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Managing assets well is better than managing them badly

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There is a lot I liked in Stewart Lansley’s new book, [amazon_link id=”1447331435″ target=”_blank” ]A Sharing Economy[/amazon_link] – not least that it’s one of another new series of concise, policy-relevant series, this time Policy Press Shorts. There are now several of these, a welcome publishing innovation that I like so much I’ve joined in with the Perspectives series. (Just out – our [amazon_link id=”1907994505″ target=”_blank” ]Bad Habits, Hard Choices[/amazon_link] by David Fell and [amazon_link id=”190799453X” target=”_blank” ]A Better Politics[/amazon_link] by Danny Dorling.)

[amazon_image id=”1447331435″ link=”true” target=”_blank” size=”medium” ]A sharing economy: How social wealth funds can reduce inequality and help balance the books[/amazon_image]

[amazon_link id=”1447331435″ target=”_blank” ]A Sharing Economy[/amazon_link] is not about ‘the sharing economy’, rather confusingly, but instead is an argument for an idea I like a lot, namely ‘social wealth funds’. As the book points out, many other countries have versions of these, ranging from Norway’s fund into which past governments invested its oil revenues, to a number of Asian sovereign wealth funds, to examples in other European countries such as Austria and Finland. The OECD has established guidelines for the better management of state assets, and a recent book by Dag Detter and Stefan Folster, [amazon_link id=”1137519843″ target=”_blank” ]The Public Wealth of Nations[/amazon_link], have pointed out the huge opportunity for increasing returns by managing public assets consciously as a portfolio with appropriate governance.

[amazon_image id=”1137519843″ link=”true” target=”_blank” size=”medium” ]The Public Wealth of Nations: How Management of Public Assets Can Boost or Bust Economic Growth[/amazon_image]

The idea should be a no-brainer for governments. The time horizon of politics in the UK (and some other countries) has become ever more short term, however, so any trade off between present and future has become nearly impossible. There is ideology, or perhaps cargo-cultism, in it too: is there an economist who does not think it bananas that the government is failing to borrow at such low interest rates to invest in key infrastructure? Yet the combination of a focus on total (current and capital) spending combined, plus the belief the public sector should own as little as possible as an article of faith, make it unlikely the present government will explore the idea of managing public assets efficiently with a view to longer term returns. Yet how mad is it that we have no consensus that it is better to manage public assets well than to manage them badly?

[amazon_link id=”1447331435″ target=”_blank” ]The book[/amazon_link] suggests a number of possible sources of funds for a social wealth fund, and a number of possible structures, of varying radicalism. Some versions are not radical at all; countries like Austria and Singapore are after all not hot beds of anti-capitalism. It also suggests the steps needed to move toward implementation.

An additional chapter advocates a citizen income or basic income, which fits into an overall framing of the argument for a social wealth fund as a means to address inequality. The arguments from common sense appeal more to me, as I’d rather tackle inequality more directly (eg by legislating if necessary against the corporate governance that has created boardroom excess, by suitable property taxation etc). The idea of a basic income has re-emerged with every wave of anxiety about automation destroying jobs, but there are good counter-arguments – Emran Mian of the SMF covers them here.

But the case the book makes for the nation managing its assets properly and with a view to financial and social sustainability is very welcome.

Doing macroeconometrics

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I just discovered – courtesy of the great man himself – David Hendry’s free textbook Introductory Econometrics: A New Approach on doing time series econometrics on macro data. I’ve not yet read the book, still less tried the exercises (which require OxMetrics of PcGive), but thoroughly approve for two reasons. First, it’s free – based on his lectures to 2nd year PPE undergraduates at Oxford, and assuming just a little statistical knowledge.

Secondly, as the introduction puts it: “[M]uch of the huge variation over long time periods in many aggregate variables does not fall under the purview of economic analysis, but is due to extraneous forces such as wars, changes in legislation, shifts in social mores, and technological, medical and financial innovations, which in turn are only partly affected by
economics. The current vogue for seeking micro-foundations for such variables in terms of a ‘representative’ agent who is simultaneously, employed, unemployed, growing up and retired, rich and poor, etc. sits uneasily with the historical evidence.”

Yep. Even the Bank of England is tiptoeing away from ‘micro-foundations’, it seems. But there are plenty of diehards still adhering to these models, and, worse, teaching them.

The Great Escape

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I’m very late to reading Angus Deaton’s excellent [amazon_link id=”0691165629″ target=”_blank” ]The Great Escape: health, wealth and the origins of inequality[/amazon_link]. There is lots to like about this book. It’s a clear and comprehensive summary of the state of knowledge about the history and present of two key dimensions of human well-being on earth. Even for economists who’re pretty familiar with the data and research, there are insights from the way Deaton sets out the evidence here. There were plenty of trends in the statistics I hadn’t known about before reading the book – one example is the recent increase in dangerous and deadly behaviour by young people (especially men) aged 15-34 in recent years compared with 70 years ago. (I suppose life presented enough external dangers then.)

[amazon_image id=”0691165629″ link=”true” target=”_blank” size=”medium” ]The Great Escape: Health, Wealth, and the Origins of Inequality[/amazon_image]

I particularly liked the care he lavishes on the statistics – the sources of data, the conceptual problems, the uncertainties – all done in a way the general reader can understand (although it does make for some quite dense sections). As Deaton notes, the way statistics are defined and collected determine how policy problems are defined and addressed: they “are part of the apparatus that allows what political scientist James Scott memorably called ‘[amazon_link id=”0300078153″ target=”_blank” ]seeing like a state[/amazon_link]’.

The book is also strong on the social and political context for the spread of ideas that improve health and wealth. As Deaton writes, “Diffusion of ideas and their practical implementation take time because they often require people to change the way they live.” In particular collective actions – affecting public health or education – are inherently political.

And then the new facts: did you know Louis Pasteur invented Marmite (and then licensed it to a British brewer?) Fabulous addition to the shiny nuggets of knowledge.

UPDATE: On the Marmite issue – Deaton’s Pasteur claim was challenged on Twitter:

MikeBenchCapon
@diane1859 Louis Pasteur invented Marmite? Wikipedia says it was some other guy: https://t.co/uD9JZyCT9d https://t.co/hs7x6S8oXx
06/04/2016 10:15

MikeBenchCapon
@diane1859 I’ve looked into this a bit more and I think I’m on Team Von Liebig. https://t.co/kw5BwP1DJa https://t.co/6Orq0mAOQf
06/04/2016 10:48

Better than (Karl) Polanyi

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There was some debate on Twitter yesterday about Karl Polanyi’s [amazon_link id=”080705643X” target=”_blank” ]The Great Transformation[/amazon_link]. Noah Smith linked to this post reporting some research (can’t say it sounds very rigorous) taken to indicate that economists don’t read this book. Summary finding:

“All in all, 66 persons responded (25 percent). This isn’t at all bad, considering that these were cold calls. Approximately 3 percent of economists at elite departments have read Polanyi (assuming that those that did not reply have not read him).”

Hmm. Not sure about that assumption. Anyway, Noah’s response was that economists tend to read new books. Dani Rodrik said: “Polanyi is a hard read and hard sell for economists. But he’s been incredibly influential for my own work.” I got some (very) mild Twitter stick for saying I had read it but wouldn’t set it for my students.

[amazon_image id=”080705643X” link=”true” target=”_blank” size=”medium” ]The Great Transformation: The Political and Economic Origins of Our Time[/amazon_image]

There are several reasons for this. Above all, the book is historically inaccurate – Deirdre McCloskey is the latest of many people to point this out in her new book, [amazon_link id=”022633399X” target=”_blank” ]Bourgeois Equality[/amazon_link]. So if one reads it, it needs to be from a history of thought perspective. Secondly, it’s about social relations and culture, so not central for economics students even though I wholeheartedly agree that economists in general need more hinterland in other areas of social science and history.

It’s also a dense read, and there are better books to recommend to students to introduce them to the social context of markets. I’d say the original Albert Hirschman books have aged better – [amazon_link id=”B00E31J3ZA” target=”_blank” ]Exit, Voice and Loyalty[/amazon_link] for one – and aren’t marred by inaccuracies like The Great Transformation. Of more recent vintage, I think John McMillan’s [amazon_link id=”0393323714″ target=”_blank” ]Reinventing the Bazaar,[/amazon_link] James Scott’s [amazon_link id=”B00D8JJYWA” target=”_blank” ]Seeing Like A State[/amazon_link] and Michael Sandel’s [amazon_link id=”0241954487″ target=”_blank” ]What Money Can’t Buy[/amazon_link] cover the territory better.

[amazon_image id=”0674276604″ link=”true” target=”_blank” size=”medium” ]Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States[/amazon_image] [amazon_image id=”0393323714″ link=”true” target=”_blank” size=”medium” ]Reinventing the Bazaar: A Natural History of Markets[/amazon_image] [amazon_image id=”0241954487″ link=”true” target=”_blank” size=”medium” ]What Money Can’t Buy: The Moral Limits of Markets[/amazon_image] [amazon_image id=”B00DO8SACA” link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale Agrarian Studies) by Scott, James New Edition (1999)[/amazon_image]

Incoming disruption

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Aha, [amazon_link id=”0262034484″ target=”_blank” ]The Disruption Dilemma[/amazon_link] by Josh Gans has just arrived at Enlightenment Towers. Looking forward to this one. It promises to tell businesses how to deal with disruption, so in principle it has a large market! Along with it, [amazon_link id=”0262034573″ target=”_blank” ]The Sharing Economy[/amazon_link] by Arun Sundararajan, which is due out in June – also looks very interesting.

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