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Futurology: more sense, less bollocks

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I’m not a fan of futurology. There’s something about the genre that demands a breathless writing style and over-confident future-bollocks. However, I’ve just been looking at a book that isn’t nearly as bad as the typical example. It’s [amazon_link id=”1781254974″ target=”_blank” ]The Future of (almost) Everything: the global changes that will affect every business and all our lives[/amazon_link] by Patrick Dixon.

[amazon_image id=”1781254974″ link=”true” target=”_blank” size=”medium” ]The Future of Almost Everything: The global changes that will affect every business and all our lives[/amazon_image]

The breathlessness is there – after all, it fits all of (almost) everything affecting everybody into 350 pages. It has lots of words CAPITALIZED and loads of headings and bullet points. The chapters are titled according to the acronym: Fast; Urban; Tribal; Universal; Radical; Ethical – geddit? Having harumphed, there is also some perfectly sensible trend extrapolation. Even so, there is an early demonstration of the fickleness of the future when it arrives. In a long list early in the book of “highly predictable” long term trends comes “rapid growth in global trade”. Well, maybe, but that’s not looking so good at the moment.

Apart from the stylistic tics – which are obviously popular given how well such books sell – my main problem with futurology is the absence of broader social scientific analysis. Take as an example the section in [amazon_link id=”B00V6R4MZ0″ target=”_blank” ]The Future of (almost) Everything[/amazon_link] on big data. It makes some obvious-to-reasonable points about the benefits of personalisation, and the costs to privacy or in increased cyber-crime. But there is no discussion about, say, who owns the data and benefits from the likely gains in exploiting it; or whether it will cause insurance markets to collapse (because they require a pooling of risk which will be subverted by the personalisation of risk premia); or what legal framework will be required to assign big data property rights and rein in the massive corporate invasions or privacy, or indeed the eating up of mobile data allowances by ads and cookies.

Still, having grumbled, if you want a futurology read, the ratio of common sense to future-bollocks in this book is high, it gives a broad survey of current global trends such as demographic change , urbanisation and environmental pressures, and it would nicely fill a plane journey.

On Seeing Like A State

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A tweet by @sclopit (Stefano Bertolo), exclaiming that

sclopit
in other news, I recently spent a couple of days with a large group of budding policy makers who had never heard of http://t.co/vX6k4IxxNE
06/09/2015 07:16

sent me to my bookshelf to have a look through [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link] by James Scott again. The subtitle describes at one level the book’s subject: “How Certain Schemes to Improve the Human Condition Have Failed.” It looks in some detail at a range of idealistic state schemes, from the ujamaa villages in Nyerere’s Tanzania and the city planning of Le Corbusier quasi-implemented in Brasilia – as opposed to the organic unplanned living cities celebrated by [amazon_link id=”067974195X” target=”_blank” ]Jane Jacobs[/amazon_link] – to Soviet collectivization.

[amazon_image id=”0300078153″ link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (The Institution for Social and Policy Studies)[/amazon_image]

The book then draws together its themes from analysing each specific kind of failure, each an example of the failure of ‘high modernism’ in its over-abstraction from detailed contextual understanding. By high modernism, he means: “A strong, one might even say muscle-bound, version of the self confidence in scientific and technical progress, the expansion of production, the growing satisfaction of human needs, the mastery of nature (including human nature) and above all the rational design of social order commensurate with scientific understanding of natural laws.” Step forward the least attractive, most hubristic version of 20th century economics.

“We have repeatedly observed the natual and social failures of thin, formulaic simplifications imposed through the agency of state power,” Scott writes. To blame: “utilitarian commercial and fiscal logic.” Large-scale social processes are too complicated to plan for. Scott celebrates practical, local knowledge, improvisation.

He does not, however, advocate abandoning the idealism that drove such projects, or leaving everything to “the market”. His advice is summed up in four rules of thumb:

Take small steps

Favour reversibility

Plan on surprises

Rely on human inventiveness

Above all, policymaker, do not think that you are all-knowing while your subjects are know-nothings. Don’t plan for abstract citizens, all uniform. Remember that context is everything.

Since [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link] was published in 1998 there have been a number of other reminders of the messy complexity of reality. One good recent one was Colander and Kupers in [amazon_link id=”B010CLT0OI” target=”_blank” ]Complexity and The Art of Public Policy[/amazon_link]. And of  course the theme is an old on, dating at least to Hayek’s 1945 AER paper The Use of Knowledge in Society, its theme brilliantly dramatized in Francis Spufford’s [amazon_link id=”B00B9ZDDCC” target=”_blank” ]Red Plenty[/amazon_link].

But if you’ve never had chance to read [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link], I, like Stefano, think it is an essential book.

PS Speaking of economics in this context, I am itching to write my review of Dani Rodrik’s [amazon_link id=”0393246418″ target=”_blank” ]Economics Rules[/amazon_link], on 21st century economics, and see people have started to comment on it. But the letter with the proof says not before 13 October so I’ll hold out at least a little longer.

Sorting out short-termism

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Reforming finance and corporate governance have been a bit of a theme in my recent reading. There was John Kay’s outstanding [amazon_link id=”1781254435″ target=”_blank” ]Other People’s Money[/amazon_link], which I reviewed here a few days ago. I’ve read the proof copy of Adair Turner’s impressive new book, [amazon_link id=”0691169640″ target=”_blank” ]Between Debt and the Devil[/amazon_link], although am not allowed to post a review until it’s out in November.

[amazon_image id=”1781254435″ link=”true” target=”_blank” size=”medium” ]Other People’s Money: Masters of the Universe or Servants of the People?[/amazon_image]  [amazon_image id=”0691169640″ link=”true” target=”_blank” size=”medium” ]Between Debt and the Devil: Money, Credit, and Fixing Global Finance[/amazon_image]

Meanwhile, I’ve read a short new book by Laurie Fitzjohn-Sykes, formerly a City analyst and now working for the think tank Tomorrow’s Company. It’s called [amazon_link id=”1845408349″ target=”_blank” ]Playing the Long Game: How to Save the West from Short Termism[/amazon_link], and is well worth a read.

[amazon_image id=”1845408349″ link=”true” target=”_blank” size=”medium” ]Playing the Long Game: How to Save the West from Short-Termism (Societas)[/amazon_image]

The book starts with a vignette of the annual general meeting of Softbank in Japan, in which Masayashi Son gave a 2 hour speech setting out his 30 year and 300 year vision. He must be doing something right. Softbank’s latest product, Pepper the companion robot, has sold out its first two batches of 1000 within a minute of launch.

Pepper, the robot Softbank proposes as your companion - photographed by Rory Cellan-Jones at Innorobo this year

Pepper, the robot Softbank proposes as your companion – photographed by Rory Cellan-Jones at Innorobo this year

The author contrasts this of course with the quarterly results obsession in UK and US business, with the under-investment in the west compared with Asia, and stockmarket churn. It touches on one issue I think is highly damaging, the link between executive remuneration and share prices – as does Andrew Smithers in his excellent book [amazon_link id=”B00EMVHKR4″ target=”_blank” ]The Road to Recovery[/amazon_link].

[amazon_image id=”B00EMVHKR4″ link=”true” target=”_blank” size=”medium” ]The Road to Recovery: How and Why Economic Policy Must Change[/amazon_image]

Fitzjohn-Sykes’ conclusions focus on exactly the need to change management incentives through corporate governance reform and taxation of the damaging pay structures. He also recommends using the tax system to link fund managers’ pay to the long term performance of their funds rather than quarterly outperformance, and introducing minimum stock holding periods for pension funds. In such a short book these recommendations are short on detail but surely in the right territory. Interestingly, he advocates requiring all market research to be conducted by 3rd parties – this focus on the problem of sell-side research is worth considering, along with putting the spotlight on the fund management industry as well as the investment banks and the companies themselves.

At 115 pages, this book is a concise introduction to the short-termism problem, and I’m sure some of the solutions it advocates will prove necessary. However, the problem is well-known and many people have suggested reforms; the question remains why they have so little political traction?

Economics made fun

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Yes, really. [amazon_link id=”1138902675″ target=”_blank” ]Economics Made Fun: Philosophy of Pop Economics[/amazon_link] edited by N Emrah Aydinonat and Jack Vromen is a collection of essays (previously published in the Journal of Economic Methodology) exploring the phenomenon of popular economics books. I have a short chapter in it, and along with Robert Frank represent the defenders of popularising economics.

[amazon_image id=”1138902675″ link=”true” target=”_blank” size=”medium” ]Economics Made Fun: Philosophy of the pop-economics[/amazon_image]

It’s fair to say most of the other contributors are critical, largely because they don’t like the version of economics that is being popularised. I’m not wild about all of it myself, particularly the [amazon_link id=”0141019018″ target=”_blank” ]Freakonomics [/amazon_link]version, which is often broader quantitative social science rather than economics, and does do Chicago-style economic imperialism/reductionism to the exclusion of all else.

In his essay Emrah Aydinonat also argues that the genre over-simplifies the research on which it’s based to a misleading extent, using the example of Peltzman’s research on the effect of compulsory seatbelts. The ‘fun’ version is that seatbelts encourage more reckless driving so might not save lives. Aydinonat suggests that a reading of the Peltzman paper indicates that this conclusion requires strong assumptions and rests on flawed data – it is a controversial paper.

This is interesting, but popularising necessarily requires simplification. I think the Peltzman example is a useful way to flag up the fact that regulations can and often do change behaviour, although of course it should be used carefully. And I don’t think many [amazon_link id=”0141030089″ target=”_blank” ]Freakonimists[/amazon_link] actually argue for abolishing seat belt laws, so they implicitly recognise this.

Anyway, as a populariser, I found [amazon_link id=”1138902675″ target=”_blank” ]these essays[/amazon_link] a bracing read; they won’t stop me trying to communicate economic research to the wider public. (And of course lots of thoroughly mainstream academic economists look down on popularising too!)

As social scientists, and particularly influential in public policy, it’s our responsibility to do so.

Designing markets

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One of the (many) things I like about market design is the name. It’s a reminder that markets are social institutions too, and that there is a wide spectrum of ways of organising the allocation of resources. So often only the two extremes are discussed: ‘free’ markets (dependent only on property law and contract enforcement – oh, and social norms and culture, and infrastructure, and standards and…. but I digress); and ‘the state’ (with its benign and omniscient ability to analyse market failures and tell people what to do so they are fixed…. oh, wait).

Al Roth’s new book describing his career’s worth of market design, culminating in his Nobel prize with Lloyd Shapley, is a truly excellent overview of the subject. [amazon_link id=”000752076X” target=”_blank” ]Who Gets What and Why: the hidden world of matchmaking and market design[/amazon_link] is a very clear and non-technical description of what can cause markets to malfunction, and how to make them do a better job of matching up supply and demand. It includes the work for which he is most famous, on designing an exchange  to enable the matching of kidney donors and recipients, where no money changes hands in the market-like process.

[amazon_image id=”000752076X” link=”true” target=”_blank” size=”medium” ]Who Gets What – And Why: The Hidden World of Matchmaking and Market Design[/amazon_image]

The first section is a warm-up describing the pervasiveness and importance of markets, and some of the problems market design addresses. The second and third sections are the meat in the sandwich. Roth first of all explains why some markets will collapse, with many examples. The fundamental need is for a ‘thick’ market with plenty of buyers and sellers, in which people have enough time to make their decision, but neither the need nor the opportunity to act strategically. The problems are therefore: incentives to jump the gun ahead of most people in the market – which causes everyone to try & do so once somebody does; trades that occur too fast so people on the slower side of the market cannot make good decisions; rules that cause people to have to devise strategies other than expressing their true preferences; and ‘goldilocks’ communications between participants, not too fast/frequent and not too slow. The following section sets out market design solutions to each kind of problem.

For example, the ‘too soon’ problem featured in the market for first jobs for junior doctors in the US, as 2nd tier hospitals would make earlier and earlier binding and exploding offers to medical students – exploding meaning the candidate had as little as half an hour to say yes before the offer expired. They wanted to make sure they had the best students, but the good students faced the dilemma of a sure job versus the chance of a job at a competitive but better hospital. Attempts to reform the system always foundered on a lack of trust between hospitals. The solution was the famous ‘deferred acceptance’ algorithm run by a central clearing house: it ensures offers can be held until it is clear each student will not get a better one. Every hospital and every student gets their best possible match given everyone’s preferences.

The ‘too fast’ example is high frequency trading, where the millisecond speed means the market is actually thin at each moment. The proposed solution – not yet adopted by regulators – is to insist that all trades occur together once every second.

Matching students to schools is the example of a system that forced strategic behaviour under the old rules in New York and Boston, where Roth’s solutions have been implemented. Parents had to decide disguise their real preferences to reflect the fact that certain schools would only take pupils who had put them as first choice, and that some were so popular that the 2nd or 3rd choice had to reflect a realistic ‘insurance’ option. The deferred acceptance algorithm, with adjustments to reflect policies such as a sibling rule, was again the solution, making it safe to express true preferences.

The later chapters of the book cover other issues, among them signalling, and repugnant markets. Roth also emphasises two important factors: the role of culture in shaping how markets work (gastroenterologists vs orthopedic surgeons have sufficiently different professional cultures that their matching markets needed to be set up differently); and the need to work alongside politicians who might not take every bit of the economists’ advice. The context changes too, calling for redesigns – for example, the medical student matching market needed to be updated when more couples started looking for jobs in the same city.

[amazon_link id=”000752076X” target=”_blank” ]Who Gets What and Why[/amazon_link] has jumped to near the top of my list of books to recommend to students and non-economists to help explain (a) what a lot of economists actually do when they get involved in public policy and (b) why the standard political debate about ‘free markets versus government intervention’ is so utterly inadequate and misleading. Highly recommended.