Wednesday, January 1, 2014

Paul Krugman, Zombies, Cockroaches and Weasels

Historians write, “The Rome of 100 A. D. had better paved streets, sewage disposal, water supply, and fire protection than the capitals of civilized Europe in 1800.”

Paul Krugman's hilarious comments about debating others on the issues of healthcare, government spending, monetary policies and taxation:

"A zombie idea is an idea that should have died long ago in the face of evidence or logic, but just keeps shambling forward, eating peoples’ brains.

A cockroach idea is a bit different: it’s an idea whose wrongness is so obvious, once pointed out, that the people who stated it claim that they did no such thing — so that at first you think you have a weasel problem, but at least the cockroaches are gone.

Next thing you know, however, the roaches have invaded all over again!"

Paul Krugman again:

"Thus, they’ll tell us to ignore the extensive evidence from the past century that fiat currencies needn’t lead to runaway inflation — instead, look at how currency debasement led to the fall of Rome!

Or, maybe, how the fall of Rome led to currency debasement?"

Below are a few edited excerpts from a fascinating paper that Paul Krugman references: The Economy of the Early Roman Empire

Slaves were interchangeable with free wage laborers in many situations, part of an integrated labor force in the early Roman Empire. Roman incomes were comparable to those in western Europe around 1700.

Egyptian real wages rose by one-third to one-half after the Antonine Plagues* in 165–75 CE (named after the reigning Roman dynasty) in a clear labor-market response to a sharp decrease in the supply of labor.

* The Antonine Plagues (AD 165 and 180) were ancient pandemics (either of smallpox and/or measles) brought back to the Roman Empire by troops returning from campaigns in the Near East. The epidemic broke out again nine years later and caused up to 2,000 deaths a day in Rome (one quarter of those infected). Total deaths have been estimated at five million. The disease killed as much as one-third of the population in some areas and devastated the Roman army.

During this period of the early Roman Empire, Senators and knights lived well, as a small elite can do even in poor societies, but they were not alone. The poor were helped by the free distribution of food (the annona) and the public provision of water, streets and even recreation. In addition to the public provisions for urban residents, the government also supported a standing army of about 250,000 men. Mostly idle, these soldiers were to dispel internal dissent more than external enemies. They were maintained and used for local construction activities by moderate taxation.

The Roman army must be distinguished from private activities, as it must in modern economies. The wages of the large Roman army stayed constant for many decades at a time, and it was staffed by a mixture of attraction and conscription. When the army was not fighting, which was most of the time in the early Roman Empire, soldiers often built roads and public monuments near where they were stationed. Since the army was stationed at the frontiers of the empire, this construction activity did not interfere with the labor market in Rome or elsewhere in the center of the empire.

The chief argument against the presence of an active labor market in the early Roman Empire has been the presence of slaves. But in the early Roman Empire, particularly in cities, slaves were able to participate in the labor market in almost the same way as free laborers, even if their starting point often was less favorable.

Frequent manumission—that is, freeing of slaves—was a distinguishing feature of Roman slavery. Slaves in the early Roman Empire could anticipate freedom if they worked hard and demonstrated skill or accumulated a peculium, money “owned” by slaves, with which to purchase freedom. (Even though slaves technically could not own property, the peculium was protected by law from the slave’s owner, and a freed slave kept his peculium.) The promise of manumission was most apparent for urban, literate slaves, but it pervaded Roman society.

Somewhere about 10 percent of slaves in the early Roman Empire were freed every five years starting at age 25. For comparison, the manumission rate in the southern United States in the 1850s was just 0.2 percent of slaves in a five-year period --- two orders of magnitude lower than estimates for Rome.

[Monetary values] A Gallic slave-girl called Fortunata was sold for 600 denarii to Vegetus. - - - and a prostitute’s sign read: “I am yours for 2 asses cash.”

In the Roman currency system, the denarius was a small silver coin first minted about 211 BC and became the most common coin produced for circulation --- but was slowly debased in weight and silver content until its replacement by the double denarius, called the antoninianus, early in the 3rd century AD. The word denarius is derived from the Latin deni "containing ten", as its value was 10 asses, although in the middle of the 2nd century BC it was recalibrated so that it was now worth sixteen asses or four sestertii; it is the origin of the currency name dinar.

A common rate for loans seems to have been 1 percent a month or 12 percent per year, which was the official maximum and also the default rate. The ancient Roman market probably was not totally "free", but alternative interest rates did exist. We find many examples of interest rates below 12 percent, often at 6 percent.

On the Greek island of Delos, banks were in operation before the Roman conquest, and continued after the Romans came, and were both temple and private banks.

Around the start of the third century CE, the early Roman Empire came to an end under the pressure of a number of problems: several emperors who were exceptionally autocratic and excessive and a series of revolts by the army which in turn led to Rome being ruled by a series of short-term emperors.

The disruption manifested itself in many ways, including increased inflation in the third century CE that is visible to us through debased coinage and occasional price quotations. Inflation was less than 1 percent in the first and second centuries CE, but prices doubled after the Antonine Plague of the late second century and doubled again soon thereafter. The denarius began to be progressively debased at this same time.

The banks had been the canaries in the Roman market economy, and they disappeared in the course of the third century.

By the time of the Dark Ages in about the fifth century CE, there were still Roman markets, but no longer a Roman "market economy". Roman agricultural technology and city planning were abandoned, education decreased, and long-distance trade in bulk commodities vanished. The Pax Romana* ended, and Roman law was forgotten in Europe for close to a millennium.

The Pax Romana (Latin for "Roman peace") was the long period of relative peace and minimal expansion by military force experienced by the Roman Empire in the 1st and 2nd centuries AD. Since it was established by Augustus, it is sometimes called Pax Augusta. Its span was approximately 206 years (27 BC to 180 AD).

Paul Krugman, still debating the zombies, cockroaches and weasels: "So currency debasement can ruin your whole day — as long as it’s accompanied by civil war and plague."

(Ya gotta love Paul Krugman....)

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