Why governments get it wrong

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There was some irony in reading Dennis Grube’s Why Governments Get It Wrong: And How They Can Get It Right in the week of the Truss/Kwarteng budget disaster in the UK. If only our PM and Chancellor had read Dennis’s book before they went ahead with their hideously counter-productive policy experiment.

Now, I must warn readers of this blog that I’m not an unbiased reviewer of the book because its author is a dear colleague of mine. Declaration of interest made – this is a must for anyone interested in public policy, and a worthy successor to the classic King and Crewe The Blunders of Our Governments.

It’s wonderfully written and entertaining – somehow government errors provide plenty of material for laughter, perhaps because the alternative is tears. It also provides a very neat framework for analysing policy rights and wrongs. This consists of four ducks: definition of the problem a policy is meant to address; the second is the policy narrative aligned with the problem and connecting with what people care about; the third is the reality, sometimes presented as evidence (but even when that’s inconclusive the world is a certain way); the fourth is the effectiveness of the policy intervention itself, given the problem. Four ducks in a line doesn’t guarantee success but is generally a necessary if not sufficient condition. To make policy-making even harder, the ducks swim, there are turbulent tides, etc.

Policy-making is difficult. The world is full of wicked problems. “It’s complicated,” is an unwelcome message to most politicians (and voters). But reading Dennis’s book & thinking about lining up the ducks is a good place to start: Mr Kwarteng might have realised he only had at best one and a half ducks last week.

718pwt78KDL._AC_UY436_QL65_PS Dennis is doing a book launch at Waterstones in Cambridge on 7th October, in conversation with David Runciman. It will be a very good event.

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How economists think

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Elizabeth Popp Berman’s Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy, is a historical account of how a broad spectrum of policies set in Washington DC became – from the 1960s – increasingly determined by the criterion of economic efficiency. As she points out (& as I do in Cogs & Monsters), this notion of efficiency is far from value-free, although many economists (and others) insist that it is.

One distinctive aspect of the book’s account is its focus on the centre and left as the source of this economic thinking. Often the dominance of economics in policy decisions is attributed to the Chicago School, or neoliberals, or the Reagan/Thatcher administrations with their emphasis on markets everywhere. I think the book makes a convincing case that the economics turn started earlier, and gained important momentum from the drive to use government programmes to address social problems. The book focuses therefore on microeconomic issues – competition policy, cost benefit anaylsis – rather than the macro battle of monetarists vs Keynesians.

The transition it is interested in is the shift from pre-1960, indeed pre-war, institutionalist economics: “Institutionalism emphasized the collection of quantitative data, but with an inductive, historical approach in mind.” It avoided formalism, and tended to be progressive. Post-war, however, the institutionalists in Washington lost influence over time to two groups highlighted in the book: economists from RAND’s economics division and from new schools or programmes of public policy that trained a growing number of officials in “RAND-lite” formal modelling approaches; and anti-trust and I/O economists who – even before the full flowering of the Chicago School – brought neoclassical economic analysis emphasizing the role of markets in allocative efficiency in place of earlier structuralist approaches. The former group grew at pace during the Great Society years, along with more policy institutes evaluating social programmes. The Reagan years cemented the role of economic thinking by adding more cost benefit analysis of government interventions, favoured by business to limit ‘interference’ in their actions.

As the concluding chapter points out, there emerged a divergence on partisan lines in terms of the embrace of economic thinking: Democrats consistently embraced it and “allowed the economic style to define the boundaries of legitimate policy debate.” But Republicans “continued to use the economic style strategically and fleixbly, embracing it where it helped advance their goals and rejecting it when it conflicted with more fundamental values.” I wonder if there is a less on here for the centre-left now?

The book is entirely US-focused; it would have been interesting to read some reflections on how the economic style spread internationally. The other element I missed was the interaction between economic thinking in government, and how economics itself changed over the postwar period. How did the role of economists in policy-shaping contribute either to the rational epectations era of the late 70s/early 80s, or the later applied turn? Having said that, it’s a nice study of how ideas work in policy, and the key point about the consistent embrace of economic-style thinking by the left contrasted with the intellectual flexibility (cynicism?) of the right is very interesting.

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From citizen to subject in cyberspace

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Vili Lehdonvirta’s Cloud Empires is a terrific book. As the title suggests (and the fashionably chatty subtitle spells out just in case), the subject is the political power of large/gatekeeper digital platforms and specifically how in their essential rule-making capacity they are steadily taking on more activities of the state – but doing so without a public service motive (profit instead) and without accountability: “The internet was supposed to free us from powerful institutions. … Then they delivered something different – something that looks a lot like government again, except that this time we didn’t get to vote.”

The book starts with the origins of the internet and digital platforms, including the early libertarian hopes. The first section concerns platforms as economic institutions. One focus is the operation of online labour markets, including mTurk, but also using oWork/Upworker as a case study; the platform become increasingly internally regulated as it grew, among other things setting a minimum wage – of $3 an hour, reflecting the globalisation of online labour. Another chapter concerns privacy, and its complete erosion as platforms increasingly grappled with the need to enforce social order online at massive scale.

The theme through this first section is the transition from libertarian optimism about the absence of control to a non-territorial but nevertheless tightly regulated series of platform domains, with platforms setting their own rules within their own jurisdictions – with the only accountability being people’s ability to leave. You might put it that Albert Hirschman’s ‘exit’ is the only option as neither voice not loyalty have any traction, and even that is limited by the power of network effects. Exit would have to be collective to be effective.

The second section concerns the political power of the platforms. It starts with a wonderfully astute chapter on crypto-currencies, making the point (it has always seemed clear to me but seemingly not to others) that these are not ‘trustless’ but simply relocate trust. And yet many or most are inherently untrustworthy (to use Onora O’Neill’s framing). “The crypto elite who run these organisations are, if anything, less accountable to people than conventional financial and regulatory elites.” The founders may be entirely sincere and nice, and they may even seem to give their communities voice, but in writing the take-it-or-leave-it code, they impose dictatorship. (And have clearly read none of the vast literature on incomplete contracts….) Other authors such as Lawrence Lessig have drawn the comparison between code and law, but I found the social science perspective here very helpful.

Another chapter considers the way the platforms have undermined the traditional public institutions providing health care and education. Neither platforms nor gig workers have an incentive to invest in training or a long-term relationship, and in the US at least that casualised workforce has to rely on GoFundMe campaigns to cover medical bills. “Internet empires are undermining industrial society’s mechanisms of building and maintaining human capital.” What will the essential social safety net look like in the platform economy?

The concluding chapter pulls the threads together in the argument that platforms are usurping the traditional nation state. “Silicon Valley technologists reinvented the economy only in the sense that through trial and error they rediscovered much of what states already knew. Instead of revolutionizing our social order, they reimplemented it with computer code.” Algorithms are bureaucracy. (And indeed, a lot of traditional statecraft depended on technology – including classifying and collecting data, monitoring behaviour). The book argues that states simply gave up some of their former territory of control through outsourcing, or ceasing to collect data in house. In addition, the digital platforms have advantages – they are fast and efficient, and in (narrow) ways provide a great service.

So what to do about it? The book makes the case for an online bourgeois revolution to develop collective action power that will make digital platforms accountable. I must say that the prior chapters don’t give me any optimism that might provide effective. My prescription would be for democratic states to regain the lost territory through a combination of rule-making over online activity and improved efficiency of traditional bureaucratic states. Though I’m not too optimistic about that either.

All of which makes the book an essential read. I have some quibbles (for example, I’d disagree that platforms are effective central planners), but perhaps I’m wrong. The book is firmly rooted in Vili’s own work and the wider literature on digital platforms, spanning economics, sociology and political science, while being very readable with lots of examples and case studies. A strong recommend.

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Regiments of Women Economists

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The unattractive word ‘herstory’ always makes me grit my teeth but of course I had to read A Herstory of Economics by Edith Kuiper. Nobody with any interest in economics can have failed to notice the welcome discussions of what a male-dominated profession it is, and how distorting that is. Not much has changed yet as a result (in terms of proportion of women, or selection of research questions, or indeed sometimes-toxic culture) but at least there is an awareness and a plan on the part of the professional associations.

One key thing I learned from Kuiper’s book is that there have been many more female economists than I ever realised. As well as some (now-)familiar names – Joan Robinson, Sadie Alexander, Rosa Luxemburg, Elinor Ostrom – the list at the front has many names I didn’t know, and also some I did know but had never considered to be economists. But the book makes a persuasive argument that this reflects the exclusion of women from universities until well into the 20th century, and writers on economics outside academia should therefore be included. The list is almost three pages long, for the period up to around the mid-20th century. Even then it has some omissions – Phyllis Deane for instance, or Edith Penrose. (Maybe the latter is a bit too late for this history, but then Ostrom is included.)

The book is ordered in broadly thematic rather than chronological chapters, after an introductory chapter about the origins of political economy, covering subjects like property rights, education, production, consumption and wealth/finance. The final two chapters cover government policies and then the role of feminist economics. While this organisation makes sense – a chronology would not have worked – it does mean there are some sharp corner turns as a chapter jumps from, say, an analysis of labour in the household to Ida Tarbell’s expose of Standard Oil, in the chapter on production.

Nevertheless, the book describes the important contributions of women to economics over more than a century, and in doing so illustrates the kinds of questions and social reality generally ignored by the male mainstream. It ends with a focus on the need for feminist economics to expand. I’ve never myself been interested in the separate arena of feminist economics because all of economics and economists should be feminist. The AER should be covering the kinds of questions that feature more often in Feminist Economics: the macroeconomics of gender and care (the topic of the current special issue)? Absolutely.

Still, that’s mostly about tactics. A Herstory of Economics gives a voice to some of the pioneers never included in the standard intellectual histories of the subject.

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Ways of seeing?

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James Poskett’s Horizons: A Global History of Science is concerned with the role played in scientific discovery by non-white, non-European people (mainly men….). The book starts with Aztec and Inca knowledge particularly about natural history, medicine and astronomy. The European voyages of the early modern period made it so clear that Aristotle and Plato in fact hadn’t known everything that they helped overturn scholasticism. The book proceeds through the subsequent centuries but also, centrally, across space. People outside NW Europe (and later N America) knew stuff.

I was particularly interested in the section on non-Linnaean classifications in Africa and Asia (being a classification nerd); and also those about the impact of Einstein’s theories on confidence in measurement (being a measurement nerd too). And one other thought – not particularly made by the author, whose concern is acknowedging previously overlooked contributions by people around the world – that it left me with is the role of people who knit together bodies of disparate knowledge in a new world view. After all, Newton acknowledged the shoulders he stood on; but a different metaphor might be that he shook the kaleidoscope and created a new pattern of seeing.

I enjoyed this book, learning a lot. I must say it was slightly marred for me by the continual repetition of the point about needing to acknowledge non-European contributions – the material makes the case so effectively itself that additional polemic isn’t needed. But it is of course an important point, and the book is a nice introduction to some of the sources of knowledge from other parts of the world.

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