The admirable James Crabtree has reviewed very favourably (in the FT) the new e-book by Erik Brynjolfsson and Andrew McAfee, [amazon_link id=”B005WTR4ZI” target=”_blank” ]Race Against the Machine[/amazon_link]. He agrees with their argument that for the first time technology is not creating more jobs than it destroys. I haven’t read the book, but there can be few economists who know more about the mechanisms through which the adoption of the new technologies is reshaping firms and work, so this argument must be taken seriously. And I’d certainly agree with their further point that institutions and policies have not kept pace with the dramatic structural economic shifts caused by the technologies.

The best framework for thinking about adjusting to technical change is Will Baumol’s ‘unbalanced growth’ model (1967, 1993), which he originally applied to the arts and then healthcare and similar services. (I write about this in chapter 6 of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link].) There are some sectors of the economy where productivity growth is inherently below average (musician, nurse) but the workers in those sectors need to have their pay grow more or less in line with the more productive sectors if social tensions are not to emerge. If the scope of the ‘non-productive’ sectors increases, new redistribution mechanisms are needed. Today’s technologies are causing exactly this dynamic, making a relatively few workers in some parts of the economy highly productive thanks to their complementarity with the machines, but creating a high share of economic output in services/products with public good-like characteristics, and extending the share of the economy accounted for by people working in slow productivity growth sectors.

As James ends his review: “Machines work for free but their benefits end up in someone’s pocket.”

So the book is certainly going to be worth reading even though only available in electronic format. Meanwhile, I look at the Occupy movements and seem to see the inevitable social reaction to socially unsustainable trends.

[amazon_image id=”B005WTR4ZI” link=”true” target=”_blank” size=”medium” ]Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_image]

The Observer today has an interesting article noting a sudden outbreak of optimism in new books published in the US – including Charles Kenny’s Getting Better[amazon_link id=”0465020151″ target=”_blank” ]Getting Better[/amazon_link], reviewed here, and Steven Pinker’s new book, [amazon_link id=”1846140935″ target=”_blank” ]The Better Angels of Our Nature[/amazon_link]. Why, the article asks, do we feel so bad if so many long term trends – in development, in diminishing violence – are actually improving?

Well, it isn’t a new question, and my answer is that the source of certain long-term improvements lies in short-term instability, which people in general don’t like, and particularly those who lose out. This was the theme of my 2001 book, [amazon_link id=”1587990822″ target=”_blank” ]Paradoxes of Prosperity[/amazon_link], which looked at the structural economic change resulting from new technologies. However, it was published in September 2001, not a great month for a book making this argument, for the obvious reason. So although I think the argument remains valid, the world is always a mix of the good and the bad, and no mere economist can give the verdict on how they balance.

[amazon_image id=”1587990822″ link=”true” target=”_blank” size=”medium” ]Paradoxes of Prosperity: Why the New Capitalism Benefits All[/amazon_image]

Here is R.H.Tawney writing in 1946: “The state is an important instrument and we must use it. But it is an instrument and nothing more. Fools will use it, when they can, for foolish ends, and criminals for criminal ends. Sensible and decent me will use it for ends which are decent and sensible.”

And Keynes: “It is fatal for a capitalist government to have principles. It must be opportunistic in the best sense of the word, living by accommodation and good sense.”

These pleas for decency and pragmatism in the post-war years are quoted in a terrific book by Jan-Werner Muller, [amazon_link id=”0300113218″ target=”_blank” ]Contesting Democracy: Political Ideas in Twentieth-century Europe[/amazon_link]. The book takes a chronological approach to the evolution of the dominant political philosophies from the high classical liberalism prevailing at the start of the 20th century to the neo-liberalism of the last two decades of the century. This makes for fascinating reading at a moment when that neo-liberalism itself is disintegrating as a coherent philosophy. And at a time of crisis like today’s, when the future of the EU seems in real doubt, it is instructive (but not encouraging) to look back at the earlier crises of capitalism, in the 1930s and 1970s, to try to foresee where the dynamics of public political philosophy will head now.

One of the features of the book I greatly appreciated is that it includes all of Europe, not just the west. This is rarer than one might imagine – Tony Judt’s superb [amazon_link id=”009954203X” target=”_blank” ]Postwar: A History of Europe Since 1945[/amazon_link] is one of the few examples I can think of. It was also useful to be shown the continuity of political thought, which I have previously seen as a succession of unrelated ideas and philosophies, without understanding the dynamics of one manifestation of, or reaction to, Enlightenment reason and liberalism giving way to another.

This book is also sobering in showing how often – and how violently – apparently permanent world views can change utterly. Muller obviously wrote the book well before the European financial crisis became the existential political threat to the EU that it has proven. He ends by saying that in the reunified continent, Europeans can have some confidence in their achievements. But ends by saying: “no single master idea or value will furnish European democracies with certainty about their future…..Democracy is institutionalized uncertainty.”

[amazon_image id=”0300113218″ link=”true” target=”_blank” size=”medium” ]Contesting Democracy: Political Ideas in Twentieth-century Europe[/amazon_image]

The publishing business must be in a desperate state because after all demand for ideas and creativity has fallen to an all-time low, no? Oh, no, actually industry data indicates strong revenue growth – here are some US figures. And I don’t think I’ve ever know in my lifetime such an immense appetite for debate and exchanging ideas. So while technological and market change is certainly causing upheaval on the supply side of the industry, both publishers and retailers, healthy demand growth makes for a fundamentally healthy sector. I’ve written before about the scale of innovation in publishing – another announcement this week from Princeton University Press, my own publisher (on whose European Advisory Board I also sit). But none of this gives the pessimists any pause – as this essay from Lapham’s Quarterly indicates.

There are far too many economists and other social scientists who want to tell me what to do. I particularly object to those who tell me that too much choice is making me unhappy. Professor Barry Schwartz was one of these – in his book [amazon_link id=”0060005696″ target=”_blank” ]The Paradox of Choice[/amazon_link] he tried to tell me what kinds of clothes I should be buying. Well, not me personally, but one of his main examples of excessive choice was the range of styles of jeans available in The Gap. (What would he make of Selfridges if he thinks there’s too much in The Gap?) I for one don’t want economics and psychology profs telling me what to wear. Nor do I hear them saying there’s too much choice when it comes to books, or charities to donate to. No, the supposed surfeit of choice is restricted to purchases they themselves don’t care about.

A new book by Gilles Saint-Paul, [amazon_link id=”0691128170″ target=”_blank” ]The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism[/amazon_link], does a great job of articulating this kind of concern about behavioural and ‘happiness’ economics. As he says in the Introduction, “In recent years a new brand of economics (labelled ‘behavioral’) departs from those [individualistic Enlightenment] foundations and brings new ammunition to state involvement in private lives.” (p2). He is concerned about the combination of theorising about psychological “biases” that can be corrected by wise paternalists and information technology giving governments better tools to “guide” behaviour.

The observation that behavioural economics or ‘nudging’ is paternalistic is not new, and is one reason that the fashion for behavioural theorising is relatively contained. Indeed, I would say it has met with more enthusiasm in government than in academic circles. The great contribution of this new book is to link the paternalism of these models to the utilitarian philosophy that also underpins the ‘happiness’ movement. (Regular readers of this blog will know my scepticism about happiness as a policy target.) Accepting both utilitarian philosophy and the clear empirical evidence about the existences of biases in decisions takes one inevitably down the road of constraining individual choice for their own and society’s welfare.

Saint-Paul makes a powerful case for accepting what appear to be flawed market outcomes in order to protect liberty. After all, while a little bit of nudging may be sensible, taken too far it could undermine the validity of private contracts, because who is to say what psychological biases I was labouring under when I signed up for an insurance policy? At a time when there is an understandable but inevitably extreme reaction against markets, it’s great to have somebody making a powerful case for the philosophical merits of markets as well as states as an organising mechanism for society. He sums up: “Individual freedom and responsibility must be recognized as central social values.” Even if we get things wrong all the time.

[amazon_image id=”0691128170″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism[/amazon_image]