Trains and apple pie

Everybody is in favour of more infrastructure spending now – it seems to be one of the most motherhood-and-apple-pie issues around at the moment. I’m certainly in favour of it. It’s my belief that the UK has under-invested in infrastructure for years, and where it has invested, has done so in such a way as to reinforce the reliance of the economy on one engine, London. I say belief, however, because there isn’t as much evidence as one might wish. The comparisons with other countries are complicated by the differing reliance on public and private investment, as well as assets crossing the public-private boundary at different times. There’s decent macro evidence that economic growth and infrastructure investment are correlated but delineating the causal relationship is much harder, for obvious econometric reasons. Above all, the methods for appraising infrastructure schemes are inadequate. The workhorse tool, cost-benefit analysis, is a methodology for looking at incremental changes, not at big projects that might change behaviour significantly, or involve non-linear effects (such as network effects in a transport or communications network).

In addition, it is hard to take into account externalities and the methods for doing so seem inadequate too. The Department of Transport’s top schemes always seem to be road schemes and I find it hard to believe the pollution externalities are fully accounted for. But the Department’s cost-benefit case for HS2, the new high speed west coast line, has been greatly criticised for delivering the politically-mandated rather than economically sensible answer. I’m an advocate for HS2, as I think it will bring about substantial behaviour change, to the benefit of Manchester as the second (potential) engine of the UK economy, and might also have system-wide benefits if we ever get HS3. But again, this is hard to demonstrate.

Into this foggy context of appraisal comes the latest book in our Perspectives series, David Metz’s [amazon_link id=”1907994599″ target=”_blank” ]Travel Fast or Smart? A Manifesto for an Intelligent Transport Policy[/amazon_link]. David starts, mildly provocatively, “Conventional transport economics has reached a dead end.” He homes in on the appraisal question, saying the normal method looks at benefits such as time saved by individual travellers, whereas it ought to be assessing the prospective contribution to economic development as transport connections change land use. Far less spending on roads, much more on commuter rail and digital management of transport are his recommendations. I don’t agree with everything David says, but think his fundamental argument about the methods is spot on. A must-read for all interested in transport policy – alongside our previous Perspectives title, [amazon_link id=”1907994564″ target=”_blank” ]Are Trams Socialist? Why Britain Has No Transport Policy[/amazon_link] by Christian Wolmar.

[amazon_image id=”1907994599″ link=”true” target=”_blank” size=”medium” ]Travel Fast or Smart? A Manifesto for an Intelligent Transport Policy (Perspectives)[/amazon_image]  [amazon_image id=”B01EYRKJFK” link=”true” target=”_blank” size=”medium” ]Are Trams Socialist?: Why Britain Has No Transport Policy (Perspectives)[/amazon_image]

National wellbeing

I just read [amazon_link id=”1118489578″ target=”_blank” ]The Wellbeing of Nations[/amazon_link] by Paul Allin and David Hand, a very nice overview of the issues in going ‘Beyond GDP’. It came out in 2014, about the same time as my [amazon_link id=”0691169853″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link], so unfortunately I’d not had chance to read it before writing mine. In the couple of years since, the momentum behind the agenda to go ‘beyond’ has certainly increased. This book is a very clear, and rigorous but non-technical explanation of the scope of the issues, and the state of play. As Allin and Hand describe, there has been a good deal of work on looking at alternative ways of defining and measuring ‘wellbeing’ directly, and at wider approaches to assessing whether or not society is progressing.

[amazon_image id=”1118489578″ link=”true” target=”_blank” size=”medium” ]The Wellbeing of Nations: Meaning, Motive and Measurement[/amazon_image]

I am more cautious than they are about any survey-based direct measurement of wellbeing. There seems to be a lot still to understand about the psychology, and about how people’s judgements are formed. After all, we don’t just introspect, we’re also influenced by social context – have we just read an upbeat book about progress? or rather, just read the execrable Daily Express? I’m more with the programme when the book looks at how to (greatly) improve what we do now. For instance, report net national income per capita, not total GDP. Include income distribution and environmental measures. As they note, there are already statistics on many indicators that would give a richer picture of economic welfare. Jones and Klenow have a very nice recent paper on a single summary measure of aggregate economic welfare rooted in economic theory: it calculates a consumption equivalent measure combining income/leisure, distribution and life expectancy. This omits questions of environmental sustainability but good progress is being made on environmental ‘satellite’ accounts and natural capital measurement.

There are some important questions not addressed by Allin and Hand. They describe a proliferation of approaches to measuring wellbeing and indeed call for a thousand flowers to bloom. In my view, if there is no narrowing down of the options, the existing standard of GDP and the conventional national accounts will be far harder to dislodge. A new focal point is needed. (I have a paper on this out soon. Others – like Ehsan Masood in [amazon_link id=”1681771373″ target=”_blank” ]The Great Invention[/amazon_link] – call for a single index for this reason although for different single indices.)  The reason is not tidy-mindedness, but rather the role that official economic statistics play in holding governments to account.

The other question ignored by all of what you could describe as the pro-wellbeing literature (not that I’m against well-being) is innovation. In disparaging GDP growth as a metric, they overlook the fact that GDP growth is not mainly about more shoes, food and vehicles of the same kind, it is mainly the introduction of innovations, from small changes in variety to profound new technologies like the smartphone or the personalised cancer treatment. GDP doesn’t measure these well, and there is a fuzziness as between quality change potentially reflected in prices and real growth, and unmeasurable consumer surplus. But innovation is a huge contributor to wellbeing and people will continue to like ‘growth’. No-growth is a non-starter outside authoritarian and autarkic polities.

These caveats aside, I really liked the book and it is well worth a read if you’re interested in this territory. As many people are – statistics is the new rock and roll.

Relax, be happy?

Johan Norberg’s [amazon_link id=”1780749503″ target=”_blank” ]Progress: Ten Reasons to Look Forward to the Future[/amazon_link] just landed here.

[amazon_image id=”1780749503″ link=”true” target=”_blank” size=”medium” ]Progress: Ten Reasons to Look Forward to the Future[/amazon_image]

It’s in the same spirit as Charles Kenny’s wonderful [amazon_link id=”0465064736″ target=”_blank” ]Upside of Down[/amazon_link], or Steven Pinker’s T[amazon_link id=”0141034645″ target=”_blank” ]he Better Angels of Our Nature[/amazon_link]. There are ten chapters, each covering an aspect of modern life that is better than in the past: food, sanitation, violence, literacy, poverty etc. Each chapter sets out data from various official sources on how much things have improved and can continue to do so. Although there are a few fellow travellers in cheerfulness, this is a contrarian literature. Apart from the Olympic-league pessimists like Robert Gordon ([amazon_link id=”0691147728″ target=”_blank” ]The Rise and Fall of American Growth[/amazon_link]) and other secular stagnationists, there is a striking division between what you might describe as a lot of good news on the material basis of society and gloom on the political/cultural superstructure. It’s hard to feel cheerful when there’s Brexit, an eruption of racist attacks on the streets, Trump, Syria, attacks by ISIS, etc etc.

How you weigh the rational optimism about progress and the emotional pessimism about all that’s going wrong. In Joel Mokyr’s [amazon_link id=”0691168881″ target=”_blank” ]A Culture of Growth[/amazon_link], which I’ve just finished, he underlines the sense of society progressing as being important for delivering it. It also reminds me of Paul Krugman’s very nice old paper, History versus Expectations, about getting the balance right between the past and the future.

Being enlightened

I’m reading and enjoying Joel Mokyr’s forthcoming [amazon_link id=”B01EGQA1Z2″ target=”_blank” ]A Culture of Growth: The Origins of the Modern Economy[/amazon_link] (which I’ll be reviewing for another outlet). It’s another perspective on the Enlightenment and Industrial Revolution than covered by his earlier books, [amazon_link id=”0195074777″ target=”_blank” ]The Lever of Riches[/amazon_link] and [amazon_link id=”0140278176″ target=”_blank” ]The Enlightened Economy[/amazon_link]. The book is out in October.

[amazon_image id=”0691168881″ link=”true” target=”_blank” size=”medium” ]A Culture of Growth: The Origins of the Modern Economy[/amazon_image]

One of the things I’m enjoying is the range of references – from Frances Yates, whose [amazon_link id=”041527849X” target=”_blank” ]Giordano Bruno and the Hermetic Tradition[/amazon_link] and [amazon_link id=”0415254094″ target=”_blank” ]The Rosicrucian Enlightenment[/amazon_link] I devoured as an early modern history-crazy teenager to Sam Bowles’ [amazon_link id=”0691126380″ target=”_blank” ]Microeconomics: Behavior, Institutions and Evolution[/amazon_link]. Speaking of the Enlightenment, the FT today has a glowing review of Anthony Gottlieb’s [amazon_link id=”0713995440″ target=”_blank” ]The Dream of Enlightenment: The Rise of Modern Philosophy[/amazon_link]. One to add to the wish list.

[amazon_image id=”0713995440″ link=”true” target=”_blank” size=”medium” ]The Dream of Enlightenment: The Rise of Modern Philosophy[/amazon_image]

‘Commoditised’ services?

I’ve been pondering my recent conversation with Branko Milanovic about ‘commodification’ and whether or not it’s a good thing. As he says in his reply on the subject, it is happening as a matter of definition. He puts this in terms of the formalization of economic activity as economies grow richer. I’d express it as the increasing share of services in economies as they grow richer. Goods have been largely commoditized (as it were) in the west for aeons and nobody really thinks there’s any social problem with buying your shoes and fridges in the market. As the growth process continues, the division of labour and specialization extend into areas of services.

On the whole, I disagree with Branko that there is a tradeoff, that while people clearly value these market exchanges, they weakens social ties: “[W]hile in many cases, greater commodification has made our lives better and responds to a definite choice of people, it has also in many cases weakened personal ties and in some cases made us more callous because our knowledge that any pesky little problem can be solved by throwing money at it made us less concerned about our neighbors and family.” He links this to the emerging ‘gig’ economy.

For many or perhaps most services, I don’t see this. If I specialize in economic consultancy, my neighbour in translation, a friend in gardening, another in teaching in a gym, what’s the social problem that arises from these being market exchanges? Indeed, the argument that these sorts of monetary transactions undermines relationships seems demonstrably false: services of this kind require a high level of trust for transactions to occur because there is a huge asymmetry of information between the seller and the buyer. If Paola translates a paper into Italian for me, I have no idea how good it is. This asymmetry is why professional services are regulated and in some countries provided by the public sector, presumed to have an ethos of public service.

The social problems come with a particular category, the personal, labour intensive services often badly paid. This could be because they are paid for by squeezed public funds (hospital cleaners), or because they are jobs that might not exist if the pay had to be higher (supermarket checkouts – now getting automated – or domestic cleaners – some working women would do without if their pay doubled). One could argue that some of these activities should as a matter of ethics never be marketed, but this was my original challenge to Branko, as child care and cleaning are still typically mainly done by women. Barbara Ehernreich in her terrific book [amazon_link id=”1847082629″ target=”_blank” ]Nickel and Dimed[/amazon_link] argued that anyway nobody should be asked to clean somebody else’s toilet, as a matter of (self-)respect. I’m more interested in interventions in the market to ensure good pay and conditions, rather than – what? banning these transactions?

[amazon_image id=”1862075212″ link=”true” target=”_blank” size=”medium” ]Nickel and Dimed: Undercover in Low-wage USA[/amazon_image]

As for the ‘gig’ economy, this seems to me a question of how good or bad the workers’ outside options are (as well as the corporate behaviour). Nobody is forced to drive for Uber or ride for Deliveroo, so their other options are probably worse. This is an argument for a reasonable minimum wage properly enforced, and a legal framework that is updated to protect the rights of all individuals doing paid work – I’ve been arguing for this since [amazon_link id=”B019TLAJRO” target=”_blank” ]The Weightless World[/amazon_link] in 1997.

I’d go further and say there are areas where we need more market exchange. Like many economists, I’d like to see more market instruments used to serve the interests of environmental protection and the safeguarding of natural capital. I admire Al Roth’s work on bringing a market-type (but non-monetary) exchange process to kidney donations, literally life saving work.

PS Apologies about the ongoing tech problems with the blog. I keep thinking it’s fixed. The fix is short term but hopefully it will be sorted long term within a week or two. This is a problem of success, with more traffic and an accumulation of posts, so I hope regular readers will be patient with the tech issues.