Tag Archives: review

Austerity, algebra and theology

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Florian Schui’s [amazon_link id=”0300203934″ target=”_blank” ]Austerity: The Great Failure[/amazon_link] is a readable book, which has seen me through my Tube journeys this week, but an odd one. He presents thinking about austerity through the ages as seen through two prisms: the religious and moral strand of thought in western tradition about the inherent virtue of modest living and thrift; and the sensible economic perspective, reaching its pinnacle in Keynesian thought, that analyses consumer spending and fiscal expansion as the source of prosperity. Modern austerity, from Thatcherism and its Hayekian emphasis on the small state, to the post-crisis argument for austerity, is therefore described as essentially theological.

[amazon_image id=”0300203934″ link=”true” target=”_blank” size=”medium” ]Austerity: The Great Failure[/amazon_image]

“Today, there is general agreement that growing consumption is a pre-condition for economic growth and the satisfaction of potentially unlimited material wants is accepted as one of the principal objectives of economic activity,” Schui writes. The environmental movement is portrayed as a quasi-religious movement descended from the 19th century Romantics. Yet the final chapter of the book is an assessment of the ‘good life’, in much the same vein as in [amazon_link id=”0241953898″ target=”_blank” ]How Much is Enough?[/amazon_link] by Edward and Robert Skidelsky. It’s a pretty sudden corner turn right at the end.

Another oddity is that the book hardly mentions debt (as I noted on glancing through the index). Given that today’s case for austerity – and indeed previous versions – rest heavily on debt-related arguments, this is a glaring omission. I think it makes David Graeber’s [amazon_link id=”1612191290″ target=”_blank” ]Debt: The First 5000 Years[/amazon_link], for all that it is a flawed book, a far more credible critique of austerity measures.

A third strange bit of the argument here comes in the discussion of why Keynesianism fell out of favour because of stagflation in the 1970s, to be succeeded by Thatcherism. Schui argues that the true cure for stagflation was not the Hayek-inspired effort to shrink the state that we got (and that had great popular support, given the massively disruptive public sector strikes as unions tried to win higher pay rises), but instead more government spending and indeed an extension of central planning as practiced in the Soviet bloc. This is a boldly contrarian argument to say the least.

A final complaint is that the book claims economics can explain how to maximise growth but can not answer the question, do we need more growth? I think it’s exactly the other way round. Economics says, yes we need more growth – very few of the world’s people enjoy the good life of a distinguished western European academic; and as many economists – including for example Joel Mokyr in [amazon_link id=”0691120137″ target=”_blank” ]The Gifts of Athena[/amazon_link] (and me too in [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link]) – point out, growth is the name we give to the constant process of innovation that has improved our health, life expectancy, and quality of life so massively.

What we don’t know is how to increase growth, the elusive gold of our kind of alchemy. If we did, nobody would see austerity as a dilemma. Faster growth would remove any need to worry about debt. Without it, rescheduling/default or inflation are the more troubling options. This is algebra, not theology.

 

Welcoming the overlords

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[amazon_link id=”023116856X” target=”_blank” ]Smart Machines: IBM’s Watson and the Era of Cognitive Computing[/amazon_link] is by a couple of IBM-ers, Director of Research John Kelly, and Steve Hamm. It shows. This short book is all about the promise of current massive increases in computers’ abilities rather than the disruption it will cause. It mentions Brynjolfsson and McAfee’s [amazon_link id=”0984725113″ target=”_blank” ]Race Against the Machine[/amazon_link], but it would be good to read this book alongside their new one, [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link]. With that caveat, it’s interesting to read this short book about what the insiders think is likely to happen.

[amazon_image id=”023116856X” link=”true” target=”_blank” size=”medium” ]Smart Machines: IBM’s Watson and the Era of Cognitive Computing (Columbia Business School Publishing)[/amazon_image]

The book starts with the famous victory by IBM’s Watson over two humans in the TV game show Jeopardy. One of the defeated men, Ken Jennings, famously said afterwards: “I for one welcome our new computer overlords.” The introductory section explains the key difference with the next generation of very powerful computers, the move away from the Von Neumann architecture – with its key bottleneck of moving data to and fro between CPU and memory – and instead having more parallel calculations with memory and processing more closely integrated. This will increase the machines’ capacity and enable them to go beyond specific programmes for specific tasks. They will be able to learn. Having just read Gerd Gigerenzer’s [amazon_link id=”0141015918″ target=”_blank” ]Gut Feelings[/amazon_link], though, I now feel a bit more optimistic about the complementarity between humans and robots – it’s hard to see how even smart machines can be taught or can acquire intuition given the way logic is integral to their structure and programming.

Later chapters of the book look at big data, at the new physics of computing – what future microchips could be like – and specifically at cities and the potential for cognitive computers to make them better places for their inhabitants. A key issue, given both the tendency for political power to shift from nation state to city level and the continuing move by humanity into cities. I suspect computer experts will be familiar with the material in this book, but I didn’t and it was an enjoyable travel read.

Enoughness

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Yesterday I attended a very interesting symposium at Christ Church, Oxford on the 2012 book by Robert and Edward Skidelsky, [amazon_link id=”0241953898″ target=”_blank” ]How Much Is Enough? Money and the Good Life[/amazon_link]. I think my own [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough [/amazon_link]was my passport to the event.

[amazon_image id=”0241953898″ link=”true” target=”_blank” size=”medium” ]How Much is Enough?: Money and the Good Life[/amazon_image]

The Skidelskys’ book is a good and provocative read. It starts with the question posed by the famous Keynes essay, [amazon_link id=”1441492267″ target=”_blank” ]Economic Possibilities for our Grandchildren[/amazon_link]: why are we not now enjoying much more leisure, given that Keynes was right in his prediction about the degree of technological progress. One aspect I very much agreed with is their point that it is important to keep the ideas of economic growth and well-being or social welfare distinct – this is one of the themes of my new book, [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link] as well. GDP growth is a means to an end, reasonably highly correlated with well-being, but not an end in itself.

However, in other ways I strongly disagreed with their book. They argue for stopping growth and stopping technological progress, including, Lord Skidelsky explained yesterday, stopping or slowing down further automation of work by taxing the use of robots. To my mind, that completely misses the point about economic growth, which is not to have more and more of the same things, but to have more variety and new things. Innovation is the source of improvements in well-being, from trivial innovations to life-changing medicines or major technologies such as the internet and mobiles. GDP growth is the set of footprints left by innovation, although it fails to count the increase in welfare caused by new goods and services. At one point the Skidelskys write: “The material conditions for the good life already exist,” and say nothing has improved since 1974. This is absurd. Since 1974, UK life expectancy at birth has increased by 9 years to 81, the web has been invented, and we’ve moved from almost nobody having central heating to almost all of us having it – its lack is now taken as a poverty indicator.

The seminar included a long discussion about the a-morality or immorality of conventional economics. The economists taking part were probably atypical, as we all agreed that economics does need some post-crisis rethinking. The philosophers present focused on questions of liberalism and paternalism. Professor Cecile Fabre was particularly strong on questioning the Skidelskys’ failure to identify the ‘good life’ with some of the key values of liberalism.

I left with another book the two Skidelskys have edited, [amazon_link id=”0954643089″ target=”_blank” ]Are Markets Moral?[/amazon_link] Glancing at the contents, I think its answer is ‘no’. But even to pose the question is to make markets overly-abstract. Markets are institutions in which people have social relations. The markets for tea bags, accountancy services, and radio spectrum have entirely different structures and characteristics. ‘Moral’ isn’t a description that can apply to abstract nouns at all. One can sensibly ask if bankers are moral, at risk of generalising, but not markets.

Goodbye to rational economic man

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A few weeks ago a Very Important Policymaker recommended Gerd Gigerenzer’s [amazon_link id=”0141015918″ target=”_blank” ]Gut Feelings[/amazon_link] to me. It’s a fascinating book, and fascinating to know as well that at least one important policy organisation is taking decision-making so very seriously.

[amazon_image id=”0141015918″ link=”true” target=”_blank” size=”medium” ]Gut Feelings: Short Cuts to Better Decision Making[/amazon_image]

At first glance, this book is in the vein of the many behavioural psychology books that have so interested economics in recent years – for me Daniel Kahneman’s [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow [/amazon_link]is the best. Jan Zilinsky posted a great list of them on Quora. The book discusses some similar issues, such as biases and framing. However, it also poses a challenge to the behavioural consensus, which always presents actual decision-making as a departure from the ideal of rational calculation. The aim of ‘nudging’ is to make people choose in ways that mimic rational economic man. What Gigerenzer argues is that the reliance on intuitive (fast) decision-making is often optimal: it not only saves on the energy needed for calculation, it also produces better outcomes than rational calculation.

For example, if asked to say which of Detroit or Milwaukee has the bigger population, Americans will be more often wrong than Europeans who don’t know the answer but have probably heard of Detroit – they rely on a recognition rule-of-thumb (if you’ve heard of it, it’s more important), whereas Americans who recognise both try to figure it out from other knowledge they have about the two cities. In an uncertain environment, it is better not to have full information – complex detail is good for explaining with hindsight but not for prediction. Some lack of knowledge is optimal -to take advantage of the recognition heuristic.  “In an uncertain world a complex strategy can fail exactly becaue it explains too much in hindsight. Only part of the information is valuable for the future, and the art of intuition is to focus on that part and ignore the rest,” Gigerenezer writes.

He describes a number of rules of thumb based on ‘evolved capacities’ such as language, recognition, object tracking,  memory, and emotions. These have come about because of both natural selection and cultural transmission. Using a rule of thumb requires two processes – in this example, recognition followed by evaluation – should it be applied to the present situation. The book spends a good deal of time on the recognition heuristic, which it sees as being behind the prevalence of brand advertising. Strong brands cause the recognition rule of thumb to kick in. Gigerenzer argues that this means, “If consumers can only tell the difference between competing brands by name, then there is little economic justificaiton for the idea that more choice is always better.” I admit to being intuitively resistant to this idea, but it obviously deserves careful thought.

The book also insists that we can’t analyse behaviour only with reference to personality or psychology – environment matters too. They are the two blades of the pair of scissors. This means there is great variability in human behaviour, something social scientists certainly ought to embrace. However, much economics looks for universally and permanently valid models. Here, my intuition is with Gigerenzer; our analysis needs to become far more context specific, looking at history and geography, and the interplay between economics and politics.

Gut Feelings is very clearly written and thought-provoking. I commend it to anybody interested in decision making and behavioural economics.

i also recommend my plane reading earlier this week, a rip roaring thriller set in the dysfunctional capitalism of modern Russia, Martin Baker’s [amazon_link id=”1783520019″ target=”_blank” ]Version 13[/amazon_link]. I can see the movie  in my mind’s eye.

[amazon_image id=”1783520019″ link=”true” target=”_blank” size=”medium” ]Version Thirteen[/amazon_image]

Economists and our responsibilities to society

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Do social scientists (including economists) have a responsibility to engage in public debate? Yes, said Nicholas Kristof in the New York Times. Academics have become too marginalised and – with honourable exceptions – he said: “Ph.D. programs have fostered a culture that glorifies arcane unintelligibility while disdaining impact and audience.”

Paul Krugman weighed in specifically on economics: “In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.” He concluded that economists who can’t explain what they’re doing probably don’t understand what they’re doing. Krugman supports the use of mathematical models but – echoing many great economists of the past like Marshall and F.Y. Edgeworth – argues that what we always call ‘intuition’, or non-mathematical explanation, matters too.

I like Edgeworth’s analogy best: the maths is like the scaffolding essential for putting up a building. You have to have it, and you have to take it down at the end.

Of course I agree with the general point that academics – especially social scientists! – have to engage with society. Not just engage with as in discuss one’s research in intelligible language, but understand how academic research and teaching interact with society, influence it and are influenced by it. (This was the theme of my 2012 Tanner Lectures, The Public Responsibilities of the Economist (link near the bottom of the page), which looked at the role of economics in the formation of modern financial markets, among other things.)

In the UK, this issue is now described by the shorthand of ‘impact’, with universities required to demonstrate their impact as part of the 2014 Research Excellence Framework, which will determine the allocation of funding. I’m playing a small role in the assessment exercise.

What impact do economists and other social scientists actually have? Is it by being ‘public intellectuals’? Or are there more ‘impactful’ channels? I’ve been reading a very interesting new book, [amazon_link id=”1446275108″ target=”_blank” ]The Impact of the Social Sciences: How academics and their research make a difference[/amazon_link], by Simon Bastow, Patrick Dunleavy and Jane Tinkler.

[amazon_image id=”1446275108″ link=”true” target=”_blank” size=”medium” ]The Impact of the Social Sciences: How Academics and their Research Make a Difference[/amazon_image]

It analyses in some detail evidence from data collected on hundreds of UK-based social scientists and researchers in the ‘STEM’ subjects (science, technology, engineering and maths). The first surprise is how many more students and researchers (and funding) there are in STEM subjects than the social sciences, which in turn dwarf the humanities and the creative arts and design: in the UK, the STEM subjects get 80% of total research funding, social sciences 14%, humanities 4% and creative arts 2%. Student and staff numbers are slightly less skewed, but the figures still make one doubt the often-made (by scientists) claim that STEM needs more.

On the impact question, the book argues that the tide has begun to turn on the inward-looking shift in academia, and on disciplinary silos which , the books says, were ‘concreted in’ by the late 1960s. This must be a good thing. What’s the point of fabulous climate science research if social scientists are not fully engaged in analysing how society might or might not change? Surely scientists – and research funders –  do appreciate that people do not necessarily believe what they’re told by academics? Trust in scientists and researchers is high but that isn’t the same as accepting them as legitimate decision-takers.

Using the data set on academics’ channels of influence built for the research, the book assesses the character of the ‘outputs’ of the academics (which varies quite a lot between disciplines) and looks at two arguments about academics’ impact. One is that there are ‘popularisers’ who can communicate but do little valuable research, and academics of course tend to sneer at this group. Another is that there are superstars who do the best research and are brilliant communicators. The truth is in between – most of the group are middling at both research output and public communication.

In general, though, social science research has a big influence on government, think tanks, civil society and business. The book traces many channels of engagement. The area where there is perhaps less influence – certainly less than the natural sciences – is in the media and social media. If Nicholas Kristof thinks the US lacks public intellectuals, he should feel sorry for the UK: the book suggests Stephen Fry as our leading public intellectual at least in terms of number of Twitter followers – a brilliant polymath but not a social science academic. Academics, in my experience, are often either reluctant to engage with the media (for several valid reasons such as time, deadlines, simplification…); or lack understanding of the conventions and constraints.

One example of highly effective collaboration cited here is the Great British Class Survey, between an academic team of sociologists and the BBC. There was huge public engagement and interest internationally, and it was a successful ‘co-production’ of social science between academics and the public. But no doubt there are some academics who see this as excessive popularisation.

The book ends with a discussion of what the authors call a ‘dynamic knowledge inventory’, a constantly updating repository of our current understanding of society. They commend ‘broad front’ social science and integrating social science with the STEM disciplines. I like the quotation from [amazon_link id=”0571270123″ target=”_blank” ]Tom Stoppard[/amazon_link] in the final chapter: “I don’t think writers are sacred but words are. They deserve respect. If you get the right ones in the right order, you might nudge the world a little.”

[amazon_image id=”0571270123″ link=”true” target=”_blank” size=”medium” ]The Real Thing[/amazon_image]

The LSE website link to the podcast of the launch event is broken but there are some slides available here.

Update: podcast link is here.