobel Prize for Reviving the Theory of Secular Stagnation. Econ Journal Watch, 16(2), 342.

·         Probst, J. (2019b). Secular stagnation: it’s time to admit that Larry Summers was right about this global economic growth trap. The Conversation.

·         Probst, J. (2019c). Global real interest rate dynamics from the late 19th century to today. International Review of Economics & Finance, 59, 522-547.

·         Schmelzing, P. (2017). Eight Centuries of the Risk-Free Rate: Bond Market Reversals from the Venetians to the ‘VaR Shock’.

·         Summers, L. H. (2015). Demand side secular stagnation. American Economic Review, 105(5), 60-65.

·         Summers, L. H. (2016). The age of secular stagnation: What it is and what to do about it. Foreign Aff., 95, 2.

Julius Probst is a Customer Specialist at Macrobond Financial, a macroeconomic search engine and analysis tool and provider of financial time series data. Previously, he was a PhD student at the Economic History Department at Lund University and a PhD trainee at the ECB. He also has a blog on macroeconomics at macrothoughts.

Sex ratios and missing girls in 19th-century Greece

By Francisco J. Beltrán Tapia and Michail Raftakis

The “missing girls” phenomenon, arising from discriminatory practices that result in excess female mortality early in life, has been especially dramatic in China and India. Analyzing sex ratios, the number of boys per hundred girls, in 19th-century Europe, recent research suggests that these practices could have also been present in some European regions. One of the countries where the relative number of boys was more extreme is Greece, so our current work sheds more light on this particular case.

Source: Η «Φόνισσα» του Αλέξανδρου Παπαδιαμάντη- Βιβλιοπαρουσίαση.

The previous images refer to The Murderess, a short story written by Alexandros Papadiamantis in 1903, that provides a bleak picture of the fate of Greek women at that time. Reflecting on her own life, the central female character realizes that there is nothing worse than being born a woman and this thought leads her to kill a series of young girls, including her new-born niece, almost as a mercy to save them from a gloomy future. This story is probably an exaggeration but the evidence we have gathered suggests that the mortality rates of Greek girls was much higher than what would have been normal in the absence of discriminatory practices.

Apart from abundant anecdotal evidence on son preference and the discrimination suffered by many girls, the Greek population censuses in the late-19^th- and early-20^th-century clearly point to the existence of “missing girls”.  During the period 1879-1920, the sex ratio under 5 years old ranged between 106.7 and 109.5 boys per hundred girls. These figures are abnormally high because, as explained here, the gender-neutral sex ratio should be lower than 101-102. The quality of Greek birth registers was lacking but this source also points in the same direction: the sex ratio at birth was around 111 and 119 boys per hundred girls in 1860 and 1884, respectively. Greek families also seem to have abandoned many more girls than boys, at least in the foundling hospitals studied in Athens, Hermoupolis and Kephallenia.

Although it is plausible that the under-reporting of girls might be behind these figures, there are different reasons that preclude this possibility. Firstly, as already mentioned, there is abundant qualitative evidence suggesting that discriminatory practices were not exceptions but the norm. Moreover, the 1880 census itself explains that the statistical authorities were expecting boys, not girls, to be under-reported due to the military purpose of the census. In addition, if under-registration was an issue, it was surely more important at birth or during the first year of life. The Greek sex ratios, however, increased as children grew older. The next figure shows how the sex ratio of children aged 5-9 was higher than that of younger children (aged 0-4), especially up to 1920. This evidence not only suggests that female under-reporting was not an issue, but also that gender discrimination continued unduly increasing female mortality rates as girls got older.

Sex ratios at age 0-4 and 5-9, 1879-2001

The sex ratios of different age-groups also correlate quite well at the province level. If under-registration was affecting some areas, girls would eventually show up in the census when older, thus reducing the correlation coefficient. This was not the case. Lastly, the contemporaneous US censuses (where most Greeks migrated during this period) also confirmed that the relative number of boys and girls born in the US from Greek parents was very similar to the figures found in the motherland censuses. 

What was happening? It is difficult to be precise but it is likely that both female infanticide and different degrees of neglect during infancy and childhood unduly increased female mortality early in life. Regarding the latter and in a context of generalized poverty where infant and child mortality was really high, an unequal allocation of resources within the household in the way that young girls were fed or treated when ill, as well as in the amount of work which they were entrusted with, was likely to have resulted in more girls dying from the combined effect of malnutrition and illness. It seems also that discriminatory practices were stronger (or had a clearer effect due to lack of resources) in large families.

Why were Greek girls discriminated? Although there is not just one factor behind this behaviour, the most important one is probably the dowry. Marrying their daughters was one of the main duties of Greek parents and this was connected to how generous the dowry was. In poor families, and especially in those with several daughters, girls were a heavy burden. The analysis of the regional variation in sex ratios also indicates that excess female mortality was higher in those areas where female labour opportunities were scarce. In any case, our work stresses that gender discrimination constituted an important problem in 19^th-century Greece, an issue that has long been neglected despite all the hints that pointed in that direction.

Beltrán Tapia, F.J. and Raftakis, M., ‘All little girls, the bad luck!’ Sex ratios and gender discrimination in 19th-century Greece, EHES Working Paper 172 (November 2019).

A Spanish versión of this post was published in Nada es Gratis in December 4, 2019.

“Cholera Forcing” and the Urban Water Infrastructure: Lessons from Historical Berlin

Kalle Kappner

Over the last decade, the role of modern water supply and sewage disposal infrastructure in the West’s 19^th and early 20^th century urban mortality transition has attracted renewed attention among economic historians and development economists (Harris and Helgertz, 2019). A robust conclusion of this literature is that access to tap water and sanitary sewers was crucial in turning cities from hotspots of infectious diseases to evermore healthy places. However, the causal mechanisms linking patterns of declining mortality and expanding access to modern water infrastructure are still poorly understood. In particular, should the emergence of urban sanitation be seen as a rational, indeed inevitable reaction to the 19^th century’s recurrent epidemic shocks and elevated urban mortality rates, an idea that Christopher Hamlin (2009) termed “cholera forcing”?

In a recent EHES working paper, I retrace Berlin’s long and bumpy road to safe water conditions, challenging popular narratives that interpret modern water infrastructure as an efficient, scientifically motivated answer to Europe’s recurrent cholera epidemics since 1831. To the contrary, Berlin’s experience suggests a highly complicated relationship between urban epidemics, their statistical, proto-epidemiological examination, and water management reform. Far from serving as “our old ally”, an attribute later assigned by urban hygienist Robert Koch, cholera turned out not only a weak motivator, but in fact an ambiguous one.

“The Great World Pestilence” in Berlin

Quite representative in the Western European context, 19^th century Berlin suffered from a characteristic “urban mortality penalty”, partly fuelled by periodic outbreaks of epidemic diseases. Cholera was not the most fatal, but arguably the scariest and most unpredictable member of Berlin’s disease panorama, amounting to almost 19,000 documented deaths in between 1831 and 1873.

figure 1 a

figure 1 b

Figure 1a and 1b: Cholera incidence and Crude Death Rates in Berlin, 1830-1880

In hindsight, it is not hard to understand why cholera raged in a repeated, yet seemingly erratic fashion. Berlin had experienced rapid population growth since the 1850s, bringing about the typical problems of increasing density, pollution, congestion and the consequent spread of infectious diseases. Commercial travelers repeatedly carried vibrio cholerae from the East and introduced the bacillus into the local cesspools, which in turn contaminated the water of nearby wells, spreading the diseases among the population. Berlin’s international connections, dense living conditions and inadequate sanitary conditions rendered the city an ideal transitional habitat.

On Unwanted Tap Water and Miasmatic Plague Tubes

Roughly 25 years after its first acquaintance with cholera, Berlin began a lengthy path to safe water conditions, substituting an essentially medieval infrastructure based on pump wells, cesspits, open gutters and the river Spree’s natural absorption capabilities by relatively clean tap water and sanitary sewers that disposed waste in the rural hinterlands.

figure 2a

figure 2b

Figure 2a and 2b: Share of lots connected to the tap water supply and sewers in Berlin, 1850-1900

Initially, recurrent epidemic shocks played hardly any motivating role. By the 1850s, it was aesthetic rather than sanitary concerns that brought the construction of a modern tap water network on the municipal agenda. However, a combination of misaligned economic incentives, low public demand, conflict over fiscal and administrative responsibilities, and, crucially, a lack of understanding of cholera’s fecal-oral transmission route ensured that the spatial expansion of the network was slow, reaching full coverage only by the 1890s. Moreover, there is evidence that failure to understand the adverse repercussions that an ample tap water supply would have on an urban water cycle still lacking safe sewage disposal contributed to the urban health crisis and cholera’s incidence in particular, as suggested by the disease’s forceful comeback in 1866.

It took another 25 years until the issue of complementary sewers would be tackled. Analysis of contemporary discourse reveals that, while cholera’s continued appearance clearly motivated some sanitary reform, physicians, public health advocates, urban planners, and the general public for a long time disagreed on the shape that such reforms should take on. Were sewers preferable to manual disposal via containers and haulers? Was the strict separation of liquid waste from excrement and other organic waste preferable to mixed sewers that promised dilution of the contaminated material? Should waste be left to the river’s natural cleaning capabilities or were sediments and the soil’s microorganisms a more reliable disinfector? And what about dangerous, disease-ridden “sewer gases” that could spread via underground plague tubes? Far from suggesting a straight road to a unique sanitary solution, prevailing miasmatic theories were vague enough to levy arguments for competing solutions to the mounting urban health crises.

The Data Did Not Speak

In hindsight, it is tempting to interpret this lengthy transition phase as a result of technical, financial and political hurdles counteracting the inevitable triumph of rational approaches to the problems of cholera and infectious disease. However, a closer look at the epistemological struggles of contemporary Berlin’s health officers and medical statisticians suggests that the relationship between the extensive proto-epidemiological analysis of infectious diseases and efficient sanitary reform was highly ambiguous.

Not only did the collection of ever larger amounts of data fail to yield any compelling reasons to rely on clean drinking water and sanitary sewers, as opposed to a myriad of competing policy recommendation focussing on ventilation, cleansing of the soil or quarantine. Moreover, the lack of adequate mathematical and statistical tools proved fatal for the proto-epidemiological approach to unraveling cholera’s complex properties. Well into the 1880s, Berlin’s health statisticians were forced to retreat to the role of mere documenters as prevailing miasma theories proved too blunt an instrument to cut through the jungle of cholera’s complex spatiotemporal patterns. The “myth of John Snow” (McLeod, 2000) notwithstanding, Berlin’s experience suggests that observational data and inductive logic did not suffice to set the urban health community on the right track and induce crucial investments into the urban water infrastructure. To the contrary, unable to free itself from the vagueness of miasma theory, proto-epidemiology turned out more an obstacle, rather than a driver of knowledge generation.

“Cholera Forcing”: Tales, Realities, and Implications

What lessons does a careful reinterpretation of the Western urban sanitation transition promise? Of course, there is no immediate danger of history repeating itself, as comprehension of both cholera’s etiology and the importance of safe water systems dramatically improved. Still, the absence of any automatisms in the Western cholera-sanitation-nexus at the least suggests a cautious interpretation of the disease’s potential to induce change.

Powerful narratives of the West’s past struggle are highly consequential regarding the attitudes, recommendation, and modes of assistance that today’s developing world receives (Konteh, 2009). While it originates from a misleading backward extrapolation of modern technocratic approaches and scientific knowledge to the past, the real danger of the “cholera forcing” narrative arises when extrapolation of an imagined Western past serves as the basis for present policy recommendations.

References

Hamlin, Christopher, 2009: “Cholera Forcing”. The Myth of the Good Epidemic and the Coming of Good Water, American Journal of Public Health 99(11), 1946-1954, doi: 10.2105/AJPH.2009.165688

Harris, Bernard & Jonas Helgertz, 2019: Urban Sanitation and the Decline of Mortality, The History of the Family 24(2), 207-226, doi: 10.1080/1081602X.2019.1605923

Kappner, Kalle, 2019: “Cholera Forcing” and the Urban Water Infrastructure: Lessons from Historical Berlin, EHES Working Paper 167

Konteh, Frederick Hassan, 2009: Urban Sanitation and Health in the Developing World: Reminiscing the Nineteenth Century Industrial Nations, Health & Place 15(1), 69-78, doi: 10.1016/j.healthplace.2008.02.003

McLeod, Kari S., 2000: Our Sense of Snow: The Myth of John Snow in Medical Geography, Social Science & Medicine 50(7-8), 923-935, doi: 10.1016/S0277-9536(99)00345-7

Kalle Kapner is currently at Humboldt University of Berlin. Find more of his work here: https://hu-berlin.academia.edu/KalleKappner

From West to East: Bolivian regional GDPs since the 1950s

José Peres-Cajías

Universitat de Barcelona

The political disruption that is taking place worldwide during the last years has prompted the proliferation of analyses (in academia and beyond) that link current vote decisions with particular regional economic and political legacies. Economic historians can offer critical insights to this public debate and the reconstruction of regional GDPs is one alternative of doing so (see here for a discussion on the European case).

Taking into account recent methodological advances and the long-standing importance of the spatial dimension (both in economic and political terms) in the Latin American literature, a group of scholars lead the reconstruction of regional GDPs in the region. Part of the outcomes of this collective effort will be published in a volume this year, which includes the working paper that I published in the European Historical Economics Society (EEHS).

The paper reconstructs the evolution of Bolivian regional GDPs from the 1950s onwards. Beyond the contribution to the Bolivian historiography, I suggest that the study of the Bolivian case may offer alternative insights to the international debate because of the landlocked nature of the country. Indeed, because of this feature, the location of economic activity can be highly influenced by investments in public infrastructure. 

The study shows that, in contrast to most of Latin American experiences, the relative importance of Bolivian regions varied importantly throughout time. Initially, I prove this idea through the analysis of regional population data, which is available since 1846 (two decades after Independence, 1825). For instance, whereas the relative importance of the department of La Paz maintained somehow stable around 30% of total Bolivian population since 1846 to 2012, there is a clear reversal of fortune between Potosi (seat of the famous colonial mining center) and Santa Cruz: the relative importance of the former dropped from 16% (1846) to 8% (2012) and that of the latter increased from 6% (1846) to 26% (2012).

Map 1. The Relative Importance of Bolivian Departments
(Bolivian pc GDP=1), 1950

Thereafter, the analysis focuses on regional GDPs. The study starts in 1950 given the lack of reliable and sufficient information that allows estimating regional agriculture GDPs. When we look at regional GDP pc as a fraction of the national GDP pc, there is a clear change in the relative importance of Bolivian regions (see Maps 1 and 2). For instance, the GDP pc of the southern department of Tarija was well below the national average in 1950 but became the highest during the last years.

Changes are also noticeable when the relative importance of regional GDP to national GDP is evaluated. For instance, the relative importance of the western departments of La Paz, Oruro, and Potosí decreased from 35%, 10% and 18% of GDP in 1950, to 25%, 6%, and 8% during the last years. By contrast, the size of the economy of Santa Cruz was less than 10% of total GDP in 1950, became the second most important in the 1960s, and the biggest since the mid-1990s, absorbing almost 30% of the Bolivian GDP in recent years. Thus, since the 1950s, there has been a progressive change to the center of gravity of the Bolivian economy, from a north-south axis located in western departments to a west-east axis where La Paz and Cochabamba remain critical but Santa Cruz consolidated as the most dynamic.

Map 2.  The Relative Importance of Bolivian Departments 

(Bolivian pc GDP=1), 2012

In contrast to the European experience or other cases in Latin America, the location of industries hardly is the driving force of these changes. Indeed, the relative importance of manufacture production in Bolivia remained stagnant around 15% of total GDP from the 1940s onwards. By contrast, the evolution of Bolivian regional economies seems to be more connected with the existence of particular natural resources endowments: mineral resources in the case of western economies, fertile lands and oil reserves in Santa Cruz and oil reserves in Tarija.

However, these natural resources became economically significant thanks to public infrastructure and some institutional arrangements. Indeed, the prevalence of western departments during the first half of the 20^th century is linked to the solution of border controversies with neighboring countries and the construction of a railways network that allowed to export minerals through the Pacific Ocean. Similarly, it was thanks to the National Agrarian Reform of 1953 and the inauguration of the highway between Cochabamba and Santa Cruz in 1954 that migrants could move from west to east and agriculture products from east to west. Likewise, the consolidation of Tarija is related with the long negotiation process between Brazil and Bolivia (early 1970s-early 1990s) and the construction of a gas pipeline between these two countries. In the end, this is good news: the economic fate of Bolivian regions is highly interrelated with natural resources endowments…but not only, so there is space for public policies.

José Peres-Cajías is Beatriu de Pinós Research Fellow at the Economics History Department, Universitat de Barcelona; more about his research can be read on his personal website.

Book launch: Globalization and the Rise of Mass Education, edited by D. Mitch and G. Cappelli (Palgrave Macmillan 2019)

Globalization and The Rise of Mass Education explores how global forces shaped national and regional educational trends. The globalization of the world economy, starting in the 19^th century, brought about important changes that affected school policy and long-term human capital accumulation. Large migrations prompted brain drain and gain across countries, alongside rapid transformations in the sectoral composition of the economy and demand for skills. Ideas on education and schooling circulated more easily, bringing about relevant changes in public policy, while the changing political voice of winners and losers from globalization determined the path followed by public choice. Similarly, religion and the spread of missions came to play a crucial role for the rise of schooling globally. The book is the first of its kind to link globalization and education in a historical perspective, and includes contributions focused on Europe, the Americas, Africa and Asia.

Gabriele Cappelli, one of the editors of the book (with David Mitch), presenting the volume.

The edited volume was presented at the University of Goettingen on December 3^rd, 2019, in an event organized by Bruno Witzel de Souza, one of the authors, and sponsored by the Centre for Global Migration Studies and the Courant Centre for Poverty, Equity and Growth in Developing Countries. Gabriele Cappelli, one of the editors, presented the concept of the book, its research agenda and its main results, while Felix Meier zu Selhausen, Irina España Eljaiek and Bruno Witzel de Souza presented their chapters – addressing, respectively, missions, conversion and education in colonial Africa, racial exclusion and school development in Colombia during the First Globalization, and the impact of German schools amid Brazilian coffee plantations (1840 – 1940).

The chapter presented by Felix Meier zu Selhausen.

The audience, coming from different backgrounds (mainly historians of education, economic historians and development economists), was engaged and active in asking questions and providing comments that expand the range of issues addressed by the book. One issue that was discussed is to what extent the history of education is constrained by country-focused analyses and the availability of nationally-produced data, and to which degree we can write a more transnational history of education within the framework of global history and the history of knowledge.

Some issues, like the impact of German-migrant enclaves and German schools in Brazil, raised the interest of development economists, who drew parallels with the current integration of refugees across European countries. The comments, questions and debates that were prompted by the event suggest that the book will be of interest for many scholars interested in the issue of globalization and its educational impact, no matter their backgrounds.

Three of the four authors at the end of the event. Form left to right: Bruno Witzel de Souza, Irina España Eljaiek and Gabriele Cappelli. We thank Felix Meier zu Selhausen for all the pictures --- the reason why he does not show up in them.

"How the prime minister can suspend Parliament"

For your Friday reading, we bring you a blog post from the Oxford University Press, featuring a paper which Kara Dimitruk published in the European Review of Economic History's August 2018 issue. In the post, Kara discusses the political history of Parliamentary closures and the legislative impacts of these closures, as well as how this history informs our understanding of modern legislative processes.

The paper, "I Intend Therefore to Prorogue”: the effects of political conflict and the Glorious Revolution in parliament, 1660–1702", takes a deep dive into Parliamentary closures, political conflict, and difficulties with bill passages, in the 17th century - all topics which feel very familiar to anyone reading current headlines.

We all know that economic history informs the present, but Kara's lesson on "How the prime minister can suspend Parliament" is an especially timely and informative read.

Follow the link above or click here for the blog post, and here for the paper. More about Kara's research is available on her website, here.

EHES 2019 Conference Prize Winners

The 13th EHES Conference took place in Paris at the end of last month. With the conference comes two prizes for research conducted during the two years since the previous conference.

The first is the Gino Luzzatto Prize, awarded to the best dissertation defended in the previous two years on any topic in economic history. This year's prize went to Thilo Albers for his dissertation Trade Frictions, Trade Policies, and the Interwar Business Cycle. Thilo completed his PhD at the LSE and is now a postdoc at the Institute of Economic History at Humboldt University in Berlin. Stay tuned for a summary of his dissertation which will be published in the Review together with the two other finalists, Pamfili Antipa and Michiel De Haas. You can read more about his research on his website here.


The other prize is the Figurola Prize, sponsored by the Figuerola Institute of Social Science History, which is awarded to the best paper published in the Review during the previous two years. This year the honor goes to Fabian Wahl, for the paper "Political participation and economic development. Evidence from the rise of participative political institutions in the late medieval German Lands", published in the May 2019 issue of the Review.

The abstract: Participative political institutions in late medieval cities in the German Lands had the potential to impact city size and growth. The study confirms the positive effect on economic outcomes of participative political institutions in 282 cities, but supports a more skeptical view of craft guilds. Craft guilds participating in the city council had zero or negative impact. Enfranchising citizens to elect the city government had a stable and robustly positive effect on city size and growth, but only during the medieval period. The effect of participatory institutions declines with age; they are prone to institutional degeneration and rent-seeking.

The full paper can be read here, and more about his research can be found on his website here.

Congratulations to both of you; we are looking forward to more research in the coming years!

Human Development in the Age of Globalisation

Leandro Prados de La Escosura is a professor
at the University of Charles III in Madrid

In a new EHES working paper, Leandro Prados de la Escosura (Universidad Carlos III and CEPR) analyses wellbeing which is widely seen as a multi-dimensional phenomenon affected not only by material goods, but also health, education, agency and freedom, environment, and security (Fleurbaey, 2009; Stiglitz et al., 2009). Among the multidimensional approaches to well-being human development has been defined as “a process of enlarging people’s choices” (UNDP, 1990; 10; 1993:105). The working paper is available here. This post has appeared in Vox.eu and it is reproduced here.

In a new paper, I approach long-term well-being with an augmented historical human development index (AHHDI) that combines new measures of achievements in health and education, material living standards, and political freedom (Prados de la Escosura, 2019). The AHHDI shows that world human development steadily improved over the last one-and-a-half centuries raising its level 5.3-fold since 1870. Still, the world average level remained below 0.5, on a 0-1 scale, in 2015.

Figure 1 Augmented Human Development* and Real Per Capita GDP Growth (%)          (excluding the income dimension)

Human development (excluding the income dimension) exhibits similar but slightly slower long-run growth than GDP per person (1.4% and 1.6%, respectively), throughout 1870-2015. A closer look reveals, however, that the pace at which human development progressed did not match that of real per capita GDP, with substantial discrepancies over 1913-1970 and since 2000 (Figure 1). During the phase of globalisation backlash (1914-1950), real per capita GDP growth slowed down across the board as commodity and factor markets disintegrated, while human development thrived, particularly in less developed regions. Conversely, in the post-1950 era, human development has advanced significantly less than real GDP per head.

These discrepancies derived from the fact that non-income dimensions have driven world human development gains over time (Figure 2). Life expectancy was the main contributor to human development progress over the 150 years, although its main contribution took place during 1914-1950 and the 1960s when it contributed half the human development gains. Education led the late nineteenth century advance and was a steady contributor to human development over the entire time span considered (but for the 1940s) and political freedom made substantial contributions in the 1900s and 1950s, and during 1980-2000.

Figure 2. Drivers of Augmented Human Development in the World, 1870-2015 (%)

Advances in Human Development were unevenly distributed across world regions. An absolute gap between the OECD and the Rest broadened throughout 1870-2010. In relative terms, however, the gap waned since the beginnings of the twentieth century, especially in its central decades and, again, from 1990 onwards so, by 2015, human development in the Rest represented over half that of the OECD, doubling its share a century earlier. The evolution of the Rest vis-à-vis the OECD in terms of human development is at odds with that in terms of per capita income, that presents a sustained deterioration, from nearly one-third of the OECD level in 1870 to less than 15 per cent in 2000.

Catching up to the OECD in terms of human development has taken place in the Rest since 1900 and, especially, in the 1930s, the Golden Age (1950-70), and during the last two decades of the twentieth century, with education making the single most important contribution over the long run (Figure 3). Longevity emerges as the main dimension behind catching up in the early twentieth century, the 1920s particular, when a large proportion of the Rest was under colonial rule, and especially, in the 1960s, at the time of active public policies across the board and China’s recovery from the Great Leap Forward debacle. Lastly, political freedom was the leading force behind catching up prior to World War I, in the 1930s and 1950s, and over 1980-2000.

Figure 3. Augmented Human Development Catching-up in The Rest 1870–2015 (%)

Why was the contribution of longevity to enhancing human development largely concentrated in 1920-1970? Health improvements can be depicted in terms of a health function (Preston, 1975; Easterlin, 1999). Movements along the function represent gains attributable to economic growth and result in improving nutrition -which strengthen the immune system and reduce morbidity (Fogel, 2004)- and increasing the public provision of health (Cutler and Miller, 2005). Outward shifts in the health function represent improvements in medical knowledge (Riley, 2005; Cutler et al., 2006). The advancement in medical knowledge originated in the discovery of the germ theory of disease (Preston, 1975) that led to the epidemiological or health transition in which persistent gains in lower mortality and higher survival were achieved as infectious disease gave way to chronic disease as the main cause of death (Omran, 1971). The germ theory of disease led to the introduction of new vaccines (since the 1890s) and drugs to cure infectious diseases (sulphonamides since the late 1930s and antibiotics since the 1950s), along chemicals such as DDT, instrumental in battling malaria (Easterlin, 1999; Jayachandran et al., 2010; Lindgren, 2016). However, the germ theory of disease had another far from negligible effect: the diffusion of preventive methods of disease transmission and knowledge dissemination which through schooling and low cost improvements in public health had a profound impact in less developed regions where low incomes precluded the purchase of the new drugs. As a result, mortality declined throughout the life course with special impact on infant mortality and maternal death (Riley, 2001). The epidemiological transition spread beyond the most advanced regions, namely, Western Europe, the European offshoots, and Japan (OECD hereafter), since the 1920s, a finding at odds with the view that dates health improvements outside the West only since the 1940s as the absence of drugs and the lack of concern of colonial rulers prevented it (Acemoglu and Johnson, 2007). By 1970, the epidemiological transition was largely exhausted helping to explain life expectancy’s declining contribution to human development thereafter.

Since 1990 a second health transition with result of better treatment of respiratory and cardiovascular disease and vision problems, has led to mortality falling among the elderly, helped by better health and nutrition in their childhood (Eggleston and Fuchs, 2012; Deaton, 2013). The diffusion of new medical technologies has resulted in longer and healthier life years (Mathers et al., 2001; Hay et al., 2017). This second health transition has been so far restricted to the OECD. The AIDS-HIV pandemic in Sub Saharan Africa and the collapse of socialism, plus the lack of public policies, help to explain life expectancy’s negative contribution to catching up in the Rest since 1990.

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