Category Archives: Main Page

In remembrance of times past

Posted on by

Norton is publishing Ben Bernanke’s book [amazon_link id=”039324721X” target=”_blank” ]The Courage to Act: A Memoir of a Crisis and its Aftermath[/amazon_link] in October. Mervyn King is also due to have a book out before too long. There have already been a few insider memoirs of the crisis – such as Alastair Darling’s [amazon_link id=”0857892819″ target=”_blank” ]Back from the Brink[/amazon_link] and Bernanke’s earlier [amazon_link id=”0691165572″ target=”_blank” ]The Federal Reserve and the Financial Crisis[/amazon_link] – but these titles from key central bankers will be must-reads, given their pivotal role in averting – by hours? – the closure of the payments systems and economic collapse in late 2008.

[amazon_image id=”039324721X” link=”true” target=”_blank” size=”medium” ]The Courage to Act: A Memoir of a Crisis and its Aftermath[/amazon_image]  [amazon_image id=”0691165572″ link=”true” target=”_blank” size=”medium” ]The Federal Reserve and the Financial Crisis[/amazon_image]  [amazon_image id=”0857892819″ link=”true” target=”_blank” size=”medium” ]Back from the Brink: 1000 Days at Number 11[/amazon_image]

All the more so if one thinks there is a small chance of the whole thing happening again. After all, trade growth and growth in Asian economies is tanking, the yield curve has inverted, there’s the Greek crisis and its insolvent banks. Thank goodness the banks haven’t been selling confected derivatives, and there are no asset price bubbles. Oh, wait.

Not all economists are neoliberal, honest

Posted on by

It was because of a tweet linking to her LSE lectures that I decided to read Wendy Brown’s [amazon_link id=”1935408534″ target=”_blank” ]Undoing the Demos: Neoliberalism’s Stealth Revolution[/amazon_link]. My relationship with the concept of neoliberalism is an uneasy one, in that I don’t really know what it means. Often, radical writers use it to mean ‘most of economics’ – Philip Mirowski’s Never Let A Serious Crisis Go to Waste is a good example of this –  making an exception only for certain Marxist or otherwise unimpeachably heterodox economists. I understand the idea well enough to know [amazon_link id=”178360610X” target=”_blank” ]Yanis Varoufakis[/amazon_link] is not neoliberal. However, writing off all the rest of economics makes it an unhelpful concept in my book. Of course there are ideologically right wing economists but there is a wide range of views about both politics and economics within the profession.

[amazon_image id=”1935408534″ link=”true” target=”_blank” size=”medium” ]Undoing the Demos: Neoliberalism’s Stealth Revolution (Zone Books Ner Futures)[/amazon_image]

I thought Brown’s book was going to be subtler. Here is her definition: “neoliberalism is not about the state leaving the economy alone. Rather, neoliberalism activates the state on behalf of the economy, not to undertake economic functions or intervene in economic effects, but rather to facilitate economic competition and growth, and to economize the social, or as Foucault puts it, to ‘regulate society by the market’.” She adds that neoliberalism entails “the dramatic curtailment of public values, public goods and popular participation in political life.” This definition makes sense to me – and makes neoliberalism a political ideology, one that uses its claim about the primacy of markets to extend a certain political order into more and more areas of life. It is similar to Michael Sandel’s argument in [amazon_link id=”0241954487″ target=”_blank” ]What Money Can’t Buy[/amazon_link].

However, Brown goes on to list all the neoliberal economists who include Milton Friedman, Friedrich Hayek, Gary Becker – but also Joseph Stiglitz. Wait – Joe Stiglitz in the same camp as Becker?! Barack Obama also gets labelled as neoliberal, along with Reagan and Bush. So this is back to vacuous.

It’s a shame because the argument that the primacy of the market has been extended into inappropriate domains needs to be taken seriously. People regard ticket scalping as unfair – this includes many economists – so those of us who do economics have to respect the fact that some values other than economic efficiency might have to win out. Freedom, civic cohesion, fairness are all important values. Where it is appropriate to prioritise efficiency, or to use market processes to achieve either efficiency or other outcomes, should always be a matter of public and political debate. Most of the economists I hang out with – applied micro people – think it will depend on both people’s political choices and on the exact circumstances: the US trade in SO2 emissions works well, the EU market in carbon emissions does not; [amazon_link id=”B00ODG9VUM” target=”_blank” ]Alvin Roth[/amazon_link]’s matching markets for kidneys or medical jobs are magical (and no money changes hands). My kind of economists tend to be pragmatists, unlike those in politics who argue the market is always best.

There are some real dilemmas. Later in the book, Brown gives short shrift to the idea that ‘governance’ is ever more important than politics, and argues that independent, technocratic bodies such as central banks should not take decisions with political consequences – and no doubt the many critics of the ECB and the right-wing critics of the Fed would warmly agree. It does not seem so obvious to me. Central banks take ‘better’ decisions when they are independent in the specific sense that growth is less volatile and inflation lower. Yet of course they need legitimacy – answering to parliament, fulfilling a remit set by the government. And the Greek crisis has indeed demonstrated that central banking is political at times of great stress. Perhaps Brown is right but I don’t think she argues the case well, when there are areas of policy in which expert advice or decisions made by technocrats delivers good outcomes. Surely this is debatable.

Anyway, [amazon_link id=”B00YDJ33RG” target=”_blank” ]Undoing the Demos[/amazon_link] is an interesting book even though I ended up disagreeing with much of it. I will say that whenever anybody next tells me economics is an abstract, wholly theoretical subject, I will make them read this. But it still helped me understand Michel Foucault’s almost totally incomprehensible [amazon_link id=”1403986541″ target=”_blank” ]The Birth of in Biopolitics[/amazon_link], which I read recently. And I do think it’s important to push back against the political stance that disguises ideological projects with the claim that market are always right.

Global value chains

Posted on by

I’m very excited, as perhaps only an economist could be, by a new (and free) VoxEU e-book, The Age of Global Value Chains: Maps and Policy Issues. As the first sentence in the foreword states: “The study of global value chains is the only way to fully understand the nature of today’s geographically dispersed production and trade.” This understanding is being extended by new sources and uses of data, the World Input-Output Database in particular – the e-book has an appendix describing this.

GCVs front cover

The book divides into a descriptive first part (including a look at network structures) and a second part looking at the impacts of the increased specialisation in production across national borders. These impacts in turn are divided between the macro level (including productivity, wages and jobs) and the effects at the level of firm organisation. If I have one complaint (without having read the book yet) it is that there is no essay looking at global value chains from the perspective of urban economics, and the sub-national clustering of specialised supply chains.

Still, it’s a mild complaint about a book to say there should be more of it. I’ll be reading this one eagerly, all the more so as there are troubling signs that world trade growth is slowing. And, as I argued in my post on the FT’s The Exchange, that could be related to the global productivity puzzle.

Imagined communities

Posted on by

People in other disciplines will mock me, but I just read Benedict Anderson’s [amazon_link id=”B00G2DO172″ target=”_blank” ]Imagined Communities[/amazon_link] for the first time. Even more frivolous, I bought it on impulse in the brilliant bookshop at the Royal Institute of British Architects, because I loved the cover. Besides, the phrase ‘imagined communities’ as a description of a nation grabbed me.

[amazon_image id=”B00G2DO172″ link=”true” target=”_blank” size=”medium” ]Imagined Communities: Reflections on the Origin and Spread of Nationalism[/amazon_image]

For I’ve been pondering national identity for a while. Most accounts of it in political debate refer to historical events or traditional activities or symbols – John Major’s version of [amazon_link id=”B0000CIOKQ” target=”_blank” ]George Orwell[/amazon_link]’s “Old maids bicycling to Holy Communion through the morning mist,” or the country house and aristocrats version of English identity that speaks not at all to chippy working class Northerners (say) or Scots or the Cornish, or for that matter the romanticism of miners’ galas and the Peterloo Massacre.

Yet it seems obvious to me that identity (including national identity) is a process in the present, and looking to the future. It is a matter of shared cultural experiences and imaginative or empathetic identification with others with whom one has some kind of communication links – books, music, TV, the web. So I love the phrase [amazon_link id=”B00G2DO172″ target=”_blank” ]Imagined Communities[/amazon_link]. And Anderson’s link between nationalism and the combination of print technologies and vernacular languages makes complete sense.

Be happy! (Or else…)

Posted on by

It has been a busy and dyspeptic week. [amazon_link id=”1781688451″ target=”_blank” ]The Happiness Industry: How the Government and Big Business Sold Us Well-Being[/amazon_link] by William Davies has been the perfect accompanying reading material. The enthusiasm of many of my fellow economists for behavioural economics has made me increasingly uneasy. This is, after all, a profession strongly  inclined towards social engineering, and I’ve written here before about the likelihood that nudges are seen as an exciting new tool for this job. After all, they seem to work, and as even the status quo is a nudge, why wouldn’t you design better nudges to deliver better outcomes?

[amazon_image id=”1781688451″ link=”true” target=”_blank” size=”medium” ]The Happiness Industry: How the Government and Big Business Sold us Well-Being[/amazon_image]

[amazon_link id=”1781688451″ target=”_blank” ]The Happiness Industry[/amazon_link] eloquently reinforces my suspicions. It locates the fashion for “well-being” in the long tradition of making the internal world measurable and reducing questions of morality and political choices to scientific decisions. Economics, rooted in [amazon_link id=”1508738734″ target=”_blank” ]Bentham’s utilitarian calculus[/amazon_link], plays a leading role in the story, as do the successive waves of management science from Taylorism on. Indeed, in management, the growing surveillance of employees’ ‘well-being’ by wearable devices is the latest version.

Davies points out there is an inconsistency at the heart of this: “Workplaces put a growing emphasis on community and psychological commitment, but against longer term trends towards atomization and insecurity. We have an economic model which mitigates against precisely the psychological attributes it depends upon.” Yet the emphasis on resilience or mindfulness puts all the onus on the individual to adjust: “one progressive route would involve changing [the] context. But another equivalent would be to focus on changing the way it is experienced.”

He is also critical of the economists’ use of the idea of revealed preference: that you can infer somebody’s inner preferences or desires from their choices, usually their choices about what to spend their money on. Shopping speaks louder than words. Perhaps wearables that can measure heart rate or sweat will replace money as the best revealed preference metric, but meanwhile what someone spends is a readily-measurable indicator, easier to count and compare than what people say about their emotions. “This granted money an exceptional psychological status, as it allowed others to peep into people’s private desires.”

Disliking money as a metric, Davies is therefore also critical, as many people have been, of using the technique of contingent valuation to put monetary values on, say, the impact of an environmental disaster. “What we witness in this sort of example is economics becoming used as a basis for broad public agreement well beyond the limits of the market place,” Davies writes. He’s in good company. [amazon_link id=”B007IO1X5C” target=”_blank” ]Michael Sandel[/amazon_link] and [amazon_link id=”014197558X” target=”_blank” ]George Monbiot[/amazon_link] are among those who dislike the use of money as a measure of non-monetary values, such as nature, or relationhips, or civic virtue.

However, this seems to me distinct from the reductionism of the behavioural economists and psychologists. It is one answer to the question of how you resolve conflicts when there is no market: if you have to make interpersonal comparisons, how should you go about it? Or, in the words of a well known survey article, is some number better than no number? If you want to calculate compensation after an oil spill, how else could you go about it? So I am far more comfortable with these valuation techniques than I am with the happiness tendency.

On the latter, my instincts are with Davies: ” Behaviourism stretches Bentham’s dream of a scientific politics to its limit, imagining that beneath the illusion of individual freedom lie the cold mechanics of cause and effect, observable only to the expert eye.” When I teach my students behavioural economics – and they’re very interested in it – I ask them to look at this Adam Curtis blog, From Pigeon to Superman and Back Again. While not dismissing the policy sense of some nudges, beware economists who know how to make you happy and beware even more bosses demanding it of you.