Fracturing and building

The Age of Fracture by Daniel Rodgers was strongly recommended by one of my followees, Paul Nightingale, on Twitter and he made it sound like just my cup of tea. Which it is. It’s an intellectual history of late 20th century America, and the way the public sphere of ideas transitioned from a focus on institutions and social relations to an individualist perspective. This was most apparent in economics, which is where the book starts, but spread across many domains of policy and research – the book has chapters on race, class, gender, as well as politics in general. The hinge was the late 1970s/early 1980s, just about the time I spent four years living in the US, so reading this brought back many memories of that first Reagan term, the rise to prominence of Newt Gingrich, and the ‘declinist’ bestsellers published a few years later, Bloom’s Closing of the American Mind, Lasch’s Culture of Narcissism.

Age of Fracture is beautifully written, and I was particularly impressed by its scope – the breadth of knowledge of so many different domains is amazing. In the chapter (‘The Rise of the Market’) on the rise of abstract rational expectations economics, divorced from time, place and relationships, Rodgers gives a masterly summary of the evolution of the discipline. “The new intellectual movements in economics pushed to its limits the extent to which society could be analytically dissolved altogether into its individual utility-maximising parts.” As the chapter points out, the victory of this approach was never total, and by the end of the 1990s was moving on to a new focus on institutions, transactions costs, behaviour and networks. Nevertheless, individualism became the leitmotif of the public realm of ideas – and on the British side of the Atlantic too.

The transatlantic traffic was not all one way. The chapters on race and particularly gender emphasise the role of French post-structuralism, which swept over cultural studies and much of the humanities, and still seems to be destroying those departments. In paving the way for a sense of identity as something self-determined, it created a libertarianism of the left alongside the market libertarianism of the right. In both cases, Rodgers writes, “The libertarian vision of society was radically timeless.” Voluntary identities, voluntary transactions, are disembodied from actual history. Whether rational expectations economics or the originalist perspective on the US constitution, time – future or past – is instantly accessible. Both featured the desire to “locate a trap door through which one could reach beyond history and find a simpler place outside of it.”

The book is wisely silent on whether the climate of ideas is changing now, amid the storms of pandemic, authoritarianism rising in the US and elsewhere, social fracture. It reminded me of this comment in Elinor Ostrom’s Nobel lecture (flagged up on Twitter recently by Nicholas Gruen): “Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that instead a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.”

Quite. But fracturing is easier than building. ‘Building back better’ is harder still.

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Geography as destiny

I just read Enrico Moretti’s (2012) The New Geography of Jobs, having not done so before now because I’d read quite a lot of his papers. Anyway, now I have and it’s very good. It’s a nicely accessible survey of the literatures on trade/tech and jobs, and on the geographic aspect – the concentration of skilled people in cities and growing divergence. The evidence it cites is entirely US-centric but the drivers obviously apply elsewhere, even though their effects in other countries are not exacerbated by the  unattractive features of US society. So I would recommend this to anybody who would like a readable big-picture overview of what has been happening to jobs and incomes in recent decades. The major irritation is that the notes aren’t flagged in the text & you just have to root around at the back of the book to see if a given statement has a reference attached to it.

The conclusions are a little bleak in terms of policies to address the growing divergence between rich skilled places and the left-behinds.Being in the right place matters. There are spillovers between people, so even as a graduate you do better in terms of earnings the more other skilled people are around you, but non-graduate occupations also have higher earnings in high skill places.

Overcoming the gaps requires a Big Push, the book concludes (I like this allusion to Rosenstein-Rodin, although that literature doesn’t seem to be cited here). Only governments can do these, given the amount of co-ordination involved. Many interventions are just too small scale to have a hope. Looking at the Big Push of the Tennessee Valley Authority, Moretti and his colleagues concluded it was successful in raising productivity in the region but not wages, because the labour supply increased as workers moved in from elsewhere. However, a couple of pages later, he points out that the prominent successful clusters of today did not come about because of a Big Push. Most were organic developments, albeit aided of course by government investment in R&D or defence – see Margaret O’Mara’s book The Code on Silicon Valley which I described in the previous post.

So this is rather sobering. My hunch is that policies will need to rest on a better understanding of the relationships between human capital investments (a college degree is the key variable seemingly driving so many outcomes from earnings to voting pattern to subjectove well-being), social spillovers, intangible assets, amenities including nature and housing, and produced capital especially communications infrastructure. In other words, what assets are there available to people living in in a given place, and to what extent do these complement and substitute for each other?

Anyway, I enjoyed the book even if it left me feeling a bit glum.

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Holiday reading

I’ve spent the past few weeks absorbed in preparing a book manuscript (out next year I hope…), so here is an all-in-one round-up of recent books read (non-fiction – a few Maigrets and also Smoke and Ashes by Abhir Mukherjee slipped in too).

Uncanny Valley by Anna Weiner is a readable memoir of a young non-tech woman’s experience of moving from the publishing industry in New York to marketing in Silicon Valley. Her account confirms expectations & she seems to me to capture that tech world culture pretty well. The book doesn’t name names of companies (or people) but describes them well enough that it’s clear who they are – which is a bit annoying. Other than that, I enjoyed it.

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Twilight of Democracy by Anne Applebaum is a terrific book, also with elements of memoir (the subtitle explains – the parting of friends). It’s a short account of how the respectable right in a number of countries – Poland, Hungary, US, UK – turned into the authoritarian-heading-toward-fascism right. She essentially tells a tale of second-rate people grabbing opportunities to dethrone those at the top – “the elite” – so they can enjoy the spoils themselves. Looking at the US in the days since I read this book, it’s hard to feel any optimism about where it’s heading. As for us, ominshambles with menaces seems to have become a constant.

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96,196 Words: Essays by Emmanuel Carrere. A random purchase – I’d never heard of this French journalist. Perfectly readable essays, albeit with more about his sex life than I was really interested in.

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The Code by Margaret O’Mara is a terrific history of Silicon Valley exploring the reasons tech happened there, having started much stronger around Boston. If you’ve read a lot of history of tech (I have) some bits of this are very familiar. But she puts together a persuasive story of how several factors combine – happenstance, Stanford’s presence, defence spending helping other local firms like Lockheed, a few investors to seed the VC scene, and networks of people who know people developing and becoming embedded over time. It thoroughly undermines the idea that any one intervention – set a mission! create a DARPA! – will create an extraordinary burst of innovation. It’s a much more contingent story.

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And non-economics books: Diary of a Young Naturalist by Dara McAnulty and House of Glass by Hadley Freeman.

Of all of these, the Applebaum and O’Mara books would be my top recommendations.

 

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Assetization, economists and others

Assetization edited by Kean Birch and Fabian Muniesa (a geographer and a sociologist) is an intriguing book. Given that we have the Wealth Economy project at the Bennett Institute, I wanted to understand why they and the authors included in the collection see assetization of the economy – distinct from marketization, financialization and commodification  – as a Bad Thing.
I must confess that I still don’t really understand these distinctions made between different aspects of the neoliberal capitalism being critiqued. There are some differences among the authors in the volume in how they understand assetization. The introduction sets out seven features of assetization: the creation of property rights; new kinds of property rights for intangibles; ability to extract rents; uniqueness of the asset making for monopoly power; valuations that depend on the actions of the owners; and that depend too on institutions and politics. While this is fine as a definition of an asset, albeit slightly different from the focus in economics on investment in something that exists as a stock and can give a flow return in the future, it isn’t obvious why assetization is inherently bad.
So I think the objection boils down to the classic one of putting a monetary value at all on things with intrinsic value, plus the dimension of power of the asset owner over those renting it. The time dimension of assets, and potential for better stewardship, doesn’t really feature in the book, or only as a way for the economic advantage of asset owners to be sustained rather than one-off; yet our project is interested in thinking about the economy in terms of assets or wealth because it will help embed sustainability, a concern for the future, more effectively in business and policy decisions.
The book has some very interesting chapters. My favourite was the one on the market for seeds in Germany, which is packed with institutional detail about how it operates, and the tensions between the interests of seed breeders and farmers – seeds with distinctive features enabling the breeder to charge a higher price get turned into corn which has to be a standardised commodity to trade on the market. It reminded me of one of my favourite books, John McMillan’s Reinventing the Bazaar. The chapter on natural capital seemed to consider the debate about natural capital accounting in the measurement and environmental economics communities as being concerned with assigning property rights to nature, which is not the case. The chapters in the first section concern intangible property rights, a very interesting area. It was a bit surprising not to see reference to cases like John Deere, whose tractors farmers think they are buying, but John Deere’s claims of IP over the software has turned these transactions into rentals rather than transfers of ownership.
So on balance, having found it a very interesting read, I conclude that we are speaking different disciplinary languages. However, the language choices we economists make are delicate if we want to engage in a good debate with those who see economics simply as the handmaiden of actually-existing capitalism: I’ve been mulling over the standard economists’ use of ‘human capital’ in the light of BLM: Jacob Mincer, an originator of the concept, was apparently uneasy about the term and many people, reasonably, find it offensive. But is there a neutral (shorthand) way of talking about putting resources now into people’s future opportunities?
The concept of an asset whose value inheres over time, and depends now on what kind of future we create, is fundamental to building a sustainable economy. But are there other words for things you can invest (either time or money) in for both the present and the future? If there were, it would help economists have a better conversation with other disciplines and the public about what we value (not just money!), how and why.
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In August we’re going to have a week’s holiday, and I’ll also be declining all but the most absolutely urgent online meetings, so am looking forward to some reading. The pile of books to read is very satisfying.

Meanwhile, this week I’ve enjoyed the newly-published Boom and Bust: A Global History of Financial Bubbles by William Quinn and John Turner. The book recounts the history of 10 bubbles in history, some well known – the South Sea Bubble, Wall Street in the 20s – others less so – I for one had never heard of the British Bicycle Mania of the late 1890s. It also ranges from 19th century Australia to modern China.

Each episode is set in the context of a framework described in the first chapter, the Bubble Triangle. These are the three necessary conditions for a bubble to take off: good marketability of the assets involved; abundant money & credit; and large numbers of speculators. With these in place, they argue there are two potential sparks: technology (radio in the 1920s, bicycle innovations in the 1890s) or politics (often, governments seeking to engineer higher asset prices to meet a policy goal, such as encourgang home ownership (the early to mid 2000s) or reducing government debt (John Law in France in the 1760s).

This is a very nice framework, and the book is an enjoyable read, its large array of references kept unobtrusive while testimony to the amount of research that has gone into it. There are some interesting points along the way. For example, the authors argue that the form of railway network shaped by the railway mania of 1848 locked in inefficiencies “which have plagued British railways down to the present day.” Other, less laissez faire, countries invested in a better planned and less duplicative network at lower cost. In Britain, they argue, politicians were too accomodating to constituency interests rather than able to plan a national network.

However, they also highlight the distinction between bubbles sparked by technology and those sparked by politics: “Technology bubbles often involve large sums of money flowing into extremely innovative sectors of the economy, which might otherwise have trouble getting off the ground.” During political bubbles, the money flows into sectors where there are few positive externalities.

The book ends by returning to the Bubble Triangle as a means of predicting when a bubble might occur and some discussion of policy choices – to avert the bubble (hard, with the political ones), or clean up afer it? The final chapter includes a discussion of the role of the media, whose role during bubbles has not always been blameless.

All in all, a great read and a great addition to the literature on financial bubbles.

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