Tag Archives: economics

Unaccountable

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I read a proof of The Unaccountability Machine by Dan Davies with a view to blurbing it, and was more than happy to recommend it. This is a fascinating book. The subtitle indicates its scope: “Why Big Systems Make Terrible Decisions and How the World Lost Its Mind”. The book asks why mistakes and crises never seem to be anybody’s fault – it’s always ‘the system’. Davies uses the concept of the ‘accountability sink’ – a policy or set of rules that prevent individuals from making or changing decisions and thus being accountable for them. He writes: “For an accountability sink to function, it has to break a link; it has to stop feedback from the person affected by the decision from affecting the operation of the system. The decision has to be fully determined by the policy, which means that it cannot be affected by any information that wasn’t anticipated.” I predict that the more machine learning automates decisions, the more accountability sinks we will experience. Think Horizon. But there are plenty of non-automated examples. Davies cites, for example, Gill Kernick’s wonderful book on the Grenfell disaster (and others), Catastrophe and Systemic Change.

The book draws heavily on Stafford Beer’s cybernetics, providing the public service of digesting all of his writings and making them accessible. Cybernetics was of course concerned with using the flow of information and enabling feedback. Decisions about how to make decisions are part of the system. Hence the often-quoted principle that “the purpose of a system is what it does” – and not what it says it does. The book has several chapters describing how systems operate, including how to conceptualise a ‘system’ in the complex, messy real world. Davies observes that this requires a representation that is “both rigorous and representative of reality.” The selection of categories and relationships in a system is a property of the choices about description and classification made by the analyst rather than inherent reality. He describes – using plentiful examples – how systems so often malfunction.

The book has a chapter specifically diagnosing the strengths but also malfunctions of economics. He writes: “Economics has been a major engine of information attenuation for the contrl system. Adopting the economic mode of thinking reduces the cognitive demands placed on our ruling classes by telling them there are a lot of things they don’t have to bother thinking about. … when decisions are made that have disastrous long-term conseqneuces as a result of relatively trivial short-term cash savings, the pathology is often directly related to something that seemed like a good idea to an economist.”  There’s an interesting section on ‘markets as computing fabric’, a ‘magic calculating machine’. This was echoed recently in some terrific posts by Henry Farrell and Cosma Shalizi. It’s a fruitful way of thinking about collective economic outcomes. I also strongly agree with the sections about collecting the data – classification and data collection is a super-power (as I’ve been writing for years in connection with GDP and beyond). The book says, “Numbers are collected for a purpose and it’s often surpriginly hard to use them for any other purpose.” Moreover, many numbers are not collected, which makes it hard to ‘prove’ claims about the potential for the system to operate differently.

The book ends by returning to system dysfunction – ‘morbidity’. From the toxic idea of shareholder value maximisation to the fentanyl crisis in the US, from the collapse of public infrastructure networks to the advers effects of private equity (which Brett Christophers has dissected forensically in his book), economic and financial systems need a redseign. Davies suggests one step that he thinks would have a big impact: make these investors liable for company debts. Oh, and make sure the economists are not in charge: “Every decision-making system set up as a maximiser needs to have a higher-level system watching over it.”

The Unaccountability Machine does not directly address my current preoccupation, which is the implications for automated decision-making in public services, in particular, of GOF machine learning and generative AI, but is higly relevant to it. It’s a cracking read and I highly recommend it.

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Be happy: think about the Nash Equilibrium

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I loved Kaushik Basu’s new book, Reason to be Happy: Why logical thinking is the key to a better life. Mind you, I love most everything he writes. It’s always incredibly thought-provoking. His Republic of Beliefs is one of the books I recommend to almost everyone.

Reason to be Happy is not so much about logical thinking, although a constant theme is the advice not to waste emotional energy on things one can’t influence. I’d have used the word ‘strategic’ rather than ‘logical’. The book is an accessible and highly readable guide to using game theory both in personal or business life, and in policy. It has always amazed me how unstrategic so many people are, in the simple sense of not thinking about how other people will react to an action or statement. This is just as true of policymakers in government as business executives. Policy effectiveness would improve enormously from applying a game theoretic perspective at least as much as from behavioural insights. (I remember once in a meeting *of economists* pointing out that a certain set of decisions around the EU was the Nash equilibrium so why would we choose another course of action in the UK, and jaws around the table dropped. We chose the equilibrium strategy…)

Anyway, Reason to be Happy makes the practical sense of game theory very clear and gives loads of examples of games modelling situations in life. It also has a strong philosophical thread running through it, a kind of stoicism that the author describes as ‘determinism’. I particularly liked two sections. One describes how collective outcomes can deliver worse results for ‘bystanders’ to the game (such as future generations in the context of environmental impacts) even when some or even all of the players have highly moral motivations. This is due to each player’s payoffs and therefore strategies being altered when other players internalise the payoffs of the bystanders. The book labels this ‘Greta’s Dilemma’: moral intentions do not always lead to moral outcomes. The book also describes the obverse, ‘guilt shelters’, complex decision structures that enable individuals to avoid responsibility for bad outcomes; we are all too familiar with this in the case of corporations. (See also the excellent forthcoming book by Dan Davies, The Unaccountability Machine).

The other section I would pick out here in Reason to Be Happy is the one on the paradox that non-rational behaviour can be rational: the example here is labelled ‘the Traveller’s Dilemma’. Two travellers ask their airline for compensation for damage to an identical item. The airline proposes that each writes down a number between 2 and 100 as their estimate of its value. If they choose different numbers, the one with the lower figure gets that amount plus $2 and the other gets the same figure minus $2. The Nash equilibrium is that each writes down $2, assuming that each knows the other is rational: if one were to write $100, they could reason that claiming $99 instead would give them $101. But the other will know this and undercut them with $98 – and so on back to $2. Now, it is easy to see this is not in fact rational and that both players will see this. “The paradox in the reasoning remains unresolved,” Basu writes. I first came across something similar in Ariel Rubinstein’s wonderful Economic Fables. I suspect the resolution lies in the ambiguity of the word ‘rational’: formal logic versus contextual sense-making.

Reason to Be Happy is a lovely read. Its author points out in can be dipped into in chapter-sized chunks. It won’t turn its readers into stoics (or determinists) but might well spread strategic thinking.

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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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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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Saving and spending time

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My first read of the New Year has been an eccentric book, Jam Tomorrow: Why Time Really Matters in Economics by Charles Crowson. I bought it because of a very positive although short FT review that called it: “an important exposition of why economists ought to think deeper about how we value time — past, present and future.” I’m about four fifths of the way through writing my next book, which is all about my research on economic measurement over the past decade or so. (BTW I need ideas for a title – current working title is ‘The Measure of Progress’.)

Most of this is concerned with measuring the digital economy (we don’t). But one of my preoccupations is a paper I wrote with my friend Leonard Nakamura about whether time use would be a useful accounting framework. Productivity is about saving time. On the consumption side, what wellbeing (or utility) we get from how we spend time is surely what matters to people. The paper is open access.

Anyway, there are relatively few books on this subject so I thought Jam Tomorrow might be interesting. It is quite interesting but not what I thought. It’s about money, assets and interest rates – the price of time. The central point is that ‘we’ in general (in the high income west) have been too short-termist and borrowed to consume, at great environmental cost, and also leading to a malfunctioning housing market in the UK, where housing is seen mainly as an asset. I don’t disagree at all. But reading the book was a bit like sitting at dinner next to someone with lots of strong opinions who is speaking a slightly different language (and there’s an obligatory but irritating chapter about why all economics is rubbish … sigh). There are long chunks of text I either found obvious or alternatively hard to understand – and not a few cliches – but with some really thought-provoking formulations popping up.

For example: “If the price of bread or milk rose sharply in a given week we would instinctively cal it inflation. Yet of the Dow Jones stock index were to rise by 2% on a given day, we don’t say, ‘The Dow inflated by 2% today.” One could rationalise the difference but the point about language is really interesting (and there’s a whole chapter about language and analytic philosophy).

So it’s a sort of mixed review from me; interesting but could have done with quite a hands-on edit. The core argument is summed up nicely: “The central idea in this book is that economic decisions are fundamentally decisions about time, reflecting a basic choice between consumption in the present or delaying that consumption by saving for the future.” Yes indeed. But economists have in fact thought quite deeply about this choice. I’m thinking of a different time margin, how we use – ‘spend’ – our time in the present, the 24 hours a day we cannot save to carry over for tomorrow.

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