Tag Archives: economics

Public goods and private profit

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As I prepare my lecture notes for the coming semester, covering the typology of types of goods and market failures, it has become ever clearer that a lot of new digital goods and services have all the features of public goods and then some. This article in The Awl (courtesy of Azeem Azhar’s The Exponential View) about Uber/Lyft as a privatized public transport system  – for the affluent –  seems to fit into the theme, albeit not as pure an example as a search engine, say. Anyway, it seem to me that the traditional 4-way classification of goods along the rivalry/excludability axes needs to be expanded – it would have a super-rivalrous line for positional goods, and a super-non-rivalrous line for network goods.

The article cites an excellent book, Martin Gilens’ [amazon_link id=”0691162425″ target=”_blank” ]Affluence and Influence: Economic Inequality and Political Power in America[/amazon_link], which is an empirical study of the way political decisions have come to be shaped in the interests of the rich. However, Azeem tweeted me:

azeem
@diane1859 Uber might be the only way America gets anything resembling broad based ‘public transport’, with Uber collecting the tax…
30/08/2015 13:42

Of course there is also government failure, and America has plenty of it. And certainly the private sector can provide some public goods; but of course under-provides them and rarely cares about universality, the characteristic that ties together different people in a single political and cultural community. Universality is too often under-valued, especially by those for whom economic efficiency is everything.

[amazon_image id=”B008AU9LZM” link=”true” target=”_blank” size=”medium” ]Affluence and Influence: Economic Inequality and Political Power in America[/amazon_image]

The Price of Everything, including women

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Although a holiday is obviously a reason to read books that aren’t about economics, I’m also fitting in one or two more work-related ones. (Although, luckily, my connectivity in rural France is poor, so subsequent posts might need to queue until back somewhere near reliable broadband.)

On the fiction front, two terrific books – [amazon_link id=”1846687535″ target=”_blank” ]Black Water Rising[/amazon_link] by Attica Locke, and the third of Elena Ferrante’s Neapolitan [amazon_link id=”160945233X” target=”_blank” ]novels, Those Who Leave and Those Who Stay[/amazon_link]. These novels by Ferrante rank among the greats, just wonderful, on the experience of being working class, female, human.

Back to the daily grind. I read [amazon_link id=”0099537354″ target=”_blank” ]The Price of Everything: The True Cost of Living [/amazon_link]by Eduardo Porter. This has been out for a couple of years so I don’t know why I hadn’t spotted it before. It’s in the vein of Tim Harford’s [amazon_link id=”0349119856″ target=”_blank” ]Undercover Economist,[/amazon_link] using real world examples to explain applied microeconomics. The Price of Everything is a lively read with lots of good examples of how markets work, or don’t work. These included a few I’ve not come across before, like the outrage over Coca Cola’s experiment in Brazil with “dynamic pricing” in its vending machines – charging more for a cold drink when the weather gets hotter. It covers a wide range of topics, illustrating basic concepts like opportunity costs, the unintended consequences of regulation, and also cost benefit analysis, the behavioural economics ‘biases’ and the debate about income and happiness.

[amazon_image id=”0099537354″ link=”true” target=”_blank” size=”medium” ]The Price of Everything: The True Cost of Living[/amazon_image]

The chapter I liked best was the one about women, all too rarely covered by popular books about economics. It has a marvellous quote from my hero David Hume: “This sovereignty of the male is a real usurpation, and destroys that nearness of rank, not to say equality, which nature has established between the sexes.” Also Arthur Lewis, Nobel prize winning development economist at my department in Manchester, and the first black professor in a British university (not that there are all that many even now), writing in 1955: “It is open to men to debate whether economic progress is good for men or not, but for women to debate the desirability of economic growth is to debate whether women should have a chance to cease to be beasts of burden and join the human race.” The chapter also cites Claudia Goldin’s work on u-shaped female labour supply as countries develop, the social dynamics of women entering the workforce after the 1950s, Becker’s economic analysis of the family, work on assortative mating, demographic trends, dowries, the missing girls of Asia and more.

If I had to recommend just one book to a student thinking about or starting on economics I’d probably stick with the [amazon_link id=”1405503572″ target=”_blank” ]The Undercover Economist[/amazon_link], but [amazon_link id=”B00XIV0YCM” target=”_blank” ]The Price of Everything[/amazon_link] is a serious contender for that chapter alone. So kudos to Eduardo Porter, and for an all-round enjoyable book for non-economists.

“The collective pursuit of important aims”

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Alfred Marshall in [amazon_link id=”B00882NQLM” target=”_blank” ]Elements of the Economics of Industry[/amazon_link]: “As a cathedral is something more than the stones of which it is built, as a person is something more than a series of thoughts and feelings, so the life of society is something more than the sum of the lives of its individual members. It is true that the action of the whole is made up of that of its constituent parts; and that in most economic problems the best starting point is to be found in the motives that affect the individual…. but it is also true… that economics has a great and increasing concern in motives connected with the collective ownership of property and the collective pursuit of important aims.”

[amazon_image id=”B00882NQLM” link=”true” target=”_blank” size=”medium” ]The Economics of Industry: By Alfred Marshall and Mary Paley Marshall (Classic Reprint)[/amazon_image]

(Marshall was also absolutely insistent on the importance of economists writing clearly in language other people could understand, the issues being of such importance to everyone.)

(Ain’t) Misbehaving

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Despite having read plenty of the behavioural economics books, of course I had to read [amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving: The Making of Behavioural Economics[/amazon_link] by Richard Thaler, one of the first people to introduce and then popularise (through [amazon_link id=”0300122233″ target=”_blank” ]Nudge[/amazon_link] in particular) the introduction of psychological empiricism into economics. Nor do I regret it. It is a very good read. Although it goes over much familiar territory, it’s very interesting to read Thaler’s account of how a highly resistant discipline became accepting and then positively enthusiastic about behavioural models. Too enthusiastic – but more on that later.

[amazon_image id=”B00SSKM714″ link=”true” target=”_blank” size=”medium” ]Misbehaving: The Making of Behavioural Economics[/amazon_image]

[amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving[/amazon_link] combines a broadly chronological account of Thaler’s career and work with a highly accessible explanation of what behavioural economics is, how it differs from the previously conventional kind, and the evidence from psychology about how people make decisions. The book starts by explaining why economists had adopted an unrealistic model of rational choice, and why it made economics so powerful: “That power derives from the fact that economics has a unified, core theory from which nearly everything follows.” Certainly early resistance to ‘behavioural’ assumptions tended to be that these derived from an ad hoc list of patterns of choice with no theory behind them, never mind that rational choice is ad hoc with respect to the facts. This seems to be hard for some economists still to accept perhaps because – as Thaler recounts – economists make choices far more often in conformity with their own models than do other groups of people. Misbehaving tells of a survey conducted among wine connoisseurs designed to explore how people regard sunk costs and opportunity costs, in which the people who gave the ‘correct’ answer were economists.

The book has lots of examples that will be useful to people teaching behavioural economics, including classroom experiments. I also very much enjoyed all the anecdotes, like the story of a vigorous debate with Richard Posner at a conference on law and economics, or a session on behavioural finance that had smoke coming out of Merton Miller’s ears. Resistance among distinguished economics professors who had built their glittering careers on rational choice models is, of course, entirely rational. Less rational, more human, was the behaviour of a group of University of Chicago economics faculty in selecting their offices in a brand new building.

Behavioural economics is now one of the most popular areas of the subject, and seminars on behavioural papers are packed. Sometimes it seems pretty much everyone I know has a new paper applying behavioural insights to their own sub-field. Perhaps this is just me being contrarian, but the new embrace by economists makes me uneasy. This is not just because of the well-known debate about paternalism (as discussed by Gilles St Paul in [amazon_link id=”0691128170″ target=”_blank” ]The Tyranny of Utility[/amazon_link] or Julian LeGrand and Bill New in [amazon_link id=”0691164371″ target=”_blank” ]Government Paternalism: Nanny State of helpful Friend?[/amazon_link]) It is because the sight of economists delighting in a new tool to engineer society is alarming – it’s the same old reductionism in more fashionable clothes. I happened to read this morning this essay by historian Ian Beacock on Arnold Toynbee. This quotation jumped out: “We’ve begun to treat vexing social and political dilemmas as simple design flaws, mistakes to be rectified through a technocratic combination of data science and gadgetry.”

I’m 100% in favour of empiricism. Why would you not do ‘what works’? But the behavioural rules of thumb are in danger of being seen as a new policy gadget.

[amazon_image id=”0691128170″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism[/amazon_image]   [amazon_image id=”0691164371″ link=”true” target=”_blank” size=”medium” ]Government Paternalism: Nanny State or Helpful Friend?[/amazon_image]

Economics and humankind

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Sitting in my colleague Terry Peach‘s office, I picked up Alfred Marshall’s [amazon_link id=”B009AJCWT4″ target=”_blank” ]Economics of Industry[/amazon_link]. I knew the phrase ‘the ordinary business of life’ of course, not least because Roger Backhouse used it as the title of [amazon_link id=”0691116296″ target=”_blank” ]his book on the history of economic thought[/amazon_link]. What I’d never realised was just how good the whole intro of Marshall’s book is:

“Political economy, or economics, is a study of man’s actions in the ordinary business of life; it inquires how he gets his income and how he uses it. It follows the actions of individuals and of nations as they seek, by separate or collective endeavour, to increase the material means of their well-being and to turn their resources to the best account. Thus it is on the one side a study of wealth, and on the other and more important side, a part of the study of man.”

In fact, it was hard to put it down once I’d started. It turns out to be a cracking read. I like the sentiment (making due allowance for the archaic use of ‘man’) and the way it’s expressed. I certainly see economics as part of the study of humankind, sitting alongside other human sciences – not only the social sciences but psychology and relevant parts of biology too.

[amazon_image id=”B009PCAIL0″ link=”true” target=”_blank” size=”medium” ]The Economics of Industry, by Alfred Marshall and Mary Paley Marshall[/amazon_image]   [amazon_image id=”0691116296″ link=”true” target=”_blank” size=”medium” ]The Ordinary Business of Life: A History of Economics from the Ancient World to the Twenty-First Century[/amazon_image]