Monthly Archives: April 2018

Randomistas through the ages

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A jolly history of the experimental in economics and social science, Randomistas: How radical researchers are changing our world by Andrew Leigh, is a good general introduction to the RCT method for readers unfamiliar with it. The book starts with a 1747 experiment to find a cure for scurvy, an affliction causing mass death and illness among sailors. Medicine was of course a pioneering arena for the experimental method as applied to ourselves. Subsequent chapters roam through psychology and education to more recent applications in ‘nudge’ policies, A/B testing by digital companies, and of course the famous ‘randomistas’ (so named by Angus Deaton) working in development economics.

The book is a jolly description of experimental discoveries in these domains ever since the scurvy experiment of ship’s surgeon James Lind. It notes that the randomista methods have their critics but doesn’t linger on the methodological debate. The author (an Australian MP and former economics professor), though well-informed and citing the extensive literature, is clearly an ardent enthusiast.

The final chapter, ‘Building A Better Feedback Loop’, indeed makes a strong case that it would make for better outcomes if policymakers and politicians were able to change course on the basis of evidence. One of the practical advantages of RCTs is perhaps that they leave open the decision – they can be described as pilot schemes in the policy context. There is far too little evaluation in policymaking – it can be too embarrassing, the decisions are water under the bridge –  so setting up an evaluation in advance by design, as it were, is attractive.

Experimental approaches are surely welcome as one more addition to the toolbox of policy evaluation, more useful in some contexts than others, vulnerable (like all empirical methods) to not being well carried out or interpreted. They can easily become a means of manipulating people – as in the behavioural testing done by online marketers – so should always be deployed with caution in the world of policy and politics. After all, people are wising up to the testing methods used by Facebook, Amazon, etc and not necessarily liking them. So I would be less of a randomista enthusiast than Andrew Leigh; other methods of evaluation are available.

Still, this is a very lively, well written book with lots of examples (some familiar like the Perry Preschool trial, others not). Experimental approaches are being more widely used, not least because of the spread of ‘nudge’ units (as pioneered by the UK’s Behavioural lnsights Team)  around the world.

And its basic point is essential: the scientific method should apply to the study of human society just as much as to the natural world. The more tools available, the better.

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Basic income, debated

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I’ve been dipping into a collection of essays on universal basic income, It’s Basic Income: The Global Debate, edited by Amy Downes and Stewart Lansley. There are nearly 40 short essays, mainly in favour but with a handful of opposing voices. The final section includes descriptions of pilot projects from North America to East Africa.

I’m a sceptic about universal basic income, an idea which revives every time there is a wave of concern about the prospect of technological mass unemployment – as in the 1960s and early 1990s. The opening essay is by robot apocalyst Martin Ford (The Rise of the Robots), making exactly this case. It seems to me an easy opt out for high tech types to absolve themselves of any responsibility for the consequences of their innovations by calling for a universal basic income, paid for by everybody else, a policy unlikely ever to be implemented.

However, others in the ‘pro’ camp deploy a wide range of arguments. There are contributors such as Anthony Painter, Ruth Lister and Caroline Lucas who have serious credibility as advocates for progressive policies.

The ‘anti’ arguments range from the cost to the likelihood that focus on universal basic income will divert energy and attention from higher priorities (universal services) and more feasible policies. My objections are that any feasible level of basic income will not help people improve their lot in life, in contrast to a high quality universal basic infrastructure (public transport, broadband, and health/education). Being handed an individual income is not going to solve collective challenges.

Still, pilot schemes are welcome; there isn’t much evidence about the effects discussed in the debate. I’m reasonably confident universal basic income at national scale will never happen, but if this discussion leads to a simpler and fairer benefit system with lower adverse work incentives, described as ‘incremental’ basic income, that would be great. And this book is a nice survey of the many arguments brought to bear on both sides of this debate.

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Digital government – not a contradiction in terms

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It’s always exciting when a new ‘Perspective’ arrives at Enlightenment Towers, and the latest arrival is Digital transformation at scale by the Public Digital team. As many will know, they were the pioneers of the UK’s Government Digital Service, and the book draws on their experiences of achieving some significant changes in government practice, and citizens’ experience of contact with government.

It is not just about digital transformation in the public sector, however.The lessons apply to any established, large, complicated organisations whose processes have accreted in overlapping or inconsistent ways over time. There are plenty of those in the private sector. Maybe the executives at TSB should have read the book before embarking on their disastrous IT project.

The advance praise couldn’t be more stellar – Martha Lane Fox and Tim O’Reilly call it “essential reading” and “THE invaluable guide to bringing legacy institutions into the 21st century” respectively. There’s early coverage here and an excerpt here.

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Marketcraft

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Marketcraft: How Governments Make Markets Work by Steven Vogel is a nice overview of the inextricable links between ‘state’ and ‘market’. It would be great to put to rest the concept (still reflected in verbal usage) of government and market as opposites, and the book offers the concept of ‘marketcraft’ as a device to make the point. Markets always require a framework of government action to function at all.

It isn’t as if economists believe there is such as thing as the abstract ‘free’ market – ‘free’ from government ‘interference’. As Vogel very fairly notes (while regretting the use of a competitive equilibrium as a benchmark in any way at all), not only behavioural economics but also institutional economics, market design – and he could have added industrial organisation/competition economics, labour economics, health economics and all the other applied fields – have the market as an embedded institution at their core. Competition economists like me, for instance, know that it takes sustained attention from the institutions of the state to keep a market competitive.

The book – a short one drawing on previous work – compares and contrasts the liberal makrket economy of the US with the co-ordinated market economy of Japan; although Vogel is critical of the ‘varieties of capitalism‘ approach, arguing that it overstates the differences. Liberal market economies are only differently co-ordinated, he believes. There is a tension in the argument, for Vogel argues that the US should become more like Japan while also arguing that Japan’s attempt to become more like the US has failed because it did not take account of the social norms, conventions and culture in which the economy was embedded. (To be fair, he acknowledges wholesal change in the Japanese direction would not be possible.)

Somewhat ironically, Vogel reflects on the same tension in Karl Polanyi’s The Great Transformation, noting that it both asserts that ‘the market’ becomes a separate sphere from society, commodifying a growing territory of life, and that the self-regulating free market is a myth because markets are always socially embedded.

Although the argument the book makes isn’t dramatically new, and I for one need no persuasion about having to think of markets as institutions which can be shaped and designed for better or worse, there are some nice insights. I liked the section on the language we use to perpetuate the ‘free market’ chimera: governments make ‘interventions’ rather than just ‘acting’; we speak of ‘redistribution’ rather than ‘distribution’. It was also a welcome surprise that the book doesn’t set out the usual straw man version of economics. The term ‘marketcraft’ (as an analogue to statecraft) is also very nice. Governments are always ‘intervening’ in markets even if unintentionally. For sure government failure is a real thing, yet there’s no way we can live collectively without collective actions. We call that government.

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Property is theft (and allocatively inefficient too)

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We launched the Bennett Institute for Public Policy in Cambridge this week so it’s been a bit hectic. I still managed to read Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner and Glen Weyl. It’s extremely thought provoking and clearly brilliant – yet also barking mad. This is the territory of thought-experiment rather than policy proposal.

The basic idea is Proudhon (‘All property is theft!’). Any private ownership of property contains within it the seeds of market power. Worse, “Private ownership of any asset, except homogenous commodities, may hamper allocative efficiency.” A more efficient and more egalitarian arrangement is for all property to be in effect rented from the state, by current ‘owners’ stating what they think every item is worth, and paying a tax on that amount. At any time, somebody who values it more can bid it away from them; there are continuous auction markets. For homes, there might be a notice period so people can order their affairs. There might be exemptions for small items of sentimental value such as Grandma’s fountain pen. The revenues raised from the tax would be returned as a basic income to all citizens.

The authors want to Radicalise voting as well as ownership. In place of the one person one vote tyranny of the majority, they apply the auction principle to politics as well as markets. Everybody gets an allowance of ‘voice’ which they can allocate according to their political preferences and strength of feeling about the issues. There is a quadratic tapering so I’d need four voice tokens to vote twice and so on. They like the idea so much they’ve applied it to opinion polling to elicit more accurate views – and, they write, “We have patented the use of QV and related methods to solicit opinions digitially.”

After two introductory chapters, the book applies the broad concepts to some specific areas, including the high profile paper proposing ‘data as labour’: in other words, that we should be paid by digital data harvesters for providing our time and knowledge. Each of the chapters starts with a vignette of what the Radical Market future might look like. They’re all rather dystopian, and especially the one in the data as labour chapter. Every interaction between human and digital assistant is monetised. I’m an economist – I like markets – but don’t want every minute or keystroke to have a dollar sign attached. If a click on a Like button is worth 20 cents, would I start wondering whether it was worth telling my neighbour about the great new coffee shop, because she’s not going to pay me for it? Of course the current situation is unsatisfying, but I’m still unpersuaded by this potential solution.

The most interesting chapter is the one about the concentration of share ownership (in the US) in the hands of a small number of large institutional investors. The book argues persuasively that this diminishes competition. Antitrust concentrates on the corporations, but institutional investors dilute its effectiveness, “by knitting together the interests of the biggest firms that dominate any particular market.” Here there is a policy proposal worth thinking about: restricting institutional investors to holding a maximum of a 1% stake in companies in the same market; or as much of they want of one firm but then none of its competitors shares. Very interesting idea. Don’t see what it has to do with the Radical Markets conceit.

The book ends by reflecting on markets versus central planning, alluding to the socialist calculation debate. Markets “allocate resources in ways no present computer could match.” Prices are a uniquely efficient summary of information, but markets can be improved – by having them operate continuously. “The market is the appropriate computer to achieve the greatest good for the greatest number,” but its bugs need fixing so there are fairer outcomes. Even better, common ownership makes the market outcome more efficient too.

This does glide over the fact that – should the nirvana of constant online auctions be attained – the state is there in some sense as the owner of all property and redistributor of large tax revenues raised as a sort of rent from everyone for having temporary use of, well, everything. Nor does it touch on assets owned by foreigners, or owned overseas. In fact, the book doesn’t really discuss practicalities at all because it isn’t a real set of proposals.Thomas Piketty‘s global wealth tax has more chance of becoming a reality than the permanent revolution of ubiquitous Vickrey auctions.

However, Radical Markets certainly made me think, about property, information, power. Well worth reading.

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