Author Archives: Diane Coyle

Not average at all

Posted on by

Tyler Cowen has followed up the best-selling [amazon_link id=”0525952713″ target=”_blank” ]The Great Stagnation[/amazon_link] with another profoundly interesting book on the impact of new technology on the economy and beyond. [amazon_link id=”0525953736″ target=”_blank” ]Average is Over: Powering America Beyond the Age of the Great Stagnation[/amazon_link] picks up the theme of the disruption technological change and the consequent restructuring of business and focuses on the effects on individual jobs and what people might be able to do to safeguard their livelihood.

[amazon_image id=”0525953736″ link=”true” target=”_blank” size=”medium” ]Average Is Over: Powering America Beyond the Age of the Great Stagnation[/amazon_image]

The bottom line is that you need to think about which of your skills can easily be done – better, cheaper – by a computer, and work hard at developing other skills. The general message is relatively optimistic, with the book concluding that the combination of machine plus human power being much more productive than either alone; one of the examples of how and why this is so is ‘freestyle chess’. So a computer able to do fast routine work plus a human who has either advanced cognitive skills or non-cognitive skills that computers can’t attain could prove a winning team. The spread of computers through the economy would in that case prove to be another instance, seen many times in economic history, of investment in capital ultimately increasing the productivity and living standards of the people working with that capital.

However, the more specific message of the book is rather sober: Cowen doubts that all that many people in America at least have the focus and capacity for work and concentration to turn themselves into complements for robots rather than being substituted by them. And so far there is certainly plenty of evidence that routine work in many sectors of the economy, in the middle-skilled, middle-income bracket, is being away by computerisation, either directly through automation or indirectly through offshoring. About 60% of the jobs lost during the US recession have been in mid-wage occupations. Wages for the median male worker declined by about 28% between 1969 and 2009, this with no nuclear war, no asteroid striking earth, or other disaster. Nor is this disappearing middle of the income distribution just a US phenomenon: last week’s report on UK incomes from the Resolution Foundation pointed to similar evidence. Cowen writes: “The obvious and direct beneficiaries [of ever-more powerful computers] will be the humans who are adept at working with computers. … That means humans with strong math and analytic skills, humans who are comfortable working with computers because they understand their operation.” He argues that the scope of the phenomenon in the wider economy will only grow, pointing to driverless cars and taxi driver jobs, for example. Or think of those dreadful machines that are replacing supermarket cashiers.

A section of the book uses chess as an illustration of the trends – what computers can do, and can’t, and what human skills are substitutes and complements for computer skills. In short, computers do not have intuition, and cannot actually move chess pieces on a board. Nor are people interested in watching computers play chess, nor even human-computer teams – they want to watch other people play, and thanks to the internet chess has become a mass spectator, global sport.

There is a very interesting section on ethics – I wished it had been longer. Driverless cars will be more efficient. When the investment in the infrastructure is made, they will economise on drivers, be able to use fuel more efficiently, observe speed limits, probably be much, much safer. But how will they respond to moral dilemmas? If the choice is running over a baby carriage on a crossing by swerving into a group of five pensioners, what will have been coded into their programmes? Another section of the book predicts that the detailed tracking of measurements will transform all kinds of services, such as medical care. Patients will have increasingly detailed metrics on individual doctors’ performances; doctors will have detailed measures of how patients behave – do they take the full course of medicine? Do they make time-wasting visits? Do they smoke? It will be hard for people to make the judgements weighing up the things that can be measured easily (like death or recovery rates) and those that can’t, such as a caring personality, or a willingness to treat the most serious diseases. Steadily, without discussion, a moral framework is becoming encoded into the machines around us, and by the habits of use that are developing.

I’m not sure I share the book’s view about exactly what kinds of jobs will be left to humans. Cowen argues that these will be marketing jobs, work synthesising lots of areas of expertise to help people make complicated judgements, and coaching jobs for those lucky individuals who can develop their complementary talents, whether that’s being a top doctor, a top tennis player or a top executive. A more optimistic perspective would see opportunities for the growth of fulfilling creative work, such as acting or gardening or creating beautiful clothes; let the robots do the dull, repetitive jobs. Whether that is possible depends of course on whether the productivity gains from computerisation can be shared, and whether income can be distributed from the owners of the machines to the wider society. Clearly, that has not happened during the past generation.

All capitalist societies have faced this issue, however. How can people who are less productive (because there is less capital linked to their job, whether that’s machine-embedded capital or human capital) not be left so far behind that it becomes socially unsustainable. In past centuries that involved, for example, the spread of public schooling to primary and then secondary and tertiary levels, the growth of unions campaigning effectively for labour’s share of profits, redistribution through progressive taxation paying for public services available to all, and so on. I’d have liked more in Average is Over about how social and political institutions might respond to the challenge of the robots, more political economy. Maybe that will be his next book. Meanwhile, there is a clear message here for every reader: if you want to win the race against the machines, you’d better start running.

Here’s Andrew Keen discussing the book with Tyler. I discussed it with him on the FT’s Alphaville podcast.

Learning about development economics

Posted on by

Dean Yang posted his syllabus (pdf) for the graduate Development Economics course he is teaching at the University of Michigan this Fall. It looks a terrific course. I particularly approved of the selection of books recommended for purchase:

[amazon_link id=”0718193660″ target=”_blank” ]Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty[/amazon_link] (2011) by Abhijit Banerjee and Esther Duflo – an inspiring exposition of the use of experimental methods to determine what interventions are effective in certain contexts. There’s a danger of overdoing the enthusiasm for RCTs because you need to be confident about controlling for context – a bag of lentils as an inducement to get a child vaccinated has different results in, say, Chennai and Liverpool. But this approach represents a huge step forward in development economics.

[amazon_image id=”0718193660″ link=”true” target=”_blank” size=”medium” ]Poor Economics: Barefoot Hedge-fund Managers, DIY Doctors and the Surprising Truth about Life on less than $1 a Day[/amazon_image]

[amazon_link id=”0691148198″ target=”_blank” ]Portfolios of the Poor: How the World’s Poor Live on $2 a Day[/amazon_link] (2009) by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. One of my favourite books. It gathers new evidence about the financial services people on very low incomes need – and the answers are sometimes surprising. Should be read by anyone with views on microcredit and/or payday loans.

[amazon_image id=”0691148198″ link=”true” target=”_blank” size=”medium” ]Portfolios of the Poor: How the World’s Poor Live on $2 a Day[/amazon_image]

[amazon_link id=”1846143454″ target=”_blank” ]Scarcity: Why Having Too Little Means So Much[/amazon_link] (2013) by Sendhil Mullainathan and Eldar Shafir. I haven’t read this yet but am keen to do so. Here’s a great review by Cass Sunstein and here it is written up on Marginal Revolution.

[amazon_image id=”1846143454″ link=”true” target=”_blank” size=”medium” ]Scarcity: Why having too little means so much[/amazon_image]

The fact these are recommendations on a graduate course syllabus should not put anyone off – the two I’ve read are clear and definitely accessible to the general reader.

A book for geeks who want to have fun

Posted on by

If your interests lie at the intersection of the sets in this Venn diagram:

then you’ll enjoy [amazon_link id=”1782391193″ target=”_blank” ]Mr Penumbra’s 24 Hour Bookstore[/amazon_link] by Robin Sloan. Mine do. A really good, fun read.

I like the conclusion, too: “There is no immortality that is not built on friendship and work done with care. All the secrets in the world worth knowing are hidden in plain sight. It takes 41 seconds to climb a ladder three stories tall. It’s not easy to imagine the year 3012, but that doesn’t mean you shouldn’t try. We have new capabilities now – strange powers we’re still getting used to.”

[amazon_image id=”1782391193″ link=”true” target=”_blank” size=”medium” ]Mr Penumbra’s 24-hour Bookstore[/amazon_image]

Undercover, bigtime

Posted on by

I think everybody should read Tim Harford’s new book, [amazon_link id=”1408704242″ target=”_blank” ]The Undercover Economist Strikes Back[/amazon_link]. This includes (a) everybody who has no idea what to make of the conflicting arguments about fiscal and monetary policy, whether the austerians or the stimulards are right; (b) everybody who thinks they know exactly what fiscal and monetary policy ought to be; (c) all economics students; (d) anybody not in the first three categories.

[amazon_image id=”1408704242″ link=”true” target=”_blank” size=”medium” ]The Undercover Economist Strikes Back: How to Run or Ruin an Economy[/amazon_image]

The subtitle is ‘How to Run – or Ruin – an Economy’. The Undercover Economist has decided to tackle macroeconomics. That this is so successful a book – clear, balanced but not indecisive, readable – is praise indeed, from someone like me who thinks macroeconomics is in a pretty sorry state. There is an absolutely terrific introduction about Bill Phillips (of the machine and the curve). The first batch of chapters cover: what do we mean by macroeconomics, what can cause recessions, what is money, how money and inflation are related, different policy prescriptions for different types of recession, output gaps and unemployment. Later chapters look at management and productivity, the concept of GNP, demolish the idea that ‘happiness’ can/should replace growth, discuss whether there are physical limits to growth, look at inequality, and the book ends with an agnostic view about the future of macroeconomics.

The book would be worth reading for the first half alone; it is such a public service to explain why macroeconomists are arguing about how policy should respond to the post-crisis recession, and to do it with such clarity that you can be utterly confident the author understands his subject. (I do not get this sense of confidence from a lot of people writing about the economy.)

I would have liked the Undercover Economist to tackle some areas of macroeconomics omitted from the book: financial markets and asset prices; and exchange rates and the balance of payments. Both are important to understand recent economic history and the financial crisis. So the book is not a complete guide. It would be churlish, too, to point out that a couple of the chapters are really more microeconomics than macro (job matching and efficiency wage models of the labour market, and management). And I personally don’t like the Q & A format of the book, but that’s seemingly a minority view. I still enjoyed reading it. It is definitely one for my list of economics books for beginners.

 

Migration then and now

Posted on by

Greater international migration has been one of the features of post-1990 globalization, but most people do not leave their homeland to work and live elsewhere. The costs of doing so are high: leaving behind families and social networks, learning to cope with a new environment and usually new language, finding a new place to live, taking the risk of having to find work – and, as Martin Ruhs’s new book, [amazon_link id=”0691132917″ target=”_blank” ]The Price of Rights[/amazon_link], observes, migrants usually do not have the same workplace rights as local workers. Their rights fall below those set in international standards.

[amazon_image id=”0691132917″ link=”true” target=”_blank” size=”medium” ]The Price of Rights: Regulating International Labor Migration[/amazon_image]

The book discusses both the evidence on migrant rights, and the ethical issues. In particular, it asks whether it would be better to agree a set of ‘core rights’ for migrant workers rather than the very comprehensive set of rights currently enshrined in international rules, but rarely if ever observed. The rationale for this move would be that the character of the rights of migrant workers determines their economic effects – how productive they are, how much they compete with or complement the resident workforce, their impact on the public finances. “Because rights shape the effects of labor immigration, migrant rights are in practice a core component of nation states’ labor immigration policies.” Immigration policy has three inter-related elements: the number of migrants, the selection of the type of migrants, and their rights after admission. The first two have been discussed widely, but this book makes a distinctive contribution to the debate by looking carefully at the third. Policy makers pay lip service to universal rights while not ratifying the UN’s convention on migrant worker rights, so the use of the granting of rights (or not) as an instrument of migration policy has not been debated. I also wholeheartedly applaud the inclusion of the ethical issues in the discussion here.

Ruhs constructs some new indicators of the openness of labour migration policies in 46 middle and high income countries. Those countries targeting high skill workers are more likely to grant more extensive social, residency and family rights. The book goes on to describe in more detail the immigration policies of a number of countries. The case studies clearly show that decisions about the granting of rights are considered for their impact on immigrant numbers. The governments of countries sending migrants have sometimes criticise host governments for using rights restrictions as backdoor ‘protection’ – the EU accession countries have voiced this view about the insistence by ‘old’ EU countries on the complete equality of rights for their migrants. Similarly India has tried to use the GATS agreement to argue against wage parity requirements for its migrants overseas on the basis that it is a restriction of trade.

Martin is a former colleague of mine from my days on the Migration Advisory Committee, and the book manifests his measured, pragmatic approach. He writes in the Introduction: “I am skeptical of anybody who maintains that there are obvious or clear answers to any of these issues.” A reasonable voice is more than welcome in this policy debate. He ends up arguing for evidence-based time-limited rights restrictions for migrant workers to enable greater openness to migration (ie. there should be a pathway to permanent residence and equal rights after a period), but is clear that we are in a world of trade-offs. The book is critical of the idealism of people – and UN agencies – advocating both equal and extensive rights for migrant workers and less restriction on migration.

The discussion of the ethics of this approach is very interesting. The book argues that demanding migrant worker ‘rights’ as a universal ethical norm closes the door to reasonable political debate about costs and benefits. When the issue inevitably involves conflicting interests, this is unhelpful – it makes what ought to be negotiable non-negotiable, and raises the temperature politically. Martin writes: “Bringing the state and politics back into rights-based approaches to international labour migration would open up a space for legitimate and important debates and deliberation.”This is an academic book, but very accessible, and I think it is an important one for anybody interested in the migration debate to read.

I also recently read Drew Keeling’s [amazon_link id=”3034011520″ target=”_blank” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914[/amazon_link], which I believe he will be discussing at the European Historical Economics Society conference taking place in London in the next two days. Here is the book website.

It looks at this historically unique, massive migration flow from the old to the new world through the prism of steamship transportation across the Atlantic: “This is a history of the 11 million European-born migrants who made 19 million ocean crossings on 18,000 voyages of several hundred vessels of two dozen steamship lines.” I found it fascinating to see this movement of people as a transport business, a novel approach to a story that is familiar in many ways. It was a significant business: “The business of migration between Europe and the United States generated over $20 million in revenues for transatlantic steamship companies in 1900, making it one of the largest examples of capitalist enterprise anywhere in the world at that time,” the book begins.

Falling transportation costs and better communications have played a major role in increasing migration during the current era of globalisation. I was surprised to learn that trans-Atlantic passenger fares in the early 20th century did not decline much over time, although there were periods of ‘fare wars’ – the assumption that freight to Europe from the US made space for passengers from Europe is incorrect. The ships used tended to only carry passengers and did not see the same pattern of cost declines as freight traffic.The book argues that the bigger cost to migrants was uncertainty about their prospects, and these costs declined over time as kinship networks in the United States grew more extansive.

Rather, the origins of the passenger steamships lay in state sponsorship of services to carry the mail reliably, the ‘packet’ vessels from the 1820s on. Their reliability and safety increased. The Cunard Line started its regular transatlantic voyages in 1840 with a significant subsidy from the UK government, and took 14 days with little variation – a reduction from earlier sailing times of anywhere between 4 and 8 weeks. This is a terrific business history with lots of fascinating detail about the steamship companies, their business strategies, their interactions with governments, and their risk-mitigation efforts.

It was all brought to a sudden halt by the outbreak of the First World War – one of the first moves by the British government in August 1914 was a blockade that stopped the two big German lines from operating. Migration flows fell sharply and never regained their early 20th century levels. The earlier climate of openness vanished irrevocably – certainly, a century on, it is hard to imagine a return to a population shift on that (relative) scale with such significant consequences for the receiving economy. And while there are certainly business models built on migration, it is hard to imagine they could ever grow into major corporations like Cunard, White Star or HAPAG.

[amazon_image id=”3034011520″ link=”true” target=”_blank” size=”medium” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914: Mass migration as a transnational business in long distance travel[/amazon_image]