Category Archives: Main Page

Oh no, not happiness again!

Posted on by

There are some things some people so fervently want to believe that no amount of evidence or logic will persuade them otherwise, no matter how brilliant they are. Adair Turner’s book [amazon_link id=”026201744X” target=”_blank” ]Economics After the Crisis[/amazon_link] is a good book, and I’m a great admirer of his. But my heart sank when I read this new review of it in the TLS by Robert Skidelsky. Lord S writes:

“The case against making increased GDP per capita the overriding policy objective is that it doesn’t deliver the increased happiness or welfare if promises. In 1974, the economist Richard Easterlin published a famous paper, “Does Economic Growth Improve the Human Lot?”. The answer, he concluded, after correlating per capita incomes and self-reported happiness levels across a number of countries is probably “no”. In a refinement dating from 1995, Easterlin found no relationship between income and happiness above an average per capita income level of between $15,000 and $20,000. Other findings confirm Easterlin. Data from the UK show that from 1973 to 2009, there was a continuous rise in GDP per head, but no increase in reported life-satisfaction.”

Er, no. The error of logic is that if you compare a stationary (reported life-satisfaction) and non-stationary (level of GDP) time series via a chart or regression, they will as a matter of construction not be correlated with each other. And the evidence has recently flowed in that GDP growth and reported happiness are positively and strongly correlated with each other – for example, Stevenson and Wolfers. Finally, common sense should tell everyone that abandoning economic growth as a policy objective is a political and practical no-hoper: we have that now and it’s called recession. It cements current inequalities, reduced job opportunities, and voters just hate it. So actually, the task of achieving satisfying and sustainable growth is a pretty difficult one (it’s why I wrote the [amazon_link id=”0691145180″ target=”_blank” ]Economics of Enough[/amazon_link]…).

[amazon_image id=”026201744X” link=”true” target=”_blank” size=”medium” ]Economics After the Crisis: Objectives and Means (Lionel Robbins Lectures)[/amazon_image]

Update: broken link replaced 5/11/14

Ways of reading

Posted on by

My book [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough [/amazon_link]was recently published in both Italy and China (as well as in English in paperback), and I’ve been struck (again) by how differently people read the same book. This is true of individuals but also of national cultures.

[amazon_image id=”0691145180″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]

When I spoke about the book last weekend at the book festival Pordenonelegge, my Italian interviewer Emanuele Bompan was most interested in the political economy questions: how can politics become more able to address long-term problems? what is the role of technocrats? how can western welfare states handle their second demographic transition, to ageing and shrinking populations? By contrast, the review in the Shanghai Daily questions my argument that economic growth and sustainability can and have to be combined, and concludes:

“This essentially flawed conception prevents her from identifying the true malaise of capitalism. To sum up, her proposal about how to bring about a better balance between the present and the future is seriously limited by her assessment of the Western way of life, to which she is so attached.”

Many of us of a certain age were strongly influenced by John Berger’s classic [amazon_link id=”014103579X” target=”_blank” ]Ways of Seeing[/amazon_link]. There are Ways of Reading, too.

[amazon_image id=”014103579X” link=”true” target=”_blank” size=”medium” ]Ways of Seeing (Penguin Modern Classics)[/amazon_image]

Deficits, fiscal and democratic

Posted on by

There’s an interesting new research summary on VoxEU by Caroline van Rijckeghem and Beatrice Weder di Mauro, Learning from past crises: Into the safety zone, which looks at the history of sovereign defaults. The conclusion is that political system and default are related – parliamentary democracies don’t and dictatorships do. However, the causality between politics and economics is not simple, and growth is essential to prevent political polarisation. So what at first glance appeared an optimistic conclusion turns out to be a rather pessimistic one.

“Growing discontent as the result of austerity may be the most important factor yet in influencing the probability of default. …[O]ur research shows that in democracies budget deficits smaller than 4.4% are sufficient historically to avoid default on external sovereign debt at times when international liquidity is plentiful. The latter condition is fulfilled in today’s world. But the former is not. In fact many developed economies have current deficits well above 4.4%. In particular the UK, US, and Japan have deficits above 8% and among periphery countries in the Eurozone Greece and Ireland and Spain are above 7%. Based on this criterion, these countries are in a zone of vulnerability.”

The authors go on to say the Eurozone is a special case, historically, so one cannot apply this evidence from the past mechanically. It might be possible to bring down deficits gradually, without adding to austerity measures. They write:

“[T]he solution suggested by the German Council of Economic Experts, the European Debt Redemption Pact, has the advantage that it represents a transparent and credible long-term commitment device. It aims at reducing debt slowly to 60% over 20 years, thereby protecting growth and requires collateral, earmarking of revenues and European control. In turn, the joint and several guarantee for all participants for interim debts over 60%, signals a long-term political and economic commitment from the stronger Eurozone countries to maintaining the integrity of the Eurozone. Together, this would constitute a grand bargain.”

This column put me in mind of Ben Friedman’s marvellous 2005 book, [amazon_link id=”1400095719″ target=”_blank” ]The Moral Consequences of Economic Growth[/amazon_link], in which he makes a powerful – and it now seems clear, prescient – case for growth on exactly this kind of political economy ground. He writes:

“The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political and ultimately moral character of a people.”

[amazon_image id=”1400095719″ link=”true” target=”_blank” size=”medium” ]The Moral Consequences of Economic Growth[/amazon_image]

Finance fact and finance fiction

Posted on by

I had a delightful weekend at the Pordenonelegge book festival, speaking about the new Italian edition of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link]. The life of an author is indeed tough.

Reading in Pordenone

As my reading matter, I took a book (recommended by Brett Christophers, whose Banking Across Boundaries is out next year) that might be tough to get through in everyday life. It’s [amazon_link id=”0226675335″ target=”_blank” ]Genres of the Credit Economy: Mediating Value in 18th and 19th century Britain[/amazon_link] by Mary Poovey. The author is an English and Humanities professor at NYU, so this isn’t a natural title for me to have picked up. But, a bit over half way through, I’m finding it fascinating.

[amazon_image id=”0226675335″ link=”true” target=”_blank” size=”medium” ]Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain[/amazon_image]

The book traces the creation of a distinction between writing about value that became money – bills of exchange and bank notes – writing about value that became formal, ‘expert’ economic writing, and writing about value that became literary writing. What we now understand to be totally distinct genres were created so by the development of the credit-based economy in 18th and 19th century Britain and the sociological evolution of the economics profession on the one hand and literary writers on the other. A split between ‘factual’ writing about monetary or market value based on the forms of writing about natural science and ‘fictional’ writing about non-market value in literary fiction and poetry now seems natural and inevitable, but it was not always so. Once one sees this, it becomes immediately obvious that some ‘factual’ forms of writing about markets are entirely ‘fictional’. Without even going to the metaphorical character of many economic models, this statement obviously applies to the multi-hundred pages long prospectuses issued for complex securities in the run up to the Crisis (and for that matter still being issued). Nobody could possibly have read and understood these. Not that this mattered – they might as well have been tales of unicorns and dragons, containing less insight about value and values than, say, my next read, which will be [amazon_link id=”1849904936″ target=”_blank” ]Parade’s End[/amazon_link].

[amazon_image id=”1849904936″ link=”true” target=”_blank” size=”medium” ]Parade’s End[/amazon_image]

Meanwhile I’ll write a full review of Prof Poovey’s book when I’ve finished tit.

Look on the bright side of life

Posted on by

One of the highlights of the Olympics closing ceremony was Eric Idle getting the 80,000 crowd in the stadium to singalong to ‘Always Look on the Bright Side of Life’:

A natural optimist

This cheerful song was brought to mind by [amazon_link id=”1451614217″ target=”_blank” ]Abdundance: The Future is Better than You Think[/amazon_link] by Peter Diamandis and Steven Kotler. Diamandis is one of the founders of the Singularity University and so clearly a techno-optimist. It struck me that there’s a whole optimism genre, and one I generally greatly enjoy. There’s Mark Stevenson’s excellent [amazon_link id=”1846683564″ target=”_blank” ]An Optimist’s Tour of the Future[/amazon_link] and Matt Ridley’s [amazon_link id=”0007267126″ target=”_blank” ]The Rational Optimist[/amazon_link]. Mark Lynas tried to debunk conventional eco-gloom with [amazon_link id=”000731342X” target=”_blank” ]The God Species[/amazon_link]. In a way, my [amazon_link id=”1587990822″ target=”_blank” ]Paradoxes of Prosperity[/amazon_link] from 2001 riffs on the same theme, that technology is a powerful lever for increasing prosperity ad solving problems, and that its power often takes us completely by surprise.

[amazon_image id=”1451614217″ link=”true” target=”_blank” size=”medium” ]Abundance: The Future Is Better Than You Think[/amazon_image]

Abundance has the slightly breathless eagerness of a New York Times bestseller, not entirely to my taste, but it’s a highly readable summary of several areas of important technical progress. It starts with an interesting discussion of the characteristics of how our brains evolved to make us natural pessimists, and also touches on the speed with which successful new technologies can spread (although it doesn’t acknowledge the many techno-failures that therefore spread with zero speed – there’s too much determinism in this account).

The book also looks at forces that might bring about the technological nirvana humans have the capability to create – the possibility of ‘DIY’ or entrepreneurial innovation in many fields, philanthropic activity by rich technology entrepreneurs, and the large and growing market in developing countries with great unmet needs. While these are perfectly valid, this is obviously only part of the story. I wish the book had looked more closely at the economic and social forces acting for and against the embodiment of new technologies in people’s lives. This – as Paul David has so brilliantly pointed out – is the hard, and slow, part. Invention is easy by comparison. In short, I wish Abundance had been a bit less excited and more nuanced. But I enjoyed reading it – an ideal airport purchase.