Author Archives: Diane Coyle

Books I want to read

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Yesterday I was unwell and made good progress on [amazon_link id=”0099551861″ target=”_blank” ]Revolutionaries: Inventing An American Nation[/amazon_link] by Jack Rakove. Naturally, I’ll be trying to finish it on Tuesday

[amazon_image id=”0099551861″ link=”true” target=”_blank” size=”medium” ]Revolutionaries: Inventing an American Nation[/amazon_image]

Meanwhile, the list of other books I want to read is growing. Here are some new additions.

There’s [amazon_link id=”1743311435″ target=”_blank” ]Double Entry: How the Merchants of Venice Created Modern Finance[/amazon_link] by Jane Gleeson-White, which featured recently on NPR’s Planet Money episode, The Accountant Who Changed The World.

[amazon_image id=”1743311435″ link=”true” target=”_blank” size=”medium” ]Double Entry[/amazon_image]

Dieter Helm’s [amazon_link id=”0300186592″ target=”_blank” ]The Carbon Crunch: How We’re Getting Climate Change Wrong and How To Fix It[/amazon_link].

[amazon_image id=”0300186592″ link=”true” target=”_blank” size=”medium” ]The Carbon Crunch: How We’re Getting Climate Change Wrong – and How to Fix it[/amazon_image]

[amazon_link id=”184954400X” target=”_blank” ]Greekonomics: The Euro Crisis and Why Politicians Don’t Get It[/amazon_link] by Vicky Pryce – one of the speakers at the Festival of Economics in Bristol on 23-24 November – a few tickets left!

[amazon_image id=”184954400X” link=”true” target=”_blank” size=”medium” ]Greekonomics: The Euro crisis and why politicians don’t get it[/amazon_image]

A footnote, though, for publishers. Please can you stop these awful patronising book subtitles? I’ve done them myself, mea culpa, but I’m fed up with them now.

Monetary wisdom

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A 1695 book has been strongly recommended to me, [amazon_link id=”1402168403″ target=”_blank” ]A report containing an essay for the amendment of the silver coins[/amazon_link], by William Lowndes. There are free e-versions of the text available at Open Library. Lowndes proposed a solution to the critical shortage of coins at the time, but the Government instead followed advice from John Locke (on the basis that he had saved the life of the King’s uncle by operating successfully on an intestinal infection – an interesting reason for taking economic advice). This is the crisis covered by Thomas Levenson’s excellent book [amazon_link id=”057122993X” target=”_blank” ]Newton and the Counterfeiter[/amazon_link]. Isaac Newton took charge of the Royal Mint from 1699 to his death in 1727, and finally sorted out the coinage crisis.

[amazon_image id=”1402168403″ link=”true” target=”_blank” size=”medium” ]A Report Containing an Essay for the Amendment of the Silver Coins[/amazon_image]

It looks delightful: “In the most ancient times, when money was first coined within this island, it was made of Pure Gold and Silver, like the Moneys now currant in some other Nations, particuarly in Hungary and Barbary where they have Pieces of Gold called Ducats and Sultanelles; and in the Kingdom of Industan, where they have pieces of Silver called Rupees, which I have seen.”

Why a top monetary economist is wrong

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Yesterday I had lunch with an old friend who is a top monetary economist. We were discussing a conference on the state of macroeconomics that I attended recently. The conference seemed to me to reveal quite a deep division between those macroeconomists who thought their pre-crisis New Keynesian DSGE models were basically fine, although obviously in need of having a financial sector added to them, and other economists taking a wide range of approaches but pretty sure the pre-crisis mainstream approach is defunct. I’m in the latter category, with the caveat that it’s nearly 25 years since I’ve done any proper macroeconomics.

Alas, my dear friend is in the amended status quo camp. He said the tools a monetary economist needs can be found in the Michael Woodford tome [amazon_link id=”0691010498″ target=”_blank” ]Interest and Prices: Foundations of a Theory of Monetary Policy[/amazon_link]. His argument went like this. Any macro model makes simplifying assumptions. We macroeconomists could have assumed that prices and wages are perfectly flexible, which would make the models easier, but we didn’t. That was a correct call. We did make the simplifying assumption that the financial sector was a veil and we could ignore the incentives on bankers’ behaviour, and that was a misjudgment. But economists understand incentives, it’s straightforward to fix, and we’re putting the financial sector into the models now.

[amazon_image id=”0691010498″ link=”true” target=”_blank” size=”medium” ]Interest and Prices: Foundations of a Theory of Monetary Policy[/amazon_image]

This argument is on the face of it perfectly reasonable, but it reminds me of a conversation I had with another tleading economist in the mid-1990s, when I was working as a journalist reporting on technology and becoming enthused about the likely implications of the internet and World Wide Web for the economy. This economist argued that all the internet did was reduce transactions costs, and economists understand how to model transactions costs, so the new technologies would turn out not to be very interesting analytically. This was also true in a small way, and false in a much bigger way.

The moral is that the judgments reflected in simplifying assumptions are not a small technical matter. Transactions costs are not a side-show in economic analysis, they are the main attraction, driving the fundamental structures and institutions of the economy. So it is with the assumptions behind conventional macro models, which encapsulate a world-view about the nature of economic and political institutions  – the failure of pre-crisis DSGE models is not a question of small and easily corrected misjudgements but rather missing the main point.

(Strategic) thinking is hard to do

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I’m taking a break from economics by reading [amazon_link id=”0099551861″ target=”_blank” ]Revolutionaries: Inventing an American Nation[/amazon_link] by Jack Rakove, a history of the American revolution told through the debates among its leaders. The gaps in my knowledge on this subject are large, and it’s a beautifully written book, so I’m enjoying it. It has made me realise, once again, how few people think strategically at all – that is, think about how their interlocutor is going to react in his (or her) next move – never mind what their end-game might be. The American victory over Britain could almost be summed up as the result of having a few more strategists.

[amazon_image id=”0099551861″ link=”true” target=”_blank” size=”medium” ]Revolutionaries: Inventing an American Nation[/amazon_image]

This is just as true in modern life. The best business book on strategy is, at least in my reading, Nalebuff and Dixit, [amazon_link id=”0393310353″ target=”_blank” ]Thinking Strategically[/amazon_link]. It uses game theory but isn’t all that difficult. Still, just as Daniel Kahneman points out in [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link], how hard it is to calculate anything, I’m sure it must also be hard to strategise.

[amazon_image id=”0393310353″ link=”true” target=”_blank” size=”medium” ]Thinking Strategically: Competitive Edge in Business, Politics and Everyday Life[/amazon_image]

e-mergers

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There’s obviously much excitement in the publishing world about the Random House-Penguin merger. It’s the kind of merger that makes me wish I was still on the Competition Commission, as the issues are fascinating. The justification given by the parties is that they will be able to invest on a larger scale in e-books. Clearly, all publishers are anxious about Amazon’s market power – 40% of all retail book sales in the UK according to one figure I saw. But this is complicated territory, competition-wise.

I was a member of the Competition Commission group that gave the 2006 go-ahead for Waterstones and Ottakar’s (remember them?) to merge on the grounds that online book sales offered vigorous competition to high street booksellers. Since then, Borders/Books Etc has also gone from British high streets, although Daunts and Blackwells seem to be more than holding their own. Ironically, the publishers – including Penguin – were vociferously opposed to the Waterstone’s merger, saying online sales would not pose an effective competitive threat to a single big high street chain.

What a lot of today’s commentary is not discussing in detail is the question of which markets along the whole value chain need to be assessed. There’s a transaction between author and publisher – mega-publishers look bad for most authors but on the other hand there seem to be quite a few reasonably successful small publishers springing up. Then the wholesale transaction between publishers and retailers – and here there is growing concentration on both sides, with the intriguing wrinkle that Amazon can act as a platform for smaller publishers to reach readers.

Finally, there is the retail market, both in its physical and e-book manifestations. Amazon is clearly dominant, and seems to be pricing Kindle devices at cost to hook customers in, but is not blatantly using its market power to raise prices to consumers, as opposed to squeezing the publishers’ margins – although given that the price of an e-book is a rental rather than a purchase price, that is a hypothesis to be tested. Anyway, one would need a two-sided market model to assess the competitive impact of changes in the two separate margins, as there is no reason these would be the same under perfect competition. Besides, any competition regulator would want to see a standardised e-book format emerge.

All in all, it would be a terrific case to be on! I’m not sure it will be referred – Penguin seems confident it can avert that with sufficient undertakings and disposals – but if there is an inquiry, the report will make a cracking good read.