Author Archives: Diane Coyle

Institution-free ‘institutions’

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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

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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

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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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Once upon a time

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It’s very interesting the way interest in narratives is popping up in so many places. The Royal Society has been looking at narratives in AI and in science more generally. Now Robert Shiller of Irrational Exuberance (and Nobel Prize) fame has a new book called Narrative Economics: How Stories Go Viral and Drive Major Economic Events. The book builds on a lecture he gave a couple of years ago. It begins: “This book offers the beginnings of a new theory of economic change that introduces an important new element to the usual list of economic factors: contagious popular stories that spread through word of mouth, the news media and social media.”

As the preface notes, the idea isn’t new; the 1894 Palgrave’s Dictionary of Political Economy mentions narrative economics. Robert Merton’s well-known concept of self-fulfilling (or self-averting) prophecies covers much of the territory of narrative dynamics. But perhaps today’s economy is more vulnerable than ever to contagion. An early chart in the book illustrates the surge in the proportion of articles across several socal science and humanities disciplines that contain the word ‘narrative’. Economics and finance are well behind history (of course) but also anthropology, sociology and political science.

Anyway, the book is about how narrative contagion affects economic events. It has in mind epidemic models, as well as – well, narratives. Each chapter focuses on a number of examples. The first section starts with Bitcoin as an example of how narrative affected behaviour and outcomes, then introduces some of the concepts concerning how narratives ‘go viral’ and the psychology of contagion. Part 2 is a brief section setting out ‘seven propositions of narrative economics’ (including ‘truth is not enough to stop false narratives’. Quite.) Part 3 describes recurring economic narratives such as financial boom and bust, or automation and jobs. The final part of the book sets out questions for research.

The book is always interesting, but somewhat bitty, one example after another, lacking a grand theory of narrative framework. However, as Shiller points out in the final section, there is plenty of scope for quantitative approaches to understanding the economic role of narratives, particularly using recent text analysis tools. A cynic might paint this emphasis on narrative – also recently explored by George Akerlof and Dennis Snower – as classic economic imperialism. After all, she might say, sociology and anthropology have been onto this for years. Some economists might on the other hand dismiss the emphasis on narratives as a source of dynamics as woolly nonsense, merely anecdotal. But both responses would be too negative.

A move to extend the use of qualitative approaches in economics should be welcomed, and an extension of the also-welcome revival of economic history. Narrative Economics joins a couple of other recent books, such as Morson and Schapiro’s Cents and Sensibility and Uncertain Futures edited by Jens Beckert and Richard Bronk in restoring the humanity to economics.

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Ranging widely

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I spotted Range on the FT’s Business Book of the year longlist, and thought the subtitle appealing: How Generalists Triumph in a Specialized World. I’m definitely a fox not a hedgehog in Isaiah Berlin’s famous distinction (though I always wondered about the characterisation of each animal – are all hedgehogs like that? It’s a bit like the sheep and goats distinction – which is better? It isn’t obvious to me.) Anyway, there is definitely a lot of mileage in joining up knowledge silos. As Berlin described the difference:

“… [T]here exists a great chasm between those, on one side, who relate everything to a single central vision, one system, less or more coherent or articulate, in terms of which they understand, think and feel – a single, universal, organising principle in terms of which alone all that they are and say has significance – and, on the other side, those who pursue many ends, often unrelated and even contradictory, connected, if at all, only in some de facto way, for some psychological or physiological cause, related to no moral or aesthetic principle.”

Anyway, Range is an enjoyable read, although once you get the general drift it becomes rather repetitive, falling into the trap of being a terrific long magazine read stretched to nearly 300 pages. Still, it gave me a couple of marvellous new phrases: Undiscovered Public Knowledge (the kind machine learning systems are finding by interrogating massive databases); and Lateral Thinking With Withered Technology (innovation by reorganising existing technologies into new uses – this is a phrase from Gunpei Yokoi, the engineer who reinvented Nintendo).

The book claims many great thinkers as generalists. For example: “Charles Darwin’s greatest works represent interpretative compilations of facts first gathered by others.” However, the same example shows the limits of the claim about generalists’ superiority: Darwin had gathered plenty of facts for himself. If he hadn’t observed finches in the Galapagos for himself would he really have gone on to write On the Origin of Species?

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