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: Nonviolence

  • While Kurlansky’s Nonviolence could have been just as appropriately titled “War, Warfare, and the Power and Impotence of the Elite” it confirms my earlier suspicion: Driven by a purpose and having a message he wants to impress upon his audience Karlansky’s writing improves dramatically.

    Kurlansky’s message is clear. And to squash any doubt he provides a summary of his book himself: 25 theses that stress the need for nonviolence and its superiority are included as the last chapter: War, armed conflict is bad. Violence begets violence. Power corrupts, and religion and good intentions are easily tainted and defiled.

    By the seventh century it was already an old pattern: the religious doctrine of peace meets the power politics of [the] state, the rules are bent for the “just war,” and once the first few doses are administered the state becomes an addict that will tell any lie to get its narcotic. War is simply the means. The real narcotic is power.

    There is no such thing as a just war.

    The book is a brief overview of the history of violence, war, and warfare, following the standard recipe of describing the fate and fortune – mostly the fate – of several individuals to illustrate the dominant practices at a time and the emerging nonviolent opposing forces. It is rather US-centric. Focusing on individual (non-violent) actions and settling for just reporting historic events Kurlansky fails to explore the philosophical aspects of nonviolence in a befitting extent and detail. Assessing nonviolence remains an empirical matter.

    Finally, given the vast amount of space dedicated to Gandhi in Kurlansky’s Salt, Gandhi occupies a surprisingly minor role in this newer book. The details of Gandhi’s nonviolent opposition are not discussed here.

    All in all, even if I am not fully happy with this book I can endorse its cause: the quest for peace and nonviolence. > The hard work of beginning a movement to end war has already been done.

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: 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: Sixty Days and Counting

  • After reading Robinson’s Fifty Degrees Below I was hoping the “science science fiction” trilogy would get better with its concluding volume. It didn’t.

    The trilogy started as science fiction about science. You got a glimpse at academia, research and administration, and the plot’s background addressed a serious, topical issue: global warming. That was the first volume. Unique and interesting enough to get me on reading despite the novel’s flaws. The second volume, I still do not know what to make of the second volume.

    And now, the third volume is even worse. Sixty Days and Counting is strangely anticlimactic. It is not science fiction about science any more but an odd mix of political thriller, conspiracy theory novel, spy novel, new age self improvement, and rant against capitalism. Yes, the ranting about the evil economic system, the evil capitalists’ exploitation of the poor 99% that put me off in the first volume is back. The transitions between the genres do not succeed and the book would not be a good example for any of these genres.

    Bottom line: Sixty Days and Counting was a waste of time and I am seriously concerned about my memory as I was pretty sure that I liked Robinson’s Mars trilogy. It was well written and absolutely enjoyable. Can a writer deteriorate that dramatically?

Read: Principled Agents?

  • Now to something completely different: Political Economy.

    Besley’s “Principled Agents?” is an attempt to unify a number of different principal agent models concerning the political decision maker, government, and voters. He discusses competing views of government and government failures, he analysis the effects of accountability, he analyses the impact of the political agency on public finance. And he does all this in a way that, I would argue, even an undergraduate would be able to follow and enjoy. He succeeds very well in this attempt to unify the general frame of his analyses.

    Another distinctive feature of “Principled Agents?” is that it presents its analyses not only in a unified frame but it also takes a less extreme approach to the analysis of government than either the Samuelsonian welfare economics or the overly pessimistic public choice approach of Buchanan. Not all government officials are purely benevolent, not all government officials follow only their own interest.

    What stopped me in my tracks, however, was his Final Comments. In the Final Comments Besley hints at interesting extensions. Among other things, he implicitly questions the institution of elections, at least for some level and part of government.

    Once, the city states of Athens, Venice, and Florence have used lotteries instead of elections to select their councils. Do elections really select the best person for the job? Do we need to select “a best” person for such a position, with the selection always being tainted by imperfection? Should we not rather re-think the duties of the bureaucrat and the politician? Do we want a political elite, distinct from the general population, or do we want to maintain a unity of purpose, an egalitarian access, the widest possible access to public office? All questions that, I believe, are worthwhile to think about.

Read: The Age of Aging

  • Here is another popular science book that is related to my official professional interests: demographic change and age specific behavior in economic and political contexts. George Magnus did a nice job in collection data from various sources and present them in a way that non-scientist can see what is going on. Unfortunately this is about the only positive thing I can say about this book.

    Most of its content really boils down to the results of some opinion polls that are linked to population projections and aim at picturing a dire future. I have to admit that Magnus does not aim at creating a dooms day panic, nevertheless he mostly wants to raise concern, to make you worry. Little room is dedicated to where actual chances of demographic change may be hidden.

    I am a bit concerned about the links of current behavior of certain demographic groups and the resulting projections due to their different growth dynamics. First, the assumption of stable behavior of certain groups, i.e. stable preferences and stable opportunity sets within these groups, is too simplistic. And second, a simple multiplication of current types of behavior with projected (given the stability of behavior) population frequencies neglects any evolutionary dynamic that may alter the behavior. The quality of these projections is rather questionable. On the up-side, Magnus acknowledges these possible shortcomings on the very last pages of his book. Though by then, the reader may already be convinced of the imminent demise of his favorite way of living.

Read: The Cult of Statistical Significance

  • I think that is one of the big problems she sees in empirical economists. They agree but still do otherwise. I also had the good luck to meet Gerd Gigerenzer, a psychologist and fellow warrior against the misuse of statistics, and discuss this particular topic with him during a sociable evening after a long day full of presentations at a remote conference venue of the Max Planck Society. Yes, there is something wrong with our (that is the economist’s) way of relying on, reporting, and interpreting statistics and specifically statistical significance.

    How the Standard Error Costs Us Jobs, Justice, and Lives is not only the subtitle of Ziliak and McCloskey’s manifesto The Cult of Statistical Significance it is quite indicative of their (strong) rhetoric.

    The book can be roughly divided in two parts that are devoted to different “themes”. The first is an updated and extended rehash of their earlier articles on the current practice of relying on statistical significance in various fields. If you have not read their articles so far read this and be shocked. You will see the author’s outrage in every paragraph. The second part and theme is a historical account that tries to shed light on how we ended up where we are. This part is rather filled with bitterness and repugnance for R. A. Fisher and compassion for the neglected Mr. Student, William Sealy Gosset.

    Ziliak and McCloskey’s rhetoric is unique, yet it is not always to their benefit. Though, they certainly make their point and at least in private you have to agree with them. All in all, the book is entertaining and instructive. Even so, I would not assign this book to a class for reading I would rather recommend the 2004 special issue of the Journal of Socio-Economics on this topic. On the other hand, every empirical scientist and every policy maker relying on scientific research (shouldn’t they all?) should be aware that, first, size matters and that precision of measurement should not be the only decision criteria.

Read: Nudge - Improving Decisions about Health, Wealth, and Happiness

  • The current public interest in behavioral economics is inspired by a number of popular science books on the topic. Or the other way round, I don’t know. Nudge is one of these books. It is coauthored by one of the pioneers of the field, Dick Thaler, professor and director of the Center for Decision Research at the University of Chicago. His coauthor Cass Sunstein, a legal scholar taught at Chicago, too, before he moved to Harvard Law School.

    Both authors plead for a philosophy of governmental minimalism. Yet, they recognize that humans make mistakes, take shortcuts in their decision making and are easily directed to certain actions by simple and seemingly innocent changes in the decision environment. The latter is exactly what they argue for: To nudge people in the right direction. Offer people freedom of choice, reasonable defaults if necessary, and structured information to avoid overwhelming the decision maker. Since all this nudging is supposed to improve the well being of the decision maker and the welfare of society they call their policy of gently guided freedom of choice libertarian paternalism.

    I do not want to start another discussion about the benefits and perils of such paternalism. Thaler and Sunstein address some of the opposing arguments at the end of their book. This is not where they make their strongest points.

    The main text, however, gives a very nice overview of some of the observed regularities in decision making and the resulting applications of behavioral economics during the last decade. Some more controversial topics are discussed in the last third of the book. Here they cover two themes where many people will have strong prior opinions. First, they argue that the government should allow anyone to waive his right to sue for negligence. As a consequence health insurance fees would decrease and better coverage would result. Second, they argue government should privatize marriage and instead introduce civil partnerships. Marriage is mainly a religious concept. The religious rules concerning marriage may sometimes lead to a retrenchment of personal freedom, e.g. in the choice of (approved) partners. Therefore, the state should not link additional privileges or responsibilities to this institution. Instead, the state should recognize a more modern concept of family, a caretaker–dependent relationship. Current privileges, social and economic subsidies for married couples should be transferred to this new entity.

    I cannot say that I am not sympathetic to these proposals. I just do not see the nudge…

Policy reform: Private health insurance for all

  • A few years ago I already wrote about the German health insurance system and a possible and necessary reform. Still today we have two very different health insurance systems in Germany. The first is a compulsory public health insurance where premiums are determined by income and by the insurance benefits and health of the insured. The second is a private health insurance system where your premiums are determined by the insurance benefits and health of the insured. Consequently, the first is a social redistribution scheme where the coverage of health care is determined by the state and the second is a private health insurance where coverage is directly determined by the insured. The problem is, only public servants and high-income earners are allowed to opt out of the public scheme and insure themselves privately. As a result the average premium in the private system is lower than the contribution of the same individuals to the public scheme would be, and health benefits are better for those privately insured. Most who are allowed opt out.

    It is my opinion that a health insurance system should not redistribute income, we have a tax system for that. A health insurance should pool the risk and cost of getting ill. Nothing more and nothing less.

    Therefore, I welcome the current FDP’s legislative initiative to reform the German health system. They demand that everyone should be entitled to privately insure herself and the obligation of insurers to sign a contract with everyone for a basic coverage without any discrimination.

    Of course, such a private system should not copy the mistakes made elsewhere. Therefore, everyone should have to get basic coverage independent of his or her employment status. Rates may differ from insurer to insurer but not for contracts from the same insurer regardless of age, sex or health of the insured. Additional coverage can then bought at whatever conditions the insurers are willing to offer to an individual. The important thing is, basic coverage should always be cheaper than basic + some additional coverage. If an individual is too poor to afford paying for the basic coverage she should get the necessary social benefits financed through the tax system. Through the tax system and not the health insurance system! Medical services like inoculations that provide positive external effects to society may very well be subsidized by the government, too, to reduce the individual premiums.

    There are benefits for all involved. There is no discrimination in service between privately and publicly insured. The medical practitioners can provide the best service to their knowledge and according to the needs of their patients and are not constrained by their remaining budget allocated to them by the public health insurance association. I do not expect that this privately organized health insurance system will be considerably cheaper. I do expect, however, that it will be fairer and more orientated to the needs of the insured.