What a contrast in either case to the comparative statics, giving way to the instantaneous solving of differential equations, that has characterised modern macroeconomics. Post-crisis, we know the modern macro is wrong, a discredited intellectual framework. Who knows yet what will crystallise the new consensus – but it has something to take from Keynes and Hayek.

As it happened, as I finished the book, Tim Harford alerted his devoted Twitter followers to this blog by Greg Fisher looking at Hayek through the prism of complexity theory. Very interesting.

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However, I was most struck by the apparent emphasis on demography in the first of these. According to the review:

‘Laqueur foresees a potential clash of generations as young Europeans, increasingly outnumbered by the old, are condemned to more expensive education, more precarious jobs and less generous pensions. “Depriving citizens of services that were taken for granted could lead sooner or later to a political earthquake, and even a lethargic Europe could witness violence,” he forecasts grimly.’

This is a theme of a recent book by David Willetts, The Pinch, and I also touch on exactly this last point in the quotation in my book The Economics of Enough. What I’m now wondering is whether an economy with an ageing population – and shrinking too as many European ones will have before long – can achieve real economic growth? China has managed so far but is enjoying catch-up growth to the world productivity frontier. And apart from the absence of counter-examples, endogenous growth theory also predicts that a higher population contributes to higher per capita growth (because knowledge is embodied in people, and with a positive feedback loop – Michael Kremer did a nice paper about this.)

Besides, I’ve always found it odd that nobody quite understands why the birth rate fell so much in some European countries, and why it has the north-west/south-east gradient it does. The only demographer I’ve discovered who addressed this at all was Emmanuel Todd, although no doubt there are others.

So a final question – is it demography, and not history or geography, that is destiny? If so, it casts an even gloomier light on the Greek and Italian debt traps.

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The reason this comes to mind is because of some of my weekend reading. One is a terrific essay by Andy Haldane of the Bank of England, The Doom Loop, in the London Review of Books. It has some obviously good suggestions. For example, bankers’ pay should be linked not to the return on equity (which incentivises them to take risks) but to return on assets (i.e. the loans they make, which would test whether they were doing their basic job of intermediating between savings and investment). The essay notes the increasing concentration of banking in the UK and the evolution of incentives to take risks. How did banking change its character so much? What regulatory and technological and social changes got us here?

The second was a terrifying Wired report on new research into high speed trading. ‘Flash crashes’ like the one that occurred in May 2010 turn out to happen very often, except normally so fast that humans can’t spot them. A new $300m undersea cable is being laid across the Atlantic (the first since the mid-1990s) to cut 0.006 of a second off the time it will take computers to communicate financial orders between the US and UK. How did this high speed financial market come about, who are the participants, what is being traded and where?

For now we have fiction – Robert Harris’s The Fear Index, John Lanchester’s forthcoming Capital. One sociologist – Donald MacKenzie – has also looked at high frequency trading. But we need more light on this hidden world of finance. This is the story I want to be told.

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So my eye was caught by a new book, Moby Duck: an accidental odyssey (The true story of 28,800 bath toys lost at sea) by Donovan Hohn. It turns out the toys are pretty much indestructible, so when a large cargo container full of them capsized, in 1992, they sailed to the end of the ocean and stayed there. Fifteen years later, Hohn set out on their trail, with destinations including Alaska and the North Pacific Gyre, which has become a large garbage dump in the ocean.

Books about the nuts and bolts of globalisation always fascinate me. I enjoyed Travels of a T-Shirt in the Global Economy by Pietra Rivoli, and The Box (about shipping containers, by Marc Levinson – which also inspired a BBC project to follow a container).

So I’m going to have to read this one. It’s been favourably reviewed in the FT and The New York Times.

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Which are your favourite books about cities by other authors, and why?

If it’s a sociology of cities I like coming back to Georg Simmel’s classic book, but it’s because I think the opposite — he thought it was impossible to
create a sense of community in the city and I think it’s the only place where
a genuine community can rise. But my best cities book is Yehuda Amichai’s poems book on Jerusalem. I wish I could do the same: squeeze the entire city
into two to three sentences.

Of all the cities you’ve visited which are the most interesting to walk
around?

Well, I am biased. I am just in love with Jerusalem, and it’s such a lunatic
city. Half of its inhabitants believe they have a direct line to God. But
outside my city, I think Berlin is the most exciting city today. One can see
that the city simply changes every day, and that people are excited about it.
The combination of ultra modern architecture with the remains of the Communist
architecture, and the abundance of sites of collective memory — this is just
amazing. Not very easy for somebody Jewish like me, but still, terribly
interesting.

Your book advocates walking to imbibe the spirit of cities. Which group is winning the battle for control of urban space – people or vehicles? Are many cities becoming unwalkable?

Well, now that Time Square NYC is walkable, there is hope. In the US there is
a list of the 50 most walkable cities and the 50 which are most friendly to
cyclists. While cars still dominate today’s cities, at least planners and
mayors are well aware of the need to think differently.

If you had to choose another city to live in, which would it be?

Oxford, Oxford, Oxford. When I studied there one of my professors heard me
saying I liked it a lot, and he said: But you know it’s not a real place. Now
I know he was wrong. Oxford is a city which is full of life and energy and
creativity. Only one has to get away from the colleges, to walk in the
neighbourhoods. You can see artists, novelists, poets, and people who want to
be artists, novelists and poets.

Avner De-Shalit

By the by, I noticed that Ed Glaeser’s The Triumph of the City, another terrific read for lovers of the urban, is out in paperback. Worth a read if you haven’t so far.

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Sociological analyses of markets are fascinating, and quite rare. I was reminded by a comment on my previous post about John McMillan’s Reinventing the Bazaar: A Natural History of Markets, one brilliant study of the institutional details of markets. Donald MacKenzie and some co-authors have a brilliant new paper Drilling Through the Allegheny Mountains: Liquidity, Materiality and High-Frequency Trading, (pdf) on high frequency trading in the financial markets, where the speeds are such (the speed of light) that the location of servers has become a competitive issue. The development of high frequency trading has even involved some tunnelling through the Allegheny Mountains to reduce the distance the signals need to travel down fibre optic cables.

Any applied micro-economists – working on competition cases, as I used to, or in a regulatory body or business – understands that the models we learn as students are abstractions, intellectual devices. Real markets are idiosyncratic, and the institutional detail matters.

The area of market design makes a virtue of the fact that the specifics matter. Spectrum auctions, kidney exchanges, carbon trading are all examples of markets created by economists from paper plans – deliberately performative, to use the sociologists’ term. (Al Roth’s website has some great introductory material.) Some of these work brilliantly. The human and social benefits of the kidney exchange or job matching markets, for example, are pretty clear. Others don’t function so well – the carbon market is an example. And we might all prefer it if the Black-Scholes equation had not given birth to the options markets. The point, though, is that it isn’t necessarily a bad thing if economic theory changes reality by creating markets where none existed. I’m very much looking forward to reading Michael Sandel’s forthcoming book, What Money Can’t Buy: The Moral Limits of Markets. But I suspect he will argue that the scope of markets has grown too large and needs rolling back, whereas I think it’s much more complicated.

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1 A Treatise of Human Nature by David Hume. My founding text. Understanding the social choices we make by understanding our place in the natural and physical world.

2 This Time is Different by Carmen Reinhart and Ken Rogoff. A history of debt crises, an instant classic and still relevant for our times (although not perhaps on an island cut off from the financial markets).

3 There has to be a good, chunky economic history but which one? Greg Clark’s A Farewell to Alms? Jared Diamond’s Guns, Germs and Steel? Joel Mokyr’s Gifts of Athena? The Great Divergence by Kenneth Pomeranz? Or The Wealth and Poverty of Nations by David Landes? I’ll choose later.

4 A biography of Keynes. Either Roy Harrod’s Life of John Maynard Keynes or the recent Capitalist Revolutionary by Roger Backhouse and Bradley Bateman. Hmm, another difficult choice.

5 The Idea of Justice by Amartya Sen. Michael Sandel’s forthcoming book about the limits of markets, What Money Can’t Buy, might challenge it – we’ll see.

6 What to choose from the huge field of development economics? This field is moving rapidly but at present it would have to be Banerjee and Duflo’s Poor Economics.

7 Lives of the Laureates. In which winners of the Nobel memorial prize explain their work and their motivations – there are several volumes, so maybe I can count them all as one book. Or Economics Evolving by Agnar Sandmo, a terrific history of economic thought. Another late packing choice to be made.

8. There’s a vast array of books on institutions and technology and growth. I’ll tentatively pick Oliver Williamson’s The Economic Institutions of Capitalism for a thorough grounding.

I’ve had to omit all the terrific financial crisis books – maybe I can slip my old friend Andrew Lo’s fascinating and useful review (pdf) of 21 of these titles into my suitcase.

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“There is a widespread reluctance to accept that behaviour is governed by social norms rather than legal rules or abstract principles. I wear a tie today not because I want to, or because anyone requires me to, or because I think that it is right that I should do so, but because of a shared convention that I will. …

I tip in restaurants or cabs, but not post offices or doctor’s surgeries. Often there is some underlying reason for these practices, although I cannot think of one that applies to the habit of tie-wearing. But in any event it is custom, not reason, that leads me to do it. The Scottish pound is accepted where it is accepted, and not where it is not. There is really no more to it than that.”

As it happened, I was reading at the same time John Searle’s Making the Social World: The Structure of Human Civilization, which is about exactly the same point.

Searle makes the even stronger claim that all human institutions are created and sustained in existence by “collective recognition”, which is dependent ultimately on communication. He sees all institutions as general examples of Austin’s “performative utterances”, which “make something the case by declaring it to be the case.” (p69)

There are many examples, of which money is one. So are political institutions and roles: the prime minister is the leader of the party that wins the most seats in a general election because we agreed that it is so. Another example I’ve been pondering is property: intellectual property is clearly an abstraction dependent on social convention, but physical property is too. When I buy a meal in a restaurant, convention tells me I have bought the food, and can take home what I don’t finish, but I can’t tuck the plate into my bag to take away when I’m done.

There’s an even more interesting question arising from this issue of performativity in the economy: what is the effect of the new forms and scope of communication on economic and political institutions? Intellectual property is on the front line of the struggle between old institutions and new ones shaped by the new technologies.  Facebook and Twitter and the like offer completely new opportunities for performative declaration. Many other struggles will follow.

100 Scottish pounds

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This is fascinating stuff for a competition anorak like me. Amazon is doing the classic giant corporation thing of trying to leverage a strong market position in one market into neighbouring markets, and to control as much as possible of the entire vertical supply chain. The competition authorities should be keeping a watchful eye on this already.See Timothy Wu’s brilliant book The Master Switch for past examples of concentration in these network markets.

Having said that, publishing is not short of massive corporations itself, and the big ones can probably look after themselves. Meanwhile, plenty of smaller publishers seem to be doing rather well, innovating to serve readers and authors better using the new technologies.

Then, while these two sets of titans – Amazon and the big publishers – slug it out, the retailers on whom they have all depended are struggling, facing a real margin squeeze. Readers are benefiting from variety and innovation but not from reduced prices – so there is successful exploitation of market power somewhere back up the supply chain. And the authors? A few superstars benefit from network dynamics and the rest are in the same weak position as ever, albeit with some new opportunities to self-publish and self-market.

I should add that all the links on this blog go to Amazon’s UK site, only because the associates programme allows me to make enough to offer vouchers to the occasional guest reviewer. If Abe Books or another online retailer were to launch a similar programme, I’d happily switch.

As another aside, I’m a fan of real books rather than e-readers, and definitely hate the Kindle specifically for its ugly greyness and small screen. Last night I was reading a delightful book by Susan Hill, Howards End is on the Landing, and found she agrees: “No one will sign an electronic book, no one can annotate in the margin, no-one can leave a love letter casually between the leaves.”

I use postcards and concert tickets as bookmarks – it’s always a pleasure to pick up a book again and see what drifts out from between the pages. Yesterday it was a postcard from Balthazar’s on Spring Street in New York, a memory of brunch with dear friends.

Balthazar's

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One of the many points that struck me in Overy’s account was his description of the widespread interest in serious matters. For example, the Left Book Club, which I’d always imagined to be the minority sport of a few intellectuals, was a mass market phenomenon. There is certainly plentiful evidence of this seriousness these days: huge interest in online university courses; sales of ‘popular’ science, history, economics books; flocks of people attending debates and lectures; audiences for current affairs and foreign news…..

These serious appetites are well in evidence, too, in just my limited reading of this weekend’s book and culture sections of the papers. Here are just a few themes:

The internet and society. John Naughton discusses David Weinberger’s Too Big to Know and Evgeny Morozov’s The Net Delusion & his recent New York Times essay (Death of the Cyberflâneur) about the decline of online flânerie (with HT to Walter Benjamin). Richard Sennett’s new book on community (ok, the theme of all of his books), Together, features in The Guardian, Observer, The Independent.

Mechanisms. The book behind the movie Hugo, Brian Selznick’s The Invention of Hugo Cabret (Observer). The Black Scholes Equation, one of those featured in Ian Stewart’s 17 Equations that Changed the World – see also John MacCormick’s 9 algorithms that changed the future and my recent musings on the performativity of economics, Frankenstein Economics. Here’s a review of Nick Harkaway’s Angelmaker, featuring a maker of clocks and automata.

Here, by the way, is a fascinating article about the Enlightenment and 19th century interest in automata – and here a 21st century animatronic singing face.

Freedom, and its erosion. John Kampfner reviews Rebecca MacKinnon’s Consent of the Networked. Nick Cohen has a new book out, You Can’t Read This Book, reviewed here by Denis McShane.

The state of the nation. Charles Dickens is everywhere, given his anniversary – see this review in the Sunday Telegraph of The Dickens Dictionary. Here is an essay by Alex Preston on a flock of new state of the nation novels. I’m especially looking forward to John Lanchester’s Capital. Not to mention the wave of books about (in-)equality, the economy and all that.

Time to stop blogging and start reading.

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