One of the most enlightening aspects of my time as a competition regulator in the UK was learning what a wide range of businesses actually do – set prices, deal with suppliers etc. – after so many years generalising about it. Economists are prone to overly-abstract analysis without the interesting detail.

It is the detail combined with analysis that makes [amazon_link id=”0199794642″ target=”_blank” ]Working Hard, Working Poor: A Global Journey[/amazon_link] by Gary S Fields a terrific book. He describes from experience in several countries what it is that keeps poor people poor, the 3.1 billion globally who live on less than PPP US$2.50 a day.

In a nutshell, the answer is ultra-low pay for their hard work and long hours. Reducing poverty therefore depends on finding ways to increase their earnings – although, as the introduction points out, jobs and earnings are notable by their absence from the Millennium Development Goals, and the labour market in general absent from consideration in development economics.This is a striking gap when you consider that labour market success, in one way or another, is precisely how hundreds of millions of people have escaped poverty over the years; or indeed how much we focus on assisting the working poor in the western countries through income-supporting policies such as the EITC/Working Families Tax Credit.

The specific reasons for low pay differ from place to place. For the rural poor, the productivity of their farming is low, often because they do not have the savings or credit to buy equipment. They may also receive low prices for their produce, or be unable to sell directly in the market because of the need for a licence or to pay a bribe. For those in urban areas, relatively few of the very poor work in jobs, and one path out of poverty would require economic reforms to reduce barriers to the creation of formal jobs. As the author points out, the people working in factories like Foxconn’s in China have better pay and conditions than many of their compatriots. The majority of very poor people who are self-employed need to earn more from their work, almost always in the informal sector, and this will depend on context. In India, organisation in a union helped increase the pitiful earnings of women rolling bidis in their slum homes. Some training or access to loans would help others, as would reducing bureaucratic hassle, and enabling small-scale franchising.

Still, I hesitate to generalise about a book whose value lies in its specificity. It’s a short book, nicely written. It is highly suitable for students taking development economics courses. But anyone with an interest in global poverty should read it too, for the window on the lives of real people, their stories told in a matter-of-fact and non-patronising way. It joins [amazon_link id=”0691148198″ target=”_blank” ]Portfolios of the Poor[/amazon_link] as one of the most useful books I’ve come across in this field. Highly commended.

[amazon_image id=”0199794642″ link=”true” target=”_blank” size=”medium” ]Working Hard, Working Poor: A Global Journey[/amazon_image]

In a rare defeat, I’ve put down Daniel Klein’s [amazon_link id=”019979412X” target=”_blank” ]Knowledge and Co-ordination[/amazon_link], although there is obviously an interesting argument in there trying to get out. But I just couldn’t follow the argument. Still, it sent me back to Thomas Schelling’s (1978) [amazon_link id=”0393329461″ target=”_blank” ]Micromotives and Macrobehaviour,[/amazon_link] which is one of the all-time classics – its economics both rigorous and humane, with no equations and clearly written.

Opening it at random, I found this:

“A good part of social organization – what we call society – consists of institutional arrangements to overcome these divergences between perceived individual interest and some larger collective bargain. Some of it is market-oriented – ownership, contracts, damage suits, patents and copyrights, promissory notes, rental agreements, and a variety of communications and information systems. Some have to do with government – taxes to cover public services, protection of persons, a weather bureau.. one way streets, laws against littering, wrecking crews to clear away that car in the southbound lane and policemen to wave us on in the northbound lane. More selective groupings – the union, the club, the neighbourhood – can organize incentive systems or regulations to try to help people do what individually they wouldn’t but collectively they may wish to do. Our morals can substitute for markets and regulations, in sometimes getting us to do from conscience the things that in the long run we might elect to do only if assured of reciprocation.”

In one paragraph, an illustration of the rich array of approaches to solving collective action problems, and thus the wide scope of collective action problems we face. It makes the ‘leave it to the market’ versus ‘the government must do something’ kind of argument that features in so much policy debate look completely facile.

The book also has my favourite-ever example of a simple, elegant, self-enforcing policy – the traffic signal. A few people will run red lights, but mostly they do not because it is in their own interest not to drive into the line of traffic with a green light. The role of policy is to coordinate everyone on the meaning of green and red, and the implementation will on the whole look after itself. All this and much more, including the introduction of ‘tipping points’ and the dynamics of racial segregation. A brilliant book.

[amazon_image id=”0393329461″ link=”true” target=”_blank” size=”medium” ]Micromotives and Macrobehavior[/amazon_image]

I’ve begun reading an intriguing book, [amazon_link id=”019979412X” target=”_blank” ]Knowledge and Co-ordination: A Liberal Interpretation[/amazon_link] by Daniel Klein. The author, someone I’ve not come across before, doesn’t go out of his way to be accessible, and also starts out describing his close identification with hardliners of the Austrian School. So I was preparing to take a look and write the book off as eccentric. But there’s proving to be enough of interest to have kept me going. For one thing, the author is a big fan of Deirdre McCloskey on [amazon_link id=”0299158144″ target=”_blank” ]The Rhetoric of Economics[/amazon_link], and of [amazon_link id=”0393329461″ target=”_blank” ]Thomas Schelling[/amazon_link] on game theory. I also liked this comment at the start of Chapter 2:

“Economists often talk of asymmetric information, but they rarely talk of asymmetric interpretation. They rarely talk of discovery, imagination or serendipity, and consequently they tend to neglect these as vital factors of economic progress. They often carry over their mental habits to public policy.” (p11)

And he goes on to quote Hayek:

“To use as a standard by which we measure the actual achievement of competition the hypothetical arrangements made by an omniscient dictator comes naturally to the economist whose analysis must proceed on the assumption that he knows all the facts which determine the order of the market.”

The challenge to economists who comment on public policy is a powerful one: is the assumption of omniscience, an objective external perspective, on our own part – rather than the assumption of rationality – our real failing?

[amazon_image id=”019979412X” link=”true” target=”_blank” size=”medium” ]Knowledge and Coordination: A Liberal Interpretation[/amazon_image]

Thanks to a couple of decent train journeys, I’ve at last read Matt Ridley’s [amazon_link id=”0007267126″ target=”_blank” ]The Rational Optimist: How Prosperity Evolves[/amazon_link], published in 2010. Some readers will no doubt think it mis-titled, and might argue instead for The Delusional Optimist. After all, the nearly two years since publication have hardly seen a lot of economies enjoying the sunny uplands of vigorous growth. But they would be unfair to read the book as a commentary on the current state of the economy; its theme concerns the very long run of growth.

Ridley’s main thesis is that specialisation and trade are what drive innovation and growth. Indeed, he argues that trade came before agriculture, before urbanisation and is in fact part of our genetic nature, although as a non-expert on genetics, I thought this particular bit of the argument involved quite a lot of “It is a reasonable guess that…”. The book canters through history from the dawn of time, touching on everything from natural selection to the specifics of the Industrial Revolution. If, like me, you’ve read Paul Seabright’s [amazon_link id=”0691146462″ target=”_blank” ]Company of Strangers[/amazon_link] and Ian Morris’s [amazon_link id=”1846682088″ target=”_blank” ]Why The West …. For Now[/amazon_link], and some economic histories like Greg Clark’s [amazon_link id=”0691141282″ target=”_blank” ]A Farewell to Alms[/amazon_link] or David Landes’ [amazon_link id=”0349111669″ target=”_blank” ]Wealth and Poverty of Nations[/amazon_link], a lot of this material will be familiar. But for everyone else, The Rational Optimist gives an accessible and useful overview of the wide range of material. And there were inevitably some new nuggets of information – I didn’t know the Calico Act of 1722 banned the wearing of cotton in England – and was not repealed until 1774.

I share Ridley’s conviction that specialisation and trade are the key to improving the well-being of people in general, even if not that of specific producer groups, like English textile manufacturers of the 18th century. I also very much enjoyed his spluttering against what he calls the ‘green chic’ movement, rich people who enforce totemic beliefs about what is ‘natural’, often to the detriment of poor people – or even the environment. Ridley is acid about the environmental movement’s opposition to GM crops, for example, and with the authority that comes from genuinely understanding the genetics.

Why does protectionism recur again and again? The book suggests it is part of an inevitable cycle of a society’s decline. Trade creates a surplus which is increasingly appropriated by rulers or governments, encouraged by producer interests, or by priests or intellectuals who do not like the fact that nobody is in charge of trade. I think he underestimate the support protectionism gets from many citizens who do not like uncertainty or change. After all, specialisation is disruptive of livelihoods. This is an issue I touched on in my 2001 book,[amazon_link id=”1587990822″ target=”_blank” ] Paradoxes of Prosperity[/amazon_link]. Nor am I wildly optimistic about averting protectionism during the current economic crisis – let’s hope this is wrong, but rational pessimism could be more in order for the next few years.

[amazon_image id=”0007267126″ link=”true” target=”_blank” size=”medium” ]The Rational Optimist: How Prosperity Evolves[/amazon_image]

Austere times have in the past been paradoxically creative periods. In responding to the Great Depression, FDR included the arts in the Works Progress Administration alongside roadbuilding. Keynes made the formation and generous funding of the Arts Council in 1946 a central thought in rebuilding the UK after the horror of war, and just as its enduring financial and physical costs became fully apparent. Of course, good times are good for the arts as well. The economic Golden Age of the later 1950s and 1960s were the most generous period for funding the arts, and stimulated great innovation and experimentation.

But I’m not thinking about the production of artistic works so much as their ‘consumption’. When a society experiences difficult times, shared artistic evaluation becomes important, for several reasons – as a conversation about what people are experiencing, as a means of escapism, as a symbolic statement of values. This essay by J.B. Priestley in his 1949 collection [amazon_link id=”1905080670″ target=”_blank” ]Delight[/amazon_link], put it very aptly:

“What is the use of our being told that we live in a democracy if we want fountains and have no fountains? Expensive? Their cost is trifling compared to that of so many idiotic things we are given and do not want.”

The creation of the arts can be funded either privately or publicly, and the act of creation may take place inside one person’s mind in inescapable privacy; but any example of art that is not experienced jointly and debated is really consumerism, not creativity. I was struck by the importance of the social context reading this very positive review of Jonah Lehrer’s acclaimed new book [amazon_link id=”184767786X” target=”_blank” ]Imagine: How Creativity Works. [/amazon_link]The book is about the neuroscience of creativity, what happens in the individual brain. But societies as well as individuals create. Recognising that social outcomes are greater than the sum of individual outcomes was Keynes’s true and enduring legacy.

[amazon_image id=”184767786X” link=”true” target=”_blank” size=”medium” ]Imagine: How Creativity Works[/amazon_image]