Tag Archives: review

My damp Scandinavian view of the world

Posted on by

It’s the last full day of our holiday in Sweden and the weather has turned a bit wet, so in between the detective novels (the latest – Jill Paton Walsh’s Dorothy Sayers update, Thrones, Dominations) I read Robert Peston’s WTF. It’s as well-informed and full of insight about the present state of the world as you’d expect from such a distinguished journalist (although written in a slightly matey style which didn’t appeal to me). The book is mainly about Brexity UK – with a brilliant chapter on our last general election and the respective characters of Mrs May and Mr Corbyn – though it touches on parallel trends in Trumpland. I agree with his diagnosis that the issues contributing to the anti-establishment anger date back well before the financial crisis, to the deindustrialisation of the 80s and 90s, and the chasm between London/SE and the rest of the country. The book’s fundamental point is that the economy stopped working for an ever-growing number of voters, vast numbers of whom have seen no significant rise in living standards for well over a decade, and even longer for too many.

Interestingly, in the light of the current fashion for saying the big economic problem is all about concentration and the exploitation of market power, Peston instead pins the blame for a dclining labour share of national income on the Reagan-Thatcher-led attack on union power from the mid-70s on. The press reports of the Jackson Hole discussions this year noted that debate there focused on the issue of concentration. When I expressed some doubt on Twitter that this was anything other than a US phenomenon (as the UK labour share looked from eyeballing an ONS chart to have been fairly stable), a couple of replies insisted I was wrong (one arguing I was looking at the wrong data, and the other claiming the IMF said it was a global phenomenon). Well, after my years on the Competition Commission, I’m a big fan of tough competition policy, and agree it has been lax in the US for some time. The US also has an issue with creeping occupation licensing as the Obama CEA pointed out. But, reading up on the IMF’s recent work on trends in the labour share makes plain the great diversity of national experiences – and indeed, they say the UK labour share has increased.

Well, whenever a phenomenon is so varied across countries, it tells you institutions are playing a big part. Combined with the fact that across countries the big decline in the labour share occurred from the mid-1970s to around 2000, surely labour market institutions played a key part – for all that it’s right to be concerned about concentration in some countries/sectors now. (And the IMF data goes only to 2014, so perhaps there has been a dramatic decline in the latest 3 years of data…)

Anyway, looking out at the rain, on now to proofs of the forthcoming book by Alan Greenspan and Adrian Wooldridge, which I’m going to be reviewing in due course – a history of capitalism in America, which is going to be fascinating, as I’m anticipating a defence. There has also on Twitter been some discussion about what books to put on the syllabus for a history of capitalism course (really, a history of thought course), in which I didn’t participate (& can’t find now), but noted with interest that all the books were critiques, from The Great Transformation on. Maybe the Greenspan/Wooldridge book could balance it out.

[amazon_link asins=’1473661315′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’88b22140-a9da-11e8-be19-8364b0a822af’]

[amazon_link asins=’B003OIB9YQ’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’c2605d83-a9da-11e8-8242-3d8d171d819f’]

What numbers make visible & what they erase

Posted on by

That I read Caitlin Rosenthal’s Accounting for Slavery: Masters and Management was a bit random – we’re going away for a week and I didn’t want to start a holiday book, so pulled this bound proof the publisher had sent me off the pile. I’m glad I did. It’s a terrifically interesting book. It’s in effect a business history of slavery in the Caribbean and the American south, using the detailed management records that remain to understand how plantations were run – just as business historians would later use similar documentary evidence to trace the practices of management in industry. As she writes, “Scale required structure.” The sugar and cotton plantations were sometimes very large scale indeed. And the science of management emerged in this context before any manufactories grew to the same kind of scale.

There is a particularly illuminating section on the standardisation of record keeping: “Preprinted forms were an important and overlooked technology in organizing plantation labor.” Early records were hand written and ruled, with documents often sent to absentee owners in England – this was, Rosenthal points out, also one of the earliest instances of the separation of ownership and control, as large plantations were often run by professional managers. (The role of earnings from slavery in fuelling the growth of financial instruments and the City in England are the subject of this UCL research project, Legacies of British Slave-ownership) The availability of standard forms helped spread the ‘scientific management’ techniques – again, ahead of Taylor’s famous introduction of scientific management in industry. (This reminded me of Donald Mackenzie’s brilliant essay on how the commercial availability of options prices calculated by computers helped grow derivatives markets.)

Rosenthal also covers the role of slaves as, literally, human capital. Plantation managers kept inventory records and appied several different valuation techniques. As she observes, this was fundamentally an issue about property and therefore about power and politics, property being something defined by law. (And property in the form of people is more political than most.) By the eve of the Civil War, the total value of enslaved human capital was over $3 billion. (Before anyone takes this particularly noxious version of human capital as an opportunity to knock economics, economists were prominent in the abolition campaign, and historian Thomas Carlyle named economics the ‘dismal science’ for not respecting the property rights of slave owners.)

Rosenthal (formerly a management consultant) ends by pointing out that labor conditions for many people in the world still leave much to be desired: “Confronting plantation account books can remind us how easy it is to overlook the conditions of production from the comfort of a counting house or safety of a computer screen. Reckoning with the ways planters accounted for slavery should encourage us to rethink the kinds of data we record and how we use it. Quantitative records can help us to see farther, but only if we remember what the numbers make visible and what they erase.”

[amazon_link asins=’B07DGJPVLL’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’e666d317-a2ec-11e8-8e39-6d39a48277d1′]

Crashed

Posted on by

Adam Tooze’s much-praised history of global political economy from the period just before the Great Financial Crisis to the present – Crashed: How a Decade of Financial Crises Changed the World – is indeed a terrific read. It’s a detailed (600+ pages) synoptic account of the political forces that enabled a few dozen banks to entwine the world’s economies in an interlinked web of credit at massive scale, and the political reactions to and consequences of the crisis. One might quibble that some parts of the story are sketchier than others, but then it’s always a good sign to be hankering after more of a book rather than less. Making the parts into a convincing whole is a major achievement.

There are several central points the book emphasises. One is the extent to which the dollar underpinned the whole global financial market construct – and consequently the extent to which the Fed bailed out the whole world after the crisis. Another is busting the myth that the crisis was Anglo-Saxon: the continental European banks were in it up to their eyeballs, with equally ineffective regulatory oversight, such that they too had massive maturity mismatches (like the US banks) and also massive currency mismatches (whereas it was all dollars for the US banks). Tooze is also forensically critical of the lack of a coherent European policy response – both the ECB (especially under Trichet) and the German political establishment come in for particular fire. The policy response to the Greek crisis in particular was abysmal – as was clear at the time. It was always apparent, certainly by 2012, that debt restructuring was essential, and that the bailout was for German and French banks more than for Greece.

The book explores the interplay between the financial crisis and geopolitics, particularly the desire of both China and Russia to ensure the transition – already heralded but revealed by the role of the dollar to be exaggerated – from a unipolar to a multipolar world. Above all, it draws the lines from the possibility of the crisis, and the crisis response, to the current political situation: “Though it is hardly a secret that we inhabit a world dominated by business oligopolies, during the crisis and its aftermath this reality and its implications for the priorities of government stood nakedly exposed. It is an unpalatable and explosive truth that democratic politics on both sides of the Atlantic has choked on.”

Quite so. Here in Brexit Britain, those working in the City have by and large continued to draw their large bonuses, retire early, holiday in exotic places, while post-crisis ‘austerity’ due to the way the crisis torpedoed public finances means many fellow citizens need to use food banks and are seeing local services like social care and libraries starved. Whatever you think about the consequences, the anti-establishment protest vote, in the UK and elsewhere, is entirely understandable. I’ve been completely gobsmacked by how little consequence of the crisis there has been for the financial sector and those working in it. The same went for the rest of Europe, creating “the sense that Europe’s welfare state was being subjected to a relentless program of rollback driven by the demands of bankers and bond markets.”

So too in the US. Tooze describes the election of Trump as the “most disorienting event experienced by the American political class in generations.” It seems likely to me to be even more damaging for the United States than Brexit will be for Britain. Disorienting, but really hardly surprising. It isn’t only the lasting, scarring financial, emotional, health costs the crisis inflicted on millions of Americans (“The grief and distress caused by the crisis were forces to be reckoned with”) but also the way the Fed’s crisis response and the Obama administration programs contributed to polarising American politics. This happened elsewhere, too. Inevitably perhaps, during the firefighting technocratic responses took priority over democratic legitimacy. We see the lasting consequences in the (slightly abstract) disdain for ‘experts’.

Nobody comes out of Tooze’s account particularly well, although some fare less badly than others (eg Bernanke vis a vis Trichet). Some readers will disagree with the economic diagnosis – for there are people who believe the austerity was essential, the fiscal bomb having been detonated by the crisis. There is more sympathy for the Syriza government than many of its interlocutors in Brussels, Berlin and Paris would share. There will be too much detail for some readers – it helps to know what haircuts and CDOs and repos are. Nevertheless, ten years on, Crashed is an essential read to understand the state of the world, and a troubling read, thinking ahead to the next ten years.

[amazon_link asins=’1846140366′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’a9050546-9ece-11e8-8936-2949cac9352d’]

The Community of Advantage

Posted on by

I very much enjoyed reading Robert Sugden’s The Community of Advantage: A Behavioural Economist’s Defence of the Market. It tackles the aspect of behavioural economics that has always troubled me: the presumption that there’s a wise policy-maker who somehow knows better than I do what’s good for me and will act like a government version of Mad Men to non-coercively get me to choose accordingly. In other words, libertarian paternalism is a contradiction in terms, and in reality. In fact, I’m torn because – like many other “experts” –  I do think economists (or doctors, or engineers, or farmers, or nuclear physicists etc) often do know better than most of us what makes for a better outcome. Even in less expert domains, such as the provision of news, it is surely better not to give people exactly what they want, if that’s bias-confirming news rather than impartial and accurate news.

However, Lord Reith and other paternalists didn’t pretend to be ensuring people got what they *really* want, rather than what’s good for them according to the paternalist. As Sugden points out early in this excellent book, most behavioural economics implicitly assumes it’s possible to discern a set of ‘true’ but latent individual preferences, undistorted by the various psychological mechanisms identified in the literature. It addresses policy prescriptions to a benevolent social planner, the policy maker – in other words it takes what’s referred to as “the view from nowhere”, an impartial spectator outside society. This enables a normative assessment of behavioural policies. It’s an appealing idea in many ways, and an admirable effort to take this impartial perspective. But it is of course open to the standard public choice critique and has led (as I argued in my Tanner Lectures some years ago) to bad economic policy choices. Sugden also criticises Sen’s alternative of finding impartiality in the ability of a proposition to withstand reasoned public debate; “I cannot see why I am morally required to justify my private choices by reasoned arguments and to expose those arguments to public scrutiny,” he writes.

Sugden advocates instead a contractarian approach, so rather than asking is aggregate welfare maximized, the question is: “is it in the interest of each individual to accept the rules of that institution, on the condition that everyone else does the same”. The behavioural challenge is devising economic institutions satisfying this condition with respect to individuals who do not know what their preferences are. To translate this into a normative criterion useful for policy, Sugden proposes that: “It is in each individual’s interest to have more opportunity rather than less.” In other words, there is an an analogue to the invisible hand theorem: “The guiding idea is that a well-ordered economy is an institutional framework that allows individuals to co-operate with one another in the pursuit of what they perceive as their common interests.” He traces the approach to Hume’s view of good institutions in a well-ordered society as self-reproducing and self-enforcing conventions – self-enforcing because of mutual advantage, albeit emerging in an evolutionary way in society. Moral reasoning is addressed to individuals rather than a nebulous ‘policymaker’ outside of society.

A couple of technical chapters demonstrate that the contractarian approach is a generalisation of the usual welfare theorems in an exchange economy. The book then turns to policy questions: what kind of regulation can be justified in normative terms if the criterion is expanding individual opportunity (rather than satisfying their ‘true’ latent preferences)? For example, what about someone choosing how much to save for their retirement, a well-known behavioural policy example. Sugden suggests: “Behavioural economists’ propensity to interpret context-dependent preferences [like the opt-out/in pattern] as evidence of self-control problems may be a side-effect of their commitment to the model of the inner rational agent.” He argues that the policy drive to increase personal retirement savings is driven by policy regimes in which pensions are privately provided – so the behavioural policy is there to serve the regime rather than the individual. “A contractarian solution to this problem may require some form of compulsory saving.” In short, the nudge is a fig leaf and the better policy (increasing individuals’ opportunity sets) would be a straightforward regulated contribution.

The term ‘community of advantage’ comes from Mill. Sugden is making an ardent liberal case, while recognising the realities of human psychology. I remain somewhat torn. To go back to Lord Reith, British TV viewers, when asked, are very clear that they prefer watching sport, comedy, movies and soap operas, but they also definitely want their licence fee to support the provision of impartial news, children’s programmes, educational material and other wholemeal stuff. Those preferences are not latent, but rather acknowledge explicitly the mutual as well as the individual benefit. However, Sugden’s approach is very attractive & I’d say The Community of Advantage is a must-read for those interested in behavioural and welfare economics.

[amazon_link asins=’0198825145′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’f65093b0-9c81-11e8-9f97-4164bffc4a2c’]

Made by Humans: the AI condition is very human indeed

Posted on by

A guest review by Benjamin Mitra-Kahn, Chief Economist, IP Australia

There is a lot of press about the coming – or going – of artificial intelligence, and in Made By Humans: The AI Condition  Ellen Broad has written a short but comprehensive account of the state-of-play which deserves to be read by anyone wanting to know what is happening in AI today, certainly if you want to get in on the conversation.

The book is very contemporary, and if you haven’t had the time to attend every conference and workshop on AI since 2015, then you’re in luck. Broad has been to them all, and this book will catch you up on all the developments. The book also offers a series of insights into the challenges that AI and big data present – because it is about both – and the questions we should ask ourselves. These are not the humdrum questions such as who a self-driving car should choose to crash into (although a randomized element is suggested), but some bigger and much more interesting questions about whether we need to be able to inspect the algorithm that made the decision. Does the algorithm need to be open source or does it need to be exposed to expert review to ensure best practice, and should the data that trained the algorithm be openly accessible or available for peer-review. Using every example about data and AI from the last three years, Broad steps through the issues under the hood that are only now being thought about.

This naturally brings up the question of government regulation. This is something Broad has changed her mind about, which she discusses openly in a book that moves between a technology story, personal discovery and ethical discussions. There is a role for regulation says Broad, and the fact that we don’t yet know what that regulation could be, or should be, is handled with some elegance. Technology is not a nirvana , computer code sometimes held together with “peanut butter and goblins” and written by people who are busy, under-funded or just average. Simply aiming to ‘regulate AI’ however is akin to wanting to regulate medicine: It is complex, dependent on who you impact, their ability to engage, and the risks as well as the situation. It is a human-to-human decision ultimately. Not perhaps the argument one expects in a book on AI by the ex-director of policy for the Open Data Institute and previous head of the Australian Digital Alliance. But it is about humans, and the AI condition is about humanity – about fairness, intelligibility, openness and diversity according to Broad.

The book finishes with US Senators questioning Facebook about Cambridge Analytica, and the recent implementation of the GDPR (data governance, not a new measure of GDP), which quickly dates the book, but that is a choice the author makes explicitly. This book is about the current conversation on big data and AI, and it is about participating in that conversation. It is not about the last 50 years of ethics and the history of computers. There is an urgency to the writing, and as someone interested in this, I found myself updated in places, and challenged in others. Reading this book will allow anyone to particpate in the AI debate, knowing what Rahimi’s warning about Alchemy and AI is, being able to discuss the problems around the COMPAS sentencing software, or seeing why Volkswagen’s pollution scandal was a data and software scandal first. If this is a conversation you want to engage with, Broad’s book is an excellent starting point and update.

[amazon_link asins=’B07FXTGMGN’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’af46feca-98b8-11e8-a10d-1d686ce27dc3′]