Economic observation

On Friday all the researchers in the new Economic Statistics Centre of Excellence (ESCoE) met at its home in the National Institute to catch up on the range of projects and it was terrific to hear about the progress and challenges across the entire span of the research programme.

One of the projects is concerned with measuring uncertainty in economic statistics and communicating that uncertainty. The discussion sent me back to Oskar Morgenstern’s 1950 On the Accuracy of Economic Observations (I have the 2nd, 1963, edition). It’s a brilliant book, too little remembered. Morgenstern is somewhat pessimistic about both how meaningful economic statistics can be and whether people will ever get their heads around the inherent uncertainty.

“The indisputable fact that our final gross national product or national income data cannot possibly be free of error raises the question whether the computation of growth rates has any value whatsoever,” he writes, after showing that even small errors in levels data imply big margins of error in growth rates.

On the communications front, he noted that members of the public were often suspicious of economic statistics – and rightly so: “The professional users of economic and social statistics strangely enough often seem to be less skeptical than the public.” Yet, he added, public trust was essential both to deliver the appropriations of funding for statistical agencies and so that people had the confidence to provide information to statisticians.

I do find it odd that many economists download the productivity data from standard online sources uncritically and pronounce on the ‘puzzle’ of its zero growth when so many providers of raw data point (businesses in this case) out that from their perspective there are significant productivity gains. But that’s what the ESCoE is about – trying to resolve a different puzzle, that of two contradictory sets of evidence – and it’s keeping me gainfully occupied.


The weaponization of trade

The latest Perspectives title is here. It’s The Weaponization of Trade by Rebecca Harding and Jack Harding (respectively a trade economist and a security researcher), and it couldn’t be more timely. The book looks at the shift from trade as an issue debated squarely in the economic domain to trade as a tool of politics and international relations.

The argument is that there economics and politics are always at play in trade policy, and they need to be in balance, with neither set of criteria dominating the other. Too much focus on economics, and the distributional – and hence political – consequences get overooked. Too much focus on politics and the chances are that there will be economic damage. We are in one of the latter phases – the Brexit “negotiations” and Donald Trump are both gifts that keep on giving in the context of this book. The rhetoric shows that politicians are conceiving of trade as a tool of state strategy (not necessarily effectively, either). These periods are never pretty in terms of their economic consqeuence. “Weaponized language has the capacity to do lasting damage,” they write. It is perfectly valid for trade to have regard to national interest, but the weaponized language of national interest is as dangerous as weapons can always be.

The joint disciplinary perspective really brings this argument to life. The economics draws on the Krugman tradition of analysing strategic trade. The security dimension, locating trade policy alongside other security issues, is illuminating. And Donald Trump makes this more timely reading every day.

By the way, the most recent preceding Perspectives were the outstanding Before Babylon, Beyond Bitcoin by Dave Birch and Britain’s Cities, Britain’s Future by Mike Emmerich. Upcoming titles cover digital organisations and driverless cars…


The slow demise of a company town

Amy Goldstein’s Janesville: An American Story is one of the books on the Financial Times business book of the year shortlist & I have quite enjoyed reading it. It consists of reportage over several years (2008-2013) of a small Wisconsin town whose prosperity had long depended on the well-paying jobs provided by a General Motors plant and its suppliers. When the GM plant is mothballed and later permanently closed, the economic fortunes of the town and its families spiral down. As people use up their unemployment benefits and savings, or scrape by with low-paid service sector jobs, families that were solidly middle class find they need to rely on charitable food handouts, or supplies a teacher at school collects for the kids – shampoo, jeans.

The portraits of the individuals are mainly sympathetic – perhaps least so the Republican-supporting bank manager, although the results of her role as a cheerleader for Janesville’s economic future without GM are acknowledged. It is always a shock to a Briton to be reminded that people in the US with no job have no access to healthcare, and that private philanthropy has to fulfil (inadequately) the role the welfare state plays here. The American healthcare debate is, like the gun control debate, absolutely unfathomable to Europeans. There are some interesting insights into the reasons what support there is for retraining fails to achieve its aims – bureaucratic constraints on access to funding and how it’s used. It was also a surprise to learn that the ex-auto workers who had opted for retraining were doing less well, five years later, than those who had just taken the first job they could find and stayed in the labour market. All in all, it’s a sobering tale of the heart being wrenched out of a company town.

Having said all this, I thought the book was less compelling than George Packer’s The Unwinding. The Janesville tales are not set in a wider context of progressive deindustrialisation and the prospects of automation. Janesville is also silent on race, and I can’t decode the names. Unless it’s an all-white town – surely not? – this must be one of the relevant aspects of how families cope after an economic shock? Or subsequent American politics? There was also less insight into family finance than in the recent detailed study of income uncertainty and its corrosive effects in The Financial Diaries: How Americans Cope in a World of Uncertainty, or in Lisa Servon’s The Unbanking of America: How the New Middle Class Survives. (I haven’t read Hillbilly Elegy – should I?)

This shouldn’t put off readers as Janesville is worthwhile, but I’d be slightly surprised if it emerges the winner of the FT prize.

Price: £16.20
Was: £18.99


An arts interlude

I finished the tome that’s been my reading at home for a while – Jennifer Homans’ magisterial history of ballet, Apollo’s Angels. The economics angle is that although I know Keynes set up what became the Arts Council, and that he married a Russian ballet dancer,  I hadn’t realised how influential he was in shaping ballet into a popular creative art in Britain. What’s more, so refreshing to be reminded that a fine economist (whether you agree with ‘Keynesianism’ or not) understood both the economic and the human importance of cultural life.

For anyone interested in ballet, the book is great, although I think her ultimately gloomy view about the future is a function of being US-based and thinking Balanchine was the pinnacle of the art. Me, I’m not so keen on Balanchine and far more of a Kenneth Macmillan fan than is Homans.


Urbanites, farmers and barbarians

One of my all-time favourite books is James Scott’s (1998) Seeing Like A State, because of its sheer capacity to be thought provoking. So I eagerly ordered his new book, Against the Grain: A Deep History of the Earliest States. It is equally well written and enjoyable, ranges across disciplinary boundaries in a most refreshing way, and again compels you to stop and think. But … it just isn’t as persuasive in its big picture perspective on society.

Against the Grain sets up a received wisdom, more or less Whig interpretation, version of early human history as a process of agrarian settlement, urbanisation and progress toward civilisation. There were setbacks and collapses of course, all kinds of bad stuff happened. Still, the contrast between a marginal life as a hunter gatherer and a more prosperous settled existence as a farmer, and the progression to bigger towns, cities and civilisations, has been the narrative.

Scott argues that this narrative is ‘in tatters’ and offers his alternative: that ecological pressures undermined the viability of the happy hunter gatherer life, forcing agrarian settlement in which people were worse off nutritionally. The adoption of crops (wheat & barley) which could be stored, and divided easily, made the settlements attractive booty. So the agriculturalists were not only less prosperous than when fishing or gathering, they also were more likely to become victims of raids by nearby mini-states for both food and prisoners – either to do hard work in mines or fields, or in the case of women to serve as breeding stock or work on textiles.

For sure the conventional account seems to have its anomalies, and it’s easy to accept there are all kinds of unexplained historical developments. But Scott’s alternative narrative has its holes too. For one, he doesn’t explain how the earliest smash-and-grab states came about – what made them become more than their neighbouring impoverished but passive communities.

He also brings to bear an antipathy to state power structures – the same emotion that makes Seeing Like A State, about 20th century state-created disasters, so compelling. Take this example:
“I am tempted to see the late Neolithic Revolution, for all its contribution to large scale societies, as something of a deskilling. Adam Smith’s iconic example of the productivity chains achievable through the division of labor was the pin factory, where each minute step of pin making was broken down into a task carried out by a different worker. Alexis de Tocqueville read The Wealth of Nations sympathetically but asked, ‘What can be expected of a man who has spent 20 years of his life putting heads on pins?’

“If this is too bleak a view of a breakthrough credited with making civilisation possible, let us at least say that it represented a contraction of our species’ attention to and practical knowledge of the natural world, a contraction of diet, a contraction of space, and perhaps a contraction as well in the breadth of ritual life.”

It might be personal taste that makes me shudder with horror at the romantic vision of barbarians roaming the steppes, in harmony with nature, with a rich shamanistic appreciation of the world. But the vision also stumbles against – as far as I know from my amateur reading – good evidence that the slow progress of urbanisation in early history was accompanied by increases in longevity and health, and an economic surplus that enabled some (a slowly growing minority eventually trickling down to the majority) to acquire decorative clothing, jewellry and artefacts. There is also the constant steady flow over the centuries of people from countryside to cities, even though cities are evidently difficult and unhealthy places, even now. There is something very many people find compelling in urban variety and pockets of opportunity. Scott convinces me only this was not a linear Whig-like progression, at least in the ancient earliest eras of which he writes.

Still, this is a book well worth reading, gripping and full of interesting stuff. Not surprisingly, the sections on agriculture are great. “The key to the nexus between grains and states lies, I believe, in the fact that only the cereal grains can serve as a basis for taxation: visible, divisible, assessable, storable, transportable, and ‘rationable’.” No other crops have all these features, he argues. Wheat has a harvest while lentils can be picked at any time. Cassava is left in the ground until needed and can sit there for a couple of years. What is 10% of such a crop? I enjoyed also the section on writing – for accounts – as a key signifier of statehood.

As I finished reading Against the Grain, a couple of very interesting reviews were published. Here is Walter Scheidel in the Financial Times and Samuel Moyn in The Nation.