Economics

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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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Read: Are Markets Moral?

A complete waste of time.

“Are Markets Moral?” is a transcript of a one day inter-disciplinary workshop on the question that is this book’s title.

Presenters regurgitate ideas that they have presented much more eloquently and convincingly earlier, often in other, much longer books of their own, or they speculate about issues, social phenomena that they have absolutely no clue about. The discussions are shallow; the discussants talk at cross-purposes, don’t try to synthesize, or if they respond they resort to cheap attacks, free from empirical facts with the sole purpose to discredit an opposing (and reasonable, evidence-driven) opinion.

The composition of the group of participants is seriously biased. Everyone seems to have (just) their own pet peeve and no genuine interest in answering the workshop’s big question. I pity the poor souls who attended in the hope of gaining new insight.

Much more enjoyable, instructive, and insightful are Daniel Friedman’s “Morals and Markets” and Paul Zak’s “Moral Markets.”

Read: The Darwin Economy

Frank’s The Darwin Economy leaves me torn inside. I agree with essentially everything that Frank proposes and how he justifies his prescriptions. Yet, I expected something very different.

Of course I agree that there is a tension between individual interests and the individual action and the collective interest and the resulting desired action. The market mechanism does not guarantee the maximization of social welfare. That only happens under very specific circumstances, it is a special case.

Collective action: the agreement that individual action sometimes needs to be – voluntarily – restricted is not controversial at all.

I, of course, also agree that we need taxes to finance public goods and that we should rather tax bads instead of goods. Hence I find the suggestion to tax consumption instead of income rather compelling.

I also liked the reference to Coase and the re-focus on what may have been Coase’s actual intended lesson very enlightening.

Hence, for all this I may actually recommend The Darwin Economy. Frank is preaching to the choir.

On the other hand, the book is written almost exclusively for the North-American market. As a European I found the narrative, a discourse with an imagined dogmatic, narrow-minded “movement libertarian” very annoying. At first I did not even understand what Frank was trying to describe when he wrote “movement libertarian.” I believe – I know – that behind the term libertarian is much more than the anti-government market-devotee that Frank targets. More importantly, I am looking at the world from a completely different vantage point. There is no reason to believe any of Frank’s explanations would give rise to more government intervention (than we already have).

Finally, I do not share Frank’s expectation that Darwin will dethrone Smith as the intellectual starting point of modern economics. And, in this context, the title of Frank’s book is at least slightly misleading. Darwin, or rather Darwin’s survival of the fittest, has a comparatively minor role in the book. Evoking Darwin just allows to add a couple of non-economic collective action problems as introductory examples. The subtitle “Liberty, Competition, and the Common Good” is much more honest, much closer to the content and intent of the text.

Read: The power of fifty bits

The Praise. What happens when a practitioner writes about behavioral sciences’ insights and their applications? You get a refreshingly different perspective, refreshingly new examples for behavior change strategies that work, and in this particular case a refreshingly balanced discussion of the underlying ethical principles.

In contrast to many other authors in the popular behavioral science genre Bob Nease does not write about human irrationality. That is already a reason to recommend his book: The term irrationality is often misunderstood as stupidity, and some authors seem to emphasize this interpretation, pushing the need for paternalistic advice and guidance. Nease, on the other hand, is focusing on bounded rationality – limited cognitive ability, limited willpower, (and limited self-interest) – as the result of a long evolutionary process. People are not (that) inherently stupid and do not need to be guided by a better-knowing and well-meaning paternalistic entity, our decision processes and the resulting (in)actions are just maladaptive as a consequence of a rapidly changed environment. As a result, there is an intention—action gap. A gap that can be closed with the right choice architecture, or rather action-taking architecture. Since the intentions are already there it just needs to get easier to follow through with them.

Nease offers a small set of strategies that have this goal in mind: Making it easier to follow through (when the inaction is caused by inattention and inertia). The strategies are, of course, not new or unique to Nease’s insight. Default options, mandated choice, and framing are discussed at length in the academic and the popular behavioral science literature. Yet, the examples from his personal work experience and the reminders (for the action-taking-environment engineer) for the constant need to experiment make his book entertaining, instructive, and hence worthwhile to read.

Fifty bits is a rather short, concise, and focused book. There is no padding. Indeed, some parts could have been slightly more detailed. As a result, there is no excessive hurdle for picking up the book and reading it. I guess this feature of the book, making it easier to pick it up and read it in full, is intentional.

The critique. While Nease is very careful to present a balanced discussion, to consider the ethics of behavior changing interventions, and to call for intellectual honesty, avoidance of deception, and generally being “nice” there is an inconsistency in one of his arguments. At least, I cannot agree with his rationale for choosing between mandated choice and defaults with opt-out.

First Nease recommends requiring an active choice (chapter 3), what is sometimes also called “mandated choice.” Then, however, in chapter 5 (“Let it Ride”) he also recommends setting defaults with opt-outs and tries to establish a rule when to ask for an active decision vs when to rely on the default.

It is all linked to the “Effort [cost] of Active Choice”, “Effort [cost] of Opting out”, and the “Fraction who would Opt out.” Setting a default with opt-out leads to a larger behavioral effect at the population level. If the expected cost of opting out is lower (at the population level) than the cost of active choice the choice architect should implement a default with opt-out.

This may sound reasonable. So, let me add one of Nease’s insights that he offers in chapter 9 “Simplify wisely” under the heading “Why is easy so good?”

The bottom line is that what logically looks like a small bump on the road to better behavior psychologically looks more like a wall. (p. 135)

Seemingly small obstacles can be associated with high psychological costs. Looking only at the physical cost to opt out, let’s say looking only at the time it would take, neglects these psychological costs (to overcome inertia). Naively applied – as in Nease’s example –, the rule would too often recommend setting a default with opt-out instead of mandated choice.

Yet, there is another reason why I do not like this advice and cannot agree with the presented rationale for it.

The rule is based on a cost to society argument and the, at least, theoretical possibility to compensate the losers (i. e. aiming at a Kaldor-Hicks improvement). However, since compensation never occurs it remains unclear whether there is indeed an increase in society’s welfare. Further, this requires that the disutilities and utilities caused to the individual members of society can be compared across individuals and aggregated in a meaningful way. I would contest this assumption. (For more and more eloquent critiques on this kind of social welfare improvements see the works of Arrow, Baumol, Bergson, Little, … ) Mandated choice, on the other hand, does not require any of these interpersonal utility comparisons.

Obviously, if my critique is on such a technicality, a point that is often dismissed and ignored in practice it cannot be that bad. Let’s just say I would prefer active choice on principle. It seems more honest, more autonomy preserving, maybe even autonomy enhancing (if the action-taking-environment engineer does not add peer pressure).

Disclosure: The author, Bob Nease, sent me a copy of his book for free. Thank you, Bob! I enjoyed it.

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