Tag Archives: review

Pricing the priceless

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Paula DiPerna’s Pricing the Priceless is an excellent general introduction to the questions of measuring the value of nature, and the use of economic instruments to improve the sustainability of economic activity. The author has been involved in environmental campaigning ‘at the forefront of finance and climate policy’, as the blurb puts it.This included a pioneering privately-created carbon market in the US. Her aim is to persuade those concerned about the environment – and I take this as her target audience – that better outcomes will result from pricing nature, even accepting its intrinsic value.

The first chapter covers the flaws in the use of GDP as the metric of economic success – familiar territory. It’s somewhat unfairly dismissive of the efforts that have gone into the Sytem of Environmental Economic Accounting, that will bear fruit in the 2025 revision of the way GDP statistics are defined and measured. But as the chapter points out, the efforts to measure digital intangibles have helped parallel efforts to measure nature and ecosystem services.

Subsequent chapters take specific contexts and types of instrument – carbon markets, water markets, rhino bonds, carbon offsets and so on. They make for interesting reading. The chapter on China’s interest in carbon markets was particularly interesting. I hadn’t realised that it measures carbon intensity (per unit of eocnomic output) rather than the aboslute amount of CO2-equivalent.

For people who are already persuaded of the need for tools such as markets and payments for ecosystem services to improve the chances of a sustainable path to prosperity, the attraction of the book is in the vivid detail. The author has quite a florid writing style, but has a lot of insights and interesting detail, and it’s quite fun to read about her audience with the Pope (who was converted to the carbon markets idea). For the unpersuaded, the ecologists and environmentalists who find this approach repugnant (in the sense of Roth’s repugnant markets as well as the normal sense), I don’t know if the book will change their minds. I hope so.

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Politics and economics

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There’s a sentence I underlined twice in Ben Ansell’s Why Politics Fails: “Politics makes growth.” This is my main takeaway from editing a series of policy essays from my colleagues in the Productivity Institute, which will be out at the end of November for National Productivity Week. If you ask people what are the two main causes of the UK’s dismal productivity in recent times they will pick what’s close to their own interests – various skills policies (the madness of the student loan system, the dreadful FE system, the madness of tearing up painstakingly-agreed T-levels for a new system…), R&D policies and the lack of institutions to enable the commercialisation of innovations, low investment levels because of a gazillion tax changes and low saving. But every essay circles back to politics: the politics of ‘announceables’, of over-centralisation, of silos, and so on.

Anyway, Why Politics Fails is an excellent introduction that does what it says in the title: it analyses political failures through the lens of five traps or, more accurately, trade-offs. The first chapter is about the tension in democracy between honouring majority preferences and protecting minorities. The equality trap is the trade-off between equal rights and equal outcomes. The third chapter is about solidarity, manifested only in situations of individual need. The security trap is the  balance between (too much) anarchy and (too much) order. And the prosperity trap concerns the short-run economic (and electoral) gains looking more attractive than long-run decision-making that will enable prosperity over time.

The book has lots of examples, contemporary and historical. It would make an excellent additional read for students, as well as being accessible to the general readership (and Reith Lectures audience). I liked its emphasis on the delicate role played by a country’s institutions – for example, the book suggests an argument against UBI is its institutional fragility, compared to making improvements in existing, well-established welfare states. And the prosperity chapter rightly points to the importance of institutions as bulwarks against short-termism. It occupied me for a trans-atlantic flight & I enjoyed reading it.

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A woman economist in charge

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It has been a bit of a week, trying to get my dear husband the right medical care after he fell and smashed his elbow in the rain and darkness just over a week ago. Although he’s, thankfully, patched up with mesh, sellotape etc now, my concentration hasn’t been terrific. So mainly I’ve been reading detective novels. However, I did notice that Rachel Reeves’s book, The Women Who Made Modern Economics, has been published. I read a proof copy a little while ago, and would recommend it.

There are really two books combined here. One is a straightforward account of the work of important and often overlooked women economists, such as Beatrice Webb and Mary Paley Marshall via academics like Joan Robinson and Esther Duflo, all the way through to influential policy economists Christine Lagarde and Janet Yellen. As well as being mini-histories, these sections aim to show why and how being female influenced for the better the economics, by bringing to bear a different kind of experience or understanding of the context in which policies operate. They are nicely written, and I wholeheartedly agree on the importance of diverse experience to improve economic analysis, but the biographical details are not novel.

The second element is more interesting in the present political context, namely the picture the book paints of Reeves’s own framework for thinking about economic policy, which she grounds in her own life experience and in the ideas of the economists she writes about. Given that this highly impressive politician looks increasingly likely to be the UK’s next Chancellor, this is of real interest. I think the book paints a pretty coherent picture of a strategic approach to the supply side of the economy, combined with a clear-eyed view about the importance of macroeconomic stability, and the strong sense of social justice you would hope for from a senior Labour figure. Reeves rejects simplistic ‘free marketism’ while being obviously in favour of businesses succeeding. She emphasises the importance of taking into account unpaid care, still typically women’s work. She attacks the continuing gender pay gap and Britain’s retreat from overseas aid.

Reeves is of course an economist by training and by work experience (Bank of England and the banking sector). There are specifics I might disagree with her about – but her economic philosophy as set out here is consistent and credible. Of course, all the good sense on display in her analysis will be needed, given the legacy being left by the present government for its successor.

Folks, we might be in line for a Chancellor with a sound grasp of economics beyond the textbook (or the blackboard, to use Coase’s term) and an interesting hinterland. The two strands of The Women Who Made Modern Economics don’t, in my view, sit together comfortably; the ‘lessons’ drawn from the historical figures for some aspect of modern policy, to link the strands together, are a bit strained. But the sense and coherence of Reeves’s personal manifesto for the economy makes it well worth a read.

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The Paper Age

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October already!

I just finished reading Dinner With Joseph Johnson: Books & Friendship in a Revolutionary Age by Daisy Hay, thanks to a couple of train journeys and a quiet evening alone at home. I enjoyed it a lot. It’s one of the mini-genre of books (like The Lunar Men) that paints a picture of an era’s ideas through a description of the people who gathered to talk and wirte and indeed paint about them. In this case it’s Britain of the 1770s to 1790s, and the centre – although an enigmatic character himself compared to some of his famous authors and illustrators – was Unitarian publisher Joseph Johnson. The central event giving the book its narrative arc is the French Revolution, and the subsequent crackdown on freedom of speech and worship by the British Government.

Anyway, the relevance here is this passage about a magazine started by Johnson, the Analytical Review (great title). One reviewer is quoted: “This is a PAPER AGE.” the book continues, “Paper had become the engine of Britain’s emergent capitalist economy, as banknotes, share certificates, contracts and promissory notes circulated out from London into the provinces and across the globe.” The magazine estimated that nine tenths of Britain’s trade relied on the medium of paper.

I suppose ours is an ELECTRON age. Although electrons, as Ed Conway makes so plain in the excellent Material World, depend entirely on a material substrate.

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What stops good innovation happening?

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On the train this week I read a slim NBER volume, Entrepreneurship, Innovation Policy and the Economy edited by Benjamin Jones and Josh Lerner. There are some interesting papers covering pharmaceuticals innovation, green innovation and distributional issues – specifically, race and place.

The first paper makes a strong case for government support for new vaccine development as the combination of a low probability of any single vaccine being needed and the cost of clinical trials make it impossible for a commercial case to stack up. (It does not tackle the question of why and whether trials need to be so long and costly.) Therefore something like advance purchase commitments are needed. The second paper sets out a trilemma between low price, sufficient quantity and adequate quality including safety for off-patent drugs. Written by US lawyers, it implies the real problem is the unwillingness of the authorities to let generic producers charge enough for their products; absent too low a price cap, quantity and quality can both be assured.

On green tech, one paper looks at the role of venture capitalists in financing science-based rather than incremental innovations as (as Will Baumol also described in The Free Market Innovation Machine) big companies do small innovations and small companies do big innovations, for the most part. The second paper argues for continuing to invest in ‘dirty’ companies to exercise ‘voice’ – Hirschman’s insight pops up everywhere these days.

The final papers find, respectively, that there is a clear racial gradient in access to capital for innovation; and that the benefits of spatial agglomeration outweigh the costs of congestion and by a large margin on average, but by a zero margin in the most R&D concentrated cities such as San Francisco/Silicon Valley.

All very nice papers, of interest to people studying innovation. Almost entirely US-focused however.

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