New Economist

The trouble with Joe

Ever been to a concert or play where the rest of the audience were in raptures, but you weren't? That's been my experience every time I've gone to hear Joseph Stiglitz speak on globalisation in London. Each time I've come away wondering how such a first rate economist can offer up such populist tropes, sloppy reasoning and pessimistic interpretation of the facts.

So why do his speeches (and books) make me so queasy? It's not that I disagree with most of his policy prescriptions. Like Stiglitz, I was shocked by the incompetence with which the IMF dealt with the Asian currency crisis a decade ago. And like Stiglitz, I would like to see western governments pay greater attention to those among their constituents who most stand to lose from globalisation.

Robert Skidelsky's review of Stiglitz' latest book, Making Globalization Work, makes the case more eloquently than I ever could. Writing in the New York Review of Books, he concludes:

My final criticism is that Stiglitz's book is carelessly written. Stiglitz was—and perhaps still is—an outstanding economic theorist. But he has been producing big, loosely argued books. The laudable aim behind them is to inform a broader audience about economic policies that could make the world a better place, certainly with better lives for the poor, and such advocacy has its place in moving people to action. But he lacks the eloquence, urgency, and passion of the preacher, while he has too often abandoned the rigor of the scientist. In my view, he has not yet found a style suitable to the popular exposition of his economic ideas.

Based on my readings, that's a fair cop. More rigour please Joe.

Meet the authors...

There may be no such thing as a free lunch - but London has plenty of free public lectures. Readers living in the old dart have the opportunity to hear about two new and - by all acounts - exciting tomes.

This Wednesday evening (6 February, 6.30pm) undercover economist and FT blogger Tim Harford is giving a public lecture based on his new book The Logic of Life at the London School of Economics. Event details here. The event is free and no ticket is required, but I'd recommend turning up early, as these events fill up fast. Here is the jacket blurb for the US hardcover, published by Random House:

Life sometimes seems illogical. Individuals do strange things: take drugs, have unprotected sex, mug each other. Love seems irrational, and so does divorce. On a larger scale, life seems no fairer or easier to fathom: Why do some neighborhoods thrive and others become ghettos? Why is racism so persistent? Why is your idiot boss paid a fortune for sitting behind a mahogany altar? Thorny questions–and you might be surprised to hear the answers coming from an economist.

...In this deftly reasoned book, Harford argues that life is logical after all. Under the surface of everyday insanity, hidden incentives are at work, and Harford shows these incentives emerging in the most unlikely places. Using tools ranging from animal experiments to supercomputer simulations, an ambitious new breed of economist is trying to unlock the secrets of society. The Logic of Life is the first book to map out the astonishing insights and frustrating blind spots of this new economics in a way that anyone can enjoy.

The Logic of Life presents an X-ray image of human life, stripping away the surface to show us a picture that is revealing, enthralling, and sometimes disturbing. The stories that emerge are not about data or equations but about people: the athlete who survived a shocking murder attempt, the computer geek who beat the hard-bitten poker pros, the economist who defied Henry Kissinger and faked an invasion of Berlin, the king who tried to buy off a revolution.

Once you’ve read this quotable and addictive book, life will never look the same again.

Judging by this the LSE lecture should be a lively romp - though promising "an x-ray image of human life" seems just a tad over-hyped. I'm not really sure why the US edition is subtitled The Rational Economics of an Irrational World, but the UK edition subtitle (above) was chnaged.

Meanwhile, next Tuesday evening (12 February, 6.30pm), Columbia University sociologist Sudhir Venkatesh talks about his new book Gang Leader for a Day at the RSA. Even details here. The event is free, but you have to register online. The book has generally been well recieved (though Tyler Cowen thought it "somewhat evil"). Here is the blurb for the London launch:

Sudhir Venkatesh is a young sociologist who studied a Chicago crack-dealing gang from the inside; he captured the world’s attention when it was first described in Freakonomics. Sudhir befriended members of one of the hardest crack dealing gangs in Chicago in order to produce sociological research that the academic world had never managed to obtain before. He followed the gang (the Black Kings) for the best part of ten years and will give a frank, accessible account of what he learnt. He witnesses drive-by shootings, drug dealers, gun crime, prostitution but also a community spirit in the face of poverty and the inner workings of gang culture from the leader down to the "shorties" (foot soldiers).

UPDATE: Tim Harford informs us on his blog of Another chance to see… (London speaking events)

I was astonished when the enormous Old Theatre at the LSE was packed out at least fifteen minutes before I gave my talk on 6 Feb. Lots of people were turned away, including some for whom I’d reserved seats. I’m a bit embarassed about that, although obviously pleased that the event was popular.

But… there will be another chance to hear me talk about “The Logic of Life” at the Cass Business School on 12 March. Details are here - along with details of other talks in The Lake District, Glasgow, Oxford, Cambridge, Bristol, Singapore, Wellington and several Australian cities too. Looks like we’ll arrange a couple more London events later in the spring, too.

In praise of Alfredo Perez

One of the non-economic weblog's I used to check regularly was the Political Theory Daily Review. Hardly an inspiring name, to be sure - but in fact it was an intellectual treasure trove of daily finds, ranging far wider than the name might suggest. Book reviews, interviews, academic papers, controversies big and small. Richer, more eclectic, more up-to-date and more lively than the better known Arts & Letters Daily.

The blog is no more, but its author, the hyperactive Alfredo Perez, now posts his daily gleanings on the front page of the journal BookForum. The main difference is that they are now grouped thematically. Here is an example of a recent post:

The story of measurement

A review of The Story of Measurement by Andrew Robinson. The first chapter from Benjamin Franklin's Numbers: An Unsung Mathematical Odyssey by Paul C. Pasles. A review of Perfect Figures: The Lore of Numbers by Bunny Crumpacker. Good stories, good math: Young children who show sophisticated story-telling skills go on to demonstrate greater mathematical ability. Alexis Lemaire can calculate the 13th root of a 200-digit number in just over a minute. In fact, he could be the greatest "mathlete" ever, but why does he want to spend four hours a day practising, and what's so special about 37? A review of Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart by Ian Ayres. A video that's worth a million words: Award-winning video reveals the simplicity and beauty of an abstract mathematical tool.

The editors are to be congratulated for hosting such a great public service. And thanks to Alfredo, now approaching his fifth year of daily posts, for an astounding and sustained achievement.

Notable

To appear in the December 2 edition of the New York Times Sunday Book Review, here is a sneak preview of their 100 Notable Books of 2007. Other newspapers publish their own lists, but few do it so well.

Supercapitalism or super-hype?

Tony Judt's piece in the latest New York Review of Book, The Wrecking Ball of Innovation, presents quite a telling assessment of Robert Reich's new tome, Supercapitalism: The Transformation of Business, Democracy. While Judt agrees with much of Reich's account of what's gone wrong, he despairs at the lack of an alternative. An excerpt:

This is all well said. But what is to be done? Here Reich is less forthcoming. The facts he amasses appear to point to an incipient collapse of the core values and institutions of the republic. Congressional bills are written to private advantage; influential contributors determine the policies of presidential candidates; individual citizens and voters have been steadily edged out of the public sphere. In Reich's many examples it is the modern international corporation, its overpaid executives, and its "value-obsessed" shareholders who seem to incarnate the breakdown of civic values. These firms' narrowly construed attention to growth, profit, and the short term, the reader might conclude, has obscured and displaced the broader collective goals and common interests that once bound us together.

But this is not at all the conclusion Robert Reich would have us reach. In his version of our present dilemmas no one is to blame. "As citizens, we may feel that inequality on this scale cannot possibly be good for a democracy.... But the super-rich are not at fault." "Have top executives become greedier?" No. "Have corporate boards grown less responsible?" No. "Are investors more docile?" "There's no evidence to support any of these theories." Corporations aren't behaving very socially responsibly, as Reich documents. But that isn't their job. We shouldn't expect investors or consumers or companies to serve the common good. They are just seeking the best deal. Economics isn't about ethics. As the British Prime Minister Harold Mac-millan once observed, "If people want morality, let them get it from their archbishops."

New book: 'Economics and Psychology'

A belated post to acknowledge a welcome new volume, Economics and Psychology: Developments and Issues, published in July by MIT Press. Edited by the University of Zurich's Bruno S. Frey and University of Basel's Alois Stutzer, it appears to have a first rate selection of contributions. You can read the table of contents and download chapter one here.

The editors acknowledge in their introductory chapter the debt that economcs owes to psychology:

...together economics and psychology is a vibrant and fruitful field. We have argued that psychology has had a strong impact on economics: it has helped to substitute the assumption of complete rationality by isolating anomalies in individual behavior; it has made experiments a valid and widely accepted method of research; it has broadened the view of human nature by showing pro-social, intrinsic, and procedural aspects in people’s preferences; and by showing that utility can be measured it has produced important knowledge about what people care for.

The danger that economics and psychology becomes an additional playground for exhibiting one’s mathematical prowess is perhaps smaller than in other areas because psychologists’ influence has from the very beginning introduced a strong empirical (experimental) orientation. We have argued that remarkable insights have already been reached but at the same time we are fully aware that in so many respects we still know so little. The field is wide open for future research.

As my copy is in the post, I provide excerpts from a review of the book by the University of Massachusetts's Herb Gintis, which he posted on Amazon.com:

...the book under review is only in passing about the Kahneman-Tversky influence on decision theory. Rather, it focuses on a second wave of behavioral experiments involving strategic interaction (game theory) rather than single-agent choice (decision theory). Economists have been at the center of this new "behavioral game theory," which began with the famous ultimatum game experiment of Werner Gueth in 1982 (Guth, 1982). Indeed, except for Ralph Herwig, almost every contributor to this volume is trained in economics or business rather than psychology.

...Behavioral game theory has produced some quite notable results. Most important, researchers are corroborating what sociologists and social psychologists have known for a long time: human beings are not the self-regarding, asocial, materialistic creatures assumed in traditional economic theory under the rubric of homo economicus. Rather most laboratory and field subjects care about fairness and justice, and are willing to sacrifice material gain in the pursuit of normative goals. Moreover, most individuals have a more or less firm commitment to such character virtues as honesty, dependability, and trustworthiness, and are willing to forego some level of personal material reward in order to conform to the principles of virtuous conduct. More generally, people care about process as well as outcome in their interactions, so are more likely to contribute to a project that was democratically chosen rather than autocratically imposed, and their notions of fairness include such other-regarding elements as returning good for good and evil for evil.

The various contributors to this volume are almost all highly visible and creative leaders in their fields. The chapters are uniformly informative and well written. Several are illuminating in both reviewing the literature and providing an analysis of a single issue in journal article depth. Topics covered include prosocial behavior and trust in general, conditional cooperation and punishment, gender differences in trusting behavior, the neuroeconomics of decision-making, measuring subjective satisfaction and finding its causes, problems of self-control and time inconsistency, procedural utility, and recommendations for closer collaboration of psychologists and economists.

What was special about Europe?

Gregory Clark's new book A Farewell to Alms is not the only recent take on the emergence of the industrial revolution. Dartmouth's Meir Kohn has a forthcoming work too. Titled The Origins of Western Economic Success: Commerce, Finance and Government in Pre-Industrial Europe, the book manuscript is available online. As Kohn explains in Chapter 1, his work has a Smithian focus on commerce and markets, seeing the creation and expansion of markets in pre-industrial Europe as the key to economic growth:

The can-opener in the Ricardian theory of economic growth is the market. The market is simply taken for granted: it plays no explicit role in the Ricardian theory. But in the real world, markets cannot be taken for granted. Contrary to the Ricardian view, it is not technological progress but rather the creation and expansion of markets that drives economic growth. Technological progress is a consequence, not a cause. It is a lack of well-functioning markets—not a lack of resources or of technology—that explains the stagnation of the less-developed world and the problems of the transition economies.

The economic success of the West is explained, not by its cultural superiority or by the wisdom of its governments, but by its greater success in developing markets. Of course, the obvious question is, Why do markets develop more successfully in one place rather than in another? Answering that question is a primary goal of this book.

This is a detailed and fascinating work, written in a clear prose. I look forward to its publication and the ensuing debate.

Living in a Post-Freakonomics World: What 'The Poseidon Adventure' can tell us about this unexpected spate of pop economics books with long silly titles

The 1970s were not just a decade of sex, drugs, flares, bad hair and crap music. They were also the decade when a spate of Hollywood disaster movies dominated the box office. It was kicked off by Airport in 1970, with the US box office gross coming second after the pap that was Love Story. So Hollywood decided to make more of the same, as it does. Irwen Allen's 1972 movie The Poseidon Adventure was also a big success, with grosses second only to The Godfather. In 1974, Allen's The Towering Inferno topped the box office, as did Spielberg's Jaws the following year.

But the expensive and much-heralded King Kong in 1976 was less succesful. Then in 1977 along came Spielberg's second big hit, Close Encounters of the Third Kind. By then the disaster genre had lost its mojo. Allen's 1978 The Swarm was a flop. There were also plenty of sequels. Jaws spawned three, but they failed to match the success of the original - as did the 1979 movie Beyond the Poseidon Adventure.

I was musing about Airport and its progeny recently while waiting for my flight in an Eastern European airport. I had spied yet another translation of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything in the airport kiosk. It is now as ubiquitous as the Harry Potter series.

Tim Harford's The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor - and Why You Can Never Buy a Decent Used Car! is likewise being given the hard sell by publishers, and is as frequently to be found as Levitt and Dubner, at least in Europe. According to Tim's website, it is "now available in paperback and in 21 languages worldwide."

So, like Hollywood in the seventies, can we expect a spate of 'pop economics' books? I fear so. As Fast Company revealed in November 2005, there will be a sequel:

Conventional wisdom says there's more to come. Dubner says, "We're working on another book: 'Superfreakonomics.' "

And let's not forget Robert Frank's The Economic Naturalist: In Search of Explanations for Everyday Enigmas, nor Tyler Cowen's Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting and Motivate Your Dentist.

Indeed, one wonders how many other academic economists are toiling away right now on their own populist tome? While most must surely realise they cannot hope to replicate Levitt and Dubner's unexpected success, fame and greed are strong motivators. To quote the Fast Company piece again:

Suzanne Gluck, Levitt and Dubner's agent, says Freakonomics hasn't just inspired other numbers books. "People are pitching everything from 'The Medical Freakonomics' to 'The Freakonomics of Parenting,' " she says. "They're using freakonomics as a code word for unconventional wisdom."

I can't wait.

But let's heed the lessons I take from Hollywood in the 1970s:

1. The first few big hits are probably going to be the best.
2. Sequals usually disappoint, both artistically and at the box office (did anyone actually watch Jaws 4?).
3. Nothing lasts forever. The novelty wears off and something else takes off.

Though I doubt that Superfreakonomics will top its predecessor, this fad is not over just yet. Until then, we can look forward to quite a few more pop economics works with crass bright, eye-catching covers and very long silly titles.

Lest I sound curmudgeonly, I confess that I have by and large enjoyed reading these books. And who ever thought economics would ever be this hip? In the past when I told people at a party I was an economist either their eyes glazed over or they accused me of being uncaring, kick-the-poor, tax cutting ideologue (or worse). These days they are more likely to ask me what I think of Freakonomics. Now that's progress...

* The 'jump the shark' moment willl probably be when a quite senior and serious orthodox economist manages to write something so execrably that it takes many years to restore their reputation. Someone from the Chicago School, perhaps?

Douglass North's new book

Good news. Dani Rodrik tells us that a new book co-authored by Hoover Institution and Washington University's Douglass North is soon to be published. It goes by the lofty title, A Conceptual Framework for Interpreting Human History

Written with Stanford's Barry Weingast, the book was ths subject of a two-day colloquium hosted by Harvard's Institute for Quantitative Social Science. PDFs of most of the chapters are available to download. Rodrik writes of the forthcoming work:

The book's focus is on two fundamental modes of social organization, which the authors call the Natural State and the Open-Access Order.  The first of these appeared about 10,000 years ago and characterizes not only most of recorded human history, but also most of today's countries. It is a system where a small group of elites--the authors emphasize that the multiplicity of elites is important--reach a modus vivendi whereby they agree to create and distribute rents among themselves.

Only about 25 countries and 15 percent of the world's population live in open-access societies, according to the authors. Open-access orders are based on competition--both in economics and in politics--and use the threat of entry to regulate social, economic, and political relations.

The authors emphasize that much of social science today goes astray because it tries to fit all countries under the same theoretical construct. Instead, they argue, you must understand that the logic of these two systems are fundamentally different. 

Growth: the central questions

Daron Acemoglu's new textbook on economic growth concludes at Chapter 24 with a discussion of 'what we have learned', some answers to what he dubs 'the central questions', and a quick overview of 'some of the many remaining questions' faced by researchers. On page 1068 (sic) he writes:

The central questions are these:
(1) Why did the world economy not experience sustained growth before 1800?
(2) Why did economic takeoff start in 1800 and inWestern Europe?
(3) Why did some societies manage to benefit from the new technologies and organizational forms that emerged starting in 1800, while others steadfastly refused or failed to do so?

I will now offer a narrative that provides some tentative answers to these three questions.

And so he does. It's the best summary of the economic growth literature I have read - but alas, too long to include in this blog. To tempt readers, here is a small sample, from pages 1077f:

Why did some societies manage to benefit from the new technologies while others failed?

The economic takeoff started in Western Europe, but quickly spread to certain other parts of the world. The chief importer of economic institutions and economic growth was the United States. The United States already had participatory political institutions, founded by settler colonists, who had just defeated the British crown to gain their independence and set up a smallholder society. This was a society built by the people who would live in it, and they were particularly keen on creating checks and balances to prevent a strong political or economic elite. This environment turned out to be a perfect conduit for modern economic growth.

The lack of a strong political and economic elite meant that a broad cross-section of society could take part in economic activity, import technologies from Western Europe and then build their own technologies to quickly become the major industrial power in the world (Galenson, 1996, Engerman and Sokoloff, 1997, Keyssar, 2000, Acemoglu, Johnson and Robinson, 2002). In the context of this example, the importance of technology adoption from the world technology frontier is in line with the emphasis in Chapter 18, while the growth-promoting effects of a lack of elite creating entry barriers is consistent with the approach in Section 23.3 in Chapter 23.

Similar processes took place in other West European offshoots, for example, in Canada. Yet in other parts of the world, adoption of new technologies and the process of economic growth came as part of a movement towards defensive modernization. Japan started its economic and political modernization with the Meiji restoration (or perhaps even before) and a central element of this modernization effort was the importation of new technologies.