Monthly Archives: August 2015

On not skipping over facts

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I read recently Sarah Bakewell’s delightful book, [amazon_link id=”009948515X” target=”_blank” ]How to Live: A Life of Montaigne in one question and twenty attempts at an answer[/amazon_link]. Then by chance today (possibly via @Storythings?) came across this quotation from his [amazon_link id=”0140446044″ target=”_blank” ]Complete Essays[/amazon_link]:

“I realize that if you ask people to account for “facts”, they usually  spend more time finding reasons for them than finding out whether they  are true. … They skip over the facts but carefully deduce inferences.  They normally begin thus: “How does this come about?” But does it do so?  That is what they ought to be asking.”

Quite so. The more time I spend thinking about it – and it’s quite a lot already – the more puzzling economic facts seem to be.

[amazon_image id=”009948515X” link=”true” target=”_blank” size=”medium” ]How to Live: A Life of Montaigne in one question and twenty attempts at an answer[/amazon_image]  [amazon_image id=”B002RI92VQ” link=”true” target=”_blank” size=”medium” ]The Complete Essays[/amazon_image]

History and imagination

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The last of my holiday reads, albeit finished this week, was [amazon_link id=”0099590085″ target=”_blank” ]Sapiens: A Brief History of Humankind[/amazon_link] by Yuval Noah Harari. I was a bit disappointed, as it had absolutely glowing reviews. After reading Ian Morris’s [amazon_link id=”1846682088″ target=”_blank” ]Why The West Rules For Now[/amazon_link] and his more recent [amazon_link id=”0691160392″ target=”_blank” ]Farmers, Foragers and Fossil Fuels[/amazon_link], and Jared Diamond’s [amazon_link id=”0099302780″ target=”_blank” ]Guns, Germs and Steel[/amazon_link], and his later [amazon_link id=”0241958687″ target=”_blank” ]Collapse[/amazon_link], not to mention [amazon_link id=”052138673X” target=”_blank” ]Joseph Tainter[/amazon_link] and [amazon_link id=”1843547252″ target=”_blank” ]Walter Russell Mead[/amazon_link], I suppose it’s hard to describe anything completely new looking through the long lens on the history of civilisation. It’s quite a crowded terrain.

[amazon_image id=”0099590085″ link=”true” target=”_blank” size=”medium” ]Sapiens: A Brief History of Humankind[/amazon_image]

That isn’t to say I didn’t enjoy reading Sapiens. It’s eloquently written. I liked the emphasis on human social agency, and absence of technological or ecological determinism: “The ability to create an imagined reality out of words enabled large numbers of strangers to co-operate effectively.”

He writes of ‘imagined order’ (echose of [amazon_link id=”1844670864″ target=”_blank” ]Benedict Anderson[/amazon_link]): “We believe in a particular order not because it is objectively true but because believing in it enables us to coperate effectively and forge a better society.” He has a nice example using Peugeot, the car company. It doesn’t consist in the cars it makes, or its assets, or the people working for it – it has an existence beyind any of them, and a longevity too, kept in existence by the imagined order of the French legal system, the French state, the idea of nation states, and so on. The ‘rules of the game’ as an institutional economist might put it, are a set of Russian dolls.

It drove home for me the point that for individuals the agricultural revolution was an adverse development, although it was great for spreading Homo Sapiens genes. I liked the discussion of natural and unnatural – a distinction that pre-supposes the existence of a higher purpose, and since evolution has no purpose it is a distinction that comes from religion.

I very much enjoyed the contrasting portraits of Louis XIV of France and Barack Obama: “Dominant men have never looked so dreary as they do today. What happened to the wig, stockings, high heels?”

The book tails off a bit towards the end – the economics chapters seemed weak to me, although perhaps they wouldn’t to a non-economist. They cram the whole history of world economics with an emphasis on credit ([amazon_link id=”1612194192″ target=”_blank” ]Graeber[/amazon_link]-style) into three chapters.

Anyway, that’s it for summer paperbacks. Back to the serious reading now. Next up is John Kay’s [amazon_link id=”B00UJD8AS2″ target=”_blank” ]Other People’s Money.[/amazon_link] Four pages in, and I think it’s fabulous.

[amazon_image id=”B00UJD8AS2″ link=”true” target=”_blank” size=”medium” ]Other People’s Money: Masters of the Universe or Servants of the People?[/amazon_image]

Accounts and holding to account

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This is the last of my posts drafted on holiday last week, and is particularly timely despite being retrospective because my review of Jane Gleeson-White’s [amazon_link id=”0393246671″ target=”_blank” ]Six Capitals, or Can Accountants Save the Planet[/amazon_link] is published in the new issue of Foreign Affairs today.

I *loved* Jacob Soll’s [amazon_link id=”0718193628″ target=”_blank” ]The Reckoning: Financial Accountability and the Making and Breaking of Nations[/amazon_link]. It gives a long historical perspective on accountancy – no, wait – and particularly its importance in literally holding leaders and politicians to account. It is also extremely well written and lively. I got much joy from learning of the 1604 book Accounting for Princes, and that there was a real Musketeer called Captain D’Artagnan, he isn’t just a [amazon_link id=”1853260401″ target=”_blank” ]creature of fiction[/amazon_link]. That Jacques Necker’s [amazon_link id=”1246639963″ target=”_blank” ]Compte Rendu[/amazon_link] sold more than 100,000 copies in one year, 1781, alone. And this description of Josiah Wedgwood’s legacy: “Sound industrial management and tableware for the middling sort.”

[amazon_image id=”0718193628″ link=”true” target=”_blank” size=”medium” ]The Reckoning: Financial Accountability and the Making and Breaking of Nations[/amazon_image]

The book’s message is that there is a constant tension between the increasing sophistication of methods of accounting to hold to account, literally, kings or powerful companies or political leaders and the scope that sophistication creates for new ways of defrauding the people or the shareholders. So the methods of accountancy need to be embedded in a culture of honest dealing. Soll concludes that we lack that now: “Accountants have become separated from everyday culture. … All countries, rich and poor, hide the true costs of their pension benefits and health care as well as of infrastructure, off their balance sheets.” But there is no public outcry about bad public accounting, while deceitful bankers and financiers have not been held to account for the crisis. (One of my arguments in [amazon_link id=”B004NNUWY4″ target=”_blank” ]The Economics of Enough[/amazon_link] was that this situation is seriously unsustainable.)

Soll cites the proposal by Timothy Irwin of the IMF that governments should publish 50 year ahead balance sheets, but queries whether it is possible. “By separating finance into its own sphere, we have lowered our financial and political aspirations.” The numbers should be an integral part of society but are not: “If there is any historical lesson to be learned here, it is that those societies that managed to harness accounting as part of their general cultures flourished.” These have been rare – Renaissance Italian city states, the early American republic, Britain of the Glorious Revolution or for a time in the Industrial Revolution. They have been brief: Charles Davenant, one of the earliest national income accountants, tried to calculate the public finances after 1689 but by the time his Discourses on the Publick Revenues was published complained that information was being withheld.

My sole regret (as the author of [amazon_link id=”0691156794″ target=”_blank” ]GDP[/amazon_link]) about Soll’s book is that he does not cover economic statistics more generally, but rather public finances. They too matter for political accountability and are no longer doing that job (as I argue in my recent working paper). Still, it’s good to want more of a book rather than less. I highly commend [amazon_link id=”B00JK2H1ME” target=”_blank” ]The Reckoning[/amazon_link].

Final couple of days of holiday now. I have Sarah Bakewell’s [amazon_link id=”B00SLSG08O” target=”_blank” ]How To Live: A Life of Montaigne in one question and twenty attempts at an answer[/amazon_link]; and [amazon_link id=”077103850X” target=”_blank” ]Sapiens: A brief history of humankind[/amazon_link] left to read.

Robots for the people

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In between Lionel Davidson’s cracking 1994 thriller – recently reissued – [amazon_link id=”0571324215″ target=”_blank” ]Kolymsky Heights[/amazon_link] and Colum McCann’s moving novel [amazon_link id=”0812973992″ target=”_blank” ]Let the Great World Spin[/amazon_link], I read (at last) Martin Ford’s [amazon_link id=”0465059996″ target=”_blank” ]Rise of the Robots: Technology and the Threat of a Jobless Future[/amazon_link]. It’s good to see it made the FT Business Book Prize long list, amid terrific company.

[amazon_image id=”0465059996″ link=”true” target=”_blank” size=”medium” ]Rise of the Robots: Technology and the Threat of a Jobless Future[/amazon_image]

As one of the economists Ford has a go at in the book, I don’t believe the challenge is one of the total number of jobs jobs. These periodic waves of concern about where all the jobs are going to come from tend to prefigure a wave of job creation. It happened in the 1960s, following publication in 1964 of the ‘Triple Revolution’ report in the US, and it happened again in the 1990s after the [amazon_link id=”0812928504″ target=”_blank” ]’Downsizing of America'[/amazon_link] report in 1992. This time might be different, as Ford and so many others argue, but repeatedly over 250 years capitalist economies have shown their capacity for creating new forms of work when old forms become redundant for technological or other reasons.

Indeed, at present in the US and UK there is little sign of any direct impact of automation at all. Employment rates are high, and low labour and total factor productivity signal the absence of a significant technological impact on growth and jobs. We have too few robots, not too many. There are some significant data issues here, but that includes the question of measuring jobs in the digital economy – as often noted, Google has far fewer employees than GM, but Mike Mandel has pointed out that the statistics are not counting the extent of job creation in smaller businesses.

That’s not to say there are no challenges from robotisation. Almost as often as they have adapted, capitalist economies have proven themselves bad at the process of transition. The huge wave of automation in manufacturing in the 1980s and 1990s, the deindustrialisation and globalisation, destroyed communities and left successive generations out of work, in poverty, and scarred by the nexus of social problems experienced by so many former mill or mining towns. There is also the question of income distribution. As Ford points out, [amazon_link id=”B00I2WNYJW” target=”_blank” ]Thomas Piketty’s tome[/amazon_link] on inequality hardly mentioned technology amid its quotations from [amazon_link id=”0192835696″ target=”_blank” ]Balzac[/amazon_link] and [amazon_link id=”0747549079″ target=”_blank” ]Austen[/amazon_link], but it did plant this issue firmly at the centre of policy debates. Tony Atkinson’s impressive book [amazon_link id=”0674504763″ target=”_blank” ]Inequality[/amazon_link] had a detailed list of policy responses. The winners from technology will need to share the benefits if our societies are to thrive.

So I certainly don’t dismiss techno-fears, but I do think “we’re all going to be unemployed” is the wrong way to frame the problems. Having said that, [amazon_link id=”1480574732″ target=”_blank” ]Rise of the Robots[/amazon_link] is a thorough review of the impact of digital technologies on a number of areas. It covers the likely breakthroughs such as AI and driverless vehicles, going over the exponential pattern as Brynjolfsson and McAfee do in their book [amazon_link id=”B00D97HPQI” target=”_blank” ]The Second Machine Age[/amazon_link]. Ford has chapters on industries such as health and higher education, where the impact of digital disruption has yet to be experienced.

He raises some interesting questions. For example: “Should the population at large have some sort of claim on [the] accumulated technological balance?” Meaning the vast social and public investment in research and innovation, on which the new digital fortunes are piggybacking. The answer to that is surely yes. There is also the implication of the machines’ greater ability to know what we know: no human an be aware of all research, past or present, but something like IBM Watson can be.

There is a great example in the book of two almost simultaneous cases of patients presenting themselves at different hospitals with mysterious diseases. One almost died during a heart operation, the doctors puzzled as to the diagnosis. Another was correctly diagnosed and treated because the doctor happened to have seen the same mystery symptoms on the TV series House. A smart enough computer would have known without having to have serendipitously watched the right TV programme. Ford seems to see this as a threat, but surely there is only benefit in this ability to pool past human knowledge? And I’m not persuaded that computers are yet anywhere near creating new knowledge however magical they are at collating and making sense of past knowledge. They are standing on the shoulders of human giants, absorbing humanity’s existing intellectual assets.

Well, maybe I’m delusionally optimistic. Ford ends the book with figures from the BLS. Between 1998 and 2013, there was a 42% real increase in US GDP, but no increase in the total hours worked. He thinks that’s a bad thing. I think it’s a good one – with the huge proviso that the benefits of growth must be widely shared. They haven’t been. We don’t have the people’s robots. That’s the real problem.

Painting by numbers

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Back in the land of broadband, here is my holiday reading instalment number four. It was [amazon_link id=”1907970576″ target=”_blank” ]Duveen: The Story of the Most Spectacular Art Dealer of all Time [/amazon_link]by S.N.Behrman. This book was originally a series of New Yorker articles and then published as a book in 1951, and republished last year by Daunt Books – interesting, as I know them as my favourite bookstores and hadn’t realised they also published books.

[amazon_image id=”1907970576″ link=”true” target=”_blank” size=”medium” ]Duveen: The Story of the Most Spectacular Art Dealer of All Time[/amazon_image]

 I’d never heard of Joseph Duveen, and it turns out to be a compelling story, wonderfully written. He bought masterpieces, mainly of the Italian Renaissance and sold them to many of the great American industrialists, Frick, Mellon, Bache, Kress and the like. But this is not a tale of a successful dealer; rather, it is how the modern art market was created. For Duveen invented the self-fulfilling character of value in art. He paid huge fortunes for pictures, sold them for more, bought them back for more again when the original purchaser died. A high price reflected the scarcity value of positional goods of course – these plutocrat buyers were the originals about whom Veblen wrote when he invented the notion of conspicuous consumption. But there are lots of high prices, and Duveen intended for them to reach for the sky. He would bid against himself in auctions to make sure the floor was never too low.

Scarcity mattered of course. Duveen didn’t buy post-1800 paintings because there were too many of them. He cornered the market in Old Masters. He borrowed huge amounts, buying collections on credit, because he was confident that once they were his the value of his assets far exceeded the debts.

The book describes a debate between Duveen and Bernard Berenson: “He [Duveen] was convinced that a masterpiece must be sold only through him, that any rival was a poacher on his special preserve. Berenson argued with Duveen that if other professionals bought and sold great pictures, they would in the end help Duveen, for they would expand the market.”

Berenson did not change Duveen’s mind. In the end, the growth in the art market in the early 20th century proved to be a generational phenomenon to some degree, as the plutocrats died, leaving a successor generation neither rich enough nor serious enough to amass the same kind of collection. The trusts were busted. The tax man caught up too, especially with inheritance tax. Duveen then persuaded his customers to leave their collections as bequests to the nation, starting with Mellon and his funding and opening donation to the National Gallery in Washington. The story thus has a pleasing arc, the wealth created through monopoly power over the people resulting in assets donated to the people.

So as well as a terrific read, this is a great introduction to the economics of the art market – alongside the latest Marshall Jevons novel, [amazon_link id=”B00C4UT19K” target=”_blank” ]Murder at the Margin[/amazon_link], [amazon_link id=”0226893952″ target=”_blank” ]Boggs: A Comedy of Values[/amazon_link] by Lawrence Weschler, and also this on Simon De Pury. Duveen he ain’t.