Empathetic economics

My colleague Sarah Dillon over in the English faculty recommended Martha Nussbaum’s 1995 Poetic Justice: The Literary Imagination and Public Life to me. We’d been talking about the way narratives have become a thing – for example, the Royal Society’s AI narratives project, or Bob Shiller’s new book Narrative Economics. I enjoyed Poetic Justice, which in a way is making the same point as Adam Smith’s Moral Sentiments: that empathy is an essential part of being able to reason an an impartial spectator. Hence, Nussbaum argues – mainly in the context of the law but also economic welfare – the importance of reading fiction. She uses Hard Times and Native Son and also Whitman’s Song of Myself as her exemplars – Hard Times’s Mr Gradgrind illustrating the limitations of purely ‘economic’ reasoning, the other two texts the importance of being able to stand in other people’s shoes in one’s imagination.

The book argues for the importance of cultivating the imagination for reasons of social justice and sound public reasoning: “I defend the literary imagination precisely because it seems to me an essential ingredient of an ethical stance that asks us to concern ourselves with the good of other people whose lives are distant from our own.” And, not surprisingly, she argues against the utilitarianism that underpins everday economics and its assessment of social welfare, in favour of the capabilities approach.

 

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Institution-free ‘institutions’

I’ve been re-reading Elinor Ostrom. People have started to refer to a data commons. I don’t think the metaphor works but that doesn’t mean Ostrom’s design principles won’t be relevant. Anyway, I love this passage:

“Many policy prescriptions are themselves no more than metaphors. Both the centralizers and the privatizers frequently advocate over-simplified, idealized institutions – paradoxically, almost ‘institution-free’ institutions. An assertion that regulation is necessary tells us nothing about the way a central authority should be constituted, what authority it should have, how the limits on its authority should be maintained, how it will obtain information, or how its agents will be selected, motivated to do their work, and have their performances monitored and rewarded or sanctioned. An assertion that private property rights are necessary tells us nothing about how that bundle of rights is to be defined, how the various attributes of the goods involved will be measured, who will pay the costs of excluding non-owners from access, how conflicts over rights will be adjudicated…”

And there are informal norms of course, as well as formal rules and sanctions: it’s legally clear the restaurant owns the plates on which my meal is served but largely social assumptions and norms (rather than the law and police) that stop me walking out with them.

A lot – most? – economics students don’t read Ostrom. They should. She features in one chapter of my forthcoming public policy economics book, Markets, State and People. (Out in January 2020 – pre-order now!!)

41rkh8AeZ7L._SX322_BO1,204,203,200_Governing the Commons

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Growth and civilisation

I’ve been slowly reading Growth: From Microorganisms to Megacities by Vaclav Smil. Slowly only because of the size of the book, which means reading it at home. It’s a somewhat eccentric but really rather compelling read. The subtitle indicates its ambition. We do literally go from the growth dynamics of archaea and bacteria all the way to empires, with the common thread being the argument that physics places fundamental limits meaning that almost everything follows the logistic S curve and thus reaches an asymptote – although predicting where the points of inflection will occur is a different matter. “Natural growth taking place on earth is always limited.”

In the final section on economies, Smil quite rightly points out that even if measures of economic activity – notably GDP – remain non-stationary series, such activity is rooted in energy use – echoes here of his tremendous Energy and Civilization. Much of economics has ignored this, regarding early work on energy use in the economy – such as Georgescu-Roegen – as a bit weird, although this is perhaps changing with the onward march of environmental economics. Smil is more sceptical than I am about whether the process of dematerialization of economic growth has shifted the asymptote of the growth curve up and out; I don’t think the concept of sustainable consumption is empty, whereas he does. (Although when it comes to regarding ‘the Singularity’ as nonsense, he and I are at one). He concludes that unless there are strict limits on material consumption, human civilization is doomed, and one gets the firm impression he’s putting his money on doom.

However, the joy of this book is less in the big picture than in the detail. And what a lot of it! The mind boggles at Smil’s extensive reading and absorption of information. We get the speed at which marathons are run – over the entire course of human history; the growth rates of piglets and weight of chicekns over time; sales of small non-industrial motors over time; the envelope for the maximum speed of travel; Kuznets cycles; Zipf’s law for city size….  The middle section of chapters offer a fantastic overview of technical progress over long periods in a wide range of technologies. I love all this detail.

Growth is therefore a tremendous work of synthesis, the biggest of pictures in pointilist form. If Bill Gates hadn’t named Vaclav Smil as his favourite author (“I wait for new Vaclav Smil books the way some people wait for the next Star Wars movie.“), one could imagine him (Smil) as a character in a Borges story. Best of all is the passing comment that nearly all the calculations for all his post-1984 books have been done on a TI-35-Galaxy Solar calculator. Talk about sustainable consumption.

41sJqD+KMbL._SX344_BO1,204,203,200_Before embarking on Smil, we had a week of holiday so I read some non-work books, standout among them The Kites by Romain Gary, whose oeuvre I’m now racing through.

 

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Going to extremes

Richard Davies obviously made the kind of road trip many of us only dream of to write Extreme Economies: from Akita in Japan to Santiago in Chile, from Glasgow to Kinshasa. The locations he chose illustrate one of three characteristics – survival (refugee camps in Jordan, post-tsunami Aceh, a US prison in Louisiana), failure (Panama’s Darien Gap, Kinshasa in DRC, and post-industrial Glasgow), and the future (ageing Japan, digital Estonia, unequal Chile. As the book sums it up: “The year 2030, for most people on earth, will be a cocktail of these three cities: an urban society that is old, technologically advanced, and economically unequal.”

The book is a great read – I tore through it. An economist who can write so well while at the same time explaining the economic principles so clearly is always a joy. I will admit to being rather envious of the opportunity he had to visit all these places. Getting out and visiting should be required for all economists, whether they are writing about development and progress as Davies is, or about industrial organisation or education. You always learn something not only relevant but also important. One of the things I did love about this book was the painless administering of some substantial chunks of economic research – it’s an ideal read for eager 6th form students or undergraduates. It might encourage them to appreciate that economics is not only important but also exciting.

The book also includes some important threads. One is the environment as an economic as well as intrinsically valuable asset. Darien’s economy depends on extraction from the jungle, living now on its future potential: “The puzzle is why, in a region where everyone knows the environment is being degraded, the people of Darien can’t manage the economy in a way that stops it happening.” This segues into a discussion of the ‘tragedy of the commons’. Later, though, it’s Glasgow’s social capital, another overlooked asset, that’s pinpointed as one source of failure: “When an economic force is shared, unseen and hard to measure, you will do too little to protect it.” I couldn’t agree more. Social capital features in all the examples here, either as a source of resilience or a cause of failure. It isn’t a sufficient explanation of economic outcomes – for example, in the chapter on refugee camps in Jordan, one thrives and the other fails because of external forces shaping the structure of the camps and their economic potential – but it is a necessary element.

Davies picks this up in the conclusion: “The biggest gap in economics is the way it completely ignores social capital.” This is why our Bennett Institute Wealth Economy team is exploring the measurement of social capital. Economics doesn’t entirely ignore it – it gets lables such as ‘institutions’ or ‘goodwill’ – but is treated as a black box at best. So I agree with the book that economics will have more to offer the world if we measure and understand better the “subtler and more human aspects of income and wealth.”

Meanwhile, I recommend enjoying the tour through the rebuilt Aceh, refugee camps in Jordan, the market in Kinshasa, Lousiana’s Angola prison and all the other economies featured here. And I hope some TV producer will pick up the book and take its author round the world all over again to film it.

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