Monthly Archives: April 2013

Machines and foreigners

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I’ve been reading in the area of overlap between labour market analysis, theory of the firm and trade theory. Well, to be strictly accurate, at the edges of those three areas of economics closest to each other, for their isn’t all that much overlap. David Autor comes closest in his recent work on inequality, technology and globalization. Richard Baldwin and others have come at it from the other side with their work on trade in tasks, bringing trade theory closer to theories of production. There’s more on the overlap between technology and the labour market of course. Standout books for me are Claudia Goldin and Ian Katz, [amazon_link id=”0674035305″ target=”_blank” ]The Race Between Education and Technology[/amazon_link], and Frank Levy and Richard Murnane, [amazon_link id=”0691124027″ target=”_blank” ]The New Division of Labour[/amazon_link].

[amazon_image id=”0674035305″ link=”true” target=”_blank” size=”medium” ]Race between Education and Technology[/amazon_image]

In addition there has been the whole recent ‘the robots are eating our jobs‘ riff – but I’m more convinced than ever that this is over-simplified. For one thing, you just can’t think properly about the robots without adding offshoring and trade into the mix. Just as a shift in the ease of trade is similar to an advance in technology in its economic effects, a big increase in the potential for using foreign workers for some functions is similar to using more technology.

I’ll be writing something up eventually and will post it when I do.

Reading about Thatcherism

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Charles Moore’s forthcoming [amazon_link id=”0140279563″ target=”_blank” ]The Life of Margaret Thatcher[/amazon_link] will no doubt be fascinating. I’m not an avid reader political biographies and memoirs, although there are a few absolutely outstanding ones – such as Alan Clarke’s [amazon_link id=”1857991427″ target=”_blank” ]Diaries[/amazon_link], Chris Mullins’ first volume about life as a junior minister, [amazon_link id=”1846682304″ target=”_blank” ]A View From the Foothills[/amazon_link]. But so many dull ones too, such as the [amazon_link id=”0224016830″ target=”_blank” ]Crossman Diaries[/amazon_link] I had to read at university.

When it comes to reading about the Iron Lady, the earlier biography I did read and admire was Hugo Young’s [amazon_link id=”0330328417″ target=”_blank” ]One of Us[/amazon_link] – published in 1989 so before the end of her political career. It’s a brilliant book that makes credible the (often implausible) claim that journalism can be the first draft of history. Looking through it again this morning, my first thought was that the great achievement of Thatcherism was actually getting something – anything – to happen: sclerosis and ungovernability are two sides of the same coin.

[amazon_image id=”0330328417″ link=”true” target=”_blank” size=”medium” ]One of Us: Life of Margaret Thatcher[/amazon_image]

But the outstanding book about the Thatcher government is Nigel Lawson’s [amazon_link id=”0552137278″ target=”_blank” ]The View From Number 11[/amazon_link], which sets out the economic thinking of Thatcherism (its essence), discusses how Westminster and Whitehall worked at the time & the tactics of bringing about change, and is completely gripping about the disastrous tensions that set in between Prime Minister and Chancellor.

[amazon_image id=”0593022181″ link=”true” target=”_blank” size=”medium” ]The View from No.11: Memoirs of a Tory Radical[/amazon_image]

Humans, not agents

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In my early morning browsing, I read a paper called ‘Time to Abandon Group Thinking in Economics’ by Sergio Da Silva (pdf). It isn’t as clear as it might be, but the line of argument concerns the unscientific status of the representative agent approach to macroeconomics. In conventional macro, he writes: “The whole is viewed as merely the sum of the parts. Of course, this would be so if the constituent individuals were homogeneous. But they are not. Despite that, macroeconomics assumes homogeneity of individuals and focuses on a “representative individual.” Rather than explaining collective behavior from the interactions between the constituent individuals, macroeconomics studies the behavior of the average individual.”

This is not justified, he continues, because the macroeconomy does not empirically exhibit the property of “self-averaging,” such that as more and more individuals were aggregated, a central limit theorem holds – or, in a Poisson distribution, the model coefficient of variation approaches zero. To put it another way, what benefits an individual need not always benefit the group – there are losers as well as gainers.

The paper goes on to advocate applying the aggregation tools of statistical physics and biology to macroeconomics. This was one of the alternatives discussed at an international macro symposium the ESRC organised in Oxford last October, presented by J.P.Bouchaud & summed up in his essayEconomics Needs a Scientific Revolution. I think almost anything would be better than conventional macro, addicted to representative agent DSGE models despite their non-compatibility with any evidence. However, there’s no consensus (not surprisingly) about the alternative, and three were presented at the ESRC symposium. The other two were network approaches and complexity approaches.

The lesson macroeconomists should take – the point of this ramble – is that the social sciences need to be consistent with the biological and human sciences. This is essential for economics to move from being “applied logic” as Da Silva describes it in the paper to an empirical science.

There are two domains of knowledge to be incorporated. One is cognitive science and neuroscience, and there has been some progress here in microeconomics, with behavioural economics and neuroeconomics. Last year I attended a fascinating workshop at the Toulouse School of Economics that asked what cognitive science could tell economists about attention and therefore economic decisions – it resulted in my conference report The Invisible Hand Meets the Invisible Gorilla (pdf).

The other is evolutionary biology and ecology –  and macroeconomists display no interest in what these domains can teach us about aggregation and group behaviour. Business economists have long used evolutionary metaphors in an intuitive way, and evolutionary economists such as Geoffrey Hodgson in, for example, [amazon_link id=”0472084232″ target=”_blank” ]Economics and Evolution[/amazon_link] have tried to formalise models of behaviour at the level of markets. But – as I found when writing about these areas for [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link] – there has been scant mainstream interest.

[amazon_image id=”0472084232″ link=”true” target=”_blank” size=”medium” ]Economics and Evolution: Bringing Life Back into Economics (Economics, Cognition, & Society)[/amazon_image]

Da Silva’s paper cites plenty of natural scientists but next to no economists. This must be a mistake by our profession.

MOOCs versus universities?

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Online higher education experiments are proliferating, and some of the world’s most distinguished and ancient universities are dipping their toes into the new technology-enabled possibilities. It is absolutely certain that the technology will disrupt the university business, as the conventional pathway to higher education has become much more costly. I mean this literally – not that students are being charged more or that government funding has been cut or the structures changed, but that the main cost of delivering higher education is the salary bill for staff and the higher education sector is affected by [amazon_link id=”0300179286″ target=”_blank” ]Baumol’s cost disease[/amazon_link]. So as soon as substituting some capital for labour (or some peer-provided labour for paid labour) becomes possible, as with online courses, some universities will do so.

What is not at all clear is the form the technological disruption will take. Just recently, I’ve come across a couple of interesting essays on the issues at stake. One is William G Bowen’s [amazon_link id=”0691159300″ target=”_blank” ]Higher Education in the Digital Age[/amazon_link].

[amazon_image id=”0691159300″ link=”true” target=”_blank” size=”medium” ]Higher Education in the Digital Age[/amazon_image]

In the first half his focus is the unsustainable cost pressure and the scope for productivity improvement. He notes that the technology has already led to some improvements in the ‘scholarly infrastructure’ – JSTOR and online libraries facilitate research, as does the capacity for data-based empirical work impossible before cheap computer power and online data sources. Collaboration has become easier. Students can take tests online and their work can be marked by machine in some cases. In the second half Bowen turns to the implications of the technology revolution. He is moderately sympathetic to MOOCs and in particular their scope for enhancing access to higher education, but pleads for a portfolio approach to instruction and argues against the disintermediation of human instructors. Universities are particularly important as institutions, he argues, to defend freedom of thought and pass on values to successive generations of students. While agreeing in theory, one does have to question how impressive all universities are as institutional bulwarks, or how brightly all academics shine as role models for their students. After all, although we’re no longer in the era of [amazon_link id=”1447222814″ target=”_blank” ]The History Man[/amazon_link], many academics have no interest in their teaching responsibilities and are entirely focused on their own research and careers.

Another essay is by Andrew Delbanco (who also comments on Bowen’s essay in his book), drawing from his forthcoming book [amazon_link id=”0691130736″ target=”_blank” ]College: What it Was, Is and Should Be[/amazon_link]. (I’ve not yet read this).

[amazon_image id=”0691130736″ link=”true” target=”_blank” size=”medium” ]College: What it Was, Is, and Should Be[/amazon_image]

He notes that there is already – at least in the US – quite a wide range of higher education offers, in for-profit universities and online courses as well as cheaper community colleges, albeit all looked down on by the grand universities. There is some variety in the UK too, with the Open University, Birkbeck, Buckingham University, FE colleges. Delbanco also notes the great hopes for TV as a means of extending educational access – the OU in Britain used TV broadcasts as course material pre-internet; indeed my big brother used to appear lecturing on chemistry, and the family would gather round the set at an ungodly hour in the morning to watch him talk about things we didn’t understand at all.

This is a useful reminder, because it flags up one function of higher education neither author writes about, namely the signalling role of a degree (see Mike Spence’s models). The signal a Princeton or Oxford degree sends to potential employers is at least as important as the improved quality of education a student might have received there. Attending university is also a positional good because access is limited, and all the more so as fees rise. So MOOCs will have big consequences for traditional universities, but need not be an existential threat to the best of them.

Delbanco concludes that face-to-face will always be important in HE: “No matter how anxious today’s students may be about gaining this or that competence in a ferociously competitive world, many still crave the enlargement of heart as well as mind that is the gift of true education. It’s hard for me to believe that this kind of experience can happen without face-to-face teaching and the physical presence of other students.”

I agree with him that human encounters will always be part of learning, for the transfer of tacit knowledge, the stirring of the passion to understand, the exchange of complex ideas. I’m less certain this has to happen in universities. Philosophy cafes, public lectures, book clubs and the like may well substitute for formal teaching in a university, especially when the quality of the latter is mixed at best and dismal in many cases.

Both Bowen and Delbanco see the technology as an opportunity to spread learning and the love of learning, and so it is. It has spread access to ‘books’ and music and images already. Yet it seems to me highly likely that many universities will be as thoroughly disintermediated as the gatekeepers of other parts of the culture, and this will not be a bad thing. If I were running a university now, I’d be focused on the quality of the core purposes of the institution – including the quality of teaching, the poor relation in too many of them – because the more-or-less captive market is being liberated. I would also look to use online offers to change the character of the university experience rather than making it a cut-price version of the existing product. Why not build a community of learners and researchers out of previous students or local communities? Why not at the same time open the physical space of the university much more to the local community? Shouldn’t they be running their book clubs on campus, and be able to borrow e-books from the library?

We’ll end up with a much wider variety of means for people to learn, at all stages of their lives not just 18-21. We might or might not end up with more innovative and better universities depending on how well they respond to the challenge.

 

The importance of containers, continued

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We just spent a few days in Scotland and spotted this shipping container being used for storage at the harbour in Stonehaven, Aberdeenshire.

Storage container in Stonehaven

Meanwhile, news of the BBC News container: it’s now in its 3rd year of post-shipping existence as a soup kitchen in Kleinvei, South Africa. According to Tim Smith of Breadline Africa: “The Children’s World Kitchen project has benefited enormously when they received this container.  It is three years since this container was received and began serving the need of the community.”

The post-shipping BBC Box in the Cape Flats

My containers correspondent, Captain Thomas Marnane, followed up our previous discussion about the importance of standardisation in shipping with some observations on the environmental benefits of containers – not a standard angle on the globalisation of trade, it must be said. In an email he wrote:

“The conservation of resources by reducing container weight and saving fuel (hauling on land and at sea), increasing cargo weight available, reducing losses, etc. is an example of what I call “closet environmentalism”.  It is not all altruistic.  That is that, in general, I believe environmental improvements and resource conservation is most brought about by individuals and businesses who have  incentives to improve by using and wasting fewer resources to provide a  product or service and  improve either quality of life and/or the bottom line, and for the most part they do it without fanfare or publicity.”

We should add the recycling of containers to other uses as part of his environmental tally.

This whole discussion was of course set off by the container that appeared in my local park, and [amazon_link id=”0691136408″ target=”_blank” ]The Box[/amazon_link] by Marc Levinson.

[amazon_image id=”0691136408″ link=”true” target=”_blank” size=”medium” ]The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (New in Paper)[/amazon_image]