Author Archives: Diane Coyle

What to read?

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I need some recommendations from you. After a summer holiday devouring a pile of books, and with another pile earmarked to send out to reviewers for the winter issue of The Business Economist, I’m a bit short of books in my own in-pile. This is a busy time of year, when all my jobs realise they’ve not had any meetings for six weeks, and decide they need to catch up this week or next at the latest. So there are plenty of papers I could be reading. But where’s the fun in that? I do have a couple of books on my iPad, but regular readers of this blog will know my strong aversion to e-books (and, as if I needed another reason, there’s the e-book legacy issue, although apparently Bruce Willis is not taking Apple to court after all). There are specific requirements too. Of course it must be serious but readable non-fiction, economics and business and their hinterland – history, science, social science. Not too big, so I can carry it around on the Tube (I’m just about to give up on a book so chunk I can only read it in bed propped up on a pillow).

[amazon_image id=”0231135408″ link=”true” target=”_blank” size=”medium” ]Taking it Big: C. Wright Mills and the Making of Political Intellectuals[/amazon_image]

At the moment I only have two choices in the house. They are [amazon_link id=”0231135408″ target=”_blank” ]Taking it Big: C Wright Mills and the Making of Political Intellectuals[/amazon_link] by Stanley Aronowitz and [amazon_link id=”184983296X” target=”_blank” ]Cocktail Hour Under the Tree of Forgetfulness[/amazon_link] by Alexandra Fuller.

[amazon_image id=”184983296X” link=”true” target=”_blank” size=”medium” ]Cocktail Hour Under the Tree of Forgetfulness[/amazon_image]

I think I’ll start with the former. But send me ideas!

Keep it simple, stupid?

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In the past few days I have read two brilliant and fascinating articles, pointing to opposite conclusions. One argues that the extent of complexity in the financial domain is so great that effective regulation can only be achieved by the use of heuristics or rules of thumb. The other argues, equally persuasively, that the potential for ‘big data’ is now so promising that we will not need to map the complexity of the macroeconomy using simple aggregates and averages, but rather will be able to use actual data. My instinct tells me both are correct but I’m still thinking through how they might be reconciled.

The first is a speech given by the Bank of England’s Andrew Haldane at Jackson Hole, The Dog and the Frisbee. He notes that neither humans – nor dogs, who can do it even better – actually solve an optimal control problem when catching a frisbee. They follow the rule of thumb: run at a speed so that the angle of gaze to the frisbee remains roughly constant. Modern finance theory, and consequently financial regulation, has developed models of decision making under risk, but in fact the world features uncertainty and increasing complexity. The strong assumptions about the state of knowledge made in conventional models do not hold.

The speech concludes:

“Modern finance is complex, perhaps too complex. Regulation of modern finance is complex, almost certainly too complex. That configuration spells trouble. As you do not fight fire with fire, you do not fight complexity with complexity. Because complexity generates uncertainty, not risk, it requires a regulatory response grounded in simplicity, not complexity. Delivering that would require an about-turn from the regulatory community from the path followed for the better part of the past 50 years. If a once-in-a-lifetime crisis is not able to deliver that change, it is not clear what will. To ask today’s regulators to save us from tomorrow’s crisis using yesterday’s toolbox is to ask a border collie to catch a frisbee by first applying Newton’s Law of Gravity.”

This seems to me to be obviously true, even if it ruffles feathers in the financial regulatory community.

The second article is a conversation with MIT Media Lab’s Cesar Hidalgo on The Edge, What is Value, What is Money? This covers a lot of territory, but part of it is how we understand complexity in the aggregate. Hidalgo says:

“In the past when we looked at macro scales, at least when it comes to many social phenomena, we aggregated everything. Our idea of macro is, by an accident of history, a synonym of aggregate, a mass in which everything is added up and in which individuality is lost. What data at high spatial resolution, temporal resolution and typological resolution is allowing us to do, is to see the big picture without losing the individuality inside it. I believe that in the future, macro is going to be something that is going to be in high-definition. You’re going to be able to zoom in into these macro pictures and see that neighborhood, and see that person, and understand that individual, and to have more personalized interactions thanks to the data that is becoming available. I think that in some sense, big data can help recover the humanity of a world in which the scientific representations of people have become dehumanized, because of our need to simplify.”

Well, this is an exciting prospect and obviously potentially feasible in the Big Data world. But I’m not yet sure how it sits with the ‘Keep it Simple, Stupid’ moral of the Haldane paper. Or indeed with my strong instinct that public policy interventions are most effective when of the kind described by Thomas Schelling in his brilliant book [amazon_link id=”0393329461″ target=”_blank” ]Micromotives and Macrobehaviour[/amazon_link] – like traffic lights, a clear and simple rule which people have strong incentives to obey.

My dog retraining as a financial regulator

Capital!

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London has had a capital summer. Not the weather, of course (4th wettest since 1752, according to my Twitter stream). Rather, the Olympics and Paralympics – the confident, cosmopolitan, clever and witty presentation of ourselves to ourselves in the opening ceremonies (both Olympics and Paralympics), and the truly extraordinary mood of good cheer on the streets. Plus the fact that, to our surprise, we turned out to be good at the organising and good at the sport.

So when I had to go on holiday for two weeks, I took with me John Lanchester’s [amazon_link id=”B0071LQMMG” target=”_blank” ]Capital[/amazon_link], the London novel of the financial crisis, and Craig Taylor’s [amazon_link id=”1847083293″ target=”_blank” ]Londoners[/amazon_link], a collection of interviews with a wide range of people. Both were excellent holiday reads.

Lanchester wrote one of the best non-fiction books about the crisis, in [amazon_link id=”014104571X” target=”_blank” ]Whoops![/amazon_link] He couldn’t have chosen a better title for his novel, shared of course with [amazon_link id=”0199535701″ target=”_blank” ]Karl Marx’s great work[/amazon_link]. The novel features the inhabitants of a gentrified South London street, Pepys Road, ranging from a dying old woman who has lived there for decades to an obnoxious banker and his spend, spend, spend wife, and including the Pakistani family running the corner shop and an African traffic warden working illegally. They start to receive postcards then videos and website links with the ominous message ‘We want what you have.’ The people and situations are instantly recognisable to any Londoners. The novel captures exactly the flavour of many aspects of life in the capital. However, for me it suffers from having characters who stand for types, and not very likeable ones at that. It was a pacy read without engaging my sympathy for anyone whose life it describes.

[amazon_image id=”B0071LQMMG” link=”true” target=”_blank” size=”medium” ]Capital[/amazon_image]

Craig Taylor’s interviewees do exactly the opposite. One can tell that they are real people with real flaws, but Taylor’s interest and empathy in them makes them interesting and attractive to us. What’s more, real people, unlike fictional characters, are surprising and inconsistent. The City trader featured in [amazon_link id=”1847083293″ target=”_blank” ]Londoners[/amazon_link] is a Pakistani immigrant, self-taught, who spent many years working in a fast-food restaurant. There’s a black female plumber who used to dance in musicals. A (white, Oxbridge) English teacher who is fiercely proud of her street-wise comprehensive girls who wipe the floor with posh public schoolboys in a debating contest: “Apart from getting your phone stolen every twelve weeks, this is the best job ever.” The antique clock restorer. The retired Guardsman. The airline pilot. And the crematorium technician who sums it up: “Londoners are weird.”

[amazon_image id=”1847083293″ link=”true” target=”_blank” size=”medium” ]Londoners: The Days and Nights of London Now – as Told by Those Who Love it, Hate it, Live it, Left it and Long for it[/amazon_image]

Well of course, the older you get, the more you realise that everyone is weird. But this summer, we know how brilliantly London does weird and we are well proud of it. I enjoyed reading about us in these two books.

Out in paperback!

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As [amazon_link id=”0691156298″ target=”_blank” ] The Economics of Enough[/amazon_link] is out in paperback next Tuesday, it seemed a good moment to reflect on how it looks in the light of events since it was first published in February 2011.

[amazon_image id=”0691156298″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]

I don’t know about other authors, but as soon as I’ve sent off the file with the last fiddly bits of proofreading done, I put a book out of my mind. When the bound copies arrive, it’s a joy to handle them and see how they look, but I can only bear to peep briefly inside at the words. It’s always possible to spot things that could be improved, and anyway I find it faintly embarrassing to look at my own work with the kind of external perspective having a physical book in hand seems to bring – it makes it ‘official’, somehow. Like looking at a photo of yourself, which I hate as well.

So although I’ve been giving many talks about the book, it is only this week that I’ve re-read most of it. It’s a relief to find it stands up pretty well. When I was still writing, and even during the gap between writing and publication, neither I nor many other people expected the economic situation to remain as weak as it has. The already sharp debate between deficit cutters and advocates of stimulus has grown even sharper as a result of another 18 months of at best weak growth, at worst continuing recession. The Eurozone crisis does not feature in the book, but the structural and demographic challenges faced by Europeans do.

I probably understated the political challenges of delivering any kind of long-term policies addressing structural economic change – events have made me more pessimistic. Since publication, I’ve thought some more about inequality, its causes and solutions. This was the subject of my Joseph Rowntree Foundation lecture at the University of York in February 2012. Great inequality at a time of economic recession/depression certainly contributes to the bitter political atmosphere, and at present I find it hard to predict what the results will be. On a good day, I remain optimistic about the scope for social and institutional innovation to start reversing the inequality trend, but on a bad day, I think it will get played out in the political arena, nastily.

As for fiscal sustainability, I hesitate to dip once again into the macroeconomic debate. Although I can’t see how the transmission mechanisms of either more expansionary monetary policy (with billions of unacknowledged bad debts remaining on banks’ balance sheets) or an infrastructure-geared fiscal stimulus (when it will take two years or more to happen) can boost growth quickly, the macroeconomists I know are mainly advocates of an urgent government spending boost. Additional current government spending would by definition boost GDP growth in the short term (C+I+G+X-M) and there seems to be a consensus that the multiplier is (probably) greater than one. Higher long-term growth is a supply-side issue, though; and the long-term fiscal arithmetic that I discuss in the book makes it clear that a bigger deficit now will require a smaller deficit/bigger surplus later, unless growth potential improves more than currently seems likely. At any rate, I defer to others on the short-term stimulus vs austerity debate, on which I have nothing to add; but there’s definitely no quick fix for the longer term problem.

So, overall, The Economics of Enough more than stands the test of time, I think. The trouble is that genuinely sustainable growth, in all its dimensions, involves difficult choices, trade-offs. Events have made those less palatable, not more, while the challenges of sustainability have grown.

Magic bullets, war and peace, and defeating metaphors

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The books I chose for my recent holiday turned out to be uniformly excellent, which doesn’t always happen. Another cracker was Siddartha Mukherjee’s [amazon_link id=”0007250924″ target=”_blank” ]The Emperor of All Maladies: A Biography of Cancer[/amazon_link]. Although detailed and authoritative on the medicine and science, and quite a chunky book, it reads like a thriller and is packed with fascinating stuff.

[amazon_image id=”0007250924″ link=”true” target=”_blank” size=”medium” ]The Emperor of All Maladies[/amazon_image]

One of the most interesting strands concerns the importance of randomized control trials in testing both causes of different cancers and potential treatments for it. Medical trials are expensive, fraught with ethical dilemmas, and slooooow. But failure to carry them out can maim and kill. For many years women underwent massively radical mastectomies that made no beneficial difference to their health and mortality. The surgeons were carried along on the crest of their own certainty and self-esteem. (In fact, the disconnect between cancer researchers and surgeons who treat patients is another interesting theme.) The Doll and Hill test of the link from smoking to lung cancer was so decisive because it assigned subjects to trial groups randomly, before they had developed the disease.

However, as Mukherjee notes, the campaigning by activists for people with HIV and AIDS to receive new drugs and combinations of drugs before trials had been completed – on the entirely understandable grounds that the patients were dying and so anything, even anything unproven, was worth trying – changed the environment for rigorous trials. We see this all the time now with new cancer drugs. Desperate patients learn very quickly from online forums that an experimental treatment is available, and each of them faces the choice between certain early death and a whisper of uncertainty. See this recent example described in The Guardian – although the article doesn’t state whether the pioneering treatment available in the US has actually been trialled there either).

Thank goodness the stakes in economic policy, increasingly looking at the methodology of randomized control trials, are not so high. I think Mukherjee makes a strong case for sticking with the methodology, and resisting the activism, although it would make sense to ask whether formal trials need to take so long or cost so much. After all, apart from slowing down results, they form a massive barrier to entry in the pharmaceuticals industry.

I could pick out lots of other terrific sections. The book describes Vannevar Bush’s view of research at the wartime Office of Scientific Research and Development – namely, that the government had to fund research directly serving the needs of war. Programmatic research was a much higher priority than basic research. And also his change of mind as soon as the war was over, writing to the President in 1945: “The striking advances in medicine during the war have been possible only because we had a large backlog of scientific data accumulated through basic research in many scientific fields in the years before the war.”

What else? The heterogeneity of cancers. The fact that humans and cancer are in an arms race because tumours develop resistance, and that a “war on cancer” is, like all metaphorical wars, unlikely to be won. That as early as 1910 a researcher (a Paul Ehrlich, although not that one) declared (wrongly) that he had found a ‘magic bullet’, a metaphorical weapon in the metaphorical war. A highly recommended book.

PS I’d no sooner posted this than I found this THES review of two new books on the tobacco industry’s (ab)use of areas of scientific doubt.