Undercover, bigtime

I think everybody should read Tim Harford’s new book, [amazon_link id=”1408704242″ target=”_blank” ]The Undercover Economist Strikes Back[/amazon_link]. This includes (a) everybody who has no idea what to make of the conflicting arguments about fiscal and monetary policy, whether the austerians or the stimulards are right; (b) everybody who thinks they know exactly what fiscal and monetary policy ought to be; (c) all economics students; (d) anybody not in the first three categories.

[amazon_image id=”1408704242″ link=”true” target=”_blank” size=”medium” ]The Undercover Economist Strikes Back: How to Run or Ruin an Economy[/amazon_image]

The subtitle is ‘How to Run – or Ruin – an Economy’. The Undercover Economist has decided to tackle macroeconomics. That this is so successful a book – clear, balanced but not indecisive, readable – is praise indeed, from someone like me who thinks macroeconomics is in a pretty sorry state. There is an absolutely terrific introduction about Bill Phillips (of the machine and the curve). The first batch of chapters cover: what do we mean by macroeconomics, what can cause recessions, what is money, how money and inflation are related, different policy prescriptions for different types of recession, output gaps and unemployment. Later chapters look at management and productivity, the concept of GNP, demolish the idea that ‘happiness’ can/should replace growth, discuss whether there are physical limits to growth, look at inequality, and the book ends with an agnostic view about the future of macroeconomics.

The book would be worth reading for the first half alone; it is such a public service to explain why macroeconomists are arguing about how policy should respond to the post-crisis recession, and to do it with such clarity that you can be utterly confident the author understands his subject. (I do not get this sense of confidence from a lot of people writing about the economy.)

I would have liked the Undercover Economist to tackle some areas of macroeconomics omitted from the book: financial markets and asset prices; and exchange rates and the balance of payments. Both are important to understand recent economic history and the financial crisis. So the book is not a complete guide. It would be churlish, too, to point out that a couple of the chapters are really more microeconomics than macro (job matching and efficiency wage models of the labour market, and management). And I personally don’t like the Q & A format of the book, but that’s seemingly a minority view. I still enjoyed reading it. It is definitely one for my list of economics books for beginners.

 

Migration then and now

Greater international migration has been one of the features of post-1990 globalization, but most people do not leave their homeland to work and live elsewhere. The costs of doing so are high: leaving behind families and social networks, learning to cope with a new environment and usually new language, finding a new place to live, taking the risk of having to find work – and, as Martin Ruhs’s new book, [amazon_link id=”0691132917″ target=”_blank” ]The Price of Rights[/amazon_link], observes, migrants usually do not have the same workplace rights as local workers. Their rights fall below those set in international standards.

[amazon_image id=”0691132917″ link=”true” target=”_blank” size=”medium” ]The Price of Rights: Regulating International Labor Migration[/amazon_image]

The book discusses both the evidence on migrant rights, and the ethical issues. In particular, it asks whether it would be better to agree a set of ‘core rights’ for migrant workers rather than the very comprehensive set of rights currently enshrined in international rules, but rarely if ever observed. The rationale for this move would be that the character of the rights of migrant workers determines their economic effects – how productive they are, how much they compete with or complement the resident workforce, their impact on the public finances. “Because rights shape the effects of labor immigration, migrant rights are in practice a core component of nation states’ labor immigration policies.” Immigration policy has three inter-related elements: the number of migrants, the selection of the type of migrants, and their rights after admission. The first two have been discussed widely, but this book makes a distinctive contribution to the debate by looking carefully at the third. Policy makers pay lip service to universal rights while not ratifying the UN’s convention on migrant worker rights, so the use of the granting of rights (or not) as an instrument of migration policy has not been debated. I also wholeheartedly applaud the inclusion of the ethical issues in the discussion here.

Ruhs constructs some new indicators of the openness of labour migration policies in 46 middle and high income countries. Those countries targeting high skill workers are more likely to grant more extensive social, residency and family rights. The book goes on to describe in more detail the immigration policies of a number of countries. The case studies clearly show that decisions about the granting of rights are considered for their impact on immigrant numbers. The governments of countries sending migrants have sometimes criticise host governments for using rights restrictions as backdoor ‘protection’ – the EU accession countries have voiced this view about the insistence by ‘old’ EU countries on the complete equality of rights for their migrants. Similarly India has tried to use the GATS agreement to argue against wage parity requirements for its migrants overseas on the basis that it is a restriction of trade.

Martin is a former colleague of mine from my days on the Migration Advisory Committee, and the book manifests his measured, pragmatic approach. He writes in the Introduction: “I am skeptical of anybody who maintains that there are obvious or clear answers to any of these issues.” A reasonable voice is more than welcome in this policy debate. He ends up arguing for evidence-based time-limited rights restrictions for migrant workers to enable greater openness to migration (ie. there should be a pathway to permanent residence and equal rights after a period), but is clear that we are in a world of trade-offs. The book is critical of the idealism of people – and UN agencies – advocating both equal and extensive rights for migrant workers and less restriction on migration.

The discussion of the ethics of this approach is very interesting. The book argues that demanding migrant worker ‘rights’ as a universal ethical norm closes the door to reasonable political debate about costs and benefits. When the issue inevitably involves conflicting interests, this is unhelpful – it makes what ought to be negotiable non-negotiable, and raises the temperature politically. Martin writes: “Bringing the state and politics back into rights-based approaches to international labour migration would open up a space for legitimate and important debates and deliberation.”This is an academic book, but very accessible, and I think it is an important one for anybody interested in the migration debate to read.

I also recently read Drew Keeling’s [amazon_link id=”3034011520″ target=”_blank” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914[/amazon_link], which I believe he will be discussing at the European Historical Economics Society conference taking place in London in the next two days. Here is the book website.

It looks at this historically unique, massive migration flow from the old to the new world through the prism of steamship transportation across the Atlantic: “This is a history of the 11 million European-born migrants who made 19 million ocean crossings on 18,000 voyages of several hundred vessels of two dozen steamship lines.” I found it fascinating to see this movement of people as a transport business, a novel approach to a story that is familiar in many ways. It was a significant business: “The business of migration between Europe and the United States generated over $20 million in revenues for transatlantic steamship companies in 1900, making it one of the largest examples of capitalist enterprise anywhere in the world at that time,” the book begins.

Falling transportation costs and better communications have played a major role in increasing migration during the current era of globalisation. I was surprised to learn that trans-Atlantic passenger fares in the early 20th century did not decline much over time, although there were periods of ‘fare wars’ – the assumption that freight to Europe from the US made space for passengers from Europe is incorrect. The ships used tended to only carry passengers and did not see the same pattern of cost declines as freight traffic.The book argues that the bigger cost to migrants was uncertainty about their prospects, and these costs declined over time as kinship networks in the United States grew more extansive.

Rather, the origins of the passenger steamships lay in state sponsorship of services to carry the mail reliably, the ‘packet’ vessels from the 1820s on. Their reliability and safety increased. The Cunard Line started its regular transatlantic voyages in 1840 with a significant subsidy from the UK government, and took 14 days with little variation – a reduction from earlier sailing times of anywhere between 4 and 8 weeks. This is a terrific business history with lots of fascinating detail about the steamship companies, their business strategies, their interactions with governments, and their risk-mitigation efforts.

It was all brought to a sudden halt by the outbreak of the First World War – one of the first moves by the British government in August 1914 was a blockade that stopped the two big German lines from operating. Migration flows fell sharply and never regained their early 20th century levels. The earlier climate of openness vanished irrevocably – certainly, a century on, it is hard to imagine a return to a population shift on that (relative) scale with such significant consequences for the receiving economy. And while there are certainly business models built on migration, it is hard to imagine they could ever grow into major corporations like Cunard, White Star or HAPAG.

[amazon_image id=”3034011520″ link=”true” target=”_blank” size=”medium” ]The Business of Transatlantic Migration between Europe and the United States, 1900-1914: Mass migration as a transnational business in long distance travel[/amazon_image]

We’re all Coasians now

Of course there has been a lot written about Ronald Coase this week, marking his death at the age of 102. I thought Joshua Gans was very good, and this short paper by Herbert Hovenkamp usefully sets Coase in the context of the economic debates of the times. Justin Wolfers linked to this terrific (pdf) Deirdre McCloskey note on the Coase Theorem from 1998. There’s a lot of commentary, though, and it’s interesting to see how many different perspectives on his work there are – truly, there is a Coase for everyone.

As it happened, Tim Harford wrote last weekend (FT) about one of the intellectual heirs of the Coasian tradition of institutional economics, Elinor Ostrom, in an article contrasting her richness of thought with the catchy but shallower work of Garrett Hardin on the ‘tragedy of the commons’. Ostrom had researched how disputes over water rights in and around Los Angeles had been resolved by negotation, Harford writes:

“She knew of other examples, too, in which common resources had been managed sustainably without Hardin’s black-or-white solutions.

The problem with Hardin’s logic was the very first step: the assumption that communally owned land was a free-for-all. It wasn’t. The commons were owned by a community. They were managed by a community. These people were neighbours. They lived next door to each other. In many cases, they set their own rules and policed those rules.”

Ostrom’s co-winner of the Nobel Prize was Oliver Williamson, who took the Coasian tradition in a different direction, equally fascinating. He studied the structure and activity of businesses, taking forward Coase’s original research questions – why do firms exist? What explains why a large firm can succeed whereas a planned economy like the Soviet Union runs into trouble? I always think Williamson’s brilliant books [amazon_link id=”068486374X” target=”_blank” ]The Economic Institutions of Capitalism[/amazon_link] and [amazon_link id=”0195083563″ target=”_blank” ]The Nature of the Firm[/amazon_link] should be read alongside Herbert Simon’s [amazon_link id=”0684835827″ target=”_blank” ]Administrative Behaviour[/amazon_link]. Simon brings another perspective to understanding business organisations and the institutions of capitalism, introducing the wrinkles of actual human decision-making. As Simon famously observed, an alien landing in a capitalist economy would note that the domain of administered organisations including firms would far exceed the domain of market transactions.

[amazon_image id=”068486374X” link=”true” target=”_blank” size=”medium” ]The Economic Institutions of Capitalism[/amazon_image]

[amazon_image id=”0684835827″ link=”true” target=”_blank” size=”medium” ]Administrative Behavior: A Study of Decision-making Processes in Administrative Organizations: A Study of Decision-making Processes in Administrative Organisations[/amazon_image]

There is a terrific recent guide to using economic theory, including transaction cost and information economics, to the world of modern business in [amazon_link id=”1455525200″ target=”_blank” ]The Org: The Underlying Logic of the Office[/amazon_link] by Ray Fisman and Tim Sullivan – I reviewed it here.

[amazon_image id=”1455525200″ link=”true” target=”_blank” size=”medium” ]The Org: The Underlying Logic of the Office[/amazon_image]

Starfish economics

I’ve been reading Tyler Cowen’s new book, [amazon_link id=”0525953736″ target=”_blank” ]Average is Over[/amazon_link], and will post a review next week. As a taster, though, here is a comment from the short section on the state of economics:

“Economics is becoming less like Einstein or Euclid and more like studying the digestive system of a starfish.”

This intriguing description of the subject comes in the context of a chapter on how technology is changing science in general. For economics, the changes mean much more data and higher standards for empirical research, alongside a recognition of the complexity of the analysis or theory required. Field experiments, RCTs and laboratory experiments are where the action is in terms of scientific progress.

[amazon_image id=”0525953736″ link=”true” target=”_blank” size=”medium” ]Average Is Over: Powering America Beyond the Age of the Great Stagnation[/amazon_image]

I agree with the direction of this argument but am a bit more pessimistic about the extent to which these changes have a grip on the profession in general. A lot of economists are still not very interested in starfish guts.

Poetry, not economics

The sad news about the death of Seamus Heaney sent me to the stack of his books on my shelves. Like every schoolchild then and now, ‘Digging’ was one of the poems we studied; unlike many school requirements, it did not act as aversion therapy, but rather the opposite. So when, as a student at Oxford in 1981, I saw he was in town to do a reading, I went along. It was wonderful, and I bought – and got autographed – two of his books, the (1981) [amazon_link id=”0571116175″ target=”_blank” ]Selected Poems 1965-75[/amazon_link] and [amazon_link id=”0571230830″ target=”_blank” ]Death of a Naturalist[/amazon_link]. At £3.95 and £1.95 respectively, this took a large portion of my weekly budget then. It’s just over £19 in 2013 pounds.

[amazon_image id=”0571116175″ link=”true” target=”_blank” size=”medium” ]Selected Poems 1965 – 1975[/amazon_image]

Some months later, in between Oxford and flying to the US to start my PhD at Harvard, I had a long weekend in Dublin. In a pub before a play at the Abbey Theatre, I saw Heaney sitting by himself and plucked up my courage to say hello. He could not have been warmer or more welcoming, although he must have had strangers intruding into his time constantly.