Marketcraft

Posted on by
Reply

Marketcraft: How Governments Make Markets Work by Steven Vogel is a nice overview of the inextricable links between ‘state’ and ‘market’. It would be great to put to rest the concept (still reflected in verbal usage) of government and market as opposites, and the book offers the concept of ‘marketcraft’ as a device to make the point. Markets always require a framework of government action to function at all.

It isn’t as if economists believe there is such as thing as the abstract ‘free’ market – ‘free’ from government ‘interference’. As Vogel very fairly notes (while regretting the use of a competitive equilibrium as a benchmark in any way at all), not only behavioural economics but also institutional economics, market design – and he could have added industrial organisation/competition economics, labour economics, health economics and all the other applied fields – have the market as an embedded institution at their core. Competition economists like me, for instance, know that it takes sustained attention from the institutions of the state to keep a market competitive.

The book – a short one drawing on previous work – compares and contrasts the liberal makrket economy of the US with the co-ordinated market economy of Japan; although Vogel is critical of the ‘varieties of capitalism‘ approach, arguing that it overstates the differences. Liberal market economies are only differently co-ordinated, he believes. There is a tension in the argument, for Vogel argues that the US should become more like Japan while also arguing that Japan’s attempt to become more like the US has failed because it did not take account of the social norms, conventions and culture in which the economy was embedded. (To be fair, he acknowledges wholesal change in the Japanese direction would not be possible.)

Somewhat ironically, Vogel reflects on the same tension in Karl Polanyi’s The Great Transformation, noting that it both asserts that ‘the market’ becomes a separate sphere from society, commodifying a growing territory of life, and that the self-regulating free market is a myth because markets are always socially embedded.

Although the argument the book makes isn’t dramatically new, and I for one need no persuasion about having to think of markets as institutions which can be shaped and designed for better or worse, there are some nice insights. I liked the section on the language we use to perpetuate the ‘free market’ chimera: governments make ‘interventions’ rather than just ‘acting’; we speak of ‘redistribution’ rather than ‘distribution’. It was also a welcome surprise that the book doesn’t set out the usual straw man version of economics. The term ‘marketcraft’ (as an analogue to statecraft) is also very nice. Governments are always ‘intervening’ in markets even if unintentionally. For sure government failure is a real thing, yet there’s no way we can live collectively without collective actions. We call that government.

 

Share

Property is theft (and allocatively inefficient too)

Posted on by
Reply

We launched the Bennett Institute for Public Policy in Cambridge this week so it’s been a bit hectic. I still managed to read Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner and Glen Weyl. It’s extremely thought provoking and clearly brilliant – yet also barking mad. This is the territory of thought-experiment rather than policy proposal.

The basic idea is Proudhon (‘All property is theft!’). Any private ownership of property contains within it the seeds of market power. Worse, “Private ownership of any asset, except homogenous commodities, may hamper allocative efficiency.” A more efficient and more egalitarian arrangement is for all property to be in effect rented from the state, by current ‘owners’ stating what they think every item is worth, and paying a tax on that amount. At any time, somebody who values it more can bid it away from them; there are continuous auction markets. For homes, there might be a notice period so people can order their affairs. There might be exemptions for small items of sentimental value such as Grandma’s fountain pen. The revenues raised from the tax would be returned as a basic income to all citizens.

The authors want to Radicalise voting as well as ownership. In place of the one person one vote tyranny of the majority, they apply the auction principle to politics as well as markets. Everybody gets an allowance of ‘voice’ which they can allocate according to their political preferences and strength of feeling about the issues. There is a quadratic tapering so I’d need four voice tokens to vote twice and so on. They like the idea so much they’ve applied it to opinion polling to elicit more accurate views – and, they write, “We have patented the use of QV and related methods to solicit opinions digitially.”

After two introductory chapters, the book applies the broad concepts to some specific areas, including the high profile paper proposing ‘data as labour’: in other words, that we should be paid by digital data harvesters for providing our time and knowledge. Each of the chapters starts with a vignette of what the Radical Market future might look like. They’re all rather dystopian, and especially the one in the data as labour chapter. Every interaction between human and digital assistant is monetised. I’m an economist – I like markets – but don’t want every minute or keystroke to have a dollar sign attached. If a click on a Like button is worth 20 cents, would I start wondering whether it was worth telling my neighbour about the great new coffee shop, because she’s not going to pay me for it? Of course the current situation is unsatisfying, but I’m still unpersuaded by this potential solution.

The most interesting chapter is the one about the concentration of share ownership (in the US) in the hands of a small number of large institutional investors. The book argues persuasively that this diminishes competition. Antitrust concentrates on the corporations, but institutional investors dilute its effectiveness, “by knitting together the interests of the biggest firms that dominate any particular market.” Here there is a policy proposal worth thinking about: restricting institutional investors to holding a maximum of a 1% stake in companies in the same market; or as much of they want of one firm but then none of its competitors shares. Very interesting idea. Don’t see what it has to do with the Radical Markets conceit.

The book ends by reflecting on markets versus central planning, alluding to the socialist calculation debate. Markets “allocate resources in ways no present computer could match.” Prices are a uniquely efficient summary of information, but markets can be improved – by having them operate continuously. “The market is the appropriate computer to achieve the greatest good for the greatest number,” but its bugs need fixing so there are fairer outcomes. Even better, common ownership makes the market outcome more efficient too.

This does glide over the fact that – should the nirvana of constant online auctions be attained – the state is there in some sense as the owner of all property and redistributor of large tax revenues raised as a sort of rent from everyone for having temporary use of, well, everything. Nor does it touch on assets owned by foreigners, or owned overseas. In fact, the book doesn’t really discuss practicalities at all because it isn’t a real set of proposals.Thomas Piketty‘s global wealth tax has more chance of becoming a reality than the permanent revolution of ubiquitous Vickrey auctions.

However, Radical Markets certainly made me think, about property, information, power. Well worth reading.

Share

On being factful

Posted on by
3

I’ve torn through the late Hans Rosling’s Factfulness, completed by his son and daughter-in-law, Ola Rosling and Anna Rosling Ronnlund. I wish everybody could read it. The message in a nutshell is: learn to reflect about the news you read/hear, and appreciate that there’s a difference between good and better.

The book is written around a multiple choice quiz Rosling administered online and to many audiences he spoke to, which revealed that large majorities of all kinds of audiences (including Nobel prize winners and the Davos elite) get certain basic facts very badly wrong. In a lot of ways, things are not at all great, around the world. But they are a lot better than they used to be, and a lot better than most people think they are. This applies to health and longevity, girls’ education, violent crime, and so on.

In terms of applying a bit of thought to the drama of the news, Rosling gives very practical advice: always think about the size of  number you hear – what is a good comparator, should it be a ratio; don’t always extrapolate in a straight line; don’t mistake the extremes for the typical experience; understand the power of exponential change. He means ‘factfulness’ as an analogue to ‘mindfulness’ (but much more worthwhile).

I like Rosling’s philsosophy: “The goal of higher income is not just bigger piles of money. The gola of longer lives is not just extra time. The ultimate goal is to have the freedom to do what we want.” I agree with his diagnosis that fear plays a big part in our responses to news: “Critical thinking is always difficult but it’s almost impossible when we’re scared.”

Although (to boast a bit) I got 12/13 on the quiz, I learned a lot from the book. For instance, I was struck by his argument that given we know 88% of the world’s children now get vaccinated, this tells us most countries can now sustain the logistics and infrastructure of the necessary cool chains; “This is exactly the same infrastructure needed to establish new factories,” Rosling writes. Yet 88% of the investors he quizzed thought only 20% of children get vaccinated so don’t know about that opportunity. He also argues that big pharma is missing a business opportunity in its focus on expensive new drugs for the richest markets, when they could offer older drugs at lower prices in the extensive middle income markets.

The book is also a delightful read, full of personal anecdote. One can hear his voice, which is a testament to the loving work his son and daughter-in-law put into preparing it for publication. Also worth a look is Anna Rosling Ronnund’s fascinating Dollar Street photography project.

Share

Jazz minds

Posted on by

Nick Chater’s The Mind is Flat: The Illusion of Mental Depth and the Improvised Mind has some highly impressive endorsements on the back and there’s been a bit of a buzz about it. Maybe that’s why I was a little disappointed. The book is a very enjoyable read. It canters through lots of issues about the limitations of our sense perceptions, with an emphasis on visual perception. There are lots of illustrations. Chater also writes very well, and even starts out by drawing a parallel with some of my favourite novels, the Gormenghast Trilogy: Gormenghast Castle feels real as you read the details Peake lovingly describes, but it could never fit together in real life.Similarly, Chater argues, “The mind itself is an impossible object.” It feels solid and coherent, but there is no there there. Just a sequence of fleeting, confused, partial interpretations of the raw sense impressions. The brain makes up stories and kids us that there is a consistency of narrative and character.

Emotions are the same, Chater says – not inherently different to all our other acts of ‘reasoning’, differing only in the interpretation we place on them. Emotion isn’t an opposite to reason, it’s just a different kind of reason. The book states some principles about how the mind (not that it exists) work: attention is the process of interpreting sense impressions; our only conscious experience is the interpretation of sense impressions; the stream of consciousness is the succession of these thoughts. There’s no more to it. “We have all been the victims of a hoax, perpetrated on us by our own brains…. The mind is flat. The surface is all there is.”

All great fun but the perceptual shortcomings that make up a lot of the book are surely well known limitations? I recall these being covered at some length at an economics-psychology conference on attention in Toulouse in 2011. And others before – not least the great David Hume – emphasised the role of senory information in shaping throught and emotion. So the book left me with a so what feeling. I’m not devastated to learn that Freud was wrong and I have no hidden depths submergedin in the form of my unconscious.In fact, I quite like the idea of improvised, jazz minds.

As Chater says, each individual is shaped by a series of experiences and perceptions that shape them today just as a certain pattern of rock and rainfall shape a river bed. So I don’t know quite what message to take away., or not in terms of decision making Maybe it’s this: “As today’s thought or action is tomorrow’s precedent, we are, quite literally, reshaping and reinventing ourselves thought by thought.” If so, this isn’t entirely persuasive as part of today’s input into thought consists of records of the past – words or images, which to be sure pass through the crazy golf course of sense perceptions. But to the extent it is true, I don’t know whether it’s a disturbing or comforting message.

The Gormenghast Trilogy -30%
The Gormenghast Trilogy
Price: £13.27
Was: £18.99
Share

Planning the unplannable

Posted on by

I just read a working paper by Joe Kane, ‘The Economic Flaws in Computerized Socialism’, which refers to Eden Medina’s excellent 2011 book about Project Cybersyn in Allende’s Chile, Cybernetic Revolutionaries. She recounts the history of this attempt to use computers for central planning, from a futuristic control room, relying on data input in factories around the country. Even before the coup, the project was in some trouble. As Kane notes, there has been a revival of the idea that computers and the internet (and now the blockchain) make central planning feasible. Evgeny Morozov trailed the idea an article that drew on Medina’s book. So did Paul Mason in his dire book Post-Capitalism. Kane cites a few other examples.

As he points out in the working paper though, the central planning problem is not one of computation or the transfer of information – or rather, that is only the case in the world of neoclassical general equilibrium theory. Frances Spufford’s brilliant book Red Plenty makes use of the formal equivalence of the centrally planned and competitive market economies in that la-la-land with no frictions, fixed preferences and complete markets. Markets are a process of discovery, as John Kay has to repeat over and over again. The data that would be needed for computerized central planning are not ‘out there’, but are created by the market. I wouldn’t go nearly as far as Kane in concluding government policies are therfeore useless, but do agree that “the outcome of the market process is not separable from the process which generates it.”

 
Red Plenty -10%
Red Plenty
Price: £9.90
Was: £10.99

Share