At the fabulous Trento Festival of Economics I picked up a copy of Dani Rodrik’s talk from last year, which sent me to his terrific book, [amazon_link id=”0199603332″ target=”_blank” ]The Globalization Paradox[/amazon_link]. The challenge he sets out is that we have a combination of economic globalization and national politics, and it’s difficult to see a way out of the mismatch because political legitimacy is created at the level of the nation state. To call for ‘global governance’ is unrealistic – and clearly all the more so now the Eurozone is wholly unable to deliver zone-wide political responses to the economic crisis. The global institutions that we have, like the WTO, lack legitimacy.

[amazon_image id=”0199603332″ link=”true” target=”_blank” size=”medium” ]The Globalization Paradox: Why Global Markets, States, and Democracy Can’t Coexist[/amazon_image]

So Rodrik draws three conclusions:

“Markets need to be deeply embedded in systems of governance to work well.”

“These institutions of governance…. are organized largely within nation states and they are likely to remain so.”

There is no single way to design institutions and governance. “The institutional designs that underpin market economies will differ according to the democratic preferences of different jurisdictions.”

This makes it pretty scary that the economy has become as globalized as it is in a world of firmly national politics that seem to be getting more nationalistic by the day. Richard Baldwin’s recent work on the ‘two unbundlings’ – the separation of production from consumption and then of steps in the production chain from each other – indicates that reversing globalization would be catastrophic economically. But how are world markets to be governed when these supply chains link separate nation state institutional frameworks?

I don’t have an answer but do think one path forward will involve using the structure of supply chains themselves to govern economic activity. There are many industries where standards bodies and trade bodies are reasonably effective, where export credits work very well, where large companies at the head of the supply chain provide leadership. These are not state bodies, but they are collective institutions – maybe part of the answer to Rodrik’s paradox will lie in expanding the domain of these institutions and not expecting the state to solve everything. Especially given the dysfunctionality of politics and lack of trust in politicians everywhere.

Fabulous Trento

The way technology is changing the economics of publishing, both demand and supply sides, is fascinating. Here’s a round-up of some recent articles and posts – not systematic, just the ones I’ve come across.

David Gauntlett on the LSE Review of Books blog, about academic e-publishing. This was a reply to an earlier post by Patrick Dunleavy.

The Guardian on Amazon’s dominance in the e-book market – and what its downfall might be.

Marketwatch on the impact of e-books on publishing.

An anti-Amazon slideshow on The Nation.

A literary agent’s thoughts on the changes in the industry – Ed Victor in the Daily Telegraph.

The publishers’ reaction to the DoJ anti-trust suit.

Latest e-book market data from Publishers Weekly.

A handy guide (via CNET) to how to publish your own e-book.

And from NPR, libraries’ struggle with e-books.

“This book reflects my debate with myself about economic theory,” writes Ariel Rubinstein near the start of Economic Fables. “On the one hand, I am captivated by the charm of formal models: tales emerge from the formal symbols and these tales have almost miraculous powers over me. On the other hand, I am obsessively occupied with denying any interpretation contending that economic models produce conclusions of real value.” (p37)

There is, rightly, much introspection among economists at present, or at least among those of us with a heightened sense of humility and self-awareness following the crisis. This book was first published in Hebrew in 2009, so quite early in the unfolding economic crisis, but is essential reading for anybody (economist or not) trying to make sense of both the intellectual and practical status of the subject. Rubinstein is a distinguished game theorist, which makes it all the more interesting to read his reflections about what models can and cannot tell us. Others who have criticised the undue weight placed on economic models, or emphasised their metaphorical status, tend not to have come from the mathematical hard core of the profession. For example, Deirdre McCloskey, who has written brilliantly about the nature of economics and models (in [amazon_link id=”0472067443″ target=”_blank” ]How to be Human Though An Economist[/amazon_link], for example), is an economic historian.

[amazon_link id=”1906924775″ target=”_blank” ]Economic Fables[/amazon_link] weaves together Rubinstein’s experiences in childhood and youth, his family history, and general intellectual formation and explanations of economic theory. This makes for a highly readable mix of storytelling and analysis. (I must add, it’s a very nicely designed book too – I have the physical book with a great cover photo and nice format, easy to pop into a bag or pocket. It’s from Open Book Publishers so there is also a low-cost pdf version and multiple e-book versions.)

Some of the author’s points are familiar to thoughtful economists. For example, like McCloskey and Ziliak, he attacks the over-reliance on the totem of ‘statistical significance’ by people who give not thought to the way statistics are collected, measurement errors, and meaning. (p83). Yet this point bears constant repetition as young economists are not taught this at university. Other points were new to me. For instance, I was struck by the observation that in assuming people behave ‘as if’ they are optimising, we can glide over the strong assumptions on which economic models are based, and the welfare conclusions drawn from them. (p53)

I also particularly enjoyed Rubinstein’s meta-analysis of game theory experiments. He has conducted many online polls posing thousands of students game theoretic questions – how do they respond to classic ultimatum or traveller’s dilemma games, for example. According to the polling, those who have studied game theory tend to choose the equilibrium solution, ignoring the reality that most people have not studied game theory so the actual outcome will be different, and one would be better off choosing a ‘natural’ rather than an ‘equilibrium’ answer.

So, all in all, this is a great book for economics students, giving a clear introduction to some basic models and just as important to some important advice about how to use models, and how not to use them. The book has a terrific website where readers can try out some of the exercises. I would definitely use this if I were teaching. It is also a very enjoyable and thought-provoking read for practising economists, not to mention for all non-economists trying to pin down why they think economics has failed them during the crisis.

[amazon_image id=”1906924775″ link=”true” target=”_blank” size=”medium” ]Economic Fables[/amazon_image]

I’ve just returned from the Trento Festival of Economics, founded by Tito Boeri, full of enthusiasm for the idea. The programme included lots of interesting speakers. As the photo below shows, publishers take full advantage of the occasion to show off their wares – the Italian edition of my book prominent among them.

The book tent at the Trento Festival of Economics

The most exhilarating aspect, however, was the audience. The talks were all full of people, some economists but many not. One woman I met taught economics in a high school, another has a son who has started to study the subject at school. There were bankers, local politicians, parents with their teenage children, and I suppose the kind of people who go to all of these literary and ideas festivals, the concerned reader of newspapers worried about the state of the world. One of the many paradoxes of our times is that economics is in such disrepute and yet people are so interested in the subject.

It’s a little odd to find economists being so celebrated – there were huge posters of previous speakers hanging above the streets, including Gary Becker, below. Yet how marvellous to confront economists with people. Surely we must have a Festival of Economics in the UK to make sure our academic economists, and business economists and policy makers, regularly meet each other and normal people too.

Gary Becker in the Trento sky