Yearly Archives: 2015

(Im)moral markets

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A snippet from Dani Rodrik’s [amazon_link id=”0393246418″ target=”_blank” ]Economics Rules[/amazon_link]:

“As Albert Hirschman reminds us in his magisterial book [amazon_link id=”0691160252″ target=”_blank” ]The Passions and the Interests[/amazon_link], the thinkers of the late 17th and early 18th centuries reasoned that the proft-seeking motive would countervail baser human motivations such as the urge for violence and domination over other men. The term ‘doux’ (sweet) was often appended to ‘commerce’ to suggest commercial activities promoted gentle and peaceful interactions. …. These early philosophers [eg [amazon_link id=”1514328127″ target=”_blank” ]Montesquieu[/amazon_link]] encouraged the spread of markets, not for reasons of efficiency or for the expanson of material resources but because they thought it would promote a more harmonious, more ethical society. It is ironic that thre centuries later markets have come to be associated in the eyes of many with moral corruption.”

Shades of Deirdre McCloskey’s [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues: Ethics for an Age of Commerce.[/amazon_link]?

[amazon_image id=”0393246418″ link=”true” target=”_blank” size=”medium” ]Economics Rules: The Rights and Wrongs of the Dismal Science[/amazon_image]

The weirdness of economists

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I was meandering around in the stacks of the university library, always a pleasure – all those enticing books, the musty smell, the peace – and succumbed to the temptation to fetch out some unintended books. [amazon_link id=”0521709849″ target=”_blank” ]The Philosophy of Economics: An Anthology[/amazon_link] edited by Daniel Hausman (1984/2008) won the competition between the books to be picked up. It’s a collection of essays that runs from John Stuart Mill, Max Weber, Thorsten Veblen, Lionel Robbins etc via Schumpeter, Friedman, Kaldor, Sen to Vernon Smith, Colin Camerer, Geoffrey Hodgson and Julie Nelson. All these and more. There’s also (accepting that this is a specialized taste) a bibliography of books on economics methodology.

I open at random to an essay by Daniel Hausman and Michael McPherson, which sets out the (usually implicit) framework of normative economics: economics appraises outcomes (not processes), using a single appraisal perspective, looking at the consequences for individuals (not groups or ‘society’) in terms of their welfare (not freedom or rights), welfare being defined as the satisfaction of preferences and assessed in terms of market outcomes and the Pareto criterion. We economists are early socialized into this approach and forget how weird it seems to others.

Anyway, it looks like a good random pick from the stacks.

[amazon_image id=”0521709849″ link=”true” target=”_blank” size=”medium” ]The Philosophy of Economics: An Anthology[/amazon_image]

Futurology: more sense, less bollocks

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I’m not a fan of futurology. There’s something about the genre that demands a breathless writing style and over-confident future-bollocks. However, I’ve just been looking at a book that isn’t nearly as bad as the typical example. It’s [amazon_link id=”1781254974″ target=”_blank” ]The Future of (almost) Everything: the global changes that will affect every business and all our lives[/amazon_link] by Patrick Dixon.

[amazon_image id=”1781254974″ link=”true” target=”_blank” size=”medium” ]The Future of Almost Everything: The global changes that will affect every business and all our lives[/amazon_image]

The breathlessness is there – after all, it fits all of (almost) everything affecting everybody into 350 pages. It has lots of words CAPITALIZED and loads of headings and bullet points. The chapters are titled according to the acronym: Fast; Urban; Tribal; Universal; Radical; Ethical – geddit? Having harumphed, there is also some perfectly sensible trend extrapolation. Even so, there is an early demonstration of the fickleness of the future when it arrives. In a long list early in the book of “highly predictable” long term trends comes “rapid growth in global trade”. Well, maybe, but that’s not looking so good at the moment.

Apart from the stylistic tics – which are obviously popular given how well such books sell – my main problem with futurology is the absence of broader social scientific analysis. Take as an example the section in [amazon_link id=”B00V6R4MZ0″ target=”_blank” ]The Future of (almost) Everything[/amazon_link] on big data. It makes some obvious-to-reasonable points about the benefits of personalisation, and the costs to privacy or in increased cyber-crime. But there is no discussion about, say, who owns the data and benefits from the likely gains in exploiting it; or whether it will cause insurance markets to collapse (because they require a pooling of risk which will be subverted by the personalisation of risk premia); or what legal framework will be required to assign big data property rights and rein in the massive corporate invasions or privacy, or indeed the eating up of mobile data allowances by ads and cookies.

Still, having grumbled, if you want a futurology read, the ratio of common sense to future-bollocks in this book is high, it gives a broad survey of current global trends such as demographic change , urbanisation and environmental pressures, and it would nicely fill a plane journey.

On Seeing Like A State

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A tweet by @sclopit (Stefano Bertolo), exclaiming that

sclopit
in other news, I recently spent a couple of days with a large group of budding policy makers who had never heard of http://t.co/vX6k4IxxNE
06/09/2015 07:16

sent me to my bookshelf to have a look through [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link] by James Scott again. The subtitle describes at one level the book’s subject: “How Certain Schemes to Improve the Human Condition Have Failed.” It looks in some detail at a range of idealistic state schemes, from the ujamaa villages in Nyerere’s Tanzania and the city planning of Le Corbusier quasi-implemented in Brasilia – as opposed to the organic unplanned living cities celebrated by [amazon_link id=”067974195X” target=”_blank” ]Jane Jacobs[/amazon_link] – to Soviet collectivization.

[amazon_image id=”0300078153″ link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (The Institution for Social and Policy Studies)[/amazon_image]

The book then draws together its themes from analysing each specific kind of failure, each an example of the failure of ‘high modernism’ in its over-abstraction from detailed contextual understanding. By high modernism, he means: “A strong, one might even say muscle-bound, version of the self confidence in scientific and technical progress, the expansion of production, the growing satisfaction of human needs, the mastery of nature (including human nature) and above all the rational design of social order commensurate with scientific understanding of natural laws.” Step forward the least attractive, most hubristic version of 20th century economics.

“We have repeatedly observed the natual and social failures of thin, formulaic simplifications imposed through the agency of state power,” Scott writes. To blame: “utilitarian commercial and fiscal logic.” Large-scale social processes are too complicated to plan for. Scott celebrates practical, local knowledge, improvisation.

He does not, however, advocate abandoning the idealism that drove such projects, or leaving everything to “the market”. His advice is summed up in four rules of thumb:

Take small steps

Favour reversibility

Plan on surprises

Rely on human inventiveness

Above all, policymaker, do not think that you are all-knowing while your subjects are know-nothings. Don’t plan for abstract citizens, all uniform. Remember that context is everything.

Since [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link] was published in 1998 there have been a number of other reminders of the messy complexity of reality. One good recent one was Colander and Kupers in [amazon_link id=”B010CLT0OI” target=”_blank” ]Complexity and The Art of Public Policy[/amazon_link]. And of  course the theme is an old on, dating at least to Hayek’s 1945 AER paper The Use of Knowledge in Society, its theme brilliantly dramatized in Francis Spufford’s [amazon_link id=”B00B9ZDDCC” target=”_blank” ]Red Plenty[/amazon_link].

But if you’ve never had chance to read [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link], I, like Stefano, think it is an essential book.

PS Speaking of economics in this context, I am itching to write my review of Dani Rodrik’s [amazon_link id=”0393246418″ target=”_blank” ]Economics Rules[/amazon_link], on 21st century economics, and see people have started to comment on it. But the letter with the proof says not before 13 October so I’ll hold out at least a little longer.

Sorting out short-termism

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Reforming finance and corporate governance have been a bit of a theme in my recent reading. There was John Kay’s outstanding [amazon_link id=”1781254435″ target=”_blank” ]Other People’s Money[/amazon_link], which I reviewed here a few days ago. I’ve read the proof copy of Adair Turner’s impressive new book, [amazon_link id=”0691169640″ target=”_blank” ]Between Debt and the Devil[/amazon_link], although am not allowed to post a review until it’s out in November.

[amazon_image id=”1781254435″ link=”true” target=”_blank” size=”medium” ]Other People’s Money: Masters of the Universe or Servants of the People?[/amazon_image]  [amazon_image id=”0691169640″ link=”true” target=”_blank” size=”medium” ]Between Debt and the Devil: Money, Credit, and Fixing Global Finance[/amazon_image]

Meanwhile, I’ve read a short new book by Laurie Fitzjohn-Sykes, formerly a City analyst and now working for the think tank Tomorrow’s Company. It’s called [amazon_link id=”1845408349″ target=”_blank” ]Playing the Long Game: How to Save the West from Short Termism[/amazon_link], and is well worth a read.

[amazon_image id=”1845408349″ link=”true” target=”_blank” size=”medium” ]Playing the Long Game: How to Save the West from Short-Termism (Societas)[/amazon_image]

The book starts with a vignette of the annual general meeting of Softbank in Japan, in which Masayashi Son gave a 2 hour speech setting out his 30 year and 300 year vision. He must be doing something right. Softbank’s latest product, Pepper the companion robot, has sold out its first two batches of 1000 within a minute of launch.

Pepper, the robot Softbank proposes as your companion - photographed by Rory Cellan-Jones at Innorobo this year

Pepper, the robot Softbank proposes as your companion – photographed by Rory Cellan-Jones at Innorobo this year

The author contrasts this of course with the quarterly results obsession in UK and US business, with the under-investment in the west compared with Asia, and stockmarket churn. It touches on one issue I think is highly damaging, the link between executive remuneration and share prices – as does Andrew Smithers in his excellent book [amazon_link id=”B00EMVHKR4″ target=”_blank” ]The Road to Recovery[/amazon_link].

[amazon_image id=”B00EMVHKR4″ link=”true” target=”_blank” size=”medium” ]The Road to Recovery: How and Why Economic Policy Must Change[/amazon_image]

Fitzjohn-Sykes’ conclusions focus on exactly the need to change management incentives through corporate governance reform and taxation of the damaging pay structures. He also recommends using the tax system to link fund managers’ pay to the long term performance of their funds rather than quarterly outperformance, and introducing minimum stock holding periods for pension funds. In such a short book these recommendations are short on detail but surely in the right territory. Interestingly, he advocates requiring all market research to be conducted by 3rd parties – this focus on the problem of sell-side research is worth considering, along with putting the spotlight on the fund management industry as well as the investment banks and the companies themselves.

At 115 pages, this book is a concise introduction to the short-termism problem, and I’m sure some of the solutions it advocates will prove necessary. However, the problem is well-known and many people have suggested reforms; the question remains why they have so little political traction?