There’s an interesting post on GigaOM predicting a rosy future for e-books. Its author, Trey Ratcliff, cites the attraction of much higher profit margins, thanks to disintermediation, the fact that readers do not substitute e-books for physical books one-for-one (hello, record and movie companies!!), and the marketing power of social media. His own experience of moving from authorship to e-book publishership was one of rapid revenue and profit growth. Lucky him – he obviously started from the base of a large online presence.

I’ve got no idea if I should agree with his forecast of the scale of likely growth. But I do think book publishers have learned some lessons from the terrible example set by the record companies, and they are innovating around what customers seem to want. However, the biggest likely stumbling block to an ultra-rapidly growing e-book market will be the bottleneck of the giant distribution platforms and their charging policies. That surely promises to be a fascinating anti-trust case down the road?

I’m well along with Douglas Allen’s new book, [amazon_link id=”0226014746″ target=”_blank” ]Institutional Revolution: Measurement and the Economic Emergence of the Modern World (Markets and Governments in Economic History)[/amazon_link]. A full review will follow in due course but I can’t resist enthusing about it in advance. The book takes a transactions cost perspective on the shift in institutional structures between the early 18th and late 19th centuries, as Britain hurtled through the Industrial Revolution. The key, Allen argues, was the way the technologies helped greatly reduce the uncertainty of life as people gained more and more control over nature. This made it possible to distinguish rather better between bad luck and low effort, previously an impossible measurement task, and therefore to reward merit in administrative jobs rather than having to build institutions that guaranteed loyalty. Thus government by the aristocracy gave way to the growth of the bourgeois professions. Fascinating stuff, with an obvious extension to developing countries today – and perhaps our own economy too as in the frontier intangible activities such as building software or creating hit movies it is also very hard to distinguish talent from luck. Are trust institutions, like the old British aristocracy but different, going to make a comeback?

[amazon_image id=”0226014746″ link=”true” target=”_blank” size=”medium” ]Institutional Revolution: Measurement and the Economic Emergence of the Modern World (Markets and Governments in Economic History)[/amazon_image]

In Keynes’s marvellous [amazon_link id=”0230249574″ target=”_blank” ]Essays in Persuasion[/amazon_link] are a couple of open letters of advice to the French minister of finance (“whoever he is, or may be”). Of course the context of the times (1926 and 1928) was entirely different from today’s crisis, but it isn’t entirely fanciful to consider some similarities between the gold standard and the Euro. I will let Keynes speak for himself:

“When I read in my daily paper the projects of yourself and your predecessors to draft new budgets and to fund old debts, I get the impression that Paris discusses very little of what seems to me in London to be the technical analysis of your problem…. the proportion of his earned income which the French taxpayer will permit to be taken from him to pay the claims of the French rentier.”

Substitute ‘European’ for ‘French’, and the same question is at the heart of how the Euro debt crisis is to be resolved. The essence of Keynes’s advice in the 1920s was to inflate away the real value of the debt burden. He concludes, optimistically,

“France has abandoned principle and consistency alike, but she has always refused sacrifices which were avoidable and has obeyed in the end the teachings of experience.”

It’s worth noting, though, that the late 1920s were exactly the period when France accumulated large amounts of gold reserves, sterilising the impact on domestic demand. Douglas Irwin (pdf) has suggested that this policy was an important cause of the Great Depression.

Who can say what Keynes would advise President Sarkozy to do in today’s different circumstances. But I think it certain he would work out how best to ensure it is the rentiers, rather than the workers and taxpayers who end up suffering.

[amazon_image id=”0230249574″ link=”true” target=”_blank” size=”medium” ]Essays in Persuasion[/amazon_image]

When are groups better than individuals at solving problems? When is collective intelligence better than individual intelligence? It’s a question that has long interested me, partly because of personal experience. Some group and committee work has been stimulating and fruitful (for example, being a member of Competition Commission inquiry groups), some dull and producing only group-think. I had a hunch that bringing together people from different professional disciplines and walks of life was a positive (even if only economists, lawyers, accountants, business executive), when they shared a common goal. This seemed to be confirmed by a marvellous book, [amazon_link id=”0691138540″ target=”_blank” ]The Difference: How The Power of Diversity Creates Better Groups, Firms, Schools and Societies[/amazon_link], by Scott Page, about the importance of diversity for good decision-making.

I’ve just been reading another interesting book, this time about the broader collective intelligence enabled by the internet. It’s [amazon_link id=”0691148902″ target=”_blank” ]Reinventing Discovery: The New Era of Networked Science[/amazon_link] by Michael Nielsen, a quantum computing pioneer. He too notes the power of people pooling their information and perspectives, with the internet as a driver of networked discovery (although another factor must be just that as the body of discovery grows ever-larger, the proportion that can be known by any individual grows ever-smaller).

The book is focused on science rather than business or economics, and in particular on the tension between the genuine collaboration taking place in a few scientific projects (one example is Galaxy Zoo, exploring the universe using volunteers, and the Polymath Project) and the career and financial imperatives on scientists to keep their results secret. His frustration at the scientific community’s failure to take advantage of the massive potential offered by collaboration via the internet leaps off the page. He writes:

“Network science is being strongly inhibited by a closed scientific culture that chiefly values contributions in the form of scientific papers. Knowledge shared in non-standard media isn’t valued by scientists regardless of its intrinsic value, and so scientists are reluctant to work in such media.” (p182)

He also flags up in passing the issue about the frequent imperative either to commercialize results or to keep them secret for the benefit of commercial funders.

The situation in economics is different in interesting ways. Promotion in the university system still hinges on publishing papers in the right journals. But economists have lots of other job prospects, or additional income from consulting if they are academics, so their external reputation is important as well as their academic status. This is perhaps why an active part of the discussion about economic research takes place online, thanks to its now-standard publication as a working paper before formal publication in a journal, and also via blogs. What’s more, non-academics can take part in a debate about economics (or other social sciences or the humanities), whereas university-based science is too hard for most non-academics. This suggests that changing university career structures will be important for opening up science – incentives really matter. Both the sciences and economics would benefit from ‘official’ acknowledgement in promotion structures of a wider range of journals and other evidence of success (including teaching!).

Nielsen hopes to achieve his “goal of lighting an almighty fire under the scientific community.” I hope he succeeds. A lot of the scientists I know would share his strong commitment to open access research. Moreover, big science is funded by taxpayers. While governments do want to see some research deliver new businesses and economic growth, and therefore the intellectual property tightly held, they will surely want the rest – certainly the basic science – made widely available. His book is well worth a read by anyone interested in these important issues of openness – which the internet is forcing to the top of the agenda in many domains – and diversity.

[amazon_image id=”0691148902″ link=”true” target=”_blank” size=”medium” ]Reinventing Discovery: The New Era of Networked Science[/amazon_image]

Here are some other reviews – Scientific American blog, THES, The Financial Times.

Two upcoming events are prompting me to think about the state of economics. One is a talk I’m giving at a forthcoming conference on Rethinking Economics, organised by the the Stifterverband fur die Deutsche Wissenschaft and the Handelsblatt. Another is a conference that I’ve been organising, to be hosted by the Bank of England and the Government Economic Service, on the teaching of economics, and whether economics graduates have the capabilities their future employers need.

This opportunity to reflect led me to pick up this morning [amazon_link id=”0198294905″ target=”_blank” ]A Not-So-Dismal Science: A Broader View of Economies and Societies[/amazon_link], edited by Mancur Olson and Satu Kahkonen. This 2000 book gathers some marvellous papers on institutions and their role in economic development (including Olson’s own brilliant paper, ‘Big Bills Left on the Sidewalk: Why Some Nations are Rich and others Poor’, which is about why opportunities for profit are so often apparently overlooked. The reference is the old economics joke about seeing a $100 bill on the sidewalk and being told by an economist that if it were really there, it would already have been picked up.)

Anyway, the introduction to the volume starts with a lovely metaphor about economics itself. Modern economics is like a large city, the editors write. At the centre there are some magnificent skyscrapers, brilliant work by universally acclaimed academics. But there’s a bit of a hollowing our around the centre, while the suburbs are expanding rapidly and thriving. These suburbs are the boundaries of the discipline, where economics overlaps with sociology, psychology, history, demography – and of course institutional economics.

In the not-too-distant past, this was seen by some people as economic imperialism, an arrogant and over-mighty subject marching all over other scholars’ disciplines. I now wonder whether it hasn’t been the result of many economists despairing of the increasingly narrow path (although its restrictiveness has been much exaggerated) that many leading academic departments have been marching down. Just recently,  I’ve been told that Cambridge University (Cambridge!) has an economics department that doesn’t really like to teach undergraduates any more (to the point that some colleges are considering not admitting economics students), and that the LSE’s economics department disowns inter-disciplinary work. I’ve got no idea if either is true as presented to me, but was startled that academic economists from two of the UK’s leading universities had this perspective.

Anyway, like Olson and Kahkonen, I welcome the scope for integrating the social sciences under a common umbrella of careful empirical work combined with analytical rigour. That’s what the honourable tradition of Enlightenment empiricism, dating from David Hume and Adam Smith, requires of us.

[amazon_image id=”0198294905″ link=”true” target=”_blank” size=”medium” ]A Not-so-dismal Science: A Broader View of Economies and Societies[/amazon_image]