True wealth

I’ve been meaning to write about National Wealth: What is Missing, Why it Matters edited by Cameron Hepburn and Kirk Hamilton. This volume (in which I have a chapter, The Political Economy of National Statistics) looks at different types of wealth from a number of perspectives. The opening set of chapters look at the link between wealth and sustainability (measurement of assets being essential to take the future into account) and the link between wealth and well-being, as well as my paper looking at how one might move from a GDP/income flow to a wealth measurement standard. Part two covers the historical perspective on wealth. Part 3 looks in more detail at the measurement of specific components of wealth, and part 4 at sustainability.

As the editors write, “Policies that create wealth go beyond increasing output; they involve investments today for returns in the future … A focus on wealth generation … shifts policy away from supporting immediate consumption.” There are plenty of ideas and an increasing amount of data making it possible to start accounting for wealth, and specifically the change in real wealth. The challenge is the policy challenge of getting consensus about the need to change the focus.

With my co-author Benjamin Mitra-Kahn, we suggested how to go about this as our entry for the inaugural Indigo Prize, which we were honoured to win jointly with Jonathan Haskel and his colleagues. Their ideas for improving GDP are excellent; but Ben and I still think priority needs to be given to the sustainability-enhancing potential of a wealth focus rather than an amended GDP focus. Wealth and sustainability are “joined at the hip,” as National Wealth puts it.


What do software developers really do?

When talking to my students about the difficulty of monitoring effort, and therefore how information asymmetries shape the operation of markets (or policies), an example I often use is hiring a software consultant or coder. Someone who is not a software developer, and perhaps even someone who is, will not be able to tell whether the employee or consultant is working hard, or what the quality of their output is – certainly not until it is finished and maybe not even then.

So I was intrigued by a new book that arrived here, Working With Coders: A guide to software development for the perplexed non-techie, by Patrick Gleeson. The author has worked as a software developer and is designed for people who are hiring or contracting people like him. I’ve never had to do this so can’t contribute any personal experience. Still, this seems like a really useful book for anyone in such a position. It explains some of the basics, demystifies jargon, explains how to set up the development process to ensure quality standards, describes the warning signals that a project is going wrong and finally offers some thoughts about what to do when it has gone wrong. There are some example bits of code but no prior knowledge on the part of the reader is assumed.

I would say that if you have any responsibility for software projects without any technical knowledge, and know even less than you would ever be prepared to admit, this book would be well worth your while. Given that one of the main reasons big software projects go wrong is that the executives or managers in charge have so little understanding, the cover price is a very reasonable investment in chipping away at the information asymmetry – alongside, of course, the classic (1975) The Mythical Man Month: Essays in software engineering by Frederick Brooks (“Adding manpower to a late software project makes it later.”)



Economics for good

Jean Tirole’s book Economics for the Common Good is out now and is highly recommended. As I had the privilege of helping prepare the English edition, I’ve read it with careful attention, and most appreciated Tirole’s ability to crystallise complicated issues in a straightforward way, combining surgical analysis with very clear explanation. This is too rare a skill among economists.

The first part of the book concerns the influence of economics and economists on society and the role of the market, followed by a section on what doing (good) economics involves, and also how economics is changing. There are then two chapters on organisation, the first on the relationship between state and market, the second on the role of business. These sections are in the same spirit as Dani Rodrik’s Economics Rules, although their experiences and examples differ. Here in Economics for the Common Good is an economist at the pinnacle of the profession (Tirole won the 2014 Nobel prize) giving a thoughtful, reflective account of what economics can properly contribute to – well, the common good. Although much of his work is highly technical, he has always been concerned with its application to practical challenges in organising society: “Academics must ..collectively aim to make the world a better place; consequently, they cannot refuse, as a matter of principle, to take some interest in public affairs.” If an economist has appropriate professional competence in some area, she has an obligation to take a position on it – while acknowledging that what is known changes and re-evaluation may always be necessary.

The final two sections of the book turn to applications of economics, big macroeconomic questions such as financial market stability or tackling climate change, and then applied microeconomic issues such as competition policy, digital platforms, intellectual property and the regulation of network industries. Given my own interests, this final section was riveting. No other individual economist has done more than Tirole to take forward the economic analysis of these kinds of areas, incorporating issues of asymmetric information, principal-agent problems, incentive compatibility, and so on. The final chapter, on sector regulation, is a must-read for anyone interested in this area. (I drew on it in a recent FT column.)

The book is non-technical, aimed at the general reader, and packed with examples. It does in parts require a careful read, but each sections and chapters stands being read alone, so one can dip into the book. There’s a nice publisher blog post in which Tirole explains his motivation for writing the book and what he hopes it can achieve.

It ends with an epilogue reflecting on the status of technical knowledge in a time of populism (the French edition was published early enoug in 2016 that it feels like a different era), and the even greater responsibility economists have to engage and communicate – “Economists must … with humility and conviction, harness economics for the common good.”

Price: £16.96
Was: £24.95

Economic observation

On Friday all the researchers in the new Economic Statistics Centre of Excellence (ESCoE) met at its home in the National Institute to catch up on the range of projects and it was terrific to hear about the progress and challenges across the entire span of the research programme.

One of the projects is concerned with measuring uncertainty in economic statistics and communicating that uncertainty. The discussion sent me back to Oskar Morgenstern’s 1950 On the Accuracy of Economic Observations (I have the 2nd, 1963, edition). It’s a brilliant book, too little remembered. Morgenstern is somewhat pessimistic about both how meaningful economic statistics can be and whether people will ever get their heads around the inherent uncertainty.

“The indisputable fact that our final gross national product or national income data cannot possibly be free of error raises the question whether the computation of growth rates has any value whatsoever,” he writes, after showing that even small errors in levels data imply big margins of error in growth rates.

On the communications front, he noted that members of the public were often suspicious of economic statistics – and rightly so: “The professional users of economic and social statistics strangely enough often seem to be less skeptical than the public.” Yet, he added, public trust was essential both to deliver the appropriations of funding for statistical agencies and so that people had the confidence to provide information to statisticians.

I do find it odd that many economists download the productivity data from standard online sources uncritically and pronounce on the ‘puzzle’ of its zero growth when so many providers of raw data point (businesses in this case) out that from their perspective there are significant productivity gains. But that’s what the ESCoE is about – trying to resolve a different puzzle, that of two contradictory sets of evidence – and it’s keeping me gainfully occupied.


The weaponization of trade

The latest Perspectives title is here. It’s The Weaponization of Trade by Rebecca Harding and Jack Harding (respectively a trade economist and a security researcher), and it couldn’t be more timely. The book looks at the shift from trade as an issue debated squarely in the economic domain to trade as a tool of politics and international relations.

The argument is that there economics and politics are always at play in trade policy, and they need to be in balance, with neither set of criteria dominating the other. Too much focus on economics, and the distributional – and hence political – consequences get overooked. Too much focus on politics and the chances are that there will be economic damage. We are in one of the latter phases – the Brexit “negotiations” and Donald Trump are both gifts that keep on giving in the context of this book. The rhetoric shows that politicians are conceiving of trade as a tool of state strategy (not necessarily effectively, either). These periods are never pretty in terms of their economic consqeuence. “Weaponized language has the capacity to do lasting damage,” they write. It is perfectly valid for trade to have regard to national interest, but the weaponized language of national interest is as dangerous as weapons can always be.

The joint disciplinary perspective really brings this argument to life. The economics draws on the Krugman tradition of analysing strategic trade. The security dimension, locating trade policy alongside other security issues, is illuminating. And Donald Trump makes this more timely reading every day.

By the way, the most recent preceding Perspectives were the outstanding Before Babylon, Beyond Bitcoin by Dave Birch and Britain’s Cities, Britain’s Future by Mike Emmerich. Upcoming titles cover digital organisations and driverless cars…