Vaclav Smil's book Prime Movers of Globalization has taught me more than I ever thought possible about engines. I must confess that my understanding remains extremely hazy, but I learnt a lot from the non-technical parts of this book about the importance of two types of engine – diesel engines and gas turbines – in shaping the world economy. A central plank of Smil's argument is that these two pieces of technology have made a far more important contribution to the growth of international production chains and trade than the microchip and ICTs, the reason being that they power the large ocean-going ships and aircraft carrying goods and people around the globe on a massive scale, the trucks that ship goods on land, and also in generating electricity and energizing the compressors used in oil and gas pipelines.

What's more, he argues, the important technical improvements have been small and incremental rather than revolutionary new innovations – an argument that fits with Will Baumol's careful distinction (in The Free Market Innovation Machine) between the revolutionary and the incremental innovations and the kinds of business that deliver each type. Smil writes:

“A lengthy process of machine development, commercialization and diffusion of diesel engines provides a perfect example of gradual technical advances that have received little public attention, that may not be ranked among pivotal modern inventions… but that have led to epochal shifts in world affairs by creating the indispensable driving forces of the global economy.” (pp17-18)

He calls the diesel engine and gas turbine, in fact, “the indispensable, iconic artifacts of modern civilization.” (p43)

In fact, Smil obviously thinks the digital revolution has been greatly over-hyped. He argues that the importance of the steady decline in transportation costs in increasing international trade is underestimated, compared to the impact of ever-cheaper and better telecommunications and computing. I think he makes a strong case, and ends the book with some reflections about the likely impact of higher oil prices and environmental concerns. This sober assessment of costs and benefits is ultimately more persuasive than the breathless hype about globalization in books like Who Moved My Olive? and The World is My Oyster. (OK, The Lexus and the Olive Tree and The World is Flat – and to be fair, Thomas Friedman is not the most breathless.)

He concludes:

“We simply do not have a suitable all-encompassing metric that we can
use to weigh these multitudes of tangible advantages and gains and
intangible losses and regrets to arrive at a satisfactory net valuation
of the economic globalization energized by the two remarkable prime
movers.” (p233)

Smil also points out that almost all large diesel engines, although they have European brands, are made in Asia – food for thought. (p125)

It has to be said that Smil's book isn't as accessible as Marc Levinson's The Box, a terrific read about containerization, which was followed up by the BBC's Box, still less those mass market non-fiction books launched by the success of Longitude. The technical, engine-related parts really need their own sub-sections with a non-technical summary paragraph for engineering idiots like me. Professor Smil's writing style also tends to the long-winded. However, it has pictures, which I feel improve any book, and is a really interesting perspective on globalization.

My family spent the late summer Bank Holiday in the north west of England and instead of heading into the Lake District proper for a hearty walk we made our first ever visit to the Yorkshire Dales National Park, and specifically the market town of Sedbergh. What a delight. Not only did the sun shine on gorgeous fells for our walk, it also turned out that Sedbergh is England's official 'Book Town'. There's a festival next month. There are also a good half dozen book stores selling both new and second hand titles.

I browsed for a happy hour in Westwood Books, picking up some excellent old economics books – more on these in future posts. Nowhere can be more enjoyable than a bookstore stocked and arranged with intelligence, and selling coffee and cake too.

I pondered, too, the economic viability of small towns of this kind. The hill farms of the north struggle in these times of vast economies of scale in farming and agri-processing. Linking agricultural subsidy to farms of this kind which safeguard the appearance and vitality of the countryside makes some sense, not that I've ever been a fan of the CAP. But tourism is clearly essential too. This gorgeous landscape has long appealed to walkers and has its share of towns with shops and cafes and visitor attractions catering for the less energetic. The idea of building a distinctive character around book shops and a literary festival seems a smart one. Sedbergh went down this route as a means of recovery from the 2001 foot and mouth epidemic that devastated so many sheep and cattle farms around the country.

I don't know how well it's paying off in terms of visitor numbers. But I highly recommended it to all booklovers!

Sad news this week about the death of Chris Freeman, an outstanding economist who created and led the Science & Technology Policy Research Unit at Sussex. He was one of the surprisingly few economists to focus intensely on the relation between technology and the wider economy, looking at the institutions and processes through which invention becomes innovation, investment and growth – or rather, he got there early. The rest of the profession has caught up by now. The memorial page has links to several obituaries.

His best-known book is probably The Economics of Industrial Innovation (co-authored with Luc Soete). My favourite is As Time Goes By: From the Industrial Revolution to the Information Revolution (written with Francisco Louca). It puts successive technological innovations in historical perspective, and did so at a time when many big-name macroeconomists were still sceptical about the impact of information and communications technologies. The industrial economists and economic historians (like Nick Crafts and Brad DeLong) were the first onto the significance of ICTs. Anyway, Freeman's book is still a great read if the grand sweep of history combined with organisational insight  is your cup of tea.

An interesting article on e-reading in the Wall Street Journal the other day reports a large-scale survey of the reading habits of people who use Kindles, ipads and Sony Readers. Of the sample of 1200, 58% said they were reading the same amount as before and 40% said they were reading more.

The article says: “Because e-book gadgets are portable, people report they're reading more
and at times when a book isn't normally an option: on a smartphone in
the doctor's waiting room; through a Ziploc-bag-clad Kindle in a hot
tub, or on a treadmill with a Sony Reader's fonts set to jumbo. Among
commuters, e-readers are starting to catch up with BlackBerrys as the
preferred companions on trains and buses.”

The year on year growth of e-book sales in the US in the first six months of 2010 was 183%, similar to the year-on-year growth for 2009 (176%). According to the Association of American Publishers, U.S. publishers had net sales of $23.9 billion in 2009, down from $24.3
billion in 2008, a 1.8% decrease. The total includes e-books which made up 1.4% of revenues in 2009, so there was a slightly faster decrease in sales of physical formats. However, the decline was less pronounced in 2009 than in 2008, so there is clearly a recession effect on top of any underlying trends. In the last seven years
compound annual growth rate in revenues was plus 1.1%.

This isn't a stellar growth rate but neither is it terrible, especially in a context of tremendous growth in competition for people's time and attention.

What I'm suggesting is the possibility that digital books are not a threat to publishing that some publishers fear, looking over their shoulders at the music industry (indeed, online music needn't have been a threat to the music industry until they turned it into one, but that's another story). It's often assumed, and especially by incumbents, that an alternative mode of delivery is a substitute for existing modes when it is a complement. Maybe people who like reading (or listening to music, mutatis mutandis) will like reading in a new way as well as in the old way?

Publishers are embracing e-reading, in their different ways. The innovation in devices is obviously helping. Readers are being lured in by free books. In the survey reported by the WSJ, e-reader users said that 52% of their e-books were paid for, while 48% of their e-books were free. Pricing e-books will be key, and the prices seem to me far too high on the whole. Readers will expect e-books to be far cheaper than physical books – not only is there the zero marginal cost, but in addition it's much more like a rental than ownership because you can't resell or give an e-book to a friend, nor even share it with another family member who has a different reading device. I think publishers are still being too greedy about their pricing. There's no rationale for expecting high or higher margins in this extension of the market. My hunch is they'll also find the price elasticity of demand is high.

Anyway, although it's a challenging time in publishing, it's also an exciting one. And for readers too.

The Great Financial Crisis has been a disaster for the economy (we're now entering the sequel Double Dip: Just When You Thought It Was Safe), but a boon for economists. Zombie Economics by John Quiggin is the latest in the post-crisis genre. It's a clever idea, summed up in the subtitle 'How dead ideas still walk amongst us'. The book tackles the idea of the Great Moderation; the efficient markets hypothesis; dynamic stochastic general equilibrium (DGSE); trickle-down economics; and privatization. Quiggin's argument in each case is that the idea has been torpedoed by events and yet nevertheless continues to have adherents amongst both economists and policymakers.

I think his verdict is right in some of these cases, and interestingly wrong in others. Even where I disagree with him, however, the book sets out a very clear and concise analysis of the debate. This makes at an extremely useful guide to debates in macroeconomics in recent decades, to the intellectual roots of even such bizarre practices as the use of DGSE models.

For this is one area in which I wholeheartedly agree with Quiggins. There were two years in the mid-1980s when I was a macroeconomic forecaster, using a traditional mish-mash macro model, and that was weird enough, and then I lost track until noticing as the crisis unfolded that macroeconomists seemed to take DGSE models seriously as a guide to reality. It's a little disappointing that Quiggins didn't say more about the interesting work on macro phenomena as emergent phenomena of complex systems (Paul Ormerod's Butterfly Economics is still the best accessible guide). Still, this chapter is excellent on the history of modern empirical macro from the old monetarist vs Keynesian's debate through real business cycle theory on.

In the chapters on the efficient markets hypothesis and privatization, Quiggins makes lots of excellent points about the way the Robespierre/St Just tendency amongst economists took good ideas to excess. For me, though, his clear political preferences mean he does tend to attack the caricature versions. I think it's debatable how far those extreme versions continued to hold sway intellectually. For example, continuing privatization has had more to do with the political expediency of getting around public finance constraints. What's more, the economics of public service reform seem to me to suggest that even if wholesale privatization is flawed, ensuring choice and elements of competition in public services does deliver good results for users and taxpayers. This chapter of Zombie Economics reads to me as though its author would rather just turn the clock back. He argues for public ownership of infrastructure and public provision of health and education. This, though, is to stay in the rut of “market vs state” thinking against which Elinor Ostrom, amongst others, has argued so eloquently.

My other main substantive criticism is that Quiggins dismisses the Great Moderation, the decade and a half of low inflation and stable growth in the OECD economies, entirely as an artefact of flawed policies: essentially he argues that the 'Greenspan put' of always loosening monetary policy to prop up financial markets, created the boom, shovelling liquidity into places that didn't really deserve it. Quiggins argues that the Golden Age of the 50s and 60s was obviously more stable, and if the volatility figures show otherwise then they're measuring the wrong thing. Well, standard deviations of GDP growth and inflation measure what they measure. Looking at employment rates and median incomes in the 60s vesus the 2000s would obviously tell a different story, and one Quiggins cares about more. Although there was clearly a strong role for policy in creating the long boom of the mid 1990s to 2007, the impact of new technologies and the deregulation which together enabled the global reshaping of supply chains and just-in-time logistics. These were real, structural changes in the economy. It seems likely that they imply two kinds of business cycle 'regime' – more stable than old cycles during stable eras, but then more volatile in between. Anyway, the time series dynamics do look genuinely different since the mid-1990s.

I hope this doesn't put anyone off reading the book. It's an excellent canter through some key areas of economics, and as Quiggins wears his views on his sleeve, it's easy to spot those sections of the text.

Besides, it's well worth it for the cover alone!