I wanted to enjoy
Tony Judt’s Ill Fares The Land. His history of Europe, Postwar, is one of the
best narratives of modern history I’ve ever read. I know his humane and
always-interesting views from his essays and interviews. And of course it is
well-known that Judt was already impaired by his final illness, and facing his
death when he dictated this book. Impossible not to approach it as a
sympathetic reader. But I was disappointed overall, although it’s even so a
worthwhile and thought-provoking book.

The first sign
that this book was going to irritate as much as it inspired came in a section
reproducing a series of graphs from The Spirit Level by Richard Wilson and Kate
Pickett. This book – reviewed on this blog – has been controversial with much
of the controversy politically-motivated. Conservative groups have attacked the authors’ claim that inequality causes all
kinds of ills and is bad for the rich as well as the poor. However, some of the
critiques of the book – including mine and John Kay’s – have come from people
who are broadly sympathetic but point out the misuse of statistics. Wilson and
Pickett make the Stats 101 mistake of muddling causation and correlation, and
even in their correlations cherry-pick the observations that support their
hypothesis. There are many correlations presented which can be changed by including a different selection of countries.

So the Wilson and
Pickett argument might be true but they show no data to prove it. On the slender
reed of their book, Judt goes on to hang some strong claims about the US and UK.
Although I agree with some of his observations, many are massively overstated
with no evidence. For example, he writes of the UK’s “vestigial” system of
public education; 93.5% of children in the UK attend state schools (including
my own). Standards could be higher; “vestigial” is a ludicrous description.
Similarly he compares Norway’s 1991 welfare reforms to the 1834 New Poor Law in
Britain. I know nothing about Norway but this cannot be a factually sensible claim. And he
asserts that economic growth always leads to greater inequality. Again,
incorrect. Sometimes it does, depending on the country and its political
institutions and choices. He seems to think some NHS hospitals have been
privatized. I could go on – the point is that there are so many inaccuracies
and wild overstatements as to undermine the general argument.

I also differ
with the argument here about the importance of economics in causing the crisis.
Judt draws the now-familiar but of course interesting link from the Austrian
refugees such as Hayek and Schumpeter to Chicago economics and the efficient
markets theory. He quotes with approval Keynes on the influence of defunct
economists. This quotation continues with some less familiar lines:

“Madmen in
authority, who hear voices in the air, are distilling their frenzy from some
academic scribbler of a few years back. I am sure that the power of vested
interests is vastly exaggerated compared with the general encroachment of
ideas.”

Well, I don’t
know how to weigh the influence of one against the other, but do think this
greatly underplays the role of vested interests. Surely one should not downplay the power of the banking industry lobby? Perhaps I’m an old Marxist
without having realised it.

Having said all
this, Ill Fares the Land did make me think. It convinced me even more of
something that’s a strong theme of my forthcoming The Economics of Enough. That
is that we’re mistaken to think of state and market as either ‘opposites’ or
the only choices in arranging the organisation of the economy. Judt certainly
argues here that markets have demonstrably failed and therefore we need to
return to a more statist economy. In doing so he hardly touches on the reasons
for the swing away from state economic management in the 1970s and even
downplays the economic failures of central planning.

However, it’s become
increasingly clear to me that governments and markets tend to fail in the same
contexts and for the same reasons, such as asymmetric information or
non-rivalry. Market failure and government failure go hand in hand, which is why moving some task from one to the other so often ends in disappointment. We need to think of them as complementary social institutions. For example, governments can 'design' markets to function better.  We should
consider also a much wider array of institutions, usually overlooked in debates
about economic policy, although celebrated by the Nobel Prize awarded to Elinor Ostrom and Oliver Williamson.

This shouldn’t
entirely put you off reading Ill Fares the Land, even if only as an act of respect for a
marvellous public intellectual. And it is indeed a good, provocative
read, one which will inspire those who already agree. I’m just a bit disappointed in somebody I so greatly admired.

Professor Nicolas Boccard of the Economics Department at the Universitat de Girona in Spain thinks industrial organisation is fun. So much so that he's written a text book Industrial Organization: a Contract Based approach and published it online on an open source basis. If you like the look of it you can pay for an on-demand printed copy for €9 plus shipping. I've paged through some sections and it looks an incredibly comprehensive text, with plenty of European as well as US examples, which is distinctive and useful.

As he writes, the reason for the open source route was:

In a nutshell, because I did not write my book for money but for fun.
So, once the deed is done, the cost is sunk and the only sensible course
of action is to maximize diffusion through open-sourcing.

In fact, there was money involved. Prof Boccard says:

“Money-wise, the output comes at a total cost of approximatively 200k€
to the Catalan Government, my official employer i.e., less than 3 cent
per inhabitant or 200€ per page of final product.”

And the lucky Catalans are now cross-subsidising any non-Catalan users of the book. For those who might be tempted, here is a useful diagram of the contents:

I just finished reading Deirdre McCloskey's latest book, Bourgeois Dignity: Why Economics Can't Explain the Modern World. As I'm reviewing it for the New Statesman in the New Year, I won't do so here, but it prompted me to pick up one of her earlier books, How to Be Human – Though An Economist. It's a good-humoured guide to young economists, and indeed older ones, full of advice about to avoid the reductionism and narrow-mindedness that does disfigure so much economics.

McCloskey is in a good position to give such advice, having started as the driest of neoclassical economists and done the maths and heavy-duty econometrics. She now presents herself as a dissident economist, possibly even heterodox (although I think she's still far too rigorous for the many in the heterodox community to welcome). I regard her more as a humane economist, who reminds us how rich a training in economics used to be – compulsory economic history as well as compulsory general equilibrium theory and econometrics, even a foreign language requirement in the distant past.

The essential chapters in 'How To…' are those on econometrics and the shibboleth of statistical significance – distinct, she reminds us, from meaningfulness. This section should be compulsory reading for students. McCloskey has continued to work on statistical con-trickery by economists, with Stephen Ziliak. They recently co-authored The Cult of Statistical Significance, and Ziliak was interviewed on BBC Radio 4's marvellous More or Less.

Having dug the book off the shelves, I might leave it out in a prominent place in case son 2 (a second year undergraduate) decides to pick it up over the vacation. Highly recommended – it's a very nice read and besides I mostly agree with it. And a link to my review of Bourgeois Dignity will follow in due course.

I've always been a huge admirer of Princeton historian Harold James – for example, his The End of Globalization: Lessons from the Great Depression is a brilliant and possibly scarily prescient 2002 book looking at the political conditions under which the then-onward march of globalization might start to unravel. What's more, Professor James once invited me to give a seminar in his department so is clearly a man of judgment. So when he bigs up a book he's reviewing, I take notice.

That book is Why The West Rules – For Now by Ian Morris. Professor James reviews it in today's Financial Times (registration needed). The publisher bills it as being about the 'patterns' of history. The review majors on the impact of climate and disease, and how these affect the distribution of global dynamism and power over periods of a millennium or so. It sounds not a million miles from Jared Diamond's thesis in his 2005 book  Collapse. As the review of Why the West Rules concludes:

The line in the review that really caught my eye was:

That's my kind of book!

Reading history is so important for economists. This was brought home by the symposium I attended recently on Economics Made Fun, and a discussion of the importance of narrative as well as models. As a young econometrician, I was taught about the observational equivalence problem – the same observable distribution of data can be generated by several underlying models. Reality is over-determined. So identification of any single model is the most difficult task in econometrics. Indeed, I think identification is never possible without a separate source of knowledge. Hence the importance of reading some history or drawing on psychology as well as manipulating the data through instrumented regressions. A good econometrician needs to have a well-rounded mind as well as a solid grasp of statistics and a decent pinch of humility for seasoning.

The New Yorker blog has a post about the ten biggest Africa stories of 2010. It prompted me to think about the best/most influential or provocative books about Africa I've read lately. They are

Ethiopia Since the Famine by Peter Gill – detailed reportage on Ethiopia post-1985

The Plundered Planet by Paul Collier – the resource curse and its consequences

War Games by Linda Polman – a critique of the aid business

Beneath The Lion's Gaze by Maaze Mengiste – a heartbreaking novel about Ethiopia's civil war

No doubt others will come to mind as I head off to today's meetings, and I'll expand the list. Other suggestions also welcome!