An economist’s righteous anger

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I really enjoyed reading Angus Deaton’s Economics in America: an immigrant economist explores the land of inequality. It’s a collection of essays regarding different aspects of the economy, centred on issues of inequality, and also concerning the discipline of economics itself. Many of the essays originated in his ‘Letters from America’ for the Royal Economic Society newsletter, now updated and reorganised. But they are models of clarity and accessibility, and the book would be an ideal read for students, or just people who want to understand better the economic mess we’re in – we, and particularly the US.

For the author’s righteous anger about the deep seated inequalities in America, from historic racial inequalities to the stitch up of citizens by the monopolistic health and pharma industries, or by the successful lobbying of politicians by business, shines out from every page. Many of the chapters cover some aspect of this, and quite a few on the Affordable Care Act and the opioid crisis – one of the factors behind Case and Deaton’s now-classic work on ‘Deaths of Despair’.

In one essay there is a nice tribute to the late Tony Atkinson. I didn’t know him, but it is hard to think of an economist spoken of with more affection by those who did, and his work on inequality and economic welfare was foundational. (Our recent symposium on welfare economics was inspired by him.) Deaton points out that in his Inequality: What Can Be Done (an excellent book too) Atkinson argued that innovations ssuch as self-driving cars or wearables should be vetted for social desirability before being licensed for sale: “As with much else that Tony wrote, I predict this idea will become widely discussed in the near future.”

The book concludes with reflections on economics itself. Deaton writes: “The discipline has becom unmoored from its proper basis, which is the study of human welfare. Lionel Robbins famous definition of economics – the allocation of scarce resources among competing ends – was a wrong turn, a terrible narrowing of scope.” Citing Hilary Putnam, he argues that economics should be a ‘reasoned and humane evaluation of social wellbeing’. The final line: economists need to spend more time with philosophers. I agree.

This is a great read. Highly recommended.

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The future of the factory

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I read my colleague Jostein Hauge’sThe Future of the Factory in proof and never got round to the finished book until now. It’s a very nice synthesis of the impact of four ‘megatrends’ on manufacturing. These four are the rise of the service sector as a share of output, digital automation, globalization and ecological crisis.

After an introductory chapter introducing industrial policy in historical perspective – opening with Alexander Hamilton in life as well as on stage – each trend gets a chapter on how it is shaping industrial activity. One conclusion is that the phenomenon of ‘servitisation’ in manufacturing –  including outsourcing associated high value services – is significant and can lead people to underestimate the importance of manufacturing. The book also argues that the impact of digital automation is exaggerated – it will displace some activities and tasks but there is a lot of hype. It also argues that the retreat from globalisation is similarly over-stated, and the debate disguises power asymmetries between western multinationals and firms in their low or middle income supply chain countries. And the environmental crisis is a further source of this economic and political asymmetry.

The conclusion is that, “in a world of technological change and disruptions, industrialization and factory-based production remains a cornerstone of economic prgoress. Jostein welcomes the recent revival of industrial policies but calls for a focus now on the global South and the place these countries have in the network of production. The book ends with a call for a fairer kind of capitalism than the current model.

All of this is packed into a compact and very readable book. And I’m glad I’m not the only person who saw Hamilton The Musical and wished there had been more economic policy in the show…Screenshot 2024-01-23 at 16.03.49

Perspectives on China

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The New China Playbook: Beyond Socialism and Capitalism by Keyu Jin is quite an interesting read. As I’m not at all a China expert it’s hard for me to evaluate its claims, but the framing is persuasive. This is that the combination of political centralization and economic decentralization is not widely understood and makes China unique. Local officials have strong incentives to encourage local entrepreneurship or ‘inward’ investment from other parts of China. “The link between local growth and political promotion is what makes China’s case unique.” (I like the joke the book recounts: ‘GDP figures roduce officials and officials produce the GDP figures’.) This close public-private relationship is also cemented by the weak public but non-party institutions, meaning businesses have to overcome many barriers through such relationships. She writes: “China has strong state capacity and weak institutions,” which she contrasts to the strong formal instituions but weakening capacity in the US.

The book has some fascinating early chapters on the new phase of state mobilization and also the political/cultural/economic implications of so many Chinese people being only children. On the latter, she argues that it is a psychological burden being ‘only’ because of the expectation that they are the only people able to look after elderly parents. Later chapters go into more familiar territory such as the economy’s debt levels, and the financial system – the book is far more sanguine about the implications for stability than are other commentators. And the final chapter looks at innovation, the country’s impressive ability to adopt, manufacture and diffuse new technologies (“the Chinese are particularly good at making existing technology both better and cheaper”), and its focus on attaining the technology frontier in some areas.

All in all, the book is an optimistic take on China’s economic (and political) model, albeit expressing some reservations. For what it’s worth, the book has stellar back cover praise from Tony Blair, Ken Rogoff and Kai-Fu Lee. It’s well worth a read as a counterbalance to more pessimistic takes, even if one emerges as more sceptical than the author about the strengths or otherwise of the Chinese model.

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A taste of economics

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Ha-Joon Chang’s Edible Economics: The World in 17 Dishes is an entertaining read, and a nice introduction to some economic questions. Regular readers of his will not be surprised by the economic analysis – heavy on infant industry protection as the path to development for low income countries. But I did very much enjoy the food links – each chapter is an ingredient (rather than a dish), garlic, anchovy, strawberry and so on. There were nice nuggets from food history – the corporate history of Oxo and corned beef for instance, or that Koreans used to snack on fried silkworm pupae as a cheap source of protein as it was a byproduct of the silk export industry.

On the economics, the world has moved significantly towards Ha-Joon’s emphasis on active industrial policy, so he can feel vindicated in that respect. He also acknowledges here that it can go wrong, which I hadn’t spotted stated so clearly in his previous books. I’m not sure his perception of the economics profession as a monoculture with a few brave heterodox souls, set out again in the intro here, is as correct as it used to be; my perception is that it is broadening considerably and has been for a while, certainly outside the US.

The fact in the book that really surprised me is its claim that Switzerland and Singapore are the most manufacturing-intensive economies in the world – the World Bank data suggest this is a bit of an overstatement but they do have higher manufacturing sectors relative to GDP than one might imagine and are in the Germany?Japan clud (Our World in Data figure below.) As my colleague Jostein Hauge – cited here – has written about in his book The Future of the Factory, the economy no longer divides cleanly into manufacturing vs services, as many high value services serve the manufacturing sector. I think we’d do well to get away from that as a key distinction but do believe – as Ha-Joon doesn’t seem to – that there has been an important shift in the structure of the advanced economies. Manufacturing is central as it’s one of the highest value activities, but the way in which it is central has changed.

Anyway, it’s a good debate and the book is a good read, super-accessible for non-economists. I prefer it to some of his earlier popular books because there are far fewer sideswipes at other economists, and I learned a lot about the history and culture of some of the selected foods too. All that’s missing are recipes.

manufacturing-value-added-to-gdp

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Defeated by this book

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The blurb on the back should have been a warning: “A stimulating book that perhaps leaves the reader with more questions than answers. That, in case you are wondering, is intended as praise.”

Well, I should have done more wondering. The Mathematics of the Gods and the Algorithms of Men: A Cultural History by Paolo Zellini looked promising. I found it in the Tate Modern bookshop when Christmas shopping; it’s a wonderful shop with an intriguing book selection. This is the joy of in-person shopping, isn’t it – the serendipity? I’m very interested in algorithms. The book’s published as a Penguin paperback so intended for a wide audience.

But no. No idea what it’s about. I turned over most of the pages. There is a lot about the ancient Greeks. Even when you get to Russell, Frege and the like toward the end – no idea. It also seemed rather too literal a translation from the original Italian. Perhaps a mathemician reader has read it and can explain. Not recommending this one though!

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