Monthly Archives: September 2015

Services and the singularity

Posted on by

I just finished an intriguing but eccentric book I’d become aware of in some way following through the thickets of reference in recently-read papers. It’s J.O.Jansson’s 2006 [amazon_link id=”1782540849″ target=”_blank” ]The Economics of Services[/amazon_link]. Intriguing because there are some interesting insights. Eccentric because he proposes a completely new way of defining services in our mental construction of the economy. I’d love to know what others have made of this book.

[amazon_image id=”0857932179″ link=”true” target=”_blank” size=”medium” ]The Economics of Services: Microfoundations, Development and Policy[/amazon_image]

The redefinition is to step away from the idea that it is intangibility that’s the defining characteristic of services. He argues that storability and ownership mark the boundary. Intangible digital ‘services’ should be classed as goods because they can be stored in a range of formats. Wholesale and retail distribution should also be classed as the final stage of goods production because ownership of the goods remains with the distributor. Business-to-business services are purely intermediate goods. Services proper are consumer services, non-storable intangible goods with localised markets (although some are sufficiently high value that the geographic dimension is irrelevant). On this basis, Jansson-services account for about 50% (not 70-80%) of the developed economies, and have been at about this level for a century.

So I’m mulling this over. It is surely right to distinguish between different economic characteristics of different services/intangibles. The geographic dimension and its relationship to ‘unit’ value of the service is a welcome addition to the analysis. I also like the introduction of time use, and the time spent consuming a service as part of its cost.

Jansson also highlights, drawing on the fascinating work of [amazon_link id=”019926189X” target=”_blank” ]Jonathan Gershuny[/amazon_link], the margin between personal services affected by the Baumol cost-disease and home production. He argues that as services such as health and education take an ever-greater proportion of income, there will be a switch into consumer capital investment enabling home production – I suppose in a parallel with electronic home music devices and orchestral performances, we might in aggregate spend less on education if Khan Academy or MOOCs offer an alternative.

Coincidentally, this is the 2nd thing I’ve read recently drawing on Baumol – the other was William Nordhaus’s terrific paper Are We Approaching An Economic Singularity? Surely Will Baumol ought to have had a Nobel Prize?

The social context of economic (dis)order

Posted on by

In between ‘work’ books, I polished of this weekend [amazon_link id=”0907871720″ target=”_blank” ]Naples ’44: An Intelligence Officer in the Italian Labyrinth[/amazon_link] by Norman Lewis. His travel books span the decades from the 50s to 2003, when he died at the age of 95. The biographical note in this reprint of a 1978 book says he was proudest of his work campaigning for the rights of indigenous people in Latin America. All round, he obviously had an astonishingly rich and varied life. I highly recommend this book.

[amazon_image id=”0907871720″ link=”true” target=”_blank” size=”medium” ]Naples ’44: An Intelligence Officer in the Italian Labyrinth[/amazon_image]

This account of Naples in the immediate aftermath of the Allied landings is an extraordinary evocation of a starving, chaotic lawless city, in which Lewis’s job as a member of the Field Security Service was to create some order. Needless to say, this was impossible. The black market demonstrated its usual vigour and more, given that the Allied Military Government was led by the US, who had selected Italian-Americans – naturally – to run the show in Italy. These men were – naturally – Mafia or Camorra. They and their nominees filled any vacuum left by the collapse of civil society and the departure of the Germans.

This ordered-disorder is quite a contrast to the spontaneous order of the prisoner of war camp economy described by R.A.Radford in his 1945 article. The social relations and cultural norms make all the difference to how economies operate even in two similarly resource-poor contexts.

Not the sharks’ fault

Posted on by

Joris Luyendijk is speaking at the Festival of Economics in Bristol in November so naturally I had to read his book [amazon_link id=”1783350644″ target=”_blank” ]Swimming with Sharks: my journey into the world of the bankers[/amazon_link] and have torn through it. It’s a fantastic book, and is up there with Whoops! by John Lanchester as a guide to the financial crisis. There is lots of close observation, not unsympathetic. For example, spotting that it’s the Continental European bankers who wear blue suits and brown shoes – so true. What’s that about? His many interviews also provide revealing vignettes, like the group of middle-ranking bankers singing ‘Another One Bites the Dust’ in authumn 2008 when news of another bank failure broke.

[amazon_image id=”1783350644″ link=”true” target=”_blank” size=”medium” ]Swimming With Sharks: My Journey into the World of the Bankers[/amazon_image]

It’s also a terrifying book. In the opening pages Luyendijk reminds us how close the economy and consequently society came to collapse in October 2008. In the UK we were a few hours away from cash machines, supermarket and petrol station tills not working, logistic chains breaking down. The Bank of England Court minutes recently published confirmed demand for cash had shot up and new banknotes had to be printed. I certainly got out a lot of cash. By the end of [amazon_link id=”B010KNF704″ target=”_blank” ]Sharks[/amazon_link], you realise that the whole thing can happen again, and probably will. Nothing has changed.

This is not because bankers are immoral and greedy, although many, he says, are amoral. It is a whole system problem: the gripping image is a plane, on which we’re all sitting having a meal and a drink, slowly realising that the cockpit is empty. Interestingly, he pinpoints a specific London problem of people staying with high-paying City jobs because they have a huge mortgage and high school fees.

Like Luyendijk, I’ve often wondered why there has been so little political imperative to change the system – it is a matter of politics. And some of the key measures are not at all difficult to get your head round: smaller banks, and much, much more equity capital and less leverage. Simples. It’s a good time for new books about finance, with John Kay’s [amazon_link id=”B00UJD8AS2″ target=”_blank” ]Other People’s Money [/amazon_link]and Adair Turner’s [amazon_link id=”0691169640″ target=”_blank” ]Between Debt and the Devil[/amazon_link]. Let’s hope that a new crop of books making exactly the same recommendations will help change the political climate. That means lots of people need to read them – and of course come the the Festival of Economics.

Which way to the future?

Posted on by

I’ve enjoyed reading Bernard Carlson’s [amazon_link id=”0691165610″ target=”_blank” ]Tesla: Inventor of the Electrical Age[/amazon_link] (although, as I confessed, skipping over the physics). How exhilarating to read about the exceitement as thousands of people crammed into lecture halls to hear Tesla speak about his discoveries. “The demand for seats was so great that tickets were being scalped outside the hall for three to five dollars,” Carlson writes of an 1893 lecture in St Louis (that’s $80-130 in today’s dollars).

[amazon_image id=”0691165610″ link=”true” target=”_blank” size=”medium” ]Tesla: Inventor of the Electrical Age[/amazon_image]

The book is particularly interesting on the lack of form and direction in the early stages of commercial development of a new technology. Standards had not been agreed. Different technical approaches seemed equally viable. Companies were forming – and going into receivership – and the investment risk was substantial. Rich investors (hello J.P.Morgan) were trying to corner new markets. Patent litigation was common.Tough choices had to be made between promoting ideas and licensing the patents versus holding patents and going into manufacturing.

In this confusion, sober analysis was insufficient to make technical and financial choices. What Carlson calls ‘illusion’, the building of sufficient belief in a single path to the future, was critical: “We need to understand and appreciate how inventors and entrepreneurs forge relationships that foster a balance between imagination and analysis.” The inventor has to inspire his (or her) backer, the businessman has to keep the creative genius grounded (no pun intended). One could see it as creating the focal point in a game with many possible outcomes, and hence sometimes the phenomenon of [amazon_link id=”0141031638″ target=”_blank” ]lock-in[/amazon_link] to what might be not the best technical outcome.

So, a fascinating read on the early development of an important new technology, as well as an extraordinary character. As the book observes, there was always a kind of minority interest in Tesla, a real maverick; but he deserves this fine biography.

Statistics in a disordered world

Posted on by

I’m writing about GDP in particular and economic statistics in general again – can’t keep off the subject (& by the way, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link] is out now in paperback!) Today I picked up Adam Tooze’s marvellous 2001 book [amazon_link id=”0521039126″ target=”_blank” ]Statistics and the German State 1900-1945[/amazon_link]: “This book … has sought to portray the construction of a modern system of economic statistics as a complex and contested process of social engineering … A functioning statistical system … implied a particular model of political order and in particular a vision of the relationship between state and civil society.”

The national accounts framework in place today is a modernist project. Like so many of these, it is being unravelled in unpredictable ways by technology, globalisation, and the changing character of the state. My writing task today is responding to the call for evidence on the current Review of Economic Statistics. It’s a tall order to say something succinct about getting from the categorisation of the world coded into current statistics to something closer to (disordered) realities, especially when there is an important element of performativity in statistical categories.

[amazon_image id=”0521039126″ link=”true” target=”_blank” size=”medium” ]Statistics and the German State, 1900-1945: The Making of Modern Economic Knowledge (Cambridge Studies in Modern Economic History)[/amazon_image]   [amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]