Over the weekend I read the 1920 essays Liberty and The News (reissued recently) in which Walter Lippmann trails the arguments in his more famous Public Opinion concerning the dysfunctional relationship between the press and politics. He wrote at a time when formal wartime censorship was giving way to self-censorship in the guise of jingoistic patriotism and 'red' scares, and when populism held sway in politics. His critique paved the way for a more serious era in American journalism in the decades that followed. Ninety years on, I couldn't help but be struck by the parallels with our own time, however, pondering the celebrity and scandal-driven press of our era. And agreed with Sidney Blumenthal's afterword, in which the former Clinton adviser writes: “The crisis of journalism cannot be disentangled from the crisis of national government.”

Of course one key difference between now and then is the advent of the mass of material available online. Whether or not this paves the way for the process of engagement by interested citizens which is Lippmann's ideal is another matter, although on balance I'm optimistic. He wrote that form matters more than content for sustaining political liberty, broadly understood: “Liberty is the name we give to measures by which we protect and increase the veracity of the information on which we act.” The essays are well worth re-reading given the emerging body of evidence from institutional economics on the relevance of the process of democracy and in particular an active media for good governance – more important than the formalities of elections and parliaments. This builds of course on Sen's profoundly important work which also highlighted the press. Tim Besley comes to mind as well worth reading on this issue.

The impact of the web on newspaper business models is a separate but related issue. Circulation figures indicate that readers aren't getting what they want from newspapers, which might be partly to do with price (free vs not free) but also partly content. I'll restrict myself, however, to pointing out two interesting recent articles on news: one from the UK, by John Naughton; another from the US by James DeLong.

Portfolios of the Poor (by Daryl Collins and three co-authors) is a masterly assessment of the financial needs of people on very low incomes based on the collection of detailed two-weekly or weekly diaries kept by researchers who tracked individuals and families in India, Bangladesh and South Africa. It is stuffed full of interesting and surprising insights, and should be read by anyone concerned with economic development and poverty reduction. I can't praise it highly enough. This is a model of the careful collection of evidence with important practical consequences.

The first surprise is the extent to which poor people – living on or about the $2 a day threshold, or about 40% of the world's population – use a wide variety of financial services, although many of them are informal. The reason is that such low incomes are typically extremely variable and so there is a more intense need than in the case of better-off people for financial management. Poor people have a greater demand for financial intermediation. Less surprising, perhaps, are the facts that poor people face much greater risks including the risk of theft or unanticipated life emergencies, and that their typical transaction is very small indeed. The latter is the key insight of providers in other industries with 'bottom of the pyramid' business models, but is far less widely adopted in financial services.

One of the consequences of these characteristics is that the management of cash flow is the over-riding need for people on such low incomes. The typical researchers' focus on balance sheets will show that the kind of people who kept diaries for this research will see little change in their (tiny) level of assets from one year end to the next, but there will have been, relatively speaking, huge flows of cash in and out in between. Another insight is that a year is far too long a time horizon for financial decision making – and this includes assessing loan rates using APRs. Most of the time poor borrowers will want a loan for a very short period and may regard the (high) interest rate as a fee for a service. There is an interesting chapter looking at the actual versus notional interest rates charged by different types of lenders. Many of the diary participants would have several different loans at rates ranging from zero from a family member or employer to a high rate from a microfinance institution, to a seemingly usurious rate from a moneylender – but one which might never be imposed in full.

The book notes that Grameen Bank has begun to adapt its policies and products to suit better the needs of poor customers, offering savings products for example, which are more urgently needed than loans in many cases, and more flexibility in loan terms and purposes. However, it argues that microfinance needs to modernise more – the group meetings are increasingly resisted by Grameen members, for example. Other microfinance institutions will have more need to reform, as Grameen has already responded to customer needs to some degree.

It only mentions the exciting growth of mobile banking en passant. I edited a report on m-transactions published by Vodafone in 2007; the MPesa example in Kenya cited there has grown by leaps and bounds, as have other mobile-based schemes elsewhere in Africa, the Philippines and elsewhere. The potential of mobile transactions for poor customers is that it offers a low-cost service using existing retail outlets (in contrast to branch banking for example) and so offers great promise for making small transactions affordable. This gap in Portfolios of the Poor is a minor quibble, however. Its key message is forceful: that the absence of reliable financial tools reinforces the other vulnerabilities faced by people on low incomes; they have a tremendous need for reliable and low-cost financial services as a pre-requisite for being able to cope with the many other vulnerabilities they experience.

The Frozen Trade by Gavin Weightman
HarperCollins (2003)

I happened to be reading William Bernstein's A Splendid Exchange: How Trade
Shaped the World and was mildly startled to see a reference to the
magnitude of America's 19th century ice trade. Startled, because I'd never
heard of this trade. Yet ice was America's second largest
export tonnage (second only to King Cotton) at the time of the Civil War. I
immediately resolved to learn more and a few moments of augmented
intelligence (ie, Google) threw up the name of Frederic Tudor, the “Ice
King” who invented the industry.  From there it was a quick jump to The
Frozen Trade.

Gavin Weightman's book on the ice trade is at its heart the story of
Frederic Tudor, and this is why it is so good. His story — perhaps “yarn”
might be a better description — ranges over most of the seven seas, taking
in privateers, shipwrecks, invention, speculation, enterprise and vision on
the way.  Tudor had an idea and spent years, in a truly American fashion,
pursuing it until he had created an entirely new market and had satisfied it
through an entirely new industry.

Weightman's narrative is well-paced and he balances the biographical detail,
the economic and social background and the history of the ice trade
beautifully. Tudor's story is a story of heroic entrepreneurialism and a
story of imagination. When he shipped his first cargo of New England ice
down to Martinique in 1806, he thought he would have a sure-fire success.
But the inhabitants had no idea what to do with it: if you'd never seen
ice, would you buy some? Eventually he found selling it to make ice cream a
moderate economic success and was encouraged to continue. A decade later,
his breakthrough came when he began shipping not to the Caribbean but to
Charleston, Savannah and New Orleans and the business began taking off.

At the same time, the “ecosystem” began to develop. Downstream, the waste
water coming off of the melting ice was sold as a cold draught rather than
poured down the drain.  Upstream, the demand for sawdust (used to insulate
the ice cargos) from the Maine timber industry — hitherto a nuisance by-product and a
pollutant —  generated more wealth.  New technology was applied to cutting,
storing and hauling the ice.  And all the time, the market was growing.

His marketing strategy was dynamite. He created an insatiable demand for two
main products: ice cream and cold drinks. When opening up a new town, he
would provide free ice to bartenders knowing that customers would never go
back to warm drinks once they'd tried a icy mint julep or an iced tea. It seemed
to me slightly reminiscent of the bottled water industry today: create a
demand, satisfy it and then use brand to drive up the price. Indeed,
Weightman notes that the only difference between “Wenham Lake Ice” (one of
the main brands of the time) and other ice was purely marketing.  The
Norwegians, who ended up controlling the English ice market, even renamed
one of their lakes “Lake Wenham”!

Tudor was a ruthless businessman, seeing off competitors by lowering the
price of his ice to ruin them, but not a perfect one. Some of his
enterprises outside ice went well (graphite mining and property) and some
not so well (he lost a fortune speculating on coffee futures). In any case,
by 1849 the ice trade he had created was going so well that he ran out of
ice to ship from Boston and had to send a ship and a crew north to cut chunks off of
icebergs for the supplies.  By the time Thoreau was moaning about
the ice trade disturbing his peace on “Walden Pond”, Tudor was shipping ice
to Calcutta (where the grateful British Raj coined him a medal), round the
Cape to San Francisco and even to Australia. In America, ice was no longer a
luxury item but an essential comfort, a state that Tudor and competitors
attempted to extend to England. The first attempts in the 1840s didn't go
well, despite the opening (in 1845) of an ice shop in The Strand. Well into
the 1930s, Weightman says, Londoners didn't take to the odd American
affectation of cold drinks. Far be it from me to feed American prejudices
about English dental health, but I wonder if a reason may be found in the
passage Weightman quotes including an interview with an English ice cream
seller in 1851. He says, amongst other things, “I don't think [ice cream]
will ever take greatly in the streets… they get among the teeth and make
you feel tooth-ached all over.”  Just a theory.

Naturally, as I was drawn through the book, I couldn't help but try and
extract key messages around the intersection between economics and
technology. In this field, there is a definite and fascinating paradox around Frederic.
Frederic was not a Luddite by any means and appears to have been
excited by the new inventions of the time. In 1830, he predicted that “steam
will soon take the place of horses,” and went on to say that “the times are
surcharged with novel inventions and improvements of all kinds… steam
seems now the ordinary power: in all probability some other and more
convenient one will be discovered.” And, of course, it was. Yet as Weightman
notes in passing, it never seems to have occurred to Frederic that someone
might “undermine his ice trade by manufacturing ice or making an artificial
refrigerator.” Perhaps it is some kind of innovator's curse, to imagine
change in all businesses except the one they have created: it's why Bill
Gates didn't invent Google and why Akio Moirta didn't invent the iPod.

As it turned out, when artificial refrigerators did arrive, they at first
bolstered the trade by providing an inexhaustible, year-round supply of
clean ice for shipping through the existing supply chain before, in time,
they destroyed the trade by decentralising ice making to the point of
consumption. Destroyed the trade so thoroughly, in fact, that few people
remember that it ever existed. The market that Frederic's genius created is
still with us, but the industry he created to service it has melted away.
By the First World War, the ice trade was waning.  By the Second,
refrigerators were in millions of US households and the ice trade was no
more.  Not just gone, but forgotten.

So, a book that educates and entertains but also leaves you wanting to discover
more. What more can you ask for?

Dave Birch
Director, Consult Hyperion

For relaxation yesterday evening I was listening to OK Computer and reading Captain James Cook's Journal of his voyage of exploration to the Antarctic. It's astonishing to be reminded just how adventurous the early explorers were. At the point where they were forced to turn back by an impenetrable wall of ice, he admits: “I whose ambition leads me not only farther than any other man has been before me, but as far as I think it possible for man to go, was not sorry at meeting this interruption.” Any other man would needless to say have turned back long before.

I was also wonderfully struck by the vivid descriptions of the economies of Easter Island and New Zealand. Easter Island did not impress him, and his analysis of its environmental poverty causing its economic poverty tally almost exactly with Jared Diamond's in Collapse. In New Zealand, Cook writes about the terms of trade between red feathers or nails and food and water for the ship. On one occasion, the tides of consumer behaviour amongst the Maoris cause a dangerous inflation in the cost of provisions.

“Instead of getting pigs as I expected I found everything quite changed, the nails and other things they were mad after the Evening before they now dispised and in stead of them wanted they did not know what, the reason of this was, some of the young gentlement having been a Shore the preceding day and had given them in exchange various Articles such as they had not seen before and whic took with them more than Nails….thus our market was at once spoli'd and I was obliged to return with 3 or 4 little Pigs which cost me more than a dozn would have done the evening before.”

The point being of course that the appeal of variety and the urge to trade are pretty basic in human society. Anyway, enough light relief – I'm going back to reading about social discount rates now.

I've spent the day trying to finish drafting Chapter 1 of my next book, due out from Princeton University Press in 2010 as long as I meet my deadline. A key question is what does the concept of 'enough' mean to an economist.

In starting to address this, I've been revisiting the happiness literature. The macro approach using country-level survey data has recently been updated and corrected in interesting ways by Angus Deaton and by Betsey Stevenson and Justin Wolfers. The bottom line I take out of their work is that in fact getting richer does make us happier, at least everywhere except the US (Stevenson and Wolfers speculate that this reflects the dramatic increase in inequality in the US, such that average GDP is an inadequate measure of households' incomes. (Matt Ridley wrote about their paper in the latest UK Wired.)

Another of the types of evidence cited by the 'growth isn't making us happier' folks, however, is rising rates of depression and suicide in the rich nations. I wrote this down as a caveat to my own conclusion, and thought I'd better check it. It's a surprisingly hard factoid to verify quickly. I've now set my research assistant the task. Others' insights or sources will be most welcome.

Meanwhile, on with the wordsmithing.