Wolves on the trading floor

My lockdown days have become filled with Zoom meetings at the expense of reading on tubes and trains. I’m definitely going to try to cut down on the online calls, which are exhausting (& I hope tech-land is working out why, and trying to fix it).

Meanwhile, I read a very good biography of Walter Gropius by Fiona MacCarthy, another of the wonderful Maigret novels, and also The Hour Between Dog and Wolf: risk taking, gut feelings, and the biology of boom and bust by John Coates.

It’s a really interesting book about the role biological/neurological responses in decision-making, applied to the financial market context. It will surprise nobody to learn that testosterone is one of the key players, generating bull markets (hah!) and excess risk-taking. “Traders are walking time bombs, and banks invariably light the fuse, dangling before them huge risk limits and bonus payments.” There seem some obvious regulatory interventions in the financial context eg ban bonus structures and mandate 50% female employees on trading floors. The book points out that at most 5% of traders are women, even though they outperform men over the long term.

The book braids together sections on the biology and sections tracking the various hormones and nervous impulses in a financial market boom. It’s a terrific read and super-clear. The author is a financial markets guy turned research scientist and having both sets of insights is illuminating.

The part that most interested me though – and that put me on to the book via an FT article about the impact of uncertainty on our health – was pondering what it means for a computer to think and make decisions when human decision-making is so firmly embodied, driven by our physical features, the way the chemicals in the blood stream and the nervous signals shape perception and emotion. The book I’ve now started (Economic Life in the Real World by Charles Stafford ) cites Antonio Damasio’s work in Descartes’ Error: people whose emotions are affected by brain injury are worse at making ‘rational’ decisions. Reason and emotion – involving biochemical and neurological phenomena – go hand in hand. Meanwhile, we are building AIs according to an idea of ‘reason’ modelled on homo economicus.

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Calculating the economy

One of the books I’ve read on this trip to the AEA/ASSA meetings in San Diego is The People’s Republic of Walmart by Leigh Phillips and Michael Rosworski. This is a very entertaining projection of the socialist calculation debate onto modern capitalism.

41JGcj2r26L._SX329_BO1,204,203,200_The starting point is the Simon/Coase realisation that big firms are internally planned economies – if it works for Walmart, why wouldn’t it work at larger scale? The authors’ hypothesis is that economic planning might work better now that we have so much more powerful computers and better data.

I’d recommend the book as an introduction to the socialist calculation debate for those unfamiliar with it (ideal for students). It cites some of my favourite books including Francis Spufford’s Red Plenty and Eden Medina’s Cybernetic Revolutionaries. Some chilling lines – about Stalin’s purges, for instance: “Anyone with any expertise was placed under suspicion.” It’s a great read.

Am I persuaded? Not entirely. Technology clearly will change organisational configurations, but it has just as much been decentralisation of firms and extended supply chains as it has been giant Walmart-type firms. I’m also sceptical that the data available is actually the information needed to plan an economy, or that it’s easy to access and join up. Still, it’s the right question, and a reminder that the boundary between market, state and other forms of organistaion is not set in stone but needs constant negotiation – in fact, I know a great book about this about to be published: Markets, State and People.

0FBA95F6-E1DB-4017-A90A-89A2D3C43EB7As seen at ASSA2020 in San Diego

 

 

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Morals and markets

I’ve now finished Elizabeth Anderson’s Value in Ethics and Economics, with mixed reactions. The part I really liked is her critique of utilitarianism/consequentialism. She advocates a ‘pluralist-expressive’ approach to value.

Consequentialism “promises to provide a single, simple, precise and determinate procedure of justification that employs objective calculation to overcome disputes about what to do.” Deliberation – be it rational or not – aims to deliver an optimum result on a single dimension. This is inevitably reductionist because all goods need to be made commensurate. This approach has the merit of making decisions easy to explain, and an inherent pragmatism because after all choices are always inevitable.

Anderson’s ‘expressive-pluralist’ alternative requires choices to be guided by norms which refer to ideals or evaluative concepts such as ‘respect’, ‘friendship’, ‘charity’. “Because their constitutive concepts are essentially contestable, the expressive theory cannot provide a procedure for respolving conflicting interpretations.” Confusingly, Anderson also describes this as pragmatic; I think she means realistic. This is, of course, what we do. “No compelling theoretical or practical reasons demand the global maximization of value. Evidence form our actual practice and failures to construct plausible global measures of value suggests there is no single measure of value valid for all contexts.”

The realism here is attractive, the reductionism of the former is not. And yet in public policy contexts where people’s conflicting values have to be considered, consequentialism has great force. This is more than pragmatic, I think. It serves in its own right as a form of evaluative concept to try to build consent for decisions. Having said that, of course one has to wear the pluralist spectacles too.

The weaker part of the book is the second half, applying the philosophy to an analysis of markets and cost benefit analysis. Like many critics of ‘markets’ she treats markets as an abstraction characterised by anonymity and concerned ‘merely’ with ‘use value’, absolutely failing to recognise that they are social institutions taking many forms and embedding social relations. Some economists are equally abstract, many are not. None I know would disagree with the statement that “the market does not provide a sufficient domain for the expression of all our valuations but must leave room for other social spheres to operate on non-market principles.” And while there are certainly major  limitations with cost benefit analysis, some of which I’ve written about here and here, there is a choice when it comes to issues like valuing life (QALYs) or intrinsic environmental or heritage value: either try to do this in a common metric (money), or implicitly value them at zero.

Still, it’s an interesting book. And I’ve just been recommended her Private Government by my esteemed co-author Leonard Nakamura.

 

 

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Inventing the property market

Desmond Fitz-Gibbon’s Marketable Values: Inventing the Property Market in Modern Britain is an interesting history of exactly what the subtitle says: the institutions and practices that created the forerunner of today’s anonymous, professionalised property market out of the thickets of traditional social relations that still characterised property ownership at the end of the 18th century. It’s a very nice study of the development of an economic institution: the creation of physical marketplaces, the standardisation and publication of information flows, the development of relevant professions such as auctioneer, estate agent, surveyor, even the invention of suitable filing systems and procedures for enabling viewings of properties. This had to bring together the building of suitable premises for auction rooms or the purchase of estate agency offices, legal and governance practices, social norms, the creation of professional development pathways, and much more.

This all sounds a bit niche, perhaps, but I’m a sucker for the detail of markets as economic and social institutions (& never tire of recommending John McMillan’s Reinventing the Bazaar). This is a very nice study, and, importantly, ends with a chapter on the ‘Limits of Marketability’, looking at the battles to preserve open land and the struggle that led to the formation of the National Trust in 1970. The nascent property industry painted property markets as democratizing: “At present the land is held by the few but the day is coming when it will belong to the many,” said the Estates Chronicle in 1898. But land held by all is important too. To be read alongside Brett Christophers’ The New Enclosure (reviewed here).

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The invisible privatization

Brett Christophers’ new book The New Enclosure: The Appropriation of Land in Neoliberal Britain is eye-opening. Or perhaps jaw dropping. Its subject is the privatization of publicly-owned land in Britain since the 1979 election of Margaret Thatcher. Christophers, a professor of economic geography at the University of Uppsala is a consistently interesting thinker. For instance, he was one of the first people to focus on the absurd way the contribution of the financial sector to total GDP is measured, in his Banking Across Boundaries. This new book demands attention for a remarkably little-debated aspect of the Thatcher revolution, the sale of around half of the land owned by th public sector when she was first elected.

The figures are startling in two ways. One is scale: around half of all land owned in the public sector in 1979 has been sold to private owners – including the land under council houses but much more from MoD and NHS land to school playing fields and parkland. The sum is probably more than £400bn. The other reason to be startled lies in that ‘probably’: there is scant data on what has been sold, to whom, at what price, and what remains. No figures, no debate.

One of the themes that stood out for me is the fact that the process has been a Whitehall (Treasury and Cabinet Office, assisted by the National Audit Office, whose idea of value in value for money excludes public value and public goods) assault on the wealth and power of local authorities. Christophers estimates that around 30% of the 1979 land holdings by central government and national bodies has been sold but 60% of the original holdings of local government. This means allotments, school playing fields, leisure centres, local museums, playcentres, town halls, bowling greens and so on – all formerly part of the fabric of community life. This evisceration of local assets ties in with the extraordinary burden of ‘austerity’ on local government. Surely a large number of local authorities are close to not being able to function, and so unable to deliver the services that are among those closest to people’s lives.

The book assesses the process as wholly ideological, generating none of the private sector efficiency benefits it was supposed to unleash. And, as it points out, the public sector should not be expected to behave like the private sector anyway. Why should its land be expected to generate the same financial return it could get in private hands? The public sector should be using public land to provide public goods.

The move to accrual accounting is pinpointed as a potential turning point: “Different accounting systems represent different ways of seeing: something visible under one system may not be visible under another, something accorded significant value under one system may be valued much less highly under another.” Accrual accounting makes it more likely that the value of public land will be recognised, and so bargain basement sell-offs less likely. For instance, many councils were valuing parks at £1 each. On the other hand, recognising their true worth – say £100m – makes them an even more tempting target for the Treasury to require to be sold.

As the book concludes, there is no evidence the privatization of land has delivered any significant benefits, but equally almost no serious study of the process at all. The lack of data no doubt explains why, so we owe Christophers thanks for assembling all the evidence he has managed to find.

My one quibble is the use of the term ‘neoliberal’. I think it obscures more than it enlightens, not least because those who deploy it often seem to believe all of economics is neoliberal – I still remember being gobsmacked by Wendy Brown’s bracketing of Joseph Stiglitz and Robert Lucas as essentially the same in their ideology. What’s more, the virtue-signalling to many social scientists in universities is likely to put off some other readers who would otherwise be sympathetic to the book’s argument. Michael Sandel managed to explore ‘neoliberalism’ in his bestseller What Money Can’t Buy without ever using the word, and was all the more influential for it.

Having said this, the book doesn’t massively overuse the adjective, and is well worth reading for the light it does shine – perhaps even on why Britain voted for Brexit, looking for somebody to blame for this huge but virtually unnoticed depletion of public wealth.

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