Economics

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Read: Success and Luck - Good fortune and the myth of meritocracy

While I agree with Frank’s policy recommendation and how he arrived at his conclusion I cannot honestly say I have enjoyed his recent Success and Luck: Good Fortune and the Myth of Meritocracy.

The primary goal is not to tell a story about Success and the role of Luck it in, it is an argument for a progressive consumption tax and maybe also a reaction to earlier critique on Frank’s 2011 The Darwin Economy that argued for the progressive consumption tax, too.

While The Darwin’s Economy main rationale for the introduction of a progressive consumption tax was the reduction of wasteful conspicuous consumption that results from a consumption arms race as every consumption is assessed relative to some accessible standard, maybe the consumption of nearby (socially and geographically) reference group in society Success and Luck focuses on the chance element of being rich and successful as a justification for a tax on the (still wasteful) consumption of the rich.

The supply of status goods is limited and cannot be increased, therefore competition for these goods just drives their price up without improving the buyers’ living standard. Or, a slightly inferior good, at a lower price, would result in an even higher enjoyment if the saved (that is taxed) amount of wealth is used for public goods like infrastructure.

Frank now argues that being rich is, despite all the effort and talent that were necessary, also largely determined by luck as being rich is the result of a competition with many competitors with similar abilities and willingness to exert effort. Any competition has an element of luck in. Taking a risk implies actually the reliance on luck, the submission of oneself to one’s good fortune, not skill, not effort. As the prize of the competition is largely determined by the society, a rich society offers bigger prizes as the prize is related to the individuals human and the societies material capital. Both are at least partially the result of public goods, public investments, and therefore taxes. Consequently, the lucky rich should just (shut up and) pay it forward to enable the next generation of high(er) prized tournaments.

Nothing wrong with that. I could not agree more. I also do not mind Frank’s rather personal perspective in his narrative and rhetoric.

What is wrong is this:
Success and Luck is a neat, short book. Being short is a virtue (for a book). Frank, indeed mentions that he could have written more but chose to keep it short, not adding any unnecessary tangential material. Great. However, there is little that is new. Most (all?) of the ideas and examples that illustrate Frank’s points are already in The Darwin Economy. Indeed, I was tempted to run the present text through a plagiarism detection software to see whether he just cut and pasted the old material or whether he at least attempted some rephrasing. Either way, I found this recycling and its extent highly annoying. Even the idea of the winner takes all, the role of luck and its use as a justification for a consumption tax was already discussed at length in another earlier book of Frank’s, The winner-take-all society, published in 1995.

The original (?) content can be boiled down to the two appendices. The first offers a numeric example illustrating the impact of luck on winning contests with many participants if luck even only marginally influences performance. The second is a FAQ on the introduction of a progressive consumption tax. And yes, FAQ implies he must have answered these frequent questions already elsewhere. Hence, the numerical example is probably the only original contribution of the book. The book could have been much shorter. It should have been a blog post.

At the very least, Frank should have put a warning somewhere that he is just reorganizing old material that he has already published elsewhere. Even though his two old books are referenced for some specific points, he never acknowledges the substantial extent of overlap in ideas and concrete examples between his seemingly separate works. He is selling old wine in new bottles (which, by chance, is also a chapter title in his 1995 book). Frank cheats his readers.

Read: Trekonomics

Post-scarcity is not just a recent idea, predicted in such work like The 2nd Machine Age as a result of the imminent and highly anticipated singularity, and it is not just the necessary condition for implementing the communist dream, it is the world of Star Trek (after the Original Series). Manu Saadia tries to analyze this science fiction utopia in Trekonomics from an economic perspective.

It’s all there and, still, it also seems lacking.

Saadia clearly identifies Star Trek (of The Next Generation, Deep Space Nine, and Voyager) as a post-scarcity society. The Replicator, the technological offspring of the Transporter of the Original Series, can produce any goods you want. As a result, in the Federation, there are no unfulfilled material needs anymore. The economic problem has been solved by abundance.

The existence of the Replicator is, however, not a sufficient condition. Saadia, identifies this, too. Only the free (as in speech) and free (as in beer) access to it, effectively the provision of the Replicator as a public good, allows Federation citizens to enjoy the benefits of goods at marginal costs of zero. Instant recycling reduces the cost of any choice further (in terms of post decision regret and resources forewent), it eliminates any lasting material consequence, basically eliminating the need to consider tradeoffs. No economic problem remains.

Hence, a technology able to create abundance and a policy decision to allow free access to this technology (eliminating capitalism) are necessary for creating the utopia of Star Trek.

Saadia also explains the absence of money - a consequence of having all necessities and even luxury goods freely available (How do you define these in the absence of an income elasticity of demand?), there is no need for exchange and therefore no need for a numeraire that can serve to facilitate exchange. He also explains the absence of paid work (the marginal product of labor must be zero in material terms if the price of goods is zero) and the shift to status seeking instead. Status seeking is then also responsible for even further development and improvement of technology.

Capitalism was required to create the knowledge and the machines; once production reached its singularity society was able to transcend. All in all, Saadia identifies the key points.

He also discusses singular topics like externalities, collective action, and the curious case of the merchant race, the Ferengis. (So, there still is trade after all!)

So, why seems Trekonomics lacking?

Saadia puts the cart before the horse. The economic implications of the Replicator are only discussed after he tells about the absence of money, the change in the nature of and motivation for work. And only then he mentions the importance of policy, growth, and the limitless resource: ideas. This sequence, I argue, hinders an in-depth and logically progressing analysis of the economic history of Star Trek.

While the exposition is easily grasped by laypersons, some more technical discussions (maybe in appendixes) would have been (more) fun for the more trained (in economics) Star Trek aficionado.

Trekonomics is very much a personal account, the general Sci-Fi affinity of the author is obvious and, of course, appropriate. It is appropriate that Asimov gets plenty of credit for his influence on Sci-Fi in general and Roddenberry and Star Trek in particular.

If I write that Trekonomics is lacking it is not because it is bad. It is because it could have been (and I hoped for) more in-depth, more detailed, more an Economics of Star Trek, more an Economic History of Star Trek, more… just more.

Read: Economics - The User's Guide

Chang’s Economics: The User’s Guide is less a guide to economics as it is practiced but more to an economics that should be: A pluralistic study of the economy, not one single approach to analyze everything.

Chang introduces to some of the non-mainstream approaches to economics and shows where they differ from the mainstream by discussing concrete current economic issues (with a slight emphasis on macroeconomics) and how we got there. As such, the Guide is rather a work in economic history and comparative economics. The presentation of relevant statistics on a wide range of countries to provide context is commendable.

Underlying the obvious narrative, an introduction to economics, there seem to be two theses. First, economics is inseparable from politics. Politics provides the institutional context, the rules of the game, economic analysis has to be performed within this frame. Economics, however, provides the reasoning for many political decisions, it “is a political argument.” The two fields cannot be without the other. Second, as a result, all economics is normative. There is no value-free economic analysis. “[T]here are no objective truths in economics that can be established independently of political, and frequently moral, judgements.” Hence, “[e]conomics is not - and can never be - a science.”

While I mostly agree with the first thesis, I do not agree with the second one. Economic analysis (in particular of microeconomic issues) can be purely descriptive, positive. Without some understanding of the causal links, the mechanics of the economy, the decision-making behavior and process a meaningful normative analysis would not be possible. I would also argue, that, e. g., experimental economist are not just going through the motions of the scientific process of knowledge generation, they are scientists: Observing, hypothesis generating, falsifying, and theory building scientist.

Read: Sweetness and Power

I do not remember why or how I ended up on https://cs. brown.edu/~sk/Personal/Books/Mintz-Sweetness-Power/ where I read this:

Read this book. The next time you visit a cafe and confront a choice between white sugar (packed, perhaps, at the aptly-named Imperial Sugar Company) and the brown crystals of Sugar-in-the-Raw, the decision will suddenly seem so much more than one of mere taste or calories or purity. A hefty chunk of history, economics and anthropology will bear down upon you. Choose wisely.

I now have read the book. And I can co-sign this recommendation.

Sweetness and Power is an anthropological study of sugar. Or rather, it is a study in economic history that uses sugar, its production, use, and change of production and use to depict changes in (British) society and its economy. It is fascinating how much insight can be linked to just one commodity. It is fascinating seeing how essential it is to consider class – and not just the individual – in economic analysis of the past and therefore the present. Context matters.

Sweetness and Power was not just fun to read and instructive, it served also a very practical purpose because I accidentally could use it, its content, as illustrations in my International Trade course when discussing the issues related to colonization and mercantilism.

The text is sometimes a bit repetitive. On the other hand, this implies the evidence provided is not just anecdotal. There is plenty of support for Mintz’ points.

Mintz concludes in the last chapter “Eating and being” with a critique of modern society. The changing role of eating is just a symptom of the changing use of time. A thesis that may be central to the book as the use of (scarce) time may reflect the existence of individual power and freedom, and their absence.

As a result of scarce time, eating has become more individualized, noninteractive, and thus less social. Eating has been deprived of its hedonistic and social quality – just thing about “convenience” food. To make up for this loss, things need to be done simultaneously. Even the things that are supposed to generate pleasure. There is not enough time for consumption. A paradox, as increasing productivity should result in more free time, not less. I wonder whether this is about to change, given the imminent rise of the second machine age, the singularity.

Read: Economics as Religion

Is economics a religion? Are economists secular priests? This is what Robert Nelson tries to convince us of. He fails.

Nelson offers a unique history of modern economic thought or rather thinkers. The focus is on Samuelson and his textbook “Economics.” — the 15th edition, then by Samuelson and Nordhaus, was the textbook assigned to the introductory economics course I took in the nineties. Hence, it often seems that Nelson does not write about the field of economics but only but this, admittingly influential, textbook. Other protagonists, the antipole, are the various members of the Chicago School, most prominently Frank Knight.

The observation that many early economic analyses were based in (unexamined) presuppositions that were more like articles of faith is not enough to convince this reader of economics as religion. The observation that some economist assiduously follow their agenda, may it be driven by intellectual curiosity or political conviction, is not enough to convince this reader that economists are secular priests.

Nevertheless, the links between Catholicism and leftist Progressivism on the on side and Protestantism and more right-wing Libertarianism on the other side and their respective protagonists in economics are interesting. Religion influences, of course, culture, and therefore, it will also influence (economic) thought. Still, the increasing secularization, agnosticism, atheism, non-religiousness, and the move towards scientism does not make economics a religion.

In spite of Nelson’s failure to convince me of economics as religion I agree with him on one major point: Economics, economic analysis is not value free. Economics is often more normative than we like to admit. Those presuppositions need to be examined. Luckily, they are.

Read: The second machine age

Bought in 2014, right after it was published, I should have read it much earlier. OK, there are still plenty of other books on my to-read shelves that I got before 2012

Brynjolfsson and McAfee present a compelling (and maybe alarming) case for (information / computer) technology induced economic growth and inequality. We have entered an age of noticeable advancement in computer technology and noticeable impact of computer technology on society. Networked computer technology and globalization leads not just to opportunities in the long tail, an increase in the diversity of goods we may consume, but also to a concentration of the benefits. Competition is not anymore about the absolute (perceived) quality of a good, it is about the relative quality. Only the global relatively best matters in a (digital) economy where local supply is global. A few lucky “superstars” may capture the whole market.

Brynjolfsson and McAfee discuss the chances and challenges, and they offer some counsel. Will the growth be beneficial for all? While the presentation of the data, the discussion of what can and what will happen leaves no doubt (some people will, a lot of people may be harmed), their advice is less convincing. The short term policy recommendations are uncontroversial (and unspecific). Yet, they are less well argued for then all earlier points. This is even more true for the long-term recommendations: Even though I would mostly agree with them; me agreeing with their appropriateness has nothing to do with Brynjolfsson and McAfee’s advocacy. I always liked the idea of a negative income tax; I always would rather tax bads than goods, i. e. I would rather tax consumption than work. I do not agree with the authors’ fondness for MOOCs. I do not like MOOCs; I think they have failed their intended purpose.

So only 2 out of 15 chapters are lacking a little in persuasiveness. That ain’t bad. The other, better argued, chapters may even end up on a reading list for any course that discusses economic growth, GDP, and inequality.

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