Economics for social animals

I’ve been reading the latest book by Robert Frank, Under the Influence: Putting Peer Pressure to Work. Although I greatly admire his work, and he has a knack for catching the moment – as with Luxury Fever or The Winner Take All Society –  I must confess I found this one a bit dull. This is nothing to do about disagreeing with the idea, which is to bring together thinking about social norms, altruism, positional goods and behavioural peer effects together to tease out policy implications, or rather policy approaches. This all seems blindingly obvious to me, and indeed one of ten lectures in my public policy economics course (one chapter in my Markets, State and People) covers exactly these social influences. I agree, too, that more economists ought to be more aware of social influence: we are not isolated individuals in making choices.

There are some deep questions for economists, once you accept the seemingly incontrovertible evidence that social norms can change, advertising works to persuade us to buy things, and positional arms races occur. What does it imply for a discipline whose models and welfare analysis are based on the concept of fixed preferences? For example, the way price indices are calculated – used to calculate in turn ‘real’ growth and productivity – assumes fixed preferences; but there are constant innovations and new goods, and there is no settled way of taking these into account in dividing pounds or euros spent into price and ‘real’ components.

Back to the book, though. Yes, of course to ensuring economics and policy advice are consistent with evidenced insights from social psychology or cognitive science or evolutionary theory. Yes, of course context affects how people make economic choices. But ….perhaps it was my frame of mind this week, but Under the Influence didn’t sing to me. It seems very long-winded. In fact, the prologue claims as a virtue the repetition in the book, arguing it will help get the message to stick. Students who are not familiar with the material might really enjoy this and find it sinking in. But not one for me.

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Fictional mobility

This post is slightly off topic but it is about social mobility. I just devoured Elena Ferrante’s new novel, The Lying Life of Adults, having been a total devotee of her bestselling Neapolitan quartet. Like all the best fiction, the novels are all crunchily specific about their context and yet also universal. The new one is also terrific.

One common reaction to her work is that it’s about the lives of girls and women, which of course it is. The new one is the best I’ve read about the relationships between adolescent girls and women, certainly since Margaret Atwood’s Cats Eye not to mention their interior lives. Yet to me – and perhaps the reason I find them so absorbing – is that they are just about the best fiction I’ve ever read about social class. Ferrante captures the textures of working class life, the imperative some young people feel to escape their roots (usually by education), how big a challenge that is (soft skills galore needed as well as intellect) and the price they pay for that deracination in feeling alienated from both old and new cultures.

Anyway, if you liked Ferrante’s previous work, you’ll like The Lying Life of Adults too.

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The joy of statistics

As it happens, I’ve been reading two very similar books, with the mission of imparting critical thinking about statistics to their readers. One is Calling Bullshit: The Art of Scepticism in a Data-Driven World by Carl Bergstrom and Jevin West. The other is Tim Harford’s How To Make The World Add Up. Both are excellent – well-written, full of interesting or entertaining examples, absolutely what the world needs now. If only the people who most needed them would actually read them.

The two books do have a different focus. Bergstrom/West concerns statistical methods: how to interpret causal claims; understanding selection bias; good and bad data visualisation; big data bullshit. There is a fantastic quote from Charles Babbage, a propos of the garbage in, garbage out rule in data science: “On two occasions I have been asked, ‘Pray, Mr Babbage, if you put into the machine wrong figures, will the right answers come out. … I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question.”

Harford’s book is more about the habits of mind we bring to any numerical or statistical claims and is structured as a series of lessons: Pay attention to your emotional reaction – do you really want to believe (or not) a statistical claim? How representative is your personal experience when you think about a figure on social media or in the news? He is concerned to debunk the cynical idea that statistics always aim to manipulate or mislead us – sometimes they do, but statistics are also a vital tool for understanding and improving things, so the cynicism risks being corrosive.

I particularly like his rule “Avoid premature enumeration”, which asks you to consider how data were constructed – something many of us would do well to think about. For example, contrasts often result from different statistical classifications when the underlying realities are rather similar. The US does, for instance, have a higher rate of perinatal mortality than Finland but a large part of the difference between the two countries comes about because American doctors are more likely to classify a foetus of 22-23 weeks as a baby which subsequently died. There are chapters also on big data, and on the importance of transparency and data access.

Both books are really enjoyable reads, clear, great for students, or for 6th form general studies classes essential for journalists. I hope they do really well. If people followed the advice given by these authors, the world would be a better place.

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Fracturing and building

The Age of Fracture by Daniel Rodgers was strongly recommended by one of my followees, Paul Nightingale, on Twitter and he made it sound like just my cup of tea. Which it is. It’s an intellectual history of late 20th century America, and the way the public sphere of ideas transitioned from a focus on institutions and social relations to an individualist perspective. This was most apparent in economics, which is where the book starts, but spread across many domains of policy and research – the book has chapters on race, class, gender, as well as politics in general. The hinge was the late 1970s/early 1980s, just about the time I spent four years living in the US, so reading this brought back many memories of that first Reagan term, the rise to prominence of Newt Gingrich, and the ‘declinist’ bestsellers published a few years later, Bloom’s Closing of the American Mind, Lasch’s Culture of Narcissism.

Age of Fracture is beautifully written, and I was particularly impressed by its scope – the breadth of knowledge of so many different domains is amazing. In the chapter (‘The Rise of the Market’) on the rise of abstract rational expectations economics, divorced from time, place and relationships, Rodgers gives a masterly summary of the evolution of the discipline. “The new intellectual movements in economics pushed to its limits the extent to which society could be analytically dissolved altogether into its individual utility-maximising parts.” As the chapter points out, the victory of this approach was never total, and by the end of the 1990s was moving on to a new focus on institutions, transactions costs, behaviour and networks. Nevertheless, individualism became the leitmotif of the public realm of ideas – and on the British side of the Atlantic too.

The transatlantic traffic was not all one way. The chapters on race and particularly gender emphasise the role of French post-structuralism, which swept over cultural studies and much of the humanities, and still seems to be destroying those departments. In paving the way for a sense of identity as something self-determined, it created a libertarianism of the left alongside the market libertarianism of the right. In both cases, Rodgers writes, “The libertarian vision of society was radically timeless.” Voluntary identities, voluntary transactions, are disembodied from actual history. Whether rational expectations economics or the originalist perspective on the US constitution, time – future or past – is instantly accessible. Both featured the desire to “locate a trap door through which one could reach beyond history and find a simpler place outside of it.”

The book is wisely silent on whether the climate of ideas is changing now, amid the storms of pandemic, authoritarianism rising in the US and elsewhere, social fracture. It reminded me of this comment in Elinor Ostrom’s Nobel lecture (flagged up on Twitter recently by Nicholas Gruen): “Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that instead a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.”

Quite. But fracturing is easier than building. ‘Building back better’ is harder still.

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Geography as destiny

I just read Enrico Moretti’s (2012) The New Geography of Jobs, having not done so before now because I’d read quite a lot of his papers. Anyway, now I have and it’s very good. It’s a nicely accessible survey of the literatures on trade/tech and jobs, and on the geographic aspect – the concentration of skilled people in cities and growing divergence. The evidence it cites is entirely US-centric but the drivers obviously apply elsewhere, even though their effects in other countries are not exacerbated by the  unattractive features of US society. So I would recommend this to anybody who would like a readable big-picture overview of what has been happening to jobs and incomes in recent decades. The major irritation is that the notes aren’t flagged in the text & you just have to root around at the back of the book to see if a given statement has a reference attached to it.

The conclusions are a little bleak in terms of policies to address the growing divergence between rich skilled places and the left-behinds.Being in the right place matters. There are spillovers between people, so even as a graduate you do better in terms of earnings the more other skilled people are around you, but non-graduate occupations also have higher earnings in high skill places.

Overcoming the gaps requires a Big Push, the book concludes (I like this allusion to Rosenstein-Rodin, although that literature doesn’t seem to be cited here). Only governments can do these, given the amount of co-ordination involved. Many interventions are just too small scale to have a hope. Looking at the Big Push of the Tennessee Valley Authority, Moretti and his colleagues concluded it was successful in raising productivity in the region but not wages, because the labour supply increased as workers moved in from elsewhere. However, a couple of pages later, he points out that the prominent successful clusters of today did not come about because of a Big Push. Most were organic developments, albeit aided of course by government investment in R&D or defence – see Margaret O’Mara’s book The Code on Silicon Valley which I described in the previous post.

So this is rather sobering. My hunch is that policies will need to rest on a better understanding of the relationships between human capital investments (a college degree is the key variable seemingly driving so many outcomes from earnings to voting pattern to subjectove well-being), social spillovers, intangible assets, amenities including nature and housing, and produced capital especially communications infrastructure. In other words, what assets are there available to people living in in a given place, and to what extent do these complement and substitute for each other?

Anyway, I enjoyed the book even if it left me feeling a bit glum.

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