Author Archives: Diane Coyle

The past and future of money

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I’m very excited about Dave Birch’s new book, Before Babylon, Beyond Bitcoin, for two reasons. One is that it’s full of brilliantly thoughtful (and witty) insights into the way the technology of money plays into social interactions. As Andy Haldane writes in his foreword, “The most interesting issues in economics arise from the intersection – sometimes the collision- between technology and society.”

Dave’s argument is that digital technologies will take us back to the future, using multiple monies in different communities or contexts. I don’t think there’s anyone who knows more than him about the technology of money, including the famous blockchain. And probably nobody either with a better eye for the oddities of monetary history; if you want to learn about Aztec exchange rates, why the Bank of England was still using mediaeval tally sticks in 1826, or the link between Diners’ Club cards and The Exorcist, this is the book for you. The book takes us ‘from money that we understand to money that understands us,’ as the subtitle puts it.

The second reason for excitement is that I commissioned and edited the book in our Perspectives series, but in a new departure it’s a full length rather than a short book. It is of course a follow up to Dave’s previous, bestselling Perspective title, Identity is the New Money.

Two reasons I think Before Babylon, Beyond Bitcoin is a must-purchase! You can read an extract and also order it here.

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Wise and foolish finance

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I’ve thoroughly enjoyed reading The Wisdom of Finance by Mihir Desai. It aims to humanise finance in two ways. One is by pointing out to non-finance folk that finance is dealing with inescapable aspects of the human condition: risk and uncertainty, asymmetric information, values, stewardship for the future. The other is by pointing out to finance folk how finance can and should serve society.

The approach is to draw examples from literature and history – and films and TV shows – demonstrating the way financial techniques absolutely permeate life. The cultural references range from The Simpsons to Jane Austen, Euripides to Bob Dylan, linked to recent events in business and the financial markets. The book starts with the fundamentals: insurance against risk, opening with The Maltese Falcon. It goes on to discuss options, valuation, leverage, and M&A.These chapters have lots of examples that could prove useful in the classroom, as well as being an enjoyable read.

The latter part of the book takes a more philosophical turn, and rather than explaining finance to the uninitiated reflects more on the character of the financial sector and the motivations of those who work in it. What drives people to lead highly leveraged personal existences rather than opting for simplicity (taking leverage broadly to mean building interdependence with other people in order to benefit from their skills or resources – and correspondingly owe them commitments in return)? Is it always possible to identify the ‘right’ course of action in a context such as financial failure or takeovers? Here the book quotes Martha Nussbaum:

“To be a good human being is to have a kind of openness to the world, an ability to trust uncertain things beyond your own control that can lead you to be shattered in extreme circumstances, in circumstances for which you are not yourself to blame. And I think that says something very important about the condition of the ethical life. That it is based on a trust in the uncertain, a willingness to be exposed.”

Needless to say, this almost existential openness is not what comes to mind when we think of finance, of Enron, Madoff, the sub-prime frauds. So Desai ends by pondering – without reaching a firm conclusion  –  what makes so many people in the financial markets so unethical, or at least driven by selfishness and greed. He also gives us a wonderful model of an ethical financier. It is Alexandra Bergson in Willa Cather’s O Pioneers!, the homesteader who borrows to invest and brings the land to life. What a great example. I devoured Willa Cather’s books some 30 years ago and had forgotten about them. It sin’t finance that’s good or bad, it’s people.

The Wisdom of Finance ends with a nice afterword pleading for inter-disciplinary alertness, citing C.P.Snow’s famous The Two Cultures and E.O.Wilson’s Conscilience, both excellent books.

All in all, highly recommended, for those who already know a lot about finance, and those who don’t.

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Surviving ‘post-truth’

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Yesterday I took part in an IdeaFactory session at the annual OECD Forum titled: ‘A Survivor’s Guide to a Post-Truth World’. The jury is out on whether experts (including economists) are going to be survivors, even after the session I think. As ever, though, it was fascinating, the discussion in our breakout group, really making me think above all about my personal actions: do I make enough of an effort to listen to people whose views I disagree with? or enough of an effort to overcome confirmation bias when I read things online? Another message I took away was to think about the relationship between online debate and face-to-face interaction, and the role of physical social and family networks. For example, if there are subjects on which we disagree with people close to us IRL that we can’t discuss, how on earth is that debate supposed to happen in any public forum?

Anyway, plenty of interesting books were mentioned. Matthew D’Ancona, one of three recent books called Post Truth (the others are by Evan Davis and by James Ball) was a speaker. (His point was that there’s nothing new about the production of lies but the consumption possibilities and behaviours have changed.) So was Brian Cathcart, co-author of Everybody’s Hacked Off (and once a colleague of mine), and philosopher Vincent Henricks, co-author of Infostorms. Other titles mentioned – ones I’d not heard of – were Joi Ito’s Whiplash and Joshua Cooper Ramo’s The Seventh Sense. Oh, and Durkheim came up in conversation. All round, plenty to think about.

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Bringing back welfare economics

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I recently read a 2001 paper by the late, missed, Tony Atkinson, The Strange Disappearance of Welfare Economics. He wrote: “Despite the prevalence of welfare statements in modern economics, we are no long subjecting them to critical analysis.” And he’s right. Economics, macro and micro, is stuffed with statements about ‘optimality’. The article continues: “One cannot help noting the sharp contrast to [an] example used in a 1930s discussion of welfare criteria: the repeal of the Corn Laws, where conflicting interests are central to the analysis. A representative agent model would indeed have appeared extraordinary to classical economists.” One cannot help noting, either, that if (macro)economics had not disembowelled itself of the ability to focus on conflicts of interest, we as a discipline would have paid more attention to the consequences of globalisation and technical change since 1980. But that takes us into counterfactual history territory.

It’s with some smugness that I’ve read (in the recent past, not in my millennium ago student days) the three key books on welfare economics cited in Atkinson’s article: Will Baumol‘s Welfare Economics and the Theory of the State, J de V Graaff‘s Theoretical Welfare Economics and IMD Little’s A Critique of Welfare Economics. The Baumol is the most recent, updated in 1965. I got that from the library store, the Graaff second hand online and the Little was donated to me by Andrew Sentance, who said it was mouldering in his garage so I could have it.

Sixteen year’s after Atkinson’s article, it’s time for economists to look seriously at welfare economics again. It affects everything from environmental policy (discounting the future??) to macro (budget rules, optimal saving….) to national income accounts (my pet obsession – any aggregation has an implicit set of ethical assumptions).

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Live long and prosper – economists and Vulcans

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I’ve very much enjoyed Manu Saadia’s Trekonomics: The Economics of Star Trek. Many economists are fans of science fiction, detective fiction, or both (as I long ago described here) and I’ve long been a fan of Mr Spock, indeed posting this sticker in the front of my copy of Theil’s Principles of Econometrics. Paul Krugman made a similar link in his well-known account of being drawn to economics by Isaac Asimov’s Foundation series.

IMG_4148Trekonomics joins Star Trek: The Human Frontier by Michele and Duncan Barrett as an excellent book about what the franchise says about society. It’s an interesting, enjoyable riff about the economics of the series: the implications of abundance, what work means, the absence of money, the implications of the replicator. I most enjoyed a rant about the anti-humanism of Paul Ehrlich’s 1968 The Population Bomb (and besides, it was completely wrong), and a section about the psychology of people in a society where there is no poverty, and no inequality of access to material resources (reputation and Star Fleet rank being another matter). There is also a chapter about the tragedy of the commons which might well turn up in my teaching next semester. This is a problem not even the wise and benign Federation can solve.

Manu Saadia argues that the calm and rationality of Vulcans, and indeed the humans in later series of Star Trek, are hard for 21st century humans to empathise with. We don’t care about these perfect characters, he writes. Maybe it’s because I’m an economist, but it’s Spock, not Kirk or any of the humans, who is my hero. The Vulcan greeting could be an economist’s motto.

Live long and prosper!

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