Economics for good

Jean Tirole’s book Economics for the Common Good is out now and is highly recommended. As I had the privilege of helping prepare the English edition, I’ve read it with careful attention, and most appreciated Tirole’s ability to crystallise complicated issues in a straightforward way, combining surgical analysis with very clear explanation. This is too rare a skill among economists.

The first part of the book concerns the influence of economics and economists on society and the role of the market, followed by a section on what doing (good) economics involves, and also how economics is changing. There are then two chapters on organisation, the first on the relationship between state and market, the second on the role of business. These sections are in the same spirit as Dani Rodrik’s Economics Rules, although their experiences and examples differ. Here in Economics for the Common Good is an economist at the pinnacle of the profession (Tirole won the 2014 Nobel prize) giving a thoughtful, reflective account of what economics can properly contribute to – well, the common good. Although much of his work is highly technical, he has always been concerned with its application to practical challenges in organising society: “Academics must ..collectively aim to make the world a better place; consequently, they cannot refuse, as a matter of principle, to take some interest in public affairs.” If an economist has appropriate professional competence in some area, she has an obligation to take a position on it – while acknowledging that what is known changes and re-evaluation may always be necessary.

The final two sections of the book turn to applications of economics, big macroeconomic questions such as financial market stability or tackling climate change, and then applied microeconomic issues such as competition policy, digital platforms, intellectual property and the regulation of network industries. Given my own interests, this final section was riveting. No other individual economist has done more than Tirole to take forward the economic analysis of these kinds of areas, incorporating issues of asymmetric information, principal-agent problems, incentive compatibility, and so on. The final chapter, on sector regulation, is a must-read for anyone interested in this area. (I drew on it in a recent FT column.)

The book is non-technical, aimed at the general reader, and packed with examples. It does in parts require a careful read, but each sections and chapters stands being read alone, so one can dip into the book. There’s a nice publisher blog post in which Tirole explains his motivation for writing the book and what he hopes it can achieve.

It ends with an epilogue reflecting on the status of technical knowledge in a time of populism (the French edition was published early enoug in 2016 that it feels like a different era), and the even greater responsibility economists have to engage and communicate – “Economists must … with humility and conviction, harness economics for the common good.”

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The slow demise of a company town

Amy Goldstein’s Janesville: An American Story is one of the books on the Financial Times business book of the year shortlist & I have quite enjoyed reading it. It consists of reportage over several years (2008-2013) of a small Wisconsin town whose prosperity had long depended on the well-paying jobs provided by a General Motors plant and its suppliers. When the GM plant is mothballed and later permanently closed, the economic fortunes of the town and its families spiral down. As people use up their unemployment benefits and savings, or scrape by with low-paid service sector jobs, families that were solidly middle class find they need to rely on charitable food handouts, or supplies a teacher at school collects for the kids – shampoo, jeans.

The portraits of the individuals are mainly sympathetic – perhaps least so the Republican-supporting bank manager, although the results of her role as a cheerleader for Janesville’s economic future without GM are acknowledged. It is always a shock to a Briton to be reminded that people in the US with no job have no access to healthcare, and that private philanthropy has to fulfil (inadequately) the role the welfare state plays here. The American healthcare debate is, like the gun control debate, absolutely unfathomable to Europeans. There are some interesting insights into the reasons what support there is for retraining fails to achieve its aims – bureaucratic constraints on access to funding and how it’s used. It was also a surprise to learn that the ex-auto workers who had opted for retraining were doing less well, five years later, than those who had just taken the first job they could find and stayed in the labour market. All in all, it’s a sobering tale of the heart being wrenched out of a company town.

Having said all this, I thought the book was less compelling than George Packer’s The Unwinding. The Janesville tales are not set in a wider context of progressive deindustrialisation and the prospects of automation. Janesville is also silent on race, and I can’t decode the names. Unless it’s an all-white town – surely not? – this must be one of the relevant aspects of how families cope after an economic shock? Or subsequent American politics? There was also less insight into family finance than in the recent detailed study of income uncertainty and its corrosive effects in The Financial Diaries: How Americans Cope in a World of Uncertainty, or in Lisa Servon’s The Unbanking of America: How the New Middle Class Survives. (I haven’t read Hillbilly Elegy – should I?)

This shouldn’t put off readers as Janesville is worthwhile, but I’d be slightly surprised if it emerges the winner of the FT prize.

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Urbanites, farmers and barbarians

One of my all-time favourite books is James Scott’s (1998) Seeing Like A State, because of its sheer capacity to be thought provoking. So I eagerly ordered his new book, Against the Grain: A Deep History of the Earliest States. It is equally well written and enjoyable, ranges across disciplinary boundaries in a most refreshing way, and again compels you to stop and think. But … it just isn’t as persuasive in its big picture perspective on society.

Against the Grain sets up a received wisdom, more or less Whig interpretation, version of early human history as a process of agrarian settlement, urbanisation and progress toward civilisation. There were setbacks and collapses of course, all kinds of bad stuff happened. Still, the contrast between a marginal life as a hunter gatherer and a more prosperous settled existence as a farmer, and the progression to bigger towns, cities and civilisations, has been the narrative.

Scott argues that this narrative is ‘in tatters’ and offers his alternative: that ecological pressures undermined the viability of the happy hunter gatherer life, forcing agrarian settlement in which people were worse off nutritionally. The adoption of crops (wheat & barley) which could be stored, and divided easily, made the settlements attractive booty. So the agriculturalists were not only less prosperous than when fishing or gathering, they also were more likely to become victims of raids by nearby mini-states for both food and prisoners – either to do hard work in mines or fields, or in the case of women to serve as breeding stock or work on textiles.

For sure the conventional account seems to have its anomalies, and it’s easy to accept there are all kinds of unexplained historical developments. But Scott’s alternative narrative has its holes too. For one, he doesn’t explain how the earliest smash-and-grab states came about – what made them become more than their neighbouring impoverished but passive communities.

He also brings to bear an antipathy to state power structures – the same emotion that makes Seeing Like A State, about 20th century state-created disasters, so compelling. Take this example:
“I am tempted to see the late Neolithic Revolution, for all its contribution to large scale societies, as something of a deskilling. Adam Smith’s iconic example of the productivity chains achievable through the division of labor was the pin factory, where each minute step of pin making was broken down into a task carried out by a different worker. Alexis de Tocqueville read The Wealth of Nations sympathetically but asked, ‘What can be expected of a man who has spent 20 years of his life putting heads on pins?’

“If this is too bleak a view of a breakthrough credited with making civilisation possible, let us at least say that it represented a contraction of our species’ attention to and practical knowledge of the natural world, a contraction of diet, a contraction of space, and perhaps a contraction as well in the breadth of ritual life.”

It might be personal taste that makes me shudder with horror at the romantic vision of barbarians roaming the steppes, in harmony with nature, with a rich shamanistic appreciation of the world. But the vision also stumbles against – as far as I know from my amateur reading – good evidence that the slow progress of urbanisation in early history was accompanied by increases in longevity and health, and an economic surplus that enabled some (a slowly growing minority eventually trickling down to the majority) to acquire decorative clothing, jewellry and artefacts. There is also the constant steady flow over the centuries of people from countryside to cities, even though cities are evidently difficult and unhealthy places, even now. There is something very many people find compelling in urban variety and pockets of opportunity. Scott convinces me only this was not a linear Whig-like progression, at least in the ancient earliest eras of which he writes.

Still, this is a book well worth reading, gripping and full of interesting stuff. Not surprisingly, the sections on agriculture are great. “The key to the nexus between grains and states lies, I believe, in the fact that only the cereal grains can serve as a basis for taxation: visible, divisible, assessable, storable, transportable, and ‘rationable’.” No other crops have all these features, he argues. Wheat has a harvest while lentils can be picked at any time. Cassava is left in the ground until needed and can sit there for a couple of years. What is 10% of such a crop? I enjoyed also the section on writing – for accounts – as a key signifier of statehood.

As I finished reading Against the Grain, a couple of very interesting reviews were published. Here is Walter Scheidel in the Financial Times and Samuel Moyn in The Nation.



Competitive brains and centrally planned computers

I’ve enjoyed reading (late) Daniel Dennett’s Intuition Pumps and Other Tools for Thinking, although I’m very far from being an expert reader. His materialism seems perfectly inuitive to me. I have no problem thinking that consciousness is the outcome of an accumulation of brain functions and that the life on earth we observe is the outcome of evolution by natural selection rather than an intelligent Designer. I’m not sure the book will change any minds, though, or reason people out of different beliefs. (Reason can only be deployed against people already open to it.)

However, Dennett thinks the brain is something like a computer, and starting with a detailed description about computing, routines and subroutines, and how software works is certainly a useful approach – the key difference being that a computer is a bureaucracy, a planned economy in which routines form orderly queues, while the brain is anarchic, super-competitive. As Dennett put it in The Edge interview about the book:

“They’re [ie your neurons] struggling amongst themselves with each other for influence, just for staying alive, and there’s competition going on between individual neurons.”

Another lens on Biological Market Theory.

Dennett’s metaphor of the ‘self’ as a ‘centre of narrative gravity’ is nice too – there is no physical location in your body for your centre of gravity, and different shoes or gaining weight will shift it a bit, but it’s still a meaningful thing. There is no ‘hard problem’ of consciousness, Dennett argues (maybe this was why The Hard Problem was one of Tom Stoppard’s less thrilling plays).

The book is a mixture of ‘tools for thinking’, or in other words techniques for critical thought and reasoning, and applications of the tools to consciousness, evolution and free will , and discussion of the philosophical debates about these thorny subjects. It’s very clear although some parts require immense concentration, at least from me. This is why I had to give up philosophy, but this book was worth the effort. If only all philosophers could write so clearly. I’ve always suspected that – like economics – the less intelligible the philosopher, the harder they find it to explain what they’re trying to say, the less they understand it themselves.


They’re watching you

I thought I was as concerned as the next person about online privacy and the harvesting of my data by big tech companies. Then I read Exposed: Desire and Disobedience in the Digital Age by Bernard Harcourt and realised that there are people who are far more worried about it than me. This is a very emotional book, and I’m not entirely sure what to make of it. Quite a lot of the material it covers is pretty familiar – for example, it draws on Edward Snowden’s revelations and all that has subsequently been written about them, and refers to books such as Tim Wu’s The Master Switch although it was presumably written before Cathy O’Neill’s Weapons of Math Destruction.

What Exposed does is join the dots to develop a picture of a society which is – not George Orwell’s Big Brother (because it exploits desire rather than repressing it), not a Surveillance State (because it is the state wedded to the private sector titans), not Jeremy Bentham’s (or rather Foucault’s) Panopticon (because the transparency is individualized not mass) – but rather the union of all of these.

The first part of the book sets out the limitations of each of these common metaphors for the digital world, arguing that the links between corporates, spies and governments are so tight they make the old military-indsutrial complex look amateurish. The second part describes what Harcourt refers to as the ‘Expository Society’, describing our willingness to reveal so much about ourselves online. The third part goes on to paint a portrait of a dystopian social collapse, with constant surveillance destroying people’s self-esteem to create passive consumers, and the border between incarceration and constant observation blurring. (In a striking comparison, the book links willingly worn smart watches to electronic tags imposed on offenders.) The final part offers a few (but not many) thoughts on how to resist.

While there is certainly much to worry about in the digital 1984/panopticon/surveillance world, I’d make three observations.

First, this is a very American-centric book. No other country (save perhaps China?) incarcerates or punishes so many of its citizens. Few others, not even the UK, are so thoroughly marketized. Germans have a completely different view of what is unacceptable in terms of invasion of privacy.

Secondlyly, there is another side to some of the phenomena. Harcourt paints as oppressive the ability of digital platforms to match more closely people’s wishes – he callis it doppelganger logic. There is something magical about this too. I thought of The Double Life of Veronique.

Finally, we can as the book suggests take measures to stop generating so much data exhaust for the big companies and spies to hoover up – the final chapter points to some steps. But we can also expect our anti-trust authorities to look closely at the duopoly of online ad revenues, the fraud in the online markets, and we can expect our governments to protect our privacy and identity. European authorities are starting to cotton on to this. We can also shop less, use the digital platforms more to swap or buy second hand – the sharing economy could yet deliver on its promise of subversion.

The most interesting chapter to me (as a statistics nerd) is the one about the evolution from classification by group in the 20th century, and the use of actuarial logic, to algorithmic data mining to pinpoint individual characteristics in the 21st century. I think Cathy O’Neill’s book shows that we are too far away from individual knowledge, in fact, and have a toxic mess of attributing group characteristics to individuals by algorithm. Anyway, this links to the emerging debate about whether there can be too much information for markets to work – insurance markets may collapse, for instance, as insurers learn too much about individuals and move away from group risk.

Anyway, I’m not going to wear an Apple watch, will check my Firefox add-ons, and will use Olio to give and take rather than sell and buy. Exposed goes over the top but it’s surely right that citizens need to worry more about privacy and digital power.