Monthly Archives: October 2012

Real life freakonomics?

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I’m very pleased to receive a book that’s just been delivered (apologies to the courier Cabbage just barked at fiercely). It’s [amazon_link id=”0674047486″ target=”_blank” ]Freaks of Fortune: The Emerging World of Capitalism and Risk in America[/amazon_link] by Jonathan Levy. It’s about the developing concept of risk in 19th century America, and the development of risk-management institutions.

[amazon_image id=”0674047486″ link=”true” target=”_blank” size=”medium” ]Freaks of Fortune[/amazon_image]

The blurb makes it sound fascinating – the argument seems to be that personal freedom meant assuming personal risk – and then offloading it to an insurance company or futures market. So this sounds highly relevant to the post-crisis debate. It also reminded me of course of the magnificent [amazon_link id=”0471295639″ target=”_blank” ]Against The Gods: The Remarkable Story of Risk[/amazon_link] by Peter Bernstein. Risk is such an important concept, and one our brains find it so hard to think about, as Daniel Kahneman spelled out in [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link]. Slow, probablility-calculating thinking takes a lot of effort and energy. Time for some chocolate….

[amazon_image id=”0471295639″ link=”true” target=”_blank” size=”medium” ]Against the Gods: The Remarkable Story of Risk[/amazon_image]

I’ll write about Freaks of Fortune when I’ve had chance to read it – meanwhile, here is a taster by Jonathan Levy from the Chronicle of Higher Education.

First movers and fast second

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I was reading my dear husband’s blog post about the new iPad mini and the Microsoft Surface, the latest entrants to the tablet market. It reminded me about a terrific book co-authored by one of my mentors, the late Paul Geroski. The book is [amazon_link id=”0787971545″ target=”_blank” ]Fast Second[/amazon_link], written with Constantinos Markides, written int 2005 so it pre-dates tablets. But the hypothesis may apply.

Their argument is that in a radically new technology, the supposed first mover advantage may be ephemeral: “The firms that end up capturing the new market are those firms that time their entry so they appear just as the dominant design is about to emerge…. For big, established firms contemplating entry into a new radical market, this is the best strategy to follow.” This is what they mean by fast second – neither first mover, nor second-mover i.e. waiting for a clearly dominant design and standards, and offering a cheaper me-too product.

The examples in the book include IBM in mainframes, GE in CT scanners, Canon in cameras, Sharp in faxes. I don’t know whether the iPad challenger tablets would count in Paul’s view, or whether the iPad mini will fend off fast seconds, but it’s worth pondering.

[amazon_image id=”0787971545″ link=”true” target=”_blank” size=”medium” ]Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets (J-B US non-Franchise Leadership)[/amazon_image]

Facts and fictions

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Martha Nussbaum has written an interesting review in the TLS of two books about India. They are Katherine Boo’s [amazon_link id=”1846274494″ target=”_blank” ]Behind the Beautiful Forevers[/amazon_link] and Siddartha Deb’s [amazon_link id=”0865478732″ target=”_blank” ]The Beautiful and the Damned: Life in the New India[/amazon_link].

[amazon_image id=”0865478732″ link=”true” target=”_blank” size=”medium” ]The Beautiful and the Damned: A Portrait of the New India[/amazon_image]

I’ve read and reviewed here the former, and haven’t read the latter. Nussbaum shares my caveat about Boo’s book, namely its use of novelistic techniques. She writes in her review:

“The English novel was a social protest movement from the start, and its aim (like that of many of its American descendants) was frequently to acquaint middle-class people with the reality of various social ills, in a way that would involve real vision and feeling. [amazon_link id=”B000JQUT8S” target=”_blank” ]Dickens[/amazon_link] wrote of child labour, [amazon_link id=”B004XZBH64″ target=”_blank” ]Frances Trollope[/amazon_link] of the stigma of illegitimacy, [amazon_link id=”1853260053″ target=”_blank” ]Thomas Hardy [/amazon_link]of seduction and class exclusion. In some cases novels of social oppression had large consequences….. John Steinbeck’s [amazon_link id=”0141185066″ target=”_blank” ]The Grapes of Wrath[/amazon_link] had a comparable impact, educating the American public about the plight of migrant workers and producing support for New Deal legislation.

When the poor are in a distant country, narrative that conveys the texture of daily lives is even more urgently needed.”

But she argues that novelistic techniques should be confined to novels, while non-fiction demands analysis and evidence. She concludes:

“Katherine Boo and Siddhartha Deb could easily have included enough historical and economic analysis to permit their readers to come to some conclusions about such matters, but they did not. The result is that their books have great power to provoke emotion, but little to channel that emotion into constructive political action.”

For myself, I think that’s fine – it’s the author’s prerogative to have a book do only one thing. There’s room on the bookshelf for emotion as well as economics. However, I do agree with Nussbaum that – whatever rhetorical approach is taken – one needs to keep the boundary between fact and fiction clear.

The joy of books

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Joe Queenan has written an essay in the Wall Street Journal (based on his new book, [amazon_link id=”0670025828″ target=”_blank” ]One For The Books[/amazon_link]) about how he became addicted to books.

[amazon_image id=”0670025828″ link=”true” target=”_blank” size=”medium” ]One for the Books[/amazon_image]

Books, books, books. I love them too. I always read books about books: Susan Hill’s [amazon_link id=”1846682665″ target=”_blank” ]Howard’s End is On The Landing[/amazon_link]; Francis Spufford’s [amazon_link id=”0571214673″ target=”_blank” ]The Child That Books Built[/amazon_link]; Ann Fadiman’s[amazon_link id=”0140283706″ target=”_blank” ] Ex Libris[/amazon_link], and so on.

The best bit of Queenan’s very funny essay is his defence of the need for books, the physical objects. He writes:

“Books as physical objects matter to me, because they evoke the past. A Métro ticket falls out of a book I bought 40 years ago, and I am transported back to the Rue Saint-Jacques on Sept. 12, 1972, where I am waiting for someone named Annie LeCombe. A telephone message from a friend who died too young falls out of a book, and I find myself back in the Chateau Marmont on a balmy September day in 1995. ….

None of this will work with a Kindle. People who need to possess the physical copy of a book, not merely an electronic version, believe that the objects themselves are sacred. Some people may find this attitude baffling, arguing that books are merely objects that take up space. This is true, but so are Prague and your kids and the Sistine Chapel. Think it through, bozos. …. There is no e-reader or Kindle in my future.”

I read this inwardly shouting, ‘Yes! Yes!” I too use travel tickets as bookmarks and leave them in the book, the better to remember reading them the cafe in Verona or on the flight to Belfast.

Flying back from Belfast

The part Queenan misses out it the joy of second hand books and bookshops. On my flight back from Belfast I finished reading a beaten-up old Leo Malet story about his detective Nestor Burma, [amazon_link id=”B003BPT2L4″ target=”_blank” ]L’homme au sang bleu[/amazon_link].

L’homme au sang bleu

I bought it on our summer holiday in Brittany in this marvellous warren-like bookstore, open only in the afternoons, seducing tourists as they drive past towards Cap Frehel.

Bouquinerie

I have many objections to e-readers, but perhaps the biggest is that they prevent the sharing of books. I can’t read the same books as my husband, who has a dreadful e-book habit, so I can’t talk to him about them. I couldn’t put e-thrillers I’ve read on the book-swap shelf at the local station. I wouldn’t be able to take them to the charity shop or sell them to a second hand bookstore. But what kind of civilisation would we be without second hand bookstores?

Capitalism, democracy and pessimism?

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On Wednesday evening I attended Professor Raghuram Rajan’s Wincott Lecture, which had the provocative title Are Capitalism and Democracy Failing Us? (He’s also written a couple of columns outlining the themes, in the FT and Project syndicate.) Professor Rajan is the author of [amazon_link id=”0691152632″ target=”_blank” ]Fault Lines[/amazon_link], a terrific and thought-provoking book about the political economy origins of the sub-prime crisis – a crisis he was one of the economists to predict publicly, in 2005.  So clearly it’s worth paying careful attention to what he has to say.

[amazon_image id=”0691152632″ link=”true” target=”_blank” size=”medium” ]Fault Lines: How Hidden Fractures Still Threaten the World Economy (New in Paper)[/amazon_image]

The argument in the lecture was that there is an interaction between capitalism and democracy. In good times this is positive, the beneficial economic and political structures are mutually reinforcing. But the crisis is giving us technocracy in some countries, oligarchy  in others, and these political structures are depleting the sense of fairness and trust on which democracy has to rest. There is an urgent need to restore to the middle classes a sense of opportunity, he argued.

The lecture covered the hollowing out of jobs in the middle of the labour market, the division of people into those who tell computers what to do, and those who are told what to do by the computers. Prof Rajan cited Claudia Goldin and Lawrence Katz’s book on skills, [amazon_link id=”0674035305″ target=”_blank” ]The Race Between Education and Technology[/amazon_link], and Charles Murray’s [amazon_link id=”0307453421″ target=”_blank” ]Coming Apart[/amazon_link]. He tied the problem of the squeezed middle into his own book, Fault Lines, arguing that politicians had responded to the hollowing out of the income distribution by means of credit – affordable housing, loans for consumption. In Fault Lines, this was presented as the political mechanism that paved the way for the subprime crisis. Consumption inequality did not increase as much as income inequality.

The question now is whether the technocratic policy responses we are seeing, from structural reforms in Eurozone countries to all the waves of QE, will end up only violating the quasi-property rights of those on low and middle incomes? It seems so – bondholders have been more or less entirely protected, and default avoided at almost any cost, and bank bonuses are as yet barely affected, whereas the rest of us can be sure we will get some mix of higher taxes and inflation. This mix, Prof Rajan argued, would undermine the legitimacy of capitalism and democracy.

An obvious question raised by Roger Bootle in his comment on the lecture – and in his own book ([amazon_link id=”1857885589″ target=”_blank” ]The Trouble With Markets: Saving Capitalism From Itself[/amazon_link]) which distinguishes between creative and merely distributive varieties of capitalism – is whether there is an alternative path. He agreed with much of the lecture, saying financial capitalism had become baleful in its influence. The answer, he agreed, appears to be education, although, as Professor Rajan pointed out, this is an inevitably slow response. But only an increased supply of highly skilled people can tackle the soaring skill premium and the elite society that has been shaped by the shortage of people who can tell the computers what to do.

Personally, I would add institutional and governance reform to the list – it is imperative to find policies that will have a visible impact much faster. (I talked about this in my Joseph Rowntree Foundation lecture earlier this year.) But yes, certainly education. Very few young people emerge from education systems equipped with the cognitive and non-cognitive skills they need now; indeed, a shocking number do not even have the basic skills to fill ‘low-skill’ jobs, according to employers. And its hard to be optimistic that any country has figured out for sure yet how to deliver better education. When we do, it will still take 15 or 20 years for it to affect the labour market.

So, a stimulating, but pretty depressing evening.

Professor Rajan, at the Wincott Lecture