Monthly Archives: May 2018

Cyborgery

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With two Eurostar trips in one day on Monday ( to take part in the AFSE Conference in Paris) I raced through Mark O’Connell’s To Be A Machine. It’s an account of the Silicon Valley-centric transhumanist movement – Ray Kurzweil’s Singularity, Peter Thiel and Google funding research into immortality, uploading brains out of the feeble human body to alternative ‘substrates’, and so on. It’s a superbly-written book, respectful of its subjects while clearly disagreeing wholly with them – and successfully making the case that this is a religious rather than a scientific movement. The book manages to be both full of insight and very funny. I was aware of this movement – thanks to my ISC colleague Richard Jones’s book ‘Against Transhumanism’ (the clue is in the title) – but had no real idea of its reach among brilliant and influential people one would have never have imagined to be so – well, bonkers is the only word that comes to mind. Bonkers and yet in some cases powerful and very much worth taking seriously for the questions their belief-set raises.

Well worth a read.

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Private and public value

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Mariana Mazzucato’s The Value of Everything: Making and Taking in the Global Economy was my Bank Holiday weekend reading. I’m entirely sympathetic to her underlying argument that a well-functioning and growing economy requires both state and market institutions to be effective; and that the opposition between the meddling state and the ‘free’ market is a bogus dichotomy. While some on the political right still see state and market as inevitably in opposition, the tide of opinion has surely decisively turned against this high-1980s trope? After all, in the UK the Conservatives too see the need for an industrial strategy, with a clear role for the government in investing and co-ordinating.

The book has four stages. The first is a summary of the history of economic thought concerning the creation of value in the economy, from mercantilism through the physiocrats to the classical economists (Smith and Marx) and then the marginalist revolution and neoclassical economics. The importance of the final step, Robbins and positivism, gets a mention but is underplayed perhaps. This section sets the scene for arguing that there is nothing inevitable about our current framing of what creates economic value.

The second stage is a summary of the history of the development of GDP as the measure of economic progress, including the treatment of finance in the national accounts. This is all well-known to me for obvious reasons, but I think also to others, given there have been a dozen or so books about economic measurement/GDP in the past few years (including mine, and most recently David Pilling with The Growth Delusion (2018)). Mazzucato makes great play of the way the definition of the financial sector has become ever more expansive to make finance look increasingly important to the economy; the authoritative work on this, including the now-notorious ‘FISIM’ definition, is Banking Across Boundaries (2013) by Brett Christophers. Mazzucato then segues into a section on the financialisation of the economy, including the pernicious effects of the ‘shareholder value’ doctrine and stock option schemes for executives.

Finally, she reprises her arguments in The Entrepreneurial State about the role of the state in innovation, the need for taxpayers to get a bigger share in the returns, and a wider riff about the growth of monopoly rents due to excessive intellectual property protection (Exhibit A is the pharmaceutical industry) and market power (the digital giants). In these contexts, she argues, more state intervention would make markets work better. In an echo of the wider debate about economic institutions, she argues that the Anglo-Saxon structures have become extractive or exploitative, rather than value-creating. I was briefly excited by her use of the term ‘public value’, with the BBC as an example; but she does not reference the political science literature on public value or that the BBC actually implemented formal public value processes. The book instead links the term to Elinor Ostrom’s work on collective decisions (wonderful as it is).

I have a few quibbles. For example, Mazzucato several times refers to GDP as a measure of legal marketed activities; the formal definition now includes illegal marketed activities. It would have reinforced her argument had she pointed out the absurdity of GDP including prostitution while excluding childcare in the home. I found aspects of her description of the production boundary confusing (and it features prominently through the book as an expository device), no doubt because my mind is shaped by the current formal definition in the SNA. This is GDP-nerd territory.

Overall, The Value of Everything is a powerful contribution to the public debate about the kind of economy and society we want. The argument that the political/financial system has become exploitative  will strike a chord with many readers. Mazzucato does not give practical policy advice here. But I’m sure this book by such an influential economist will have a big impact in contributing to the shaping of a different, and more productive, climate of opinion about government and markets.

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AIs, humans and chess

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Garry Kasparov’s Deep Thinking is a compelling read. Timed for the 20th anniversary (last year) of his famous defeat by the chess computer Deep Blue, it’s a combination of the tale of his engagements with computers through the course of his chess career (including his view about IBM’s bad behaviour in the famous contest) with reflections on computers and human intelligence. Chess is of course a great lens for these reflections, being in many ways emblematic of intellectual skills.

Kasparov convincingly portrays himself as an optimist about technology, including AI. He sees it as an other tool used by humans, albeit one we haven’t yet figured out to use. He points out also that when some application becomes very familiar, we stop calling it AI and start calling it, oh, Siri. After all, we don’t call our fancy new washing machine a robot, but it is. Anyway, although not a chess afficionado, I enjoyed reading the book and agree with its call for some deep thinking about how to use these amazing, human-invented, new technologies.

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Power and legitimacy

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Paul Tucker’s book Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State is a significant contribution to the literature about the trade-off between participatory democratic influence over policy decisions and the technical complexity of much policy and regulatory activity. The focus is on central banking, not surprisingly given the author’s long experience at the Bank of England. However, the book also dips into competition policy. This is my territory, having spent 8 years on the Competition Commission. I’m not entirely convinced by the argument here.

Tucker’s conclusion is that when politicians delegate policy decisions to independent, technocratic bodies, they need to do so in accordance with some key ‘principles of delegation’. To date, they have not done so, and hence the crisis of legitimacy, at least as far as it applies to economic institutions. There are five design principles: there should be a clear statement of the body’s purposes, objectives and powers, to stop mission creep; its operating procedures should be set out; so should its operating principles – how will it go about conducting its delegated policies; there should be sufficient transparency that the institution can be monitored and held to accunt by elected politicians; and there should be some rules for how it can respond to emergencies.

These seem on the face of it perfectly reasonable. But pause on the third – central banks and independent competition authorities should have the way they implement policy set out for them. Thus, Tucker argues, a competition authority’s remit might be set in broad terms as ensuring markets are competitive, or ensuring there is no abuse of dominance; but it should not be left to the competition authorities themselves to turn this into operational rules. He notes that there have been significant changes in competition policy in the US and EU over time, shifting from the older institutionalist tradition to a focus on consumer welfare. As the book notes, this reflected developments in economic theory, adding: “The significance of these momentous changes is not whether they were grounded in good economics but that each occurred without any amendments to the governing legislation.” Thus, “This gives us a glimpse of why the public might not be clear about the pupose and objectives of antitrust regimes.”

Like a number of commentators on competition policy recently, Tucker believes – wrongly  – that the ‘Chicago School’ approach of using a consumer welfare criteria means competition authorities can only look at prices. On the contrary, although that has been the practice (because measuring prices is easier), they can take into account other aspects of economic welfare such as quality or range, or incentives to invest and innovate – this is set out in the CMA’s guidance documents, for instance. In the world of zero priced digital goods, that is exactly what they should do.

But that’s by the by. My hesitation about this principle is that the alternative – having operating rules set by elected politicians – would in reality defeat the purpose of giving economic regulators their independence. For what would stop legislators deciding that the economy is best served by preserving jobs at incumbent firms because they have the biggest economies of scale? This would be the pre-independence world of ministers deciding all mergers on public interest grounds. The time inconsistency problem common to so many regulatory contexts would return with a vengeance if legislatures can change the operating rules whenever they choose. Better to have these rules set by the technical experts, after wide public consultation. Sure, ideologies and tides in the realm of ideas would influence them, but less, it seems to me, than in the counterfactual world. Anyway, are elected politicians so respected now that they would reinject legitimacy back into economic governance? Opinion polling suggests they are among the groups the public trusts least.

Unelected Power engages an essential debate, however. There is a crisis of legitimacy in the western democracies. With QE, central banks have launched a radical change of policy with huge distributional consequences. The book has four sections: welfare, values, incentives and power are their headings. Although it touches on all the economic regulators, it is mainly about central banking, and on this is it authoritative. It will be an essential read for everybody involved in monetary policy, or researching it. It has a long bibliography; Tucker refers to legal and political science literatures as well as economics. One flaw is that it is heavy going in parts, surprsingly because he is a compelling speaker. Nevertheless, this is an important book.

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