Whose island?

A hint of broadband here …. Next in the holiday line-up was James Meek’s thought-provoking Private  Island: Why Britain Now Belongs to Someone Else. I was doubly interested to read this because the boundary between the state and the market, and the space for other non-state, non-market collective institutions is one of the themes running through the course I teach on public policy economics.

The book covers several of the UK’s privatised industries – electricity, rail, water, and post, as well as the housing crisis, the NHS and its marketisation, and a final chapter on immigration and the rise of UKIP. The chapters are largely self-contained, and indeed some started as extended essays in the London Review of Books. Each raises valid questions about the specific failures of privatisation – in particular, the failure of the privatisers to consider that markets need far more than private ownership of assets to operate efficiently and in the interests of consumers. Competition and regulation are required, in the right mix, regulations that do not turn out to inhibit competition, but rather limit monopoly rents and enable new entry.

In the end, though, the book is more a lament about financialisation and short-termism than about private sector operation of these sectors in itself. It is hard to tell whether Meek objects to private ownership at all, but he certainly objects to the ownership of large amounts of the country’s infrastructure by foreign owners and/or through debt-financed instruments. The grounds for this objection shift between chapters. In the case of water, it is that overseas bondholders require high financial returns and so necessary investment has not occurred. In the case of electricity, it is that EDF, a state-controlled French company, has bought the UK’s nuclear fleet and plans to invest in new nuclear plants – even though the essay accepts that low-carbon baseload generation is needed, and even though no UK companies were prepared to make the investment. (I sit on an advisory panel for EDF Energy.)

Should we be concerned about the high proportion of UK infrastructure owned by foreigners? I don’t know. Will Hutton recently used the purchase of the FT by Japan’s Nikkei to make this argument. But I’ve not seen a full analysis of what extent of foreign ownership is ok, in which sectors, and why nationality matters, although of course there are obvious arguments in some cases eg the threat of offshoring R&D in pharma made by big multinationals which had to be bought off with a big tax break (the ‘patent box’). It seems to me an academic questin, however, until and unless British investors are prepared to stump up the funds for long-term projects and long-lived asset holding.

Meek doesn’t address this question, though some chapters do have clear and sound policy conclusions. Build more council housing is one – yes! Scrap the dreadful ‘Help to Buy’ scheme – yes!

Still, overall the essays, with their sympathetic reportage of the conditions of casualised mail workers, about-to-be-homeless disabled people, flooded householders, add up to a powerful critique of the absence of strategic thinking in the British state. “No one has answered the question,” he writes, “of how governments with five year terms can be held to account for their stewardship of projects whose lifespan is measured in generations.” Only the Treasury, with its equally short-termist, penny-wise pound-foolish principles endures. I don’t think the question is mainly specific accountability, though; it is the absence of any institutions or public consensus about the need to take a long term perspective and embody responsibility to the future.

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The Price of Everything, including women

Although a holiday is obviously a reason to read books that aren’t about economics, I’m also fitting in one or two more work-related ones. (Although, luckily, my connectivity in rural France is poor, so subsequent posts might need to queue until back somewhere near reliable broadband.)

On the fiction front, two terrific books – Black Water Rising by Attica Locke, and the third of Elena Ferrante’s Neapolitan novels, Those Who Leave and Those Who Stay. These novels by Ferrante rank among the greats, just wonderful, on the experience of being working class, female, human.

Back to the daily grind. I read The Price of Everything: The True Cost of Living by Eduardo Porter. This has been out for a couple of years so I don’t know why I hadn’t spotted it before. It’s in the vein of Tim Harford’s Undercover Economist, using real world examples to explain applied microeconomics. The Price of Everything is a lively read with lots of good examples of how markets work, or don’t work. These included a few I’ve not come across before, like the outrage over Coca Cola’s experiment in Brazil with “dynamic pricing” in its vending machines – charging more for a cold drink when the weather gets hotter. It covers a wide range of topics, illustrating basic concepts like opportunity costs, the unintended consequences of regulation, and also cost benefit analysis, the behavioural economics ‘biases’ and the debate about income and happiness.

The chapter I liked best was the one about women, all too rarely covered by popular books about economics. It has a marvellous quote from my hero David Hume: “This sovereignty of the male is a real usurpation, and destroys that nearness of rank, not to say equality, which nature has established between the sexes.” Also Arthur Lewis, Nobel prize winning development economist at my department in Manchester, and the first black professor in a British university (not that there are all that many even now), writing in 1955: “It is open to men to debate whether economic progress is good for men or not, but for women to debate the desirability of economic growth is to debate whether women should have a chance to cease to be beasts of burden and join the human race.” The chapter also cites Claudia Goldin’s work on u-shaped female labour supply as countries develop, the social dynamics of women entering the workforce after the 1950s, Becker’s economic analysis of the family, work on assortative mating, demographic trends, dowries, the missing girls of Asia and more.

If I had to recommend just one book to a student thinking about or starting on economics I’d probably stick with the The Undercover Economist, but The Price of Everything is a serious contender for that chapter alone. So kudos to Eduardo Porter, and for an all-round enjoyable book for non-economists.

Who benefits from e-books?

It’s holiday time and the world divides into those who download all their reading onto an electronic device and those who cart piles of books around in their suitcase. I’m one of the latter, although getting better about leaving paperbacks I’ve read behind in hotels and cottages. However, I have downloaded onto my iPad the articles from the latest issue of the Journal of Economic Perspectives (free to read & always excellent.)

Among this issue’s essays is a symposium on technology, the labour market and growth, which looks terrific. There’s also a very interesting article by Richard Gilbert on ebooks and publishing, which concludes the outlook is not great for traditional publishers:

“The e-book story shows how the traditional players in the book industry are struggling to achieve a new market equilibrium in a time where their industry is facing severe technological disruption and illustrates the hazards they face in attempting to manage the transition to that new equilibrium.”
My gloss would be that not all publishers are the same. As The Guardian noted recently, university presses are doing well – I agree with Sam Leith here that the big conglomerates are too ‘me too’ in their approach; and as a small publisher myself with LPP I’m optimistic for new entrants. On the whole, innovation in the book world has so far probably been good for readers as there is a proliferation of new titles and formats.

Funny Money

I’ve been enjoying what author Dave Birch of Consult Hyperion calls a blook – this year’s reader of his tomorrow’s transactions blog posts. Any regular reader of the blog, or indeed Dave’s book Identity is the New Money, will know how astoundingly entertaining retail payments and electronic ticketing can be. His historical knowledge is extensive, as is his range of cultural references.

The blook also gathers in one place so many examples of the dimness of the financial services industry, explaining why there is so much fraud around. Why do chip and pin cards still get issued with magnetic stripes on the back – “trivially counterfeitable”? Why do we still need to sign the back? (Dave never signs with his real name – “I don’t want theives who steal my card to have a copy of my real signature to practice with.” It’s also from him that I learned never to sign up for free wifi with my real email address because that just results in more spam. They don’t know my name isn’t Doris Day.)

But above all, it’s very funny. I can’t see the 2015 reader on Amazon yet, only the 2014 one, but no doubt it will be there soon. Or there’s always the tomorrow’s transactions blog.

 

Behavioural economics, 1892 version

Well I’ve read Paul Mason’s PostCapitalism and can’t write about it because I’ve agreed to do a review elsewhere, and I’ve read Dani Rodrik’s Economics Rules: The Rights and Wrongs of the Dismal Science and can’t write about that because it’s embargoed until the autumn.

 

So I’m going to offer instead another thought about Elements of The Economics of Industry by Alfred and Mary Marshall, which has been my bedtime reading for a few days. One of the striking features is that so many of what seem to be recent insights in economics are there in Marshall, in crystal clear English. For example:

“An increase of income nearly always causes pleasure; but the new enjoyments which it provides often lose quickly much of their charm. Partly this is the result of familiarity, which makes people cease to derive much pleasure from accustomed comforts and luxuries, though they suffer great pain from their loss.”

Doesn’t this sound just like modern behavioural economics?

I noticed Brad DeLong coincidentally also writing about Marshall – his earlier Economics of Industry with Mary Marshall.