Read: How Numbers Rule the World

  • Disappointing.

    How Numbers Rule The World is mostly not about the use and abuse of statistics in global politics as promised on the book’s cover. The lack of good, appropriate statistics, the over-reliance on only seemingly objective measures is a theme of Fioramonti’s book, yes. His focus, however, is on his aversion against market solutions to social challenges and the creeping commodification in all domains of life.

    I agree, a badly designed market, a sloppy implementation of a well-designed market, special allowances that circumvent the intention of a well-intentioned policy (like a market for emissions) are all issues that deserve a good rant. (Blind) Management by numbers, fudging of data, badly designed incentives, and rent-seeking behavior are also topics that deserve a good rant. Put these in a book with a title that promises an in-depth analysis of the use and abuse of statistics in politics, how statistics shape the world and you have a serious case of false advertisement, wilful deceit, and a disappointed reader.

    Pair this with constant references to non-relevant (to the current issues) quips by prominent and less well-known persons, references to anecdotal screw-ups in support of your rant, and the occasional tangential discussion of philosophical issues and the reader is not just disappointed.

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 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

  • 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.

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.