Monthly Archives: August 2014

The education of an economist

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In the Financial Times this morning Deirdre McCloskey has a tantalising curtain-raiser for her forthcoming book, Bourgeois Equality: How Betterment Became Ethical, 1600-1848, and Then Suspect. Her argument is that it isn’t the accumulation of capital but rather innovation that is the engine of wealth, collective and individual:

“Taxing the rich, or capital, does not help the poor. It can throw a spanner into the mightiest engine for lifting up those below us, arising from a new equality, not of material worth but of liberty and dignity. Gini coefficients are not what matter; the Great Enrichment is.”

McCloskey has been on an anti-Piketty tour – see for example this by Evan Davis in The Spectator, and McCloskey herself speaking recently to the IEA. It’s intriguing that two of the economists most admired by progressive, anti-free-market, reforming economics people – McCloskey and Piketty – are in such disagreement.

The forthcoming book is the final volume in McCloskey’s trilogy, The Bourgeois Era, preceded by Vols 1 [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues: Ethics for an Age of Commerce[/amazon_link] and 2 [amazon_link id=”0226556743″ target=”_blank” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_link] (I reviewed the latter for the New Statesman.)

[amazon_image id=”0226556743″ link=”true” target=”_blank” size=”medium” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_image]

Occasionally I might disagree with Prof McCloskey, but I love her books. One of my all-time favourites is [amazon_link id=”0472067443″ target=”_blank” ]How to Be Human (though an economist)[/amazon_link] and of course her book with Stephen Zilliak, [amazon_link id=”0472050079″ target=”_blank” ]The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives[/amazon_link].

[amazon_image id=”0472067443″ link=”true” target=”_blank” size=”medium” ]How to Be Human: Through an Economist[/amazon_image]   [amazon_image id=”0472050079″ link=”true” target=”_blank” size=”medium” ]The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives (Economics, Cognition & Society)[/amazon_image]

I love even more the reading lists for her courses. Just look at the instructions for Economics 326: The History of Economic Thought, 2006, for example, or the graduate seminar Economics 263, or Economics for Humanists. It’s clear one would have to really work, but who wouldn’t want to be taught economics like this?

Ape selfies, art and money, and e-books

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What’s the connection between ape selfies, the relationship between art and money, and e-book prices?

There have been interesting posts about each of these subjects this week, making the connection clear.

That ape selfie – Wikipedia has rejected photographer David Slater’s claim to own copyright in the picture, arguing that the animal took the photo. David Allen Green wrote a fascinating FT blog about UK law on this question. The law here says the ape can’t hold copyright but it doesn’t necessarily belong to the camera owner – it depends on the circumstances. Green concludes:

“A thing made by an animal may well be appreciated by humans, but not everything liked by humans can be bought and sold as a chattel or as an intellectual property right. And so when such things do occur, we should not seek to monetise them as some form of property; we should instead realise how lucky we are that such wonderful things exist at all.”

Mr Slater’s view is that as a professional photographer, he needs to be able to monetise pictures captured by his camera. Which takes us to a long n+1 essay on payment for art. It used to be that artists (including writers) who made money were “sellouts”, but now the complaint is that it’s becoming impossible to make money from art because of the ease of digital copying. Hence all the intellectual property debates, and the madness of copyright lasting for 70 years after the death of an author, as if length of term somehow compensates for loss of enforceability. As the essay concludes: “One did not become a writer in order to starve, but nor did one become a writer in order to get rich.” (George Gissing certainly didn’t.) And besides – as the incomparable Dave Birch pointed out to me with this link – there are ways of making money, even if not the same ways as of yore.

Which takes me onto the third link, this post by Toby Mundy criticising Amazon’s philistinism in selling books at ever lower prices by squeezing publisher’s margins. He frames it in terms of the contribution of the book form – long, complex, detailed – to the human achievement of civilisation – but finally makes it an argument about short term consumer gains versus the long term: “The result of these changes will be a much diminished eco-system for stories and ideas, with many fewer publishers and authors earning anything. Ultimately this may benefit a small number of people who hold stock in Amazon, but it will do precious little for our wider culture.”

The common theme is the value of culture, of course, in its form as a photo or book say, and how that value is distributed. It is about monetary versus non-monetary value, and about power in the marketplace and the polity. The specifics are new, the debate is old. All property involves social conventions derived from power relationships. When I sit in a cafe to have a cappucino, I have purchased the liquid in the cup, but not the cup – the owner would be outraged if I walked off putting the cup in my bag. That’s the convention, and the price for the drink reflects competition among local cafes.

I think the mistake many people make in thinking about who gets the value from digital cultural products is to assume that the market from which content creators (or publishers) will get their dibs are the same as in the offline world. The technological ease of copying (cf Walter Benjamin, [amazon_link id=”0141036192″ target=”_blank” ]The Work of Art in the Age of Mechanical Reproduction[/amazon_link]!) means the conventions have to change, and changing social conventions is never a smooth process. But George Gissing was poor long before the Web, despite being a marvellous writer, and I’m willing to bet David Slater will be a better-known and potentially more prosperous photographer post-ape selfie incident.

[amazon_image id=”0141036192″ link=”true” target=”_blank” size=”medium” ]The Work of Art in the Age of Mechanical Reproduction (Penguin Great Ideas)[/amazon_image]

 

Distinguished company

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Needless to say, I’m overjoyed to find [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History [/amazon_link] on the long list for the FT/McKinsey Business Book of the Year.

[amazon_image id=”0691156794″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

It’s in massively distinguished company. I’ve reviewed on this blog a few of the others on the list. Thomas Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the 21st Century[/amazon_link] is of course at the top of the long list (review here). Duncan Green of Oxfam has done a nice Pocket Piketty summary today.

[amazon_image id=”067443000X” link=”true” target=”_blank” size=”medium” ]Capital in the Twenty-First Century[/amazon_image]

I’ve also read [amazon_link id=”0241003636″ target=”_blank” ]Flash Boys[/amazon_link] by Michael Lewis (review here); [amazon_link id=”0691155240″ target=”_blank” ]Fragile by Design[/amazon_link] by Charles Calomiris and Stephen Harberer (review here); and [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link] by Erik Brynjolfsson and Andrew McAfee (review here).

That leaves loads to read. I’m going to order next [amazon_link id=”1780271387″ target=”_blank” ]Shredded[/amazon_link] by Ian Fraser and [amazon_link id=”022608194X” target=”_blank” ]House of Debt[/amazon_link] by Atif Mian and Amir Sufi.

The range of subjects under the general heading of business books is extensive. And how encouraging to see good, accessible writing about business and economics thriving. It makes me think Toby Mundy’s recent paean to books in general is correct. A cheering start to the day all round.

Finding equilibrium

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Well, I enjoyed [amazon_link id=”0691156646″ target=”_blank” ]Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit[/amazon_link] bu Till Düppe and Roy Weintraub. The story is fundamentally simply: Arrow was a sunny-natured genius who excelled in many areas, Debreu a schemer who sought to maximise credit to himself and spent years fretting about whether he would get the Nobel Prize, and McKenzie was unlucky and undeservedly failed to get sufficient credit for his work. The book in the end puts this down to the ‘Matthew effect’, namely that those who are already better known or at more eminent places get greater credit: “for whosoever hath, to him shall be given, and he shall have more abdundance.” Whereas Debreu is (diplomtically) described thus: “His strategizing with respect to credit was the subtlest.”

[amazon_image id=”0691156646″ link=”true” target=”_blank” size=”medium” ]Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit[/amazon_image]

The work they all did on existence proofs for general equilibrium was ‘in the air’ at the time. All three men had read the same papers, such as the newly-translated work by Abraham Wald, and John Von Neumann’s game theory: “John von Neumann’s authority fused pure mathematics with the eclectic spirit of applied research. The work of McKenzie, Arrow and Debreu would differently make manifest this fusion.” Early biographies treated von Neumann either as the deranged Dr Strangelove or a genius; Düppe and Weintraub cite more recent and more balanced biographies, to which I would add the portrait in George Dyson’s absolutely terrific book about that Princeton milieu, [amazon_link id=”014101590X” target=”_blank” ]Turing’s Cathedral[/amazon_link].

[amazon_image id=”014101590X” link=”true” target=”_blank” size=”medium” ]Turing’s Cathedral: The Origins of the Digital Universe (Penguin Press Science)[/amazon_image]

[amazon_link id=”0691156646″ target=”_blank” ]Finding Equilibrium[/amazon_link] identifies a 1949 conference under the auspices of the Cowles Commission as a launch event for “a new kind of economic theory growing from game theory, operations research and the related mathematical techniques of convex sets, separating hyperplanes and fixed point theory.” (I can’t resist retelling the story of the cookie recipe one of my colleagues put in the Economics Department newsletter when we were suffering through that work ourselves: roll the dough into balls; place the convex sets on a separating hyperplane and bake in a medium oven for 20 minutes.”) The idea was to extend successful wartime planning techniques to a peacetime economy; planning segued from being a political choice to being a question of productive efficiency in a mixed economy.

The conference was multi-disciplinary. “Nearly all the ingredients of an existence proof were on the conference table,” the book notes. Later (1987) Ken Arrow insisted that if he, Debreu and McKenzie hadn’t done the joining together, somebody else would have, using von Neumann’s work along with Tjalling Koopman’s work on production or John Hicks on consumer theory. However, Arrow stands out in this account for the breadth of his interests. “He was unsympathetic to the manner in which such analysis [ie. general equilibrium analysis] was increasingly being used in economic research; the hermetic spirit of such analyses stood in stark contrast to his open, interdisciplinary-cybernetics spirit.” He disliked the use of the Arrow-Debreu theory, concerning perfectly competitive markets, ‘precisely where it is not applicable’.

The last word ought to be the [amazon_link id=”0631125051″ target=”_blank” ]quotation from Wittgenstein[/amazon_link] that opens the final section of [amazon_link id=”0691156646″ target=”_blank” ]Finding Equilibrium[/amazon_link]:

“For it is not merely that the existence-proof can leave the place of ‘the existent’ undetermined: there need not be any question of such a place.”

The logical demonstration of the existence of equilibrium in the realm of topology is just that.

Economics, general equilibrium and the Cold War

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I’m well into [amazon_link id=”0691156646″ target=”_blank” ]Finding Equilibrium[/amazon_link] by Till Düppe and E Roy Weintraub, about the parallel proof of existence of general equilibrium by Arrow and Debreu and separately by the less well-known and unacknowledged Lionel McKenzie. OK, it’s a special interest subject, but I’m enjoying the book, which isn’t at all inaccessible or technical.

[amazon_image id=”0691156646″ link=”true” target=”_blank” size=”medium” ]Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit[/amazon_image]

Its subject is the allocation of scientific credit. McKenzie’s proof paper was published first, but he did not win the Nobel and is not recognized now as the first person to prove existence using a fixed point theorem. The book also traces in both the personal stories of the three men and the intellectual history of the time (the 1930s and 1940s) the mathematization of economics. None of the men whose histories are described here started out interested in economics – they were mathematicians (Arrow, Debreu) or physicists (McKenzie). The latter seems to have regretted ever after that he didn’t stick with physics.

I’ll do a proper review when I’ve finished. Meanwhile, it’s interesting to note the role John Hicks’s [amazon_link id=”0198282699″ target=”_blank” ]Value and Capital [/amazon_link]played in stimulating the work of at least two of the three subjects of this book. I have a copy on my shelves, bought in 1981, but it has left no trace of having made any impression on me either in my memory or in the form of margin notes. I must confess also that the bits of graduate micro where we had to plough through the general equilibrium proofs left me absolutely cold, and I had the best possible teachers (Frank Hahn and Andreu Mas-Colell). Although the point that the economy is a connected system is clearly important, the mathematical formalism seemed to me then and now worse than irrelevant – possibly dangerous.

My other first impression of this book is how much more persuasive it is in its account of the role of the Cowles Commission than the earlier work by Philip Mirowski (in [amazon_link id=”0521775264″ target=”_blank” ]Machine Dreams: Economics Becomes a Cyborg Science[/amazon_link]).  Duppe and Weintraub reject Mirowski’s argument that the Bourbaki-influenced group of economists at Cowles were inspired by their work for the US military at RAND corporation, although some (including Arrow) certainly spent their summers at RAND in Santa Monica.

Instead, they suggest that the mainly European emigré, mainly socialist scholars at Cowles (then located in Chicago) needed to prove they were not politically motivated. This was in the context of the House Un-American Activities Committee getting into full swing. There was also a wider tension in American universities between the independence of research funded by peer-allocated competitive mechanisms and doing research at other institutes in the national interest. The ambition to stay out of politics was all the more relevant given the formal equivalence of a general equilibrium solution describing a competitive market economy and a centrally planned economy (with full information, of course). There is no better description of this equivalence than Francis Spufford’s marvellous book from a few years ago, [amazon_link id=”0571225241″ target=”_blank” ]Red Plenty[/amazon_link].

[amazon_image id=”0571225241″ link=”true” target=”_blank” size=”medium” ]Red Plenty[/amazon_image]

Anyway, to say the economists needed to avoid trouble by depoliticising their work is miles away from the Mirowski claim that the economics profession, directed by the military, became an active Cold War combatant, a claim Düppe and Weintraub describe as “a mish-mash of political pre-conceptions and historical confusions.”

This is a sub-plot in [amazon_link id=”0691156646″ target=”_blank” ]Finding Equilibrium[/amazon_link], with the main storyline being about the allocation of scientific credit. I’ll do a proper review when I’ve finished.