A.J.P. Taylor: The Course of German History

It is actually disturbing how little German history I knew before taking up AJP Taylor’s “Course..”.  I hope this might be a fairly common ‘home bias’ in historical awareness, i.e. tending to know history of other countries in as much as it does overlap with the history of your own in some generally tragic manner.

Before opening the book it is worth spending just a bit of time looking up the author, an ‘An Unusual Kind of Star‘ of the British TV and the ‘only really anti-German British historian‘. It would help the reader to prepare for a sharp take off in the first chapters.

The book itself is a very opinionated narrative of the German history covering the period from early XIX to mid XX.  There are certain interesting details about European economic history, for example the Zollverein customs union, but what I liked most were the following two more general ideas:

  • Ambitious foreign policy tends to come at price of less liberal policies at home (p.185): “[…] it served only to underline the contradiction of German wishes: the great majority of Germans wanted a Germany overwhelmingly strong, asserting by means of this strength her claim to ‘a place in the sun’, and basing her security on Power, not agreement with her neighbors; at the same time they wanted a constitutional system inside Germany and resented the arrogance and predominance of the military caste. few Germans felt the absurdity of desiring to dominate all Europe and yet to escape domination themselves […].”
  • Stable distribution of rights and political powers tends to be a result of the reluctant compromise, it cannot be bestowed from above or imported: (p.146): “If social security had been won by political struggle, it would have strengthened the confidence of the working-class movement to make political claims; as it was, the workers seemed to have received social security as the price of political subservience, and the drew the moral that grater subservience would earn a year greater reward”.

Some more quotes:

On German liberals in 1792-1814 (p.25): The German liberals had no agrarian program and no sympathy with the property-less masses, whom they despised as obscurantist and reactionary; nor had they any feeling that liberal institutions needed to be fought for and defended – they expected them to be bestowed from above.

On 1848 revolution (p.36): In other countries the revolution gave the people universal suffrage; in Prussia it gave them universal military service.

…and some more on 1848 (p.69): German history reached its turning-point and failed to turn. This was the faithful essence of 1848.

…and yet more (p.71): The revolution of March 13th in Vienna and the revolution of March 18th in Berlin, which together cleared the way for the German revolution, were both glorified unemployed riots.

On the decline of parliament (p.120): The abdication of the Prussian liberals and the defeat of parliamentary government had a profound social result. Parliament did not control the state; therefore it could never be for the individual the path to power. Henceforth only man of the second rank went from the middle classes into politics. The intellectual ability of the politicians steadily, relentlessly, declined; all that survived was the gift of sterile negative criticism. Political parties became inevitably interest groups, solely concerned to win concessions from the state, but never supposing that they might have to accept responsibility. The really able and ambitious members of the middle class shunned politics and turned exclusively to industry and finance.

On creative destruction (p.139): The financial crash of 1873 was a normal event of the age of capitalism […]. In England when the speculative bubble burst, those who had blown it took the consequences […]. But the German industrialists had not the long tradition of self-help which made British capitalists fend for themselves until long into the twentieth century. Besides, they had made an implicit bargain with Bismarck: they had renounced political power in return for economic wealth, and now they expected Bismarck to keep his bargain.


A.J.P. Taylor: The Course of German History

C.Clark: Sleepwalkers. How Europe went to war in 1914


I have reservations about an extent to which studying history is ‘useful’ from the applied perspective. Historical method, in my view, has limited potential to identify more or less general and reliable regularities in the social mechanics from the economic policy point of view.

Thus the criteria on which books, such as Clark’s Sleepwalkers, should be judged are literary and entertainment value. Anyway judging it more rigorously is well beyond my expertise.  Instead of providing a review of the book (which was done by many more qualified individuals) I’ll just share three ideas that I pondered when reading the book:

  • Civil/military divide within the government. Clark provides an overview of the military-civil conflicts within the governments of the Entente and the Triple Alliance. The story is the same across Austro-Hungarian Empire, Russia, France and UK: the defense minister is lobbying for higher tax revenue to be allocated for modernization of the military while the finance minister more or less vigorously opposes military spending build up. The conflict lost none of its topicality in one hundred years it seems. There’re some interesting details on the Russian situation with the clash between the P.Stolypin successor PM&Finance Minister Kokovtsov and Defense Minister Sukhomlinov. Clark quotes Nicolas II telling Kokovtsov (p.218): “In your conflicts with Sukhomlinov you are always right. But I want you to understand my attitude: I have been supporting Sukhomlinov not because I have no confidence in  you, but because I cannot refuse to agree to military appropriations”.
  • Monarchy. The idea itself is quite original: let’s employ the same techniques that we use to improve domesticated animals to selection of country leaders. Why would anyone accept it as normal? The power of status quo, I suppose. However, what Clark argues is that at the operational level the monarchs’ discretion has been materially limited by late XIX century. As far as I understood, the web of blood relationships between the monarchs of Europe served as an alternative less formal diplomatic communication channel, however the messages that have  been transmitted were formulated or at least heavily influenced by professional bureaucracy. The same goes for internal affairs. The telling quote is on p.184: “Nicholas II could favor this or that faction or minister and thereby undermine the cohesion of the government, but was unable to set the agenda, especially after the fiasco of the Russo-Japanese War”.
  • Ideological homophily. What the book illustrates is how persistent are personal opinions. For the likes of Franz Conrad von Hötzendorf no amount of evidence could challenge the necessity of aggressive action against Serbia. What’s worse is the ability of such individuals to strategically influence the composition of their own ministries and the government in favor of others who share their vision or avoid challenging it. The result seems to narrow the ‘field of vision’ and the set of alternative courses of action.

Overall the book is highly recommended reading. Probably the last time I’ve enjoyed the book so completely was ‘Farewell to Russia’ by A.Levandovsky (thanks to VG for this).

Otherwise, just a handful of quotes:

  • On international finance, p.30: ” […] fragile debtors like Serbia […] could secure loans on reasonable terms only if they agreed to concession of fiscal control that amounted to the partial hypothecation of sovereign state functions. For this reason among others, international loans were a political issue of the highest importance, inextricably wound up with diplomacy and power politics.”
  • On investor relations, p.231: “Early in 1905, the Russian were distribution GDP8ooo a month to Parisian press, in the hope of stimulating public support for a massive French loan. “
  • On fiscal priorities, p.32: “In 1905, pressed to ratify a new revenue source, the peasant dominated assembly of Skupstina chose to tax school books rather than home distillation. The result was a strikingly low rate of literacy, ranging from 27% in the northern districts of the kingdom to only 12% in the south-east”
  • On the choice of the assassination target, p.49: “[…] the archduke was not targeted on account of any alleged hostility to the Slavic minorities in the Austro-Hangarian Empire, but, on the contrary, because, to borrow the words of his assassin, Gavrilo Pricip, ‘as future Sovereign he would have prevented our union by carrying through certain reforms’. […] The targeting of the archduke thus exemplified one abiding strand in the logic of terrorist movements, namely that reformers and moderates are more to be feared than outright enemies and hardliners.”
  • On the use of press by officials, p.195: “From behind the scenes key officials lime maniacally Germanophobe Maurice Herbett […] used his extensive newspaper contacts to sabotage negotiations by leaking potentially controversial conciliatory proposals to the French press before the had been seen by the Germans. […]”

Short resume of the book  by the author:

C.Clark: Sleepwalkers. How Europe went to war in 1914

Economica at GitHub

Today I’ve posted my Economica package at GitHub here.

It is fully functional allowing the user to run ARIMA-X13 with various options, estimate VARs and identify SVARs, construct some plot types that are not readily available in standard Mathematica distribution.

Hopefully I will be adding tutorial on its variuos functions soon.

By the way, it has also been added on packagedata – Mathematica package aggregator.

Economica at GitHub

Система Кудрина: Рано для биографии

Некоторое время назад закончил “Систему..” и делюсь впечатлением от своей первой книжной покупки на google play.
Анонс сулит золотые горы: “это история российской власти и российской экономики, рассказанная от лица тех людей, кто ее создавал”, в то время как рецензенты больше говорят о Кудрине, чем о книге. Это справедливо, поскольку книга не подходит близко к исполнению данных обязательств, а под рассказами “творцов истории” понимается 2-4-х страничное интервью Кудрина равномерно размазанное по книге, комментарием к которому последняя по сути является.
Самым похожим на подобие содержательного обсуждения экономических решений является полукарикатурный эпизод с разговором между Кудриным и руководителем одного из департаментов Минфина, в котором подчиненная докладывает министру о работе, которую провели ее сотрудники по запросу министра сделать “глубокий кризисный прогноз”, и сообщает буквально следующее:.
“- Многие кризисы наложили друг на друга и посмотрели, как менялись деловые индексы за год или полгода до кризиса. Так вот: по всем индикаторам получается, что осенью будет крупный кризис. А может, даже не осенью. […]”

Кое-что действительно становится известным. Скажем, что автором идеи с Олимпиадой в Сочи является Собчак, который  предположительно привез эту идею из отпуска в 1994 г.,  однако не смог получить финансирование в то время, или то, что мечтой Кудрина являет инфляция в 3%. На мой вкус, этого явно недостаточно для книги такого размера.
Думаю, дело здесь в том, как верно подметил Сонин во вступлении, что говорить о завершении карьеры Кудрина еще слишком рано, а значит время не пришло и для написания сколько-нибудь откровенной и глубокой биографии.
Система Кудрина: Рано для биографии

CBR’s inflation expectations estimates: introduction (1/2)

Inflation expectations at some point have become the corner stone of CBR’s monetary policy. Changes in their level are cited in each and every monetary policy press release. The most recent reference is as follows:

“… In addition, inflation expectations of households escalated in November, although projected to decrease.”

In order to identify these expectations CBR regularly orders “Public opinon” fund to conduct countrywide surveys. These surveys ask a variety of question on topics ranging from preferred savings vehicles to consumer confidence. Additionally two types of questions on inflation expectations are asked:

  1. 0pen question about numerical estimate of inflation 12mo ahead;
  2. multiple-choice question on prices 12mo ahead.

By averaging (or taking a median of) responses to the type 1 question one can obtain a so called direct estimate of inflation expectations. Its ease of calculation has a certain downside attached. Direct estimate has a known upside bias possibly explained by availability hypothesis, i.e. respondents reporting more recently observed or sizable price growth as inflation expectations (these are almost invariably related to food inflation), while less impressive price trends (i.e. stagnating rent) are left unacknowledged. Current CBR’s direct report provides a median of the numerical responses of 15.0% YoY and it has rarely been under 11.0% since 2010.

An alternative method helps partly alleviate the problem by simplifying the problem for the surveyed and asking them where relatively to current inflation would future trends lay.  This method is called probabilistic estimate and relies on responses to type 2 question.

Because it will be the focus of what follows let me cite the text of the question here:

“Do you believe prices in the next 12 months will:

  • will be growing faster than now
  • will be growing at the same pace as now
  • will be growing at the same pace as now
  • will not change
  • will decrease”

Results are presented in the report (Russian only) as a chart:


Source: CBR.

So with a short introduction to why we do this and where the data come from let’s proceed with identification methodology.

Methodology [1]

In order to recover expected inflation with probabilistic method we should make two additional assumptions:

  • F(*) family of the probability distributions of inflation expectations;
  • \pi_0 the reference inflation rate to which the surveyed do benchmark their expectations, i.e. “inflation now”.

Next we assume that when answering questions people do have some confidence intervals, i.e. regions within which inflation is assumed to be qualitatively equal. That is if I think that inflation might be -0.5 – 0.5% in the next 12mo I would likely choose “prices will remain constant” option.

Fist let’s denote the shares of the answers as follows:

  • \beta_1 is the share of surveyed reporting inflation will accelerate;
  • \beta_2 is the share of surveyed reporting inflation to remain stable;
  • \beta_3 is the share of surveyed reporting inflation to decelerate;
  • \beta_4 is the share of surveyed reporting inflation to be zero;
  • \beta_5 is the share of surveyed reporting inflation to be negative;
  • \beta_6 is the share of the surveyed that had failed to respond.

Next we will get rid of those who find it too difficult forming 12mo ahead inflation expectations, making sure the remaining shares do sum to unity:

\alpha_n=\frac{\beta_n}{(1-\beta_6)} for n=1..5

Graphically the whole picture might look as follows if we assume normal distribution:


At this point we might write the following system of equations :

\begin{cases}  \alpha_1=1-F(\pi_o+s,\theta)\\  \alpha_2= F(\pi_o+s,\theta)-F(\pi_o-s,\theta)\\  \alpha_3=F(\pi_o-s,\theta) - F(l,\theta)\\  \alpha_4=F(l,\theta)-F(-l,\theta)\\  \alpha_5=F(-l,\theta)\\  \end{cases}

where \theta is a vector of two parameters of the distribution of inflation expectations, s and l are sensitivities.

This system has four unknowns: sl, 2 for \theta which makes the last equation redundant.

The last step would be to solve the system for parameters of the F(\theta) and calculate the expected value implied by the estimated distribution.

Example: Verify November estimates

We now can try and verify CBR reported estimates of inflation expectations for the Nov-15 wave of the survey, which put it at 15.0%. As the chart above from this report shows:

  • \beta_1 is .19;
  • \beta_2 is .52;
  • \beta_3 is 15
  • \beta_4 is .0;
  • \beta_5 is .0;
  • \beta_6 is .15.

Because of the rounding effects these numbers do sum up to 1.01, so I divide them through by \sum{beta_n}.

After that we can get rid of the ‘do not know’ answers dividing through by (1-\beta_6), so we have:

  • \alpha_1 is .22;
  • \alpha_2 is .60;
  • \alpha_3 is .17
  • \alpha_4 is .0;
  • \alpha_5 is .0;

For simplicity we make the uniform probability distribution assumption:

F(x)= \begin{cases} 0 & \text{for }x < a \\[8pt] \frac{x-a}{b-a} & \text{for }a \le x \le b \\[8pt] 1 & \text{for }x > b \end{cases}

Now we can solve the whole thing numerically. I use Mathematica, which is matter of personal preference, but a suitable routine can be developed even in Excel. I assume \pi_0=14.8 which is the YoY inflation rate during the week when the report has been published













The result is {s -> 3.00759, l -> 1., a -> 10.0573, b -> 20.0054}. Expected value of the uniform distribution is \frac{a+b}{2}, so our estimate of inflation expectations is 15.0 exactly in line with the CBR.

Alternative, we can use Mathematica to calculate expected value of the distribution: 

Expectation[x, x \[Distributed] pd /. sol]


The results might vary due to difference in the choice of the \pi_0 so full transparency would require the CBR reporting its choice of the ‘current inflation rate’ or the \pi_0 in the inflation expectation reports.


In the next post we are going to decompose changes in inflation expectations into the change in the survey results and change in the \pi_o.

Recommended reading:

  1. We discuss a simplified methodology. Actual one is outlined in Khazanov, Alexey (2015),  Inflation expectations quantification by the Bank of Russia (pdf), Money and credit
  2. CBR (2014), Guide to inflation expectations (pdf)
CBR’s inflation expectations estimates: introduction (1/2)

Afanasyev et. al: Budget and the fiscal system

Coming from a monetary policy background I still find it buffing how much more complex is fiscal policy. There’s a substantial number of levers that central bank can use. Still you might call the key rate The Instrument.
When it comes to fiscal policy volume of revenue and spending, their structure and a universe of related issues come into play so that bottom line deficit/surplus alone is far from being an indicator of fiscal policy stance. This not even looking at issues of budget federalism or politics of the budget process.
I gather, this complexity of the topic does not lend it to clear exposition.
The result is, there’s still no decent book on fiscal policy in Russia. I went through a couple of textbooks which were not substantial enough to mention here, before deciding to give a closer look at ‘Budget and fiscal system’  by Mstislav Afanasyev.
The book had a promising feature of being authorised by Alexey Kudrin who was behind many of the current features of the fiscal system including the Reserve fund and NWF, medium term budget planning, fiscal rule etc.
Having spent a fair amount of time with this book I’ve come to the conclusion that it might be one of the better books on fiscal policy in Russia. But this resulted not because of high quality of the text but because the bar is set at quite a low level.
Some of its more visible shortcomings below.
Extensive quotes from the Budget code, weak on economics 
The book is basically an introduction into the fiscal law, but it does lack any analysis of the fiscal system from the economics view point. Even such basics as cross country comparative tax burden analysis, efficiency of spending, tax collection efficiency are avoided.
Weak on case studies, examples
The text is close to sterile when it comes to the intersection of law and its application. There’re exactly zero information on problems of fiscal federalism, fiscal discipline on regional and municipal levels and politics seem to be absent from the budget process.

The text needs editing: extensive repetitions

The text is written in the this variety of language which you might expect to find in legal papers, but which seems much less appropriate for the textbook. Many paragraphs are word by word repetition of text in the preceding paragraph with the difference being that the same idea applies for example to two levels of the budget system. I think a more thorough editing would allow to cut up to a forth of the text.

The rediculous pie 3d charts
The 3D pie charts (authors favorite type of chart) occupy up to half of the page to show the relationship between two numbers.
Stub chapters: sovereign external lending
The chapter on external lending of the country is basically a plan to write a chapter. In the chapter explicitly devoted to external debt there’s no single example of external lending of any country, not to say discussion of the terms or a purpose of such a loan.
The philosophical chapter fetish 
For some reason the book devotes a whole complete chapter on the philosophy of the fiscal system which goes as far as discussing the nature of the state. It tries to cover everything from Thomas Aquinas to Mikhail Bakunin. The reason for this escapes me.

My personal preference would be for more detailed presentation of the core material.

All in all, it is hard to recommend this  this book. Text obviously needs work: more cases, examples, less repetitions etc.

To add a constructive touch, here’s a list of sources on fiscal issues which are highly readable: i) Economic Expert Group’s publications, ii) NIFI’s Financial journal is a good source but I usually only look at the articles authored by NIFI’s own researchers and skip everything else.
Afanasyev et. al: Budget and the fiscal system

HSE Seminar: Signal and structural models at the service of monetary policy

Back a good couple of years ago when I was working on my diploma on monetary policy I stumbled upon an interesting paper by the CBR’s economists. It was about some model they’ve used for macro forecasting. The thing that struck me was that it seemed to be only published nowhere expect for some conference proceedings on the site of the National Bank of Belarus. That is not exactly where you would expect to see it. No Russian journals, nor presentations.

Now time to make up for it. One of the coauthors and my current colleague Alexander Borodin presents the CBR’s model at HSE banking seminar ‘Empirical methods in banking sector analysis‘.

Here’s Alex’s presentation:

I’ve also presented my article that was published in Russian ‘Applied econometrics’


HSE Seminar: Signal and structural models at the service of monetary policy

Fioramonti: Gross Domestic Problem

The other day finished Fioramonti’s  “Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number” [1] and here’s what I learned.

In the first part the author provides light introduction into history of attempts to measure level of economic activity.  Before GDP emerged as a dominant standard there were some alternatives including social accounts system that was in use in USSR.  Overall this background chapter is also the most powerful one.  One key take away is the notion of recency of creation of the GDP framework.  Today you compare one government to another on their performance in terms of economic expansion until the 1930s there was no systematic approach to measure it.

The second chapter is devoted to shortcomings of the GDP as a measure of growth of the economy. Here Fioramonti plunges into the usual kvetching: how does GDP change if the worker is happy or not, how is quality of life represented in the GDP growth number. Apparently the author implies that the decent indicator of economic activity would show externalizes of economic activity: degradation of environment and lower wildlife population. For reason that escapes me he’s not happy with having all those indicators but wants to incorporate ecology into GDP.

Another critic, which is somewhat more of a methodological issue is the fact that GDP does not record activity of some of the  sectors, that are deemed outright illegal… in some periods, but might someday admitted into the formal economy. This however again is a minor issue. This part of the book is considerably weaker than the fitst, but…

…the weakest part comes last. It’s the collection of proposals for reform. For one, Fioramonti promotes the idea of ‘local money’, the money which can be earned and spent within some predefined geographical coordinates. This, in my view, does solve no problem, but in extreme scenario makes the owner of such money essentially chained to the place where his savings worth something.

Other statements are too emotional:  “There’s little doubt, indeed, that the popularity of national income accounts has given the upper hand to all industries that pollute and deplete, since GDP portrays these acts as economic progress.”

This is a rather naive way of thinking of the forces behind ‘pollution and depletion’.

The whole proposals chapter reminds me of the good old Hugh Laurie scetch:

Overall the first chapter might worth a read, but the book is quite unfocused and short on original ideas.

Fioramonti: Gross Domestic Problem

Сергей Савельев: Нищета мозга

Последние дни августовское цветение не дает выйти надолго выйти из тавегиловой расслабленности. В этих условиях ни сосредоточиться, ни прочитать ничего серьезного не выходит. Поэтому решил закончить книгу, которая мне подарила одна приятная семья друзей.
Речь о книге Сергея Савельева “Нищета мозга”. Автор возглавляет одну из лабораторий Института морфологии человека РАМН. Книга позиционируется как научно популярная, то есть не содержащая новых результатов сама по себе, а доводящая общепризнанные до широкой общественности. Тем не менее, человеку, далекому от предметной области, может оказаться непонятно, является ли Сергей Савельев последователем научной традиции или “оригинальным мыслителем”, дистанцирующимся от научного мейнстрима. Несмотря на общее положительное впечатление, некоторые косвенные признаки беспокоят:
  • цитируемость одной из основных работ автора “Происхождение мозга” достаточно невысока;
  • в книге автор достаточно огульно клеймит ряд, казалось бы, серьезных направлений – исследование ДНК, стволовых клеток – как псевдонауку;
  • в ряде параграфов автор достаточно уничижительно отзывается об обобщенной “западной традиции” исследования мозга.

Но, в общем-то, это отступление и дисклеймер: “хотите верьте, хотите – проверьте”.
Книга дает пару поводов для размышления.
Каков механизм эволюции человека на текущем этапе? Действительно, доисторический этап естественного отбора кажется более чем убедительным: быстрые и хитрые выживают, медленные и доверчивые попадают под каток истории. Но что дальше? Саблезубые леопарды исчезли из повседневного опыта горожанина. Остановилась ли эволиция?  Имеет ли она определенное направление сегодня? Какой здесь механизм? Савельев отвечает: мы сами селекционеры будущего человека. Иными словами, с той же последовательностью, с которой люди выводят породистую коровку или песика, общество не слишком осознанно, но не менее эффективно выводит новый вид человека. Подстраиваясь под требования текущего способа производства наиболее способные получают относительно более широкие возможности к воспроизводству, тогда как неприспособленные оказываются на обочине. При чем, по Савельеву, идет не только эволюция морфологическая (медленный вид адаптации, который через какое-то время, наверное, даст нам возможность печатать двадцатью пальцами), но и эволюция “социальных инстинктов”, то есть систем ценностей, подходов к работе и в целом принятию решений.
Возможности человека по большей части предопределены структурой мозга. Савельев утверждает, что структура мозга (наличие и размер определенных центров в коре мозга) по большому счету предопределяет склонности и интеллектуальные способности индивидов. Определенный прогресс и развитие нехарактерных способностей за счет направленной работы возможен, однако результаты наверняка будут ограничены и в сопоставлении с индивидом, у которого к определенной работе есть естественные склонности, может быть крайне скромным даже при значительных усилиях. Уравновешивается это тем, что любая естественная предрасположенность и одаренность часто становится жертвой лени и неактивного использования. По мнению Савельева будущее стоит за развитием подходов к раннему выявлению предрасположенностей и способностей людей. Это позволит увеличить и эффективность усилий по образованию, позволит направить людей в русла, по которым им и плыть приятнее, и они смогут так принести больше пользы себе и обществу. К сожалению, для этого есть определенные препятствия в развитии технологий томографии, по словам Савельева, детали скудны.
Конечно, работа Савельева заставляет задуматься, и взгляд на некоторые вещи для экономиста покажется свежим. Тем не менее, оригинальным является скорее тон, чем содержание:
1. Утверждения о “рациональном” и “инстинктивно-гормональном” способах поведения близко к тексту повторяют тезисы, на мой вкус, более убедительно и последовательно предложенные в Thinking fast and slow Д. Канемана.
2. Тезисы о том, что эволюция мозга является адаптацией к сосуществованию в средних и крупных группах, развитияем способности делиться пищей с особями за пределами непосредственного родства предложена ранее Робином Данбаром в т.н. гипотезе общественного отбора.
Краткое изложение содержание вот здесь:
Сергей Савельев: Нищета мозга