Enoughness

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Yesterday I attended a very interesting symposium at Christ Church, Oxford on the 2012 book by Robert and Edward Skidelsky, [amazon_link id=”0241953898″ target=”_blank” ]How Much Is Enough? Money and the Good Life[/amazon_link]. I think my own [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough [/amazon_link]was my passport to the event.

[amazon_image id=”0241953898″ link=”true” target=”_blank” size=”medium” ]How Much is Enough?: Money and the Good Life[/amazon_image]

The Skidelskys’ book is a good and provocative read. It starts with the question posed by the famous Keynes essay, [amazon_link id=”1441492267″ target=”_blank” ]Economic Possibilities for our Grandchildren[/amazon_link]: why are we not now enjoying much more leisure, given that Keynes was right in his prediction about the degree of technological progress. One aspect I very much agreed with is their point that it is important to keep the ideas of economic growth and well-being or social welfare distinct – this is one of the themes of my new book, [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link] as well. GDP growth is a means to an end, reasonably highly correlated with well-being, but not an end in itself.

However, in other ways I strongly disagreed with their book. They argue for stopping growth and stopping technological progress, including, Lord Skidelsky explained yesterday, stopping or slowing down further automation of work by taxing the use of robots. To my mind, that completely misses the point about economic growth, which is not to have more and more of the same things, but to have more variety and new things. Innovation is the source of improvements in well-being, from trivial innovations to life-changing medicines or major technologies such as the internet and mobiles. GDP growth is the set of footprints left by innovation, although it fails to count the increase in welfare caused by new goods and services. At one point the Skidelskys write: “The material conditions for the good life already exist,” and say nothing has improved since 1974. This is absurd. Since 1974, UK life expectancy at birth has increased by 9 years to 81, the web has been invented, and we’ve moved from almost nobody having central heating to almost all of us having it – its lack is now taken as a poverty indicator.

The seminar included a long discussion about the a-morality or immorality of conventional economics. The economists taking part were probably atypical, as we all agreed that economics does need some post-crisis rethinking. The philosophers present focused on questions of liberalism and paternalism. Professor Cecile Fabre was particularly strong on questioning the Skidelskys’ failure to identify the ‘good life’ with some of the key values of liberalism.

I left with another book the two Skidelskys have edited, [amazon_link id=”0954643089″ target=”_blank” ]Are Markets Moral?[/amazon_link] Glancing at the contents, I think its answer is ‘no’. But even to pose the question is to make markets overly-abstract. Markets are institutions in which people have social relations. The markets for tea bags, accountancy services, and radio spectrum have entirely different structures and characteristics. ‘Moral’ isn’t a description that can apply to abstract nouns at all. One can sensibly ask if bankers are moral, at risk of generalising, but not markets.

Goodbye to rational economic man

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A few weeks ago a Very Important Policymaker recommended Gerd Gigerenzer’s [amazon_link id=”0141015918″ target=”_blank” ]Gut Feelings[/amazon_link] to me. It’s a fascinating book, and fascinating to know as well that at least one important policy organisation is taking decision-making so very seriously.

[amazon_image id=”0141015918″ link=”true” target=”_blank” size=”medium” ]Gut Feelings: Short Cuts to Better Decision Making[/amazon_image]

At first glance, this book is in the vein of the many behavioural psychology books that have so interested economics in recent years – for me Daniel Kahneman’s [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow [/amazon_link]is the best. Jan Zilinsky posted a great list of them on Quora. The book discusses some similar issues, such as biases and framing. However, it also poses a challenge to the behavioural consensus, which always presents actual decision-making as a departure from the ideal of rational calculation. The aim of ‘nudging’ is to make people choose in ways that mimic rational economic man. What Gigerenzer argues is that the reliance on intuitive (fast) decision-making is often optimal: it not only saves on the energy needed for calculation, it also produces better outcomes than rational calculation.

For example, if asked to say which of Detroit or Milwaukee has the bigger population, Americans will be more often wrong than Europeans who don’t know the answer but have probably heard of Detroit – they rely on a recognition rule-of-thumb (if you’ve heard of it, it’s more important), whereas Americans who recognise both try to figure it out from other knowledge they have about the two cities. In an uncertain environment, it is better not to have full information – complex detail is good for explaining with hindsight but not for prediction. Some lack of knowledge is optimal -to take advantage of the recognition heuristic.  “In an uncertain world a complex strategy can fail exactly becaue it explains too much in hindsight. Only part of the information is valuable for the future, and the art of intuition is to focus on that part and ignore the rest,” Gigerenezer writes.

He describes a number of rules of thumb based on ‘evolved capacities’ such as language, recognition, object tracking,  memory, and emotions. These have come about because of both natural selection and cultural transmission. Using a rule of thumb requires two processes – in this example, recognition followed by evaluation – should it be applied to the present situation. The book spends a good deal of time on the recognition heuristic, which it sees as being behind the prevalence of brand advertising. Strong brands cause the recognition rule of thumb to kick in. Gigerenzer argues that this means, “If consumers can only tell the difference between competing brands by name, then there is little economic justificaiton for the idea that more choice is always better.” I admit to being intuitively resistant to this idea, but it obviously deserves careful thought.

The book also insists that we can’t analyse behaviour only with reference to personality or psychology – environment matters too. They are the two blades of the pair of scissors. This means there is great variability in human behaviour, something social scientists certainly ought to embrace. However, much economics looks for universally and permanently valid models. Here, my intuition is with Gigerenzer; our analysis needs to become far more context specific, looking at history and geography, and the interplay between economics and politics.

Gut Feelings is very clearly written and thought-provoking. I commend it to anybody interested in decision making and behavioural economics.

i also recommend my plane reading earlier this week, a rip roaring thriller set in the dysfunctional capitalism of modern Russia, Martin Baker’s [amazon_link id=”1783520019″ target=”_blank” ]Version 13[/amazon_link]. I can see the movie  in my mind’s eye.

[amazon_image id=”1783520019″ link=”true” target=”_blank” size=”medium” ]Version Thirteen[/amazon_image]

Poverty and inheritance

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There’s an old Pelican on my shelves, [amazon_link id=”0804614679″ target=”_blank” ]The Economics of Inheritance[/amazon_link] by Josiah Wedgwood, nicely musty and yellowed. It was first published in 1929; I have the revised 1939 edition.

[amazon_image id=”0804614679″ link=”true” target=”_blank” size=”medium” ]The economics of inheritance,[/amazon_image]

It begins with a discussion of poverty and inequality, including this section.

“Material welfare has no significance except in its relations to men’s feelings and as one element in the psychological state called happiness. And the extent of a man’s happiness depends on the number and intensity of the desires which he is able to satisfy relative to he number and intensity of those which he is not able to satisfy. For this reason, certain religious teachers have striven to achieve happiness by eliminating all desires save those which they believed were capable of complete and permanent satisfaction. By contrast, in the search for material welfare, our modern civilisation under conditions of industrial progress is continually manufacturing new and previously unwanted sources of pleasure, so that old luxuries become new necessities, alike for those who can and cannot afford them. …

“`Though the amount of good and services enjoyed by the poor man in 1924 may be enormously greater than those enjoyed by his predecessor in 1824, the former’s poverty is probably little less tedious and unpleasant to him than an actually more grinding poverty was to the latter.”

There is a very thoughtful review of Julia Unwin’s book [amazon_link id=”1907994165″ target=”_blank” ]Why Fight Poverty?[/amazon_link] on 3am Magazine by the philosopher Richard Marshall (he reviews the whole Perspectives series). Lee Crawfurd also reviews Unwin’s book and takes issue with the idea of relative poverty, expressed above by Josiah Wedgwood.

[amazon_image id=”1907994165″ link=”true” target=”_blank” size=”medium” ]Why Fight Poverty? (Perspectives)[/amazon_image]

Incidentally, I’m pleased to see OUP is bringing out a collection of Richard Marshall’s essays, [amazon_link id=”0199969531″ target=”_blank” ]Philosophy at 3:am[/amazon_link] very soon.

[amazon_image id=”0199969531″ link=”true” target=”_blank” size=”medium” ]Philosophy at 3:AM: Questions and Answers with 25 Top Philosophers[/amazon_image]

As for Josiah Wedgwood, the second half of his book recommends inheritance tax (at 60% or so) and a gift tax, as well as progressive income tax. He wrote: “The ethical arguments in favour of claims to inherit… are extraordinarily weak.” Parents should support their children to give them a good start until they reach adulthood. He rejects the idea of any right to bequeath property. It’s a radical read in today’s climate – but that’s why we have a new gilded class. Like so many others, I’m keen to read Thomas Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link].

[amazon_image id=”067443000X” link=”true” target=”_blank” size=”medium” ]Capital in the Twenty-First Century[/amazon_image]

GDP and all that jazz

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Tyler Cowen has reviewed my new book, [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link] for the Washington Post – favourably, I’m relieved to say, as he’s such an astute reader. I’m halfway through the other book he covers, Zachary Karabell’s [amazon_link id=”1451651201″ target=”_blank” ]The Leading Indicators: A Short History of the Numbers that Rule Our World[/amazon_link]; and will be reviewing that myself in due course.

[amazon_image id=”0691156794″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History: A Brief Affectionate History[/amazon_image]   [amazon_image id=”1451651201″ link=”true” target=”_blank” size=”medium” ]The Leading Indicators: A Short History of the Numbers That Rule Our World[/amazon_image]

There are surprisingly few books about GDP, but two came out soon after I submitted my manuscript, very different from each other (and mine). One is [amazon_link id=”1780322720″ target=”_blank” ]Gross Domestic Problem [/amazon_link]by Lorenzo Fioramonti – self-explanatory. Here is my take. The other is [amazon_link id=”019976719X” target=”_blank” ]Beyond GDP: Measuring Welfare and Assessing Sustainability[/amazon_link] by Marc Fleurbaey and Didier Blanchet which is far more technical but well worthwhile if you’re interested in the issues – here’s my review. Its introduction covers the argument of the book in a non-technical way.

[amazon_image id=”019976719X” link=”true” target=”_blank” size=”medium” ]Beyond GDP: Measuring Welfare and Assessing Sustainability[/amazon_image]

Macroeconomics – a pile of tsundoku?

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The in-pile is suddenly teeteringly large  – thanks to Bookshelf Porn, I now have the japanese word tsundoku:

Thank goodness for a lot of travel coming up.

One that just arrived and is very tantalising is [amazon_link id=”0262019736″ target=”_blank” ]Big Ideas in Macroeconomics: A non-technical view[/amazon_link], by Kartik Athreay, flagged up to me by a comment on this blog. Regular readers will know that I’m a macro-sceptic, so it will do me good to read what looks like a sympathetic account of modern macro. Noah Smith has blogged about the book already, and my prior is that I’ll agree with him, although Herb Gintis has a friendly quote on the back cover. Naturally I’ll keep an open mind!

[amazon_image id=”0262019736″ link=”true” target=”_blank” size=”medium” ]Big Ideas in Macroeconomics: A Nontechnical View[/amazon_image]