Author Archives: Diane Coyle

Reading the Festival of Economics

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Last week was the 6th Festival of Economics, which I curate and the outstanding Festival of Ideas team, Andrew, Zoe and Amy organize. There’s a Storify of some of the sessions by the Economics Network. As ever, we had some terrific authors speaking either at the Festival or in the preceding few days, so here is a list of their recent books.

Eric Beinhocker The Origin of Wealth

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Robert Peston WTF

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Michael Lewis The Undoing Project

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Gordon Brown My Life, Our Times

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Dave Birch Before Babylon, Beyond Bitcoin

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Gloria Origgi Reputation: What it Is and Why It Matters

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Jean Tirole Economics for the Common Good

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Jonathan Haskel Capitalism Without Capital: The Rise of the Intangible Economy

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Martin Sandbu Europe’s Orphan

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& my own GDP: A Brief But Affectionate History

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Greetings from the multiverse

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It has been a week of mad travel so although I haven’t posted much, at least I’ve had plenty of time to read. One of the books was, well, extraordinary. In a really good way, although I have no idea what to make of it in terms of substance. It’s The Beginning of Infinity: Explanations that Transform the World by David Deutsch. He’s a computational physicist so it is very much not an economics book, but Deutsch is bravely going far beyond the boundaries of his own discipline, something to be applauded given the height of the silo walls in the academic world.

His argument is that there is such a thing as progress, which began with the Enlightenment (the British rather than the romantic Continental variant), and that humans are rather special. The engine of progress is not empiricism, nor accurate prediction, but rather the ability to conjecture and see whether conjectures are consistent with what else we’ve learnt about reality, rejecting them if not. The scientific method consists not in careful observation followed by theorising, but the creative development of theories or hypotheses which then have to be confronted with observations, with robust mechanisms of rejection. So all this is somewhat contrarian, even I know, but it also seems pretty persuasive. Even the parts about how unlikely and therefore central to progress humans are in the universe.

Ah yes, the universe. One of the most gripping sections of the book is its explanation of quantum mechanics. I’ve never pretended to understand at all what this implies about the nature of reality. I still don’t, but Deutsch does nevertheless give one of the clearest explanations I’ve come across. To which the only reaction is awe at the sheer weirdness of the multiverse and therefore everyday life. I don’t think being on an overnight flight had much to do with my reaction. This is seriously weird.

It is all very enjoyable, including wonderful factoids and expressive comparisons along the way. That Oxfordshire is really a bleak deathtrap without so many human innovations to sustain life. That it is easy to confuse mathematical abstractions with physical facts (eg that the angles of a triange add to 180 degrees – only in maths, not on the ground). (By the way, economics is riddled with this kind of error; I give you ‘capital’ or ‘goods’.) That an American born today has more chance of being killed by an asteroid than of dying in a plane crash.

The one section I didn’t much appreciate tries to explain social choice theory. Even given that I know a lot more about this than about quantum physics, and other readers will know more about other subjects covered here, from evolutionary biology to astrophysics to philosophy, this is not a criticism – this is the inevitable downside of inter-disciplinarity. But we need more of this.

After I read the book (first published in 2011), I looked at some reviews. Most reviewers enjoyed it too, even though, as the New York Times review pointed out, “The chutzpah of this guy is beyond belief.” But concludes, “He is exactly who he is, and he is well worth getting to know, and we are very lucky indeed to have him.” So I wasn’t deranged by aircraft fumes; this is a book worth reading.

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Social limits to growth

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In preparing for an event tomorrow celebrating the 40th anniversary of the publication of Fred Hirsch’s The Social Limits to Growth, I’ve naturally been re-reading the book. It’s full of comments that leap out from the page, such as this: “The extent of interdependence of many forms of consumption in advanced, urbanized societies has brought increasing recognition that to give effect to public choice among the available economic alternatives represents a still unresolved intellectual and administrative problem, rather than requiring merely the sweeping away of impediments to the working of the market mechanism.” And, “To see total economic advance as individual advance writ large is to set up expectations that cannot be fulfilled, ever.”

These comments reminded me very much of Will Baumol’s long overlooked book (his PhD thesis!), Welfare Economics and the Theory of the State, which I read quite recently. Part of his argument is that interdependence is far more extensive than in textbook world. The changes in the character of the economy since 1977 have made this ever more true. Hirsch is of course famous for the concept of positional goods, where there are negative consumption externalities – I am worse off if you have the status symbol and I don’t. Some of this has been absorbed in modern signalling models. However, positive consumption externalities – network effects, direct and indirect – are now becoming widespread too.

The conventional matrix of goods (according to whether they are easy or hard to exclude and rivalrous in consumption or not) needs extending:

—————————-Easy to exclude                        Hard to exclude

Rivalrous+neg externality      Positional                           Commons good

Rivalrous                               Private good                      Commons good

Non-rivalrous                         Club good                         Public good

Non-rival+pos externality       Network club                     Network commons

In only one of these boxes does the standard ‘free market’ presumption apply.

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Reclaim your attention

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I caught up with Timothy Wu’s The Attention Merchants: The Epic Struggle to Get Inside Our Heads on my recent travels. It’s a very interesting history of advertising, not surprisingly US-focused. There are some compelling characters in the earlier part of the story – some I knew about already like Bernays, others unknown such as the rather extraordinary Claude Hopkins. Advertising and media have always, I guess, attracted outsize characters. And some of the tales about the impact of ads are astonishing – early campaigns promoting smoking as a health-giving activity; the genius of the ‘Marlboro man’ campaign, taking Marlboro from a 1% market share to the 4th bestselling brand in the US in less than a year.

The book is excellent (as one might expect from the author of The Master Switch, a terrific book) on the interplay between technological and commercial or creative innovations. Wu writes: “Technology always embodies ideology, and the ideology in question [with the spread of cable TV] was one of difference, recognition and individuality.” The arrival of many upstart channels successfully contested the broad middle ground previously held by the main networks, and with it the cohesive, mass attention of network TV viewing.

The book moves on from old media to new media, and I also enjoyed the section on the early days of the internet and the stumbles and successes in getting all of us online. Email was an early killer app, which one forgets. “It may be hard for some to imaine a moment when receiving email was considered a big deal.” But there was indeed the movie You’ve got Mail featuring AOL in a comedy romance. Wu also reminded me that AOL got people online by sending them a physical disk in the post, or later free on the front of magazines – apparently they mailed several hundred thousand floppy disks in a 1993 mailshot – and got a 10% success rate. The company’s chief marketing officer said, “50% of the CDs produced worlwide had AOL’s logo on them,” by the late 1990s, the book reports.

As it gets towards today, the book is a bit less compelling, and I think this is because it’s so hard to get one’s mind what’s going on in the world of attention-grabbing. Of course, we know Google and Facebook are eating all the ad revenue (and attention) but there’s that fraudulent, algorithmic, complicated market, the imperative of SEO, and the fragility of offline advertising. Not to mention the blurring of news, native ads, fake news, and random dog and cat videos. It would be unfair to criticise Wu for not pinning down all this, and the addiction of social media, in a final chapter, and I’m not. The book really ends with that promising moment when ad blocking looked like a thing; but events have moved on.

There is an afterword about Trump, “the attention merchant turned President,” and then an epilogue calling for technologists to turn their focus to “the goal of reclaiming our time and attention” in these days of clickbait and the ludic loop of browsing and checking all social media without cease. The grim alternative? “The enslavement of the propoganda state as well as the narcosis of the consumer and celebrity culture.” But it isn’t just down to technologists – the battle for attention starts with oneself.

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‘Free’ markets

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I read recently The Illusion of Free Markets by Bernard Harcourt (date), on the recommendation of an esteemed colleague. The bulk of the book is about state discipline – Bentham’s Panopticon, Foucault, the American penitentiary state. The bit that really appealed to me was the opening section on French grain markets in the 18th century, compared with Chicago commodities markets in the late 20th century.

The book opens with great detail about how intensively regulated markets were in early 18th century France, with even trivial breaches of the rules in theory liable to punishment, imposed by the police des grains. Harcourt then draws the comparison with what we think of as a model of free market capitalism, the open outcry pit of the Chicago Board of Trade (I visited once  – an amazing experience). As he convincingly establishes, there os no sharp contrast, as the modern market rules are in fact just as detailed as the 18th century version.

Why then do we contrast ‘free markets’ as today’s ideal with the over-regulated past? The book attributes the turn to the Physiocrats, and “that contested moment in the 18th century when notions of natural order were beginning to take shape.” The argument is that they shaped a sharp dichotomy between “the economy as the realm of natural order” and everything else which was thereby in the sphere of being policed by the state. “In other words, the market is efficient, and within that space there is no need for government intervention. What is criminalized and punished is behaviour outside the sphere of the orderly market.” The government can legitimately penalize non-market behaviours.

But of course, the dichotomy is a false one. The state is present in all markets, and often in just as much detail as the C18th police des grains. The rhetoric of ‘free markets’ is misleading.

I certainly agree with this last point, as does anybody who (like me) has spent some time as an economic regulator (the UK Competition Commission in my case). Modern economies are highly regulated, and that goes for the Anglo-Saxons as much as anyone else. I don’t know nearly enough about the C18th or the literature on punishment to evaluate those parts of Harcourt’s book. But it certainly offers food for thought.

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