These all just landed here – they’ll keep me going for a while:
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Monthly Archives: April 2013
What is different, and what isn’t
I’ve been a bit mystified by Excel-gate (see this good, balanced summary by Gavyn Davies). Bravo for Thomas Herndon, the graduate student who uncovered the error in the now-notorious paper by Carmen Reinhardt and Kenneth Rogoff; his job prospects will be rightly enhanced by this episode.
But the glee with which anti-Austerians pounced on this episode to ‘prove’ that austerity doesn’t work seems to involve an assumption that the original Reinhardt-Rogoff paper of 2010 ‘proved’ anything to the contrary in the first place. There are lots of papers about the impact of debt/GDP ratios on growth, and they demonstrate all kinds of different things – see for example this BIS paper by Cecchetti and others, or this IMF paper (pdf) from last year on the Caribbean economies, or this Fed paper published in December (pdf), or this much-cited 2010 paper by Koehler-Geib and others, or for that matter the new paper debunking Reinhardt and Rogoff’s 90% as it too finds the same correlation albeit with different numbers.
Well, you get the idea. Taking these together, we ‘know’ there might be a threshold for sovereign debt, but it varies over time and across countries, it’s a correlation whose causal direction and mechanism is unclear, and there isn’t enough data for any estimates to be robust (because history only runs once). All of which only goes to underline how little is known about the macroeconomy, not to mention how hard any macroeconomists and their camp followers find it to resist claiming certainty where there is none.
No doubt Reinhardt and Rogoff were tempted into over-claiming for their work by the politicisation of the debt threshold issue. But the underlying message of their big 2009 book, [amazon_link id=”0691152640″ target=”_blank” ]This Time is Different[/amazon_link], is unscathed: unlike the later paper, it makes it absolutely clear that debt ‘thresholds’ above which increasing borrowing is correlated with lower growth vary widely in different countries and at different times (no magic 90% here); and that the historical record indicates it generally takes a long time for growth to recover after banking crises involving debt overhangs.
[amazon_image id=”0691152640″ link=”true” target=”_blank” size=”medium” ]This Time Is Different: Eight Centuries of Financial Folly[/amazon_image]
Understanding the system, but not changing it
The trouble with reading the review sections of the weekend papers is that I discover so many more books I’d like to read. Martin Sandbu has a review essay in the FT of several books about Occupy: David Graeber’s [amazon_link id=”1846146631″ target=”_blank” ]The Democracy Project[/amazon_link], [amazon_link id=”1846146984″ target=”_blank” ]Meme Wars: The Creative Destruction of Neoclassical Economics[/amazon_link] by Kalle Lasn and Adbusters, and [amazon_link id=”B00CC8C1E6″ target=”_blank” ]Occupy: Three Inquiries in Disobedience[/amazon_link] by WJT Mitchell, Bernard Harcourt and Michael Taussig.
The interesting point Sandbu makes is that there’s no point getting irritated with Occupy folks about their lack of a positive programme for change, because the point about them is procedural justice and participation; but on the other hand, they’ll never change anything about ‘the system’ if they don’t find a means of engaging with it enough to depart from it. They’re falling foul of Karl Marx’s famous aphorism that the point is to change rather than analyse things. Of these, the Adbusters volume appeals to me the most – although irritating, their work is always thought-provoking. I enjoyed reading Graeber’s [amazon_link id=”1612191819″ target=”_blank” ]Debt[/amazon_link] but suspect his Occupy fame might have gone to his head.
[amazon_image id=”1846146984″ link=”true” target=”_blank” size=”medium” ]Meme Wars: The Creative Destruction of Neoclassical Economics[/amazon_image]
John Le Carre’s latest novel, [amazon_link id=”B00AWJYJVA” target=”_blank” ]A Delicate Truth[/amazon_link], also seems to be about ‘the system’, albeit its political and legal dimensions. It gets very positively reviewed in both The Guardian by Mark Lawson and The Observer by Robert McCrum. On another system, the glorious writer Andre Makine has a novel about Brezhnev’s USSR: Brief Loves That Live Forever.
Also in the FT, Emma Jacobs reviewed [amazon_link id=”1846685206″ target=”_blank” ]Made to Last: The History of Britain’s Best-Known Shoe Firm[/amazon_link] by Mark Palmer. She’s lukewarm about the book about Clarks, but I loved learning that Clarks shoes (which we all know and love for their sturdy school shoes for our kids and comfortable shoes for middle-aged feet) are beloved of Jamaican reggae stars and feature in song: “Everybody haffi ask weh mi get mi Clarks.”
[amazon_image id=”1846685206″ link=”true” target=”_blank” size=”medium” ]Clarks: Made to Last: The story of Britain’s best-known shoe firm[/amazon_image]
There’s a posthumous volume of W.G. Sebald’s essays, [amazon_link id=”0241144183″ target=”_blank” ]A Place in the Country[/amazon_link], out soon. The Guardian Review has a great feature on Sebald.
[amazon_image id=”0241144183″ link=”true” target=”_blank” size=”medium” ]A Place in the Country[/amazon_image]
Finally, I spotted that Joe Stiglitz’s latest, [amazon_link id=”0718197380″ target=”_blank” ]The Price of Inequality[/amazon_link], is out in paperback – I’ve not yet read it so now have no excuse.
Money as information
I just started, and am already thoroughly enjoying, [amazon_link id=”0007225741″ target=”_blank” ]The Information[/amazon_link] by James Gleick (yes, I’m late to this 2011 book).
[amazon_image id=”0007225741″ link=”true” target=”_blank” size=”medium” ]The Information: A History, A Theory, A Flood[/amazon_image]
This sentence in the intro struck a chord:
“Economics is recognizing itself as an information science, now that money itself is completing a developmental arc from matter to bits, stored in computer memory and magnetic strips.”
This was written before the Bitcoin mania, of course. A few earlier writers had made a similar point – David Graeber’s [amazon_link id=”1612191819″ target=”_blank” ]Debt [/amazon_link]depicts credit as social relations, while the idea is in the very title of Keith Hart’s [amazon_link id=”1861972083″ target=”_blank” ]The Memory Bank[/amazon_link] (2001). And digital money guru Dave Birch has been onto this point for years.
[amazon_image id=”1861972083″ link=”true” target=”_blank” size=”medium” ]The Memory Bank: Money in an Unequal World[/amazon_image]
21st century manufacturing
Ricardo Hausman has a nice column on the future of manufacturing in Scientific American. He writes: “More and more information is getting packed into less matter. As a consequence, more of the work goes into manipulating information rather than matter. Jobs move from the shop floor to the design floor. A Boeing 747 or an iPhone are made mostly out of fairly common materials that are worth at most just a few dollars a pound. However, they both go for over $1,000 per pound. The bulk of the value is in the information content, not the raw materials.”
One of the reasons I liked the article is the immodest fact that I prefigured these arguments in my first book, The Weightless World (pdf), published in 1996. The physical mass of the UK and the US economies hasn’t risen since around 1980, according to material flows accounts (and these do take account of trade). The paradoxical point about the dematerialisation of making things is amply underlined by some excellent recent books – [amazon_link id=”0349123780″ target=”_blank” ]Made in Britain[/amazon_link] by Evan Davis and [amazon_link id=”0300117779″ target=”_blank” ]The New Industrial Revolution[/amazon_link] by Peter Marsh spring to mind.
[amazon_image id=”1405509856″ link=”true” target=”_blank” size=”medium” ]Made in Britain[/amazon_image]
[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]
Economic theory of the firm hasn’t caught up yet with changes in the structure of manufacturing, although it’s starting to get there with the task-based approach to modelling. Old-fashioned production functions must be on their way out.
Update: Coincidentally, just after writing this post, I read this 2011 New Yorker article by Malcolm Gladwell, Smaller (courtesy of The Electric Typewriter). It’s ostensibly about product improvement in diapers, but is really about the wide efficiencies of using less stuff.