Monthly Archives: May 2015

Grass roots

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There’s an interesting evaluation of Jane Jacobs in The Architectural Review, arguing that her fabulous book [amazon_link id=”067974195X” target=”_blank” ]The Death and Life of Great American Cities[/amazon_link] misses the real target in attacking ‘planners’ instead of developers, and discounting the scope for state involvement. This made conservatives fond of her, essay author Sharon Zukin argues. But it concludes warmly: “Jacobs’s challenge to maintain the authenticity of urban life still confronts the fear of difference and the hubris of modernising ambition. At a time in which local shopping streets are the target of attacks against a broader alienation, we urgently need to connect her concern with economic development and urban design to our unsettled social condition.”

[amazon_image id=”067974195X” link=”true” target=”_blank” size=”medium” ]The Death and Life of Great American Cities (Vintage)[/amazon_image]

The essay cites the famous ‘sidewalk ballet’ in the second chapter in [amazon_link id=”067974195X” target=”_blank” ]The Death and Life[/amazon_link]:

“Under the seeming disorder of the old city, wherever the old city is working successfully, is a marvelous order for maintaining the safety of the streets and the freedom of the city. It is a complex order. Its essence is intricacy of sidewalk use, bringing with it a constant succession of eyes. This order is all composed of movement and change, and although it is life, not art, we may fancifully call it the art form of the city and liken it to the dance — not to a simple-minded precision dance with everyone kicking up at the same time, twirling in unison and bowing off en masse, but to an intricate ballet in which the individual dancers and ensembles all have distinctive parts which miraculously reinforce each other and compose an orderly whole. The ballet of the good city sidewalk never repeats itself from place to place, and in any once place is always replete with new improvisations.”

Echoes of course of that other grassroots philosopher Adam Smith. Not only: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest,” from [amazon_link id=”1505577128″ target=”_blank” ]The Wealth of Nations[/amazon_link], but also this from [amazon_link id=”0559612168″ target=”_blank” ]The Theory of Moral Sentiments[/amazon_link]:

“The man of system…is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it… He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

  [amazon_image id=”0143105922″ link=”true” target=”_blank” size=”medium” ]The Theory of Moral Sentiments (Penguin Classics)[/amazon_image]   [amazon_image id=”B00JVST6CA” link=”true” target=”_blank” size=”medium” ]The Wealth of Nations[/amazon_image]

The Social Framework

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[amazon_link id=”B0081H4KUA” target=”_blank” ]The Social Framework[/amazon_link] is the title of a short book by John Hicks published in 1942. It’s an introduction, for the general reader, to the then-new fangled concept of national income accounting – beautifully clearly written and very straightforward.

[amazon_image id=”B0081H4KUA” link=”true” target=”_blank” size=”medium” ]The Social Framework. An Introduction to Economics. Third Ed.[/amazon_image]

The book is upfront about the limitations of the exercise. For example, Hicks explains that it is progress if people work on average fewer hours to produce the same quantity of goods and services, even though the national income or output will not rise. Progress can be “deliberately taken out in the form of increased leisure.”

There is a very interesting passage concerning which part of government spending should be counted as national income – in short, the part used to purchase services people would otherwise buy for their own consumption. So police instead of hiring a bodyguard, education and healthcare rightly are included in the total. But – ideally – public spending incurred to facilitate the production of private goods and services should not be. Hicks writes that in principle the total should exclude policing that is a response to general crime (hiring a night watchman would be a cost of production), or military spending needed to fight an aggressor. Interest on national debt should be excluded too. Spending on roads should be included to the extent that travel is final consumption, excluded to the extent that it is an intermediate input into other consumption. This was of course all too hard so the whole of G is included in GDP.

The chapters on price indices and the calculation of real national income are also full of caution, compared to modern usage of the figures. Hicks cautions against over-interpreting changes in real national income: “When there has been a great change in circumstances, as may sometimes happen even with years which are very close together…, any kind of comparison needs to be made with great circumspection. There is a nice chart to remind us what deflation really looks like:

Deflation

Deflation

There are other interesting observations. For instance, that owners (shareholders) have no responsibility for the upkeep or state of the capital equipment they ultimately own; whereas landlords are held responsible for houses or buildings they own and rent to others: “The modern landlord still performs a real function in looking after the capital goods in his ownership, while most other property owners hardly do so any longer.”

The book closes with chapters on progress and inequality. The former is a discussion of the various reasons why national income does not measure progress even though it is the best single indicator possible. The latter chapter ends: “It is important that [inequality of income] should be kept in check; but it is still more important for the future of human freedom that we should not open the door to other devils in its place.” Hicks regards inequality of power as an inevitable feature of society and argues it is better to grow the national income: “Working class standards of living are much more likely to be raised by increases in production… than by changes in distribution.”

Finally, the tone of the book is fascinating. It’s a primer, and so – with the few exceptions noted above – describes the national accounts as if there are no conceptual choices to be made. This is all inevitable or a matter of pure logic. But of course the idea of national accounting was brand new and Hicks was doing a marketing job with this little book.

Sympathy, empathy and scarce attention

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Last night I attended a fascinating lecture by Sendil Mullainathan on his book with Eldar Shafir, [amazon_link id=”0141049197″ target=”_blank” ]Scarcity: The True Cost of Not Having Enough[/amazon_link]. I haven’t read it yet but will certainly do so now.

[amazon_image id=”0141049197″ link=”true” target=”_blank” size=”medium” ]Scarcity: The True Cost of Not Having Enough[/amazon_image]

The book has been widely reviewed so the main argument is probably well known: people who do not have enough money have their attention focused on immediate problems, to the detriment of thinking about the consequences of short-term actions. The future in general is outside the tunnel of what they have the capacity to pay attention to. “Cognitive bandwidth is a fixed resource.” A lot gets used up by attending to urgent, day-to-day financial problems and needs – about which, slightly paradoxically, the people in this situation are ultra-rational, and very focused on the most cost-efficient decision.

The scale of the effect of this attentional tunneling on the quality of other decisions is large – almost as big as not having slept at all at night. All the time. And the decisions adversely affected cover all aspects of life, not just financial choices like whether or not to take out that pay day loan: how to parent, whether to keep up a course of medicine, and so on.

There are other kinds of scarcity that create the same kind of tunnel vision – including time scarcity. Prof Mullainathan drew this analogy, saying he’d tried it on hedge fund managers to see if it helped them understand the psychology of poverty. Someone with no money opting for a payday loan is like someone with no time not having time to do a piece of paperwork and ending up spending more time sorting out the resulting hassle. However, he added: “Different forms of scarcity have different optionality. Poverty is relentless. I can’t decide to change my poverty-life balance.”

The next question of course is what conclusions to draw from the insight about scarcity (of money) gobbling up people’s cognitive bandwidth. One conclusion is that expecting people on low incomes to fill out long forms to get benefits – or do anything – is a regressive attentional tax. Just as the cockpit of a plane is designed and engineered to be as fault-tolerant as possible, we should do the same with any engagement between people and government (or businesses, or school…..). Another that occurs to me is whether it’s possible to design some simple financial planning aids or reminders.

Interestingly, Prof Mullainathan said: “People who care about poverty tend to feel sympathy. But sympathy is a distancing emotion. We need to feel empathy.” It reminded me of Julia Unwin’s excellent book [amazon_link id=”B00SLWGUH6″ target=”_blank” ]Why Fight Poverty?[/amazon_link], which is exactly about the emotional reaction we have to poverty and why that actually makes it harder for well-meaning policy people to do anything about it.

[amazon_image id=”B00I124BLS” link=”true” target=”_blank” size=”medium” ]Why Fight Poverty? (Perspectives)[/amazon_image]

 

Time for the next techno-enviro-social paradigm?

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On this week’s flights I read [amazon_link id=”0691160392″ target=”_blank” ]Foragers, Farmers and Fossil Fuels: How Human Values Evolve[/amazon_link] by Ian Morris. I thoroughly enjoyed Morris’s big book, [amazon_link id=”1846682088″ target=”_blank” ]Why the West Rules (For Now)[/amazon_link], a grand sweep of economic and social history in the vein of ([amazon_link id=”0099302780″ target=”_blank” ]Guns Germs and Steel[/amazon_link], [amazon_link id=”0241958687″ target=”_blank” ]Collapse[/amazon_link]) Jared Diamond. This new book is a series of essays based on his 2012 Tanner Lectures at Princeton, with comments/criticisms and a response. So it’s much shorter and less detailed than the previous one, although a very good and enjoyable read nonetheless.

[amazon_image id=”0691160392″ link=”true” target=”_blank” size=”medium” ]Foragers, Farmers, and Fossil Fuels: How Human Values Evolve (The University Center for Human Values Series)[/amazon_image]

Morris comes across here as a sort of [amazon_link id=”1840226994″ target=”_blank” ]Karl Marx[/amazon_link] meets Jared Diamond. In a nutshell, his argument is that humanity has grown better at using the prevailing energy technology to acquire more kilocalories of energy for use, up to a ceiling. At that ceiling, a new energy basis for society evolves, importantly affecting population density and the size of human social groups, and replaces the previous social/technical paradigm. Domestication of grains and animals enabled farming to replace foraging. The extraction of fossil fuels and their harnessing as steam power led to industrial societies in place of agrarian ones.

Each of these three paradigms involves a different kind of social relations: egalitarian in foraging societies because co-operation is necessary for hunting and gathering, and nobody has a lot of property; hierarchical ones in agrarian societies because some people accumulate property to be defended, and a biological division of labour between the sexes emerges too; and industrial ones more egalitarian with respect to politics and gender but tolerant of wealth inequality. There has been little if any biological evolution among humans – and through the millennia the same basic characteristics (or even values) such as the capacity for love, a sense of fairness etc, exist – but there has been cultural evolution. Specifically, values evolve, being shaped by interaction with the physical, social and intellectual environment. Is it acceptable to treat women as chattels or to have slaves? Do animals have the right to humane treatment? Does marital fidelity matter? These kinds of values have changed significantly.

Although it seems highly plausible that the material and technical basis of a society plays an important part in shaping its higher level values, and that population density and the size of social groups will be important, there is something that feels a bit deterministic about Morris’s argument. It may be that at this short length the arguments become caricatures, with less scope for nuance, because the four critiques of the argument aren’t all that convincing either.

The book has lots of facts, always appealing to me. For instance, did you know the Royal Navy’s West Africa Squadron had intercepted and freed 150,000 Africans being shipped across the Atlantic to the US between banning slave trading in 1807 and the outbreak of the US Civil War in 1865?

It ends rather gloomily, pointing out that the big transitions he identfies – from foraging to farming to fossil fuels – occurred when successful societies hit the “hard ceiling of what was possible given their stage of energy capture and found themselves taking part in a natural experiment….. More often than not, people failed to revolutionize their energy capture and suffered Malthusian collapses.”

Perhaps, he muses with unseemly cheer, that’s about to happen to us unless we can solve the climate change issues. So that’s our choice: a catastrophic collapse of civilization, or a new techno-enviro-social paradigm.

Be afraid. Be very afraid.

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[amazon_link id=”0262029189″ target=”_blank” ]Why Are We Waiting: the logic, urgency and promise of tackling climate change[/amazon_link] is Nick Stern’s second book on this subject, the first being [amazon_link id=”1847920373″ target=”_blank” ]A Blueprint for a Safer Planet[/amazon_link]. In the new book he aims to combine fear and hope – fear of the consequences of not taking big steps now, and hope that the need to change is an opportunity for new technologies and growth.

[amazon_image id=”0262029189″ link=”true” target=”_blank” size=”medium” ]Why are We Waiting?: The Logic, Urgency, and Promise of Tackling Climate Change (Lionel Robbins Lectures)[/amazon_image]

The first part of the book, “A Planet Between Peril and Prosperity,” sets out these two elements. Stern is at the gloomy end of the range of views about the likely rise in mean global temperatures and the consequent economic and social risks. Unless the world acts within a decade or two, the window for limiting the temperature rise to a manageable 2 degrees C will be closed, he says, before proceeding to dangle hope with a chapter about the potential for a “new energy-industrial revolution.”

The second part of the book is an interesting challenge to climate change sceptics (of course) but also to some of the economists who are less pessimistic. Stern challenges the application of economic methods that assess the costs and benefits at the margin – inappropriate he rightly argues when you are discussing big changes. He has a chapter discussing the flaws in the conventional ‘integrated assessment models’ used in the literature. Stern argues: “They have assumed strong underlying growth, plus only modest damages from big increases in temperature, plus very limited risk.” If you disagree as he does with all three assumptions, the consensus forecasts look Panglossian. A final chapter in this section assesses the debate about ethical assumptions and how these are captured in the modeling, a debate first triggered by the Stern Review. His critics argue that he makes an extreme assumption about the right discount rate to use to assess future costs and benefits; but he has not changed his view.

The third and final part is about political economy – why the negotiations are so hard, how to get fast-growing developing economies to sign up to urgent action, why is everything so slow? The book argues that this is the result of the analytical errors he sets right in part 2, and psychological barriers to change, and a communication deficit. But surely it’s much simpler? Nobody – person or country – has an individual incentive to bear the short term cost of change, while the costs of climate change are uncertain, 20 years into the future, and a collective problem. It will take an extraordinary politician to solve the global collective action problem in advance, rather than reacting to events. So the book concludes, “Why are we waiting?” I am not sure the market is waiting – there seems to be a lot of energy innovation under way. As for policy, surely we need individual nation state governments to do what they can through carbon taxes, or plastic bag taxes, or policies to ‘green’ power generation – and not wait for an all-encompassing international agreement?

This is not to say Nick Stern is wrong to be so concerned. The outcome he fears clearly has a non-zero probability even if you don’t agree with him. So I’m all for action. Anybody who is interested in the economics and political economy of climate change policy will want to read this book.