Author Archives: Diane Coyle

The Great Game of trade

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I was reading about the US-China trade war in Foreign Affairs, an article (The Unwinnable Trade War) strikingly awash with metaphors of conflict – blazing guns, cease fire, détente….) It sent me back to the excellent book by Rebecca and Jack Harding we just published in the Perspectives series, Gaming Trade: Win-Win strategies for the Digital Era. They (an economist and a political risk analyst) use game theory to analyse the interplay between the win-win economics of trade and the zero sum game of geopoltical power. States (and they mean the big blocs, the US, China, Russia, the EU) need to develop strategies simultaneously for military force, information/cyber warfare, and economic soft power. Trade policy is an important weapon in the complicated strategic game.

The book argues that the focus on old-fashioned trade wars is a distraction from the most important front at present (my goodness, impossible to avoid the military metaphors): control of cross-border flows of information, finance and intellectual property. The physical world  and control of material resources is of course still important; but the new frontier is the cyber frontier. Indeed a new column by the digital guru Andrew McAfee highlights the continuing dematerialization of the economy (as I wrote about in The Weightless World, and Danny Quah also back in the 1990s). Russia’s engagement on the cyber-front is all too obvious, with seemingly little effective counter-attack – or even connivance from the Trump family.

I was persuaded by the Hardings’ argument that the current global situation is very dangerous, threatening economic stability, environmental sustainability and peace. The slow growth or worse will encourage the trends toward populism and authoritarianism, and a spiral into more protectionism. If you consider the economic and political whirlwind associated with the collapse of trade in the 1930s, it’s worse now: the World Bank’s new annual World Development Report paints a vivid picture of the extraordinary economic interdependence of the world’s economies. Unravelling these value chains will be catastrophic (Brexit Britain seems to be offering itself as an early test case of the potential damage).

In the end, the book argues, we all lose unless the current great power conflicts – soft, cyber and potentially ‘hard’ – de-escalate. The strategic path from here to the sunlit uplands of a new era of multilateralism is far from obvious. But it does us a favour in drawing attention to the dangers, and to the need for clear strategies to get out of this situation.

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Complexity across boundaries

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Summer, with its leisurely hours for reading, seems a long time ago. I have managed Barbara Kingsolver’s excellent novel Unsheltered. And also, discovered down one of the by-ways of Twitter or the Internet, Worlds Hidden in Plain Sight, edited by David Krakauer. This is a collection of columns by researchers at the Santa Fe Institute dating back to its establishment in 1984.

SFI is of course the best-known centre for the study of complexity across disciplinary boundaries, and its work on economics is always at least intriguing and often far more. Like any collection of essays this is a mixed bag. One striking feature is how much more focused the later ones become on the social sciences and the humanities, compared to the earlier focus on biology and physics. I don’t know if this is an artefact of the selection or actually reflects the balance of work there, but it’s also obvious I suppose that human activity and society is inherently complex. A few of the essays – although intended for a not-entirely-specialist audience – are utterly incomprehensible to someone who isn’t a disciplinary expert. I suspect one or two were also incomprehensible to their authors. And the most recent batch consist of some disappointingly banal essays for a newspaper.

In between, however, I found much food for thought – particularly on the lessons at disciplinary borders: information science, economics, anthropology, biology…. As one 2011 essay by Krakauer puts it, we have to recognize that “many of our most pressing problems and interesting challenges reside at the boundaries of existing disciplines and require the development of an entirely new kind of sensibility that remains ‘disciplined’ by careful empirical experiment, observation and analysis.”

What else? There’s a brilliant 2009 essay by Ole Peters, entirely justifying the cost of the book, explaining in a few pages with great clarity why ignoring the non-ergodicity of economic and financial variables has led to catastrophic policy errors. A 2012 Robert May essay alerted me to a calculation I’ve not spotted before by Ben Friedman (my thesis adviser) that before the crisis running the US financial system “took one third of all profits earned on investment capital,” up from 10% three decades earlier.

And I’ve been thinking about information – the way ideas and imagination, not mechanical or physical constraints, limit social progress; and puzzling how the role of information in energy use and social complexity, a running thread. One day I’m going to have to get my head properly around information theory.

Like all collections, this book has the merit of being easy to dip into and read in chunks. It’s a great overview of the work of SFI, one of the most interesting research centres anywhere. More power to their elbow.

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Empathetic economics

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My colleague Sarah Dillon over in the English faculty recommended Martha Nussbaum’s 1995 Poetic Justice: The Literary Imagination and Public Life to me. We’d been talking about the way narratives have become a thing – for example, the Royal Society’s AI narratives project, or Bob Shiller’s new book Narrative Economics. I enjoyed Poetic Justice, which in a way is making the same point as Adam Smith’s Moral Sentiments: that empathy is an essential part of being able to reason an an impartial spectator. Hence, Nussbaum argues – mainly in the context of the law but also economic welfare – the importance of reading fiction. She uses Hard Times and Native Son and also Whitman’s Song of Myself as her exemplars – Hard Times’s Mr Gradgrind illustrating the limitations of purely ‘economic’ reasoning, the other two texts the importance of being able to stand in other people’s shoes in one’s imagination.

The book argues for the importance of cultivating the imagination for reasons of social justice and sound public reasoning: “I defend the literary imagination precisely because it seems to me an essential ingredient of an ethical stance that asks us to concern ourselves with the good of other people whose lives are distant from our own.” And, not surprisingly, she argues against the utilitarianism that underpins everday economics and its assessment of social welfare, in favour of the capabilities approach.

 

Institution-free ‘institutions’

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I’ve been re-reading Elinor Ostrom. People have started to refer to a data commons. I don’t think the metaphor works but that doesn’t mean Ostrom’s design principles won’t be relevant. Anyway, I love this passage:

“Many policy prescriptions are themselves no more than metaphors. Both the centralizers and the privatizers frequently advocate over-simplified, idealized institutions – paradoxically, almost ‘institution-free’ institutions. An assertion that regulation is necessary tells us nothing about the way a central authority should be constituted, what authority it should have, how the limits on its authority should be maintained, how it will obtain information, or how its agents will be selected, motivated to do their work, and have their performances monitored and rewarded or sanctioned. An assertion that private property rights are necessary tells us nothing about how that bundle of rights is to be defined, how the various attributes of the goods involved will be measured, who will pay the costs of excluding non-owners from access, how conflicts over rights will be adjudicated…”

And there are informal norms of course, as well as formal rules and sanctions: it’s legally clear the restaurant owns the plates on which my meal is served but largely social assumptions and norms (rather than the law and police) that stop me walking out with them.

A lot – most? – economics students don’t read Ostrom. They should. She features in one chapter of my forthcoming public policy economics book, Markets, State and People. (Out in January 2020 – pre-order now!!)

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Growth and civilisation

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I’ve been slowly reading Growth: From Microorganisms to Megacities by Vaclav Smil. Slowly only because of the size of the book, which means reading it at home. It’s a somewhat eccentric but really rather compelling read. The subtitle indicates its ambition. We do literally go from the growth dynamics of archaea and bacteria all the way to empires, with the common thread being the argument that physics places fundamental limits meaning that almost everything follows the logistic S curve and thus reaches an asymptote – although predicting where the points of inflection will occur is a different matter. “Natural growth taking place on earth is always limited.”

In the final section on economies, Smil quite rightly points out that even if measures of economic activity – notably GDP – remain non-stationary series, such activity is rooted in energy use – echoes here of his tremendous Energy and Civilization. Much of economics has ignored this, regarding early work on energy use in the economy – such as Georgescu-Roegen – as a bit weird, although this is perhaps changing with the onward march of environmental economics. Smil is more sceptical than I am about whether the process of dematerialization of economic growth has shifted the asymptote of the growth curve up and out; I don’t think the concept of sustainable consumption is empty, whereas he does. (Although when it comes to regarding ‘the Singularity’ as nonsense, he and I are at one). He concludes that unless there are strict limits on material consumption, human civilization is doomed, and one gets the firm impression he’s putting his money on doom.

However, the joy of this book is less in the big picture than in the detail. And what a lot of it! The mind boggles at Smil’s extensive reading and absorption of information. We get the speed at which marathons are run – over the entire course of human history; the growth rates of piglets and weight of chicekns over time; sales of small non-industrial motors over time; the envelope for the maximum speed of travel; Kuznets cycles; Zipf’s law for city size….  The middle section of chapters offer a fantastic overview of technical progress over long periods in a wide range of technologies. I love all this detail.

Growth is therefore a tremendous work of synthesis, the biggest of pictures in pointilist form. If Bill Gates hadn’t named Vaclav Smil as his favourite author (“I wait for new Vaclav Smil books the way some people wait for the next Star Wars movie.“), one could imagine him (Smil) as a character in a Borges story. Best of all is the passing comment that nearly all the calculations for all his post-1984 books have been done on a TI-35-Galaxy Solar calculator. Talk about sustainable consumption.

41sJqD+KMbL._SX344_BO1,204,203,200_Before embarking on Smil, we had a week of holiday so I read some non-work books, standout among them The Kites by Romain Gary, whose oeuvre I’m now racing through.