Google and growth

I was disappointed by Douglas Rushkoff’s [amazon_link id=”0241004411″ target=”_blank” ]Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity[/amazon_link], in the sense that my expectations were high and it didn’t live up to them. To start with the positives, it’s a  good read, and I share Rushkoff’s concerns about aspects of the ever-more-digital economy. There’s the inequality at self-destructive levels in many OECD countries. The obscene amounts of money many corporate execs pay themselves. The determination of some of the digital titans to entrench their monopoly power and indeed extend it to more markets. The intrusiveness of online surveillance for profit. The undermining of content creation in news and the creative sector as Google and Facebook vacuum up a large and growing proportion of the advertising revenue. All of that, yes.

[amazon_image id=”1617230170″ link=”true” target=”_blank” size=”medium” ]Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity[/amazon_image]

It is, though, all familiar and Rushkoff doesn’t offer much that seems either new or practical to combat it. In terms of policies, he advocates a sub-40 hour work week and a universal basic income. Both have supporters, both are problematic. He also advocates new, community currencies, enabled by blockchain. Technology might be making it more feasible (although I’m a blockchain sceptic because of the energy requirement), but people have been writing about local and community currenies for decades.

Above all, though, Rushkoff wants companies to change their behaviour, treat workers well, and focus less on ‘growth’. And this was my biggest frustration with the book. He makes no distinction between financial ‘growth’ in the sense of short term profits and share price (so VCs can get their money out, shareholders get their returns and execs cash in their options), and economic growth in the sense of goods and services, often innovative, valued by consumers. Heaven knows, that needs to be sustainable too. But there is a difference between, say, changing corporate law to ban quarterly reporting or share option schemes, and limit financial short termism, and the changes in behavior and policy that would ensure sustainable economic growth. Of course they are linked, including throuhg corporate behaviour. But while bringing about an end to the financialisation would be desirable indeed, bringing about an end to economic growth would be very undesirable. After all, for many people in the western economies, there hasn’t been any economic growth for a decade or so, and the results are not pretty.

I also disagree on one other key point. Rushkoff writes: “The economy is less like a forest or weather system than it is like a technology or a medium. It was created not by God but by people.” Leaving aside divine agency, I’d argue the economy is both – both a natural system of creatures (us) acting in accord with our biological nature, and a system we have some ability to change. It is therefore incredibly complex (in both normal and technical senses). While possible to change its course, this is not as straightforward as saying ‘we’ need to do this or that – adopt the blockchain, introduce a minimum income, report on long term rather than short term profits – and all will be well. Google’s monopoly power is a good place to start, but I’d place more of my hopes on Margarethe Vestager’s use of competition powers than on Google’s executives following this book’s advice to act sustainably.

So in short, a book whose heart is in the right place, but too garbled in its analysis to appeal to me.

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The moral consequences of economic decline?

In his FT column today, the ever-thoughtful Tim Harford has written about the dangers of moving into a zero-sum world, with the economy heading into a post-Brexit recesssion and in a political atmosphere which is already a game of grievances and blame. The column cites a wonderful book, Benjamin Friedman’s (2005) [amazon_link id=”1400095719″ target=”_blank” ]The Moral Consequences of Economic Growth[/amazon_link]. I’m biased, as Ben was my thesis adviser, but I do believe it to be a truly important book, especially for anyone also concerned about sustainability.

The book asks whether economists are right to care about economic growth, and finds the affirmative answer in political economy and the inter-relationship between growth and institutions. I wrote briefly about the book in 2012, worrying then about the rise of political extremism. Looking at the book again today, I am struck by its warning about the adverse consequences of withdrawing the state from social support, and its concern about the distribution of the benefits of economic growth. This now looks very prescient.

“Broadly distributed economic growth creates the private attitudes and public institutions that foster, not undermine, a society’s moral qualities,” Ben writes. “At the outset of the twenty first century, America’s problem is not unemployment. It is the slow pace of advance in the living standards or the majority of the nation’s citizens.” Rising living standards – for all – make societies more open and democratic. Unfortunately we in the UK seem likely to be testing what happens when living standards are falling, and the already-have-nots find they have even less.

[amazon_image id=”1400095719″ link=”true” target=”_blank” size=”medium” ]The Moral Consequences of Economic Growth[/amazon_image]

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Coase, cars, cities

Alerted to it by Peter Sinclair, this week I read Ezra Mishan’s 1967 (and frequently reprinted up to 1993) book [amazon_link id=”0140210903″ target=”_blank” ]The Costs of Economic Growth[/amazon_link]. It’s a short, polemical book, and the overwhelming impression you get is that the author was a grumpy chap not at all happy about modern life. Especially in cities. Too much noise, too much dirt, too many people, too much traffic, above all too much traffic. I’m not entirely sure I’d want to have been seated next to him at dinner.

[amazon_image id=”0140210903″ link=”true” target=”_blank” size=”medium” ]The Costs of Economic Growth (Pelican)[/amazon_image]

Still, there’s a lot to like in the book. It has some excellent sections on the Coase theorem; on its non-applicability in many situations of environmental externalities because the transactions costs of negotiation are so large; and of the way the legal framework, in defining the status quo, shapes the outcome. If the law does not protect the interest of inhabitants in clean air, polluters will have no incentive or need to negotiate. Mishan in fact calls for general amenity rights to be enacted in law, rather radical but think how much difference it would have made to pollution and emissions since the 1960s. He also wants private vehicles banned from city and town centres, which also seems a radical but basiclly good idea; as he points out, transport analysts too often think their job is to get the traffic moving, when it ought to be to get people moving.

He also points out the importance of the initial distribution of income: “The wealthier the party, the more likely it is that his, or its, favoured outcome will be the optimal outcome.” The reason is that relative wealth will affect the parties’ judgements about what they are willing to accept/pay in a negotiation. Generally, the book is clear – as economists often are not – that an evaluation of social welfare is not possible without taking initial distribution into account. The level and distribution of income are not separable. I might need to go on to read Mishan’s [amazon_link id=”0394303962″ target=”_blank” ]Welfare Economics[/amazon_link].

A little bit of his dyspepsia is reserved for the way evaluations of policy only take account of what can be measured even if it is clear that effects that cannot be measured are nevertheless very important. He would like to “arrest the mass flight from reality into statistics,” he writes. He decries ‘growthmania’, “the fact that the fascination with index economics detracts attention from the broader aims of economic policy.” There’s certainly something in this, and indeed I increasingly think economists have to do much better at measuring the size of externalities rather than shrugging the collective shoulders. But, unlike Mishan, I’m for sustainable growth, not no growth.

Mishan died aged 96 in 2014. I’m glad to have filled a gap in my knowledge.

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The Great Escape

I’m very late to reading Angus Deaton’s excellent [amazon_link id=”0691165629″ target=”_blank” ]The Great Escape: health, wealth and the origins of inequality[/amazon_link]. There is lots to like about this book. It’s a clear and comprehensive summary of the state of knowledge about the history and present of two key dimensions of human well-being on earth. Even for economists who’re pretty familiar with the data and research, there are insights from the way Deaton sets out the evidence here. There were plenty of trends in the statistics I hadn’t known about before reading the book – one example is the recent increase in dangerous and deadly behaviour by young people (especially men) aged 15-34 in recent years compared with 70 years ago. (I suppose life presented enough external dangers then.)

[amazon_image id=”0691165629″ link=”true” target=”_blank” size=”medium” ]The Great Escape: Health, Wealth, and the Origins of Inequality[/amazon_image]

I particularly liked the care he lavishes on the statistics – the sources of data, the conceptual problems, the uncertainties – all done in a way the general reader can understand (although it does make for some quite dense sections). As Deaton notes, the way statistics are defined and collected determine how policy problems are defined and addressed: they “are part of the apparatus that allows what political scientist James Scott memorably called ‘[amazon_link id=”0300078153″ target=”_blank” ]seeing like a state[/amazon_link]’.

The book is also strong on the social and political context for the spread of ideas that improve health and wealth. As Deaton writes, “Diffusion of ideas and their practical implementation take time because they often require people to change the way they live.” In particular collective actions – affecting public health or education – are inherently political.

And then the new facts: did you know Louis Pasteur invented Marmite (and then licensed it to a British brewer?) Fabulous addition to the shiny nuggets of knowledge.

UPDATE: On the Marmite issue – Deaton’s Pasteur claim was challenged on Twitter:

MikeBenchCapon
@diane1859 Louis Pasteur invented Marmite? Wikipedia says it was some other guy: https://t.co/uD9JZyCT9d https://t.co/hs7x6S8oXx
06/04/2016 10:15

MikeBenchCapon
@diane1859 I’ve looked into this a bit more and I think I’m on Team Von Liebig. https://t.co/kw5BwP1DJa https://t.co/6Orq0mAOQf
06/04/2016 10:48
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The Rise and Fall of American Growth

Robert Gordon’s magnum opus, [amazon_link id=”0691147728″ target=”_blank” ]The Rise and Fall of American Growth: the US Standard of Living Since the Civil War [/amazon_link](out in mid-January), is going to be an essential read for anyone interested not only in US economic history but also American economic prospects. The book is a comprehensive overview of growth from 1870 on, with a close focus on innovation and productivity. It does not consider at all macroeconomic policy, and is not much interested in events such as the Great Depression or the creation and later collapse of Bretton Woods. This is the supply-side story. This is not a criticism; as it is, the book weighs in at 650 pages – 730 with notes etc.

[amazon_image id=”0691147728″ link=”true” target=”_blank” size=”medium” ]The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World)[/amazon_image]

There are three sections: the first covers 1870 to 1940; the second 1940-2015; the third is about the sources of growth and why it was fastest from the 1920s to 1950s (this is just about the US so this is earlier than European readers would recognise as the peak growth era) – and is slowing now. The final chapters are a kind of crescendo, for the whole book is organised to support Gordon’s well known thesis that the days of miracle and wonder, the rapid growth era of the early to mid-20th century, is long gone, and slower growth lies ahead of us. As he writes in the introduction: “Our central thesis is that some inventions are more important than others, and that the revolutionary century after the Civil War was made possible by a unique clustering, in the late 19th century, of what we will call the ‘Great Inventions’.” [his italics] By Great Inventions, he means electricity, water supply and sewage systems, the internal combustion engine, radio then TV, and innovations that reduced household drudgery such as refrigerators and washing machines. The core of his argument is that these so transformed health, life expectancy and connectivity that no future invention could possibly have such a dramatic impact on people’s living standards.

Who could argue with the idea that this era saw such dramatic change in human lives? For that matter, it is also hard to argue with the headwinds he notes about growth now: demographic change with ageing populations, and inequality, limiting the mass market for future innovations. The final chapters particularly emphasise the damaging effects on the economy of greatly increased income and wealth inequality. Hear, hear. What I find odd about Gordon’s argument is his insistence that there is a kind of competition between the good old days of ‘great innovations’ and today’s innovations – which are necessarily different.

One issue is the extent to which he ignores all but a limited range of digital innovation; low carbon energy, automated vehicles, new materials such as graphene, gene-based medicine etc. don’t feature. The book claims more recent innovations are occurring mainly in entertainment, communication and information technologies, and presents these as simply less important (while making great play of the importance of radio, telephone and TV earlier). (A minor European carp – he also claims that it is only Americans who invent things now, when it would be more accurate to say it is only Americans who commercialise them to massive scale, especially in digital.)

Sure, we won’t repeat the impact of connecting houses to the electricity grid; but if we can keep them connected while generating power at simlar cost with zero greenhouse gas emissions, well that would be a Great Invention with the potential to utterly transform humanity’s prospects. We won’t see the same gains in life expectancy as with the previous introduction of public health measures and antisepsis, but if we can increase the quality of health and life for the over-60s, that would be a very big deal.

A second issue is that throughout the first two parts of the book, Gordon repeatedly explains why it is not possible to evaluate the impact of inventions through the GDP and price statistics, and therefore through the total factor productivity figures based on them – and then uses the real GDP figures to downplay modern innovation. “This book … focuses on the aspects of improvements of human life that are missing from GDP altogether.” For example, he writes, just as important as the calorific intake, or price of a given quantity of meat, is the fact that Americans’ diets changed from the monotony of ‘hogs’n’hominy’ in the 1870s to a much more varied diet by the 1920s. I wholeheartedly agree with this approach. While the very long run of real GDP figures (the ‘hockey stick of history’) does portray the explosion of living standards under market capitalism, one needs a much richer picture of the qualitative change brought about by innovation and variety. This must include the social consequences too – and the book touches on these, from the rise of the suburbs to the transformation of the social lives of women.

Yet in the later chapters of the book, turning to modern growth, Gordon does an about turn, saying: “The impact of innovations and technological change [since 1970] was measured by their effect on total factor productivity.” If this is going to be the yardstick in the ‘race between the decades’, he should have addressed here the questions about the measurement of GDP and productivity in the modern US economy, based as it is on services and intangibles.

For instance, he says: “Nothing in the history of price index bias compares with the omission of automobile prices from the official price indexes over the entire period from 1900 to 1935.” His data in chapter 5 show a decline in quality-adjusted prices between 1906 and 1940, from $650 to $266, which does not seem to support the broad claim. Even the decline in the per capita ratio of quality adjusted price to nominal disposable income (from 2.47 to 0.46) presented there looks smaller than some other innovation-related price declines, similarly omitted from or understated in, official price indexes. The book does not explain, but it would need to go into the figures in more detail if the argument is to turn on the GDP and TFP statistics. Anyway, there are two points about current and future growth. One is about the extent to which innovation is slower, or its effects less important – case unproven, in my eyes. The other is the issue of headwinds slowing down whatever innovation-driven growth there might otherwise be – a stronger case, well expressed in the final chapters.

The obsession with things having been much better, innovation- and growth-wise, in the old days is an irritation, and does make the reader wonder how much the narrative has been bashed into shape to fit the conclusion. Having said that, the wealth of detail in the book far outweighs this annoyance. It is stuffed with wonderful evocations of the effects of economic growth, with institutional details, with tables and charts of useful historical data. The history is brought alive by such things as recounting the living conditions of different kinds of families – midwestern farms with their space and light, compared with New York tenements – or discussing the effect of food quality standards – dairy products stopped being watered down, but butter lost the distinctive taste and smell of its ‘terroir’. Some parts of the story will be familiar to some readers; if you have read a lot already about the history of the computer industry, or Ford’s creation of the assembly line and the mass market, the capsule versions here will not add much. But the book as a whole is a tremendous achievement. If not for the holiday, I wouldn’t have been able to read it from page 1 to page 650; I’m very glad I was able to do so.

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